S-4/A 1 d764337ds4a.htm S-4/A S-4/A
Table of Contents

As filed with the Securities and Exchange Commission on August 12, 2019

Registration No. 333-232238

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 2 TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

PIVOTAL ACQUISITION CORP.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   6770   61-1898603
(State or other jurisdiction of
incorporation or organization)
  (Primary standard industrial
classification code number)
  (I.R.S. Employer
Identification Number)

c/o Graubard Miller

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

(212) 818-8800

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Jonathan J. Ledecky

Pivotal Acquisition Corp.

c/o Graubard Miller

The Chrysler Building

405 Lexington Avenue

New York, New York 10174

(212) 818-8800

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

David Alan Miller, Esq.
Jeffrey M. Gallant, Esq.
Graubard Miller
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Telephone: (212) 818-8800
Fax: (212) 818-8881
 

Rachel W. Sheridan, Esq.

Shagufa R. Hossain, Esq.

Latham & Watkins LLP

555 Eleventh Street, N.W.

Washington, D.C. 20004

Telephone: (202) 637-2200

Fax: (202) 637-2201

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and all other conditions to the transactions contemplated by the Agreement and Plan of Reorganization described in the included proxy statement/prospectus have been satisfied or waived.

If the securities being registered on this form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

    

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Security To Be Registered

 

Amount

To Be

Registered

  Proposed
Maximum
Offering Price
Per Security (1)
  Proposed
Maximum
Aggregate
Offering Price (1)
  Amount of
Registration Fee

Common Stock (2)

  37,000,000   $10.25   $379,250,000   $45,965.10

Total

          $379,250,000   $45,965.10(3)

 

 

(1)

Estimated solely for the purpose of calculating the registration fee, based on the average of the high and low prices of Pivotal’s Class A common stock on June 18, 2019. This calculation is in accordance with Rule 457(f)(1) of the Securities Act of 1933, as amended.

(2)

Represents shares of common stock to be issued by Pivotal to the holders of common stock of LD Topco, Inc., a Delaware corporation, upon consummation of the Business Combination described herein, including upon achievement of certain earnout conditions.

(3)

Previously paid.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

PRELIMINARY PROXY STATEMENT

SUBJECT TO COMPLETION, DATED AUGUST 12, 2019

PIVOTAL ACQUISITION CORP.

c/o Graubard Miller

The Chrysler Building

405 Lexington Avenue, 11th Floor

New York, NY 10174

NOTICE OF

ANNUAL MEETING

TO BE HELD ON                 , 2019

TO THE STOCKHOLDERS OF PIVOTAL ACQUISITION CORP.:

NOTICE IS HEREBY GIVEN that an annual meeting of Pivotal Acquisition Corp. (“Pivotal”), a Delaware corporation, will be held at 10:00 a.m. eastern time, on                 , 2019, at the offices of Graubard Miller, general counsel to Pivotal, at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174. You are cordially invited to attend the special meeting, which will be held for the following purposes:

 

  (1)

Proposal No. 1—The Business Combination Proposal—to consider and vote upon a proposal to approve and adopt the Agreement and Plan of Reorganization, dated as of May 20, 2019 (the “Merger Agreement”), by and among Pivotal, Pivotal Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pivotal (“Merger Sub”), LD Topco, Inc., a Delaware corporation (the “Company”), and, solely in its capacity as representative of the stockholders of the Company, Carlyle Equity Opportunity GP, L.P., a Delaware limited partnership (“Carlyle”), a copy of which is attached to this proxy statement/prospectus as Annex A, and the transactions contemplated thereby, including the merger of Merger Sub with and into the Company, with the Company surviving as a wholly owned subsidiary of Pivotal (the “Merger”)—we refer to this proposal as the “business combination proposal”;

 

  (2)

Proposal No. 2—The Charter Proposals—to consider and vote upon separate proposals to approve amendments to Pivotal’s current amended and restated certificate of incorporation to: (i) change the name of the public entity to “KLDiscovery Inc.” as opposed to “Pivotal Acquisition Corp.”; (ii) increase Pivotal’s capitalization so that it will have 200,000,000 authorized shares of a single class of common stock and 1,000,000 authorized shares of preferred stock, as opposed to Pivotal having 75,000,000 authorized shares of Class A common stock, 10,000,000 authorized shares of Class B common stock and 1,000,000 authorized shares of preferred stock; and (iii) delete the various provisions applicable only to special purpose acquisition corporations (such as the obligation to dissolve and liquidate if a business combination is not consummated within a certain period of time)—we refer to these proposals collectively as the “charter proposals”;

 

  (3)

Proposal No. 3—The Director Election Proposal—to elect eight directors who, upon consummation of the Merger, will be the directors of Pivotal—we refer to this proposal as the “director election proposal”;

 

  (4)

Proposal No. 4—The Incentive Plan Proposal—to consider and vote upon a proposal to approve the 2019 Long-Term Incentive Plan, which is an incentive compensation plan for employees of Pivotal and its subsidiaries, including the Company and its subsidiaries—we refer to this proposal as the “incentive plan proposal”;

 

  (5)

Proposal No. 5—The Adjournment Proposal—to consider and vote upon a proposal to adjourn the annual meeting to a later date or dates if it is determined by the officer presiding over the annual meeting that more time is necessary for Pivotal to consummate the Business Combination—we refer to this proposal as the “adjournment proposal.”


Table of Contents

These items of business are described in the attached proxy statement/prospectus. We encourage you to read the attached proxy statement/prospectus in its entirety, including the annexes and accompanying financial statements, before voting. IN PARTICULAR, WE URGE YOU TO CAREFULLY READ THE SECTION ENTITLED “RISK FACTORS.

Only holders of record of Pivotal common stock at the close of business on                 , 2019 are entitled to notice of the annual meeting and to vote and have their votes counted at the annual meeting and any adjournments or postponements of the annual meeting.

After careful consideration, Pivotal’s board of directors has determined that each of the business combination proposal, the charter proposals, the director election proposal, the incentive plan proposal and the adjournment proposal is fair to and in the best interests of Pivotal and its stockholders and unanimously recommends that you vote or give instruction to vote “FOR” the business combination proposal, “FOR” each of the charter proposals, “FOR” the election of all of the persons nominated by Pivotal’s management for election as directors, “FOR” the incentive plan proposal and “FOR” the adjournment proposal, if presented. When you consider the recommendation of Pivotal’s board of directors, you should keep in mind that Pivotal’s directors and officers may have interests in the Business Combination that conflict with your interests as a stockholder. See the section entitled “The Business Combination Proposal—Interests of the Founder and Pivotal’s Directors and Officers in the Business Combination.”

Consummation of the Merger is conditioned on approval of the business combination proposal, the charter proposals, the director election proposal and the incentive plan proposal. If any of the proposals is not approved, the other proposals will not be presented to stockholders for a vote.

All Pivotal stockholders are cordially invited to attend the annual meeting in person. To ensure your representation at the annual meeting, however, you are urged to complete, sign, date and return the enclosed proxy card as soon as possible. If you are a holder of record of Pivotal common stock, you may also cast your vote in person at the annual meeting. If your common stock is held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the annual meeting and vote in person, obtain a proxy from your broker or bank.

A complete list of Pivotal stockholders of record entitled to vote at the annual meeting will be available for ten days before the annual meeting at the principal executive offices of Pivotal for inspection by stockholders during business hours for any purpose germane to the annual meeting.

Your vote is important regardless of the number of shares you own. Whether you plan to attend the annual meeting or not, please complete, sign, date and return the enclosed proxy card as soon as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.

Thank you for your participation. We look forward to your continued support.

By Order of the Board of Directors

/s/ Jonathan J. Ledecky

Jonathan J. Ledecky

Chairman of the Board of Directors and Chief

Executive Officer


Table of Contents

                , 2019

IF YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS.

ALL PIVOTAL PUBLIC STOCKHOLDERS HAVE THE RIGHT TO HAVE THEIR SHARES CONVERTED INTO CASH IN CONNECTION WITH THE PROPOSED BUSINESS COMBINATION. PUBLIC STOCKHOLDERS ARE NOT REQUIRED TO AFFIRMATIVELY VOTE FOR OR AGAINST THE BUSINESS COMBINATION PROPOSAL OR BE HOLDERS OF RECORD ON THE RECORD DATE IN ORDER TO HAVE THEIR SHARES CONVERTED INTO CASH. THIS MEANS THAT ANY PUBLIC STOCKHOLDER HOLDING SHARES OF PIVOTAL COMMON STOCK MAY EXERCISE CONVERSION RIGHTS REGARDLESS OF WHETHER THEY ARE EVEN ENTITLED TO VOTE ON THE BUSINESS COMBINATION PROPOSAL.

TO EXERCISE CONVERSION RIGHTS, HOLDERS MUST TENDER THEIR STOCK TO CONTINENTAL STOCK TRANSFER & TRUST COMPANY, PIVOTAL’S TRANSFER AGENT, NO LATER THAN TWO (2) BUSINESS DAYS PRIOR TO THE ANNUAL MEETING. YOU MAY TENDER YOUR STOCK BY EITHER DELIVERING YOUR STOCK CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DEPOSIT WITHDRAWAL AT CUSTODIAN (“DWAC”) SYSTEM. IF THE BUSINESS COMBINATION IS NOT COMPLETED, THEN THESE SHARES WILL NOT BE CONVERTED INTO CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR CONVERSION RIGHTS. SEE “ANNUAL MEETING OF PIVOTAL STOCKHOLDERS—CONVERSION RIGHTS” FOR MORE SPECIFIC INSTRUCTIONS.


Table of Contents

The information in this proxy statement/prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED AUGUST 12, 2019

PROXY STATEMENT FOR ANNUAL MEETING OF

PIVOTAL ACQUISITION CORP.

 

 

PROSPECTUS FOR UP TO 37,000,000 SHARES OF COMMON STOCK

 

 

The board of directors of Pivotal Acquisition Corp., a Delaware corporation (“Pivotal”), has unanimously approved the Agreement and Plan of Reorganization, dated as of May 20, 2019 (the “Merger Agreement”), by and among Pivotal, Pivotal Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pivotal (“Merger Sub”), LD Topco, Inc., a Delaware corporation (the “Company”), and, solely in its capacity as representative of the stockholders of the Company, Carlyle Equity Opportunity GP, L.P., a Delaware limited partnership (“Carlyle”), pursuant to which Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Pivotal (the “Merger”).

Pursuant to the Merger Agreement, each outstanding share of common stock of the Company will be converted into the right to receive a pro rata portion of 34,800,000 shares of common stock of Pivotal (the “Closing Consideration”). Stockholders of the Company will also have the right to receive 2,200,000 additional shares of common stock if the reported closing sale price of Pivotal common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger (the “Contingent Consideration” and, together with the Closing Consideration, the “Merger Consideration”). Accordingly, this prospectus covers up to an aggregate of 37,000,000 shares of Pivotal common stock.

Proposals to approve the Merger Agreement and the other matters discussed in this proxy statement/prospectus will be presented at the annual meeting of stockholders of Pivotal scheduled to be held on                 , 2019.

Pivotal’s units, Class A common stock and warrants are currently listed on the New York Stock Exchange (the “NYSE”) under the symbols PVT.U, PVT and PVT WS, respectively. Upon the closing of the Merger, it is contemplated that Pivotal will have a single class of common stock. Pivotal intends to apply for listing, to be effective at the consummation of the Business Combination, of the common stock to be issued in connection with the Merger together with the common stock previously issued in its initial public offering, the warrants issued in its initial public offering and simultaneous private placement, and the common stock underlying the warrants issued in its initial public offering and simultaneous private placement, on the NYSE under the proposed symbols KLD, in the case of the common stock, and KLD WS, in the case of the warrants. Pivotal will not have units traded on the NYSE following consummation of the Business Combination. It is a condition of the consummation of the Business Combination that Pivotal common stock is approved for listing on the NYSE (subject only to official notice of issuance thereof and public holder requirements), but there can be no assurance such listing condition will be met. If such listing condition is not met, the Merger will not be consummated unless the listing condition set forth in the Merger Agreement is waived by the parties to that agreement.

Pivotal is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 as amended (the “JOBS Act”), and has elected to comply with certain reduced public company reporting requirements.

 

 

This proxy statement/prospectus provides you with detailed information about the Merger and other matters to be considered at the annual meeting of Pivotal’s stockholders. We encourage you to carefully read this entire document. You should also carefully consider the risk factors described in “Risk Factors beginning on page 25. These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus incorporates by reference important business and financial information about Pivotal from documents that are not included in or delivered with this proxy statement/prospectus. You can obtain documents incorporated by reference in this proxy statement/prospectus and other filings of Pivotal with the Securities and Exchange Commission by visiting its website at www.sec.gov or requesting them in writing or by telephone from Pivotal at the following address:

Mr. Jonathan J. Ledecky

Pivotal Acquisition Corp.

c/o Graubard Miller

The Chrysler Building

405 Lexington Avenue, 11th Floor

New York, NY 10174

Tel: (212) 818-8800

You will not be charged for any of these documents that you request. Stockholders requesting documents should do so by                 , 2019 in order to receive them before the annual meeting.

This proxy statement/prospectus is dated                 , 2019, and is first being mailed to Pivotal security holders on or about                 , 2019.


Table of Contents

TABLE OF CONTENTS

 

FREQUENTLY USED TERMS

     ii  

SUMMARY OF THE MATERIAL TERMS OF THE MERGER

     1  

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

     3  

SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

     9  

SELECTED HISTORICAL FINANCIAL INFORMATION

     20  

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     22  
COMPARATIVE PER SHARE DATA      24  

RISK FACTORS

     25  

FORWARD-LOOKING STATEMENTS

     50  

ANNUAL MEETING OF PIVOTAL STOCKHOLDERS

     52  

THE BUSINESS COMBINATION PROPOSAL

     58  

THE MERGER AGREEMENT

     79  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     85  

THE CHARTER PROPOSALS

     94  

THE DIRECTOR ELECTION PROPOSAL

     96  

EXECUTIVE COMPENSATION

     104  

THE INCENTIVE PLAN PROPOSAL

     111  

THE ADJOURNMENT PROPOSAL

     119  

OTHER INFORMATION RELATED TO PIVOTAL

     120  

BUSINESS OF THE COMPANY

     129  

THE COMPANY’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     143  

BENEFICIAL OWNERSHIP OF SECURITIES

     162  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     166  

DESCRIPTION OF PIVOTAL’S SECURITIES AFTER THE MERGER

     170  

INFORMATION ON PIVOTAL SECURITIES AND DIVIDENDS

     176  

APPRAISAL RIGHTS

     176  

STOCKHOLDER PROPOSALS

     176  

OTHER STOCKHOLDER COMMUNICATIONS

     177  

EXPERTS

     177  

DELIVERY OF DOCUMENTS TO STOCKHOLDERS

     177  

WHERE YOU CAN FIND MORE INFORMATION

     177  

Annexes

  

Annex A: Agreement and Plan of Reorganization

  

Annex B: Second Amended and Restated Certificate of Incorporation

  

Annex C: 2019 Incentive Equity Plan

  

Annex D: Opinion of Northland Securities, Inc.

  

You should rely only on the information contained in this proxy statement/prospectus in determining whether to vote in favor of the Business Combination and the other proposals. No one has been authorized to provide you with information that is different from that contained in this proxy statement/prospectus. This proxy statement/prospectus is dated                 , 2019. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date. Neither the mailing of this proxy statement/prospectus to Pivotal securityholders nor the issuance by Pivotal of common stock in connection with the Business Combination will create any implication to the contrary.

 

i


Table of Contents

Frequently Used Terms

As used in this proxy statement/prospectus:

annual meeting” means the annual meeting of the stockholders of Pivotal that is the subject of this proxy statement/prospectus;

Business Combination” means the transactions contemplated by the Merger Agreement and related agreements;

Carlyle” means Carlyle Equity Opportunity GP, L.P., a Delaware limited partnership;

Charter” means the second amended and restated certificate of incorporation of Pivotal following the Merger;

Closing Consideration” means the conversion of each outstanding share of common stock of the Company into the right to receive a pro rata portion of 34,800,000 shares of common stock of Pivotal pursuant to the Merger Agreement;

Code” means the Internal Revenue Code of 1986, as amended;

Company” means LD Topco, Inc., a Delaware corporation and ultimate parent company of KLDiscovery;

Contingent Consideration” means the right Company stockholders will have to receive 2,200,000 additional shares of common stock if the reported closing sale price of Pivotal common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger;

DGCL” means the Delaware General Corporation Law, as amended;

Exchange Act” means the Securities Exchange Act of 1934, as amended;

Forward Purchase Contract” means that certain Forward Purchase Contract, dated as of January 31, 2019, between Pivotal and Pivotal Spac Funding LLC, a managing member of the Founder and affiliate of one of Pivotal’s directors;

Founder” means Pivotal Acquisition Holdings LLC, a Delaware limited liability company and an affiliate of certain of Pivotal’s officers and directors;

Founder Lock-Up Agreement” means the lock-up agreement to be entered into at or prior to the closing of the Merger by Pivotal and the Founder;

founder shares” means the 5,750,000 shares of Class B common stock of Pivotal that were issued prior to Pivotal’s initial public offering and, unless otherwise indicated, assumes conversion of those shares upon consummation of the Merger into Pivotal’s single class of common stock on a one-for-one basis;

HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;

JOBS Act” means the Jumpstart Our Business Startups Act of 2012, as amended;

Marcum” means Marcum LLP, an independent registered public accounting firm, serving as Pivotal’s auditors;

Merger” means the merger of Merger Sub with and into the Company, with the Company surviving as a wholly owned subsidiary of Pivotal;

Merger Agreement” means the Agreement and Plan of Reorganization, dated as of May 20, 2019, by and among Pivotal, Merger Sub, the Company and, solely in its capacity as a representative of the stockholders of the Company, Carlyle;

 

ii


Table of Contents

Merger Consideration” means the Closing Consideration together with the Contingent Consideration;

Merger Sub” means Pivotal Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pivotal;

NYSE” means the New York Stock Exchange;

Pivotal” means Pivotal Acquisition Corp., a Delaware corporation, which is expected to be renamed “KLDiscovery Inc.” upon the closing of the Merger;

Pivotal common stock” means (i) prior to the Merger, Pivotal’s Class A common stock and Class B common stock collectively, and (ii) after the Merger, Pivotal’s single class of common stock;

private warrants” means the private placement of 6,350,000 warrants of Pivotal sold to the Founder simultaneously with Pivotal’s initial public offering;

public shares” means the common stock included in the units issued in Pivotal’s initial public offering;

public stockholders” means holders of public shares, including the Founder and Pivotal’s officers and directors to the extent they hold public shares; provided, that the holders of founder shares will be considered a “public stockholder” only with respect to any public shares held by them;

public warrants” means the warrants exercisable for common stock included in the units issued in Pivotal’s initial public offering;

Registration Rights Agreement” means the registration rights agreement to be entered into in connection with the consummation of the Business Combination among Pivotal, the stockholders of the Company, the holders of the founder shares and certain other securityholders of Pivotal;

Revolution” means Revolution Growth III, LP, a Delaware limited partnership;

RG” means Revolution;

SEC” means the Securities and Exchange Commission;

Securities Act” means the Securities Act of 1933, as amended;

Stockholders’ Agreement” means the Agreement to be entered into in connection with the consummation of the Business Combination among Pivotal, affiliates of Carlyle and Revolution;

TCG” means The Carlyle Group L.P.;

U.S. GAAP” means generally accepted accounting principles in the United States; and

2019 Plan” means the KLDiscovery Inc. 2019 Incentive Award Plan.

 

iii


Table of Contents

SUMMARY OF THE MATERIAL TERMS OF THE MERGER

 

   

The parties to the Merger are Pivotal, Merger Sub, the Company and, solely in its capacity as a representative of the stockholders of the Company, Carlyle. Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Pivotal (the “Merger”). See the section entitled “The Merger Agreement.”

 

   

KLDiscovery, a subsidiary of the Company, is one of the leading electronic discovery (“eDiscovery”) providers and the leading data recovery services provider to corporations, law firms, government agencies and individual consumers. In 2018, KLDiscovery served over 4,300 legal technology clients, including 95% of the American Lawyer 100 (the “AM Law 100”) and 65% of Fortune 500 companies. KLDiscovery has broad geographical coverage in the eDiscovery and data recovery industries with 40 locations in 20 countries, 10 data centers and 20 data recovery labs around the globe. Its technology and service offerings protect its clients from growing information governance challenges, litigation, compliance breaches and data loss.

 

   

Under the Merger Agreement, the stockholders of the Company will receive an aggregate of 34,800,000 shares of Pivotal common stock at the closing of the Merger. The stockholders of the Company will also have the right to receive 2,200,000 additional shares of Pivotal common stock if the reported closing sale price of Pivotal common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger. See the section entitled “The Business Combination Proposal—Structure of the Transactions.

 

   

At the closing of the Merger, the Company’s stockholders will hold approximately 55% of the issued and outstanding Pivotal common stock and current stockholders of Pivotal will hold approximately 45% of the issued and outstanding Pivotal common stock (assuming no holder of Pivotal’s public shares exercises conversion rights as described in this proxy statement/prospectus). See the section entitled “The Business Combination Proposal—Structure of the Transactions.

 

   

The Merger Agreement provides that either Pivotal or the Company may terminate the Merger Agreement if the Merger is not consummated on or before October 30, 2019, provided that the failure of the Merger to be consummated by such date was not principally caused by the terminating party’s breach of the Merger Agreement. Additionally, the Merger Agreement may be terminated, among other reasons, by either Pivotal or the Company upon material breach of the other party if not cured within the time period specified within the Merger Agreement and subject to certain other conditions. See the section entitled “The Merger Agreement—Termination.”

 

   

In addition to voting on the business combination proposal, the stockholders of Pivotal will vote on separate proposals to approve amendments to Pivotal’s current amended and restated certificate of incorporation to: (i) change the name of the public entity to “KLDiscovery Inc.” as opposed to “Pivotal Acquisition Corp.”; (ii) increase Pivotal’s capitalization so that it will have 200,000,000 authorized shares of a single class of common stock and 1,000,000 authorized shares of preferred stock, as opposed to Pivotal having 75,000,000 authorized shares of Class A common stock, 10,000,000 authorized shares of Class B common stock and 1,000,000 authorized shares of preferred stock; and (iii) delete the various provisions applicable only to special purpose acquisition corporations (such as the obligation to dissolve and liquidate if a business combination is not consummated within a certain period of time). The stockholders of Pivotal will also vote on proposals to elect eight directors who, upon consummation of the Merger, will be the directors of Pivotal, to approve the 2019 Plan and to approve, if necessary, an adjournment of the annual meeting. See the sections entitled “The Charter Proposals, The Director Election Proposal, The Incentive Plan Proposal and The Adjournment Proposal.”

 

   

Pursuant to the terms of the Merger Agreement, the parties thereto have agreed to nominate the following persons to serve as the initial directors of Pivotal upon consummation of the Merger: Christopher J. Weiler (the Company’s chief executive officer), Daniel F. Akerson (the Company’s

 

1


Table of Contents
 

current chairman of the board of directors, who will serve as chairman of the board of directors of Pivotal following the Merger), Jonathan J. Ledecky (Pivotal’s current chairman of the board of directors and chief executive officer, who will serve as vice-chairman of the board of directors of Pivotal following the Merger), Kevin Griffin (a director of Pivotal and a control person of the Founder), William Darman (a managing director of The Carlyle Group L.P. (“TCG”)), Richard J. Williams, Donna Morea and Evan Morgan (collectively, the “director nominees”). See the section entitled “The Director Election Proposal.”

 

   

Upon completion of the Merger, the executive officers of Pivotal will include Christopher J. Weiler as chief executive officer, Dawn Wilson as chief financial officer, and the other persons described under “The Director Election Proposal—Information about Executive Officers, Directors and Nominees.”

 

   

Pursuant to the Registration Rights Agreement, the Company’s stockholders, the holders of the founder shares and certain other securityholders of Pivotal will be granted certain rights to have registered, in certain circumstances, the resale under the Securities Act of their securities of Pivotal, subject to certain conditions set forth therein.

 

   

Affiliates of Carlyle and Revolution will enter into the Stockholders’ Agreement with Pivotal, pursuant to which the holders of a majority of the shares of Pivotal common stock held by such Carlyle affiliates and Revolution will have the right to designate up to six directors for election to Pivotal’s board of directors for so long as such Carlyle affiliates and Revolution maintain collective ownership of a certain percentage interest in Pivotal.

 

   

In connection with the execution of the Merger Agreement, stockholders of the Company who hold a majority of the outstanding stock of the Company entered into agreements pursuant to which they have agreed to vote in favor of the Business Combination at a meeting called to approve the Business Combination by the Company stockholders (or to act by written consent approving the Business Combination).

 

2


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

The questions and answers below highlight only selected information from this proxy statement/prospectus and only briefly address some commonly asked questions about the annual meeting and the proposals to be presented at the annual meeting, including with respect to the proposed Business Combination. The following questions and answers do not include all the information that may be important to Pivotal stockholders. Stockholders are urged to carefully read this entire proxy statement/prospectus, including the annexes and the other documents referred to herein, to fully understand the proposed Business Combination and the voting procedures for the annual meeting.

 

Q.

Why am I receiving this proxy statement/prospectus?

 

A.

Pivotal and the Company have agreed to a business combination under the terms of the Merger Agreement that is described in this proxy statement/prospectus. A copy of the Merger Agreement is attached to this proxy statement/prospectus as Annex A and Pivotal encourages its stockholders to read it in its entirety. Pivotal’s stockholders are being asked to consider and vote upon a proposal to approve the Merger Agreement, which, among other things, provides for the Merger whereby Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Pivotal. See the section entitled “The Business Combination Proposal.”

 

Q.

Are there any other matters being presented to stockholders at the meeting?

 

A.

In addition to voting on the Business Combination, the stockholders of Pivotal will vote on the following:

 

  1.

Separate proposals to approve amendments to Pivotal’s current amended and restated certificate of incorporation to: (i) change the name of the public entity to “KLDiscovery Inc.” as opposed to “Pivotal Acquisition Corp.”; (ii) increase Pivotal’s capitalization so that it will have 200,000,000 authorized shares of a single class of common stock and 1,000,000 authorized shares of preferred stock, as opposed to Pivotal having 75,000,000 authorized shares of Class A common stock, 10,000,000 authorized shares of Class B common stock and 1,000,000 authorized shares of preferred stock; and (iii) delete the various provisions applicable only to special purpose acquisition corporations (such as the obligation to dissolve and liquidate if a business combination is not consummated within a certain period of time). See the section entitled “The Charter Proposals.” A copy of Pivotal’s proposed second amended and restated certificate of incorporation effectuating the foregoing amendments is attached to this proxy statement/prospectus as Annex B.

 

  2.

To elect eight directors who, upon consummation of the Merger, will be the directors of Pivotal. See the section entitled “The Director Election Proposal.”

 

  3.

To approve the 2019 Plan. See the section entitled “The Incentive Plan Proposal.” A copy of the 2019 Plan is attached to this proxy statement/prospectus as Annex C.

 

  4.

To adjourn the meeting to a later date or dates if it is determined by the officer presiding over the annual meeting that more time is necessary for Pivotal to consummate the Merger. See the section entitled “The Adjournment Proposal.”

Pivotal will hold the annual meeting of its stockholders to consider and vote upon these proposals. This proxy statement/prospectus contains important information about the proposed Business Combination and the other matters to be acted upon at the annual meeting. Stockholders should read it carefully.

Consummation of the Merger is conditioned on approval of the business combination proposal, the charter proposals, the director election proposal and the incentive plan proposal. If any of the proposals is not approved, the other proposals will not be presented to stockholders for a vote.

The vote of stockholders is important. Stockholders are encouraged to vote as soon as possible after carefully reviewing this proxy statement/prospectus.

 

3


Table of Contents
Q.

I am a Pivotal warrant holder. Why am I receiving this proxy statement/prospectus?

 

A.

The holders of Pivotal warrants are entitled to purchase Pivotal common stock at a purchase price of $11.50 per share beginning 30 days after the consummation of the Merger. This proxy statement/prospectus includes important information about Pivotal and the business of Pivotal and its subsidiaries following the consummation of the Merger. Because holders of Pivotal warrants will be entitled to purchase Pivotal common stock 30 days after the consummation of the Merger, we urge you to read the information contained in this proxy statement/prospectus carefully.

 

Q.

What will happen to Pivotal’s securities upon consummation of the Business Combination?

 

A.

Pivotal’s units, Class A common stock and warrants are currently listed on the NYSE under the symbols PVT.U, PVT and PVT WS, respectively. Upon consummation of the Business Combination, Pivotal will have one class of common stock which will be listed on the NYSE under the symbol KLD and its warrants will be listed on the NYSE under the symbol KLD WS. Pivotal will not have units traded on the NYSE following consummation of the Business Combination and such units will automatically be separated into their component securities without any action needed to be taken on the part of the holders. Pivotal warrant holders and those stockholders who do not elect to have their Pivotal shares converted into a pro rata share of the trust account need not submit their Class A common stock or warrant certificates and they will remain outstanding.

 

Q.

Why is Pivotal proposing the Business Combination?

 

A.

Pivotal was organized to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more businesses or entities.

On February 4, 2019, Pivotal completed its initial public offering of units, with each unit consisting of one share of Class A common stock and one warrant to purchase one share of Class A common stock at a price of $11.50, raising total gross proceeds of approximately $230 million. Since its initial public offering, Pivotal’s activity has been limited to the evaluation of business combination candidates.

The Company is the owner of the KLDiscovery business, one of the leading eDiscovery providers and the leading data recovery services provider to corporations, law firms, government agencies and individual consumers. In 2018, KLDiscovery served over 4,300 legal technology clients, including 95% of the AM Law 100 and 65% of Fortune 500 companies. KLDiscovery has broad geographical coverage in the eDiscovery and data recovery industries with 40 locations in 20 countries, 10 data centers and 20 data recovery labs around the globe. Its technology and service offerings protect its clients from growing information governance challenges, litigation, compliance breaches and data loss.

Based on its due diligence investigations of the Company and the industry in which it operates, including the financial and other information provided by the Company in the course of the negotiations in connection with the Merger Agreement, Pivotal believes that the Company has a very appealing market opportunity and growth profile, strong position in its industry and a compelling valuation. As a result, Pivotal believes that a business combination with the Company will provide Pivotal stockholders with an opportunity to participate in the ownership of a company with significant growth potential. See the section entitled “The Business Combination Proposal—Pivotal’s Board of Directors’ Reasons for Approval of the Business Combination.

 

Q.

Did the Pivotal board of directors obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the Business Combination?

 

A.

Yes. Evan Morgan, a former director of Pivotal who is also a nominee to be a director of Pivotal upon consummation of the Business Combination, is affiliated with the Company. As a result, pursuant to agreements entered into by Pivotal at the time of its initial public offering, Pivotal was required to obtain an opinion from an independent investment banking firm or another valuation or appraisal firm that commonly renders fairness opinions that the Business Combination was fair to Pivotal from a financial point of view. Accordingly, Pivotal’s board of directors obtained an opinion from Northland Securities, Inc. as to (i) the

 

4


Table of Contents
 

fairness, from a financial point of view, to Pivotal of the consideration to be paid by it pursuant to the Merger Agreement and (ii) whether the business acquired has a fair market value equal to at least 80% of the balance of the funds in the trust account (excluding the amount of deferred underwriting commissions held in trust) at the time of the execution of the Merger Agreement. See the section entitled “The Business Combination Proposal—Pivotal’s Board of Directors’ Reasons for Approval of the Merger—Opinion of Financial Advisor.

 

 

Q.

Do I have conversion rights?

 

A.

If you are a holder of public shares, you have the right to demand that Pivotal convert such shares into a pro rata portion of the cash held in Pivotal’s trust account. We sometimes refer to these rights to demand conversion of the public shares as “conversion rights.”

Notwithstanding the foregoing, a holder of public shares, together with any affiliate of his or any other person with whom such holder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking conversion rights with respect to 20% or more of the public shares. Accordingly, all public shares in excess of 20% held by a public stockholder, together with any affiliate of such holder or any other person with whom such holder is acting in concert or as a “group,” will not be converted.

Under Pivotal’s current amended and restated certificate of incorporation, the Business Combination may be consummated only if Pivotal has at least $5,000,001 of net tangible assets either immediately prior to or upon consummation of the Business Combination, after giving effect to the conversion into cash of all public shares properly demanded to be so converted by holders of public shares. This means that a substantial number of public shares may be converted and Pivotal can still consummate the Business Combination. However, the Company is not required to consummate the Merger if there is not at least $175 million available to Pivotal (consisting of the cash available in Pivotal’s trust account together with net cash proceeds received from any investment in Pivotal approved pursuant to the terms of the Merger Agreement, including up to $50 million pursuant to the Forward Purchase Contract (if any)), after giving effect to payment of amounts that Pivotal will be required to pay to converting stockholders upon consummation of the Business Combination and certain other expenses.

 

Q.

How do I exercise my conversion rights?

 

A.

A holder of public shares may exercise conversion rights regardless of whether it votes on the business combination proposal or if it is a holder of public shares on the record date. If you are a holder of public shares and wish to exercise your redemption rights, you must demand that Pivotal redeem your public shares for cash, and deliver your public shares to Pivotal’s transfer agent physically or electronically using The Depository Trust Company’s DWAC System no later than two (2) business days prior to the annual meeting. Any holder of public shares seeking conversion will be entitled to a full pro rata portion of the amount then in the trust account (which, for illustrative purposes, was $                , or $                 per share, as of the record date), less any owed but unpaid taxes on the funds in the trust account. Such amount will be paid promptly upon consummation of the Business Combination. There are currently no owed but unpaid income taxes on the funds in the trust account.

Any request for conversion, once made by a holder of public shares, may be withdrawn at any time prior to the time the vote is taken with respect to the business combination proposal at the annual meeting. If you deliver your shares for conversion to Pivotal’s transfer agent and later decide prior to the annual meeting not to elect conversion, you may request that Pivotal’s transfer agent return the shares (physically or electronically). You may make such request by contacting Pivotal’s transfer agent at the address listed at the end of this section.

Any written demand of conversion rights must be received by Pivotal’s transfer agent at least two (2) business days prior to the vote taken on the business combination proposal at the annual meeting. No demand for conversion will be honored unless the holder’s stock has been delivered (either physically or electronically) to the transfer agent.

 

5


Table of Contents

If you are a holder of public shares (including through the ownership of Pivotal units) and you exercise your conversion rights, it will not result in the loss of any Pivotal warrants that you may hold (including those contained in any units you hold). Your warrants will become exercisable to purchase one share of Pivotal common stock for a purchase price of $11.50 beginning 30 days after consummation of the Business Combination.

 

Q.

Do I have appraisal rights if I object to the proposed Business Combination?

 

A.

No. Neither Pivotal stockholders nor its unit or warrant holders have appraisal rights in connection with the Business Combination under Delaware law. See the section entitled “Appraisal Rights.

 

Q.

What happens to the funds deposited in the trust account after consummation of the Business Combination?

 

A.

Of the net proceeds of Pivotal’s initial public offering and simultaneous private placement of warrants, $230 million was placed in the trust account immediately following the initial public offering. After consummation of the Business Combination, the funds in the trust account will be used to pay holders of the public shares who exercise conversion rights, to pay fees and expenses incurred in connection with the Business Combination (including aggregate fees of approximately $8.0 million to the underwriters of Pivotal’s initial public offering as deferred underwriting commissions) and for Pivotal’s working capital and general corporate purposes, including to pay down certain of the Company’s indebtedness.

 

Q.

What happens if a substantial number of public stockholders vote in favor of the business combination proposal and exercise their conversion rights?

 

A.

Pivotal’s public stockholders may vote in favor of the Business Combination and still exercise their conversion rights, although they are not required to vote in any way to exercise conversion rights. Accordingly, the Business Combination may be consummated even though the funds available from the trust account and the number of public stockholders are substantially reduced as a result of conversion by public stockholders. Notwithstanding the foregoing, the Company is not required to consummate the Merger if there is not at least $175 million available to Pivotal in the trust account (together with net cash proceeds received from any investment in Pivotal approved pursuant to the terms of the Merger Agreement, including up to $50 million pursuant to the Forward Purchase Contract (if any)), after giving effect to payment of amounts that Pivotal will be required to pay to converting stockholders upon consummation of the Merger and certain other expenses. Pivotal would need holders of 17,372,718, or 75.6%, public shares to not seek conversion rights in order to satisfy this requirement, unless the Company were to waive this requirement, which it is entitled to do in its sole discretion. However, the condition requiring that Pivotal have at least $5,000,001 of net tangible assets may not be waived. With fewer public shares and public stockholders, the trading markets for Pivotal common stock and warrants following the closing of the Merger may be less liquid than the market for Pivotal common stock and warrants were prior to the Merger and Pivotal may not be able to meet the listing standards of a national securities exchange. In addition, with fewer funds available from the trust account, the capital infusion from the trust account into the Company’s business will be reduced and the Company may not be able to achieve its business plans.

 

Q.

What happens if the Business Combination is not consummated?

 

A.

If Pivotal does not complete the Business Combination with the Company for whatever reason, Pivotal would search for another target business with which to complete a business combination. If Pivotal does not complete the Business Combination with the Company or another business combination by August 4, 2020 (or such later date as may be approved by Pivotal stockholders in an amendment to its amended and restated certificate of incorporation), Pivotal must redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to an amount then held in the trust account (net of taxes payable and less up to $100,000 of interest to pay dissolution expenses). The Founder and Pivotal’s officers and directors have waived their redemption rights with respect to their founder shares in the event a business combination is not effected in the required time period, and, accordingly, the founder shares held by them will be worthless.

 

6


Table of Contents
 

Additionally, in the event of such liquidation, there will be no distribution with respect to our outstanding warrants. Accordingly, the warrants will expire worthless.

 

Q.

How do the Founder and the officers and directors of Pivotal intend to vote on the proposals?

 

A.

The Founder, as well as Pivotal’s officers and directors, beneficially own and are entitled to vote an aggregate of 20% of the outstanding Pivotal common stock. These holders have agreed to vote their shares in favor of the business combination proposal. These holders have also indicated that they intend to vote their shares in favor of all other proposals being presented at the meeting. In addition to the shares of Pivotal common stock held by the Founder and Pivotal’s officers and directors, Pivotal would need 8,625,001, or 37.5%, of the 23,000,000 public shares sold in Pivotal’s initial public offering to be voted in favor of the business combination proposal and each of the charter proposals in order for them to be approved (assuming all outstanding shares are voted on each proposal).

 

Q.

When do you expect the Business Combination to be completed?

 

A.

It is currently anticipated that the Business Combination will be consummated promptly following the Pivotal annual meeting, which is set for                 , 2019; however, such meeting could be adjourned, as described above. For a description of the conditions for the completion of the Business Combination, see the section entitled “The Merger Agreement—Conditions to the Closing of the Business Combination.

 

Q.

What do I need to do now?

 

A.

Pivotal urges you to carefully read and consider the information contained in this proxy statement/prospectus, including the annexes, and to consider how the Business Combination will affect you as a stockholder and/or warrantholder of Pivotal. Stockholders should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy card.

 

Q.

How do I vote?

 

A.

If you are a holder of record of Pivotal common stock on the record date, you may vote in person at the annual meeting or by submitting a proxy for the annual meeting. You may submit your proxy by completing, signing, dating and returning the enclosed proxy card in the accompanying pre-addressed postage paid envelope. If you hold your shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the broker, bank or nominee with instructions on how to vote your shares or, if you wish to attend the meeting and vote in person, obtain a proxy from your broker, bank or nominee.

 

Q.

If my shares are held in “street name,” will my broker, bank or nominee automatically vote my shares for me?

 

A.

No. Your broker, bank or nominee cannot vote your shares unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or nominee.

 

Q.

May I change my vote after I have mailed my signed proxy card?

 

A.

Yes. Stockholders may send a later-dated, signed proxy card to Pivotal’s transfer agent at the address set forth below so that it is received prior to the vote at the annual meeting or attend the annual meeting in person and vote. Stockholders also may revoke their proxy by sending a notice of revocation to Pivotal’s transfer agent, which must be received prior to the vote at the annual meeting.

 

7


Table of Contents
Q.

What happens if I fail to take any action with respect to the annual meeting?

 

A.

If you fail to take any action with respect to the meeting and the Business Combination is approved by stockholders and consummated, you will continue to be a holder of Pivotal common stock or warrants, as applicable. As a corollary, failure to deliver your stock certificate(s) to Pivotal’s transfer agent (either physically or electronically) no later than two (2) business days prior to the annual meeting means you will not have any right in connection with the Merger to exchange your shares for a pro rata share of the funds held in Pivotal’s trust account. If you fail to take any action with respect to the annual meeting and the Merger is not approved, you will continue to be a stockholder and/or warrant holder of Pivotal.

 

Q.

What should I do with my share and/or warrant certificates?

 

A.

Warrant holders and those stockholders who do not elect to have their Pivotal shares converted into a pro rata share of the trust account need not submit their certificates. Pivotal stockholders who exercise their conversion rights must deliver their share certificates to Pivotal’s transfer agent (either physically or electronically) no later than two (2) business days prior to the annual meeting as described above.

 

Q.

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

 

A.

Stockholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your shares of Pivotal common stock.

 

Q.

Who can help answer my questions?

 

A.

If you have questions about the Merger or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card, you should contact:

Mr. Jonathan J. Ledecky

Pivotal Acquisition Corp.

c/o Graubard Miller

The Chrysler Building

405 Lexington Avenue, 11th Floor

New York, NY 10174

Tel: (212) 818-8800

or

the proxy solicitor at:

 

You may also obtain additional information about Pivotal from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find More Information.” If you are a holder of public shares and you intend to seek conversion of your shares, you will need to deliver your shares (either physically or electronically) to Pivotal’s transfer agent at the address below at least two (2) business days prior to the vote at the annual meeting. If you have questions regarding the certification of your position or delivery of your stock, please contact:

Mr. Mark Zimkind

Continental Stock Transfer & Trust Company

1 State Street, 30th Floor

New York, New York 10004

E-mail: mzimkind@continentalstock.com

 

8


Table of Contents

SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a vote at the annual meeting, including the business combination proposal, you should read this entire document carefully, including the Merger Agreement attached to this proxy statement/prospectus as Annex A. The Merger Agreement is the legal document that governs the Merger that will be undertaken in connection with the Business Combination. It is also described in detail in this proxy statement/prospectus in the section entitled “The Merger Agreement.”

The Parties

Pivotal

Pivotal Acquisition Corp. is a blank check company formed in order to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more businesses or entities. Pivotal was incorporated under the laws of the State of Delaware on August 2, 2018.

On February 4, 2019, Pivotal closed its initial public offering of 23,000,000 units, including 3,000,000 units subject to the exercise in full of the underwriters’ overallotment option, with each unit consisting of one share of Class A common stock and one warrant to purchase one share of Class A common stock at a price of $11.50 commencing 30 days after the consummation of an initial business combination. The units from Pivotal’s initial public offering (including the over-allotment option) were sold at an offering price of $10.00 per unit, generating total gross proceeds of $230 million. Simultaneously with the consummation of its initial public offering and the exercise of the underwriters’ over-allotment option, Pivotal consummated the private sale of 6,350,000 private warrants at $1.00 per warrant generating gross proceeds of $6.35 million. A total of $230 million was deposited into the trust account and the remaining proceeds, net of underwriting discounts and commissions and other costs and expenses, became available to be used as working capital to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses. Pivotal’s initial public offering was conducted pursuant to a registration statement on Form S-1 (Registration No. 333-229027) that became effective on January 30, 2019. As of                 , 2019, the record date, there was approximately $                 held in the trust account.

Pivotal’s units, Class A common stock and warrants are listed on the NYSE under the symbols PVT.U, PVT and PVT WS, respectively.

The mailing address of Pivotal’s principal executive office is c/o Graubard Miller, The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, NY 10174, and its telephone number is (212) 818-8800. After the consummation of the Business Combination, Pivotal’s principal executive office will be that of the Company.

Merger Sub

Pivotal Merger Sub Corp. is a wholly owned subsidiary of Pivotal formed solely for the purpose of effectuating the Merger described herein. Merger Sub was incorporated under the laws of Delaware as a corporation on May 17, 2019. Merger Sub owns no material assets and does not operate any business.

The mailing address of Merger Sub’s principal executive office is c/o Graubard Miller, The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, NY 10174, and its telephone number is (212) 818-8800. After the consummation of the Business Combination, Merger Sub will cease to exist.



 

9


Table of Contents

The Company

The Company is the parent company of KLDiscovery, one of the leading eDiscovery providers and the leading data recovery services provider to corporations, law firms, government agencies and individual consumers. In 2018, KLDiscovery served over 4,300 legal technology clients, including 95% of the AM Law 100 and 65% of Fortune 500 companies. KLDiscovery has broad geographical coverage in the eDiscovery and data recovery industries with 40 locations in 20 countries, 10 data centers and 20 data recovery labs around the globe. Its technology and service offerings protect its clients from growing information governance challenges, litigation, compliance breaches and data loss. The Company is a Delaware corporation that was incorporated on November 20, 2015.

The mailing address of the Company’s principal executive office is c/o KLDiscovery, 8201 Greensboro Dr., Suite 300, McLean, VA 22102 and its telephone number is (703) 288-3380.

Emerging Growth Company

Pivotal is an “emerging growth company,” as defined under the JOBS Act. As an emerging growth company, Pivotal is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and the requirement to obtain stockholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Pivotal has elected to take advantage of such extended transition period.

Pivotal will remain an emerging growth company until the earlier of (1) December 31, 2024 (the last day of the fiscal year following the fifth anniversary of the consummation of Pivotal’s initial public offering), (2) the last day of the fiscal year in which Pivotal has total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which Pivotal is deemed to be a “large accelerated filer,” as defined in the Exchange Act, and (4) the date on which Pivotal has issued more than $1.0 billion in nonconvertible debt during the prior three-year period.

The Business Combination Proposal

Pursuant to the Merger Agreement, a business combination between Pivotal and the Company will be effected whereby Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Pivotal.

After consideration of the factors identified and discussed in the section entitled “The Business Combination Proposal—Pivotal’s Board of Directors’ Reasons for Approval of the Business Combination,” Pivotal’s board of directors concluded that the Merger met all of the requirements disclosed in the prospectus for its initial public offering, including that the Company has a fair market value equal to at least 80% of the balance of the funds in the trust account (excluding the amount of deferred underwriting commissions held in trust) at the time of the execution of the Merger Agreement. See the section entitled “The Business Combination Proposal—Structure of the Transactions” for more information.



 

10


Table of Contents

Consideration to Company Stockholders

Pursuant to the Merger Agreement, the Company’s stockholders will receive an aggregate of 34,800,000 shares of Pivotal common stock and will have the right to receive an additional 2,200,000 shares of Pivotal common stock if the reported closing sale price of Pivotal common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger.

Pro Forma Ownership of Pivotal Upon Closing

At the closing of the Merger, the Company’s stockholders will hold approximately 55% of the issued and outstanding Pivotal common stock and current stockholders of Pivotal will hold approximately 45% of the issued and outstanding Pivotal common stock (assuming no holder of public shares exercises conversion rights).

Opinion of Financial Advisor to Pivotal’s Board of Directors

Pivotal engaged Northland Securities, Inc. (“Northland”) to render an opinion, as of May 17, 2019, as to (i) the fairness, from a financial point of view, to Pivotal of the consideration to be paid by it pursuant to the Merger Agreement and (ii) whether the business acquired has a fair market value equal to at least 80% of the balance of the funds in Pivotal’s trust account (excluding the amount of deferred underwriting commissions held in trust) at the time of the execution of the Merger Agreement. Northland is an investment banking firm that regularly is engaged in the evaluation of businesses and their securities in connection with acquisitions, corporate restructurings, private placements and for other purposes. Pivotal’s board of directors decided to engage Northland because it is a recognized investment banking firm that has substantial experience in similar matters.

The amount of the consideration to be paid pursuant to the Merger Agreement was determined pursuant to negotiations between the parties thereto, and not pursuant to recommendations of Northland.

Northland rendered its opinion to Pivotal’s board of directors on May 17, 2019 that, as of such date, (i) the consideration to be paid pursuant to the Merger Agreement was fair, from a financial point of view, to Pivotal and (ii) the business acquired has a fair market value equal to at least 80% of the balance of the funds in Pivotal’s trust account (excluding the amount of deferred underwriting commissions held in trust) at the time of the execution of the Merger Agreement. The opinion was provided for the use and benefit of Pivotal’s board of directors in connection with its consideration of the Business Combination and only addressed the two above matters, in each case as of the date of the opinion, and did not address any other aspect or implication of the Business Combination. The summary of Northland’s opinion included elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the written opinion, which is included as Annex D to this proxy statement/prospectus and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Northland in preparing its opinion. However, neither Northland’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus are intended to be, and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the proposed Business Combination.

Additional Matters Being Voted On

The Charter Proposals

In addition to voting on the business combination proposal, the stockholders of Pivotal will vote on separate proposals to approve amendments to Pivotal’s current amended and restated certificate of incorporation to: (i) change the name of the public entity to “KLDiscovery Inc.” as opposed to “Pivotal Acquisition Corp.”; (ii)



 

11


Table of Contents

increase Pivotal’s capitalization so that it will have 200,000,000 authorized shares of a single class of common stock and 1,000,000 authorized shares of preferred stock, as opposed to Pivotal having 75,000,000 authorized shares of Class A common stock, 10,000,000 authorized shares of Class B common stock and 1,000,000 authorized shares of preferred stock; and (iii) delete the various provisions applicable only to special purpose acquisition corporations such as the obligation to dissolve and liquidate if a business combination is not consummated within a certain period of time. See the section entitled “The Charter Proposals.” A copy of Pivotal’s proposed second amended and restated certificate of incorporation effectuating the foregoing amendments is attached to this proxy statement/prospectus as Annex B.

The Director Election Proposal

The stockholders of Pivotal will also vote to elect eight directors who, upon consummation of the Merger, will be the directors of Pivotal. If the director nominees are elected, Richard J. Williams and Kevin Griffin will be Class A directors serving until the annual meeting of stockholders to be held in 2020, Donna Morea, Jonathan J. Ledecky and Evan Morgan will be Class B directors serving until the annual meeting to be held in 2021 and Christopher J. Weiler, Daniel F. Akerson and William Darman will be Class C directors serving until the annual meeting to be held in 2022, in each case, until their successors are elected and qualified. See the section entitled “The Director Election Proposal.”

The Incentive Plan Proposal

The proposed 2019 Plan will reserve up to                  shares of Pivotal common stock for issuance in accordance with the 2019 Plan’s terms, subject to certain adjustments. The purpose of the 2019 Plan is to provide Pivotal’s and its subsidiaries’ officers, directors, employees and consultants who, by their position, ability and diligence are able to make important contributions to Pivotal’s growth and profitability, with an incentive to assist Pivotal in achieving its long-term corporate objectives, to attract and retain executive officers and other employees of outstanding competence, and to provide such persons with an opportunity to acquire an equity interest in Pivotal. The proposed 2019 Plan is attached to this proxy statement/prospectus as Annex C. You are encouraged to read the proposed 2019 Plan in its entirety. See the section entitled “The Incentive Plan Proposal.”

The Adjournment Proposal

If Pivotal is unable to consummate the Business Combination for any reason, Pivotal’s board of directors may submit a proposal to adjourn the annual meeting to a later date or dates, if necessary. See the section entitled “The Adjournment Proposal.”

Pivotal Founder and Officers and Directors

As of                 , 2019, the record date for the Pivotal annual meeting, the Founder and Pivotal’s officers and directors beneficially owned and were entitled to vote an aggregate of 5,750,000 shares of Class B common stock. The founder shares currently constitute 20% of Pivotal’s outstanding common stock. The Founder also purchased an aggregate of 6,350,000 private warrants simultaneously with the consummation of Pivotal’s initial public offering.

In connection with Pivotal’s initial public offering, the Founder and each of Pivotal’s officers and directors agreed to vote the founder shares, as well as any Pivotal common stock acquired in the aftermarket, in favor of the business combination proposal. The Founder and each of Pivotal’s officers and directors has also indicated that he, she or it intends to vote his, her or its shares in favor of all other proposals being presented at the meeting.



 

12


Table of Contents

In connection with Pivotal’s initial public offering, the holders of Pivotal’s founder shares entered into a lock-up agreement pursuant to which they agreed not to transfer the founder shares (subject to limited exceptions) until one year after the consummation of an initial business combination or earlier if, subsequent to the consummation of an initial business combination, (i) the last sales price of Pivotal common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial business combination or (ii) Pivotal (or any successor entity) consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of Pivotal’s (or such successor entity’s) stockholders having the right to exchange their shares of common stock for cash, securities or other property. Additionally, the holders of private warrants entered into a lock-up agreement pursuant to which they agreed not to transfer the private warrants or common stock underlying the private warrants (subject to limited exceptions) until 30 days after the consummation of an initial business combination.

In connection with the Merger, the Founder agreed to enter into the Founder Lock-Up Agreement, pursuant to which an aggregate of 1,100,000 founder shares will be subject to additional transfer restrictions until the last sales price of Pivotal common stock equals or exceeds $15.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period. If the last reported sale price of Pivotal common stock does not equal or exceed $15.00 within five years from the consummation of the Business Combination, such founder shares will be forfeited to Pivotal for no consideration.

Date, Time and Place of Annual Meeting of Pivotal’s Stockholders

The annual meeting of stockholders of Pivotal will be held at 10:00 a.m., Eastern time, on                 , 2019, at the offices of Graubard Miller, general counsel to Pivotal, at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174, to consider and vote upon the business combination proposal, the charter proposals, the incentive plan proposal, the director election proposal and/or if necessary, the adjournment proposal if Pivotal is not able to consummate the Merger for any reason.

Voting Power; Record Date

Stockholders will be entitled to vote or direct votes to be cast at the annual meeting if they owned Pivotal common stock at the close of business on                 , 2019, which is the record date for the annual meeting. Stockholders will have one vote for each share of Pivotal common stock owned at the close of business on the record date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted. Pivotal warrants do not have voting rights. On the record date, there were 28,750,000 shares of Pivotal common stock entitled to vote at the annual meeting, of which 23,000,000 were public shares and 5,750,000 were founder shares.

Quorum and Vote of Pivotal Stockholders

A quorum of Pivotal stockholders is necessary to hold a valid meeting. A quorum will be present at the Pivotal annual meeting if a majority of the outstanding shares entitled to vote at the meeting are represented in person or by proxy. Abstentions and broker non-votes will count as present for the purposes of establishing a quorum. The holders of founder shares hold approximately 20% of the outstanding Pivotal common stock. Such shares will be voted in favor of the proposals presented at the annual meeting. The proposals presented at the annual meeting will require the following votes:

 

   

The approval of the business combination proposal will require the affirmative vote of the holders of a majority of the outstanding Pivotal common stock present and entitled to vote at the meeting. There are



 

13


Table of Contents
 

currently 23,000,000 shares of Class A common stock outstanding and 5,750,000 shares of Class B common stock outstanding; assuming all outstanding shares are present and entitled to vote at the meeting, at least 14,375,001 shares of Pivotal common stock must be voted in favor of the proposal. The holders of founder shares own an aggregate of 5,750,000 shares of Class B common stock of Pivotal, representing approximately 20% of the outstanding Pivotal common stock, and have agreed to vote in favor of the proposal; as a result, only 8,625,000 public shares, or approximately 37.5% of the public shares, are required to be voted in favor of the proposal in order for it to be approved.

 

   

The approval of each of the charter proposals will require the affirmative vote of the holders of a majority of the outstanding shares of Pivotal common stock on the record date.

 

   

The election of directors requires a plurality vote of the Pivotal common stock present and entitled to vote at the annual meeting. “Plurality” means that the individuals who receive the largest number of votes cast “FOR” are elected as directors. Consequently, any shares not voted “FOR” a particular nominee (whether as a result of an abstention, a direction to withhold authority or a broker non-vote) will not be counted in the nominee’s favor.

 

   

The approval of the incentive plan proposal will require the affirmative vote of the holders of a majority of the outstanding shares of Pivotal common stock present and entitled to vote at the meeting.

 

   

The approval of the adjournment proposal will require the affirmative vote of the holders of a majority of the outstanding shares of Pivotal common stock present and entitled to vote at the meeting.

Abstentions will have the same effect as a vote “against” the business combination proposal, the charter proposals, the incentive plan proposal and the adjournment proposal, if presented. Abstentions will have no effect on the director election proposal. Broker non-votes will have no effect on the business combination proposal, director election proposal, incentive plan proposal and adjournment proposal, if presented, and will have the same effect as a vote “against” the charter proposals.

Consummation of the Merger is conditioned on approval of the business combination proposal, the charter proposals, the director election proposal and the incentive plan proposal. If any such proposal is not approved, the other proposals will not be presented to the stockholders for a vote.

Conversion Rights

Pursuant to Pivotal’s second amended and restated certificate of incorporation, a holder of public shares may demand that Pivotal convert such shares into cash if the Business Combination is consummated. Holders of public shares will be entitled to receive cash for these shares only if they deliver their stock to Pivotal’s transfer agent no later than two (2) business days prior to the annual meeting. Holders of public shares do not need to affirmatively vote on the business combination proposal or be a holder of such public shares as of the record date to exercise conversion rights. If the Business Combination is not completed, no shares will be converted to cash. If a holder of public shares properly demands conversion, Pivotal will convert each public share into a pro rata portion of the trust account, calculated as of two business days prior to the anticipated consummation of the Business Combination, including interest earned on the trust account and not previously released to Pivotal to pay its tax obligations. As of                 , 2019, the record date, this would amount to approximately $                 per share. If a holder of public shares exercises its conversion rights, then it will be exchanging its shares of Pivotal common stock for cash and will no longer own the shares. See the section entitled “Annual Meeting of Pivotal Stockholders—Conversion Rights” for a detailed description of the procedures to be followed if you wish to exercise conversion rights.

Notwithstanding the foregoing, a holder of public shares, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be



 

14


Table of Contents

restricted from seeking conversion rights with respect to 20% or more of the public shares. Accordingly, all public shares in excess of 20% held by a public stockholder will not be converted to cash.

The Business Combination will not be consummated if Pivotal has net tangible assets of less than $5,000,001 after taking into account the conversion into cash of all public shares properly demanded to be converted by holders of public shares. This means that a substantial number of public shares may be converted and Pivotal can still consummate the Business Combination. However, the Merger Agreement provides that the Company is not required to consummate the Merger if immediately prior to the consummation of the Merger, Pivotal does not have at least $175 million available to it in the trust account (together with net cash proceeds received from any investment in Pivotal approved pursuant to the terms of the Merger Agreement, including up to $50 million pursuant to the Forward Purchase Contract (if any)), after giving effect to payment of amounts that Pivotal will be required to pay to converting stockholders upon consummation of the Merger and certain other fees and expenses. If the Company does not waive its termination right and Pivotal has less than the required amount in trust, the Merger will not be consummated.

Holders of Pivotal warrants will not have conversion rights with respect to such securities.

Appraisal Rights

Neither stockholders of Pivotal nor holders of units or warrants of Pivotal have appraisal rights in connection with the Merger under Delaware law.

Proxy Solicitation

Proxies may be solicited by mail, telephone or in person. Pivotal has engaged                  to assist in the solicitation of proxies. If a stockholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the annual meeting. A stockholder may also change its vote by submitting a later-dated proxy as described in the section entitled “Annual Meeting of Pivotal Stockholders—Revoking Your Proxy.”

Interests of the Founder and Pivotal’s Directors and Officers in the Business Combination

When you consider the recommendation of Pivotal’s board of directors in favor of approval of the business combination proposal, you should keep in mind that the Founder (which is affiliated with certain of Pivotal’s officers and directors) and Pivotal’s directors and officers have interests in such proposal that may be different from, or in addition to, your interests as a stockholder or warrantholder. These interests include, among other things:

 

   

If the Business Combination with the Company or another business combination is not consummated by August 4, 2020 (or such later date as may be approved by Pivotal’s stockholders), Pivotal will cease all operations except for the purpose of winding up, redeeming 100% of the outstanding public shares for cash and, subject to the approval of its remaining stockholders and its board of directors, dissolving and liquidating. In such event, the 5,750,000 founder shares held by the Founder and Pivotal’s directors and officers, which were acquired for an aggregate purchase price of $25,000 prior to Pivotal’s initial public offering, would be worthless because the holders are not entitled to participate in any redemption or distribution with respect to such shares. Such shares had an aggregate market value of $                 based upon the closing price of $                 per share on NYSE on                 , 2019, the record date.

 

   

The Founder, which is affiliated with certain of Pivotal’s directors and officers, purchased an aggregate of 6,350,000 private warrants from Pivotal for an aggregate purchase price of approximately $6.35 million (or $1.00 per warrant). These purchases took place on a private placement basis simultaneously with the consummation of Pivotal’s initial public offering. All of the proceeds Pivotal



 

15


Table of Contents
 

received from these purchases were placed in the trust account. Such warrants had an aggregate market value of $                 based upon the closing price of $                 per unit on NYSE on                 , 2019, the record date. The private warrants will become worthless if Pivotal does not consummate a business combination by August 4, 2020 (or such later date as may be approved by Pivotal stockholders in an amendment to its amended and restated certificate of incorporation).

 

   

The Stockholders’ Agreement contemplated by the Merger Agreement provides that Jonathan J. Ledecky and Kevin Griffin will be directors of Pivotal after the closing of the Merger (assuming they are elected at the annual meeting as described in this proxy statement/prospectus). As such, in the future, each will receive any cash fees, stock options or stock awards that the Pivotal board of directors determines to pay to its non-executive directors.

 

   

If Pivotal is unable to complete a business combination within the required time period, the Founder will be personally liable under certain circumstances described herein to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Pivotal for services rendered or contracted for or products sold to Pivotal. If Pivotal consummates a business combination, on the other hand, Pivotal will be liable for all such claims.

 

   

The Founder and Pivotal’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on Pivotal’s behalf, such as identifying and investigating possible business targets and business combinations. However, if Pivotal fails to consummate a business combination within the required period, they will not have any claim against the trust account for reimbursement. Accordingly, Pivotal may not be able to reimburse these expenses if the Business Combination with the Company or another business combination is not completed by August 4, 2020 (or such later date as may be approved by Pivotal stockholders in an amendment to its amended and restated certificate of incorporation). As of                 , 2019, the record date, the Founder and Pivotal’s officers and directors and their affiliates had incurred approximately $                 of unpaid reimbursable expenses.

 

   

The Merger Agreement provides for the continued indemnification of Pivotal’s current directors and officers and the continuation of directors and officers liability insurance covering Pivotal’s current directors and officers.

 

   

Pivotal’s officers and directors (or their affiliates) may make loans from time to time to Pivotal to fund certain capital requirements. As of the date of this proxy statement/prospectus, no such loans have been made, but loans may be made after the date of this proxy statement/prospectus. If the Business Combination is not consummated, the loans will not be repaid and will be forgiven except to the extent there are funds available to Pivotal outside of the trust account.

At any time prior to the annual meeting, during a period when they are not then aware of any material nonpublic information regarding Pivotal or its securities, the Founder, Pivotal’s officers and directors, the Company or the Company’s stockholders and/or their respective affiliates may purchase shares from institutional and other investors who vote, or indicate an intention to vote, against the business combination proposal, or execute agreements to purchase shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire shares of Pivotal common stock or vote their shares in favor of the business combination proposal. The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirements that the holders of a majority of the shares entitled to vote at the annual meeting to approve the business combination proposal vote in its favor and that Pivotal has in excess of the required dollar amount to consummate the Business Combination under the Merger Agreement, where it appears that such requirements would otherwise not be met. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include,



 

16


Table of Contents

without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting of put options and the transfer to such investors or holders of shares or warrants owned by the Pivotal initial stockholders for nominal value.

Entering into any such arrangements may have a depressive effect on Pivotal common stock. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he, she or it owns, either prior to or immediately after the annual meeting.

If such transactions are effected, the consequence could be to cause the Business Combination to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons described above would allow them to exert more influence over the approval of the business combination proposal and the other proposals to be presented at the annual meeting and would likely increase the chances that such proposals would be approved. Moreover, any such purchases may make it more likely that Pivotal will have in excess of the required amount of cash available to consummate the Business Combination as described above.

As of the date of this proxy statement/prospectus, no agreements dealing with the above have been entered into. Pivotal will file a Current Report on Form 8-K to disclose any arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the business combination proposal or the satisfaction of any closing conditions. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

Recommendation to Stockholders

Pivotal’s board of directors believes that the business combination proposal and the other proposals to be presented at the annual meeting are fair to and in the best interest of Pivotal’s stockholders and unanimously recommends that its stockholders vote “FOR” the business combination proposal, “FOR” each of the charter proposals, “FOR” the director election proposal, “FOR” the incentive plan proposal and “FOR” the adjournment proposal, if presented.

Conditions to the Closing of the Business Combination

General Conditions

Consummation of the Merger is conditioned on the approval of the proposals by the required vote of the Pivotal stockholders, the approval of the Business Combination by the Company’s stockholders and Pivotal having at least $5,000,001 of net tangible assets after the closing of the Merger.

In addition, the consummation of the Merger is conditioned upon, among other things, (i) no governmental entity having enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger, (ii) the Registration Statement on Form S-4, of which this proxy statement/prospectus forms a part, having become effective in accordance with the provisions of the Securities Act, (iii) no stop order having been issued by the SEC which remains in effect with respect to the Form S-4 and no proceeding seeking such a stop order having been threatened or initiated by the SEC which remains pending and (iv) all specified waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 2012, as amended (the “HSR Act”), having expired.



 

17


Table of Contents

Company Conditions to Closing

The obligations of the Company to consummate the Merger are also conditioned upon, among other things:

 

   

the accuracy of the representations and warranties of Pivotal and Merger Sub (subject to certain bring-down standards);

 

   

performance of the covenants of Pivotal and Merger Sub required by the Merger Agreement to be performed on or prior to the closing;

 

   

Pivotal executing the Registration Rights Agreement and terminating the existing registration rights agreement among Pivotal, the Founder and Pivotal’s officers and directors;

 

   

Pivotal executing the Stockholders’ Agreement;

 

   

Pivotal and the Founder executing the Founder Lock-Up Agreement;

 

   

Pivotal’s compliance with the Securities Act and the Exchange Act;

 

   

Pivotal having at least $175,000,000 available to it in the trust account (together with net cash proceeds received from any investment in Pivotal approved pursuant to the terms of the Merger Agreement, including up to $50 million pursuant to the Forward Purchase Contract (if any)), after payment to holders of public shares that seek conversion in connection with the Business Combination and net of certain other expenses; and

 

   

Pivotal common stock to be issued pursuant to the Merger Agreement having been approved for listing on the NYSE, subject only to official notice of issuance thereof and public holder requirements.

Pivotal’s and Merger Sub’s Conditions to Closing

The obligations of Pivotal and Merger Sub to consummate the Merger are also conditioned upon, among other things:

 

   

the accuracy of the representations and warranties of the Company (subject to certain bring-down standards);

 

   

performance of the covenants of the Company required by the Merger Agreement to be performed on or prior to the closing; and

 

   

the termination of the Company’s existing stockholders’ agreement.

Termination

The Merger Agreement may be terminated at any time, but not later than the closing, as follows:

 

   

by mutual written consent of Pivotal and the Company;

 

   

by either Pivotal or the Company if the Business Combination is not consummated on or before October 30, 2019; provided that the right to terminate the Merger Agreement will not be available to any party whose action or failure to act has been a principal cause of or primarily resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of the Merger Agreement;

 

   

by either Pivotal or the Company if a governmental entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which order, decree, judgment, ruling or other action is final and non-appealable;



 

18


Table of Contents
   

by either Pivotal or the Company if, immediately following consummation of the Merger, Pivotal will have less than $5,000,001 of net tangible assets following the exercise by the holders of shares of Pivotal common stock issued in Pivotal’s initial public offering of their conversion rights;

 

   

by either Pivotal or the Company if the other party has breached any of its covenants or representations and warranties in any material respect and has not cured its breach within 30 days of the notice of an intent to terminate; provided that the terminating party is itself not in material breach; or

 

   

by either Pivotal or the Company if, at the annual meeting, the business combination proposal shall fail to be approved by the required vote (subject to any adjournment or recess of the meeting).

If permitted under applicable law, Pivotal or the Company may waive any inaccuracies in the representations and warranties made to such party contained in the Merger Agreement and waive compliance with any agreements or conditions for the benefit of itself or such party contained in the Merger Agreement. However, the condition requiring that Pivotal have at least $5,000,001 of net tangible assets may not be waived.

Company Support Agreement

In connection with the execution of the Merger Agreement, stockholders of the Company who hold a majority of the outstanding stock of the Company entered into agreements pursuant to which they have agreed to vote in favor of the Business Combination at a meeting called to approve the Business Combination by the Company stockholders (or to act by written consent approving the Business Combination).

Tax Consequences of the Business Combination

For a description of the material U.S. federal income tax consequences of the Merger and the exercise of conversion rights, please see the information set forth in “The Business Combination Proposal—Material U.S. Federal Income Tax Consequences of the Merger.”

Anticipated Accounting Treatment

The Merger will be accounted for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, Pivotal will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on (i) the Company being expected to have the majority interest of the combined company, (ii) the Company being represented on the board of directors of the combined company by up to three members, in addition to the chief executive officer of the Company, (iii) the Company’s senior management comprising the senior management of the combined company and (iv) the Company’s operations comprising the ongoing operations of the combined company. Accordingly, for accounting purposes, the Merger will be treated as the equivalent of the Company issuing stock for the net assets of Pivotal, accompanied by a recapitalization. The net assets of Pivotal will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger will be those of the Company.

Regulatory Matters

The Merger is not subject to any additional federal or state regulatory requirement or approval, except for the filings with the State of Delaware necessary to effectuate the Merger and the filing of required notifications and the expiration or termination of the required waiting periods under the HSR Act. On June 14, 2019, the parties received notice from the Federal Trade Commission (the “FTC”) that early termination of the waiting period under the HSR Act was granted in connection with the Merger.

Risk Factors

In evaluating the proposals to be presented at the annual meeting, a stockholder should carefully read this proxy statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors.”



 

19


Table of Contents

SELECTED HISTORICAL FINANCIAL INFORMATION

Pivotal is providing the following selected historical financial information to assist you in your analysis of the financial aspects of the Business Combination.

Pivotal’s balance sheet data as of December 31, 2018 and statement of operations data for the period from August 2, 2018 (inception) through December 31, 2018 are derived from Pivotal’s audited financial statements, audited by Marcum LLP, independent registered public accountants, included elsewhere in this proxy statement/prospectus. The selected historical interim financial information of Pivotal as of March 31, 2019 and for the three months ended March 31, 2019 was derived from the unaudited interim financial statements of Pivotal included elsewhere in this proxy statement/prospectus.

The Company’s consolidated balance sheet data as of December 31, 2018 and December 31, 2017 and consolidated statement of operations data for each of the three years in the period ended December 31, 2018 are derived from the Company’s audited financial statements, audited by Ernst & Young LLP, independent registered public accountants, included elsewhere in this proxy statement/prospectus. The selected historical interim financial information of the Company as of March 31, 2019 and for the three months ended March 31, 2019 and 2018 was derived from the unaudited interim financial statements of the Company included elsewhere in this proxy statement/prospectus.

This information is only a summary and should be read in conjunction with each of the Company’s and Pivotal’s consolidated financial statements and related notes and “Other Information Related to Pivotal—Pivotal’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this proxy statement/prospectus. The historical results included below and elsewhere in this proxy statement/prospectus are not indicative of the future performance of the Company or Pivotal. All amounts are in U.S. dollars.

Pivotal’s Selected Financial Information

(dollars in thousands except per share amounts)

 

     Three Months
Ended March 31,
2019
    Period from
August 2, 2018
(inception) to
December 31, 2018
 
     (Unaudited)        

Revenue

   $ —       $ —    

Loss from Operations

     (227     (1

Interest

     792       —    

Unrealized gain on marketable securities in Trust Account

     14       —    

Net income (loss) attributable to common SH

     457       —    

Basic and diluted net income (loss) per share

     (0.02     (0.00

Weighted average shares outstanding excluding shares subject to possible redemption

     6,175,950       5,000,000  

 

Balance Sheet Data

   As of March 31,
2019
     As of December 31,
2018
 
     (Unaudited)         

Working Capital

   $ 961      $ 24  

Trust Account, restricted

     230,806        —    

Total Assets

     231,967        152  

Total Liabilities

     8,253        128  

Value of common stock redeemable for cash

     218,714        —    

Stockholders’ Equity

     5,000        24  


 

20


Table of Contents

The Company’s Selected Financial Information

 

     Three Months Ended
March 31,
    Year Ended December 31,  
     2019     2018     2018     2017     2016  
     (Unaudited)                    

Statement of Operations Data (in thousands):

          

Revenues

   $ 75,026     $ 70,211     $ 296,282     $ 281,184     $ 104,879  

Cost of revenues

     37,455       40,350       159,617       154,082       50,949  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     37,571       29,861       136,665       127,102       53,930  

Operating expenses

     38,804       39,460       161,525       152,138       45,182  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     (1,233     (9,599     (24,860     (25,036     8,748  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense

     12,066       11,085       46,591       43,109       9,592  

Other expense

     97       112       29       625       210  

Loss on extinguishment of debt

     —         —         —         —         3,209  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (13,396     (20,796     (71,480     (68,770     (4,263
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax (benefit) provision

     95       (2,759     (3,741     3,448       (1,881
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (13,491     (18,037     (67,739     (72,218     (2,382
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss), net of tax

     810       2,101       (870     7,875       (9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (12,681   $ (15,936   $ (68,609   $ (64,343   $ (2,391
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Statement of Cash Flow Data (in thousands):

          

Net cash provided by (used in):

          

Operating activities

   $ (18,340   $ (23,324   $ (11,942   $ (2,685   $ 15,807  

Investing activities

   $ (2,182   $ (1,816   $ (12,387   $ (20,600   $ (423,730

Financing activities

   $ 1,593     $ 12,714     $ 29,030     $ 8,892     $ 431,269  
     As of March 31,           As of December 31,        
     2019           2018     2017        
     (Unaudited)                          

Balance Sheet Data (in thousands):

          

Cash and equivalents

   $ 4,532       $ 23,439     $ 18,896    

Total assets

   $ 694,607       $ 710,380     $ 749,677    

Total liabilities

   $ 477,422       $ 481,424     $ 494,691    

Total stockholders’ equity

   $ 217,185       $ 228,956     $ 254,986    
     Three Months Ended March 31,     Year Ended December 31,  
             2019                   2018                   2018                     2017             2016  
     (Unaudited)     (Unaudited)  

Other Financial Data (in millions):

          

EBITDA

   $ 11.2     $ 6.3     $ 29.9     $ 29.1     $ 21.4  

Adjusted EBITDA

   $ 15.1     $ 12.4     $ 54.6     $ 48.3     $ 30.0  

Cash interest expense

   $ 11.0     $ 9.8     $ 41.6     $ 35.2     $ 5.6  


 

21


Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following selected unaudited pro forma combined balance sheet as of March 31, 2019 combines the unaudited historical consolidated balance sheet of the Company as of March 31, 2019 with the unaudited historical balance sheet of Pivotal as of March 31, 2019 after giving effect to the Business Combination as if it had been consummated as of that date.

The following selected unaudited pro forma combined statement of operations for the three months ended March 31, 2019 combines the unaudited historical consolidated statement of operations of the Company for the three months ended March 31, 2019 with the unaudited historical statement of operations of Pivotal for the three months ended March 31, 2019 after giving effect to the Business Combination as if it had occurred as of January 1, 2019.

The following selected unaudited pro forma combined statement of operations for the year ended December 31, 2018 combines the audited historical consolidated statement of operations of the Company for the year ended December 31, 2018 with the audited historical statement of operations of Pivotal for the year ended December 31, 2018 after giving effect to the Business Combination as if it had occurred as of January 1, 2018.

This information should be read together with the Company’s and Pivotal’s respective audited financial statements and related notes, “The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Other Information Related to PivotalPivotal’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this proxy statement/prospectus.

The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable and, as it relates to the unaudited pro forma combined statement of operations, are expected to have a continuing impact on the results of the combined company following consummation of the Merger. The adjustments presented in the unaudited pro forma combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Merger.

The selected unaudited pro forma combined financial information is for illustrative purposes only, and does not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. The selected unaudited pro forma combined financial information also may not be useful in predicting the future financial condition and results of operations of the combined company following consummation of the Merger. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The Company and Pivotal have not had any historical relationship prior to the Merger except that Evan Morgan was both a director of Pivotal and a special partner at Revolution (“RG”), one of the Company’s shareholders, for a period of time. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

There is no historical activity with respect to Merger Sub, and accordingly, no adjustments were required with respect to this entity in the selected pro forma combined financial statements.



 

22


Table of Contents

The selected unaudited pro forma combined financial information has been prepared assuming two alternative levels of conversions of public shares:

 

   

Scenario 1—Assuming no conversions: This presentation assumes that no Pivotal shareholders exercise conversion rights with respect to their public shares upon consummation of the Merger; and

 

   

Scenario 2—Assuming conversions of 5,627,282 public shares of Pivotal for cash: This presentation assumes that Pivotal shareholders exercise their conversion rights with respect to a maximum of 5,627,282 public shares upon consummation of the Merger at a redemption price of approximately $10.07 per share. The maximum conversion amount is derived from a minimum of $175 million of cash required from Pivotal pursuant to the Merger Agreement, after giving effect to the payments to converting stockholders. Scenario 2 includes all adjustments contained in Scenario 1 and presents additional adjustments to reflect the effect of the maximum conversions.

Selected Unaudited Pro Forma Financial Information

(dollars in thousands except per share amounts)

 

    The
Company
    Pivotal     Pro Forma
Combined
Assuming
No
Conversions
into Cash
    Pro Forma
Combined
Assuming
Maximum
Conversions
into Cash
 

Statement of Operations Data—Three Months Ended March 31, 2019

       

Revenues

  $ 75,026     $ —       $ 75,026     $ 75,026  

Cost of revenues

  $ 37,455     $ —       $ 37,455     $ 37,455  

Operating expenses

  $ 38,804     $ 227     $ 38,781     $ 38,781  

Loss from operations

  $ (1,233   $ (227   $ (1,210   $ (1,210

Net (loss) income

  $ (13,491   $ 457     $ (9,517   $ (9,517

Net loss per common share—basic and diluted

  $ (3.66   $ (0.02)     $ (0.15   $ (0.16

Balance Sheet Data—As of March 31, 2019

       

Total current assets

  $ 107,673     $ 1,161     $ 182,140     $ 125,455  

Total assets

  $ 694,607     $ 231,967     $ 769,074     $ 712,389  

Total current liabilities

  $ 56,814     $ 200     $ 44,764     $ 44,764  

Total liabilities

  $ 477,422     $ 8,253     $ 340,375     $ 340,375  

Total stockholders’ equity

  $ 217,185     $ 5,000     $ 428,699     $ 372,014  
    The
Company
    Pivotal     Pro Forma
Combined
Assuming
No
Conversions
into Cash
    Pro Forma
Combined
Assuming
Maximum
Conversions
into Cash
 

Statement of Operations Data—Year Ended December 31, 2018

       

Revenues

  $ 296,282     $ —       $ 296,282     $ 296,282  

Cost of revenues

  $ 159,617     $ —       $ 159,617     $ 159,617  

Operating expenses

  $ 161,525     $ 1     $ 160,526     $ 160,526  

Loss from operations

  $ (24,860   $ (1   $ (23,861   $ (23,861

Net loss

  $ (67,739   $ (1   $ (51,467   $ (51,467

Net income (loss) per common share—basic and diluted

  $ (19.48   $ 0.00     $ (0.81)     $ (0.89


 

23


Table of Contents

COMPARATIVE PER SHARE DATA

(in thousands, except share and per share data)

 

    The
Company
    Pivotal     Pro Forma
Combined
Assuming

No
Conversions
into Cash
    Pro Forma
Combined
Assuming
Maximum
Conversions
into Cash
 

Three Months Ended March 31, 2019

       

Net income (loss)

  $ (13,491   $ 457     $ (9,517   $ (9,517

Total stockholders’ equity

  $ 217,185     $ 5,000     $ 428,699     $ 372,014  

Weighted average shares outstanding—basic and diluted

    3,683,461       6,175,950       63,550,000       57,922,718  

Basic and diluted net loss per share

  $ (3.66   $ (0.02   $ (0.15   $ (0.16

Stockholders’ equity per share—basic and diluted

  $ 58.96     $ 0.81     $ 6.75     $ 6.42  

 

    The
Company
    Pivotal     Pro Forma
Combined
Assuming

No
Redemptions
into Cash
    Pro Forma
Combined
Assuming
Maximum
Redemptions
into Cash
 

Year Ended December 31, 2018

       

Net loss

  $ (67,739   $ (1   $ (51,467   $ (51,467

Total stockholders’ equity

  $ 228,956     $ 24     $ 440,139     $ 383,454  

Weighted average shares outstanding—basic and diluted

    3,477,752       5,000,000       63,550,000       57,922,718  

Basic and diluted net loss per share

  $ (19.48   $ (0.00   $ (0.81   $ (0.89)  

Stockholders’ equity per share—basic and diluted

  $ 65.83     $ 0.00     $ 6.93     $ 6.62  


 

24


Table of Contents

RISK FACTORS

Stockholders should carefully consider the following risk factors, together with all of the other information included elsewhere in this proxy statement/prospectus, before they decide whether to vote or instruct their vote to be cast to approve the proposals described in this proxy statement/prospectus.

The value of your investment in Pivotal following consummation of the Business Combination will be subject to the significant risks affecting the Company and inherent to the industry in which it operates. You should carefully consider the risks and uncertainties described below and other information included elsewhere in this proxy statement/prospectus. If any of the events described below occur, the post-acquisition business and financial results could be adversely affected in a material way. This could cause the trading price of its common stock to decline, perhaps significantly, and you therefore may lose all or part of your investment. As used in the risks described in this subsection, references to “we,” “us” and “our” are intended to refer to the Company unless the context clearly indicates otherwise.

We operate in highly competitive markets and may be adversely affected by this competition.

The markets for our products and services are highly competitive and are subject to rapid technological changes and evolving client demands and needs. We compete on the basis of various factors, including product functionality, product integration, platform coverage, quality of service interoperability with third-party technologies, ability to scale and price products and services, worldwide sales infrastructure, global technical support, name recognition and reputation.

Our competitors vary in size, scope and breadth of the products and services they offer. Our competitors include software vendors that offer software products that directly compete with our product offerings. In our Data & Storage Technology (“DST”) business, we face growing competition from network equipment, computer hardware manufacturers, large operating system providers and other technology companies. These firms are increasingly developing and incorporating into their products storage, server management software and backup that compete at some levels with our product offerings. Our competitive position could be materially adversely affected to the extent that our clients perceive the functionality incorporated into these products as replacing the need for our products. Many of our principal competitors are established companies that have substantial financial resources, recognized brands, technological expertise and market experience, and these competitors sometimes have more established positions in certain product lines and geographies than we do. We also compete with smaller and sometimes newer companies, some of which are specialized with a narrower focus than our company, and face competition from other eDiscovery and data management services providers. These companies are investing significantly in research and development as well as sales and marketing. In addition, we are facing competition from the backup services solutions offered by cloud IT providers.

Our competitors may be able to adopt new or emerging technologies or address client requirements more quickly than we can. New and emerging technologies can also have the impact of allowing startup companies to enter the market more quickly than they would have been able to in the past. We may also face increased competition from companies that could pose a threat to our business by providing more in-depth offerings, adapting their products and services to meet the demands of their clients or combining with one of their competitors to enhance their products and services. A number of our principal competitors may continue to make acquisitions as a means to improve the competitiveness of their offerings. Increased competition could harm our business by causing, among other things, price reductions of our products, reduced profitability and loss of market share. In order to better serve the needs of our existing clients and to attract new clients, we must continue to:

 

   

enhance and improve our existing products and services (such as by adding new content and functionalities);

 

   

develop new products and services;

 

25


Table of Contents
   

invest in technology; and

 

   

strategically acquire additional businesses and partner with other businesses in key sectors that will allow us to offer a broader array of products and services.

If we fail to compete effectively, our financial condition and results of operations would be adversely affected.

We may need to change our pricing models in order to compete successfully.

General economic and business conditions together with the intense competition we face in the sales of our products and services place pressure on us to reduce prices for our software and services, and we frequently encounter aggressive price competition. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers more valuable than ours, we may need to lower our prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Additionally, the increasing prevalence of cloud and Software-as-a-Service (“SaaS”) delivery models offered by us and our competitors may unfavorably impact pricing of both our on-site software business and our cloud business, as well as overall demand for our on-site software product and service offerings, which could reduce our revenues and profitability. Our competitors sometimes offer lower pricing on their support offerings, which places pressure on us to further discount our product or support pricing.

Industry pricing models are also evolving, and we anticipate that clients may increasingly request alternative pricing models. These pricing models may exacerbate existing pricing pressures, require investments in different product solutions or place us at a competitive disadvantage relative to our competitors. Moreover, the use of evolving technology by our clients to develop more complex pricing models may lead to additional pricing pressures. If we are unable to adapt our operations to these evolving pricing models, our results of operations may be adversely affected or we may not be able to offer pricing that is attractive relative to our competitors.

Any broad-based change to our prices and pricing policies could cause our revenues to decline or be delayed as our sales force implements, and our clients adjust to, such new pricing policies. Some of our competitors may bundle products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, significantly constrain the prices that we can charge for certain of our products. If we do not adapt our pricing models to reflect changes in client use of our products or changes in client demand, our revenues could decrease. An increase in open source software distribution may also cause us to change our pricing models.

If we do not continue to attract, motivate and retain members of our senior management team and highly qualified employees, we may not be able to develop new and enhanced products and services or effectively manage or expand our business.

Our future success depends upon the continued service and performance of our senior management team and certain of our key technical and sales personnel. In particular, we are highly dependent on the services of Christopher J. Weiler, who currently serves as our chief executive officer. If the Merger is consummated, Mr. Weiler will serve as the chief executive officer of Pivotal. If we lose any of our senior management term or key technical and sale personnel, we may not be able to effectively manage our current and future operations, and our business, financial condition and results of operations would be adversely affected.

In addition, our business depends on our ability to continue to attract, motivate and retain highly qualified technical, managerial, and sales and marketing employees in order to implement our corporate development strategy and operations. There is a limited pool of employees who have the requisite skills, training and education. We face intense competition for qualified individuals from numerous technology, software, startup and emerging growth companies, which are active in many of the technical areas and geographic regions in which we conduct product development. Attracting and retaining highly skilled employees will be costly as we

 

26


Table of Contents

offer competitive compensation packages to prospective and current employees. If we are unable to continue to identify or be successful in attracting, motivating and retaining appropriately qualified personnel, our ability to implement our business plan and develop and maintain our software could be adversely affected. As a result, our business, financial condition and results of operations would be adversely affected.

Our ability to expand our operations and maintain or increase our revenue is dependent on the quality of our client service and support services, and our failure to perform at a high level and provide high quality service could have a material adverse effect on our results of operations.

Our clients depend upon our client service and support staff to meet their eDiscovery needs. High-quality support services are critical for the success and sale of our services and solutions. If we fail to provide high-quality support on an ongoing basis, our clients may react negatively and our reputation in the marketplace could be materially and adversely affected, which would negatively impact our ability to secure contracts from existing and potential clients. Our failure to maintain high-quality support services could have a material and adverse effect on our business, results of operations and financial condition. Further, we may be unable to respond quickly enough to accommodate short-term increases in client demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors or successfully integrate support for our clients. Further client demand for these services could increase our costs and adversely affect our operating results.

We process, store and use personal and other special datasets on behalf of some of our clients, which subjects us to governmental regulation and other legal obligations related to privacy and information security, and our actual or perceived failure to comply with such obligations could harm our business and reputation.

We collect, store, transmit, use, disclose and process data that was collected from or about natural persons or their devices (“personally identifiable information” or “PII”) and other sensitive client data. In addition to terms in our contractual arrangements with our clients, there are numerous federal, state, local and foreign laws, regulations and directives regarding privacy and the collection, storage, transmission, use, processing, disclosure and protection of such PII and other personal or client data, the scope of which is continually evolving and subject to differing interpretations. We and our clients must comply with such laws, regulations and directives and we and our clients may be subject to significant consequences, including penalties and fines, for our failure to comply.

For example, on May 25, 2018, the General Data Protection Regulation 679/2016 (“GDPR”) replaced the Data Protection Directive 95/46/EC with respect to the processing of PII in the European Union. The GDPR imposes several stringent requirements for controllers and processors of PII (including non-E.U. processors who process personal data on behalf of E.U. controllers), including, for example, more robust internal accountability controls, a strengthened individual data rights regime, shortened timelines for mandatory data breach notifications, limitations on retention and secondary use of information and additional obligations when we contract with third parties in connection with the processing of the PII. Failure to comply with the requirements of GDPR and the applicable national data protection laws of the E.U. member states may result in fines of up to €20 million or up to 4% of the total worldwide annual revenue for the preceding financial year, whichever is higher, and other administrative penalties. Complying with the GDPR has required us to implement additional internal processes to ensure that we collect and process PII in a compliant way and re-draft of all our standard contracts to meet specific articles within the GDPR. As we continue to operate under the GDPR, compliance may become onerous and adversely affect our business, financial condition, results of operations and prospects.

In addition, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of information from Europe to the United States. For example, the E.U.-U.S. Privacy Shield Framework, of which we are accredited, is under review and there is currently litigation challenging other E.U. mechanisms for adequate data transfers (i.e., the standard contractual clauses). It is uncertain whether the Privacy

 

27


Table of Contents

Shield Framework and/or the standard contractual clauses will be invalidated by European courts or legislatures (as was the case for the earlier Safe Harbor Framework). We rely on a mixture of mechanisms to transfer our internal PII from the European Union to the United States, and we could be impacted by changes in law as a result of a future review of these transfer mechanisms by European regulators under the GDPR, as well as current challenges to these mechanisms in European courts. If one or more of the legal bases for transferring PII from Europe to the United States is invalidated, or if we are unable to transfer PII between and among countries and regions in which we operate, it could affect the manner in which we provide our services or could adversely affect our financial results.

Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others (including clients), a loss of client confidence, damage to our brand and reputation or a loss of clients, any of which could have an adverse effect on our business. In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with clients. For example, some countries have adopted laws mandating that PII regarding clients in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit PII processing to within individual countries could increase our operating costs significantly.

Additionally, in connection with some of our product initiatives, we expect that our clients may increasingly use our cloud services to store and process PII and other regulated data. We post, on our websites, and, where appropriate, within our products, our privacy policies and practices concerning the treatment of PII that we hold as a “controller.” While we include minimum privacy or information security commitments in our contracts, E.U. requirements may make it so that we will be unable to do business without such commitments. Any failure by us to timely amend client contracts to conform to changing data protection laws, or to comply with our posted privacy policies, other federal, state or international privacy-related or data protection laws and regulations, or the privacy or information security commitments contained in our contracts could result in proceedings against us by governmental entities or others, including individual rights of action, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the increased attention focused upon any liability we may have as a result of lawsuits or regulatory actions could also harm our reputation or otherwise impact the growth of our business. Furthermore, although we market and sell products to our clients to help them comply with federal, state, local and foreign laws, regulations and directives, including the GDPR, our clients are responsible for ensuring they are in compliance with such laws, regulations and directives. Any failure by our clients to comply could result in significant consequences to them, including penalties and fines, and despite the existence of contractual exclusions and marketing disclaimers which make their responsibility for their own compliance clear, our clients may file claims or seek indemnification from us, which may result in reputational harm and require us to expend time, effort and costs to defend such claims or respond to indemnification requests.

In addition to government regulation, privacy advocacy and industry groups or other third parties may propose new and different self-regulatory standards that either legally or contractually apply to our clients or us. Any significant change to applicable laws, regulations, directives or industry practices regarding the collection, storage, transmission, processing, use or disclosure of our clients’ data, or regarding the manner in which the express or implied consent of clients for the collection, storage, transmission, processing, use and disclosure of such data is obtained, could require us to modify our solutions and features, possibly in a material manner, and may limit our ability to develop new services and features that make use of the data that our clients voluntarily share with us. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to clients or other third parties, our privacy-related legal obligations or any compromise of security that results in the unauthorized access to, use, release or transfer of PII or other client data, may result in

 

28


Table of Contents

governmental enforcement actions, litigation, negative media attention or public statements against us by consumer advocacy groups or others and could cause our clients to lose trust in us, which would have an adverse effect on our reputation and business. Our clients may also accidentally disclose their passwords or store them on a mobile device that may be lost or stolen, resulting in unauthorized access to their data and creating the perception that our systems are not secure against third-party access. Additionally, if employees or third parties that we work with, such as contractors, vendors or developers, violate applicable laws or our policies, such violations may also put our clients’ information at risk and could in turn have an adverse effect on our business.

We have expanded our involvement in the delivery and provision of cloud computing through business alliances with various providers of cloud computing services and software and expect to continue to do so in the future. The application of U.S. and international data privacy laws to cloud computing vendors is uncertain, and our existing contractual provisions may prove to be inadequate to protect us from claims for data loss or regulatory noncompliance made against us resulting from the failures of cloud computing providers which we may partner with. While we do limit this in our contractual agreements with clients, the failure to comply with data protection laws and regulations by our clients and business partners who provide cloud computing services could have a material adverse effect on our business. Some cloud computing providers have been reluctant to provide us with information which we need in order to comply with E.U. privacy laws, and some providers refuse to offer legally compliant terms or offer terms that are commercially reasonable. We will need to modify our procurement processes in response to changing client and regulatory demands. If we fail to do so correctly, or in a timely manner, we may experience disruptions in client relationships, or receive regulatory inquiries or be the subject of government enforcement actions, which may in turn cause a material loss in revenues or damage our brand and reputation.

We have acquired businesses in the past, and we may consider opportunities in the future to acquire other companies, assets or product lines that complement or expand our business. If we are unsuccessful in integrating these companies or product lines with our existing operations, or if integration is more difficult than anticipated, we may experience disruptions to our operations. A difficult or unsuccessful integration of an acquired business could have an adverse effect on our results of operations.

Achieving the anticipated benefits of any acquisitions depends in part upon whether we can integrate new businesses in an efficient and effective manner. The integration of any acquired businesses involves a number of risks, including, but not limited to:

 

   

the complexity, time and costs associated with the integration of acquired business operations, workforce, products and technologies;

 

   

the diversion of management time and attention;

 

   

unexpected losses of key employees or clients of the acquired business, including costs associated with the termination or replacement of those employees;

 

   

failure to fully achieve expected synergies and cost savings;

 

   

difficulties in conforming standards, processes, systems, procedures and controls of the acquired business with our operations;

 

   

demands on management related to any increases in the scope, geographic diversity and complexity of our operations;

 

   

difficulties in transferring processes and know-how;

 

   

the assumption of liabilities of the acquired businesses, including litigation related to the acquired business;

 

   

the reduction of cash available for operations and other uses and resulting in potentially dilutive issuances of equity securities or the incurrence of debt; and

 

29


Table of Contents
   

the impairment of relationships with clients or business partners of the acquired business or our own clients as a result of any integration of operations;

 

   

the addition of acquisition-related debt as well as increased expenses and working capital requirements;

 

   

substantial accounting charges for restructuring and related expenses, write-off of in process research and development, impairment of goodwill, amortization of intangible assets and stock-based compensation expense;

 

   

managing tax costs and inefficiencies associated with the integration of acquired businesses; and

 

   

risks relating to the challenges and costs of closing a transaction.

Successful integration of any acquired businesses or operations will depend on our ability to manage these operations, realize opportunities for revenue growth presented by strengthened product and service offerings and expanded geographic market coverage, and eliminate redundant and excess costs to fully realize the expected synergies. Because of difficulties in combining geographically distant operations and systems which may not be fully compatible, we may not be able to achieve the financial strength and growth we anticipate from the acquisitions.

We may not realize our anticipated benefits from our acquisitions, if any, or may be unable to efficiently and effectively integrate acquired operations as planned. If we fail to integrate acquired businesses and operations efficiently and effectively or fail to realize the benefits we anticipate, we may experience material adverse effects on our business, financial condition, results of operations and future prospects.

Defects, disruptions, performance problems or risks related to the provision of our product offerings could impair our ability to deliver our services and could expose us to liability, damage our brand and reputation or otherwise negatively impact our business

Certain of our products and services utilize software solutions developed by us or third parties for our clients’ needs, and new releases of software products are issued to our clients periodically. Complex software products, such as those we offer, may contain undetected errors or defects, especially when they are first introduced or new versions are released. Despite testing, these undetected errors may be discovered only after a product has been installed and used either in our internal processing system or by our clients, and could result in unanticipated service interruptions or other performance problems and cause damage to our clients’ businesses. If that occurs, clients could elect not to renew with us, to delay or withhold payment to us, or to make warranty or other claims against us, and we could be obligated to provide service credits based on our failure to meet service level commitments, which could result in additional expense and risk of litigation.

We believe that our reputation and name recognition are critical factors in our ability to compete and generate additional sales. Promotion and enhancement of our name will depend largely on our success in continuing to provide effective products and services. The occurrence of errors in our products or services, the discovery of security vulnerabilities or the detection of bugs by our clients may damage our reputation in the market and our relationships with our existing clients, and as a result, we may be unable to attract or retain clients.

In addition, because our products and services are used to manage data that is often critical to our clients, they may have a greater sensitivity to defects in our products than to defects in other, less critical, applications. As a result, the licensing and support of our products and services involve the risk of product liability claims. Our license agreements with our clients typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provisions contained in our license agreements vary and may not be effective as a result of existing or future national, federal, state or local laws or ordinances or unfavorable judicial decisions. Although we have not experienced any material product liability claims to date, the sale and support of our products entail the risk of such claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against product liability may not be adequate to cover all potential claims.

 

30


Table of Contents

If we are unable to develop new and enhanced products and services that achieve widespread market acceptance, or if we are unable to continually improve the performance, features and reliability of our existing products and services or adapt our business model to keep pace with industry trends, our business and operating results could be materially adversely affected.

The markets in which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing client needs. We believe that key competitive factors in the markets we serve include the breadth and quality of professional services, system and software solution offerings, product integration, platform coverage, the stability of our information systems, the features and capabilities of our product and service offerings, the pricing of our products and services, and the potential for future product and service enhancements. Our future success depends on our ability to keep pace with technological changes and to respond to the rapidly changing needs of our clients by developing or introducing new products, product upgrades and services on a timely and cost-effective basis. We have in the past incurred, and will continue to incur, significant research and development expenses as we strive to remain competitive. Clients may require features and capabilities that our current products and services do not have, such as remote collections from mobile phones. We need to successfully respond to significant market challenges to our existing product portfolio as well as invest in new growth areas based on our core technical capabilities. Our failure to develop products and services that satisfy client preferences in a timely and cost-effective manner may harm our ability to maintain relationships with existing clients, as well as our ability to create or increase demand for our products and services, and may materially adversely affect our operating results. As competition in the information technology (“IT”) industry increases, it may become increasingly difficult for us to maintain a technological advantage and to leverage that advantage toward increased revenues and profits. New product development and introduction involve a significant commitment of time and resources and are subject to a number of risks and challenges including:

 

   

managing the length of the development cycle for new products and product enhancements, which can fluctuate as new features are developed;

 

   

designing and marketing products and professional services solutions that will be adopted by our client base as well as attract new clients for our technology;

 

   

managing clients’ transitions to new products and services;

 

   

adapting to emerging and evolving industry standards and to technological developments by our competitors and clients;

 

   

extending the operation of our products and services to new and evolving platforms, operating systems, operating environments and models, including support of new workloads and data management technologies, and hardware products;

 

   

clients’ ability to upgrade to the most current versions of software to take advantage of new functionalities;

 

   

reacting to trends and predicting which technologies will be successful and develop into industry standards;

 

   

tailoring our business and pricing models appropriately as we enter new markets and respond to competitive pressures and technological changes;

 

   

extending or creating technology alliances with other key technology players in our industry;

 

   

managing new product and service strategies for the markets in which we operate;

 

   

addressing trade compliance issues affecting our ability to ship our products;

 

   

developing or expanding efficient sales channels; and

 

   

obtaining sufficient licenses to technology and technical access from proprietary software providers, open source software providers and operating system software vendors on reasonable terms to enable

 

31


Table of Contents
 

the development and deployment of interoperable products, including source code licenses for certain products with deep technical integration into operating systems.

If we are not successful in managing these risks and challenges, if our new products, product upgrades and services are not technologically competitive or do not achieve market acceptance, or if our efforts are more costly or resource-intensive than anticipated or fail to achieve the expected outcomes, our business, financial condition and results of operations could be adversely affected.

If we are unable to maintain, promote or expand our brand through effective marketing practices, our brand and business could be adversely affected.

We believe that maintaining and promoting our brand in a cost-effective manner is critical to retaining and expanding our client base. We have invested considerable money and resources in the establishment and maintenance of our brand, and we will continue to invest resources in brand marketing and other efforts to continue to preserve and enhance consumer awareness. If we fail to successfully promote and maintain our brand or if we incur excessive expenses in this effort, our business could be materially and adversely affected.

We utilize internet search engines such as Google, principally through the purchase of keywords, to generate additional traffic to our websites. The number of users we attract from search engines to our websites is due in large part on how and where information is from, and links to our websites are displayed on search engine results pages. Search engines frequently update and change the algorithm that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our websites can be negatively affected. In addition, a significant amount of traffic is directed to our websites through our participation in pay-per-click and display advertising campaigns on search engines. If a major search engine changes its algorithms or results in a manner that negatively affects the search engine ranking, paid or unpaid, of our websites, our business and financial performance would be adversely affected.

We develop products and services that interoperate with certain software, operating systems and hardware developed by others, and if the developers of such software, operating systems and hardware do not cooperate with us, if we are unable to obtain access to their new products or if we are unable to devote the necessary resources so that our applications interoperate with those third-party systems, our development efforts may be delayed or foreclosed and our business, financial condition and results of operations may be adversely affected.

Our products and services operate primarily on the Windows, UNIX and Linux operating systems, are used in conjunction with the Microsoft SQL and Microsoft Azure platforms, and operate on hardware devices of numerous manufacturers. When new or updated versions of these operating systems, software applications and hardware devices are introduced, it is often necessary for us to develop updated versions of our software applications so that they interoperate properly with these systems and devices. We may not accomplish these development efforts quickly or cost-effectively, or at all, and it is not clear what the relative growth rates of these operating systems and hardware will be. These development efforts require the cooperation of the developers of the operating systems, software applications, and hardware, as well as substantial capital investment and the devotion of substantial employee and/or financial resources. For some operating systems, we must obtain some proprietary application program interfaces from the owner in order to develop software applications that interoperate with the operating system. Operating system and software owners have no obligation to assist in these development efforts, provide us with early access to their technology and products or share with or sell to us any application program interfaces, formats or protocols we may need. If they do not provide us with the necessary access, assistance or proprietary technology on a timely basis, or at all, we may experience product development delays or be unable to expand our software applications into other areas.

A large number of our proprietary software and applications are built on commonly used “open source” licenses. We maintain a record of all “open source” licenses used for such software and applications. Despite this, a failure

 

32


Table of Contents

to materially comply with the terms of such “open source” licenses could negatively affect our business and subject us to possible litigation.

The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.

We are a multinational company with worldwide operations, including significant business operations in Europe. On March 29, 2017, the Prime Minister of the United Kingdom, Theresa May, formally began the process of withdrawing the United Kingdom from the European Union, following the June 2016 referendum in which a majority of voters in the United Kingdom supported the withdrawal (the “Brexit Referendum”). Negotiations between the United Kingdom and the European Union remain ongoing and are complex, and there can be no assurance regarding the terms (if any) or timing of any resulting agreement or departure, or regarding the absence of any potential market or other disruptions as any deadline for a potential agreement or departure approaches. The withdrawal process has created significant uncertainty about the future relationship between the United Kingdom and the EU, and that this may have political consequences not only in the United Kingdom but in other member states. The terms of any future trading relationship between the United Kingdom and the European Union are also subject to negotiation and are currently uncertain. The Brexit Referendum and the ensuing process of the United Kingdom’s withdrawal from the European Union has created political and economic uncertainty about the future relationship between the United Kingdom and the European Union and as to whether any other European countries may similarly seek to exit the European Union.

Although we generated only approximately 9% of our revenues in the United Kingdom for the year ended December 31, 2018, these developments and the potential consequences of them, have had and may continue to have a material adverse effect upon global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings have been and may continue to be subject to increased market volatility. Lack of clarity about future UK laws and regulations, including data protection and the United Kingdom’s interaction with member states applying the GDPR, financial laws and regulations, tax and free trade agreements, immigration and employment laws, could increase costs, depress economic activity, impair our ability to attract and retain qualified personnel, and have other adverse consequences. Any of these factors may have a material adverse effect on our business, results of operations, financial condition and prospects.

The unavailability of third-party technology could adversely impact our revenue and results of operations.

We license certain eDiscovery-related software from third parties and incorporate or integrate such components into and with our services and products. For instance, we integrate third-party solutions licensed from certain providers such as Relativity, a key supplier of one of our eDiscovery platforms, with the delivery of our eDiscovery services and products. While we have developed our own proprietary platforms, certain third-party software, such as that licensed from Relativity, has become central to the operation and delivery of our eDiscovery services and products.

Certain of our third-party software license contracts expire within the next one to three years and may be renewed only by mutual consent For instance, our license contract with Relativity expires in December 31, 2020. There is no assurance that we will be able to renew these contracts as they expire or that such renewals will be on the same or substantially similar terms or on conditions that are commercially reasonable to us. If we fail to renew these contracts as they expire, we may be unable to offer certain eDiscovery-related services and products to our clients. In addition, our third-party software licenses are non-exclusive. For example, all of our primary competitors in the eDiscovery business use Relativity in connection with their eDiscovery platforms (in addition to any proprietary platforms that they may own themselves).

If certain of our third-party licensors were to change their product offerings, cease actively supporting their existing technologies, fail to update and enhance their technologies to keep pace with changing industry

 

33


Table of Contents

standards, encounter technical difficulties in the continued development of their technologies, significantly increase prices, terminate our licenses, suffer significant capacity or supply chain constraints or suffer other disruptions, we would need to identify alternative suppliers and incur additional internal and/or external development costs to ensure continued performance of our eDiscovery-related services and products. Such alternatives may not be available on attractive terms, or at all, or may not be as widely accepted or as effective as the software provided by our existing suppliers. If the cost of licensing or maintaining this third-party technology significantly increases, our revenues could significantly decrease. In addition, interruptions in the functionality of our services and products resulting from changes in or with our third party licensors could adversely affect our commitments to clients, future sales of our services and products solutions, and negatively affect our business, financial condition and results of operations.

We utilize various web service providers, such as Microsoft Azure, for the delivery of our cloud-based products. These services are operated by third parties that we do not control and that could require significant time to replace. We expect this dependence on third parties to continue. These systems are vulnerable to damage or interruption and have experienced interruptions in the past. A prolonged web service disruption affecting our cloud-based offerings for any of the foregoing reasons would negatively impact our ability to serve our clients and could damage our reputation with current and potential clients, expose us to liability, cause us to lose clients or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the web services we use. Interruptions in these third party-services on which we rely could affect the security or availability of our products and cloud infrastructure and could have a material adverse effect on our business. In addition, these web services providers may generally terminate our agreements for convenience upon providing some nominal period of notice and may terminate our agreements for cause if a breach by us has not been cured within a short time period. In the event that our service agreements are terminated, or there is a lapse of service, elimination of web services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platforms as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our solutions for deployment on a different cloud infrastructure service provider, which may adversely affect our business, operating results and financial condition.

If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the rules and regulations of the applicable listing standards of the NYSE. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly and place significant strain on our personnel, systems and resources.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In particular, Section 404 of the Sarbanes-Oxley Act (“Section 404”) will require us to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting. As an emerging growth company, we expect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. As a public company, we will be required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual

 

34


Table of Contents

report on Form 10-K for the year ended December 31, 2019. Any failure to maintain effective disclosure controls and internal control over financial reporting could have a material and adverse effect on our business, results of operations and financial condition and could cause a decline in the trading price of our common stock.

We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we will file with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. We are also continuing to improve our internal control over financial reporting. In order to develop, maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related and audit-related costs and significant management oversight.

Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our results of operations or cause us to fail to meet our reporting obligations and may result in a restatement of our consolidated financial statements for prior periods. Any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of Pivotal shares. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.

Our products, SaaS offerings, website and networks may be subject to intentional or accidental disruption that could materially adversely affect our reputation, business and future sales.

Despite our precautions and significant ongoing investments to protect against security risks such as data breaches, cyber-attacks and other intentional or accidental disruptions of our products, offerings and networks, we expect to be an ongoing target of attacks specifically designed to breach or interrupt our networks and systems, which could harm our reputation and result in litigation, fines and penalties. Experienced computer programmers may attempt to penetrate our network security or the security of our website and misappropriate proprietary information or cause interruptions to our services. Our products may come under focused threats and attacks and we or our clients may suffer data loss as a consequence of such attacks on our products. Such cyber-attacks threaten to misappropriate our proprietary information and cause interruptions of our information technology services. Because the techniques used by unauthorized persons to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate or detect these techniques. Further, if unauthorized access or sabotage remains undetected for an extended period of time, the effects of such breach could be exacerbated. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems and networks. We have experienced and defended against threats to our systems and security including malware, phishing attacks and Distributed Denial of Service attacks, with none having had a material adverse effect on our business to date. However, we may experience more serious incidents in the future. Our exposure to cybersecurity threats and negative consequences of cybersecurity breaches will likely increase as we store increasing amounts of our clients’ data in cloud-based environments.

We outsource a number of our internal business functions to third-party contractors, and some of our client facing business operations depend, in part, on the success of our contractors’ own cybersecurity measures. We

 

35


Table of Contents

also partner with cloud service providers for some client service offerings. Similarly, particularly for the DST business, we rely upon distributors, resellers, system vendors and systems integrators to sell our products and our sales operations depend, in part, on the reliability of their cybersecurity measures. Additionally, we depend upon our employees to appropriately handle confidential information and deploy our information technology resources in a safe and secure fashion and in accordance with our policies so as not to expose our network systems to security breaches and the loss of data. Accordingly, if our cybersecurity systems, policies and procedures, and those of our contractors, partners and vendors fail to protect against unauthorized access, cyber-attacks or the mishandling of information by our employees, contractors, partners or vendors, our ability to conduct our business effectively could be damaged in a number of ways, including:

 

   

sensitive data regarding our business, including intellectual property and other proprietary data, could be stolen or mishandled;

 

   

our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored and secured;

 

   

our ability to process client orders and electronically deliver products and services could be lost or degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition;

 

   

defects and security vulnerabilities could be exploited or introduced into our products or our cloud offerings, thereby damaging the reputation and perceived reliability and security of our products and services and potentially making the data systems of our clients vulnerable to further data loss and cyber incidents; and

 

   

PII, protected health information (“PHI”) or other confidential data of our clients, employees and business partners could be stolen or lost.

Should any of the above events occur, we could be subject to significant claims for liability from our clients and regulatory actions from governmental agencies, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly harmed. The regulatory and contractual actions, litigations, investigations, fines, penalties and liabilities relating to data breaches that result in losses of PII, PHI or credit card information of users of our services can be significant in terms of fines and reputational impact, and necessitate changes to our business operations that may be disruptive to us. Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and remediate damages. Consequently, our financial performance and results of operations would be materially adversely affected.

If we encounter difficulties as we implement our new consolidated business systems, our business may be adversely affected.

We are in the process of implementing new consolidated business systems across our global operations. We rely on our information technology to help us effectively manage our client relationships, sales information, order processing and support and marketing services, and we anticipate that the implementation of new consolidated business systems will improve our processes. However, there is a risk that implementation of these new systems will not achieve these expected benefits as quickly as anticipated or at all. In addition, there can be no assurance that there will not be errors, delays or other related issues resulting from the transition to our new business systems and adjustments to associated business processes, or that we will be able to fix any error or issue. Such errors, delays or issues may result in unanticipated costs or expenditures and divert the attention of key senior management away from other aspects of our business, which may adversely affect our business, operating results and financial condition.

 

36


Table of Contents

Our inability to successfully recover from a disaster or other business continuity event could impair our ability to deliver our products and services and harm our business.

We are heavily reliant on our technology and infrastructure to provide our products and services to our clients. For example, we provide services through computer hardware that is located in our 10 global data centers around the world as well as in cloud-based data centers offered through the Microsoft Azure Cloud. Our physical data centers are vulnerable to damage, interruption or performance problems from earthquakes, floods, fires, power loss, terrorist attacks, telecommunications failures and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and similar misconduct. The occurrence of any of these events, a decision to close a data center, or other unanticipated problems could result in interruptions in the delivery of certain of our products and services.

Any errors, defects, disruptions or other performance problems with our systems, products and services could reduce our revenue, cause us to issue credits or pay penalties, cause clients to terminate their agreements with us, commence or threaten litigation against us, harm our reputation and damage our clients’ businesses. For example, we may experience disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website simultaneously, fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Interruptions in our products and services could impact our revenues or cause clients to cease doing business with us. In addition, our business would be harmed if any events of this nature caused our clients and potential clients to believe our services are unreliable. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations.

We have international business operations, which subjects us to additional risks associated with these international operations.

We have significant international operations with more than 40 locations in 20 countries, including data centers in Canada, England, France, Germany, Ireland and Japan. We may expand our international operations if we identify growth opportunities. Our international operations are subject to the following risks, among others:

 

   

foreign certification, licensing and regulatory requirements, which may be substantially more complex or burdensome than our domestic requirements;

 

   

risk associated with selecting or terminating partners for foreign expansion, including marketing agents, distributors or other strategic partners for particular markets;

 

   

risk associated with local ownership and/or investment requirements, as well as difficulties in obtaining financing in foreign countries for local operations;

 

   

reduced protection of confidential consumer information in some countries

 

   

political unrest, international hostilities, military actions, terrorist or cyber-terrorist activities, natural disasters, pandemics, and infrastructure disruptions;

 

   

differing economic cycles and adverse economic conditions;

 

   

unexpected changes in and compliance with foreign regulatory requirements;

 

   

regulations or restrictions on the use, import or export of technologies that could delay or prevent the acceptance and use of our products;

 

   

differing business practices, which may require us to enter into agreements that include non-standard terms;

 

   

varying tax regimes, including with respect to the imposition of withholding taxes on remittances and other payments by our partnerships or subsidiaries;

 

37


Table of Contents
   

differing labor regulations;

 

   

foreign exchange controls and restrictions on repatriation of funds from our international subsidiaries;

 

   

fluctuations in currency exchange rates, economic instability and inflationary conditions;

 

   

inability to collect payments or seek recourse under or comply with ambiguous or vague commercial or other laws;

 

   

potential loss of proprietary information due to misappropriation or laws that may be less protective of our intellectual property rights than U.S. laws or that may not be adequately enforced;

 

   

varying attitudes towards censorship and the treatment of information service providers by foreign governments, in particular in emerging markets;

 

   

difficulties in attracting and retaining qualified management and employees, or rationalizing our workforce;

 

   

difficulties in staffing, managing and operating our international operations, including difficulties related to administering our stock plans in some foreign countries;

 

   

difficulties in coordinating the activities of our geographically dispersed and culturally diverse operations;

 

   

costs and delays associated with developing software and providing support in multiple languages; and

 

   

difficulties in penetrating new markets due to entrenched competitors, lack of recognition of our brands or lack of local acceptance of our products and services.

Our overall success as a global business depends, in part, on our ability to anticipate and effectively manage these risks, and there can be no assurance that we will be able to do so without incurring unexpected costs. If we are not able to manage the risks related to our international operations, our business, financial condition and results of operations may be materially affected.

If we do not protect our proprietary rights and information and prevent third parties from making unauthorized use of our products and technology, our financial results could be harmed.

Most of our products and underlying technology is proprietary. We seek to protect our proprietary rights through a combination of confidentiality agreements and procedures, and through copyright, patent, trademark and trade secret laws of the United States and international jurisdictions. In addition, we use licenses, non-disclosure agreements and other agreements to restrict the use of our products by our clients and other third parties. However, all of these measures afford only limited protection and may be challenged, invalidated, disregarded, declared unenforceable or circumvented by third parties, and we may not have effective remedies to protect our proprietary rights. Third parties may copy or reverse engineer all or portions of our products and underlying technology or otherwise misappropriate, use, distribute or sell our proprietary technology without authorization. Moreover, we may not be able to obtain effective protection for the technology underlying our new products and services as they are developed. For example, any of our pending or future patent applications, whether or not being currently challenged, may not be issued with the scope of the protection we seek, if at all. Furthermore, confidentiality procedures and contractual provisions can be difficult to enforce and, even if successfully enforced, may not have effective remedies available to ameliorate unauthorized disclosure of our intellectual property.

Third parties may also develop similar or superior technology by designing around our patents and the other intellectual property protections or independently developing technology that does not infringe, misappropriate or violate our intellectual property rights in the United States or elsewhere. Furthermore, the laws of some foreign countries do not offer the same level of protection of our proprietary rights as the laws of the United States, and we may not be able to prevent unauthorized use of our products in those countries. For example, for

 

38


Table of Contents

some of our products, we rely on “shrink-wrap” or “click-wrap” licenses, which may be unenforceable in whole or in part in some jurisdictions in which we operate. The unauthorized sale, distribution or use of our products or proprietary technology could result in reduced sales of our products, or diminish our brand and reputation. Any legal action to protect proprietary technology that we may bring or be engaged in with a client, strategic partner or vendor could adversely affect our ability to access software, operating systems and/or hardware platforms of such client, partner or vendor, or cause such partner or vendor to choose not to offer our products to their clients. In addition, any legal action we engage in to protect our proprietary technology could be costly, may distract management from day-to-day operations and may lead to additional claims against us, and we may not succeed; any of which could materially adversely affect.

General economic conditions and the cyclical nature of certain markets we serve may adversely affect our results of operations and financial condition.

Our financial performance depends on the economic conditions in the markets we serve and on the general condition of the global economy. Any sustained weakness in demand for our products and services as a result of a downturn of, or uncertainty in, the global economy or in any specific market we serve may adversely affect our results of operations and financial condition. For instance, any decrease in litigation filings, class action proceedings and settlement administrations at our clients may reduce the demand for our products and services. For instance, we experienced a short-term decreased demand for our eDiscovery solutions during the U.S. federal government shutdown in January 2019 as a result of decreased litigation activity.

Exchange rate fluctuations and volatility in global currency markets may have a significant impact on our results of operations.

As a company with global operations, we face exposure to adverse movements in foreign currency exchange rates. Exchange rate movements in our currency exposures may cause fluctuations in our financial statements. Due to our global presence, a portion of our revenues, operating expense and assets and liabilities are non-U.S. dollar denominated and therefore subject to foreign currency fluctuation. We face exposure to currency exchange rates as a result of the growth in our non-U.S. dollar denominated operating expense across Europe and Asia. For example, an increase in the value of non-U.S. dollar currencies against the U.S. dollar could increase costs for delivery of products, services and also increase cost of local operating expenses and procurement of materials or services that we purchase in foreign currencies by increasing labor and other costs that are denominated in such local currencies. In addition, an increase in the value of the U.S. dollar could increase the real cost to our clients of our products in those markets outside the United States where we price our products and services in U.S. dollars. As a result of the foregoing, our results of operations may be materially adversely affected. These risks related to exchange rate fluctuations and currency volatility may increase in future periods as our operations outside of the United States continue to expand.

We may in the future hedge against currency exposure associated with anticipated foreign currency cash flows or assets and liabilities denominated in foreign currency. Such attempts to offset the impact of currency fluctuations are costly, and there can be no assurance that currency hedging activities would be successful. Losses associated with these hedging instruments may negatively affect our results of operations, and any such currency hedging activities themselves would be subject to risk, including risks related to counterparty performance.

Our substantial levels of indebtedness could adversely affect our financial condition.

On a pro forma basis after giving effect to the Business Combination and assuming no conversions of public shares, we would have had approximately $323.0 million of indebtedness as of December 31, 2018, consisting of borrowings under our First Lien Facility (as defined herein).

Our indebtedness could have important consequences to us and our investors, including, but not limited to:

 

   

increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions;

 

39


Table of Contents
   

requiring the dedication of a substantial portion of cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, joint ventures or other general corporate purposes;

 

   

limiting flexibility in planning for, or reacting to, changes in our business and the competitive environment; and

 

   

limiting our ability to borrow additional funds and increasing the cost of any such borrowing.

In addition, as our indebtedness matures, including our Revolving Credit Facility, First Lien Facility and Second Lien Facility, which mature on December 9, 2021, December 9, 2022 and December 9, 2023, respectively, or if we are unable to service our high level of indebtedness, we may need to restructure or refinance all or a portion of our indebtedness, sell material assets or operations or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms, or at all, and these actions may not be sufficient to meet our capital requirements. Furthermore, we may not be able to invest in our business and as a result, we may not be able to achieve our forecasted results of operation.

If we are unable to make required interest and principal payments on our indebtedness, it would result in an event of default under the agreements governing such indebtedness, which may result in the acceleration of some or all of our outstanding indebtedness and foreclosure on the assets that secure such indebtedness.

Although our Revolving Credit Facility and the Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial, thereby exacerbating the risks associated with our high level of indebtedness.

Our failure to comply with the export controls and trade and economic sanctions laws and regulations of the United States and various international jurisdictions could result in legal liability and materially adversely affect our reputation and results of operations.

Our business activities are subject to various export controls and trade and economic sanctions laws and regulations, including, without limitation, the U.S. Commerce Department’s Export Administration Regulations, the U.S. Treasury Department’s Office of Foreign Assets Control’s (“OFAC”) trade and economic sanctions programs, the United Nations Security Council, and other laws and regulations of a similar nature administered and enforced by relevant government authorities (collectively, “Trade Controls”). Such Trade Controls may prohibit or restrict our ability to, directly or indirectly, conduct activities or dealings in or with certain countries, as well as with individuals or entities that are the subject of Trade Controls-related prohibitions and restrictions. For example, our ability to procure items necessary for our business activities could be adversely impacted by the imposition of export or sanctions-related prohibitions or restrictions on our contractual counterparties. Similarly, our sales of certain commodities, software and technology, and our provision of services to persons located outside the United States may be subject to certain regulatory prohibitions, restrictions or other requirements, including certain licensing or reporting requirements. Similarly, our ability to procure such items necessary for our business activities could be adversely impacted by the imposition of export or sanctions-related prohibitions or restrictions on our contractual counterparties. Our failure to successfully comply with applicable Trade Controls may expose us to negative legal and business consequences, including civil or criminal penalties, government investigations, disgorgement of profits, injunctions and suspension or debarment from government contracts, other remedial measures, and reputational harm. Investigations of alleged violations can be expensive and disruptive. Although we have implemented internal measures reasonably designed to promote compliance with applicable Trade Controls, we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, financial condition and results of operations.

 

40


Table of Contents

Third parties claiming that we infringe their proprietary rights could cause us to incur significant legal expenses and prevent us from selling our products.

The software and internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights.

We have received in the past, and may receive in the future, communications from third parties alleging infringement of their intellectual property rights, including claims regarding patents, copyrights, trade secrets and trademarks.

Because of the constant technological change in the markets in which we compete and the extensive coverage of intellectual property protection for existing technologies, including software patents, it is possible that the number of these claims may grow. In addition, former employers of our former, current or future employees may assert claims that such employees have improperly disclosed to us the confidential or proprietary information of these former employers.

Any such intellectual property claim, with or without merit, could result in costly litigation and distract management from day-to-day operations, and the outcomes of such claims are uncertain. If we are not successful in defending such claims, we could be required to stop selling, delay shipments of or redesign our products, stop offering (or temporarily stop offering) our services to others, pay monetary amounts as damages, enter into royalty or licensing arrangements or satisfy indemnification obligations that we have with some of our clients, which could materially adversely affect our business, results of operations, financial condition or cash flows. We cannot assure you that any royalty or licensing arrangements that we may seek in such circumstances will be available to us on commercially reasonable terms or at all. In addition, certain client agreements require us to indemnify our clients for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim. We have made and expect to continue making significant expenditures to preempt, investigate, defend and settle claims related to the use of technology and intellectual property rights, including trademarks, as part of our strategy to manage this risk.

Our failure to comply with the anti-corruption laws and regulations of the United States and various international jurisdictions could materially adversely affect our reputation and results of operations.

Doing business on a worldwide basis requires us to comply with anti-corruption laws and regulations imposed by governments around the world with jurisdiction over our operations, which may include the Foreign Corrupt Practices Act (the “FCPA”) and the U.K. Bribery Act 2010 (the “U.K. Bribery Act”), as well as the laws of the countries where we do business. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. Where they apply, the FCPA and the U.K. Bribery Act prohibit us and our officers, directors, employees and business partners acting on our behalf, including joint venture partners and agents, from corruptly offering, promising, authorizing or providing anything of value to “foreign officials” for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. The U.K. Bribery Act also prohibits non-governmental “commercial” bribery and accepting bribes. As part of our business, we may deal with governments and state-owned business enterprises, the employees and representatives of which may be considered “foreign officials” for purposes of the FCPA and the U.K. Bribery Act. We also are subject to the jurisdiction of various governments and regulatory agencies around the world, which may bring our personnel and agents into contact with “foreign officials” responsible for issuing or renewing permits, licenses or approvals or for enforcing other governmental regulations. In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption.

Our global operations expose us to the risk of violating, or being accused of violating, anti-corruption laws and regulations. Our failure to successfully comply with these laws and regulations may expose us to reputational

 

41


Table of Contents

harm as well as significant sanctions, including criminal fines, imprisonment, civil penalties, disgorgement of profits, injunctions and suspension or debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive. Despite our compliance efforts and activities, we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, financial condition and results of operations.

We may need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets.

We have substantial balances of goodwill and identified intangible assets. We are required to test goodwill and any other intangible assets with an indefinite life for possible impairment on an annual basis, or more frequently when circumstances indicate that impairment may have occurred. We are also required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment.

Based on the results of the annual impairment test as of October 1, 2018, the fair value of our reporting unit exceeded the individual reporting unit’s carrying value, and goodwill was not impaired. There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which we operate or impairment in our financial performance and/or future outlook, the estimated fair value of our long-lived assets decreases, we may determine that one or more of our long-lived assets is impaired. An impairment charge would be recorded if the estimated fair value of the assets is lower than the carrying value and any such impairment charge could have a material adverse effect on our results of operations and financial position.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined under U.S. income tax laws) that exceeds 50 percentage points over a rolling three-year period. Similar rules apply under state tax laws. If we experience one or more ownership changes as a result of this Business Combination or future transactions in our stock, then we may be limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our net operating loss carryforwards and other tax assets could adversely impact our business, financial condition and operating results.

Unanticipated changes in our effective tax rate or challenges by tax authorities could harm our future results.

We are subject to income taxes in the United States and various non-U.S. jurisdictions. Our effective tax rate could be adversely affected by changes in the allocation of our pre-tax earnings and losses among countries with differing statutory tax rates, in certain non-deductible expenses as a result of acquisitions, in the valuation of our deferred tax assets and liabilities, or in federal, state, local or non-U.S. tax laws and accounting principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. Increases in our effective tax rate would adversely affect our operating results.

In addition, we may be subject to income tax audits by various tax jurisdictions throughout the world, many of which have not established clear guidance on the tax treatment of SaaS companies. The application of tax laws in such jurisdictions may be subject to diverging and sometimes conflicting interpretations by tax authorities in these jurisdictions. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

 

42


Table of Contents

Taxing authorities may successfully assert that we should have collected or in the future should collect additional sales and use taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.

We have not historically filed sales and use tax returns or collected sales and use taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable. Taxing authorities may seek to impose such taxes on us, including for past sales, which could result in penalties and interest. Any such tax assessments may adversely affect the results of our operations.

Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our consolidated tax liability.

We conduct integrated operations internationally through subsidiaries in various tax jurisdictions pursuant to transfer pricing arrangements between our subsidiaries and between our subsidiaries and us. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally require that transfer prices be the same as those between unrelated companies dealing at arm’s length and that contemporaneous documentation is maintained to support the transfer prices. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these countries were to successfully challenge our transfer prices as not reflecting arms’ length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices, which could result in a higher tax liability to us. Such reallocations may subject us to interest and penalties that would increase our consolidated tax liability and could adversely affect our financial condition, results of operations and cash flows.

The price of Pivotal common stock may be volatile.

The price of Pivotal common stock may fluctuate due to a variety of factors, including:

 

   

actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in industry;

 

   

mergers and strategic alliances in the industry in which we operate;

 

   

market prices and conditions in the industry in which we operate;

 

   

changes in government regulation;

 

   

potential or actual military conflicts or acts of terrorism;

 

   

announcements concerning us or our competitors; and

 

   

the general state of the securities markets.

These market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. Additionally, because the Company is a private company whose value is uncertain, there may be a high level of volatility in Pivotal’s share price after consummation of the Business Combination. Furthermore, if a large number of Pivotal stockholders holding public shares demand that Pivotal convert their shares into a pro rata portion of the trust account, it could significantly reduce the public “float” of Pivotal’s common stock after the Business Combination, further exacerbating this volatility.

Reports published by analysts, including projections in those reports that differ from our actual results, could adversely affect the price and trading volume of our common stock.

We currently expect that securities research analysts will establish and publish their own periodic projections for our business. These projections may vary widely and may not accurately predict the results we actually achieve. Our stock price may decline if our actual results do not match the projections of these securities research

 

43


Table of Contents

analysts. Similarly, if one or more of the analysts who write reports on us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, our stock price or trading volume could decline. While we expect research analyst coverage, if no analysts commence coverage of us, the trading price and volume for our common stock could be adversely affected.

Pivotal may issue additional shares of common stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of Pivotal common stock.

Upon consummation of the Merger, Pivotal will have warrants outstanding to purchase up to an aggregate of 29,350,000 shares of common stock and may issue an aggregate of 2,200,000 shares of common stock to the Company’s stockholders if the reported closing sale price of Pivotal common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger. Pivotal will also have the ability to issue up to                  shares under the 2019 Plan (assuming it is approved by stockholders at the meeting). Pivotal may also issue additional shares of common stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances.

Pivotal’s issuance of additional shares of common stock or other equity securities of equal or senior rank would have the following effects:

 

   

Pivotal’s existing stockholders’ proportionate ownership interest in Pivotal will decrease;

 

   

the amount of cash available per share, including for payment of dividends in the future, may decrease;

 

   

the relative voting strength of each previously outstanding share of common stock may be diminished; and

 

   

the market price of Pivotal’s shares of common stock may decline.

Our charter will contain anti-takeover provisions that could adversely affect the rights of our stockholders.

Our second amended and restated certificate of incorporation will contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions, including, among other things:

 

   

provisions that authorize our board of directors, without action by our stockholders, to issue additional shares of common stock and preferred stock with preferential rights determined by our board of directors;

 

   

provisions that permit only a majority of our board of directors to call stockholder meetings and therefore do not permit stockholders to call stockholder meetings;

 

   

provisions that impose advance notice requirements, minimum shareholding periods and ownership thresholds, and other requirements and limitations on the ability of stockholders to propose matters for consideration at stockholder meetings; and

 

   

a staggered board whereby our directors are divided into three classes, with each class subject to retirement and re-election once every three years on a rotating basis.

These provisions could have the effect of depriving our stockholders of an opportunity to sell their common stock at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. With our staggered board of directors, at least two annual or special meetings of stockholders will generally be required in order to effect a change in a majority of our directors. Our staggered board of directors can discourage proxy contests for the election of our directors and purchases of substantial blocks of our shares by making it more difficult for a potential acquirer to gain control of our board of directors in a relatively short period of time.

 

44


Table of Contents

Pivotal will not have any right to make damage claims against the Company or the Company’s stockholders for the breach of any representation, warranty or covenant made by the Company in the Merger Agreement.

The Merger Agreement provides that all of the representations, warranties and covenants of the parties contained therein shall not survive the closing of the Merger, except for those covenants that by their terms apply or are to be performed in whole or in part after the closing, and then only with respect to breaches occurring after closing. Accordingly, there are no remedies available to the parties with respect to any breach of the representations, warranties, covenants or agreements of the parties to the Merger Agreement after the closing of the Merger, except for covenants to be performed in whole or in part after the closing. As a result, Pivotal will have no remedy available to it if the Merger is consummated and it is later revealed that there was a breach of any of the representations, warranties and covenants made by the Company at the time of the Merger.

Future resales of common stock may cause the market price of Pivotal’s securities to drop significantly, even if the Company’s business is doing well.

The Founder, officers and directors of Pivotal, and the stockholders of the Company will be granted certain rights, pursuant to the Registration Rights Agreement, to require Pivotal to register, in certain circumstances, the resale under the Securities Act of common stock held by them, subject to certain conditions. The sale or possibility of sale of these shares could have the effect of increasing the volatility in Pivotal’s share price or putting significant downward pressure on the price of Pivotal’s stock.

If Pivotal’s stockholders fail to properly demand conversion rights, they will not be entitled to have their common stock of Pivotal converted into a pro rata portion of the trust account.

Pivotal stockholders holding public shares may demand that Pivotal convert their shares into a pro rata portion of the trust account, calculated as of two (2) business days prior to the anticipated consummation of the Business Combination, including interest earned on the trust account and not previously released to Pivotal to pay its tax obligations. Pivotal stockholders who seek to exercise this conversion right must deliver their shares (either physically or electronically) to Pivotal’s transfer agent two (2) business days prior to the annual meeting. Any Pivotal stockholder who fails to properly deliver their shares will not be entitled to have his or her shares converted. See the section entitled “Annual Meeting of Pivotal Stockholders—Conversion Rights” for the procedures to be followed if you wish to have your shares redeemed for cash.

Public stockholders, together with any affiliates of theirs or any other person with whom they are acting in concert or as a “group,” will be restricted from seeking conversion rights with respect to more than 20% of the public shares.

A public stockholder, together with any affiliate or any other person with whom such stockholder is acting in concert or as a “group,” will be restricted from seeking conversion rights with respect to more than 20% of the public shares. Accordingly, if you hold more than 20% of the public shares and the business combination proposal is approved, you will not be able to seek conversion rights with respect to the full amount of your shares and may be forced to hold the shares in excess of 20% or sell them in the open market. Pivotal cannot assure you that the value of such excess shares will appreciate over time following a business combination or that the market price of Pivotal common stock after the Business Combination will exceed the per-share conversion price.

Pivotal’s securities may not be listed on a national securities exchange after the Business Combination, which could limit investors’ ability to make transactions in Pivotal’s securities and subject Pivotal to additional trading restrictions.

Pivotal has applied to have its common stock and warrants listed on the NYSE after consummation of the Business Combination. Pivotal will be required to meet the initial listing requirements of the NYSE to be listed. Pivotal may not be able to meet those initial listing requirements. Even if Pivotal’s securities are so listed, Pivotal may be unable to maintain the listing of its securities in the future.

 

45


Table of Contents

If Pivotal fails to meet the initial listing requirements and the NYSE does not list its securities and the related closing condition is waived by the parties, Pivotal could face significant material adverse consequences, including:

 

   

a limited availability of market quotations for its securities;

 

   

a limited amount of news and analyst coverage for the company; and

 

   

a decreased ability to issue additional securities or obtain additional financing in the future.

The Founder and Pivotal’s officers and directors own common stock and warrants that will be worthless and have incurred reimbursable expenses that may not be reimbursed or repaid if the Business Combination is not approved. Such interests may have influenced their decision to approve the Business Combination with the Company.

The Founder and Pivotal’s officers and directors and/or their affiliates beneficially own or have a pecuniary interest in founder shares and private warrants that they purchased prior to, or simultaneously with, Pivotal’s initial public offering. The holders have no redemption rights with respect to these securities in the event a business combination is not effected in the required time period. Therefore, if the Business Combination with the Company or another business combination is not approved within the required time period, such securities held by such persons will be worthless. Such securities had an aggregate market value of $                 based upon the closing prices of the shares and warrants on the NYSE on                 , 2019, the record date. Furthermore, the Founder and Pivotal’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on Pivotal’s behalf, such as identifying and investigating possible business targets and business combinations. These loans and expenses will be repaid upon completion of the Business Combination with the Company. However, if Pivotal fails to consummate the Business Combination, they will not have any claim against the trust account for repayment or reimbursement. Accordingly, Pivotal may not be able to repay or reimburse these amounts if the Business Combination is not completed. See the section entitled “The Business Combination Proposal—Interests of the Founder and Pivotal’s Directors and Officers in the Business Combination.”

These financial interests may have influenced the decision of Pivotal’s directors to approve the Business Combination with the Company and to continue to pursue such Business Combination. In considering the recommendations of Pivotal’s board of directors to vote for the business combination proposal and other proposals, its stockholders should consider these interests.

The Founder, which is ultimately controlled by Jonathan J. Ledecky and Kevin Griffin, is liable under certain circumstances to ensure that proceeds of the trust are not reduced by vendor claims in the event the Business Combination is not consummated. Such liability may have influenced the decision of Messrs. Ledecky and Griffin to approve the Business Combination with the Company.

If the Business Combination with the Company or another business combination is not consummated by Pivotal within the required time period, the Founder will be personally liable under certain circumstances described herein to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Pivotal for services rendered or contracted for or products sold to Pivotal. If Pivotal consummates a business combination, on the other hand, Pivotal will be liable for all such claims. See the section entitled “Other Information Related to Pivotal—Financial Condition and Liquidity” for further information.

These personal obligations of the Founder may have influenced Pivotal’s board of director’s decision to approve the Business Combination with the Company and to continue to pursue such Business Combination. In considering the recommendations of Pivotal’s board of directors to vote for the business combination proposal and the other proposals, Pivotal’s stockholders should consider these interests.

 

46


Table of Contents

The exercise of Pivotal’s directors’ and officers’ discretion in agreeing to changes or waivers in the terms of the Business Combination may result in a conflict of interest when determining whether such changes to the terms of the Business Combination or waivers of conditions are appropriate and in the best interests of Pivotal’s stockholders.

In the period leading up to the closing of the Business Combination, events may occur that, pursuant to the Merger Agreement, would require Pivotal to agree to amend the Merger Agreement, to consent to certain actions taken by the Company or to waive rights that Pivotal is entitled to under the Merger Agreement. Such events could arise because of changes in the course of the Company’s business, a request by the Company to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement or the occurrence of other events that would have a material adverse effect on the Company’s business and would entitle Pivotal to terminate the Merger Agreement. In any of such circumstances, it would be at Pivotal’s discretion, acting through its board of directors, to grant its consent or waive those rights. The existence of the financial and personal interests of the directors described in the preceding risk factors may result in a conflict of interest on the part of one or more of the directors between what he or they may believe is best for Pivotal and what he or they may believe is best for himself or themselves in determining whether or not to take the requested action. As of the date of this proxy statement/prospectus, Pivotal does not believe there will be any material changes or waivers that Pivotal’s directors and officers would be likely to make after the mailing of this proxy statement/prospectus. Pivotal will circulate a supplemental or amended proxy statement/prospectus if changes to the terms of the Merger that would have a material impact on its stockholders are required prior to the vote on the business combination proposal.

If Pivotal is unable to complete the Business Combination with the Company or another business combination by August 4, 2020 (or such later date as may be approved by Pivotal’s stockholders), Pivotal will cease all operations except for the purpose of winding up, redeeming 100% of the outstanding public shares and, subject to the approval of its remaining stockholders and its board of directors, dissolving and liquidating. In such event, third parties may bring claims against Pivotal and, as a result, the proceeds held in the trust account could be reduced and the per-share liquidation price received by stockholders could be less than $10.00 per share.

Under the terms of Pivotal’s amended and restated certificate of incorporation, Pivotal must complete the Business Combination with the Company or another business combination by August 4, 2020 (or such later date as may be approved by Pivotal stockholders in an amendment to its amended and restated certificate of incorporation), or Pivotal must cease all operations except for the purpose of winding up, redeeming 100% of the outstanding public shares and, subject to the approval of its remaining stockholders and its board of directors, dissolving and liquidating. In such event, third parties may bring claims against Pivotal. Although Pivotal has obtained waiver agreements from certain vendors and service providers it has engaged and owes money to, and the prospective target businesses it has negotiated with, whereby such parties have waived any right, title, interest or claim of any kind they may have in or to any monies held in the trust account, there is no guarantee that they or other vendors who did not execute such waivers will not seek recourse against the trust account notwithstanding such agreements. Furthermore, there is no guarantee that a court will uphold the validity of such agreements. Accordingly, the proceeds held in the trust account could be subject to claims which could take priority over those of Pivotal’s public stockholders. If Pivotal is unable to complete a business combination within the required time period, the Founder has agreed that it will be liable under certain circumstances described herein to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by Pivotal for services rendered or contracted for or products sold to Pivotal. However, the Founder may not be able to meet such obligation as its only assets are securities of Pivotal. Therefore, the per-share distribution from the trust account in such a situation may be less than $10.00 due to such claims.

Additionally, if Pivotal is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, or if Pivotal otherwise enters compulsory or court supervised liquidation, the proceeds

 

47


Table of Contents

held in the trust account could be subject to applicable bankruptcy law, and may be included in its bankruptcy estate and subject to the claims of third parties with priority over the claims of its stockholders. To the extent any bankruptcy claims deplete the trust account, Pivotal may not be able to return to its public stockholders at least $10.00.

Pivotal’s stockholders may be held liable for claims by third parties against Pivotal to the extent of distributions received by them.

If Pivotal is unable to complete the Business Combination with the Company or another business combination within the required time period, Pivotal will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding public shares, which redemption will completely extinguish the public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of its remaining stockholders and its board of directors, dissolve and liquidate, subject (in the case of (ii) and (iii) above) to its obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Pivotal cannot assure you that it will properly assess all claims that may potentially be brought against Pivotal. As such, Pivotal’s stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of its stockholders may extend well beyond the third anniversary of the date of distribution. Accordingly, Pivotal cannot assure you that third parties will not seek to recover from its stockholders amounts owed to them by Pivotal.

If Pivotal is forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, any distributions received by stockholders could be viewed under applicable debtor, creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by Pivotal’s stockholders. Furthermore, because Pivotal intends to distribute the proceeds held in the trust account to its public stockholders promptly after the expiration of the time period to complete a business combination, this may be viewed or interpreted as giving preference to its public stockholders over any potential creditors with respect to access to or distributions from its assets. Furthermore, Pivotal’s board of directors may be viewed as having breached its fiduciary duties to its creditors and/or may have acted in bad faith, thereby exposing itself and the company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. Pivotal cannot assure you that claims will not be brought against it for these reasons.

Activities taken by existing Pivotal stockholders to increase the likelihood of approval of the business combination proposal and the other proposals could have a depressive effect on Pivotal’s shares.

At any time prior to the annual meeting, during a period when they are not then aware of any material nonpublic information regarding Pivotal or its securities, the Founder, Pivotal’s officers, directors and stockholders from prior to Pivotal’s initial public offering, the Company or the Company’s stockholders and/or their respective affiliates may purchase shares from institutional and other investors who vote, or indicate an intention to vote, against the business combination proposal, or execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire common stock of Pivotal or vote their shares in favor of the business combination proposal. The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirements to consummate the Business Combination where it appears that such requirements would otherwise not be met. Entering into any such arrangements may have a depressive effect on Pivotal common stock. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he owns, either prior to or immediately after the annual meeting.

 

48


Table of Contents

If the adjournment proposal is not approved, and an insufficient number of votes have been obtained to authorize the consummation of the Business Combination, Pivotal’s board of directors will not have the ability to adjourn the annual meeting to a later date in order to solicit further votes, and, therefore, the Business Combination will not be approved.

Pivotal’s board of directors is seeking approval to adjourn the annual meeting to a later date or dates if, at the annual meeting, Pivotal is unable to consummate the Business Combination. If the adjournment proposal is not approved, Pivotal’s board will not have the ability to adjourn the annual meeting to a later date and, therefore, the Business Combination would not be completed.

 

49


Table of Contents

FORWARD-LOOKING STATEMENTS

Pivotal believes that some of the information in this proxy statement/prospectus constitutes forward-looking statements within the definition of the Private Securities Litigation Reform Act of 1995. However, because Pivotal is a “blank check” company, the safe-harbor provisions of that act do not apply to statements made in this proxy statement/prospectus. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends” and “continue” or similar words. You should read statements that contain these words carefully because they:

 

   

discuss future expectations;

 

   

contain projections of future results of operations or financial condition; or

 

   

state other “forward-looking” information.

Pivotal believes it is important to communicate its expectations to its securityholders. However, there may be events in the future that Pivotal is not able to predict accurately or over which it has no control. The risk factors and cautionary language discussed in this proxy statement/prospectus provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by Pivotal or the Company in such forward-looking statements, including, among other things:

 

   

the ability to complete the Merger;

 

   

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

 

   

the ability to maintain the listing of Pivotal’s securities on a national securities exchange following the Business Combination;

 

   

the potential liquidity and trading of Pivotal’s public securities;

 

   

the inability to recognize the anticipated benefits of the proposed Business Combination, which may be affected by, among other things, the amount of cash available following any redemption of public shares by Pivotal stockholders;

 

   

the ability to operate in highly competitive markets, and potential adverse effects of this competition;

 

   

risk of decreased revenues if the Company does not adapt its pricing models;

 

   

the ability to attract, motivate and retain qualified employees, including members of its senior management team;

 

   

the ability to maintain a high level of client service and expand operations;

 

   

potential failure to comply with privacy and information security regulations governing the client datasets the Company processes and stores;

 

   

risk that the Company is unsuccessful in integrating acquired businesses and product lines;

 

   

potential issues with the Company’s product offerings that could cause legal exposure, reputational damage and an inability to deliver services;

 

   

the ability to develop new products, improve existing products and adapt the Company’s business model to keep pace with industry trends;

 

   

the ability to maintain, promote or expand the Company’s brand through effective marketing practices;

 

   

risk that the Company’s products and services fail to interoperate with third-party systems;

 

   

results of the United Kingdom’s referendum on withdrawal from the European Union;

 

   

potential unavailability of third-party technology that the Company uses in its products and services;

 

50


Table of Contents
   

the ability to maintain effective controls over disclosure and financial reporting that enable the Company to comply with regulations and produce accurate financial statements;

 

   

potential disruption of the Company’s products, offerings, website and networks;

 

   

difficulties resulting from the Company’s implementation of new consolidated business systems;

 

   

the ability to deliver products and services following a disaster or business continuity event;

 

   

increased risks resulting from the Company’s international operations;

 

   

potential unauthorized use of the Company’s products and technology by third parties;

 

   

global economic conditions and the cyclical nature of certain markets the Company serves;

 

   

exchange rate fluctuations and volatility in global currency markets;

 

   

consequences of the Company’s substantial levels of indebtedness;

 

   

the ability to comply with various trade restrictions, such as sanctions and export controls, resulting from its international operations;

 

   

potential intellectual property infringement claims;

 

   

the ability to comply with the anti-corruption laws of the United States and various international jurisdictions;

 

   

potential impairment charges related to goodwill, identified intangible assets and fixed assets;

 

   

impacts of tax regulations and laws on the Company’s business;

 

   

a potential litigation involving Pivotal or the Company;

 

   

costs related to the Business Combination;

 

   

expectations regarding the time during which Pivotal will be an “emerging growth company” under the JOBS Act; and

 

   

other risks and uncertainties indicated in this proxy statement/prospectus, including those set forth under the section entitled “Risk Factors.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this proxy statement/prospectus.

All forward-looking statements included herein attributable to any of Pivotal, the Company or any person acting on either party’s behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, Pivotal and the Company undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this proxy statement/prospectus or to reflect the occurrence of unanticipated events.

Before you grant your proxy or instruct your bank or broker how to vote, or vote on the business combination proposal, the charter proposals, the director election proposal, the incentive plan proposal or the adjournment proposal, you should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this proxy statement/prospectus may adversely affect Pivotal and/or the Company.

 

51


Table of Contents

ANNUAL MEETING OF PIVOTAL STOCKHOLDERS

General

Pivotal is furnishing this proxy statement/prospectus to Pivotal’s stockholders as part of the solicitation of proxies by Pivotal’s board of directors for use at the annual meeting of Pivotal’s stockholders. This proxy statement/prospectus provides Pivotal’s stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the annual meeting.

Date, Time and Place

The annual meeting of stockholders will be held on                 , 2019, at 10:00 a.m., eastern time, at the offices of Graubard Miller, general counsel to Pivotal, at The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174.

Purpose of the Pivotal Annual Meeting

At the annual meeting, Pivotal is asking holders of Pivotal common stock to:

 

   

consider and vote upon a proposal to adopt the Merger Agreement and approve the Business Combination contemplated thereby (the business combination proposal);

 

   

consider and vote upon separate proposals to approve amendments to Pivotal’s current amended and restated certificate of incorporation to: (i) change the name of the public entity to “KLDiscovery Inc.” as opposed to “Pivotal Acquisition Corp.”; (ii) increase Pivotal’s capitalization so that it will have 200,000,000 authorized shares of a single class of common stock and 1,000,000 authorized shares of preferred stock, as opposed to Pivotal having 75,000,000 authorized shares of Class A common stock, 10,000,000 authorized shares of Class B common stock and 1,000,000 authorized shares of preferred stock; and (iii) delete the various provisions applicable only to special purpose acquisition corporations such as the obligation to dissolve and liquidate if a business combination is not consummated within a certain period of time (the charter proposals);

 

   

elect eight directors who, upon consummation of the Merger, will be the directors of Pivotal, in each case, until their successors are elected and qualified (the director election proposal);

 

   

consider and vote upon a proposal to approve the 2019 Plan (the incentive plan proposal); and

 

   

consider and vote upon a proposal to adjourn the annual meeting to a later date or dates, if necessary, in the event that Pivotal is unable to consummate the Business Combination for any reason (the adjournment proposal).

Recommendation of Pivotal Board of Directors

Pivotal’s board of directors has unanimously determined that the business combination proposal is fair to and in the best interests of Pivotal and its stockholders; has unanimously approved the business combination proposal; unanimously recommends that stockholders vote “FOR” the business combination proposal; unanimously recommends that stockholders vote “FOR” each of the charter proposals; unanimously recommends that stockholders vote “FOR” the election of all of the persons nominated by Pivotal’s management for election as directors; unanimously recommends that stockholders vote “FOR” the incentive plan proposal; and unanimously recommends that stockholders vote “FOR” the adjournment proposal, if presented at the meeting.

Record Date; Persons Entitled to Vote

Pivotal has fixed the close of business on                 , 2019 as the “record date” for determining Pivotal stockholders entitled to notice of, and to attend and vote at, the annual meeting. As of the close of business on

 

52


Table of Contents

                , 2019, there were 23,000,000 shares of Class A common stock outstanding and 5,750,000 shares of Class B common stock outstanding and entitled to vote. Each share of Pivotal common stock is entitled to one vote at the annual meeting.

Pursuant to agreements with Pivotal, the 5,750,000 founder shares held by the Founder and Pivotal’s officers and directors, and any common stock acquired by them in the aftermarket, will be voted in favor of the business combination proposal. Such holders have indicated they intend to vote their shares in favor of the other proposals presented at the annual meeting.

Quorum

The presence, in person or by proxy, of a majority of all the outstanding shares of common stock entitled to vote constitutes a quorum at the annual meeting.

Abstentions and Broker Non-Votes

Abstentions are considered present for purposes of establishing a quorum but will have the same effect as a vote “against” the business combination proposal, the charter proposals, the incentive plan proposal and the adjournment proposal, if presented. Abstentions will have no effect on the director election proposal. Broker non-votes will have no effect on the business combination proposal, director election proposal, incentive plan proposal and adjournment proposal, if presented, and will have the same effect as a vote “against” the charter proposals.

If a stockholder does not give the broker voting instructions, under applicable self-regulatory organization rules, its broker may not vote its shares on “non-routine” proposals, such as the business combination proposal, the charter proposals and the incentive plan proposal.

Vote Required

The approval of the business combination proposal, the incentive plan proposal and the adjournment proposal will require the affirmative vote of the holders of a majority of the outstanding Pivotal common stock present and entitled to vote at the meeting.

The approval of each of the charter proposals will require the affirmative vote of the holders of a majority of the outstanding Pivotal common stock on the record date.

Directors are elected by a plurality. “Plurality” means that the individuals who receive the largest number of votes cast “FOR” are elected as directors. Consequently, any shares not voted “FOR” a particular nominee (whether as a result of an abstention, a direction to withhold authority or a broker non-vote) will not be counted in the nominee’s favor.

Voting Your Shares

Each share of Pivotal common stock that you own in your name entitles you to one vote. Your proxy card shows the number of shares of Pivotal common stock that you own. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly counted.

There are two ways to vote your shares of Pivotal common stock at the annual meeting:

 

   

You Can Vote By Signing and Returning the Enclosed Proxy Card. If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy

 

53


Table of Contents
 

card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares will be voted as recommended by Pivotal’s board of directors “FOR” the business combination proposal, each of the charter proposals, each director included in the director election proposal, the incentive plan proposal and the adjournment proposal, if presented. Votes received after a matter has been voted upon at the annual meeting will not be counted.

 

   

You Can Attend the Annual Meeting and Vote in Person. You will receive a ballot when you arrive. However, if your shares are held in the name of your broker, bank or another nominee, you must get a proxy from the broker, bank or other nominee. That is the only way Pivotal can be sure that the broker, bank or nominee has not already voted your shares.

Revoking Your Proxy

If you are a stockholder and you give a proxy, you may revoke it at any time before it is exercised by doing any one of the following:

 

   

you may send another proxy card with a later date;

 

   

you may notify Pivotal’s Secretary in writing before the annual meeting that you have revoked your proxy; or

 

   

you may attend the annual meeting, revoke your proxy and vote in person, as indicated above.

Who Can Answer Your Questions About Voting Your Shares

If you are a stockholder and have any questions about how to vote or direct a vote in respect of your Pivotal common stock, you may call                 , Pivotal’s proxy solicitor, at                  or Jonathan J. Ledecky, Pivotal’s chief executive officer, at (212) 818-8800.

Conversion Rights

Any holder of public shares may seek to convert their shares into cash in connection with the Business Combination. Holders of public shares are not required to affirmatively vote on the business combination proposal or be holders of public shares on the record date in order to exercise conversion rights with respect to such public shares. Any stockholder holding public shares may exercise conversion rights which will result in them converting their shares into a full pro rata portion of the trust account, including interest earned on the trust account and not previously released to Pivotal to pay its tax obligations, which, for illustrative purposes, was $                 per share as of                 , 2019, the record date, calculated as of two business days prior to the anticipated consummation of the Business Combination. If a holder seeks conversion of their shares as described in this section and the Business Combination is consummated, Pivotal will convert these shares into a pro rata portion of funds deposited in the trust account and the holder will no longer own these shares following the Business Combination.

Notwithstanding the foregoing, a holder of public shares, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking conversion rights with respect to 20% or more of the public shares. Accordingly, all public shares in excess of 20% held by a public stockholder will not be converted.

The Founder and Pivotal’s officers and directors will not have conversion rights with respect to any shares of Pivotal common stock owned by them, directly or indirectly.

Pivotal stockholders who seek to have their public shares converted must deliver their shares, either physically or electronically using The Depository Trust Company’s DWAC System, to Pivotal’s transfer agent no later than

 

54


Table of Contents

two (2) business days prior to the annual meeting. If you hold the shares in street name, you will have to coordinate with your broker to have your shares certificated or delivered electronically. Certificates that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash. There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC system. The transfer agent will typically charge the tendering broker $45 and it would be up to the broker whether or not to pass this cost on to the redeeming stockholder. In the event the proposed Business Combination is not consummated, this may result in an additional cost to stockholders for the return of their shares.

Any request to have such shares converted, once made, may be withdrawn at any time prior to the vote on the business combination proposal. Furthermore, if a holder of a public share delivered its certificate in connection with an election of its conversion and subsequently decides prior to the applicable date not to elect to exercise such rights, it may simply request that the transfer agent return the certificate (physically or electronically).

If the Business Combination is not approved or completed for any reason, then Pivotal’s public stockholders who elected to exercise their conversion rights will not be entitled to have their shares converted. In such case, Pivotal will promptly return any shares delivered by public holders.

The closing price of the Pivotal Class A common stock on                 , 2019, the record date, was $                . The cash held in the trust account on such date less taxes payable was approximately $                 ($                 per public share). Prior to exercising conversion rights, stockholders should verify the market price of Pivotal Class A common stock as they may receive higher proceeds from the sale of their common stock in the public market than from exercising their conversion rights if the market price per share is higher than the redemption price. Pivotal cannot assure its stockholders that they will be able to sell their common stock in the open market, even if the market price per share is higher than the conversion price stated above, as there may not be sufficient liquidity in its securities when its stockholders wish to sell their shares.

If a holder of public shares exercises its conversion rights, then it will be exchanging its shares of Pivotal common stock for cash and will no longer own those shares.

Appraisal Rights

None of Pivotal’s stockholders, unitholders or warrant holders have appraisal rights in connection with the Business Combination under Delaware law.

Proxy Solicitation Costs

Pivotal is soliciting proxies on behalf of its board of directors. This solicitation is being made by mail but also may be made by telephone or in person. Pivotal and its directors, officers and employees may also solicit proxies in person, by telephone or by other electronic means. Pivotal will bear the cost of the solicitation.

Pivotal has hired                  to assist in the proxy solicitation process. Pivotal will pay that firm a fee of $                 plus disbursements. Such payment will be made from non-trust account funds.

Pivotal will ask banks, brokers and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. Pivotal will reimburse them for their reasonable expenses.

The Founder and Pivotal’s Officers and Directors

As of                 , 2019, the record date for the Pivotal annual meeting, the Founder and Pivotal’s officers and directors beneficially owned and were entitled to vote an aggregate of 5,750,000 shares of Class B common

 

55


Table of Contents

stock. These individuals and entities also purchased an aggregate of 6,350,000 private warrants simultaneously with the consummation of Pivotal’s initial public offering. The founder shares currently constitute 20% of Pivotal’s outstanding common stock.

In connection with Pivotal’s initial public offering, each of the Founder and Pivotal’s officers and directors have agreed to vote the founder shares, as well as any common stock acquired in the aftermarket, in favor of the business combination proposal. Each has also indicated that he, she or it intends to vote his, her or its shares in favor of all the other proposals being presented at the meeting. There are no redemption rights with respect to the founder shares in the event a business combination is not effected in the required time period and Pivotal is forced to redeem all of the public shares. Accordingly, the founder shares will be worthless if no business combination is consummated by Pivotal.

In connection with Pivotal’s initial public offering, the holders of Pivotal’s founder shares entered into a lock-up agreement pursuant to which they agreed not to transfer the founder shares (subject to limited exceptions) until one year after the consummation of an initial business combination or earlier if, subsequent to the consummation of an initial business combination, (i) the last sales price of Pivotal common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial business combination or (ii) Pivotal (or any successor entity) consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. Additionally, the holders of private warrants entered into a lock-up agreement pursuant to which they agreed not to transfer the private warrants or common stock underlying the private warrants (subject to limited exceptions) until thirty (30) days after the consummation of an initial business combination.

In connection with the Merger, the Founder agreed to enter into the Founder Lock-Up Agreement, pursuant to which an aggregate of 1,100,000 founder shares will be subject to additional transfer restrictions until the last sales price of Pivotal common stock equals or exceeds $15.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period. If the last reported sale price of Pivotal common stock does not equal or exceed $15.00 within five years from the consummation of the Business Combination, such founder shares will be forfeited to Pivotal for no consideration

At any time prior to the annual meeting, during a period when they are not then aware of any material nonpublic information regarding Pivotal or its securities, the Founder, Pivotal’s officers and directors, the Company, the Company’s stockholders and/or their respective affiliates may purchase shares from institutional and other investors who vote, or indicate an intention to vote, against the business combination proposal, or execute agreements to purchase such shares from such investors in the future, or they may enter into transactions with such investors and others to provide them with incentives to acquire Pivotal common stock or vote their shares in favor of the business combination proposal. The purpose of such share purchases and other transactions would be to increase the likelihood of satisfaction of the requirements to complete the Business Combination where it appears that such requirements would otherwise not be met. While the exact nature of any such incentives has not been determined as of the date of this proxy statement/prospectus, they might include, without limitation, arrangements to protect such investors or holders against potential loss in value of their shares, including the granting of put options and the transfer to such investors or holders of founder shares for nominal value.

Entering into any such arrangements may have a depressive effect on the shares of Pivotal common stock. For example, as a result of these arrangements, an investor or holder may have the ability to effectively purchase shares at a price lower than market and may therefore be more likely to sell the shares he owns, either prior to or immediately after the annual meeting.

If such transactions are effected, the consequence could be to cause the Business Combination to be approved in circumstances where such approval could not otherwise be obtained. Purchases of shares by the persons

 

56


Table of Contents

described above would allow them to exert more influence over the approval of the business combination proposal and the other proposals and would likely increase the chances that such proposals would be approved.

No agreements dealing with the above arrangements or purchases have been entered into as of the date of this proxy statement/prospectus. Pivotal will file a Current Report on Form 8-K to disclose arrangements entered into or significant purchases made by any of the aforementioned persons that would affect the vote on the business combination proposal or the net tangible asset threshold. Any such report will include descriptions of any arrangements entered into or significant purchases by any of the aforementioned persons.

 

57


Table of Contents

THE BUSINESS COMBINATION PROPOSAL

The discussion in this proxy statement/prospectus of the Business Combination and the principal terms of the Merger Agreement is subject to, and is qualified in its entirety by reference to, the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus.

Structure of the Transactions

The Merger Agreement provides, among other things, for Merger Sub to merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Pivotal. Pursuant to the Merger Agreement, each outstanding share of common stock of the Company will be converted into the right to receive a pro rata portion of (i) 34,800,000 shares of Pivotal common stock at the closing of the Merger and (ii) 2,200,000 additional shares of Pivotal common stock if the reported closing sale price of Pivotal common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger.

In connection with the Merger, each outstanding share of Pivotal’s Class B common stock, by its terms, will automatically convert into one share of Pivotal’s single class of common stock upon consummation of the Business Combination. Each outstanding warrant of Pivotal entitles the holder to purchase shares of Pivotal common stock beginning 30 days after the consummation of the Business Combination.

Headquarters; Trading Symbols

After completion of the transactions contemplated by the Merger Agreement:

 

   

the corporate headquarters and principal executive offices of Pivotal will be located at 8201 Greensboro Dr., Suite 300, McLean, VA 22102; and

 

   

Pivotal common stock and Pivotal’s warrants are expected to be traded on the NYSE under the symbols KLD and KLD WS, respectively.

Sale Restrictions

The stockholders of the Company receiving shares of Pivotal common stock in the Merger will be subject to a 12-month lock-up period for all shares of Pivotal common stock held by such holders, which period may be earlier terminated if the reported closing sale price of Pivotal common stock equals or exceeds $12.00 for a period of 20 consecutive trading days during any 30-trading day period commencing at least 150 days after the closing of the Merger. This lock-up is identical to the lock-up previously agreed to by the Founder and other holders of Pivotal’s founder shares.

Additionally, in connection with the Merger, the Founder agreed to enter into the Founder Lock-Up Agreement, pursuant to which an aggregate of 1,100,000 founder shares will be subject to transfer restrictions for the five-year period beginning upon consummation of the Business Combination until the last sales price of Pivotal common stock equals or exceeds $15.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period. If the last reported sale price of Pivotal common stock does not equal or exceed $15.00 within the required time period, such founder shares will be forfeited to Pivotal for no consideration.

Related Agreements

Stockholders’ Agreement

Affiliates of Carlyle and Revolution have entered into the Stockholders’ Agreement with Pivotal, pursuant to which the holders of a majority of the shares of Pivotal common stock held by such Carlyle affiliates and

 

58


Table of Contents

Revolution will have the right to designate up to six directors for election to Pivotal’s board of directors for so long as such Carlyle affiliates and Revolution maintain collective ownership of a certain percentage interest in Pivotal.

Registration Rights Agreement

Pursuant to the Registration Rights Agreement, the Company’s stockholders, the Founder and the other holders of founder shares will be granted certain rights to have registered, in certain circumstances, the resale under the Securities Act of the securities of Pivotal held by such holders, subject to certain conditions set forth therein.

Support Agreements

In connection with the execution of the Merger Agreement, stockholders of the Company who hold a majority of the Company’s outstanding stock entered into agreements pursuant to which they agreed to vote in favor of the Business Combination at a meeting of the Company’s stockholders called to approve the Business Combination (or to act by written consent approving the Business Combination).

Background of the Merger

Pivotal is a blank check company formed in order to effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more businesses or entities. Pivotal was incorporated under the laws of the State of Delaware on August 2, 2018.

The Business Combination with the Company is the result of an extensive search for a potential transaction utilizing the network and investing and transaction experience of Pivotal’s management team. The terms of the Merger Agreement are the result of arm’s-length negotiations between representatives of Pivotal and the Company. The following is a brief discussion of the background of these negotiations, the Merger Agreement and the Merger.

On February 4, 2019, Pivotal completed its initial public offering. Prior to the consummation of its initial public offering, neither Pivotal, nor anyone on its behalf, contacted any prospective target businesses or had any substantive discussions, formal or otherwise, with respect to a transaction with Pivotal.

From the date of Pivotal’s initial public offering through the signing of the Merger Agreement with the Company on May 20, 2019, representatives of Pivotal contacted and were contacted by a number of individuals and entities with respect to business combination opportunities and engaged with several possible target businesses in discussions with respect to potential transactions. During that period, Pivotal’s officers and directors identified and met with over 50 potential target businesses from a wide range of industry segments. The decision not to pursue any particular target business that Pivotal analyzed was generally the result of one or more of (i) Pivotal’s determination that such business did not represent as attractive a target as the Company due to a combination of business prospects, strategy, management teams, structure and valuation, (ii) a difference in valuation expectations between Pivotal, on the one hand, and the target and/or its owners, on the other hand, (iii) a potential target’s unwillingness to engage with Pivotal given the timing and uncertainty of closing due to the requirement for Pivotal stockholder approval or (iv) a potential target’s unwillingness to engage with Pivotal given conflicting business objectives on the target’s side.

Jonathan Ledecky and Christopher Weiler, chief executive officer of the Company, have been business acquaintances for more than 20 years. Following Pivotal’s initial public offering, Mr. Ledecky invited Mr. Weiler to lunch on February 7, 2019 so that he could update Mr. Weiler on his recent business activities, including the consummation of Pivotal’s initial public offering. Mr. Weiler also updated Mr. Ledecky on his current activities, including the business operations of KLDiscovery. Following this meeting, the two made arrangements to meet again to further discuss their activities and to determine whether a transaction between Pivotal and the Company could be considered.

 

59


Table of Contents

On February 18, 2019, Pivotal and the Company executed a non-disclosure agreement and on March 5, 2019, the Company began providing due diligence materials to Pivotal.

On March 25, 2019, the parties had a dinner meeting in Washington, DC to discuss the possibility of a transaction between Pivotal and the Company. Present at the meeting were Mr. Ledecky, William Darman of TCG, Evan Morgan, a former director of Pivotal and a special partner at RG, one of the Company’s stockholders, and Dan Akerson, Christopher Weiler and Dawn Wilson from KLDiscovery. At this time, Mr. Morgan was still a director of Pivotal.

On March 27, 2019, an initial draft of a letter of intent setting forth the proposed terms of a transaction between Pivotal and the Company was sent by Pivotal to the Company based on the meetings held between the parties up to such date. The initial draft of the letter of intent contemplated Pivotal issuing to the stockholders of the Company an aggregate of 33,500,000 shares of Pivotal common stock, which would constitute approximately 54% of the outstanding shares of Pivotal common stock on an after-issued basis.

On April 3, 2019, the parties had a meeting at TCG’s offices. Present at the meeting were Mr. Darman, Mr. Ledecky, Rodney Cohen of TCG, and Kevin Griffin, a director of Pivotal. At this meeting, the parties discussed the operations of Pivotal and the Company and the terms of the letter of intent, including the valuation of the Company and the resulting number of shares of Pivotal common stock to be issued to the stockholders of the Company in the proposed transaction.

On April 9, 2019, Pivotal, the Company and their respective legal counsel and auditors participated in a conference call to discuss the proposed transaction. Following this call, Pivotal circulated a revised draft of the letter of intent to representatives of the Company. The revised draft of the letter of intent contemplated Pivotal issuing to the stockholders of the Company an aggregate of 34,800,000 shares of Pivotal common stock, which would constitute approximately 56% of the outstanding shares of Pivotal common stock on an after-issued basis. The revised draft of the letter of intent also contemplated the stockholders of the Company having the right to receive 2,200,000 additional shares of Pivotal common stock if the reported closing sale price of Pivotal common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger. The parties agreed that the all-stock consideration in the proposed transaction would allow the combined company to use proceeds from Pivotal’s trust account to reduce the Company’s indebtedness post-closing. The reduction of debt would generate additional cash flow for the Company while positioning the Company to have a more attractive balance sheet for further organic growth and potential post-merger acquisition opportunities that might present themselves for the Company’s consideration.

On April 12, 2019, Mr. Morgan resigned from the board of directors of Pivotal in order to avoid any potential conflict of interest due to Mr. Morgan’s affiliation with both Pivotal and the Company.

On April 16, 2019, Graubard Miller, legal counsel to Pivotal, circulated an initial draft of the Merger Agreement to the Company and its legal representatives. The draft of the Merger Agreement reflected the terms of the revised letter of intent, which the parties determined not to execute and instead proceed straight to preparing the definitive documentation for the transaction.

On April 19, 2019, Latham & Watkins LLP, legal counsel to the Company (“Latham & Watkins”), circulated a revised draft of the Merger Agreement to Graubard Miller.

On April 22, 2019, the parties met at the offices of Cantor Fitzgerald & Co. (“Cantor”), the lead underwriter of Pivotal’s initial public offering, so that the bankers could get a better understanding of the Company’s operations and the potential economics of a transaction between Pivotal and the Company. Present at the meeting were representatives of Cantor, BTIG, LLC (“BTIG”), another underwriter in Pivotal’s initial public offering, Mr. Ledecky, Mr. Weiler, Ms. Wilson and Mr. Griffin.

 

60


Table of Contents

On April 23, 2019, Graubard Miller circulated a revised draft of the Merger Agreement.

On April 24, 2019, Latham & Watkins circulated a revised draft of the Merger Agreement to Graubard Miller.

On April 29, 2019, Cantor, BTIG and Pivotal had a telephone conference call to discuss, among other things, the timing of the potential transaction and a proposed requirement to have a certain minimum level of cash available to Pivotal upon the consummation of the transaction.

On April 29, 2019, Graubard Miller circulated a revised draft of the Merger Agreement.

On April 30, 2019, another meeting was held between Pivotal and its bankers to discuss the proposed transaction and various marketing aspects relating to the proposed transaction.

On May 1, 2019, Pivotal had another meeting with Cantor and BTIG to discuss the potential transaction.

From May 3 to May 9, 2019, the parties had introductory conversations with a small number of existing and potential investors of Pivotal on a confidential basis to gauge their interest in connection with the potential Business Combination with the Company. During these discussions, Messrs. Ledecky and Weiler reviewed with investors certain information regarding the Company and the combined company following the Business Combination, including certain financial projections regarding the Company’s business. Each potential investor was informed in advance that the information that would be shared constituted material non-public information, and each potential investor agreed to be bound by certain confidentiality obligations as well as a prohibition on trading the securities of Pivotal and using the information for purposes other than such potential investor’s potential investment in connection with the Business Combination

On May 10, 2019, Latham & Watkins sent a revised draft of the Merger Agreement to Graubard Miller. Latham & Watkins also sent drafts of various ancillary documents to the Merger Agreement to Graubard Miller.

On May 13, 2019, Graubard Miller sent a revised draft of the Merger Agreement to Latham & Watkins and commented on various ancillary documents. Also on May 13, 2019, Pivotal engaged Northland to provide it with the “fairness opinion” described below.

On May 14, 2019, Latham & Watkins sent a revised draft of the Merger Agreement to Graubard Miller and commented on various ancillary documents.

On May 15, 2019, Graubard Miller sent a revised draft of the Merger Agreement to Latham & Watkins.

On May 17, 2019, Pivotal’s board of directors met via teleconference. The entire board was present at the meeting. Also participating by invitation were James Brady, the chief financial officer of Pivotal, Greg Racz, an officer of the Founder, Jeffrey M. Gallant of Graubard Miller, counsel to Pivotal, and Jeff Peterson, Omar A. El-Sanjak, Matt Hansen and Kurtis Fechtmeyer of Northland (who were present only when they were making their presentation to the Pivotal board of directors). At this meeting, Messrs. Ledecky and Griffin gave an extensive presentation about the proposed Business Combination, including potential risks relevant to the Company’s business. The representatives from Northland made a presentation to the board of directors, discussed valuation methodologies and concluded by stating that they believed that the consideration to be paid by Pivotal in the Business Combination was fair to Pivotal from a financial point of view and that the value of the Company as a whole was at least equal to 80% of the amount held in the Pivotal’s trust account (excluding deferred underwriting commissions). After considerable review and discussion of the transaction, the Merger Agreement and related documents were unanimously approved, subject to final negotiations and modifications, and the board of directors determined to recommend the approval of the merger transaction to its stockholders. The Pivotal board of directors also concluded that, based on the report and presentation of Northland, the fair market value of the Company was equal to at least 80% of the funds held in Pivotal’s trust account (excluding deferred underwriting commissions).

 

61


Table of Contents

On May 17, 2019, the parties discussed the composition of the initial post-merger board of directors of Pivotal and agreed upon the individuals that would make up the board. It was determined that the majority of directors would come from the Company’s existing directors with Pivotal appointing Messrs. Ledecky and Griffin. Messrs. Ledecky’s and Griffin’s continued involvement was based in part on their extensive relationships with individuals and companies that might be potential customers or acquisition candidates for the Company following closing of the proposed transaction.

Legal counsel to the parties continued to exchange comments to the Merger Agreement and ancillary documents until all agreements were finalized on May 20, 2019.

The Merger Agreement was signed on May 20, 2019. After market close on May 20, 2019, Pivotal and the Company jointly issued a press release announcing the signing of the Merger Agreement. Prior to the market open on May 21, 2019, Pivotal filed a Current Report on Form 8-K announcing the execution of the Merger Agreement and discussing the key terms of the Merger Agreement in detail.

Pivotal’s Board of Directors’ Reasons for Approval of the Business Combination

In evaluating the Business Combination, Pivotal’s board of directors consulted with Pivotal’s management and legal and financial advisors, including Northland. Pivotal’s board of directors reviewed various industry and financial data in order to determine that the consideration to be paid was reasonable and that the Business Combination was in the best interests of Pivotal’s stockholders. The financial data reviewed included the historical and projected consolidated financial statements of the Company, comparable publicly traded company analyses prepared by management, an analysis of pro forma capital structure and trading multiples prepared by management, and similar and other analyses provided by Northland.

Pivotal’s management conducted a due diligence review of the Company that included an industry analysis, an analysis of the existing business model of the Company and historical and projected financial results. Pivotal’s management, including its directors and advisors, has many years of experience in both operational management and investment and financial management and analysis and, in the opinion of Pivotal’s board of directors, was suitably qualified to conduct the due diligence and other investigations and analyses required in connection with the search for a business combination partner. A detailed description of the experience of Pivotal’s executive officers and directors is included in the section of this proxy statement/prospectus entitled “Other Information Related to Pivotal—Directors and Executive Officers.”

In reaching its unanimous resolution (i) that the terms and conditions of the Merger Agreement, including the proposed Business Combination, are advisable, fair to and in the best interests of Pivotal and its stockholders and (ii) to recommend that stockholders adopt and approve the Merger Agreement and approve the Merger contemplated therein, Pivotal’s board of directors considered a range of factors, including but not limited to, the factors discussed below. In light of the number and wide variety of factors, Pivotal’s board of directors did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its determination. Pivotal’s board of directors viewed its position as being based on all of the information available and the factors presented to and considered by it. In addition, individual directors may have given different weight to different factors. This explanation of Pivotal’s reasons for the Business Combination and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the section of this proxy statement/prospectus entitled “Forward-Looking Statements.”

In considering the Business Combination, Pivotal’s board of directors gave considerable weight to the following factors:

 

   

Experienced Leadership Team with a Proven Track Record. The Company is led by Christopher Weiler, one of the longest tenured chief executive officers in the eDiscovery industry, with a proven track record of acquisition execution;

 

62


Table of Contents
   

Commitment of Current Stockholders. The Company’s current stockholders were retaining 100% of their equity interests in the Business Combination, which the Pivotal board believed reflects their belief in and commitment to the continued growth prospects of the combined company;

 

   

Platform for Future Acquisitions. The Company provides an optimal platform for future strategic acquisitions and tuck-ins with its proven track record of M&A execution and the ample opportunity to consolidate the highly fragmented eDiscovery industry;

 

   

Top Tier Ownership from TCG and RG. TCG’s U.S. Equity Opportunity Fund is a successful middle-market private equity firm focusing on a broad range of small and middle market equity transactions. RG is a Washington D.C.-based growth stage venture capital firm which invests in and actively helps build disruptive, innovative and significant new category-defining companies;

 

   

Attractive Valuation. Pivotal’s board of directors believes the Company’s implied valuation following the Business Combination relative to the current valuations experienced by comparable publicly traded companies in the legal technology sector is favorable for Pivotal.

Pivotal’s board of directors also considered a variety of uncertainties and risks and other potentially negative factors concerning the Business Combination, including, but not limited to, the following:

 

   

Macroeconomic Risks. Macroeconomic uncertainty and the effects it could have on the combined company’s revenues;

 

   

Benefits Not Achieved. The risk that the potential benefits of the Merger may not be fully achieved or may not be achieved within the expected timeframe;

 

   

Competition. Competition in the Company’s industry is intense and often results in price wars, thereby potentially lowering the Company’s profits;

 

   

Indebtedness. The Company’s level of indebtedness was approximately $456.8 million as of the signing of the Merger Agreement and such debt potentially could put pressure on the Company’s operations;

 

   

Ability to Grow through Acquisitions. The Company intends to be acquisitive going forward; however, this puts pressure on management time to properly analyze and diligence potential target businesses;

 

   

Loss of Key Personnel. Key personnel in the Company’s industry is vital and competition for such personnel is intense. The loss of any key personnel could be detrimental to the Company’s operations; and

 

   

Other Risks. Various other risks associated with the Company’s business, as described in the section entitled “Risk Factors” appearing elsewhere in this proxy statement/prospectus.

Pivotal’s board of directors concluded that the potential benefits that it expected Pivotal and its stockholders to achieve as a result of the Merger outweighed the potentially negative factors associated with the Merger. Accordingly, Pivotal’s board of directors unanimously determined that the Merger Agreement and the Merger contemplated therein were advisable, fair to and in the best interests of Pivotal and its stockholders.

Certain Forecasted Financial Information for the Company

The Company provided Pivotal with its internally prepared forecasts described below. These forecasts were prepared solely for internal use and capital budgeting and other management purposes, are subjective in many respects and therefore susceptible to varying interpretations and the need for periodic revision based on actual experience and business developments, and were not intended for third-party use, including by investors or holders. You are cautioned not to rely on the forecasts in making a decision regarding the Business Combination, as the forecasts may be materially different than actual results.

 

63


Table of Contents

The forecasts are based on information as of the date of this proxy statement/prospectus and reflect numerous assumptions, including assumptions with respect to general business, economic, market, regulatory and financial conditions and various other factors, all of which are difficult to predict and many of which are beyond the Company’s control, such as the risks and uncertainties described in the section entitled “Risk Factors” appearing elsewhere in this proxy statement/prospectus. The Company’s management used a number of key assumptions in determining its financial projections. Specifically, the Company’s management forecast a compound annual growth rate (“CAGR”) for revenue of 6.2%, which is based on historical growth rates for the Company’s business, projected CAGRs for the industry and the time period necessary to ramp up the Company’s newly acquired sales people. Additionally, the Company’s management expects Adjusted EBITDA margin and Gross Profit margins, and therefore the underlying Adjusted EBITDA and Gross Profit numbers, to expand in 2019 due to revenue optimization, expense realignment and variable software cost efficiencies. Lastly, with respect to Adjusted EBITDA margins in 2020 and 2021, the Company’s management expects them to remain consistent at 26% and Gross Profit margins to remain consistent at 58%, reflecting steady-state cost of revenues and consistency in the Company’s service offering mix.

Although the assumptions and estimates on which the forecasts for revenue and costs are based are believed by the Company’s management to be reasonable and based on the best then-currently available information, the financial forecasts are forward-looking statements that are based on assumptions that are inherently subject to significant uncertainties and contingencies, many of which are beyond the Company’s control. While all forecasts are necessarily speculative, the Company believes that the prospective financial information covering periods beyond twelve months from its date of preparation carries increasingly higher levels of uncertainty and should be read in that context. There will be differences between actual and forecasted results, and actual results may be materially greater or materially less than those contained in the forecasts. The inclusion of the forecasted financial information in this proxy statement/prospectus should not be regarded as an indication that the Company or its representatives considered or consider the forecasts to be a reliable prediction of future events, and reliance should not be placed on the forecasts.

The forecasts were requested by, and disclosed to, Pivotal for use as a component in its overall evaluation of the Company, and are included elsewhere in this proxy statement/prospectus on that account. The Company has not warranted the accuracy, reliability, appropriateness or completeness of the forecasts to anyone, including to Pivotal. Neither the Company’s management nor any of its representatives has made or makes any representation to any person regarding the ultimate performance of the Company compared to the information contained in the forecasts, and none of them intends to or undertakes any obligation to update or otherwise revise the forecasts to reflect circumstances existing after the date when made or to reflect the occurrence of future events in the event that any or all of the assumptions underlying the forecasts are shown to be in error. Accordingly, they should not be looked upon as “guidance” of any sort. The Company will not refer back to these forecasts in its future periodic reports filed under the Exchange Act.

The Company does not as a matter of course make public projections as to future sales, earnings or other results. However, the Company’s management has prepared the prospective financial information set forth below to present the key elements of the forecasts provided to Pivotal. The accompanying prospective financial information was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of the Company’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of the Company. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the prospective financial information. Neither the Company’s independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the prospective financial information contained herein, nor have they expressed any opinion or any other form of assurance on such

 

64


Table of Contents

information or its achievability, and assume no responsibility for, and disclaim any association with, the prospective financial information.

The key elements of the forecasts provided to Pivotal are summarized below:

 

     Fiscal Year Ended December 31,  

($ in millions)

   2019E      2020E      2021E  

Revenue

   $ 310      $ 347      $ 372  

Adjusted EBITDA (1)(2)

     75        91        98  

Gross Profit (3)

     172        202        218  

 

(1)

The Company defines Adjusted EBITDA as operating income from continued operations plus depreciation and amortization expense, stock based compensation expenses, acquisition related expenses, restructuring charges and other items not reflective of our ongoing business.

(2)

The Company is unable to predict with reasonable certainty factors such as costs and other one-time items related to this transaction, future changes in interest rates, effective income tax rate, the future impact of unusual gains and losses, restructuring, acquisition and integration-related costs and stock based compensation due to the timing of future awards, without unreasonable effort. These items are uncertain, and depend on various factors and so this reconciliation has not been provided. These items and factors could be material to the Company’s results computed in accordance with U.S. GAAP.

(3)

Gross Profit does not include amortization of acquired developed technology intangibles reflected in the U.S. GAAP financial statements.

Opinion of Financial Advisor

In making its determination with respect to the Business Combination, Pivotal’s board of directors also considered the financial analyses prepared by Northland, and the opinion of Northland as of May 17, 2019, as to (i) the fairness, from a financial point of view, to Pivotal of the Merger Consideration to be paid pursuant to the Merger Agreement and (ii) whether the business acquired had a combined fair market value equal to at least 80% of the balance of funds in Pivotal’s trust account (excluding deferred underwriting commissions).

Pivotal’s board of directors retained Northland to provide a fairness opinion in connection with its consideration of the Merger. On May 17, 2019, at a meeting of Pivotal’s board of directors held to evaluate the proposed transaction, Northland delivered an oral opinion, subsequently confirmed by delivery of a written opinion to Pivotal’s board of directors, to the effect that, as of that date and based upon and subject to the factors and assumptions set forth therein, (i) the Merger Consideration to be paid by Pivotal in the Business Combination pursuant to the Merger Agreement is fair, from a financial point of view, to Pivotal, and (ii) the fair market value of the Company equals or exceeds 80% of the amount held by Pivotal in trust for benefit of its public stockholders (excluding any deferred underwriting commissions).

The full text of the written opinion of Northland, dated May 17, 2019, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached to this proxy statement/prospectus as Annex D. The following summary of Northland’s opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Northland provided its opinion for the information and assistance of Pivotal’s board of directors in connection with its consideration of the Business Combination. Northland’s opinion was not intended to and does not constitute a recommendation as to how any holder of Pivotal common stock should vote or take any action with respect to the Business Combination or any other matter.

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

 

   

reviewed the financial terms of a draft of the Merger Agreement received on May 15, 2019;

 

   

reviewed and analyzed certain historical financial, operating and business information related to the Company;

 

65


Table of Contents
   

reviewed and analyzed certain internal financial projections of the Company prepared for financial planning purposes and furnished by the management of the Company;

 

   

reviewed and analyzed certain publicly available information related to Pivotal;

 

   

reviewed and analyzed certain historical financial, operating, market and securities data of Pivotal publicly available or furnished by the management of Pivotal, as applicable;

 

   

conducted discussions with members of management of Pivotal with respect to Pivotal’s strategic reasons for pursuing the Merger and Pivotal’s valuation of the Company;

 

   

conducted discussions with members of management of Pivotal and the Company with respect to the business and prospects of Pivotal and the Company, respectively, on a stand-alone basis and on a combined basis;

 

   

reviewed and analyzed the reported prices and trading activity of shares of Pivotal common stock;

 

   

compared the financial performance of the Company with that of certain other publicly traded companies deemed by Northland to be comparable to the Company;

 

   

to the extent publicly available, reviewed and analyzed financial terms of certain acquisition transactions involving companies operating in businesses and industries deemed similar to that in which the Company operates and selected companies deemed by Northland to be comparable to the Company;

 

   

performed discounted cash flows analyses on the Company incorporating various assumptions provided to Northland by the management of each of Pivotal and the Company; and

 

   

compared the fair market value of the Company implied by the various financial analyses that Northland conducted to the amount held by Pivotal in trust for the benefit of its public stockholders (excluding any deferred underwriting commissions), as provided by management of the Company and Pivotal, as applicable.

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

Summary of Financial Analyses

In accordance with customary investment banking practice, Northland employed generally accepted valuation methods in reaching its fairness opinion. The following is a summary of the material financial analyses performed by Northland in connection with the preparation of its fairness opinion, which was reviewed with, and formally delivered to, Pivotal’s board of directors at a meeting held on May 17, 2019. The preparation of analyses and a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, this summary does not purport to be a complete description of the analyses performed by Northland or of its presentation to Pivotal’s board of directors on May 17, 2019.

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 Northland. 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 an indication of the relative importance or weight given to these analyses by Northland or Pivotal’s board of directors. 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 May 14, 2019 and is not necessarily indicative of current market conditions. All analyses conducted by Pivotal were going concern analyses and Northland expressed no opinion regarding the liquidation value of any entity.

 

66


Table of Contents

The Merger Consideration was determined through arm’s-length negotiations between Pivotal and the Company and was approved by Pivotal’s board of directors. Northland did not provide advice to Pivotal’s board of directors during these negotiations nor recommend any specific consideration to Pivotal or Pivotal’s board of directors or suggest that any specific consideration constituted the only appropriate consideration for the Merger, including but not limited to the Merger Consideration. In addition, Northland’s opinion and its presentation to Pivotal’s board of directors were one of many factors taken into consideration by Pivotal’s board of directors in deciding to approve the Merger.

For purposes of its financial analyses, Northland utilized the Company’s internal financial projections for the fiscal years ending December 31, 2019 and December 31, 2020, prepared by and furnished to Northland by the management of Pivotal and the Company.

Further, Northland was advised by the management of Pivotal, and Northland assumed with the consent of the management of Pivotal, that, as of the date of its opinion, the amount held by Pivotal in trust for the benefit of its public stockholders (excluding any deferred underwriting commissions) was equal to $223.3 million.

Comparable Public Company Analysis

Northland reviewed, among other things, selected historical financial data and estimated financial data of the Company based on projections provided by its management, and compared them to corresponding financial data, where applicable, for U.S. listed public companies that Northland deemed comparable to the Company. Northland also derived multiples for each of the comparable companies and the Company based on such financial data and market trading prices, as applicable, and compared them. Northland selected these companies based on characteristics described below using the most recently available public information obtained by searching SEC filings, public company disclosures, press releases, equity research reports, industry and popular press reports, databases and other sources.

Although Northland selected the companies reviewed in these analyses because, among other things, their businesses are reasonably similar to that of the Company, no selected company is identical to the Company. Accordingly, Northland’s comparison of selected companies to the Company and analysis of the results of such comparison was not purely quantitative, but instead necessarily involved qualitative considerations and professional judgments concerning differences in financial and operating characteristics and other factors that could affect the relative value of the Company.

The comparable group consisted of sixteen (16) U.S. publicly traded companies that have financial profiles deemed comparable to the Company, divided into two sections: (1) vertically focused software companies and (2) data protection and archiving companies. Collectively, such group is referred to in this proxy statement/prospectus as the “Comparable Group.” Based on these criteria, Northland identified and analyzed the following selected companies:

Vertically Focused Software Companies:

 

   

Benefitfocus, Inc.

 

   

Blackbaud, Inc.

 

   

BlackLine, Inc.

 

   

Bottomline Technologies (de), Inc.

 

   

Cornerstone OnDemand, Inc.

 

   

RealPage, Inc.

 

   

SPS Commerce, Inc.

 

67


Table of Contents
   

SS&C Technologies Holdings, Inc.

 

   

Tyler Technologies, Inc.

 

   

Upland Software, Inc.

Data Protection and Archiving Companies:

 

   

Carbonite, Inc.

 

   

Commvault Systems, Inc.

 

   

j2 Global, Inc.

 

   

Open Text Corporation

 

   

Progress Software Corporation

 

   

Zix Corporation

In all instances, multiples were based on closing stock prices on May 14, 2019. With respect to the Comparable Group table below, the information Northland presented included the following valuation and operating data:

 

   

multiple of enterprise value to revenue for the last twelve months (“EV / LTM Revenue”)

 

   

multiple of enterprise value to gross profit for the last twelve months (“EV / LTM Gross Profit”)

 

   

multiple of enterprise value to EBITDA for the last twelve months (“EV / LTM EBITDA”)

 

   

multiple of enterprise value to estimated 2019 revenue (“EV / 2019E Revenue”)

 

   

multiple of enterprise value to estimated 2019 gross profit (“EV / 2019E Gross Profit”)

 

   

multiple of enterprise value to estimated 2019 EBITDA (“EV / 2019E EBITDA”)

 

   

multiple of enterprise value to estimated 2020 revenue (“EV / 2020E Revenue”)

 

   

multiple of enterprise value to estimated 2020 gross profit (“EV / 2020E Gross Profit”)

 

   

multiple of enterprise value to estimated 2020 EBITDA (“EV / 2020E EBITDA”)

 

     Comparable Group  
     25th
Percentile
     Mean      Median      75th
Percentile
 

EV / LTM Revenue (1)

     4.8x        6.3x        5.7x        7.6x  

EV / LTM Gross Profit (1)

     8.2x        10.3x        10.0x        12.9x  

EV / LTM EBITDA (1)(2)

     15.2x        27.4x        22.8x        29.1x  

EV / 2019E Revenue (3)

     4.4x        5.4x        5.1x        6.4x  

EV / 2019E Gross Profit (3)

     5.9x        8.2x        8.2x        9.7x  

EV / 2019E EBITDA (2)(3)

     11.7x        22.9x        20.3x        25.5x  

EV / 2020E Revenue (3)

     3.9x        4.9x        4.9x        5.8x  

EV / 2020E Gross Profit (3)

     5.7x        7.3x        7.3x        9.2x  

EV / 2020E EBITDA (2)(3)

     11.0x        20.3x        17.2x        21.9x  

 

(1)

LTM period for the selected public company analysis is based on the latest publicly reported financial results for such company. For the Company, LTM financial results are as of December 31, 2018.

(2)

EBITDA is defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation and one-time non-recurring items.

(3)

Projected calendar year 2019 and 2020 revenue, gross profit and EBITDA, as applicable, for the Company were based on projections provided by management of Pivotal and the Company. Projected calendar year 2019 and 2020 revenue, gross profit and EBITDA, as applicable, for the selected public companies were based on equity research analyst consensus estimates.

 

68


Table of Contents

Based on the analysis above, Northland then applied a private company discount of 30.0% to the equity values of the Comparable Group and applied the range of Comparable Group trading multiples to the applicable revenue, gross profit and EBITDA metrics of the Company. The analysis indicated the following implied enterprise value of the Company as compared to the Company’s projections:

 

           Implied Enterprise Value of the Company  

(dollars in millions)

   The Company     25th
Percentile
     Mean      Median      75th
Percentile
 

LTM Revenue

   $ 296.2     $ 1,015      $ 1,351      $ 1,254      $ 1,606  

LTM Gross Profit

   $ 149.9  (1)    $ 851      $ 1,222      $ 1,112      $ 1,383  

LTM EBITDA

   $ 54.6     $ 610      $ 903      $ 849      $ 1,092  

2019E Revenue

   $ 310.0     $ 1,006      $ 1,203      $ 1,206      $ 1,354  

2019E Gross Profit

   $ 172.3  (1)    $ 752      $ 1,015      $ 1,057      $ 1,244  

2019E EBITDA

   $ 74.7     $ 669      $ 1,020      $ 1,035      $ 1,395  

2020E Revenue

   $ 347.2     $ 1,038      $ 1,219      $ 1,270      $ 1,397  

2020E Gross Profit

   $ 202.2  (1)    $ 864      $ 1,072      $ 1,038      $ 1,339  

2020E EBITDA

   $ 91.3     $ 732      $ 1,067      $ 1,153      $ 1,366  

 

(1)

Gross Profit does not include amortization of acquired developed technology intangibles reflected in the U.S. GAAP financial statements.

Comparable M&A Transaction Analysis

Northland performed a comparable M&A transaction analysis, which is designed to imply a value for a company based on publicly available financial terms of the selected transactions that share some characteristics with the Merger. Northland selected these transactions based on information obtained by searching SEC filings, public company disclosures, press releases, equity research reports, industry and popular press reports, databases and other sources. Northland selected these transactions based on the following criteria:

 

   

transactions with a company operating within vertically focused software, document management, eDiscovery, data archiving, data recovery or risk mitigation services;

 

   

transactions announced since January 1, 2015; and

 

   

transactions with publicly available information regarding terms of the transaction.

The group was comprised of the following transactions and is referred to in this proxy statement/prospectus as the “Precedent Transaction Group”:

 

Company

  

Buyer

Ellie Mae, Inc.    Thoma Bravo, LLC
Voalte, Inc.    Hill-Rom, Inc.
MicroPact Inc.    Tyler Technologies, Inc.
AppRiver, LLC    Zix Corporation
Visual Compliance    The Descartes Systems Group Inc.
Prescribe Wellness, LLC    Tabula Rasa HealthCare, Inc.
Datawatch Corporation    Altair Engineering Inc.
Viewpoint, Inc.    Trimble Inc.
RPX Corporation    Silver Lake Partners
CM2.Com, Inc.    Zix Corporation
Aconex Limited    Vantive Australia Pty Ltd
Barracuda Networks, Inc.    Thomas Bravo, LLC
Guidance Software, Inc.    Open Text Corporation
Kofax Limited    Thomas Bravo, LLC
Epiq Systems, Inc.    DTI

 

69


Table of Contents

Company

  

Buyer

Recommind, Inc.    Open Text Corporation
Recall Holdings Limited    Iron Mountain Incorporated
SolarWinds Corporation    Silver Lake Partners
LDiscovery, LLC    The Carlyle Group
Huron Consulting Group Inc.    Consilio LLC
Daegis Inc.    Open Text Corporation
Aderant Holdings, Inc.    Roper Technologies, Inc.
Intronis, Inc.    Barracuda Networks, Inc.
Kofax Limited    Lexmark International
Iris Data Services, Inc.    Epiq Systems, Inc.

With respect to the Precedent Transaction Group, Northland calculated the ratio of implied enterprise value to historical revenue and EBITDA for the LTM period and projected revenue and EBITDA for the next twelve month period (the “NTM period”). Northland then compared the results of these calculations with similar calculations for the Company.

The selected transactions analysis showed that, based on the estimates and assumptions used in the analysis, the implied valuation multiples of the Company were within the range of valuation multiples of the Precedent Transaction Group when comparing the ratio of the implied enterprise value to the revenue and EBITDA for the LTM period and NTM period.

Results of Northland’s analysis were presented for the Precedent Transaction Group, as shown in the following table:

 

     Precedent Transaction Group  

(dollars in millions)

   25th
Percentile
     Mean      Median      75th
Percentile
 

Implied EV

   $ 163.0      $ 829.7      $ 268.5      $ 1,200.3  

Implied EV to LTM Revenue (1)

     2.4x        4.2x        3.2x        5.4x  

Implied EV to LTM EBITDA (1)

     11.3x        23.2x        15.5x        33.0x  

Implied EV to NTM Revenue (1)

     2.2x        4.1x        3.1x        6.1x  

Implied EV to NTM EBITDA (1)

     13.5x        17.0x        18.7x        19.8x  

 

(1)

The LTM period and NTM period for the Precedent Transaction Group are based on latest publicly reported financial results.

Based on the analysis above, Northland then applied the range of the Precedent Transaction Group trading multiples to the applicable financial metrics of the Company. The analysis indicated the following implied enterprise value of the Company:

 

       Precedent Transaction Group  

(dollars in millions)

   The Company      25th
Percentile
     Mean      Median      75th
Percentile
 

LTM Revenue (1)

   $ 296.2      $ 699      $ 1,237      $ 948      $ 1,587  

LTM EBITDA (1)

   $ 54.6      $ 617      $ 1,267      $ 846      $ 1,801  

NTM Revenue (1)

   $ 310.0      $ 685      $ 1,277      $ 953      $ 1,876  

NTM EBITDA (1)

   $ 74.6      $ 1,011      $ 1,268      $ 1,394      $ 1,477  

 

(1)

LTM period for the Company is as of December 31, 2018.

No target company or transaction utilized in the comparable M&A transaction analysis is identical to the Company or the Merger. In evaluating the precedent transactions, Northland made judgments and assumptions

 

70


Table of Contents

with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the business of the Company or the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of the Company, the industry or the financial markets in general.

Discounted Cash Flow Analysis

The discounted cash flow analysis is a widely used valuation methodology that relies upon numerous assumptions, including asset growth rates, earnings growth rates, discount rates and terminal multiples, and the results of such methodology are highly dependent on these assumptions. The analysis does not purport to be indicative of the actual or expected implied enterprise value of the Company or Pivotal on a stand-alone or a pro forma combined basis. In addition, the analysis is based on internal financial projections provided and approved for use by management of the Company and Pivotal. For its analysis, Northland did not include the value of any outstanding federal net operating losses in the implied enterprise value for the Company.

Using such discounted cash flows analysis, Northland calculated an estimated range of implied enterprise values for the Company based on the net present value of hypothetical cash flows through fiscal year 2023 utilizing financial projections for fiscal years 2019 through 2023 provided by, and approved for use by, the management of Pivotal and the Company. Northland calculated the range of net present values based on EBITDA exit multiples ranging from 8.0x to 10.0x and discount rates ranging from 12.5% to 16.5%, based on a weighted average cost of capital analysis. This analysis resulted in an implied enterprise value of the Company ranging from a low of $788 million to a high of $913 million. Northland also calculated the range of net present values based on discount rates ranging from 12.5% to 16.5%, based on a weighted average cost of capital analysis. This analysis resulted in an implied enterprise value of the Company ranging from a low of $741 million to a high of $837 million. Northland observed that the Merger Consideration (whether including or excluding the Contingent Consideration) was below the ranges of implied enterprise values of the Company derived from this analysis.

Miscellaneous

The summary set forth above does not contain a complete description of the analyses performed by Northland, but does summarize the material analyses performed by Northland in rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Northland 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 Northland opinion. In arriving at its opinion, Northland considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis. Instead, Northland made its determination as to fairness on the basis of its experience and financial judgment after considering the results of all of its analyses. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that this analysis was given greater weight than any other analysis. In addition, the ranges of valuations resulting from any particular analysis described above should not be taken to be Northland’s view of the actual value of the Company or the combined company.

No company or transaction used in the above analyses as a comparison is directly comparable to Pivotal, the Company, the Merger or the other transactions contemplated by the Merger Agreement. Accordingly, an analysis of the results of the comparisons is not mathematical; rather, it involves complex considerations and judgments about differences in the companies and transactions to which Pivotal, the Company and the Business Combination were compared and other factors that could affect the public trading value or transaction value of the companies involved, as applicable.

Northland performed its analyses solely for purposes of providing its opinion to Pivotal’s board of directors. In performing its analyses, Northland made numerous assumptions with respect to industry performance, general

 

71


Table of Contents

business and economic conditions and other matters. Certain of the analyses performed by Northland are based upon forecasts of future results furnished to Northland by outside financial advisors and confirmed by members of Pivotal’s board of directors and the management of Pivotal and the Company, which are not necessarily indicative of actual future results and may be significantly more or less favorable than actual future results. These forecasts 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. Northland does not assume responsibility if future results are materially different from forecasted results.

Northland 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 Northland or discussed with or reviewed by Northland. Northland further relied upon the assurances of the management of Pivotal and the Company that the financial information provided to Northland was prepared on a reasonable basis in accordance with industry practice, and that the management of each of Pivotal and the Company was not aware of any information or facts that would make any information provided to Northland incomplete or misleading. Without limiting the generality of the foregoing, for the purpose of Northland’s opinion, Northland assumed that with respect to financial forecasts, estimates of net operating loss tax benefits or other estimates and other forward-looking information reviewed by Northland, that such information was reasonably prepared based on assumptions reflecting the best currently available estimates and judgments of the management of Pivotal and the Company as to the expected future results of operations and financial condition of Pivotal, the Company and the combined company following the consummation of the Business Combination. Northland expressed no opinion as to any such financial forecasts, net operating loss or other estimates or forward-looking information or the assumptions on which they were based. Northland relied, with Pivotal’s consent, on advice of outside counsel and Pivotal’s independent registered public accounting firm, and on the assumptions of the management of Pivotal and the Company, as to all accounting, legal, regulatory, tax and financial reporting matters with respect to Pivotal, the Company and the Business Combination. Northland’s opinion does not address any accounting, legal, regulatory, tax or financial reporting matters.

In arriving at its opinion, Northland assumed that the executed Merger Agreement was in all material respects identical to the last draft reviewed by Northland on May 15, 2019. Northland 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 were true and correct, (ii) each party to such agreements would fully and timely perform all of the covenants and agreements required to be performed by such party pursuant to the Merger Agreement, (iii) the Business Combination would be consummated pursuant to the terms of the Merger Agreement without amendments thereto and (iv) all conditions to the consummation of the Business Combination would be satisfied without waiver by any party of any conditions or obligations thereunder. Additionally, Northland assumed that all the necessary regulatory approvals and consents required for the Business Combination would be obtained in a manner that would not adversely affect Pivotal, the Company or the contemplated benefits of the Business Combination.

In arriving at its opinion, Northland did not perform any appraisals, valuations or other independent analyses of any specific assets or liabilities (fixed, contingent or other) of Pivotal or the Company, and was not furnished or provided with any such appraisals or valuations, nor did Northland evaluate the solvency of Pivotal or the Company under any state or federal law relating to bankruptcy, insolvency or similar matters. The analyses performed by Northland in connection with its opinion were going concern analyses. Northland expressed no opinion regarding the liquidation value of Pivotal, the Company or any other entity. Without limiting the generality of the foregoing, Northland undertook no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities to which Pivotal, the Company or any of its affiliates was a party or may be subject, and at the direction of Pivotal and with its consent, Northland’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. Northland also assumed that neither Pivotal nor the Company is a party to any material pending transaction, including without limitation any financing, recapitalization, acquisition or merger, other than the Business Combination.

 

72


Table of Contents

Northland’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. Northland did not express any opinion as to the price at which shares of Pivotal common stock have traded or may trade following announcement of the Business Combination or at any future time. Northland 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.

Northland’s opinion addressed solely (i) the fairness, from a financial point of view, to Pivotal of the Merger Consideration to be paid in the Business Combination pursuant to the Merger Agreement, and (ii) whether the fair market value of the Company equals or exceeds 80% of the amount held by Pivotal in trust for benefit of its public stockholders (excluding any deferred underwriting commissions), and did not address any other terms or agreement relating to the Business Combination or related transactions. Northland was not requested to opine as to, and its opinion does not address, the basic business decision to proceed with or effect the Business Combination, the merits of the Business Combination relative to any alternative transaction or business strategy that may be available to Pivotal or any other terms contemplated by the Merger Agreement. Furthermore, Northland expressed no opinion with respect to the amount or nature of the compensation to any officer, director or employee, or any class of such persons, relative to the compensation to be received by the holders of any class of securities, creditors or other constituencies of Pivotal or the Company in the Business Combination, or relative to or in comparison with the Merger Consideration.

Northland is a nationally recognized investment banking firm and regularly provides fairness opinion services in connection with mergers and acquisitions, underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Pivotal’s board of directors selected Northland to render its fairness opinion in connection with the Business Combination contemplated by the Merger Agreement on the basis of its experience and reputation in providing fairness opinions in connection with mergers, acquisitions and other similar transactions.

Pursuant to the terms of the engagement letter dated May 13, 2019, Northland rendered to Pivotal’s board of directors a fairness opinion in connection with the Business Combination and will receive an aggregate fee of $250,000 from Pivotal of which $50,000 was due upon delivery of the fairness opinion with the remaining $200,000 due upon the consummation of the Merger (collectively, the “Opinion Fee”). The Opinion Fee was not contingent on the conclusions reached in Northland’s opinion. Additionally, Pivotal has agreed to indemnify Northland against certain liabilities and to reimburse Northland for certain expenses in connection with its services. Furthermore, Northland was not requested to, and did not, (i) participate in negotiations with respect to the Merger Agreement, (ii) solicit any expressions of interest from any other parties with respect to any business combination with Pivotal or any other alternative transaction or (iii) advise Pivotal’s board of directors or any other party with respect to alternatives to the Business Combination. In addition, Northland was not requested to and did not provide advice regarding the structure or any other aspect of the Business Combination or services other than the delivery of its opinion. Northland has not otherwise acted as financial advisor to any party to the Business Combination. In the ordinary course of its business, Northland and its affiliates may actively trade securities of Pivotal 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. Northland has not received fees or other compensation from Pivotal or the Company in the past two years prior to the issuance of its opinion. Northland and its affiliates may from time to time perform various investment banking and financial advisory services for Pivotal and for other clients and customers that may have conflicting interests with Pivotal, for which Northland would expect to receive compensation.

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

 

73


Table of Contents

Satisfaction of 80% Test

It is a requirement under Pivotal’s current amended and restated certificate of incorporation that any business acquired by Pivotal have a fair market value equal to at least 80% of the balance of the funds in the trust account (excluding the deferred underwriting commissions) at the time of the execution of a definitive agreement for an initial business combination. Based on the financial analyses used to approve the Business Combination described herein, Pivotal’s board of directors determined that this requirement was met. In reaching this determination, Pivotal’s board of directors concluded that it was appropriate to base such valuation on qualitative factors such as management strength and depth, competitive positioning, customer relationships and technical skills as well as quantitative factors such as the historical growth rate and potential for future growth in revenues and profits of the Company. Pivotal’s board of directors believes that the financial skills and background of its members qualify it to conclude that the acquisition met this requirement. In addition, Pivotal’s board of directors considered the financial analyses prepared by Northland, and the opinion of Northland as of May 17, 2019, as to whether the business acquired has a fair market value equal to at least 80% of the balance of the funds in Pivotal’s trust account (excluding the amount of deferred underwriting commissions held in trust) at the time of the execution of the Merger Agreement.

Interests of the Founder and Pivotal’s Directors and Officers in the Business Combination

In considering the recommendation of Pivotal’s board of directors to vote in favor of approval of the business combination proposal, the charter proposals and the other proposals, stockholders should keep in mind that the Founder and Pivotal’s directors and executive officers have interests in such proposals that are different from, or in addition to, those of Pivotal’s stockholders generally. In particular:

 

   

If the Business Combination with the Company or another business combination is not consummated by August 4, 2020 (or such later date as may be approved by Pivotal’s stockholders), Pivotal will cease all operations except for the purpose of winding up, redeeming 100% of the outstanding public shares for cash and, subject to the approval of its remaining stockholders and its board of directors, dissolving and liquidating. In such event, the 5,750,000 founder shares held by Founder and Pivotal’s directors and officers, which were acquired for an aggregate purchase price of $25,000 prior to Pivotal’s initial public offering, would be worthless because the holders are not entitled to participate in any redemption or distribution with respect to such shares. Such shares had an aggregate market value of $                 based upon the closing price of $                 per share on NYSE on                 , 2019, the record date.

 

   

The Founder, which is affiliated with certain of Pivotal’s directors and officers, purchased an aggregate of 6,350,000 private warrants from Pivotal for an aggregate purchase price of approximately $6,350,000 (or $1.00 per warrant). These purchases took place on a private placement basis simultaneously with the consummation of Pivotal’s initial public offering. All of the proceeds Pivotal received from these purchases were placed in the trust account. Such warrants had an aggregate market value of $                 based upon the closing price of $                 per unit on NYSE on                 , 2019, the record date. The private warrants will become worthless if Pivotal does not consummate a business combination by August 4, 2020 (or such later date as may be approved by Pivotal stockholders in an amendment to its amended and restated certificate of incorporation).

 

   

The Stockholders’ Agreement contemplated by the Merger Agreement provides that Jonathan J. Ledecky and Kevin Griffin will be directors of Pivotal after the closing of the Merger (assuming they are elected at the annual meeting as described in this proxy statement/prospectus). As such, in the future each will receive any cash fees, stock options or stock awards that Pivotal’s board of directors determines to pay to its non-executive directors.

 

   

If Pivotal is unable to complete a business combination within the required time period, the Founder will be personally liable under certain circumstances described herein to ensure that the proceeds in the trust account are not reduced by the claims of target businesses or claims of vendors or other entities

 

74


Table of Contents
 

that are owed money by Pivotal for services rendered or contracted for or products sold to Pivotal. If Pivotal consummates a business combination, on the other hand, Pivotal will be liable for all such claims.

 

   

The Founder and Pivotal’s officers, directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on Pivotal’s behalf, such as identifying and investigating possible business targets and business combinations. However, if Pivotal fails to consummate a business combination within the required period, they will not have any claim against the trust account for reimbursement. Accordingly, Pivotal may not be able to reimburse these expenses if the Business Combination with the Company or another business combination is not completed by August 4, 2020 (or such later date as may be approved by Pivotal stockholders in an amendment to its amended and restated certificate of incorporation). As of                 , 2019, the record date, the Founder and Pivotal’s officers, directors and their affiliates had incurred approximately $                 of unpaid reimbursable expenses.

 

   

The Merger Agreement provides for the continued indemnification of Pivotal’s current directors and officers and the continuation of directors and officers liability insurance covering Pivotal’s current directors and officers.

 

   

Pivotal’s officers and directors (or their affiliates) may make loans from time to time to Pivotal to fund certain capital requirements. As of the date of this proxy statement/prospectus, no such loans have been made; however, loans may be made after the date of this proxy statement/prospectus. If the Business Combination is not consummated, the loans will not be repaid and will be forgiven except to the extent there are funds available to Pivotal outside of the trust account.

Recommendation of Pivotal’s Board of Directors

After careful consideration of the matters described above, particularly the Company’s position in its industry, potential for growth and profitability, the experience of the Company’s management and the Company’s competitive positioning, its customer relationships and technical skills, Pivotal’s board determined unanimously that each of the business combination proposal, the charter proposals, the director election proposal, the incentive plan proposal and the adjournment proposal, if presented, is fair to and in the best interests of Pivotal and its stockholders. Pivotal’s board of directors has approved and declared advisable and unanimously recommend that you vote or give instructions to vote “FOR” each of these proposals.

The foregoing discussion of the information and factors considered by Pivotal’s board of directors is not meant to be exhaustive, but includes the material information and factors considered by Pivotal’s board of directors.

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

The following section is a summary of the material U.S. federal income tax consequences for holders of Pivotal common stock and holders of warrants to acquire Pivotal common stock of the Business Combination. The discussion of the material U.S. federal income tax consequences contained in this proxy statement/prospectus is intended to provide only a general discussion and is not a complete analysis or description of all potential U.S. federal income tax consequences of the Business Combination.

This discussion addresses only those holders that hold their common stock or warrants as a capital asset within the meaning of Section 1221 of the Code and does not address all the U.S. federal income tax consequences that may be relevant to holders in light of their individual circumstances or to holders that are subject to special rules, such as:

 

   

financial institutions;

 

   

investors in pass-through entities;

 

75


Table of Contents
   

tax-exempt organizations;

 

   

dealers in securities or currencies;

 

   

traders in securities that elect to use a mark to market method of accounting;

 

   

persons that hold Pivotal common stock as part of a straddle, hedge, constructive sale or conversion transaction;

 

   

Non-U.S. holders (as defined below, and except as otherwise discussed below);

 

   

persons that own (or are treated as owning) 5% or more of Pivotal’s common stock;

 

   

persons who exercise redemption rights but continue to own, actually or constructively, Pivotal common stock following the Merger;

 

   

persons who hold or receive Pivotal common stock as compensation; and

 

   

persons who are making charitable contributions of Pivotal common stock in connection with the Merger.

The discussion is based upon the Code, applicable Treasury regulations thereunder, published rulings and court decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Tax considerations under state, local and foreign laws, or federal laws other than those pertaining to the income tax (including the impact of the Medicare contribution tax on net investment income), are not addressed.

Neither Pivotal nor the Company intends to request any ruling from the Internal Revenue Service as to the U.S. federal income tax consequences of the Merger.

For purposes of this discussion, a U.S. holder is a beneficial owner of Pivotal common stock or warrants who or which is any of the following for U.S. federal income tax purposes:

 

   

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

 

   

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

 

   

an estate if its income is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust if (a) a U.S. court can exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (b) it has in effect a valid election under applicable U.S. treasury regulations to be treated as a U.S. person.

For purposes of this discussion, a “Non-U.S. holder” is a beneficial owner of Pivotal common stock or warrants who is neither a U.S. holder nor an entity that is treated as a partnership for U.S. federal income tax purposes.

Tax Consequences of the Merger

Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Pivotal.

No gain or loss is expected to be recognized for U.S. federal income tax purposes by Pivotal or by the stockholders of Pivotal (whether such holders are U.S. holders or Non-U.S. holders) if their conversion rights are not exercised. No gain or loss is expected to be recognized for U.S. federal income tax purposes by holders of warrants to acquire Pivotal common stock (whether such holders are U.S. holders or Non-U.S. holders) solely as a result of the Merger.

 

76


Table of Contents

A stockholder of Pivotal that is a U.S. holder who exercises conversion rights and effects a complete termination of the stockholder’s interest in Pivotal is anticipated to be required to recognize gain or loss upon the exchange of that stockholder’s shares of common stock of Pivotal for cash. Such gain or loss will be measured by the difference between the amount of cash received and the tax basis of that stockholder’s shares of Pivotal common stock. This gain or loss will be long-term capital gain or loss if the holding period for the share of Pivotal common stock is more than one year. Gain and loss recognized on a conversion of Pivotal common stock for cash must generally be determined separately for each block of Pivotal shares (i.e., stock acquired at the same cost in a single transaction).

A stockholder of Pivotal that is a Non-U.S. holder who exercises conversion rights and effects a complete termination of the stockholder’s interest in Pivotal will generally be treated in the same manner as a U.S. stockholder for U.S. federal income tax purposes except that (subject to the discussion of FATCA below) such Non-U.S. holder generally will not be subject to U.S. federal income tax on the conversion unless (i) such holder is engaged in a trade or business within the United States and any gain recognized in the conversion is treated as effectively connected with such trade or business or (ii) such holder is an individual who is present in the United States for 183 days or more during the taxable year of the exchange and certain other requirements are met.

Gain described in clause (i) will generally be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items. Gain described in clause (ii) will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the Non-U.S. holder, provided the Non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.

Information Reporting and Backup Withholding

Proceeds of the sale or other taxable disposition of Pivotal common stock to Non-U.S. holders who exercise conversion rights generally will not be subject to backup withholding or information reporting, provided that the relevant holder certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishing an exemption. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the Internal Revenue Service.

Additional Withholding Tax on Payments Made to Foreign Accounts

Withholding taxes may be imposed under sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance Act, or “FATCA”) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of securities paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.

 

77


Table of Contents

Under the applicable Treasury Regulations and administrative guidance, while withholding under FATCA would have applied to payments of gross proceeds from the sale or other disposition of securities on or after January 1, 2019, recently proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.

This discussion is intended to provide only a summary of the material U.S. federal income tax consequences of the Merger. It does not address tax consequences that may vary with, or are contingent on, your individual circumstances. In addition, the discussion does not address any non-income tax or any foreign, state or local tax consequences of the Merger or exercise of conversion rights. Accordingly, you are strongly urged to consult with your tax advisor to determine the particular U.S. federal, state, local or foreign income or other tax consequences to you of the Merger and exercise of conversion rights.

Anticipated Accounting Treatment

The Merger will be accounted for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, Pivotal will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on (i) the Company being expected to have the majority interest of the combined company, (ii) the Company being represented on the board of directors of the combined company by up to three members, in addition to the chief executive officer of the Company, (iii) the Company’s senior management comprising the senior management of the combined company and (iv) the Company’s operations comprising the ongoing operations of the combined company. Accordingly, for accounting purposes, the Merger will be treated as the equivalent of the Company issuing stock for the net assets of Pivotal, accompanied by a recapitalization. The net assets of Pivotal will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger will be those of the Company.

Regulatory Matters

The Merger is not subject to any federal or state regulatory requirement or approval, except for the filings with the State of Delaware necessary to effectuate the Merger, and the filing of required notifications and the expiration or termination of the required waiting periods under the HSR Act. On June 14, 2019, the parties received notice from the FTC that early termination of the waiting period under the HSR Act was granted in connection with the Merger.

Required Vote

The approval of the business combination proposal will require the affirmative vote of the holders of a majority of the outstanding Pivotal common stock present and entitled to vote at the annual meeting. Additionally, the Business Combination will not be consummated if Pivotal has less than $5,000,001 of net tangible assets either immediately prior to or upon consummation of the Business Combination, after taking into account the conversion into cash of all public shares properly demanded to be converted by holders of public shares.

The approval of the business combination proposal is a condition to the consummation of the Business Combination. If the business combination proposal is not approved, the other proposals (except an adjournment proposal, as described below) will not be presented to the stockholders for a vote.

THE PIVOTAL BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE PIVOTAL STOCKHOLDERS VOTE “FOR” THE APPROVAL OF THE BUSINESS COMBINATION PROPOSAL.

 

78


Table of Contents

THE MERGER AGREEMENT

For a discussion of the structure of the transactions and consideration, see the section entitled “The Business Combination Proposal.” Such discussion and the following summary of other material provisions of the Merger Agreement is qualified by reference to the complete text of the Merger Agreement, a copy of which is attached to this proxy statement/prospectus as Annex A. All stockholders are encouraged to read the Merger Agreement in its entirety for a more complete description of the terms and conditions of the transactions.

Closing and Effective Time of the Business Combination

The closing of the Business Combination will take place no later than the fifth business day following the satisfaction or waiver of the conditions described below under the subsection entitled “Conditions to the Closing of the Business Combination,” unless the parties to the Merger Agreement agree in writing to another time. The Business Combination is expected to be consummated as soon as practicable after the annual meeting of Pivotal’s stockholders described in this proxy statement/prospectus.

Representations and Warranties

The Merger Agreement contains representations and warranties of the Company relating, among other things, to proper organization and qualification; subsidiaries; capitalization, the authorization, performance and enforceability against the Company of the Merger Agreement; absence of conflicts; consent, approval or authorization of governmental authorities; financial statements; absence of undisclosed liabilities; absence of certain changes or events; litigation; compliance with laws; material contracts; benefit plans; labor matters; tax matters; brokers’ fees; insurance; assets and real property; environmental matters; transactions with affiliates; internal controls; intellectual property matters; and permits.

The Merger Agreement contains representations and warranties of each of Pivotal and Merger Sub relating, among other things, to proper organization and qualification; subsidiaries; the authorization, performance and enforceability against Pivotal and Merger Sub of the Merger Agreement; absence of conflicts; litigation; consent, approval or authorization of governmental authorities; trust account; brokers’ fees; reports filed with the SEC, financial statements, Sarbanes-Oxley Act and absence of undisclosed liabilities; transactions with affiliates; board approval; fairness opinion with respect to the Merger; business activities; tax matters; capitalization; and NYSE listing.

Covenants

Pivotal and the Company have each agreed to take such actions as are necessary, proper or advisable to consummate the transactions set forth in the Merger Agreement. Each of them has also agreed to continue to operate their respective businesses in the ordinary course consistent with past practices prior to the closing and not to take the following actions, among others, except as permitted by the Merger Agreement, without the prior written consent of the other parties:

 

   

waive any stock repurchase rights, accelerate, amend or change the period of exercisability of options or restricted stock, or reprice options granted under any employee, consultant, director or other stock plans or authorize cash payments in exchange for any options granted under any of such plans;

 

   

grant any material severance or termination pay to officers or employees not in the ordinary course of business consistent with past practice, except pursuant to existing agreements, policies or plans, or pursuant to applicable law;

 

   

transfer or license to any person or otherwise extend, amend or modify any material rights to intellectual property or enter into grants to transfer or license to any person future patent rights, other than in the ordinary course of business consistent with past practices;

 

79


Table of Contents
   

declare, set aside or pay dividends on or make any other distributions in respect of any capital stock, or split, combine or reclassify any capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for any capital stock;

 

   

purchase, redeem or otherwise acquire, directly or indirectly, any shares of capital stock or other equity securities or ownership interests of the Company or Pivotal;

 

   

issue, deliver, sell, authorize, pledge or otherwise encumber any equity securities or any securities convertible into or exchangeable for other equity securities, or enter into other agreements obligating it to issue equity securities or convertible or exchangeable securities;

 

   

amend its certificate of incorporation or bylaws in any material respect;

 

   

acquire or agree to acquire, whether by merger, stock or asset acquisition, or other transaction any business, entity or division thereof, or otherwise acquire or agree to acquire outside the ordinary course of business any assets which are material to the business of Pivotal or the Company, as applicable, or enter into any joint ventures, strategic partnerships or alliances or other arrangements that provide for exclusivity of territory or otherwise restrict such party’s ability to compete or to offer or sell any products or services;

 

   

sell, lease, license, encumber or otherwise dispose of any material properties or assets, except in the ordinary course of business consistent with past practice;

 

   

except incurrences of indebtedness under the Company’s existing credit facilities and extensions of credit in the ordinary course with employees and among the Company and its subsidiaries, incur any indebtedness for borrowed money or guarantee any such indebtedness of another, issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities of Pivotal or the Company and its subsidiaries, as applicable, enter into any “keep well” or other agreement to maintain any financial statement condition or enter into any arrangement having the economic effect of any of the foregoing;

 

   

except as otherwise required by applicable law or pursuant to an existing plan, policy or agreement, or in the ordinary course of business consistent with past practice, (i) adopt or materially amend any employee benefit plan (including any plan that provides for severance), or enter into any employment contract or collective bargaining agreement, (ii) pay any special bonus or special remuneration to any director or employee or (iii) materially increase the salaries, wage rates or fringe benefits (including rights to severance or indemnification) of its directors, officers, employees or consultants;

 

   

(i) pay, discharge, settle or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), or litigation other than in the ordinary course of business consistent with past practices or as previously disclosed in such party’s financial statements or (ii) waive the benefits of, agree to modify in any material manner, terminate, release any person from or knowingly fail to enforce any material confidentiality or similar agreement to which it is a party or beneficiary;

 

   

except in the ordinary course of business consistent with past practices, modify in any material respect or terminate (other than in accordance with its terms) certain material contracts, or waive, delay the exercise of, release or assign any material rights or claims thereunder;

 

   

except as required by law or U.S. GAAP, revalue any of its assets in any material manner or make any material change in accounting methods, principles or practices;

 

   

except in the ordinary course of business consistent with past practices, incur or enter into any agreement, contract or commitment requiring such party to pay in excess of $1,000,000 in any 12-month period;

 

   

settle any material litigation where the consideration given by the party is other than monetary or to which an officer, director or employee of such person is a party in his or her capacity as such;

 

80


Table of Contents
   

make or rescind tax elections that would be reasonably likely to adversely affect in any material respect the tax liability or attributes of such party, settle or compromise any material income tax liability outside the ordinary course of business or, except as required by applicable law, change any material method of accounting for tax purposes or prepare or file any return in a manner materially inconsistent with past practice;

 

   

form or establish a subsidiary except in the ordinary course of business consistent with prior practice;

 

   

permit any person to exercise discretionary rights under any employee benefit plan to provide for the automatic acceleration of any outstanding options, the termination of any outstanding repurchase rights or the termination of any cancellation rights issued pursuant to such plans;

 

   

make capital expenditures in excess of previously budgeted amounts;

 

   

enter into any material transaction with or distribute or advance any assets or property to any of its officers, directors, partners, stockholders, managers, members or other affiliates other than (i) the payment of salary and benefits and the advancement of expenses in the ordinary course of business consistent with prior practice, (ii) such distributions or advancements by a subsidiary of the Company to the Company or another such subsidiary or (iii) contracts entered into on an arms’-length basis and in the ordinary course of business between the Company or any subsidiary, on the one hand, and the direct or indirect portfolio companies of investment funds advised or managed by Carlyle Investment Management L.L.C. (“CIM”), on the other hand; or

 

   

agree in writing or otherwise commit to take any of the foregoing actions.

The Merger Agreement also contains additional covenants of the parties, including covenants providing that:

 

   

Pivotal will prepare and file the registration statement of which this proxy statement/prospectus forms a part;

 

   

the Company will give notice in accordance with Delaware Law and its charter documents seeking stockholder approval of the Merger;

 

   

Pivotal will increase the number of members of its board of directors to eight and the parties will take all necessary action so that Dan Akerson (chairman of the board), Jonathan J. Ledecky (vice chairman of the board of directors), Christopher J. Weiler, Kevin Griffin, William Darman, Richard J. Williams, Donna Morea and Evan Morgan are appointed to the board of directors;

 

   

the parties will prepare and file any required notification pursuant to the HSR Act;

 

   

the Company and its affiliates will waive their rights to make claims against Pivotal to collect from the trust account any monies that may be owed to them by Pivotal;

 

   

the parties will use reasonable best efforts to obtain the listing for trading on the NYSE of the common stock issued in connection with the Business Combination;

 

   

Pivotal will maintain tail directors’ and officers’ liability insurance policies for a period of six years following the Business Combination;

 

   

the executive officers of the Company will repay any amounts owed by them to the Company and cause any guaranty made by the Company for the benefit of them to be terminated;

 

   

Pivotal will cause the trust account to be distributed immediately upon consummation of the Business Combination and to pay all liabilities and obligations of Pivotal due or incurred at or prior to the date of closing, including (i) payment to the holders of public shares who elect to convert their shares into cash, (ii) payment of Pivotal’s income and other tax obligations, (iii) repayment of loans and reimbursement of expenses to directors and officers of Pivotal, (iv) payments of deferred underwriting commissions incurred in connection with Pivotal’s initial public offering and (v) payment of third-party transaction costs incurred by Pivotal;

 

81


Table of Contents
   

at or prior to the closing of the Business Combination, Pivotal will enter into the Stockholders’ Agreement with certain of the Company’s stockholders;

 

   

the former stockholders of the Company and the Founder will agree to the additional lock-up restrictions described herein;

 

   

at or prior to the closing of the Business Combination, Pivotal will execute and deliver the Registration Rights Agreement and use reasonable best efforts to terminate the existing registration rights agreement among Pivotal, the Founder and Pivotal’s officers and directors;

 

   

the parties will use commercially reasonable efforts to do all things necessary, proper or advisable to consummate and make effective the transactions contemplated by the Merger Agreement, including obtaining all necessary approvals from governmental agencies and other third parties;

 

   

the parties will not solicit or enter into discussions or transactions with, or encourage or provide any information to any third party, and to immediately cease all existing discussions or negotiations with any third party, regarding any merger, sale of ownership interests or assets; and

 

   

the Company will provide periodic financial information to Pivotal through the closing date of the Merger.

Conditions to Closing of the Business Combination

General Conditions

Consummation of the Business Combination is conditioned on approval of the business combination proposal by Pivotal’s stockholders. In addition, the consummation of the Merger is conditioned upon, among other things:

 

   

all specified waiting periods under the HSR Act having expired;

 

   

no statute, rule, regulation, executive order, decree, injunction or other order being in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger;

 

   

no action, suit or proceeding being pending or threatened by any governmental entity which is reasonably likely to prevent consummation of the transactions contemplated by the Merger Agreement or to materially and adversely affect the title of the shares of Pivotal common stock to be issued in connection with the Merger, and no order, judgment, decree, stipulation or injunction to such effect being in effect;

 

   

Pivotal having at least $5,000,001 of net tangible assets following the exercise by holders of Pivotal’s public shares of their right to convert their public shares into their pro rata share of the trust account;

 

   

the registration statement of which this proxy statement/prospectus forms a part having become effective in accordance with the provisions of the Securities Act, no stop order having been issued by the SEC which remains in effect with respect to the registration statement, and no proceeding seeking such a stop order having been threatened or initiated by the SEC which remains pending;

 

   

no material adverse effect with respect to Pivotal or the Company having occurred between the date of the Merger Agreement and the closing of the Business Combination; and

 

   

approval of the Business Combination by the Company’s stockholders.

Conditions to Closing of the Company

The obligations of the Company to consummate the Merger are also conditioned upon, among other things:

 

   

the accuracy of the representations and warranties of Pivotal and Merger Sub (subject to certain bring-down standards);

 

82


Table of Contents
   

performance of the covenants of Pivotal and Merger Sub required by the Merger Agreement to be performed on or prior to the closing;

 

   

Pivotal executing the Registration Rights Agreement and terminating the existing registration rights agreement among Pivotal, the Founder and Pivotal’s officers and directors;

 

   

Pivotal executing the Stockholders’ Agreement;

 

   

Pivotal and the Founder executing the Founder Lock-Up Agreement;

 

   

Pivotal’s compliance with the Securities Act and the Exchange Act;

 

   

Pivotal having at least $175 million available to it in its trust account (together with net cash proceeds received from any investment in Pivotal approved pursuant to the terms of the Merger Agreement, including up to $50 million pursuant to the Forward Purchase Contract (if any)), after payment to holders of public shares that seek conversion in connection with the Business Combination and net of certain other expenses; and

 

   

Pivotal common stock to be issued pursuant to the Merger Agreement having been approved for listing on the NYSE, subject only to official notice of issuance thereof and public holder requirements.

Pivotal’s and Merger Sub’s Conditions to Closing

The obligations of Pivotal and Merger Sub to consummate the Merger are also conditioned upon, among other things:

 

   

the accuracy of the representations and warranties of the Company (subject to certain bring-down standards);

 

   

performance of the covenants of the Company required by the Merger Agreement to be performed on or prior to the closing; and

 

   

the termination of the Company’s existing stockholders’ agreement.

Waiver

If permitted under applicable law, Pivotal or the Company may waive any inaccuracies in the representations and warranties made to such party contained in the Merger Agreement and waive compliance with any agreements or conditions for the benefit of itself or such party contained in the Merger Agreement. However, the condition requiring that Pivotal have at least $5,000,001 of net tangible assets may not be waived.

The existence of the financial and personal interests of Pivotal’s directors may result in a conflict of interest on the part of one or more of them between what he or she may believe is best for Pivotal and what he or she may believe is best for himself in determining whether or not to grant a waiver in a specific situation. See the section entitled “Risk Factors” for a fuller discussion of this and other risks.

Termination

The Merger Agreement may be terminated at any time, but not later than the closing, as follows:

 

   

by mutual written consent of Pivotal and the Company;

 

   

by either Pivotal or the Company if the Business Combination is not consummated on or before October 30, 2019, provided that the right to terminate the Merger Agreement will not be available to any party whose action or failure to act has been a principal cause of or primarily resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of the Merger Agreement;

 

83


Table of Contents
   

by either Pivotal or the Company if a governmental entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which order, decree, judgment, ruling or other action is final and non-appealable;

 

   

by either Pivotal or the Company if, immediately following consummation of the Merger, Pivotal will have less than $5,000,001 of net tangible assets following the exercise by the holders of shares of Pivotal common stock issued in Pivotal’s initial public offering of their conversion rights;

 

   

by either Pivotal or the Company if the other party has breached any of its covenants or representations and warranties in any material respect and has not cured its breach within 30 days of the notice of an intent to terminate, provided that the terminating party is itself not in material breach; or

 

   

by either Pivotal or the Company if, at the annual meeting, the business combination proposal shall fail to be approved by the required vote (subject to any adjournment or recess of the meeting).

Effect of Termination

In the event of proper termination by any of the parties, the Merger Agreement will be of no further force or effect (other than with respect to certain surviving obligations specified in the Merger Agreement), without any liability on the part of any party thereto or its respective affiliates, officers, directors or stockholders, other than liability of any party thereto for any intentional and willful breach of the Merger Agreement by such party occurring prior to such termination.

Fees and Expenses

Except as otherwise set forth in the Merger Agreement, all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring such expenses whether or not the transactions are consummated.

Confidentiality; Access to Information

Each party to the Merger Agreement will afford to the other parties and their financial advisors, accountants, counsel and other representatives reasonable access during normal business hours, upon reasonable notice, to all of their respective properties, books, records and personnel during the period prior to the closing to obtain all information concerning the business, including the status of business development efforts, properties, results of operations and personnel, as each party may reasonably request. The parties agree to maintain in confidence any non-public information received from the other party, and to use such non-public information only for purposes of consummating the transactions contemplated by the Merger Agreement.

Amendments

The Merger Agreement may be amended by the parties thereto at any time prior to the closing of the Business Combination by execution of an instrument in writing signed on behalf of each of the parties.

Governing Law; Consent to Jurisdiction

The Merger Agreement is governed by and construed in accordance with the law of the state of Delaware, regardless of the law that might otherwise govern under applicable principles of the conflicts of laws of Delaware. With respect to disputes related to the Merger Agreement, each party irrevocably consents to the exclusive jurisdiction and venue of the courts of the State of Delaware or the federal courts located in the State of Delaware.

 

84


Table of Contents

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Introduction

Pivotal is providing the following unaudited pro forma combined financial information to aid you in your analysis of the financial aspects of the Business Combination.

The following unaudited pro forma combined balance sheet as of March 31, 2019 combines the unaudited historical consolidated balance sheet of the Company as of March 31, 2019 with the unaudited historical balance sheet of Pivotal as of March 31, 2019 after giving effect to the Business Combination as if it had been consummated as of that date.

The following unaudited pro forma combined statement of operations for the three months ended March 31, 2019 combines the unaudited historical consolidated statement of operations of the Company for the three months ended March 31, 2019 with the unaudited historical statement of operations of Pivotal for the three months ended March 31, 2019 after giving effect to the Business Combination as if it had occurred as of January 1, 2019.

The following unaudited pro forma combined statement of operations for the year ended December 31, 2018 combines the audited historical consolidated statement of operations of the Company for the year ended December 31, 2018 with the audited historical statement of operations of Pivotal for the year ended December 31, 2018 after giving effect to the Business Combination as if it had occurred as of January 1, 2018.

This information should be read together with the Company’s and Pivotal’s respective audited financial statements and related notes, “The Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Other Information Related to PivotalPivotal’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this proxy statement/prospectus.

Description of the Transactions

On May 20, 2019, Pivotal entered into the Merger Agreement with Merger Sub, the Company and, solely in its capacity as representative of the stockholders of the Company, Carlyle.

The Company is the owner of the KLDiscovery business, one of the leading eDiscovery providers and the leading data recovery services provider to corporations, law firms, government agencies and individual consumers.

Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving the merger. As a result, the Company will become a wholly owned subsidiary of Pivotal, with the stockholders of the Company becoming securityholders of Pivotal.

Under the Merger Agreement, the stockholders of the Company will receive an aggregate of 34,800,000 shares of Pivotal common stock. The stockholders of the Company will also have the right to receive up to 2,200,000 shares of Pivotal common stock if the reported closing sale price of Pivotal’s common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Business Combination.

In connection with the Business Combination, the Founder will subject a certain number of its shares of Class B common to an additional lockup that will be released only if the last reported sale price of Pivotal’s common stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the closing of the Business Combination.

 

85


Table of Contents

The stockholders of the Company receiving shares of Pivotal common stock in connection with the Business Combination will be subject to a 12-month lockup period for all shares of Pivotal common stock held by such persons, which period may be earlier terminated if the reported closing sale price of Pivotal common stock equals or exceeds $12.00 for a period of 20 consecutive trading days during a 30-trading day period commencing at least 150 days after the closing of the Business Combination. This lockup is identical to the lockup previously agreed to by the Founder and other holders of its Class B common stock issued prior to Pivotal’s initial public offering.

Accounting for the Merger

The Merger will be accounted for as a reverse merger in accordance with U.S. GAAP. Under this method of accounting, Pivotal will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on (i) the Company being expected to have the majority interest of the combined company, (ii) the Company being represented on the board of directors of the combined company by up to three members, in addition to the chief executive officer of the Company, (iii) the Company’s senior management comprising the senior management of the combined company and (iv) the Company’s operations comprising the ongoing operations of the combined company. Accordingly, for accounting purposes, the Merger will be treated as the equivalent of the Company issuing stock for the net assets of Pivotal, accompanied by a recapitalization. The net assets of Pivotal will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger will be those of the Company.

Basis of Pro Forma Presentation

The historical financial information has been adjusted to give pro forma effect to events that are related and/or directly attributable to the Business Combination, are factually supportable and, as it relates to the unaudited pro forma combined statement of operations, are expected to have a continuing impact on the results of the combined company following consummation of the Merger. The adjustments presented in the unaudited pro forma combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Merger.

The unaudited pro forma combined financial information is for illustrative purposes only, and does not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. The unaudited pro forma combined financial information also may not be useful in predicting the future financial condition and results of operations of the combined company following consummation of the Merger. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The Company and Pivotal have not had any historical relationship prior to the Merger except that Evan Morgan was both a director of Pivotal and a special partner at Revolution Growth, one of the Company’s shareholders, for a period of time.

There is no historical activity with respect to Merger Sub, and accordingly, no adjustments were required with respect to this entity in the pro forma combined financial statements.

The unaudited pro forma combined financial information has been prepared assuming two alternative levels of conversions of public shares:

 

   

Scenario 1—Assuming no conversions: This presentation assumes that no Pivotal shareholders exercise conversion rights with respect to their public shares upon consummation of the Merger; and

 

   

Scenario 2—Assuming conversions of 5,627,282 public shares of Pivotal for cash: This presentation assumes that Pivotal shareholders exercise their conversion rights with respect to a maximum of 5,627,282 public shares upon consummation of the Merger at a redemption price of approximately $10.07 per share. The maximum conversion amount is derived from a minimum of $175 million of cash required from Pivotal pursuant to the Merger Agreement, after giving effect to the payments to converting stockholders. Scenario 2 includes all adjustments contained in Scenario 1 and presents additional adjustments to reflect the effect of the maximum conversions.

 

86


Table of Contents

Included in the shares outstanding and weighted average shares outstanding as presented in the pro forma combined financial statements are 34,800,000 shares of Pivotal common stock to be issued to the Company’s shareholders under both Scenario 1 and 2.

As a result of the Business Combination, assuming no Pivotal shareholders elect to convert their shares for cash, the Company’s stockholders will own approximately 55% of the Pivotal shares to be outstanding immediately after the Business Combination and Pivotal stockholders will own approximately 45% of the Pivotal shares, based on the number of Pivotal shares outstanding as of March 31, 2019 (in each case, not giving effect to any shares issuable to them upon exercise of warrants). If 5,627,282 shares of Pivotal common stock are converted for cash, which assumes the maximum conversion of Pivotal’s shares and providing for a minimum of $175 million of cash after giving effect to payments to converting shareholders, the Company’s stockholders will own approximately 60% and Pivotal stockholders will own approximately 40% of the Pivotal shares to be outstanding immediately after the Business Combination (in each case, not giving effect to any shares issuable to them upon exercise of warrants).

In connection with Pivotal’s initial public offering, Pivotal Spac Funding LLC, a managing member of the Founder, entered into the Forward Purchase Contract and agreed to purchase, in a private placement to occur concurrently with the consummation of Pivotal’s initial business combination, and under certain conditions, up to $150,000,000 of Pivotal’s securities. In connection with the signing of the Merger Agreement, Pivotal Spac Funding LLC indicated that up to $50,000,000 of the commitment could be utilized in connection with the Merger if necessary to satisfy the minimum cash requirement described above. However, there is currently no binding commitment or agreement to purchase any securities and the amount, type and number of securities to be purchased by Pivotal Spac Funding LLC, if any, will not be known until a later date. Accordingly, there can be no assurance that the Forward Purchase Contract will be utilized in connection with the Merger or that any purchase will occur thereunder. As a result, the unaudited pro forma combined financial information does not take into account any impact resulting from the Forward Purchase Contract as the effect of any purchases thereunder, if at all, cannot be determined at this time.

 

87


Table of Contents

PRO FORMA COMBINED BALANCE SHEET

AS OF MARCH 31, 2019

(UNAUDITED)

(in thousands)

 

                Scenario 1
Assuming No
Redemptions into Cash
    Scenario 2
Assuming Maximum
Redemptions into Cash
 
    The
Company (1)
    Pivotal (2)     Pro Forma
Adjustments
    Ref     Pro Forma
Balance
Sheet
    Pro Forma
Adjustments
    Ref     Pro Forma
Balance
Sheet
 

Assets

               

Current assets

               

Cash and cash equivalents

  $ 4,532     $ 1,048     $ 230,806       (a)     $ 78,886     $ (56,685     (c)     $ 22,201  
      $ (136,000     (b)          
      $ (8,050     (f)          
      $ (2,500     (g)          
      $ (10,950     (i)          

Accounts receivable, net

    83,581       —         —           83,581       —           83,581  

Prepaid expenses

    19,283       113       —           19,396       —           19,396  

Other current assets

    277       —         —           277       —           277  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current assets

    107,673       1,161       73,306         182,140       (56,685       125,455  
               

Marketable securities held in Trust Account

    —         230,806       (230,806     (a)       —             —    

Property and equipment, net

    44,949       —         —           44,949       —           44,949  

Intangible assets, net

    145,417       —         —           145,417       —           145,417  

Goodwill

    394,773       —         —           394,773       —           394,773  

Other assets

    1,795       —         —           1,795       —           1,795  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total assets

  $ 694,607     $ 231,967     $ (157,500     $ 769,074     $ (56,685     $ 712,389  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Liabilities and Stockholders’ Equity

               

Current liabilities

               

Current portion of long-term debt, net

  $ 18,268       —       $ (7,500     (b)     $ 10,768       —         $ 10,768  

Accounts payable and accrued expense

    35,160       200       (2,500     (g)       30,610       —           30,610  
        (2,250     (b)          

Deferred revenue

    3,386       —         —           3,386       —           3,386  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total current liabilities

    56,814       200       (12,250       44,764       —           44,764  

Long-term debt, net

    410,021       —         (125,000     (b)       285,021       —           285,021  

Deferred tax liabilities

    5,970       3       —           5,973       —           5,973  

Other liabilities

    4,617       8,050       (8,050     (f)       4,617       —           4,617  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities

    477,422       8,253       (145,300       340,375       —           340,375  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Commitments and Contingencies

               

Class A Common stock subject to redemption

    —         218,714       (218,714     (c)       —         —           —    

Stockholders’ equity

               

Common stock

    37       —         (37     (d)       —         —           —    

Preferred stock

    —         —         —           —         —           —    

Class A Common stock

    —         —         3       (c)       6       —           6  
        3       (d)          

Class B Common stock

    —         1       (1     (c)       —             —    

Additional paid-in capital

    373,193       4,543       218,712       (c)       594,532       (56,685     (c)       537,847  
        34       (d)          
        (2,406     (e)          
        456       (h)          

Treasury stock

    (2,406     —         2,406       (e)       —         —           —    

Accumulated deficit

    (161,445     456       (456     (h)       (173,645     —           (173,645
        (1,250     (b)          
        (10,950     (i)          

Accumulated other comprehensive income

    7,806       —             7,806       —           7,806  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total stockholders’ equity

    217,185       5,000       206,514         428,699       (56,685       372,014  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total liabilities and stockholders’ equity

  $ 694,607     $ 231,967     $ (157,500     $ 769,074     $ (56,685     $ 712,389  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

 

88


Table of Contents

Pro Forma Adjustments to the Unaudited Combined Balance Sheet

As of March 31, 2019

The pro forma adjustments included in the unaudited pro forma combined balance sheet as of March 31, 2019 are as follows:

 

Note

  

Description

(1)

  

Derived from the Company’s unaudited consolidated balance sheet as of March 31, 2019.

(2)

  

Derived from Pivotal’s unaudited condensed balance sheet as of March 31, 2019.

(a)

  

Reflects the release of cash from marketable securities held in the trust account.

(b)

  

Reflects the repayment of prior existing short-term debt, long-term debt, accrued interest and payment of the related prepayment penalty in connection with the Business Combination. This repayment is not a requirement under the terms of the Business Combination.

(c)

  

In Scenario 1, which assumes no Pivotal shareholders exercise their conversion rights, shares of Class B common stock would be converted to Class A common stock and all shares of Class A common stock previously subject to conversion for cash amounting to $218.7 million would be transferred to permanent equity, with an adjustment recorded to par value and additional paid in capital. In Scenario 2, which assumes the same facts as described in the other footnotes, but also assumes the maximum number of shares of Class A common stock are redeemed for cash by Pivotal shareholders, $56.7 million would be paid out in cash. The $56.7 million, or 5,627,282 shares of Class A common stock, represents the maximum redemption amount to leave a minimum of $175.0 million of cash from Pivotal, including the cash to be released from Pivotal’s trust account, after giving effect to payments to converting shareholders based on a consummation of the Business Combination on March 31, 2019.

(d)

  

Reflects the reclassification of the Company’s outstanding common stock into additional paid in capital in connection with the Business Combination.

(e)

  

Reflects the reclassification of the Company’s outstanding treasury stock into additional paid in capital in connection with the Business Combination.

(f)

  

Reflects the payment of deferred underwriting fees in connection with Pivotal’s initial public offering.

(g)

  

Reflects the payment of accrued management fees to a related party of the Company in connection with the Business Combination.

(h)

  

Reflects the recapitalization of Pivotal and the elimination of outstanding retained deficit to additional paid in capital.

(i)

  

Reflects the payment of estimated fees and expenses related to the Business Combination, including legal, financial advisory, accounting and other professional fees.

 

89


Table of Contents

PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2019

(UNAUDITED)

(in thousands, except share and per share data)

 

                Scenario 1
Assuming No
Redemptions into Cash
    Scenario 2
Assuming Maximum
Redemptions into Cash
 
    The
Company (1)
    Pivotal (2)     Pro Forma
Adjustments
    Ref     Pro Forma
Income
Statement
    Pro Forma
Adjustments
    Ref     Pro Forma
Income
Statement
 

Revenues

  $ 75,026     $ —       $ —         $ 75,026     $ —         $ 75,026  

Cost of revenues

    37,455       —         —           37,455       —           37,455  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Gross profit

    37,571       —         —           37,571       —           37,571  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Operating expenses

               

General and administrative

    14,844       227       (250     (d)       14,821       —           14,821  

Research and development

    1,432       —         —           1,432       —           1,432  

Sales and marketing

    12,703       —         —           12,703       —           12,703  

Depreciation and amortization

    9,825       —         —           9,825       —           9,825  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

    38,804       227       (250       38,781       —           38,781  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Loss from operations

    (1,233     (227     250         (1,210     —           (1,210

Other expenses

               

Other expense (income)

    97       (14     —           83       —           83  

Interest expense (income)

    12,066       (792     792       (a)       8,129       —           8,129  
        (3,937     (b)         —        
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

(Loss) income before income taxes

    (13,396     579       3,395         (9,422     —           (9,422

Income tax provision (benefit)

    95       122       (122     (c)       95           95  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net (loss) income

  $ (13,491   $ 457     $ 3,517       $ (9,517   $ —         $ (9,517
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Other comprehensive income, net of tax

               

Foreign currency translation

    810       —         —           810       —           810  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total other comprehensive income, net of tax

    810       —         —           810       —           810  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Comprehensive (loss) income

  $ (12,681   $ 457     $ 3,517       $ (8,707   $ —         $ (8,707
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Weighted average shares outstanding, basic and diluted

    3,683,461       6,175,950       57,374,050       (e)       63,550,000       (5,627,282       57,922,718  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Basic and diluted net loss per share

  $ (3.66   $ (0.02   $ (0.13     $ (0.15   $ (0.01     $ (0.16
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

 

90


Table of Contents

Pro Forma Adjustments to the Unaudited Combined Statement of Operations

For the Three Months Ended March 31, 2019

The pro forma adjustments included in the unaudited pro forma combined statement of operations for the three months ended March 31, 2019 are as follows:

 

Note

  

Description

(1)

  

Derived from the Company’s unaudited consolidated statements of comprehensive loss as of March 31, 2019.

(2)

  

Derived from Pivotal’s unaudited condensed statements of operations as of March 31, 2019.

(a)

  

Represents an adjustment to eliminate interest income and unrealized gain on marketable securities held in the trust account as of the beginning of the period.

(b)

  

Represents an adjustment to eliminate interest expense on the Company’s Second Lien Facility (as defined herein) as of the beginning of the period as the Second Lien Facility will be repaid upon consummation of the Business Combination. This repayment is not a requirement under the terms of the Business Combination.

(c)

  

Represents the tax effect of the pro forma adjustments for elimination of Pivotal’s interest income. Pivotal’s tax provision was solely related to federal taxes on its U.S. earnings. The Company eliminated Pivotal’s reported tax provision as a pro forma adjustment because, as a combined entity, the Company would have reported a U.S. pre-tax loss. The net operating losses generated prior to the Business Combination will have a utilization limitation on an annual basis pursuant to Sections 382 and 383 of the Internal Revenue Code.

(d)

  

Represents the elimination of the Company’s related party consulting expenses which will not continue after the consummation of the Business Combination. The Company has not included additional costs that may be incurred as a result of being a public company.

(e)

  

The calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that Pivotal’s initial public offering occurred on January 1, 2019. In addition, as the Business Combination is being reflected as if it had occurred on this date, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares have been outstanding for the entire period presented. This calculation is retroactively adjusted to eliminate the number of shares redeemed in the Business Combination for the entire period.

  

The following presents the calculation of basic and diluted weighted average common shares outstanding. The computation of diluted loss per share excludes the effect of warrants to purchase 6,350,000 shares of Class A common stock because the inclusion of these securities would be anti-dilutive. The computation also excludes 2,200,000 shares that are contingently issuable to the Company.

 

     Pro Forma
Combined
Assuming
No
Redemptions
into Cash
    Pro Forma
Combined
Assuming
Maximum
Redemptions
into Cash
 

Weighted average shares calculation, basic and diluted

    

Pivotal Public Shares

     23,000,000       17,372,718  

Pivotal Class B Shares

     5,750,000       5,750,000  

Pivotal shares issued in Business Combination

     34,800,000       34,800,000  
  

 

 

   

 

 

 

Weighted average shares outstanding

     63,550,000       57,922,718  
  

 

 

   

 

 

 

Percent of shares owned by Pivotal shareholders

     45.2     39.9

Percent of shares owned by Company shareholders

     54.8     60.1

 

91


Table of Contents

PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2018

(UNAUDITED)

(in thousands, except share and per share data)

 

            Scenario 1
Assuming No
Redemptions into Cash
    Scenario 2
Assuming Maximum
Redemptions into Cash
 
    The
Company
    Pivotal     Pro Forma
Adjustments
    Ref     Pro Forma
Income
Statement
    Pro Forma
Adjustments
    Ref     Pro Forma
Income
Statement
 

Revenues

  $ 296,282     $ —         —         $ 296,282       —         $ 296,282  

Cost of revenues

    159,617       —         —           159,617       —           159,617  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Gross profit

    136,665       —         —           136,665       —           136,665  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Operating expenses

               

General and administrative

    54,633       1       (1,000     (b)       53,634       —           53,634  

Research and development

    7,100       —         —           7,100       —           7,100  

Sales and marketing

    58,273       —         —           58,273       —           58,273  

Depreciation and amortization

    41,519       —         —           41,519       —           41,519  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Total operating expenses

    161,525       1      
(1,000

      160,526       —           160,526  
 

 

 

   

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Loss from operations

    (24,860