DEFM14A 1 d443460ddefm14a.htm DEFM14A DEFM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Filed by the Registrant  ☒                            Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

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

CONNECTURE, 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, $0.001 par value per share

  (2)  

Aggregate number of securities to which transaction applies:

 

15,543,066 shares of common stock and 279,992 shares of common stock subject to vested restricted stock units outstanding under Connecture, Inc.’s 2014 Equity Incentive Plan and 2010 Equity Incentive Plan.

  (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):

 

The maximum aggregate value was determined based upon the sum of: (1) 15,543,066 shares of common stock multiplied by $0.35 per share and (2) 279,922 shares of common stock subject to vested restricted stock units under Connecture, Inc.’s 2014 Equity Incentive Plan multiplied by $0.35 per share. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying the sum calculated in the preceding sentence by 0.0001245.

  (4)  

Proposed maximum aggregate value of transaction:

 

$5,538,046

  (5)  

Total fee paid:

 

$689.49

  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:

 

$5.85

  (2)  

Form, Schedule or Registration Statement No.:

SC 13E3/A

  (3)  

Filing Party:

 

Connecture, Inc.

  (4)  

Date Filed:

 

February 12, 2018

 

 

 


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LOGO

18500 West Corporate Drive, Suite 250

Brookfield, Wisconsin 53045

Notice of Special Meeting of Stockholders

and Proxy Statement

To Be Held on March 5, 2018

Dear Stockholder:

You are cordially invited to attend a Special Meeting (the “Special Meeting”) of the stockholders of Connecture, Inc., a Delaware corporation (the “Company”), which we will hold at the offices of DLA Piper LLP (US), 444 West Lake Street, Suite 900, Chicago, Illinois 60606, on March 5, 2018, at 9:00 a.m., Central time.

At the Special Meeting, holders of our outstanding capital stock will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated January 4, 2018, by and among FP Healthcare Holdings, Inc., a Delaware corporation (“Parent”), FP Healthcare Merger Sub Corporation, a Delaware corporation and indirect subsidiary of Parent (“Merger Sub,” and together with Parent, “Purchasers”), and the Company (the “Merger Agreement”). Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company (the “Merger”), the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Delaware law as the surviving corporation in the Merger. Parent will own 100% of the equity interests of the Company following the transactions contemplated by the Merger Agreement. Parent is affiliated with Francisco Partners IV, L.P. and Francisco Partners IV-A, L.P. (together, the “FP Investors”), which own approximately 57% of the total number of outstanding shares of capital stock of the Company (on an as-converted-to-common-stock basis) as of January 16, 2018. The FP Investors are affiliated with Francisco Partners, a global private equity firm specializing in investments in technology and technology-enabled services businesses.

At the effective time of the Merger, each share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), issued and outstanding immediately prior to the effective time of the Merger (other than shares held by (a) Parent or Merger Sub, (b) the Company in treasury or any wholly owned subsidiary of the Company, (c) holders of Common Stock who have properly demanded appraisal rights (and who have not failed to perfect or effectively withdraw such demand or otherwise waive or lose their rights to appraisal), as described more fully under “Special Factors—Certain Effects of the Merger” on page 48 of the enclosed proxy statement, and (d) the FP Investors, Chrysalis Ventures II, L.P. (“Chrysalis”) and certain of affiliates of Chrysalis (collectively, the “Rollover Investors”)) will be converted into the right to receive $0.35, in cash (the “Merger Consideration”), without interest and less any required withholding taxes, and automatically canceled. The Rollover Investors have entered into a Rollover Agreement pursuant to which the Rollover Investors have agreed to contribute all shares of the Company’s Common Stock, as well as all shares of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock (the “Preferred Stock”) held by such Rollover Investors to Parent.

The proposed Merger is a “going-private transaction” under the rules of the Securities and Exchange Commission (the “SEC”). If the Merger is completed, the Company will become a privately held company, wholly owned indirectly by Parent.

The Board of Directors of the Company (the “Board of Directors” or the “Board”), based in part on the unanimous recommendation of a special committee of independent and disinterested members of the Board, for purposes of serving on the special committee (the “Special Committee”), that was established to evaluate and negotiate a potential transaction with the assistance of its own independent legal and financial advisors (as described more fully in the enclosed proxy statement), has unanimously (a) determined that the Merger Agreement and the related transactions contemplated thereby are fair and in the best interests of the Company


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and its stockholders other than the Rollover Investors (the “Non-Rolling Stockholders”) (assuming for this purpose that the determination of fairness to the Non-Rolling Stockholders is also applicable to the Company’s “unaffiliated security holders” (as defined in Rule 13e-3 under the Exchange Act), that the Company and its subsidiaries are not affiliates of the FP Investors and that officers and directors of the Company are affiliates of the Company), (b) approved and declared advisable the Merger Agreement and the related transactions contemplated thereby, and (c) resolved to recommend that the Company’s stockholders approve the adoption of the Merger Agreement and the related transactions contemplated thereby. In evaluating the potential transaction, the Special Committee consulted with its independent legal and financial advisors and in making its determination considered a number of factors, and the Board of Directors made its recommendation after consultation with its advisors and consideration of a number of factors, including the recommendation of the Special Committee, as described more fully in the enclosed proxy statement. The Special Committee and the Board did not assess whether the Rollover Agreement was fair and in the best interests of the Rollover Investors. The Board of Directors recommends unanimously that you vote “FOR” the adoption of the Merger Agreement and the approval of the related transactions contemplated thereby (the “Merger Proposal”) and “FOR” the adjournment of the Special Meeting, if necessary and for a minimum period of time reasonable under the circumstances, to ensure that any necessary supplement or amendment to the proxy statement accompanying this notice is provided to the Company’s stockholders a reasonable amount of time in advance of the Special Meeting, or to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the proposal to approve the adoption of the Merger Agreement.

Pursuant to rules of the SEC, you also will be asked to vote at the Special Meeting on an advisory (non-binding) proposal (the “Compensation Proposal”) to approve specified compensation that may become payable to the named executive officers of the Company in connection with the Merger, as described in the proxy statement. The Board of Directors also recommends unanimously that the stockholders of the Company vote “FOR” the Compensation Proposal.

The enclosed proxy statement describes the Merger Agreement (a copy of which is attached to the enclosed proxy statement as Annex A-1), the Merger and related agreements and provides specific information concerning the Special Meeting. In addition, you may obtain information about us from documents filed with the SEC. We urge you to read the entire proxy statement, including the annexes and the documents referred to or incorporated by reference in the proxy statement, carefully, as it sets forth the details of the Merger Agreement and other important information related to the merger.

The Merger cannot be completed without the approval of the holders of a majority of the outstanding shares of our capital stock, voting together as a single class on an as-converted basis. Pursuant to our certificate of incorporation, shares of Common Stock are entitled to one vote per share, and shares of Preferred Stock are entitled to one vote for each share of Common Stock that would be issuable upon conversion of such share of Preferred Stock on the record date for the determination of stockholders entitled to vote. In addition, the Merger Agreement makes the approval by stockholders of the Merger Proposal a condition to the parties’ obligations to consummate the Merger. If you fail to vote on the Merger Proposal, the effect will be the same as a vote against the Merger Proposal.

If you own shares of our capital stock of record, you will find enclosed a proxy card and an envelope in which to return the card. Whether or not you plan to attend the Special Meeting, please sign, date and return your enclosed proxy card, or vote over the phone or Internet, as soon as possible so that your shares can be voted at the Special Meeting in accordance with your instructions. You can revoke your proxy before the Special Meeting and issue a new proxy as you deem appropriate. You will find the procedures to follow if you wish to revoke your proxy on page 14 of the enclosed proxy statement. If you are a stockholder of record, submitting a proxy will not prevent you from voting your shares in person if you subsequently choose to attend the Special Meeting.

If you are a stockholder who holds your common stock in “street name” through a broker, bank or other nominee, please be aware that you will need to follow the directions provided by such broker, bank or nominee regarding how to instruct it to vote your common stock at the Special Meeting. Your broker, bank or other nominee will be unable to vote your shares without instructions from you.


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If you have any questions or need assistance voting your shares, please call our Investor Relations representative at (262) 432-8282.

Sincerely,

/s/ Jeffery A. Surges

Jeffery A. Surges

President and Chief Executive Officer

Brookfield, Wisconsin

February 12, 2018

Neither the 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.

This proxy statement is dated February 12, 2018, and is first being mailed to stockholders on or about February 12, 2018.


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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

OF CONNECTURE, INC.

 

Date:

March 5, 2018

 

Time:

9:00 a.m. Central time

 

Place:

DLA Piper LLP (US), 444 West Lake Street, Suite 900, Chicago, Illinois 60606

 

Purpose:

1. To consider and vote on a proposal (the “Merger Proposal”) to adopt the Agreement and Plan of Merger, dated January 4, 2018, by and among FP Healthcare Holdings, Inc., a Delaware corporation (“Parent”), FP Healthcare Merger Sub Corporation, a Delaware corporation and indirect subsidiary of Parent (“Merger Sub,” and together with Parent, the “Purchasers”), and the Company, dated as of January 4, 2018 (the “Merger Agreement”), pursuant to which Merger Sub will be merged with and into the Company (the “Merger”), and the related transactions contemplated;

 

  2. To consider and vote on a proposal (the “Adjournment Proposal”) to adjourn the Special Meeting, if necessary and for the minimum period of time reasonable under the circumstances, to ensure that any necessary supplement or amendment to the proxy statement accompanying this notice is provided to Company stockholders a reasonable amount of time in advance of the Special Meeting, or to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve the Merger Proposal;

 

  3. To consider and vote on a proposal (the “Compensation Proposal”) to approve, on an advisory (non-binding) basis, specified compensation that may become payable to the named executive officers of the Company in connection with the Merger;

 

  4. To act upon other business that may properly come before the Special Meeting or any adjournment or postponement thereof.

 

Record Date:

Only stockholders of record at the close of business on February 9, 2018 are entitled to notice of, and to vote at, the Special Meeting. All stockholders of record as of that date are cordially invited to attend the Special Meeting in person.

 

Mailing Date:

The approximate mailing date of this proxy statement and accompanying proxy card is February 12, 2018.

 

Recommendation:

The Board of Directors recommends that you vote:

 

    FOR” approval of the Merger Proposal

 

    FOR” approval of the Adjournment Proposal; and

 

    FOR” approval of the Compensation Proposal.

 

Attendance:

Only stockholders of record as of the record date, their duly authorized proxy holders, beneficial stockholders with proof of ownership and our guests may attend the Special Meeting. To gain admittance, you must present valid photo identification, such as a driver’s license or passport. If your shares of Common Stock are held through a bank, brokerage firm or other nominee, please bring to the Special Meeting a copy of your brokerage statement evidencing your beneficial


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ownership of the Common Stock of the Company and valid photo identification. If you are the representative of a corporate or institutional stockholder, you must present valid photo identification along with proof that you are the representative of such stockholder. The Special Meeting will follow the agenda and rules of conduct provided to all stockholders and proxy holders upon entering the meeting. The purpose and order of the Special Meeting will be strictly observed, and the chairman’s or secretary’s determinations in that regard will be final, including any postponements or adjournments of the meeting. Please note that media will not be allowed to attend the Special Meeting and the taking of photographs and the use of audio and video recording devices, will not be permitted at the Special Meeting.

 

Appraisal:

Stockholders who do not vote in favor of the Merger Proposal and who follow the procedures described under “Appraisal Rights” beginning on page 113 will have the right to seek appraisal of the fair value of their shares of Common Stock if they perfect and do not withdraw a demand for (or lose their right to) appraisal and comply with all the requirements of Delaware law, which are summarized in the accompanying proxy statement and reproduced in their entirety in Annex B to the enclosed proxy statement.

Approval of the Merger Proposal requires the affirmative vote of the majority of the outstanding shares of our capital stock, voting together as a single class on an as-converted basis. Pursuant to our certificate of incorporation, shares of our common stock, par value $0.001 per share (the “Common Stock”), are entitled to one vote per share, and shares of our Series A Convertible Preferred Stock and Series B Convertible Preferred Stock (together, the “Preferred Stock”) are entitled to one vote for each share of Common Stock that would be issuable upon conversion of such shares of Preferred Stock on the record date for the determination of stockholders entitled to vote. Under the terms of a Voting and Support Agreement that Francisco Partners IV, L.P. and Francisco Partners IV-A, L.P. (together, the “FP Investors”) and Chrysalis Ventures II, L.P. (“Chrysalis,” and together with the FP Investors, the “Sponsor Entities”) entered into with the Company concurrently with the execution and delivery of the Merger Agreement (the “Voting Agreement”), the Sponsor Entities, as holders of approximately 68% of our outstanding capital stock on an as-converted basis as of the date of the Voting Agreement, agreed to vote all shares they own in favor of adoption of the Merger Agreement, and the presence of these shares assures a quorum at the Special Meeting. A failure to vote your shares “FOR” the Merger Proposal or an abstention from voting on the Merger Proposal will have the same effect as a vote “AGAINST” the Merger Proposal for purposes of the required stockholder vote.

The Adjournment Proposal and the Compensation Proposal each require the affirmative vote of holders of a majority of the shares of capital stock, voting together as a single class on an as-converted basis, present in person or represented by proxy at the Special Meeting and entitled to vote on the matter. An abstention from voting on the Adjournment Proposal or the Compensation Proposal will have the same effect as a vote “AGAINST” such proposals, but a failure to return your proxy card or attend the Special Meeting will have no effect on such proposals.

Even if you plan to attend the Special Meeting in person, we request that you complete, sign, date and return the enclosed proxy and thus ensure that your shares will be represented at the Special Meeting if you are unable to attend. You also may submit your proxy by using a toll-free telephone number or the Internet. We have provided instructions in the enclosed proxy statement and on the proxy card for using these convenient services.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of each of the Merger Proposal, Adjournment Proposal and Compensation Proposal. If you fail to attend the Special Meeting or submit your proxy card, the effect will be that 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 Merger Proposal and no effect on the Adjournment Proposal and the Compensation Proposal.


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You may revoke your proxy at any time before the vote at the Special Meeting by following the procedures outlined in the enclosed proxy statement. If you are a stockholder of record, attend the Special Meeting and wish to vote in person, you may revoke your proxy and vote in person.

If you are a stockholder who holds your common stock in “street name” through a broker, bank or other nominee, please be aware that you will need to follow the directions provided by such broker, bank or nominee regarding how to instruct it to vote your shares at the Special Meeting.

By order of the Board of Directors,

/s/ Jeffery A. Surges

Jeffery A. Surges

President and Chief Executive Officer

Dated: February 12, 2018


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TABLE OF CONTENTS

 

SUMMARY TERM SHEET

     1  

The Parties to the Merger Agreement

     1  

The Merger Proposal

     2  

The Special Meeting

     2  

Record Date and Quorum

     2  

Required Stockholder Votes for the Merger

     3  

Conditions to the Merger

     3  

When the Merger Becomes Effective

     4  

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger

     4  

Position of the Purchaser Filing Parties As to the Fairness of the Merger

     5  

Opinion of the Special Committee’s Financial Advisor

     5  

Purposes and Reasons of Purchaser Filing Parties for the Merger

     5  

Purposes and Reasons of the Company for the Merger

     5  

Certain Effects of the Merger

     6  

Treatment of Company Equity Awards

     6  

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

     6  

Voting and Support Agreement

     7  

Rollover Agreement

     8  

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

     8  

Rights of Stockholders Who Seek Appraisal

     8  

Solicitation of Acquisition Proposals

     8  

Financing

     9  

Guarantee

     9  

Termination and Termination Fee

     10  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     11  

SPECIAL FACTORS

     16  

Background of the Merger

     16  

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger

     28  

Position of the Purchaser Filing Parties As to the Fairness of the Merger

     35  

Opinion of the Special Committee’s Financial Advisor

     37  

Purposes and Reasons of Purchaser Filing Parties for the Merger

     47  

Purposes and Reasons of the Company for the Merger

     47  

Plans for the Company After the Merger

     48  

Certain Effects of the Merger

     48  

Certain Effects on the Company If the Merger Is Not Completed

     50  

Projected Financial Information

     51  

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

     53  

Golden Parachute Compensation

     57  


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Voting and Support Agreement

     57  

Rollover Agreement

     58  

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

     58  

Rights of Stockholders Who Seek Appraisal

     61  

Solicitation of Acquisition Proposals

     61  

Financing

     62  

Guarantee

     63  

Termination and Termination Fee

     63  

Regulatory Approvals

     64  

Fees and Expenses

     65  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

     66  

THE PARTIES TO THE MERGER

     67  

The Company

     67  

Parent and Merger Sub

     67  

THE SPECIAL MEETING

     68  

Date, Time and Place

     68  

Record Date and Quorum

     68  

Required Vote

     68  

Voting; Proxies; Revocation

     69  

Adjournments and Postponements

     71  

Rights of Stockholders Who Seek Appraisal

     71  

Solicitation of Proxies

     72  

THE MERGER AGREEMENT

     73  

Explanatory Note Regarding the Merger Agreement

     73  

The Merger

     74  

Per Share Merger Consideration

     74  

Treatment of Options, Restricted Stock Units, Restricted Shares and ESPP

     74  

Payment of Per Share Merger Consideration and Surrender of Stock Certificates

     75  

Appraisal Rights

     75  

Representations and Warranties

     76  

Conduct of Business Prior to Effective Time

     79  

Solicitation of Acquisition Proposals

     82  

Proxy Statement

     85  

Company Stockholders Meeting

     85  

Efforts to Complete the Merger; Regulatory Approvals

     85  

Employee Benefits

     86  

Cooperation with the Debt Financing

     87  

Indemnification and Insurance

     88  

Other Covenants and Agreements

     89  

Conditions to Completion of the Merger

     89  

Termination of the Merger Agreement

     91  


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Termination Fees and Expenses

     92  

Modification or Amendment

     92  

No Third-Party Beneficiaries

     93  

Governing Law

     93  

VOTING AND SUPPORT AGREEMENT

     94  

PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS

     94  

IMPORTANT INFORMATION REGARDING CONNECTURE

     95  

Company Background

     95  

Private Placement Transactions

     95  

Directors and Executive Officers

     97  

Prior Public Offerings

     101  

Historical Selected Financial Information

     101  

Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

     102  

Book Value Per Share

     102  

Market Price of the Company’s Common Stock

     103  

Dividends

     103  

Security Ownership of Management and Certain Beneficial Owners

     104  

Transactions in Common Stock

     107  

IMPORTANT INFORMATION REGARDING THE PURCHASER FILING PARTIES

     110  

Parent, Merger Sub and FP Healthcare Intermediate, LLC

     110  

The FP Investors

     111  

Chrysalis

     111  

David A. Jones, Jr.

     112  

APPRAISAL RIGHTS

     113  

Written Demand

     114  

Notice by the Surviving Corporation

     115  

Filing a Petition for Appraisal

     115  

Determination of Fair Value

     116  

THE MERGER PROPOSAL (PROPOSAL 1)

     118  

The Proposal

     118  

Vote Required and Board Recommendation

     118  

THE ADJOURNMENT PROPOSAL (PROPOSAL 2)

     119  

The Proposal

     119  

Vote Required and Board Recommendation

     119  

THE COMPENSATION PROPOSAL (PROPOSAL 3)

     120  

The Proposal

     120  

Vote Required and Board Recommendation

     120  

ELIMINATING DUPLICATIVE PROXY MATERIALS

     121  

DELISTING AND DEREGISTRATION OF COMMON STOCK

     121  

STOCKHOLDER PROPOSALS AND NOMINATIONS

     121  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     122  


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CONNECTURE, INC.

SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD MARCH 5, 2018

PROXY STATEMENT

This proxy statement contains information related to a Special Meeting of stockholders of Connecture, Inc. (“Connecture,” the “Company,” “we,” “us” or “our”), which will be held at DLA Piper LLP (US), 444 West Lake Street, Suite 900, Chicago, Illinois 60606, on March 5, 2018, at 9:00 a.m., Central time, and any adjournments or postponements thereof. We are furnishing this proxy statement to stockholders of the Company as part of the solicitation of proxies by the Company’s board of directors (the “Board of Directors” or the “Board”) for use at the Special Meeting. This proxy statement is dated February 12, 2018, and is first being mailed to stockholders on or about February 12, 2018.

SUMMARY TERM SHEET

This Summary Term Sheet discusses certain material information contained in this proxy statement, including with respect to the Merger Agreement. We encourage you to read carefully this entire proxy statement, including its annexes and the documents referred to or incorporated by reference in this proxy statement, as this Summary Term Sheet may not contain all of the information that may be important to you. Each item in this Summary Term Sheet includes page references directing you to a more complete description of that item in this proxy statement.

The proposed merger is a “going-private transaction” under the rules of the U.S. Securities and Exchange Commission (the “SEC”). If the Merger is completed, the Company will become a privately held company, wholly owned indirectly by Parent. Parent is a an affiliate of Francisco Partners (“Francisco Partners”), a global private equity firm specializing in investments in technology and technology-enabled services businesses.

The Parties to the Merger Agreement

Connecture, Inc. is a Delaware corporation headquartered in Brookfield, Wisconsin. The Company is a provider of web-based information systems used to create health insurance marketplaces. The Company’s common stock is quoted on the OTCQX market (“OTCQX”) under the symbol “CNXR.” The principal executive offices of the Company are located at 18500 West Corporate Drive, Suite 250, Brookfield, Wisconsin 53045, and its telephone number is (262) 432-8282.

FP Healthcare Holdings, Inc. is a Delaware corporation and was formed on December 28, 2017, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement. As of the date of this proxy statement, Parent has not engaged in any business activities other than those incidental to its formation and in connection with the transactions contemplated by the Merger Agreement and arranging of the Equity Financing (as described below) in connection with the Merger. The principal executive offices of Parent are located at One Letterman Drive, Building C – Suite 410, San Francisco, California 94129, and its telephone number is (415) 418-2900.

FP Healthcare Merger Sub Corporation is a Delaware corporation and an indirect subsidiary of Parent and was formed on December 28, 2017, solely for the purpose of engaging in the transactions contemplated by the Merger Agreement. As of the date of this proxy statement, Merger Sub has not engaged in any business activities other than those incidental to its formation and in connection with the transactions contemplated by the Merger Agreement and arranging of the Equity Financing and Debt Financing in connection with the Merger. The principal executive offices of Merger Sub are located at One Letterman Drive, Building C – Suite 410, San Francisco, California 94129, and its telephone number is (415) 418-2900.

 

1


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Parent and Merger Sub are affiliated with Francisco Partners and the FP Investors. In connection with the transactions contemplated by the Merger Agreement, (i) the FP Investors have provided to the Company a guarantee of the payment obligations of Parent and Merger Sub under the Merger Agreement; and (ii) Francisco Partners and Merger Sub have obtained a debt financing commitment from PNC Bank, National Association (“PNC”) for an aggregate amount of $47 million, which will be available to fund a portion of the payments contemplated by the Merger Agreement (in each case, pursuant to the terms and conditions as described further under the caption “The Merger—Financing of the Merger”).

The Merger Proposal

You are being asked to consider and vote upon the Merger Proposal.

At the effective time of the Merger, each share of Common Stock issued and outstanding immediately prior to the effective time of the Merger (other than shares held by (a) Parent or Merger Sub, (b) the Company in treasury or any wholly owned subsidiary of the Company, (c) holders of Common Stock who have properly demanded appraisal rights (and who have not failed to perfect or effectively withdraw such demand or otherwise waive or lose their rights to appraisal), as described more fully under “Special Factors—Certain Effects of the Merger” on page 48 of the enclosed proxy statement, and (d) the Sponsor Entities and certain of affiliates of Chrysalis (collectively, the “Rollover Investors”)) will be converted into the right to receive $0.35, in cash, without interest and less any required withholding taxes, and automatically canceled. The Rollover Investors have entered into a Rollover Agreement pursuant to which the Rollover Investors have agreed to contribute all shares of our Common Stock and Preferred Stock held by the Rollover Investors (the “Rollover Shares”) to Parent (the “Rollover Agreement”). Upon completion of the Merger, our Common Stock will no longer be publicly traded, and our stockholders (other than Parent directly, and the Rollover Investors indirectly) will cease to have any ownership interest in the Company.

The Special Meeting (Page 68)

The Special Meeting will be held at DLA Piper LLP (US), 444 West Lake Street, Suite 900, Chicago, Illinois 60606, on March 5, 2018, at 9:00 a.m., Central time.

Record Date and Quorum (Page 68)

You are entitled to receive notice of, and to vote at, the Special Meeting if you owned shares of Common Stock or Preferred Stock at the close of business on February 9, 2018, which the Company has set as the record date for the Special Meeting (the “Record Date”). As of the Record Date, a total of 23,246,258 shares of our Common Stock, 52,000 shares of our Series A Convertible Preferred Stock (which we refer to in this proxy statement as our “Series A Preferred Stock”) and 17,500 shares of our Series B Convertible Preferred Stock (which we refer to in this Proxy Statement as our “Series B Preferred Stock”) were outstanding and entitled to vote. Each share of Common Stock has one vote. Each share of our Preferred Stock is entitled to cast one vote for each share of our Common Stock that would be issuable upon conversion of such share of Preferred Stock. As of the Record Date, the outstanding shares of Preferred Stock were convertible into a total of 25,484,850 shares of Common Stock, meaning that a total of 48,731,108 shares of Common Stock were deemed outstanding for purposes of voting on the matters set forth in this proxy statement, 33,116,034 shares of which were held by the Sponsor Entities.

The presence at the Special Meeting, in person or by proxy, of the holders of a majority of the shares of the capital stock of the Company entitled to vote at the meeting on the Record Date, on an as-converted basis, will constitute a quorum, permitting the Company to conduct its business at the Special Meeting. Under the Voting Agreement, the Sponsor Entities, as holders of approximately 68% of the outstanding shares of our capital stock on an as-converted basis as of the date of the Voting Agreement, agreed to vote all shares they own in favor of the Merger Proposal, and the presence of these shares assures a quorum at the Special Meeting. Proxies received but marked as abstentions will be included in the calculation of the number of shares considered to be present at the Special Meeting.

 

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Required Stockholder Votes for the Merger (Page 68)

Approval of the Merger Proposal requires the affirmative vote of holders of a majority of the outstanding shares of our capital stock entitled to vote at the Special Meeting, voting together as a single class on an as-converted basis. Pursuant to our certificate of incorporation, shares of Common Stock are entitled to one vote per share, and shares of Preferred Stock are entitled to one vote for each share of Common Stock that would be issuable upon conversion of such shares of Preferred Stock on the Record Date. The approval of the Merger Proposal a condition to the parties’ obligations to consummate the Merger. Under the Voting Agreement, the Sponsor Entities, as holder of approximately 68% of the outstanding shares of our capital stock on an as-converted basis as of the date of the Voting Agreement, agreed to vote all shares they own in favor of the Merger Proposal, and the presence of these shares assures that the Merger Proposal will be approved. A failure to vote your shares of Common Stock or an abstention from voting will have the same effect as a vote “AGAINST” adoption of the Merger Proposal.

The Adjournment Proposal and the Compensation Proposal each require the affirmative vote of holders of a majority of the shares of capital stock, voting together as a single class on an as-converted basis, present in person or represented by proxy at the Special Meeting and entitled to vote on the matter. An abstention from voting your shares on the Adjournment Proposal or the Compensation Proposal will have the same effect as a vote “AGAINST” such proposals, but a failure to return your proxy card or attend the Special Meeting will have no effect on such proposals.

Except in their capacities as members of the Board or as members of the special committee (the “Special Committee”) that was established to evaluate and negotiate a potential transaction and consider other alternatives available to the Company (as described more fully under “Special Factors—Background of the Merger” on page 16), and except as contemplated by the Voting Agreement, no executive officer or director of the Company has made any recommendation either in support of or in opposition to the Merger or the Merger Agreement.

Conditions to the Merger (Page 89)

The obligations of the Company, Parent and Merger Sub to effect the Merger are subject to the fulfillment or waiver, at or before the effective time, of the following conditions:

 

    That the Company’s stockholders have approved the Merger;

 

    That the waiting periods under applicable antitrust laws have expired or been terminated and any required governmental consents have been obtained;

 

    that no court or other governmental entity of competent jurisdiction has enacted, issued, promulgated, enforced or deemed applicable any law or order that is in effect and has the effect of making the Merger illegal or prohibiting the consummation of the Merger;

The obligation of the Company to effect the Merger is subject to the satisfaction or waiver of each of the following conditions at or prior to the date of the closing of the Merger:

 

    that each Purchaser has performed and complied in all material respects with all its agreements, covenants and obligations required by the Merger Agreement to be performed or complied with by it at or prior to the closing date of the Merger; and

 

   

that the representations and warranties of Purchasers set forth in the Merger Agreement are true and correct as of the date of the Merger Agreement and as of the closing date of the Merger as though made on and as of the closing date (disregarding all qualifications and exceptions regarding materiality), except where the failure of any such representations and warranties to be true and correct would not reasonably be expected to have a material adverse effect on the ability of the Purchasers to consummate the merger and except that representations and warranties that are made only as of a specified date need be true and

 

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correct only as of that specified date; and that each of the Purchasers has performed or complied in all material respects with its obligations or covenants under the Merger Agreement to be performed or complied with it before the effective time of the Merger;

 

    that the Company has received a certificate of a duly authorized officer of each Purchaser, dated as of the closing date of the Merger, certifying that the conditions set forth in the two items described above have been satisfied; and

 

    that the Rollover Investors have contributed the rollover shares to Parent pursuant to the Rollover Agreement.

The obligation of Purchasers to effect the Merger is subject to the satisfaction or waiver of each of the following conditions at or prior to the closing date of the Merger:

 

    that the Company has performed and complied in all material respects with all of its agreements, covenants and obligations required by the Merger Agreement to be performed or complied with by it at or prior to the closing date of the Merger;

 

    that the representations and warranties of the Company regarding organization, good standing, authority noncontravention of other agreements and law, absence of certain changes, no brokers, and no rights agreement are true and correct in all material respects as of the dated of the Merger Agreement and as of immediately prior to the closing as if made at and as of such time, except for any failure to be so true and correct as of such date that has not had, or would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Company; and the representations and warranties of the Company regarding capitalization are true and correct in all respects as of the date of the Merger Agreement and as of immediately prior to the closing as if made at and as of such time, other than any inaccuracies that would not reasonably be expected to result in additional cost, expense or liability to Parent or its subsidiaries of more than $500,000 in the aggregate (in each case, without giving effect to any limitation as to materiality or material adverse effect set forth in such representations and warranties); and (b) the Company has performed or complied in all material respects with its obligations or covenants required by the Merger Agreement to be performed or complied with by it before the effective time of the Merger;

 

    that the Purchasers have received a certificate of the chief executive officer and chief financial officer of the Company certifying that the conditions set forth in the two items described immediately above have been fulfilled; and

 

    that since the date of the Merger Agreement, there has not been any “material adverse effect” on the Company that is continuing.

When the Merger Becomes Effective (Page 89)

We anticipate completing the Merger in the first half of 2018, subject to adoption of the Merger Agreement by the Company’s stockholders as specified herein and the satisfaction or waiver of the other conditions to closing.

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger (Page 28)

Based in part on the unanimous recommendation of the Special Committee, the Board of Directors recommends unanimously that the stockholders of the Company vote “FOR” the adoption of the Merger Proposal. For a description of the reasons considered by the Special Committee and the Board for their respective recommendations, see “Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 28.

 

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Position of the Purchaser Filing Parties As to the Fairness of the Merger (Page 35)

The “Purchaser Filing Parties” means (i) Parent, (ii) FP Healthcare Intermediate, LLC, a wholly owned subsidiary of Parent and the sole stockholder of Merger Sub, (iii) Merger Sub, (iv) the Sponsor Entities, (v) the controlling affiliates of the Sponsor Entities, which are Francisco Partners GP IV, L.P. and Francisco Partners GP IV Management Limited with respect to the FP Investors and Chrysalis Partners II, LLC with respect to Chrysalis, and (vi) David A. Jones, Jr. The Purchaser Filing Parties believe that the proposed Merger is substantively and procedurally fair to the Company’s “unaffiliated security holders,” as defined in Rule 13e-3 under the Exchange Act. However, none of the Purchaser Filing Parties has undertaken any formal evaluation of the fairness of the Merger to the Company’s unaffiliated security holders or engaged a financial advisor for such purpose. Moreover, none of the Purchaser Filing Parties participated in the deliberations of the Special Committee or received advice from the Special Committee’s or the Company’s respective legal or financial advisors in connection with the Merger. The belief of the Purchaser Filing Parties as to the procedural and substantive fairness of the Merger is based on the factors discussed in “Special Factors—Position of the Purchaser Filing Parties as to the Fairness of the Merger” beginning on page 35.

Opinion of the Special Committee’s Financial Advisor (Page 37)

On January 4, 2018, Houlihan Lokey Capital, Inc. (“Houlihan Lokey”) rendered to the Special Committee an oral opinion (confirmed by delivery of Houlihan Lokey’s written opinion, dated January 4, 2018, to the Special Committee) as to the fairness, from a financial point of view and as of such date, of the Merger Consideration to be received by holders of Common Stock (other than Excluded Holders, as described below) in the Merger pursuant to the Merger Agreement, which opinion was based on and subject to the various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Houlihan Lokey in connection with the preparation of its opinion. For purposes of Houlihan Lokey’s opinion, “Excluded Holders” refers to the FP Investors, any other beneficial owner of shares of Preferred Stock, holders that contribute shares of Common Stock or Preferred Stock to Parent in connection with the Merger, and their respective affiliates.

Houlihan Lokey’s opinion was furnished for the use of the Special Committee (in its capacity as such), only addressed the fairness, from a financial point of view and as of January 4, 2018, of the Merger Consideration to be received by holders of Common Stock (other than Excluded Holders) in the Merger pursuant to the Merger Agreement and did not address any other term, aspect or implication of the Merger or any other agreement, arrangement or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of Houlihan Lokey’s written opinion, which is attached as Annex C to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Houlihan Lokey in connection with the preparation of its opinion. Neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Special Committee, the Board, the Company, any security holder or any other party as to how to act or vote with respect to any matter relating to the Merger or otherwise.

Purposes and Reasons of Purchaser Filing Parties for the Merger (Page 47)

For a full description of the purposes and reasons of the Purchaser Filing Parties for the Merger, see “Special Factors—Purposes and Reasons of Purchaser Filing Parties for the Merger” beginning on page 47.

Purposes and Reasons of the Company for the Merger (Page 47)

The Company’s purpose for engaging in the Merger is to enable its stockholders to receive the Merger Consideration, which represents a premium of approximately 119% over the closing price of the Common Stock as quoted on the OTCQX of $0.16 per share on January 3, 2018, the last trading day before the announcement of the Merger.

 

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Certain Effects of the Merger (Page 48)

If the conditions to the closing of the Merger are either satisfied or waived, Merger Sub will be merged with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Delaware law as the surviving corporation in the Merger and a wholly owned indirect subsidiary of Parent. At the effective time of the Merger, each share of Common Stock issued and outstanding immediately prior to the effective time of the Merger (other than shares held by (a) Parent or Merger Sub, (b) the Company in treasury or any wholly owned subsidiary of the Company, (c) holders of Common Stock who have properly demanded appraisal rights (and who have not failed to perfect or effectively withdraw such demand or otherwise waive or lose their rights to appraisal), as described more fully under “Special Factors—Certain Effects of the Merger” on page 48, and (d) the Rollover Investors) will be converted into the right to receive $0.35, in cash, without interest and less any required withholding taxes, and automatically canceled. The Rollover Investors have entered into the Rollover Agreement, pursuant to which the Rollover Investors have agreed to contribute all Rollover Shares to Parent. Upon completion of the Merger, our Common Stock will no longer be publicly traded, and our stockholders (other than Parent directly, and the Rollover Investors indirectly) will cease to have any ownership interest in the Company. For a full description of certain effects of the Merger, see “Special Factors—Certain Effects of the Merger” on page 48.

Treatment of Company Equity Awards (Page 74)

At the effective time of the Merger, each unvested option to purchase Common Stock under the Company’s 2010 Equity Incentive Plan and the Company’s 2014 Equity Incentive Plan (the “Company Plans”) that is outstanding immediately before the effective time of the Merger will be canceled for no consideration. Each outstanding vested option will be canceled in exchange for the right to receive a lump-sum cash payment equal to the product of (a) the excess, if any, of (i) the $0.35 per share Merger Consideration over (ii) the per-share exercise price for such option and (b) the total number of shares of common stock underlying such option, less applicable taxes required to be withheld. All of the Company’s outstanding vested options to purchase Common Stock have a per-share exercise price greater than $0.35; therefore, all of such options will be canceled without consideration.

In addition, at the effective time of the Merger, each unvested restricted stock unit (“RSU”) granted under the Company Plans that is outstanding immediately before the effective time of the Merger will be canceled for no consideration. Each RSU that will be vested as of the effective time of the Merger, but not previously settled in shares of Common Stock before the effective time of the Merger, will be canceled in exchange for the right to receive a lump-sum cash payment equal to the product of (i) the $0.35 per share Merger Consideration and (ii) the number of shares of common stock subject to such RSU, less applicable taxes required to be withheld.

All such payments will be made by the surviving corporation, without interest at the effective time of the Merger or as soon as practicable thereafter, and in no event later than the date that is the later of five business days after the effective time and the date of the Company’s first regularly scheduled payroll after the effective time.

Interests of the Company’s Directors and Executive Officers in the Merger (Page 53)

In considering the recommendations of the Special Committee and of the Board of Directors with respect to the Merger Agreement, you should be aware that, aside from their interests as stockholders of the Company, the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, those of other stockholders of the Company generally. In particular, David A. Jones Jr., the chairman of the Board of Directors, is an affiliate of, and has a financial interest in, Chrysalis, which is a Rollover Investor and also is a Rollover Investor in his personal capacity as the holder, through a trust of which he is the trustee, of Rollover Shares; Ezra Perlman, a member of the Board of Directors, is an affiliate of, and has a financial interest

 

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in, the FP Investors; and Kraig McEwen, a member of the Board of Directors, is a director designated by Francisco Partners. Messrs. Jones, Perlman and McEwen are sometimes referred to in this proxy statement as the “Affiliated Directors.” The FP Investors, through their control of Parent, will control the Company after the Merger and the Affiliated Directors will each become directors of Parent following completion of the Merger in accordance with the terms of a stockholders agreement to be entered into by the equity holders of Parent pursuant the Rollover Agreement the “Parent Stockholders Agreement”). In addition, each of Mr. Jones and Mr. Perlman will retain an indirect financial interest in the Company through their ownership interest in Parent as a result of the contribution of Rollover Shares in which they have a financial interest to Parent pursuant to the Rollover Agreement.

In addition to the foregoing, other interests of executive officers and directors that may be different from or in addition to the interests of the Company’s stockholders include the fact that:

 

    certain of the Company’s executive officers, Jeffery A. Surges and Vincent E. Estrada, have entered into employment agreements that provide for the acceleration of vesting of equity awards upon the effectiveness of the Merger, as well as certain severance benefits upon a qualifying termination after the Merger;

 

    pursuant to the Company’s standard director compensation policy, vesting of unvested RSUs held by the Company’s directors will accelerate upon the effectiveness of the Merger;

 

    the Company’s executive officers as of the effective time of the Merger will become the initial executive officers of the surviving corporation;

 

    Mr. Surges, as chief executive officer of the Company, will also be entitled to serve on the board of directors of the Company pursuant to the Parent Stockholders Agreement as long as he remains chief executive officer of the Company; and

 

    the Company’s directors and executive officers are entitled to continued indemnification and insurance coverage under the Merger Agreement, and the Company’s directors and certain executive officers are entitled to continued indemnification and insurance coverage under indemnification agreements.

These interests are discussed in more detail in the section entitled “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 53. The Special Committee and the Board of Directors were aware of the different or additional interests described herein and considered those interests along with other matters in recommending and/or approving, as applicable, the Merger Agreement and the related transactions contemplated thereby (excluding the transactions contemplated by the Rollover Agreement).

Voting and Support Agreement (Page 94)

Concurrently with the execution and delivery of the Merger Agreement, the Sponsor Entities entered into the Voting Agreement with the Company. Pursuant to the Voting Agreement, the Sponsor Entities have agreed, unless the Board of Directors or the Special Committee has changed its recommendation that the stockholders adopt the Merger Agreement, to vote all shares of the Company’s capital stock owned by them in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and against any other action or agreement not recommended by the Board of Directors that would reasonably be expected to (i) result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement, (ii) result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled or (iii) impede, frustrate, interfere with, delay, postpone or adversely affect the Merger and the other transactions contemplated by the Merger Agreement. For more information, see “Voting and Support Agreement” beginning on page 94.

 

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Rollover Agreement (Page 58)

Concurrently with the execution and delivery of the Merger Agreement, the Rollover Investors and Parent entered into the Rollover Agreement, pursuant to which the Rollover Investors agreed to contribute the Rollover Shares to Parent in exchange for common stock of Parent immediately before the effective time of the Merger. After the completion of the transactions contemplated by the Rollover Agreement, the only outstanding common stock of Parent will be the shares issued to the Rollover Investors in exchange for the Rollover Shares and the shares held by the FP Investors (or their affiliates) in connection with their investment in Parent. For more information, see “Special Factors—Rollover Agreement” beginning on page 58.

Material U.S. Federal Income Tax Consequences of the Merger (Page 58)

If you are a U.S. holder, the receipt of cash in exchange for common stock pursuant to the Merger will generally be a taxable transaction for U.S. federal income tax purposes. You are encouraged to consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of common stock for cash pursuant to the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws). For more information, see “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 58.

Rights of Stockholders Who Seek Appraisal (Page 113 and Annex B)

Stockholders who do not vote for the adoption of the Merger Agreement are entitled to appraisal rights under the General Corporation Law of the State of Delaware (the “DGCL”) in connection with the Merger, but only if they fully comply with all of the applicable legal requirements of Section 262 of the DGCL, which are summarized in this proxy statement under “Appraisal Rights” beginning on page 113 and set forth in their entirety in Section 262 of the DGCL (attached to this proxy statement as Annex B). This means that you may be entitled to have the fair value of your shares of Common Stock determined by the Delaware Court of Chancery and to receive payment based on that valuation in lieu of the $0.35 per share Merger Consideration if you follow exactly the procedures specified under the DGCL. The ultimate amount you may receive in an appraisal proceeding may be less than, equal to or more than the amount you would have received under the Merger Agreement.

To exercise your appraisal rights, you must, among other things, submit a written demand for appraisal to the Company before the vote is taken on the adoption of the Merger Agreement and you must not vote (either in person or by proxy) in favor of the Merger Proposal (and must not fail to perfect or effectively withdraw or otherwise waive or lose your rights to appraisal). Your failure to follow exactly the procedures specified under the DGCL may result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page 113 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex B to this proxy statement. If you hold your shares of Common Stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, brokerage firm or other nominee. In view of the complexity of the DGCL relating to appraisal rights, stockholders who may wish to pursue appraisal rights should consult their own legal counsel promptly. The discussion of appraisal rights in this proxy statement is not a full summary 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, a copy of which is attached to this proxy statement as Annex B.

Solicitation of Acquisition Proposals (Page 82)

The Merger Agreement provides that the Company is permitted to actively initiate, solicit and encourage Acquisition Proposals (as defined below in “The Merger Agreement—Solicitation of Acquisition Proposals”) from third parties until 11:59 p.m., Central time, on February 18, 2018, which we refer to as the “Go-Shop Period.” The Special Committee has retained Raymond James & Associates, Inc. (“Raymond James”) to serve as its financial advisor in soliciting proposals during the Go-Shop Period.

 

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Commencing at 12:00 a.m., Central time, on February 19, 2018, which we refer to as the “No-Shop Period Start Date,” the Company must cease all existing discussions or negotiations with any person with respect to any Acquisition Proposal, except as otherwise provided below, and may not solicit any Acquisition Proposals.

If the Company receives a written Acquisition Proposal after the No-Shop Period Start Date and prior to obtaining stockholder approval of the Merger Agreement, the Company will be permitted to engage in discussions and negotiations regarding such Acquisition Proposal if the Special Committee determines in good faith (after consultation with independent legal counsel and a financial advisor of internationally recognized reputation) that such Acquisition Proposal constitutes or could reasonably be expected to result in a Superior Proposal (the meanings of Acquisition Proposal and Superior Proposal are defined below in “The Merger Agreement—Solicitation of Acquisition Proposals” beginning on page 82). Further, the Company is permitted to, among other things, engage, enter into and participate in discussions and negotiations with certain parties, which we refer to as the Excluded Parties, who during the Go-Shop Period made a bona fide written Acquisition Proposal that the Special Committee has determined in good faith (after consultation with independent legal counsel and a financial advisor of internationally recognized reputation) constitutes, or could reasonably be expected to result in, a Superior Proposal.

The Board is prohibited from taking certain actions enumerated in the Merger Agreement that would amount to a change in the recommendation of the Board to the stockholders to approve the Merger Agreement, unless, prior to obtaining stockholder approval of the Merger Proposal, the Special Committee determines in good faith (after consultation with independent legal counsel and a financial advisor of internationally recognized reputation) that an Acquisition Proposal constitutes a Superior Proposal.

Financing (Page 62)

We anticipate that the total funds needed by Parent and Merger Sub to:

 

    pay our stockholders and holders of equity awards the amounts due to them under the Merger Agreement upon the consummation of the Merger; and

 

    pay related fees and expenses in connection with the Merger and associated transactions

will be approximately $15.4 million.

We anticipate that the funds needed to pay the amounts described above will be obtained as follows:

 

    Equity Financing to be provided to Parent by the FP Investors or other parties to whom it assigns a portion of its commitment, in an aggregate amount of up to $15.0 million; and

 

    Debt Financing to Merger Sub in the form of a senior secured term loan facility and a senior secured revolving credit facility in an aggregate principal amount of $47 million, on the terms and subject to the conditions set forth in the debt commitment letter entered into with PNC, dated as of January 4, 2018 (the “Debt Commitment Letter”).

See “Special Factors—Financing” on page 62. The obtaining of financing is not a condition to the obligations of Parent and Merger Sub to effect the Merger pursuant to the terms of the Merger Agreement.

Guarantee (Page 63)

Pursuant to a Guarantee dated January 4, 2018, delivered by the FP Investors (the “Guarantors”) in favor of the Company (the “Guarantee”), the Guarantors have agreed to guarantee the payment obligations of Parent and Merger Sub if and to the extent such amounts are payable under the Merger Agreement, subject to an aggregate cap of the aggregate Merger Consideration plus certain expenses.

 

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Termination and Termination Fee (Page 63)

The Merger Agreement contains certain termination rights for the Company and Parent. Upon termination of the Merger Agreement by the Company if, before the approval of the Company’s stockholders, the Special Committee authorizes the Company to enter into a definitive agreement with respect to a Superior Proposal pursuant to the terms of the Merger Agreement, the Company will be required to pay Parent a termination fee of reasonable and documented out-of-pocket fees and expenses (including legal fees and expenses) up to $2.0 million. In addition to the foregoing termination right, and subject to certain limitations, (i) the Company or Parent may terminate the Merger Agreement if the Merger is not consummated by June 4, 2018, and (ii) the Company and Parent may mutually agree to terminate the Merger Agreement.

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers address briefly some questions you may have regarding the Special Meeting, the Merger Agreement and the Merger. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement for further information.

Q: What is the proposed transaction?

A: The proposed transaction is the merger of Merger Sub with and into the Company pursuant to the Merger Agreement. If the Merger is consummated, the Company will become a privately held company, wholly owned indirectly by Parent.

Q: What will I receive in the Merger?

A: If the Merger is completed and you do not properly exercise appraisal rights, you will be entitled to receive the $0.35 per share cash Merger Consideration, without interest and less any applicable withholding taxes, for each common stock that you own.

Q: When and where is the Special Meeting?

A: The Special Meeting will take place on March 5, 2018, starting at 9:00 a.m., Central time, at DLA Piper LLP (US), 444 West Lake Street, Suite 900, Chicago, Illinois 60606.

Q: What matters will be voted on at the Special Meeting?

A: You will be asked to vote on the following proposals:

 

    to approve the Merger Proposal;

 

    to approve the Adjournment Proposal;

 

    to approve the Compensation Proposal; and

 

    to act upon other business that may properly come before the Special Meeting or any adjournment or postponement thereof.

Q: What constitutes a quorum for the Special Meeting?

A: The presence at the Special Meeting, in person or by proxy, of the holders of a majority of the shares of the capital stock of the Company entitled to vote at the meeting on the record date, on an as-converted basis, will constitute a quorum, permitting the Company to conduct its business at the Special Meeting. Under the Voting Agreement, the Rollover Investors agreed to vote all shares of capital stock they own in favor of adoption of the Merger Agreement, and the presence of these shares ensures a quorum at the Special Meeting.

Q: What vote of our stockholders is required to approve the Merger Agreement?

A: The consummation of the Merger is conditioned upon the approval of a resolution to adopt the Merger Agreement by the affirmative vote of holders of a majority of the outstanding shares of our capital stock, voting together as a single class on an as-converted basis. Pursuant to our certificate of incorporation, shares of Common Stock are entitled to one vote per share, and shares of Preferred Stock are entitled to one vote for each share of Common Stock that would be issuable upon conversion of such shares of Preferred Stock on the Record Date. Under the Voting Agreement, the Sponsor Entities, as holders of approximately 68% of the outstanding shares of capital stock on an as-converted basis as of the date of the Voting Agreement, agreed to vote all shares

 

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they own in favor of adoption of the Merger Agreement, and the presence of these shares ensures a quorum at the Special Meeting. In addition, the Merger Agreement makes stockholder approval of the proposal to adopt the Merger Agreement a condition to the parties’ obligations to consummate the Merger. If you fail to vote on the Merger Proposal, the effect will be the same as a vote “AGAINST” the Merger Proposal.

As of the Record Date, a total of 23,246,258 shares of our Common Stock, 52,000 shares of our Series A Preferred Stock and 17,500 shares of our Series B Preferred Stock were outstanding and entitled to vote. As of the Record Date, the outstanding shares of Preferred Stock were convertible into a total of 25,484,850 shares of Common Stock, meaning that a total of 48,731,108 shares of Common Stock were deemed outstanding for purposes of voting on the matters set forth in this proxy statement, 33,116,034 shares of which were held by the Sponsor Entities.

Each of the directors and executive officers of the Company has informed the Company that, as of the date of this proxy statement, he or she intends to vote in favor of the adoption of the Merger Agreement.

Q. Am I entitled to exercise appraisal rights under the DGCL instead of receiving the $0.35 per share Merger Consideration for my shares of Common Stock?

A. Stockholders who do not vote (in person or by proxy) in favor of the adoption of the Merger Agreement are entitled to exercise appraisal rights under the DGCL in connection with the Merger if they take certain actions and meet certain conditions. For additional information, see “Appraisal Rights” beginning on page 113. For the full text of Section 262 of the DGCL, please see Annex B hereto. Because of the complexity of the DGCL relating to appraisal rights, if you may wish to exercise your appraisal rights, we encourage you to consult with your own legal counsel promptly.

Q: What vote of our stockholders is required to approve other matters to be presented at the Special Meeting?

A: The Adjournment Proposal and the Compensation Proposal each require the affirmative vote of holders of a majority of the shares of capital stock, voting together as a single class on an as-converted basis, present in person or represented by proxy at the Special Meeting and entitled to vote on the matter. Pursuant to our certificate of incorporation, shares of Common Stock are entitled to one vote per share, and shares of Preferred Stock are entitled to one vote for each share of Common Stock that would be issuable upon conversion of such shares of Preferred Stock on the Record Date.

Q: Why am I being asked to vote on the Compensation Proposal?

A: SEC rules require us to seek an advisory, non-binding vote with respect to certain categories of compensation that may be provided to named executive officers in connection with a merger transaction.

Q: What will happen if stockholders do not approve the Compensation Proposal?

A: Approval of the Compensation Proposal is not a condition to the completion of the Merger. This vote is an advisory vote and will not be binding on the Company. Therefore, if stockholders approve the Merger Proposal by the requisite majorities and the Merger is completed, the payments that are the subject of the Compensation Proposal vote may become payable to the named executive officers regardless of the outcome of such vote.

Q: How does the Board of Directors recommend that I vote?

A: Based in part on the unanimous recommendation of the Special Committee, the Board of Directors recommends unanimously that our stockholders vote:

 

    FOR” approval of the Merger Proposal;

 

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    FOR” approval of the Adjournment Proposal; and

 

    FOR” approval of the Compensation Proposal.

You should read “Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 28 for a discussion of the factors that the Special Committee and the Board of Directors considered in deciding to recommend and/or approve, as applicable, the Merger Agreement. See also “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 53.

Q: What effects will the Merger have on the Company?

A: Shares of the Company’s Common Stock are currently registered under the Securities Exchange Act of 1934, as amended, which we refer to as the “Exchange Act,” and are quoted on the OTCQX under the symbol “CNXR.” As a result of the Merger, the Company will cease to be a publicly traded company and will be wholly owned indirectly by Parent. Following the consummation of the Merger, the registration of the Common Stock and our reporting obligations with respect to the Common Stock under the Exchange Act will be terminated upon application to the SEC. In addition, upon the consummation of the Merger, the Common Stock will no longer be listed on any stock exchange or quotation system, including on the OTCQX.

Q: What will happen to my options and restricted share awards under the Company Plans?

A: At the effective time of the Merger, each unvested option you hold to purchase common stock under the Company Plans that is outstanding immediately before the effective time of the Merger will be canceled for no consideration. Each outstanding vested option will be canceled in exchange for the right to receive a lump-sum cash payment equal to the product of (a) the excess, if any, of (i) the $0.35 per share Merger Consideration over (ii) the per-share exercise price for such option and (b) the total number of shares of common stock underlying such option, less applicable taxes required to be withheld. All of the Company’s outstanding vested options to purchase Common Stock have a per-share exercise price greater than $0.35; therefore, all of such options will be canceled without consideration.

In addition, at the effective time of the Merger, each unvested RSU granted under the Company Plans that is outstanding immediately before the effective time of the Merger will be canceled for no consideration. Each RSU that will be vested as of the effective time of the Merger, but not previously settled in shares of Common Stock before the effective time of the Merger, will be canceled in exchange for the right to receive a lump-sum cash payment equal to the product of (i) the $0.35 per share Merger Consideration and (ii) the number of shares of common stock subject to such RSU, less applicable taxes required to be withheld.

All such payments will be made by the surviving corporation, without interest at the effective time of the Merger or as soon as practicable thereafter, and in no event later than the date that is the later of five business days after the effective time and the date of the Company’s first regularly scheduled payroll after the effective time.

Q: What will happen if the Merger is not consummated?

A: If the Merger is not consummated for any reason, the Company’s stockholders will not receive any payment for their shares of capital stock in connection with the Merger. Instead, the Company will remain a public company and the Common Stock will continue to be registered under the Exchange Act, with shares quoted on the OTCQX or another over-the-counter market. Under specified circumstances, if the Merger Agreement is terminated, the Company may be required to reimburse the out-of-pocket expenses of Parent, Merger Sub and their affiliates incurred in connection with the Merger up to a maximum of $2,000,000. See “The Merger Agreement—Termination of the Merger Agreement” beginning on page 91 and “The Merger Agreement—Termination Fee and Expenses” beginning on page 92.

 

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Q: What do I need to do now?

A: We urge you to read this entire proxy statement carefully, including its annexes and the documents referred to or incorporated by reference in this proxy statement, as well as the related Schedule 13E-3, including the exhibits thereto, filed with the SEC, and to consider how the Merger affects you.

If you are a stockholder of record, you can ensure that your shares are voted at the Special Meeting by submitting your proxy via:

 

    telephone, using the toll-free number listed on your proxy card;

 

    the Internet, at the address provided on your proxy card; or

 

    mail, by completing, signing, dating and mailing your proxy card and returning it in the envelope provided.

If you hold your Common Stock in “street name” through a broker, bank or other nominee, you should follow the directions provided by it regarding how to instruct it to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting “AGAINST” approval of the Merger Proposal and will have no effect on the Adjournment Proposal and the Compensation Proposal.

Q: Should I send in my evidence of ownership now?

A: No. After the Merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your Common Stock for the $0.35 per share Merger Consideration. If your Common Stock is held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” Common Stock in exchange for the $0.35 per share Merger Consideration. Please do not send in your evidence of ownership now.

Q: Can I revoke my proxy and voting instructions?

A: Yes. You can revoke your proxy and voting instructions at any time before your proxy is voted at the Special Meeting. If you are a stockholder of record, you may revoke your proxy by notifying the Company’s Secretary in writing at Connecture, Inc., 18500 West Corporate Drive, Suite 250, Brookfield, Wisconsin 53045, by submitting a new proxy by telephone, the Internet or mail, in each case, dated after the date of the proxy being revoked, or by attending the Special Meeting and voting in person (but simply attending the Special Meeting will not cause your proxy to be revoked).

Please note that if you hold your Common Stock in “street name” and you have instructed a broker, bank or other nominee to vote your common stock, the above-described options for revoking your voting instructions do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to revoke your voting instructions.

Q: What does it mean if I get more than one proxy card?

A: If your shares of Common Stock are registered differently or held in more than one account, you will receive more than one proxy card. Please complete and return all of the proxy cards you receive (or submit each of your proxies by telephone or the Internet, if available to you) to ensure that all of your shares of Common Stock are voted.

If your shares of Common Stock are held through a broker, bank or other nominee, you will receive either a voting form or a proxy card from the nominee with specific instructions about the voting methods available to you. As a beneficial owner, in order to ensure your shares of Common Stock are voted, you must provide voting instructions to the broker, bank or other nominee by the deadline provided in the materials you receive from them.

 

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Q: Who will count the votes?

A: A representative of the Company will count the votes and act as an inspector of election.

Q: Who can help answer my other questions?

A: If you have more questions about the Merger, or require assistance in submitting your proxy or voting your common stock or need additional copies of the proxy statement or the enclosed proxy card, please contact our Investor Relations representative at (262) 432-8282.

If your broker, bank or other nominee holds your common stock, you can also call your broker, bank or other nominee for additional information.

 

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SPECIAL FACTORS

Background of the Merger

The Company completed its initial public offering of its Common Stock in December 2014. Since that time, the Board and senior management regularly review the Company’s business, operations, financial performance and strategic direction. As part of this evaluation, the Board considers the Company’s long-term strategies and plans, changes in the industry and markets in which the Company operates, execution opportunities and risks and other considerations.

Beginning in August 2015, the Company and the Board began consideration of potential alternatives for raising additional capital. Throughout September and October 2015, the Board solicited the advice of representatives of Raymond James with respect to potential alternatives for raising additional capital, including public or private equity capital or subordinated debt financing. In November 2015, the Company, at the Board’s direction, retained Raymond James to serve as its financial advisor to seek additional capital for the Company through a private placement of equity securities. At the direction of the Board, representatives of Raymond James contacted potential strategic and financial sponsors, including Francisco Partners, to assess their interest in exploring a private placement of the Company’s equity securities.

In later November and early December 2015, after assessing the results of the initial outreach by Raymond James, the Company and the Board determined to explore other capital raising alternatives, including a public equity offering. On January 8, 2016, at the direction of the Board, the Company filed a shelf registration statement on Form S-3 with the SEC to preserve its ability to conduct a public equity offering. As the Company continued to assess potential interest in a public offering, in January 2016, members of the Company’s management and representatives of Francisco Partners resumed previous discussions regarding a private placement of securities. On February 2, 2016, Francisco Partners submitted a non-binding term sheet for a private placement of preferred equity securities.

On February 3, 2016, the Board met to consider the Francisco Partners proposal and created a special committee of independent directors, consisting of Vickie Capps, Russ Thomas and Paul Kusserow, with the authority to evaluate and negotiate financing alternatives for the Company on behalf of the Board (the “February 2016 Special Committee”). Ms. Capps served as chair. On February 5, 2016, the February 2016 Special Committee met and authorized representatives of Raymond James to both negotiate terms of a potential private placement of equity securities with Francisco Partners and to continue to explore other capital raising alternatives, including a public offering of equity securities and obtaining additional debt financing. After further negotiation and consideration, on February 19, 2016, upon the unanimous recommendation of the February 2016 Special Committee, the Board authorized the Company to enter into a non-binding term sheet with Francisco Partners with respect to a potential private placement of the Company’s equity securities and authorized representatives of Raymond James and the Company’s legal counsel, DLA Piper LLP (US) (“DLA Piper”), to negotiate with Francisco Partners with respect to the final terms of such an investment. At such meeting, David A. Jones, Jr., chairman of the Board and an affiliate of Chrysalis, a significant stockholder of the Company, disclosed to the Board that Chrysalis would consider participating in a potential equity financing with Francisco Partners and recused himself from the deliberations and vote of the Board to authorize the Company to execute the Francisco Partners term sheet.

Between February 19, 2016 and March 11, 2016, representatives of the Company and Francisco Partners continued negotiations with respect to the terms of an equity investment by Francisco Partners in the Company. During such time, the February 2016 Special Committee continued to meet to oversee such negotiations.

On March 11, 2016, the Board approved the issuance of 52,000 shares of newly created Series A Preferred Stock to the FP Investors and Chrysalis for an aggregate purchase price of $52 million. The Board was fully informed of Mr. Jones’ affiliation with Chrysalis in providing its approval. The shares of Series A Preferred Stock were issued pursuant to an investment agreement, dated March 11, 2016, as amended, by and among the

 

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Company and the Sponsor Entities. Following entry into the investment agreement, the Company sought the approval of the Company’s stockholders, in accordance with the listing rules of the Nasdaq Global Market, of the issuance of the Series A Preferred Stock to the Sponsor Entities. The proposal to approve the financing was approved by the Company’s stockholders at the Company’s annual meeting of stockholders held on April 28, 2016, with 99% of votes cast (excluding broker non-votes) voting in favor of the proposal. On May 2, 2016, the Company and the Sponsor Entities closed the financing and entered into an investor rights agreement that provided, among other items, the Sponsor Entities with certain registration rights with respect to the Series A Preferred Stock and the Company’s Common Stock, as well as giving Francisco Partners the right to designate a member of the Board under certain circumstances. Pursuant to the investor rights agreement, Francisco Partners designated Ezra Perlman to the Board. As of the closing of the financing, the Series A Preferred Stock represented approximately 34% of the Company’s outstanding capital securities (on an as-converted basis). A portion of the proceeds was used to repay the outstanding borrowings under the Company’s subordinated term loan that the Company had in place prior to the financing. In addition, following the closing, on June 8, 2016, the Company amended and restated its credit facility with Wells Fargo to, among other items, increase the size and extend the maturity date of its existing term loan, provide access to a new revolving line of credit and modify certain operating covenants.

In January 2017, the Company’s management and the Board determined that the Company required additional capital investment to fund its future operations. At a meeting of the Board on January 17, 2017, the Board created a special committee of independent directors, consisting of Vickie Capps, Russ Thomas and John Ansay, with the authority to evaluate and negotiate financing alternatives for the Company on behalf of the Board (the “January 2017 Special Committee”). Ms. Capps again served as chair. Beginning on January 21, 2017, the January 2017 Special Committee met to discuss financing alternatives, including expansion or modification of the Company’s credit facility, additional debt financing or the issuance of public or private equity securities. On January 28, 2017, the January 2017 Special Committee determined to retain Raymond James as its independent financial advisor and authorized Raymond James to begin discussions with potential financing sources. Raymond James subsequently contacted potential sponsors with respect to equity investment alternatives and the Company engaged in discussions with potential new debt financing sources, as well as with its senior lender with respect to potential modifications to the Company’s existing credit facility. The representatives of Raymond James also engaged with Francisco Partners with respect to the potential terms of an additional equity investment in the Company.

On February 6, 2017, Francisco Partners submitted a non-binding term sheet for an additional equity investment in the Company. Following receipt of the proposal, the January 2017 Special Committee authorized Raymond James and representatives of DLA to negotiate, with oversight by the special committee, the terms of a potential additional investment by Francisco Partners while also continuing to seek other alternative sources of financing. Between February 6, 2017 and March 10, 2017, representatives of the Company and Francisco Partners continued negotiations with respect to the terms of an equity investment by Francisco Partners in the Company. On March 7, 2017, after evaluating other potential financing alternatives available to the Company, the January 2017 Special Committee unanimously determined that an additional equity investment by Francisco Partners (with Chrysalis also participating) was in the best interests of the Company and its stockholders and recommended that the Board consider and approve the terms of such transaction. In doing so, the January 2017 Special Committee, whose members also consisted of all members of the Company’s audit committee, considered and approved the participation of Francisco Partners and Chrysalis in such transaction, acknowledging the fact that Ezra Perlman and David A. Jones, Jr. were both members of the Board.

On March 7, 2017, the Board (with Messrs. Perlman and Jones abstaining) voted unanimously to approve the issuance of 17,500 shares of newly created Series B Preferred Stock to the Sponsor Entities for an aggregate purchase price of $17.5 million. The financing transaction closed on March 10, 2017, and, simultaneously with the closing of the financing transaction, the Company and its senior lender, Wells Fargo, agreed to amend the Company’s existing credit facility to, among other things, defer certain required repayments and modify certain operating covenants, which modified covenants included a requirement that the Company achieve a higher level

 

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of liquidity by April 1, 2018. In connection with the closing, the Company entered into an additional investor rights agreement that provided, among other items, the Sponsor Entities with certain registration rights with respect to the Series B Preferred Stock and the Common Stock, as well as giving Francisco Partners the right to designate a proportionate share of the Board based upon its percentage ownership of the Company’s outstanding securities on an as-converted basis, rounded up to the nearest whole director in certain circumstances. In addition, the size of the Board was increased by one director, which seat was filled by Kraig McEwen upon designation by Francisco Partners. Francisco Partners has not otherwise exercised its right to appoint additional directors to the Board and has agreed to refrain from doing so throughout the term of the Voting Agreement (as more fully described in the section entitled “Voting and Support Agreement” beginning on page 94). As of the closing of the Series B Preferred Stock financing, the FP Investors held approximately 56% of the Company’s outstanding capital securities (on an as-converted basis). For additional discussion of the Series A Preferred Stock and Series B Preferred Stock private placement transactions with the Sponsor Entities, see the section entitled “Important Information Regarding Connecture—Private Placement Transactions” beginning on page 95.

In May 2017, the Company received an unsolicited, non-binding expression of interest from a strategic sponsor (“Sponsor A”) with respect to a potential acquisition of the Company’s Medicare business. At a meeting held on May 10, 2017, the Board reviewed the proposal and determined that it was not in the best interests of the Company or its stockholders because it would not, in the Board’s view, deliver sufficient value to the Company’s stockholders in light of the effect that divesting the Company’s Medicare business potentially would have on the remaining value of the Company. The Board instructed management to inform Sponsor A that the Company was not interested in pursuing a divestiture of the Medicare business at such time, which management did. In response, Sponsor A informed the Company that it was interested in entering into a confidentiality agreement so that it could assess whether it would be interested in pursuing a potential acquisition of the entire Company. On May 31, 2017, the Company and Sponsor A entered into a confidentiality agreement with a standstill provision (which provision did not include any “don’t ask, don’t waive” restrictions and would fall away upon the announcement of a sale of the Company to a different sponsor).

On July 24, 2017, Sponsor A submitted a non-binding indication of interest to acquire the Company. The indication of interest did not include a fixed price per share for the Common Stock but indicated that Sponsor A would propose a cash purchase price in the range of $1 to $2 per share of Common Stock. On July 29, 2017, the Board met to review the proposal. The Board discussed the proposal and received a presentation with respect to its fiduciary duties from a representative of DLA Piper. Following discussion, the Board authorized management to provide additional information to Sponsor A to enable it to provide a more precise purchase price. The Board also discussed the Company’s potential capital requirements and the possibility of engaging a financial advisor to assist the Company with a review of its strategic alternatives. The Board then authorized management to begin discussions with Raymond James with respect to advising the Company on the transaction with Sponsor A and other potential strategic alternatives. From July 29, 2017 through August 24, 2017, representatives of Sponsor A continued to conduct a due diligence review of the Company.

On August 9, 2017, the Board held a regularly scheduled telephonic meeting, at which, among other items, it further discussed the proposal from Sponsor A. At the meeting it was noted that Sponsor A was still conducting its due diligence review of the Company and had indicated that it would need additional time to consider revising its proposal. At the meeting, representatives of Raymond James presented to the Board on potential next steps with Sponsor A. Also at the meeting, the Board created a special committee of independent directors, consisting of Vickie Capps, Russ Thomas, John Ansay and Paul Kusserow, with the authority to evaluate and negotiate strategic alternatives for the Company on behalf of the Board, including with Sponsor A (the “August 2017 Special Committee”). Ms. Capps again served as chair. The Board also determined that the Company should begin a process to evaluate other interest in a potential acquisition of the Company and authorized the August 2017 Special Committee to retain Raymond James as its financial advisor, subject to entry into an engagement letter acceptable to the members of the committee.

 

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On August 11, 2017, at a telephonic meeting of the Board, representatives of Raymond James presented to the Board on potential next steps in a process to evaluate other interest in a potential acquisition of the Company.

On August 15, 2017, at a telephonic meeting of the Board, representatives of Raymond James presented to the Board potential strategic and financial sponsors that could be contacted as part of a process to evaluate interest in an acquisition of the Company. The Board discussed the potential sponsors and authorized Raymond James to contact such parties, in consultation with management and the August 2017 Special Committee.

On August 19, 2017, the August 2017 Special Committee met telephonically and reviewed proposed terms of an engagement letter with Raymond James to serve as its independent financial advisor in connection with an assessment of strategic alternatives. The special committee provided feedback on the proposed terms of the engagement letter and authorized Ms. Capps, as chair, and DLA Piper to negotiate the terms of the engagement letter consistent with the special committee’s guidance.

On August 24, 2017, the August 2017 Special Committee met telephonically. At the meeting, the August 2017 Special Committee reviewed revised proposed terms of the engagement letter with Raymond James. Following discussion, the August 2017 Special Committee unanimously voted to retain Raymond James as the special committee’s independent financial advisor. On August 24, 2017, the August 2017 Special Committee, the Company and Raymond James executed the engagement letter.

At the direction of the Board and the August 2017 Special Committee, from August 18, 2017 through November 21, 2017, representatives of Raymond James contacted 20 strategic parties (in addition to Sponsor A) and one financial sponsor (in addition to the Sponsor Entities) to assess their interest in exploring a transaction with the Company. Of these parties, six potential strategic acquirors and one potential financial acquiror expressed an interest in such discussions and entered into confidentiality agreements with standstill provisions (none of which included “don’t ask, don’t waive” restrictions and all of which would fall away upon the announcement of a sale of the Company to a different sponsor). The Company provided management presentations to six potential acquirors that entered into confidentiality agreements. None of the parties contacted by Raymond James submitted an indication of interest to acquire the Company or indicated that such a proposal would be forthcoming.

On the evening of August 24, 2017, Sponsor A notified the Company (and subsequently Raymond James) that it no longer was interested in pursuing an acquisition of the Company and that it did not intend to submit a revised proposal. Sponsor A did not provide a specific reason for declining to further pursue a transaction other than that it did not believe that an acquisition of the entire Company provided it with the strategic value it required to support an offer. Mr. Surges notified the Board of Sponsor A’s determination and its feedback on the morning of August 25, 2017.

On September 22, 2017, the Board met telephonically and discussed, among other items, the status of the Company’s strategic alternative review process and the Company’s capital requirements. Representatives of Raymond James also presented to the Board with respect to its outreach process and feedback received.

On October 17, 2017, at a telephonic meeting, the Board approved the voluntary withdrawal of the Common Stock from listing on the Nasdaq Global Market. Previously, on May 4, 2017 and May 30, 2017, respectively, the Company had been notified by Nasdaq that the Company was no longer in compliance with certain of the continued listing requirements for the Nasdaq Global Market and that if the Company did not regain compliance with such requirements by October 31, 2017 and November 27, 2017, respectively, its Common Stock would be subject to delisting by Nasdaq. Based on its assessment of the probability of the Company’s regaining compliance with the Nasdaq listing requirements by such dates, the Common Stock’s then-current trading volume and price, and the costs of seeking to maintain eligibility to list the Common Stock on the Nasdaq Global Market, the Board determined that a delisting was imminent and that it would be in the best interests of the Company and its stockholders to withdraw from the Nasdaq Global Market in order to ensure an orderly

 

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transition to a different exchange. The Board also discussed the Company’s capital requirements and near-term liquidity constraints. The Board also received a presentation with respect to its fiduciary duties from a representative of DLA Piper. On October 30, 2017, at the Company’s instruction, the Common Stock ceased to trade on the Nasdaq Global Market and beginning October 31, 2017, was quoted on the OTCQX US Market, operated by OTC Markets, Inc., under the Company’s existing trading symbol “CNXR.”

At the request of the Board, on October 15, 2017, the Company’s management communicated to the Board information regarding management’s assessment of the Company’s capital requirements for fiscal 2018, including management’s belief that, absent a substantial capital infusion, the Company would breach the minimum liquidity covenant under its existing senior credit facility with Wells Fargo beginning on April 1, 2018. Given the Company’s near-term liquidity needs, between October 15, 2017 and November 13, 2017, Ms. Capps, as chair of the August 2017 Special Committee, discussed on multiple occasions with representatives of Francisco Partners the Company’s capital requirements and Francisco Partners’ potential willingness to provide the Company with additional access to capital. Additionally, on October 27, 2017, the Company’s management met with representatives of Francisco Partners to review the assessment previously provided to the Board on October 15, 2017.

On November 13, 2017, the Company received an indication of interest from Francisco Partners (the “Initial Proposal”) to acquire all of the outstanding common equity securities of the Company that it did not already own (the “Proposed Transaction”). Under the Initial Proposal, Francisco Partners offered to purchase all outstanding shares of the Common Stock at a purchase price of $0.30 per share, which represented a premium of approximately 30% to the unaffected closing price of $0.23 per share of the Common Stock on the OTCQX on November 10, 2017. The Initial Proposal also assumed that all of the Company’s outstanding Preferred Stock would be rolled over into a newly formed acquisition vehicle on the basis of the original cost of such shares plus all accrued but unpaid dividends. Additionally, the Initial Proposal contemplated that (i) there would be no financing contingency to the consummation of the Proposed Transaction, (ii) Francisco Partners would provide a fund guarantee of the proceeds required to consummate the Proposed Transaction, (iii) the definitive agreement for the Proposed Transaction would include a go-shop provision (the Initial Proposal did not specify the duration) and (iv) the only termination fee payable by the Company in the event that the definitive agreement for the Proposed Transaction is terminated by the Company would be Francisco Partners’ actual out-of-pocket expenses in connection with the Proposed Transaction (payable only in the event the Board terminated the definitive agreement to pursue a superior proposal).

On November 16, 2017, the August 2017 Special Committee met telephonically to discuss the Initial Proposal. At the meeting, Mr. Estrada, the Company’s then–Chief Financial Officer, presented to the August 2017 Special Committee on the Company’s liquidity needs and the potential that the Company’s senior lender would provide additional access to short-term capital under the Company’s existing credit facility and amend the debt covenants as necessary if the Company were to enter into a definitive agreement with a committed sponsor to acquire the Company. Representatives of DLA Piper then presented to the members of the August 2017 Special Committee with respect to their fiduciary duties and noted to the committee that representatives of Raymond James had indicated that Raymond James might have a potential conflict in providing an opinion in connection with the Proposed Transaction. The representatives of DLA Piper recommended that the August 2017 Special Committee retain independent financial and legal advisors in connection with its assessment of the Proposed Transaction.

On November 20, 2017, Ms. Capps, chair of the August 2017 Special Committee, had a telephonic discussion with representatives of Potter Anderson and DLA Piper to discuss the re-authorization and re-constitution of the committee in connection with the Proposed Transaction and the potential engagement of Potter Anderson as the committee’s independent legal advisor. The representatives of Potter Anderson introduced themselves and described their qualifications to serve as the special committee’s counsel. Ms. Capps indicated that she, on behalf of the August 2017 Special Committee, would begin the process of contacting potential financial advisor candidates to potentially serve as the committee’s independent financial advisor. The August

 

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2017 Special Committee subsequently formalized its engagement of Potter Anderson as its independent legal counsel pursuant to an engagement letter dated November 20, 2017.

On November 22, 2017, the August 2017 Special Committee held a telephonic meeting with representatives of Potter Anderson and DLA Piper in attendance. The representatives of DLA Piper reviewed the third-party solicitation process undertaken by the Company earlier in the year and the lack of firm proposals resulting from that process. The representatives of DLA Piper also provided an overview of the Initial Proposal and reported on discussions between DLA Piper and Kirkland & Ellis LLP (“Kirkland & Ellis”), Francisco Partners’ legal counsel, regarding the structure of the Proposed Transaction. Representatives of Potter Anderson then reviewed proposed resolutions of the Board to re-authorize and re-constitute a special committee of the Board to analyze, investigate, and negotiate the Proposed Transaction and any alternative transaction to the Proposed Transaction and to decline to recommend the Proposed Transaction or any alternative transaction to the Board (the “Formation Resolutions”). After the representatives of DLA Piper were excused from the meeting, Potter Anderson reviewed the special committee’s fiduciary duties and the general attributes of an effective special committee process, as well as attributes that the committee should consider in evaluating and selecting a financial advisor. Ms. Capps reported on her efforts with respect to the potential engagement of Houlihan Lokey. The August 2017 Special Committee then delegated authority to Ms. Capps to assess Houlihan Lokey as a potential financial advisor and, with the assistance of Potter Anderson, negotiate the terms of Houlihan Lokey’s engagement and report back to the committee for final approval of Houlihan Lokey’s engagement, as appropriate. The August 2017 Special Committee also discussed whether to retain Raymond James to assist the Company in conducting the go-shop process (at the direction of the special committee) in the event the committee and the Company were to determine to pursue the Proposed Transaction.

Later on November 22, 2017, Ms. Capps had a telephonic discussion with representatives of Houlihan Lokey to discuss Houlihan Lokey’s possible engagement as the special committee’s financial advisor and Houlihan Lokey subsequently provided to Ms. Capps certain information regarding, among other things, Houlihan Lokey’s qualifications, material engagements review with respect to Francisco Partners and Chrysalis over the prior two-year period, and the proposed senior team, scope of services and fee arrangement for such engagement.

On November 24, 2017, Houlihan Lokey provided to Ms. Capps a proposal letter and supplemental information providing an overview of Houlihan Lokey and its qualifications to serve as the special committee’s financial advisor, the senior team for the engagement, and the scope of and proposed fees for Houlihan Lokey’s services, if engaged.

On November 27, 2017, the August 2017 Special Committee held a telephonic meeting with representatives of Potter Anderson and DLA Piper in attendance. The representatives of DLA Piper and Potter Anderson and the committee discussed the status of the proposed draft of the Formation Resolutions and the process for the Board’s adoption of the same. After DLA Piper was excused from the meeting, the committee discussed the potential engagement of Houlihan Lokey as a financial advisor to the special committee, including Houlihan Lokey’s qualifications to serve as the special committee’s financial advisor and proposed fee arrangement for such engagement. The committee and Potter Anderson also discussed whether Raymond James should be retained to conduct a potential go-shop process on behalf of the Company (at the direction of the special committee), including the benefit, from an efficiency standpoint, of having Raymond James conduct the go-shop process given its institutional knowledge of the Company, familiarity with the universe of potential bidders from the third-party solicitation process earlier in the year, and experience in the healthcare space. The committee determined to engage Raymond James to conduct a potential go-shop process, subject to the successful negotiation of an amendment to the existing Raymond James engagement letter.

On November 28, 2017, the Board held a special telephonic meeting to discuss the Proposed Transaction and the re-authorization and re-constitution of a special committee of the Board to analyze, investigate, and negotiate the Proposed Transaction and any alternative transaction to the Proposed Transaction. The

 

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representatives of DLA Piper reviewed the proposed Formation Resolutions provided to the Board in advance of the meeting, including the authority to be delegated to the special committee to analyze, investigate, and negotiate the Proposed Transaction and any alternative transaction to the Proposed Transaction and to decline to recommend the Proposed Transaction or any alternative transaction to the Board. The representatives of DLA Piper also reviewed the proposed membership of the special committee, which would be comprised of Vickie Capps, John Ansay and Paul Kusserow, noting that each such member was independent and disinterested (other than as a director and stockholder of the Company) for purposes of evaluating the Proposed Transaction. The representative also reviewed the Board’s fiduciary duties. Following discussion, the Board approved the Formation Resolutions and re-authorized and re-constituted the special committee, which re-constituted special committee we refer to for purposes of this “Background of the Merger” section and elsewhere in this proxy statement as the “Special Committee.”

Also on November 28, 2017, Houlihan Lokey provided to the Special Committee and Potter Anderson a letter disclosing that Houlihan Lokey had not identified any engagements active since November 28, 2015 directly by Francisco Partners, Chrysalis or the Company pursuant to a written engagement letter to provide advisory services to such entities for which such entities paid fees to Houlihan Lokey. Houlihan Lokey and the Company also entered into a confidentiality agreement, dated November 28, 2017, in order to permit Houlihan Lokey to commence its work pending the negotiation of a mutually agreeable engagement letter.

On December 4, 2017, December 8, 2017 and December 9, 2017, at the direction of the Special Committee, representatives of Houlihan Lokey had telephonic discussions with representatives of Francisco Partners to discuss the Special Committee’s process, the timing of a potential counterproposal to Francisco Partners, Francisco Partners’ potential willingness to provide financing for the Company as an alternative to its Initial Proposal and Francisco Partners’ sources of financing and due diligence review process. Francisco Partners indicated that it was not interested in making a proposal to provide financing for the Company as an alternative to its Initial Proposal.

On December 7, 2017, Raymond James provided to the Special Committee a draft amendment to the Raymond James engagement letter to engage Raymond James to conduct the Company’s potential go-shop process at the direction of the Special Committee. Over the following days, the Special Committee, Potter Anderson and Raymond James negotiated the terms of the draft amendment.

On December 10, 2017, the Special Committee held a telephonic meeting with representatives of Potter Anderson and Houlihan Lokey, as well as Mr. Estrada, in attendance. Prior to Mr. Estrada and Houlihan Lokey joining the meeting, Potter Anderson and the Special Committee discussed the terms of Houlihan Lokey’s engagement, and Houlihan Lokey’s prior material engagements disclosure. The Special Committee determined that no material relationships existed between Houlihan Lokey, on the one hand, and Francisco Partners, Chrysalis or the Company, on the other, that would pose a conflict of interest with respect to the Proposed Transaction or that would otherwise impair Houlihan Lokey’s ability to provide financial advisory services to the Special Committee in an independent and disinterested manner. Following such discussion, the Special Committee unanimously approved the engagement of Houlihan Lokey, and thereafter Houlihan Lokey was formally engaged as of November 29, 2017. Mr. Estrada and representatives of Houlihan Lokey then joined the meeting. Mr. Estrada presented to the Special Committee certain financial projections relating to the Company for the fiscal years ending December 31, 2018 through December 31, 2023 and a weekly cash flow forecast for the weeks ending December 8, 2017 through March 30, 2018. With respect to the financial projections, Mr. Estrada discussed certain assumptions underlying the financial projections, including the assumption that the Company would be able to continue as a going concern by raising the capital required to continue funding its operations and to replace or amend the Company’s existing credit facility with Wells Fargo by April 1, 2018. With respect to the weekly cash flow forecast, Mr. Estrada noted management’s projection that the Company would likely not have sufficient available cash to fund operations beyond March 2018. After the Special Committee members asked, and Mr. Estrada answered, questions regarding the Company’s financial projections and weekly cash flow forecast, Mr. Estrada was excused from the meeting. Houlihan Lokey then reviewed with

 

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the Special Committee certain preliminary discussion materials, which included, among other things, (i) an overview of the Company’s financial circumstances and historical financial performance based on the Company’s public filings and discussions with the Company’s management, (ii) an overview of certain trading data for the Company, (iii) based on information from the Company’s management, an overview of the Company’s recent financial performance relative to its internal budget, and (iv) a list of certain potential strategic alternatives for the Company and potential next steps (see “Opinion of the Special Committee’s Financial Advisor—Preliminary Discussion Materials—December 10, 2017 Preliminary Discussion Materials” beginning on page 45 for more information). The Special Committee members also discussed with Houlihan Lokey the financial projections prepared by management and the desire for management to provide bankruptcy sensitivities to the going-concern projections to illustrate the financial impact of potential customer dislocations in connection with a bankruptcy given the Company’s assessment that there would be substantial doubt about the Company’s ability to continue as a going concern absent a substantial financing to maintain compliance with the Company’s existing debt agreements and fund operations. Houlihan Lokey discussed with the Special Committee Houlihan Lokey’s view regarding the limitations on certain alternatives to the Proposed Transaction given the Company’s financial circumstances. After the representatives of Houlihan Lokey were excused from the meeting, the Special Committee and Potter Anderson also discussed a draft amendment to the Raymond James engagement letter to retain Raymond James to conduct the Company’s potential go-shop process at the direction of the Special Committee.

On December 11, 2017, at the direction of the Special Committee, representatives of Houlihan Lokey had a telephonic discussion with representatives of Francisco Partners to discuss the status of the Special Committee’s process and the timing of a potential counterproposal to Francisco Partners. Additionally, the participants discussed Francisco Partners’ request to conduct customer due diligence calls.

On December 13, 2017, the Special Committee held a telephonic meeting with representatives of Potter Anderson and Houlihan Lokey in attendance. Potter Anderson provided an overview of the initial draft of the merger agreement for the Proposed Transaction prepared by DLA Piper at the direction of the Special Committee, including a review of the transaction structure and the fact that the Sponsor Entities would enter into a separate agreement providing for the rollover of their shares of Preferred Stock into the acquiring entity. Potter Anderson also noted its belief that the inclusion of a go-shop provision, coupled with a termination fee limited to Francisco Partners’ out-of-pocket expenses, would permit the Special Committee to conduct a post-signing process designed to confirm that the Non-Rolling Stockholders would be receiving the best price reasonably available. Potter Anderson also discussed that the Company would propose that the Sponsor Entities enter into a voting and support agreement with the Company, which would include a commitment from the Sponsor Entities to vote their shares of the Company’s capital stock in favor of a superior proposal under certain circumstances and to refrain from exercising certain contractual rights under the investor rights agreement to appoint additional members of the Board. Next, Houlihan Lokey discussed with the Special Committee certain preliminary financial perspectives regarding the $0.30 per share purchase price (the “Initial Offer Price”) reflected in the Initial Proposal under a going concern scenario and certain considerations related to a possible response to the Initial Proposal (see “Opinion of the Special Committee’s Financial Advisor—Preliminary Discussion Materials—December 13, 2017 Preliminary Discussion Materials” beginning on page 45 for more information). The Special Committee also discussed with Houlihan Lokey and Potter Anderson the formulation of a counterproposal to the Initial Offer Price and the strategy for communicating such counterproposal to Francisco Partners. After the representatives of Houlihan Lokey were excused from the meeting, Potter Anderson confirmed that the draft amendment to the Raymond James engagement letter provided to the Special Committee was in a form consistent with the terms discussed at the Special Committee’s December 10, 2017 meeting, and the Special Committee then authorized Ms. Capps to execute such amendment on behalf of the Special Committee. The amendment to the Raymond James engagement letter detailing the terms of Raymond James’ engagement with respect to a potential go-shop process was entered into on December 13, 2017.

Later on December 13, 2017, at the direction of the Special Committee, Houlihan Lokey had a telephonic discussion with Francisco Partners to discuss next steps with respect to customer due diligence calls.

 

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On December 14, 2017, at the direction of the Special Committee, representatives of Houlihan Lokey and Raymond James had telephonic discussions regarding potential parties to be contacted as part of Raymond James’ outreach efforts and development of a communications strategy.

On December 15, 2017, at the direction of the Special Committee, representatives of Houlihan Lokey had a telephonic discussion with representatives of Chrysalis to discuss the Initial Proposal.

Also on December 15, 2017, Mr. Estrada provided the Special Committee with certain sensitivities prepared by management to management’s long-term going concern financial projections (such sensitivities, the “Bankruptcy Sensitivities”), which took into account a range of potential financial outcomes regarding, among other things, reduced acquisitions of new customers, attrition in the Company’s existing customer base and the potential impact of cost management efforts in the event that a bankruptcy process for the Company were commenced in fiscal year 2018.

Later on December 15, 2017, the Special Committee held a telephonic meeting with representatives of Potter Anderson and Houlihan Lokey in attendance. Houlihan Lokey discussed with the Special Committee, among other items and based on information provided by the Company’s management, the Company’s near-term liquidity constraints and management’s projection that, absent a substantial capital infusion, the Company would breach the minimum liquidity covenant under its existing senior credit facility with Wells Fargo beginning on April 1, 2018 and might face a liquidity shortfall prior to that time. Houlihan Lokey informed the Special Committee that Francisco Partners had declined to submit a financing proposal as an alternative to the Initial Proposal. The Special Committee discussed the need to address the Company’s liquidity constraints, the Company’s ongoing efforts to obtain an amendment to the Wells Fargo credit facility, and the potential that the Company’s entry into a definitive agreement with respect to the Proposed Transaction would facilitate such efforts. Houlihan Lokey also noted its discussion with the Company’s management regarding, among other things, the substantial likelihood of material customer dislocation costs should the Company enter a bankruptcy process. In addition, Houlihan Lokey noted that the Bankruptcy Sensitivities prepared by the Company’s management indicated substantially less favorable financial results than management’s long-term going concern projections. Houlihan Lokey then reviewed with the Special Committee its preliminary financial analyses of the Company based on an illustrative going-concern scenario assuming, among other things, that the Company obtained sufficient capital resources necessary to fund its operations and comply with its bank covenants (see “Opinion of the Special Committee’s Financial Advisor—Preliminary Discussion Materials—December 15, 2017 Preliminary Discussion Materials” beginning on page 45 for more information). Houlihan Lokey also discussed with the Special Committee certain potential strategic alternatives to the Proposed Transaction and Houlihan Lokey’s preliminary perspectives regarding the limited viability of such alternatives, particularly given the Company’s financial circumstances. Houlihan Lokey discussed with the Special Committee a sale of the Company’s Medicare business as one such potential alternative and the potential adverse impact of certain factors on the viability of such alternative, including, among other things, the Company’s liquidity constraints, the need to find a party interested in purchasing the Medicare business at a compelling value, the need to utilize proceeds to repay outstanding indebtedness, the incurrence of potential breakage costs, and the inability of the remaining Company to generate sufficient liquidity to fund its operations. Next, Houlihan Lokey discussed the contemplated go-shop process and, based on information from Raymond James, prior outreach efforts of Raymond James to potential strategic and financial buyers from August through November 2017.

Houlihan Lokey then updated the Special Committee on its December 15, 2017 discussions with representatives of Chrysalis with respect to the Proposed Transaction. The Special Committee discussed the importance of Chrysalis’ support for the Proposed Transaction given its ownership of approximately 11% of the Company’s outstanding capital stock and the importance of Chrysalis and Francisco Partners agreeing on the terms of the rollover of Chrysalis’ Preferred Stock into the acquiring entity.

Finally, the Special Committee discussed with Houlihan Lokey and Potter Anderson the Special Committee’s potential response to the Initial Proposal, including an appropriate counterproposal and the Special

 

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Committee’s rationale in support of such proposal. Following discussion of a possible counterproposal price in consultation with Houlihan Lokey, the Special Committee determined to counter the Initial Offer Price with a proposal of $0.52 per share of Common Stock, which was based on certain historical trading data of the Common Stock. The Special Committee instructed Houlihan Lokey to contact Francisco Partners in order to deliver the Special Committee’s counterproposal of $0.52 per share, to seek assurance from Francisco Partners that Wells Fargo would be supportive of the Proposed Transaction, to discuss the potential timing for the Proposed Transaction, to notify Francisco Partners of the Special Committee’s desire for Francisco Partners and Chrysalis to enter into a voting and support agreement, and to encourage Francisco Partners to discuss with Chrysalis the terms of the rollover of Chrysalis’ Preferred Stock.

Later that day, as instructed, Houlihan Lokey had a telephonic discussion with representatives of Francisco Partners and delivered the Special Committee’s counterproposal as discussed during the earlier Special Committee meeting. In response to the Special Committee’s counterproposal, the representatives of Francisco Partners indicated that the Initial Proposal of $0.30 per share represented the high end of what it was willing to pay but agreed to consider the Special Committee’s counterproposal. The representatives of Francisco Partners also confirmed that Francisco Partners had not yet commenced discussions with Chrysalis concerning the rollover. The representatives of Houlihan Lokey and Francisco Partners also discussed the potential timing for the Proposed Transaction, an amendment to the Company’s credit facility, the Special Committee’s desire for Francisco Partners and Chrysalis to enter into a voting and support agreement, and Francisco Partners’ due diligence review of the Company.

Also on December 15, 2017, the Special Committee reviewed a proposed list of customers that Francisco Partners had requested to contact as part of its due diligence review, as well as the communication strategy with respect to such outreach. As part of its desire to advance the Proposed Transaction, the Special Committee confirmed to Houlihan Lokey and the Company that it was comfortable with the proposed customer due diligence process.

Additionally, on December 15, 2017, DLA Piper, on behalf of the Special Committee, delivered the draft merger agreement, reflecting comments from Potter Anderson and the Special Committee, to Kirkland & Ellis, counsel to Francisco Partners. Between December 15, 2017 and January 4, 2018, representatives of DLA Piper, Potter Anderson, the Company, Kirkland & Ellis and Francisco Partners engaged in active negotiations regarding the terms of the merger agreement and other transaction documents.

On December 17, 2017 and December 18, 2017, Raymond James provided the Special Committee, Houlihan Lokey and Potter Anderson with a list of proposed strategic parties and financial sponsors to be contacted in connection with a potential go-shop process (the “Go-Shop Contact List”). Raymond James also requested a meeting with the Special Committee to discuss the potential go-shop process and next steps.

On December 18, 2017, the Special Committee held a telephonic meeting with representatives of Raymond James, Houlihan Lokey and Potter Anderson as well as Messrs. Surges and Estrada of the Company in attendance to discuss the potential go-shop process. Representatives of Raymond James discussed the terms of the proposed go-shop process reflected in the initial draft of the merger agreement and Raymond James’ process for compiling the Go-Shop Contact List, including its coordination with Houlihan Lokey. A discussion ensued regarding the advisability of Raymond James commencing its outreach efforts prior to the execution of a definitive agreement in respect of the Proposed Transaction, during which Raymond James discussed certain advantages and disadvantages of doing so. Raymond James then provided an overview of the potential materials for the go-shop process. After Messrs. Surges and Estrada were excused from the meeting, a discussion ensued regarding certain parties included on the Go-Shop Contact List, following which the Special Committee expressed its desire for Raymond James to develop a communication strategy that effectively included outreach to all potentially interested parties, including current and potential customers, while being sensitive to preserving the value of the Company in order to extract the best value reasonably available for the Non-Rolling Stockholders. A further discussion ensued regarding the trade-offs between a pre-signing and post-signing

 

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market check and the most appropriate course of action with respect to Raymond James’ outreach. Following such discussion, the Special Committee determined that it was willing to forgo the pre-signing market check in exchange for extending the proposed go-shop period under the merger agreement from 30 to 45 days after execution of a definitive agreement.

On December 22, 2017, the Special Committee held a telephonic meeting with representatives of Potter Anderson, Houlihan Lokey and DLA Piper in attendance to discuss Francisco Partners’ comments to the draft merger agreement and the transaction process. Representatives of Potter Anderson and DLA Piper reviewed certain open points with respect to the draft merger agreement based on Francisco Partners’ markup. The Special Committee instructed DLA Piper and Potter Anderson to revise the merger agreement consistent with its feedback. After the representative of DLA Piper was excused from the meeting, Houlihan Lokey updated the Special Committee regarding the customer due diligence calls that jointly had been made by representatives of Francisco Partners and the Company management. With respect to the Initial Offer Price, Houlihan Lokey and the Special Committee discussed the fact that Francisco Partners had not responded to the Special Committee’s counterproposal of $0.52 per share of Common Stock. Ms. Capps noted that a representative of Chrysalis had contacted her to indicate that, if it would help the Special Committee negotiate a higher price for the Non-Rolling Stockholders, Chrysalis would be willing to consider including its shares of Common Stock in the rollover, in addition to its shares of Preferred Stock. After further discussion, the Special Committee instructed Houlihan Lokey to reopen the dialogue with Francisco Partners regarding the Special Committee’s counterproposal and to contact representatives of Chrysalis to discuss its offer with respect to its Common Stock.

After the meeting, as instructed, Houlihan Lokey had telephonic discussions with representatives of Chrysalis, during which such representatives confirmed that, if it would help the Special Committee negotiate a higher price for the Non-Rolling Stockholders, Chrysalis would be willing to consider including its shares of Common Stock in the rollover subject to its receiving economically equivalent terms to those governing Francisco Partners’ rollover contributions to the acquiring entity.

Later that day, Houlihan Lokey had telephonic discussions with Francisco Partners regarding, among other items, the Special Committee’s counterproposal and Chrysalis’ offer to consider rolling its shares of Common Stock in the Proposed Transaction. In response, Francisco Partners again asserted that the Initial Offer Price reflected the high end of what it was willing to pay. Francisco Partners also indicated that it would accept the inclusion of Chrysalis’ Common Stock in the Rollover Agreement and take such inclusion into consideration in any further assessment of the Initial Offer Price.

On December 27, 2017, the Special Committee held a telephonic meeting with representatives of Potter Anderson and Houlihan Lokey in attendance to discuss the status of negotiations with Francisco Partners. Houlihan Lokey confirmed that it had not received any further indication from Francisco Partners regarding its willingness to address the Special Committee’s counterproposal. Potter Anderson informed the Special Committee that DLA Piper had held discussions with Kirkland & Ellis, during which Kirkland & Ellis indicated that Francisco Partners was unlikely to increase the Initial Offer Price. Potter Anderson also reviewed the current drafts of the merger agreement, voting and support agreement and guarantee agreement, noting material open points and soliciting the Special Committee’s feedback. After discussion, the Special Committee instructed Potter Anderson and DLA Piper to continue negotiations with Kirkland & Ellis consistent with its feedback on the material open points. The Special Committee also discussed the status of its counterproposal with respect to the Initial Offer Price. Following such discussion, the Special Committee authorized Ms. Capps to contact representatives of Francisco Partners with respect to the Special Committee’s counterproposal.

Later that day, Ms. Capps spoke with a representative of Francisco Partners with respect to the Special Committee’s counterproposal. The representative of Francisco Partners reiterated Francisco Partners’ position that the Initial Offer Price was the highest acceptable price it would offer. Nevertheless, at the conclusion of the call, the representative of Francisco Partners agreed to consider modifying the Initial Offer Price.

 

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On December 29, 2017, Ms. Capps held telephonic discussions with a representative of Francisco Partners, during which Francisco Partners agreed to increase its Initial Offer Price from $0.30 to $0.35 per share of Common Stock of the Company (the “Revised Offer Price”). The representative of Francisco Partners emphasized that such price was the maximum amount that Francisco Partners was willing to offer.

Later on December 29, 2017, the Special Committee held a telephonic meeting with representatives of Potter Anderson and Houlihan Lokey in attendance to discuss the Revised Offer Price and to receive an update on the status of the transaction documents. The Special Committee members discussed their respective beliefs that the Revised Offer Price was the highest price that Francisco Partners was willing to pay and that, based on the various considerations that had been discussed at prior Special Committee meetings, such price was fair to the Non-Rolling Stockholders. The members of the Special Committee also expressed their belief that further negotiation with respect to the Revised Offer Price would risk causing Francisco Partners to abandon the transaction altogether, in which event the Non-Rolling Stockholders would lose the opportunity to accept the premium offered and, in the event of a bankruptcy, receive any value for their shares of Common Stock. Potter Anderson then reviewed for the Special Committee the status of the merger agreement and related transaction documents, including open items.

On January 3, 2017, a representative of Chrysalis informed Francisco Partners that Chrysalis’ investment committee requested that all of its members that personally held shares of the Company, David A. Jones, Jr. and Ralston W. Steenrod, include their shares in the Rollover Agreement rather than receiving the Merger Consideration. Francisco Partners agreed to such request.

On January 4, 2018, the Special Committee held a telephonic meeting with representatives of Potter Anderson in attendance. Potter Anderson confirmed that the Special Committee had received and reviewed in advance of the meeting the presentation of the Merger Agreement, the Voting Agreement and the Guarantee, as well as the final presentation provided by Houlihan Lokey, the Special Committee approval resolutions and executive summaries of the Merger Agreement, the Voting Agreement and the Guarantee prepared by Potter Anderson. Potter Anderson then reviewed the fiduciary duties of the Special Committee in connection with the sale of the Company. Representatives of DLA Piper then joined the meeting and summarized the principal terms and conditions of the Merger Agreement, the Voting Agreement and the Guarantee, as well as certain related transaction agreements. Following such discussion, the representatives of DLA Piper were excused from the meeting and Houlihan Lokey joined the meeting.

At the request of the Special Committee, Houlihan Lokey reviewed its financial analysis of the $0.35 per share Merger Consideration and rendered to the Special Committee an oral opinion (confirmed by delivery of Houlihan Lokey’s written opinion, dated January 4, 2018, to the Special Committee) to the effect that, as of such date and based on and subject to various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Houlihan Lokey in connection with the preparation of its opinion, the Merger Consideration to be received by holders of Common Stock (other than Excluded Holders as defined in Houlihan Lokey’s opinion) in the Merger pursuant to the Merger Agreement was fair to such holders from a financial point of view. At the request of the Special Committee, in connection with the preparation of this proxy statement, Houlihan Lokey confirmed that, other than with respect to its engagement on behalf of the Special Committee in connection with the Merger, no engagements active between November 28, 2015 and January 4, 2018 directly by Francisco Partners, Chrysalis or the Company pursuant to a written engagement letter to provide advisory services to such entities for which such entities paid fees to Houlihan Lokey were identified.

The Special Committee then further discussed and considered the Proposed Transaction, including the considerations described in more detail below under “Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 28. Following discussion, the Special Committee unanimously adopted resolutions (i) determining that the Merger Agreement and the transactions contemplated thereby, including the Merger and the transaction documents, are

 

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advisable, fair to and in the best interests of the Company and the Non-Rolling Stockholders (and accordingly, the Company’s “unaffiliated security holders,” as defined in Rule 13e-3 under the Exchange Act) and (ii) recommending that the Board (1) declare that the Merger Agreement, the Merger and the related transactions contemplated thereby, including the transaction documents, are advisable, fair to and in the best interests of the Company and the Non-Rolling Stockholders (and accordingly, the Company’s unaffiliated security holders), (2) approve the Merger Agreement, the Merger and the related transactions contemplated thereby, including the transaction documents, and (3) subject to the foregoing Board approval, submit the approval of the adoption of the Merger Agreement to the stockholders of the Company and recommend that the stockholders of the Company approve the adoption of the Merger Agreement. The Special Committee did not assess whether the Rollover Agreement is advisable, fair to and in the best interests of the Rollover Investors.

Following the meeting of the Special Committee, on January 4, 2018, the Board held a telephonic meeting with representatives of DLA Piper. The representatives of DLA Piper confirmed that the Board had received and reviewed in advance of the meeting the final version of the Merger Agreement, the Voting Agreement and the Guarantee, extracts and/or summaries of certain information from the January 4, 2018 financial presentation provided by Houlihan Lokey to the Special Committee and certain preliminary discussion materials previously provided by Houlihan Lokey to the Special Committee (which extracts and/or summaries were provided to the Board for informational reference at the request of the Special Committee), and resolutions for approval. The representatives of DLA Piper then summarized the principal terms and conditions of the Merger Agreement, the Voting Agreement and the Guarantee, as well as certain related transaction agreements, and reviewed the fiduciary duties of the Board in connection with the sale of the Company. Ms. Capps, as chair of the Special Committee, then reviewed the process undertaken by the Special Committee and the Special Committee’s receipt of the oral opinion of Houlihan Lokey rendered to the Special Committee and the unanimous determinations and recommendations of the Special Committee with respect to the Merger, the Merger Agreement and the related transactions. The Board then further discussed and considered the Proposed Transaction, including the considerations described in more detail below under “Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger—Recommendation of the Board of Directors of the Company” beginning on page 34.

Following discussion, the Board unanimously adopted resolutions (i) determining that the Merger Agreement and the related transactions contemplated thereby are substantively and procedurally fair to and in the best interests of the Company and the Non-Rolling Stockholders (and accordingly, the Company’s unaffiliated security holders); (ii) approving and adopting the Merger Agreement and the related transactions contemplated thereby; and (iii) recommending that the stockholders of the Company approve the adoption of the Merger Agreement and the related transactions contemplated thereby. The Board did not assess whether the Rollover Agreement is advisable, fair to and in the best interests of the Rollover Investors.

Following the meeting of the Board, on January 4, 2018, the Company, the Purchasers and the Rolling Investors executed the Merger Agreement and other definitive documentation, including the Voting and Support Agreement, the Guarantee and the Rollover Agreement and the Company issued a press release announcing its entry into the Merger Agreement.

Pursuant to the terms of the go-shop provision of the Merger Agreement, at the direction of, and with oversight from, the Special Committee, Raymond James commenced contacting third parties to solicit alternative acquisition proposals beginning on January 5, 2018. Following completion of the Go-Shop Period on February 18, 2018, the Company will provide a supplement to this Proxy Statement with additional information regarding the go-shop process.

Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger

The Special Committee, in evaluating and negotiating the Merger, including the terms and conditions of the Merger Agreement, consulted with the Special Committee’s independent legal and financial advisors and the

 

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Company’s outside legal advisors. The Special Committee determined that the Merger Agreement, the Merger and the related transactions contemplated thereby are advisable, fair to and in the best interests of the Company and the Non-Rolling Stockholders (assuming for this purpose that the determination of fairness to the Non-Rolling Stockholders is also applicable to the Company’s “unaffiliated security holders” (as defined in Rule 13e-3 under the Exchange Act), that the Company and its subsidiaries are not affiliates of the FP Investors and that officers and directors of the Company are affiliates of the Company).

The Special Committee did not assess whether the Rollover Agreement is advisable, fair to and in the best interests of the Rollover Investors. The Special Committee unanimously recommended to the Board that it:

 

    declare that the Merger Agreement, the Merger and the related transactions contemplated thereby are advisable, fair to and in the best interests of the Company and the Non-Rolling Stockholders (and accordingly, the Company’s unaffiliated security holders);

 

    approve the Merger Agreement, the Merger and the related transactions contemplated thereby; and

 

    subject to the foregoing Board approval, submit the approval of the adoption of the Merger Agreement to the stockholders of the Company and recommend that the stockholders of the Company approve the adoption of the Merger Agreement.

In the course of reaching its determination and making its recommendations, the Special Committee considered the following non-exhaustive list of material factors, which are not presented in any relative order of importance and each of which the Special Committee viewed as being generally supportive of its determination and recommendations to the Board:

 

    the current and historical market prices of the Common Stock, including those set forth in the table under “Important Information Regarding Connecture—Market Price of the Company’s Common Stock,” taking into account the market performance of the Company’s common stock relative to the common stock of other participants in the industry in which the Company operates and general market indices, the fact that the trading price of the Company’s common stock had declined since the initial public offering of the Company, and the fact that the Company was unable to maintain compliance with the Nasdaq Global Market’s continuing listing standards and the Company’s common stock was removed from the Nasdaq Global Market on October 30, 2017, and began to be quoted on the OTCQX, which could adversely affect the Company’s ability to attract new investors, decrease the liquidity of outstanding shares of the Company’s common stock, reduce the Company’s flexibility to raise additional capital, reduce the price at which the Company’s common stock trades, and increase the transaction costs inherent in trading such shares with overall negative effects for the Company’s stockholders;

 

    the Company’s near-term liquidity constraints and the risk that the Company would not be able to continue as a long-term going concern absent a capital raise or other significant liquidity event, as well as other information with respect to the Company’s business, operations, financial condition, earnings and prospects, the Company’s long-range plans, and the risk in achieving those prospects and plans, as well as industry, economic and market conditions and trends, the impact on the Company of general, macro-economic developments and other risks and uncertainties discussed in the Company’s public filings with the SEC;

 

    the Merger Consideration of $0.35 in cash represents (i) a premium of approximately 119% over the closing price of the Company’s Common Stock as quoted on the OTCQX of $0.16 per share on January 3, 2018 (the last trading day prior to the public announcement of the Merger);

 

   

the fact that the financial and other terms and conditions of the Merger Agreement and the relevant transactions contemplated thereby, including the Merger, resulted from extensive negotiations conducted by or on behalf of the Special Committee, which consisted solely of independent, outside directors and which retained its own independent legal and financial advisors, and that such

 

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negotiations resulted in, among other things, an increase of $0.05 from the per share consideration offered in the initial proposal from Francisco Partners, as well as the fact that the Special Committee’s negotiations with Francisco Partners only began after the Special Committee’s financial advisor, Raymond James, had solicited interest from 22 potential strategic or financial sponsors (including Sponsor A) without such solicitation resulting in any significant interest by such parties in a transaction with the Company;

 

    Francisco Partners’ representation to the Special Committee that the $0.35 per share Merger Consideration was its best offer, and the conclusion reached by the Special Committee that (i) the Merger Consideration was likely the highest price per share that Francisco Partners was willing to pay, (ii) given the Company’s near-term liquidity constraints, further negotiations would run the risk of causing Francisco Partners to abandon the transaction altogether, in which event the Non-Rolling Stockholders would lose the opportunity to accept the premium offered and, in the event of a bankruptcy, receive any value for their shares of common stock, and (iii) the combination of Francisco Partners’ agreement to pay the Merger Consideration and the “go-shop” process (as more fully described under “The Merger Agreement”) would likely result in a sale of the Company at the highest price per share of common stock that was reasonably attainable;

 

    the fact that the Sponsor Entities, which controlled approximately 68% of the voting power of the Company’s securities as of the date of the Merger Agreement, agreed to support the Merger or any “superior proposal” that results from the “go-shop” process, as well as to refrain from exercising certain rights with respect to control of the Company’s Board of Directors during the pendency of the transaction process (all as more fully described under “Voting and Support Agreement”);

 

    the Special Committee’s consideration of the risk and potential likelihood of achieving greater value for the Non-Rolling Stockholders relative to the benefits of the Merger by pursuing strategic alternatives to the Merger, including continuing as an independent public company and pursuing the Company’s strategic plan and/or the divestiture or acquisition of certain businesses, including risks related to the Company’s ability to continue as a long-term going concern absent a capital raise or other significant liquidity event;

 

    the Special Committee’s consideration that the timing of the Merger is in the best interests of the Non-Rolling Stockholders given the substantial risk that the present value achievable for Non-Rolling Stockholders in an alternative transaction effected at a later date or on a standalone basis would, in the Special Committee’s view, likely not exceed the Merger Consideration;

 

    the fact that the Non-Rolling Stockholders will receive cash for their shares and will therefore have immediate liquidity and certainty in the value for their shares of $0.35 per share of the Company’s common stock;

 

    the Special Committee’s belief that it was fully informed about the extent to which the interests of the Rolling Stockholders in the Merger differ from those of the Company’s other stockholders;

 

    the fact that the Company’s management did not negotiate or enter into any contracts (including as to post-closing employment) with Parent or its affiliates in connection with the execution of the Merger Agreement or during the course of the Company’s negotiations with Francisco Partners; and

 

    the opinion of Houlihan Lokey rendered to the Special Committee on January 4, 2018 as to the fairness, from a financial point of view and as of such date, of the Merger Consideration to be received by holders of Common Stock (other than Excluded Holders) in the Merger pursuant to the Merger Agreement, which opinion was based on and subject to the various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Houlihan Lokey in connection with the preparation of its opinion as more fully described below under the section titled “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 37;

 

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    the terms of the Merger Agreement, including:

 

    the Company’s right to solicit offers with respect to alternative acquisition proposals, including by way of providing non-public information pursuant to a confidentiality agreement, during a 45-day “go-shop” period and to continue discussions with certain excluded parties that make acquisition proposals during the go-shop period, as well as the fact that the Sponsor Entities have agreed to vote their shares of the Company’s securities in favor of a “superior proposal” pursuant to the Voting Agreement (as more fully described under “Voting and Support Agreement”);

 

    the Company’s right, from the end of the “go-shop” period and prior to the time the Company’s stockholders approve the proposal to adopt the Merger Agreement, subject to certain conditions and requirements, to consider and respond to unsolicited acquisition proposals or engage in discussions or negotiations with third parties making such acquisition proposals and to terminate the Merger Agreement to accept a “superior proposal”, and only pay Parent a termination fee of up to $2 million, which represents reimbursement of Parent’s expenses (as more fully described under “The Merger Agreement—Termination Fees and Expenses”)

 

    the belief of the Special Committee that the Company’s termination fee is reasonable in light of, among other matters, the benefit of the Merger to the Company’s stockholders, the size of such termination fee in similar transactions and the enterprise value of the Company as well as the fact such termination fee would not become payable until the closing of the transaction that is the subject of the superior proposal;

 

    the limited representations and warranties given by the Company; and

 

    the absence of any acceleration of vesting of equity awards for members of the Company’s management beyond what was required pursuant to the terms of existing agreements.

 

    the likelihood of completing the Merger, based on, among other matters:

 

    the Sponsor Entities’ agreement in the Voting Agreement to vote their securities of the Company in favor of, and take certain other actions in furtherance of, the transactions contemplated by the Merger Agreement, including the Merger, as well as to refrain from exercising certain rights with respect to control of the Company’s Board of Directors during the pendency of the transaction process (all as more fully described under “Voting and Support Agreement”);

 

    the absence of a financing condition in the Merger Agreement;

 

    the Guarantee, provided by affiliates of Parent, guaranteeing Parent’s obligations to pay the Merger Consideration under the Merger Agreement;

 

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

 

    the requirement that Parent use reasonable best efforts to obtain any regulatory approvals required to consummate the Merger; and

 

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

The Special Committee also considered a number of factors discussed below relating to the procedural safeguards that it believes were and are present to ensure the fairness of the Merger and to permit the Special Committee to represent effectively the interests of the Non-Rolling Stockholders and the Company’s unaffiliated security holders, and in light of such procedural safeguards the Special Committee did not consider it necessary to retain an unaffiliated representative to act solely on behalf of the Company’s unaffiliated security holders for purposes of negotiating the terms of the Merger Agreement or preparing a report concerning the fairness of the Merger Agreement and the Merger. The Special Committee believes these factors support its determinations and

 

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recommendations and provide assurance of the procedural fairness of the Merger to the Non-Rolling Stockholders:

 

    the Special Committee consists solely of independent, for purposes of serving on the Special Committee, and disinterested directors without any member of the Special Committee (i) being an employee of the Company or any of its subsidiaries, (ii) being affiliated with the Sponsor Entities or their affiliates, or (iii) having any financial interest in the Merger that is different from that of the Non-Rolling Shareholders, other than as discussed in the section titled “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” on page 53;

 

    the authority granted to the Special Committee by the Board to negotiate the terms of the definitive agreement with respect to the Merger, or to determine not to pursue any agreement with Francisco Partners, and to analyze, investigate and negotiate any alternative transaction to the Merger;

 

    the fact that the Special Committee held numerous meetings and met regularly to discuss and evaluate the proposals from Francisco Partners and that the Special Committee was actively involved in guiding the negotiation process on a regular basis;

 

    the Special Committee retained and received the advice of its own independent legal and financial advisors;

 

    the Merger Agreement and the Merger Consideration were the product of extensive negotiations between the Special Committee and its advisors, on the one hand, and Francisco Partners and its affiliates and advisors, on the other hand, which resulted, among other things, in an increase in the Merger Consideration by $0.05 from the initial proposal from Francisco Partners and in the agreement of the Sponsor Entities to enter into a Voting and Support Agreement with the Company (as more fully described under “Voting and Support Agreement”);

 

    the various terms of the Merger Agreement, including that the Merger Agreement contains “go-shop” provisions and the ability of the Company to terminate the Merger Agreement under certain circumstances to accept a “superior proposal” (each as more fully described under “The Merger Agreement”), that are intended to help ensure that the Company’s stockholders receive the highest price per share reasonably available;

 

    the rights of Non-Rolling Stockholders to elect to dissent from the Merger, vote their shares against the Merger and exercise their rights to demand an appraisal of their shares by the Delaware Court of Chancery and receive cash payment of the fair value of their shares of the Company’s common stock as determined by such court and in accordance with Section 262 of the DGCL (as more fully described under “Appraisal Rights”);

 

    that the Special Committee made its evaluation of the Merger Agreement and the Merger based upon the factors discussed in this Proxy Statement and with the full knowledge of the interests of the Rolling Stockholders in the Merger;

 

    the recognition by the Special Committee that it had no obligation to recommend to the Board the approval of the Merger or any other transaction.

In the course of reaching its determinations and making its recommendations, the Special Committee also considered the following countervailing factors concerning the Merger Agreement and the Merger, which are not presented in any relative order of importance:

 

    that, following the completion of the Merger, the Company will no longer exist as an independent public company and that the consummation of the Merger and receipt of the Merger Consideration, while providing relative certainty of value, will not allow the Non-Rolling Stockholders to participate in potential further growth in the Company’s assets, future earnings growth, future appreciation in value of the Company’s common stock or any future dividends after the Merger, and that the Rolling Stockholders will be entitled to participate in such potential future appreciation;

 

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    the risk that the transactions contemplated by the Merger Agreement, including the Merger, may not be consummated in a timely manner or at all, and the consequences thereof, including (i) the potential loss of value to the Company’s stockholders, (ii) the potential negative impact on the operations and prospects of the Company, including the risk of loss of key personnel and customers, and (iii) the market’s perception of the Company’s prospects could be adversely affected if such transactions were delayed or were not consummated;

 

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

 

    the restrictions imposed by the Merger Agreement on the Company’s solicitation of acquisition proposals from third parties after the “go-shop” period, and that potential bidders may perceive Parent’s right under the Merger Agreement to negotiate with the Company to match the terms of any “superior proposal” prior to the Company being able to terminate the Merger Agreement and accept a “superior proposal” to be a deterrent to making alternative proposals;

 

    that the Sponsor Entities’ ownership interest in the Company would likely be taken into account by third parties considering whether to make alternative proposals;

 

    the possibility that the up to $2 million termination fee (representing expense reimbursement), payable by the Company upon the termination of the Merger Agreement under certain circumstances, may discourage other potential bidders from making an acquisition proposal for the Company;

 

    that the Purchasers are newly formed entities with essentially no assets and the Guarantee, provided by the FP Investors, only guarantees Parent’s obligations under the Merger Agreement up to a cap equal to the aggregate Merger Consideration plus any amounts that become payable to the Company under the Merger Agreement in connection with a lawsuit to enforce its rights under the Merger Agreement;

 

    the understanding that some of the Company’s directors and executive officers have other interests in the Merger in addition to their interests as stockholders of the Company, including the manner in which they would be affected by the Merger (as discussed under “Special Factors—Interests of Executive Officers and Directors of the Company in the Merger”);

 

    the risk that, while the Merger is expected to be completed, there can be no guarantee that all conditions to the parties’ obligations to complete the Merger will be satisfied, and as a result, it is possible that the Merger may not be completed even if approved by the Company’s stockholders at the Special Meeting; and

 

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

The Special Committee did not specifically consider the liquidation value of the Company’s and its subsidiaries’ assets in determining the fairness of the transaction to the Non-Rolling Stockholders. The Special Committee believes that this method, in not considering the business of the Company and its subsidiaries as a going concern, would have undervalued the assets of the Company and its subsidiaries. In addition, the Special Committee did not seek to establish a pre-merger going concern value for the Company in determining the fairness of the transaction to the Non-Rolling Stockholders because the Special Committee did not believe there was a single method for determining going concern value. Rather, the Special Committee believed that the future financial results reflected in the projections of the management of the Company and the related additional factors

 

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considered by the Special Committee provided an indication of the Company’s going concern value. The Special Committee adopted Houlihan Lokey’s opinion and financial analyses. Although the reference to Excluded Holders in Houlihan Lokey’s opinion did not include the Company’s directors and officers (other than those affiliated with Excluded Holders) notwithstanding that such persons are deemed affiliates of the Company, such reference did not affect the Special Committee’s determination in respect of the Merger Agreement and the transactions contemplated thereby, including the Merger, because such directors and officers will receive the same Merger Consideration as unaffiliated security holders.

Recommendation of the Board of Directors of the Company

The Board consists of eight directors. At a meeting on January 4, 2018, based in part on the unanimous recommendation of the Special Committee, as well as on the basis of the other factors described above, the Board unanimously:

 

    determined that the Merger Agreement and the related transactions contemplated thereby are substantively and procedurally fair to and in the best interests of the Company and the Non-Rolling Stockholders (assuming for this purpose that the determination of fairness to the Non-Rolling Stockholders is also applicable to the Company’s “unaffiliated security holders” (as defined in Rule 13e-3 under the Exchange Act), that the Company and its subsidiaries are not affiliates of the FP Investors and that officers and directors of the Company are affiliates of the Company);

 

    approved and adopted the Merger Agreement and the related transactions contemplated thereby; and

 

    resolved to recommend that the stockholders of the Company approve the adoption of the Merger Agreement and the related transactions contemplated thereby.

The Board did not assess whether the Rollover Agreement is advisable, fair to and in the best interests of the Rollover Investors.

In reaching these determinations, the Board considered a number of factors, including the following material factors:

 

    the Special Committee’s analysis (as to both substantive and procedural aspects of the transaction), conclusions and unanimous determination, which the Board adopted, that the Merger Agreement and the related transactions contemplated thereby (exclusive of the transactions contemplated by the Rollover Agreement) are advisable, fair to and in the best interests of the Company and the Non-Rolling Stockholders (and accordingly, the Company’s unaffiliated security holders), and the Special Committee’s unanimous recommendation that the Board approve the Merger Agreement and the related transactions contemplated thereby (exclusive of the transactions contemplated by the Rollover Agreement) and recommend that the stockholders of the Company approve the adoption of the Merger Agreement;

 

    the procedural fairness of the transaction, including that the transaction was negotiated by the Special Committee consisting of three directors who are not affiliated with the Purchasers or the Rolling Stockholders and are not employees of the Company or any of its subsidiaries, that the members of the Special Committee do not have an interest in the Merger different from, or in addition to, that of the Company’s stockholders who are not affiliated with the Purchasers or the Rolling Stockholders other than their interests described under “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 53, and that the Special Committee was advised by its own independent legal and financial advisors;

 

   

the fact that the Special Committee received an opinion, dated January 4, 2018, of Houlihan Lokey as to the fairness, from a financial point of view and as of such date, of the Merger Consideration to be received by holders of Common Stock (other than Excluded Holders) in the Merger pursuant to the

 

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Merger Agreement, which opinion was based on and subject to the various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Houlihan Lokey in connection with the preparation of its opinion as more fully described below under the section entitled “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 37; and

 

    the Board’s consideration of the Company’s near-term liquidity constraints and the risk that the Company would not be able to continue as a long-term going concern absent a capital raise or other significant liquidity event, as well as other information with respect to the Company’s business, operations, financial condition, earnings and prospects, the Company’s long-range plans, and the risk in achieving those prospects and plans, as well as industry, economic and market conditions and trends, the impact on the Company of general, macro-economic developments and other risks and uncertainties discussed in the Company’s public filings with the SEC, as well as the terms of the Merger Agreement, the likelihood of the Merger being completed and the countervailing factors concerning the Merger Agreement and the Merger considered by the Special Committee.

The foregoing discussion of the information and factors considered by the Special Committee and by the Board is not intended to be exhaustive but includes the material factors considered by the Special Committee and the Board, respectively, including the factors considered by the Special Committee and the Board discussed above. In view of the wide variety of factors considered by the Special Committee and by the Board in evaluating the Merger Agreement and the merger, neither the Special Committee nor the Board found it practicable, or attempted, to quantify, rank or otherwise assign relative weights to the foregoing factors in reaching their respective conclusions. In addition, individual members of the Special Committee and of the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Special Committee and the Board conducted an overall review of the factors described above and considered the factors overall to be favorable to, and to support, their determinations. It should be noted that this explanation of the reasoning of the Special Committee and the Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in the section titled “Cautionary Statement Concerning Forward-Looking Information.”

Other than as described in this Proxy Statement, the Board is not aware of any firm offer by any other person during the prior two years for a merger or consolidation of the Company with another company, the sale or transfer of all or substantially all of the Company’s assets or a purchase of the Company’s securities that would enable such person to exercise control of the Company.

The Board recommends unanimously that you vote “FOR” the adoption of the Merger Agreement and the related transactions contemplated thereby (exclusive of the transactions contemplated by the Rollover Agreement).

Position of the Purchaser Filing Parties As to the Fairness of the Merger

Under the SEC rules governing “going private” transactions, each of the Purchaser Filing Parties is an affiliate of the Company that is engaged in the “going private” transaction and, therefore, is required to express its position as to the fairness of the proposed Merger to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act. The Purchaser Filing Parties are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

As described under the heading “—Background of the Merger” beginning on page 16, none of the Purchaser Filing Parties participated in any deliberations of the Special Committee or the Board of Directors of the Company relating to the Merger. Neither Mr. Jones nor Chrysalis or its affiliates participated in the negotiations with the Company or the Special Committee with respect to the merger, including with respect to the price to be paid to the Non-Rolling Stockholders in the Merger.

 

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The Purchaser Filing Parties believe that the Merger is both substantively and procedurally fair to the Company’s unaffiliated security holders. However, none of the Purchaser Filing Parties has undertaken any formal evaluation of the fairness of the Merger to the Company’s unaffiliated security holders or engaged a financial advisor for such purpose. Moreover, none of the Purchaser Filing Parties participated in the deliberations of the Special Committee or received advice from the Special Committee’s or the Company’s respective legal or financial advisors in connection with the Merger.

While the Purchaser Filing Parties believe that the Merger is substantively and procedurally fair to the Company’s unaffiliated security holders, the FP Investors attempted to negotiate the terms of a transaction that would be most favorable to them and, accordingly, did not negotiate the Merger Agreement with the goal of obtaining terms that were fair to the Company’s unaffiliated security holders or any other person. None of the Purchaser Filing Parties (other than David A. Jones, Jr. in his capacity as a director of the Company) believes that it has or had any fiduciary duty to the Company or its stockholders, including with respect to the Merger Agreement and its terms and conditions. The Company and its unaffiliated security holders were represented by an independent Special Committee that negotiated on their behalf with the Purchaser Filing Parties, each with the assistance of its respective advisors, as described above in “—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger.”

The belief of the Purchaser Filing Parties that the Merger is substantively and procedurally fair to the unaffiliated security holders of the Company is based on the following factors, among others:

 

    the Purchaser Filing Parties assessment of the Company’s near-term liquidity constraints and the risk that the Company will not be able to continue as a long-term going concern absent a capital raise or other significant liquidity event, as well as other information with respect to the Company’s business, operations, financial condition, earnings and prospects, the Company’s long-range plans, and the risk in achieving those prospects and plans, as well as industry, economic and market conditions and trends, the impact on the Company of general, macro-economic developments and other risks and uncertainties discussed in the Company’s public filings with the SEC;

 

    the fact that the Merger Consideration of $0.35 in cash represents a premium of approximately 119% over the closing price of the Company’s Common Stock on the OTCQX of $0.16 per share on January 3, 2018 (the last trading day prior to the public announcement of the Merger);

 

    the fact that the financial and other terms and conditions of the Merger Agreement and the relevant transactions contemplated thereby, including the Merger, resulted from extensive negotiations conducted by or on behalf of the Special Committee, which consisted solely of independent, outside directors and which retained its own independent legal and financial advisors, as well as the fact that the Special Committee’s negotiations with Francisco Partners only began after the Special Committee’s financial advisor, Raymond James, had solicited interest from 22 potential strategic or financial sponsors (including Sponsor A) without such solicitation resulting in any significant interest by such parties in a transaction with the Company;

 

    the fact that the unaffiliated security holders of the Company will receive cash for their shares and will therefore have immediate liquidity and certainty in the value for their shares of $0.35 per share of the Company’s Common Stock;

 

   

notwithstanding that the opinion of Houlihan Lokey was provided for the information of the Special Committee and none of the Purchaser Filing Parties are entitled to, and such Purchaser Filing Parties did not, rely on such opinion, the fact that the Special Committee received an opinion, dated January 4, 2018, of Houlihan Lokey as to the fairness, from a financial point of view and as of such date, of the Merger Consideration to be received by holders of Common Stock (other than Excluded Holders) in the Merger pursuant to the Merger Agreement, which opinion was based on and subject to the various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Houlihan Lokey in connection with the preparation of its opinion as

 

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more fully described below under the section titled “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 37;

 

    the various terms of the Merger Agreement, including that the Merger Agreement contains “go-shop” provisions and the ability of the Company to terminate the Merger Agreement under certain circumstances to accept a “superior proposal” (each as more fully described under “The Merger Agreement”), that are intended to help ensure that the Company’s stockholders receive the highest price per share reasonably available; and

 

    the fact that the Sponsor Entities, which controlled approximately 68% of the voting power of the Company’s securities as of the date of the Merger Agreement, agreed to support the Merger or any “superior proposal” that results from the “go-shop” process, as well as to refrain from exercising certain rights with respect to control of the Company’s Board of Directors during the pendency of the transaction process (all as more fully described under “Voting and Support Agreement”).

The Purchaser Filing Parties considered each of the foregoing factors in determining the fairness of the Merger to the Company’s unaffiliated security holders. In light of the factors described above and the fact that the use of a Special Committee of independent directors is a mechanism well recognized to ensure fairness in transactions of this type, the Purchaser Filing Parties believe that the Merger is procedurally fair to the Company’s unaffiliated security holders despite the fact that the Merger Agreement does not require adoption by a majority of the unaffiliated holders of the Company’s Common Stock and the fact that the Special Committee did not retain an unaffiliated representative to act solely on behalf of its unaffiliated security holders.

The Purchaser Filing Parties did not consider the Company’s net book value, which is an accounting concept, to be a factor in determining the substantive fairness of the transaction to the Company’s unaffiliated security holders because they believed that net book value is not a material indicator of the value of the Company’s equity but rather an indicator of historical costs. The Purchaser Filing Parties also did not consider the liquidation value of the Company’s assets as indicative of the Company’s value primarily because of their belief that the liquidation value would be significantly lower than the Company’s value as an ongoing business and that, due to the fact that the Company is being sold as an ongoing business, the liquidation value is irrelevant to a determination as to whether the Merger is fair to the unaffiliated security holders of the Company.

In making their determination as to the fairness of the proposed Merger to the Company’s unaffiliated security holders, the Purchaser Filing Parties were not aware of any firm offer by any other person during the prior two years for a merger or consolidation of the Company with another company, the sale or transfer of all or substantially all of the Company’s assets or a purchase of the Company’s securities that would enable such person to exercise control of the Company.

The Purchaser Filing Parties view as to the fairness of the Merger to the Company’s unaffiliated security holders is not a recommendation as to how any such stockholder should vote on the Merger Agreement. The foregoing discussion of the information and factors considered by the Purchaser Filing Parties, while not exhaustive, is believed to include all material factors considered by the Purchaser Filing Parties. The Purchaser Filing Parties did not find it practicable to assign, nor did they assign, relative weights to the individual factors considered in reaching their conclusion as to the fairness of the Merger to such stockholders. The Purchaser Filing Parties believe that these factors provide a reasonable basis for their position that the Merger is fair to the Company’s unaffiliated security holders.

Opinion of the Special Committee’s Financial Advisor

At a meeting of the Special Committee held to evaluate the Merger on January 4, 2018, Houlihan Lokey rendered to the Special Committee an oral opinion (confirmed by delivery of Houlihan Lokey’s written opinion, dated January 4, 2018, to the Special Committee) as to the fairness, from a financial point of view and as of such

 

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date, of the Merger Consideration to be received by holders of Common Stock (other than Excluded Holders) in the Merger pursuant to the Merger Agreement, which opinion was based on and subject to the various procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Houlihan Lokey in connection with the preparation of its opinion. For purposes of Houlihan Lokey’s opinion, “Excluded Holders” refers to the FP Investors, any other beneficial owner of shares of Preferred Stock, holders that contribute shares of Common Stock or Preferred Stock to Parent in connection with the Merger, and their respective affiliates.

Houlihan Lokey’s opinion was furnished for the use of the Special Committee (in its capacity as such), only addressed the fairness, from a financial point of view and as of January 4, 2018, of the Merger Consideration to be received by holders of Common Stock (other than Excluded Holders) in the Merger pursuant to the Merger Agreement and did not address any other term, aspect or implication of the Merger or any other agreement, arrangement or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of Houlihan Lokey’s written opinion, which is attached as Annex C to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and the other matters considered by Houlihan Lokey in connection with the preparation of its opinion. Neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to the Special Committee, the Board, the Company, any security holder or any other party as to how to act or vote with respect to any matter relating to the Merger or otherwise.

In connection with its opinion, Houlihan Lokey made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Among other things, Houlihan Lokey:

 

    reviewed an execution version, provided to Houlihan Lokey on January 3, 2018, of the Merger Agreement and certain related documents;

 

    reviewed certain publicly available business and financial information relating to Connecture that Houlihan Lokey deemed to be relevant;

 

    reviewed certain information relating to the historical, current and future operations, financial condition and prospects of Connecture made available to Houlihan Lokey by Connecture, including (a) financial projections and other estimates prepared by or discussed with the management of Connecture (and authorized by the Special Committee to be used and relied upon by Houlihan Lokey) relating to Connecture for the fiscal years ending December 31, 2018 through December 31, 2023 reflecting Connecture as a going concern assuming, among other things, that Connecture obtains sufficient capital resources necessary to fund its operations and comply with its bank covenants, (b) weekly cash flow forecasts prepared by the management of Connecture for the weeks ending December 29, 2017 through March 30, 2018, and (c) certain sensitivities prepared by the management of Connecture to Connecture’s going concern projections taking into account a range of possible outcomes regarding, among other things, reduced acquisitions of new customers, attrition in Connecture’s existing customer base and the potential impact of cost management efforts in the event that a bankruptcy process for Connecture is commenced in fiscal year 2018;

 

    spoke with certain members of the management of Connecture and certain of its representatives and advisors regarding (a) the businesses, operations, financial condition and prospects of Connecture, including going concern uncertainties and related issues with respect to bank covenant compliance and the liquidity needs of and capital resources available to Connecture, (b) the third-party solicitation process undertaken on behalf of Connecture by Connecture’s financial advisor, and (c) the Merger and other matters;

 

    compared the financial and operating performance of Connecture with that of other public companies that Houlihan Lokey deemed to be relevant;

 

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    reviewed the current and historical market prices and trading volume for Common Stock and the current and historical market prices and trading volume of publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant;

 

    reviewed a representation addressed to Houlihan Lokey from the senior management of Connecture which contained, among other things, confirmation regarding the accuracy of financial information and data relating to Connecture provided to, or discussed with, Houlihan Lokey by or on behalf of Connecture; and

 

    conducted such other financial studies, analyses and inquiries and considered such other information and factors as Houlihan Lokey deemed appropriate.

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and did not assume any responsibility with respect to such data, material and other information. The management of Connecture advised Houlihan Lokey, and Houlihan Lokey assumed, at the direction of the Special Committee, that the financial projections and other estimates utilized in Houlihan Lokey’s analyses (including as to potential tax attributes of Connecture) were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of Connecture assuming, among other things, Connecture obtains sufficient capital resources necessary to fund its operations and comply with its bank covenants and continues to operate as a going concern. Houlihan Lokey expressed no opinion with respect to any such projections or estimates or the data or assumptions on which they are based.

As the Special Committee was aware, the notes to Connecture’s condensed consolidated financial statements included as part of Connecture’s Quarterly Report on Form 10-Q filed with the SEC on November 13, 2017 indicate, among other things, that (a) Connecture’s historical operating results indicate that conditions exist that raise uncertainty related to Connecture’s ability to continue as a going concern, (b) Connecture is subject to certain bank covenants, including a covenant in respect of Connecture’s earnings before interest, taxes, depreciation and amortization, which Connecture may not achieve unless certain operating objectives are achieved, and a minimum liquidity covenant, with respect to which, unless certain operating objectives are achieved, Connecture may not be in compliance beyond December 31, 2017, and (c) if Connecture is unable to satisfy or amend its bank covenants and cannot generate sufficient liquidity through efforts to improve its operating cash flows or through additional support from Connecture’s investors or other actions, the repayment of Connecture’s outstanding senior indebtedness would be accelerated. Houlihan Lokey was advised that certain conditions and the expected depletion by Connecture of most of its available cash during the first quarter of the fiscal year ending December 31, 2018, absent obtaining additional capital resources sufficient to meet Connecture’s financial obligations, would likely result in the voluntary or involuntary bankruptcy, restructuring or liquidation of Connecture and that, pursuant to Connecture’s Certificates of Designations, Preferences and Rights for Preferred Stock, upon any liquidation, dissolution or winding-up of Connecture, and after satisfaction in full of Connecture’s debts, holders of Preferred Stock would be entitled to receive from Connecture’s net assets and before any distributions or payments in respect of Common Stock or other junior securities, liquidation preference payments as specified in such Certificates of Designations, Preferences and Rights. Notwithstanding the foregoing, for purposes of Houlihan Lokey’s opinion, Houlihan Lokey utilized Connecture’s going concern projections for purposes of its analyses but noted Connecture’s circumstances, the weekly cash flow forecasts prepared by the management of Connecture and the bankruptcy sensitivities prepared by the management of Connecture to Connecture’s going concern projections.

Houlihan Lokey relied upon and assumed, without independent verification, that there had been no change in the businesses, assets, liabilities, financial condition, results of operations, cash flows or prospects of Connecture since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would have been meaningful in any respect to Houlihan Lokey’s analyses or opinion, and that there was no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading.

 

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Houlihan Lokey also relied upon, without independent verification, the assessments of the management of Connecture as to, among other things, (i) the liquidity needs and capital funding requirements for Connecture’s operations, the unwillingness of Connecture’s lenders or significant investors to provide additional support to Connecture in the absence of the Merger or a similar transaction, the inability of Connecture in the absence of the Merger or another transaction or a substantial capital infusion to obtain sufficient capital resources necessary to fund its operations and comply with its bank covenants and, in such event, the likelihood of a voluntary or involuntary bankruptcy, restructuring or liquidation of, and potential effects on, Connecture, (ii) the potential impact on Connecture of market, competitive, seasonal and other trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the healthcare and healthcare insurance industries, including the health insurance software segment thereof, (iii) the validity of, and risks associated with, Connecture’s products, services and intellectual property, (iv) existing and future contracts and relationships, agreements and arrangements with, and the ability to attract, retain and/or replace, key customers, employees, vendors and other commercial relationships of Connecture, including limitations on Connecture’s ability to terminate long-term contracts, and (v) the results of the third-party solicitation process undertaken on behalf of Connecture by Connecture’s financial advisor. Houlihan Lokey assumed, with the consent of the Special Committee, that there would be no developments with respect to any such matters that would be meaningful in any respect to Houlihan Lokey’s analyses or opinion.

Houlihan Lokey further relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the Merger Agreement and all other related documents and instruments that are referred to therein were true and correct, (b) each party to the Merger Agreement and such other related documents and instruments would fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the Merger would be satisfied without waiver thereof that would be meaningful in any respect to Houlihan Lokey’s analyses or opinion, and (d) the Merger would be consummated in a timely manner in accordance with the terms described in the Merger Agreement and such other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey also relied upon and assumed, without independent verification, that (i) the Merger would be consummated in a manner that complies in all respects with all applicable foreign, federal and state statutes, rules and regulations and relevant documents and other requirements, (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Merger would be obtained and that no delay, limitations, restrictions or conditions would be imposed or occur or amendments, modifications or waivers made that would be meaningful in any respect to Houlihan Lokey’s analyses or opinion and (iii) Connecture’s existing credit facility would be amended to provide Connecture with sufficient liquidity through consummation of the Merger. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final Merger Agreement when executed would not differ in any material respect from the execution version of the Merger Agreement identified above.

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to, and did not, make any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance sheet or otherwise) of Connecture or any other party or entity nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of Connecture or any other entity or business. Houlihan Lokey did not undertake an independent analysis or evaluation of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, or of any governmental investigation of any such claims or other liabilities, to which Connecture or any other entity was or may be a party or was or may be subject.

Houlihan Lokey was not requested to, and did not, (a) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Merger, the securities, assets, businesses or operations of Connecture or any other party or entity or (b) introduce to the Special Committee or Connecture, or screen for creditworthiness, any prospective investors, lenders or other participants in the Merger. Houlihan Lokey was requested in accordance with the terms of the Merger Agreement to assist in connection with the solicitation of third-party indications of interest in acquiring all or a part of Connecture for a prescribed period following the

 

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execution of the Merger Agreement, subject to the terms, conditions and procedures set forth therein. Houlihan Lokey’s opinion was necessarily based on financial, economic, market, regulatory and other conditions as in effect on, and the information made available to Houlihan Lokey as of, the date of Houlihan Lokey’s opinion. Houlihan Lokey did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to Houlihan Lokey’s attention after the date of its opinion. Houlihan Lokey also did not express any opinion as to the price or range of prices at which shares of Common Stock would trade, or any shares of Common Stock or other securities of Connecture or any other entity may be transferable, at any time.

Houlihan Lokey’s opinion was furnished for the use of the Special Committee (in its capacity as such) in connection with its evaluation of the Merger and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion is not intended to be, and does not constitute, a recommendation to the Special Committee, the Board, Connecture, any security holder or any other party as to how to act or vote with respect to any matter relating to the Merger or otherwise.

Houlihan Lokey’s opinion related to the fairness, from a financial point of view and as of the date of Houlihan Lokey’s opinion, of the Merger Consideration to be received in the Merger pursuant to the Merger Agreement by holders of Common Stock (other than Excluded Holders) without regard to individual circumstances of specific holders that may distinguish such holders. Houlihan Lokey was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Special Committee, the Board, Connecture, its security holders or any other party to proceed with or effect the Merger, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion, aspect or implication of, the Merger (other than the Merger Consideration to the extent expressly specified in Houlihan Lokey’s opinion) or otherwise, including, without limitation, any terms, aspects or implications of any rollover, voting and support or guarantee agreement, credit facility amendment or other agreement or arrangement to be entered into in connection with or contemplated by the Merger or otherwise, (iii) the fairness of any portion or aspect of the Merger to the holders of any class of securities, creditors or other constituencies of Connecture, or to any other party, except if and only to the extent expressly set forth in the last sentence of Houlihan Lokey’s opinion, (iv) the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available to Connecture or any other party or whether any alternative transaction might produce consideration for the holders of Common Stock in an amount in excess of that contemplated in the Merger, (v) the fairness of any portion or aspect of the Merger to any one class or group of Connecture’s or any other party’s security holders or other constituents vis-à-vis any other class or group of Connecture’s or such other party’s security holders or other constituents (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents), (vi) whether or not Connecture, Parent, their respective security holders or any other party is receiving or paying reasonably equivalent value in the Merger, (vii) the solvency, creditworthiness or fair value of Connecture or any other participant in the Merger, or any of their respective assets or securities, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Merger, any class of such persons or any other party, relative to the Merger Consideration or otherwise. Furthermore, no opinion, counsel or interpretation was intended in matters that required legal, regulatory, accounting, insurance, tax or other similar professional advice, including, without limitation, any advice (and Houlihan Lokey expressed no view or opinion) with respect to changes in, or the impact of, U.S. tax laws, regulations and governmental and legislative policies on Connecture, any other participant in the Merger, or the Merger. It was assumed that such opinions, counsel or interpretations had been or would be obtained from appropriate professional sources and Houlihan Lokey relied, with the consent of the Special Committee, on the assessments by the Special Committee, Connecture and their respective advisors and other representatives as to all such matters. The issuance of Houlihan Lokey’s opinion was approved by a committee authorized to approve opinions of this nature.

 

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In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company or business used in Houlihan Lokey’s analyses for comparative purposes is identical to Connecture and an evaluation of the results of those analyses is not entirely mathematical. As a consequence, mathematical derivations (such as the high, low, mean and median) of financial data are not by themselves meaningful and in selecting the ranges of multiples to be applied were considered in conjunction with experience and the exercise of judgment. The estimates contained in the financial forecasts prepared by the management of Connecture and the implied reference ranges indicated by Houlihan Lokey’s analyses 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 estimates and the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which assets, businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of Connecture. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

Houlihan Lokey’s opinion was only one of many factors considered by the Special Committee in evaluating the Merger. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the consideration payable in the Merger or of the views of the Special Committee, management of Connecture or any other party with respect to the Merger or the Merger Consideration. Under the terms of Houlihan Lokey’s engagement as financial advisor to the Special Committee, the Special Committee and Connecture agreed that Houlihan Lokey was acting as an independent contractor and that Houlihan Lokey was not acting as an agent or fiduciary of the Special Committee, Connecture, security holders, creditors or other constituencies of Connecture or any other person or entity. Houlihan Lokey was not requested to, and it did not, recommend the specific consideration payable in the Merger or that any given consideration constituted the only appropriate consideration for the Merger. The type and amount of consideration payable in the Merger were determined through negotiation between the Special Committee and Parent, and the decision for Connecture to enter into the Merger Agreement was solely that of the Special Committee and the Board.

Financial Analyses

In preparing its opinion to the Special Committee, Houlihan Lokey performed certain financial analyses described below under the heading “—January 4, 2018 Financial Presentation.” The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of such an opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither Houlihan Lokey’s opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. While the results of each analysis were taken into account in reaching Houlihan Lokey’s overall conclusion with respect to fairness, Houlihan Lokey did not make separate or quantifiable judgments regarding individual analyses. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors, without considering all analyses, methodologies and factors, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion.

The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with the preparation of its opinion and reviewed with the Special Committee on January 4, 2018. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions,

 

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qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.

Introduction

In evaluating Connecture from a financial perspective, Houlihan Lokey performed certain financial analyses as more fully described below. For purposes of such analyses, Houlihan Lokey reviewed a number of financial and operating metrics, as applicable, including:

 

    Enterprise value—generally, the value as of a specified date of the relevant company’s equity market value plus debt outstanding, preferred stock and minority interests and less cash and cash equivalents, based on reported fully-diluted shares; and

 

    GAAP revenue—generally, revenue determined in accordance with generally accepted accounting principles.

Unless the context indicates otherwise, enterprise values and equity values used in the selected companies analysis described below were calculated using the closing price of the common stock of the selected companies listed below as of January 2, 2018. Information with respect to the historical financial and operating performance of Connecture relied upon by Houlihan Lokey for purposes of the financial analyses described below were based on public filings. Estimates of future financial and operating performance of Connecture relied upon by Houlihan Lokey for purposes of the financial analyses described below were based on Connecture’s going concern projections. Information with respect to the historical financial and operating performance of the selected companies listed below relied upon by Houlihan Lokey for purposes of the financial analyses described below were based on public filings and other publicly available information. Estimates of the future financial and operating performance of the selected companies listed below were based on publicly available Wall Street research analyst estimates and other publicly available information for those companies. “Latest 12 months” refers to the most recently completed 12-month period for which financial information was made public in the case of the selected companies and for the latest 12 months as of September 30, 2017 in the case of Connecture. Approximate implied per share equity value reference range figures for Connecture indicated in the financial analyses summarized below equate to zero value for Connecture’s equity to the extent negative figures are shown.

January 4, 2018 Financial Presentation

Selected Companies Analysis. Houlihan Lokey reviewed selected financial and stock market data of the following seven selected publicly traded companies in the health insurance information technology industry with enterprise values, as is the case with Connecture, of less than $500 million that Houlihan Lokey considered relevant for purposes of analysis (collectively, the “selected companies”).

 

Selected Companies

   

•  Castlight Health, Inc.

 

•  eHealth, Inc.

 

•  Health Insurance Innovations, Inc.

 

•  Hooper Holmes, Inc.

 

•  NantHealth, Inc.

 

•  Orion Health Group Limited

 

•  Streamline Health Solutions, Inc.

 

 

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Houlihan Lokey also reviewed, for informational purposes, selected financial and stock market data of the following nine selected publicly traded companies in the health insurance information technology industry with enterprise values of greater than $500 million (collectively, the “selected informational companies”).

 

Selected Informational Companies

   

•  athenahealth, Inc.

 

•  Benefitfocus, Inc.

 

•  Care.com, Inc.

 

•  HealthEquity, Inc.

 

•  HMS Holdings Corp.

 

•  Inovalon Holdings, Inc.

 

•  Medidata Solutions, Inc.

 

•  Omnicell, Inc.

 

•  Vocera Communications, Inc.

 

The financial data reviewed included:

 

    Enterprise values as a multiple of latest 12 months GAAP revenue;

 

    Enterprise values as a multiple, to the extent available, of fiscal year 2017 (referring to the fiscal year ending December 31, 2017 or, in the case of certain of the selected companies, January 31, 2018 or March 31, 2018, as applicable) estimated GAAP revenue; and

 

    Enterprise values as a multiple, to the extent available, of fiscal year 2018 (referring to the fiscal year ending December 31, 2018 or, in the case of certain of the selected companies, January 31, 2019 or March 31, 2019, as applicable) estimated GAAP revenue.

The overall low to high latest 12 months GAAP revenue, fiscal year 2017 estimated GAAP revenue and fiscal year 2018 estimated GAAP revenue multiples (and mean and median multiples) observed for the selected companies were as follows:

 

Selected Companies

   Low      High      Mean      Median  

Latest 12 Months GAAP Revenue

     0.74x        4.60x        2.07x        1.44x  

Fiscal Year 2017 Estimated GAAP Revenue

     0.92x        4.97x        2.33x        1.68x  

Fiscal Year 2018 Estimated GAAP Revenue

     0.82x        3.51x        1.89x        1.55x  

Houlihan Lokey noted, for informational purposes, that the overall low to high latest 12 months GAAP revenue, fiscal year 2017 estimated GAAP revenue and fiscal year 2018 estimated GAAP revenue multiples (and mean and median multiples) observed for the selected informational companies were (i) in the case of latest 12 months GAAP revenue, 3.08x to 12.30x (with a mean of 5.29x and a median of 4.25x), (ii) in the case of fiscal year 2017 estimated GAAP revenue, 2.94x to 11.68x (with a mean of 5.10x and a median of 4.05x), and (iii) in the case of fiscal year 2018 estimated GAAP revenue, 2.63x to 9.51x (with a mean of 4.44x and a median of 3.76x).

Houlihan Lokey applied selected ranges of latest 12 months GAAP revenue, fiscal year 2017 estimated GAAP revenue and fiscal year 2018 estimated GAAP revenue multiples derived from the selected companies of 1.0x to 1.5x, 1.0x to 1.5x and 1.0x to 1.5x, respectively, to the latest 12 months GAAP revenue, fiscal year 2017 estimated GAAP revenue and fiscal year 2018 estimated GAAP revenue of Connecture based on Connecture’s public filings and going concern projections. This analysis indicated the following approximate implied per share equity value reference ranges for Connecture, as compared to the per share Merger Consideration:

 

Implied Per Share Equity Value Reference Ranges Based on:

    

Latest 12 Months

GAAP Revenue

   FY2017E GAAP Revenue    FY2018E GAAP Revenue    Per Share Merger Consideration

$(1.04) - $0.51

   $(1.10) - $0.42    $(1.12) - $0.39    $0.35

 

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Discounted Cash Flow Analysis.

Houlihan Lokey performed a discounted cash flow analysis of Connecture by calculating the estimated present value of the unlevered, after-tax free cash flows that Connecture was forecasted to generate for the fiscal year ending December 31, 2018 through the fiscal year ending December 31, 2023 based on Connecture’s going concern projections assuming no taxes would be payable by Connecture during the forecasted period. Houlihan Lokey calculated implied terminal values for Connecture by applying to Connecture’s fiscal year ending December 31, 2023 estimated billings a selected range of billings multiples of 1.25x to 1.75x. Present values (as of December 31, 2017) of the cash flows and terminal values were calculated using a selected discount rate range of 18.0% to 22.0%. This analysis indicated the following approximate implied per share equity value reference range for Connecture, as compared to the per share Merger Consideration:

 

Implied Per Share Equity Value

Reference Range:

   Per Share Merger
Consideration
$(1.02) - $0.44    $0.35

Preliminary Discussion Materials

In addition to the January 4, 2018 financial presentation provided to the Special Committee in connection with Houlihan Lokey’s opinion, dated January 4, 2018, to the Special Committee as summarized above, Houlihan Lokey also provided, for informational purposes, certain preliminary discussion materials to the Special Committee as summarized below. At the request of the Special Committee, extracts and/or summaries of certain information from the January 4, 2018 financial presentation and such preliminary discussion materials also were provided to the Board for informational reference.

The preliminary financial considerations and other information in the preliminary discussion materials reflected market data as of dates proximate to such materials and were based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and information, including tax information relating to Connecture, made available to Houlihan Lokey as of, the date of such materials. Accordingly, to the extent preliminary financial analyses or information were included in such preliminary discussion materials, such preliminary financial analyses or information may have differed from the January 4, 2018 financial presentation as a result of, among other things, changes in Connecture’s internal financial forecasts, estimates and assumptions, such financial, economic, monetary, market and other conditions and circumstances and other information. Houlihan Lokey also continued to refine various aspects of such preliminary financial considerations and other information. The January 4, 2018 financial presentation superseded the preliminary discussion materials. None of the preliminary discussion materials constituted an opinion of, or recommendation by, Houlihan Lokey with respect to a possible transaction or otherwise.

 

  December 15, 2017 Preliminary Discussion Materials. The December 15, 2017 preliminary discussion materials were substantially similar to the January 4, 2018 financial presentation and contained, among other things, a preliminary selected companies analysis and a preliminary discounted cash flow analysis, which preliminary analyses generally used the same methodologies as described above under the heading “—January 4, 2018 Financial Presentation” and indicated the same approximate implied per share equity value reference ranges for Connecture.

 

 

December 13, 2017 Preliminary Discussion Materials. The December 13, 2017 preliminary discussion materials included certain potential considerations related to a possible response to Francisco Partners’ indication of interest, including, among other things, (i) potential funds required and related costs in connection with an acquisition of Connecture by Francisco Partners, (ii) certain considerations in a bankruptcy process, including the incurrence of advisory fees and potential business disruption, (iii) certain other considerations, including the viability of potential alternatives to an acquisition of Connecture by Francisco Partners, the results of the third-party solicitation process undertaken on behalf of Connecture by Connecture’s financial advisor and the viability of Connecture absent additional capital resources or a transaction, (iv) an overview of Connecture’s equity ownership profile and (v) an overview of certain

 

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trading data for Connecture, which indicated, among other things, average daily trading values and volume weighted average prices for Common Stock during various periods ranging from one-trading day to the 12-month period ended December 11, 2017, as well as overall recent trading activity.

 

  December 10, 2017 Preliminary Discussion Materials. The December 10, 2017 preliminary discussion materials included, among other things:

 

    an overview of Connecture’s adverse financial circumstances and historical financial performance based on Connecture’s public filings and discussions with Connecture management, including Connecture’s efforts to address its liquidity concerns and Connecture management’s belief that absent a recapitalization of Connecture, Connecture would likely not have sufficient cash to fund its operations potentially beginning in March 2018 and would breach its bank covenants;

 

    an overview of certain trading data for Connecture, which indicated, among other things, that the Common Stock price had declined from slightly less than $14.00 per share in April 2015 to $0.14 per share as of December 7, 2017;

 

    based on information from Connecture management, an overview of Connecture’s recent financial performance relative to its internal budget, which indicated, among other things, that in fiscal year 2016 Connecture’s operating income was less than Connecture’s budgeted amount given revenue erosion and failure to control costs, that Connecture had been impacted by weakness in its commercial business segment, the continued wind-down of Connecture’s state exchange business segment and slower than expected adoption of Connecture’s private exchange business, and that Connecture management expected Connecture’s revenue in fiscal year 2017 would be lower than Connecture’s budgeted amount primarily from adverse trends in the individual and family plan market for Connecture’s commercial business segment offset in part by growth in Connecture’s Medicare business, but that operating income would slightly exceed Connecture’s budgeted amount as a result of certain cost reduction initiatives; and

 

    a list of certain potential strategic alternatives for Connecture, including the status quo, a debt refinancing or third-party equity financing, a sale of Connecture or merger of Connecture with a third party, a sale of Connecture’s Medicare business, a wind-down of Connecture’s non-Medicare operations and a bankruptcy process, and potential next steps for Connecture, including continued dialogue with and outreach to third parties regarding a sale of Connecture and further consideration of potential strategic alternatives for Connecture and Connecture’s financial circumstances.

Miscellaneous

Houlihan Lokey was engaged as the Special Committee’s financial advisor in connection with the Merger based on, among other things, Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to provide financial advisory services in connection with mergers and acquisitions, financings, and financial restructurings. Pursuant to its engagement, Houlihan Lokey is entitled to an aggregate fee of $700,000 for its services, of which a portion was paid to Houlihan Lokey upon its engagement, a portion became payable upon delivery of Houlihan Lokey’s opinion (which portion is not contingent upon the consummation of the Merger) and $200,000 is contingent upon consummation of the Merger. In addition, Connecture has agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates and certain related parties against certain liabilities and expenses, including certain liabilities under the federal securities laws, arising out of or related to Houlihan Lokey’s engagement.

In the ordinary course of business, certain of Houlihan Lokey’s employees and affiliates, as well as investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, Connecture, Parent, Francisco Partners Management, L.P. (“FP Management”) or any other party that may be involved in the Merger and their respective affiliates or any currency or commodity that may be involved in the Merger.

 

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Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and/or other financial or consulting services to Connecture, Parent, other participants in the Merger or certain of their respective affiliates or security holders (including, without limitation, FP Management (together with its security holders and affiliates, and/or portfolio companies of investment funds affiliated or associated with FP Management, the “FP Group”)) in the future, for which Houlihan Lokey and its affiliates may receive compensation. In addition, Houlihan Lokey and certain of its affiliates and certain of Houlihan Lokey’s and their respective employees may have committed to invest in private equity or other investment funds managed or advised by FP Management, other participants in the Merger or certain of their respective affiliates or security holders, and in portfolio companies of such funds, and may have co-invested with Connecture, Parent, members of the FP Group, other participants in the Merger or certain of their respective affiliates or security holders, and may do so in the future. Furthermore, in connection with bankruptcies, restructurings, distressed situations and similar matters, Houlihan Lokey and certain of its affiliates may have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or groups of creditors) that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, Connecture, Parent, members of the FP Group, other participants in the Merger or certain of their respective affiliates or security holders, for which advice and services Houlihan Lokey and its affiliates have received and may receive compensation. Certain of the foregoing is subject to the terms of the engagement letter entered into among Houlihan Lokey, the Special Committee and Connecture.

Purposes and Reasons of Purchaser Filing Parties for the Merger

Under the SEC rules governing “going private” transactions, each of the Purchaser Filing Parties is an affiliate of the Company that is engaged in the “going private” transaction and, therefore, each is required to express its purposes and reasons for the Merger to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act. The Purchaser Filing Parties are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

For Merger Sub, the purpose of the merger is to effectuate the transactions contemplated by the Merger Agreement. For the other Purchaser Filing Parties, the purpose of the Merger is to allow them to acquire control of the Company and bear the rewards and risks of ownership of the Company after its shares of Common Stock cease to be publicly traded. The Purchaser Filing Parties did not consider any alternatives for achieving these purposes. The transaction has been structured as a cash merger in order to provide the Company’s unaffiliated security holders with cash for their shares of Common Stock and to provide a prompt and orderly transfer of ownership of the Company in a single step, without the necessity of financing separate purchases of Common Stock in a tender offer and implementing a second-step merger to acquire any shares of Common Stock not tendered into any such tender offer, and without incurring any additional transaction costs associated with such activities. The Purchaser Filing Parties have undertaken to pursue the transaction at this time in light of the opportunities they perceive to strengthen the Company’s competitive position, strategy and financial performance under a new form of ownership.

Purposes and Reasons of the Company for the Merger

The Company’s purpose for engaging in the Merger is to enable its stockholders to receive the Merger Consideration, which represents a premium of approximately 119% over the closing price of the Common Stock as quoted on the OTCQX of $0.16 per share on January 3, 2018, the last trading day before the announcement of the Merger. The Company believes that the Merger provides the best opportunity to maximize stockholder value. The Company has determined to undertake the Merger at this time based on the analyses, determinations and conclusions of the Special Committee and the Board described in detail above under “Special Factors—Reasons for the Merger; Recommendation of the Special Committee; Recommendation of the Board of Directors; Fairness of the Merger.

 

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Plans for the Company After the Merger

At the effective time of the Merger, Parent anticipates that the Company will generally continue its current operations, but will cease to be an independent public company. If the Merger is consummated, the Common Stock will cease to be quoted on the OTCQX and will cease to be registered under the Exchange Act (via termination of registration pursuant to Section 12(g) of the Exchange Act). At the effective time of the Merger, the directors of Merger Sub immediately prior to the effective time will become the initial directors of the surviving corporation, and the officers of the Company immediately prior to the effective time will become the officers of the surviving corporation, in each case until their successor is duly elected and qualified or until the earlier of his or her death, resignation or removal in accordance with the certificate of incorporation and bylaws of the surviving corporation. At the effective time of the Merger, the certificate of incorporation and bylaws of the Company will be amended and restated to be in the form of (except with respect to the name of the Company) the certificate of incorporation and bylaws of Merger Sub and, as so amended, will be the certificate of incorporation and bylaws of the Company following the Merger until thereafter amended in accordance with their respective terms and Delaware law.

The Purchaser Filing Parties have advised the Company that they do not have any specific plans or proposals that relate to or would result in an extraordinary corporate transaction following completion of the Merger involving the Company’s corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any operations or purchase, sale or transfer of a material amount of assets. However, the Purchaser Filing Group expects to continuously evaluate and review the Company’s business and operations following the merger and may develop new plans and proposals that it considers appropriate to maximize the value of the Company. Each member of the Purchaser Filing Group expressly reserves the right to make any changes it deems appropriate in light of such evaluation and review or in light of future developments.

Certain Effects of the Merger

If stockholders approve the proposal to adopt the Merger Agreement and the other conditions to the closing of the merger are either satisfied or waived, Merger Sub will be merged with and into the Company with the Company being the surviving corporation. If the Merger is completed, all of our equity interests will be owned by Parent. None of our current stockholders will have any direct ownership interest in, or be a stockholder of, the Company after the completion of the Merger. As a result, our current stockholders (other than the Rolling Stockholders) will no longer benefit from any increase in our value, nor will they bear the risk of any decrease in our value. Following the Merger, only Parent (and through their ownership interest in Parent, the Rolling Stockholders) will benefit from any increase in our value and also will bear the risk of any decrease in our value.

Upon the consummation of the Merger:

 

    each share of Common Stock issued and outstanding immediately prior to the effective time of the Merger (other than shares held by (a) Parent or Merger Sub, (b) the Company in treasury or any wholly owned subsidiary of the Company, (c) holders of Common Stock who have properly demanded appraisal rights (and who have not failed to perfect or effectively withdraw such demand or otherwise waive or lose their rights to appraisal), as described more fully under “The Merger Agreement—Per Share Merger Consideration” on page 74, and (d) the Rollover Investors, which we refer to below as “excluded shares”) will be converted into the right to receive $0.35, in cash, without interest and less any required withholding taxes, and automatically canceled. The Rollover Investors have entered into the Rollover Agreement, pursuant to which the Rollover Investors have agreed to contribute all Rollover Shares to Parent. Upon completion of the Merger, our Common Stock will no longer be publicly traded, and our stockholders (other than Parent directly, and the Rollover Investors indirectly) will cease to have any ownership interest in the Company

 

    each excluded share will automatically be canceled and will cease to exist;

 

    the Rollover Shares will be contributed to Parent pursuant to the Rollover Agreement;

 

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    each unvested option to purchase common stock under the Company Plans outstanding immediately before the effective time of the Merger will be canceled for no consideration;

 

    each vested option to purchase common stock under the Company Plans outstanding immediately before the effective time of the Merger will be canceled in exchange for the right to receive a lump-sum cash payment equal to the product of (a) the excess, if any, of (i) the $0.35 per share Merger Consideration over (ii) the per-share exercise price for such option and (b) the total number of shares of common stock underlying such option, less applicable taxes required to be withheld; however, since all of the Company’s outstanding vested options to purchase Common Stock have a per-share exercise price greater than $0.35, all such options will be canceled without consideration;

 

    each unvested RSU granted under the Company Plans that is outstanding immediately before the effective time of the Merger will be canceled for no consideration;

 

    each RSU that will be vested as of the effective time of the Merger, but not previously settled in shares of Common Stock before the effective time of the Merger, will be canceled in exchange for the right to receive a lump-sum cash payment equal to the product of (i) the $0.35 per share Merger Consideration and (ii) the number of shares of common stock subject to such RSU, less applicable taxes required to be withheld, which RSUs will only include the unvested RSUs held by certain of the Company’s executive officers that will accelerate pursuant to the terms of existing employment agreements between the Company and such officers, as well as the unvested RSUs held by the Company’s directors that will accelerate upon the effectiveness of the Merger pursuant to the Company’s standard director compensation policy, each as more fully described under “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 53.

The Company does not expect to grant any equity awards under the existing Company Plans following the closing of the Merger.

Following the Merger, all of the equity interests in the surviving corporation will be owned by Parent. If the Merger is completed, Parent (and the Rolling Investors indirectly through their equity interests in Parent) will be the sole beneficiaries of our future earnings and growth, if any, and will be entitled to vote on corporate matters affecting the Company following the Merger. Similarly, Parent (and the Rolling Investors indirectly) will also bear the risks of ongoing operations, including the risks of any decrease in our value after the merger.

In connection with the Merger, certain members of the Company’s management will receive benefits and be subject to obligations that are different from, or in addition to, the benefits and obligations of the Company’s stockholders generally, as described in more detail under “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 53. Those incremental benefits are expected to include, among other benefits, certain executive officers continuing as executive officers of the surviving corporation.

Benefits of the Merger for the Company’s Unaffiliated Security Holders

The primary benefit of the Merger to the unaffiliated security holders will be their right to receive the Merger Consideration, less applicable withholding taxes, for each share of Common Stock held by such stockholders as described above. Additionally, such stockholders will avoid the risk after the Merger of any possible decrease in our future earnings, growth or value.

Detriments of the Merger to the Company’s Unaffiliated Security Holders

The primary detriments of the Merger to our unaffiliated security holders include the lack of an interest of such stockholders in the potential future earnings, growth, or value realized by the Company after the Merger. Additionally, the receipt of cash in exchange for Common Stock pursuant to the Merger will generally be a taxable sale transaction for U.S. federal income tax purposes to stockholders who surrender their Common Stock in the Merger to the extent that such stockholders have any gain on their shares of Common Stock.

 

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Certain Effects of the Merger for the Purchaser Filing Parties

If the Merger is completed, Parent will indirectly own all of the Company’s equity interests through its ownership of FP Healthcare Intermediate, LLC, which is the sole stockholder of Merger Sub.

The benefits of the Merger to the Purchaser Filing Parties include the fact that, following the completion of the Merger, Parent will indirectly own 100% of the outstanding Common Stock of the Company and will therefore have a corresponding 100% interest in the surviving corporation’s net book value and net earnings. The table below sets forth the interests in the Company’s net book value and net earnings of the Purchaser Filing Parties prior to and immediately after the merger, based on the net book value at September 30, 2017 and net earnings for the nine months ended September 30, 2017, as if the Merger were completed on such date.

 

     Ownership of the Company Prior to the Merger(1)      Ownership of the Company After the Merger(2)  
($ in millions)    % Ownership     Net book
value at
September 30,
2017(3)
    Net loss for the
nine months
ended
September 30,
2017
     % Ownership     Net book
value at
September 30,
2017(3)
    Net loss for the
nine months
ended
September 30,
2017
 

Parent

     —       $ —       $ —          100   $ (69.3   $ 8.9  

FP Investors

     57     (39.5     5.1        95     (65.8     8.5  

Chrysalis

     11     (7.6     1.0        5     (3.5     0.4  

 

(1) Based on 22,886,255 shares of Common Stock outstanding as of September 30, 2017. Assumes the conversion of all Preferred Stock held by both the FP Investors and Chrysalis.
(2) The actual interests of the Purchaser Filing Parties following completion of the Merger will be based on the Rollover Investors’ ownership of Common Stock and Preferred Stock as the date of completion. Actual interests may vary due to the impact of accrued and unpaid dividends on the number of shares of Common Stock into which the Preferred Stock held by each of the Rollover Investors is convertible. In addition, the post-closing interest of the FP Investors will be reduced to the extent the FP Investors assign a portion of the Equity Financing commitment to other parties.
(3) Based on total stockholders’ deficit of $69.3 million as of September 30, 2017.

In addition, the Purchaser Filing Parties will benefit from the savings associated with the Company no longer being required to file reports under or otherwise having to comply with provisions of the Exchange Act. Detriments of the Merger to the Purchaser Filing Parties include the lack of liquidity for the Company’s Common Stock following the Merger and the risk that the Company will decrease in value following the Merger.

Certain Effects on the Company If the Merger Is Not Completed

If the Merger Agreement is not adopted by the Company’s stockholders or if the Merger is not completed for any other reason, the Company’s stockholders will not receive any payment for their shares of Common Stock in connection with the Merger. Instead, the Company will remain a public company and the Common Stock will continue to be registered under the Exchange Act, with shares quoted on the OTCQX or another over-the-counter market. In addition, if the Merger is not completed, the Company expects that management will operate the Company’s business in a manner similar to that in which it is being operated today and that the Company’s stockholders will continue to be subject to the same risks and opportunities to which they are currently subject, including, without limitation, risks related to the Company’s ability to continue as a long-term going concern.

Furthermore, if the Merger is not completed, and depending on the circumstances that would have caused the Merger not to be completed, the price of the Common Stock may decline significantly. If that were to occur, it is uncertain when, if ever, the price of the Common Stock would return to the price at which the Common Stock trades as of the date of this proxy statement. Accordingly, 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 your shares. If the Merger is not

 

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completed, the Board will continue to evaluate and review the Company’s business operations, properties, dividend policy, share repurchase policy and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance stockholder value. If the Merger Agreement is not adopted by the Company’s stockholders or if the Merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Company will be offered or that the Company’s business, prospects or results of operation will not be adversely impacted.

In addition, under specified circumstances, if the Merger Agreement is terminated, the Company may be required to reimburse the out-of-pocket expenses of Parent, Merger Sub and their affiliates incurred in connection with the Merger up to a maximum of $2,000,000, as more fully described in “The Merger Agreement—Termination of the Merger Agreement” beginning on page 91 and “The Merger Agreement—Termination Fee and Expenses” beginning on page 92.

Projected Financial Information

The Company does not as a matter of course make public financial projections as to future revenues, earnings or other results given, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates. However, in connection with the Merger, certain forward-looking financial information provided by the Company’s management, and authorized by the Special Committee to be used and relied upon by Houlihan Lokey, was provided to Houlihan Lokey for Houlihan Lokey’s use and reliance in connection with its financial analyses and opinion. The Company has included in this proxy statement a summary of certain of this financial information to give our stockholders access to certain nonpublic information provided to the Special Committee and Houlihan Lokey but not to influence the decision of stockholders whether to vote for or against approval of the Merger Proposal. The inclusion of this information should not be regarded as necessarily predictive of actual future results.

The financial projections, which reflect the Company as a going concern assuming, among other things, that the Company obtains sufficient capital resources necessary to fund its operations and comply with its bank covenants, are subjective in many respects. Although presented with numerical specificity, the financial projections reflect and are based on numerous assumptions and estimates with respect to obtaining sufficient capital resources necessary for the Company to fund its operations and comply with its bank covenants, industry performance, general business, economic, political, market and financial conditions, competitive uncertainties, and other matters, all of which are difficult to predict and beyond the Company’s control. As a result, there can be no assurance that these financial projections will be realized or that actual results will not be significantly higher or lower than projected. The financial projections are forward-looking statements and should be read with caution. See “Cautionary Statement Concerning Forward-Looking Information” on page 66. The financial projections cover multiple years, and such information by its nature becomes less reliable with each successive year. In addition, the financial projections will be affected by the Company’s ability to achieve strategic goals, objectives and targets over the applicable periods. The financial projections also reflect assumptions as to certain business matters that are subject to change.

The financial projections were prepared to assist the Special Committee in evaluating the Merger and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has not examined or compiled any of the financial projections, expressed any conclusion or provided any form of assurance with respect to the financial projections and, accordingly, assumes no responsibility for them. The financial projections do not take into account any circumstances or events occurring after the date they were prepared. 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. The Deloitte & Touche LLP reports incorporated by reference into this proxy statement relate to the Company’s historical financial information. They do not extend to the financial projections and should not be read to do so.

 

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The following table presents a summary of the Company’s financial projections of revenue and Adjusted EBITDA for fiscal years 2017 and 2018:

 

     Fiscal Year Ended  
($ in millions)    2017E      2018E  

Revenue

   $ 76.5      $ 75.9  

Adjusted EBITDA

   $ (1.4    $ 1.9  

The financial projections in the table above include the Company’s estimated revenue, determined in accordance with GAAP, and Adjusted EBITDA, which may be considered a non-GAAP financial measure within the meaning of applicable rules and regulations of the SEC. The following table presents a reconciliation of GAAP net income (loss), the nearest GAAP measure, to Adjusted EBITDA as presented in the financial projections above:

 

     Fiscal Year Ended  
($ in millions)    2017E      2018E  

GAAP Net Income (Loss)

   $ (11.9    $ (6.9

Depreciation & Amortization

   $ 4.4      $ 4.0  

Interest Expense

   $ 3.3      $ 2.7  

Other Expense, Net

   $ 0.5        —    

Income Taxes

     —          —    

Stock-Based Compensation

   $ 2.3      $ 2.1  
  

 

 

    

 

 

 

Total Net Adjustments

   $ 10.5      $ 8.8  
  

 

 

    

 

 

 

Adjusted EBITDA

   $ (1.4    $ 1.9  
  

 

 

    

 

 

 

The following table presents a summary of the Company’s financial projections of unlevered, after-tax free cash flow for fiscal years 2018 through 2023:

 

     Fiscal Year Ended  
($ in millions)    2018E      2019E      2020E      2021E      2022E      2023E  

Unlevered, After-Tax Free Cash Flow(1)

   $ 3.7      $ 6.8      $ 7.5      $ 11.3      $ 15.6      $ 21.7  

 

(1) Assumes no taxes paid as a result of expected utilization by the Company of net operating losses during projection period.

The financial projections in the table above include the Company’s estimated unlevered, after-tax free cash flow, which may be considered a non-GAAP financial measure within the meaning of applicable rules and regulations of the SEC. The following table presents a reconciliation of GAAP net income (loss), the nearest GAAP measure, to unlevered, after-tax free cash flow as presented in the financial projections above:

 

     Fiscal Year Ended  
($ in millions)    2018E     2019E     2020E     2021E     2022E     2023E  

GAAP Net Income (Loss)

   $ (6.9   $ 0.6     $ 3.5     $ 8.1     $ 13.4     $ 21.3  

Depreciation & Amortization

   $ 4.0     $ 2.2     $ 1.8     $ 2.0     $ 2.1     $ 1.3  

Interest Expense

   $ 2.7     $ 2.5     $ 2.5     $ 2.5     $ 2.5     $ 2.5  

Other Expense, Net

     —         —         —         —         —         —    

Income Taxes

     —         —         —         —         —         —    

Stock-Based Compensation

   $ 2.1     $ 2.1     $ 2.1     $ 2.1     $ 2.1     $ 2.1  

Changes in Operating Assets and Liabilities

   $ 2.6     $ 0.4     $ (1.4   $ (2.1   $ (3.0   $ (3.7

Purchase of Property and Equipment

   $ (0.8   $ (1.0   $ (1.1   $ (1.3   $ (1.5   $ (1.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Net Adjustments

   $ 10.6     $ 6.2     $ 4.0     $ 3.2     $ 2.2     $ 0.4  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unlevered, After-Tax Free Cash Flow

   $ 3.7     $ 6.8     $ 7.5     $ 11.3     $ 15.6     $ 21.7  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The non-GAAP financial measures included in the financial projections above were presented because the Company’s management believed they could be useful indicators of the Company’s projected future operating performance and cash flow. These financial projections should not be considered in isolation or in lieu of the Company’s operating and other financial information determined in accordance with GAAP and should be read in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP (see “Important Information Regarding Connecture—Selected Historical Consolidated Financial Data”). In addition, because non-GAAP financial measures are not determined consistently by all companies, the non-GAAP measures presented in these financial projections may not be comparable to similarly titled measures of other companies.

Readers of this proxy statement are cautioned not to place undue reliance on the specific portions of the financial projections set forth in the tables above. No one has made or makes any representation to any stockholder regarding the information included in these financial projections.

The financial projections do not take into account any circumstances or events occurring after the date they were prepared, including the transactions contemplated by the Merger Agreement. Further, the financial projections do not take into account the effect of any failure of the Merger to occur and should not be viewed as continuing in that context. Except as may be required by applicable securities laws, the Company does not intend to update, or otherwise revise, the financial projections or the specific portions presented to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are not realized.

For the foregoing reasons, as well as the bases and assumptions on which the financial projections were compiled, the inclusion of specific portions of the financial projections in this proxy statement should not be regarded as an indication that such projections are necessarily predictive of actual future events, and they should not be relied on as such.

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

In considering the recommendations of the Special Committee and of the Board of Directors with respect to the Merger Agreement, you should be aware that, aside from their interests as stockholders of the Company, the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, those of other stockholders of the Company generally. In particular, with respect to the Affiliated Directors, David A. Jones Jr., the chairman of the Board of Directors, is an affiliate of, and has a financial interest in, Chrysalis, which is a Rollover Investor and also is a Rollover Investor in his personal capacity as the holder, through a trust of which he is the trustee, of Rollover Shares; Ezra Perlman, a member of the Board of Directors, is an affiliate of, and has a financial interest in, the FP Investors; and Kraig McEwen, a member of the Board of Directors, is a director designated by Francisco Partners. The FP Investors, through their control of Parent, will control the Company after the Merger and the Affiliated Directors will each become directors of Parent following completion of the Merger in accordance with the terms of the Parent Stockholders Agreement. In addition, each of Mr. Jones and Mr. Perlman will retain an indirect financial interest in the Company through their ownership interest in Parent as a result of the contribution of Rollover Shares in which they have a financial interest to Parent pursuant to the Rollover Agreement.

In addition to the foregoing, other interests of executive officers and directors that may be different from or in addition to the interests of the Company’s stockholders include the fact that:

 

    as further described below, certain of the Company’s executive officers, Jeffery A. Surges and Vincent E. Estrada, have entered into employment agreements that provide for the acceleration of vesting of equity awards upon the effectiveness of the Merger, as well as certain severance benefits upon a qualifying termination after the Merger;

 

    pursuant to the Company’s standard director compensation policy, vesting of unvested RSUs held by the Company’s directors will accelerate upon the effectiveness of the Merger;

 

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    the Company’s executive officers as of the effective time of the Merger will become the initial executive officers of the surviving corporation;

 

    Mr. Surges, as chief executive officer of the Company, will also be entitled to serve on the board of directors of the Company pursuant to the Parent Stockholders Agreement as long as he remains chief executive officer of the Company; and

 

    the Company’s directors and executive officers are entitled to continued indemnification and insurance coverage under the Merger Agreement, and the Company’s directors and certain executive officers are entitled to continued indemnification and insurance coverage under indemnification agreements.

Payments to Executive Officers and Directors in Respect of Company Equity Awards

Pursuant to the terms of the Merger Agreement, other than as described below, all unvested RSUs held by executive officers of the Company will be canceled for no consideration. In addition, all vested and unvested stock options held by the Company’s executive officers have exercise prices in excess of the Merger Consideration of $0.35 per share, and therefore, such stock options will be canceled as of the effective time of the Merger for no consideration. No directors of the Company hold any stock options. Likewise, certain executive officers of the Company were issued retention bonus awards and time-based RSUs that only are payable or entitled to settlement, respectively, upon certain conditions which are not satisfied by the Merger, and therefore, such RSUs will be canceled for no consideration and the cash bonus awards will remain outstanding obligations of the Company without payment as a result of the Merger.

Pursuant to the terms of their respective employment agreements, Jeffery A. Surges, the Company’s Chief Executive Officer and President, and a member of the Board, and Vincent E. Estrada, the Company’s Executive Vice President of Corporate Development and former Chief Financial Officer, are entitled to full acceleration of their unvested equity awards with time-based vesting conditions upon completion of the Merger. As all unvested stock options held by Messrs. Surges and Estrada have exercise prices in excess of the Merger Consideration of $0.35 per share, such stock options will be canceled as of the effective time of the Merger for no consideration. However, Messrs. Surges and Estrada will receive payment in respect of unvested RSUs with time-based vesting conditions. In addition, unvested RSUs held by members of the Company’s Board of Directors (other than Mr. Surges) will accelerate and vest at the effective time of the Merger pursuant to the Company’s standard director compensation plan.

The table below sets forth the total number of shares of Common Stock subject to unvested RSUs that will accelerate upon the effective time of the Merger with respect to each executive officer and director of the Company that holds such RSUs, assuming that the closing of the Merger were to occur on January 16, 2018. The amount payable listed below reflects the number of shares subject to unvested RSUs that will accelerate multiplied by the Merger Consideration of $0.35 per share, without regard to any required withholding of taxes. Other than as set forth in the table below, no executive officer or director of the Company will receive any payments in respect of outstanding Company Equity Awards.

Payments Resulting from Acceleration of Unvested Equity Awards

 

Name

   Unvested RSUs
Accelerating
     Merger Consideration
Payable ($)
 

Executive Officers

     

Jeffery A. Surges

     62,438      $ 21,853  

Vincent E. Estrada

     83,338      $ 29,168  

Directors

     

John Ansay

     20,122      $ 7,043  

Vickie Capps

     20,122      $ 7,043  

Paul Kusserow

     20,122      $ 7,043  

Kraig McEwen

     53,658      $ 18,780  

Russ Thomas

     20,122      $ 7,043  

 

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All such payments will be made by the surviving corporation, without interest, at the effective time of the Merger or as soon as practicable thereafter, and in no event later than the date that is the later of five business days after the effective time and the date of the Company’s first regularly scheduled payroll after the effective time.

Payments to Executive Officers and Directors in Respect of Common Stock

In addition to the payments made in respect of unvested RSUs noted above, executive officers and directors of the Company (other than David A. Jones, Jr., whose shares are being contributed to Parent pursuant to the Rollover Agreement) will be entitled to receive the Merger Consideration of $0.35 per share with respect to any shares of Common Stock owned by such executive officer or director as of the effective time of the Merger.

The table below sets forth the total number of shares of Common Stock held by each executive officer and director of the Company, assuming that the closing of the Merger were to occur on January 16, 2018. The table excludes any Common Stock issuable upon the vesting or exercise of equity awards (which are addressed above in “Payments to Executive Officers and Directors in Respect of Company Equity Awards”), as well as shares of Common Stock and Preferred Stock held by the Sponsor Entities that may be deemed beneficially owned by Ezra Perlman and David A. Jones, Jr. The amount payable listed below reflects the number of shares of Common Stock held multiplied by the Merger Consideration of $0.35 per share, without regard to any required withholding of taxes.

 

Name

   Shares of Common
Stock
     Merger Consideration
Payable ($)
 

Executive Officers

     

Jeffery A. Surges

     190,091        66,532  

Vincent E. Estrada

     41,662        14,582  

Brian D. Lindstrom

     —          —    

Mark Granville

     6,666        2,333  

Lea DeVillers

     8,530        2,986  

Directors

     

John Ansay

     126,776        44,372  

Vickie Capps

     116,776        40,872  

Paul Kusserow

     101,776        35,622  

Kraig McEwen

     160,976        56,342  

Russ Thomas

     93,526        32,734  

Ezra Perlman

     —          N/A  

David A. Jones, Jr.(1)

     57,696        N/A  

 

(1) Mr. Jones’s shares are held by the David A Jones, Jr. Revocable Trust, of which Mr. Jones is a trustee, and will be contributed to Parent immediately before the effective time of the Merger pursuant to the Rollover Agreement. For more information, see “Special Factors—Rollover Agreement.”

Additional Severance Arrangements

Pursuant to the terms of letter agreements entered into with Mr. Surges and Mr. Estrada on July 21, 2017, Mr. Surges and Mr. Estrada are entitled to additional cash severance of $225,000 and $150,000, respectively, in the event of a qualifying termination (i.e., a termination by the Company without “cause” or by Mr. Surges or Mr. Estrada with “good reason”) within twelve months of the Merger.

For purposes of these agreements and the employment agreement agreements of Messrs. Surges and Estrada, “cause” means (i) theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any Company documents or records; (ii) material failure to abide by the Company’s code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable

 

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workplace conduct), which failure, to the extent such failure can be cured, is not cured within a reasonable period of time after written notice; (iii) unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of the Company (including, without limitation, improper use or disclosure of the Company’s confidential or proprietary information); (iv) any intentional act that has a material detrimental effect on the Company’s reputation or business; (v) repeated failure to perform any reasonable assigned duties after written notice of, and a reasonable opportunity to cure, such failure; (vi) any material breach of any employment, service, non-disclosure, non-competition, non-solicitation or other similar agreement with the Company, which breach is not cured pursuant to the terms of such agreement; or (vii) conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or that impairs the executive’s ability to perform his duties with the Company. “Good reason” occurs if (i) the Company, without the executive’s written consent, (a) materially reduces the executive’s then-current authority, duties or responsibilities or adversely changes the executive’s job title, (b) materially reduces the executive’s then-current base salary, unless substantially all other executive management employees’ base salary is similarly or proportionately reduced up to 20%, (c) materially changes the geographic location at which the executive must perform services, (d) materially breaches an agreement between the executive and the Company and (e) fails to make certain equity grants to the executive; and (ii)(1) the executive provides written notice to the Company of any such action within 60 days of the date on which such action first occurs and provides the Company with a 30-day cure period; (2) the Company fails to remedy such action within the cure period, and (3) the executive resigns within 10 days of the expiration of the cure period.

In addition, under the terms of his employment agreement, Mr. Surges would receive acceleration of vesting of all unvested equity awards he holds with performance-vesting conditions upon a qualifying termination within twelve months of the Merger, but all such awards will be canceled without consideration as of the effective time of the Merger.

Other than the foregoing additional benefits, no executive officer or director of the Company is entitled any additional severance benefits as a result of the Merger. In addition, no executive officer of the Company negotiated or entered into any employment or compensation arrangements with Parent for purposes of such executive officer’s employment after completion of the Merger.

Indemnification and Insurance

Pursuant to the terms of the Merger Agreement, following the effective time of the Merger, the Company’s current and former directors and officers will be entitled to certain ongoing rights of indemnification and to coverage under directors’ and officers’ liability insurance policies. For a description of such ongoing indemnification and insurance obligations, refer to the section entitled “The Merger Agreement—Other Covenants and Agreements—Indemnification and Insurance” on page 88.

The Special Committee and the Board of Directors were aware of the different or additional interests described herein and considered those interests along with other matters in recommending and/or approving, as applicable, the Merger Agreement and the transactions contemplated thereby, including the Merger.

Merger-Related Compensation

This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each named executive officer of the Company, as determined for purposes of its most recent annual proxy statement, as well as for each of the two individuals that served as the Company’s principal financial officer during 2017 that were not otherwise named executive officers in the Company’s most recent annual proxy statement (each of whom we refer to as a “named executive officer”), 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

 

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to our named executive officers. The “golden parachute” compensation payable to these individuals is subject to a non-binding advisory vote of the Company’s stockholders, as set forth in “The Compensation Proposal” beginning on page 120.

The following table sets forth the amount of payments and benefits that each named executive officer would receive in connection with the Merger, assuming the consummation of the merger occurred on January 16, 2018, and the employment of the executive officer was terminated other than for “cause” or the executive officer resigned for “good reason,” in each case on such date. Of the Company’s named executive officers, only Jeffery A. Surges and Vincent E. Estrada are entitled to any such “golden parachute compensation.” The value of any equity-based awards was calculated by multiplying the number of the shares of Common Stock subject to unvested RSUs by the per share Merger Consideration of  $0.35. The calculations in the table below do not include amounts that the Company’s executive officers were already entitled to receive or vested in as of the date hereof or amounts under contracts, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation in favor of executive officers and that are available generally to all the Company’s salaried employees.

Golden Parachute Compensation

The table below, titled “Potential Change-in-Control Payments to Named Executive Officers,” along with its footnotes, sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation payable to the Company’s principal executive officer and the two most highly compensated executive officers other than the principal executive officer, as determined for purposes of its most recent annual proxy statement, as well as each of the individuals that served as the Company’s principal financial officer during 2017 (each of whom we refer to for purposes of this proxy statement as a “named executive officer”), which compensation is subject to an advisory vote of the Company’s stockholders, as described below in “The Compensation Proposal (Proposal 3).” The table assumes the consummation of the Merger occurred on January 16, 2018, and the employment of the named executive officer was terminated without “cause” or for “good reason” on such date. The value of any equity-based awards was calculated by multiplying the number of the Shares subject to restricted stock units by the $0.35 per share Merger Consideration.

The calculations in the table below do not include amounts that the Company’s executive officers were already entitled to receive or vested in as of the date hereof or amounts under contracts, agreements, plans or arrangements to the extent they do not discriminate in scope, terms or operation in favor of executive officers and that are available generally to all the Company’s salaried employees.

Potential Change-in-Control Payments to Named Executive Officers

 

Name

 

 

   Cash ($)      Equity ($)      Total ($)  

Jeffery A. Surges, President and Chief Executive Officer

       225,000        21,853        246,853  

Brian D. Lindstrom, Chief Financial Officer

       —          —          —    

Vincent E. Estrada, Executive Vice President, Corporate Development

       150,000        29,168        179,168  

Mark E. Granville, Chief Delivery Officer

       —          —          —    

James P. Purko, the Company’s former Chief Financial Officer, is no longer employed by the Company and no longer entitled to compensation with respect to the Merger.

Voting and Support Agreement

Concurrently with the execution and delivery of the Merger Agreement, the Sponsor Entities entered into the Voting Agreement with the Company. Pursuant to the Voting Agreement, the Sponsor Entities have agreed, unless the Board of Directors or the Special Committee has changed its recommendation that the stockholders adopt the Merger Agreement, to vote all shares of the Company’s capital stock owned by them in favor of the

 

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adoption of the Merger Agreement and the approval of the transactions contemplated thereby and against any other action or agreement not recommended by the Board of Directors that would reasonably be expected to (i) result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement, (i) result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled or (iii) impede, frustrate, interfere with, delay, postpone or adversely affect the merger and the other transactions contemplated by the Merger Agreement.

In addition, pursuant to the Voting Agreement, if the Company enters into a definitive agreement with respect to a superior proposal that will result in the Preferred Stock being redeemed in accordance with its terms, among other conditions, the Sponsor Entities have agreed to vote their shares in favor of such superior proposal. The Sponsor Entities have also agreed to refrain from exercising their rights with respect to control of the Board of Directors until the Voting Agreement is terminated according to its terms.

Finally, pursuant to the Voting Agreement, the Sponsor Entities have agreed, if requested to do so by the Board of Directors or the Special Committee, to explore in good faith the possibility of working with any third parties regarding alternative acquisition proposals to the extent the Company is permitted to do so under the Merger Agreement, including by reviewing and responding to proposals and taking part in meetings and negotiations with respect thereto, and have represented that they are not subject to any agreement that would prevent them from doing so. The Voting Agreement will terminate at the effective time of the Merger or, if earlier, the date of the termination of the Merger Agreement, unless there is a superior proposal, in which case the termination will occur upon the earliest of (i) the consummation of the superior proposal, (ii) the termination of the definitive agreement reflecting the superior proposal in accordance with its terms, and (iii) the date that is five months after the termination of the Merger Agreement by the Company in order to pursue a superior proposal.

Rollover Agreement

Concurrently with the execution and delivery of the Merger Agreement, the Rollover Investors and Parent entered into the Rollover Agreement, pursuant to which the Rollover Investors agreed to contribute the Rollover Shares to Parent in exchange for common stock of Parent immediately before the effective time of the Merger. After the completion of the transactions contemplated by the Rollover Agreement, the only outstanding common stock of Parent will be the shares issued to the Rollover Investors in exchange for the Rollover Shares and the shares held by the FP Investors (or their affiliates) in connection with their investment in Parent.

The Rollover Investors and Parent each make customary representations and warranties regarding, among other things authority; no violation of material agreements; and, with respect to the Rollover Investors, no brokers and status as accredited investors. The Rollover Agreement contains customary restrictions on transfer of the common stock of Parent. In connection with the Rollover Agreement, the Rollover Investors and Parent agreed to enter into a stockholders’ agreement containing provisions regarding, among other things, governance, board composition, transfer restrictions on shares of common stock, tag-along rights, drag-along rights, preemptive rights, information rights and certain covenants. The Rollover Agreement is governed by Delaware law.

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

The following is a summary of the material U.S. federal income tax consequences of the Merger to the Non-Rolling Stockholders who are “U.S. holders” and “non-U.S. holders” (each as defined below) whose shares of Common Stock are converted into the right to receive cash in the Merger. This summary does not purport to consider all aspects of U.S. federal income taxation that might be relevant to our stockholders. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury regulations, judicial opinions, and administrative rulings and published positions of the Internal Revenue Service (the “IRS”), each as in effect as of the date hereof. These authorities are subject to change,

 

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possibly on a retroactive basis, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. The discussion applies only to beneficial owners who hold shares of Common Stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment purposes), and does not apply to shares of Common Stock received in connection with the exercise of employee stock options or otherwise as compensation, stockholders who hold an equity interest, actually or constructively, in Parent or the surviving corporation after the Merger, stockholders who have perfected and not withdrawn a demand for, or lost the right to, appraisal under the DGCL or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker–dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, stockholders subject to the alternative minimum tax, U.S. holders that have a functional currency other than the U.S. dollar or stockholders who hold Common Stock as part of a hedge, straddle, constructive sale or conversion transaction). This discussion also does not address the receipt of cash in connection with the cancellation of phantom stock units, or options to purchase shares of Common Stock, or the treatment of RSUs or performance awards, or any other matters relating to equity compensation or benefit plans (including the plans). This discussion does not address any aspect of state, local or foreign tax laws, the additional 3.8% tax on certain net investment income that may be imposed under the Code or any other form of taxation that may be applicable to a stockholder. Furthermore, it generally does not address the tax consequences of transactions effectuated before, after or at the same time as the Merger, whether or not they are in connection with the Merger, including any transactions contemplated by the Rollover Agreement.

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds Common Stock, the tax treatment of a partner of such partnership generally will depend on the status of the partner and the activities of the partner and the partnership. A partner of a partnership holding Common Stock is encouraged to consult the partner’s tax advisor regarding the U.S. federal income tax consequences of the Merger to such partner.

We have not sought, and do not intend to seek, any ruling from the IRS with respect to the statements made and the conclusions reached in the following summary, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS in the event of litigation.

U.S. Holders

For purposes of this discussion, “U.S. holder” means a beneficial owner of shares of Common Stock that is, for U.S. federal income tax purposes:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any of its political subdivisions;

 

    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 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.

The exchange of shares of Common Stock for cash in the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of Common Stock are converted into the right to receive cash in the Merger will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received with respect to such shares (determined before the deduction of any applicable withholding taxes, as described below in this section under “Backup Withholding and Information Reporting”) and the U.S. holder’s adjusted tax basis in such shares. A U.S. holder’s adjusted tax basis will generally equal the price the U.S. holder paid for such shares. Gain or loss will be determined separately for each block of shares of Common Stock (i.e., shares of Common Stock acquired at the same cost in

 

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a single transaction). Such capital gain or loss will be long-term capital gain or loss, provided that the U.S. holder’s holding period for such shares of Common Stock is more than 12 months at the Effective Time of the Merger. There are limitations on the deductibility of capital losses.

Non-U.S. Holders

For purposes of this discussion, “non-U.S. holder” means a beneficial owner of Common Stock that is not a U.S. holder or a partnership (or any other entity or arrangement that is treated as a partnership for U.S. federal income tax purposes). In such case, a non-U.S. holder whose shares of Common Stock are exchanged for cash in the merger will recognize capital gain or loss, which generally is not expected to be subject to U.S. federal income tax unless:

 

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

 

    the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the exchange of shares of Common Stock for cash pursuant to the Merger and certain other conditions are met; or

 

    the non-U.S. holder owned, directly or under certain constructive ownership rules of the Code, more than 5% of our Common Stock at any time during the five-year period preceding the merger, and the Company is or has been a “United States real property holding corporation” within the meaning of Section 897(c)(2) of the Code for U.S. federal income tax purposes at any time during the shorter of the five-year period preceding the Merger or the period that the non-U.S. holder held Common Stock.

A non-U.S. holder described in the first bullet point immediately above will be subject to regular U.S. federal income tax on any gain realized as if the non-U.S. holder were a U.S. holder, subject to an applicable income tax treaty providing otherwise. If such non-U.S. holder is a corporation, it may also be subject to a branch profits tax equal to 30% (or a lower treaty rate) of its effectively connected earnings and profits for the taxable year, as adjusted for certain items. A non-U.S. holder described in the second bullet point immediately above will be subject to U.S. federal income tax at a rate of 30% (or a lower treaty rate) on any gain realized, which may be offset by U.S.-source capital losses recognized in the same taxable year.

We believe we have not been a “United States real property holding corporation” for U.S. federal income tax purposes at any time during the five-year period preceding the Merger.

Backup Withholding and Information Reporting

Backup withholding of tax may apply to cash payments to which a non-corporate U.S. holder is entitled under the Merger Agreement, unless such U.S. holder provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules. Each of our Non-Rolling Stockholder who is a U.S. holder should complete and sign, under penalty of perjury, the Substitute Form W-9 included as part of the letter of transmittal and return it to the Exchange Agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the Exchange Agent. A non-U.S. holder that provides the applicable withholding agent with an applicable Internal Revenue Service Form W-8 will generally establish an exemption from backup withholding.

Backup withholding is not an additional tax. Any amounts withheld from cash payments to a Non-Rolling Stockholder pursuant to the Merger under the backup withholding rules will generally be allowable as a refund or a credit against such Non-Rolling Stockholder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.

 

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Cash payments made pursuant to the Merger will also be subject to information reporting unless an exemption applies.

The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the Merger. Because individual circumstances may differ, each stockholder is encouraged to consult the stockholder’s tax advisor regarding the applicability of the rules discussed above to the stockholder and the particular tax effects to the stockholder of the Merger in light of such stockholder’s particular circumstances, the application of state, local and foreign tax laws.

Rights of Stockholders Who Seek Appraisal

Stockholders who do not vote for the adoption of the Merger Agreement are entitled to appraisal rights under the DGCL in connection with the Merger, but only if they fully comply with all of the applicable legal requirements of Section 262 of the DGCL, which are summarized in this proxy statement under “Appraisal Rights” beginning on page 113 and set forth in their entirety in Section 262 of the DGCL (attached to this proxy statement as Annex B). This means that stockholders may be entitled to have the fair value of their shares of common stock determined by the Delaware Court of Chancery and to receive payment based on that valuation in lieu of the $0.35 per share Merger Consideration if they follow exactly the procedures specified under the DGCL. The ultimate amount a stockholder may receive in an appraisal proceeding may be less than, equal to or more than the amount such stockholder would have received under the Merger Agreement.

To exercise appraisal rights, a stockholder must, among other things, submit a written demand for appraisal to the Company before the vote is taken on the adoption of the Merger Agreement (and must not fail to perfect or effectively withdraw or otherwise waive or lose your rights to appraisal) and must not vote (either in person or by proxy) in favor of the Merger Proposal. A stockholder’s failure to follow exactly the procedures specified under the DGCL may result in the loss of such stockholder’s appraisal rights. See “Appraisal Rights” beginning on page 113 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex B to this proxy statement. If a stockholder holds such stockholder’s shares of common stock through a bank, brokerage firm or other nominee and wishes to exercise appraisal rights, such stockholder should consult with the bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by the bank, brokerage firm or other nominee. In view of the complexity of the DGCL relating to appraisal rights, stockholders who may wish to pursue appraisal rights should consult their own legal counsel promptly. The discussion of appraisal rights in this proxy statement is not a full summary 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, a copy of which is attached to this proxy statement as Annex B.

Solicitation of Acquisition Proposals

The Merger Agreement provides that the Company is permitted to actively initiate, solicit and encourage Acquisition Proposals from third parties during the Go-Shop Period. The Special Committee has retained Raymond James to serve as its financial advisor in soliciting proposals during the Go-Shop Period.

Beginning on the No-Shop Period Start Date, the Company must cease all existing discussions or negotiations with any person with respect to any Acquisition Proposal, except as otherwise provided below, and may not solicit, initiate or encourage any Acquisition Proposals.

If the Company receives a written Acquisition Proposal after the No-Shop Period Start Date and prior to obtaining stockholder approval of the Merger Agreement, the Company will be permitted to engage in discussions and negotiations regarding such Acquisition Proposal if the Special Committee determines in good faith (after consultation with independent legal counsel and a financial advisor of internationally recognized reputation) that such Acquisition Proposal constitutes or could reasonably be expected to result in a Superior Proposal (the meanings of Acquisition Proposal and Superior Proposal are defined below in “The Merger

 

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Agreement—Solicitation of Acquisition Proposals” beginning on page 82). Further, the Company is permitted to, among other things, engage, enter into and participate in discussions and negotiations with certain parties, which we refer to as the Excluded Parties, who during the Go-Shop Period made a bona fide written Acquisition Proposal that the Special Committee has determined in good faith (after consultation with independent legal counsel and a financial advisor of internationally recognized reputation) constitutes, or could reasonably be expected to result in, a Superior Proposal.

The Board is prohibited from taking certain actions enumerated in the Merger Agreement that would amount to a change in the recommendation of the Board to the stockholders to approve the Merger Agreement, unless, prior to obtaining stockholder approval of the Merger Proposal, the Special Committee determines in good faith (after consultation with independent legal counsel and a financial advisor of internationally recognized reputation), that an Acquisition Proposal constitutes a Superior Proposal.

For more information, see “The Merger Agreement—Solicitation of Acquisition Proposals” beginning on page 82.

Financing

We anticipate that the total funds needed by Parent and Merger Sub to:

 

    pay our stockholders and holders of equity awards the amounts due to them under the Merger Agreement upon the consummation of the Merger; and

 

    pay related fees and expenses in connection with the Merger and associated transactions

will be approximately $15.4 million.

We anticipate that the funds needed to pay the amounts described above will be obtained as follows:

 

    Equity Financing to be provided to Parent by the FP Investors or other parties to whom it assigns a portion of its commitment, in an aggregate amount of up to $15.0 million; and

 

    Debt Financing to Merger Sub in the form of a senior secured term loan facility and a senior secured revolving credit facility in an aggregate principal amount of $47 million, on the terms and subject to the conditions set forth in the Debt Commitment Letter, as further described below in “—Debt Financing.”

The obtaining of financing is not a condition to the obligations of Parent and Merger Sub to effect the merger pursuant to the terms of the Merger Agreement.

Debt Financing

Merger Sub has received commitments for Debt Financing in the form of senior secured credit facilities in an aggregate principal amount of $47 million (the “Credit Facilities”), comprising (i) a $42 million senior secured term loan facility (the “Term Loan Facility”) and (ii) a $5 million senior secured revolving credit facility (the “Revolving Facility”), on the terms and subject to the conditions set forth in the Debt Commitment Letter. Certain key terms of the Credit Facilities are set forth below:

 

    Term. The Revolving Facility and Term Loan Facility will have a term of five years.

 

    Roles. PNC Bank, National Association will act as sole administrative agent and collateral agent.

 

    Interest Rate. Loans under the Senior Credit Facilities are expected to bear interest at a rate equal to, at Borrower’s option, the London Interbank Offered Rate (LIBOR) or an alternate base rate, in each case, plus a spread.

 

    Borrower. Merger Sub will initially be the borrower under the Credit Facilities and, following the consummation of the Merger, the Company will become the borrower (each, the “Borrower”).

 

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    Guarantors. All obligations under the Credit Facilities will be guaranteed by Parent and each of the existing and future direct and indirect material domestic subsidiaries of the Company, subject to customary exceptions (collectively, the “Guarantors”).

 

    Security. The obligations of Borrower and the Guarantors under the Credit Facilities will be secured, subject to customary and other agreed-upon exceptions, on a first-priority basis by a perfected security interest in all of the Borrower’s and each Guarantor’s present and future shares of capital stock (or other ownership or profit interests in) of each of its present and future direct subsidiaries (limited, in the case of subsidiary of the Borrower that is a “controlled foreign corporation” under Section 956 of the Internal Revenue Code and any wholly owned domestic subsidiary of the Borrower substantially all of the assets of which constitute foreign subsidiaries to a pledge of 65% of the capital stock (or other ownership interest) of such foreign or domestic subsidiary), all present and future intercompany debt, and all present and future property and assets, including real and personal property, of the Borrower and the Guarantors.

 

    Financial Covenants. The Credit Facilities will include a (i) minimum consolidated fixed charge coverage ratio covenant and (ii) maximum consolidated total leverage ratio covenant, each to be tested on a quarterly basis, commencing with the first full fiscal quarter after consummation of the Credit Facilities, and will be set at levels to be agreed by PNC and the Borrower.

 

    Other Terms. The Credit Facilities will contain customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, investments, sales of assets, mergers and other fundamental changes, prepayments of other certain indebtedness, liens and dividends and other distributions. The Credit Facilities will also include customary events of default, including upon a change of control.

The funding of the Credit Facilities is subject to, among other things, the accuracy in all material respects of certain specified representations and warranties; the substantially contemporaneous consummation of the Merger in accordance in all material respects with the Merger Agreement; the substantially contemporaneous consummation of the refinancing of the outstanding debt for borrowed money of the Company; delivery of certain pro forma balance sheets and projections; delivery of reasonably requested information in connection with “know your customer” and anti-money-laundering rules and regulations; the execution and delivery of definitive documentation; the payment of required fees and expenses; the execution of certain guarantees and the creation of certain security interests; Borrower’s having received the equity contribution required by the Debt Commitment Letter; and the satisfaction of pro forma minimum liquidity conditions as agreed between PNC and the Borrower.

The foregoing summary of certain provisions of the Credit Facilities and all other provisions of the Debt Commitment Letter discussed herein are qualified by reference to the full text of the Debt Commitment Letter.

Guarantee

Pursuant to the Guarantee, the Guarantors have agreed to guarantee the payment obligations of Parent and Merger Sub if and to the extent such amounts are payable under the Merger Agreement, subject to an aggregate cap of the aggregate Merger Consideration plus certain expenses.

Termination and Termination Fee

The Company and Parent may terminate the Merger Agreement by mutual written consent at any time prior to the effective time of the Merger. In addition, either the Company or Parent, in each case by written notice to the other, may terminate the Merger Agreement if:

 

   

the Merger has not been completed on or prior to June 4, 2018, provided that such termination right is not available to a party if the failure of the closing to occur by such date was proximately caused by a

 

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material breach or inaccuracy of any of the representations, warranties or obligations under the Merger Agreement of the party seeking to terminate the Merger Agreement such that the other party has the right to terminate the Merger Agreement for such breach or inaccuracy under the terms of the Merger Agreement; or

 

    a governmental entity has issued any final and non-appealable injunction, order, decree, judgment or ruling permanently restraining, enjoining or otherwise prohibiting the merger (whether before or after stockholder approval).

Parent may terminate the Merger Agreement:

 

    if there is a breach of any of the covenants or agreements set forth in the Merger Agreement on the part of the Company or if any of the representations or warranties of the Company fail to be true, in each case such that the conditions to Purchasers’ obligation to complete the merger would be incapable of fulfillment and the breach is incapable of being cured, or is not cured within 30 days following delivery of written notice of such breach from the Parent to the Company; or

 

    if the Board has effected and not withdrawn a change of its recommendation that the stockholders approve the Merger or the Company has willfully and materially breached its covenants relating to solicitation and non-solicitation of alternative proposals, as described in the section entitled “The Merger Agreement—Solicitation of Acquisition Proposals” beginning on page 82; provided that the right of Parent to terminate the Merger Agreement as described in this paragraph expires at 5:00 p.m., Central time, on the 10th business day following the later of the date on which such right to terminate arose and the date when Parent became aware of such right to terminate; or

The Company may terminate the Merger Agreement:

 

    if there is a breach of any of the covenants or agreements on the part of Purchasers or if any of the representations or warranties of Purchasers fail to be true, in each case such that the conditions to each Purchaser’s obligation to effect the Merger or the conditions to the obligation of the Company to effect the Merger would be incapable of fulfillment and the breach is incapable of being cured, or is not cured within 30 days following delivery of written notice of such breach from the Company to Parent, provided that the Company is not then in material breach of its representations, warranties or obligations under the Merger Agreement;

 

    if the Company has fulfilled its conditions to closing and has notified Parent in writing, at least three business days prior to such termination, that the Company is ready, willing and able to complete the Merger and Purchasers fail to consummate the Merger on the later of the expiration of such three-business-day period and the date set forth in the foregoing; or

 

    if, before stockholder approval is obtained, the Special Committee authorizes the Company to enter into a definitive agreement with respect to a Superior Proposal (a “Company Superior Proposal Termination”).

Upon a Company Superior Proposal Termination, the Company will be required to pay Parent a termination fee of reasonable and documented out-of-pocket fees and expenses (including legal fees and expenses) up to $2.0 million.

Regulatory Approvals

At any time before or after the effective time of the Merger, the Antitrust Division of the Department of Justice or the Federal Trade Commission could take action under the antitrust laws, including seeking to enjoin the consummation of the Merger, conditionally approve the merger upon the divestiture of assets of the Company, subject the consummation of the Merger to regulatory conditions or seek other remedies. In addition,

 

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state attorneys general and other regulators could take action under the antitrust or other laws as they deem necessary or desirable in the public interest, including, without limitation, seeking to enjoin the completion of the merger or permitting completion subject to regulatory conditions. Private parties may also seek to take legal action under the applicable laws under some circumstances. There can be no assurance that a challenge to the merger will not be made or, if a challenge is made, that it would not be successful.

Fees and Expenses

Except as described under “The Merger Agreement—Termination Fees and Expenses” on page 92, if the Merger is not completed, all fees and expenses incurred in connection with the Merger will be paid by the party incurring those fees and expenses. If the Merger is completed, all costs and expenses incurred by Parent or Merger Sub in connection with the transaction will be paid by the surviving corporation. Total fees and expenses incurred or to be incurred by the Company (including the Special Committee) are estimated at this time to be as follows:

 

Description

   Amount ($)  

Financial advisory fees and expenses

     904,000  

Legal fees and expenses

     950,000  

SEC filing fees

     689  

EDGAR filing expenses

     42,000  

Printing expenses

     6,823  

Mailing expenses

     10,000  
  

 

 

 

Total

     1,913,512  
  

 

 

 

It is also expected that Merger Sub and/or Parent will incur approximately $2.1 million of financing costs, legal fees, exchange agent fees, and other advisory fees.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement, and the documents incorporated by reference in this proxy statement, include “forward-looking statements” that reflect our current views as to future events and financial performance with respect to our operations, the expected completion and timing of the merger and other information relating to the merger. These statements can be identified by the fact that they do not relate strictly to historical or current facts. There are forward-looking statements throughout this proxy statement, including under the headings, among others, “Summary Term Sheet,” “Questions and Answers About the Special Meeting and the Merger,” “The Special Meeting,” “Special Factors,” and “Important Information Regarding Connecture,” and in statements containing the words “aim,” “anticipate,” “are confident,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will” and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance or other future events or trends.

You should be aware that forward-looking statements involve known and unknown risks, uncertainties, assumptions and contingencies. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or, even if realized, that they will have the expected effects on the business or operations of the Company. These forward-looking statements speak only as of the date on which the statements were made, and we undertake no obligation to update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise, except as required by law. In addition to other factors and matters referred to or incorporated by reference in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

    the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;

 

    the outcome of any legal proceedings that have been or may be instituted against the Company or others relating to the Merger Agreement;

 

    the inability to complete the Merger because of the failure to receive, on a timely basis or otherwise, the required approvals by Company stockholders, governmental or regulatory agencies or third parties in connection with the proposed Merger;

 

    the risk that a condition to closing of the Merger may not be satisfied;

 

    the failure of the Merger to close for any other reason;

 

    the risk that the pendency of the Merger disrupts current plans and operations and potential difficulties in employee retention as a result of the pendency of the Merger;

 

    the effect of the announcement of the Merger on our business relationships, operating results and business generally;

 

    the amount of the costs, fees, expenses and charges related to the Merger;

 

    the possibility that alternative acquisition proposal will or will not be made;

and other risks detailed in our filings with the SEC, including our most recent filings on Form 10-K and Form 10-Q. See “Where You Can Find Additional Information” beginning on page 122. Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update any of these forward-looking statements.

 

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THE PARTIES TO THE MERGER

The Company

Connecture, Inc.

18500 West Corporate Drive, Suite 250

Brookfield, Wisconsin 53045

(262) 432-8282

The Company is a Delaware corporation and is a leading web-based consumer shopping, enrollment and retention platform for health insurance distribution. The Company’s solutions offer a personalized health insurance shopping experience that recommends the best fit insurance plan based on an individual’s preferences, health status, preferred providers, medications and expected out-of-pocket costs. The Company’s customers are payers, brokers, government agencies, and web-based insurance marketplace operators who distribute health and ancillary insurance. The Company’s solutions automate key functions in the insurance distribution process, allowing our customers to price and present plan options accurately to consumers and efficiently enroll, renew and manage plan members. For more information about the Company, please visit the Company’s website at www.connecture.com. The information contained on the Company’s website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See also “Where You Can Find More Information.” The Shares are publicly quoted on the OTCQX under the symbol “CNXR.”

Parent and Merger Sub

FP Healthcare Holdings, Inc.

FP Healthcare Merger Sub Corporation

c/o Francisco Partners

One Letterman Drive

Building C—Suite 410

San Francisco, California 94129

(415) 418-2900

FP Healthcare Holdings, Inc. and FP Healthcare Merger Sub Corporation are each Delaware corporations. Parent is beneficially owned by affiliates of Francisco Partners and was formed solely for the purpose of entering into the Merger Agreement and consummating the transactions contemplated by the Merger Agreement. Parent has not engaged in any business except for the activities incident to its formation and in connection with the transactions contemplated by the Merger Agreement.

Merger Sub is a Delaware corporation and a wholly owned subsidiary of FP Healthcare Intermediate, LLC, a wholly owned subsidiary of Parent, and was formed solely for the purpose of engaging in the Merger and related transactions. Merger Sub has not engaged in any business other than in connection with the Merger and related transactions. At the effective time of the Merger, Merger Sub will be merged with and into the Company and will cease to exist and the Company will continue as the surviving corporation.

 

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THE SPECIAL MEETING

Date, Time and Place

The Special Meeting will be held at DLA Piper LLP (US), 444 West Lake Street, Suite 900, Chicago, Illinois 60606, on March 5, 2018, at 9:00 a.m. Central time.

The purpose of the Special Meeting is for our stockholders to consider and vote upon the Merger Proposal, as well as the Adjournment Proposal. A copy of the Merger Agreement is attached to this proxy statement as Annex A-1. This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about February 12, 2018.

In addition, in accordance with Section 14A of the Exchange Act, the Company is providing its stockholders with the opportunity to cast an advisory (non-binding) vote on the compensation that may be payable to its named executive officers in connection with the merger, the value of which is disclosed in the table in the section of the proxy statement entitled “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger—Merger-Related Compensation” beginning on page 56. The vote on the Compensation Proposal is a vote separate and apart from the vote to approve the Merger Proposal. Accordingly, a stockholder may vote to approve the Compensation Proposal and vote not to approve the Merger Proposal, or vice versa. Because the vote on the Compensation Proposal is advisory in nature only, it will not be binding on any of the Company, Purchasers or the surviving corporation. Accordingly, because the Company is contractually obligated to pay the compensation if stockholders do not approve the proposal to adopt the Merger Agreement, the compensation will become payable by the surviving corporation if the Merger closes, subject only to the conditions applicable thereto, regardless of the outcome of such advisory vote.

Record Date and Quorum

Stockholders are entitled to receive notice of, and to vote at, the Special Meeting if they owned shares of Common Stock or Preferred Stock at the close of business on February 9, 2018, which the Company has set as the Record Date. As of the Record Date, a total of 23,246,258 shares of our Common Stock, 52,000 shares of our Series A Preferred Stock and 17,500 shares of our Series B Preferred Stock were outstanding and entitled to vote. Each share of Common Stock has one vote. Each share of our Preferred Stock is entitled to cast one vote for each share of our Common Stock that would be issuable upon conversion of such share of Preferred Stock. As of the Record Date, the outstanding shares of Preferred Stock were convertible into a total of 25,484,850 shares of Common Stock, meaning that a total of 48,731,108 shares of Common Stock were deemed outstanding for purposes of voting on the matters set forth in this proxy statement, 33,116,034 shares of which were held by the Sponsor Entities.

The presence at the Special Meeting, in person or by proxy, of the holders of a majority of the shares of the capital stock of the Company entitled to vote at the meeting on the Record Date, on an as-converted basis, will constitute a quorum, permitting the Company to conduct its business at the Special Meeting. Under the Voting Agreement, the Sponsor Entities, as holders of approximately 68% of the outstanding shares of our capital stock on an as-converted basis as of the date of the Merger Agreement, agreed to vote all shares they own in favor of the Merger Proposal, and the presence of these shares assures a quorum at the Special Meeting. Proxies received but marked as abstentions will be included in the calculation of the number of shares considered to be present at the Special Meeting.

Required Vote

The Merger cannot be completed without the affirmative vote of holders of a majority of the outstanding shares of our capital stock, voting together as a single class on an as-converted basis. Pursuant to our certificate of incorporation, shares of Common Stock are entitled to one vote per share, and shares of Preferred Stock are entitled to one vote for each share of Common Stock that would be issuable upon conversion of such shares of Preferred Stock on the Record Date. The approval of the Merger Proposal a condition to the parties’ obligations

 

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to consummate the Merger. Under the Voting Agreement, the Sponsor Entities, as holder of approximately 68% of the outstanding shares of our capital stock on an as-converted basis as of the date of the Merger Agreement, agreed to vote all shares they own in favor of the Merger Proposal, and the presence of these shares assures that the Merger Proposal will be approved. A failure to vote your shares of Common Stock or an abstention from voting will have the same effect as a vote “AGAINST” adoption of the Merger Proposal.

The Adjournment Proposal and the Compensation Proposal each require the affirmative vote of holders of a majority of the shares of capital stock, voting together as a single class on an as-converted basis, present in person or represented by proxy at the Special Meeting and entitled to vote on the matter. An abstention from voting your shares on the Adjournment Proposal or the Compensation Proposal will have the same effect as a vote “AGAINST” such proposals, but a failure to return your proxy card or attend the Special Meeting will have no effect on such proposals.

Except in their capacities as members of the Board or as members of the special committee (the “Special Committee”) that was established to evaluate and negotiate a potential transaction and consider other alternatives available to the Company (as described more fully under “Special Factors—Background of the Merger” on page 28), and except as contemplated by the Voting Agreement, no executive officer or director of the Company has made any recommendation either in support of or in opposition to the Merger or the Merger Agreement.

Each of the directors and executive officers of the Company has informed the Company that, as of the date of this proxy statement, he or she intends to vote in favor of the adoption of the Merger Agreement.

Broker Non-Votes

If you hold your shares in “street name” through a broker, bank, or other nominee, you should refer to the proxy card or the information forwarded by such broker, bank or other nominee to see what voting options are available to you. A broker, bank, or other nominee’s ability to vote your shares for you is governed by the rules of various national and regional securities exchanges. Without your specific instruction, a broker, bank or other nominee may only vote your shares on “routine” proposals and may not vote your shares on “non-routine” matters. It is expected that all proposals to be voted on at the Special Meeting are considered “non-routine” proposals on which your bank, broker, or other nominee cannot vote on your behalf, resulting in a ‘broker non-vote.” As a result, if you hold your shares of Common Stock in “street name” and you do not provide voting instructions, your shares of Common Stock will have the same effect as a vote “AGAINST” these proposals.

Abstentions

Abstaining from voting will have the same effect as a vote “AGAINST” the Merger Proposal, the Adjournment Proposal and the Compensation Proposal.

Voting; Proxies; Revocation

Attendance

Only stockholders of record, their duly authorized proxy holders, beneficial stockholders with proof of ownership and our guests may attend the Special Meeting. To gain admittance, you must present valid photo identification, such as a driver’s license or passport. If your shares of Common Stock are held through a bank, brokerage firm or other nominee, please bring to the Special Meeting a copy of your brokerage statement evidencing your beneficial ownership of the Common Stock of the Company and valid photo identification. If you are the representative of a corporate or institutional stockholder, you must present valid photo identification along with proof that you are the representative of such stockholder. The Special Meeting will follow the agenda and rules of conduct provided to all stockholders and proxy holders upon entering the meeting. The purpose and

 

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order of the Special Meeting will be strictly observed, and the chairman’s or secretary’s determinations in that regard will be final, including any postponements or adjournments of the meeting. Please note that media will not be allowed to attend the Special Meeting and the taking of photographs and the use of audio and video recording devices, will not be permitted at the Special Meeting.

Voting in Person

Stockholders of record will be able to vote in person at the Special Meeting. If you are not a stockholder of record, but instead hold your shares in “street name” through a bank, broker or other nominee, you must provide a proxy executed in your favor from your bank, broker or other nominee in order to be able to vote in person at the Special Meeting.

Providing Voting Instructions by Proxy

To ensure that your shares are represented at the Special Meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the Special Meeting in person.

Record Holders

If you are a stockholder of record, you may provide voting instructions by proxy using one of the methods described below.

Submit a Proxy by Telephone or via the Internet. This proxy statement is accompanied by a proxy and voting instruction card with instructions for submitting voting instructions. You may vote by telephone by calling the toll-free number or via the Internet by accessing the Internet address as specified on the enclosed proxy card by the deadlines set forth on the card. Your shares will be voted as you direct in the same manner as if you had completed, signed, dated and returned your proxy card, as described below.

Submit a Proxy Card. If you complete, sign, date and return the enclosed proxy card by mail so that it is received before the Special Meeting, your shares will be voted in the manner directed by you on your proxy card.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the Merger Proposal, the Adjournment Proposal and the Compensation Proposal. If you fail to return your proxy card, the effect will be that your shares will have the same effect as a vote “AGAINST” the Merger Proposal, but will not affect the vote for the Adjournment Proposal or the Compensation Proposal.

If you sign, date and return the proxy card, the proxies named on the proxy card will be authorized to take any action, in their discretion, upon any other business that may properly come before the Special Meeting, or any reconvened meeting following an adjournment or postponement of the Special Meeting.

“Street Name” Shares

If your shares are held by a bank, broker or other nominee on your behalf in “street name,” your bank, broker or other nominee will send you instructions as to how to provide voting instructions for your shares by proxy. Many banks and brokerage firms have a process for their customers to provide voting instructions by telephone or via the Internet, in addition to providing voting instructions by proxy card.

Revocation of Proxies

Your proxy is revocable. If you are a stockholder of record, you may revoke your proxy at any time before the vote is taken at the Special Meeting by:

 

    giving written notice of revocation to the Secretary of the Company at Connecture, Inc., 18500 West Corporate Drive, Suite 250, Brookfield, Wisconsin 53045;

 

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    submitting a new proxy with a later date, by using the telephone or Internet proxy submission procedures described above, or by completing, signing, dating and returning a new proxy and voting instruction card by mail to the Company; or

 

    attending the Special Meeting and voting in person.

Attending the Special Meeting without taking one of the actions described above will not revoke your proxy. Please note that if you want to revoke your proxy by mailing a new proxy card to the Company or by sending a written notice of revocation to the Company, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by the Company before the day of the Special Meeting.

Please note that if you hold your shares of Common Stock in “street name” and you have instructed a broker, bank or other nominee to vote your common stock, the above-described options for revoking your voting instructions do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to revoke your voting instructions.

Adjournments and Postponements

Although it is not currently expected, if the Adjournment Proposal is approved, the Special Meeting may be adjourned for the purpose of, if necessary and for a minimum period of time reasonable under the circumstances, to ensure that any necessary supplement or amendment to this proxy statement is provided to Company stockholders a reasonable amount of time in advance of the Special Meeting, or for the purpose of soliciting additional proxies if there are insufficient votes at the time of the Special Meeting to approve the Merger Proposal or if a quorum is not present at the Special Meeting. Any adjournment of the Special Meeting will allow the Company’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting, as adjourned. If we adjourn the Special Meeting for more than 30 days, or if after adjournment a new Record Date is set, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the Special Meeting in accordance with our bylaws.

Rights of Stockholders Who Seek Appraisal

Stockholders who do not vote for the adoption of the Merger Agreement are entitled to appraisal rights under Section 262 of the DGCL in connection with the Merger, but only if they fully comply with all of the applicable legal requirements of Section 262 of the DGCL, which are summarized in this proxy statement under “Appraisal Rights” beginning on page 113 and set forth in their entirety in Section 262 of the DGCL (attached to this proxy statement as Annex B). This means that you may be entitled to have the “fair value” of your Shares determined by the Delaware Court of Chancery and to receive payment based on that valuation in lieu of the $0.35 per share Merger Consideration if you follow exactly the procedures specified under the DGCL. The ultimate amount you may receive in an appraisal proceeding may be less than, equal to or more than the amount you would have received under the Merger Agreement.

To exercise your appraisal rights, you must, among other things, submit a written demand for appraisal to the Company before a vote is taken on the adoption of the Merger Agreement (and must not fail to perfect or effectively withdraw your demand or otherwise waive or lose your rights to appraisal), you must not vote (either in person or by proxy) in favor of the Merger Proposal, and you must hold your Shares continuously through the effective time of the Merger and otherwise comply with Section 262 of the DGCL. Your failure to follow exactly the procedures specified under the DGCL will result in the loss of your appraisal rights. See “Appraisal Rights” and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex B to this proxy statement. If you hold your Shares through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee. In view of the complexity of the DGCL relating to

 

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appraisal rights, stockholders who may wish to pursue appraisal rights should consult their own legal counsel promptly. The discussion of appraisal rights in this proxy statement is not a full summary 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, a copy of which is attached to this proxy statement as Annex B.

Solicitation of Proxies

We will bear the cost of our solicitation of proxies, except as described below. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock. We may solicit proxies by mail, personal interview, email, telephone or via the Internet. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward soliciting materials to beneficial owners and will be reimbursed for their reasonable out-of-pocket expenses incurred in sending proxy materials to beneficial owners.

 

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THE MERGER AGREEMENT

This section describes the material terms of the Merger Agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A-1 and is incorporated by reference into 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. You are encouraged to read the Merger Agreement carefully and in its entirety before making any decisions regarding the Merger, including approval of the Merger Proposal, as it is the legal document governing the Merger. This section is not intended to provide you with any factual information about the Company, Parent or Merger Sub. Such information can be found elsewhere in this proxy statement and in the public filings the Company makes with the SEC, as described under the heading “Where You Can Find Additional Information” beginning on page 122 of this proxy statement. In addition, you should read “Voting and Support Agreement” beginning on page 94, which summarizes the Voting Agreement, as certain provisions of these agreements relate to certain provisions of the Merger Agreement. A copy of the Voting Agreement is attached to this proxy statement as Annex A-2 and is incorporated by reference into this proxy statement.

Explanatory Note Regarding the Merger Agreement

The following summary describes the material provisions of the Merger Agreement. The descriptions of the Merger Agreement in this summary and elsewhere in this proxy statement are not complete and are qualified in their entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A-1 and incorporated into this proxy statement by reference. We encourage you to read the Merger Agreement carefully and in its entirety because this summary may not contain all the information about the Merger Agreement that is important to you. The rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement. Capitalized terms used in this section but not defined in this proxy statement have the meaning ascribed to them in the Merger Agreement.

The representations, warranties, covenants and agreements described below and included in the Merger Agreement (1) were made only for purposes of the Merger Agreement and as of specific dates; (2) were made solely for the benefit of the parties to the Merger Agreement; and (3) may be subject to important qualifications, limitations and supplemental information agreed to by Parent, Merger Sub and the Company in connection with negotiating the terms of the Merger Agreement. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to reports and documents filed with the SEC and in some cases were qualified by confidential matters disclosed to Parent and Merger Sub by the Company in connection with the Merger Agreement. In addition, the representations and warranties may have been included in the Merger Agreement for the purpose of allocating contractual risk between the Company, Parent and Merger Sub rather than to establish matters as facts, and may be subject to standards of materiality applicable to such parties that differ from those applicable to investors. Stockholders are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Parent or Merger Sub or any of their respective affiliates or businesses. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement. In addition, you should not rely on the covenants in the Merger Agreement as actual limitations on the respective businesses of the Company, Parent and Merger Sub, because the parties may take certain actions that are either expressly permitted in the confidential Company disclosure schedules to the Merger Agreement or as otherwise consented to by the appropriate party, which consent may be given without prior notice to the public. The Merger Agreement is described below, and included as Annex A-1, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding the Company, Parent, Merger Sub or their respective businesses. Accordingly, the representations, warranties, covenants and other agreements in the Merger Agreement should not be read alone, and you should read the information provided elsewhere in this document and in our filings with the SEC regarding the Company and our business.

 

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The Merger

Effects of the Merger; Certificate of Incorporation; Bylaws; Officers and Directors

Upon the terms and subject to the conditions of the Merger Agreement, if the merger contemplated by the Merger Agreement (the “Merger”) is completed, Merger Sub will merge with and into the Company. The Company will be the surviving corporation in the Merger and will be the wholly owned indirect subsidiary of Parent and will continue to do business following the consummation of the Merger. As a result of the Merger, the Company will cease to be a publicly traded company. In addition, our Common Stock will cease to be quoted on the OTCQX and deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC. If the Merger is completed, you will not own any shares of the capital stock of the surviving corporation.

At the effective time of the Merger (the “Effective Time”), the certificate of incorporation and bylaws of the surviving corporation will be amended and restated as provided in the Merger Agreement. Except as otherwise directed by Parent, the initial directors of the surviving corporation will, from and after the Effective Time, be the individuals who are the directors of the Merger Sub immediately prior to the Effective Time. Except as otherwise directed by Parent, the officers of the surviving corporation will, from and after the Effective Time, be the individuals who are the officers of the Company immediately prior to the Effective Time.

Closing and Effective Time

The closing of the Merger will take place no later than the second business day following the satisfaction or waiver (to the extent permitted thereunder) of all conditions to closing of the Merger (described below under the caption “The Merger Agreement—Conditions to the Closing of the Merger”) (other than those conditions to be satisfied or waived at the closing of the Merger) or such other time agreed to in writing by Parent and us. Concurrently with the closing of the Merger, the Company and Merger Sub will file a certificate of merger with the Secretary of State of the State of Delaware as provided under the DGCL. The Merger will become effective upon the filing of the certificate of merger, or at such later time as is agreed by the parties and specified in the certificate of merger.

Per Share Merger Consideration

Common Stock

In the Merger, each outstanding share of common stock of the Company (“Common Stock”) (other than excluded shares) will be converted into the right to receive an amount in cash equal to $0.35, without interest thereon (for purposes of this section, the “Per Share Merger Consideration,” and in the aggregate, the “Merger Consideration”), less any applicable withholding taxes.

Treatment of Options, Restricted Stock Units, Restricted Shares and ESPP

As a result of the Merger, the treatment of the Company’s equity awards that are outstanding immediately prior to the Effective Time will be as follows:

Company Stock Options

Each outstanding vested option to acquire Common Stock will be canceled in exchange for the right to receive a lump-sum cash payment (without interest and subject to withholding taxes) equal to the product of (1) the excess, if any, of the Per Share Merger Consideration over the exercise price per share of each such stock option and (2) the number of shares subject to such stock option. All of the Company’s outstanding vested options to purchase Common Stock have a per-share exercise price greater than $0.35; therefore, all of such options will be canceled without consideration.

Each outstanding unvested option to acquire Common Stock will be canceled for no consideration.

 

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Company Restricted Stock Units

Each outstanding vested RSU will be canceled in exchange for the right to receive a lump-sum cash payment (without interest and subject to withholding taxes) equal to the product of (1) the Per Share Merger Consideration and (2) the number of shares subject to such vested RSU.

Each outstanding unvested RSU will be canceled for no consideration.

Payment of Per Share Merger Consideration and Surrender of Stock Certificates

Prior to the Effective Time, Parent will appoint an agent reasonably acceptable to us (the “Exchange Agent”) to make payments of the Merger Consideration to stockholders. At the Effective Time, Parent will deposit and make available to the Exchange Agent cash sufficient to pay the Merger Consideration to stockholders (less any Merger Consideration in respect of dissenting shares and excluding the consideration to be paid to holders of options and RSUs).

Promptly following the Effective Time (but in no event later than five business days after the Effective Time), the Exchange Agent will send to each holder of record of shares of Common Stock (other than holders of excluded shares) a letter of transmittal and instructions advising stockholders how to surrender stock certificates and book-entry shares in exchange for their portion of the Merger Consideration. Upon receipt of (1) surrendered certificates (or affidavits of loss in lieu thereof) and a signed and completed letter of transmittal or (2) book-entry shares representing the shares of Common Stock and an “agent’s message” with respect to book-entry shares representing shares of Common Stock and, in each case, such other documents as may be required pursuant to such instructions, the holder of such shares will be entitled to receive their portion of the Merger Consideration in exchange therefor. The amount of any Merger Consideration paid to the stockholders may be reduced by any applicable withholding taxes.

If any cash deposited with the Exchange Agent is not claimed within one year following the Effective Time, such cash will be returned to Parent, upon demand, and any holders of Common Stock who have not complied with the exchange procedures in the Merger Agreement will thereafter look only to the surviving corporation for payment of the Per Share Merger Consideration, in respect of such shares without any interest thereon. Any cash deposited with the Exchange Agent that remains unclaimed following the Effective Time until immediately prior to the time at which such amounts would otherwise become property of a governmental entity will, to the extent permitted by applicable law, become the property of Parent free and clear of any claims or interest of any person previously entitled thereto.

In the event any certificate has been lost, stolen or destroyed, the stockholder claiming such fact must make an affidavit of the loss, theft or destruction and, if required by Parent, enter into a written indemnity agreement in a form and substance reasonably acceptable to Parent before receiving their portion of the Per Share Merger Consideration.

Appraisal Rights

Stockholders who do not vote for the adoption of the Merger Agreement are entitled to appraisal rights under the DGCL in connection with the Merger, but only if they fully comply with all of the applicable legal requirements of Section 262 of the DGCL, which are summarized in this proxy statement under “Appraisal Rights” beginning on page 113 and set forth in their entirety in Section 262 of the DGCL (attached to this proxy statement as Annex B). This means that you may be entitled to have the fair value of your shares of Common Stock determined by the Delaware Court of Chancery and to receive payment based on that valuation in lieu of the your portion of the Merger Consideration if you follow exactly the procedures specified under the DGCL. The ultimate amount you may receive in an appraisal proceeding may be less than, equal to or more than the amount you would have received under the Merger Agreement.

 

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To exercise your appraisal rights, you must, among other things, submit a written demand for appraisal to the Company before the vote is taken on the adoption of the Merger Agreement (and must not fail to perfect or effectively withdraw your demand or otherwise waive or lose the right to appraisal) and you must not vote (either in person or by proxy) in favor of the Merger Proposal. Your failure to follow exactly the procedures specified under the DGCL may result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page 113 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex B to this proxy statement. If you hold your shares of Common Stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, brokerage firm or other nominee.

THE PROCESS OF DEMANDING AND EXERCISING APPRAISAL RIGHTS REQUIRES STRICT COMPLIANCE WITH TECHNICAL PREREQUISITES. IF YOU MAY WISH TO EXERCISE YOUR APPRAISAL RIGHTS, YOU SHOULD PROMPTLY CONSULT WITH YOUR OWN LEGAL COUNSEL IN CONNECTION WITH COMPLIANCE UNDER SECTION 262 OF THE DGCL. THE DISCUSSION OF APPRAISAL RIGHTS IN THIS PROXY STATEMENT IS NOT A FULL SUMMARY 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, A COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX B.

Representations and Warranties

The Merger Agreement contains representations and warranties of the Company, Parent and Merger Sub.

Some of the representations and warranties in the Merger Agreement made by the Company are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the Merger Agreement, “Company Material Adverse Effect” means any event, effect, occurrence, fact, circumstance, condition or change that, individually or in the aggregate, has had or would be reasonably likely to have a material adverse effect on (a) the business, operations, condition (financial or otherwise) or results of operations of the Company and the Company’s subsidiaries, taken as a whole, or (b) the ability of the Company to consummate the transactions contemplated by the Merger Agreement; provided, however, that none of the following will be deemed in and of themselves, either alone or in combination, to constitute, and none of the following will be taken into account in determining whether there is, or would reasonably likely to be, a Company Material Adverse Effect:

 

    general economic or political conditions (or changes or disruptions in such conditions) in the United States or any other country or region in the world, or conditions in the global economy generally;

 

    conditions (or changes or disruptions in such conditions) generally affecting the industries in which the Company and the Company’s subsidiaries operate;

 

    conditions (or changes or disruptions in such conditions) in the securities markets, capital markets, credit markets, currency markets or other financial markets in the United States or any other country or region in the world, including (A) changes in interest rates in the United States or any other country or region in the world and changes in exchange rates for the currencies of any countries, (B) any suspension of trading in equity, debt, derivative or hybrid securities, securities generally (including the capital stock of the Company) on any securities exchange or over-the-counter market operating in the United States or any other country or region in the world, and (C) any decline in the price or trading volume of any security (including the capital stock of the Company) or any market index;

 

    regulatory, legislative or political conditions (or changes or disruptions in such conditions) in the United States or any other country or region in the world or acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof in the United States or any other country or region in the world;

 

    any actions taken or failure to take action, in each case, by Parent or any of its controlled affiliates, or to which Parent has consented to or requested; or the taking of any action required by the Merger Agreement; or the failure to take any action prohibited by the Merger Agreement;

 

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    any matter of which Parent or Merger Sub is aware on the date of the execution of the Merger Agreement;

 

    any changes in applicable law, accounting rules (including GAAP) or other legal or regulatory conditions or the enforcement, implementation or interpretation thereof;

 

    any negative developments resulting from the announcement of the Merger Agreement, pendency or completion of the transactions contemplated by the Merger Agreement;

 

    any natural or man-made hurricane, earthquake, flood, disaster, acts of God or other force majeure events in the United States or any other country or region in the world;

 

    changes in the Company’s stock price or the trading volume of the Company’s stock, in and of itself, or any failure by the Company to meet any internal or published forecasts, estimates, projections or expectations of the Company’s revenue, earnings or other financial performance or results of operations for any period (provided that the underlying causes of such failures (subject to the other provisions of this definition) will not be excluded);

 

    the availability or cost of equity, debt or other financing to Parent or Merger Sub;

 

    any patent expiry, or loss of exclusivity that would result in a reduction of anticipated revenue from any Company product;

 

    any criminal, civil or administrative litigation, claim, action, hearing, arbitration, investigation or other proceeding threatened, made or brought based upon, arising out of or with respect to the Merger Agreement or any of the transactions contemplated by the Merger Agreement; or

 

    any failure to obtain certain governmental approvals specified in the Merger Agreement, or to send any required notice thereto;

 

    any changes in the cash position of the Company that result from operations of the Company in its ordinary course of business; or

 

    any defaults or events of default under that certain Amended and Restated Credit Agreement, dated June 8, 2016, by and among Wells Fargo Bank, National Association, as administrative agent for the lenders named therein, the Company and DestinationRx, Inc. or that certain Credit Agreement, dated January 15, 2013, by and among Wells Fargo Bank, National Association, as administrative agent for the lenders named therein, the Company and DestinationRx, Inc., in each case, as such agreement has been amended and as each may further be amended from time to time, and together with all exhibits and schedules thereto.

In the Merger Agreement, the Company has made customary representations and warranties to Parent and Merger Sub that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:

 

    the due organization, valid existence, good standing and authority and qualification to conduct business with respect to the Company and each of its subsidiaries;

 

    the capital structure of the Company and the ownership and capital structure of its subsidiaries, including the existence of any preemption, antidilution or similar rights related to the issuance of capital stock of the Company (other than as part of the Private Placement Transactions);

 

    the absence of any contract (other than as part of the Private Placement Transactions) relating to the voting or sale or transfer of any of the Company’s securities;

 

    the Company’s corporate power and authority to enter into and perform the Merger Agreement and the enforceability of the Merger Agreement;

 

    the necessary approval of the Board of Directors and the recommendation of the Board of Directors that the stockholders of the Company approve the Merger;

 

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    required consents, approvals and regulatory filings in connection with the Merger Agreement and performance thereof;

 

    the execution, delivery and performance by the Company of the Merger Agreement and the consummation of the transactions contemplated by the Merger Agreement will not contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of the Company or similar organizational documents of any subsidiary of the Company;

 

    the accuracy and required filings of the Company’s SEC filings and financial statements;

 

    the absence of specified undisclosed liabilities;

 

    the Company’s internal controls over financial reporting and disclosure controls and procedures;

 

    the conduct of the business of the Company and its subsidiaries in the ordinary course consistent with past practice and the absence of a Company Material Adverse Effect, in each case since September 30, 2017;

 

    the absence of certain legal proceedings and orders;

 

    the Company’s compliance with laws and possession of permits;

 

    tax matters;

 

    employee benefit plans;

 

    labor and employment matters;

 

    environmental matters;

 

    trademarks, patents, copyrights and other intellectual property matters, and the security of the Company’s information systems;

 

    real property owned, leased or subleased by the Company and its subsidiaries;

 

    the existence and enforceability of specified categories of the Company’s material contracts, and certain notices with respect to violation or breach of or default thereunder;

 

    insurance matters;

 

    payment of fees to brokers in connection with the Merger Agreement;

 

    the registration of the Common Stock under the Securities Act of 1933, as amended;

 

    the Company’s status under the Investment Company Act of 1940, as amended;

 

    the accuracy of certain information supplied by the Company as part of the Proxy Statement or the Schedule 13E-3;

 

    the absence of a stockholder rights’ agreement or other “poison pill”;

 

    the absence of certain related-party transactions;

 

    the Company’s compliance with applicable privacy and data-protection laws and policies;

 

    the conduct of the Company and its subsidiaries respective businesses in compliance with the legal requirements under the U.S. Foreign Corrupt Practices Act of 1977, as amended, and any similar laws or regulations in any other jurisdiction;

 

    the Company’s compliance with anti-money-laundering laws;

 

    the Company’s compliance with applicable healthcare laws; and

 

    the absence of other representations and warranties.

 

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In the Merger Agreement, Parent and Merger Sub have made customary representations and warranties to the Company that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement. These representations and warranties relate to, among other things:

 

    due organization, good standing and authority and qualification to conduct business with respect to Parent and Merger Sub;

 

    Parent’s and Merger Sub’s corporate authority to enter into and perform the Merger Agreement, and the enforceability of the Merger Agreement;

 

    the absence of any conflict, violation or material alteration of any organizational documents, or applicable laws due to the execution and performance of the Merger Agreement;

 

    required consents and regulatory filings in connection with the Merger Agreement;

 

    the absence of litigation challenging the Merger;

 

    payment of fees to brokers in connection with the Merger Agreement;

 

    the accuracy of certain information supplied by Parent and Merger Sub as part of the Proxy Statement or the Schedule 13E-3;

 

    the activities of Merger Sub;

 

    delivery and enforceability of the Guarantee;

 

    delivery and enforceability of the Voting Agreement;

 

    the financial capability and availability of all funds necessary to enable Parent to make payment in the aggregate amount of the Merger Consideration and all of its other expenses under the Merger Agreement, and the solvency of Parent and the Company and each of its subsidiaries following the consummation of the Merger and the transactions contemplated by the Merger Agreement;

 

    the absence of any stockholder or management arrangements related to the Merger (other than the Rollover Agreement and the Voting Agreement);

 

    absence of other representations and warranties; and

 

    non-reliance on certain forecasts and projections provided by the Company.

The representations and warranties contained in the Merger Agreement will not survive the earlier of the consummation of the Merger or the termination of the Merger Agreement.

Conduct of Business Prior to Effective Time

The Merger Agreement provides that, except as (1) expressly required or expressly permitted by the Merger Agreement; (2) as required by applicable law; (3) as disclosed in the confidential Company disclosure schedules to the Merger Agreement; or (4) approved by written consent of the Parent, during the period of time between the date of the signing of the Merger Agreement and the Effective Time, the Company will, and will cause each of its subsidiaries to:

 

    subject to the restrictions and exceptions in the Merger Agreement, ensure that it conducts its business in the ordinary course, substantially in accordance with past practice and in material compliance with all applicable laws;

 

    use commercially reasonable efforts to ensure that it preserves intact its current business organization, keeps available the services of its current officers and employees, and maintains its relations and goodwill with material suppliers, landlords and other persons having material business relationships with the Company;

 

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    maintain its books and records in the usual, regular and ordinary manner, on a basis consistent with past practice; and

 

    keep in full force and effect all appropriate insurance policies covering all material assets of the Company.

In addition, the Company has also agreed that, except as (1) as expressly contemplated, required or permitted by the Merger Agreement; (2) as required by applicable law; (3) as set forth in the confidential Company disclosure schedules to the Merger Agreement; or (4) as consented to in writing by Parent (which consent will not be unreasonably withheld, conditioned or delayed), during the period of time between the date of the signing of the Merger Agreement and the Effective Time, the Company will not, and will cause each of its subsidiaries not to, among other things:

 

    except for (1) the issuance of shares of Common Stock pursuant to the exercise of Company equity awards under the Company Plans that were outstanding on the execution date of the Merger Agreement, and (2) the adoption of a stockholder rights plan in response to an acquisition proposal and issuance of rights to Company stockholders in connection therewith (provided that any such stockholder rights will not apply to the Merger or the other transactions expressly contemplated by the Merger Agreement), declare, accrue, set aside or pay any dividend, make or pay any dividend or other distribution (whether in cash, stock, property or otherwise) in respect of any shares of capital stock or any other Company or a subsidiary’s securities (other than dividends or distributions paid in cash from a direct or indirect wholly owned subsidiary to the Company or another direct or indirect wholly owned subsidiary); adjust, split, combine or reclassify any capital stock or otherwise amend the terms of any securities of the Company or a subsidiary; or acquire, redeem or otherwise reacquire or offer to acquire, redeem or otherwise reacquire any shares of capital stock or other securities, other than pursuant to the Company’s right to acquire restricted shares of Common Stock held by an employee of the Company upon termination of such employee’s employment;

 

    sell, issue, grant, deliver, pledge or otherwise encumber or subject to any lien or authorize the sale, issuance, grant, delivery, pledge or encumbrance of subjection to any lien of (1) any capital stock or other equity security; (2) any option, call, warrant or right to acquire any capital stock or other equity security; or (3) any instrument convertible into or exercisable or exchangeable for any capital stock or other equity security, except that (a) the Company may issue shares of Common Stock pursuant to the exercise of Company equity awards under the Company Plans that were outstanding on the execution date of the Merger Agreement, and (b) the Company may adopt a stockholder rights plan in response to an acquisition proposal and issue rights to Company stockholders in connection therewith provided that any such stockholder rights will not apply to the Merger or the other transactions expressly contemplated by the Merger Agreement;

 

    except as contemplated by the Merger Agreement with respect to the treatment of Company equity awards, amend or otherwise modify any of the terms of any outstanding Company equity awards;

 

    amend or permit the adoption of any amendment to the Company’s organizational documents;

 

    acquire any equity interest in or business of any other person, entity or division thereof, or enter into any contract with respect to any such acquisition, or effect or become a party to any merger, consolidation, share exchange, business combination, amalgamation, recapitalization, reclassification of shares, stock split, reverse stock split, division or subdivision of shares, consolidation of shares or similar transaction;

 

   

enter into any contract that would explicitly impose any material restriction on the right or ability of the Company or any subsidiary: (A) to compete with any other person or entity; (B) to acquire any product or other asset or any services from any other person or entity; (C) to perform services for or sell products to any other person or entity; (D) to transact business with any other person or entity; (E) to operate at any location in the world, or (F) to grant more favorable pricing terms with others (through “most favored nation” terms or other similar pricing restrictions), except in the ordinary course of

 

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business and consistent with past practice, and in each case, other than contracts that contain covenants that prohibit the Company or any subsidiary of the Company from using any trade names other than the Company’s or any of its subsidiaries’ trade names;

 

    other than in the ordinary course of business, enter into, amend or terminate (other than expiration in accordance with its terms), or waive any material right, remedy or default under any material contract of the Company;

 

    sell, make any pledge of, or otherwise dispose of, or lease or license any right or other asset or property of the Company or the Company’s subsidiaries to any other person or entity, except inventory and transactions in the ordinary course of business or permit any of its assets to become subject to any liens, other than certain permitted liens;

 

    lend money to any person or entity (other than advances to employees in the ordinary course of business consistent with past practices), guarantee any indebtedness (other than in the ordinary course of business consistent with past practices), or incur any indebtedness (other than guarantees and letters of credit provided to customers in the ordinary course of business);

 

    (A) hire or terminate any employee whose annual base cash compensation is $200,000 or more, other than individuals who are replacing former employees on substantially the same terms and conditions of employment, (B) except to the extent required by applicable law or by written agreements existing on the execution date of the Merger Agreement that have been disclosed or made available to Parent, pay, increase, or agree to pay or increase any pension, retirement allowance, termination or severance pay, material bonus or other material employee benefit not required by any existing employee benefit plan or other agreement or arrangement in effect on the execution date of the Merger Agreement to any current or former employee, officer, director, stockholder or other service provider of the Company or any of its subsidiaries, whether past or present, (C) except to the extent required by applicable law or by written agreements existing on the execution date of the Merger Agreement that have been disclosed or made available to Parent, enter into or amend any material contracts of employment or any consulting, bonus, severance, retention, retirement or similar agreement, except for agreements for newly hired employees in the ordinary course of business consistent with past practice with an annual base salary not to exceed $150,000, (D) take any action to accelerate the vesting, payment or funding of compensation or benefits under an employee benefit plan, a Company employee agreement or otherwise, or (E) except as required to ensure that any employee benefit plan is not then out of compliance with applicable law and except as required by any employee benefit plan in effect on the execution date of the Merger Agreement or otherwise required by law, enter into or adopt any new, or materially increase benefits under or renew, amend or terminate any existing employee benefit plan or benefit arrangement or any collective bargaining agreement;

 

    enter into any contracts (excluding employment agreements with officers entered into in the ordinary course of business) between the Company, on the one hand, and any director, officer or stockholder (in each case, in his, her or its capacity as such) of the Company or its affiliates;

 

    implement any employee layoffs that would implicate the Worker Adjustment and Retraining Notification Act or any similar law, or any other reductions in force or voluntary or involuntary employment termination programs outside the ordinary course of business;

 

    other than as required by changes in GAAP or SEC rules and regulations, change any of its methods of accounting, accounting policies or accounting practices in any material respect;

 

    amend, modify, extend, renew or terminate any material lease or enter into any new material lease, sublease, license or other agreement for the use or occupancy of any real property;

 

   

except as required by applicable law, (A) make or change any material tax election, method, period, policy or practice, (B) file any material amendment to any material tax Return, (C) settle or compromise any material liability for taxes, (D) consent to or request any extension or waiver of any limitation period with respect to any material claim or assessment for taxes, (E) incur any material tax

 

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liability outside of the ordinary course of business, (F) prepare or file any tax return in a manner inconsistent with past practice, provided that if there has been a change of law or such change is otherwise required by law, then the Company and its subsidiaries will be permitted to prepare or file tax returns in compliance with such law, (G) surrender any right to claim a material refund of taxes, or (H) fail to pay any material taxes as they become due and payable (including estimated taxes);

 

    sell, assign, transfer, license, permit to lapse, abandon or otherwise dispose of any material intellectual property of the Company, except for in the ordinary course of business;

 

    incur any capital expenditures or any obligations or liabilities in respect thereof, except capital expenditures that are incurred in the ordinary course of business consistent with past practice;

 

    except as with respect to legal proceedings in connection with, arising from or otherwise relating to the Merger or any other transaction contemplated by the Merger Agreement and appraisal litigation, settle any litigation or other proceedings before a governmental entity if such settlement (A) with respect to the payment of monetary damages, involves the payment of monetary damages that exceed $1,000,000 individually or $3,000,000 in the aggregate, net of any amount covered by insurance to the extent proceeds therefrom are actually received or indemnification, or (B) with respect to any non-monetary terms and conditions therein, imposes or requires actions that would have a material effect on the continuing operations of the Company and its Subsidiaries, taken as a whole; or

 

    authorize any of, or commit, resolve, propose or agree in writing or otherwise to take any of, the foregoing actions.

Solicitation of Acquisition Proposals

During the Go-Shop Period, the Company, its subsidiaries, directors, officers, employees and representatives (acting under the direction of the Special Committee) have the right to:

 

    initiate, solicit, facilitate and encourage Acquisition Proposals, including by way of public disclosure and by way of providing access to non-public information to any person pursuant to (but only pursuant to) a confidentiality agreement; and

 

    enter into, maintain and otherwise participate in discussions or negotiations with respect to Acquisition Proposals or otherwise cooperate with, assist or participate in, facilitate, or take any other action in connection with any such inquiries, proposals, discussions or negotiations.

We refer to the following as an “Acquisition Proposal”: a bona fide proposal or offer with respect to any transaction or series of related transactions (other than the Merger) that, if consummated, would result in a person or entity owning, directly or indirectly, (a) more than 20% of the outstanding shares of the Common Stock or other securities of the Company or (b) more than 20% of the assets of the Company and the Company’s subsidiaries.

Except as expressly permitted under the Merger Agreement, after the end of the Go-Shop Period, the Company agrees that neither it nor any of its subsidiaries nor any of their respective directors, officers or employees will, and that it will cause its and its subsidiaries’ agents, advisors and other representatives (including, without limitation, any investment banker, attorney or accountant retained by the Company), not to, in each case, directly or indirectly:

 

    solicit, initiate or knowingly encourage (including by way of furnishing non-public information), or take any other action to knowingly facilitate, any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to its stockholders) that constitutes, or could reasonably be expected to lead to, any Acquisition Proposal;

 

    enter into, maintain or continue discussions or negotiations with, or provide any non-public information to, any person in connection with an Acquisition Proposal;

 

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    agree to or approve, endorse or recommend any Acquisition Proposal or enter into any letter of intent or contract or commitment contemplating or otherwise relating to, or reasonably be expected to result in, any Acquisition Proposal (other than a confidentiality agreement); or

 

    release any third party from confidentiality obligations under any confidentiality agreement to which the Company is a party.

Notwithstanding the foregoing, at any time after the Go-Shop Period and prior to stockholder approval, the Company and its representatives may (acting under the direction of the Special Committee), following the receipt of a written Acquisition Proposal that did not result from a breach of the Merger Agreement (provided that the Special Committee has determined in good faith, after consultation with a financial advisor of internationally recognized reputation and independent legal counsel, that such Acquisition Proposal constitutes or could reasonably be expected to result in a Superior Proposal):

 

    contact the person or group of persons who has made such Acquisition Proposal to clarify and understand the terms and conditions thereof and to notify such person of the applicable restrictions in the Merger Agreement;

 

    provide information (including any non-public information or data concerning the Company or any of its subsidiaries) in response to the request of the person or group of persons who has made such Acquisition Proposal, if prior to providing such information, the Company has received from the person or group of persons so requesting such information an executed a confidentiality agreement, a copy of which will be promptly (and, in any event, within 48 hours) provided to Parent; provided that the Company will make available to Parent all material non-public information concerning the Company and its subsidiaries that is provided to any person or group of persons making such Acquisition Proposal that is given such access to the extent not previously provided to Parent and Merger Sub within 48 hours of providing it to such person or group of persons; and/or

 

    engage or participate in any discussions or negotiations with the person or group of persons who has made such Acquisition Proposal (including solicitation of revised Acquisition Proposals).

After the Go-Shop Period, the Company may continue to take any of the actions described in the list above with respect to any Acquisition Proposal submitted on or before the end of the Go-Shop Period if the Special Committee has determined, in good faith (after consultation with a financial advisor of internationally recognized reputation and independent legal counsel), that such Acquisition Proposal constitutes or could reasonably be expected to result in a Superior Proposal. We refer to the person or entity that submits such an Acquisition Proposal as an “Excluded Party.” Any Excluded Party will cease to be an Excluded Party for all purposes of the Merger Agreement immediately at such time as the offer or proposal with respect to an Acquisition Proposal made by such person or entity is withdrawn, is terminated or expires, or the Special Committee determines in good faith that such offer or proposal has ceased to constitute, or is no longer reasonably likely to result in, a Superior Proposal.

After the Go-Shop Period, the Company must keep Parent informed of the status of any Acquisition Proposal, on a reasonably current basis, specifying (i) the material terms and conditions of any such Acquisition Proposal, including material amendments or proposed material amendments, and (ii) whether the Company has any intention to provide confidential information to such person or entity. The Company must (i) promptly notify Parent in writing if it determines to initiate actions concerning a proposal, offer, inquiry, contact or request, in each case as permitted by the Merger Agreement, and (ii) provide Parent with 48 hours’ prior notice (or such lesser prior notice as is provided to the members of the Board of Directors or members of the Special Committee) of any meeting of the Board of Directors or the Special Committee at which the Board of Directors or the Special Committee, as applicable, is reasonably expected to consider any inquiry, proposal or offer relating to any Acquisition Proposal.

Except as expressly permitted by the terms of the Merger Agreement, neither the Company Board nor the Special Committee shall (i) change, withhold, withdraw, qualify or modify, in a manner adverse to Parent or

 

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Merger Sub, or propose publicly to change, withhold, withdraw, qualify or modify, in a manner adverse to Parent or Merger Sub, the affirmative recommendation with respect to the Merger Agreement, (ii) adopt, approve or recommend, or propose to adopt, approve or recommend, any Acquisition Proposal, (iii) fail to make the Company Recommendation or fail to include the Company Recommendation in this proxy statement, (iv) fail to recommend against any Acquisition Proposal subject to Regulation 14D under the Exchange Act in a Solicitation/Recommendation Statement on Schedule 14D-9 within 10 business days after the commencement of such Acquisition Proposal, or (v) resolve or publicly announce its intention to do any of such actions under clauses (i) through (iv) (we refer to any of the actions under clauses (i) through (v) as a “Change of Recommendation”) or (vi) authorize, approve or recommend, or cause or permit the Company or any of its subsidiaries to enter into any letter of intent, acquisition agreement, merger agreement or other similar definitive agreement relating to, any Acquisition Proposal. We refer to such an agreement as an “Alternative Acquisition Agreement.”

Notwithstanding the foregoing, if, prior to obtaining stockholder approval, the Company or the Special Committee shall have received a written Acquisition Proposal that the Special Committee determines, in good faith (after consultation with independent legal counsel), constitutes a Superior Proposal, the Board of Directors may effect a Change of Recommendation, recommend a Superior Proposal, authorize the Company to terminate the Merger Agreement, and/or authorize the Company or any of its subsidiaries to enter into an Alternative Acquisition Agreement with respect to such Superior Proposal. The Company may take such actions only:

 

    if such Acquisition Proposal is not the result of a material breach by the Company of the terms of the Merger Agreement;

 

    after (A) providing written notice to Parent (which we refer to as a “Notice of Superior Proposal”) advising Parent that the Company or the Special Committee, as applicable, has received a Superior Proposal, specifying the material terms and conditions of such Superior Proposal and identifying the person making such Superior Proposal and a summary of any financing materials related thereto (if any) and indicating that the Board of Directors intends to effect a Change of Recommendation (it being understood that the Notice of Superior Proposal will not constitute a Change of Recommendation), (B) negotiating with and causing its financial and legal advisors to negotiate with Parent and its Representatives in good faith (to the extent Parent desires to negotiate), during the five-business-day period immediately following delivery of the Notice of Superior Proposal (which we refer to as the “Notice Period”), to make such adjustments in the terms and conditions of the Merger Agreement, so that such Acquisition Proposal would cease to constitute a Superior Proposal, and (C) permitting Parent and its representatives to make a presentation to the Special Committee regarding the Merger Agreement and any adjustments with respect thereto (to the extent Parent desires to make such presentation); provided that any material modifications to such Acquisition Proposal that the Special Committee has determined to be a Superior Proposal will be deemed a new Superior Proposal and the Company will be required to provide a new Notice of Superior Proposal (provided that any additional Notice Period will be reduced to three business days); and

 

    following the end of such Notice Period(s), the Special Committee determines, in good faith (after consultation with a financial advisor of internationally recognized reputation and independent legal counsel), after considering the terms of any proposed modification or amendment to the Merger Agreement by Parent, that the Acquisition Proposal giving rise to the Notice of Superior Proposal continues to constitute a Superior Proposal.

Nothing in the provisions of the Merger Agreement relating to Acquisition Proposals prevents the Company or the Board of Directors (or the Special Committee) from complying with its disclosure obligations under U.S. federal or state or non-U.S. law with regard to an Acquisition Proposal; provided that if such disclosure includes a Change of Recommendation or has the substantive effect of withdrawing or adversely modifying the affirmative recommendation of the Board of Directors with respect to the Merger Agreement, such disclosure shall be deemed to be a Change of Recommendation. A statement by the Company that describes the Company’s receipt of an Acquisition Proposal and the operation of the Merger Agreement with respect thereto, or any “stop,

 

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look or listen” communication that contains only the information set forth in Rule 14d-9(f) under the Exchange Act will not constitute a Change of Recommendation.

We refer to the following as a Superior Proposal: an Acquisition Proposal, except that all references “20%” in the definition of Acquisition Proposal are replaced with “50%,” taken as a whole, that the Special Committee determines in good faith (after consultation with its financial advisors and its outside legal counsel) (i) to be reasonably likely to be consummated if accepted; and (ii) if consummated, would result in a transaction more favorable to the Company’s stockholders from a financial point of view than the Merger, in each case, taking into account at the time of determination all relevant circumstances, including the various legal, financial and regulatory aspects of the Acquisition Proposal, all the terms and conditions of such Acquisition Proposal and the Merger Agreement, any changes to the terms of the Merger Agreement offered by Parent in response to such Acquisition Proposal, and the anticipated timing, conditions and the ability of the person or entity making such Acquisition Proposal to consummate the transactions contemplated by such Acquisition Proposal, including, among other factors: (x) whether such person or entity is reasonably likely to have adequate sources of financing or adequate funds to consummate such Superior Proposal, and (y) whether such person or entity requires stockholder approval of such person or entity’s stockholders to consummate such Superior Proposal and the estimated likelihood of such approval.

Proxy Statement

The Company must prepare and file with the SEC, as promptly as practicable after the execution date of the Merger Agreement (and in any event no later than 15 business days following the date of the Merger Agreement), a Schedule 13E-3 and this Proxy Statement in preliminary form relating to the Stockholders Meeting (such proxy statement, including any amendment or supplement thereto, the “Proxy Statement”) and will include the Board of Directors’ recommendation in the Proxy Statement. Each of Parent and the Company must provide the other with the information it requires to file the Schedule 13E-3 and the Proxy Statement and must otherwise reasonably assist and cooperate with the other in connection with the preparation, filing and distribution of the Schedule 13E-3 and the Proxy Statement and the resolution of any comments in respect thereof received from the SEC.

Company Stockholders Meeting

The Company must take, in accordance with applicable law and its certificate of incorporation and bylaws, all action necessary to establish a record date for, call, give notice of, convene and hold a meeting of holders of the Company’s capital stock as promptly as reasonably practicable after the execution of the Merger Agreement to consider and vote upon the adoption of the Merger Agreement.

Efforts to Complete the Merger; Regulatory Approvals

The Company and Parent agreed to cooperate with each other and use their respective reasonable best efforts to take or cause to be taken all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on its part under the Merger Agreement and applicable laws, including the antitrust laws, to consummate and make effective the Merger as soon as practicable, including preparing and filing as promptly as practicable (and in any event must make all filings pursuant to the HSR Act within 10 days of the Merger Agreement date) all documentation to effect all necessary notices, reports and other filings and to obtain as promptly as practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party and/or any governmental entity in order to consummate the Merger and the transactions contemplated by the Merger Agreement.

The Company and Parent have each agreed to the prompt provision to each and every federal, state, local or foreign court or governmental entity with jurisdiction over enforcement of any applicable antitrust or competition laws of non-privileged information and documents requested by any governmental entity or that are necessary, proper or advisable to permit consummation of the transactions contemplated by the Merger Agreement.

 

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The Company and Parent have each agreed to the prompt use of its reasonable best efforts to avoid the entry of any permanent, preliminary or temporary injunction or other order, decree, decision, determination or judgment that would delay, restrain, prevent, enjoin or otherwise prohibit consummation of the Merger or the transactions contemplated by the Merger Agreement.

However, neither the Company nor any of its Subsidiaries will be required to agree to the payment of a consent fee, “profit-sharing” payment or other consideration (including increased or accelerated payments) or the provision of additional security (including a guarantee), in connection with the Merger, including in connection with obtaining any consent pursuant to any material contract of the Company. In addition, in no event will the Company, any of its subsidiaries, Parent or Merger Sub be required to take or commit to take any actions that would be reasonably likely to materially adversely impact or impose limitations on the ownership by Parent of any of its subsidiaries of all or a material portion of the Company’s business or assets, and in no event will Parent or Merger Sub be obligated pursuant to the Merger Agreement to, and the Company will not, without the written consent of Parent, sell, divest, license or hold separate any capital stock or other equity or voting interests or a material portion of the Company’s business or assets.

In no event will the Company or its subsidiaries, Parent, or their respective affiliates take or agree to take any action with respect to its business or operations unless the effectiveness of such agreement or action is conditioned upon the closing of the Merger. The Company must obtain the prior written consent of Parent to take any such action.

Employee Benefits

From the Effective Time until the first anniversary of the closing of the Merger, Parent has agreed to (and to cause the surviving corporation to, as applicable) the following for each employee of the Company and its subsidiaries who are actively employed by the Company or any subsidiary of the Company (whom we refer to collectively as “Covered Employees”):

 

    provide compensation (such term to include salary, annual cash bonus opportunities, commissions and severance) and benefits that are, in the aggregate, no less favorable than the compensation (excluding any equity or equity-based compensation, retention, change of control, transaction or similar bonuses, and nonqualified deferred compensation) and benefits (excluding any defined benefit pension plan or retiree medical benefits) being provided to Covered Employees immediately prior to the Effective Time;

 

    for Covered Employees who become eligible following the Effective Time and in the plan year in which the Effective Time occurs, use commercially reasonable efforts to (i) waive any preexisting condition exclusions and waiting periods with respect to participation and coverage requirements applicable to any Covered Employee under any Parent employee benefit plan providing medical, dental, or vision benefits to the same extent such limitation would have been waived or satisfied under the analogous Company employee benefit plan the Covered Employee participated in immediately prior to coverage under the Parent Employee Benefit Plan; and (ii) provide each Covered Employee with credit for any copayments and deductibles paid prior to the Covered Employee’s coverage under any Parent employee benefit plan providing medical, dental or vision benefits during the calendar year in which the Effective Time occurs in which such amount was paid, to the same extent such credit was given under the analogous Company employee benefit plan that the Covered Employee participated in immediately prior to coverage under the Parent employee benefit plan, in satisfying any applicable deductible or out-of-pocket requirements under the Parent employee benefit plan; and

 

   

recognize all service of each Covered Employee prior to the Effective Time, to the Company (or any predecessor entities of the Company or any of the Company’s Subsidiaries) for vesting and eligibility purposes (but not for benefit accrual purposes, except for vacation and severance, as applicable, and not for any purpose under any equity-based plan or arrangement) to the same extent as such Covered

 

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Employee was entitled, before the Effective Time, to credit for such service under any similar Company plan (other than any equity-based plan) in which such Covered Employee participated immediately prior to the Effective Time. However, in no event will anything contained in this paragraph result in any duplication of benefits for the same period of service.

However, nothing in the foregoing section will (i) be construed to limit the right of Parent or any of its affiliates (including, following the Effective Time, the surviving corporation) to amend, modify or terminate any Company plan, Company employee benefit plan, or other benefit or compensation plan program, policy, contract, agreement or arrangement (ii) be construed to establish or modify or amend benefit or compensation plan, program, agreement or arrangement, (iii) be construed to require Parent or any of its affiliates (including, following the Effective Time, the surviving corporation or any of its subsidiaries) to retain the employment or service of or provide any particular term or condition of employment or service to any particular person or entity for any fixed period of time following the Effective Time, or to limit the ability of Parent or any of its affiliates (including, following the Effective Time, the surviving corporation or any of its subsidiaries) to terminate the employment or service of any person at any time and for any or no reason, or (iv) be construed to create any rights or remedies including any third-party beneficiary rights in any person or entity not a party to the Merger Agreement.

Cooperation with the Debt Financing

Prior to the closing of the Merger, the Company will use commercially reasonable efforts to provide to Parent all cooperation reasonably requested by Parent in connection with the arrangement, syndication and consummation of any debt financing (the “Debt Financing” and the financing sources in respect thereof, the “Debt Financing Sources”), as determined by Parent in good faith, including, but not limited to, the following:

 

    request its independent accountants to provide reasonable assistance to Parent consistent with their customary practice;

 

    execute and deliver any credit agreements, notes, guarantee and collateral documents, hedging arrangements, pay-off letters, other definitive financing documents, a certificate of the chief financial officer or treasurer (or other comparable officer) of any member of the Company that will be effective at the closing of the Merger certifying the solvency, after giving effect to the closing of the Merger, of such member of the Company on a consolidated basis and other customary certificates or documents as may be reasonably requested by Parent or any Debt Financing Source and otherwise reasonably facilitating the pledging of collateral; provided that no such documentation will be effective until immediately after the closing of the Merger;

 

    take such other actions as reasonably requested by Parent to facilitate the satisfaction on a timely basis of all the conditions precedent to the Debt Financing; and

 

    providing all documentation and other information required by regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including the USA PATRIOT Act, to the extent required by any Debt Financing and requested at least five business days prior to closing, as determined by Parent in good faith.

In addition, each party to the Merger Agreement agreed that (i) it will not bring or support any person in any action, suit, proceeding, cause of action, claim cross-claim or third-party claim against any of the Debt Financing Sources (including their respective affiliates, equityholders, members, partners, officers, directors, employees, agents, advisors, representatives, successors, or assigns of the foregoing) in any way relating to the Merger Agreements or any of the transactions contemplated by the Merger Agreement, including, but not limited to, any dispute arising out of or relating in any way to the executed commitment letter and fee letter from the Debt Financing Sources (collectively, the “Debt Commitment Letter”) or the performance thereof or the Debt Financing contemplated hereby, in any other forum other than the federal and New York state courts located in the Borough of Manhattan within the City of New York; (ii) except as specifically set forth in the Debt Commitment Letter, all claims or causes of action against any of the Debt Financing Sources in any way relating

 

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to the Merger Agreement, the Debt Commitment Letter or the performance thereof or the financings contemplated thereby, shall be exclusively governed by, construed in accordance with, New York law; and (iii) irrevocably and unconditionally waives any right to a trial by jury directly or indirectly arising out of or relating in any way to the Merger Agreement, the Debt Commitment Letter, or the performance thereof or the financings contemplated thereby. The Company and its subsidiaries, affiliates, directors, officers, employees, agents, partners, managers, members or stockholders shall not have any rights or claims against any Debt Financing Sources in any way relating to the Merger Agreement or any of the transactions contemplated by the Merger Agreement and no Debt Financing Source shall have any liability to any of the Company and its subsidiaries, affiliates, directors, officers, employees, agents, partners, managers, members or stockholders under the Merger Agreement or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby and thereby or in respect of any oral representations made or alleged to have been made in connection herewith or therewith. Notwithstanding anything to the contrary contained in the Merger Agreement, the Debt Financing Sources are intended third-party beneficiaries of, may enforce, and shall be entitled to the protections of this paragraph.

Indemnification and Insurance

The Merger Agreement provides that for a period of six years after the Effective Time, the surviving corporation and its subsidiaries will (and Parent will cause the surviving corporation and its subsidiaries to) (1) honor and fulfill in all respects the obligations of the Company and its subsidiaries under any and all indemnification agreements existing as of the date of the Merger Agreement between the Company or any of its subsidiaries, on the one hand, and the current or former directors or officers of the Company or the Company’s subsidiaries and any person who becomes a director or officer of the Company or any of its Subsidiaries prior to the Effective Time (the “Indemnified Person”), on the other hand, and (2) for a period of six years from the Effective Time cause the certificates of incorporation and bylaws (and similar organizational documents) of the Company and its subsidiaries provisions with respect to indemnification, exculpation and the advancement of expenses with respect to acts, errors, omissions and service prior to the Effective Time that are at least as favorable as those set forth in the Company’s certificate of incorporation and bylaws as of the date of the Merger Agreement and during such six-year period such provisions shall not be repealed, amended or otherwise modified in any manner except as required by applicable law.

In addition, the Merger Agreement provides that, during the six-year period commencing at the Effective Time, the surviving corporation will (and Parent must cause the surviving corporation to) indemnify and hold harmless to the extent provided for in the Company’s certificate of incorporation and bylaws as of the date of the Merger Agreement each Indemnified Person, from and against all costs, fees and expenses (including reasonable attorneys’ fees and investigation expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, proceeding, investigation or inquiry, whether civil, criminal, administrative or investigative, arising, directly or indirectly, out of or pertaining, directly or indirectly, to (1) any action or omission, or alleged action or omission, in such Indemnified Person’s capacity as a director, officer, employee or agent of the Company or the Company’s subsidiaries or other affiliates (regardless of whether such action or omission, or alleged action or omission, occurred prior to, at or after the Effective Time); or (2) any of the transactions contemplated by the Merger Agreement. The Merger Agreement also provides that (1) the surviving corporation will have the right to control the defense of any such legal proceeding after the Effective Time, (2) each Indemnified Person is entitled to retain his or her own counsel, (3) the surviving corporation must pay all reasonable fees and expenses of any counsel retained by an Indemnified Person, and (4) no Indemnified Person will be liable for any settlement effected without his or her prior express written consent.

During the period commencing at the Effective Time and ending on the sixth anniversary of the Effective Time, the surviving corporation must (and Parent will cause the surviving corporation to) maintain in effect the Company’s current directors’ and officers’ liability insurance (which we refer to as “D&O Insurance”) in respect of acts or omissions occurring at or prior to the Effective Time, covering each person covered by the D&O Insurance, on terms with respect to the coverage and amounts that are equivalent to those of the D&O Insurance.

 

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The Merger Agreement provides that the Company may purchase a prepaid directors’ and officers’ insurance policy covering the officers and directors of the Company as of the date of the Merger Agreement for a period of six years. In the event that the Company elects to purchase such a “tail” policy prior to the Effective Time, the surviving corporation must (and Parent will cause the surviving corporation to) maintain such “tail” policy in full force and effect and continue to honor their respective obligations thereunder, in lieu of all other obligations of the surviving corporation (and Parent) described in the first sentence of this paragraph for so long as such “tail” policy is maintained in full force and effect. In satisfying these obligations, the surviving corporation will not be obligated to pay annual premiums in excess of 300% of the amount paid by the Company for coverage for its last full fiscal year. If the annual premiums of such insurance coverage exceed such amount, the surviving corporation will be obligated to obtain a policy with the greatest coverage available for a cost not exceeding such amount.

Other Covenants and Agreements

The Merger Agreement contains certain other covenants and agreements, including covenants related to:

 

    the Company affording Parent reasonable access during normal business hours to the Company’s representatives, books, records, tax returns, material operating and financial reports, work papers, assets, executive officers, contracts and other documents and information relating to the Company and the Company permitting Parent’s officers and other employees to meet, upon reasonable notice and during normal business hours, with the chief financial officer and other officers and managers of the Company and its subsidiaries responsible for the Company’s financial statements and the internal controls of the Company to discuss such matters as Parent may reasonably deem necessary or appropriate;

 

    cooperation between the parties to terminate the quotation of the Company’s securities on OTCQX and de-register the Company’s securities under the Exchange Act as promptly as practicable after the Effective Time;

 

    cooperation between the parties in connection with public announcements and filings with any third party and/or any governmental entity;

 

    the Company (1) providing Parent with prompt notice of any legal proceedings arising from or otherwise relating to the Merger, (2) providing Parent with the opportunity to participate in the defense, settlement or prosecution of any legal proceedings, and (3) consulting with the Parent with respect to the defense, settlement or prosecution of any legal proceedings, subject to certain conditions;

 

    causing any dispositions of Common Stock, options and RSUs resulting from the Merger by each individual who may become subject to reporting requirements under the securities laws to be exempt from Rule 16b-3 of the Exchange Act;

 

    Parent causing Merger Sub and the surviving corporation, as applicable, to fully comply with all of their respective obligations under the Merger Agreement;

 

    Parent, in its capacity as the sole stockholder of Merger Sub, executing and delivering the Merger Agreement to Merger Sub and Company and approving the Merger and the transactions contemplated by the Merger Agreement;

 

    the Company causing the resignation of its directors and officers (and those of its subsidiaries) if requested by Parent to the Company in writing at least three business days prior to the closing of the Merger.

Conditions to Completion of the Merger

The obligations of each of the Company, Parent and Merger Sub to effect the Merger are subject to the satisfaction, or waiver, of the following conditions:

 

    the adoption of the Merger Agreement by the requisite affirmative vote of stockholders;

 

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    the expiration or termination of the applicable waiting period, if any, under the HSR Act and any other applicable antitrust law; and

 

    the absence of any law, regulation or order that restrains, enjoins or otherwise prohibits the closing of the Merger;

The obligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction, or waiver, of the following additional conditions:

 

    the Company having performed or complied in all material respects with its obligations or covenants required by the Merger Agreement to be performed or complied with by the Company at or prior to the closing date;

 

    the representations and warranties of the Company relating to the Company’s organization, authorization, no conflict, absence of material adverse changes, broker’s or finder’s fees, and no rights agreement being true and correct in all respects as of the date of the Merger Agreement and as of immediately prior to the closing of the Merger as if made at and as of such time (except as would not reasonably be expected to have a material adverse effect);

 

    the representations and warranties of the Company relating to the Company’s capitalization being true and correct as of the date of the Merger Agreement and as of immediately prior to the closing with as if made at and as of such time, other than any inaccuracies that would not reasonably be expected to result in additional cost, expense or liability to the Parent or its subsidiaries (including, after the closing, the surviving corporation) of more than $500,000 in the aggregate;

 

    the receipt by Parent of a certificate, signed for and on behalf of the Company by the chief executive officer and the chief financial officer of the Company, certifying that the conditions described in the preceding three bullets have been satisfied; and

 

    no material adverse effect on the Company.

In addition, the obligations of the Company to effect the Merger are subject to the satisfaction or waiver of the following additional conditions:

 

    Parent and Merger Sub having performed or complied in all material respects with all agreements, covenants and obligations required by the Merger Agreement to be performed or complied with by Parent and Merger Sub at or prior to the closing date of the Merger;

 

    the representations and warranties of Parent and Merger Sub set forth in the Merger Agreement that are qualified by materiality being true and correct in all respects on and as of the date of the Merger Agreement and the closing date of the Merger with the same force and effect as if made on and as of such time (except where any failures of any such representations and warranties to be true and correct (and in each case, without giving effect to any limitation as to materiality set forth in such representations and warranties) have not had and would not reasonably be expected to have a material adverse effect on the ability of Parent and Merger Sub to consummate the transactions contemplated by the Merger Agreement; provided that the representations and warranties that are not so qualified by materiality must be true and correct in all material respects on and as of the closing date of the Merger with the same force and effect as if made on and as of such date (except for those representations and warranties that address matters only as of a particular date, which representations must have been true and correct in all material respects as of such particular date);

 

    the receipt by the Company of a certificate, signed for and on behalf of Parent and Merger Sub by a duly authorized officer of each of Parent and Merger Sub, certifying that the conditions described in the preceding two bullets have been satisfied; and

 

    the contribution of the Rollover Shares to Parent pursuant to the Rollover Agreement.

 

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Termination of the Merger Agreement

The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after the adoption of the Merger Agreement by the Company’s stockholders, under the following circumstances:

 

    by mutual written consent of the Company and Parent; or

 

    by either Parent or the Company if:

 

    the Merger is not consummated on or before June 4, 2018 (the “Termination Date”); provided, however, that this right to terminate the Merger Agreement will not be available to any party if the failure of the Merger to be consummated on or before such date was proximately caused by a material breach or inaccuracy of any of the representations, warranties, covenants, obligations or agreements of such party such that the other party has the right to terminate the Merger Agreement; or

 

    any order permanently restraining, enjoining or otherwise prohibiting consummation of the Merger becomes final and nonappealable (whether before or after the receipt of stockholder approval);

 

    by the Company in case of:

 

    (i) a breach of any covenant or agreement on the part of Parent or Merger Sub set forth in the Merger Agreement or (ii) any of the representations and warranties of Parent and Merger Sub set forth in the Merger Agreement being inaccurate when made or becoming inaccurate, in either case such that the conditions to closing related to the fulfillment of such covenants or the accuracy of such representations and warranties would not be satisfied as of the time of such breach or as of the time such representation or warranty will have become inaccurate; provided, however, that notwithstanding the foregoing, in the event that such breach by Parent or Merger Sub or such inaccuracies in the representations and warranties of Parent or Merger Sub are curable by Parent or Merger Sub through the exercise of commercially reasonable efforts, then the Company will not be permitted to so terminate the Merger Agreement until the earlier to occur of (A) 30 calendar days after delivery of written notice from the Company to Parent of such breach or inaccuracy, as applicable or (B) Parent or Merger Sub ceasing or failing to exercise and continuing not to exercise commercially reasonable efforts to cure such breach or inaccuracy (it being understood that the Company may not so terminate the Merger Agreement if such breach or inaccuracy by Parent or Merger Sub is cured within such 30-calendar-day period), provided that the Company is not then in material breach of any of its covenants or agreements set forth in the Merger Agreement and none of the representations and warranties of the Company set forth in the Merger Agreement are or have become inaccurate in any material respect such that Parent has the right to terminate the Merger Agreement as a result of such breach or inaccuracy;

 

    (i) all of the Company’s conditions to closing have been satisfied (other than those conditions that by their terms are to be satisfied at the closing of the Merger, each of which is capable of being satisfied at such closing), (ii) Parent and Merger Sub have failed to consummate the Merger at the closing, (iii) the Company has irrevocably notified Parent in writing that (A) the Company is ready, willing and able to consummate the Merger, and (B) all conditions to closing have been and continue to be satisfied (other than those conditions that by their terms are to be satisfied at the closing, each of which is capable of being satisfied at the closing) or that it is willing to waive any unsatisfied conditions, (iv) the Company has given Parent written notice at least three business days prior to such termination stating the Company’s intention to terminate the Merger Agreement if Parent and Merger Sub fail to consummate the Merger, and (v) Parent and Merger Sub fail to consummate the Merger on the later of the expiration of such three-business-day period and the date set forth in the foregoing notice;

 

   

the Special Committee authorizing the Company, subject to complying in all material respects with the terms of the Merger Agreement related to solicitation of Acquisition Proposals to enter

 

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into a definitive agreement with respect to a Superior Proposal (a “Superior Proposal Company Termination”);

 

    by Parent in case of:

 

    (i) a breach of any covenant or agreement on the part of the Company set forth in the Merger Agreement or (ii) any of the representations and warranties of the Company set forth in the Merger Agreement being inaccurate when made or becoming inaccurate, in either case such that the conditions to closing related to the fulfillment of such covenants or the accuracy of such representations and warranties would not be satisfied as of the time of such breach or as of the time such representation or warranty will have become inaccurate; provided, however, that notwithstanding the foregoing, in the event that such breach by the Company or such inaccuracies in the representations and warranties of the Company are curable by the Company through the exercise of commercially reasonable efforts, then Parent will not be permitted to so terminate the Merger Agreement until the earlier to occur of (A) 30 calendar days after delivery of written notice from Parent to the Company of such breach or inaccuracy, as applicable, or (B) the Company ceasing to exercise and continuing not to exercise commercially reasonable efforts to cure such breach or inaccuracy (it being understood that Parent and Merger Sub may not so terminate the Merger Agreement if such breach or inaccuracy by the Company is cured within such 30-calendar-day period); or

 

    the Board of Directors (or any committee thereof) effecting and not withdrawing a Change of Recommendation or (ii) a material and willful breach of the terms of the Merger Agreement relating to the solicitation of Acquisition Proposals; provided, however, that Parent’s right to so terminate the Merger Agreement will expire at 5:00 p.m., Central time, on the 10th business day following the later of the date on which such right to terminate first arose or Parent becomes aware of such right to terminate.

Termination Fees and Expenses

In the event of a Superior Proposal Company Termination, then as a condition to such termination, the Company will pay to Parent an amount equal to Parent’s reasonable and documented out-of-pocket fees and expenses (including legal fees and expenses) incurred by Parent and its affiliates on or prior to the termination of the Merger Agreement in connection with the transaction contemplated by the Merger Agreement, in an amount not to exceed $2,000,000, upon the closing of the transaction that is the subject of the Superior Proposal.

Modification or Amendment

Subject to applicable law, the Merger Agreement may be amended in writing at any time before or after adoption of the Merger Agreement by our stockholders. However, after adoption of the Merger Agreement by our stockholders, no amendment that requires further approval by such stockholders pursuant to the DGCL may be made without such approval. In addition, no material amendment may be made to the provisions related to the Debt Financing Sources without their prior written consent.

Specific Performance; Damages

In the event of a breach or threatened breach of any covenant or obligation in the Merger Agreement, subject to the termination fee and expense reimbursement described above, the non-breaching party will be entitled to any remedy to which they are entitled to at law or in equity, an injunction, specific performance and other equitable relief to enforce specifically the terms and provisions of the Merger Agreement.

Notwithstanding anything to the contrary in the Merger Agreement, the Company will be entitled to seek specific performance to and to cause Parent or Merger Sub to consummate the Merger on the terms and subject to the conditions in the Merger Agreement, if, and only if, (A) all conditions to Parent’s and Merger Sub’s

 

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obligations to close the Merger have been satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing, provided that such conditions are reasonably capable of being satisfied) have been satisfied or waived, and (B) the Company has irrevocably confirmed in a written notice to Parent that (1) all such conditions (other than those conditions that by their nature are to be satisfied at the closing, provided that such conditions are reasonably capable of being satisfied) have been satisfied or waived, and (2) if specific performance is granted, then the closing will occur.

Notwithstanding anything to the contrary in the Merger Agreement, in the event that the Company pursues the collection of damages from Parent, Merger Sub or any of their affiliates, in connection with the Merger Agreement or the transactions contemplated by the Merger Agreement (other than for fraud), (i) such damages shall not exceed the amount of the aggregate Merger Consideration, (ii) the receipt of such damages will be the Company’s sole and exclusive remedy under the Merger Agreement and will be deemed to be liquidated damages for any and all losses or damages suffered or incurred by the Company or any of its affiliates in connection with the Merger Agreement (and the termination thereof), the transactions contemplated thereby (and the abandonment thereof) or any matter forming the basis for such termination, (iii) notwithstanding anything to the contrary in the Merger Agreement, the Company will no longer be entitled to seek specific performance ,and (iv) none of the Company nor any of its affiliates will be entitled to bring or maintain any other legal proceeding against Parent, Merger Sub or any of their respective affiliates arising out of the Merger Agreement, any of the transactions contemplated thereby or any matters forming the basis for such damages claim, and the Company will cause any such legal proceeding brought by the Company or its affiliates, and will use its commercially reasonable efforts to cause any legal proceeding brought by any other person or entity, to be dismissed with prejudice promptly (or not undertaken, as applicable) and in any event within three business days from the payment of such damages.

No Third-Party Beneficiaries

The Merger Agreement is not intended to and does not confer upon any person other than the parties thereto any legal or equitable remedies, except for the indemnification and insurance rights of the directors and officers of the Company and its subsidiaries under the Merger Agreement. Notwithstanding anything to the contrary provided in the Merger Agreement, the Debt Financing Sources are intended third-party beneficiaries of, may enforce, and shall be entitled to the protections of the second paragraph of the section captioned “Cooperation with the Debt Financing” beginning on page 87 of this proxy statement.

Governing Law

The Merger Agreement is governed by Delaware law.

 

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VOTING AND SUPPORT AGREEMENT

Concurrently with the execution and delivery of the Merger Agreement, and as a condition and inducement to the Company’s willingness to enter into the Merger Agreement, the Sponsor Entities entered into the Voting Agreement with the Company, dated as of the date of the Merger Agreement. As of the date of the Voting Agreement, the Sponsor Entities party to the Voting Agreement owned 32,940,853 shares of common stock, on an as-converted basis, representing approximately 68% of the outstanding voting power of the Company’s capital stock as of such date.

Pursuant to the Voting Agreement, the Sponsor Entities have agreed, unless the Board of Directors or the Special Committee has changed its recommendation that the stockholders adopt the Merger Agreement, to vote all shares of the Company’s capital stock owned by them in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and against any other action or agreement not recommended by the Board of Directors that would reasonably be expected to (i) result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement, (ii) result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled or (iii) impede, frustrate, interfere with, delay, postpone or adversely affect the Merger and the other transactions contemplated by the Merger Agreement.

In addition, pursuant to the Voting Agreement, if the Company enters into a definitive agreement with respect to a superior proposal that will result in the Preferred Stock being redeemed in accordance with its terms, among other conditions, the Sponsor Entities have agreed to vote their shares in favor of such superior proposal. The Sponsor Entities have also agreed to refrain from exercising their rights with respect to control of the Board of Directors until the Voting Agreement is terminated according to its terms.

Finally, pursuant to the Voting Agreement, the Sponsor Entities have agreed, if requested to do so by the Board of Directors or the Special Committee, to explore in good faith the possibility of working with any third parties regarding alternative acquisition proposals to the extent the Company is permitted to do so under the Merger Agreement, including by reviewing and responding to proposals and taking part in meetings and negotiations with respect thereto, and have represented that they are not subject to any agreement that would prevent them from doing so. The Voting Agreement will terminate at the effective time of the Merger or, if earlier, the date of the termination of the Merger Agreement, unless there is a superior proposal, in which case the termination will occur upon the earliest of (i) the consummation of the superior proposal, (ii) the termination of the definitive agreement reflecting the superior proposal in accordance with its terms, and (iii) the date that is five months after the termination of the Merger Agreement by the Company in order to pursue a superior proposal.

The Company will be entitled to specific performance of the terms of the Voting Agreement, including an injunction or injunctions, restraining order, or such other equitable relief as a court of competent jurisdiction may deem necessary or appropriate to enforce specifically the terms and provisions of the Voting Agreement. The Voting Agreement is governed by Delaware law and is subject to the jurisdiction of the Delaware Court of Chancery.

PROVISIONS FOR UNAFFILIATED SECURITY HOLDERS

No provision has been made (i) to grant the Company’s unaffiliated security holders access to the corporate files of the Company, any other party to the Merger or any of their respective affiliates, or (ii) to obtain counsel or appraisal services at the expense of the Company, or any other such party or affiliate.

 

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IMPORTANT INFORMATION REGARDING CONNECTURE

Company Background

We are a leading web-based consumer shopping, enrollment and retention platform for health insurance distribution. Our solutions offer a personalized health insurance shopping experience that recommends the best fit insurance plan based on an individual’s preferences, health status, preferred providers, medications and expected out-of-pocket costs. Our customers are payers, brokers, government agencies, and web-based insurance marketplace operators, who distribute health and ancillary insurance. Our solutions automate key functions in the insurance distribution process, allowing our customers to price and present plan options accurately to consumers and efficiently enroll, renew and manage plan members. We were organized in 1999 under the name Healthplanet.com, Inc., which subsequently changed to SimplyHealth.com, Inc. later that year, and in 2002 changed our name to Connecture, Inc. We are headquartered in Brookfield, Wisconsin, and our principal executive offices are located at 18500 West Corporate Drive, Suite 250, Brookfield, Wisconsin 53045. Our telephone number is (262) 432-8282. Our corporate website address is www.connecture.com. The information contained in, or that can be accessed through, our website is not part of this proxy statement.

Francisco Partners, through its affiliates, is our majority stockholder. As of January 4, 2018, the date of the Merger Agreement, the FP Investors owned approximately 57% of our outstanding shares of capital stock on an as-converted basis and Chrysalis owned approximately 11% of our outstanding shares of capital stock on an as-converted basis. The Rollover Investors collectively owned approximately 68% of our outstanding shares of capital stock on an as-converted basis. Our common stock is quoted on the OTCQX under the symbol “CNXR.” If the Merger Agreement is adopted by our stockholders at the Special Meeting and the Merger is completed as contemplated, Connecture, Inc. will be the surviving corporation in the Merger, and we will continue our operations as a private company and a wholly owned indirect subsidiary of Parent. Following the Merger, it is expected that the FP Investors will own approximately 95% of the equity interests in Parent and Chrysalis and its affiliates will own approximately 5%. For a discussion of the assumptions underlying the expected post-closing equity interests of the Purchaser Filing Parties, see “—Security Ownership of Management and Certain Beneficial Owners—Security Ownership of Parent, Merger Sub and Rollover Investors.”

Private Placement Transactions

On May 2, 2016, we completed the sale of 52,000 shares of our Series A Preferred Stock to the Sponsor Entities (the “Series A Financing”) for a purchase price of $1,000 per share, for an aggregate purchase price of $52 million pursuant to an Investment Agreement, dated March 11, 2016, as amended, by and among the Company and the Sponsor Entities. The Series A Preferred Stock issued in the Series A Financing was authorized pursuant to a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Connecture, Inc. that we filed with the Secretary of State of the State of Delaware on April 29, 2016. Prior to the Series A Financing, the FP Investors did not have an ownership interest in the Company. Chrysalis, which also participated in the Series A Financing, was an existing investor of the Company prior to the Series A Financing.

On March 10, 2017, we completed the sale of 17,500 shares of our Series B Preferred Stock to the Sponsor Entities (the “Series B Financing”) for a purchase price of $1,000 per share, for an aggregate purchase price of $17,500,000, pursuant to an Investment Agreement, dated March 10, 2017, as amended, by and among the Company and the Sponsor Entities. The Series B Preferred Stock issued in the Series B Financing was authorized pursuant to a Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock of Connecture, Inc. that we filed with the Secretary of State of the State of Delaware on March 10, 2017. We refer to the Series A Financing, the Series B Financing, and the transactions contemplated thereby collectively as the “Private Placement Transactions.”

Holders of our Series A Preferred Stock are entitled to a cumulative dividend at the rate of 7.5% per annum (subject to adjustment), payable quarterly in arrears. The dividends are to be paid in-kind, through an increase in

 

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the number of shares of common stock into which shares of Series A Preferred Stock are convertible, through at least May 2, 2018, and thereafter in cash or in-kind at our option. Upon the occurrence of certain events, the dividend rate will increase. Holders of our Series B Preferred Stock are entitled to a cumulative dividend at the rate of 15% per annum (subject to adjustment), payable quarterly in arrears. The dividends are to be paid in kind, through an increase in the number of shares of common stock into which shares of Series B Preferred Stock are convertible, through at least March 10, 2019, and thereafter in cash or in kind at our option. Upon the occurrence of certain events, the dividend rate will increase.

Each share of Series A Preferred Stock is convertible into a number of shares of Common Stock equal to (i) the sum of (a) the stated value per share of Series A Preferred Stock (initially $1,000 per share and subsequently increased by the payment of in-kind dividends), plus (b) all accrued and unpaid dividends thereon up to but not including the conversion date, divided by (ii) the conversion price of the Series A Preferred Stock at such time (which initially was $4.50 per share, subject to customary anti-dilution adjustments, and was subsequently adjusted to $3.96 as a result of the Series B Financing). Each share of Series B Preferred Stock is convertible into a number of Series B Conversion Shares equal to (i) the sum of (a) the stated value per share of Series B Preferred Stock (initially $1,000 per share and subsequently increased by the payment of in-kind dividends), plus (b) all accrued and unpaid dividends thereon up to but not including the conversion date, divided by (ii) the conversion price of the common stock at such time (which initially is $1.91 per share, subject to customary anti-dilution adjustments). As of January 16, 2018, the Series A Preferred Stock and Series B Preferred Stock were convertible into 14,911,927 and 10,397,742 shares of Common Stock, respectively.

We filed a registration statement on Form S-3 to register for resale the shares of Series A Preferred Stock hat was declared effective by the SEC on September 23, 2016, and a second registration statement on Form S-3 to register for resale the shares of Series B Preferred Stock that was declared effective by the SEC on June 1, 2017.

The certificates of designations, preferences and rights of the Series A Preferred Stock and the Series B Preferred Stock contain certain redemption and other rights that are triggered by certain fundamental changes with respect to the Company, including the Merger. In addition, the separate consent, which may be in writing, of the Series A Preferred Stock and the Series B Preferred Stock is required to make certain amendments to the certificate of incorporation of the Company that affect the Series A Preferred Stock or the Series B Preferred Stock, respectively. The Sponsor Entities have indicated that they will waive the treatment of the Merger as a “fundamental change” under the certificates of designation and agree to the amendment of the Company’s certificate of incorporation in connection with the Merger, to the extent necessary to consummate the Merger.

In connection with the closing of the Series A Financing, we entered into an Investor Rights Agreement with the Sponsor Entities (the “Series A Rights Agreement”), which granted the Sponsor Entities certain registration rights with respect to the Series A Preferred Stock and the common stock issuable upon conversion of the Series A Preferred Stock (the “Series A Registrable Securities”), along with certain rights related to the composition of the Board of Directors.

In connection with the closing of the Series B Financing, we entered into an Investor Rights Agreement with the Sponsor Entities (the “Series B Rights Agreement”), granting the Sponsor Entities certain registration rights with respect to the Series B Preferred Stock and the common stock issuable upon conversion of the Series B Preferred Stock (the “Series B Registrable Securities”).

The Series B Rights Agreement also provides that for so long as the FP Investors own at least 10% of the aggregate shares of Series B Preferred Stock, Series A Preferred Stock and Common Stock that it held as of the Closing, it can (i) for so long as it holds at least 5% of the aggregate outstanding securities of the Company (on an as-converted basis) designate a proportionate share of the Board of Directors based upon its percentage ownership of the Company’s outstanding securities on an as-converted basis, rounded up to the nearest whole director, which designees will be entitled to serve on each committee of the Board of Directors, subject to applicable legal requirements, and (ii) if no director designated by the FP Investors is serving on the Board of Directors, designate one board observer.

 

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In connection with the FP Investors’ rights with respect to the designation of directors, a new committee of the Board (the “Investor Committee”) was formed as of the closing of the Series B Financing, which Investor Committee has the sole authority to effect the exercise of the FP Investors’ rights with respect to the designation of directors by increasing the size of the Board and appointing directors designated by the FP Investors to fill vacancies on the Board and committees thereof. Only directors designated by the FP Investors will serve on the Investor Committee, which currently consists of Ezra Perlman. In addition, as of the closing of the Series B Financing, the size of the Board was increased from seven to eight directors, with the eighth seat initially vacant and subsequently filled by Kraig McEwen upon designation by the FP Investors. The rights granted to the FP Investors with respect to the designation of directors supersede all similar prior rights granted to the FP Investors pursuant to the Series A Rights Agreement.

Concurrently with the execution and delivery of the Merger Agreement, the Sponsor Entities entered into the Voting Agreement with the Company. Pursuant to the Voting Agreement, the Sponsor Entities have agreed, unless the Board of Directors or the Special Committee has changed its recommendation that the stockholders adopt the Merger Agreement, to vote all shares of the Company’s capital stock owned by them in favor of the adoption of the Merger Agreement and the approval of the transactions contemplated thereby and against any other action or agreement not recommended by the Board of Directors that would reasonably be expected to (i) result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement, (i) result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled or (iii) impede, frustrate, interfere with, delay, postpone or adversely affect the Merger and the other transactions contemplated by the Merger Agreement.

In addition, pursuant to the Voting Agreement, if the Company enters into a definitive agreement with respect to a superior proposal that will result in the Preferred Stock being redeemed in accordance with its terms, among other conditions, the Sponsor Entities have agreed to vote their shares in favor of such superior proposal. The Sponsor Entities have also agreed to refrain from exercising their rights with respect to control of the Board of Directors until the Voting Agreement is terminated according to its terms.

Finally, pursuant to the Voting Agreement, the Sponsor Entities have agreed, if requested to do so by the Board of Directors or the Special Committee, to explore in good faith the possibility of working with any third parties regarding alternative acquisition proposals to the extent the Company is permitted to do so under the Merger Agreement, including by reviewing and responding to proposals and taking part in meetings and negotiations with respect thereto, and have represented that they are not subject to any agreement that would prevent them from doing so. The Voting Agreement will terminate at the effective time of the Merger or, if earlier, the date of the termination of the Merger Agreement, unless there is a superior proposal, in which case the termination will occur upon the earliest of (i) the consummation of the superior proposal, (ii) the termination of the definitive agreement reflecting the superior proposal in accordance with its terms, and (iii) the date that is five months after the termination of the Merger Agreement by the Company in order to pursue a superior proposal. For more information, see “Voting and Support Agreement” beginning on page 94.

Directors and Executive Officers

The Board of Directors currently consists of eight members. The persons listed below are the directors and executive officers of the Company as of the date of this proxy statement. The Merger Agreement provides, however, that the directors of Merger Sub immediately prior to the effective time of the Merger will be the initial directors of the surviving corporation immediately following the Merger. The Merger Agreement provides that the officers of the Company immediately prior to the effective time of the Merger will be the initial officers of the surviving corporation immediately following the Merger. Following the Merger, each executive officer will serve until a successor is elected or appointed and qualified or until the earlier of his or her death, resignation or removal, as the case may be.

There are no family relationships among any of our directors or executive officers. During the past five years, neither the Company nor any of the Company directors or executive officers listed below has been

 

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convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). In addition, during the past five years, neither the Company nor any of the Company directors or executive officers listed below has been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. Each of the individuals listed below is a citizen of the United States and can be reached care of Connecture, 18500 West Corporate Drive, Suite 250, Brookfield, Wisconsin 53045.

 

Name

  

Age

  

Current Position and Office

Jeffery A. Surges

   50    President, Chief Executive Officer and Director

Brian D. Lindstrom

   47    Chief Financial Officer and Secretary

Mark E. Granville

   62    Chief Delivery Officer

Vincent E. Estrada

   53    Executive Vice President, Corporate Development

Lea DeVillers

   49    General Counsel

A. John Ansay

   61    Director

Vickie L. Capps

   56    Director

David A. Jones, Jr.

   59    Chairman and Director

Paul Kusserow

   56    Director

Kraig McEwen

   45    Director

Ezra Perlman

   46    Director

Russell S. Thomas

   55    Director

Below is information about our directors:

Jeffery A. Surges has served as our Chief Executive Officer and as a member of our board of director since November 2015 and as our President since August 2016. Prior to joining the Company, Mr. Surges served as President of Healthgrades Operating Company, Inc., an online resource for comprehensive information about physicians and hospitals, from June 2014 through April 2015. Previously, Mr. Surges served as the Chief Executive Officer of Merge Healthcare Inc., a medical imaging company acquired by IBM in 2015, from November 2010 through August 2013, and as President of Sales for Allscripts Healthcare Solutions, Inc., a provider of healthcare information technology solutions, from January 2008 through November 2010. Mr. Surges also served as Chief Executive Officer of Extended Care Information Network, Inc. from 1999 through its acquisition by Allscripts Healthcare Solutions in December 2007. Mr. Surges currently serves as the chairman of the board of directors of Strategic Health Services, a privately held company, and previously served on the board of directors of Merge Healthcare from May 2010 through August 2013. Mr. Surges holds a B.A. from Eastern Illinois University. We believe that Mr. Surges’ extensive leadership experience with healthcare information technology companies and in the healthcare industry, along with his perspective as our Chief Executive Officer, makes him a crucial member of our board of directors.

A. John Ansay has been a member of our board of directors since August 2014. Mr. Ansay is the co-founder of Equian, LLC (formerly Health Systems International, Inc.), a payment integrity service and technology provider to the commercial health and workers’ compensation markets that was founded in 2001. He has also served as a Principal for Ansay & Associates, LLC, an independent insurance agency, since 1980. He currently serves on the board of directors of The Retirement Advantage, Inc., a third-party administrator for retirement plans. Mr. Ansay holds a B.S. in business from Marquette University. He also holds Certified Insurance Counselor (CIC) and Certified Public Accountant (CPA) designations. We believe that Mr. Ansay’s diverse experience in the healthcare industry and insurance industries makes him a valuable member of our board of directors.

Vickie L. Capps has been a member of our board of directors since August 2014. Ms. Capps was the Chief Financial Officer of DJO Global, Inc., a medical device company, from 2002 to 2013. Prior to joining DJO Global, Inc., Ms. Capps served as the chief financial officer of several other public and private companies and as a senior audit and accounting professional at Ernst & Young LLP. Ms. Capps has served as a member of the

 

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board of directors of Otonomy, Inc. (Nasdaq: OTIC), a biopharmaceutical company, since March 2014 and is the chair of its audit committee and a member of its nominating and governance committee. Ms. Capps has also served as a member of the board of directors of NuVasive, Inc. (Nasdaq: NUVA), a medical device company, since June 2015 and is a member of its audit and nominating and governance committees. In addition, Ms. Capps is a member of the Senior Advisory Board of Consonance Capital Partners, a healthcare investment firm, and is a member of the board of directors of its portfolio company Eagle Rx, Inc., a provider of pharmacy services to the hospice industry. Ms. Capps is also a member of the board of directors of OmniGuide, Inc., a privately held medical device company. From December 2013 to August 2015, Ms. Capps served as a member of the board of directors of RF Surgical Systems, Inc. and the chair of its audit committee, prior to the company’s acquisition by Medtronic plc (NYSE: MDT). From 2007 to July 2010, Ms. Capps served as a member of the board of directors of SenoRx, Inc., a medical device company, prior to its acquisition by C. R. Bard, Inc. (NYSE: BCR) in July 2010. Ms. Capps is a California Certified Public Accountant and was recognized as CFO of the Year by the San Diego Business Journal in 2009 and 2010. She also serves on the boards of directors of the San Diego State University Research Foundation and The Santaluz Club. Ms. Capps holds a bachelor’s degree in business administration/accounting from San Diego State University. We believe that Ms. Capps’ strong skill set consisting of corporate finance, accounting, operations, investor relations, capital markets and strategic business development, along with her experience in the healthcare industry, makes her a valuable member of our board of directors.

David A. Jones, Jr. has been a member of our board of directors since 2004 and Chairman of the Board since 2011. Mr. Jones is the Chairman of Chrysalis Ventures, LLC, a venture capital firm which he founded in 1993. Mr. Jones has served on the board of directors of Humana Inc. (NYSE: HUM), a leading health and well-being company, since 1993 and served as chairman of the board from 2005 through 2010. In addition, Mr. Jones currently serves on the boards of Foundation Radiology Group, Inc., Insider Louisville, and meQuilibrium. Mr. Jones also serves on the board of the Humana Foundation and is a member of the Health Executives Network. Mr. Jones has a B.A. from Yale University and a J.D. from Yale Law School. We believe Mr. Jones’ diverse experience in the healthcare industry and his knowledge of emerging technologies and business models through his experience as a successful venture capital investor make him a valuable member and Chairman of our board of directors.

Paul Kusserow has been a member of our board of directors since October 2014. Mr. Kusserow is the President and Chief Executive Officer and a member of the board of directors of Amedisys, Inc. (Nasdaq: AMED), a leading home health and hospice company that he joined in December 2014. Prior to joining Amedisys, Mr. Kusserow served as the Vice Chairman and President of Alignment Healthcare, Inc., an integrated clinical care company, from June 2014 to December 2014 and provided executive advisory services to companies and investors in the healthcare industry from December 2013 to June 2014. Previously, Mr. Kusserow was Senior Vice President and Chief Strategy, Innovations and Corporate Development Officer of Humana Inc., a leading health and well-being company, from January 2008 through December 2013. Mr. Kusserow currently serves on the board of directors of Amedisys, Inc., as well as on the boards of directors of New Century Health, Inc. and Picwell, Inc., both privately held companies. Mr. Kusserow previously served as the chairman of the board of directors of Availity Inc. and Healthsense, Inc., both privately held companies. Mr. Kusserow holds a B.A. from Wesleyan University and an M.A. from Oxford University. We believe Mr. Kusserow’s extensive experience in the healthcare industry makes him a valuable member of our board of directors.

Kraig McEwen has been a member of our board of directors since May 2017. Since January 2017, Mr. McEwen has served as the Executive Chair and Board Member of TrellisRx, Inc., a specialty pharmacy services company. Prior to TrellisRx, Mr. McEwen was Chief Executive Officer of Aesynt, Inc., a provider of medication management systems for health systems, from November 2011 through January 2016. Mr. McEwen serves on the private company boards of Foundation Radiology Group Inc., Quantros, Inc., and Alung, Inc. Mr. McEwen holds a B.S. from Penn State University and an M.B.A. from University of Pittsburgh. We believe Mr. McEwen’s business leadership experience in the healthcare technology and services businesses make him a valuable member of our board of directors.

 

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Ezra Perlman has been a member of our board of directors since April 2016. Mr. Perlman is a Co-President of Francisco Partners and focuses primarily on investments in the software and services sectors, with a specific emphasis on healthcare technology. Prior to joining Francisco Partners in 2003, Mr. Perlman was a venture capitalist with Battery Ventures, where he was involved in identifying, executing and managing private equity investments in software companies. Mr. Perlman serves on the board of directors of Avalon Healthcare Solutions, LLC, eSolutions Inc., HealthcareSource HR, Inc., Landmark Health, LLC, Nextech Systems, LLC, and QGenda, Inc., all privately held companies. Mr. Perlman holds a B.A. in applied mathematics from Harvard University and an M.B.A. from the Stanford Graduate School of Business. We believe Mr. Perlman’s diverse experience in the healthcare industry and his experience as a successful venture capital and private equity investor make him a valuable member of our board of directors. Mr. Perlman was elected to our board of directors by designation of Francisco Partners.

Russell S. Thomas has been a member of our board of directors since January 2015. Mr. Thomas currently serves as the Chief Executive Officer of Availity LLC, a provider of health information exchange services to healthcare providers and health plans, where he previously served as President and Chief Operating Officer from January 2008 to March 2012. Prior to joining Availity, Thomas served as the CEO of Gold Standard, Inc., a health information technology company. Mr. Thomas also serves on the board of directors of the eHealth Initiative, a non-profit, membership organization for the healthcare industry focused on information technology. Mr. Thomas holds a B.A. from Virginia Tech and a J.D. from the University of Virginia School of Law. We believe that Mr. Thomas’ significant experience in the healthcare industry and with health information companies makes him a valuable member of our board of directors.

Below is information on the Company’s other executive officers:

Brian D. Lindstrom has served as our Chief Financial Officer and Secretary since December 4, 2017. Prior to joining the Company, Mr. Lindstrom served as Chief Operating Officer of Datica Health, Inc., a provider of HIPAA compliant, cloud-based infrastructure for developers across healthcare, from December 2016 through November 2017. Previously, Mr. Lindstrom served as the Chief Financial Officer of Influence Health, Inc., a developer of clinical and digital marketing software for healthcare providers, from May 2013 through November 2016, and as Corporate Controller for Epic Systems, Inc., a provider of inpatient and ambulatory enterprise healthcare management software, from May 2007 through April 2013. Mr. Lindstrom is a CPA, holds a B.S. in accounting from Bradley University, M.S. from Purdue University and Advanced Management Program from University of Chicago.

Mark E. Granville has served as our Chief Delivery Officers since August 2016. Mr. Granville was our Senior Vice President and General Manager, InsureAdvantage from October 2012 until August 2016. Previously, Mr. Granville worked for the healthcare business of Thomson Reuters (now Truven Health Analytics Inc.), a provider of healthcare data, analytics and advisory services, where he served as Senior Vice President, Analytic Consulting, from January 2012 to October 2012 and as Senior Vice President, Client Experience from August 2009 to December 2012. He holds a B.B.A. in management information systems from Bowling Green State University and an MBA from the University of Wyoming–Casper.

Vincent E. Estrada has served as our Executive Vice President, Corporate Development, since December 4, 2017 and previously served as our Chief Financial Officer and Secretary beginning in January 2017. Before that, Mr. Estrada served as Chief Financial Officer and Executive Vice President of Business Development for HealthMEDX, LLC, a developer of electronic medical record (EMR) solutions for long-term and other non-acute care providers, during his tenure from December 2011 through its October 2016 acquisition by Netsmart Technologies, Inc. Mr. Estrada started his career as a Certified Public Accountant with Arthur Andersen & Co. in 1986, after receiving a BSA in Accounting and Finance from the University of Illinois.

Lea DeVillers has served as our General Counsel since June 2013. Previously, she was Corporate Counsel for us from December 2010 to June 2013. Prior to joining Connecture, she was in-house counsel for Blue Cross Blue Shield of Minnesota, a health insurance company, from 1996 to 2002, where she provided legal advice to

 

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the government programs business unit on a variety of transactional, regulatory compliance, and policy and legislative affairs matters. Ms. DeVillers was not employed from 2002 to 2010 when she was devoting her full time to family matters. Ms. DeVillers holds a B.A. from the University of Wisconsin–Milwaukee and a J.D. from the University of Virginia School of Law.

Prior Public Offerings

During the past three years, none of the Company, the Sponsor Entities, Parent, Merger Sub or any of their respective affiliates have made any underwritten public offering of the Company’s Common Stock for cash that was registered under the Securities Act of 1933, as amended, or exempt from registration under Regulation A promulgated thereunder.

Historical Selected Financial Information

Set forth below is certain selected historical consolidated financial information relating to the Company. The historical selected financial data as of and for the years ended 2016, 2015, 2014, 2013 and 2012 have been derived from the Company’s historical audited consolidated financial statements, and the historical selected financial data as of and for the nine months ended September 30, 2017 and 2016 have been derived from the Company’s unaudited consolidated financial statements. This information is only a summary and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, each of which is incorporated by reference into this proxy statement. More comprehensive financial information is included in those reports, including management’s discussion and analysis of financial condition and results of operations, and the following summary is qualified in its entirety by reference to those reports and all of the financial information and notes contained therein. For additional information, see “Where You Can Find Additional Information” beginning on page 122. Historical results are not necessarily indicative of results to be expected in any future period.

 

    Nine Months Ended
September 30,
    Year Ended December 31,  
    2017     2016     2016     2015     2014     2013     2012  
    (in thousands, except share and per share amounts)  

Consolidated Statements of Operations Data:

             

Revenue

  $ 57,107     $ 61,015     $ 81,894     $ 95,847     $ 84,579     $ 58,326     $ 29,626  

Cost of Revenue(1)

    34,767       41,907       56,895       50,670       52,431       50,173       22,886  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross Margin

    22,340       19,108       24,999       45,177       32,148       8,153       6,740  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses:

             

Research and Development(1)

    12,599       17,188       22,297       22,718       18,125       11,806       7,371  

Sales and Marketing(1)

    6,620       7,876       10,410       9,507       7,729       6,800       6,644  

General and Administrative(1)

    9,057       9,616       13,162       14,439       10,552       12,187       7,492  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

    28,276       34,680       45,869       46,664       36,406       30,793       21,507  

Loss from Operations

    (5,936     (15,572     (20,870     (1,487     (4,258     (22,640     (14,767
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Expenses:

             

Interest Expense

    2,437       2,851       3,485       5,665       5,937       4,644       1,992  

Other Expense (Income), net

    509       1,939       2,239       140       (68     —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before Income Taxes

    (8,882     (20,362     (26,594     (7,292     (10,127     (27,284     (16,759
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income Tax Benefit (Provision)

    —         60       60       (51     (33     900       3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Loss

  $ (8,882   $ (20,302   $ (26,534   $ (7,343   $ (10,160   $ (26,384   $ (16,756
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share—basic and diluted

  $ (0.60   $ (0.99   $ (1.31   $ (0.34   $ (10.27   $ (163.37   $ 14.05  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted Average Common Shares Outstanding—basic and diluted

    22,704,060       22,224,804       22,275,256       21,813,407       1,362,109       184,051       1,353,862  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) Cost of revenue and operating expenses include stock-based compensation expense as follows:

 

     Nine Months Ended
September 30,
     Year Ended December 31,  
       2017          2016        2016      2015      2014      2013      2012  
     (dollars in thousands)  

Cost of Revenue

   $ 377      $ 559      $ 689      $ 922      $ 123      $ 92      $ 121  

Research and Development

     152        360        422        1,379        78        55        48  

Sales and Marketing

     115        225        243        518        32        34        61  

General and Administrative

     997        965        1,308        1,893        1,203        458        470  

Except as set forth in “Special Factors—Certain Effects of the Merger for the Purchaser Filing Parties,” we have not provided any pro forma data giving effect to the proposed Merger as we do not believe such information is material to our stockholders in evaluating the Merger Proposal, since the proposed Merger Consideration is all cash and our Common Stock would cease to be publicly traded if the proposed Merger is completed.

We have also not provided any separate financial information for Parent or Merger Sub since each is a newly formed entity formed in connection with the Merger and has no independent operations.

Ratio of Earnings to Fixed Charges and Preferred Stock Dividends

The following table sets forth our ratio of earnings to combined fixed charges and preferred stock dividends on a historical basis for the two most recent fiscal years and the nine months ended September 30, 2017. As we incurred net losses in all periods presented below, our earnings were insufficient to cover fixed charges in each of the periods presented. Because of these deficiencies, the ratio information is not applicable for such periods.

 

     Nine Months
Ended

September 30,
     Year Ended
December 31,
 
     2017      2016      2015  

Ratio of earnings to combined fixed charges and preferred stock dividends(1)(2):

   $ —        $ —        $ —    

 

(1) For the nine months ended September 30, 2017 and for the fiscal years ended December 31, 2016 and 2015, we had no earnings and are therefore unable to calculate the ratio of combined fixed charges and preference dividends to earnings. Our earnings for those periods were insufficient to cover fixed charges by $13.5 million, $29.2 million and $7.3 million, respectively.
(2) For purposes of computing the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of net loss plus fixed charges. Combined fixed charges and preferred stock dividends consist of interest expense and an estimate of interest within rent expense plus mandatory preferred stock dividends.

Book Value Per Share

Our net book value per share as of September 30, 2017, was approximately $(1.46) (calculated based on 47,427,055 shares of Common Stock outstanding on an as-converted basis). Our net book value per common share as of September 30, 2017, assuming no conversion of Preferred Stock to Common Stock, was approximately $(3.03) (calculated based on 22,886,255 shares of Common Stock outstanding).

 

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Market Price of the Company’s Common Stock

Beginning on October 31, 2017, the Company’s Common Stock has been quoted on the OTCQX under the symbol “CNXR.” Prior to such date, the Common Stock traded on The Nasdaq Global Market, also under the symbol “CNXR.” The following table sets forth the high and low sales prices per share of common stock for the fiscal years ended December 31, 2017, and December 31, 2016:

 

     Market Price  
     High      Low  

2017

     

First Quarter

   $ 2.44      $ 0.96  

Second Quarter

   $ 1.17      $ 0.53  

Third Quarter

   $ 1.08      $ 0.48  

Fourth Quarter

   $ 0.71      $ 0.10  

2016

     

First Quarter

   $ 3.90      $ 1.72  

Second Quarter

   $ 3.24      $ 1.15  

Third Quarter

   $ 2.77      $ 1.50  

Fourth Quarter

   $ 2.13      $ 1.55  

The closing price of shares of our Common Stock as quoted on the OTCQX on January 3, 2018, which was the last trading day before the announcement of the Merger Agreement, was $0.16 per share.

Dividends

Common Stock

We have never declared or paid any cash dividends on our Common Stock.

Series B Preferred Stock

From and after March 10, 2017, each holder of Series B Preferred Stock (the “Series B Holders”), in preference and priority to the holders of all other classes or series of stock other than the Series A Preferred Stock, is entitled to receive, with respect to each share, or fraction of a share, of Series B Preferred Stock then outstanding and held by such Series B Holder, dividends accruing on a daily basis, commencing from the date of issuance of such share of Series B Preferred Stock, at the rate of 15% per annum of the stated value of the Series B Preferred Stock (the “Series B Stated Value”) per whole share (or proportion thereof with respect to fractional shares) of Series B Preferred Stock (the “Series B Preferred Dividends”). The Series B Preferred Dividends are cumulative, whether or not earned or declared, and are paid quarterly in arrears on the last day of March, June, September and December in each year, commencing March 31, 2017. The Series B Preferred Dividends are accreted to, and increase, the outstanding Series B Stated Value; provided, however, that following March 10, 2019, the Series B Preferred Dividends may, at the Company’s option, be paid in cash and, if not so paid in cash, will automatically be accreted to, and increase, the outstanding Series B Stated Value. The Series B Preferred Dividends are paid on a pari passu basis with any dividends payable on the Series A Preferred Stock. The Series B Holders may also be entitled to dividends in certain other circumstances. The following table states the amount of dividends paid in kind on the Series B Preferred Stock since March 10, 2017:

 

($ in millions)    March 31,
2017
     June 30,
2017
     September 30,
2017
 

Dividends paid in kind on Series B Preferred Stock

   $ 0.2      $ 0.7      $ 0.7  

Series A Preferred Stock

From and after May 2, 2016, each holder of Series A Preferred Stock (the “Series A Holders”), in preference and priority to the holders of all other classes or series of stock other than the Series B Preferred Stock, is entitled

 

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to receive, with respect to each share, or fraction of a share, of Series A Preferred Stock then outstanding and held by such Series A Holder, dividends accruing on a daily basis, commencing from the date of issuance of such share of Series A Preferred Stock, at the rate of seven and one half percent (7.5%) per annum of the stated value of the Series A Preferred Stock (the “Series A Stated Value”) per whole share (or proportion thereof with respect to fractional shares) of Series A Preferred Stock (the “Series A Preferred Dividends”). The Series A Preferred Dividends are cumulative, whether or not earned or declared, and are paid quarterly in arrears on the last day of March, June, September and December in each year, commencing June 30, 2016. The Series A Preferred Dividends are accreted to, and increase, the outstanding Series A Stated Value; provided, however, that following May 2, 2018, the Preferred Dividends may, at the Company’s option, be paid in cash and, if not so paid in cash, will automatically be accreted to, and increase, the outstanding Series A Stated Value. The Series A Preferred Dividends are paid on a pari passu basis with any dividends payable on the Series B Preferred Stock. The Series A Holders may also be entitled to dividends in certain other circumstances. The following table states the amount of dividends paid in kind on the Series A Preferred Stock since May 2, 2016:

 

($ in millions)    June 30,
2016
     September 30,
2016
     December 31,
2016
     March 30,
2017
     June 30,
2017
     September 30,
2017
 

Dividends paid in kind on Series A Preferred Stock

   $ 0.7      $ 1.0      $ 1.0      $ 1.0      $ 1.0      $ 1.1  

Security Ownership of Management and Certain Beneficial Owners

The following table and footnotes set forth information with respect to the beneficial ownership of our common stock as of January 16, 2018, by:

 

    each stockholder, or group of affiliated stockholders, who we know beneficially owns more than 5% of the outstanding shares of our common stock;

 

    each of our named executive officers;

 

    each of our current directors; and

 

    all of our current directors and current executive officers as a group.

Beneficial ownership of shares is determined under the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power.

Applicable percentage ownership for our common stock in the following table is based on 23,246,258 shares of Common Stock outstanding as of January 16, 2018, and the assumed conversion as of such date, of all 52,000 outstanding shares of our Series A Preferred Stock into 14,911,927 shares of Common Stock and all 17,500 shares of our Series B Preferred Stock into 10,397,742 shares of Common Stock, for an aggregate of 48,555,927 shares of Common Stock deemed outstanding for voting purposes (excluding shares of Common Stock subject to equity awards). Each share of Series A Preferred Stock is convertible, at the option of the holder, into a number of shares of Common Stock determined by dividing the sum of the stated value of such share of Series A Preferred Stock on the conversion date and any accrued and unpaid dividends with respect to such share by a conversion price initially equal to $4.50 per share of Series A Preferred Stock, which was adjusted to $3.96 as a result of the issuance of our Series B Preferred Stock. Each share of Series B Preferred Stock is convertible, at the option of the holder, into a number of shares of Common Stock determined by dividing the sum of the stated value of such share of Series B Preferred Stock on the conversion date and any accrued and unpaid dividends with respect to such share by a conversion price initially equal to $1.91 per share of Series B Preferred Stock. Each share of our Series A Preferred Stock and our Series B Preferred Stock is entitled to cast one vote for each share of our common stock that would be issuable upon conversion of such share of Preferred Stock if such Preferred Stock had converted to Common Stock on the record date.

Shares of Common Stock subject to equity awards currently exercisable or exercisable within 60 days of January 16, 2018, are deemed to be outstanding for calculating the number and percentage of outstanding shares

 

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of the person holding such equity awards, but are not deemed to be outstanding for calculating the percentage ownership of any other person. Applicable percentage ownership for shares of our Series A Preferred Stock and our Series B Preferred Stock in the following table is based on 52,000 shares of Series A Preferred Stock and 17,500 shares of our Series B Preferred Stock outstanding, respectively, as of January 16, 2018. Beneficial ownership or voting power representing less than 1% is denoted with an asterisk (*).

Shares shown in the table below include shares held in the beneficial owner’s name or jointly with others, or in the name of a bank, nominee or trustee for the beneficial owner’s account. Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed, except for those jointly owned with that person’s spouse.

Unless otherwise noted below, the address of each person listed on the table is c/o Connecture, Inc., 18500 West Corporate Drive, Suite 250, Brookfield, Wisconsin 53045.

 

    Shares of Common Stock
Beneficially Owned
    Shares of Series A
Preferred Stock
Beneficially Owned
    Shares of Series B
Preferred Stock
Beneficially Owned
 

Name of Beneficial Owner

  Shares     Percentage     Shares     Percentage     Shares     Percentage  

Holders of More Than 5% of Any Class of the Company’s Voting Securities:

           

Entities affiliated with Francisco Partners(1)

    27,766,000       57.2     50,000       96.2     16,500       94.3

Chrysalis Ventures II, L.P.(2)

    5,174,853       10.7     2,000       3.8     1,000       5.7

GPP-Connecture, LLC(3)

    4,127,232       8.5     —         —         —         —    

Ahsan Rahim(4)

    1,350,000       2.8     —         —         —         —    

Named Executive Officers and Directors:

           

Jeffery A. Surges(5)

    227,669       *       —         —         —         —    

Brian D. Lindstrom(6)

    —         *       —         —         —         —    

Vincent E. Estrada(7)

    67,659       *       —         —         —         —    

Mark Granville(8)

    188,755       *       —         —         —         —    

A. John Ansay(9)

    126,776       *       —         —         —         —    

Vickie L. Capps(10)

    116,776       *       —         —         —         —    

Paul Kusserow(11)

    101,776       *       —         —         —         —    

Kraig McEwen(12)

    160,976       *       —         —         —         —    

Russell S. Thomas(13)

    93,526       *       —         —         —         —    

David A. Jones, Jr.(14)

    5,232,549       10.8     2,000       3.8     1,000       5.7

Ezra Perlman(15)

    27,766,000       57.2     50,000       96.2     16,500       94.3

All executive officers and directors as a group (12 persons)(16)

    34,100,376       69.8     52,000       100.0     17,500       100.0

 

(1)

Reflects (i) 33,306 shares of Series A Preferred Stock and 10,991 shares of Series B Preferred Stock held by Francisco Partners IV, L.P. (“FP IV”), 9,551,090 shares of Common Stock and 6,530,377 shares of Common Stock into which such shares of Series A Preferred Stock and Series B Preferred Stock, respectively, were convertible as of January 16, 2018, and 2,414,050 shares of Common Stock directly held by FP IV as of January 4, 2018, according to a Schedule 13D/A report filed by FP IV with the SEC on January 4, 2018, and (ii) 16,694 shares of Series A Preferred Stock and 5,509 shares of Series B Preferred Stock held by Francisco Partners IV-A, L.P. (“FP IV-A”), 4,787,302 shares of Common Stock and 3,273,209 shares of Common Stock into which such shares of Series A Preferred Stock and Series B Preferred Stock, respectively, would be convertible as of January 16, 2018, and 1,209,972 shares of Common Stock directly held by FP IV-A as of January 4, 2018, according to a Schedule 13D/A report filed by FP IV-A with the SEC on January 4, 2018. Francisco Partners GP IV, L.P. (“FP GP IV”) is the general partner of FP IV and FP IV-A, and as such may be deemed to have voting and dispositive power over the shares held by FP IV and FP IV-A. Francisco Partners GP IV Management Limited (“FP GP Management”)

 

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  is the general partner of FP GP IV and provides management services to FP IV and FP IV-A at the request of FP GP IV, and as such may be deemed to have voting and dispositive power over the shares held by FP IV and FP IV-A. The Directors of FP GP Management are Mr. Dipanjan Deb and Mr. Tom Ludwig (the “FP Directors”) and the Investment Committee of FP GP Management consists of Mr. Deb, Mr. David Golob, Mr. Ezra Perlman , and Mr. Keith Geeslin (the “FP Investment Committee”), and as such, each of the FP Directors and each of the members of the FP Investment Committee may be deemed to have voting and dispositive power over the shares held by FP IV. Mr. Perlman is a member of our board of directors. The address of FP IV, FP IV-A, FP GP IV, and FP GP Management is One Letterman Drive, Building C – Suite 410, San Francisco, California 94129. Other than with respect to the number of shares of common stock issuable upon conversion of Preferred Stock, all information is based on a review of a Schedule 13D/A report filed by FP-IV, FP IV-A, FP GP IV and FP GP with the SEC on January 4, 2018.
(2) Reflects 2,000 shares of Series A Preferred Stock and 1,000 shares of Series B Preferred Stock held by Chrysalis Ventures II, L.P. (“CV II LP”), 573,535 shares of Common Stock and 594,156 shares of Common Stock into which such shares of Series A Preferred Stock and Series B Preferred Stock, respectively, would be convertible as of January 16, 2018, and 4,007,162 shares of Common Stock directly held by CV II LP as of January 8, 2018, according to a Schedule 13D report filed by CV II LP with the SEC on January 8, 2018. Chrysalis Partners II, LLC (“CP II LLC”) is the general partner of CV II LP, and as such may be deemed to have voting and dispositive power over the shares held by CV II LP. Investment and voting decisions with respect to the shares held by CV II LP are made by an advisory committee of CP II LLC that consists of David A. Jones, Jr., who is the chairman of our board of directors, Ralston W. Steenrod and Irv Bailey, each of whom is a member of CP II LLC. The address of CV II LP and CP II LLC is 101 South Fifth Street, Suite 1650, Louisville, KY 40202. Other than with respect to the number of shares of common stock issuable upon conversion of Preferred Stock, all information is based on a review of a Schedule 13D report filed by CV II LP and CP II LLC with the SEC on March 20, 2017.
(3) Great Point Partners I, LP (“GPP I LP”) is the sole manager and controlling member of GPP–Connecture, LLC (“GPPC”). Great Point Partners I GP, LLC (“GPP I GP”) is the general partner of GPP I LP and Great Point Partners, LLC (“Great Point”) is the investment manager of GPP I LP and by virtue of such status, Great Point may be deemed to be the beneficial owner of the shares held by GPPC. Each of Great Point, GPP I LP, GPP I GP and GPPC shares voting and dispositive power with respect to the shares held by GPPC. Each of Dr. Jeffrey R. Jay, M.D., as senior managing member of Great Point, and Mr. David Kroin, as special managing member of Great Point, has voting and dispositive power with respect to the shares held by GPPC and therefore may be deemed to be the beneficial owner of the shares held by GPPC. The address of GPPC, GPP I LP, GPP I GP, Great Point, Dr. Jay and Mr. Kroin is 165 Mason Street, 3rd Floor, Greenwich, CT 06830. All information is based on a review of a Schedule 13D report filed by of GPPC, GPP I LP, GPP I GP, Great Point, Dr. Jay and Mr. Kroin with the SEC on January 9, 2018.
(4) The address of Mr. Rahim is 1427 Lakewood Drive, Lake Forest, Illinois 60045. All information is based on a review of a Schedule 13G report filed by Mr. Rahim with the SEC on July 28, 2017.
(5) Includes an aggregate of 39,743 shares issuable upon the vesting of restricted stock units vesting within 60 days of January 16, 2018, and shares issuable upon the exercise of options exercisable within 60 days of January 16, 2018. Mr. Surges is our Chief Executive Officer and a member of our board of directors.
(6) Mr. Lindstrom is our Chief Financial Officer.
(7) Includes 41,662 shares issuable upon the exercise of options exercisable within 60 days of January 16, 2018. Mr. Estrada is our former Chief Financial Officer and current Executive Vice President, Corporate Development.
(8) Includes 182,089 shares issuable upon the exercise of options exercisable within 60 days of January 16, 2018. Mr. Granville is our Chief Delivery Officer.
(9) Mr. Ansay is a member of our board of directors.
(10) Ms. Capps is a member of our board of directors.
(11) Mr. Kusserow is a member of our board of directors.
(12) Mr. McEwen is a member of our board of directors.
(13) Mr. Thomas is a member of our board of directors.

 

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(14) Represents shares held by CV II LP and 57,696 shares of common stock held by the David A. Jones, Jr. Revocable Trust, of which Mr. Jones is a trustee. Mr. Jones is a member of the advisory committee of CP II LLC that makes investment and voting decisions with respect to the shares held by CV II LP and, by virtue of such status, may be deemed to be the beneficial owner of the shares held by CV II LP. Mr. Jones is the chairman of our board of directors.
(15) Reflects shares held by FP IV and FP IV-A. Mr. Perlman is an officer of FP GP Management and, by virtue of such status, may be deemed to be the beneficial owner of the shares held by FP IV and FP IV-A. Mr. Perlman is a member of our board of directors.
(16) Includes an aggregate of 272,878 shares issuable upon the vesting of restricted stock units vesting within 60 days of January 16, 2018, and shares issuable upon the exercise of options exercisable within 60 days of January 16, 2018.

Security Ownership of Parent, Merger Sub and Rollover Investors

Parent and Merger Sub do not directly own shares of capital stock of the Company. Information regarding the beneficial ownership of shares of capital stock by the Rollover Investors is set forth in the preceding table, except that Ralston W. Steenrod, a party to the Rollover Agreement and an affiliate of Chrysalis, owns 14,312 shares of common stock of the Company.

Following the Merger, it is expected that the FP Investors will own approximately 95% of the equity interests in Parent and Chrysalis and its affiliates will own approximately 5%, assuming that the Merger had been completed on January 4, 2018 and the Equity Commitment is funded entirely by the FP Investors. The actual interests of the Purchaser Filing Parties following completion of the Merger will be based on the Rollover Investors’ ownership of Common Stock and Preferred Stock as the date of completion. Actual interests may vary because of the impact of accrued and unpaid dividends on the number of shares of Common Stock into which the Preferred Stock held by each of the Rollover Investors is convertible. In addition, the post-closing interest of the FP Investors will be reduced to the extent the FP Investors assign a portion of the Equity Financing commitment to other parties.

Transactions in Common Stock

Transactions During the Past 60 Days

Other than the Merger Agreement and agreements entered into in connection therewith, including the Voting Agreement discussed in “Voting and Support Agreement” beginning on page 94 and the Rollover Agreement, the Company, Parent, Merger Sub and their respective affiliates have not conducted any transactions with respect to shares of the Common Stock during the past 60 days, except as follows:

On January 4, 2018, the Board granted RSUs representing 300,000 shares of Common Stock to Brian Lindstrom, the Company’s Chief Financial Officer, pursuant to the terms of the employment agreement, effective as of December 4, 2017, by and between the Company and Brian Lindstrom. The RSUs granted to Mr. Lindstrom will not vest upon completion of the Merger and will be canceled for no consideration.

The following executive officers of the Company satisfied the statutory minimum federal, state and local withholding tax obligation arising in connection with the vesting of RSUs by electing to have the Company withhold shares of Common Stock otherwise issuable under the award:

 

Name

   Date      Shares      Price Per Share  

Jeffery A. Surges

     01/12/2018        2,165      $ 0.34  
     12/12/2017        2,021      $ 0.13  
     11/12/2017        2,021      $ 0.23  

Vincent E. Estrada

     01/1/2018        15,665      $ 0.16  

 

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Transactions in Common Stock by the Company During the Past Two Years

Under the Company Plans, participants may satisfy the statutory minimum federal, state and local withholding tax obligation arising in connection with plan awards by electing to have the Company withhold shares of common stock otherwise issuable under the award. The following table provides information about such withholding, which is deemed an issuer repurchase, during the past two years:

 

Period

   Total Number
of Shares
Purchased
     Range of
Prices Paid
($)
     Average Price
Paid Per
Share ($)
 

2018

        

First Quarter (through January 16, 2018)

     18,384        0.16–0.34        0.18  

2017

        

Fourth Quarter

     6,063        0.13–0.64        0.33  

Third Quarter

     20,759        0.58–0.69        0.62  

Second Quarter

     5,782        0.82–1.03        0.90  

First Quarter

     7,352        1.69–2.09        1.95  

2016

        

Fourth Quarter

     25,269        1.73–1.90        1.89  

Third Quarter

     18,423        2.33–2.41        2.41  

Second Quarter

     6,463        2.31–2.43        2.35  

First Quarter

     1,036        3.20        3.20  

Other than the purchases listed above, there have been no purchases of Common Stock by the Company during the past two years.

Transactions in Common Stock by the Rollover Investors, Parent and Merger Sub During the Past Two Years

Except as contemplated by the Voting Agreement, the Rollover Agreement and the Private Placement Transactions, during the past two years, none of the Rollover Investors, Parent, Merger Sub, or any of their respective officers or directors have purchased or acquired any shares of Common Stock, except as follows:

Between June 10, 2016, and September 13, 2016, the FP Investors acquired shares of Common Stock in market purchases as set forth below:

 

Date

   Number of
Shares
     Amount
Paid ($)
     Range of Prices
Paid ($)
   Weighted
Average Price
Per Share ($)
 

June 10, 2016

     1,533,366        1,947,375      1.25–1.67      1.27  

June 13, 2016

     16,920        28,256      1.67      1.67  

August 11, 2016

     1,558,000        2,570,700      1.65      1.65  

August 23, 2016

     275,800        455,070      1.65      1.65  

August 24, 2016

     113,501        187,277      1.645–1.65      1.65  

August 25, 2016

     54,292        89,582      1.635–1.65      1.65  

September 9, 2016

     53,173        86,715      1.63–1.65      1.6308  

September 12, 2016

     600        990      1.65      1.65  

September 13, 2016

     18,370        31,064      1.65–1.70      1.691  

 

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Between June 10, 2016 and June 13, 2016, certain affiliates of Chrysalis acquired shares of Common Stock in market purchases as set forth below:

 

Date

   Purchaser    Number of
Shares
     Amount
Paid
     Price Per
Share
 

June 10, 2016

   David A. Jones, Jr.      53,987        87,999        1.63  

June 10, 2016

   Ralston W. Steenrod      7,362        11,558        1.57  

June 10, 2016

   Ralston W. Steenrod      6,950        12,997        1.87  

June 13, 2016

   David A. Jones, Jr.      3,709        6,454        1.74  

Go-Shop Financial Advisor

The Special Committee has retained Raymond James to serve as its financial advisor in soliciting proposals during the Go-Shop Period. The Company has agreed to pay Raymond James a retainer of $75,000 to solicit proposals during the Go-Shop Period and will pay Raymond James an additional fee if a successful “superior proposal” is accepted by the Special Committee. The Special Committee did not request, and Raymond James has not and will not be providing, any opinion as to the fairness of the Merger Consideration to be paid to the Non-Rolling Stockholders in the Merger or the fairness of the Merger Consideration to be paid in any “superior proposal” or any valuation or financial analysis of the Company for the purpose of assessing the fairness of such consideration.

 

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IMPORTANT INFORMATION REGARDING THE PURCHASER FILING PARTIES

This section sets forth certain information about the Purchaser Filing Parties. During the past five years, none of the persons listed in this section has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). In addition, during the past five years, none of the persons listed in this section has been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.

Parent, Merger Sub and FP Healthcare Intermediate, LLC

Merger Sub. The following table sets forth the name, present principal occupation or employment and material occupations, positions, offices or employments for the past five years of each officer and director of Merger Sub. Unless otherwise indicated, the current business address of each person is c/o Francisco Partners, One Letterman Drive, Building C—Suite 410, San Francisco, California 94129, and the telephone number is (415) 418-2900. Merger Sub is a Delaware corporation, and its principal business is to engage in the transactions contemplated by the Merger Agreement. The sole stockholder of Merger Sub is FP Healthcare Intermediate, LLC.

 

Name

   Citizenship   

Present Principal Occupation or Employment

(all have served five years or more in present position

unless otherwise noted)

Ezra Perlman

Director; President

   U.S.    Co-President of Francisco Partners since January 2015. Mr. Perlman was a Partner of Francisco Partners from June 2012 until December 2014.

Leonid Rozkin

Director; Vice President, Secretary and Treasurer

   U.S.    Vice President of Francisco Partners since June 2016. Mr. Rozkin was an Associate at Francisco Partners from June 2012 to June 2016.

FP Healthcare Intermediate, LLC. The following table sets forth the name, present principal occupation or employment and material occupations, positions, offices or employments for the past five years of each officer and director of FP Healthcare Intermediate LLC (“Intermediate”). Unless otherwise indicated, the current business address of each person is c/o Francisco Partners, One Letterman Drive, Building C—Suite 410, San Francisco, California 94129, and the telephone number is (415) 418-2900. Intermediate is a Delaware limited liability company, and its principal business is to hold the capital stock of Merger Sub. Following the consummation of the Merger, Intermediate will own all of the outstanding capital stock of the Company. The sole member of Intermediate is Parent.

 

Name

   Citizenship   

Present Principal Occupation or Employment

(all have served five years or more in present position

unless otherwise noted)

Ezra Perlman

Manager

   U.S.    Co-President of Francisco Partners since January 2015. Mr. Perlman was a Partner of Francisco Partners from June 2012 until December 2014.

Leonid Rozkin

Manager

   U.S.    Vice President of Francisco Partners since June 2016. Mr. Rozkin was an Associate at Francisco Partners from June 2012 to June 2016.

Parent. The following table sets forth the name, present principal occupation or employment and material occupations, positions, offices or employments for the past five years of each officer and director of Parent. Unless otherwise indicated, the current business address of each person is c/o Francisco Partners, One Letterman Drive, Building C—Suite 410, San Francisco, California 94129, and the telephone number is (415) 418-2900.

 

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Parent is a Delaware corporation and its principal business is to engage in the transactions contemplated by the Merger Agreement. As of the date of this Proxy Statement, Parent has not issued any capital stock and is controlled by its directors. Following the consummation of the Merger and the Rollover transactions, Parent will be owned by certain of the Purchaser Filing Parties as described in “Important Information Regarding Connecture—Security Ownership of Management and Certain Beneficial Owners—Security Ownership of Parent, Merger Sub and Rollover Investors.”

 

Name

   Citizenship   

Present Principal Occupation or Employment
(all have served five years or more in present position

unless otherwise noted)

Ezra Perlman

Director; President

   U.S.    Co-President of Francisco Partners since January 2015. Mr. Perlman was a Partner of Francisco Partners from June 2012 until December 2014.

Leonid Rozkin

Director; Vice President, Secretary and Treasurer

   U.S.    Vice President of Francisco Partners since June 2016. Mr. Rozkin was an Associate at Francisco Partners from June 2012 to June 2016.

The FP Investors

Each of Francisco Partners IV, L.P. and Francisco Partners IV-A, L.P. are Cayman Islands exempted limited partnerships. The principal business of the FP Investors is making equity and other types of investments. Each of the FP Investors is controlled by its general partner, Francisco Partners GP IV, L.P., a Cayman Islands exempted limited partnership (“FP GP IV”). FP GP IV is controlled by its general partner, Francisco Partners GP IV Management Limited, a Cayman Islands exempted company (“FP GP Management”). The following table sets forth the name, present principal occupation or employment and material occupations, positions, offices or employments for the past five years of each officer and director of FP GP Management. Unless otherwise indicated, the current business address of each person is c/o Francisco Partners, One Letterman Drive, Building C—Suite 410, San Francisco, California 94129, and the telephone number is (415) 418-2900. An investment committee composed of Dipanjan Deb, David R. Golob, Keith Geeslin and Ezra Perlman share voting and dispositive power with respect to the securities beneficially held by FP GP Management (including, following the consummation of the Merger, all of the FP Investors’ equity interest in Parent).

 

Name

   Citizenship   

Present Principal Occupation or Employment
(all have served five years or more in present position

unless otherwise noted)

Dipanjan Deb

Director

   U.S.    CEO of Francisco Partners since March 2, 2015, and Managing Partner of Francisco Partners from September 5, 2005.

Tom Ludwig

Director

   U.S.    COO of Francisco Partners since January 1, 2010.

Ezra Perlman

Managing Director

   U.S.    Co-President of Francisco Partners since January 2015. Mr. Perlman was a Partner of Francisco Partners from June 2012 until December 2014.

Chrysalis

Chrysalis is a Delaware limited partnership. The principal business of Chrysalis is that of a private investment partnership engaging in the purchase and sale of securities for its own account. Chrysalis is controlled by its general partner, Chrysalis Partners II, LLC, a Delaware limited liability company (“CP II”). CP II is the general partner of Chrysalis and as such may be deemed to have voting and dispositive power over the shares held by Chrysalis. Investment and voting decisions with respect to the shares held by Chrysalis are made by an investment committee of CP II that consis