PREM14A 1 d515584dprem14a.htm PREM14A PREM14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

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

Check the appropriate box:

 

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

ENTELLUS MEDICAL, INC.

(Name of Registrant as Specified in its Charter)

N/A

(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.
  Title of each class of securities to which transaction applies:
   

Common stock, par value $0.001 per share.

  Aggregate number of securities to which transaction applies:
   

29,874,194 shares of common stock subject to the transaction (consisting of (i) 25,647,935 shares of common stock; (ii) 283,079 shares of common stock underlying restricted stock unit awards; (iii) 3,905,382 shares of common stock underlying stock options with exercise prices below $24.00; and (iv) 37,798 shares of common stock underlying the warrants issued in favor of Oxford Finance LLC with warrant prices below $24.00, in each case outstanding as of January 2, 2018.

  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 filing fee was determined by multiplying 0.0001245 by the underlying value of the transaction of $664,078,824.14, which has been calculated as the sum of: (i) 25,647,935 shares of common stock issued and outstanding, multiplied by $24.00 per share; (ii) 283,079 shares of common stock issuable upon settlement of restricted stock unit awards, multiplied by $24.00 per share; (iii) 3,905,382 shares of common stock issuable upon exercise of stock options with exercise prices below $24.00, multiplied by $10.53 per share, which is the excess of $24.00 over $13.47, the weighted-average exercise price of such stock options; and (iv) 37,798 shares of common stock underlying the warrants issued in favor of Oxford Finance LLC with warrant prices below $24.00, multiplied by $16.16 per share, which is the excess of $24.00 over $7.84, the warrant price of such warrants.

  Proposed maximum aggregate value of transaction:
   

$664,078,824.14

  Total fee paid:
   

$82,677.81

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

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


Table of Contents

PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION—JANUARY 8, 2018

 

LOGO

ENTELLUS MEDICAL, INC.

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

                    , 2018

Dear Fellow Stockholders:

You are cordially invited to attend a special meeting of the stockholders of Entellus Medical, Inc., a Delaware corporation (referred to as “Entellus,” the “Company,” “we” or “our”), to be held on                     , 2018, at                     , local time, at Fox Rothschild LLP, 222 South Ninth Street, Suite 2000, Minneapolis, Minnesota 55402.

On December 7, 2017, we entered into an Agreement and Plan of Merger (as it may be amended from time to time, referred to as the “Merger Agreement”) with Stryker Corporation, a Michigan corporation (referred to as “Stryker”), and Explorer Merger Sub Corp., a Delaware corporation and a direct or indirect wholly owned subsidiary of Stryker (referred to as “Merger Sub”). Pursuant to and subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into Entellus, with Entellus continuing as the surviving corporation and a direct or indirect wholly owned subsidiary of Stryker (referred to as the “Merger”).

At the special meeting, you will be asked to consider and vote on a proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger (referred to as the “Merger Proposal”). The affirmative vote of the holders of a majority of the shares of Entellus common stock issued and outstanding as of the close of business on                     , 2018, the record date for the determination of stockholders entitled to vote at the special meeting (referred to as the “Record Date”), is required to approve the Merger Proposal. At the special meeting, you will also be asked to consider and vote on a proposal to approve the adjournment of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the Merger Proposal at the time of the special meeting (referred to as the “Adjournment Proposal”).

If the Merger is consummated, you will be entitled to receive $24.00 per share in cash, without interest, subject to any applicable withholding taxes, for each share of Entellus common stock that you own (unless you have properly exercised and perfected and not lost or withdrawn your appraisal rights under Delaware law with respect to such shares). Such merger consideration represents a premium of approximately 50% over the Entellus common stock closing price of $16.01 on December 6, 2017, the last trading day before the public announcement that Entellus entered into the Merger Agreement.

The Board of Directors of Entellus (the “Board”) has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of Entellus and its stockholders and has unanimously approved the Merger Agreement and the transactions contemplated by the Merger Agreement. The Board unanimously recommends that Entellus stockholders vote “FOR” the Merger Proposal. In addition, the Board unanimously recommends that Entellus stockholders vote “FOR” the Adjournment Proposal.

On December 7, 2017, certain stockholders of Entellus, including certain directors and executive officers of Entellus, in their respective capacities as holders of shares or other equity interests of Entellus, and certain of


Table of Contents

their affiliates owning shares of Entellus common stock, collectively representing ownership of approximately         % of the outstanding shares of Entellus common stock as of the Record Date, each entered into a voting agreement with Stryker pursuant to which, among other things and subject to the terms and conditions therein, each of them has agreed to vote their shares of Entellus common stock in favor of the Merger Proposal.

We encourage you to read the accompanying proxy statement and its appendices, including the Merger Agreement, carefully and in their entirety. You may also obtain more information about Entellus from documents we file with the Securities and Exchange Commission from time to time.

Your vote is very important, regardless of the number of shares of Entellus common stock that you own. We cannot consummate the Merger unless the Merger Proposal is approved by the affirmative vote of the holders of a majority of the shares of Entellus common stock issued and outstanding as of the close of business on the Record Date. The failure of any stockholder to vote his, her or its shares of Entellus common stock in person by ballot at the special meeting, to submit a signed proxy card or to grant a proxy electronically over the Internet or by telephone will have the same effect as a vote “AGAINST” the Merger Proposal. If you hold your shares in “street name,” the failure to instruct your bank, broker or other nominee on how to vote your shares of Entellus common stock will have the same effect as a vote “AGAINST” the Merger Proposal.

Whether or not you plan to attend the special meeting in person, please complete, sign, date and return the enclosed proxy card in the accompanying postage prepaid envelope as promptly as possible. You also may grant your proxy by using the toll-free telephone number, or by accessing the Internet website, specified on your proxy card. If you have any questions or need assistance voting your shares of Entellus common stock, please contact:

 

LOGO

105 Madison Avenue

New York, New York 10016

proxy@mackenziepartners.com

Call Collect: (212) 929-5500

or

Toll-Free (800) 322-2885

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

 

Very truly yours,
Brian E. Farley
Chairman of the Board

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the transactions described in this document, including the Merger, or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.

PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY.

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


Table of Contents

PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION—JANUARY 8, 2018

 

LOGO

ENTELLUS MEDICAL, INC.

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON                     , 2018

 

 

To the Stockholders of Entellus Medical, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Entellus Medical, Inc., a Delaware corporation (referred to as “Entellus,” “we” or “our”), will be held on                     , 2018, at             , local time, at Fox Rothschild LLP, 222 South Ninth Street, Suite 2000, Minneapolis, Minnesota 55402, for the following purposes:

 

  1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger (as it may be amended from time to time, and which we refer to as the “Merger Agreement”), dated December 7, 2017, by and among Stryker Corporation, Explorer Merger Sub Corp. and Entellus, and approve the transactions contemplated thereby, including the merger of Explorer Merger Sub Corp. with and into Entellus, with Entellus continuing as the surviving corporation and a direct or indirect wholly owned subsidiary of Stryker (referred to as the “Merger”); and

 

  2. To consider and vote on a proposal to approve the adjournment of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger, at the time of the special meeting.

Only stockholders of record as of the close of business on                     , 2018, the record date for the determination of stockholders entitled to vote at the special meeting (referred to as the “Record Date”) are entitled to notice of the special meeting and to vote at the special meeting or at any adjournment or postponement thereof. These items of business are described in the proxy statement that follows this notice. A list of such stockholders will be available during normal business hours at our principal executive offices at 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447 at least 10 days prior to the special meeting and on the day of the special meeting for examination by any stockholder registered on our stock ledger as of the Record Date for any purpose germane to the special meeting.

The Board unanimously recommends that you vote:

 

  1. “FOR” the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger (referred to as the “Merger Proposal”); and

 

  2. “FOR” the proposal to approve the adjournment of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the proposal to adopt the Merger Agreement and the transactions contemplated thereby, including the Merger, at the time of the special meeting (referred to as the “Adjournment Proposal”).


Table of Contents

Your vote is very important, regardless of the number of shares of Entellus common stock you own. The affirmative vote of the holders of a majority of the shares of Entellus common stock issued and outstanding as of the close of business on the Record Date is required to approve the Merger Proposal. The affirmative vote of the holders of our common stock of a majority of the votes cast (excluding abstentions), either in person or by proxy, and entitled to vote at the special meeting, is required to approve the Adjournment Proposal.

The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will have the same effect as a vote “AGAINST” the Merger Proposal, but will not have any effect on the Adjournment Proposal. If you hold your shares in “street name,” the failure to instruct your bank, broker or other nominee on how to vote your shares will result in a “broker non-vote” of such shares and will have the same effect as a vote “AGAINST” the Merger Proposal, but will not have any effect on the Adjournment Proposal. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal but will not have any effect on the Adjournment Proposal.

The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of Entellus common stock issued and outstanding as of the close of business on the Record Date will constitute a quorum for the transaction of business at the meeting. Abstentions, if any, will be counted as present for purposes of determining the existence of a quorum. Broker non-votes will not be counted as present for purposes of determining the existence of a quorum.

Under Delaware law, stockholders who do not vote in favor of the Merger Proposal will have the right to seek appraisal of the fair value of their shares of Entellus common stock as determined by the Delaware Court of Chancery if the Merger is consummated, but only if they submit a written demand for such an appraisal before the vote on the Merger Proposal and comply with the other Delaware law procedures explained in the accompanying proxy statement.

You may revoke your proxy at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement. If you are a stockholder of record, you may revoke your proxy by attending the meeting and voting in person.

By Order of the Board of Directors,

Brent A. Moen

Chief Financial Officer and Secretary

Plymouth, Minnesota

                    , 2018

 

YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. IF YOU DO NOT PLAN TO ATTEND THE MEETING, PLEASE BE SURE YOU ARE REPRESENTED AT THE MEETING BY COMPLETING, SIGNING, DATING AND RETURNING YOUR PROXY IN THE REPLY ENVELOPE PROVIDED.


Table of Contents

YOUR VOTE IS VERY IMPORTANT

If your shares are registered directly in your name: If you are a stockholder of record, you may vote your shares through the Internet, by telephone or by mail as described below. Please help us save time and postage costs by voting through the Internet or by telephone. Each method is generally available 24 hours a day and will ensure that your vote is confirmed and posted immediately. To vote:

 

  1. BY INTERNET

a. Go to the website at www.proxyvote.com, 24 hours a day, 7 days a week, until 11:59 p.m. Eastern Time on                     , 2018, the day preceding the special meeting.

b. Please have your proxy card available to verify your identity and create an electronic ballot.

c. Follow the simple instructions provided.

 

  2. BY TELEPHONE

a. On a touch-tone telephone, call toll-free 1-800-690-6903, 24 hours a day, 7 days a week, until 11:59 p.m. Eastern Time on                     , 2018, the day preceding the special meeting.

b. Please have your proxy card available to verify your identity.

c. Follow the simple instructions provided.

 

  3. BY MAIL

a. Mark, sign and date your proxy card.

b. Return it prior to                     , 2018, the day preceding the special meeting, in the postage-paid envelope that will be provided.

If your shares are held in the name of a bank, broker or other nominee: You will receive instructions on how to vote from the bank, broker or other nominee. You must follow the instructions of such bank, broker or other nominee in order for your shares to be voted. Telephone and Internet voting also may be offered to stockholders owning shares through certain banks and brokers. As a beneficial owner, you have the right to direct your bank, broker or other nominee on how to vote the shares in your account. Your bank, broker or other nominee cannot vote on either of the proposals, including the Merger Proposal, without your instructions.

If you fail to return your proxy card, grant your proxy electronically over the Internet or by telephone or vote by ballot in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. If you hold your shares through a bank, broker or other nominee, you must obtain from such nominee a valid “legal proxy” issued in your name in order to vote in person at the special meeting.


Table of Contents

We encourage you to read the accompanying proxy statement, including all documents incorporated by reference into the accompanying proxy statement, and its appendices carefully and in their entirety. If you have any questions concerning the Merger, the special meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or require assistance in submitting your proxy or voting your shares of Entellus common stock, please contact our proxy solicitor or us at the contact information provided below:

 

LOGO

105 Madison Avenue

New York, New York 10016

proxy@mackenziepartners.com

Call Collect: (212) 929-5500

or

Toll-Free (800) 322-2885

or

Entellus Medical, Inc.

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

Attention: Investor Relations

ir@entellusmedical.com


Table of Contents

TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

     1  

SUMMARY

     11  

THE COMPANIES

     22  

THE SPECIAL MEETING

     23  

Date, Time and Place of the Special Meeting

     23  

Purpose of the Special Meeting

     23  

Record Date; Shares Entitled to Vote; Quorum

     23  

Vote Required; Abstentions and Broker Non-Votes

     24  

Shares Held by Directors and Executive Officers

     24  

Voting; Proxies

     24  

Revocability of Proxies

     26  

Abstentions

     26  

Adjournments and Postponements

     26  

Board Recommendation

     27  

Solicitation of Proxies

     27  

Anticipated Date of Consummation of the Merger

     27  

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting to be Held on                 , 2018

     27  

Householding of Special Meeting Materials

     27  

Questions and Additional Information

     28  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     29  

THE MERGER

     31  

Certain Effects of the Merger on Entellus

     31  

Effect on Entellus if the Merger is Not Consummated

     31  

Merger Consideration

     32  

Background of the Merger

     32  

Recommendation of the Board and Reasons for the Merger

     41  

Fairness Opinion of Entellus’ Financial Advisor

     46  

Certain Financial Forecasts

     56  

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

     62  

Treatment of Oxford Warrants

     66  

Voting Agreements

     66  

Financing of the Merger

     66  

Closing and Effective Time of the Merger

     66  

Appraisal Rights

     67  

U.S. Federal Income Tax Consequences of the Merger

     71  

Regulatory Approvals Required for the Merger

     73  

Delisting and Deregistration of Entellus Common Stock

     74  

THE MERGER AGREEMENT

     75  

Explanatory Note Regarding the Merger Agreement

     75  

When the Merger Becomes Effective

     75  

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

     75  

Effect of the Merger on Entellus Common Stock

     76  

Treatment of Equity Awards; ESPP

     76  

Treatment of Oxford Warrants

     76  

Payment for Entellus Common Stock

     77  

Representations and Warranties

     77  

Conduct of Business Pending the Merger

     81  

Other Covenants and Agreements

     83  

 

i


Table of Contents
     Page  

Conditions to the Merger

     91  

Termination

     93  

Termination Fee; Certain Stryker Expenses

     94  

Expenses Generally

     95  

Specific Performance

     95  

Amendments; Waiver

     95  

Governing Law and Jurisdiction

     95  

PROPOSAL NO. 1: APPROVAL OF THE MERGER PROPOSAL

     97  

The Merger Proposal

     97  

Vote Required

     97  

Board Recommendation

     97  

PROPOSAL NO. 2: ADJOURNMENT OF THE SPECIAL MEETING

     98  

The Adjournment Proposal

     98  

Vote Required

     98  

Board Recommendation

     98  

MARKET PRICES AND DIVIDEND DATA

     99  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     101  

FUTURE STOCKHOLDER PROPOSALS

     105  

WHERE YOU CAN FIND MORE INFORMATION

     106  

MISCELLANEOUS

     108  

APPENDICES

 

APPENDIX A—AGREEMENT AND PLAN OF MERGER

     A-1  

APPENDIX B—SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE

     B-1  

APPENDIX C—FAIRNESS OPINION OF PIPER JAFFRAY & CO.

     C-1  

APPENDIX D—FORM OF VOTING AGREEMENT

     D-1  

 

ii


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to briefly address some commonly asked questions you may have regarding the special meeting, the Merger Agreement (as defined below) and the transactions contemplated by the Merger Agreement, by which Explorer Merger Sub Corp. will merge with and into Entellus (as defined below), with Entellus continuing as the surviving corporation and a direct or indirect wholly owned subsidiary of Stryker Corporation (referred to as the “Merger”). These questions and answers may not address all questions that may be important to you as a stockholder of Entellus. Please refer to the “Summary” beginning on page 11 of this proxy statement and the more detailed information contained elsewhere in this proxy statement, the appendices to this proxy statement and the documents incorporated by reference or referred to in this proxy statement, which you should read carefully and in their entirety.

Except as otherwise specifically noted in this proxy statement or as context otherwise requires, “Entellus,” “we,” “our,” “us,” the “Company” and similar words in this proxy statement refer to Entellus Medical, Inc. including, in certain cases, our subsidiaries. Throughout this proxy statement we refer to Stryker Corporation as “Stryker” and Explorer Merger Sub Corp. as “Merger Sub.” In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger, dated December 7, 2017, as it may be amended from time to time, by and among Stryker, Merger Sub and Entellus, as the “Merger Agreement.”

 

Q: Why am I receiving these materials?

 

A: On December 7, 2017, Entellus entered into the Merger Agreement providing for the merger of Merger Sub, a direct or indirect wholly owned subsidiary of Stryker, with and into Entellus, with Entellus continuing as the surviving corporation and a direct or indirect wholly owned subsidiary of Stryker. The Board of Directors of Entellus (referred to as the “Board”) is furnishing this proxy statement and form of proxy card to the holders of Entellus common stock in connection with the solicitation of proxies by the Board in favor of the proposal to adopt the Merger Agreement and the transactions contemplated thereby, including the Merger, and in favor of the proposal to approve the adjournment of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger, at the time of the special meeting.

 

Q: What is the proposed transaction?

 

A: The proposed transaction is the acquisition of Entellus by Stryker through the merger of Merger Sub with and into Entellus pursuant to the Merger Agreement. Following the date and time the certificate of merger is duly filed with the Secretary of State of the State of Delaware (or at such later date and time as Entellus and Stryker may agree and specify in the certificate of merger) (referred to as the “Effective Time”), Entellus will be privately held as a direct or indirect wholly owned subsidiary of Stryker. If the Merger is consummated, each share of Entellus common stock will automatically be cancelled and you will not own any shares of the capital stock of the surviving corporation.

 

Q: What will I receive if the Merger is consummated?

 

A:

Upon consummation of the Merger, you will be entitled to receive $24.00 in cash, without interest (referred to as the “Merger Consideration”), subject to any applicable withholding taxes, for each share of Entellus common stock that you own, unless you do not vote in favor of the Merger Proposal and you are entitled to demand and have properly made a demand for appraisal and do not thereafter fail to perfect, or do not effectively withdraw or otherwise lose your right to appraisal in accordance with Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) with respect to such shares. For example, if you

 



 

1


Table of Contents
  own 100 shares of our common stock, you will receive $2,400.00 in cash in exchange for your shares of our common stock (less any amount that may be withheld with respect to any applicable withholding taxes). You will not be entitled to receive shares in the surviving corporation or in Stryker as a result of the Merger.

 

Q: How does the Merger Consideration compare to the market price of Entellus common stock prior to the public announcement of the Merger Agreement? How does the Merger Consideration compare to the market price of Entellus common stock as of a recent trading date?

 

A: The Merger Consideration represents a premium of approximately 50% over the closing Entellus common stock price on the Nasdaq Global Market of $16.01 on December 6, 2017, the last trading day before the public announcement that Entellus entered into the Merger Agreement. On             , 2018, the last practicable day before the printing of this proxy statement, the closing price of Entellus common stock on the Nasdaq Global Market was $         per share. You are encouraged to obtain current market quotations for Entellus common stock.

 

Q: When and where is the special meeting?

 

A: The special meeting will take place on                     , 2018 at Fox Rothschild LLP, 222 South Ninth Street, Suite 2000, Minneapolis, Minnesota 55402, at             , local time.

 

Q: What am I being asked to vote on at the special meeting?

 

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

 

    To adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger (referred to as the “Merger Proposal”); and

 

    To approve the adjournment of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the proposal to adopt the Merger Agreement at the time of the special meeting (referred to as the “Adjournment Proposal”).

 

Q: Who is entitled to vote at the special meeting?

 

A: Only holders of record of Entellus common stock as of the close of business on                     , 2018 (referred to as the “Record Date”) will be entitled to notice of, and to vote at, the special meeting. As of the close of business on the Record Date, there were              shares of Entellus common stock outstanding. Each outstanding share of Entellus common stock on that date will entitle its holder to one vote, in person or by proxy, on all matters to be voted on at the special meeting.

 

Q: What vote is required to approve the proposal to adopt the Merger Agreement?

 

A: The affirmative vote of the holders of a majority of the outstanding shares of Entellus common stock issued and outstanding is required to approve the Merger Proposal.

The failure to vote your shares of common stock by submitting a signed proxy card, granting a proxy electronically over the Internet or by telephone or voting in person by ballot at the special meeting will have the same effect as a vote “AGAINST” the Merger Proposal. If you hold your shares in “street name,” the failure to instruct your bank, broker or other nominee on how to vote your shares of Entellus common stock will result in a broker non-vote and will have the same effect as a vote “AGAINST” the Merger Proposal. Abstentions by you or your bank, broker or other nominee will have the same effect as a vote “AGAINST” the Merger Proposal.

 



 

2


Table of Contents

Pursuant to voting agreements entered into on December 7, 2017, certain stockholders of Entellus, including certain directors and officers of Entellus in their respective capacities as holders of common stock or other equity interests of Entellus, agreed, subject to certain conditions, among other things, to vote a total of 8,052,987 shares of our common stock or approximately     % of the outstanding shares of our common stock entitled to vote at the special meeting as of the Record Date, “FOR” the Merger Proposal.

 

Q: What factors did the Board consider in deciding to enter into the Merger Agreement and recommending the approval of the Merger Proposal and Adjournment Proposal?

 

A: In reaching its decision to approve the Merger Agreement and the transactions contemplated thereby, including the Merger, and to recommend our stockholders approve the Merger Proposal and the Adjournment Proposal, the Board consulted with our management, as well as our legal and financial advisors, and considered the terms of the proposed Merger Agreement and the transactions contemplated thereby, including the Merger, as well as other alternatives. For a more detailed description of these factors, see “The Merger—Recommendation of the Board and Reasons for the Merger” beginning on page 41 of this proxy statement.

 

Q: What is a quorum and how many shares are needed to constitute a quorum?

 

A: A quorum of stockholders is the presence of stockholders holding the minimum number of shares necessary to transact business at the special meeting. The holders of a majority of the shares of our common stock issued and outstanding and entitled to vote at the special meeting, either present in person or represented by proxy, will constitute a quorum at the special meeting. If a quorum is not present, then under our Amended and Restated Bylaws, (i) the chairperson of the meeting or (ii) the affirmative vote of a majority of the shares of our common stock represented at the special meeting, either in person or by proxy, and entitled to vote at the meeting, may adjourn the meeting from time to time until a quorum is present or represented.

If you submit a signed proxy card, grant a proxy electronically over the Internet or by telephone, or submit a ballot in person at the special meeting (regardless of whether you indicate how you wish to vote), your shares of Entellus common stock will be counted for purposes of determining the presence of a quorum. If you hold your shares in “street name,” the failure to instruct your bank, broker or other nominee on how to vote your shares of Entellus common stock will result in a broker non-vote and such shares will not be counted for purposes of determining the presence of a quorum. Abstentions by you or your bank, broker or other nominee will be counted for purposes of determining the presence of a quorum.

 

Q: What vote is required to approve the proposal to approve the adjournment of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies?

 

A: Approval of the Adjournment Proposal requires the affirmative vote of the holders of our common stock representing a majority of the votes cast (excluding abstentions), either in person or by proxy, and entitled to vote at the special meeting.

The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will not have any effect on the Adjournment Proposal. If you hold your shares in “street name,” the failure to instruct your bank, broker or other nominee on how to vote your shares will result in a broker non-vote and will not have any effect on the Adjournment Proposal. Abstentions will not have any effect on the Adjournment Proposal.

 

Q: How does the Board recommend that I vote?

 

A:

The Board, after considering the various factors described under “The Merger—Recommendation of the Board and Reasons for the Merger” beginning on page 41 of this proxy statement, unanimously determined

 



 

3


Table of Contents
  that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of Entellus and its stockholders, and directed that the adoption of the Merger Agreement be submitted to a vote of our stockholders.

The Board unanimously recommends that you vote “FOR” the Merger Proposal and “FOR” the Adjournment Proposal.

 

Q: What do I need to do now? How do I vote my shares of Entellus common stock?

 

A: We encourage you to read this proxy statement, the appendices to this proxy statement, including the Merger Agreement, and the documents we include by reference and refer to in this proxy statement carefully and consider how the Merger affects you. Your vote is very important. If you are a stockholder of record (that is, if your shares of common stock are registered in your name with our transfer agent, Computershare Trust Company, N.A.), there are four ways to vote:

 

    by attending the special meeting and voting in person by ballot;

 

    by visiting the Internet at the address on your proxy card and submitting your proxy card;

 

    by calling toll-free (within the U.S. or Canada) at the phone number on your proxy card and submitting your proxy; or

 

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

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” each of the Merger Proposal and the Adjournment Proposal, if necessary or appropriate to solicit additional proxies.

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of common stock, and to confirm that your voting instructions have been properly recorded when voting electronically over the Internet or by telephone. Please be aware that, although there is no charge for voting your shares, if you vote electronically over the Internet or by telephone, you may incur costs such as telephone and Internet access charges for which you will be responsible. Even if you plan to attend the special meeting in person, you are strongly encouraged to vote your shares of common stock by proxy.

If your shares are held in “street name” through a bank, broker or other nominee, you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting “AGAINST” the Merger Proposal.

 

Q: What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A: If your shares are registered directly in your name with our transfer agent, Computershare Trust Company N.A., you are considered, with respect to those shares, to be the “stockholder of record.” In this case, this proxy statement and your proxy card have been sent directly to you by or on behalf of Entellus.

If your shares are held through a bank, broker or other nominee, you are considered the “beneficial owner” of such shares of Entellus common stock and are considered to hold them in “street name.” In that case, this proxy statement has been forwarded to you by your bank, broker or other nominee who is considered, with respect to those shares, to be the stockholder of record. As the beneficial owner, you have the right to direct your bank, broker or other nominee on how to vote your shares by following their instructions for voting. You are also invited to attend the special meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid “legal proxy” from your bank, broker or other nominee.

 



 

4


Table of Contents
Q: Will my shares of Entellus common stock held in “street name” or another form of record ownership be combined for voting purposes with shares I hold as the stockholder of record?

 

A: No. Because any shares of Entellus common stock you may hold in “street name” will be deemed to be held by a different stockholder than any shares of Entellus common stock you hold as the stockholder of record, any shares of Entellus common stock held in “street name” will not be combined for voting purposes with shares of Entellus common stock you hold as the stockholder of record. Similarly, if you own shares of Entellus common stock in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and will need to sign and return, a separate proxy card for those shares of Entellus common stock because they are held in a different form of record ownership. Shares of Entellus common stock held by a corporation or business entity must be voted by an authorized officer of the entity. Shares of Entellus common stock held in an individual retirement account must be voted under the rules governing the account.

 

Q: If I hold my shares of Entellus common stock in “street name,” will my bank, broker or other nominee vote my shares for me on the proposals to be considered at the special meeting?

 

A: Not without your direction. Your bank, broker or other nominee will only be permitted to vote your shares of Entellus common stock on any “non-routine” proposal if you instruct your bank, broker or other nominee on how to vote. Under applicable stock exchange rules, banks, brokers or other nominees have the discretion to vote your shares on routine matters if you fail to instruct your bank, broker or other nominee on how to vote your shares of Entellus common stock with respect to such matters. The proposals in this proxy statement are non-routine matters, and banks, brokers and other nominees therefore cannot vote on these proposals without your instructions. Therefore, it is important that you instruct your bank, broker or other nominee on how you wish to vote your shares.

You should follow the procedures provided by your bank, broker or other nominee to instruct them, as applicable, to vote your shares of Entellus common stock. Without such instructions, a broker non-vote will result, and your shares will not be voted at the special meeting. A broker non-vote will have the same effect as if you voted “AGAINST” the Merger Proposal, but will have no effect on the Adjournment Proposal.

 

Q: What happens if I do not vote?

 

A: The required vote to approve the Merger Proposal is based on the total number of shares of Entellus common stock issued and outstanding as of the close of business on the Record Date, not just the shares that are voted at the special meeting. If you do not vote, it will have the same effect as a vote “AGAINST” the Merger Proposal.

 

Q: May I change my vote after I have mailed my signed proxy card or otherwise submitted my vote by proxy?

 

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

 

    delivering a written notice of revocation of your proxy to our Secretary at Entellus Medical, Inc., 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447, Attention: Corporate Secretary;

 

    signing and submitting a new proxy card with a later date and returning it to us prior to the special meeting by telephone, the Internet or mail, in each case, dated after the date of the proxy being revoked; or

 

    attending the special meeting and voting in person (simply attending the special meeting will not cause your proxy to be revoked).

 



 

5


Table of Contents

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 shares, the above-described options for revoking your voting instructions do not apply, and instead you should contact your bank, broker or other nominee for instructions regarding how to change or revoke your vote. You may also vote in person at the special meeting if you obtain a valid “legal proxy” from your bank, broker or other nominee.

 

Q: What is a proxy?

 

A: A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of Entellus common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of Entellus common stock is called a “proxy card.” The Board has designated Robert S. White, our President and Chief Executive Officer, and Brent A. Moen, our Chief Financial Officer and Secretary, each of them with full power of substitution, as proxies for the special meeting.

 

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

 

A: Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares in the way that you indicate. When completing the Internet or telephone process or the proxy card, you may specify whether your shares should be voted “FOR” or “AGAINST” or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted (i) “FOR” the Merger Proposal; and (ii) “FOR” the Adjournment Proposal.

 

Q: May I attend the special meeting and vote in person?

 

A: Yes. All stockholders of Entellus as of the Record Date may attend the special meeting and vote in person. Stockholders will need to present proof of ownership of our common stock, such as a bank or brokerage account statement, and a form of personal identification to be admitted to the special meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the special meeting. Even if you plan to attend the special meeting in person, we encourage you to complete, sign, date and return the enclosed proxy or vote electronically over the Internet or via telephone to ensure that your shares will be represented at the special meeting. If you hold your shares in “street name,” because you are not the stockholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid “legal proxy” from your bank, broker or other nominee.

 

Q: What happens if I sell or otherwise transfer my shares of Entellus common stock before consummation of the Merger?

 

A: If you sell or transfer your shares of our common stock before consummation of the Merger, you will have transferred your right to receive the Merger Consideration in the Merger. In order to receive the Merger Consideration, you must hold your shares of our common stock through consummation of the Merger.

The Record Date for stockholders entitled to vote at the special meeting is earlier than the date the Merger is anticipated to be consummated. Accordingly, if you sell or transfer your shares of Entellus common stock after the Record Date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you sell or otherwise transfer your shares and each of you notifies Entellus in writing of such special arrangements, you will transfer the right to receive the

 



 

6


Table of Contents

Merger Consideration, if the Merger is consummated, to the person to whom you sell or transfer your shares of Entellus common stock, but you will have retained your right to vote these shares at the special meeting. Even if you sell or otherwise transfer your shares of Entellus common stock after the Record Date, we encourage you to complete, date, sign and return the enclosed proxy card or vote via the Internet or telephone.

 

Q: Should I send in my stock certificates now?

 

A: No. Shortly after the Merger is consummated, under the terms of the Merger Agreement, you will receive a letter of transmittal instructing you how to send your stock certificates to the paying agent in order to receive the cash payment of the Merger Consideration for each share of Entellus common stock represented by the stock certificates. You must use the letter of transmittal to exchange your stock certificates for the Merger Consideration to which you are entitled upon consummation of the Merger. If your shares of Entellus common stock are 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” shares in exchange for the Merger Consideration. Please do not send in your stock certificates now.

 

Q: I do not know where my stock certificate is. How will I get the Merger Consideration for my shares?

 

A: If the Merger is consummated, the transmittal materials you will receive after the consummation of the Merger will include the procedures that you must follow if you cannot locate your stock certificate. This will include an affidavit that you will need to sign attesting to the loss of your stock certificate. You may also be required to post a bond as indemnity against any potential loss.

 

Q: When do you expect the Merger to be consummated?

 

A: We currently anticipate that the Merger will be consummated in the first half of 2018, assuming satisfaction or waiver of all of the conditions to the Merger. However, the Merger is subject to certain conditions, and it is possible that factors outside the control of Entellus and Stryker could result in the Merger being consummated at a later time or not at all.

 

Q: What effects will the Merger have on Entellus?

 

A: Our common stock is currently registered under the Securities Exchange Act of 1934, as amended (referred to as the “Exchange Act”), and is listed on Nasdaq Global Market under the symbol “ENTL.” As a result of the Merger, Entellus will cease to be a publicly traded company and will become a direct or indirect wholly owned subsidiary of Stryker. As soon as reasonably practicable following the consummation of the Merger, our common stock will cease trading on and be delisted from the Nasdaq Global Market and will be deregistered under the Exchange Act, and Entellus will no longer be required to file periodic reports with the Securities and Exchange Commission (referred to as the “SEC”).

 

Q: What happens if the Merger is not consummated?

 

A: If the Merger Proposal is not approved by our stockholders or if the Merger is not consummated for any other reason, Entellus stockholders will not receive any payment for their shares of our common stock. Instead, Entellus will remain a public company, our common stock will continue to be listed and traded on the Nasdaq Global Market and registered under the Exchange Act and we will continue to file periodic reports with the SEC.

 



 

7


Table of Contents

Under specified circumstances, we may be required to pay Stryker a termination fee upon the termination of the Merger Agreement or reimburse Stryker for its transaction expenses, up to a certain amount, as described under “The Merger Agreement—Termination Fee; Certain Stryker Expenses” beginning on page 94 of this proxy statement.

 

Q: Do any directors or executive officers have interests in the Merger that may differ from those of Entellus stockholders generally?

 

A: In considering the recommendation of the Board with respect to the Merger Proposal, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder. The Board was aware of these interests and considered them, among other matters, in approving the Merger Agreement and the Merger and in recommending that the Merger Agreement be adopted by our stockholders. For a description of the interests of our directors and executive officers in the Merger, see “The Merger—Interests of the Directors and Executive Officers of Entellus in the Merger” beginning on page 61 of this proxy statement.

 

Q: Who will count the votes obtained at the special meeting?

 

A: The votes will be counted by the inspector of election appointed for the special meeting.

 

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

 

A: We intend to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K that we will file with the SEC following the special meeting. All reports that we file with the SEC are publicly available when filed. See “Where You Can Find More Information” beginning on page 106 of this proxy statement.

 

Q: Will I be subject to U.S. federal income tax upon the exchange of Entellus common stock for cash pursuant to the Merger?

 

A: The exchange of our common stock for cash pursuant to the Merger generally will require a “U.S. Holder” (as defined below under “The Merger—U.S. Federal Income Tax Consequences of the Merger” beginning on page 71 of this proxy statement) to recognize a gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount of cash received by such U.S. Holder pursuant to the Merger and such U.S. Holder’s adjusted tax basis in the shares of our common stock surrendered pursuant to the Merger. A “Non-U.S. Holder” (as defined below under “The Merger—U.S. Federal Income Tax Consequences of the Merger” beginning on page 71 of this proxy statement) generally will not be subject to U.S. federal income tax with respect to the exchange of our common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States. We recommend that you consult your own tax advisor to determine the U.S. federal income tax consequences relating to the Merger in light of your own particular circumstances and any consequences arising under the laws of any state, local or foreign taxing jurisdiction or other tax laws. A more complete description of the U.S. federal income tax consequences of the Merger is provided under “The Merger—U.S. Federal Income Tax Consequences of the Merger” beginning on page 71 of this proxy statement.

 

Q: What will the holders of Entellus stock options, restricted stock unit awards and the participants in Entellus’ employee stock purchase plan receive in the Merger?

 

A:

As of the Effective Time of the Merger, each outstanding and unexercised option to purchase shares of our common stock immediately prior to the Effective Time, whether vested or unvested, will be cancelled and

 



 

8


Table of Contents
  converted into the right to receive the Merger Consideration with respect to each share of our common stock subject to the option, net of the applicable per share exercise price and any applicable withholding taxes or other amounts required by applicable law to be withheld. Options with a per share exercise price equal to or exceeding the Merger Consideration will be cancelled without payment.

The Merger Agreement also provides that each restricted stock unit award outstanding immediately prior to the Effective Time, whether vested or unvested, will be cancelled and converted into the right to receive the Merger Consideration in respect of each share of our common stock underlying the award, net of any applicable withholding taxes or other amounts required to be withheld by applicable law.

The most recent offering period in effect under the Entellus 2015 Employee Stock Purchase Plan (as it may be amended from time to time, referred to as the “ESPP”) ended as scheduled on December 31, 2017 and all options under the ESPP were exercised on such date. No new additional offering period will begin thereafter. Subject to the consummation of the Merger, the ESPP will terminate as of immediately prior to the Effective Time. Participants who purchased shares of our common stock under the ESPP will receive the same Merger Consideration in the same manner as other stockholders for each such share the participant holds as of the Effective Time.

 

Q: Am I entitled to appraisal rights instead of receiving the Merger Consideration for my shares of common stock under the DGCL?

 

A: Yes. As a holder of Entellus common stock, you are entitled to exercise appraisal rights under the DGCL in connection with the Merger if you take certain actions and meet certain conditions. Under the DGCL, stockholders who do not vote for the adoption of the Merger Agreement have the right to seek appraisal of the fair value of their shares of common stock as determined by the Delaware Court of Chancery, but only if they comply fully with all applicable requirements of the DGCL, which are summarized in this proxy statement. Any appraisal amount determined by the court could be more than, the same as, or less than the value of the Merger Consideration. Any stockholder intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to Entellus before the vote on the adoption of the Merger Agreement and must not vote or otherwise submit a proxy in favor of adoption of the Merger Agreement. Failure to follow exactly the procedures specified under the DGCL will result in the loss of appraisal rights. Because of the complexity of the DGCL relating to appraisal rights, if you are considering exercising your appraisal rights we encourage you to seek the advice of your own legal counsel. See “The Merger—Appraisal Rights” beginning on page 67 of this proxy statement.

 

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

 

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if your shares of common stock are held in more than one brokerage account or are registered differently, you will receive more than one proxy card or voting instruction card. Please complete, date, sign and return (or vote via the Internet or telephone with respect to) each proxy card and voting instruction card that you receive to ensure that all of your shares of common stock are voted.

 

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

 

A:

The SEC permits companies to send a single set of proxy materials to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the applicable company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding

 



 

9


Table of Contents
  for beneficial owners of shares of our common stock held through brokerage firms. If your family has multiple accounts holding shares of our common stock, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.

 

Q: Who can help answer my questions?

 

A: If you have any more questions concerning the Merger, the special meeting or this proxy statement, would like additional copies of this proxy statement or enclosed proxy card, or require assistance in submitting your proxy or voting your shares of Entellus common stock, please contact our proxy solicitor or us at the contact information provided below:

 

LOGO

105 Madison Avenue

New York, New York 10016

proxy@mackenziepartners.com

Call Collect: (212) 929-5500

or

Toll-Free (800) 322-2885

or

Entellus Medical, Inc.

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

Attention: Investor Relations

ir@entellusmedical.com

If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

 



 

10


Table of Contents

SUMMARY

This summary discusses the material information contained in this proxy statement, including with respect to the Merger and the Merger Agreement. This summary may not contain all of the information that is important to you. To understand the Merger more fully and for a more complete description of the legal terms, you should read carefully this entire proxy statement, the appendices, including the Merger Agreement, and the documents we incorporate by reference in this proxy statement. You may obtain the documents and information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page 106 of this proxy statement. The Merger Agreement is attached as Appendix A to this proxy statement.

The Companies (page 22)

Entellus Medical, Inc.

Entellus is a Delaware corporation with principal executive offices located at 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447, telephone number (763) 463-1595. Entellus is a medical technology company focused on delivering superior patient and physician experiences through products designed for less invasive treatments. Entellus products are used for the treatment of adult and pediatric patients with chronic and recurrent sinusitis, patients with nasal airway obstruction, as well as adult patients with persistent Eustachian tube dysfunction. Entellus’ platform of products provides safe, effective and easy-to-use solutions intended to enable treatment of patients in more cost-effective sites of care. Entellus’ product lines, including the XprESS™ ENT Dilation System, Latera™ Absorbable Nasal Implant, MiniFESS™ Surgical Instruments, XeroGel Nasal Dressing and FocESS™ Imaging & Navigation, combine to enable ears, nose and throat (referred to as “ENT”) physicians to conveniently and comfortably perform a broad range of procedures in the most cost effective and efficient site of care. Entellus is committed to broadening its product portfolio with high-quality and purposeful innovations for the global ENT market. The common stock of Entellus is listed on the Nasdaq Global Market under the symbol “ENTL.” See “The Companies—Entellus Medical, Inc.” beginning on page 22 of this proxy statement.

Additional information about Entellus is contained in certain of its public filings that are incorporated by reference herein. See “Where You Can Find More Information” beginning on page 106 of this proxy statement.

Stryker Corporation

Stryker is a Michigan corporation with principal executive offices located at 2825 Airview Boulevard, Kalamazoo, Michigan 49002, telephone number (269) 385-2600. Stryker is one of the world’s leading medical technology companies and is dedicated to helping healthcare professionals perform their jobs more efficiently while enhancing patient care. Stryker offers a diverse array of innovative medical technologies including orthopaedic, medical and surgical, and neurotechnology and spine products to help people lead more active and more satisfying lives. The common stock of Stryker is listed on the New York Stock Exchange under the symbol “SYK.” See “The Companies—Stryker Corporation” beginning on page 22 of this proxy statement.

Explorer Merger Sub Corp.

Merger Sub is a Delaware corporation and a direct or indirect wholly owned subsidiary of Stryker, with principal executive offices located at 2825 Airview Boulevard, Kalamazoo, Michigan 49002, telephone number (269) 385-2600. It was formed solely for the purpose of effecting the Merger and the transactions contemplated by the Merger Agreement. See “The Companies—Explorer Merger Sub Corp.” beginning on page 22 of this proxy statement.

 



 

11


Table of Contents

The Special Meeting (page 23)

This proxy statement is furnished in connection with the solicitation by the Board of proxies to be voted at a special meeting of Entellus stockholders to be held on                     , 2018, at Fox Rothschild LLP, 222 South Ninth Street, Suite 2000, Minneapolis, Minnesota 55402, at             , local time.

At the special meeting, we will ask our stockholders of record as of the Record Date to vote on (i) the Merger Proposal and (ii) the Adjournment Proposal.

The Merger Proposal (page 97)

You will be asked to consider and vote upon the proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger. The Merger Agreement provides, among other things, that, upon the terms and subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will merge with and into Entellus, with Entellus continuing as the surviving corporation and a direct or indirect wholly owned subsidiary of Stryker and that at the Effective Time and as a result of the Merger, each share of our common stock issued and outstanding immediately prior to the Effective Time (other than shares held by Entellus, Stryker, any subsidiary of Stryker or any stockholder who properly exercises and perfects appraisal of his, her or its shares under Delaware law) will be automatically cancelled and converted into the right to receive the Merger Consideration.

Following the Merger, Entellus common stock will no longer be publicly traded and existing Entellus stockholders will cease to have any ownership interest in Entellus.

Record Date; Shares Entitled to Vote; Quorum (page 23)

You are entitled to receive notice and to vote at the special meeting if you owned shares of Entellus common stock as of the close of business on the Record Date for the special meeting.

A quorum of stockholders is necessary to transact business at the special meeting. The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of Entellus common stock issued and outstanding and entitled to vote as of the Record Date at the special meeting will constitute a quorum at the special meeting, permitting Entellus to transact business at the special meeting.

Vote Required to Approve the Merger (page 24)

Each share of common stock issued and outstanding as of the close of business on the Record Date is entitled to one vote at the special meeting.

Approval of the Merger Proposal requires the holders of a majority of the shares of Entellus common stock issued and outstanding as of the close of business on the Record Date vote “FOR” the Merger Proposal. A failure to vote your shares of common stock or an abstention from voting for the Merger Proposal will have the same effect as a vote “AGAINST” the Merger Proposal.

As of the Record Date, there were approximately                  shares of our common stock outstanding and entitled to vote at the special meeting.

Recommendation of the Board and Reasons for the Merger (page 41)

The Board, after considering various factors described under “The Merger—Recommendation of the Board and Reasons for the Merger” beginning on page 41 of this proxy statement, unanimously determined that the

 



 

12


Table of Contents

Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of Entellus and its stockholders, and directed that the adoption of the Merger Agreement be submitted to a vote of our stockholders.

The Board unanimously recommends that you vote (i) “FOR” the Merger Proposal and (ii) “FOR” the Adjournment Proposal.

Voting Agreements (page 66)

Concurrently with entering into the Merger Agreement, certain stockholders of Entellus, including certain directors and executive officers of Entellus, in their respective capacities as holders of shares or other equity interests of Entellus, and certain of their affiliates owning shares of Entellus common stock, collectively representing ownership of approximately     % of the outstanding shares of Entellus common stock as of the Record Date, each entered into a voting agreement with Stryker (collectively referred to as the “Voting Agreements”) pursuant to which, among other things and subject to the terms and conditions therein, they agreed to vote their shares of Entellus common stock in favor of the adoption of the Merger Agreement and the transactions contemplated thereby, including the Merger, and against any alternative competing proposal. In addition, each stockholder party to a Voting Agreement waived his, her or its appraisal rights and provided an irrevocable proxy to Stryker to vote in favor of the Merger Proposal, including voting for the adoption of the Merger Agreement. The Voting Agreements do not limit or restrict the stockholders party thereto solely in their capacity as a director or officer of Entellus from acting in such capacity. Each Voting Agreement terminates upon the earliest to occur of (i) mutual consent by the relevant stockholder and Stryker; (ii) the termination of the Merger Agreement in accordance with its terms; (iii) the Effective Time; (iv) the Board changing its recommendation that Entellus’ stockholders adopt the Merger Agreement in accordance with the terms of the Merger Agreement; or (v) the amendment of the Merger Agreement without the prior written consent of a stockholder party to a Voting Agreement if such amendment, among other things, decreases the amount or changes the form of Merger Consideration or otherwise is materially adverse to such stockholder relative to the other stockholders of Entellus.

Fairness Opinion of Entellus’ Financial Advisor (page 46)

On December 6, 2017, Piper Jaffray & Co. (referred to as “Piper Jaffray”) rendered its oral opinion to the Board (which was subsequently confirmed in writing by delivery of Piper Jaffray’s written opinion dated the same date) to the effect that, as of December 6, 2017, and based upon and subject to the various assumptions and limitations set forth therein, the Merger Consideration to be received by the holders of Entellus common stock in the Merger was fair, from a financial point of view, to such stockholders.

Piper Jaffray’s opinion was directed to the Board, and only addressed the fairness, from a financial point of view, to the holders of Entellus common stock of the Merger Consideration to be received by such stockholders in the Merger and did not address any other aspect or implication of the Merger. The summary of Piper Jaffray’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Appendix C to this proxy statement and sets forth the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Piper Jaffray in preparing its opinion. However, neither Piper Jaffray’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement is intended to be, and they do not constitute, a recommendation to any holders of Entellus common stock as to how such stockholders should vote or act with respect to the Merger or any other matter.

See Appendix C “The Merger—Fairness Opinion of Entellus’ Financial Advisor” beginning on page 46 of this proxy statement.

 



 

13


Table of Contents

Certain Effects of the Merger on Entellus (page 31)

Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into Entellus, with Entellus continuing as the surviving corporation and a direct or indirect wholly owned subsidiary of Stryker. Throughout this proxy statement, we use the term “surviving corporation” to refer to Entellus as the surviving corporation following the Merger. If the Merger is consummated, you will not own any shares of the capital stock of the surviving corporation.

The Effective Time will occur, if it occurs, upon the filing of the certificate of merger with the Delaware Secretary of State (or at such later date and time as we and Stryker may agree and specify in the certificate of merger).

Effect on Entellus if the Merger is Not Consummated (page 31)

If the Merger Proposal is not approved by Entellus stockholders or if the Merger is not consummated for any other reason, Entellus stockholders will not receive any payment for their shares of Entellus common stock. Instead, Entellus will remain a public company, our common stock will continue to be listed and traded on the Nasdaq Global Market and registered under the Exchange Act, and we will continue to file periodic reports with the SEC. Under specified circumstances, upon termination of the Merger Agreement, Entellus may be required to pay Stryker a termination fee or reimburse Stryker for transaction expenses, as described under “The Merger Agreement—Termination Fee; Certain Stryker Expenses” beginning on page 94 of this proxy statement.

Furthermore, if the Merger is not consummated, and depending on the circumstances that would have caused the Merger not to be consummated, it is likely that the price of our common stock will decline significantly. If that were to occur, it is uncertain when, if ever, the price of our common stock would return to the price at which it trades as of the date of this proxy statement.

Merger Consideration (page 32)

In the Merger, each outstanding share of our common stock (other than (i) shares held directly by Entellus as treasury stock or held directly by Stryker or any subsidiary of Stryker (including Merger Sub) immediately prior to the Effective Time (referred to as “Cancelled Shares”) and (ii) shares owned by stockholders who did not vote in favor of approving the Merger Proposal and who are entitled to demand and have properly made a demand for appraisal and do not thereafter fail to perfect, or do not effectively withdraw, or otherwise lose their appraisal rights under Delaware law (referred to as “Dissenting Shares”)) will be converted into the right to receive $24.00 per share in cash, without interest, subject to any applicable withholding taxes. All shares converted into the right to receive the Merger Consideration will automatically be cancelled and shall cease to exist at the Effective Time, and certificated shares (referred to as “Certificates”) or non-certificated shares represented by book-entry (referred to as “Book-Entry Shares”), which immediately prior to the Effective Time represented shares of Entellus common stock, shall cease to have any rights with respect to such Entellus common stock other than the right to receive, upon surrender of such Certificates or Book-Entry Shares, the Merger Consideration. As described further under “The Merger Agreement—Payment for Entellus Common Stock” beginning on page 77 of this proxy statement, at or immediately prior to the Effective Time, Stryker will deposit or cause to be deposited cash in an amount necessary to pay the aggregate Merger Consideration with a designated paying agent (which shall not include any amounts payable to the holders of Entellus’ stock options or restricted stock unit awards). Shortly after consummation of the Merger, you will receive a letter of transmittal instructing you to send your Certificates or Book-Entry Shares to the paying agent in order to receive the Merger Consideration for each share of our common stock represented by such Certificates or Book-Entry Shares.

After the Merger is consummated, under the terms of the Merger Agreement, you will have the right to receive the Merger Consideration, but you will no longer have any rights as an Entellus stockholder as a result of

 



 

14


Table of Contents

the Merger (except with respect to shares held by stockholders who did not vote in favor of approving the Merger Proposal and who were entitled to demand and have properly made a demand for appraisal and did not thereafter fail to perfect such demand in accordance with Section 262 of the DGCL (referred to as “Section 262”), or did not effectively withdraw or otherwise lose their right to appraisal, as described under “The Merger—Appraisal Rights” beginning on page 67 of this proxy statement), nor will you be entitled to receive any shares in Stryker or the surviving corporation.

Treatment of Stock Options and Restricted Stock Unit Awards (page 76)

Under the Merger Agreement, each option to purchase shares of our common stock that is outstanding and unexercised as of immediately prior to the Effective Time, whether vested or unvested, will be cancelled and converted into the right to receive the Merger Consideration with respect to each share of our common stock subject to the option, net of the applicable per share exercise price and any applicable withholding taxes or other amounts required by applicable law to be withheld. Options with a per share exercise price equal to or exceeding the Merger Consideration will be cancelled without payment.

The Merger Agreement also provides that each restricted stock unit award outstanding immediately prior to the Effective Time, whether vested or unvested, will be cancelled and converted into the right to receive the Merger Consideration in respect of each share of our common stock underlying the award, net of any applicable withholding taxes or other amounts required to be withheld by applicable law.

Effect Upon Employee Stock Purchase Plan (page 76)

The most recent offering period in effect under the ESPP ended as scheduled on December 31, 2017 and all options under the ESPP were exercised on such date. No new additional offering period will begin thereafter. Participants who purchased shares of our common stock under the ESPP will receive the same Merger Consideration in the same manner as other stockholders for each such share the participant holds as of the Effective Time.

Treatment of Oxford Warrants (page 66)

As of the Effective Time, each unexercised warrant to purchase our common stock, dated October 18, 2012, issued by Entellus in favor of Oxford Finance LLC (collectively referred to as the “Oxford Warrants”) that was outstanding immediately prior to the Effective Time will, in accordance with the terms of the applicable warrant, no longer be exercisable and shall have either (i) been exercised by the holder thereof in accordance with the terms of the warrant immediately prior to the Effective Time or (ii) if not so exercised, expired immediately prior to the Effective Time.

Interests of the Directors and Executive Officers of Entellus in the Merger (page 61)

When considering the recommendation of the Board that you vote to approve the Merger Proposal, you should be aware that our directors and executive officers may have interests in the Merger that are different from, or in addition to, your interests as a stockholder. The Board was aware of these interests in approving the Merger Agreement and the Merger and in recommending that the Merger Proposal be approved by our stockholders. These interests include the following:

 

    certain of our directors and executive officers hold outstanding Entellus stock options and restricted stock unit awards that will be cancelled and converted into the right to receive the Merger Consideration, net of any per share exercise price and any applicable withholding taxes or other amounts required by applicable law to be withheld;

 



 

15


Table of Contents
    our executive officers are parties to arrangements with Entellus that provide for severance benefits in the event of certain qualifying terminations of employment in connection with the Merger;

 

    certain of our executive officers may receive discretionary cash bonuses in lieu of their annual equity awards; and

 

    the Merger Agreement provides for continued indemnification and directors’ and officers’ liability insurance to be provided by the surviving corporation.

If the Merger Proposal is approved by our stockholders and the Merger closes, any shares of our common stock held by our directors and executive officers will be treated in the same manner as outstanding shares of our common stock held by all other Entellus stockholders entitled to receive the Merger Consideration.

Financing of the Merger (page 66)

The Merger Agreement is not conditioned upon receipt of financing by Stryker. We anticipate that the total amount of funds necessary to consummate the Merger and the related transactions, not including fees and expenses, will be approximately $661 million, including the estimated funds needed to (i) pay our stockholders the Merger Consideration due to them under the Merger Agreement; (ii) make payments in respect of outstanding Entellus stock options, warrants and restricted stock unit awards pursuant to the Merger Agreement; and (iii) pay the outstanding net indebtedness of Entellus. We understand that Stryker expects to use cash on hand and other funds available to it to fund the acquisition of Entellus.

Appraisal Rights (page 67)

Pursuant to Section 262, stockholders who do not vote in favor of adoption of the Merger Agreement and who comply fully with and properly demand appraisal under the applicable requirements of Section 262 and do not otherwise withdraw or lose the right to appraisal under Delaware law, have the right to seek appraisal of the fair value of their shares, as determined by the Delaware Court of Chancery, if the Merger is consummated. The “fair value” of shares as determined by the Delaware Court of Chancery may be more than, less than, or equal to the value of the Merger Consideration that the stockholders would otherwise be entitled to receive under the terms of the Merger Agreement. Stockholders also should be aware that an investment banking opinion as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the Merger, is not an opinion as to, and does not otherwise address, “fair value” under Section 262. Stockholders who wish to preserve any appraisal rights they may have, must so advise Entellus by submitting a written demand for appraisal prior to the vote to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger, and must otherwise follow fully the procedures prescribed by Section 262. For a description of the rights of such holders and of the procedures to be followed in order to assert such rights and obtain payment of the fair value of their shares of Entellus common stock, see “The Merger—Appraisal Rights” beginning on page 67 of this proxy statement and the text of Section 262, which is reproduced in its entirety as Appendix B to this proxy statement.

U.S. Federal Income Tax Consequences of the Merger (page 71)

The receipt of cash for shares of Entellus common stock pursuant to the Merger generally will be a taxable transaction for U.S. federal income tax purposes. The receipt of cash by a U.S. Holder in exchange for such U.S. Holder’s shares of Entellus common stock in the Merger generally will result in the recognition of gain or loss in an amount measured by the difference between the cash such U.S. Holder receives in the Merger and such U.S. Holder’s adjusted tax basis in the shares of Entellus common stock surrendered in the Merger. A Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to the exchange of our common stock for cash in the Merger unless such Non-U.S. Holder has certain connections to the United States. Stockholders

 



 

16


Table of Contents

should refer to the discussion under “The Merger—U.S. Federal Income Tax Consequences of the Merger” beginning on page 71 of this proxy statement and consult their own tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under the laws of any state, local or foreign taxing jurisdiction or other tax laws.

Regulatory Approvals Required for the Merger (page 73)

Under the Merger Agreement, the Merger cannot be consummated until the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (referred to as the “HSR Act”), has expired or been terminated. Entellus and Stryker and their respective affiliates filed their respective HSR Act notifications on December 21, 2017. On January 3, 2018, the Federal Trade Commission notified Entellus and Stryker that their request for early termination of the applicable waiting period was granted.

No Solicitation; Company Acquisition Proposals (page 84)

From December 7, 2017 until the earlier of the Effective Time or the date the Merger Agreement is terminated by its terms, Entellus is generally not permitted to (and will cause its subsidiaries and its and their respective affiliates and representatives generally not to):

 

    initiate, seek, solicit, facilitate or knowingly encourage, or induce or take any other action designed or intended to lead to, or that would reasonably be expected to lead to any inquiry with respect to, or the making, submission or announcement of, any Company Acquisition Proposal (as defined in the Merger Agreement);

 

    enter into, continue or otherwise participate in any negotiations or discussions with, or furnish or cause to be furnished any information or data to, or furnish access to Entellus’ (or any of its subsidiaries’) properties with respect to, or otherwise cooperate in any way with, any person (other than Stryker or any of its affiliates or representatives) relating to any Company Acquisition Proposal or any proposal reasonably expected to lead to any Company Acquisition Proposal, or generally grant any waiver or release under (or terminate, amend or modify any provision of), or fail to enforce to the fullest extent permitted under applicable law, any confidentiality, standstill or similar agreement;

 

    enter into any letter of intent, memorandum of understanding, merger agreement or other agreement, arrangement or understanding relating to any Company Acquisition Proposal;

 

    submit any Company Acquisition Proposal to the Entellus stockholders for their approval; or

 

    resolve to do, or agree or announce an intention to do, any of the foregoing.

However, if before obtaining the Required Stockholder Approval (as defined and described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement), Entellus receives a bona fide written Company Acquisition Proposal that did not result from a breach of the non-solicitation provisions of the Merger Agreement and the Board determines in good faith, after consultation with Entellus’ financial advisors and outside legal counsel, that such proposal constitutes or is reasonably likely to constitute a Company Superior Proposal (as defined and described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement) and the failure to take the action immediately below would be inconsistent with the Board’s fiduciary duties under applicable law, Entellus may:

 

    furnish information concerning its business, properties or assets to the third party making such Company Acquisition Proposal pursuant to an Acceptable Confidentiality Agreement (as defined and described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement); and

 



 

17


Table of Contents
    negotiate and participate in discussions and negotiations with such third party concerning the Company Acquisition Proposal.

Except as described below, neither the Board nor any committee of the Board is permitted to take any action constituting a Company Adverse Recommendation Change (as defined and described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement) or to adopt or approve, or propose to adopt or approve, or allow Entellus or any of its subsidiaries to execute or enter into any binding or non-binding letter of intent, agreement in principle, memorandum of understanding, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other agreement, commitment, arrangement or understanding in connection with, or that is intended to or would reasonably be expected to lead to, any Company Acquisition Proposal (other than confidentiality agreements permitted under the previous paragraph).

Before obtaining the Required Stockholder Approval, the Board, in response to a Company Superior Proposal received by Entellus or the Board that did not result from a breach of the non-solicitation and related provisions of the Merger Agreement, may authorize and cause Entellus to:

 

    effect a Company Adverse Recommendation Change; and

 

    terminate the Merger Agreement and concurrently with such termination enter into a definitive agreement providing for such Company Superior Proposal (subject to satisfaction of Entellus’ termination fee obligations of Entellus described below).

However, the Board is not permitted to take the actions described in the bullet points immediately above unless, among other things, (i) the Board determines in good faith, after consultation with Entellus’ outside legal counsel and after considering and taking into account the terms of any proposed amendment or modification to the Merger Agreement made by Stryker in writing during the negotiating period described below, that the failure to take such action would be inconsistent with the Board’s fiduciary duties under applicable law; (ii) at least 4 business days elapse after Entellus provides Stryker with written notice that it intends to effect a Company Adverse Recommendation Change and terminate the Merger Agreement; and (iii) in such 4-business-day period, Entellus and its representatives have discussed and negotiated with Stryker in good faith (to the extent Stryker so desired) any proposed modifications to the terms and conditions of the Merger Agreement (as described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement). If any material term or condition of the Company Superior Proposal is amended in such negotiating period, Entellus is required to deliver a new written notice of its intent to effect a Company Adverse Recommendation Change and terminate the Merger Agreement and a new 4-business-day negotiating period is triggered from the date of such new notice.

For a further discussion of the limitations on solicitation of Company Acquisition Proposals from third parties, the limitations on Company Adverse Recommendation Changes and approving or recommending a Company Superior Proposal, see “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement.

Conditions to the Merger (page 91)

The obligations of each of Entellus, Stryker and Merger Sub to consummate the Merger and the transactions contemplated by the Merger Agreement are subject to the satisfaction (or permitted waiver by Entellus and Stryker) of the following conditions:

 

    obtaining the Required Stockholder Approval (as defined and described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement);

 



 

18


Table of Contents
    expiration or termination of any applicable waiting period under the HSR Act; and

 

    no governmental authority of competent jurisdiction issuing or entering any order, including any injunction, after December 7, 2017, and no law having been enacted or promulgated after December 7, 2017, in each case, that is then in effect and has the effect of restraining, enjoining or otherwise prohibiting the consummation of the Merger or the transactions contemplated by the Merger Agreement.

The respective obligations of Stryker and Merger Sub to consummate the Merger and the transactions contemplated by the Merger Agreement are subject to the satisfaction (or permitted waiver by Stryker) of the following additional conditions:

 

    the accuracy of the representations and warranties of Entellus both as of December 7, 2017 and the Effective Time (except in most, but not all, cases, for inaccuracies that, individually or in the aggregate, have not had, and would not be reasonably expected to have, a “Company Material Adverse Effect,” as defined under “The Merger Agreement—Representations and Warranties” beginning on page 77 of this proxy statement);

 

    Entellus’ performance of and compliance with certain obligations required to be performed or complied with prior to the Effective Time under the Merger Agreement, in all material respects;

 

    the absence of any effect, change, development, event, circumstance, occurrence, condition, fact or state of facts that has had or would reasonably be expected to have a Company Material Adverse Effect;

 

    delivery of an officer’s certificate by Entellus certifying that the conditions described in the three preceding bullet points have been satisfied; and

 

    until October 7, 2018, the absence of any pending proceeding in a U.S. federal district court by any governmental authority against Entellus, Stryker, Merger Sub or any of their respective subsidiaries seeking to (i) restrain or prohibit from retaining any portion of Stryker’s or Merger Sub’s assets or to restrain or prohibit from acquiring any material portion of Entellus, or to compel Stryker or Merger Sub to dispose of or hold separate any portion of the business or assets of Entellus, Stryker or their respective subsidiaries; (ii) challenging, seeking to restrain or prohibit the Merger or seeking to obtain damages or any other material remedy; (iii) seeking to impose material limitations on the ability of Merger Sub to consummate the Merger; or (iv) seeking to impose limitations on the ability of Merger Sub or Stryker to exercise full rights of ownership of the shares of Entellus common stock.

The obligation of Entellus to consummate the Merger and the transactions contemplated by the Merger Agreement are subject to the satisfaction (or permitted waiver by Entellus) of the following additional conditions:

 

    the accuracy of the representations and warranties of Stryker and Merger Sub both as of December 7, 2017 and the Effective Time (subject to a “Parent Material Adverse Effect,” as defined under “The Merger Agreement—Representations and Warranties” beginning on page 77 of this proxy statement);

 

    Stryker and Merger Sub’s performance of and compliance with certain obligations required to be performed or complied with prior to the Effective Time under the Merger Agreement in all material respects; and

 

    the delivery of an officer’s certificate by Stryker certifying that the conditions described in the two preceding bullet points have been satisfied.

 



 

19


Table of Contents

Termination (page 93)

The Merger Agreement may be terminated at any time before the Effective Time, whether before or after the Required Stockholder Approval is obtained (except as otherwise expressly noted in the Merger Agreement), as follows:

 

    by mutual written consent of Stryker and Entellus;

 

    by either Stryker or Entellus if:

 

    the Merger is not consummated on or before 5:00 p.m. (New York City time) on December 7, 2018 (referred to as the “Termination Date”), and the terminating party’s failure to fulfill or comply with any of its obligations under the Merger Agreement is not the principal cause of or principally resulted in the failure to so consummate the Merger;

 

    any governmental authority of competent jurisdiction has issued or entered any final and non-appealable order, or any law has been enacted or promulgated, that has the effect of permanently restraining, enjoining or otherwise prohibiting the Merger or transactions contemplated by the Merger Agreement, and the failure of the terminating party to perform or comply with any of its obligations under the regulatory efforts covenant in the Merger Agreement has not been the principal cause of or principally resulted in the issuance of such order; or

 

    the Required Stockholder Approval has not been obtained upon a vote taken at the special meeting or any adjournment or postponement thereof;

 

    by Entellus:

 

    if Stryker or Merger Sub has breached or failed to perform any of their respective representations, warranties, covenants or other agreements set forth in the Merger Agreement in a manner that (i) in the case of Entellus, results in the failure of certain conditions to consummate the Merger being satisfied and (ii) such breach is not capable of being cured by the Termination Date, or if capable of being cured, is not cured by Stryker or Merger Sub on or before the earlier of the Termination Date or within 30 days of written notice to the party committing such breach or failing to perform of such breach or failure to perform; or

 

    before receipt of the Required Stockholder Approval, in order to enter into a definitive agreement with respect to a Company Superior Proposal to the extent permitted by, and subject to the applicable terms and conditions of, its obligations in respect of Company Superior Proposals described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement, provided that immediately prior to or simultaneously with such termination, Entellus pays Stryker the termination fee described below;

 

    by Stryker if:

 

    Entellus has breached or failed to perform any of its representations, warranties, covenants or other agreements set forth in the Merger Agreement in a manner that (i) in the case of Stryker and Merger Sub, results in the failure of certain conditions to consummate the Merger being satisfied and (ii) such breach is not capable of being cured by the Termination Date, or if capable of being cured, is not cured by Entellus on or before the earlier of the Termination Date or within 30 days of written notice to Entellus of such breach or failure to perform;

 

    the Board makes a Company Adverse Recommendation Change or fails to include the Company Recommendation in the proxy statement; or

 

   

Entellus or the Board, as applicable, (i) materially breaches its non-solicitation obligations under the Merger Agreement, (ii) fails to publicly reaffirm the Company Recommendation within 10

 



 

20


Table of Contents
 

business days of receipt of a written request by Stryker to provide such reaffirmation following public disclosure of any Company Acquisition Proposal or (iii) fails to recommend against any Company Acquisition Proposal that is a tender or exchange offer within 10 business days after its commencement.

Termination Fee; Certain Stryker Expenses (page 94)

Under the Merger Agreement, Entellus may be required to pay to Stryker a termination fee of $20.5 million if the Merger Agreement is terminated under specified circumstances, including if Stryker terminates the Merger Agreement due to a Company Adverse Recommendation Change or if Entellus terminates the Merger Agreement in order to enter into a definitive agreement with respect to a Company Superior Proposal. The Merger Agreement also provides that if it is terminated by either Stryker or Entellus following the failure to obtain the Required Stockholder Approval upon a vote taken at the special meeting or any postponement or adjournment thereof, Entellus will be required to reimburse Stryker up to $6.6 million of certain of Stryker’s transaction expenses, which payment, if any, will reduce on a dollar-for-dollar basis any termination fee otherwise owed to Stryker. In no event will Entellus be required to pay the termination fee more than once.

Generally, if Stryker actually receives the foregoing termination fee (together with any applicable expense reimbursement described immediately above), Entellus will have no further liability to Stryker or Merger Sub under the Merger Agreement except in certain limited circumstances. However, Stryker has a right under the Merger Agreement to refund such termination fee within 10 business days of Stryker’s receipt of such fee to retain certain post-termination rights and remedies under the Merger Agreement.

Expenses Generally (page 95)

Except in specified circumstances, as described under “The Merger Agreement—Termination Fee; Certain Stryker Expenses” beginning on page 94 of this proxy statement, whether or not the Merger is consummated, Entellus and Stryker are each responsible for all of their respective costs and expenses incurred in connection with the Merger and the transactions contemplated by the Merger Agreement.

Market Prices and Dividend Data (page 99)

The common stock of Entellus is listed on the Nasdaq Global Market under the symbol “ENTL.” On December 6, 2017, the last trading day prior to the public announcement of the execution of the Merger Agreement, the closing price of our common stock on Nasdaq Global Market was $16.01 per share. On                 , 2018, the latest practicable trading day before the printing of this proxy statement, the closing price of our common stock on Nasdaq Global Market was $     per share. You are encouraged to obtain current market quotations for Entellus common stock.

 



 

21


Table of Contents

THE COMPANIES

Entellus Medical, Inc.

Entellus is a Delaware corporation with principal executive offices located at 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447 and its telephone number is (763) 463-1595. Entellus is a medical technology company focused on delivering superior patient and physician experiences through products designed for less invasive treatments. Entellus products are used for the treatment of adult and pediatric patients with chronic and recurrent sinusitis, patients with nasal airway obstruction, as well as adult patients with persistent Eustachian tube dysfunction. Entellus’ platform of products provides safe, effective and easy-to-use solutions intended to enable treatment of patients in more cost-effective sites of care. Entellus’ product lines, including the XprESS™ ENT Dilation System, Latera™ Absorbable Nasal Implant, MiniFESS™ Surgical Instruments, XeroGel Nasal Dressing and FocESS™ Imaging & Navigation, combine to enable ENT physicians to conveniently and comfortably perform a broad range of procedures in the most cost effective and efficient site of care. Entellus is committed to broadening its product portfolio with high-quality and purposeful innovations for the global ENT market. The common stock of Entellus is currently listed on the Nasdaq Global Market under the symbol “ENTL.”

For additional information about Entellus and our business, see “Where You Can Find More Information” beginning on page 106 of this proxy statement.

Stryker Corporation

Stryker is a Michigan corporation with principal executive offices located at 2825 Airview Boulevard, Kalamazoo, Michigan 49002 and its telephone number is (269) 385-2600. Stryker is one of the world’s leading medical technology companies and is dedicated to helping healthcare professionals perform their jobs more efficiently while enhancing patient care. Stryker offers a diverse array of innovative medical technologies including orthopaedic, medical and surgical, and neurotechnology and spine products to help people lead more active and more satisfying lives. The common stock of Stryker is listed on the New York Stock Exchange under the symbol “SYK.”

Explorer Merger Sub Corp.

Merger Sub is a Delaware corporation and a direct or indirect wholly owned subsidiary of Stryker with principal executive offices located at 2825 Airview Boulevard, Kalamazoo, Michigan 49002, and its telephone number is (269) 385-2600. It was formed solely for the purpose of effecting the Merger and the transactions contemplated by the Merger Agreement. If the Merger is consummated, Merger Sub will cease to exist.

 

22


Table of Contents

THE SPECIAL MEETING

We are furnishing this proxy statement to the Entellus stockholders as part of the solicitation of proxies by the Board for use at the special meeting or any adjournment or postponement thereof. This proxy statement provides the Entellus stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting or any adjournment or postponement thereof.

Date, Time and Place of the Special Meeting

This proxy statement is being furnished to our stockholders as part of the solicitation of proxies by the Board for use at the special meeting to be held on                     , 2018 at the offices of Fox Rothschild LLP, 222 South Ninth Street, Suite 2000, Minneapolis, Minnesota 55402, at         , local time, or at any adjournment or postponement thereof.

Purpose of the Special Meeting

At the special meeting, we will ask our stockholders of record as of the Record Date to vote on (i) the Merger Proposal and (ii) the Adjournment Proposal. If our holders of common stock fail to adopt the Merger Agreement by approving the Merger Proposal, the Merger will not occur. A copy of the Merger Agreement is attached to this proxy statement as Appendix A, and the material provisions of the Merger Agreement are described under “The Merger Agreement” beginning on page 75 of this proxy statement.

This proxy statement and the enclosed form of proxy are first being mailed to our stockholders on or about                     , 2018.

Record Date; Shares Entitled to Vote; Quorum

Only stockholders of record as of the close of business on                     , 2018, the Record Date for the special meeting, are entitled to notice and to vote at the special meeting or at any adjournments or postponements thereof. A list of stockholders entitled to vote at the special meeting will be available in our offices located at 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447, during regular business hours for a period of at least 10 days before the special meeting and at the place of the special meeting during the meeting.

As of the Record Date, there were approximately              shares of our common stock outstanding and entitled to be voted at the special meeting.

A quorum of stockholders is necessary to transact business at the special meeting. Our Amended and Restated Bylaws provide that the presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of our common stock issued and outstanding and entitled to vote at the meeting (             shares) will constitute a quorum for Entellus to transact business at a special meeting. In general, shares of our common stock represented by a properly signed and returned proxy card will be counted as shares present and entitled to vote at the special meeting for purposes of determining a quorum. Shares represented by proxies received but marked “ABSTAIN” will be included in the calculation of the number of shares considered to be present at the special meeting for purposes of determining a quorum. Broker non-votes will not be included in the calculation of the number of shares considered to be present at the special meeting for purposes of determining a quorum.

In the event that a quorum is not present at the special meeting, it is expected that the meeting would be adjourned to a later date to solicit additional proxies, and a quorum will have to be established at such adjourned date.

 

23


Table of Contents

Vote Required; Abstentions and Broker Non-Votes

Each share of common stock issued and outstanding as of the close of business on the Record Date is entitled to one vote at the special meeting.

Approval of the Merger Proposal requires the affirmative vote of the holders of a majority of the shares of our common stock issued and outstanding. Adoption of the Merger Agreement by our stockholders is a condition to the closing of the Merger.

Approval of the Adjournment Proposal requires the affirmative vote of the holders of our common stock representing a majority of the votes cast (excluding abstentions), either in person or by proxy, and entitled to vote at the special meeting.

If an Entellus stockholder fails to vote or abstains from voting, it will have the same effect as if the stockholder voted “AGAINST” the Merger Proposal. If an Entellus stockholder fails to vote or abstains from voting, it will have no effect on the Adjournment Proposal.

If you hold your shares in “street name” the failure to instruct your bank, broker or other nominee on how to vote your shares will result in a broker non-vote, and each broker non-vote will have the same effect as a vote “AGAINST” the Merger Proposal, but will have no effect on the Adjournment Proposal.

Shares Held by Directors and Executive Officers

As of the close of business on the Record Date, directors and executive officers of Entellus and their affiliates beneficially owned and were entitled to vote, in the aggregate,                  shares of our common stock, which represented approximately     % of the shares of our common stock issued and outstanding on that date. Our directors and executive officers have informed us that they currently intend to vote all of their shares of Entellus common stock (i) “FOR” the Merger Proposal; and (ii) “FOR” the Adjournment Proposal, although none of them is obligated to do so except in the case such director or executive officer is party to a Voting Agreement.

On December 7, 2017, certain stockholders of Entellus, including certain of our directors and executive officers, in their respective capacities as holders of shares or other equity interests of Entellus, and certain of their affiliates owning shares of our common stock, collectively representing ownership of approximately     % of the outstanding shares of our common stock as of the Record Date, each entered into a Voting Agreement with Stryker, pursuant to which, among other things and subject to the terms and conditions therein, each of them has agreed to vote their shares of our common stock in favor of the Merger Proposal. The stockholders of Entellus party to such Voting Agreements are not obligated to vote for the approval of the Merger Proposal, among other things, the Merger Agreement is terminated. A copy of the form of Voting Agreement executed by such stockholders is attached as Appendix D to this proxy statement.

Voting; Proxies

Attendance

All holders of shares of common stock as of the close of business on the Record Date, including stockholders of record and beneficial owners of common stock registered in the “street name” of a bank, broker or other nominee, are invited to attend the special meeting. If you are a stockholder of record, please be prepared to provide proper identification, such as a driver’s license. If you hold your shares in “street name,” you will need to provide proof of ownership, such as a recent account statement or voting instruction form provided by your bank, broker or other nominee or other similar evidence of ownership, along with proper identification.

Voting in Person

Stockholders of record will be able to vote in person at the special meeting. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. If you are not a stockholder of

 

24


Table of Contents

record, but instead hold your shares of Entellus common stock in “street name” through a bank, broker or other nominee, you must provide a “legal 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 of Entellus common stock are voted 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.

Share of Entellus Common Stock Held by Record Holder

If you are a stockholder of record and your shares of Entellus common stock are registered in your name with our transfer agent, Computershare Trust Company N.A., 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 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. Your shares of common stock 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. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy electronically over the Internet or by telephone.

Submit a Proxy Card. If you complete, sign, date and return the enclosed proxy card by mail so that it is received in time for the special meeting, your shares of Entellus common stock will be voted in the manner directed by you on your proxy card.

Voting instructions are included on your proxy card. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted “FOR” each of the Merger Proposal and the Adjournment Proposal, if necessary or appropriate to solicit additional proxies. If you fail to return your proxy card and you are a holder of record as of the close of business on the Record Date, unless you attend the special meeting and vote in person, the effect of such failure to vote will be that your shares of common stock will not be considered present at the special meeting for purposes of determining whether a quorum is present at the special meeting, will have the same effect as a vote “AGAINST” the Merger Proposal and will have no effect on the vote regarding the Adjournment Proposal.

Shares of Entellus Common Stock Held in “Street Name”

If your shares of common stock are held in “street name” through a bank, broker or other nominee, your bank, broker or other nominee will send you instructions as to how to provide voting instructions for your shares. You may vote through your bank, broker or other nominee by completing and returning the voting form provided by your bank, broker or other nominee, or by the Internet or telephone through your bank, broker or other nominee if such a service is provided by them to you. To vote via the Internet or telephone through your bank, broker or other nominee, you should follow the instructions on the voting form provided by your bank, broker or other nominee.

Under applicable stock exchange rules, banks, brokers or other nominees have the discretion to vote your shares on “routine” matters if you fail to instruct your bank, broker or other nominee on how to vote your shares with respect to such matters. The Merger Proposal and the Adjournment Proposal in this proxy statement are “non-routine” matters, and your bank, broker and other nominee therefore cannot vote on these proposals without your instructions. Accordingly, if you do not return your bank’s, broker’s or other nominee’s voting form, do not vote via the Internet or telephone through your bank, broker or other nominee, if applicable, or do not attend the

 

25


Table of Contents

special meeting and vote in person with a “legal proxy” from your bank, broker or other nominee, such actions will result in a “broker non-vote.” Broker non-votes, if any, will not be considered present at the special meeting for purposes of determining whether a quorum is present at the special meeting, will have the same effect as if you voted “AGAINST” the Merger Proposal and will have no effect on the Adjournment Proposal. For shares of common stock held in “street name,” only shares of common stock affirmatively voted “FOR” the Merger Proposal will be counted as a vote in favor of such proposal.

Revocability of Proxies

Any person giving a proxy pursuant to this solicitation has the power to revoke and change it any time before it is voted at the special meeting. If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by:

 

    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 card by mail to Entellus prior to the special meeting;

 

    delivering to the Secretary of Entellus a written notice of revocation by mail to Entellus Medical, Inc., Attention: Corporate Secretary, 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447, telephone: (763) 463-1595; or

 

    attending the special meeting and voting in person.

Please note, however, that only your last-dated proxy will count. Attending the special meeting without taking one of the actions described above will not in itself revoke your proxy. Please note that if you want to revoke your proxy by mailing a new proxy card to Entellus or by sending a written notice of revocation to Entellus, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by Entellus before the special meeting. Please note that to be effective, your new proxy card, Internet or telephonic voting instructions or written notice of revocation must be received by our Secretary prior to the special meeting and, in the case of Internet or telephonic voting instructions, must be received before 11:59 p.m. Eastern Time on                     , 2018.

If you hold your shares of common stock in “street name,” you should contact your bank, broker or other nominee for instructions regarding how to change your vote or submit new voting instructions. You may also vote in person at the special meeting if you obtain a valid “legal proxy” from your bank, broker or other nominee. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow Entellus stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting, as adjourned or postponed.

Abstentions

An abstention occurs when a stockholder attends a meeting, either in person or by proxy, but abstains from voting. Abstentions will be included in the calculation of the number of shares of Entellus common stock represented at the special meeting for purposes of determining whether a quorum has been achieved. Abstaining from voting will have the same effect as a vote “AGAINST” the Merger Proposal but will have no effect on the Adjournment Proposal.

Adjournments and Postponements

Although it is not currently expected, subject to certain restrictions in the Merger Agreement, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Under our Amended and Restated Bylaws, the special meeting may be adjourned or postponed by the chairperson of the special meeting or in certain other circumstances. If the Board fixes a new record date for the adjourned meeting, or if the

 

26


Table of Contents

adjournment is for more than 30 days, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the adjourned meeting as of such new record date. In addition, the Board could postpone the special meeting before it commences. If the special meeting is adjourned or postponed to solicit additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

In the event that there is present at the special meeting, in person or by proxy, sufficient favorable voting power to secure the vote of our stockholders necessary to adopt the Merger Agreement by approving the Merger Proposal, we do not anticipate that we will adjourn or postpone the special meeting.

Board Recommendation

The Board, after considering various factors described under “The Merger—Recommendation of the Board and Reasons for the Merger” beginning on page 41 of this proxy statement, unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of Entellus and its stockholders, and directed that the adoption of the Merger Agreement and the approval of the transactions contemplated thereby, including the Merger, be submitted to a vote of the stockholders of Entellus.

The Board unanimously recommends that you vote (i) “FOR” the Merger Proposal; and (ii) “FOR” the Adjournment Proposal.

Solicitation of Proxies

The Board is soliciting your proxy, and we will bear the cost of this solicitation of proxies, including the preparation, assembly and mailing of the proxies and soliciting material, as well as the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of our outstanding common stock.

We have retained MacKenzie Partners, Inc., a proxy solicitation firm, to solicit proxies in connection with the special meeting at a cost of approximately $12,500 plus reimbursement of out-of-pocket expenses. Proxies may be solicited by mail, personal interview, e-mail, telephone, facsimile or via the Internet by Mackenzie Partners, Inc. or, without additional compensation, by certain of Entellus’ directors, officers and employees.

Anticipated Date of Consummation of the Merger

We currently anticipate that the Merger will be consummated in the first half of 2018, assuming satisfaction or waiver of all of the conditions to the Merger. However, the Merger is subject to various conditions, and it is possible that factors outside the control of Entellus and Stryker could result in the Merger being consummated at a later time or not at all.

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting to be Held on                     , 2018

The proxy statement is available at http://www.proxyvote.com.

Householding of Special Meeting Materials

Some banks, brokers and other nominees may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement for the special meeting may have been sent to multiple stockholders in each household. We will promptly deliver a separate copy of our proxy statement to any stockholder upon written or oral request to Entellus Medical, Inc., Attention: Corporate

 

27


Table of Contents

Secretary, 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447, telephone: (763) 463-1595. Any stockholder who wants to receive separate copies of our proxy statement or annual report to stockholders in the future, or any stockholder who is receiving multiple copies and would like to receive only one copy per household, should contact the stockholder’s bank, broker or other nominee, or the stockholder may contact Entellus at the above address and phone number.

Questions and Additional Information

If you have more questions about the Merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact our proxy solicitor or us:

 

LOGO

105 Madison Avenue

New York, New York 10016

proxy@mackenziepartners.com

Call Collect: (212) 929-5500

or

Toll-Free (800) 322-2885

or

Entellus Medical, Inc.

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

Attention: Investor Relations

ir@entellusmedical.com

If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

 

28


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us or on our behalf, contain “forward-looking statements” that do not directly or exclusively relate to historical facts. Forward-looking statements can usually be identified by the use of terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “evolve,” “expect,” “forecast,” “intend,” “looking ahead,” “project,” “may,” “opinion,” “plan,” “possible,” “potential,” “project,” “should,” “will” and similar words or expressions. Stockholders are cautioned that any such forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, factors and matters described or incorporated by reference in this proxy statement, and the following factors:

 

    the inability to consummate the Merger within the anticipated time period, or at all, due to any reason, including the failure to obtain stockholder approval to adopt the Merger Agreement or failure to satisfy the other conditions to the consummation of the Merger, including the termination or expiration of any waiting period applicable to the Merger under the HSR Act and any mandatory waiting period or receipt of any required consent, approval or other authorization;

 

    the risk that the Merger Agreement may be terminated in circumstances requiring us to pay Stryker a termination fee of $20.5 million or reimburse Stryker for up to $6.6 million in transaction expenses;

 

    risks that the proposed Merger disrupts our current plans and operations or affects our ability to retain or recruit key employees;

 

    the effect of the announcement or pendency of the Merger on our business relationships (including, without limitation, customers and suppliers), operating results and business generally;

 

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

 

    risks related to diverting the attention of our management and employees from ongoing business operations;

 

    the risk that our stock price may decline significantly if the Merger is not consummated;

 

    the fact that under the terms of the Merger Agreement, we are unable to solicit other Company Acquisition Proposals during the pendency of the Merger;

 

    the nature, cost and outcome of any litigation and other legal proceedings, including any such proceedings related to the Merger and instituted against us and others;

 

    the fact that receipt of the all-cash Merger Consideration would be taxable to our stockholders that are treated as U.S. Holders for United States federal income tax purposes; and

 

    the fact that our stockholders would forego the opportunity to realize the potential long-term value of the successful execution of our current strategy as an independent public company.

Consequently, all of the forward-looking statements we make in this proxy statement are qualified by the information contained or incorporated by reference herein, including, but not limited to, (i) the information contained under this heading and (ii) the information contained under the headings “Risk Factors” and information in our consolidated financial statements and notes thereto included in our most recent filings on Forms 10-K and 10-Q (see “Where You Can Find More Information” beginning on page 106 of this proxy statement). No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements.

 

29


Table of Contents

Except as required by applicable law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. Our stockholders are advised, however, to consult any future disclosures we make on related subjects as may be detailed in our other filings made from time to time with the SEC.

 

30


Table of Contents

THE MERGER

This discussion of the Merger does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Appendix A and incorporated by reference into this proxy statement. You should read the entire Merger Agreement carefully as it is the legal document that governs the Merger.

Certain Effects of the Merger on Entellus

If the Merger Agreement is adopted by the Entellus stockholders and certain other conditions to the closing of the Merger are either satisfied or waived, Merger Sub will merge with and into Entellus, with Entellus continuing as the surviving corporation and a direct or indirect wholly owned subsidiary of Stryker.

At the Effective Time, each share of our common stock issued and outstanding immediately prior to the Effective Time (other than Cancelled Shares and Dissenting Shares) will be converted automatically into the right to receive the Merger Consideration.

The common stock of Entellus is listed and trades on the Nasdaq Global Market under the symbol “ENTL.” As a result of the Merger, Entellus will cease to be a publicly traded company and will be wholly owned by Stryker. Prior to the Effective Time, we will cooperate with Stryker and use reasonable best efforts to delist our common stock from the Nasdaq Global Market as soon as reasonably practicable following the Effective Time and deregister our common stock under the Exchange Act as promptly as practicable after such delisting. Upon such delisting and deregistration, we will no longer be a publicly traded company and will no longer be required to file periodic reports with the SEC, in each case in accordance with applicable law, rules and regulations. If the Merger is consummated, you will not own any shares of the capital stock of the surviving corporation.

Effect on Entellus if the Merger is Not Consummated

If the Merger Agreement is not adopted by our stockholders or if the Merger is not consummated for any other reason, our stockholders will not receive any payment for their shares of Entellus common stock. Instead, Entellus will remain a public company, our common stock will continue to be listed and traded on the Nasdaq Global Market and registered under the Exchange Act and we will continue to file periodic reports with the SEC.

Furthermore, if the Merger is not consummated, and depending on the circumstances that would have caused the Merger not to be consummated, it is likely that the price of our common stock will decline significantly. If that were to occur, it is uncertain when, if ever, the price of our common stock would return to the price at which it trades as of the date of this proxy statement.

Accordingly, if the Merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our common stock. If the Merger is not consummated, the Board will continue to evaluate and review our business operations, assets, operating results, financial condition, prospects and business strategy, among other things, and make such changes as are deemed appropriate and continue to seek to enhance stockholder value. If the Merger Agreement is not adopted by our stockholders or if the Merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to Entellus will be offered or that our business, prospects or results of operations will not be adversely impacted.

In addition, under specified circumstances, we may be required to pay Stryker a termination fee or reimburse Stryker for its transaction fees up to a certain amount upon the termination of the Merger Agreement, as described under “The Merger Agreement—Termination Fee; Certain Stryker Expenses” beginning on page 94 of this proxy statement.

 

31


Table of Contents

Merger Consideration

In the Merger, each share of our common stock issued and outstanding immediately prior to the Effective Time (other than Cancelled Shares and Dissenting Shares) will be converted automatically into the right to receive the Merger Consideration, and without any action by the holders of such shares, will cease to be outstanding, be cancelled and cease to exist, and each Certificate or Book-Entry Share will thereafter represent only the right to receive, upon surrender of such Certificate or Book-Entry Share, the Merger Consideration.

After the Merger is consummated, under the terms of the Merger Agreement, you will have the right to receive the Merger Consideration, but you will no longer have any rights as an Entellus stockholder as a result of the Merger (except that stockholders who have properly exercised and perfected and not lost or withdrawn their appraisal rights will have the right to receive a payment for the fair value of their shares as determined by the Delaware Court of Chancery in accordance with Section 262, as described under “The Merger—Appraisal Rights” beginning on page 67 of this proxy statement).

Background of the Merger

The Board and senior management of Entellus regularly review Entellus’ long-term strategic plan with the goal of maximizing stockholder value. As part of this regular process, the Board and senior management have periodically evaluated potential strategic alternatives relating to Entellus’ business and engaged in discussions with third parties concerning potential strategic transactions, including a merger transaction or a sale of Entellus.

In 2015, as part of its regular review of Entellus’ near and long-term strategic alternatives, the Board and senior management discussed a wide variety of potential strategic alternatives with representatives of Piper Jaffray. From time to time during 2015, members of Entellus senior management had informal discussions with representatives from Stryker regarding Entellus’ business based on publicly available, non-confidential information, but no details of a potential transaction were discussed.

As a continuation of informal discussions earlier in the year, on September 28, 2015, Mr. White met with James Marucci, Vice President and General Manager of the Neuro, Spine ENT and Navigation division of Stryker, and Spencer Stiles, President, Stryker Instruments, of Stryker, at the American Academy of Otolaryngology (“AAO”)—Head and Neck Surgery Annual Meeting in Dallas, Texas, and provided an overview of Entellus’ business and products based on publicly available, non-confidential information.

On November 27, 2015, Entellus formally engaged Piper Jaffray as its financial adviser to explore strategic alternatives. Piper Jaffray was selected by Entellus because of its experience and expertise as a financial adviser in a wide variety of transactions and due to its familiarity with Entellus’ business from being an underwriter in Entellus’ initial public offering. From time to time during 2015 and early 2016, Entellus and Piper Jaffray had discussions regarding strategic transactions with various parties but none developed beyond preliminary stages.

In May 2016, members of the Stryker management team reached out to members of Entellus management to have further discussions regarding the Entellus business. On May 20, 2016, Mr. White met with Mr. Marucci at the Combined Otolaryngological Spring Meeting (“COSM”) in Chicago, Illinois, and provided an update on Entellus’ business and products based on publicly available, non-confidential information. Messrs. White and Marucci decided to schedule a meeting at Entellus’ headquarters in Plymouth, Minnesota, in the following weeks. Mr. White subsequently notified the Board of the meeting with Mr. Marucci and the intended follow-up meeting.

On June 9, 2016 and June 10, 2016, Mr. White met with members of the management team of Stryker in Plymouth, Minnesota, and provided a more detailed overview of Entellus’ business and products based on publicly available, non-confidential information.

During the spring of 2016, as part of its regular review of Entellus’ near- and long-term strategic alternatives, the Board requested that senior management and Piper Jaffray contact another medical device

 

32


Table of Contents

company, which we refer to as Company A, regarding Company A’s previous interest in a potential stock-for-stock business combination with Entellus. Entellus had had discussions with Company A in 2015 regarding a potential stock-for-stock business combination, but such discussions did not develop past preliminary stages. Mr. White and a representative of Piper Jaffray reached out to Company A, and Entellus and Company A subsequently held discussions regarding a potential business combination transaction. At the direction of the Board, on June 14, 2016, Entellus sent Company A a written non-binding expression of interest regarding a potential stock-for-stock business combination between Entellus and Company A. On August 5, 2016, Company A sent Entellus a written confidential non-binding indication of interest along with a summary of proposed terms for a potential stock-for-stock business combination between Entellus and Company A, with such transaction based on a trailing average share price for both Entellus and Company A. On August 18, 2016, Entellus and Company A entered into an amended and restated mutual non-disclosure agreement, which had originally been executed on October 29, 2015. The agreement contained a standard standstill provision that would terminate upon the announcement of certain transactions, including the Merger. On August 30, 2016, Entellus and Company A provided access to their respective online data rooms. In the summer and fall of 2016, Entellus and Company A held management meetings, conducted reciprocal diligence and negotiated a draft merger agreement. During this time, the Board and the Entellus management team regularly communicated and received advice from its outside legal counsel Fox Rothschild LLP (referred to as “Fox Rothschild”) and Latham & Watkins LLP (referred to as “Latham & Watkins”).

In August and September 2016, during the course of Entellus’ negotiations with Company A, the Board requested that senior management and Piper Jaffray contact Stryker and three other medical device companies, referred to as Company B, Company C and Company D, regarding each party’s interest in a potential acquisition of Entellus. On August 11, 2016, Entellus entered into a non-disclosure agreement with each of Stryker, Company B and Company C in connection with each party’s evaluation of a potential acquisition of Entellus, and, on September 13, 2016, Entellus entered into a non-disclosure agreement with Company D. Each non-disclosure agreement contained a standard standstill provision that would terminate upon the announcement of certain transactions, including the Merger. On August 13, 2016, access to Entellus’ online data room containing initial due diligence information regarding Entellus and its business was provided to Stryker, Company B and Company C. In August and (in the case of Stryker and Company B) September 2016, Stryker, Company B and Company C held meetings with management of Entellus and conducted due diligence on Entellus.

Senior management and Piper Jaffray invited potentially interested parties to submit indications of interest for the acquisition of Entellus on September 6, 2016. Despite multiple attempts by representatives of Piper Jaffray to contact Company D about scheduling and participating in management presentations, Company D did not engage further regarding exploring an acquisition of Entellus.

On August 23, 2016, Company C informed representatives of Piper Jaffray that it was not interested in pursuing a potential acquisition of Entellus. Immediately thereafter, representatives from Piper Jaffray removed Company C’s access from Entellus’ online data room.

On September 6, 2016, Stryker submitted a written confidential non-binding indication of interest to acquire 100% of the outstanding equity interests of Entellus at a price of $23.65 per share in cash, subject to the negotiation of definitive transaction documents, customary due diligence and approval by Stryker’s board of directors. On that same date, Company B submitted a written confidential non-binding expression of interest that it was interested in acquiring all of the outstanding shares of Entellus at a price ranging from $23.00 to $24.00 per share in cash, subject to customary due diligence and approval by Company B’s senior management and board of directors. Company B’s expression of interest also requested exclusivity to negotiate an acquisition with Entellus. Neither of these proposals was subject to a financing condition. The closing price per share of Entellus common stock on September 6, 2016 was $18.92.

On September 12, 2016, at the request of the Board, a representative of Piper Jaffray communicated to Company B that Entellus had determined not to grant Company B exclusivity, and, on September 27, 2016,

 

33


Table of Contents

Company B contacted representatives of Piper Jaffray and indicated that in light of Entellus’ decision not to grant exclusivity to Company B, Company B was withdrawing its non-binding expression of interest and was no longer interested in pursuing a potential acquisition of Entellus. Immediately thereafter, representatives from Piper Jaffray removed Company B’s access from Entellus’ online data room.

On October 3, 2016, as instructed by the Board, a representative of Piper Jaffray sent an e-mail to Stryker with a draft of a merger agreement, which had been prepared by Latham & Watkins. As instructed by the Board, the representative of Piper Jaffray indicated in its email that Stryker should review the merger agreement and provide a final offer that specified a definitive per share purchase price and include a statement that all required corporate approvals had been obtained.

On October 5, 2016, Stryker contacted a representative of Piper Jaffray and informed the Piper Jaffray representative that it was not interested in further pursuing a potential acquisition of Entellus at that time. Immediately thereafter, representatives from Piper Jaffray removed Stryker’s access from Entellus’ online data room.

On November 4, 2016, Entellus and Company A determined to cease any further discussions regarding a potential strategic transaction as the parties could not reach agreement on terms of such a transaction, specifically due to changes in Company A’s stock price from when Entellus and Company A had begun their discussions in mid-2016. Immediately thereafter, representatives from Piper Jaffray removed Company A’s access from Entellus’ online data room.

On December 2, 2016, a representative of Stryker’s financial advisor, Guggenheim Securities LLC (referred to as “Guggenheim Securities”), contacted a representative of Piper Jaffray and indicated that Stryker was interested in re-engaging with Entellus in connection with a potential acquisition of Entellus and, on December 6, 2016, Stryker submitted a revised written confidential non-binding indication of interest to acquire 100% of the outstanding equity interests of Entellus in an all-cash transaction at a price of $21.00 per share. The proposal continued to provide that it was subject to the negotiation of definitive transaction documents, customary due diligence and approval by Stryker’s board of directors. The proposal was not subject to a financing condition. The closing price per share of Entellus common stock on December 6, 2016 was $18.63.

On December 7, 2016, at the direction of the Board, Entellus informed Stryker that Stryker would need to increase its offer price and that a definitive agreement would need to be signed before the end of 2016 in order for Entellus to be interested in pursuing a potential acquisition by Stryker.

On December 8, 2016, Stryker informed Entellus that Stryker would not be able to increase the offer price in any meaningful manner at that time and would not be in a position to complete diligence and execute a merger agreement before the end of 2016. Entellus and Stryker terminated their discussions regarding a potential acquisition of Entellus, and Stryker withdrew its December 6, 2016 non-binding indication of interest.

On January 13, 2017, Mr. White sent a letter to Piper Jaffray confirming that the engagement letter between Entellus and Piper Jaffray expired on November 26, 2016.

On April 27, 2017, Messrs. Stiles and Marucci met with Mr. White while attending the 2017 COSM in San Diego, California, and suggested that Mr. White and his team come to Stryker’s headquarters in Michigan to present on the progress of the Entellus business.

On July 13, 2017, Entellus closed the acquisition of Spirox, Inc. for a total value of approximately $81 million, consisting of $25 million in cash and approximately 3.4 million shares of Entellus common stock. The transaction also included certain contingent payments that could be made by Entellus to former equity holders of Spirox, Inc. over the following four years.

In mid-August 2017, representatives of the management team at Stryker reached out to Mr. White expressing interest regarding an update on Entellus and its business.

 

34


Table of Contents

On September 7, 2017, at the invitation of Stryker, representatives of Entellus’ management, and several representatives of Stryker’s management, including Messrs. Marucci and Stiles, had an in-person meeting at Stryker’s headquarters located in Kalamazoo, Michigan. At this meeting, Entellus’ management provided a general business update regarding Entellus and its recently acquired Spirox, Inc. business. The parties indicated that they would plan to meet at the upcoming annual AAO meeting in Chicago, Illinois scheduled from September 10 through September 13, 2017.

On September 11, 2017, Timothy Scannell, Group President, MedSurg & Neurotechnology, of Stryker, toured Entellus’ booth with Mr. White at the AAO annual meeting. During the tour, Mr. White provided an overview of the products and business of Entellus.

On or around September 15, 2017, Mr. Marucci contacted Mr. White to express interest in Stryker beginning to conduct due diligence on Entellus after having positive discussions on September 7, 2017, and successful interactions with Entellus during the AAO annual meeting on September 11, 2017.

On September 25, 2017, at a special telephonic meeting of the Board, Mr. White updated the Board on management’s recent discussions with Stryker, including the September 7, 2017 meeting at Stryker’s headquarters and the September 11, 2017 discussion with Stryker at the AAO annual meeting. The Board determined to re-engage Piper Jaffray to assist the Board in evaluating a potential transaction with Stryker and to assist the Board in exploring other potential strategic alternatives, including the sale of Entellus. The Board selected Piper Jaffray because of its experience and expertise as a financial adviser in a wide variety of transactions and due to its familiarity of Entellus’ business from being an underwriter in Entellus’ initial public offering and working with Entellus on possible strategic alternatives in 2016. The Board directed management to instruct Piper Jaffray to contact Company B and Company D regarding their possible interest in a potential acquisition of Entellus. The Board believed Company B and Company D were the two most likely acquirers of Entellus other than Stryker because of their existing product portfolios in the ENT medical device space, their perceived ability to realize synergies in an acquisition of Entellus, and their respective abilities to finance a cash acquisition of Entellus without the need to obtain additional third-party financing as a condition to closing. Given Company D’s lack of engagement in 2016 despite multiple attempts by representatives of Piper Jaffray to contact Company D, the Board directed management to inform representatives of Piper Jaffray to wait to contact Company D until Entellus received an indication of interest from Stryker or received an indication from Company B that Company B would be interested in engaging in discussions regarding a potential acquisition of Entellus. The Board determined not to contact potential financial buyers because the Board believed strategic buyers would be more likely to be able to realize greater synergies and therefore be more likely to be able to offer a higher price in connection with an acquisition of Entellus. In addition, the Board concluded strategic buyers were more likely to be able to finance a cash acquisition of Entellus without the need to obtain additional third-party financing as a condition to closing, which would reduce risk related to press leaks and closing a transaction. The Board decided not to reach out to Company A regarding a possible strategic transaction in light of Entellus’ experience with Company A in their stock-for-stock business combination discussions from 2016, and since Company A had not shown the interest nor likely had the ability to consummate a cash acquisition of Entellus. The Board decided not to reach out to Company C because of the minimal interest that Company C had shown in an acquisition of Entellus during discussions in 2016.

On September 29, 2017, a representative of Guggenheim Securities contacted a representative of Piper Jaffray to express Stryker’s interest in moving forward with evaluating a potential acquisition of Entellus and indicated that Stryker would be submitting a preliminary non-binding indication of interest relating to an acquisition of Entellus in the coming weeks.

Also on September 29, 2017, a representative of Piper Jaffray contacted a representative of Company B to discuss whether Company B might be interested in evaluating a potential acquisition of Entellus and discussed process and timing.

 

35


Table of Contents

Between late September and November 5, 2017, members of senior management of Entellus and Stryker engaged in discussions on several occasions regarding a potential acquisition of Entellus, and Entellus management and representatives of Piper Jaffray responded to requests for information from Stryker.

On October 13, 2017, Company B indicated to representatives of Piper Jaffray that it was interested in evaluating a potential acquisition of Entellus and would like to participate in a due diligence management meeting with Entellus.

On October 16, 2017, a representative of Piper Jaffray contacted a representative of Company D so as to gauge its interest in a potential acquisition of Entellus and inform Company D of the expected process and timing.

On October 17, 2017, a representative of Guggenheim Securities contacted representatives of Piper Jaffray to discuss the status and timing of an indication of interest from Stryker relating to an acquisition of Entellus. The representative of Guggenheim Securities indicated that Stryker was continuing to evaluate a potential acquisition of Entellus and requested that Stryker’s outside deal counsel, Skadden, Arps, Slate, Meagher & Flom LLP (referred to as “Skadden”) have a telephone conversation with Latham & Watkins.

On October 19, 2017, representatives of Latham & Watkins and Skadden discussed certain diligence matters, as well as the process and structure of a potential acquisition of Entellus by Stryker.

On October 24, 2017, Company D informed a representative of Piper Jaffray that it was not interested in pursuing a potential acquisition of Entellus.

On October 25, 2017, at a regularly scheduled Board meeting, Mr. White updated the Board regarding management’s and Piper Jaffray’s discussions with Stryker and Company B and the Board that Company D had determined not to explore a potential acquisition of Entellus. The Board authorized management to proceed with further discussions with Stryker and Company B. The Board determined not to reach out to any other companies at that time due to the fact that the Board believed that management and Piper Jaffray had already contacted the most likely acquirers of Entellus, the results of Entellus’ discussions with Company A and Company C in 2016 which led the Board to believe that they were not likely to be interested in an acquisition of Entellus at the time, and to limit the opportunity for leaks to the market regarding Entellus’ discussions. During the meeting, Entellus management reviewed with the Board the Base Case Forecasts. For a more detailed description of these financial forecasts, please see “The Merger—Certain Financial Forecasts—Base Case Forecasts, Updated Base Case Forecasts and Final Base Case Forecasts” beginning on page 57 of this proxy statement.

On November 1, 2017, Entellus and Company B renewed their non-disclosure agreement as the prior agreement had expired on its terms.

On November 2, 2017, representatives of Entellus’ management and a representative of Piper Jaffray met with representatives of Company B at Company B’s corporate offices and provided a general business update regarding Entellus. Following this meeting, Company B sent several due diligence requests to Entellus and Entellus provided Company B information in response to these requests. Company B was not given access to Entellus’ online data room.

On November 6, 2017, Stryker submitted a written confidential non-binding indication of interest to acquire 100% of the equity interests of Entellus at a price of $23.00 per share in cash, subject to the negotiation of definitive transaction documents, customary due diligence and approval by Stryker’s board of directors. The non-binding indication of interest did not request exclusivity and was not subject to a financing condition. The closing price per share of Entellus common stock on November 6, 2017 was $16.80.

On November 7, 2017, the Board held a telephonic special meeting, together with members of management and representatives of Piper Jaffray, Latham & Watkins and Fox Rothschild. Mr. White reviewed with the Board

 

36


Table of Contents

the terms of Stryker’s preliminary non-binding indication of interest. Representatives of Piper Jaffray presented a preliminary financial analysis of Entellus on a stand-alone basis and of the preliminary non-binding indication of interest received from Stryker. Representatives of Piper Jaffray also provided an overview of certain other potential strategic alternatives. Representatives of Latham & Watkins reviewed certain legal aspects involved in the process and a proposed acquisition of Entellus by Stryker. The Board discussed Stryker’s indication of interest and the financial analysis presented by Piper Jaffray, including a review of the Updated Base Case Forecasts. The Board considered instructing the representatives of Piper Jaffray to contact other third parties regarding their possible interest in an acquisition of Entellus, but determined not to since the Board believed that management and Piper Jaffray had already contacted the third parties most likely to be interested in a possible acquisition of Entellus. In addition, the Board considered the results of Entellus’ discussions with Company A and Company C in 2016, which in the Board’s view did not make them likely to be interested in a possible acquisition of Entellus, concerns about losing momentum in the discussions with Stryker and Company B, and limiting the opportunity for leaks to the market regarding Entellus’ activities surrounding a potential transaction. Following a discussion of various alternative responses to the preliminary non-binding indication of interest received from Stryker, the Board decided to reconvene and continue the discussion the following day, November 8, 2017.

On November 8, 2017, the Board reconvened a telephonic special meeting, together with members of management and representatives of Piper Jaffray, Latham & Watkins and Fox Rothschild. The Board again discussed Stryker’s indication of interest and the status of discussions with Company B. Following the discussion, the Board directed Mr. White to express to Stryker the Board’s appreciation for Stryker’s interest in Entellus’ business, but to inform Stryker that the offer price of $23.00 per share in cash would need to be increased in order to be acceptable to the Board.

Following the Board meeting on November 8, 2017, Mr. White called Mr. Stiles, and informed him that the Board had determined that Stryker’s proposed offer of $23.00 per share in cash would need to be increased in order to be acceptable to the Board and suggested that Stryker complete its due diligence of Entellus and at that time present a revised higher offer price. Mr. Stiles indicated that Stryker would not proceed with additional due diligence or further discussions regarding a potential acquisition of Entellus without preliminary agreement as to price. Mr. Stiles also informed Mr. White that Stryker would require exclusivity with respect to a potential acquisition of Entellus before Stryker would proceed with further negotiations with Entellus. Mr. White indicated that he could not, at that time, commit to exclusivity, but would pass along Mr. Stiles’ offer to the Board and Entellus’ advisers and that Mr. White would be in touch with Mr. Stiles in the coming days.

Following Mr. White’s call with Mr. Stiles, a representative of Guggenheim Securities contacted a representative of Piper Jaffray to indicate that Stryker would submit a revised indication of interest with an increased valuation for Entellus by November 9, 2017.

On November 8, 2017, a representative of Piper Jaffray contacted Company B to discuss Company’s B progress in evaluating a potential acquisition of Entellus. Company B indicated to Piper Jaffray’s representative that it was continuing to evaluate a potential transaction with Entellus and planned to discuss the potential transaction at an executive committee meeting on November 20, 2017, after which it would respond to Entellus with a further update. Company B reiterated its priority diligence requests from its list previously provided, and the priority diligence information was subsequently provided to Company B by Entellus on November 10, 2017.

On November 9, 2017, a representative of Guggenheim Securities contacted a representative of Piper Jaffray and indicated that Stryker would increase its preliminary non-binding proposal to acquire Entellus to $23.40 per share in cash, and reaffirmed that Stryker would require Entellus to grant Stryker exclusivity. In addition, the representative of Guggenheim Securities indicated that Stryker was targeting a signing and public announcement of an acquisition of Entellus sometime during the week of December 4, 2017. After additional telephone calls between representatives of Guggenheim Securities and Stryker, on the one hand, and representatives of Piper Jaffray and Entellus, on the other hand, representatives of Guggenheim Securities, on

 

37


Table of Contents

behalf of Stryker, informed representatives of Piper Jaffray that Stryker would increase its proposed acquisition price to $23.70 per share in cash.

In the evening on November 9, 2017, the Board held a special telephonic meeting, together with members of management and representatives of Piper Jaffray, Latham & Watkins and Fox Rothschild, to review the terms of the revised indication of interest from Stryker. Mr. White led a discussion regarding the recent decision by Anthem, Inc. (referred to as “Anthem”), the largest member of the Blue Cross Blue Shield Association, to cover balloon sinus dilation for the treatment of chronic and recurrent acute sinusitis. The Board directed Mr. White to express to Stryker, that in light of this very recent positive development, Stryker’s most recent proposed valuation of $23.70 per share in cash would need to be increased in order to be acceptable to the Board. The Board also directed Entellus’ management to revise the Updated Base Case Forecasts to take into consideration the decision by Anthem to cover balloon sinus dilation for the treatment of chronic and recurrent acute sinusitis and requested representatives of Piper Jaffray to update its preliminary financial analysis to reflect these revisions.

Following the Board meeting on November 9, 2017, Mr. White called Mr. Stiles and informed him of the Board’s view that in light of the recent decision by Anthem to cover balloon sinus dilation for the treatment of chronic and recurrent acute sinusitis, Stryker’s proposed valuation of $23.70 per share in cash would need to be increased in order to be acceptable to the Board. The closing price per share of Entellus common stock on November 9, 2017 was $15.85.

On November 10, 2017, Mr. Marucci telephoned Mr. White and indicated that Stryker would increase its price to $24.00 per share in cash, which Mr. Marucci indicated represented Stryker’s best and final offer and was conditioned upon Entellus granting Stryker exclusivity.

Later that day, the Board held a telephonic special meeting together with members of management and representatives of Piper Jaffray, Latham & Watkins and Fox Rothschild. Mr. White and representatives of Piper Jaffray provided an update regarding their discussions with Stryker and Company B to date. Mr. White and representatives of Piper Jaffray reviewed the history of negotiations with Stryker and Stryker’s latest $24.00 per share acquisition proposal, as well as Stryker’s requirement that Entellus grant exclusivity to Stryker prior to conducting further discussion regarding a potential acquisition of Entellus. Representatives of Latham & Watkins again reviewed the fiduciary duties of the Board in the context of a sale of Entellus and an agreement by the Board to grant exclusivity to Stryker. Representatives of management reviewed the Final Base Case Forecasts, which had been prepared at the request of the Board to take into consideration the decision by Anthem to cover balloon sinus dilation for the treatment of chronic and recurrent acute sinusitis. For a more detailed description of these financial forecasts, please see “The Merger—Certain Financial Forecasts—Base Case Forecasts, Updated Base Case Forecasts and Final Base Case Forecasts” beginning on page 57 of this proxy statement. Representatives of Piper Jaffray then provided an updated financial analysis with respect to Entellus and the revised proposal from Stryker, taking into account the Final Base Case Forecasts, which had been updated from the Updated Base Case Forecasts provided at the November 9, 2017 meeting. The Board discussed the Final Base Case Forecasts, the Piper Jaffray presentation and the anticipated effect of Anthem’s recent decision to cover balloon sinus dilation for the treatment of chronic and recurrent acute sinusitis on Entellus’ projected revenues. The Board also discussed the history of negotiations with Company B and the uncertainty regarding whether Company B would be interested in pursuing an acquisition of Entellus on comparable or better terms, on a timely basis, or at all. The Board considered the fact that while Company B had initially been contacted by Piper Jaffray on September 29, 2017 and had initially indicated that it was interested in evaluating a potential acquisition of Entellus on October 13, 2017, Company B had not indicated to Piper Jaffray or Entellus that it would submit an offer to acquire Entellus on any specific time frame or at all, and had informed Piper Jaffray that it would not have a further update with respect to its interest in a potential acquisition of Entellus until after an executive committee meeting on November 20, 2017, the fact that Company B was significantly behind Stryker in the overall process and the fact that Stryker had expressed its desire to execute a definitive agreement by early December 2017. The Board discussed the ability of a potential acquirer to deliver a superior offer to acquire

 

38


Table of Contents

Entellus after a merger agreement had been signed and announced, and a representative from Latham & Watkins discussed the importance of specific terms relating to superior offers in a customary merger agreement in the context of the Board’s fiduciary duties in relation to potential acquisition of Entellus. Entellus’ management and the Board discussed the alternative of remaining an independent standalone company, taking into consideration the Final Base Case Forecasts, and the risks and opportunities to Entellus, its business and its stockholders in connection therewith. Following the discussions, the Board concluded that granting Stryker exclusivity at a per share price of $24.00 would maximize Entellus’ chances of achieving the best possible price for Entellus stockholders. Following discussion, the Board authorized management to enter into an exclusivity agreement with Stryker based on its revised offer of a per share purchase price of $24.00, with an exclusivity period not to exceed 30 days, and to negotiate a merger agreement for an all-cash acquisition of Entellus by Stryker at a price of $24.00 per share of common stock.

Immediately after the Board meeting on November 10, 2017, Mr. White telephoned Mr. Marucci and informed him of the Board’s decision to enter into an exclusivity agreement with Stryker and to negotiate a merger agreement with Stryker at a price of $24.00 per share of common stock.

Later on November 10, 2017, Stryker submitted a revised written non-binding indication of interest to acquire Entellus at a price of $24.00 per share in cash, along with a draft exclusivity agreement that would provide for a 30-day exclusive negotiating period between Stryker and Entellus. The closing price per share of Entellus common stock on November 10, 2017 was $15.90.

On November 11, 2017, access to Entellus’ online data room was granted to Stryker and its representatives.

From November 11, 2017 through December 6, 2017, Entellus’ management and representatives continued to populate Entellus’ online data room with materials responsive to a due diligence request list supplied by Stryker and subsequent additional due diligence and information requests made by representatives and advisors of Stryker, including related to the Spirox, Inc. business.

On the morning of November 13, 2017, Entellus and Stryker executed the exclusivity agreement providing Stryker with an exclusive negotiating period through December 7, 2017. The closing price per share of Entellus common stock on November 13, 2017 was $15.98.

On November 13, 2017, a representative of Piper Jaffray notified Company B by e-mail that Entellus entered into an exclusivity agreement with another party. Company B did not respond to Piper Jaffray and did not initiate any further discussions with Entellus or Piper Jaffray.

On November 14, 2017, representatives of Latham & Watkins and Skadden discussed certain deal related matters, including the process and structure of the transaction.

Late in the evening of November 17, 2017, Skadden delivered an initial draft of the Merger Agreement to Latham & Watkins. The draft Merger Agreement provided, among other things, that the proposed acquisition of Entellus by Stryker would be submitted to a vote of Entellus stockholders for approval, and that Entellus would be merged into a wholly owned subsidiary of Stryker. The initial draft of the Merger Agreement did not contain a financing condition and provided for acceleration of all Entellus equity awards. The draft of the Merger Agreement indicated that all officers and directors would be asked to sign a Voting Agreement and provided for a termination fee of approximately 3.5% of the equity value of the transaction.

On November 20, 2017, several representatives of Entellus and Stryker had an in-person meeting in the Minneapolis area and conducted functional diligence sessions. During the meeting, Entellus management shared with the Stryker representatives the Final Base Case Forecasts (as such term is defined under “The Merger—Certain Financial Forecasts—Base Case Forecasts, Updated Base Case Forecasts and Final Base Case Forecasts” beginning on page 57 of this proxy statement). The Entellus management team explained the updates

 

39


Table of Contents

to the forecasts based on the November 9, 2017 announcement by Anthem, Inc. The Resourced Case Forecasts were also presented to Stryker, but had not been updated after the announcement by Anthem because the Final Base Case Forecasts reflected Entellus’ current assessment of its future financial performance. Entellus management indicated the assumptions around each of such forecasts and indicated that while the Resourced Case Forecasts were useful to illustrate the effect of certain assumptions on Entellus’ future financial performance, the Final Base Case Forecasts were the forecasts that reflected Entellus’ current assessment of its future financial performance. For a more detailed description of these financial forecasts, please see “The Merger—Certain Financial Forecasts” beginning on page 56 of this proxy statement.

On November 20, 2017, Skadden sent an initial draft of a form of Voting Agreement to Latham & Watkins.

On November 21, 2017, members of the Entellus management team had a telephonic meeting with representatives from Piper Jaffray, Latham & Watkins and Fox Rothschild relating to the draft Merger Agreement. Among other things, discussion involved the topics of closing certainty, protections around the Board’s fiduciary duties, the size of the termination fee and the antitrust covenants of the parties. Management directed Latham & Watkins to revise the draft Merger Agreement to send to Skadden.

On November 24, 2017, Latham & Watkins sent a revised draft of the Merger Agreement and the Voting Agreement to Skadden.

From November 24, 2017 through December 4, 2017, representatives of Latham & Watkins and Skadden continued to negotiate and discuss drafts of the Merger Agreement and the Voting Agreement. Throughout this period, representatives of Latham & Watkins updated members of the Entellus management and representatives of Piper Jaffray as to the progress of the negotiations. During discussions among Entellus management, representatives of Piper Jaffray and representatives of Latham & Watkins, conversation focused on the need for a lower termination fee, more Entellus-favorable deal protection terms and the removal of certain closing conditions, including a condition related to dissenters’ rights.

On November 29, 2017, the Board held a special telephonic meeting, together with members of management and representatives of Piper Jaffray, Latham & Watkins and Fox Rothschild. A representative of Latham & Watkins summarized the key material terms of the Merger Agreement that remained subject to further negotiation, including the non-solicitation and termination provisions, conditions to closing, interim operating and other covenants, Entellus’ representations and warranties, as well as the termination provisions in the Voting Agreement. At this time, the termination fee proposed by Stryker was 3.5% of the equity value of the transaction. The Board provided guidance on certain open items in the Merger Agreement and authorized Entellus management and Latham & Watkins to continue negotiating with Stryker, and specifically that the termination fee, closing conditions and deal protection terms needed to be improved in Entellus’ favor. After representatives of Piper Jaffray were dismissed from the call, the Board approved an amendment to the engagement letter with Piper Jaffray to extend the term of its agreement with Entellus, which had expired.

On December 4, 2017, the Board held a special telephonic meeting, together with members of management and representatives of Piper Jaffray, Latham & Watkins and Fox Rothschild. The representatives from Latham & Watkins reviewed the fiduciary duties of the Board and provided an update regarding the terms of the Merger Agreement and the Voting Agreement, including the resolution of prior open terms and the terms that remained subject to further negotiation. The representative from Latham & Watkins gave an update on the improved terms of the transaction since the prior Board meeting, including a lower termination fee, more Entellus-favorable deal protection terms, removal of certain closing conditions, changes to the representations and warranties of Entellus and the termination of the Voting Agreement upon a Board change of recommendation. The Board discussed the terms of the Merger Agreement pertaining to superior proposals, including the termination fee (which was now agreed by the parties as approximately 3.1% of the equity value of the transaction). In part based on the advice of representatives of Piper Jaffray and Latham & Watkins, the Board concluded that Company B and other potential acquirers were unlikely to be deterred from making superior proposals under the terms proposed in the draft

 

40


Table of Contents

Merger Agreement. Entellus’ management discussed the various risks and opportunities associated with Entellus remaining a separate standalone company. Mr. White and the representative from Latham & Watkins discussed a proposed timeline to finalize the Merger Agreement and announce a transaction. Representatives of Piper Jaffray then reviewed Piper Jaffray’s preliminary financial analysis of the proposed per share Merger Consideration. The Board provided guidance on the remaining open items in the Merger Agreement and authorized Entellus management to continue negotiating with Stryker.

On the evening of December 4, 2017, Latham & Watkins sent a revised draft of the Merger Agreement to Skadden.

Latham & Watkins and Skadden continued to finalize the Voting Agreement, the Merger Agreement and the disclosure schedules to the Merger Agreement through various communications and telephonic discussions and throughout December 5, 2017 and the morning of December 6, 2017.

On the afternoon of December 6, 2017, the Board held a telephonic meeting at which members of Entellus management and representatives of Piper Jaffray, Latham & Watkins and Fox Rothschild were present. Representatives of Latham & Watkins reviewed the proposed final terms of the Voting Agreement and the Merger Agreement, focusing on the changes to the Merger Agreement since the December 4, 2017 Board meeting. Latham & Watkins summarized the directors’ fiduciary duties with respect to the proposed transaction. Representatives of Piper Jaffray then reviewed with the Board a financial analysis of the per share Merger Consideration and delivered to the Board an oral opinion, which was confirmed by delivery of a written opinion of Piper Jaffray dated December 6, 2017, to the effect that, as of that date and based on and subject to various assumptions and limitations described in its opinion, the $24.00 per share Merger Consideration, was fair, from a financial point of view, to holders of shares of Entellus common stock. For a detailed discussion regarding the opinion provided by Piper Jaffray, please see “The Merger—Fairness Opinion of Entellus’ Financial Advisor” beginning on page 46 of this proxy statement. After further discussion, the Board unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement were advisable and in the best interests of Entellus and its stockholders, approved and declared advisable the Merger Agreement and the Merger, and recommended that Entellus stockholders vote to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger.

On the morning of December 7, 2017, Entellus and Stryker executed the Merger Agreement and certain stockholders of Entellus, including certain directors and executive officers of Entellus, each executed a Voting Agreement with Stryker.

Before the market opened on December 7, 2017, Entellus and Stryker issued press releases announcing the entry into the Merger Agreement.

Recommendation of the Board and Reasons for the Merger

The Board evaluated, with the assistance of its legal and financial advisors, the Merger Agreement and the Merger and unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of Entellus and its stockholders and unanimously approved the Merger Agreement and the Merger and unanimously recommends that you vote “FOR” the Merger Proposal and “FOR” the Adjournment Proposal.

On December 6, 2017, the Board unanimously (i) adopted the Merger Agreement and approved the transactions contemplated thereby, including the Merger, (ii) determined that the Merger Agreement and the transactions contemplated by the Merger Agreement are advisable and in the best interests of Entellus and our stockholders, (iii) directed that the adoption of the Merger Agreement be submitted to a vote of our stockholders and (iv) resolved to make the Company Recommendation.

 

41


Table of Contents

In recommending that our stockholders vote their shares of our common stock in favor of the Merger Proposal, the Board considered a number of reasons, including the following (not necessarily in order of relative importance):

 

    Attractive Value. The Board’s belief that the Merger Consideration represents an attractive value for the shares of our common stock, taking into account the Board’s familiarity with our business, operations, assets, operating results, financial condition, prospects and business strategy, and the Board’s belief, based on the course and history of the negotiations between Stryker and Entellus, that the Merger Consideration represented the highest consideration that Stryker was willing to pay.

 

    Best Alternative for Maximizing Stockholder Value. The Board considered that the Merger Consideration was more favorable to our stockholders than the potential value that might result from other alternatives reasonably available to Entellus, including the potential stockholder value based on our business plan that could be expected to be generated from remaining an independent public company, the possibility of being acquired by other companies, the possibility of acquisitions or mergers with other companies and other transactions, as well as the potential benefits, risks and uncertainties associated with such alternatives.

 

    Risks Relating to Remaining a Stand-Alone Company. The Board reviewed our business, operations, assets, operating results, financial condition, prospects, business strategy, competitive position, and industry, including the potential impact (which cannot be quantified numerically) of those factors on the trading price of our common stock, to assess the prospects and risks associated with remaining an independent public company. The Board believed that the acquisition of Entellus by Stryker for $24.00 per share in cash was more favorable to our stockholders than the value of remaining an independent public company, after accounting for the risks and uncertainties associated with achieving and executing upon our business and financial plans in the short- and long-term. Such risks include:

 

    the dependence of our revenues on our XprESS™ family of products and recently acquired Latera Absorbable Nasal Implant, future market acceptance and adoption of our products, and adequate levels of coverage or reimbursement for procedures using our products;

 

    current and anticipated future competition for our products and our ability to compete successfully in light of the nature of the medical device and in particular the ENT industry, the presence of many larger, well-financed competitors, and our need to continue to develop and commercialize additional ENT products;

 

    increasing and changing regulatory, reimbursement and compliance requirements for operating as a publicly held medical device company in the United States and international markets, and the challenges faced by small medical device companies in managing those requirements;

 

    risks associated with our recent acquisition of Spirox, Inc., including the potential failure to achieve the revenues, cost savings, earnings, growth prospects and synergies expected from the acquisition or delays in realizing such results; delays and challenges in integrating Spirox, Inc.’s business and operations; operating costs and business disruption following the acquisition, including adverse effects on employee retention and on business relationships with third parties, including physicians, providers, distributors and vendors; and issues with customers securing routine and adequate reimbursement for nasal surgery procedures using the Latera device;

 

    our ability to sustain our historical revenue growth, transition to profitability and generate consistent positive cash flows;

 

    our need for additional capital to pursue our business strategy and make anticipated future contingent consideration payments to the former Spirox, Inc. equity holders, the potential risks and uncertainties associated with our ability to raise such additional capital, and the costs of such capital, including the potentially dilutive impact to our existing stockholders; and

 

    other risks and uncertainties discussed in Entellus’ public filings with the SEC. See “Where You Can Find More Information” beginning on page 106 of this proxy statement.

 

42


Table of Contents
    Certainty of Value. The Merger Consideration consists solely of cash, which provides immediate liquidity and certainty of value to our stockholders compared to remaining an independent stand-alone company or any transaction in which our stockholders would receive shares of an acquirer’s stock. The Board weighed the certainty of realizing a compelling value for shares of our common stock by virtue of the Merger against the uncertain prospect that the trading value for our common stock would approach the per share Merger Consideration in the foreseeable future, as well as the risks and uncertainties associated with our business, including those described above, as well as the other risks and uncertainties discussed in Entellus’ public filings with the SEC. See “Where You Can Find More Information” beginning on page 106 of this proxy statement.

 

    Historical Value. The Board considered the value represented by the Merger Consideration compared against the current and historical trading prices of Entellus common stock, including the market performance of Entellus common stock relative to those of other participants in Entellus’ industry and general market indices, and the fact that the Merger Consideration represented a premium of approximately 50% and 49% of the share price of Entellus common stock at 1-week and 4-weeks, respectively, prior to the announcement of the Merger Agreement, and a premium of approximately 50% to the closing per share price of Entellus common stock on December 6, 2017.

 

    Transaction Process. The Board considered the fact that Entellus conducted a thorough and diligent process in 2016 with the goal of entering into a strategic transaction or being acquired, in which 4 different companies other than Stryker were contacted, in an effort to obtain the best value reasonably available to Entellus stockholders. The Board also considered the fact that potential acquirors were contacted again in 2017 before Entellus entered into an exclusivity agreement with Stryker, but that none of those companies demonstrated a substantial interest in acquiring Entellus as compared to Stryker.

 

    Board’s Independence and Comprehensive Review Process. The Board considered the fact that the Board consisted of a majority of independent directors who approved the transaction following extensive discussions with Entellus’ management team, representatives of financial advisers and outside legal counsel, and also took into consideration the financial expertise and prior industry experience held by a number of directors.

 

    Ability to Respond to Unsolicited Company Acquisition Proposals. The Board considered the “fiduciary out” provisions of the Merger Agreement, which, subject to the terms and conditions thereof, permit Entellus to furnish information to and conduct negotiations with third parties that make unsolicited Company Acquisition Proposals, to change its recommendation to stockholders regarding the Merger Agreement and to terminate the Merger Agreement in order to approve a Company Superior Proposal, subject to payment of a termination fee in favor of Stryker. The Board further considered the fact that the $20.5 million termination fee (approximately 3.1% of the transaction value) payable by Entellus (i) is reasonable in light of the overall terms of the Merger Agreement and the benefits of the Merger and (ii) would not preclude another party from making a competing proposal.

 

    Terms of the Merger Agreement. The Board considered all of the terms and conditions of the Merger Agreement, including the structure of the transaction, the all-cash form of the Merger Consideration, the limited scope of the conditions to closing, the customary nature of the representations, warranties, and the covenants and agreements of the parties. The Board further considered the course and nature of negotiations with Stryker, which were conducted at arm’s length and during which the Board was advised by independent legal and financial advisors. These negotiations ultimately resulted in terms that (i) provide for a significant premium over the unaffected trading price of our common stock; (ii) provide robust provisions designed to ensure, absent certain prohibitive events or the submission of a Company Superior Proposal, that the transaction is consummated; and (iii) require that Stryker use reasonable best efforts to obtain required consents and approvals, subject to certain limitations. The Board believed, based on these negotiations, that these were the most favorable terms available to Entellus and our stockholders on which Stryker, or an alternative purchaser, would be willing to transact.

 

43


Table of Contents
    Voting Agreements. The Board viewed favorably the willingness of certain stockholders, including certain directors and executive officers of Entellus, who together held approximately 31.6% of the shares of our common stock outstanding (excluding shares issuable upon the exercise or settlement of options or restricted stock unit awards) as of December 1, 2017, to commit to vote in favor of the Merger Proposal by entry into the Voting Agreements. The Board also considered the fact that the Voting Agreements terminate upon any termination of the Merger Agreement, including upon Entellus’ termination to accept a Company Superior Proposal, such that the existence of the Voting Agreements would not be likely to deter or inhibit a Company Superior Proposal.

 

    Piper Jaffray’s Opinion and Related Analyses. The opinion of Piper Jaffray, dated December 6, 2017, to the Board as to the fairness, from a financial point of view and as of the date of the opinion, of the per share Merger Consideration to be received pursuant to the Merger by holders of shares of Entellus common stock, based upon and subject to the various assumptions and limitations set forth therein, as more fully described under “The Merger—Fairness Opinion of Entellus’ Financial Advisor” beginning on page 46 of this proxy statement.

 

    Likelihood of Consummation. The likelihood that the Merger will be consummated, based on, among other things, the limited number of conditions to the Merger, the absence of a financing condition, Stryker’s representation that it will have sufficient financial resources to pay the aggregate Merger Consideration and consummate the Merger, the relative likelihood of obtaining required regulatory approvals, the remedies available under the Merger Agreement to Entellus in the event of various breaches by Stryker, and Stryker’s reputation in the medical device industry, its financial capacity to complete an acquisition of this size and its prior track record of successfully completing acquisitions, which the Board believed supported the conclusion that a transaction with Stryker could be completed relatively quickly and in an orderly manner.

 

    Stockholder Approval; Appraisal Rights. The Board considered that the Merger would be subject to the approval of our stockholders, that stockholders would be free to reject the Merger, other than those who entered into the Voting Agreements, and that stockholders who do not vote to adopt the Merger Agreement and who follow certain prescribed procedures are entitled to dissent from the Merger and receive the appraised fair value of their shares, as provided under Delaware law.

The Board also considered and balanced against the potentially positive factors a number of uncertainties, risks and other potentially negative factors in its deliberations concerning the Merger and the transactions contemplated by the Merger Agreement, including the following (not necessarily in order of relative importance):

 

    No Stockholder Participation in Future Earnings or Growth. The Board considered the fact that Entellus will no longer exist as an independent company, and accordingly, our stockholders will no longer participate in any future growth Entellus may experience or any potential future appreciation in the value of shares of our common stock, and will not participate in any potential future sale of Entellus’ business to a third party.

 

    Inability to Solicit Other Takeover Proposals. The Board considered that the Merger Agreement includes a covenant prohibiting Entellus from directly or indirectly soliciting, seeking, initiating, encouraging, facilitating or taking actions that would lead to other potential Company Acquisition Proposals. The Board also considered, but did not consider preclusive, the fact that the right afforded to Stryker under the Merger Agreement to re-negotiate the terms of the Merger Agreement in response to a Company Superior Proposal may discourage other parties that might otherwise have an interest in a business combination with, or an acquisition of, Entellus.

 

   

Transaction Process. In exchange for restricting the time frame and scope of its market check, the Board negotiated more favorable terms for Entellus and, in light of the improved terms and attractive price agreed to by Stryker, determined that proceeding with the Merger was in the best interests of our stockholders. Accordingly, though the Merger Agreement permits Entellus to consider unsolicited

 

44


Table of Contents
 

proposals, the Board considered the fact that Entellus’ ability to actively market itself was and will be restricted.

 

    Termination Fee and Reimbursement of Expenses. The Board considered the fact that Entellus may be required to pay a termination fee of $20.5 million (approximately 3.1% of the equity value) if the Merger Agreement is terminated under certain circumstances, including to accept a Company Superior Proposal, and that the amount of the termination fee is comparable to termination fees in transactions of a similar size, was reasonable, would not likely deter competing bids and would not likely be required to be paid unless Entellus entered into a more favorable transaction. The Board also considered the fact that Entellus may be required to reimburse Stryker up to $6.6 million of certain of its transaction expenses in the event the Merger Agreement is terminated by either Stryker or Entellus following a failure to obtain the required vote of our stockholders to adopt the Merger Agreement. The Board also recognized that the provisions in the Merger Agreement relating to these fees were insisted upon by Stryker as a condition to entering into the Merger Agreement.

 

    Effect of Public Announcement. The Board considered the effect of the public announcement of Entellus entering into the Merger Agreement on our operations, including our relationships with customers, distributors, vendors and employees, as well as our ability to attract and retain key personnel while the proposed transaction is pending and the potential adverse effects on our financial results as a result of that disruption, as well as the possibility of any suit, action or proceeding in respect of the Merger Agreement or the transactions contemplated thereby.

 

    Opportunity Costs and Interim Operating Covenants. The Board considered that the focus and resources of our management may become diverted from other important business opportunities and operational matters while working to implement the Merger, which could adversely affect our business. The Board also considered the restrictions on the conduct of our business during the pendency of the Merger, which may delay or prevent Entellus from undertaking potential business opportunities that may arise or may negatively affect our ability to attract, retain and motivate key personnel.

 

    Risk the Merger May Not Be Consummated. The Board considered the fact that consummation of the Merger is subject to the satisfaction of certain closing conditions that are not within our control, including receipt of the necessary regulatory clearances and approvals and that no Company Material Adverse Effect on Entellus has occurred. There can be no assurance that all conditions to the parties’ obligations to consummate the Merger will be satisfied, and as a result, it is possible that the Merger may not be consummated even if the Merger is approved by our stockholders. The Board considered the fact that if the Merger is not consummated (i) we will have incurred significant transaction and opportunity costs, including the possibility of disruption to our operations, diversion of management and employee attention, employee attrition and a potentially negative effect on our business and customer relationships; (ii) the trading price of our common stock could be adversely affected; and (iii) the market’s perceptions of our prospects could be adversely affected.

 

    Transaction Costs. The Board considered the fact that we have incurred and will continue to incur significant transaction costs and expenses in connection with the Merger, regardless of whether the Merger is consummated.

 

    Potential Differing Interests of Directors and Officers. The Board considered the risk that certain of our directors and executive officers may have interests in the transactions contemplated by the Merger Agreement as individuals that are in addition to, or that may be different from, the interests of our stockholders. See “The Merger—Interests of the Directors and Executive Officers of Entellus in the Merger” beginning on page 61 of this proxy statement.

 

    Tax Treatment. The Board considered the fact that the Merger will be a taxable transaction to our stockholders that are U.S. Holders for U.S. federal income tax purposes; and, therefore, such stockholders generally will be required to pay U.S. federal income tax on any gains they recognize as a result of the Merger.

 

45


Table of Contents

The Board believed that, overall, the risks and uncertainties associated with the Merger were outweighed by the potential benefits of the Merger to our stockholders.

The foregoing discussion of factors considered by the Board is not intended to be exhaustive, but summarizes the material factors considered by the Board. In light of the variety of factors considered in connection with their evaluation of the Merger, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their determinations and recommendations. Moreover, each member of the Board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determinations. The Board based its recommendation on the totality of the information presented, including thorough discussions with, and questioning of, our senior management and outside financial advisor and legal counsel. The Board unanimously recommends that you vote “FOR” the Merger Proposal. It should be noted that this explanation of the reasoning of 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 “Cautionary Statement Regarding Forward-Looking Statements” beginning on page  29 of this proxy statement.

Fairness Opinion of Entellus’ Financial Advisor

Entellus retained Piper Jaffray to act as financial advisor to the Board, and, if requested, to render to the Board an opinion as to the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of Entellus common stock.

The full text of the Piper Jaffray written opinion dated December 6, 2017, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Piper Jaffray in rendering its opinion, is attached as Appendix C. You are urged to, and should, carefully read the Piper Jaffray opinion in its entirety and this summary is qualified in its entirety by reference to the written opinion. The Piper Jaffray opinion addresses only the fairness, from a financial point of view and as of the date of the opinion, of the Merger Consideration to be received by the holders of Entellus common stock in the Merger. Piper Jaffray’s opinion was directed to the Board in connection with its consideration of the Merger and was not intended to be, and does not constitute, a recommendation to any holders of Entellus common stock as to how such stockholders should vote or act with respect to the Merger or any other matter. Piper Jaffray’s opinion was approved for issuance by the Piper Jaffray opinion committee and Piper Jaffray has consented to the disclosure of its opinion in this proxy statement.

In connection with rendering the opinion described above and performing its related financial analyses, Piper Jaffray, among other things:

 

    reviewed and analyzed the financial terms of a draft of the Merger Agreement;

 

    reviewed and analyzed certain financial and other data with respect to Entellus that was publicly available;

 

    reviewed and analyzed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Entellus that were publicly available, as well as those that were furnished to Piper Jaffray by Entellus;

 

    conducted discussions with members of senior management and representatives of Entellus concerning the two immediately preceding matters described above, as well as Entellus’ business and prospects before and after giving effect to the Merger;

 

    reviewed the current and historical reported prices and trading activity of Entellus common stock;

 

    compared the financial performance of Entellus with that of certain other publicly-traded companies that Piper Jaffray deemed relevant; and

 

46


Table of Contents
    reviewed the financial terms, to the extent publicly available, of certain business combination transactions that Piper Jaffray deemed relevant.

In addition, Piper Jaffray conducted such other analyses, examinations and inquiries and considered such other financial, economic and market criteria as Piper Jaffray deemed necessary in arriving at its opinion.

The following is a summary of the material financial analyses performed by Piper Jaffray in connection with the preparation of its fairness opinion and reviewed with the Board at a meeting held on December 6, 2017.

This summary includes information presented in tabular format, which tables must be read together with the text of each analysis summary and considered as a whole in order to fully understand the financial analyses presented by Piper Jaffray. The tables alone do not constitute a complete summary of the financial analyses. The order in which these analyses are presented below, and the results of those analyses, should not be taken as any indication of the relative importance or weight given to these analyses by Piper Jaffray or the Board. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before December 5, 2017, and is not necessarily indicative of current market conditions.

For purposes of its analyses, and unless the context indicates otherwise, Piper Jaffray (i) calculated Entellus’ implied per share equity value based on diluted shares of Entellus common stock (including options, the Oxford Warrants and restricted stock unit awards) as of November 30, 2017, calculated using the treasury stock method, (ii) calculated enterprise values (referred to as “EV”) to be implied equity value, plus debt and the estimated fair value of contingent consideration, which, in the case of Entellus, was $48 million and $53 million, respectively, less cash, which, in the case of Entellus, was $51 million, in each case as of September 30, 2017; and (iii) used Entellus’ Final Base Case Forecasts, as set forth under “The Merger—Certain Financial Forecasts—Base Case Forecasts, Updated Base Case Forecasts and Final Base Case Forecasts” beginning on page 57 of this proxy statement, for its analyses of forward looking information for Entellus.

Historical Trading Analysis

Piper Jaffray reviewed the historical closing prices and trading volumes for Entellus common stock over the 1-year period ended December 5, 2017, in order to provide background information on the prices at which Entellus common stock has historically traded. The following table summarizes some of these historical closing prices, and average closing prices (based on volume weighted average prices (referred to as “VWAP”)), relative to the Merger Consideration:

 

     Price per Share  

Closing price on December 5, 2017

   $ 16.26  

Closing 1 week prior price (November 28, 2017)

   $ 15.99  

Closing 4 weeks prior price (November 7, 2017)

   $ 16.15  

120 trading day VWAP

   $ 17.09  

1-year VWAP

   $ 15.61  

1-year intraday high (October 6, 2017)

   $ 20.34  

1-year intraday low (May 4, 2017)

   $ 11.47  

1-year closing price high (October 6, 2017)

   $ 20.30  

1-year closing price low (May 4, 2017)

   $ 12.04  

Merger Consideration

   $ 24.00  

 

47


Table of Contents

Selected Public Companies Analysis

Medical Technology—Financial Profile

Piper Jaffray reviewed projected financial data prepared by Entellus’ management for the years ended December 31, 2017, 2018 and 2019, and compared such data to corresponding Wall Street consensus research estimates for public companies in the medical technology industry that Piper Jaffray believed were comparable to Entellus’ financial profile using the criteria below, based on Piper Jaffray’s professional judgment. Piper Jaffray selected public companies that it considered to be medical technology companies with revenue for the last 12-month period for which financial information was publicly available (referred to as “LTM”) between $25 million and $325 million, projected 2017 revenue growth between 15% and 35% and LTM gross margins greater than 60%.

Piper Jaffray selected the following companies:

 

    Intersect ENT, Inc.

 

    Invuity, Inc.

 

    MiMedx Group, Inc.

 

    Penumbra, Inc.

 

    Tactile Systems Technology, Inc.

For the selected medical technology public companies analysis, Piper Jaffray compared, among other things, projected 2017, 2018 and 2019 implied EV/revenue and EV/gross profit multiples for Entellus based on the Merger Consideration, to the corresponding implied EV multiples for the selected medical technology public companies derived from their closing prices per share on December 5, 2017. Projected 2017, 2018 and 2019 revenue and gross profit for Entellus were based on estimates provided by Entellus’ management. Projected 2017, 2018 and 2019 revenue and gross profit for the selected medical technology public companies were based on Wall Street consensus research estimates, public filings and press releases of such companies.

The analysis indicated the following multiples:

 

     Entellus(1)      Selected Medical Technology Public Companies  
        High      75th%      Mean      Median      25th%      Low  

EV to projected 2017 revenue

     7.2x        10.3x        9.4x        6.2x        4.5x        3.9x        3.4x  

EV to projected 2018 revenue

     5.7x        8.8x        7.9x        5.2x        3.7x        3.1x        2.6x  

EV to projected 2019 revenue

     4.6x        7.5x        6.6x        4.3x        3.1x        2.6x        2.0x  

EV to projected 2017 gross profit

     9.8x        16.0x        13.1x        8.4x        6.1x        4.9x        4.9x  

EV to projected 2018 gross profit

     7.8x        13.4x        11.0x        7.0x        5.1x        4.0x        3.8x  

EV to projected 2019 gross profit

     6.1x        11.3x        9.0x        5.8x        4.2x        3.3x        3.0x  

 

(1) Based on the Merger Consideration.

 

48


Table of Contents

Based on this analysis, Piper Jaffray noted that, with respect to Entellus, each of the EV/revenue and EV/gross profit multiples fell between the 75th percentile and the mean range of implied EVs for the selected public companies. In addition, Piper Jaffray observed that the range of implied per share values for Entellus common stock based on the mean and median for each analysis yielded the following, as compared to the Merger Consideration:

 

     Implied Per Share
Value of Entellus
Common Stock

2017 revenue

   $14.73-$20.71

2018 revenue

   $15.43-$21.62

2019 revenue

   $16.31-$22.48

2017 gross profit

   $14.85-$20.58

2018 gross profit

   $15.72-$21.62

2019 gross profit

   $16.47-$22.52

Merger Consideration

   $24.00

ENT Medical Technology—Business Profile

Piper Jaffray also reviewed projected financial data prepared by Entellus’ management for the years ended December 31, 2017 and 2018, and compared such data to corresponding Wall Street consensus research estimates for Intersect ENT, Inc., which Piper Jaffray believed was comparable to Entellus’ business profile based on Piper Jaffray’s professional judgment. Piper Jaffray selected Intersect ENT, Inc. because it is the only public company that Piper Jaffray considered to be a comparable medical technology company specifically focused in the ENT space.

For the selected financial profile public company analysis, Piper Jaffray compared, among other things, projected 2017 and 2018 implied EV/revenue and EV/gross profit multiples for Entellus based on the Merger Consideration, to the corresponding implied EV multiples for Intersect ENT, Inc. derived from its closing price per share on December 5, 2017. Projected 2017 and 2018 revenue and gross profit for Entellus were based on estimates provided by Entellus’ management. Projected 2017 and 2018 revenue and gross profit for Intersect ENT, Inc. were based on Wall Street consensus research estimates, public filings and press releases of Intersect ENT, Inc.

The analysis indicated the following multiples:

 

     Entellus(1)      Intersect ENT,
Inc.
 

EV to projected 2017 revenue

     7.2x        8.5x  

EV to projected 2018 revenue

     5.7x        7.1x  

EV to projected 2017 gross profit

     9.8x        10.1x  

EV to projected 2018 gross profit

     7.8x        8.5x  

 

(1) Based on the Merger Consideration.

 

49


Table of Contents

Based on this analysis, Piper Jaffray noted that, with respect to Entellus, each of the EV/revenue and EV/gross profit multiples fell below the implied EVs for Intersect ENT, Inc. In addition, Piper Jaffray observed that the implied per share values for Entellus common stock based on each analysis yielded the following, as compared to the Merger Consideration:

 

     Implied Per Share
Value of Entellus
Common Stock
 

2017 revenue

   $ 28.27  

2018 revenue

   $ 29.59  

2017 gross profit

   $ 24.75  

2018 gross profit

   $ 26.18  

Merger Consideration

   $ 24.00  

Selected M&A Transaction Analysis

Medical Technology—Financial Profile

Piper Jaffray reviewed merger and acquisition (referred to as “M&A”) transactions involving target companies in the medical technology industry that Piper Jaffray believed were comparable to Entellus’ financial profile, using the criteria below, based on Piper Jaffray’s professional judgment. Piper Jaffray selected transactions that were announced after January 1, 2010 involving U.S. public or private medical technology companies as targets with LTM revenue between $25 million and $325 million, revenue growth between 15% and 50% for the 12-month period immediately following the LTM period (referred to as “FTM”) and LTM gross margins greater than 60%.

Based on these criteria, the following 13 transactions were selected:

 

Target

  

Acquiror

   Dateof Transaction Announcement

NeoTract, Inc.(1)

   Teleflex Incorporated    September 5, 2017

NOVADAQ Technologies Inc.

   Stryker Corporation    June 19, 2017

LDR Holding Corporation

   Zimmer Biomet Holdings, Inc.    June 7, 2016

Ellipse Technologies, Inc.

   NuVasive, Inc.    January 5, 2016

TriVascular Technologies, Inc.

   Endologix, Inc.    October 26, 2015

MAKO Surgical Corporation(2)(3)

   Stryker Corporation    September 25, 2013

Conceptus, Inc.

   Bayer HealthCare LLC    April 29, 2013

Kensey Nash Corporation

   Royal DSM    May 3, 2012

Synovis Life Technologies, Inc.

   Baxter International, Inc.    January 1, 2012

Salient Surgical Technologies, Inc.

   Medtronic, Inc.    July 7, 2011

Advanced BioHealing, Inc.

   Shire plc    May 18, 2011

AGA Medical Holdings, Inc.

   St. Jude Medical, Inc.    October 18, 2010

SenoRx, Inc.

   C.R. Bard, Inc.    May 4, 2010

 

(1) EV calculations set forth below include 50% of projected earnout consideration.
(2) EV/LTM gross profit multiple for this transaction was deemed not meaningful.
(3) EV/FTM gross profit multiple for this transaction was deemed not meaningful.

For the selected M&A transactions analysis, Piper Jaffray compared, among other things, implied EV/LTM revenue and EV/LTM gross profit multiples for Entellus, based on the Merger Consideration, to the corresponding multiples for each selected transaction, as well as Entellus’ implied multiples of EV/projected FTM revenue and EV/projected FTM gross profit, based on the Merger Consideration, to the corresponding multiples for each selected transaction. LTM revenues and LTM gross profit for Entellus were based on historical financial data for the 12 months ended September 30, 2017. Projected FTM revenues and FTM gross

 

50


Table of Contents

profit for Entellus were for the 12 months beginning September 30, 2017 and were based on estimates of Entellus’ management. FTM revenues and FTM gross profit for the selected transactions were based on selected Wall Street research estimates.

The analysis indicated the following multiples:

 

     Entellus(1)      Selected M&A Transactions  
        High      75th%      Mean      Median      25th%      Low  

EV to LTM revenue

     7.7x        15.2x        8.4x        6.9x        6.1x        4.5x        3.1x  

EV to FTM revenue

     6.1x        10.6x        6.2x        5.3x        5.2x        3.7x        2.6x  

EV to LTM gross profit

     10.5x        12.1x        11.3x        8.3x        7.8x        6.1x        4.3x  

EV to FTM gross profit

     8.2x        8.8x        8.1x        6.5x        6.3x        5.0x        3.5x  

 

(1) Based on the Merger Consideration.

Based on this analysis, Piper Jaffray noted that, with respect to Entellus each of the EV/LTM revenue, EV/FTM revenue and EV/LTM gross profit multiples fell between the 75th percentile and the mean range of implied EVs for the selected M&A transactions and the EV/FTM gross profit multiple fell between the “High” and the 75th percentile range of implied EVs for the selected M&A transactions. In addition, Piper Jaffray observed that the range of implied per share values for Entellus common stock based on the mean and median for each analysis, yielded the following, as compared to the Merger Consideration:

 

     Implied Per Share
Value of Entellus
Common Stock

LTM revenue

   $19.25-$21.47

FTM revenue

   $20.58-$20.87

LTM gross profit

   $17.81-$18.96

FTM gross profit

   $18.35-$18.90

Merger Consideration

   $24.00

ENT Medical Technology—Business Profile

Piper Jaffray also reviewed an M&A transaction involving a target company in the medical technology industry that Piper Jaffray believed was comparable to Entellus’ business profile based on Piper Jaffray’s professional judgment. Piper Jaffray selected the M&A transaction announced December 16, 2009 between Johnson & Johnson, as the acquiror, and Acclarent, Inc., as the target, because Piper Jaffray considered it to be the only comparable transaction with a medical technology target company specifically focused in the ENT space.

For the selected business profile M&A transactions analysis, Piper Jaffray compared, among other things, the implied EV/LTM revenue and EV/LTM gross profit multiples for Entellus, based on the Merger Consideration, to the corresponding multiples for the selected transaction, as well as Entellus’ implied multiples of EV/projected FTM revenue and EV/projected FTM gross profit, based on the Merger Consideration, to the corresponding multiples for the selected transaction. LTM revenues and LTM gross profit for Entellus were based on historical financial data for the 12 months ended September 30, 2017. Projected FTM revenues and FTM gross profit for Entellus were for the 12 months beginning September 30, 2017 and were based on estimates of Entellus’ management. FTM revenues and FTM gross profit for the selected transaction were based on selected Wall Street research estimates.

 

51


Table of Contents

The analysis indicated the following multiples:

 

     Entellus(1)      Acclarent, Inc.  

EV to LTM revenue

     7.7x        8.5x  

EV to FTM revenue

     6.1x        5.5x  

EV to LTM gross profit

     10.5x        11.1x  

EV to FTM gross profit

     8.2x        7.2x  

 

(1) Based on the Merger Consideration.

Based on this analysis, Piper Jaffray noted that, with respect to Entellus, each of the EV/LTM revenue and EV/LTM gross profit multiples fell below the corresponding implied EVs for the selected medical technology M&A transaction, and each of the EV/FTM revenue and EV/FTM gross profit multiples fell above the corresponding implied EVs for the selected medical technology M&A transaction. In addition, Piper Jaffray observed that the implied per share values for Entellus common stock based on each analysis, yielded the following, as compared to the Merger Consideration:

 

     Implied Per Share
Value of Entellus
Common Stock
 

LTM revenue

   $ 26.56  

FTM revenue

   $ 21.83  

LTM gross profit

   $ 25.22  

FTM gross profit

   $ 20.95  

Merger Consideration

   $ 24.00  

Premiums Paid Analysis

Piper Jaffray reviewed publicly available information for selected completed or pending M&A transactions to determine the premiums paid in such transactions over recent trading prices of the target companies prior to announcement of the transaction. Piper Jaffray selected transactions for which Piper Jaffray considered the target to be a North American public medical technology company, and applied the following criteria:

 

    transactions announced since January 1, 2010;

 

    EV of target greater than $50 million; and

 

    excluded 100% stock consideration transactions.

Based on these criteria, Piper Jaffray reviewed the resulting 65 transactions, and the table below shows a comparison of premiums paid in the selected transactions over certain time periods to the premium that would be paid to the holders of Entellus common stock based on the Merger Consideration.

The analysis indicated the following premiums:

 

          Selected Transactions  
    Entellus(1)       High         75th%         Mean         Median         25th%         Low    

Premium 1 week prior (to announcement of Merger)

    50     173     55     41     34     24     (3 )% 

Premium 4 weeks prior (to announcement of Merger)

    49     231     60     47     36     27     (6 )% 

 

(1) Based on the Merger Consideration.

 

52


Table of Contents

The premiums paid analysis showed that the premiums over the market prices at the selected dates for Entellus common stock implied by the Merger Consideration fell between the mean and the 75th percentile range of premiums paid in the selected M&A transactions. In addition, Piper Jaffray observed that the range of implied per share values for Entellus common stock, based on the mean and median for each analysis yielded the following, as compared to the Merger Consideration.

 

     Implied Per Share
Value of Entellus
Common Stock

Premium 1 week prior (to announcement of Merger)

   $21.46-$22.48

Premium 4 weeks prior (to announcement of Merger)

   $21.98-$23.82

Merger Consideration

   $24.00

Discounted Cash Flows Analysis

Using a discounted cash flows analysis, Piper Jaffray calculated an estimated range of theoretical enterprise values for Entellus based on the net present value of (i) projected unlevered free cash flows (which amounts are identified as Free Cash Flow in the Final Base Case Forecasts, as set forth under “The Merger—Certain Financial Forecasts—Base Case Forecasts, Updated Base Case Forecasts and Final Base Case Forecasts” beginning on page 57 of this proxy statement), including the tax benefit of existing net operating losses, from September 30, 2017 to December 31, 2022, discounted back to September 30, 2017 and (ii) a projected terminal value at December 31, 2022 based upon revenue exit multiples ranging from 3.0x to 5.0x, based on Piper Jaffray’s professional judgment, discounted back to September 30, 2017. The estimates of free cash flows for each year and terminal year revenue were calculated from Entellus’ Final Base Case Forecasts for such periods provided to Piper Jaffray by Entellus. Piper Jaffray calculated the range of net present values for unlevered free cash flows for such periods and for the terminal value based on a range of discount rates ranging from 10.0% to 12.0%, based on its estimation of Entellus’ weighted average cost of capital using the capital asset pricing model.

This analysis resulted in implied per share values for Entellus common stock ranging from $17.59 to $30.50. Piper Jaffray observed that the Merger Consideration was within the range of implied per share values derived from this analysis.

Other Information—Company Analyst Price Targets

Piper Jaffray also noted for the Board the following additional information that was not relied upon in rendering its opinion, but was provided for informational purposes.

Piper Jaffray reviewed selected Wall Street research equity analyst per share target prices for shares of Entellus common stock as of December 5, 2017. The range of these target prices was $16.00 to $24.00, with an average target price of $19.00.

Miscellaneous

The summary set forth above does not purport to contain a complete description of the analyses performed by Piper Jaffray and reviewed with the Board. The preparation of a fairness opinion is not necessarily susceptible to partial analysis or summary description. Piper Jaffray believes that its analyses and the summary set forth above must be considered as a whole and that selecting portions of its analyses or of the summary, without considering the analyses as a whole or all of the factors included in its analyses, would create an incomplete view of the processes underlying the analyses set forth in the Piper Jaffray opinion. In arriving at its opinion, Piper Jaffray considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Instead, Piper Jaffray made its determination as to fairness on the basis of its experience and financial judgment after considering the results of all of its analyses. In addition, the ranges of valuations resulting from any particular analysis described above should not be taken to be Piper Jaffray’s view of the actual value of Entellus common stock.

 

53


Table of Contents

None of the selected companies or transactions used in the analyses above is directly comparable to Entellus or the Merger. Accordingly, an analysis of the results of the comparisons is not purely mathematical; rather, it involves considerations and judgments concerning differences in historical and projected financial and operating characteristics of the selected companies and target companies in the selected transactions and other factors that could affect the public trading value or transaction value of the companies involved.

Piper Jaffray performed its analyses for purposes of providing its opinion to the Board. In performing its analyses, Piper Jaffray made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Certain of the analyses performed by Piper Jaffray are based upon financial projections of future results furnished to Piper Jaffray by Entellus’ management, which are not necessarily indicative of actual future results and may be significantly more or less favorable than actual future results. These financial projections are inherently subject to uncertainty because, among other things, they are based upon numerous factors or events beyond the control of the parties or their respective advisors. Piper Jaffray does not assume responsibility if future results are materially different from projected financial results.

Piper Jaffray’s opinion was one of many factors taken into consideration by the Board in making the determination to approve the Merger Agreement. While Piper Jaffray provided advice to the Board during Entellus’ negotiations with Stryker, Piper Jaffray did not recommend any specific amount or type of Merger Consideration.

Piper Jaffray relied upon and assumed, without assuming liability or responsibility for independent verification, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available, to Piper Jaffray or discussed with or reviewed by Piper Jaffray. Piper Jaffray further relied upon the assurances of the management of Entellus that the financial information provided to Piper Jaffray by the management of Entellus was prepared on a reasonable basis in accordance with industry practice, and that the management of Entellus was not aware of any information or facts that would make any information provided to Piper Jaffray incomplete or misleading. Without limiting the generality of the foregoing, for the purpose of its opinion, Piper Jaffray assumed that with respect to financial forecasts, estimates and other forward-looking information reviewed by Piper Jaffray, that such information was reasonably prepared based on assumptions reflecting the best currently available estimates and judgments of the management of Entellus as to the expected future results of operations and financial condition of Entellus. Piper Jaffray expressed no opinion as to any such financial forecasts, estimates or forward-looking information or the assumptions on which they were based. Piper Jaffray relied, with consent of the Board, on advice of the outside counsel and the independent accountants to Entellus, and on the assumptions of the management of Entellus, as to all accounting, legal, tax and financial reporting matters with respect to Entellus and the Merger Agreement.

In arriving at its opinion, Piper Jaffray assumed that the executed Merger Agreement was in all material respects identical to the last draft reviewed by Piper Jaffray. Piper Jaffray relied upon and assumed, without independent verification, that (i) the representations and warranties of all parties to the Merger Agreement and all other related documents and instruments that are referred to therein are true and correct, (ii) each party to such agreements will fully and timely perform all of the covenants and agreements required to be performed by such party, (iii) the Merger will be consummated pursuant to the terms of the Merger Agreement without amendments thereto and (iv) all conditions to the consummation of the Merger will be satisfied without waiver by any party of any conditions or obligations thereunder. Additionally, Piper Jaffray assumed that all the necessary regulatory approvals and consents required for the Merger will be obtained in a manner that would not adversely affect Entellus or the contemplated benefits of the Merger.

In arriving at its opinion, Piper Jaffray did not perform any appraisals or valuations of any specific assets or liabilities (fixed, contingent or other) of Entellus, and Piper Jaffray was not furnished or provided with any such appraisals or valuations, nor did Piper Jaffray evaluate the solvency of Entellus under any state or federal law relating to bankruptcy, insolvency or similar matters. The analyses performed by Piper Jaffray in connection with its opinion were going concern analyses. Piper Jaffray expressed no opinion regarding the liquidation value of

 

54


Table of Contents

Entellus or any other entity. Without limiting the generality of the foregoing, Piper Jaffray undertook no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Entellus or any of its affiliates is a party or may be subject, and at Entellus’ direction and with its consent, Piper Jaffray’s opinion made no assumption concerning, and therefore did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters. Piper Jaffray also assumed that neither Entellus nor Stryker is party to any material pending transaction, including without limitation, any financing, recapitalization, acquisition or merger, divestiture or spin-off, other than the Merger.

Piper Jaffray’s opinion was necessarily based upon the information available to it and facts and circumstances as they existed and were subject to evaluation on the date of its opinion. Events occurring after the date of its opinion could materially affect the assumptions used in preparing its opinion. Piper Jaffray did not express any opinion as to the price at which shares of Entellus common stock may trade following announcement of the Merger or at any future time. Piper Jaffray did not undertake to reaffirm or revise its opinion or otherwise comment upon any events occurring after the date of its opinion and does not have any obligation to update, revise or reaffirm its opinion.

Piper Jaffray’s opinion addressed solely the fairness, from a financial point of view, to holders of Entellus common stock of the proposed Merger Consideration set forth in the Merger Agreement and did not address any other terms or agreement relating to the Merger or any other terms of the Merger Agreement. Piper Jaffray was not requested to opine as to, and its opinion does not address, the basic business decision to proceed with or effect the Merger, the merits of the Merger relative to any alternative transaction or business strategy that may be available to Entellus, Stryker’s ability to fund the Merger Consideration, or any other terms contemplated by the Merger Agreement or the fairness of the Merger to any other class of securities, creditor or other constituency of Entellus. Furthermore, Piper Jaffray expressed no opinion with respect to the amount or nature of compensation to any officer, director or employee of any party to the Merger, or any class of such persons, relative to the compensation to be received by holders of Entellus common stock in the Merger or with respect to the fairness of any such compensation.

Information about Piper Jaffray

As a part of its investment banking business, Piper Jaffray is regularly engaged in the valuation of businesses in the medical technology and other industries and their securities in connection with mergers and acquisitions, underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. The Board selected Piper Jaffray to be its financial advisor and render its fairness opinion in connection with the Merger on the basis of such experience and its familiarity with Entellus.

Piper Jaffray acted as a financial advisor to Entellus in connection with the Merger and will receive a fee, currently estimated to be approximately $7.9 million from Entellus, which is contingent upon the consummation of the Merger, except for $850,000 of such fee which has been earned by Piper Jaffray for rendering its fairness opinion and is creditable against the total fee. The opinion fee was not contingent upon the consummation of the Merger or the conclusions reached in Piper Jaffray’s opinion. Entellus has also agreed to indemnify Piper Jaffray against certain liabilities and reimburse Piper Jaffray for certain expenses in connection with its services. Piper Jaffray has in the past provided financial advisory and financing services to Entellus and may continue to do so and has received, and may receive, fees for rendering such services. In particular, in the past 3 years, Piper Jaffray has acted as Entellus’ joint bookrunner in connection with the initial public offering of Entellus common stock in 2015 and the follow-on offering of Entellus common stock in 2017, for which it received aggregate consideration of approximately $3 million. In addition, in the ordinary course of its business, Piper Jaffray and its affiliates may actively trade securities of Entellus and Stryker for its own account or the account of its customers and, accordingly, may at any time hold a long or short position in such securities. Piper Jaffray may also, in the future, provide investment banking and financial advisory services to Entellus, Stryker or entities that are affiliated with Entellus or Stryker, for which Piper Jaffray would expect to receive compensation. Piper Jaffray

 

55


Table of Contents

has not received fees or other compensation from Stryker for any services rendered to Stryker in the 2 years prior to the issuance of its fairness opinion.

Consistent with applicable legal and regulatory requirements, Piper Jaffray has adopted policies and procedures to establish and maintain the independence of Piper Jaffray’s research department and personnel. As a result, Piper Jaffray’s research analysts may hold opinions, make statements or recommendations and/or publish research reports with respect to Entellus and the Merger and other participants in the Merger that differ from the opinions of Piper Jaffray’s investment banking personnel.

Certain Financial Forecasts

Entellus has historically prepared and provided public guidance as to its projected financial and operational results for the upcoming fiscal year or fiscal quarter in its press releases announcing its financial results for the immediately preceding quarter or year, as applicable. Entellus management has also maintained longer range financial projections for internal budgeting and planning purposes, which management reviews with the Board from time to time. However, other than the annual and quarterly financial guidance discussed above, Entellus does not in the ordinary course make public disclosures regarding prospective financial projections for extended periods due to the unpredictability of the underlying assumptions and estimates.

 

56


Table of Contents

Base Case Forecasts, Updated Base Case Forecasts and Final Base Case Forecasts

After the acquisition of Spirox, Inc. in July 2017 and after further re-engaging with Stryker in discussions regarding a potential acquisition of Entellus in early September 2017, Entellus’ management prepared updated unaudited prospective financial information regarding Entellus for fiscal years ended 2017 through 2022 (referred to as the “Base Case Forecasts”), which are summarized below. The Base Case Forecasts were presented by Entellus management to the Board for review and discussion on October 25, 2017.

 

     Projected  
($ in millions)    2017(2*)     2018     2019     2020      2021      2022  

Revenue

    $     98      $   121      $   151     $ 182      $ 211      $ 243  

Cost of Goods Sold

     26       31       38       46        54        61  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross Profit

    $ 72      $ 90      $ 112     $ 136      $ 158      $ 181  

Sales & Marketing

     78       72       79       85        90        96  

General & Administrative

     32       34       31       35        36        38  

Research & Development

     13       9       12       15        17        18  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Operating Income / (Loss)

   ($ 50   ($ 25   ($ 10   $ 0      $ 15      $ 29  

Adj. EBITDA Calculation

                                      

Operating Income / (Loss)

     (16     (25     (10     0        15        29  

Depreciation & Amortization

     1       8       8       8        8        8  

Stock-based Compensation

     3       10       10       11        12        12  

One-time Expenses

     0       1       0       0        0        0  

Adj. EBITDA(1*)

   ($ 12   ($ 6   $ 9     $ 19      $ 34      $ 49  

 

Free Cash Flow Calculation

                                    
     Q4 2017(2*)     2018     2019     2020     2021     2022  

EBIT(1*)

   ($ 5   ($ 25   ($ 10   $ 0     $ 15     $ 29  

Income Tax Expense

     0       0       0       0       0       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Post-tax Operating Income / (Loss)

   ($ 5   ($ 25   ($ 10   $ 0     $ 15     $ 29  

Depreciation & Amortization

     3       8       8       8       8       8  

Stock-based Compensation

     3       10       10       11       12       12  

(Increase) / Decrease in Working Capital

     (1     (2     (3     (3     (3     (3

Capital Expenditures

     (1     (3     (4     (5     (5     (6

Free Cash Flow(1*)

   ($ 1   ($ 12    $ 2     $ 12     $ 26     $ 40  

At the request of the Board, Entellus management further updated the Base Case Forecasts (referred to as the “Updated Base Case Forecasts”) and presented the Updated Base Case Forecasts to the Board in early November 2017 to assume increased projected revenue numbers for fiscal years 2021 and 2022, as shown in the table immediately below, as a result of revised assumptions around products in development. The Base Case Forecasts and Updated Base Case Forecasts were prepared in connection with the Board’s evaluation of the Merger and do not, and were not intended to, correspond to Entellus’ public guidance as to its financial performance and do not, and were not intended to, update or revise Entellus’ public guidance as to its financial performance.

 

57


Table of Contents

The table below sets forth the increase in projected revenues between the Base Case Forecasts and the Updated Base Case Forecasts. The Updated Base Case Forecasts were presented to Company B on November 2, 2017.

 

     Base Case Forecasts      Updated Base Case Forecasts  

2021 Revenue

   $ 211 million      $ 220 million  

2022 Revenue

   $ 243 million      $ 266 million  

The below tables sets forth the Updated Base Case Forecasts.

 

($ in millions)    2017(2*)     2018     2019     2020     2021      2022  

Revenue

    $ 98      $ 121      $ 151     $ 182     $ 220      $ 266  

Cost of Goods Sold

     26       31       38       46       55        64  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Gross Profit

    $ 72      $ 90      $ 112     $ 136     $ 166      $ 203  

Sales & Marketing

     78       72       79       85       90        96  

General & Administrative

     36       34       31       35       39        41  

Research & Development

     13       9       12       15       17        18  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating Expenses

    $ 127      $ 115      $ 122     $ 135     $ 146      $ 155  

Post-tax Operating Income / (Loss)

   ($ 55   ($ 28   ($ 13   ($ 3   $ 19      $ 47  

Adj. EBITDA Calculation

                                     

Depreciation & Amortization

     9       8       8       8       8        8  

Stock-based Compensation

     9       10       10       11       12        12  

One-time Expenses

     4       1       0       0       0        0  

Adj. EBITDA(1*)

   ($ 33   ($ 6    $ 9     $ 19     $ 42      $ 70  

 

Free Cash Flow Calculation

                                    
     2017(2*)     2018     2019     2020     2021     2022  

EBIT(1*)

   ($ 9   ($ 28   ($ 13     (3   $ 19     $ 47  

Income Tax Expense

     0       0       0       0       0       0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Post-tax Operating Income

   ($ 9   ($ 28   ($ 13   ($ 3   $ 19     $ 47  

Depreciation & Amortization(1)

     1       11       11       11       11       11  

Stock-based Compensation / One-time Expenses

     1       11       10       11       12       12  

(Increase) / Decrease in Working Capital

     (1     (2     (3     (3     (4     (5

Capital Expenditures(2)

     (1     (2     (3     (3     (3     (3

Free Cash Flow(1*)

   ($ 8   ($ 10    $ 3      $ 14     $ 36     $ 63  

 

(1) Changes in Depreciation and Amortization from the Base Case Forecasts were a result of finalizing analysis relating to purchase accounting associated with the acquisition of Spirox, Inc., including valuation of intangible assets and expected useful lives.

 

(2) Changes in Capital Expenditures to reflect further refinement of future capital requirements.

Following the announcement by Anthem on November 9, 2017 that Anthem would begin covering some of Entellus’ XprESS line of devices, particularly chronic and recurring acute sinusitis by balloon sinus dilation (referred to as the “Anthem Announcement”), management revised the Updated Base Case Forecasts at the request of the Board in order to reflect the potential for increased revenue expected from such products due to the announcement.

 

58


Table of Contents

The revised Updated Base Case Forecasts (after adjusting for the Anthem Announcement, referred to as the “Final Base Case Forecasts”) were provided to Stryker on November 20, 2017, and were reviewed by Entellus management with the Board on November 10, 2017 and December 6, 2017. The table below shows the Final Base Case Forecasts.

 

     Projected  
($ in millions)    2017(2*)      2018      2019      2020      2021      2022  

Revenue

    $ 98       $ 124       $ 156      $ 189      $ 228      $ 275  

Cost of Goods Sold(1)

     26        33        40        48        57        66  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross Profit

    $ 72       $ 91       $ 116      $ 141      $ 172      $ 209  

Sales & Marketing

     78        72        79        85        90        96  

General & Administrative(1)

     40        37        34        38        40        41  

Research & Development

     13        9        12        15        17        18  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating Expenses

    $ 131       $ 118       $ 125      $ 139      $ 146      $ 155  

Operating Income / (Loss)

   ($ 58    ($ 27    ($ 10    $ 2      $ 25      $ 54  

 

(1) Increases under Cost of Goods Sold and General & Administrative from the Updated Base Case Forecasts were a result of a projected increase in revenues due to the Anthem Announcement.

 

Adj. EBITDA Calculation

                                         

Operating Income / (Loss)

     (58      (27      (10      2        25        54  

Depreciation & Amortization

     11        11        11        11        11        11  

Stock-based Compensation

     9        9        9        10        10        11  

One-time Expenses

     6        1        0        0        0        0  

Adj. EBITDA(1*)

   ($ 33    ($ 5     $ 11      $ 23      $ 47      $ 76  

 

Free Cash Flow Calculation

                                         
     Q4 2017(2*)      2018      2019      2020      2021      2022  

EBIT(1*)

   ($ 13    ($ 27    ($ 10    $ 2      $ 25      $ 54  

Income Tax Expense

     0        0        0        0        0        0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Post-tax Operating Income

   ($ 13    ($ 27    ($ 10    $ 2      $ 25      $ 54  

Depreciation & Amortization

     3        11        11        11        11        11  

Stock-based Compensation / One-time Expenses

     3        10        9        10        10        11  

(Increase) / Decrease in Working Capital

     (1      (3      (3      (3      (4      (5

Capital Expenditures

     (1      (2      (3      (3      (3      (3

Free Cash Flow(1*)

   ($ 8    ($ 10     $ 5      $ 17      $ 40      $ 69  

Resourced Case Forecasts

In addition, Entellus management also developed a parallel set of unaudited prospective financial information (referred to as the “Resourced Case Forecasts”) in early September 2017, using significantly more positive assumptions than any of the Base Case Forecasts, the Updated Base Case Forecasts or the Final Base Case Forecasts about the performance of Entellus’ products, including no delays or negative occurrences relating to Entellus’ pipeline, improved sales force effectiveness, significantly greater adoption of balloon-based business across the global market and a more positive reimbursement environment in developing countries. The

 

59


Table of Contents

Resourced Case Forecasts were shared with Stryker on September 7, 2017 and also with Company B on November 2, 2017 as part of the diligence process between Entellus and each party.

The table below sets forth the Resourced Case Forecasts.

 

     Projected  
($ in millions)    2017(2*)     2018     2019     2020      2021      2022  

Total Revenue

   $ 93     $ 129     $ 170     $ 218      $ 269      $ 322  

Cost of Goods Sold

     24       33       43       55        66        77  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Gross Profit

   $ 69     $ 96     $ 127     $ 163      $ 203      $ 245  

Sales & Marketing

   $ 68     $ 72     $ 86     $ 92      $ 97      $ 104  

General & Administrative

     34       36       35       39        40        42  

Research & Development

     10       10       13       17        18        20  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total Operating Expenses

   $ 112     $ 118     $ 133     $ 148      $ 156      $ 166  

Operating Income

   ($ 43   ($ 22   ($ 6   $ 15      $ 48      $ 79  

Total Adjusted EBITDA Calculation

                                      

Depreciation & Amortization(1)

   $ 1     $ 11     $ 11     $ 11      $ 11      $ 11  

Stock-Based Compensation

     3       9       9       10        10        11  

Transaction Costs

     0       0       0       0        0        0  

Integration Costs

     0       1       0       0        0        0  

Total Adjusted EBITDA(1*)

   ($ 12 )    ($ 1 )    $ 14     $ 36      $ 69      $ 101  

 

(1) Changes in Depreciation and Amortization from the Base Case Forecasts were a result of finalizing analysis relating to purchase accounting associated with the acquisition of Spirox, Inc., including valuation of intangible assets and expected useful lives.

The primary source of the more positive outlook for Entellus’ future financial performance in the Resourced Case Forecasts as compared to the Base Case Forecasts, the Updated Base Case Forecasts and the Final Base Case Forecasts is set forth in the table immediately below, which shows the significantly higher annual growth of the XprESS product line balloon-based business in the United States, the United Kingdom and outside of those jurisdictions assumed by Entellus management in the Resourced Case Forecasts.

 

2017—2022 Outputs for Compounded Annual Growth Rate of the XprESS product line

   Each of
the “Base
Case”
Forecasts
    Resourced
Case
Forecasts
 

United States

     10.8     14.8

United Kingdom

     25.8     47.8

Outside both the United Kingdom and the United States

     22.6     45.8

The Resourced Case Forecasts were provided to the Board on December 6, 2017. The Board reviewed the Resourced Case Forecasts with Entellus management. After review, the Board concluded that expanded adoption of the XprESS products in the Resourced Case Forecasts was based on assumptions that were unlikely to be realized, including the following assumptions: (i) no delays or negative occurrences in Entellus’ product development or pipeline, (ii) significant improvements in the global reimbursement environment, (iii) significantly improved sales-force effectiveness and (iv) significantly greater adoption of balloon-based business across the global market. Because of these reasons, the Board determined that the Resourced Case Forecasts were not as reliable as the Final Base Case Forecasts. As a result, the Resourced Case Forecasts were not used by the Board in connection with its evaluation of the Merger, and the Board and Entellus management

 

60


Table of Contents

instructed Piper Jaffray not to use the Resourced Case Forecasts in connection with, or as the basis for, its evaluation of the fairness, from a financial point of view, of the Merger Consideration to be received by the holders of Entellus common stock.

 

(1*) The Entellus management calculated non-GAAP adjusted EBITDA (referred to as “Adj. EBITDA” or “Total Adjusted EBITDA”) by adding back to operating loss charges for depreciation and amortization expenses, non-cash stock-based compensation, acquisition-related expenses consisting of transaction and integration-related expenses. Entellus management calculated non-GAAP free cash flow (referred to as “Free Cash Flow”) by adding back to operating loss based on EBIT (as defined below) charges for depreciation and amortization expenses and non-cash stock-based compensation and accounting for expected working capital requirements and capital expenditures. Entellus management calculated non-GAAP EBIT (referred to as “EBIT”) by taking gross profit less operating expenses. Non-GAAP financial measures, such as the foregoing, are not prepared in accordance with, or an alternative for, GAAP measures and may be different from non-GAAP measures used by other companies.

 

(2*) Includes pro forma amounts related to Entellus products relating to the Spirox, Inc. acquisition.

Forecasts Generally

In developing the Base Case Forecasts, the Updated Base Case Forecasts, the Final Base Case Forecasts and the Resourced Case Forecasts, Entellus management made assumptions with respect to factors such as the global macroeconomic environment, foreign exchange rates, as well as company specific factors such as the general reimbursement environment, market launch dates and the success of new product introductions. Such forecasts were prepared on a different basis, for a different purpose and at a different time than Entellus’ public guidance as to its projected financial and operational results for the upcoming fiscal year or fiscal quarter and on a different basis, for a different purpose and at a different time than any other internal financial forecasts that Entellus management has historically prepared for its own use or for the use of the Board in evaluating Entellus’ business and for internal budgeting and planning purposes.

The unaudited prospective financial information described in this section should be read together with the historical financial statements of Entellus, which have been filed with the SEC, and the other information regarding Entellus contained elsewhere in this proxy statement. None of the unaudited prospective financial information described in this section was prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The unaudited prospective financial information described in this section does not purport to present financial information in accordance with U.S. generally accepted accounting principles (referred to as “GAAP”), and Entellus’ registered public accounting firm has not examined, compiled or otherwise applied or performed any procedures with respect to the unaudited prospective financial information described in this section, nor has it expressed any opinion or given any form of assurance with respect to such information or their reasonableness, achievability or accuracy, and accordingly such registered public accounting firm assumes no responsibility for them. As indicated above, certain of the measures included in the forecasts in this section, may be considered non-GAAP financial measures. Such non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and such non-GAAP financial measures as used by Entellus may not be comparable to similarly titled amounts used by other companies.

None of Entellus or its affiliates, advisors, officers, directors or representatives has made or makes any representation to any stockholder or to any other person regarding the ultimate performance of Entellus compared to the information contained in the unaudited prospective financial information described in this section or that forecasted results will be achieved, and except as may be required by applicable law, none of them intend to update or otherwise revise or reconcile the unaudited prospective financial information described in this section to reflect circumstances existing after the date such unaudited prospective financial information were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying such unaudited prospective financial information are shown to be in error.

 

61


Table of Contents

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

In considering the recommendation of the Board that you vote to approve the Merger Proposal, you should be aware that Entellus’ directors and executive officers may have interests in the Merger that are different from, or in addition to, the interests of the Entellus stockholders generally. The members of the Board were aware of the different or additional interests and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in recommending to the stockholders of Entellus that the Merger Proposal be approved. See “The MergerBackground of the Merger” and “The MergerRecommendation of the Board and Reasons for the Merger” beginning on pages 32 and 41, respectively, of this proxy statement. You should take these interests into account in deciding whether to vote “FOR” the Merger Proposal.

These interests are described in more detail below. The dates used below to quantify these interests have been selected for illustrative purposes only and do not necessarily reflect the dates on which certain events will occur. Note that, in accordance with SEC rules we are required to include this information on behalf of any individual who was an executive officer of Entellus at any time since January 1, 2017, and therefore includes information with respect to Martha Christian, Stephen Paidosh, Karen Peterson and Tim Petrick, each of whom previously was an executive officer but currently is not, and James Surek, Kevin Mensink and Jonelle Burnham, each of whom is no longer with Entellus.

Treatment of Entellus Equity Awards in the Merger

Certain of our directors and executive officers hold outstanding Entellus stock options and Entellus restricted stock unit awards. Under the Merger Agreement, each in-the-money Entellus stock option that is outstanding and unexercised immediately prior to the Effective Time, whether vested or unvested, will be cancelled and converted into the right to receive the Merger Consideration with respect to each share of our common stock subject to the option, net of the applicable per share exercise price and any applicable withholding taxes or other amounts required by applicable law to be withheld.

The Merger Agreement also provides that each Entellus restricted stock unit award that is outstanding immediately prior to the Effective Time will be cancelled and converted into the right to receive the Merger Consideration in respect of each share of our common stock underlying the award, net of any applicable withholding taxes or other amounts required to be withheld by applicable law.

 

62


Table of Contents

The following table sets forth for each required individual the aggregate number of shares of common stock owned or subject to vested and unvested Entellus in-the-money stock options and unvested Entellus restricted stock unit awards as of January 2, 2018. As noted in the footnotes below, certain of our directors and executive officers are affiliated with certain of our stockholders.

 

Name

   Vested
Stock
Options
(#)
     Value of
Vested
Stock
Options
     Unvested
Stock
Options
(#)
     Value of
Unvested
Stock
Options
     Unvested
RSUs (#)
     Value of
Unvested
RSUs
     Shares
of
Common
Stock (#)
    Value of
Common
Stock
 
Non-Employee Directors                                                  

John Bakewell

     10,000      $ 57,400        5,000      $ 53,100        2,500      $ 60,000        0     $ 0  

Josh Baltzell

     23,750      $ 231,200        5,000      $ 53,100        2,500      $ 60,000        2,850     $ 68,400  

Brian Farley (1)

     254,112      $ 4,239,013        48,267      $ 599,995        2,500      $ 60,000        289,243     $ 6,941,832  

Shawn McCormick

     25,000      $ 247,000        5,000      $ 53,100        2,500      $ 60,000        2,941     $ 70,584  

David Milne (2)

     25,000      $ 247,000        5,000      $ 53,100        2,500      $ 60,000        0     $ 0  

Guido Neels (3)

     25,000      $ 247,000        5,000      $ 53,100        2,500      $ 60,000        15,000     $ 360,000  

James Momtazee (4)

     625      $ 3,956        6,875      $ 43,519        3,750      $ 90,000        0     $ 0  

Duke Rohlen (5)

     625      $ 3,956        6,875      $ 43,519        3,750      $ 90,000        37,284     $ 894,816  
Current or Former Executive Officers                                           

Robert White (6)

     625,042      $ 7,403,111        319,558      $ 3,195,183        38,000      $ 912,000        18,670     $ 448,080  

Brent Moen (7)

     40,937      $ 264,940        71,980      $ 435,910        7,500      $ 180,000        6,100     $ 146,400  

Donald Gonzales (8)

     0      $ 0        40,000      $ 302,400        20,000      $ 480,000        0     $ 0  

Mike Rosenthal (9)

     833      $ 5,631        59,167      $ 431,969        30,000      $ 720,000        0     $ 0  

Jonelle Burnham

     0      $ 0        0      $ 0        0      $ 0        (11     —    

Martha Christian

     0      $ 0        30,000      $ 316,500        0      $ 0        0     $ 0  

Kevin Mensink

     52,173      $ 1,082,513        0      $ 0        0      $ 0        (11     —    

Stephen Paidosh

     114,384      $ 2,290,731        24,441      $ 173,557        7,500      $ 180,000        0     $ 0  

Karen Peterson

     64,588      $ 992,083        33,578      $ 237,781        10,000      $ 240,000        22,734     $ 545,616  

Tim Petrick

     60,551      $ 937,148        28,847      $ 217,963        7,500      $ 180,000        85,183     $ 2,044,392  

Thomas Williamson (10)

     19,875      $ 152,635        56,695      $ 398,029        38,829      $ 931,896        8,606     $ 206,544  

James Surek

     0      $ 0        0      $ 0        0      $ 0        (11     —    

 

(1) Brian Farley executed a Voting Agreement in connection with the Merger Agreement, in his capacity as a holder of capital stock or other equity interests of Entellus. Information regarding Mr. Farley’s ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(2) David Milne is affiliated with the Fund III Entities and Fund IV Entities relating to SV Life Sciences (as such terms are defined below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement). Each of the Fund III Entities and Fund IV Entities executed a Voting Agreement in connection with the Merger Agreement. Information regarding Mr. Milne’s and the foregoing fund entities’ ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(3) Guido Neels is affiliated with the Essex Stockholders (as defined below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement). Each of the Essex Stockholders executed a Voting Agreement in connection with the Merger Agreement. Information regarding Mr. Neels’ and the Essex Stockholders’ ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(4) James Momtazee is affiliated with KKR Health Care I, LLC. KKR Health Care I, LLC executed a Voting Agreement in connection with the Merger Agreement. Information regarding Mr. Momtazee’s and the foregoing fund entities’ ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(5) Duke Rohlen is affiliated with (i) D3D3, LLC, (ii) The Duke Rohlen and Kendall Simpson Rohlen, Trustees or Successor Trustee, Rohlen Rev Trust and (iii) The Rohlen 2013 Irrevocable Trust Agreement (the stockholders in clauses (i)-(iii) collectively, the “Rohlen Stockholders”). Mr. Rohlen (in his capacity as a holder of capital stock or other equity interests of Entellus) and each of the Rohlen Stockholders executed a Voting Agreement in connection with the Merger Agreement. As of December 7, 2017, the date of execution of the Voting Agreement, the Rohlen Stockholders owned a collective 31,817 shares of common stock of Entellus. Information regarding Mr. Rohlen’s and the Rohlen Stockholders’ ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

63


Table of Contents
(6) Robert White executed a Voting Agreement in connection with the Merger Agreement, in his capacity as a holder of capital stock or other equity interests of Entellus. Information regarding Mr. White’s ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(7) Brent Moen executed a Voting Agreement in connection with the Merger Agreement, in his capacity as a holder of capital stock or other equity interests of Entellus. Information regarding Mr. Moen’s ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(8) Donald Gonzales executed a Voting Agreement in connection with the Merger Agreement, in his capacity as a holder of capital stock or other equity interests of Entellus. Information regarding Mr. Gonzales’ ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(9) Mike Rosenthal executed a Voting Agreement in connection with the Merger Agreement, in his capacity as a holder of capital stock or other equity interests of Entellus. Information regarding Mr. Rosenthal’s ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(10) Thomas Williamson executed a Voting Agreement in connection with the Merger Agreement, in his capacity as a holder of capital stock or other equity interests of Entellus. Information regarding Mr. Williamson’s ownership in Entellus can be found below in the section titled “Security Ownership of Certain Beneficial Owners and Management” beginning on page 101 of this proxy statement.

 

(11) Jonelle Burnham, Kevin Mensink, and James Surek are no longer employed by Entellus; therefore, their current ownership of common stock is not readily determinable.

Executive Severance Arrangements

Several of Entellus’ current and former executive officers are party to arrangements that provide certain benefits in the event of certain termination events, including upon a qualifying termination in connection with a change in control of Entellus. Messrs. Mensink and Surek previously terminated employment with Entellus not in connection with the Merger; therefore their severance arrangements are not described below. Ms. Burnham also previously voluntarily terminated employment with Entellus and was not eligible to receive severance under any severance arrangement.

Severance Agreements

Mr. White has entered into a change in control severance agreement, and each of Messrs. Moen, Paidosh, and Petrick and Ms. Peterson has entered into a severance agreement, that provide the executive with the following payments and benefits if the executive’s employment is terminated by Entellus without cause or by the executive for good reason (as such terms are defined in the applicable agreement), in either case, either prior to under certain circumstances or within 12 months following a change in control (which is defined to include the Merger), subject to the timely execution and non-revocation of a general release of claims:

 

    a lump-sum payment in an amount equal to 12 months’ (24 months’ for Mr. White) of the executive’s annual base salary then in effect;

 

    a lump-sum payment in an amount equal to one times (two times for Mr. White) the executive’s annual target bonus; and

 

    Entellus-subsidized healthcare continuation coverage for the executive and his or her dependents for up to 12 months (18 months for Mr. White).

Entellus Medical, Inc. Officer Severance Plan

Several of our other executive officers are participants in the Entellus Medical, Inc. Officer Severance Plan (referred to as the “Officer Severance Plan”). Ms. Christian and Messrs. Gonzales, Rosenthal and Williamson are eligible to participate in the Officer Severance Plan; executives who have rights to severance under any individual agreement or other plan or policy described above are not eligible to receive benefits under this plan. Additionally, this section does not describe any payments and benefits due under this plan to Ms. Burnham, who resigned from Entellus not in connection with the Merger.

 

64


Table of Contents

Under the Officer Severance Plan, if the employment of an executive officer is terminated by the executive for good reason or by Entellus without cause (as such terms are defined in the Officer Severance Plan), in either case after the signing of the Merger Agreement or within 12 months following a change in control (which is defined to include the consummation of the Merger), then the executive will be eligible to receive 12 months of base pay, plus 100% of the executive officer’s target bonus for the year of termination. In addition, if the executive is eligible for and timely elects COBRA continuation coverage under Entellus’ group medical or dental plans, he or she will receive Entellus-subsidized COBRA coverage for up to 12 months. All severance pay and benefits would be conditioned upon receipt of a release of claims from the officer.

Offer Letters

Mr. Rosenthal is party to an employment offer letter with Entellus that provides him the opportunity to receive a $72,500 cash retention bonus on the 1-year anniversary of the closing of our recent acquisition of Spirox, Inc. The offer letter provides that, in the event of his termination of employment by Entellus without cause or by Mr. Rosenthal for good reason, in either case prior to the payment of the retention bonus, his retention bonus will be paid in full within 30 days following such termination, subject to his timely execution and non-revocation of a release of claims.

Cash Bonuses in Lieu of Annual Equity Awards

Entellus typically grants equity awards to our executive officers effective as of January 4 each year. However, the Merger Agreement restricts our ability to grant equity awards during the period between December 7, 2017, which is the date of the Merger Agreement, and the Effective Time. To compensate our officers for these missed annual equity grants, Entellus awarded discretionary cash bonuses to certain officers in lieu of their 2018 annual equity awards. The bonus amounts are set forth in the table below and were based on the portion of the value that the officers otherwise would have received as 2018 equity awards. These bonuses will be paid on the earlier of the Effective Time of the Merger or March 31, 2018.

 

Name

   Cash Bonus  

Robert White

   $ 204,915  

Brent Moen

   $ 39,458  

Donald Gonzales

   $ 32,105  

Stephen Paidosh

   $ 27,643  

Karen Peterson

   $ 25,110  

Tim Petrick

   $ 32,733  

Employee Benefits

The Merger Agreement requires Stryker to continue to provide certain compensation and benefits for a period of 1 year following the Effective Time for certain continuing Entellus employees, and to take certain actions in respect of employee benefits provided to Entellus’ employees, including its executive officers. For a detailed description of these requirements, please see “The Merger Agreement—Other Covenants and Agreements—Employee Matters” beginning on page 88 of this proxy statement.

Insurance and Indemnification of Directors and Executive Officers

Under the Merger Agreement, Stryker and Merger Sub have agreed, among other things, that all rights to indemnification and exculpation from liabilities, including advancement of expenses, for acts or omissions occurring at or prior to the Effective Time existing as of December 7, 2017 in favor of the current or former directors or officers of Entellus as provided in our Certificate of Incorporation, Amended and Restated Bylaws or any indemnification contract between such directors or officers and Entellus (in each case, as in effect on, and, in

 

65


Table of Contents

the case of any indemnification contracts, to the extent made available to Stryker prior to, December 7, 2017) will survive the Merger and continue in full force and effect. In addition, prior to the Effective Time, Entellus is required to or, if Entellus is unable to, Stryker will cause the surviving corporation as of or after the Effective Time to, purchase a certain 6-year prepaid “tail” policy for such directors and officers. For a detailed description of these requirements, please see “The Merger Agreement—Other Covenants and Agreements—Indemnification of Directors and Officers; Insurance” beginning on page 90 of this proxy statement.

Treatment of Oxford Warrants

As of the Effective Time, each Oxford Warrant that was outstanding immediately prior to the Effective Time shall, in accordance with the terms of the applicable Oxford Warrant, no longer be exercisable and shall have either (i) been exercised by the holder thereof in accordance with the terms of each Oxford Warrant immediately prior to the Effective Time or (ii) if not so exercised, expired immediately prior to the Effective Time.

Voting Agreements

Concurrently with entering into the Merger Agreement, certain stockholders of Entellus, including certain directors and executive officers of Entellus, in their respective capacities as holders of shares or other equity interests of Entellus, and certain of their affiliates owning shares of Entellus common stock, collectively representing ownership of approximately     % of the outstanding shares of Entellus common stock as of the Record Date, each entered into a Voting Agreement with Stryker pursuant to which, among other things and subject to the terms and conditions therein, they agreed to vote their shares of Entellus common stock in favor of the adoption of the Merger Agreement and the transactions contemplated thereby, including the Merger, and against any alternative competing proposal. In addition, each stockholder party to a Voting Agreement waived appraisal rights and provided an irrevocable proxy to Stryker to vote in favor of the Merger, including by voting for the adoption of the Merger Agreement. The Voting Agreements do not limit or restrict the stockholders party thereto solely in their capacity as a director or officer of Entellus from acting in such capacity. Each Voting Agreement terminates upon the earliest to occur of (i) mutual consent by the relevant stockholder and Stryker; (ii) the termination of the Merger Agreement in accordance with its terms; (iii) the Effective Time; (iv) the Board changes its recommendation that Entellus’ stockholders adopt the Merger Agreement in accordance with the terms of the Merger Agreement; and (v) in the event the Merger Agreement is amended without the prior written consent of a stockholder party to a Voting Agreement and such amendment, among other things, decreases the amount or changes the form of Merger Consideration or otherwise is materially adverse to such stockholder relative to the other stockholders of Entellus.

Financing of the Merger

The Merger Agreement is not conditioned upon receipt of financing by Stryker. We anticipate that the total amount of funds necessary to consummate the Merger and the related transactions not including fees and expenses will be approximately $661 million, including the estimated funds needed to (i) pay our stockholders the amounts due to them under the Merger Agreement; (ii) make payments in respect of our outstanding stock options, warrants and restricted stock unit awards pursuant to the Merger Agreement; and (iii) pay the outstanding net indebtedness of Entellus. We understand that Stryker expects to use cash on hand and other funds available to it to fund the acquisition of Entellus.

Closing and Effective Time of the Merger

Unless another date is agreed by the parties, the closing of the Merger will take place no later than the 2nd business day following the satisfaction or, to the extent permitted by law, waiver of all conditions to closing (described under “The Merger Agreement—Conditions to the Merger” beginning on page 91 of this proxy statement) (other than those conditions to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions).

 

66


Table of Contents

Concurrently with the closing, Entellus will cause to be filed an appropriate, executed certificate of merger with respect to the Merger with the Delaware Secretary of State as provided under the DGCL. The Merger will become effective upon the filing of such certificate of merger, or at such later date and time as is agreed by Stryker and Entellus and specified in such certificate of merger.

Appraisal Rights

If the Merger is consummated, Entellus’ stockholders will be entitled to appraisal rights in connection with the Merger under Section 262 provided they comply with the conditions established by Section 262.

The following discussion is not a complete statement of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the full text of Section 262, which is attached to this proxy statement as Appendix B. The following summary does not constitute any legal or other advice nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262.

Under Section 262, record holders of Entellus common stock who make the demand described below with respect to such shares, do not vote in favor of the Merger Proposal, continuously hold such shares through the Effective Time, and otherwise comply with the statutory requirements of Section 262 will be entitled to an appraisal of their shares of our common stock and to receive payment in cash for the fair value of their shares as of the Effective Time, exclusive of any element of value arising from the accomplishment or expectation of the Merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be fair value. The “fair value” of the shares of our common stock as determined by the Delaware Court of Chancery may be more than, less than, or equal to the Merger Consideration per share that holders thereof are otherwise entitled to receive under the terms of the Merger Agreement. Stockholders should be aware that an investment banking opinion as to the fairness, from a financial point of view, of the consideration payable in a sale transaction, such as the Merger, is not an opinion as to, and does not otherwise address “fair value” under Section 262 of the DGCL. All references in this summary of appraisal rights to a “stockholder” or “holders of shares” are to the record holder or holders of such shares of our common stock.

Under Section 262, when a merger agreement is to be submitted by a corporation’s board of directors for adoption at a meeting of such corporation’s stockholders, not less than 20 days before such meeting, the corporation submitting the matter to a vote of stockholders must notify the stockholders who were stockholders on the record date for notice of such meeting with respect to shares for which appraisal rights will be available pursuant to Section 262 that such appraisal rights will be available. A copy of Section 262 must be included with such notice. This proxy statement constitutes Entellus’ notice to its stockholders that appraisal rights are available in connection with the Merger and the full text of Section 262 is attached to this proxy statement as Appendix B, in compliance with the requirements of Section 262. Stockholders who wish to exercise such appraisal rights should carefully review the text of Section 262 contained in Appendix B. Failure to comply timely and properly with the requirements of Section 262 will result in the loss of such stockholder’s appraisal rights under the DGCL. Moreover, because of the complexity of the procedures for exercising appraisal rights, Entellus believes that a stockholder considering the exercise of such rights should seek the advice of legal counsel.

Stockholders who wish to exercise their appraisal rights of their shares of our common stock must deliver to Entellus a written demand for appraisal of the holder’s shares before the vote is taken to approve the Merger Proposal. The demand must reasonably inform Entellus of the identity of the holder of record of shares who intends to demand appraisal of his, her or its shares. A stockholder seeking appraisal of his or her shares may not vote or submit a proxy in favor of the Merger Proposal. If a stockholder fails to deliver such written demand or votes or submits a proxy in favor of the Merger Proposal, such stockholder may remain entitled to receive the per share Merger Consideration for his, her or its shares of our common stock but will not have appraisal rights with respect to such shares. In addition, a holder of shares wishing to exercise appraisal rights must hold of record the shares on the date the written demand for appraisal is made and must continue to hold such shares of record through the Effective Time.

 

67


Table of Contents

A proxy that is submitted and does not contain voting instructions will, unless properly revoked, be voted “FOR” the Merger Proposal, and it will result in the loss of the stockholder’s right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must either submit a proxy containing instructions to vote “AGAINST” the Merger Proposal or “ABSTAIN” from voting on the Merger Proposal. Voting against or failing to vote on the Merger Proposal by itself does not constitute a demand for appraisal within the meaning of Section 262. The written demand for appraisal must be in addition to and separate from any proxy or vote on the Merger Proposal.

All demands for appraisal should be addressed to:

Entellus Medical, Inc.

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

Attention: Corporate Secretary

and must be delivered to Entellus before the vote is taken to approve the Merger Proposal at the special meeting, and must be executed by, or on behalf of, the stockholder. The demand will be sufficient if it reasonably informs Entellus of the identity of the stockholder and the intention of the stockholder to demand appraisal of the “fair value” of his, her or its shares of our common stock. A stockholder’s failure to deliver to Entellus the written demand prior to the taking of the vote on the Merger Proposal at the special meeting will result in the loss of appraisal rights.

Only a holder of record is entitled to demand an appraisal of the shares registered in that holder’s name. Accordingly, to be effective, a demand for appraisal by a stockholder must be made by, or on behalf of, the record stockholder. The demand should set forth, fully and correctly, the record stockholder’s name as it appears on the stockholder’s stock certificate(s) or in the transfer agent’s records, and in the case of uncertificated shares, should specify the stockholder’s mailing address and the number of shares registered in the stockholder’s name. The demand must state that the person intends thereby to demand appraisal of the stockholder’s shares in connection with the Merger. The demand cannot be made by the person having a beneficial interest in such shares if he or she does not also hold such shares of record. A person having a beneficial interest in shares that are held of record in the name of another person, such as a broker, fiduciary, bank or other nominee, must act promptly to cause the record holder to follow the steps summarized herein properly and in a timely manner to perfect appraisal rights. If shares are owned of record by a person other than the beneficial owner, including a broker, fiduciary (such as a trustee, guardian or custodian), bank or other nominee, such demand must be executed by or for the record owner. If a stockholder holds shares through a broker or bank who in turn holds the shares through a central securities depository nominee such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify the depository nominee as record holder. If a stockholder holds through a broker, bank or other nominee and wishes to exercise appraisal rights, such stockholder should consult with his, her or its broker, bank or other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal must be made in that capacity. If the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, bank or other nominee, who holds shares as a nominee for others, may exercise his or her right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner.

 

68


Table of Contents

Within 10 days after the Effective Time, the surviving corporation in the Merger must give written notice of the Effective Time to each stockholder who has demanded appraisal in accordance with Section 262 and who did not vote in favor of the Merger Proposal. At any time within 60 days after the Effective Time, any stockholder who has not commenced an appraisal proceeding or joined a proceeding as a named party may withdraw the stockholder’s demand and accept the Merger Consideration for that holder’s shares of our common stock by delivering to the surviving corporation a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the Effective Time will require written approval of the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, with such approval conditioned upon such terms as the Delaware Court of Chancery deems just. If the surviving corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or, except with respect to any stockholder who withdraws such stockholder’s right to appraisal in accordance with the proviso in the immediately preceding sentence, if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value of his, her or its shares of our common stock determined in any such appraisal proceeding, which value may be more than, less than, or equal to the Merger Consideration per share.

Within 120 days after the Effective Time, but not thereafter, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 and is entitled to appraisal rights under Section 262 may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon the surviving corporation. The surviving corporation has no obligation to file such petition and has no present intention to file a petition and holders should not assume that the surviving corporation will file a petition. In the event that the surviving corporation does not file such petition, it is the obligation of the holders of our common stock to initiate all necessary action to perfect their appraisal rights with respect to shares within the time prescribed in Section 262. In addition, within 120 days after the Effective Time, any stockholder who has theretofore complied with the applicable provisions of Section 262 will be entitled to receive from the surviving corporation, upon written request, a statement setting forth the aggregate number of shares not voted in favor of the Merger Proposal and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. A person who is the beneficial owner of shares held either in a voting trust or by a nominee on behalf of such person and for which appraisal has been properly demanded may, in such person’s own name, file a petition for appraisal or request from the surviving corporation such statement. The statement must be mailed within 10 days after such written request has been received by the surviving corporation or within 10 days after the expiration of the period for delivery of demands for appraisal, whichever is later.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, then the surviving corporation will be obligated, within 20 days after receiving service of a copy of the petition, to file with the Delaware Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice to stockholders who have demanded appraisal from the Delaware Register in Chancery, if such notice is ordered by the Delaware Court of Chancery, the Delaware Court of Chancery will conduct a hearing upon the petition and determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided by Section 262. The Delaware Court of Chancery may require stockholders who have demanded an appraisal for their shares and who hold shares represented by certificates, to submit their stock certificates to the Delaware Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder. Additionally, because our common stock will have been publicly listed on the Nasdaq Global Market, the Delaware Court of Chancery is required under Section 262 to dismiss the proceedings as to all holders of such shares who are otherwise entitled to appraisal rights unless (i) the total number of shares entitled

 

69


Table of Contents

to appraisal exceeds 1% of the outstanding shares of our common stock or (ii) the value of the Merger Consideration for such total number of shares of our common stock exceeds $1 million.

After determination of the stockholders entitled to appraisal of their shares, the Delaware Court of Chancery will appraise the shares, determining their fair value as of the Effective Time after taking into account all relevant factors exclusive of any element of value arising from the accomplishment or expectation of the Merger, together with interest, if any, to be paid upon the amount determined to be the fair value. When the fair value has been determined, the Delaware Court of Chancery will direct the payment of such value by the surviving corporation to the stockholders entitled thereto. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, and except as provided in the following sentence, interest from the Effective Time through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the Effective Time and the date of payment of the judgment. At any time before the entry of judgment in the appraisal proceeding, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided in the preceding sentence only upon the sum of (i) the difference, if any, between the amount so paid and the fair value of shares as determined by the Delaware Court of Chancery and (ii) interest theretofore accrued, unless paid at that time.

Neither Entellus nor Stryker anticipates offering more than the Merger Consideration provided for in the Merger Agreement to any stockholder exercising appraisal rights and they reserve the right to assert, in any appraisal proceeding, that, for purposes of Section 262, the “fair value” of a share of our common stock is less than the per share Merger Consideration. In determining “fair value,” the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered and that “[f]air price obviously requires consideration of all relevant factors involving the value of a company.” The Delaware Supreme Court has stated that in making this determination of fair value, the court must consider market value, asset value, dividends, earnings prospects, the nature of the enterprise and any other facts that could be ascertained as of the date of the merger that throw any light on future prospects of the merged corporation. Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993), the Delaware Supreme Court stated that such exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court also stated that “elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

Costs of the appraisal proceeding (which do not include attorneys’ fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery, as it deems equitable in the circumstances. Each dissenting stockholder is responsible for his, her or its attorneys and expert witness expenses, although upon the application of a dissenting stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts used in the appraisal proceeding, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who demanded appraisal rights will not, after the Effective Time, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares other than with respect to payment as of the Record Date prior to the Effective Time.

At any time within 60 days after the Effective Time, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will have the right to withdraw such demand for appraisal

 

70


Table of Contents

and to accept the terms offered in the Merger; after this period, the stockholder may withdraw such demand for appraisal only with the consent of the surviving corporation. If no petition for appraisal is filed with the Delaware Court of Chancery within 120 days after the Effective Time, or if the stockholder otherwise fails to perfect, successfully withdraws or loses such holder’s right to appraisal, then the stockholder’s right to appraisal shall cease, and such stockholder will be entitled to receive the Merger Consideration. Inasmuch as the surviving corporation has no obligation to file such a petition, and has no present intention to do so, any holder of shares who desires such a petition to be filed is advised to file it on a timely basis. As indicated above, any stockholder may withdraw such stockholder’s demand for appraisal by delivering to the surviving corporation a written withdrawal of his, her or its demand for appraisal and acceptance of the Merger Consideration, except (i) that any such attempt to withdraw made more than 60 days after the Effective Time will require written approval of the surviving corporation and (ii) that no appraisal proceeding in the Delaware Court of Chancery shall be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and such approval may be conditioned upon such terms as the Delaware Court of Chancery deems just, provided, however, that the preceding clause (ii) shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder’s demand for appraisal and to accept the Merger Consideration on terms offered upon the Merger within 60 days after the Effective Time.

Failure to comply strictly with all of the procedures set forth in Section 262 will result in the loss of a stockholder’s statutory appraisal rights.

U.S. Federal Income Tax Consequences of the Merger

The following discussion is a summary of the U.S. federal income tax consequences of the Merger that are relevant to holders of shares of Entellus common stock whose shares are converted into the right to receive cash pursuant to the Merger. This discussion is based upon the Internal Revenue Code of 1986, as amended (referred to as the “Code”), Treasury Regulations promulgated under the Code, court decisions, published positions of the Internal Revenue Service (referred to as the “IRS”), and other applicable authorities, all as in effect on the date of this proxy statement and all of which are subject to change or differing interpretations, possibly with retroactive effect. This discussion is limited to holders who hold their shares of Entellus common stock as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment purposes). This summary does not describe any of the tax consequences arising under the laws of any state, local or foreign tax jurisdiction and does not consider any aspects of U.S. federal tax law other than income taxation (e.g., state, gift or alternative minimum tax or the Medicare net investment income surtax). In addition, this summary does not address the U.S. federal income tax consequences to holders of shares who exercise appraisal rights under the DGCL. For purposes of this discussion, a “holder” means either a U.S. Holder or a Non-U.S. Holder or both, as the context may require.

This discussion is for general information only and does not address all of the tax consequences that may be relevant to holders in light of their particular circumstances, including:

 

    holders who may be subject to special treatment under U.S. federal income tax laws, such as: financial institutions, tax-exempt organizations, S corporations or any other entities or arrangements treated as partnerships or pass-through entities for U.S. federal income tax purposes, insurance companies, mutual funds, dealers in stocks and securities, traders in securities that elect to use the mark-to-market method of accounting for their securities, regulated investment companies, real estate investment trusts, or certain expatriates or former long-term residents of the United States;

 

    holders holding the shares as part of a hedging, constructive sale or conversion, straddle or other risk reducing transaction;

 

    holders that received their shares of Entellus common stock in a compensatory transaction;

 

    holders who own an equity interest, actually or constructively, in Stryker or the surviving corporation; or

 

    U.S. Holders whose “functional currency” is not the U.S. dollar.

 

71


Table of Contents

If a partnership (including an entity or arrangement classified as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares of Entellus common stock, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding the shares of Entellus common stock and partners therein should consult their tax advisors regarding the consequences of the Merger.

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. No assurance can be given that the IRS will agree with the views expressed in this summary, or that a court will not sustain any challenge by the IRS in the event of litigation.

THIS DISCUSSION IS PROVIDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE TO ANY HOLDER. A HOLDER SHOULD CONSULT ITS OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE MERGER IN LIGHT OF ITS PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR OTHER TAX LAWS.

U.S. Holders

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of shares of Entellus common stock who or 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, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

 

    An estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

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

The receipt of cash by a U.S. Holder in exchange for shares of Entellus common stock pursuant to the Merger will be a taxable transaction for U.S. federal income tax purposes. In general, such U.S. Holder’s gain or loss will be equal to the difference, if any, between the amount of cash received and the U.S. Holder’s adjusted tax basis in the shares surrendered pursuant to the Merger. A U.S. Holder’s adjusted tax basis generally will equal the amount that such U.S. Holder paid for the shares. Such gain or loss generally will be capital gain or loss and will be long-term capital gain or loss if such U.S. Holder’s holding period in such shares is more than 1 year at the time of the consummation of the Merger. A reduced tax rate on capital gain generally will apply to long-term capital gain of a non-corporate U.S. Holder. There are limitations on the deductibility of capital losses.

Non-U.S. Holders

For purposes of this discussion, the term “Non-U.S. Holder” means a beneficial owner of shares of Entellus common stock who or that is not a U.S. Holder or partnership for U.S. federal income tax purposes.

Special rules not discussed below may apply to certain Non-U.S. Holders subject to special tax treatment such as “controlled foreign corporations” or “passive foreign investment companies.” Non-U.S. Holders should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them in light of their particular circumstances.

 

72


Table of Contents

Any gain realized by a Non-U.S. Holder pursuant to the Merger generally will not be subject to U.S. federal income tax unless:

 

    the gain is effectively connected with a trade or business of such Non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment maintained by such Non-U.S. Holder in the United States), in which case such gain generally will be subject to U.S. federal income tax at rates generally applicable to U.S. persons, and, if the Non-U.S. Holder is a corporation, such gain may also be subject to the branch profits tax at a rate of 30% (or a lower rate under an applicable tax treaty);

 

    such Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other specified conditions are met, in which case such gain will be subject to U.S. federal income tax at a rate of 30% (or a lower rate under an applicable tax treaty); or

 

    we are or have been a “United States real property holding corporation” (referred to as “USRPHC”), at some point during the applicable statutory period, and the Non-U.S. Holder’s shares of Entellus’ common stock represent a “U.S. real property interest” (referred to as “USRPI”), under the Foreign Investment in Real Property Tax Act (referred to as “FIRPTA”).

Under FIRPTA, dispositions of a USRPI by a foreign person are generally subject to U.S. federal income taxation. Shares in a USRPHC with at least one class of stock that is regularly traded on an established securities market generally will be considered a USRPI with respect to a foreign person if such foreign person holds more than 5% of the value of the regularly traded class of stock.

We believe that we have not been a USRPHC during the applicable statutory period. Therefore, the sale of any shares of Entellus common stock held by a Non-U.S. Holder will not be subject to U.S. taxation under the FIRPTA rules.

Regulatory Approvals Required for the Merger

HSR Act and U.S. Antitrust Matters

Under the HSR Act, and the rules promulgated thereunder by the Federal Trade Commission (referred to as the “FTC”), the Merger cannot be consummated until Entellus and Stryker each file a notification and report form with the FTC and the Antitrust Division of the Department of Justice under the HSR Act and the applicable waiting period thereunder has expired or been terminated. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-calendar-day waiting period following the parties’ filing of their respective HSR Act notification forms or the early termination of that waiting period. Entellus and Stryker and its affiliates filed their respective HSR Act notifications on December 21, 2017. On January 3, 2018, the FTC notified Entellus and Stryker that the request for early termination of the applicable waiting period was granted.

At any time before or after consummation of the Merger, notwithstanding the expiration or termination of the waiting period under the HSR Act, the Antitrust Division of the Department of Justice or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the consummation of the Merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the consummation of the Merger, and notwithstanding the expiration or termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the consummation of the Merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. Under the Merger Agreement, notwithstanding any other provision of the Merger Agreement to the contrary, in no event shall Stryker or any of its affiliates be required to take any Divestiture Action (as defined under “The Merger Agreement—Other Covenants and Agreements—Efforts to

 

73


Table of Contents

Consummate the Merger” beginning on page 88 of this proxy statement) or otherwise agree to or proffer to sell, divest, hold separate, lease, license, transfer, dispose of or otherwise encumber or impair or take any other action with respect to Stryker’s or any of its affiliates’ ability to own or operate any assets, properties, businesses or product lines of Stryker or any of its affiliates (including, for the avoidance of doubt, any securities of Entellus or its subsidiaries) or, except as would not have, individually or in the aggregate, a material adverse effect on Entellus and its subsidiaries, taken as a whole, any assets, properties, businesses or product lines of Entellus or any of its subsidiaries (provided that, among other things, none of Stryker or any of its affiliates will be required to take any such action in connection with any action or proceeding by a third party other than a governmental authority).

Delisting and Deregistration of Entellus Common Stock

If the Merger is consummated, following the Effective Time, the common stock of Entellus will cease trading on the Nasdaq Global Market and will be deregistered under the Exchange Act. As such, we would no longer file periodic reports with the SEC.

 

74


Table of Contents

THE MERGER AGREEMENT

The following summary describes certain material provisions of the Merger Agreement. This summary is not complete and is qualified in its entirety by reference to the Merger Agreement, which is attached to this proxy statement as Appendix A and incorporated into this proxy statement by reference. We encourage you to read the Merger Agreement carefully 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.

Explanatory Note Regarding the Merger Agreement

The Merger Agreement and this summary of its terms have been included to provide you with information regarding the terms of the Merger Agreement. Factual disclosures about Entellus contained in this proxy statement or in Entellus’ public reports filed with the SEC may supplement, update or modify the factual disclosures about Entellus contained in the Merger Agreement and described in this summary. The representations, warranties and covenants made in the Merger Agreement by Entellus, Stryker and Merger Sub were qualified and subject to important limitations agreed to by Entellus, Stryker and Merger Sub in connection with negotiating the terms of the Merger Agreement. In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the Merger Agreement may have the right not to close the Merger if the representations and warranties of the other party prove to be untrue, due to a change in circumstance or otherwise, and allocating risk between the parties to the Merger Agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC, and in some cases were qualified by disclosures that were made by each party to the other, which disclosures are not reflected in the Merger Agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement or in the respective public filings made by each of Entellus or Stryker with the SEC.

Additional information about Entellus may be found elsewhere in this proxy statement and Entellus’ other public filings. See “Where You Can Find More Information” beginning on page 106 of this proxy statement.

When the Merger Becomes Effective

The closing of the Merger will take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 155 North Wacker Drive, Chicago, Illinois, at 10:00 a.m. (local time) on a date to be specified by the parties, but no later than the 2nd business day after the satisfaction or waiver of the conditions set forth in the Merger Agreement (other than those conditions that by their terms are to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions), unless another time, date or place is agreed to in writing by Entellus, Merger Sub and Stryker.

Concurrently with the closing, Entellus will cause to be filed an appropriate, executed certificate of merger with respect to the Merger with the Delaware Secretary of State as provided under the DGCL. The Merger will become effective upon the filing of such certificate of merger, or at such later date and time as is agreed by Stryker and Entellus and specified in such certificate of merger.

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

Upon the terms and conditions of the Merger Agreement, at the Effective Time, Merger Sub will merge with and into Entellus and the separate corporate existence of Merger Sub will cease, with Entellus continuing as the

 

75


Table of Contents

surviving corporation and a direct or indirect wholly owned subsidiary of Stryker. At the Effective Time, the Certificate of Incorporation of Entellus will, by virtue of the Merger, be amended and restated in its entirety as set forth in Exhibit B of the Merger Agreement and such amended and restated certificate of incorporation will be the certificate of incorporation of the surviving corporation until thereafter amended. At the Effective Time, Stryker will take such action necessary to change the bylaws of Merger Sub, as in effect immediately before the Effective Time, to be the bylaws of the surviving corporation until thereafter amended. From and after the Effective Time, the directors of Merger Sub immediately before the Effective Time will be the initial directors of, and the officers of Entellus immediately before the Effective Time will be the initial officers of, the surviving corporation and, in each case, will hold office until their respective successors are duly elected, designated or qualified, or until their earlier death, resignation or removal, in accordance with the surviving corporation’s certificate of incorporation and bylaws.

Effect of the Merger on Entellus Common Stock

At the Effective Time, each share of Entellus common stock issued and outstanding immediately prior to the Effective Time (other than Cancelled Shares and Dissenting Shares) will be converted into the right to receive the Merger Consideration. From and after the Effective Time, such Entellus common stock will no longer be outstanding, will automatically be cancelled, and will cease to exist, and each holder of a share of common stock will cease to have any rights with respect thereto, except the right to receive, upon surrender of Certificates or Book-Entry Shares, the Merger Consideration.

At the Effective Time, any shares of Entellus common stock that are Cancelled Shares will automatically be cancelled and retired and will cease to exist, and no consideration or payment will be delivered in exchange for such shares.

The Merger Consideration will be adjusted appropriately to reflect the effect of any reclassification, recapitalization, exchange, stock split (including reverse stock split) or combination or readjustment of shares or any stock dividend or stock distribution with a record date occurring on or after the date of the Merger Agreement and prior to the Effective Time.

Treatment of Equity Awards; ESPP

Options. Under the Merger Agreement, each Entellus stock option that is outstanding and unexercised immediately prior to the Effective Time, whether vested or unvested, will be cancelled and converted into the right to receive the Merger Consideration with respect to each share of our common stock subject to the option, net of the applicable per share exercise price and any applicable withholding taxes or other amounts required to be withheld by applicable law. Options with a per share exercise price equal to or exceeding the Merger Consideration will be cancelled without payment.

Restricted Stock Unit Awards. The Merger Agreement also provides that each Entellus restricted stock unit award that is outstanding immediately prior to the Effective Time will be cancelled and converted into the right to receive the Merger Consideration in respect of each share of our common stock underlying the award, net of any applicable withholding taxes or other amounts required to be withheld by applicable law.

ESPP. The most recent offering period in effect under the ESPP ended as scheduled on December 31, 2017 and all options under the ESPP were exercised on such date. No new additional offering periods will begin thereafter. Participants who purchased shares of our common stock under the ESPP will receive the same Merger Consideration in the same manner as other stockholders for each such share the participant holds as of the Effective Time.

Treatment of Oxford Warrants

As of the Effective Time, each Oxford Warrant that was outstanding immediately prior to the Effective Time shall, in accordance with the terms of the applicable Oxford Warrant, no longer be exercisable and shall

 

76


Table of Contents

have either (i) been exercised by the holder thereof in accordance with the terms of each Oxford Warrant immediately prior to the Effective Time or (ii) if not so exercised, expired immediately prior to the Effective Time.

Payment for Entellus Common Stock

Prior to or at the Effective Time, Stryker will deposit, or cause to be deposited, with a paying agent designated by Stryker that is reasonably acceptable to Entellus cash in an amount necessary to pay the aggregate Merger Consideration (referred to as the “Exchange Fund”).

Promptly following the Effective Time, Stryker will cause the paying agent to mail to each holder of record of Certificates or Book-Entry Shares that immediately prior to the Effective Time represented outstanding shares of Entellus common stock (i) a letter of transmittal, which will specify that delivery will be effected, and risk of loss and title to the Certificates or Book-Entry Shares, as applicable, will pass only upon proper delivery of the Certificates (or affidavits of loss in lieu thereof) or Book-Entry Shares to the paying agent and will be in a form and have such other customary provisions as reasonably specified by Stryker, and (ii) instructions for effecting the surrender of the Certificates or Book-Entry Shares in exchange for cash in an amount equal to the Merger Consideration multiplied by the number of shares of Entellus common stock previously represented by such Certificates or Book-Entry Shares.

Upon surrender of a Certificate (or an affidavit of loss in lieu thereof) or a Book-Entry Share for cancellation to the paying agent, together with such letter of transmittal duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate or Book-Entry Share will be entitled to receive in exchange therefor as promptly as reasonably practicable cash in an amount equal to the Merger Consideration multiplied by the number of shares of Entellus common stock previously represented by such Certificate or Book-Entry Share. The paying agent will accept such Certificates (or affidavits of loss in lieu thereof) or such Book-Entry Shares upon compliance with such reasonable terms and conditions as the paying agent may impose to effect an orderly exchange thereof in accordance with customary exchange practices. No interest will be paid or accrued for the benefit of holders of the Certificates or Book-Entry Shares on the cash payable upon the surrender of the Certificates or Book-Entry Shares.

Representations and Warranties

The Merger Agreement contains representations and warranties of each of Entellus, Stryker and Merger Sub, subject to certain qualifications or exceptions in the Merger Agreement and the disclosure schedules delivered in connection with the Merger Agreement, as to, among other things:

 

    corporate organization, existence, good standing and corporate power and authority to conduct its business as presently conducted and own, lease and operate its properties and assets as currently operated;

 

    corporate power and authority to enter into the Merger Agreement, to perform its obligations thereunder and to complete the transactions contemplated thereby;

 

    the absence of certain violations, defaults or consent requirements under certain contracts, organizational documents and law, in each case arising out of the execution, delivery or performance of, consummation of the transactions contemplated by, or compliance with any of the provisions of the Merger Agreement;

 

    required regulatory filings or actions and authorizations, consents or approvals of governmental entities and other persons;

 

    the absence of certain litigation, orders and judgments and governmental proceedings and investigations related to Stryker and its subsidiaries or Entellus and its subsidiaries (as applicable);

 

77


Table of Contents
    matters relating to information to be included in required filings with the SEC in connection with the Merger; and

 

    the absence of any fees owed to investment bankers or brokers in connection with the Merger, other than those specified in the Merger Agreement.

The Merger Agreement also contains representations and warranties of Entellus, subject to certain qualifications or exceptions in the Merger Agreement and the disclosure schedules delivered in connection with the Merger Agreement, as to, among other things:

 

    the capitalization of Entellus, including the authorized capital stock, outstanding options, restricted stock unit awards, the Oxford Warrants, shares of Entellus common stock reserved for issuance under the ESPP, and shares of Entellus common stock reserved for issuance under Entellus’ equity plans;

 

    all shares of Entellus common stock (i) having been, or being when issued pursuant to any Entellus equity award, Entellus equity plan, the Oxford Warrants or the ESPP in accordance with the respective terms thereof, duly authorized, validly issued, fully paid, non-assessable and free of pre-emptive rights and (ii) having been issued pursuant to an effective registration statement or exemption therefrom;

 

    the proper authorization of Entellus equity awards and Oxford Warrants and issuance of the same in compliance with applicable laws;

 

    the absence of, other than the Entellus equity awards, the Oxford Warrants or pursuant to the ESPP, among other things, (i) outstanding options, warrants, calls, pre-emptive rights, subscriptions or other securities or rights, stock appreciation rights, restricted stock award, restricted stock unit awards, convertible securities, agreements, arrangements or commitments of any kind obligating Entellus or any of its subsidiaries to issue, transfer, register or sell (or cause to be issued, transferred, registered or sold) any shares of capital stock or other securities of Entellus or any of its subsidiaries or securities convertible into or exchangeable for such shares or other securities; (ii) outstanding obligations of Entellus or any of its subsidiaries to repurchase, redeem or otherwise acquire any securities of Entellus or any of its subsidiaries, or any securities representing the right to purchase or otherwise receive any other securities of Entellus or any of its subsidiaries; (iii) agreements to which Entellus or any of its subsidiaries is a party restricting the transfer of securities of Entellus or any of its subsidiaries or affecting the voting rights of securities of Entellus or any of its subsidiaries; or (iv) outstanding or authorized equity or equity-based compensation awards;

 

    the absence of any (i) direct or indirect ownership of any securities, including equity interests, of any person (except for securities of Entellus subsidiaries) or (ii) obligations or commitments to acquire any such securities or to provide funds to or make any investment in any person;

 

    the full payment of all dividends or distributions on securities of Entellus or any of its subsidiaries that have been declared or authorized;

 

    the corporate actions required to be taken, and taken in connection with the execution, delivery and performance of the Merger Agreement by Entellus, including with respect to the approval of Entellus stockholders of the Merger Proposal;

 

    the timeliness and accuracy of Entellus’ filings with the SEC and of financial statements included in its SEC filings, including the financial statements of Spirox, Inc. included in such filings following Entellus’ acquisition of Spirox, Inc., and the compliance of filings and financial statements with SEC rules and (in the case of financial statements) with United States generally accepted accounting principles, the Sarbanes-Oxley Act of 2002, the applicable rules and regulations of the Nasdaq Stock Market;

 

    Entellus’ disclosure controls and procedures and internal control over financial reporting;

 

   

the absence of any SEC proceedings regarding any accounting practices of, any malfeasance by any director or executive officer of, Entellus or any of its subsidiaries or any allegations or claims regarding

 

78


Table of Contents
 

accounting, internal accounting controls, auditing practices, procedures, methodologies or methods of Entellus or any of its subsidiaries or unlawful accounting or auditing matters with respect to Entellus or any of its subsidiaries;

 

    the absence of certain changes from December 31, 2016 through the date of the Merger Agreement, including the conduct of the businesses of Entellus and its subsidiaries in the ordinary course consistent with past practice, and the absence of a Company Material Adverse Effect;

 

    the absence of certain undisclosed liabilities of Entellus;

 

    the possession by Entellus and its subsidiaries of all licenses, permits and other authorizations necessary to own, lease and operate their respective properties and assets as currently conducted and in compliance with applicable law;

 

    the compliance by Entellus and its subsidiaries with applicable law and licenses, permits and other authorizations;

 

    Entellus’ employee benefit plans and other agreements with its employees;

 

    labor matters related to Entellus and its subsidiaries and their respective employees;

 

    the payment of taxes, the filing of tax returns, lack of tax audits or proceedings and other tax matters related to Entellus and its subsidiaries;

 

    certain categories of specified material contracts, including as to effectiveness and lack of breach or default for such contracts, and the absence of related party transactions of Entellus and its subsidiaries;

 

    (i) the ownership of or rights with respect to Entellus’ and its subsidiaries’ intellectual property, (ii) the ownership of or rights to intellectual property necessary to the operation of Entellus’ and its subsidiaries’ respective businesses, as conducted as of the closing, (iii) the maintenance and preservation of Entellus’ intellectual property; (iv) the absence of liens other than certain permitted liens or restrictions with respect to Entellus’ or its subsidiaries’ intellectual property; (v) the scope of Entellus’ and its subsidiaries’ intellectual property; (vi) the non-infringement or misappropriation by Entellus or any of its subsidiaries of the intellectual property of third parties; (vii) the steps taken to protect Entellus’ and its subsidiaries’ trade secrets and other proprietary information; (viii) the absence of any final court decision holding any Entellus or Entellus subsidiary registered intellectual property invalid; (ix) the absence of any settlements, consents, orders or similar obligations to which Entellus or any of its subsidiaries is a party restricting their rights to use, enjoy or exploit their material intellectual property; and (x) the steps taken to protect the software used by Entellus or any of its subsidiaries;

 

    real property owned or leased by Entellus or any of its subsidiaries;

 

    environmental matters and compliance with environmental laws by Entellus and its subsidiaries;

 

    customers and suppliers of Entellus and its subsidiaries;

 

    product warranties and other terms related to each product manufactured, sold, leased delivered or distributed or service provided or rendered by Entellus or any of its subsidiaries;

 

    compliance with anti-bribery and anti-corruption laws, rules and regulations, including the Foreign Corrupt Practices Act, the U.S. Travel Act, the U.K. Bribery Act 2010 and the applicable laws implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions;

 

    compliance with customs and international trade laws;

 

    compliance with all necessary authorizations, approvals, clearances, consents or registrations and with all laws and regulations required by any regulatory or other governmental authority, including the regulations of the United States Food and Drug Administration or any comparable regulatory authority, required for, among other things, the research, investigation, development, manufacture, use and sale of the products of Entellus and any of its subsidiaries;

 

79


Table of Contents
    compliance with certain federal health care program laws, federal privacy and security regulations and the federal anti-kickback statute;

 

    insurance policies of Entellus or any of its subsidiaries;

 

    absence of waivers to certain closing conditions related to Entellus’ acquisition of Spirox, Inc.;

 

    non-applicability of certain anti-takeover laws to the Merger Agreement or the Merger; and

 

    the receipt by the Board of an opinion of Piper Jaffray as to the fairness of the Merger Consideration, from a financial point of view, to the holders of shares of Entellus common stock.

The Merger Agreement also contains representations and warranties of Stryker and Merger Sub, subject to certain qualifications or exceptions in the Merger Agreement and the disclosure schedules delivered in connection with the Merger Agreement, as to, among other things:

 

    the availability to Stryker, as of the Closing Date, of sufficient funds to consummate the Merger and the other transactions contemplated by the Merger Agreement that require payment on the Closing Date, and the absence of any condition regarding Stryker’s or Merger Sub’s ability to obtain financing for the Merger and the other transactions contemplated by the Merger Agreement;

 

    Stryker’s ownership of all of the issued and outstanding capital stock of Merger Sub; and

 

    the absence during the last 3 years of any ownership by Stryker or Merger Sub, or any of their respective controlled affiliates of Entellus common stock or securities convertible into or exchangeable for Entellus common stock.

Some of the representations and warranties in the Merger Agreement are qualified by materiality qualifications or a “Company Material Adverse Effect” or “Parent Material Adverse Effect” clause.

For purposes of the Merger Agreement, a “Company Material Adverse Effect” means any effect, change, development, event, circumstance, occurrence, condition, fact or state of facts that has a material adverse effect, individually or in the aggregate:

 

    on the business, condition (financial or otherwise), assets, liabilities or results of operations of Entellus and its subsidiaries, taken as a whole; provided, however, that any effect, change, development, event, occurrence, condition or state of facts directly resulting from or arising out of the following will not be taken into account in determining whether a Company Material Adverse Effect has occurred:

 

    changes in general United States or global economic, regulatory or financial market conditions;

 

    changes in the economic, business and financial environment generally affecting the medical device industry;

 

    in and of itself, any change in Entellus’ stock price or any failure by Entellus to meet any revenue, earnings or other similar projections (it being understood that any effect, change, development, event, circumstance, occurrence, condition, fact or state of facts giving rise to or contributing to such change or failure may be deemed to constitute, or be taken into account in determining whether there has been a Company Material Adverse Effect);

 

    an act of terrorism or an outbreak or escalation of hostilities or war (whether or not declared) or any natural disasters or other similar force majeure events, including any worsening of such conditions threatened or existing as of the date of the Merger Agreement;

 

    any adoption, implementation, promulgation, repeal, modification, amendment or other changes in laws or United States generally accepted accounting principles; or

 

   

the public announcement or pendency of the Merger or the other transactions contemplated thereby; provided, further, however, that in the cases of the 1st, 2nd, 4th and 5th sub-bullets

 

80


Table of Contents
 

above, to the extent Entellus and its subsidiaries, taken as a whole, are disproportionately affected thereby in relation to other companies in the medical device industry, such effects, changes, developments, events, circumstances, occurrences, conditions, facts or states of facts may be taken into account in determining whether a Company Material Adverse Effect has occurred to the extent of such disproportionate impact; or

 

    on the ability of Entellus to perform its obligations under the Merger Agreement or to consummate the Merger, or on the consummation of, whether by prevention or material delay, any of the Merger and the other transactions contemplated by the Merger Agreement.

For purposes of the Merger Agreement, a “Parent Material Adverse Effect” means the impairment in any material respect of the ability of each of Stryker and Merger Sub, as the case may be, to perform its obligations under the Merger Agreement or to consummate the Merger and pay the Merger Consideration, or prevent or materially delay the consummation of any of the Merger and the other transactions contemplated by the Merger Agreement.

Conduct of Business Pending the Merger

The Merger Agreement provides that, subject to certain exceptions in the disclosure schedules delivered by Entellus in connection with the Merger Agreement, and except as may be expressly required by the Merger Agreement, required by law or as consented to by Stryker in writing (such consent not to be unreasonably withheld, conditioned or delayed for certain of the actions described below), during the period from the date of the Merger Agreement to the Effective Time (or the date, if any, on which the Merger Agreement is terminated by its terms), (i) Entellus will, and will cause each of its subsidiaries to, conduct its business in the ordinary course of business and in a manner consistent with past practice and, to the extent consistent therewith, use reasonable best efforts to preserve its assets and business organization intact in all material respects and maintain its existing business relations and goodwill with customers, suppliers, licensors, distributors, governmental authorities, independent contractors, employees, business partners and others having material business relationships with it, and (ii) Entellus will not, and will cause each of its subsidiaries not to, directly or indirectly:

 

    amend or otherwise change its certificate of incorporation or bylaws or similar organizational or governing documents of any of its subsidiaries;

 

    adjust, split, reverse split, combine, subdivide, reclassify, redeem, purchase, repurchase or otherwise acquire, directly or indirectly, or amend the terms of, Entellus’ or any of its subsidiaries’ securities;

 

    issue, sell, pledge, modify, transfer, dispose of, encumber or grant, or authorize the same with respect to, directly or indirectly, any of Entellus’ or any of its subsidiaries’ securities, other than with respect to Entellus equity awards outstanding as of December 7, 2017, upon the exercise of the Oxford Warrants and pursuant to automatic exercise rights under the ESPP on the last day of any applicable offering period thereunder (subject to the termination of such period under Merger Agreement);

 

    declare, set aside, authorize, make or pay any dividend or other distribution payable in cash, stock, property or otherwise with respect to Entellus’ or any of its subsidiaries’ securities;

 

    establish, adopt, enter into, materially amend or terminate any benefit plan or, except as may be required by United States generally accepted accounting principles, materially change the assumptions used in calculating funding obligations under, or change the manner or basis upon which contributions are made to, any benefit plan;

 

    grant or pay, or commit to grant or pay, any bonus, incentive or profit-sharing award or payment, or increase the base salary and/or cash bonus opportunity to any director, officer, employee, or consultant of Entellus or any Entellus subsidiary other than as required by applicable law or any Entellus benefit plan in effect as of December 7, 2017 or salary and cash incentive compensation increase for certain employees in ordinary course of business in connection with Entellus’ annual salary review consistent with past practice;

 

81


Table of Contents
    accelerate or take any action to accelerate any payment or benefit, or the funding of any payment or benefit, payable or to become payable to any current or former director, officer, employee, or consultant of Entellus or any Entellus subsidiary other than as required by an Entellus benefit plan in existence as of December 7, 2017 or adopted in accordance with the Merger Agreement;

 

    enter into, extend, amend or modify, or terminate any employment, severance, termination, change in control, retention, individual consulting or other similar agreement with any current or former director, officer, employee, or consultant of, or individual service provider to, Entellus or any Entellus subsidiary other than offer letters for individuals below certain compensation levels;

 

    communicate with the employees of Entellus or any of its subsidiaries regarding the compensation, benefits or other treatment they will receive following the Effective Time;

 

    hire, promote or terminate the employment of (other than for cause, death or disability) any employee at a level of director or higher or otherwise outside the ordinary course of business other than hirings to fill vacancies at certain employee levels;

 

    take any action requiring notice to employees, or triggering any other obligations, under the WARN Act or any similar state, local or foreign law;

 

    make any loan or advance to (other than travel and similar advances to its employees in the ordinary course of business and consistent with past practice), or capital contribution to, or investment in, any person (other than wholly owned subsidiaries of Entellus) in excess of $150,000 in the aggregate;

 

    forgive any loans or advances to any officers, employees or directors of Entellus or its subsidiaries, or any of their respective affiliates, or change its existing borrowing or lending arrangements for or on behalf of any of such persons pursuant to an employee benefit plan or otherwise, except in the ordinary course of business in connection with relocation activities to any employees of Entellus or its subsidiaries;

 

    acquire (including by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership, limited liability company, joint venture, other business organization, any division of any of the foregoing, any equity interest in any of the foregoing, any real estate or all or any material portion of the assets, business or properties of any person;

 

    sell, pledge, dispose of, transfer, abandon, lease, license, mortgage, incur any lien on or otherwise transfer or encumber any portion of the tangible or intangible assets, business, properties or rights of Entellus or any of its subsidiaries except sales of product inventory in the ordinary course of business and consistent with past practice;

 

    enter into any new line of business;

 

    create any new subsidiaries;

 

    pay, discharge or satisfy any indebtedness that has a prepayment cost, “make whole” amount, prepayment penalty or similar obligation (other than indebtedness incurred by Entellus or its wholly owned subsidiaries and owed to Entellus or such subsidiaries) or cancel any material indebtedness or settle, waive or amend any claims or rights of substantial value;

 

    incur, create, assume or otherwise become liable or responsible for any indebtedness;

 

    assume, guarantee, endorse or otherwise become liable or responsible for any indebtedness of any party or person;

 

    issue or sell any debt securities of Entellus or any of its subsidiaries;

 

    subject to certain limited exceptions, negotiate, amend, extend, renew, terminate or enter into, or agree to any amendment or modification of, or waive, release or assign any rights under, any material contract;

 

82


Table of Contents
    negotiate, amend, modify, extend, enter into or terminate any labor agreement, except as required pursuant to an applicable contract in effect as of the date of the Merger Agreement;

 

    make any material change to its or any of its subsidiaries’ methods, policies and procedures of accounting, except as required by United States generally accepted accounting principles or Regulation S-X of the Exchange Act;

 

    make or agree to make any capital expenditure exceeding $1.0 million in the aggregate;

 

    write up, write down or write off the book value of any material assets, except to the extent required by United States generally accepted accounting principles;

 

    agree to or otherwise commence, release, compromise, assign, settle or resolve, in whole or in part, any threatened or pending proceeding or insurance claim, other than settlements that result solely in monetary obligations involving payment (without the admission of wrongdoing) by Entellus or any of its subsidiaries of an amount not greater than $150,000 (net of insurance proceeds) in the aggregate;

 

    fail to use reasonable best efforts to maintain in effect material insurance policies covering Entellus and its subsidiaries and their respective properties, assets and businesses;

 

    (i) sell, transfer, assign, lease, license or otherwise dispose of (whether by merger, stock or asset sale or otherwise) to any party or person any rights to any intellectual property material to Entellus and its subsidiaries, taken as a whole, subject to certain exceptions, (ii) cancel, dedicate to the public, disclaim, forfeit, reissue, reexamine or abandon without filing a substantially identical counterpart in the same jurisdiction with the same priority or allow to lapse (except with respect to patents expiring in accordance with their terms) any intellectual property of Entellus and its subsidiaries, (iii) fail to make any filing, pay any fee, or take any other action necessary to prosecute and maintain in full force and effect any registered intellectual property of Entellus and its subsidiaries, (iv) make any change in intellectual property of Entellus and its subsidiaries that is or would reasonably be expected to materially impair such intellectual property or Entellus’ or any of its subsidiaries’ rights with respect thereto, (v) disclose to any party or person any trade secrets, know-how or confidential or proprietary information, or (vi) fail to take or maintain reasonable measures to protect the confidentiality and value of trade secrets included in intellectual property owned by Entellus and its subsidiaries;

 

    (i) make or change any material tax election or adopt or change any material method of tax accounting, (ii) file any material amended tax return, (iii) settle or compromise any audit, assessment or other proceeding relating to a material amount of taxes, (iv) agree to an extension or waiver of the statute of limitations with respect to federal income taxes or other material taxes, (v) enter into any “closing agreement” within the meaning of Section 7121 of the Code (or any similar provision of state, local or non-U.S. law) with respect to any material tax, (vi) surrender any right to claim a material tax refund, or (vii) take or permit any action or engage in any transaction outside the ordinary course of business from the date of the Merger Agreement through the Effective Time which could give rise to a material U.S. income inclusion under Section 951 of the Code with respect to any subsidiary that is a “controlled foreign corporation” as defined in Section 957 of the Code;

 

    merge or consolidate Entellus or any of its subsidiaries with any party or person or adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of Entellus or any of its subsidiaries; or

 

    enter into any agreement, contract, commitment or arrangement to do, or adopt any resolutions approving or authorizing, or announcing an intention to do, any of the above actions.

Other Covenants and Agreements

Access and Information

Subject to certain exceptions and limitations, from December 7, 2017 until the Effective Time, Entellus will, and will cause its subsidiaries to, (upon reasonable notice) afford Stryker and Merger Sub and their respective

 

83


Table of Contents

affiliates and representatives reasonable access, during normal business hours, to the officers, employees, agents, properties, books, contracts and records of Entellus and its subsidiaries. In addition, during such same period and subject to certain exceptions and limitations, Entellus will, and will cause its subsidiaries to, promptly furnish all other information concerning the business, properties and personnel of Entellus and its subsidiaries as Stryker or Merger Sub may reasonably request.

No Solicitation; Company Acquisition Proposals

From and after the date of the Merger Agreement until the earlier of the Effective Time or the date, if any, on which the Merger Agreement is terminated by its terms, except as expressly permitted in connection with a Company Acquisition Proposal or Company Superior Proposal, Entellus may not (and will cause its subsidiaries and its and their respective affiliates and representatives not to): (i) initiate, seek, solicit, facilitate or knowingly encourage, or induce or take any other action designed or intended to lead to, or that would reasonably be expected to lead to any inquiry with respect to, or the making, submission or announcement of, any Company Acquisition Proposal, (ii) enter into, continue or otherwise participate in any negotiations or discussions with, or furnish or cause to be furnished any information or data to, or furnish access to Entellus’ (or any of its subsidiaries’) properties with respect to, or otherwise cooperate in any way with, any third party (other than Stryker or any of its affiliates or representatives) relating to any Company Acquisition Proposal or any proposal reasonably expected to lead to any Company Acquisition Proposal, or grant any waiver or release under (or terminate, amend or modify any provision of), or fail to enforce to the fullest extent permitted under applicable law, any confidentiality, standstill or similar agreement (except that if the Board determines in good faith, after consultation with Entellus’ outside legal counsel, that the failure to grant any waiver or release would be inconsistent with the Board’s fiduciary duties under applicable law, Entellus may waive any such standstill provision solely to the extent necessary to permit a third party to make a Company Acquisition Proposal), (iii) enter into any letter of intent, memorandum of understanding, merger agreement or other agreement, arrangement or understanding relating to any Company Acquisition Proposal, (iv) submit any Company Acquisition Proposal to the Entellus stockholders for their approval, or (v) resolve to do, or agree or announce an intention to do, any of the foregoing. From and after December 7, 2017 until the earlier of the Effective Time or the date, if any, on which the Merger Agreement is terminated by its terms, except as expressly permitted in connection with a Company Acquisition Proposal or Company Superior Proposal, Entellus also agreed that it will (1) immediately cease and cause to be terminated, and will cause its subsidiaries and its and their respective affiliates and representatives to immediately cease and cause to be terminated, all existing activities, discussions, negotiations and communications, if any, with any third parties (or any of their representatives) with respect to any Company Acquisition Proposal (other than Stryker or any of its affiliates or representatives with respect to the transactions contemplated by the Merger Agreement) and (2) terminate access to information for any third parties in connection with any potential Company Acquisition Proposal and use reasonable best efforts to have returned or destroyed any confidential information in respect thereof.

Notwithstanding the limitations in the preceding paragraph, if Entellus receives, at any time following the date of the Merger Agreement and prior to obtaining the Required Stockholder Approval, a bona fide written Company Acquisition Proposal that did not result from a breach of the non-solicitation and related provisions of the Merger Agreement and the Board determines in good faith, after consultation with Entellus’ financial advisors and outside legal counsel, that (i) such proposal constitutes or is reasonably likely to constitute a Company Superior Proposal and (ii) the failure to take the action described in the immediately following clause (x) or (y) would be inconsistent with the Board’s fiduciary duties under applicable law, then Entellus may (x) furnish information concerning its business, properties or assets to the third party making such Company Acquisition Proposal pursuant to a customary confidentiality agreement that (1) does not contain any provision prohibiting or otherwise restricting Entellus’ ability to comply with any of the terms of the Merger Agreement and (2) contains provisions that are no less favorable in the aggregate to Entellus, or less restrictive to the party making such Company Acquisition Proposal (in comparison to Stryker), than those contained in the confidentiality agreement between Entellus and Stryker (provided, however, that such agreement need not contain any standstill agreement or similar obligation) (referred to as an “Acceptable Confidentiality Agreement”) and (y) negotiate and participate in discussions and negotiations with such third party concerning the Company Acquisition Proposal.

 

84


Table of Contents

Entellus will provide Stryker (i) prompt notice (and in any event within 24 hours) of the receipt of any Company Acquisition Proposal (including a complete, unredacted copy of such Company Acquisition Proposal), (ii) prompt notice (and in any event within 24 hours) of any inquiries, proposals or offers received by, or any requests for information from, or any discussions or negotiations sought to be initiated or continued with, Entellus, or any of its subsidiaries or any of its or their respective affiliates and representatives concerning a Company Acquisition Proposal, or proposal that is reasonably likely to constitute or lead to or result in a Company Acquisition Proposal, and disclose the identity of the other party (or parties) and the terms (including any amendments thereto) of such inquiry, offer, proposal, request, discussion or negotiation and, in the case of written materials, provide copies of such materials, and (iii) any information, including copies of all written materials, provided by Entellus or any of its subsidiaries or its or their respective affiliates and representatives to such third party but not previously provided to Stryker substantially concurrently with the time (and in any event within 24 hours) such information is provided to such third party. Entellus will keep Stryker reasonably informed on a prompt basis (and, in any case, within 24 hours of any significant development, discussions or negotiations) of the status and details (including amendments and proposed amendments) of any such Company Acquisition Proposal or other inquiry, offer, proposal, request, discussion or negotiation (including copies of all drafts and final versions of agreements relating to any Company Acquisition Proposal exchanged between Entellus or its subsidiaries or any of its or their respective affiliates and representatives in each case thereof, on the one hand, and the third party (or any of its affiliates and representatives) making such Company Acquisition Proposal, on the other hand).

Except as expressly permitted by the Merger Agreement in respect of a Company Superior Proposal or an Company Intervening Event, neither the Board nor any committee thereof shall (i) withdraw, qualify or modify in a manner adverse to Stryker, or publicly propose to withdraw, qualify or modify in a manner adverse to Stryker, the Company Recommendation (as defined below), (ii) approve, authorize, declare advisable, endorse or recommend (or publicly propose to approve, authorize, declare advisable, endorse or recommend) any Company Acquisition Proposal (any action described in clauses (i) and (ii) of this sentence is referred to as a “Company Adverse Recommendation Change”) or (iii) adopt or approve, or propose to adopt or approve, or allow Entellus or any of its subsidiaries to execute or enter into, any binding or non-binding letter of intent, agreement in principle, memorandum of understanding, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other agreement, commitment, arrangement or understanding in connection with, or that is intended to or would reasonably be expected to lead to, any Company Acquisition Proposal.

If, at any time prior to receipt of the Required Stockholder Approval, Entellus or the Board receives a Company Superior Proposal that did not result from a breach of the non-solicitation and related provisions of the Merger Agreement, the Board may authorize and cause Entellus to effect a Company Adverse Recommendation Change and terminate the Merger Agreement while concurrently entering into a definitive agreement providing for such Company Superior Proposal (subject to satisfaction of Entellus’ termination fee obligations described below), if (i) the Board determines in good faith, after consultation with Entellus’ outside legal counsel, that the failure to take such action would be inconsistent with the Board’s fiduciary duties under applicable law, (ii) Entellus has notified Stryker in writing that it intends to effect a Company Adverse Recommendation Change and terminate the Merger Agreement, (iii) Entellus has provided Stryker a copy of the proposed definitive agreements (and any related agreements) among Entellus, any of its subsidiaries and the third party making such Company Superior Proposal (and the identity of the third party making such Company Superior Proposal), (iv) for a period of 4 business days following the notice delivered pursuant to clause (ii) of this sentence, Entellus and its representatives shall have discussed and negotiated with Stryker in good faith (to the extent Stryker desires to negotiate) any proposed modifications to the terms and conditions of the Merger Agreement (with any amendment to any material term or condition of any Company Superior Proposal requiring a new notice and a new 4-business-day negotiation period) and (v) no earlier than the end of such negotiation period, the Board shall have determined in good faith (after consultation with Entellus’ financial advisor and outside legal counsel), after considering and taking into account the terms of any proposed amendment or modification to the Merger Agreement made by Stryker in writing, that (1) the Company Acquisition Proposal that is the subject of the

 

85


Table of Contents

notice described in clause (ii) of this sentence still constitutes a Company Superior Proposal and (2) the failure to take such action would be inconsistent with the Board’s fiduciary duties under applicable law.

For purposes of the Merger Agreement, “Company Acquisition Proposal” means:

 

    an inquiry, proposal or offer (whether or not in writing) from any third party (other than Stryker or any of its subsidiaries) relating to, or that is reasonably expected to lead to (in one transaction or a series of transactions), any (i) merger, consolidation, share exchange, business combination, recapitalization, reorganization, dissolution, liquidation, joint venture or similar transaction involving Entellus or any subsidiary of Entellus, pursuant to which any third party or group of related parties would beneficially own or control, directly or indirectly, 15% or more (on a non-diluted basis) of any class of equity or voting securities of Entellus or any subsidiary of Entellus or any resulting parent company of Entellus or any of its subsidiaries, (ii) sale, lease, license or other disposition, directly or indirectly, of assets of Entellus (including capital stock or other equity interests of any of its subsidiaries) or any subsidiary of Entellus representing 15% or more of the consolidated assets, net revenues or net income of Entellus and its subsidiaries taken as a whole, or to which 15% or more of the revenues, earnings or assets of Company and its subsidiaries, taken as a whole and on a consolidated basis, are attributable, (iii) issuance or sale or other disposition of capital stock or other equity interests representing 15% or more (on a non-diluted basis) of any class of equity or voting securities of Entellus, (iv) tender offer, exchange offer or any other transaction or series of transactions that, if consummated, would result in any third party or group of related parties, directly or indirectly, beneficially owning or having the right to acquire beneficial ownership of capital stock or other equity interests representing 15% or more (on a non-diluted basis) of any class of equity or voting securities of Entellus or (v) combination of the foregoing.

For purposes of the Merger Agreement, “Company Recommendation” means:

 

    the recommendation of the Board that the Entellus stockholders adopt the Merger Agreement and approve the transactions contemplated by the Merger Agreement, including the Merger.

For purposes of the Merger Agreement, “Required Stockholder Approval” means:

 

    the affirmative vote of the holders of a majority of the shares of Entellus common stock issued and outstanding entitled to vote thereon at the Entellus stockholders’ meeting in favor of the adoption of the Merger Agreement.

For purposes of the Merger Agreement, “Company Superior Proposal” means:

 

    a bona fide written Company Acquisition Proposal made after the date of the Merger Agreement (provided, however, that for purposes of this definition, references to 15% in the definition of “Company Acquisition Proposal” shall be deemed to be references to 80%) that did not result from a breach of the non-solicitation and related provisions of the Merger Agreement and that the Board determines in good faith, after consultation with Entellus’ financial advisor and outside legal counsel, (i) to be reasonably likely to be consummated if accepted and (ii) to be more favorable to Entellus’ stockholders from a financial point of view than the Merger and the other transactions contemplated by the Merger Agreement, in each case of clause (i) and (ii), taking into account at the time of determination all relevant circumstances, including the various legal, financial and regulatory aspects or conditions of such Company Acquisition Proposal (including but not limited to any financing requirements), all the terms and conditions of such Company Acquisition Proposal and the Merger Agreement and any proposed amendments or modifications to the terms of the Merger Agreement offered by Stryker in response to such Company Acquisition Proposal.

Other than in connection with a Company Superior Proposal, prior to obtaining the Required Stockholder Approval, the Board may, in response to a Company Intervening Event (as defined below), effect a Company

 

86


Table of Contents

Adverse Recommendation Change if (i) the Board determines in good faith, after consultation with Entellus’ outside legal counsel, that the failure to take such action would be inconsistent with the Board’s fiduciary duties under applicable law; (ii) Entellus has notified Stryker in writing that it intends to effect such a Company Adverse Recommendation Change (which notice shall specify the facts and circumstances providing the basis of the Company Intervening Event and for the Board’s determination to effect the Company Adverse Recommendation Change in detail); (iii) for a period of 4 business days following the notice delivered pursuant to clause (ii) of this sentence, Entellus and its affiliates and representatives shall have discussed and negotiated with Stryker in good faith any proposed modifications to the terms and conditions of the Merger Agreement (to the extent Stryker desires to negotiate) (with any material change to the relevant facts and circumstances requiring a new notice and a new 4-business-day negotiation period); and (iv) no earlier than the end of such negotiation period, the Board shall have determined in good faith (after consultation with Entellus’ financial advisor and outside legal counsel), after considering and taking into account the terms of any proposed amendment or modification to the Merger Agreement made by Stryker in writing, that the failure to take such action would be inconsistent with the Board’s fiduciary duties under applicable law.

For purposes of the Merger Agreement, “Company Intervening Event” means:

 

    a material event or circumstance that was not known to the Board on the date of the Merger Agreement (or if known, the consequences of which were not known to the Board as of the date of the Merger Agreement), which event or circumstance, or any consequence thereof, becomes known to the Board prior to the Required Stockholder Approval; provided, however, that in no event shall any inquiry, offer or proposal that constitutes or would reasonably be expected to lead to a Company Acquisition Proposal constitute a Company Intervening Event.

The Merger Agreement provides that nothing therein will prohibit Entellus or the Board from (i) disclosing to Entellus stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, or from issuing a “stop, look and listen” statement pending disclosure of its position thereunder or (ii) making any disclosure to its stockholders if the Board has determined in good faith, after consultation with Entellus’ outside legal counsel, that the failure to do so would be inconsistent with the Board’s fiduciary duties under applicable law; provided, however, that (1) in no event will the preceding sentence affect the obligations described above in respect of a Company Superior Proposal and Company Intervening Event and (2) any such disclosure (other than issuance by Entellus of a “stop, look and listen” or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act) that does not expressly reaffirm the Company Recommendation shall be deemed to be a Company Adverse Recommendation Change.

Company Stockholder Meeting and Related Actions

Entellus is required to, as soon as reasonably practicable following the execution of the Merger Agreement (in consultation with Stryker), conduct one or more “broker searches,” establish a record date (which will be as soon as practicable following the date of the Merger Agreement) for, duly call, give notice of, convene and hold a special meeting of the stockholders of Entellus for the purpose of seeking the Required Stockholder Approval. Entellus may adjourn or postpone the special meeting without Stryker’s consent (i) after consultation with Stryker, to the extent necessary to ensure the distribution of any supplement or amendment to the proxy statement required by law within a reasonable amount of time in advance of the special meeting, or (ii) if there are not sufficient votes at such meeting to constitute a quorum or to obtain approval of the Merger Proposal, except that Entellus may effect up to two such adjournments or postponements under the foregoing clause (ii) for a period up to 10 business days each so long as no change in the record date for the special meeting would be required in case of such postponement. In addition, Stryker has the right to require Entellus to effect up to two adjournments or postponements for a period up to 10 business days each under the circumstances described in the foregoing clause (ii) so long as no resulting change in the record date for the special meeting would be required in case of a postponement. Unless there has been a Company Adverse Recommendation Change in compliance with the terms of the Merger Agreement, Entellus will, through the Board, make the Company Recommendation

 

87


Table of Contents

and use its reasonable best efforts to solicit from its stockholders proxies in favor of the adoption of the Merger Agreement. Unless the Merger Agreement has been terminated pursuant to its terms, Entellus will submit the Merger Agreement to its stockholders for adoption at such meeting notwithstanding a Company Adverse Recommendation Change or the commencement, public proposal, public disclosure or communication to Entellus of any Company Acquisition Proposal (whether or not a Company Superior Proposal).

Employee Matters

For a period of no less than 12 months following the Effective Time, Stryker will provide, or will cause the surviving corporation to provide, to each continuing employee:

 

    an annual base salary at least equal to the annual base salary provided to such continuing employee immediately prior to the Merger;

 

    cash bonus or incentive opportunities that are no less favorable than the cash bonus or incentive opportunities provided to similarly situated employees of Stryker and its affiliates; and

 

    employee benefits that are no less favorable (in the aggregate) to the employee benefits (including severance benefits but excluding for such purposes any equity or equity-related awards, and any defined benefit pension benefits) provided to similarly situated employees of Stryker and its affiliates.

As of the Effective Time and thereafter, Stryker will provide (or will cause the surviving corporation to provide) that periods of employment with Entellus (or any current or former affiliate of Entellus or any predecessor of Entellus) will be taken into account for purposes of determining the eligibility for participation and vesting and benefit accrual of any continuing employee under employee benefit plans, programs and policies maintained by Stryker, the surviving corporation or their affiliates in which such continuing employees become participants (excluding any defined benefit pension plan).

With respect to each health or welfare benefit plan maintained by Stryker, the surviving corporation or any of their respective affiliates for the benefit of continuing employees (including any medical, dental, pharmaceutical or vision benefit plans), Stryker will (i) cause to be waived any eligibility waiting periods, any evidence of insurability requirements or required physical examinations, actively-at-work requirements and the application of any pre-existing condition limitations under such plan to the extent such were waived or satisfied under the comparable health or welfare benefit plan of Entellus or any of its subsidiaries immediately prior to the Effective Time; and (ii) cause each continuing employee to be given credit under such plan for all amounts paid (or otherwise deemed paid) by such continuing employee under any similar benefit plan for the plan year that includes the Effective Time for purposes of applying deductibles, co-payments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms and conditions of the plans maintained by Stryker, the surviving corporation or any of their respective affiliates, as applicable, for the plan year in which the Effective Time occurs.

Efforts to Consummate the Merger

Entellus, Stryker and Merger Sub will each use its reasonable best efforts to consummate and make effective the transactions contemplated by the Merger Agreement and to cause the conditions to the Merger to be satisfied, including using reasonable best efforts to accomplish the following: (i) the obtaining of all necessary actions or non-actions, consents and approvals from governmental authorities or other third parties necessary in connection with the consummation of the transactions contemplated by the Merger Agreement, including the Merger, and the making of all necessary registrations and filings; (ii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated by the Merger Agreement, including the Merger; and (iii) the execution and delivery of any additional instruments reasonably necessary to consummate the Merger and any other transactions to be performed or consummated by such party in accordance with the terms of the Merger Agreement and to carry out fully the purposes of the Merger Agreement.

 

88


Table of Contents

Entellus, Stryker and Merger Sub will each as promptly as reasonably practicable after the date of the Merger Agreement, upon a date to be mutually agreed upon by them (and in any event within 10 business days following the date of the Merger Agreement, unless agreed otherwise), make its respective filings under the HSR Act, and thereafter make any other applications and filings as reasonably determined by Entellus and Stryker under other applicable antitrust laws with respect to the transactions contemplated by the Merger Agreement as promptly as practicable, but in no event later than as required by law.

Entellus, Stryker and Merger Sub will each furnish to the other such necessary information and reasonable assistance as the other may reasonably request in connection with the preparation of any required governmental filings or submissions and will cooperate in responding to any investigation or other inquiry from a governmental authority or in connection with any proceeding initiated by a private party, in each case, under any applicable antitrust laws, including (i) promptly informing the other party of such inquiry or proceeding; (ii) consulting in advance before making any presentations or submissions to a governmental authority, or in connection with any such proceeding, to any other party, and supplying each other with copies of all material correspondence, filings or communications between either party and any governmental authority, or in connection with any such proceeding, between either party and any other party with respect to the Merger Agreement; and (iii) providing the other party with a reasonable advance opportunity to review and comment upon and consider in good faith the views of the other in connection with all written communications between either party and any governmental authority, or in connection with any such proceeding. In addition, Entellus, Stryker and Merger Sub will each give reasonable notice to and consult with the other in advance of any meeting or conference with any governmental authority, or in connection with any such proceeding, with any other party, and to the extent permitted by the governmental authority, give the other the opportunity to attend and participate in such meeting or conference.

Subject to the limitations described below, Stryker will take, or cause to be taken (including by its subsidiaries), any and all steps and to make, or cause to be made, any and all undertakings necessary to resolve such objections, if any, that a governmental authority may assert under any antitrust law with respect to the transactions contemplated by the Merger Agreement, and to avoid or eliminate any impediment under any antitrust law that may be asserted by any governmental authority with respect to the transactions contemplated by the Merger Agreement, in each case, so as to enable the closing of the Merger to occur as promptly as practicable and in any event no later than the Termination Date. These steps may include (i) proposing, negotiating, committing to and effecting, by consent decree, hold separate order, or otherwise, the sale, divestiture or disposition of any businesses, assets, equity interests, product lines or properties of Entellus, (ii) creating, terminating, or divesting relationships, ventures, contractual rights or obligations of Entellus and (iii) otherwise taking or committing to take any action that would limit Stryker’s freedom of action with respect to, or its ability to retain or hold, directly or indirectly, any businesses, assets, equity interests, product lines or properties of Entellus, in each case as may be required in order to obtain all expirations or terminations of waiting periods required under any antitrust law or to avoid the commencement of any action by a governmental authority to prohibit the transactions contemplated by the Merger Agreement under any antitrust law, or, in the alternative, to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any action or proceeding seeking to prohibit the transactions contemplated by the Merger Agreement or delay the closing of the Merger beyond the Termination Date.

To assist Stryker in complying with its foregoing obligations, Entellus will enter into one or more agreements requested by Stryker to be entered into by any of them prior to the closing of the Merger with respect to any transaction to divest, hold separate or otherwise take any action that limits Entellus’ freedom of action, ownership or control with respect to, or their ability to retain or hold, directly or indirectly, any of the businesses, assets, equity interests, product lines or properties of Entellus (referred to as a “Divestiture Action”); provided, however, that the consummation of the transactions provided for in any such agreement for a Divestiture Action shall be conditioned upon the closing of the Merger or satisfaction of all of the conditions to the closing of the Merger in a case where such closing will occur immediately following such Divestiture Action (and where Stryker has irrevocably committed to effect the closing of the Merger immediately following such Divestiture Action).

 

89


Table of Contents

However, neither Stryker nor any of its affiliates will be required to take any Divestiture Action or otherwise agree to or proffer to sell, divest, hold separate, lease, license, transfer, dispose of or otherwise encumber or impair or take any other action with respect to Stryker’s or any of its affiliates’ ability to own or operate any assets, properties, businesses or product lines of Stryker or any of its affiliates (including, for the avoidance of doubt, any securities of Entellus or its subsidiaries) or, except as would not have, individually or in the aggregate, a material adverse effect on Entellus and its subsidiaries, taken as a whole, any assets, properties, businesses or product lines of Entellus or any of its subsidiaries (provided that none of Stryker or any of its affiliates will be required to take any such action in connection with any action or proceeding by a third party other than a governmental authority and Entellus will not, and will not permit any of its subsidiaries to, unless requested by Stryker, commit to or effect any action contemplated by this paragraph or the preceding paragraph).

Indemnification of Directors and Officers; Insurance

Stryker and Merger Sub have agreed that all rights to indemnification and exculpation from liabilities, including advancement of expenses, for acts or omissions occurring at or prior to the Effective Time existing as of December 7, 2017 in favor of the current or former directors or officers of Entellus as provided in our Certificate of Incorporation, Amended and Restated Bylaws or any indemnification contract between such directors or officers and Entellus (in each case, as in effect on the date of the Merger Agreement, and, in the case of any indemnification contracts, to the extent made available to Stryker prior to the date of the Merger Agreement) will survive the Merger and continue in full force and effect. For a period of 6 years from the Effective Time, the surviving corporation is required to, and Stryker will cause the surviving corporation to, maintain in effect the exculpation, indemnification and advancement of expenses equivalent to the provisions of our Certificate of Incorporation and Amended and Restated Bylaws as in effect immediately prior to the Effective Time solely with respect to acts or omissions occurring prior to the Effective Time and shall not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any of the current or former directors or officers of Entellus; provided, however, that all rights to indemnification in respect of any action pending or asserted or any claim made for indemnification within such period shall continue until the disposition of such action or resolution of such claim. From and after the Effective Time, Stryker is required to guarantee and stand surety for, and is required to cause the surviving corporation to honor, in accordance with their respective terms, each of the covenants contained in the Merger Agreement related to the directors’ and officers’ indemnification and insurance.

Prior to the Effective Time, Entellus is required to or, if Entellus is unable to, Stryker will cause the surviving corporation as of or after the Effective Time to, purchase a 6-year prepaid “tail” policy, with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under Entellus’ existing policies of directors’ and officers’ liability insurance and fiduciary liability insurance, with respect to matters arising on or before the Effective Time (including in connection with the Merger Agreement and the transactions or actions contemplated by the Merger Agreement), and Stryker is required to cause such policy to be maintained in full force and effect, for its full term, and cause all obligations thereunder to be honored by the surviving corporation, and no other party will have any further obligation to purchase or pay for insurance hereunder; provided, however, that Entellus will not pay, and the surviving corporation will not be required to pay, in excess of 300% of the last annual premium paid by Entellus prior to the date of the Merger Agreement in respect of such “tail” policy. If Entellus or the surviving corporation for any reason fail to obtain such “tail” insurance policies prior to, as of or after the Effective Time, Stryker is required to, for a period of 6 years from the Effective Time, cause the surviving corporation to maintain in effect the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by Entellus with respect to matters arising on or before the Effective Time; provided, further, however, that after the Effective Time, Stryker will not be required to pay annual premiums in excess of 300% of the last annual premium paid by Entellus prior to the date of the Merger Agreement in respect of the coverage required to be obtained pursuant hereto, but in such case shall purchase as much coverage as reasonably practicable for such amount.

 

90


Table of Contents

Miscellaneous Covenants

The Merger Agreement contains additional agreements among Entellus, Stryker and Merger Sub relating to, among other matters:

 

    the filing by Entellus of this proxy statement with the SEC and cooperation in response to any comments from the SEC with respect to this proxy statement;

 

    delivery of a consent executed by Merger Sub adopting the Merger Agreement;

 

    notification upon the occurrence or non-occurrence of certain matters;

 

    the coordination of press releases and other public announcements or filings relating to the transactions;

 

    actions necessary to cause Merger Sub to perform its obligations under the Merger Agreement;

 

    dispositions of Entellus common stock (including derivative securities with respect thereto) resulting from the transactions contemplated by the Merger Agreement by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Entellus immediately prior to the Effective Time to be exempt under Rule 16b-3 promulgated under the Exchange Act;

 

    the repayment and termination of Entellus’ existing credit agreement with Oxford Finance LLC and delivery of a payoff letter in connection therewith;

 

    the delisting of Entellus and of the shares of Entellus common stock from the Nasdaq Stock Market and the deregistration of Entellus common stock under the Exchange Act;

 

    anti-takeover statutes that become applicable to the transactions;

 

    any litigation against Entellus and/or its directors or its executive officers relating to or in connection with the Merger Agreement, the Merger or any other transactions contemplated by the Merger Agreement; and

 

    delivery of resignations, upon Stryker’s request, executed by each director of Entellus and its subsidiaries effective as of the Effective Time.

Conditions to the Merger

The obligations of each of Entellus, Stryker and Merger Sub to consummate the Merger and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or (to the extent permitted by law) waiver by Entellus and Stryker at or prior to the Effective Time of the following conditions:

 

    Entellus shall have obtained the Required Stockholder Approval;

 

    the expiration or termination of any applicable waiting period under the HSR Act; and

 

    no governmental authority of competent jurisdiction issuing or entering any order, including any injunction, after December 7, 2017, and no law having been enacted or promulgated after December 7, 2017, in each case, that is then in effect and has the effect of restraining, enjoining or otherwise prohibiting the consummation of the Merger or the other transactions contemplated by the Merger Agreement.

The respective obligations of Stryker and Merger Sub to effect the Merger and the other transactions contemplated by the Merger Agreement are also subject to the satisfaction or (to the extent permitted by law) waiver by Stryker at or prior to the Effective Time of the following conditions:

 

   

certain representations and warranties of Entellus in the Merger Agreement made with respect to capitalization and certain capitalization-related matters (except for any de minimis inaccuracy), authority relative to the Merger Agreement, the Board approvals of the Merger Agreement and the

 

91


Table of Contents
 

Merger, the Required Stockholder Approval, no violations of organizational documents of Entellus and its subsidiaries, absence of certain changes or events in respect of a Company Material Adverse Effect, the absence of the waiver of the closing conditions to Entellus’ completed acquisition of Spirox, Inc., takeover statutes, brokers and the opinion of Entellus’ financial advisor must be true and correct in all respects as of the date of the Merger Agreement and as of the Effective Time as if made at and as of the Effective Time (except that any such representation or warranty that is made as of a specified date must be so true and correct as of such specified date); certain representations and warranties of Entellus in the Merger Agreement made with respect to organization, certain security issuance matters, agreements regarding restrictions on securities, ownership of subsidiaries and dividends or distributions on securities (without giving effect to any materiality, Company Material Adverse Effect or similar qualifiers) must be true and correct in all material respects as of the date of the Merger Agreement and as of the Effective Time as if made at and as of the Effective Time (except that any such representation or warranty that is made as of a specified date must be so true and correct as of such specified date); all other representations and warranties of Entellus in the Merger Agreement (without giving effect to any materiality, Company Material Adverse Effect or similar qualifiers) must be true and correct in all respects as of the date of the Merger Agreement and as of the Effective Time as if made at and as of the Effective Time (except that any such representation or warranty that is made as of a specified date must be so true and correct as of such specified date), except where the failure to be true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect;

 

    Entellus must have performed or complied in all material respects with all obligations required to be performed or complied with by it under the Merger Agreement on or prior to the Effective Time;

 

    since the date of the Merger Agreement, there shall not have been any effect, change, development, event, circumstance, occurrence, condition, fact or state of facts that has had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect;

 

    Stryker must have received a certificate by an executive officer of Entellus certifying that each of the conditions set forth in the preceding three bullet points have been satisfied; and

 

    until October 7, 2018, the absence of any pending proceeding in a U.S. federal district court by any governmental authority against Entellus, Stryker, Merger Sub or any of their respective subsidiaries (other than a proceeding in which such court of competent jurisdiction has considered and denied a governmental authority’s motion for a preliminary injunction) seeking to (i) restrain or prohibit from retaining any portion of Stryker’s or Merger Sub’s assets or to restrain or prohibit from acquiring any material portion of Entellus, or to compel Stryker or Merger Sub to dispose of or hold separate any portion of the business or assets of Entellus, Stryker or their respective subsidiaries; (ii) challenging, seeking to restrain or prohibit the Merger or seeking to obtain damages or any other material remedy; (iii) seeking to impose material limitations on the ability of Merger Sub to consummate the Merger; or (iv) seeking to impose limitations on the ability of Merger Sub or Stryker to exercise full rights of ownership of the shares of Entellus common stock.

The obligations of Entellus to effect the Merger and the other transactions contemplated by the Merger Agreement are also subject to the satisfaction or (to the extent permitted by law) waiver by Entellus at or prior to the Effective Time of the following conditions:

 

    the representations and warranties of Stryker and Merger Sub contained in the Merger Agreement (without giving effect to any materiality, Parent Material Adverse Effect or similar qualifiers) must be true and correct as of the date of the Merger Agreement and as of the Effective Time as if made at and as of the Effective Time (except that any such representation or warranty that is made as of a specified date must be so true and correct as of such specified date), except where the failure to be true and correct, individually or in the aggregate, has not had, and would not reasonably be expected to have, a Parent Material Adverse Effect;

 

92


Table of Contents
    Stryker and Merger Sub must have performed or complied in all material respects with each of their respective obligations required to be performed or complied with by them under the Merger Agreement on or prior to the Effective Time; and

 

    Entellus will have received a certificate signed by an executive officer of Stryker certifying that each of the conditions set forth in the preceding two bullet points have been satisfied.

Termination

The Merger Agreement may be terminated at any time before the Effective Time, whether before or after the Required Stockholder Approval is obtained (except as otherwise expressly noted), as follows:

 

    by mutual written consent of Stryker and Entellus;

 

    by either Stryker or Entellus if:

 

    the Merger is not consummated on or before 5:00 p.m. (New York City time) on the Termination Date, and the terminating party’s failure to fulfill or comply with its obligations under the Merger Agreement is not the principal cause of or principally resulted in the failure to so consummate the Merger;

 

    any governmental authority of competent jurisdiction has issued or entered any final and non-appealable order, or any law has been enacted or promulgated, that has the effect of permanently restraining, enjoining or otherwise prohibiting the Merger or other transactions contemplated by the Merger Agreement, and the failure of the terminating party to perform or comply with any of its obligations under appropriate actions covenant of the Merger Agreement has not been the principal cause of or principally resulted in the issuance of such order; or

 

    the Required Stockholder Approval has not been obtained upon a vote taken at the special meeting or any postponement or adjournment thereof;

 

    by Entellus:

 

    if Stryker or Merger Sub has breached or failed to perform any of their respective representations, warranties, covenants or other agreements set forth in the Merger Agreement in a manner that (i) in the case of Entellus, results in the failure of its conditions to consummate the Merger being satisfied or (ii) such breach is not capable of being cured by the Termination Date, or if capable of being cured, is not cured by Stryker or Merger Sub on or before the earlier of the Termination Date or within 30 days of written notice to the party committing such breach or failing to perform of such breach or failure to perform; or

 

    before receipt of the Required Stockholder Approval, in order to enter into a definitive agreement with respect to a Company Superior Proposal to the extent permitted by, and subject to the applicable terms and conditions of, its obligations in respect of Company Superior Proposals described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement, and Entellus pays Stryker the termination fee described below;

 

    by Stryker if:

 

    Entellus has breached or failed to perform any of its representations, warranties, covenants or other agreements set forth in the Merger Agreement in a manner that (i) in the case of Stryker and Merger Sub, results in the failure of its conditions to consummate the Merger being satisfied or (ii) such breach is not capable of being cured by the Termination Date, or if capable of being cured, is not cured by Entellus on or before the earlier of the Termination Date or within 30 days of written notice to Entellus of such breach or failure to perform;

 

    the Board makes a Company Adverse Recommendation Change or fails to include the Company Recommendation in the proxy statement; or

 

93


Table of Contents
    Entellus or the Board, as applicable, (i) materially breaches its non-solicitation obligations under the Merger Agreement, (ii) fails to publicly reaffirm the Company Recommendation within 10 business days of receipt of a written request by Stryker to provide such reaffirmation following public disclosure of any Company Acquisition Proposal or (iii) fails to recommend against any Company Acquisition Proposal that is a tender or exchange offer within 10 business days after its commencement.

Termination Fee; Certain Stryker Expenses

Entellus must pay to Stryker a termination fee of $20.5 million in the event that:

 

    the Merger Agreement is terminated by (i) either Stryker or Entellus because the Merger has not been consummated by the Termination Date or the Required Stockholder Approval has not been obtained upon a vote taken at the special meeting or any postponement or adjournment thereof or (ii) Stryker because Entellus breaches any representation, warranty, covenant or agreement of the Merger Agreement and fails to timely cure such breach if curable, and:

 

    (1) a Company Acquisition Proposal has been publicly disclosed and not publicly withdrawn at least 3 business days prior to the special meeting (in the case of termination for failure to obtain the Required Stockholder Approval under clause (i)) or (2) is otherwise known to the Board and not withdrawn (publicly, if publicly disclosed) (in the case of termination under clause (ii) or for failure to consummate the Merger by the Termination Date under clause (i)), and

 

    within 12 months of such termination under clause (i) or (ii), a Company Acquisition Proposal is consummated or Entellus enters into a definitive agreement with respect to any Company Acquisition Proposal (with references to “15%” in the definition of Company Acquisition Proposal deemed references to “50%” for purposes of this bullet and the preceding three bullets);

 

    Entellus terminates the Merger Agreement before receipt of the Required Stockholder Approval in order to enter into a definitive agreement with respect to a Company Superior Proposal to the extent permitted by, and subject to the applicable terms and conditions of, its obligations in respect of Company Superior Proposals described under “The Merger Agreement—Other Covenants and Agreements—No Solicitation; Company Acquisition Proposals” beginning on page 84 of this proxy statement; or

 

    the Merger Agreement is terminated by Stryker because (i) the Board makes a Company Adverse Recommendation Change or fails to include the Company Recommendation in the proxy statement, or (ii) Entellus or the Board, as applicable, (1) materially breaches its non-solicitation obligations under the Merger Agreement, (2) fails to publicly reaffirm the Company Recommendation within 10 business days of receipt of a written request by Stryker to provide such reaffirmation following public disclosure of any Company Acquisition Proposal or (3) fails to recommend against any Company Acquisition Proposal that is a tender or exchange offer within 10 business days after its commencement.

In the event the Merger Agreement is terminated by either Stryker or Entellus following the failure to obtain the Required Stockholder Approval upon a vote taken at the special meeting or any postponement or adjournment thereof, Entellus is required to pay Stryker the reasonable and documented out-of-pocket costs and expenses incurred in connection with the financing of the transactions contemplated by the Merger Agreement and fees and expenses of counsel, accountants, investment bankers, experts and consultants incurred by Stryker and Merger Sub in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement in an amount not to exceed $6.6 million. The payment of such expenses does not affect Stryker’s right to receive the termination fee that might otherwise be due as described immediately above, but will reduce on a dollar-for-dollar basis such termination fee. In no event will Entellus be required to pay the termination fee more than once.

In the event Stryker actually receives the termination fee described above, together with any applicable expense reimbursement described immediately above, Entellus will have no further liability to Stryker or Merger

 

94


Table of Contents

Sub under the Merger Agreement except in certain limited circumstances arising from, among other things, the existing confidentiality agreement between Entellus and Stryker and the expense provision of the Merger Agreement summarized directly below, and as provided in the sentence that immediately follows this sentence. In the event that the termination fee described above is paid to Stryker, Stryker will have the right to refund such termination fee in its entirety within 10 business days of Stryker’s receipt of it, and if Stryker does so, Stryker and Merger Sub will be entitled to all rights and remedies contemplated by the Merger Agreement following any termination thereof, including those arising from any liability or damages resulting from any material and intentional breach of the Merger Agreement or fraud by Entellus. For purposes of the Merger Agreement, “material and intentional breach” means an action or omission taken or omitted to be taken that the breaching party intentionally takes (or fails to take) and knows would, or knows would reasonably be expected to, cause a material breach of the Merger Agreement.

Expenses Generally

Except as provided under the termination fee provisions of the Merger Agreement summarized immediately above, whether or not the Merger or the transactions contemplated by the Merger Agreement are consummated, all expenses incurred in connection with the Merger Agreement and the transactions contemplated by the Merger Agreement will be paid by the party incurring such expenses.

Specific Performance

The parties to the Merger Agreement are entitled (in addition to any other remedy to which they may be entitled in law or equity) to an injunction, specific performance or other equitable relief to prevent breaches or threatened breaches of the Merger Agreement and to enforce specifically the terms and provisions of the Merger Agreement.

Amendments; Waiver

The Merger Agreement may be amended by mutual agreement of the parties thereto in writing at any time before or after receipt of the Required Stockholder Approval, except that no amendment may be made after receipt of the Required Stockholder Approval if such amendment would require, in accordance with applicable law or the rules of any stock exchange, further approval of the Entellus stockholders without such further approval of the Entellus stockholders nor any amendment or change not permitted under applicable law.

At any time before the Effective Time, subject to applicable law, any party to the Merger Agreement may (i) extend the time for the performance of any of the obligations or other acts of any other party thereto; (ii) waive any inaccuracies in the representations and warranties of the other party contained in the Merger Agreement or in any document delivered pursuant thereto; and (iii) waive compliance by any other party to the Merger Agreement with any of the agreements or conditions of such party contained therein. Any agreement to any such extension or waiver will be valid only if set forth in an instrument in writing signed on behalf of the applicable parties.

Governing Law and Jurisdiction

The Merger Agreement and all legal, administrative and other similar proceedings or actions (whether based on contract, tort or otherwise) arising out of or relating to the Merger Agreement or the actions of the parties to the Merger Agreement in the negotiation, administration, performance and enforcement of the Merger Agreement, will be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice or conflict of laws provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.

 

95


Table of Contents

Each of the parties to the Merger Agreement, with respect to any legal claim or proceeding arising out of the Merger Agreement or the transactions contemplated thereby, among other things, expressly and irrevocably agrees to submit, for itself and its property, to the exclusive jurisdiction of the Delaware Court of Chancery and any appellate court therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any state or federal court within the State of Delaware) and agrees that it will not bring any claim or proceeding relating to the Merger Agreement or the transactions contemplated thereby except in such courts.

 

96


Table of Contents

PROPOSAL NO. 1: APPROVAL OF THE MERGER PROPOSAL

The Merger Proposal

We are asking you to approve a proposal to adopt the Merger Agreement and approve the transactions contemplated thereby, including the Merger, which we refer to as the “Merger Proposal.” For a detailed discussion of the terms and conditions of the Merger Agreement, see “The Merger Agreement” beginning on page 75 of this proxy statement. A copy of the Merger Agreement is attached to this proxy statement as Appendix A. See also “The Merger” beginning on page 31 of this proxy statement.

Vote Required

As described under “The Merger—Recommendation of the Board and Reasons for the Merger” beginning on page 41 of this proxy statement, after considering various factors described in such section, the Board has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and in the best interests of Entellus and our stockholders. The Board has unanimously approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, and the Board unanimously recommends that you vote “FOR” the Merger Proposal.

Under Delaware law, approval of the Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of our common stock.

Abstentions and broker non-votes, if any, will have the same effect as a vote “AGAINST” the Merger Proposal.

Board Recommendation

The Board unanimously recommends that you vote “FOR” the Merger Proposal.

 

97


Table of Contents

PROPOSAL NO. 2: ADJOURNMENT OF THE SPECIAL MEETING

The Adjournment Proposal

We are asking you to approve a proposal to approve the adjournment of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the Merger Proposal at the time of the special meeting, which we refer to as the “Adjournment Proposal.” If our stockholders approve the Adjournment Proposal, we could adjourn the special meeting to any date and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders that have previously returned properly executed proxies voting against the Merger Proposal. Among other things, approval of the Adjournment Proposal could mean that, even if we had received proxies representing a sufficient number of votes against the Merger Proposal such that the Merger Proposal would be defeated, we could adjourn the special meeting without a vote on the Merger Proposal and seek to convince the holders of those shares to change their votes to votes in favor of the Merger Proposal. In addition, the Board (or the chairperson of the special meeting) could postpone the special meeting before it commences, including if under our Amended and Restated Bylaws a quorum is not present for the meeting.

Notwithstanding the foregoing, under the Merger Agreement, Entellus may adjourn or postpone the special meeting without Stryker’s consent only in certain specified circumstances as described further under “The Merger Agreement—Other Covenants and Agreements—Company Stockholder Meeting and Related Actions” beginning on page 87 of this proxy statement.

If the special meeting is adjourned or postponed to solicit additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use at the special meeting as adjourned or postponed. If a stockholder signs and returns a proxy and does not indicate how he, she or it wishes to vote on any proposal, or if such stockholder signs and returns a proxy and indicates a vote in favor of the Merger Proposal but does not indicate a choice on the Adjournment Proposal, such stockholder’s shares of our common stock will be voted in favor of the Adjournment Proposal. However, if such stockholder indicates a vote against the Merger Proposal, such stockholder’s shares of our common stock will only be voted in favor of the Adjournment Proposal if he, she or it indicates a vote in favor of the Adjournment Proposal. Entellus does not intend to call a vote on the Adjournment Proposal if the Merger Proposal is approved at the special meeting.

The vote on the adjournment proposal is a vote separate and apart from the vote on the Merger Proposal. Accordingly, you may vote to approve the Merger Proposal and vote not to approve the Adjournment Proposal and vice versa.

Vote Required

Approval of the Adjournment Proposal requires the affirmative vote of the holders of our common stock representing a majority of the votes cast (excluding abstentions), either in person or by proxy, and entitled to vote at the special meeting.

The Board believes that it is in the best interests of Entellus and our stockholders to be able to adjourn the special meeting if necessary or appropriate for the purpose of soliciting additional proxies in respect of the Merger Proposal if there are insufficient votes to approve the Merger Proposal at the time of the special meeting.

Board Recommendation

The Board unanimously recommends that you vote “FOR” the Adjournment Proposal.

 

98


Table of Contents

MARKET PRICES AND DIVIDEND DATA

Entellus common stock has been listed on the Nasdaq Global Market under the symbol “ENTL” since January 29, 2015. The table below sets forth, for the periods indicated, the range of high and low closing prices per share for our common stock as reported by the Nasdaq Global Market.

 

     High      Low  

2018

     

1st Quarter (through January 5, 2018)

   $ 24.57      $ 23.94  

 

     High      Low  

2017

     

1st Quarter

   $ 20.27      $ 12.31  

2nd Quarter

   $ 16.94      $ 11.47  

3rd Quarter

   $ 18.80      $ 15.40  

4th Quarter

   $ 25.58      $ 14.96  

 

     High      Low  

2016

     

1st Quarter

   $ 18.40      $ 13.92  

2nd Quarter

   $ 19.50      $ 13.72  

3rd Quarter

   $ 22.45      $ 17.06  

4th Quarter

   $ 22.63      $ 16.18  

 

     High      Low  

2015

     

1st Quarter (starting January 29, 2015)

   $ 24.91      $ 19.00  

2nd Quarter

   $ 28.81      $ 20.54  

3rd Quarter

   $ 26.75      $ 17.72  

4th Quarter

   $ 22.16      $ 14.72  

As of                     , 2018, there were                 shares of our common stock outstanding, held by approximately             stockholders of record.

We have never declared or paid any cash dividends on our capital stock, and we do not currently intend to pay, nor under the Merger Agreement may we pay without the prior written consent of Stryker, any cash dividends on our capital stock in the foreseeable future.

On December 6, 2017, the last trading day before we publicly announced the execution of the Merger Agreement, the high and low sale prices for our common stock as reported on Nasdaq Global Market were $16.25 and $15.94 per share, respectively. The closing price of our common stock on the Nasdaq Global Market on December 6, 2017 was $16.01 per share.

On                     , 2018, the latest practicable trading day before the printing of this proxy statement, the closing price of our common stock on the Nasdaq Global Market was $             per share. You are encouraged to obtain current market quotations for Entellus common stock.

 

99


Table of Contents

As soon as reasonably practicable following the Merger, there will be no further market for Entellus common stock and our common stock will cease trading on and be delisted from the Nasdaq Global Market and deregistered under the Exchange Act. As a result, following the Merger and such deregistration, we will no longer file periodic reports with the SEC.

 

100


Table of Contents

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information relating to the beneficial ownership of our common stock as of January 2, 2018, by:

 

    each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding shares of common stock;

 

    each of our directors;

 

    each of our named executive officers; and

 

    all directors and executive officers as a group.

The number of shares beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of January 2, 2018 through the exercise of any stock option, warrants or other rights or the vesting of any restricted stock unit awards. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by that person.

 

101


Table of Contents

The percentage of shares beneficially owned is computed on the basis of 25,647,935 shares of our common stock outstanding as of January 2, 2018. Shares of our common stock that a person has the right to acquire within 60 days of January 2, 2018 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group including for purposes of the percentage ownership of Stryker below in connection with the Voting Agreements. Unless otherwise indicated below, the address for each beneficial owner listed is c/o Entellus Medical, Inc., 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447.

 

Class of Securities

  

Name and Address of Beneficial Owner

   Number of
Shares
Beneficially
Owned
     Percentage
of Shares
Beneficially
Owned
 
  

5% Stockholders:

     

Common Stock

  

Essex Woodlands Health Ventures(1)

21 Waterway Avenue

Suite 225

The Woodlands, Texas 77380

     3,231,656        12.6

Common Stock

  

Split Rock Partners, LP(2)

10400 Viking Drive

Suite 250

Eden Prairie, Minnesota 55344

     3,156,731        12.3

Common Stock

  

SV Life Sciences(3)

One Boston Place

201 Washington Street

Suite 3900

Boston, Massachusetts 02108

     2,956,456        11.5

Common Stock

  

KKR Health Care I, LLC(4)

9 West 57th Street, Suite 4200

New York, New York 10019

     1,405,372        5.5

Common Stock

  

Sand Grove Capital Management LLP(5)

4th Floor, 35 Dover Street

London, X0 W1S 4NQ

     1,320,856        5.1

Common Stock

  

Stryker Corporation(6)

2825 Airview Boulevard

Kalamazoo, Michigan 49002

     9,753,548        35.7
  

Directors and Named Executive Officers:

     

Common Stock

   Brian E. Farley(7)      555,154        2.1

Common Stock

   John K. Bakewell(7)      22,500        *  

Common Stock

   Joshua Baltzell(7)      26,600        *  

Common Stock

   David B. Milne(7)      25,000        *  

Common Stock

   Shawn T McCormick(7)      27,941        *  

Common Stock

   James C. Momtazee(7)      1,250        *  

Common Stock

   Guido Neels(7)      40,000        *  

Common Stock

   Douglas S. Rohlen(7)      38,534        *  

Common Stock

   Robert S. White(7)      692,568        2.6

Common Stock

   Brent A. Moen(7)      55,787        *  

Common Stock

   James D. Surek(7)(8)      —          —    

Common Stock

   All directors and executive officers as a group (13 persons)      1,533,568        5.7

 

* Indicates beneficial ownership of less than 1% of the total outstanding common stock.
(1)

Based on a Form 4 filed by Essex Woodlands Health Ventures on January 31, 2017 and other information known by Entellus. Represents shares held by Essex Woodlands Health Ventures Fund VIII, L.P., Essex Woodlands Health Ventures Fund VIII-A, L.P. and Essex Woodlands Health Ventures Fund VIII-B, L.P. (collectively, referred to as the “Essex Stockholders”). Essex Woodlands Health Ventures

 

102


Table of Contents
  VIII, L.P., a Delaware limited partnership, is the general partner of each of these funds (referred to as the “Partnership”) and Essex Woodlands Health Ventures VIII, LLC, a Delaware limited liability company, is the general partner of the Partnership (referred to as the “General Partner”). Martin P. Sutter, Immanuel Thangaraj, Petri Vainio, Jeff Himawan, Ronald W. Eastman, Guido Neels and Steve Wiggins are the managers of the General Partner (each referred to as a “Manager” and collectively referred to as the “Managers”). The Partnership is deemed to have sole voting and dispositive power with respect to the shares held by each of the funds affiliated with Essex Woodlands Health Ventures. The Managers are deemed to have shared voting and dispositive power with respect to the shares held by each of the Essex Stockholders by unanimous consent and through the Partnership. Each Manager disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

The address of the funds affiliated with Essex Woodlands Health Ventures is 21 Waterway Avenue, Suite 225, The Woodlands, Texas 77380.

 

(2) Based solely on a Schedule 13D filed by Split Rock Partners, LP on February 11, 2015. Voting and investment power over the shares is delegated to Split Rock Partners Management, LLC, the general partner of Split Rock Partners, LP. Split Rock Partners Management, LLC has delegated voting and investment power to three individuals, Michael Gorman, James Simons and David Stassen, who require a two-thirds vote to act. Split Rock Partners Management, LLC disclaims beneficial ownership of the shares except to the extent of any pecuniary interest therein.

 

(3) Based solely on a Schedule 13D/A filed by SV Life Sciences, et al. on December 11, 2017. Represents shares held by: (i) SV Life Sciences Fund IV, L.P. (referred to as “Fund IV”); (ii) SV Life Sciences Fund IV Strategic Partners, L.P. (referred to as “Fund IV Strategic” and, together with Fund IV, referred to as the “Fund IV Entities”); (iii) International Life Sciences Fund III (LP1), L.P. (referred to as “ILSF LP1”); (iv) International Life Sciences Fund III Co-Investment, L.P. (referred to as “ILSF Co-Invest”); and (v) International Life Sciences Fund III Strategic Partners, L.P. (referred to as “ILSF Strategic” and the funds in clauses (iii)-(v) collectively referred to as the “Fund III Entities”).

International Life Sciences Fund III (GP), L.P. (referred to as “Fund III GP”) is the general partner of each of: (i) ILSF LP1, (ii) ILSF Co-Invest and (iii) ILSF Strategic. ILSF III, LLC (referred to as the “ILSF General Partner”) is the general partner of Fund III GP and, through an investment committee comprised of James Garvey, Kate Bingham, Eugene D. Hill, III and Michael Ross controls voting and investment decisions over the Issuer’s shares held by the Fund III Entities by majority vote. Each member of the investment committee of ILSF General Partner disclaims beneficial ownership over the Shares held by the Fund III Entities except to the extent of any pecuniary interest therein. Each of ILSF General Partner and Fund III GP disclaim beneficial ownership over the Shares held by the Fund III Entities except to the extent of their respective pecuniary interest therein.

SV Life Sciences Fund IV (GP), L.P. (referred to as “Fund IV GP”) is the general partner of each of Fund IV and Fund IV Strategic. SVLSF IV, LLC (referred to as the “SVLS General Partner”) is the general partner of Fund IV GP and, through an investment committee comprised of James Garvey, Kate Bingham, Eugene D. Hill, III and Michael Ross controls voting and investment decisions over the shares held by the Fund IV Entities by a majority vote. Each member of the investment committee of SVLS General Partner disclaims beneficial ownership over the shares held by the Fund IV Entities except to the extent of any pecuniary interest therein. Each of SVLS General Partner and Fund IV GP disclaim beneficial ownership over the shares held by the Fund IV Entities except to the extent of their respective pecuniary interest therein.

The address of each of the Fund III Entities and each of the Fund IV entities is One Boston Place, Suite 3900, 201 Washington Street, Boston, Massachusetts 02108.

 

(4) Based solely on a Schedule 13D/A filed by KKR Health Care I, LLC on December 11, 2017. Each of KKR Fund Holdings L.P. (as the managing member of KKR Health Care I, LLC), KKR Fund Holdings GP Limited (as a general partner of KKR Fund Holdings L.P.), KKR Group Holdings L.P. (as a general partner of KKR Fund Holdings L.P. and the sole shareholder of KKR Fund Holdings GP Limited), KKR Group Limited (as the general partner of KKR Group Holdings L.P.), KKR & Co. L.P. (as the sole shareholder of KKR Group Limited), KKR Management LLC (as the general partner of KKR & Co. L.P.) and Messrs. Kravis and Roberts (as the designated members of KKR Management LLC) may be deemed to share voting and investment control with respect to shares of our common stock beneficially owned directly by KKR Health Care I, LLC, and each disclaims beneficial ownership of such shares of common stock.

 

(5) Based solely on a Schedule 13D filed by Sand Grove Capital Management LLP on December 29, 2017. Sand Grove Management LLP has sole voting and dispositive power over the shares held by Sand Grove Capital Management LLP.

 

(6) Based solely on Schedule 13D filed by Stryker on December 18, 2017, reporting beneficial ownership solely because Stryker may be deemed to have shared beneficial ownership of such shares of Entellus common stock as a result of certain provisions contained in the Voting Agreements described under “The Merger—Voting Agreements” beginning on page 66 of this proxy statement. Pursuant to Rule 13d-4 under the Exchange Act, neither the filing of the foregoing Schedule 13D nor any of its content shall be deemed to have constituted an admission by Stryker that it is the beneficial owner of any Entellus common stock for purposes of Section 13(d) of the Exchange Act, or for any other purpose, and such beneficial ownership is thereby expressly disclaimed. The calculation of the 35.7% beneficial ownership is based on 9,753,548 shares of Entellus common stock over which Stryker may be deemed to have shared beneficial ownership as a result of certain provisions contained in the Voting Agreements, including 1,559,982 shares of Entellus common stock issuable upon the vesting and exercise of options held by certain of the stockholders party to such agreements and 140,579 shares of Entellus common stock issuable upon the settlement of restricted stock unit awards granted by Entellus to such stockholders.

 

103


Table of Contents
(7) Includes for the persons listed below the following shares of our common stock subject to options held by that person that are currently exercisable or become exercisable within 60 days of January 2, 2018 and shares of our common stock issuable upon the vesting of restricted stock unit awards within 60 days of January 2, 2018:

 

Name

   Options      Restricted
Stock Unit
Awards
 

Brian E. Farley

     265,911        —    

John K. Bakewell

     22,500        —    

Joshua Baltzell

     23,750        —    

Shawn T McCormick

     25,000        —    

David B. Milne

     25,000        —    

James C. Momtazee

     1,250        —    

Guido Neels

     25,000        —    

Douglas S. Rohlen

     1,250        —    

Robert S. White

     664,398        9,500  

Brent A. Moen

     47,812        1,875  

James D. Surek

     —          —    

All directors and executive officers as a group (13 persons)

     1,133,556        19,318  

 

(8) Mr. Surek resigned effective January 5, 2017.

 

104


Table of Contents

FUTURE STOCKHOLDER PROPOSALS

If the Merger is consummated, we will have no public stockholders and there will be no public participation in any future meetings of our stockholders. However, if the Merger is not consummated, our stockholders will continue to be entitled to attend and participate in meetings of our stockholders.

We intend to hold an Annual Meeting of Stockholders in 2018 only if the Merger is not consummated. For timing of stockholder proposals relating to our 2018 Annual Meeting of Stockholders, please see our proxy statement for our 2017 Annual Meeting of Stockholders that was filed with the SEC on April 26, 2017.

Stockholders who intended to have a proposal included in our proxy materials for presentation at our 2018 Annual Meeting of Stockholders pursuant to Rule 14a-8 under the Exchange Act were required to submit the proposal to our Secretary at our offices at 3600 Holly Lane North, Suite 40, Plymouth, Minnesota 55447, in writing by December 27, 2017. Any additional proposals must comply with and are subject to the requirements and restrictions below.

Stockholders intending to present a proposal at our 2018 Annual Meeting of Stockholders, but not to include the proposal in our proxy statement, or to nominate a person for election as a director, must comply with the requirements set forth in our Amended and Restated Bylaws. Our Amended and Restated Bylaws require, among other things, that our Secretary receive written notice from the stockholder of record of their intent to present such proposal or nomination not earlier than the close of business on the 120th day and not later than the close of business on the 90th day prior to the anniversary of the preceding year’s annual meeting of stockholders. Therefore, we must receive notice of such a proposal or nomination for the 2018 Annual Meeting of Stockholders no earlier than the close of business on February 13, 2018 and no later than the close of business on March 15, 2018. The notice must contain the information required by our Amended and Restated Bylaws, a copy of which is available upon request to our Secretary. In the event that the date of the 2018 Annual Meeting of Stockholders is more than 30 days before or more than 60 days after June 13, 2018, then our Secretary must receive such written notice not earlier than the close of business on the 120th day prior to the 2018 Annual Meeting of Stockholders and not later than the close of business of the 90th day prior to the 2018 Annual Meeting of Stockholders or, if later, the 10th day following the day on which public disclosure of the date of such meeting is first made by us. SEC rules permit management to vote proxies in its discretion in certain cases if the stockholder does not comply with this deadline and, in certain other cases notwithstanding the stockholder’s compliance with this deadline.

We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these or other applicable requirements.

Except as otherwise set forth above, proposals should be addressed to:

Entellus Medical, Inc.

Attention: Corporate Secretary

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

 

105


Table of Contents

WHERE YOU CAN FIND MORE INFORMATION

The SEC allows us to “incorporate by reference” information into this proxy statement, which means that we can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement, except for any information superseded by information in this proxy statement or incorporated by reference subsequent to the date of this proxy statement. This proxy statement incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important information about us and our financial condition and are incorporated by reference into this proxy statement.

The following Entellus filings with the SEC are incorporated by reference:

 

    Entellus’ Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC on February 22, 2017;

 

    Entellus’ Quarterly Reports on Form 10-Q for fiscal quarters ended March 31, 2017, June 30, 2017 and September 30, 2017, filed with the SEC on May 5, 2017, August 4, 2017 and November 3, 2017, respectively; and

 

    Entellus’ Current Reports on Forms 8-K and 8-K/A filed with the SEC on April 6, 2017, April 12, 2017, May 3, 2017, June 14, 2017, July 7, 2017, July 14, 2017, August 3, 2017, August 8, 2017, September 25, 2017, November 1, 2017, December 7, 2017 and January 4, 2018 (other than the portions of such documents not deemed to be filed).

We also incorporate by reference into this proxy statement additional documents that we may file with the SEC between the date of this proxy statement and the earlier of the date of the special meeting or the termination of the Merger Agreement. These documents include periodic reports, such as Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as well as Current Reports on Form 8-K and proxy soliciting materials. The information provided on our website is not part of this proxy statement and therefore is not incorporated by reference herein.

You may read and copy any reports, statements or other information that we file with the SEC at the SEC’s public reference room at the following location: 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of those documents at prescribed rates by writing to the Public Reference Section of the SEC at that address. Please call the SEC at (800) SEC-0330 for further information on the public reference room. These SEC filings are also available to the public from commercial document retrieval services and at www.sec.gov. In addition, stockholders may obtain free copies of the documents filed with the SEC by Entellus through the Investor Relations section of our website, www.entellusmedical.com, and the “Financial Information—SEC Filings” section therein.

You may obtain any of the documents we file with the SEC, without charge, by requesting them in writing or by telephone from us at the following address:

Entellus Medical, Inc.

Attn: Corporate Secretary

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

(763) 463-1595

If you would like to request documents from us, please do so by                     , 2018, to receive them before the special meeting. If you request any documents from us, we will mail them to you by first class mail or another equally prompt method, within 1 business day after we receive your request. Please note that all of our documents that we file with the SEC are also promptly available through the Investor Relations section of our website, www.entellusmedical.com, and the “Financial Information—SEC Filings” section therein. The information included on our website is not incorporated by reference into this proxy statement.

 

106


Table of Contents

If you have any questions about this proxy statement, the special meeting or the Merger or need assistance with voting procedures, you should contact our proxy solicitor or us at:

 

LOGO

105 Madison Avenue

New York, New York 10016

proxy@mackenziepartners.com

Call Collect: (212) 929-5500

or

Toll-Free (800) 322-2885

or

Entellus Medical, Inc.

3600 Holly Lane North, Suite 40

Plymouth, Minnesota 55447

Attention: Investor Relations

ir@entellusmedical.com

 

107


Table of Contents

MISCELLANEOUS

Entellus has supplied all information relating to Entellus, and Stryker has supplied, and Entellus has not independently verified, all of the information relating to Stryker and Merger Sub contained in “Summary—The Companies” beginning on page 11 of this proxy statement and “The Companies” beginning on page 22 of this proxy statement.

You should not send in your Entellus stock certificates until you receive transmittal materials after the Merger is consummated.

You should rely only on the information contained in this proxy statement, the appendices to this proxy statement and the documents we refer to in this proxy statement to vote on the Merger. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. This proxy statement is dated                     , 2018. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date (or as of an earlier date if so indicated in this proxy statement) and the mailing of this proxy statement to stockholders does not create any implication to the contrary. This proxy statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make a proxy solicitation.

 

 

Your vote is very important. Please promptly vote your shares by completing, signing, dating and returning your proxy card or by Internet or telephone voting as described on your proxy card.

By Order of the Board of Directors

Brent A. Moen

Chief Financial Officer and Secretary

Plymouth, Minnesota

                    , 2018

 

108


Table of Contents

Appendix A

Agreement and Plan of Merger


Table of Contents

AGREEMENT AND PLAN OF MERGER

by and among

STRYKER CORPORATION,

EXPLORER MERGER SUB CORP.

and

ENTELLUS MEDICAL, INC.,

Dated as of December 7, 2017


Table of Contents

TABLE OF CONTENTS

Article I

THE MERGER  

Section 1.1

 

The Merger

     A-1  

Section 1.2

 

The Closing

     A-1  

Section 1.3

 

Effective Time

     A-2  

Section 1.4

 

Certificate of Incorporation; Bylaws

     A-2  

Section 1.5

 

Board of Directors; Officers

     A-2  
Article II  
EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES  

Section 2.1

 

Effect on Securities

     A-2  

Section 2.2

 

Surrender of Certificates

     A-3  

Section 2.3

 

Company Equity Awards

     A-4  

Section 2.4

 

Treatment of Oxford Warrants

     A-6  

Section 2.5

 

Lost Certificates

     A-6  

Section 2.6

 

Dissenting Shares

     A-6  

Section 2.7

 

Transfers; No Further Ownership Rights

     A-7  

Section 2.8

 

Further Action

     A-7  
Article III  
REPRESENTATIONS AND WARRANTIES OF THE COMPANY  

Section 3.1

 

Organization; Qualification

     A-7  

Section 3.2

 

Capitalization; Subsidiaries

     A-7  

Section 3.3

 

Authority Relative to Agreement

     A-9  

Section 3.4

 

Vote Required

     A-10  

Section 3.5

 

No Conflict; Required Filings and Consents

     A-10  

Section 3.6

 

Company SEC Documents; Financial Statements

     A-11  

Section 3.7