PREM14A 1 d497992dprem14a.htm PREM14A PREM14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

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

Check the appropriate box:

 

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

EXACTECH, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which the transaction applies:

 

Exactech, Inc. common stock, par value $0.01 per share

  (2)  

Aggregate number of securities to which the transaction applies:

 

14,413,421 shares of common stock, 964,732 shares of common stock underlying Exactech, Inc. stock options with an exercise price of less than $49.25 per share, and 11,419 shares of common stock subject to outstanding options granted under the Exactech, Inc. 2009 Employee Stock Purchase Plan (the “ESPP”)

  (3)  

Per unit price or other underlying value of the transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

In accordance with Rule 0-11 promulgated under the Securities Exchange Act of 1934, as amended, the filing fee set forth below was determined to be an amount equal to 0.0001245 multiplied times the aggregate merger consideration of $737,057,000, comprising the sum of (A) the product of 14,413,421 shares of common stock outstanding as of December 1, 2017 multiplied times the per share merger consideration of $49.25, plus (B) the product of 964,732 shares of common stock underlying Exactech, Inc. stock options, multiplied times $27.61 (the difference between the per share merger consideration and the weighted average exercise price of such options), plus (C) the product of 11,419 shares of common stock subject to outstanding options granted under the ESPP multiplied times the per share merger consideration of $49.25.

  (4)  

Proposed maximum aggregate value of the transaction:

 

$737,057,000

  (5)  

Total fee paid:

 

$91,763.97

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

Amount Previously Paid:

 

     

  (2)  

Form, Schedule or Registration Statement No.:

 

     

  (3)  

Filing Party:

 

     

  (4)  

Date Filed:

 

     

 

 

 


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LOGO

Preliminary Proxy Statement - Subject to Completion

Dear Shareholder:

You are cordially invited to attend a special meeting of the shareholders of Exactech, Inc. a Florida corporation, which will be held on [●], starting at [●], local time, at [    ].

At the special meeting you will be asked to consider and vote on a proposal to approve the Agreement and Plan of Merger dated October 22, 2017, by and among Osteon Holdings, L.P., a Delaware limited partnership, or Parent, Osteon Merger Sub, Inc., a Florida corporation and wholly owned subsidiary of Parent, and the Company, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 3, 2017. Osteon Holdings, L.P. and Osteon Merger Sub, Inc. are affiliates of the global private equity firm, TPG Capital, L.P. Pursuant to the merger agreement, at the effective time of the merger, Osteon Merger Sub, Inc. will be merged with and into the Company and the Company will continue its corporate existence under Florida law as the surviving corporation in the merger and a wholly owned subsidiary of Osteon Holdings, L.P.

Upon completion of the merger, each share of common stock issued and outstanding at the effective time of the merger, other than shares held by certain of our management shareholders that are being exchanged for equity interests in Osteon Holdings, L.P., appraisal shares (as described more fully under “Appraisal Rights” on page 66) and shares held by the Company in treasury, will be cancelled and converted into the right to receive $49.25 per share in cash, without interest thereon and less any applicable withholding taxes.

After careful consideration, all of the Company’s independent, non-employee directors, constituting a majority of the Company’s board of directors, adopted the merger agreement and the merger and determined that the merger agreement and the merger are advisable, fair to and in the best interests of the Company and its shareholders (other than certain of the Company’s management shareholders whose shares of Common Stock will be exchanged in the merger for equity interests in Parent). The Company’s Executive Chairman and the Company’s President and Chief Executive Officer, each of whom is a director of the Company, recused themselves from voting in their respective capacities as directors with respect to the merger agreement and the merger.

Your Board recommends that you vote “FOR” approval of the merger agreement and “FOR” approval, by non-binding advisory vote, of certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger.

In considering the recommendation of your Board, you should be aware that some of the Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of the Company’s shareholders generally. As of the Record Date, the Company’s founders, Chief Executive Officer and certain other management shareholders, beneficially owned an aggregate of 3,637,851 shares of the Company’s common stock (including 700,807 options to purchase common stock exercisable within 60 days of such date) or approximately 24.1% of the outstanding common stock as of such date, and have agreed, pursuant to the terms of a share exchange and voting agreement entered into on October 22, 2017, as amended by Amendment No. 1 to the Rollover and Voting Agreement, dated December 3, 2017, to contribute to Osteon Holdings, L.P., immediately prior to the effective time of the merger, 2,711,584 shares of the Company’s common stock in exchange for newly issued equity interests of Parent. Such persons have also agreed to vote all 3,637,851 of their shares of common stock “for” the approval of the merger agreement and the merger, and against certain other actions.

Approval of the merger agreement requires the affirmative vote of holders (in person or by proxy) of a majority of the outstanding common stock entitled to vote thereon at the special meeting. We urge you to vote all of your shares of common stock. Whether or not you plan to attend the special meeting, please complete, date, sign and


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return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or the Internet in accordance with the instructions printed on the enclosed proxy card. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. The failure to vote your shares of common stock with respect to the merger agreement and the merger will have the same effect as a vote “AGAINST” approval of the merger agreement and the merger.

If your shares are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote your shares in accordance with the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares FOR approval of the merger agreement and the merger will have the same effect as voting AGAINST approval of the merger agreement and the merger.

The accompanying Notice of Special Meeting of Shareholders and Proxy Statement describe in more detail information about the merger agreement, the merger and the special meeting and provide important information that you should consider when deciding how to vote your shares. A copy of the merger agreement is attached as Annex A to the Proxy Statement. We encourage you to read the entire Proxy Statement and its annexes, including the merger agreement, carefully and in their entirety. You may also obtain additional information about the Company from documents we have filed with the Securities and Exchange Commission.

Thank you for your consideration and support.

Sincerely,

William Petty, M.D.

Executive Chairman and Chairman of the Board

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

THIS PROXY STATEMENT IS DATED [●], 2017 AND IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT [●], 2017


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Preliminary Proxy Statement - Subject to Completion

EXACTECH, INC.

2320 N.W. 66th Court

Gainesville, Florida 32653

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on []

To Our Shareholders:

A special meeting of the shareholders of Exactech, Inc., a Florida corporation (the “Company”), will be held on [●], starting at [●], local time, at [                    ].

The meeting will be held for the following purposes:

 

  1. To consider and vote on a proposal to approve the Agreement and Plan of Merger dated as of October 22, 2017, as amended by Amendment No.1 to the Agreement and Plan of Merger, dated as of December 3, 2017, as it may be amended or supplemented from time to time, by and among the Company, Osteon Holdings, L.P., a Delaware limited partnership, or Parent, and Osteon Merger Sub, Inc. a Florida corporation and a wholly owned subsidiary of Parent. Pursuant to the Merger Agreement, at the effective time, Merger Sub will merge with and into the Company, and the Company will continue its existence as the surviving corporation in the merger. A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement.

 

  2. To consider and vote on the proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger.

 

  3. To consider and act upon such other business as may properly come before the special meeting or any adjournment or postponement.

Your Board has fixed the close of business on [●] as the record date for determining shareholders entitled to notice of and to vote at the special meeting.

We urge you to vote all shares of Common Stock that you own. The merger cannot be completed unless the Merger Agreement is approved by the affirmative vote of holders (in person or by proxy) of a majority of the Company’s outstanding common stock entitled to vote thereon at the special meeting. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or the Internet in accordance with the instructions printed on the enclosed proxy card prior to the special meeting to ensure that your shares will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by phone or the Internet, unless you attend the special meeting in person, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement and the merger. The approval of adjournments of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Merger Agreement requires the affirmative vote of the holders of a majority of shares of common stock present in person or represented by proxy and entitled to vote thereon, whether or not a quorum is present.

After careful consideration, the board of directors adopted the Merger Agreement and the merger and determined that the Merger Agreement and the merger are advisable and fair to, and in the best interests of, the company and its shareholders. Accordingly, the board of directors recommends that you vote “FOR” approval of the Merger Agreement and “FOR” approval, by non-binding advisory vote, of certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger.


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By order of the board of directors,

 

Betty Petty

Secretary

Gainesville, Florida

[DATE]


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ABOUT THIS PROXY STATEMENT

This statement constitutes a proxy statement for Exactech, Inc. under Section 14(a) of the Securities Exchange Act of 1934. In addition, it constitutes a notice of meeting with respect to the special meeting of Exactech shareholders.

The Company and Parent have entered into an Agreement and Plan of Merger dated October 22, 2017, by and among the Company, Parent and Fund (the “Original Merger Agreement”) which was subsequently amended by that certain Amendment No. 1 to the Agreement and Plan of Merger, dated December 3, 2017 (the “Amendment to Merger Agreement”). Accordingly, unless otherwise expressly stated otherwise, all discussions in this proxy statement concerning the merger, the merger agreement, and all transaction documentation, including all discussions concerning the events leading thereto, the applicable proceedings of the board, the fairness opinion, and all other considerations, all relate to the Original Merger Agreement, as amended by the Amendment to Merger Agreement, as it may be amended or supplemented from time to time (the “Merger Agreement”).

You should rely only on the information contained in or incorporated by reference into this proxy statement. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement. This proxy statement is dated [●]. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement is accurate as of any date other than the date of such information. The mailing of this proxy statement to Exactech shareholders will not create any implication to the contrary.

This proxy statement will not constitute an offer to sell, or the solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation.

Unless otherwise indicated or as the context otherwise requires, all references in this proxy statement to:

 

    appraisal shares” refers to shares held by shareholders of the Company who are entitled to demand and who properly exercise their right to seek judicial appraisal of their shares under Florida law;

 

    Board” or “Board of Directors” refers to the board of directors of the Company;

 

    Closing” refers to the closing of the merger;

 

    Closing Date” refers to the date on which the Closing occurs;

 

    Common Stock” refers to shares of common stock of Exactech, par value $0.01 per share;

 

    Company Charter” refers to the amended and restated articles of incorporation of the Company as in effect immediately prior to the Effective Time;

 

    Company By-laws” refers to the amended and restated by-laws of the Company as in effect immediately prior to the Effective Time;

 

    Company Shareholder Approval” refers to the receipt of the affirmative vote of the holders of a majority of all the votes entitled to be cast by all shares of Common Stock at the Company Shareholders Meeting approving the Merger;

 

    Company Stock Award” refers to any Company Stock Option, Company Restricted Share or other equity or equity-based award issued under any of the Company Stock Plans;

 

    Company Stock Plans” refers to the Company’s equity-based compensation plans (other than the Company ESPP), including the 2009 Executive Incentive Compensation Plan, as amended, and any other incentive compensation plan under which Stock Options, Restricted Stock or any other equity or equity-based awards are outstanding;

 

    DOJ” refers to the U.S. Department of Justice;

 

    Effective Time” refers to the time that the Articles of Merger have been duly filed with the Department of State, or at such later time as the Company and Parent agree and specify in the Articles of Merger;

 

    End Date” refers to April 30, 2018;

 

    Equity Commitment Letter” refers to that certain Equity Commitment Letter, dated as of October 22, 2017, by and among the Company, Parent, and Fund (the “Original Equity Commitment Letter”), as amended by First Amendment to Equity Commitment Letter, dated December 3, 2017 (the “Amendment to Equity Commitment Letter”), as it may be amended or supplemented from time to time.

 

    Exactech”, the “Company”, “we” “our” or “us” refers to Exactech, Inc., a Florida corporation;


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    Exchange Act” refers to the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

    FBCA” refers to the Florida Business Corporations Act, as amended;

 

    Financial Advisor” or “J.P. Morgan” refers to J.P. Morgan Securities LLC, financial advisor to the Company;

 

    FTC” refers to the Federal Trade Commission;

 

    Fund” refers to TPG Partners VII, L.P., a Delaware limited partnership;

 

    Greenberg Traurig” refers to counsel to the Company;

 

    HSR Act” refers to Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;

 

    merger” refers to the merger of Osteon Merger Sub, Inc., a Florida corporation and a wholly owned subsidiary of Osteon Holdings, L.P., a Delaware limited partnership and an affiliate of TPG with and into Exactech, Inc., a Florida corporation;

 

    Merger Consideration” refers to the right to receive $49.25 in cash, without interest and less any required withholding taxes;

 

    Merger Sub” refers to Osteon Merger Sub, Inc., a Florida corporation and wholly owned subsidiary of Parent;

 

    Original Merger Consideration” refers to the right to receive $42.00 in cash without interest and less any required withholding taxes.

 

    Parent” refers to Osteon Holdings, L.P., a Delaware limited partnership and an affiliate of TPG;

 

    Paying Agent” refers to the U.S. bank or trust company appointed by Parent to act as paying agent, in trust for the benefit of the holders of the Common Stock;

 

    Representatives” refers to the Company’s officers, directors, employees, consultants, agents, financial advisors, attorneys, accountants, other advisors, affiliates and other representatives;

 

    Restricted Stock” refers to shares of restricted Common Stock issued under any of the Company’s equity-based compensation plans;

 

    Rollover and Voting Agreement” refers to that certain Rollover and Voting Agreement, dated as of October 22, 2017, by and among the Rollover Investors and Parent (the “Original Rollover and Voting Agreement”), as amended by Amendment No. 1 to the Rollover and Voting Agreement, dated December 3, 2017 (the “Amendment to Rollover and Voting Agreement”), as it may be amended or supplemented from time to time.

 

    Rollover Investors” refers to, collectively, Dr. William Petty, Executive Chairman and Chairman of the Board, David W. Petty, President, Chief Executive Officer of the Company and Director, Betty Petty, founding shareholder and Corporate Secretary for the Company, Prima Investments, Limited Partnership, a limited partnership 100% owned and controlled by Dr. and Mrs. Petty, Miller Holdings, LLC, a Florida limited liability company 100% owned by Dr. Gary Miller, Executive Vice President for Research and Development, and his wife and children, Mr. Bruce Thompson, Senior Vice-President-Strategic Initiatives, Mr. Joel C. Phillips, Chief Financial Officer of the Company, Ms. Donna Edwards, Vice President-Legal, Chris Roche, Director of Engineering and Steve Szabo, Vice President of Marketing;

 

    Rollover Shares” refers to 2,711,584 shares of Common Stock held by the Rollover Investors that will be exchanged for equity interests of Parent pursuant to the Rollover and Voting Agreement;

 

    Ropes & Gray” refers to counsel to TPG, Parent and Merger Sub;

 

    SEC” refers to the U.S. Securities and Exchange Commission.

 

    Stock Options” refers to options to purchase shares of Common Stock granted under any of the Company Stock Plans;

 

    TPG” refers to TPG Capital, L.P.;


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TABLE OF CONTENTS

 

          Page  
SUMMARY TERM SHEET      1  
   The Parties to the Merger Agreement      1  
   The Special Meeting      2  
   Reasons for the Merger; Fairness of the Merger      3  
   Financing of the Merger      4  
   Interests of the Company’s Directors and Executive Officers in the Merger      4  
   Material U.S. Federal Income Tax Consequences of the Merger      5  
   Regulatory Approvals and Notices      5  
   The Merger Agreement      5  
   Market Price of Our Common Stock      9  
   Appraisal Rights      9  
   Delisting and Deregistration of Our Common Stock      10  
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER      11  
SPECIAL FACTORS      19  
   Background of the Merger      19  
   Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger      36  
   Opinion of Financial Advisor      41  
   Position of the Rollover Investors as to Fairness of the Merger      47  
   Position of Parent and Merger Sub as to Fairness of the Merger      47  
   Purposes and Reasons of Exactech for the Merger      50  
   Purposes and Reasons of the Rollover Investors for the Merger      50  
   Purposes and Reasons of Parent and Merger Sub for the Merger      51  
   Plans for the Company after the Merger      51  
   Certain Effects of the Merger      51  
   Projected Financial Information      52  
   Financing of the Merger      54  
   Interests of the Company’s Directors and Executive Officers in the Merger      55  
   Advisory Vote on Specified Compensation      61  
   Material U.S. Federal Income Tax Consequences of the Merger      62  
   Regulatory Approvals      64  
   Fees and Expenses      65  
   Effective Time of Merger      65  
   Payment of Merger Consideration and Surrender of Stock Certificates      65  
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS      67  
THE PARTIES TO THE MERGER AGREEMENT      68  
   The Company      68  
   Parent      68  
   Merger Sub      68  
THE SPECIAL MEETING      69  
   Time, Place and Purpose of the Special Meeting      69  
   Board Recommendation of the Merger Agreement      69  
   Record Date and Quorum      69  
   Attendance      70  
   Vote Required      70  
   Proxies and Revocation      72  
   Anticipated Date of Completion of the Merger      72  
   Appraisal Rights      72  
   Solicitation of Proxies      73  


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          Page  
   Questions and Additional Information      73  
THE MERGER AGREEMENT      74  
   Explanatory Note Regarding the Merger Agreement      74  
   Structure of the Merger; Charter; Bylaws      74  
   Terms of the Merger Agreement      74  
   Effect of the Merger on the Common Stock      75  
   Treatment of Company Stock Options and Company Restricted Stock      75  
   Representations and Warranties      75  
   Conditions to the Merger      84  
   Termination      86  
   Termination Fees and Expenses      87  
   Specific Performance      88  
PROVISIONS FOR NON-AFFILIATE SHAREHOLDERS      90  
IMPORTANT INFORMATION REGARDING EXACTECH      90  
   Company Background      90  
   Directors and Executive Officers      90  
   Selected Summary Historical Financial Data      94  
   Book Value Per Share      95  
   Market Price of the Common Stock and Dividend Information      95  
   Security Ownership of Certain Beneficial Owners and Management      95  
   Transactions in Common Stock During the Past 60 Days      97  
   Transactions in Common Stock by the Company During the Past Two Years      97  
   Transactions in Common Stock by the Rollover Investors During the Past Two Years      97  
   Transactions in Common Stock between Parent and Merger Sub and the Company      97  
   The Company Financial Advisor      97  
APPRAISAL RIGHTS      98  
DELISTING AND DEREGISTRATION OF OUR COMMON STOCK      101  
OTHER BUSINESS      101  
SHAREHOLDER PROPOSALS FOR THE 2018 ANNUAL MEETING      101  
MULTIPLE SHAREHOLDERS SHARING ONE ADDRESS      101  
IMPORTANT INFORMATION REGARDING PARENT PARTIES      102  
WHERE YOU CAN FIND MORE INFORMATION      102  

 

ANNEX A

     -      Composite of Agreement and Plan of Merger, dated as of October  22, 2017, as amended by Amendment No. 1 thereto, dated December 3, 2017, by and among Exactech, Inc., Osteon Holdings, L.P., and Osteon Merger Sub, Inc.

ANNEX B

     -      Opinion of J.P. Morgan Securities LLC, dated December 2, 2017

ANNEX C

     -      Text of Sections 607.1301 through 607.1333 of the Florida Business Corporations Act

ANNEX D

     -      Composite of Rollover and Voting Agreement, dated October  22, 2017, as amended by Amendment No. 1 thereto, dated December 3, 2017, by and between Osteon Holdings, L.P. and the Shareholders set forth on Exhibit A-1 thereto.


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SUMMARY TERM SHEET

This Summary Term Sheet discusses the material information contained in this proxy statement, including with respect to the Merger Agreement, the merger and the other agreements entered into in connection with the merger. We encourage you to read carefully this entire proxy statement, including its annexes and the documents referred to or incorporated by reference in this proxy statement, as this Summary Term Sheet may not contain all of the information that may be important to you in deciding how to vote your shares of Common Stock. The items in this Summary Term Sheet include page references directing you to a more complete description of that topic in this proxy statement.

The Parties to the Merger Agreement

Exactech, Inc.

2320 N.W. 66th Court

Gainesville, Florida 32653

(352) 377-1140

Exactech is a leading developer and producer of orthopaedic implant devices and surgical instrumentation for extremities and large joints. The Company manufactures many of its orthopaedic devices at its Gainesville facility. Exactech’s orthopaedic products are used in the restoration of bones and joints that have deteriorated as a result of injury or diseases such as arthritis. Exactech markets its products in the United States, in addition to more than 30 markets in Europe, Latin America, Asia and the Pacific.

Osteon Holdings, L.P.

c/o TPG Capital, L.P.

301 Commerce Street

Suite 3300

Fort Worth, TX 76102

(415) 438-6893

Parent is a Delaware limited partnership and an affiliate of TPG. TPG is a leading global alternative asset firm founded in 1992 with more than $73 billion of assets under management and offices in Austin, Beijing, Boston, Dallas, Fort Worth, Hong Kong, Houston, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, San Francisco, Seoul and Singapore. TPG’s investment platforms are across a wide range of asset classes, including private equity, growth venture, real estate, credit, and public equity. TPG aims to build dynamic products and options for its investors while also instituting discipline and operational excellence across the investment strategy and performance of its portfolio.

Osteon Merger Sub, Inc.

c/o TPG Capital, L.P.

301 Commerce Street

Suite 3300

Fort Worth, TX 76102

(415) 438-6893

Merger Sub is a Florida corporation and a wholly owned subsidiary of Parent that was formed by Parent solely for the purpose of facilitating the merger in accordance with the terms and subject to the conditions of the Merger Agreement. To date, Merger Sub has not conducted any activities other than those related to its formation and completion of the transactions contemplated by the Merger Agreement. At the Effective Time, Merger Sub will cease to exist.

The Merger

In the merger, each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than Rollover Shares, appraisal shares and shares held by the Company in treasury), will be converted into the right to receive the Merger Consideration. At the Effective Time, the Company will become a wholly owned subsidiary of Parent.

 



 

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The Special Meeting

Time, Place and Purpose of the Special Meeting

The special meeting will be held on [●], starting at [●]., local time, at [            ]. At the special meeting, you will be asked to vote on the proposal to approve the Merger Agreement. The Merger Agreement provides that at the Effective Time of the merger, Merger Sub will be merged with and into the Company with the Company surviving as a wholly owned subsidiary of Parent (the “Surviving Corporation”). Our shareholders will also be asked to approve by non-binding, advisory vote, certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger.

Record Date and Quorum

You are entitled to receive notice of, and to vote at, the special meeting if you owned shares of Common Stock at the close of business on [●], which we have fixed as the record date for the special meeting (the “Record Date”). Each share of Common Stock that you owned on the Record Date entitles you to one vote. As of the Record Date, there were 14,413,421 shares of Common Stock issued and outstanding and entitled to vote at the special meeting. Holders of a majority of the votes entitled to be cast at the special meeting must be present, in person or by proxy, at the special meeting to achieve the required quorum for the transaction of business at the special meeting. Therefore, the presence in person or by proxy of our shareholders holding at least 7,206,711 shares of Common Stock will be required to establish a quorum.

Vote Required

If a quorum is present, approval of the proposal to approve the Merger Agreement requires the affirmative vote of holders (in person or by proxy) of a majority of the outstanding shares of Common Stock entitled to vote thereon at the special meeting.

If a quorum is present, approval, by non-binding, advisory vote, of certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger will be approved if the number of votes cast at the special in favor of such proposal exceeds the number of votes cast opposing such proposal. The outcome of this vote is not binding on the Company.

Board Recommendation of the Merger Agreement

The Board recommends that you vote “FOR” approval of the proposal to approve the Merger Agreement and “FOR” approval of the proposal to approve, by non-binding, advisory vote, of certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger.

Proxies and Revocation

Any shareholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person by appearing at the special meeting. If your shares of Common Stock are held in “street name” by your bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or to vote in person at the special meeting, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of Common Stock will not be voted on any of the proposals described in this proxy statement, which will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement, but will not affect the outcome of any other proposal.

If you are a shareholder of record, you have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is voted at the special meeting by:

 

    delivering written notice to our Corporate Secretary at Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida, 32653;

 



 

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    executing and delivering to our Corporate Secretary at the address above a proxy bearing a later date;

 

    attending the special meeting in person, at which time the powers of the proxy holders will be suspended if you so request; or

 

    submitting a vote by telephone or via the Internet with a later date.

Your attendance at the special meeting will not by itself revoke a previously granted proxy.

If you hold your shares of Common Stock in street name, you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy from your bank, brokerage firm or other nominee.

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

After careful consideration of various factors described in the section entitled “The Merger — Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger,” at a meeting held on December 2, 2017, all of the Company’s independent, non-employee directors, constituting a majority of the Board, by unanimous vote, (i) approved the execution, delivery and performance of the Merger Agreement, (ii) determined that entering into the Merger Agreement was fair to and in the best interests of the Company and its shareholders and that the Merger Agreement is advisable, (iii) recommended that the Company’s shareholders approve and adopt the Merger Agreement and directed that the Merger Agreement be submitted to the Company’s shareholders for approval at a duly held meeting of such shareholders for such purpose and (iv) elected, to the extent necessary, to make the execution, delivery or performance of the Merger Agreement or the consummation of the merger or the other transactions contemplated by the Merger Agreement not to be subject to any state takeover law or similar law that might otherwise apply to such execution, delivery, performance or consummation. The preceding actions taken by the Board on December 2, 2017 are referred to herein as the “Board Actions.” Dr. Petty and Mr. Petty recused themselves from voting on the Board Actions.

See The Merger — Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 36.

In considering the recommendation of the Board of Directors with respect to the proposal to approve the Merger Agreement, you should be aware that the interests of our directors and employees, including certain of our executive officers (“Named Executive Officers”), in the merger that may be different from, or in addition to, those of other shareholders of the Company. The Board was aware of these interests, considered them and took them into account, together with other factors, in determining whether to approve and adopt the Merger Agreement and recommend that our shareholders vote for the approval of the Merger Agreement. (See Special Factors — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 55.

Opinion of Financial Advisor

Pursuant to an engagement letter, dated October 13, 2017, the Company retained J.P. Morgan as its financial advisor in connection with the proposed merger.

At the meeting of the Board on December 2, 2017, J.P. Morgan rendered its oral opinion to the Board that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the consideration to be paid to the holders of the Common Stock in the proposed merger was fair, from a financial point of view, to such shareholders. J.P. Morgan confirmed this oral opinion by delivering its written opinion to the Board, dated December 2, 2017.

The full text of the written opinion of J.P. Morgan dated December 2, 2017, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. The Company’s shareholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the Board of Directors (in its capacity as such) in connection with and for the purposes of its evaluation of the proposed merger, was directed only to the consideration to be paid in the

 



 

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proposed merger and did not address any other aspect of the proposed merger. The opinion does not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote with respect to the proposed merger or any other matter. For a description of the opinion that the Board of Directors received from J.P. Morgan, see Opinion of Financial Advisor beginning on page 41 of this proxy statement.

Financing of the Merger

The Merger Agreement does not contain any financing-related contingencies or financing conditions to consummation of the merger. On October 22, 2017, we entered into the Original Equity Commitment Letter with the Fund and Parent. On December 3, 2017, we entered into the Amendment to Equity Commitment Letter with the Fund and Parent. Pursuant to the Equity Commitment Letter, upon the terms and conditions specified therein, the Fund will commit to purchase or will directly or indirectly cause the purchase of, equity securities of Parent with an aggregate price not to exceed $737,057,000, which will be used to either (i) fund the payment, in full, of the Merger Consideration and all other amounts required to be paid by Parent at the Closing under the Merger Agreement, including all fees and expenses required to be paid by Parent thereunder or (ii) under certain circumstances fund the payment to up to $737,057,000 in monetary damages required to be paid by Merger Sub in accordance with the Merger Agreement. The Company is a direct party to the Equity Commitment Letter and is entitled thereunder and under the Merger Agreement to specifically enforce the performance by the Fund of its obligations thereunder and to cause Parent to enforce against the Fund the performance by the Fund of its obligations thereunder.

The foregoing summary of the Equity Commitment Letter is qualified in its entirety by reference to the copy of such letter attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.

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

Aside from their interests as shareholders of the Company, certain of our officers and directors have certain interests in the merger that may be different from, or in addition to, your interests as a shareholder generally. In particular, as is described elsewhere in this proxy statement, pursuant to the terms of the Rollover and Voting Agreement, the Rollover Investors have agreed to exchange immediately prior to the Effective Time, a portion of their shares of Common Stock, constituting the Rollover Shares, for equity interests of Parent in connection with the merger. In considering the recommendation of the Board that you vote to approve the Merger Agreement and the merger, you should be aware of these interests. The Board was aware of these interests, considered them and took them into account, together with other factors, in determining whether to approve the Merger Agreement and recommend that you vote for approval of the Merger Agreement. The interests of our directors and employees, including our executive officers, in the merger that may be different from, or in addition to, those of other shareholders of the Company include, but are not limited to:

 

    accelerated vesting of all Stock Options held by our employees, including certain of our executive officers (“Named Executive Officers”), at the Effective Time, and the conversion of such Stock Options into the right to receive cash, less any required withholding taxes (See “Merger Agreement – Treatment of Company Stock Options and Company Restricted Stock beginning on page 75);

 

    accelerated vesting of all Restricted Stock held by our employees, including our Named Executive Officers, at the Effective Time, and the conversion of such Restricted Stock into the right to receive the Merger Consideration (See “Merger Agreement – Treatment of Company Stock Options and Company Restricted Stock beginning on page 75);

 

    payment of certain severance payments, not to exceed $600,000, to our independent directors in connection with their services to the Company with respect to the merger (but which are not conditioned on the consummation of the merger);

 

    some of our Named Executive Officers that have employment agreements with us will receive payments and benefits under their employment agreements upon certain types of termination of employment following the Effective Time; and

 



 

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    our founders and certain management shareholders have entered into the Rollover and Voting Agreement pursuant to which the Rollover Shares will be exchanged, at a price per share less than or equal to the Merger Consideration.

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

The exchange of shares of Common Stock for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder (as defined below under the heading “Special Factors — Material U.S. Federal Income Tax Consequences of the Mergerbeginning on page 62) who receives cash in exchange for shares of Common Stock pursuant to the merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before the deduction of any withholding tax) and the shareholder’s adjusted tax basis in the shares exchanged for cash pursuant to the merger.

Payments made to a Non-U.S. Holder (as defined below under the heading “Special Factors — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 62) with respect to the shares of Common Stock that are exchanged for cash pursuant to the merger generally will not be subject to U.S. federal income or withholding tax, subject to certain exceptions. You should read “Special Factors — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 62 for definitions of “U.S. Holder” and “Non-U.S. Holder,” and for a more detailed discussion of the U.S. federal income tax consequences of the merger. You should consult your own tax advisor regarding the particular tax consequences (including the state, local or non-U.S. tax consequences) of the merger to you in light of your own particular circumstances.

Regulatory Approvals and Notices

The merger is subject to the HSR Act, which provides that certain transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the DOJ and FTC and applicable waiting period requirements have been satisfied.

Exactech and Parent filed pursuant to the HSR Act a Notification and Report Form for Certain Mergers and Acquisitions with the DOJ and the FTC on November 9, 2017. On November 17, 2017, each of Parent and Exactech, received early termination of the waiting period required by the HSR Act.

The Merger Agreement

Treatment of Common Stock, Stock Options and Restricted Stock (page 68)

 

    Common Stock. Each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than Rollover Shares, appraisal shares and shares held by us as treasury stock immediately prior to the Effective Time, which will be automatically cancelled in accordance with the terms of the Merger Agreement) automatically will be converted into the right to receive the Merger Consideration.

 

    Stock Options. Each Stock Option, to the extent outstanding and unexercised immediately prior to the Effective Time, whether vested or unvested, will be fully cancelled immediately prior to the Effective Time, and in consideration for such cancellation the holder thereof will be entitled to receive an amount in cash, without interest, equal to the product of (i) the excess, if any, of (A) the Merger Consideration over (B) the per share exercise price of such Stock Option multiplied by (ii) the number of shares of Common Stock subject to such Stock Option (the “Option Consideration”).

 

    Restricted Stock. Each share of Restricted Stock that is outstanding immediately prior to the Effective Time will become fully vested immediately prior to the Effective Time and will be treated as an outstanding share of Common Stock for purposes of the Merger Agreement and the holder thereof will be entitled to receive the Merger Consideration with respect thereto, less applicable withholdings.

 



 

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No Solicitation and the Company’s Fiduciary Exceptions Thereto

Until the Effective Time or, if earlier, the termination of the Merger Agreement, the Company will not and will cause each of its subsidiaries and the Company’s and its subsidiaries respective Representatives to not:

 

    engage or participate in any discussions or negotiations with any Persons with respect to an Alternative Proposal (as defined below under the heading “The Merger Agreement — Terms of the Merger Agreement — No Solicitation and the Company’s Fiduciary Exceptions Thereto” beginning on page 79);

 

    directly or indirectly solicit, initiate or knowingly facilitate or encourage (including by way of furnishing non-public information) any inquiries regarding, or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, an Alternative Proposal; and

 

    directly or indirectly engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other Person any non-public information in connection with or for the purpose of encouraging or facilitating, an Alternative Proposal.

However, if at any time prior to obtaining the Company Shareholder Approval (but not thereafter), we or any of our Representatives receives a written Alternative Proposal from any Person or group of Persons, which Alternative Proposal did not result from any breach of our “No Solicitation” obligations set forth above, the Company and its Representatives may (i) furnish, pursuant to an Acceptable Confidentiality Agreement, information (including non-public information) with respect to the Company and its subsidiaries to the Person or group of Persons who has made such Alternative Proposal and (ii) engage in or otherwise participate in discussions or negotiations with the Person or group of Persons making such Alternative Proposal, if the Board determines (A) that the failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties under Florida law and (B) in good faith, After Consultation (as defined under the heading “The Merger Agreement — Terms of the Merger Agreement — ” beginning on page 74), that such Alternative Proposal constitutes or would reasonably be expected to result in a Superior Proposal (as defined under the heading “The Merger Agreement — Terms of the Merger Agreement — No Solicitation and the Company’s Fiduciary Exceptions Thereto” beginning on page 79), then the Company will be permitted to:

 

    furnish, pursuant to an Acceptable Confidentiality Agreement, information (including non-public information) with respect to the Company and its Subsidiaries to the Person or group of Persons who has made such Alternative Proposal, provided that the Company will promptly (and in any event within 24 hours) provide to Parent any material non-public information concerning the Company or any of its Subsidiaries that is provided to any Person given such access which was not previously provided to Parent or its Representatives; and

 

    engage in or otherwise participate in discussions or negotiations with the Person or group of Persons making such Alternative Proposal;

We will promptly (and, in any event, within 24 hours) notify Parent if we or any of our Representatives receive any Alternative Proposal and keep Parent reasonably informed of any material changes to the terms thereof.

Except as expressly permitted by the Merger Agreement, the Board will not (each, an “Adverse Recommendation Change”):

 

    fail to make the Company Recommendation (as defined under the heading “The Merger Agreement — Terms of the Merger Agreement — Shareholders’ Meeting” beginning on page 78) or fail to include the Company Recommendation in this proxy statement;

 

    change, qualify, withhold, withdraw or modify, or publicly propose to change, qualify, withhold, withdraw or modify, in a manner adverse to Parent, the Company Recommendation;

 

    if requested in writing by Parent, fail to publicly recommend to the Company’s shareholders rejection of an Alternative Proposal (including any tender offer or exchange offer) within 10 business days after the public announcement or commencement thereof; or

 

    adopt, approve or recommend, or publicly propose to approve or recommend to the shareholders of the Company an Alternative Proposal.

 



 

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Prior to obtaining the Company Shareholder Approval, but not after, in the case of a Superior Proposal, the Board may make an Adverse Recommendation Change if the Board has determined in good faith, After Consultation, (i) that failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties under Florida Law and (ii) that such Alternative Proposal constitutes a Superior Proposal; provided, however, that prior to taking such action:

 

    the Company must give Parent at least four Business Days’ prior written notice of its intention to take such action (which notice shall include an unredacted copy of the Superior Proposal including all related agreements related thereto and in the Company’s possession);

 

    the Company must negotiate, and cause its Representatives to negotiate, in good faith with Parent during such notice period, to the extent Parent has notified the Company that it wishes to so negotiate, to enable Parent to submit to the Company prior to the expiration of the aforementioned notice period a proposed definitive amendment to the Merger Agreement (in such form which, if accepted and approved by the Board and entered into, would constitute a binding definitive agreement among the Company, Parent and Merger Sub) (and, if applicable the Equity Commitment Letter and/or any other material transaction documents); and

 

    the Board has determined in good faith, After Consultation, that after giving effect to such proposed amendments and entering into the definitive amendment to the Merger Agreement (and, if applicable the Equity Commitment Letter and/or any other material transaction documents) proposed by Parent, that failure to effect an Adverse Recommendation Change would reasonably be expected to be inconsistent with the directors’ fiduciary duties under Florida law;

provided, further, however, (i) that any change to the price or other material change to the material terms of such Superior Proposal will require a new written notice to be delivered by the Company to Parent consistent with the content requirements described above and a new two business day period and negotiation period will commence, (ii) the Company has complied in all material respects with its “No Solicitation” obligations, and (iii) purported termination of the Merger Agreement will be void and of no force and effect, unless the Company termination is made in accordance with the termination provisions of the Merger Agreement and the Company pays Parent the applicable termination fee in accordance with the Merger Agreement prior to or concurrently with such termination.

Conditions to the Merger

The obligations of each party to effect the merger is subject to the satisfaction or waiver on or prior to the Effective Time of the following conditions:

 

    the Company Shareholder Approval;

 

    the waiting period applicable to the consummation of the merger under the HSR Act (or any extension thereof) will have expired or early termination thereof will have been granted; and

 

    no law, injunction, judgement or ruling enacted, promulgated, issued, entered, amended or enforced by a governmental authority will be in effect enjoining, restraining, preventing or prohibiting consummation of the merger or making the consummation of the merger illegal.

The Company’s obligation to effect the merger is subject to the satisfaction (or waiver) on or prior to the Effective Time of the following conditions:

 

    accuracy of Parent and Merger Sub’s representations as of the date of the Merger Agreement and at or prior to the Closing Date, with certain materiality qualifiers, scrapes and limitations; and

 

    performance in all material respects of the Parent and Merger Sub’s obligations under the Merger Agreement at or prior to the Closing Date; and

Parent and Merger Sub’s obligation to effect the merger is subject to the satisfaction (or waiver) on or prior to the Closing Date of the following conditions:

 

    accuracy of the Company’s representations as of the date of the Merger Agreement and at or prior to the Closing Date, with certain materiality qualifiers, scrapes and limitations; and

 



 

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    performance in all material respects of the Company’s obligations under the Merger Agreement at or prior to the Closing Date.

Termination

The Merger Agreement may be terminated in the following circumstances:

 

    by mutual written consent of the Company and Parent;

 

    by either the Company or Parent: (i) if the merger is not consummated on or before End Date provided that this right to terminate will not be available to any party whose breach of the Merger Agreement will have proximately caused the failure of the Closing to be consummated by the End Date; (ii) if any governmental authority enacts, promulgates, issues, enters, amends or enforces (A) a law prohibiting the merger or making the merger illegal, or (B) an injunction, judgment, order, decree, ruling or any other similar action, in each case, permanently enjoining, restraining, preventing or prohibiting the merger or making the merger illegal and such injunction, judgement, order, decree or ruling or other action becomes final and non-appealable; or (iii) if the Company Shareholder Approval is not obtained at the Shareholders Meeting or any adjournment or postponement thereof at which the vote is taken;

 

    by the Company (provided that the Company is not then in breach of any representation, warranty, covenant or agreement contained in the Merger Agreement), if Parent or Merger Sub has (i) breached any representation, warranty, covenant or agreement contained in the Merger Agreement, or if any representation or warranty of Parent or Merger Sub has become untrue, in each case, such that the closing conditions could not be satisfied as of the Closing Date and (ii) such breach is either incapable of being cured by the End Date or is not cured within 30 days of written notice thereof;

 

    by the Company, prior to receipt of the Company Shareholder Approval, but not after, in order to accept a Superior Proposal or in the event that an Adverse Recommendation Change has occurred, in each case provided the Company has complied in all material respects with its No Solicitation obligations and provided that the Company pays or causes to be paid to Parent the termination fee prior to or simultaneously with such termination (it being understood that the Company may enter into a definitive written agreement with respect to a Superior Proposal simultaneously with such termination of the Merger Agreement);

 

    by the Company, if (i) all of the conditions to each party’s obligations to effect the merger have been satisfied or waived (other than delivery of items to be delivered at the Closing and other than satisfaction of those conditions that by their nature are to be satisfied by actions taken at the Closing, but subject to such conditions being capable of being satisfied at the time of such termination), (ii) the Company has irrevocably notified Parent in writing that we are ready and willing to consummate the transactions contemplated by the Merger Agreement and that all conditions to close have been satisfied or waived (other than satisfaction of those conditions that by their nature are to be satisfied by actions taken at the Closing, but subject to such conditions being capable of being satisfied at the time of such termination) and (iii) Parent and Merger Sub have failed to consummate the transactions contemplated by the Merger Agreement within two business days following our delivery of such notice.

 

    by Parent (provided that Parent is not then in breach of any of its representations, warranties or covenants contained in the Merger Agreement), if (i) the Company has breached any representation, warranty, covenant or agreement contained in the Merger Agreement, or if any representation or warranty of the Company has become untrue, in each case, such that the closing conditions could not be satisfied as of the Closing and (ii) such breach is either incapable of being cured by the End Date or is not cured within 30 days of written notice thereof; or

 

    by Parent, in the event that an Adverse Recommendation Change has occurred.

 



 

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Termination Fee and Expenses

The Merger Agreement contemplates that we will pay to Parent a nonrefundable cash termination fee equal to $25,797,000 as follows:

 

    if we terminate the Merger Agreement prior to receipt of the Company Shareholder Approval in order to accept a Superior Proposal or in the event that we make an Adverse Recommendation Change;

 

    if Parent terminates the Merger Agreement following an Adverse Recommendation Change or in the event the Company materially breaches its No Solicitation obligations; or

 

    if (i) an Alternative Proposal is made by a third party or group and is publicly disclosed or announced, or otherwise becomes publicly known, or any Person or group publicly announced an intention (whether or not conditional and whether or not withdrawn) to make an Alternative Proposal; (ii) thereafter the Merger Agreement is terminated as a result of the lapse of the End Date, a failure to obtain the Company Shareholder Approval or a Company breach (other than in respect of a material breach of the No Solicitation obligations); and (iii) within 12 months of such termination, the Company enters into a definitive agreement providing for any Alternative Proposal, or does consummate, any Alternative Proposal.

Except as specifically provided for in the Merger Agreement, all fees and expenses incurred in connection with the merger and the other transactions contemplated by the Merger Agreement will be paid by the party incurring such fees or expenses, whether or not such transactions are consummated.

Market Price of Our Common Stock

The closing price of our Common Stock on the Nasdaq Global Market on October 20, 2017, the last trading day prior to the public announcement of the Original Merger Agreement, was $32.00 per share. The closing price of our Common Stock on the Nasdaq Global Market on December 1, 2017, the last trading day prior to the public announcement of the Amendment to the Merger Agreement, was $42.35 per share. The Merger Consideration of $49.25 per share representes a premium of approximately 53.9% over the closing price per share on October 20, 2017 and of approximately 16.3% over the closing price per share on December 1, 2017. On [●], the most recent practicable date before this proxy statement was mailed to our shareholders, the closing price for our Common Stock on the Nasdaq Global Market was $[●] per share. You are encouraged to obtain current market quotations for our Common Stock in connection with voting your Common Stock.

Appraisal Rights

Under Florida law, if you do not wish to accept the Merger Consideration provided for in the Merger Agreement and you do not vote for the approval of the Merger Agreement, you are entitled to appraisal rights under the FBCA. This means that you are entitled to have the fair value of your shares of Common Stock determined by a court of competent jurisdiction in Florida and to receive payment based on that valuation in lieu of the right to receive the Merger Consideration. The ultimate amount you receive in an appraisal proceeding may be less than, equal to or more than the Merger Consideration.

To properly exercise your appraisal rights, you must submit a written demand for appraisal to us before the vote is taken on the Merger Agreement and you must not vote in favor of the proposal to approve the Merger Agreement. Your failure to follow exactly the procedures specified under the FBCA may result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page 72 and the text of the Florida appraisal rights statute reproduced in its entirety as Annex C hereto. If you hold your shares of Common Stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, brokerage firm or nominee. In view of the complexity of the FBCA, shareholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

 



 

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Delisting and Deregistration of Our Common Stock

If the merger is completed, our Common Stock will be delisted from the Nasdaq Global Market and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC on account of our Common Stock.

 



 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger, the Merger Agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, which you should read carefully and in their entirety. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page 102.

 

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

 

A. The proposed transaction involves the acquisition of all of the outstanding Common Stock by Parent in accordance with the terms and subject to the conditions set forth in the Merger Agreement. If the proposal to approve the Merger Agreement is approved by our shareholders at the special meeting and the other closing conditions under the Merger Agreement have been satisfied or, to the extent permitted by the Merger Agreement and applicable law, waived, Merger Sub will merge with and into the Company. Upon completion of the merger, the Company will be the Surviving Corporation in the merger and will continue to exist and conduct business following the merger. As a result of the merger, we will become a wholly owned subsidiary of Parent and will no longer be a publicly traded corporation, and you will no longer have any financial interest in our future earnings or growth.

 

Q. What will I receive if the merger is completed?

 

A. Upon completion of the merger, you will be entitled to receive the Merger Consideration of $49.25 in cash, without interest thereon and less any required withholding taxes, for each share of our Common Stock that you own, unless you have properly demanded and exercised, and not subsequently withdrawn, your rights to seek judicial appraisal of the “fair value” of your shares under the FBCA. For example, if you own 100 shares of Common Stock, you will receive $4,925 in cash in exchange for your shares, less any required withholding taxes. You will not own any shares of the capital stock in the Surviving Corporation.

 

Q. When do you expect the merger to be completed?

 

A. We and Parent have agreed in the Merger Agreement to complete the merger as soon as possible. If the Merger Agreement and the merger are approved at the special meeting then, assuming timely satisfaction or, to the extent permitted by the Merger Agreement and applicable law, waiver of the other necessary closing conditions, we anticipate that the merger will be completed promptly thereafter.

 

Q. What happens if the merger is not completed?

 

A. If the Merger Agreement is not approved by our shareholders or if the merger is not completed for any other reason, you will not receive any payment for your shares of Common Stock. Instead, we will remain an independent public company, and our Common Stock will continue to be listed and traded on the Nasdaq Global Market. If, to the extent permitted by the Merger Agreement, we terminate the Merger Agreement to accept a Superior Proposal, or if we otherwise change or withdraw our recommendation to our shareholders that they vote to approve the Merger Agreement and the Merger Agreement is thereby terminated by us or by Parent, we will be required to pay or cause to be paid to Parent a termination fee of $25,797,000 as described under “The Merger Agreement — Terms of the Merger Agreement — Termination Fees” beginning on page 87.

 

Q. Is the merger expected to be taxable to me?

 

A.

Yes. The exchange of shares of Common Stock for the Merger Consideration in the merger will be a taxable transaction to U.S. Holders for U.S. federal income tax purposes. In general, a U.S. Holder who receives cash in exchange for shares of Common Stock pursuant to the merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before the deduction of any withholding tax) and the shareholder’s adjusted tax

 



 

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  basis in the shares of Common Stock exchanged for cash pursuant to the merger. Backup withholding may also apply to the cash payments made pursuant to the merger unless the U.S. Holder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules.

Payments made to a Non-U.S. Holder who receives cash in exchange for shares of Common Stock pursuant to the merger will generally be exempt from U.S. federal income tax, subject to certain exceptions. A Non-U.S. Holder may, however, be subject to backup withholding with respect to the cash payments made pursuant to the merger, unless the holder certifies that it is not a U.S. person or otherwise establishes a valid exemption from backup withholding tax.

You should read “Special Factors— Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 62 for definitions of “U.S. Holder” and “Non-U.S. Holder,” and for a more detailed discussion of the U.S. federal income tax consequences of the merger.

You should consult your own tax advisor regarding the particular tax consequences (including the state, local or non-U.S. tax consequences) of the merger to you in light of your own particular circumstances.

 

Q. Do any of our directors or officers have interests in the merger that may differ from or be in addition to my interests as a shareholder?

 

A. Yes. In considering the recommendation of the Board of Directors that you vote to approve the Merger Agreement and the merger, you should be aware that certain of our directors and Named Executive Officers have certain interests in the merger that may be different from, or in addition to, your interests as a shareholder generally. The Board was aware of these interests, considered them and took them into account, together with other factors, in determining whether to approve the Merger Agreement and recommending that our shareholders vote for approval of the Merger Agreement. See “Special Factors — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 55.

 

Q. Why am I receiving this proxy statement and proxy card or voting instruction form?

 

A. You are receiving this proxy statement and proxy card or voting instruction form because you own shares of Common Stock. This proxy statement describes matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of Common Stock with respect to such matters.

 

Q. When and where is the special meeting?

 

A. The special meeting will be held on [●], starting at [●], local time, at [●]. This proxy statement for the special meeting will be mailed to shareholders on or about [●].

 

Q. Who may attend the special meeting?

 

A. All shareholders of record at the close of business on the Record Date, or their duly appointed proxies, and our invited guests may attend the special meeting. Seating is limited and is on a first-come, first-served basis. Please note that you will be asked to present evidence that you are a shareholder of the Company as well as valid picture identification, such as a current driver’s license or passport, in order to attend the special meeting.

If you hold shares of Common Stock in “street name” (that is, in a brokerage account or through a bank or other nominee) and you plan to vote in person at the special meeting, you will need to bring a valid picture identification and evidence of your stock ownership, such as your most recent brokerage statement reflecting your stock ownership as of the Record Date, or a legal proxy from your broker or nominee.

Shareholders of record will be verified against an official list available in the registration area at the meeting. We reserve the right to deny admittance to anyone who cannot adequately show proof of share ownership as of the Record Date.

 



 

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Q. When will the shareholders’ list be available for examination?

 

A. A complete list of the shareholders entitled to vote at the special meeting will be available for examination by any shareholder of record, during ordinary business hours, at our offices for a period of 10 days immediately prior to the special meeting and at the special meeting itself.

 

Q. Who may vote at the special meeting?

 

A. You may vote if you were a record holder of our Common Stock at the close of business on the Record Date. As of the Record Date, there were 14,413,421 shares of Common Stock issued and outstanding, and entitled to vote at the special meeting.

 

Q. How many votes do I have?

 

A. You will have one vote for each share of Common Stock that you owned on the Record Date.

 

Q. What will I be voting on?

 

A. You will be voting on the following:

 

    The approval of the Merger Agreement and the merger, which provides that, at the effective time, Merger Sub will merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent; and

 

    The proposal to approve, by non-binding, advisory vote, certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger.

 

Q. What are the voting recommendations of the Board of Directors?

 

A. All of the Company’s independent, non-employee directors, constituting a majority of the Board, adopted the Merger Agreement and the merger and determined that the Merger Agreement and the merger are advisable and fair to, and in the best interests of, the company and its shareholders. The Board recommends that you vote “FOR” approval of the Merger Agreement and “FOR” approval, by non-binding advisory vote, of certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger.

 

Q. How do I vote?

 

A. If you are a shareholder of record (that is, if your shares of Common Stock are registered in your name with American Stock Transfer & Trust Company, our transfer agent), then you may vote in any of the following four ways:

Telephone Voting: You may vote by calling the toll-free telephone number indicated on your proxy card. Please follow the voice prompts that allow you to vote your shares and confirm that your instructions have been properly recorded.

Internet Voting: You may vote by logging on to the website indicated on your proxy card. Please follow the website prompts that allow you to vote your shares and confirm that your instructions have been properly recorded.

Return Your Proxy Card by Mail: You may vote by completing, signing and returning the proxy card in the postage-paid envelope provided with this proxy statement. The proxy holders will vote your shares according to your directions. If you sign and return your proxy card without specifying choices, your shares will be voted by the persons named in the proxy in accordance with the recommendations of the Board of Directors as set forth in this proxy statement.

Vote at the Meeting: You may cast your vote in person at the special meeting. Written ballots will be passed out to shareholders or legal proxies who want to vote in person at the meeting.

 



 

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Telephone and Internet voting for shareholders of record will be available 24 hours a day and will close at 11:59 p.m. Eastern Time on [●]. Telephone and Internet voting is convenient, provides postage and mailing cost savings and is recorded immediately, minimizing the risk that postal delays may cause votes to arrive late and therefore not be counted.

Even if you plan to attend the special meeting, you are encouraged to vote your shares by proxy. You may still vote your shares in person at the meeting even if you have previously voted by proxy. If you are present at the meeting and desire to vote in person, your previous vote by proxy will not be counted.

 

Q. What if I hold my shares in “street name”?

 

A. You should follow the voting directions provided by your bank, brokerage firm or other nominee. You may complete and mail a voting instruction card to your bank, brokerage firm or other nominee or, in most cases, submit voting instructions by telephone or the Internet to your bank, brokerage firm or other nominee. If you provide specific voting instructions by mail, telephone or the Internet, your bank, brokerage firm or other nominee will vote your shares of Common Stock as you have directed. Please note that if you wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee at the special meeting.

If you do not instruct your bank, brokerage firm or other nominee to vote your shares of Common Stock, your shares will not be voted on any of the proposals described in this proxy statement, which will have the same effect as a vote “AGAINST” the proposal to approve the merger, but will not affect the outcome of any other proposal.

 

Q. How many votes must be present to hold the meeting?

 

A. A majority of the outstanding shares of Common Stock entitled to vote at the special meeting, represented in person or by proxy, will constitute a quorum, which is required for us to conduct business at the special meeting. On the Record Date, there were 14,413,421 shares of Common Stock issued and outstanding and entitled to vote. Shares of our Common Stock represented in person or by proxy, including abstentions and broker non-votes, will be counted for purposes of determining whether a quorum is present.

 

Q. What vote is required to approve each proposal?

 

A. If a quorum is present at the special meeting, the approval of the Merger Agreement requires the affirmative vote of holders (in person or by proxy) of a majority of the outstanding shares of Common Stock entitled to vote thereon at the special meeting. Because the affirmative vote required to approve the proposal to approve the Merger Agreement is based upon the total number of outstanding shares of Common Stock, if you fail to submit a proxy or vote in person at the special meeting, or abstain, or you do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, this will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement.

If a quorum is present, approval, by non-binding, advisory vote, of certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger will be approved if the number of votes cast at the special in favor of such proposal exceeds the number of votes cast opposing such proposal. The outcome of this vote is not binding on the Company.

 

Q. What are the effects of abstentions and broker non-votes?

 

A. Abstentions

Pursuant to Florida law, abstentions are counted as present for purposes of determining the presence of a quorum; however, abstentions will not be counted as votes cast “FOR” or “AGAINST” any proposal; however, because the proposal to approve the Merger Agreement requires the affirmative vote of a majority of our outstanding shares of Common Stock entitled to vote thereon at the special meeting, an abstention will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement.

Abstentions will have no effect on the voting results for any other proposal described in this proxy statement.

 



 

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Broker “non-votes”

Under applicable exchange rules, if a broker, bank or other institution that holds shares in “street name” for a customer does not receive voting instructions from that customer, the broker may vote on only certain “routine” matters. For “non-routine” matters, which include all proposals contained in this proxy statement, a broker may not vote on such matters unless it receives voting instructions from the customer for whom it holds shares of Common Stock. A broker “non-vote” occurs when a broker does not receive such voting instructions from its customer on “non-routine” matters. Broker non-votes are counted for purposes of determining the presence of a quorum; however, they will not be counted as votes cast “FOR” or “AGAINST” any proposal and will have no effect on the voting results for any proposal, other than the proposal to approve the Merger Agreement, for which a broker non-vote will have the effect of a vote “AGAINST” approval of the Merger Agreement.

Because all proposals in this proxy statement are considered “non-routine” matters under applicable exchange rules, we urge you to give voting instructions to your broker.

If any “routine” matters are properly brought before the special meeting, then brokers holding shares in street name may vote those shares in their discretion for any such routine matters.

 

Q. Can I change my mind after I vote?

 

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

 

    delivering written notice to our Corporate Secretary at Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653;

 

    executing and delivering to our Corporate Secretary at the address above a proxy bearing a later date;

 

    attending the special meeting in person, at which time the powers of the proxy holders will be suspended if you so request; or

 

    submitting a vote by telephone or via the Internet with a later date.

Your attendance at the special meeting will not by itself revoke a previously granted proxy.

If you hold your shares of Common Stock in street name, you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy from your bank, brokerage firm or other nominee.

 

Q. Who will count the votes?

 

A. A representative of [●] will count the votes and will serve as the independent inspector of elections.

 

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

 

A. It means that you have multiple accounts with brokers or our transfer agent. Please vote all of these shares of Common Stock. We encourage you to register all of your shares of Common Stock in the same name and address. You may do this by contacting your broker or our transfer agent. Our transfer agent may be reached at 1-800-937-5449 or at the following address:

American Stock Transfer & Trust Company

6201 15th Avenue

Brooklyn, NY 11219

 



 

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Q. Will my shares of Common Stock be voted if I do not provide my proxy?

 

A. If you are the shareholder of record and you do not vote or provide a proxy, your shares of Common Stock will not be voted.

If your shares of Common Stock are held in “street name”, they may not be voted if you do not provide the bank, brokerage firm or other nominee with voting instructions. Currently, banks, brokerage firms or other nominees have the authority under the Nasdaq Global Market rules to vote shares of Common Stock for which their customers do not provide voting instructions on certain “routine” matters.

However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, which include all proposals described in this proxy statement, and, as a result, absent specific instructions from the beneficial owner of shares of Common Stock held in street name, banks, brokerage firms or other nominees are not empowered to vote those shares.

 

Q. How is the meeting conducted?

 

A. The Chairman has broad authority to conduct the special meeting in an orderly and timely manner. This authority includes establishing rules for shareholders who wish to address the special meeting. The Chairman may also exercise broad discretion in recognizing shareholders who wish to speak and in determining the extent of discussion on each item of business. The Chairman may also rely on applicable law regarding disruptions or disorderly conduct to ensure that the special meeting is conducted in a manner that is fair to all shareholders. Shareholders making comments following the special meeting must do so in English so that the majority of shareholders present can understand what is being said.

The use of cameras, recording devices and other electronic devices will be prohibited at the special meeting.

 

Q. May shareholders ask questions?

 

A. Yes. Our representatives will answer shareholders’ appropriate questions of general interest following the special meeting consistent with the rules distributed at the special meeting.

 

Q. Have any shareholders already agreed to vote “FOR” approval of the Merger Agreement?

 

A. Yes. Concurrently with the execution of the Merger Agreement, the Rollover Investors entered into a Rollover and Voting Agreement with Parent pursuant to which, subject to certain exceptions, such shareholders have agreed to, among other things, vote their respective shares of Common Stock in favor of the approval of the Merger Agreement. The shares of Common Stock subject to the Rollover and Voting Agreement comprise approximately [25.5%] of the outstanding shares of Common Stock as of the Record Date. The Rollover and Voting Agreement will terminate upon certain circumstances, including upon termination of the Merger Agreement.

 

Q. Who will pay for this proxy solicitation?

 

A. We will pay the cost of preparing, assembling and mailing this proxy statement, the notice of meeting and the enclosed proxy card. Our directors, officers and employees may solicit proxies in person or by telephone, mail, e-mail or facsimile. These persons will not be paid additional remuneration for their efforts. We may request banks, brokers and other custodians, nominees and fiduciaries to forward copies of the proxy materials to the beneficial owners of our Common Stock and to request authority for the execution of proxies, and we may reimburse such persons for their expenses incurred in connection with these activities.

In addition, we have retained MacKenzie Partners, Inc. to assist in the solicitation. We will pay fees not greater than $15,000 plus reasonable out-of-pocket expenses for their assistance. We will indemnify MacKenzie Partners, Inc. against any losses arising out of its proxy soliciting services on our behalf.

 



 

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Q. Will any other matters be voted on at the special meeting?

 

A. As of the date of this proxy statement, our management knows of no other matter that will be presented for consideration at the special meeting other than those matters discussed in this proxy statement.

 

Q. What is the Company’s website address?

 

A. Our website address is www.exac.com. We make this proxy statement, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act available on our website in the Investor Relations-SEC Filings section, as soon as reasonably practicable after electronically filing such material with the SEC. Information contained on, or accessible through, our website is not a part of this proxy statement and is not incorporated by reference.

This information is also available free of charge at www.sec.gov, an Internet site maintained by the SEC that contains reports, proxy and information statements, and other information regarding issuers that is filed electronically with the SEC. Shareholders may also read and copy any reports, statements and other information filed by us with the SEC at the SEC public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC’s website for further information on its public reference room. In addition, shareholders may obtain free copies of the documents filed with the SEC by contacting us at (352) 377-1140 or by sending a written request to Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653.

Our SEC filings are available in print to any shareholder who requests a copy at the phone number or address listed above.

 

Q. What happens if I sell my shares of Common Stock before the special meeting?

 

A. The Record Date for shareholders entitled to vote at the special meeting is earlier than both the date of the special meeting and the consummation of the merger. If you transfer your shares of Common Stock after the Record Date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares and each of you notifies us in writing of such special arrangements, you will retain your right to vote such shares at the special meeting but will transfer the right to receive the Merger Consideration to the person to whom you transfer your shares.

 

Q. What will happen to my employee stock options in the merger?

 

A. The Merger Agreement provides that: (i) each Stock Option, to the extent outstanding and unexercised as of immediately prior to the Effective Time, whether vested or unvested, will be fully cancelled as of immediately prior to the Effective Time, and the holder thereof will be entitled to receive an amount in cash equal to the Option Consideration; and (ii) each share of Restricted Stock that is outstanding as of immediately prior to the Effective Time will become fully vested as of such time and will be treated as an outstanding share of Common Stock for purposes of the Merger Agreement.

 

Q. What will happen to my restricted stock in the merger?

 

A. All issued and outstanding shares of Restricted Stock will vest immediately prior to the Effective Time, and each such share of Restricted Stock will be converted into the right to receive cash in an amount equal to the Merger Consideration, without interest thereon and less any required withholding taxes.

 

Q. What do I need to do now?

 

A.

Even if you plan to attend the special meeting, after carefully reading and considering the information contained in this proxy statement, please vote promptly to ensure that your shares of Common Stock are represented at the special meeting. If you hold your shares of Common Stock in your own name as the

 



 

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  shareholder of record, please vote your shares by (i) completing, signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope, (ii) using the telephone number printed on your proxy card or (iii) using the Internet voting instructions printed on your proxy card. If you decide to attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. If you are a beneficial owner, please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you.

 

Q. Should I send in my stock certificates now?

 

A. No. You will be sent a letter of transmittal promptly after the completion of the merger, describing how you may exchange your shares of Common Stock for the Merger Consideration. If your shares of Common Stock are held in “street name” by your bank, brokerage firm or other nominee, you will receive instructions from your bank, brokerage firm or other nominee as to how to effect the surrender of your “street name” shares in exchange for the Merger Consideration. Please do NOT return your stock certificate(s) with your proxy.

 

Q. Am I entitled to exercise appraisal rights under the FBCA instead of receiving the Merger Consideration for my shares?

 

A. Yes. As a holder of our Common Stock, you are entitled to exercise appraisal rights under the FBCA in connection with the merger if you take certain actions and meet certain conditions. See “Appraisal Rights” beginning on page 72.

 

Q. Who can help answer my other questions?

 

A. If you have additional questions about the merger, need assistance in submitting your proxy or voting your shares of Common Stock, or need additional copies of the proxy statement or the enclosed proxy card, please call MacKenzie Partners, Inc. toll-free at 800-322-2885.

 



 

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SPECIAL FACTORS

Background of the Merger

The Board and Exactech’s senior management regularly review and assess Exactech’s operating strategy, financial performance, risk profile, regulatory environment, prospects and competitive position, as well as strategic and financial alternatives intended to enhance shareholder value. During the past several years, the Company received several unsolicited communications from third parties regarding potential Company sale transactions. Because Exactech was continuing to execute its strategic business plan and was not actively engaged in exploring strategic alternatives at that time, no non-public Company information was exchanged and no substantive discussions regarding the terms of a potential transaction ever ensued with any of such parties.

From 2015 through 2017, the Board assessed Exactech’s mix of operating businesses, capital structure, investments and liquidity, and made strategic acquisitions and investments designed to expand and diversify its products and broaden and expand its sales and distribution channels. In January 2015, Exactech acquired Blue Ortho SAS, a France-based computer-assisted surgical technology development and manufacturing firm, which produces Exactech’s Exactech GPS® (Guided Personalized Surgery) technology. In December 2015, Exactech obtained a $150 million revolving credit facility through a senior lender syndicate led by J.P. Morgan Chase Bank. In February 2016, Exactech acquired Exactech Australia, Exactech’s independent distributor, and in October 2016 Exactech acquired a 24.55% interest in Orthopedic Designs North America, Inc., a company involved in the development, manufacture and distribution of screw and rod fixation devices used in orthopaedic trauma applications. In 2017, with the goal of increasing productivity, enhancing profitability of its worldwide business and eliminating non-core, low margin businesses, Exactech consummated several strategic divestments, including the sale of its spine products business in January 2017, the divestiture of its majority ownership in Exactech (Taiwan) in June 2017, and the sale of its China subsidiary in September 2017.

In addition, in July 2015 and intermittently thereafter, Exactech met with J.P. Morgan Securities LLC, an affiliate of J.P. Morgan Chase Bank, to identify and discuss potential value enhancement strategies.

In March 2017, representatives of a non-U.S. private equity firm and one of its portfolio companies which conducts orthopaedic implant device operations – whom we refer to collectively as “Party A” – met with the Company’s Executive Chairman, Chief Executive Officer and certain other of the Company’s executives at the Company’s principal offices in Gainesville, Florida to discuss a possible combination of the businesses of the Company and Party A. Later in March 2017, the Company’s Chief Executive Officer and Chief Financial Officer met with representatives of Party A in San Diego, California to further discuss a possible combination of the businesses of the Company and Party A. Although general discussion ensued about how Party A’s business and the Company’s business were complementary in certain respects, no non-public Company information was exchanged with Party A and neither the structure for nor terms of a possible transaction were ever discussed. Intermittently over the following couple of months, representatives of Party A contacted the Company’s Executive Chairman and Chief Executive Officer via e-mail to seek to resume the general discussions that occurred in late-March but no further meetings or discussions took place. Party A was informed in June 2017 that the Company was not for sale, that the Company was committed to executing the Board’s long-term strategy and management’s business plan, and that the Company was not interested in pursuing any further discussions about a possible business combination or other transaction.

 

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On April 4, 2017, Daniel Hann, former Senior Vice President, Business Development of Biomet, Inc., who is a current TPG advisor, contacted Exactech Chief Executive Officer and President David Petty via telephone to request a meeting on May 1, 2017 with members of Exactech’s management team. Exactech had previously worked with Mr. Hann in 2004-2011 when he was with Biomet and when Exactech and Biomet were co-investors in Dimicron, Inc., a company developing diamond bearing technology for total hip applications. Mr. Hann served as the Dimicron project director for Biomet and worked closely with the Exactech project team. While the Dimicron project was ultimately unsuccessful, Exactech’s project team developed strong respect for Mr. Hann’s leadership and industry knowledge. On this call, Mr. Hann indicated that he and certain partners affiliated with TPG wanted to meet with Exactech to discuss potential strategies that could capitalize on certain issues affecting Exactech and others in the industry due to the consolidation of, and cost reduction initiatives by, certain of Exactech’s competitors. Exactech thought it would be productive to discuss conditions and trends in the industry with an industry leader whose experience it both trusted and respected.

On May 1, 2017, Exactech Executive Chairman, Dr. William Petty, Exactech President and Chief Executive Officer, David Petty, and Exactech Senior Vice President-Strategic Initiatives, Bruce Thompson, met at Exactech’s headquarters in Gainesville, Florida, with Mr. Hann and Jeffrey Binder, the former President and CEO of Biomet and also a TPG advisor. At this meeting, Messrs. Hann and Binder informed Exactech’s executive team in attendance that TPG wanted to explore potential opportunities between Exactech and TPG’s healthcare portfolio companies, including a possible investment or strategic transaction. Exactech informed TPG that it was continuing to execute its strategic business plan and was not currently exploring strategic alternatives but was willing to listen to TPG’s investment thesis.

On June 21, 2017, Dr. and Mr. Petty and Exactech’s Chief Financial Officer, Joel Phillips, met in Gainesville, Florida with Mr. Binder and Todd Sisitsky, Managing Partner of TPG Capital North America, to further discuss industry consolidation trends and TPG’s general overview of the orthopaedics industry, as well as the Company’s relatively small scale relative to its competitors with greater resources, access to capital and product diversification and the fact that the Common Stock was consistently trading at multiples lower than many of the Company’s peers. TPG also presented to the Company an outline of potential transaction opportunities. These conversations continued on July 24, 2017 when Dr. Petty, Mr. Petty, Exactech Vice President for Administration and Corporate Secretary, Betty Petty, and Mr. Phillips, met at Jackson Hartsfield Airport in Atlanta, Georgia with Messrs. Sisitsky, Binder and Hann, as well as Kendall Garrison, a Principal of TPG.

The Company’s lead independent, non-employee director was informed of the June 21, 2017 and July 24, 2017 meetings on July 29, 2017.

As a result of these discussions with Messrs. Binder and Hann, members of Exactech’s senior management concluded in July 2017 that a potential transaction with TPG and/or one of its portfolio company affiliates (with Messrs. Hann and Binder involved as advisors) could be in the best interests ° of the Company’s shareholders at a time when the Common Stock, as of June 21, 2017, was trading at 97% of the 52-week high, but was nevertheless consistently below the multiples of the Company’s peers. It was noted that this asymmetry was a source of frustration for the Board, the Company’s management team and the Company’s shareholders. At this time TPG informed Exactech that it was important for Mr. Binder to have a central role in any transaction (should discussions progress) and that on July 11, 2017 one of the Company’s competitors announced a search for new senior executives. TPG informed Exactech that Mr. Binder could become a primary candidate for such position. TPG also informed Exactech that if any transaction with the Company were to ensue, it desired to engage in substantive discussions and, if warranted deal term negotiations, promptly so as not to jeopardize Mr. Binder’s availability to play a central role in the Company.

 

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Subsequent to such meeting, in late-July 2017, the Company’s lead independent director, Mr. Binch, contacted representatives of TPG to discuss entering into a confidentiality and standstill agreement to facilitate the exchange of Company information.

Throughout the period from early-August through the date of the execution of the Merger Agreement, Greenberg Traurig, legal counsel to the Company, engaged in frequent consultation with the Company’s lead independent director and the other independent, non-employee directors of the Board with respect to the course of dealing with TPG and its advisors and, ultimately, with respect to the negotiating strategy with TPG.

On August 8, 2017, TPG and the Company entered into a confidentiality and standstill agreement to facilitate TPG’s due diligence investigation of the Company and to commence substantive discussions to explore whether the parties had any mutual interest in engaging in a transaction and whether such a transaction was feasible.

Throughout the remainder of August 2017, representatives of TPG held several meetings with members of Exactech’s management team and conducted customary business, legal and operational due diligence to assist TPG in determining whether a strategic transaction was feasible. Specifically:

 

    A management session was convened on August 11, 2017, at which Dr. Petty, Mr. Petty, Mrs. Petty, Mr. Thompson, Mr. Phillips, Exactech Executive Vice President of Research and Development, Gary Miller, and Exactech Vice President - Legal, Donna Edwards, met at Exactech’s headquarters in Gainesville, Florida with Messrs. Sisitsky, Binder and Hann and TPG Capital Partner, John Schilling, and other TPG representatives. At this meeting, TPG presented a comprehensive overview of its investment portfolio in the healthcare industry.

 

    On August 17, 2017, the same management team representatives of Exactech and certain of Exactech’s independent Board members, Mr. Binch, Andrew Krusen, Fern Watts and William Locander, met with Messrs. Sisitsky and Binder. At this meeting, the Company’s independent directors and management team addressed Exactech’s general strategy in response to various due diligence questions TPG had with respect to Exactech.

At the conclusion of the meeting, after the representatives of TPG exited, Exactech’s Board authorized management to respond to a due diligence questionnaire furnished by TPG at the meeting.

 

    On August 25, 2017, Messrs. Petty and Phillips met at Hartsfield-Jackson Airport in Atlanta, Georgia with Messrs. Binder, Hann, Schilling and additional advisors of TPG. Also in attendance were certain key Company employees, including Vice President of Marketing for Extremities, Darin Johnson, Hip Business Unit Leader, Edmund Loftus, Vice President Marketing-Knee, Joseph Pizzurro, and Vice-President, Marketing, Steve Szabo. At the meeting, each Company business unit leader provided to TPG a presentation on his business unit’s product line, the general strategy with respect to that product line and product development activities for that unit.

 

    On August 29 and August 30, 2017, various TPG advisors held a series of operational meetings at Exactech’s headquarters in Gainesville, Florida with Messrs. Phillips and Thompson, Ms. Edwards and Exactech Vice President, Regulatory and Clinical Affairs, Darrell Kassner, Exactech Director, Regulatory Affairs, Dawn Davisson, Exactech Senior Director, Manufacturing Operations, Ron Green, and Exactech Senior Manager, Quality Engineering, Jorge Tamayo. At these meetings, TPG’s representatives reviewed Exactech’s regulatory affairs, clinical research and quality and manufacturing operations.

 

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On September 8, 2017, Mr. Sisitsky called Dr. Petty to inform him that TPG intended to submit to the Board a preliminary indication of interest with respect to a proposed transaction. Dr. Petty asked the Board to be available for a special telephonic meeting on September 13, 2017.

At the September 13, 2017 Board meeting, Messrs. Sisitsky, Binder, Schilling and Garrison attended certain portions of that meeting by invitation, along with Exactech officers Dr. Miller, Messrs. Thompson and Phillips, Mrs. Petty and Ms. Edwards. All members of the Board were in attendance, in addition to representatives of Greenberg Traurig. The representatives from TPG outlined for the Board their assessment of Exactech, including their perceptions regarding its financial prospects and value, and concluded with a discussion of the written indication of interest TPG presented to the Board during the meeting. TPG proposed a $39.00 per share cash offer to acquire 100% of the outstanding Common Stock in a statutory merger transaction. The $39.00 price indication represented an approximate 30% premium to Exactech’s then-most recent $30.10 Common Stock closing sale price, an approximate 30% premium to Exactech’s 30-day and 90-day average Common Stock prices, and an approximate 41% premium to the 52-week average price of the Common Stock. TPG expressed its willingness and desire to expeditiously negotiate a mutually acceptable definitive merger agreement, its willingness to provide a commitment to finance the transaction entirely with an equity investment made by one of its multi-billion dollar affiliated funds, and the fact that there would be no financing contingency or conditions in the definitive merger agreement. Additionally, TPG indicated that it was willing to agree to certain merger agreement remedies in favor of the Company that would more closely approximate the contract provisions and closing certainty inherent in a merger agreement with a strategic (i.e., operating company) purchaser. TPG noted its strong desire to expedite its completion of business, financial and legal due diligence, to the extent the Board determined to work with TPG and commit its resources to negotiate a definitive merger agreement and other transaction documentation promptly, because TPG desired to employ for the post-closing Company the services of Mr. Binder, who was rumored to be engaged in evaluating employment opportunities with a number of industry leaders. Specifically, TPG suggested completion of confirmatory due diligence and execution of definitive transaction documentation within the ensuing 10-14 days. TPG also noted that in view of the situation involving Mr. Binder and the fact that its $39.00 price indication represented a significant premium to the unaffected price of the Common Stock that it was not willing to participate in a “competitive” pre-signing process were the Company intending to undertake such a process, but also indicated its willingness to agree to a so-called “go-shop” provision in any definitive merger agreement to allow Exactech to actively solicit potential alternative acquisition proposals from third parties for a reasonable period of time after the signing and announcement of such agreement.

After TPG’s representatives exited the telephonic meeting, the Board reviewed and discussed TPG’s indication of interest, the Company’s prospects, the risks inherent in and the Board’s overall expectations associated with the execution of management’s current business plan and operating strategy, the regulatory and competitive environment in which the Company was currently operating, the Company’s stand-alone (i.e., remain independent) strategy and the availability of other potential financial and strategic alternatives to enhance shareholder value, and what the process for a potential sale transaction would entail. At the Board’s request, Greenberg Traurig addressed the Board’s fiduciary duties generally and in the context of a potential sale transaction. Because TPG’s proposal provided for the acquisition of 100% of the outstanding Common Stock for cash (and did not require any equity participation in the post-closing ownership of the Company by the Company’s founding and management shareholders), and because a majority of the Board consisted of independent, non-employee directors, and the founding and other management-shareholders did not hold, own or control a majority of the voting power represented by the outstanding Common Stock, the Board concluded, in consultation with Greenberg Traurig, that it was unnecessary to establish a formal special committee of independent directors in connection with TPG’s indication of interest. However, the Board determined, in consultation with Greenberg Traurig, that the Company’s independent directors would exclusively design the strategy for, and would lead and execute any transaction process that might ensue, regarding a potential sale

 

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transaction, if the Board decided to continue discussions with TPG, and that the Company’s independent directors would exclusively negotiate the terms of all transaction documentation if a transaction were pursued. The Board then discussed the need to formally engage a globally recognized, “bulge bracket”, financial advisor to assist and advise the Board in understanding the strategic and financial alternatives available to the Company and to potentially conduct a valuation of the Company using customary methodologies to assist the Board in properly assessing TPG’s $39.00 price indication. The Board discussed its various relationships with investment banking firms that it had used over the years for M&A and capital markets transactions. The Board noted that Exactech had previously engaged J.P. Morgan for certain transactions, which resulted in J.P. Morgan’s development of considerable knowledge of management’s business plan and operating strategy, and that other regional investment banking firms that the Company had used in certain transactions lacked the experience and depth to advise the Board with respect to a sale of the Company as an entirety and to interact with TPG’s principals. The Board also observed that J.P. Morgan’s issuer health care and medical device industry expertise and coverage was among the most extensive in the United States. The Board then directed Mr. Binch to contact J.P. Morgan’s global chairman of investment banking and head of its healthcare industry practice to discuss engagement terms, pursuant to which J.P. Morgan would potentially serve as the Company’s financial advisor and advise the Board in its consideration of TPG’s indication of interest. Mr. Binch was further directed to work with Greenberg Traurig to assist with such engagement.

The Board then discussed its belief that TPG’s $39.00 price indication did not adequately reflect Exactech’s intrinsic values. Further discussion ensued regarding the methods by which a sale of control process might be executed and the risks of market leaks if a prolonged and widespread pre-signing process was pursued including impacts on the Company’s employees and independent contractors. The Board did not make a determination at this time whether to pursue a competitive sale process and resolved to discuss the matter again following the engagement of J.P. Morgan.

This same day, TPG transmitted to the Board and its representatives at Greenberg Traurig a proposed draft merger agreement for a potential sale of control of the Company.

On September 14, 2017, the Company contacted representatives of J.P. Morgan to initiate discussions regarding their potential engagement as Exactech’s financial advisor. In that no determination had been made to pursue a transaction with TPG or any other party, after consultation with Greenberg Traurig, TPG’s legal advisors were contacted and informed that any consideration of a proposed merger agreement was premature at that time, that no decision to pursue further discussions with TPG had been made and that the Company was continuing to execute its strategic business plan and was not currently exploring strategic alternatives. Accordingly, TPG was informed that the draft agreement would not be reviewed by the Board or by Greenberg Traurig and that the transmission thereof by e-mail should be “recalled.”

During approximately the next two weeks, representatives of J.P. Morgan met in-person and held telephonic discussions with the Company’s independent directors and certain members of management who were present at the invitation of such directors to assist J.P. Morgan in reviewing certain historical and projected financial information prepared by the Company’s management team. At the same time, several drafts of a proposed engagement letter for the retention of J.P. Morgan were exchanged by representatives of J.P. Morgan, Mr. Binch and Greenberg Traurig.

On September 27, 2017, the Board held a telephonic meeting which was attended by all Board members, the same Exactech officers who attended the September 13, 2017 telephonic Board meeting, representatives of Greenberg Traurig and representatives of J.P. Morgan. J.P. Morgan presented an overview of Exactech, including consensus street estimates and sell-side analysts’ respective price targets. At the meeting, TPG’s deal consummation history and overall reputation in both the private equity

 

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industry and as an M&A transaction counterparty were discussed. It was noted that TPG was one of the most active and well-known global private equity firm sponsors, with approximately $75 billion in portfolio assets under management. The Board concluded that TPG was both a very credible and seemingly highly motivated buyer and that it had the ability to negotiate and execute a transaction (such as the one outlined in TPG’s September 13, 2017 indication of interest) quickly and with minimal disruption to the Company’s management team and day-to-day operation of the Company’s business, and that given TPG’s size, liquidity and extensive access to capital, it could easily finance and complete the acquisition of a company of Exactech’s size. At the meeting, J.P. Morgan disclosed to the Board the various capital markets, senior credit and M&A advisory transactions that J.P. Morgan and its commercial banking affiliates had worked on for TPG and its affiliates in the prior two years, as well as the compensation received in connection with such transactions, which compensation in the aggregate was many multiples of the compensation J.P. Morgan would receive from the Company under the terms of the proposed engagement. The Board considered this information, but also considered that in light of J.P. Morgan being one of the largest investment banks in the world and one of the most active financial advisors in U.S. and worldwide M&A transactions, the amount of fees received from TPG over the last two years was unlikely to be material to or to influence J.P. Morgan’s financial assessment of any transaction that might ensue between Exactech and TPG, and therefore, the fact of J.P. Morgan’s engagement history with TPG and its affiliates was not viewed as a basis for creating any lack of independence of conflict for purposes of any proposed transaction with TPG.

J.P. Morgan then provided a general overview of TPG’s September 13, 2017 indication of interest, noting the approximately 25% premium represented by TPG’s $39.00 price indication relative to the September 22, 2017 price of the Common Stock, as well as the proposed 100% “equity backstopped” financing contemplated by TPG for the transaction.

J.P. Morgan then presented to the Board its preliminary valuation analysis, which included references to two sets of financial projections previously provided to J.P. Morgan by Exactech’s management: (i) a management “base case” (which management used to plan and forecast the Company’s day-to-day business operations based on the most current information available to management, including reasonable assumptions as to business risk and unlevered free cash flows) that was considered the most accurate and reliable estimate of the Company’s prospects; and (ii) an illustrative “upside case” (containing aggressive growth estimates and speculative assumptions, which were considered far less realistic and highly unlikely to be achieved). The Board noted that, for purposes of its assessment of the Company’s intrinsic value and J.P. Morgan’s preliminary financial analysis, management’s “upside case” forecasts were inherently unreliable and not a material input for the Board’s overall analyses or J.P. Morgan’s financial analysis of TPG’s offer.

At Mr. Binch’s request, Greenberg Traurig addressed the fiduciary duties of the Company’s directors generally and in the context of a proposed sale of control transaction, and Greenberg Traurig further addressed the various methods to execute a potential sale of control. Discussion next ensued with respect to the potential strategic and financial purchaser candidates who might be ready, willing and able to execute and complete a sale transaction involving the Company. Following discussion among the directors and J.P. Morgan, the directors determined that it was highly unlikely that there were any natural strategic purchasers who would be willing to pursue an acquisition of the Company within a reasonable timeframe and at a price in excess of $39.00 per share of Common Stock, and that engaging in a pre-signing market check to “test” TPG’s $39.00 price indication would risk a leak of the process and, therefore, risk TPG’s continued interest in acquiring the Company. Moreover, it was noted that on several occasions TPG informed the Company that in view of the situation involving Mr. Binder and the fact that TPG’s $39.00 price indication represented a significant premium to the unaffected Common Stock price, TPG was not willing to participate in a competitive pre-signing process were the Company to undertake the same. It was discussed that the Company’s peer group of operating companies did not have a

 

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significant product line concentration or business segments in the Company’s space, and therefore, that it would be difficult for a peer company to create combined company synergies sufficient to justify paying a meaningful control premium for the Company. It was further noted that TPG had repeatedly indicated that retaining the post-closing services of Mr. Binder was central to its desire to acquire the Company and that Mr. Binder might not be available if a prolonged pre-signing process ensued. The Board further discussed that TPG did not request exclusivity in negotiations, which meant the Company could respond to any acquisition or business combination proposals that might be presented to Exactech prior to entering into any definitive merger agreement with TPG. It was further observed that the Company was trading at a 52-week high, which created an artificial cap on the premium a purchaser candidate might be willing to pay in light of the Company’s price volatility and that, while the Company was relatively unlevered (on a debt-to-equity basis), it was currently generating stagnant cash flows, which could make it more difficult for a potential financial buyer to use debt financing to create the returns on equity typically sought by a private equity sponsor. In this regard, it was again noted that TPG was willing to structure the acquisition with 100% equity financing and to provide other terms reasonably consistent with that of a strategic (i.e., operating company) purchaser candidate.

The Board concluded that, based upon management’s base case financial forecast and analysis, J.P. Morgan’s preliminary financial analysis and the other preliminary financial analyses it had reviewed, the Board should negotiate for a higher price. The Board noted that although no decision to sell Exactech or to pursue any particular transaction had been or could be made at that time, in view of TPG’s excellent reputation and track record of completing high premium deals in Exactech’s industry, TPG’s apparent high motivation to complete an acquisition of Exactech without any debt financing or regulatory risks, and the likelihood that TPG may be willing and able to pay maximum current value on overall deal terms that are fair to and in the best interests of Exactech’s shareholders, Mr. Binch, as lead independent director, should contact TPG and inform it that its $39.00 price indication was not a sufficient price upon which the Board could proceed and that a minimum price per share “in the 40s” would be required for the Board to engage in any further transaction discussions. The Board also instructed management to deliver to TPG its upside case financial projections. Even though the Board viewed the base case financial projections as being the only reliable and, therefore, material forecasts for the Board’s and J.P. Morgan’s review and consideration, the Board believed that J.P. Morgan and management could use the upside case projections in discussions with TPG to seek to obtain a higher price from TPG for the Exactech shareholders in the proposed transaction.

On that same day, Mr. Binch contacted Mr. Sisitsky to convey the Board’s conclusions as discussed at the September 27, 2017 meeting.

On October 11, 2017, TPG delivered to Mr. Binch a revised indication of interest, proposing a $41.00 per share cash purchase price for 100% of the outstanding Common Stock. Mr. Binch distributed TPG’s proposal to the full Board, J.P. Morgan and Greenberg Traurig and called a special telephonic meeting of the Board to discuss TPG’s revised proposal, including the increase in TPG’s proposed purchase price.

On October 13, 2017, the Company formally retained J.P. Morgan as its financial advisor in connection with the proposed merger pursuant to the terms of an engagement letter entered into on such date.

On October 14, 2017, the Board held a special telephonic meeting to discuss TPG’s increased price proposal. In attendance were the same parties who attended the September 27, 2017 special telephonic meeting of the Board. At the meeting, J.P. Morgan presented to the Board an updated preliminary valuation analysis to reflect TPG’s increased $41.00 per share price. The Board then discussed with J.P. Morgan and Greenberg Traurig Exactech’s implied value relative to TPG’s $41.00 price indication and noted that,

 

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although Exactech’s performance had been strong in all but one quarter over the preceding 21-month period, the Common Stock price had declined materially from time to time despite Exactech’s positive overall performance. The risks of such decline in the absence of a current value maximizing transaction were next discussed.

Based on J.P. Morgan’s updated preliminary valuation analysis, the Board concluded that, although TPG’s $41.00 per share price indication was at the higher end of the Company’s implied equity value range, that price likely did not represent TPG’s highest and best offer and that, consistent with the Board’s fiduciary duties, the Board should seek to obtain from TPG a higher price. Accordingly, the Board authorized and instructed Mr. Binch to inform TPG that the Board was still not willing to proceed with negotiating a merger agreement and equity commitment letter based on TPG’s $41.00 price indication and to ask TPG to submit its highest and best offer.

After the meeting, Mr. Binch asked Mr. Sisitsky to reconsider TPG’s $41.00 price indication and submit to the Board TPG’s highest and best offer. Later that same day TPG delivered to Mr. Binch a revised “final proposal” consisting of a dual-price offer: (x) $41.25 per share (if a “go shop” period was included in the definitive merger agreement in addition to customary post-signing fiduciary-out provisions) and (y) $42.00 per share (if no “go-shop” period was included in the definitive merger agreement and only customary post-signing fiduciary-out provisions were included). TPG’s proposal also indicated that it required a 4% termination fee if Exactech terminated the agreement in favor of a superior proposal. TPG’s proposal was accompanied by a draft merger agreement and a draft of the equity commitment letter to be provided by one of TPG’s affiliated funds with approximately $10 billion of capital commitments. Mr. Binch distributed the revised indication of interest to the full Board, J.P. Morgan and Greenberg Traurig and called a special telephonic meeting of the Board to discuss TPG’s latest proposal.

On October 18, 2017, the Board held a special telephonic meeting to discuss TPG’s revised indication of interest. In attendance were the same parties who attended both the September 27, 2017 and October 14, 2017 special telephonic meetings of the Board. J.P. Morgan delivered to the Board an update of its previous preliminary valuation analysis to address each of TPG’s revised $41.25 (“go-shop”) and $42.00 (no “go-shop”) per share offer prices.

The Board noted that TPG’s latest offer did not contain a request for pre-signing exclusivity, meaning that Exactech was unrestricted in its ability to respond to any third party proposal or offer received by the Company during the period of negotiations with TPG. The Board discussed its belief, informed by discussions with its financial advisor, that it was highly unlikely that any potential strategic buyer would be ready, willing or able to submit a proposal to acquire Exactech at a price matching or exceeding TPG’s latest price proposals. Additionally, it was noted that a strategic operating company would not be able to move as expeditiously as TPG with respect to a potential transaction, in part because of TPG’s sense of urgency created by the risk of losing the services of Mr. Binder for the post-closing Company. Greenberg Traurig reiterated that any definitive merger agreement to be entered into with TPG would contain reasonable “window shop” exceptions to the Company’s “No Shop” covenant and fiduciary termination provisions to enable Exactech to enter into a definitive agreement for a superior proposal under certain customary circumstances.

The Board discussed whether there was any possibility that TPG would be willing to further increase its offer price, even incrementally, and whether it believed that TPG was sincere in its statement that its most recent price indication structure was, in fact, its “final” and best offer. Based upon the Board’s assessment of Exactech’s intrinsic value, after consultation with J.P Morgan and Greenberg Traurig, the fact that $42.00 (at the high end/no “go-shop”) and $41.25 (at the low end/“go-shop”) did, in fact, appear to represent TPG’s best and final offer prices and appeared to be the maximum control

 

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premium available to the Company, the fact that any further delay could jeopardize TPG’s willingness to proceed with the transaction based, in significant part, on the risk that Mr. Binder would no longer be available to TPG to work with the post-closing Company (which, as TPG repeatedly informed the Company, would cause TPG to abandon any plans to acquire Exactech), the risk that the price of the Common Stock could decline significantly depending on its historic volatility, the risks inherent in the execution of management’s business plan and operating strategy, and the lack of any viable strategic or financial alternative to management’s current stand-alone (i.e., remain independent) plan to enhance, over time, shareholder value to a level approximating the value implied by TPG’s latest deal price indications, the Board concluded that requesting another price increase would not result in any further increase and would jeopardize the potential transaction.

At the Board’s request, Greenberg Traurig addressed the Board’s fiduciary duties in the context of the proposed transaction with TPG and the history of discussions and actions leading to TPG’s most recent price proposal. Greenberg Traurig next addressed the utility and success rate of post-signing “go-shops” and the function and utility of standard fiduciary outs, termination rights, reasonable break up fee amounts and trigger events, and so-called “window shop” provisions, in public company merger agreements.

The Board further reviewed J.P. Morgan’s updated preliminary valuation analysis and concluded that a $42.00 per share offer price was a compelling price, which the Board believed represented the maximum current value available for the Company, and that it would not be productive to contact potential alternate strategic purchaser candidates at this stage given the inherent risks in doing so. After further discussion regarding the terms, merits and risks of TPG’s latest proposal and the fact that the opportunity to deliver maximum current value to Exactech’s shareholders may not present itself again for a long time (or ever) if the transaction proposed by TPG were abandoned, the Board authorized and instructed Mr. Binch to inform TPG that the Board was willing to commence negotiation of a mutually acceptable merger agreement at $42.00 per share (and to forgo a post-signing “go-shop” period, so long as the Company retained customary fiduciary termination rights and corresponding “window shop” provisions in the definitive merger agreement), but that the Board would not agree at that time to any termination fee amount or the circumstances under which it would become payable.

Dr. Petty then advised the independent directors that he, Mrs. Petty and David Petty, in their capacities as founding and management shareholders, desired the ability to participate, side-by-side with TPG, as minority investors in Parent at the Effective Time and to exchange a yet- to- be determined portion of their shares of Common Stock for new equity interests in Parent pursuant to the “rollover equity component” of the transaction, which TPG had previously indicated in its acquisition proposals that it was willing to discuss and accommodate but was not requiring as part of any transaction.

Dr. Petty then informed the Board that he and the other founding and management shareholders had just engaged their own counsel to negotiate any and all such arrangements, including the terms of the Rollover and Voting Agreement. As a result of Dr. Petty’s statement of intentions, the independent, non-employee directors (i.e., Messrs. Binch, Krusen, Smith and Locander, and Ms. Watts) requested an immediate executive session with only the independent, non-employee directors and Greenberg Traurig present.

In executive session, the independent, non-employee directors discussed whether the proposed transaction was fair to and in the best interests of Exactech’s shareholders in light of the merger consideration that (depending on the outcome of any discussions or negotiations between the Company’s founding and management-shareholders and TPG that could then ensue) may be made available to Exactech’s affiliate shareholders, but not to Exactech’s non-affiliate shareholders, and the potential conflict of interest that could arise if the management group were to exchange a portion of their shares of

 

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Common Stock for equity interests in the Parent. Greenberg Traurig discussed certain procedural mechanisms that could be implemented in conjunction with the potential transaction, including establishing a formal special committee and requiring that the transaction with TPG be conditioned upon the affirmative approval of the holders of a majority of the outstanding non-affiliate shares of Common Stock. Greenberg Traurig next presented the SEC’s Rule 13E-3 disclosure requirements that would now be applicable in view of the decision of the Company’s founding and management shareholders to exchange a portion of their Common Stock for equity interests in Parent. Discussion next ensued regarding the independence and disinterestedness of each of Exactech’s non-employee, outside directors, the fact that it was very unlikely that TPG would agree to a so-called “majority-of-the-non-affiliate shares” voting condition, the downside risk that such a voting condition could present should arbitrageurs, hedge funds and other investors with short-term investment interests accumulate shares of Common Stock after the announcement of the merger agreement, the fact that the Company’s founding and management shareholders did not hold, own or control a majority of the voting power attributable to the outstanding Common Stock, and the risks inherent in any further delay in the transaction process with TPG (which could cause TPG to abandon the transaction given TPG’s desire to have Mr. Binder involved in a central role with the post-transaction Company), it was determined that formation of a formal special committee was not required or useful under the circumstances and that the delay inherent in the establishment thereof could actually risk the consummation of a transaction that was negotiated at arms’-length and that provided what the Board believed to be maximum current value for the Company’s non-affiliate shareholders.

It was also noted that the negotiating strategy, to date, with respect to TPG’s several indications of interest (which resulted in two significant price increases) was designed, led and executed exclusively by the Company’s independent directors (with the participation therein of the Company’s management team solely to help facilitate TPG’s due diligence investigation, in each case in the presence of one or more of the Company’s independent directors, Greenberg Traurig and J.P. Morgan), that the parties had already concluded their price negotiations, that any ensuing negotiation of the merger agreement, financing documents and overall terms of the proposed transaction would be directed exclusively by the Company’s independent directors in consultation with Greenberg Traurig and J.P. Morgan, the fact that TPG’s several indications of interest never required or conditioned the transaction on there being any minimum (or any) amount of Rollover Shares, and that, at the strict direction of the Company’s directors, no discussions had been permitted or occurred to date with respect to any post-closing equity or employment arrangements for any member of the Company’s management team. It was further noted that the independent, non-employee directors have, to date, understood their authority and role as bargaining agents and guardians of the economic and voting interests of Exactech’s non-affiliate shareholders.

Ultimately, the independent, non-employee directors concluded that because TPG’s $42.00 per share cash offer price to shareholders was both final and acceptable to the independent, non-employee directors, management should be granted permission at this time to discuss separately with TPG post-closing equity participation, employment and other arrangements. However, to ensure that the negotiation of any arrangements with management would not delay or be allowed to constitute either a pre-signing or closing condition to the proposed acquisition, the independent directors also determined that if the members of the management group were unable to reach an agreement with TPG regarding the material terms of their post-closing arrangements in the ensuing 48 hours, that the independent, non-employee directors, constituting a majority of the Board, were prepared to recommend a 100% cash merger transaction with TPG at $42.00 per share, assuming that an acceptable merger agreement can be agreed with TPG that is advisable, fair to and in the best interests of Exactech’s non-affiliate shareholders.

After the meeting was concluded, Mr. Binch called Mr. Sisitsky and informed him that the Board had authorized management and Greenberg Traurig to commence the negotiation of a merger agreement (providing for the acquisition of the Common Stock, other than any Rollover Shares and Appraisal

 

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Shares, at $42.00 per share) and that TPG was permitted to speak with Exactech’s founding shareholders and management team regarding post-closing equity participation, employment and other arrangements, which could in no event be a condition to the merger or result in any delay in signing an otherwise mutually acceptable definitive merger agreement. Mr. Binch instructed Greenberg Traurig to begin negotiations of a proposed merger agreement.

On October 14, 2017, together with its final indication of interest, TPG had delivered to the Board a proposed merger agreement, containing terms and conditions consistent with its final indication.

Between October 19, 2017, the date Greenberg Traurig delivered a revised draft of the Original Merger Agreement to Ropes & Gray, and October 22, 2017, representatives of Exactech management, Greenberg Traurig, TPG and Ropes & Gray exchanged seven drafts of the Original Merger Agreement, as well as multiple issues lists, and held multiple telephonic conferences to discuss and negotiate the terms and conditions of the Original Merger Agreement. Among other things, the parties negotiated: (i) the definitions of Acceptable Confidentiality Agreement, Adverse Recommendation Change, Alternative Proposal, Company Material Adverse Effect and Superior Proposal, all of which relate specifically to Exactech’s ability to respond to, investigate and take certain actions in respect of an unsolicited alternative topping bid transaction, as well as the Company’s and Parent’s right to terminate the Original Merger Agreement under certain circumstances; (ii) the amount of the termination fee, together with the circumstances under which it would become payable; (iii) the scope and precise terms of the Company’s representations and warranties, including the exceptions thereto and the qualifiers in respect thereof and the relationship thereof to Parent’s closing obligations under the Original Merger Agreement; (iv) the Company’s operating covenants between signing and closing; (v) the parties’ mutual and unilateral conditions to closing and the provisions pursuant to which the parties would be permitted to terminate the Original Merger Agreement, including those termination provisions triggering payment of the termination fee; (vi) the Company’s covenant to cooperate with respect to Parent’s financing efforts; (vii) the Company’s no-solicitation (i.e. “No Shop” ) covenant, the so-called “window shop” exceptions thereto, and the ability of the Company to furnish information to, and to engage in discussions and negotiation with, the unsolicited proponent of any unsolicited Alternative Proposal that the Board determined in good faith, after consultation with its legal and financial advisors, constituted or would reasonably be expected to result in a Superior Proposal; (viii) the standard by which the Board could exercise its so-called “fiduciary out” in the Original Merger Agreement and cause the Company to terminate the Original Merger Agreement; (ix) the ability and circumstances under which the Board could make an Adverse Recommendation Change, and the consequences under the Original Merger Agreement with respect thereto and that Florida law does not permit a “force the vote” provision; (x) the Company’s ability to communicate with its shareholders and inform them of any changes in circumstances or facts, as required by the Board’s fiduciary duties and applicable law, and the circumstances under which any such communication would constitute an Adverse Recommendation Change; (xi) the Company’s rights to terminate the merger agreement in order to accept and enter into a definitive agreement for a Superior Proposal; (xii) the procedural requirements for, and circumstances pursuant to which, Parent could match or top a Superior Proposal before the Company would be entitled to terminate the Original Merger Agreement and pay or cause to be paid to Parent the termination fee; (xiii) the procedural requirements for and circumstances pursuant to which Parent can negotiate with the Company to amend the Original Merger Agreement to obviate the reasons for the Board to terminate the Original Merger Agreement in response to an Intervening Event; (xiv) the Company’s covenants to prepare and file with the SEC the Proxy Statement and Schedule 13E-3 and to provide notice and convene the special meeting and solicit votes to obtain the Shareholder Approval; (xv) the level of efforts required for the parties to take certain actions required by the Original Merger Agreement, such as the filing with the FTC and DOJ of the required merger notification forms under the HSR Act; and (xvi) the Company’s ability to specifically enforce the Original Merger Agreement in the event of Parent’s failure to perform its obligations thereunder and the circumstances under which the Company could seek monetary damages against Parent and the Fund in the case of a material breach of the Original Merger Agreement.

 

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Additionally, during this time, the parties negotiated the terms and conditions of the Original Equity Commitment Letter, including the Company’s rights and remedies in respect thereof and its ability to cause the funding contemplated thereby to occur.

At noon on October 22, 2017, the Board held a special telephonic meeting at which Greenberg Traurig presented a comprehensive summary of all the material terms and conditions of the proposed definitive Original Merger Agreement (including the progression and outcome of the negotiation of a number of previously open business and legal issues) and of the Original Equity Commitment Letter, and updated its previous presentation to the Board regarding the fiduciary duties of the Company’s directors in the context of a sale of control transaction such as the Merger. Greenberg Traurig presented a summary of the Original Rollover and Voting Agreement and the implications thereof and noted that, although the Company was not a direct party to such agreement, that Greenberg Traurig had reviewed several drafts thereof and communicated with respect thereto to Ropes & Gray and to counsel to the founding shareholders. After a question and answer period ensued with respect to Greenberg Traurig’s presentation, an illustrative transaction timeline was next discussed regarding the SEC filing and review process involved with the merger (and a so-called “going-private” transaction) and discussion continued regarding the Company’s disclosure obligations (and the limitations thereon) following the initial public announcement of a merger and going-private transaction. Following another question and answer session the Board meeting was adjourned until later in the day.

Late afternoon on the same day, the previously adjourned Board meeting was resumed with all of the same directors, management employees and representatives of Greenberg Traurig in attendance from earlier in the day, with the addition of several representatives from J.P. Morgan. At this meeting, representatives of J.P. Morgan presented to and reviewed with the Board its updated financial analysis of the $42.00 per share merger consideration. At the conclusion of such review, and following a question and answer period with respect to J.P. Morgan’s financial analysis, J.P. Morgan rendered to the Board its oral opinion, which was confirmed by delivery of a written opinion dated October 22, 2017, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the consideration to be paid to the holders of the Common Stock in the proposed merger, was fair, from a financial point of view, to such shareholders.

After deliberation and discussion by the Board, in consultation with J.P. Morgan and Greenberg Traurig, regarding the terms of the proposed definitive merger agreement and consideration of all of the business, financial, legal, Company-specific, macro-economic, industry, and structural and procedural matters set forth below under “Reasons for the Merger Transactions; Recommendation of the Board of Directors; Fairness of the Merger”, all of the Company’s independent, non-employee directors, constituting a majority of the Board, adopted the Original Merger Agreement and the merger and determined that the Original Merger Agreement and the merger were advisable, fair to and in the best interests of the Company and the holders of the Common Stock. Dr. Petty and Mr. Petty recused themselves from voting in their capacities as directors with respect to the Original Merger Agreement and the merger.

After having duly adopted such resolutions and approving the Original Merger Agreement, the Board was asked to consider a proposal for the payment of an aggregate of $600,000 of severance compensation to the Company’s independent, non-employee directors as compensation for their efforts in leading, overseeing and negotiating the various acquisition proposals submitted to the Company by TPG and the terms of the Original Merger Agreement and the Original Equity Commitment Letter, in consultation with Greenberg Traurig. All of the members of the Board adopted resolutions authorizing the severance payment.

 

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The Board next discussed with Greenberg Traurig the potential for so-called plaintiff “strike suits” that may be filed against the Company, its officers and directors, J.P. Morgan and Parent following the public announcement of the Original Merger Agreement. Greenberg Traurig noted that such litigation is common in public company mergers and that such litigation may be commenced in multiple jurisdictions. To avoid unnecessary risk, uncertainty and expense from having to defend against potentially concurrent multi-jurisdictional litigation in, and to reduce the risk of potentially inconsistent rulings and misinterpretations of Florida corporate law arising from, multiple (non-Florida) courts, the Board adopted an exclusive forum provision to Exactech’s Bylaws whereby, unless the Company otherwise consents, the exclusive venue for commencing certain types of intra-corporate disputes, derivative litigation and other actions involving the Company and its officers and directors are the state courts of the State of Florida or, if no state court located within the State of Florida has jurisdiction, the United States District Court for the Northern District of Florida.

Following this meeting, Greenberg Traurig and Ropes & Gray finalized various technical and conforming changes in the Original Merger Agreement.

Later in the evening on the same day, the Company, Parent and Merger Sub entered into the Original Merger Agreement and the Original Equity Commitment Letter and the Company’s founding shareholders and an investment vehicle controlled by such shareholders entered into the Rollover and Voting Agreement with Parent.

On October 23, 2017, prior to the opening of trading on the Nasdaq Global Market, the transaction was announced via press release and the Company filed with the SEC its Current Report on Form 8-K disclosing the execution of the Original Merger Agreement, the Original Rollover and Voting Agreement, and the Original Equity Commitment Letter.

By letter dated November 6, 2017, Party A submitted to the Company an unsolicited, non-binding proposal to acquire 100% of the outstanding Common Stock at a price of $49.00 per share in cash (the “Alternative Transaction Proposal”). The Company promptly furnished to TPG and its representatives a copy of the Alternative Transaction Proposal as required by the terms of the Original Merger Agreement.

The Alternative Transaction Proposal proposes, among other things, for Party A’s acquisition of 100% of the outstanding Common Stock by means of a statutory merger transaction involving one or more of Party A’s affiliates. The Alternative Transaction Proposal, which contemplates 100% equity backstopped financing, is subject to the completion of Party A’s business, financial and legal due diligence investigation of the Company, confirmation of its $49.00 price indication, the negotiation by Party A and the company of a mutually acceptable merger agreement and financing documents, Party A’s arrangement of firm financing commitments for the transaction, the approval of the transaction by Party A’s investment committee, and the receipt of foreign antitrust agency approval.

On the afternoon of November 8, 2017, the Board convened a special meeting to review the Alternative Transaction Proposal, in consultation with Greenberg Traurig and J.P. Morgan.

At the meeting, the Board received a presentation from Greenberg Traurig with respect to the substantive and procedural requirements of, and the Company’s contractual obligations to TPG pursuant to, the Company’s “no shop” covenant and the “window shop” exceptions and so-called “fiduciary outs” thereto contained in the Original Merger Agreement. Greenberg Traurig further addressed the Board’s fiduciary duties in the context of the pending merger with TPG and the Alternative Transaction Proposal, as well as the Board’s disclosure obligations to the holders of Common Stock. J.P. Morgan then provided the Board with an overview of Party A, including its recent M&A transaction history, fund size and structure.

 

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In view of Party A’s $49.00 price indication, the Board determined, in consultation with Greenberg Traurig, that to satisfy its fiduciary duties to the Company’s shareholders it needed to be further and fully informed about Party A’s reputation, intentions, transaction rationale, execution capability and the relative merits and risks of the Alternative Transaction Proposal.

Specifically, the Board noted that it required further specificity with respect to and confirmation of Party A’s proposed 100% equity backstopped acquisition financing, the nature of any substantive regulatory approvals or filings that could be required with respect to the Alternative Transaction Proposal (because of Party A’s non-U.S. citizenship), the scope of Party A’s due diligence requirements and its overall expectations (including its anticipated timing for the completion thereof), whether and when Party A expected to submit to the Company any proposed modifications to the Original Merger Agreement and the Original Equity Commitment Letter, and Party A’s intentions with respect to funding the payment of the Termination Fee in the event of a fiduciary termination of the Original Merger Agreement. The Board then directed Greenberg Traurig and J.P. Morgan to contact Party A’s legal counsel and financial advisor (who were identified by Party A in the Alternative Transaction Proposal) to seek such further specificity and confirmation and to report to the Board promptly thereafter the substance of their discussions, together with any impressions such Company advisors might become aware of regarding Party A and its willingness and ability to timely execute and consummate with certainty a transaction constituting a Superior Proposal (as defined in the Merger Agreement).

Immediately after the Board meeting, representatives of Greenberg Traurig and J.P. Morgan contacted Party A’s legal counsel and financial advisor, respectively, to communicate the Board’s requirements.

On the morning of November 14, 2017, in response to the Board’s previously communicated requirements, Party A submitted to the Company, with copies to Greenberg Traurig and J.P. Morgan, correspondence containing (i) a reaffirmation of its November 6, 2017 written Alternative Transaction Proposal, (ii) proposed revisions to the Original Merger Agreement, (iii) a new proposed form of the Original Equity Commitment Letter from two Party A-affiliated funds (providing that the equity financing would be funded severally, and not jointly, by the two funds), and (iv) a business, legal and financial due diligence request list and an approximately 14-working day timetable for the anticipated completion thereof. Party A indicated that it was prepared to discuss and negotiate with the Company a merger agreement and equity commitment letter in tandem with its business, financial and legal due diligence investigation. In its correspondence, Party A reiterated that it would agree (in any definitive merger agreement and equity commitment letter entered into with the Company) to fund the Alternative Transaction Proposal with 100% equity financing if debt financing was not available at the time of closing and all conditions to closing were otherwise satisfied. Party A also informed the Company that it did not intend to pay the Termination Fee that would become due and payable by the Company at the time the Original Merger Agreement would be terminated in order for the Company to enter into a definitive merger agreement with Party A providing for a Superior Proposal. Party A did state, however, that it would provide funding of the Termination Fee upon consummation of its proposed transaction with the Company.

Late in the afternoon on November 14, 2017, the Board convened a special telephonic meeting with all of the Company’s directors in attendance, as well as representatives of Greenberg Traurig. At the meeting, Greenberg Traurig presented an analysis of Party A’s mark-up of the Original Merger Agreement, the new proposed form of Equity Commitment Letter and an assessment of Party A’s due diligence requirements and timing. Greenberg Traurig further addressed the Board’s fiduciary duties in the context of the pending sale of control of the Company and the operation and implications of various provisions in the Merger Agreement, including the definition of “Acceptable Confidentialy Agreement” in the Original Merger Agreement, the so-called “window shop” exceptions to the Company’s “no solicitation” covenant, TPG’s right to be promptly informed (and to receive copies of all material documentation) in respect of the Alternative Transaction Proposal and any Superior Proposal, TPG’s so-called “matching rights” in respect of any Superior Proposal, the provisions enabling the Company to make certain public and factual communications to its shareholders (including statements made in this proxy

 

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statement), the ability of the Company to make an Adverse Recommendation Change and the implications thereof, and the mechanics of the Termination Fee provisions, and the scope and operation of the confidentiality and standstill agreement previously entered into with TPG in August 2017.

Following further discussion of Party A’s proposal, and giving due consideration to the presentation made by Greenberg Traurig, the Board determined that that the failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties under applicable law. Accordingly, as permitted by the Original Merger Agreement, the Board authorized Greenberg Traurig to furnish to Party A an Acceptable Confidentiality Agreement to facilitate Party A’s due diligence investigation of the Company and to commence substantive discussions with Party A of the draft transaction documentation furnished by Party A to the Company.

Immediately following the November 14, 2017 Board meeting, the Company’s lead independent director informed TPG of the Board’s intentions regarding Party A and the Alternative Transaction Proposal and, as required by the Merger Agreement, TPG was furnished with copies of all documentation and materials furnished to the Company by Party A. Greenberg Traurig then furnished to Party A an Acceptable Confidentiality Agreement which was substantially identical to the Confidentiality Agreement entered into previously with TPG.

After several days of negotiations by Greenberg Traurig and Party A’s legal advisors, an Acceptable Confidentiality Agreement was executed by the Company and Party A on November 18, 2017 and Party A was provided access to various Company information in a virtual data room.

Business and financial representatives of Party A and the Company (including members of the Company’s executive management team), as well as representatives of J.P. Morgan and Party A’s financial advisors, met in Gainesville, Florida on November 20, 2017 and November 21, 2017 to discuss the Company’s products and services, operating strategy, financial prospects, business risks, sales and distribution network and other matters.

On November 30, 2017, a regularly scheduled year-end meeting of the Board was convened, which all of the Company’s directors attended. Also attending the meeting, at the invitation of the Board, were the Company’s Chief Financial Officer and General Counsel. At the meeting, among other things, management summarized the due diligence process conducted to date by Party A and its representatives and conveyed various impressions derived from their interactions and course of dealing with Party A.

In the afternoon on December 1, 2017, Party A transmitted to the Company a letter stating that it was highly committed to the proposed transaction and that it was continuing to make progress towards submitting to the Company on or prior to December 13, 2017 a binding offer at the completion of its due diligence review of the Company, subject to final approval by Party A’s investment committee. As required by the Merger Agreement, TPG was promptly furnished with a copy of such non-binding letter.

 

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During the early evening on December 1, 2017, Greenberg Traurig distributed to Party A’s legal counsel comments to Party A’s proposed revisions of the Original Merger Agreement and the proposed form of new Equity Commitment Letter that were furnished to the Company by Party A on November 14, 2017. With certain exceptions, such comments primarily deleted various revisions proposed by Party A and its legal counsel which, after consultation with Greenberg Traurig and J.P. Morgan, the Board determined negatively impacted the prompt availability and absolute certainty of Party A’s equity financing and, in their totality, materially and negatively impacted the overall consummation certainty of the Alternative Transaction Proposal.

Later that evening and after the Company’s receipt of Party A’s reaffirmed of its non-binding proposal, TPG submitted to the Company, with copies to Greenberg Traurig and J.P. Morgan, an offer letter together with a proposed amendment to each of the Original Merger Agreement, the Original Equity Commitment Letter and the Original Rollover and Voting Agreement. These revised agreements provided, among other things, the following material improvements to the aforementioned transaction agreements (i) an increased price per share of $49.25 to be paid for each share of the Common Stock (other than the Rollover Shares), which represent an increase of approximately 17.26% over the $42.00 of Original Merger Consideration, (ii) deletion of the “No Company Material Adverse Effect” closing condition and (iii) removal of the Company’s previous contractual obligations to cooperate with TPG and assist it with any potential debt financing that TPG may seek to obtain. TPG advised the Company that these changes are intended to expedite consummation of the merger and to ensure maximum closing certainty. The offer letter stated that as a condition to providing such improved terms, TPG’s proposal must be accepted, definitively documented and publicly announced prior to opening of trading on the Nasdaq Global Market on December 4, 2017 and the Company must file its preliminary proxy statement and the related Schedule 13E-3 promptly after such public announcement.

Later that night, after its review of the offer letter and the related financing and other transaction agreements submitted to the Company by TPG, and following discussions thereof with certain of the Company’s non-employee directors, Greenberg Traurig provided to Ropes & Gray various comments in response to TPG’s proposed amendments to the Original Merger Agreement. A special telephonic meeting of the Board was scheduled for early the next morning.

On December 2, 2017, a special telephonic meeting of the Board was convened. All of the Company’s directors were present and participated in the meeting and, at the Board’s invitation, certain members of the Company’s management team and representatives of Greenberg Traurig and J.P. Morgan participated. The Company’s management team discussed the status of Party A’s due diligence review to date, together with their impressions and observations regarding the overall course of dealings with Party A’s representatives over the past couple of weeks. The Company’s lead independent director also related his impressions of the process with Party A to date.

Greenberg Traurig then summarized the comments to the Merger Agreement and Equity Commitment Letter that were received from Party A on November 14, 2017 and the scope and nature of the Company’s and Greenberg Traurig’s responses thereto distributed to Party A’s representatives the night before. Greenberg Traurig next summarized the material terms and conditions of TPG’s proposed amendments to the Original Merger Agreement and the Original Equity Commitment Letter, and updated its previous presentations to the Board regarding the fiduciary duties of the Company’s directors in the context of the sale of control transaction pending under the Original Merger Agreement. The Company’s Chairman then summarized the proposed new terms of the Original Rollover and Voting Agreement and

 

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disclosed that he and the Company’s founding shareholders had been approached by and had held discussions with TPG during the previous few days to inquire whether such shareholders would be willing to exchange in connection with the Merger a larger percentage of their shares of Company common stock for new equity securities in the Parent to enable TPG to pay in the Merger substantially increased cash consideration to all non-affiliate holders of the Company’s common stock. Discussion then ensued regarding the mechanics of these proposed new share rollover arrangements.

Greenberg Traurig then addressed various matters regarding the timing of the pending Merger with Parent and Merger Sub and noted that if the Amendment to Merger Agreement and Amendment to Equity Commitment Letter were adopted by the Board and entered into by the Company, and if the Amendment to Rollover and Voting Agreement were entered into among the Company’s founding shareholders, certain management shareholders and Parent, that all of the fiduciary provisions of the Merger Agreement would remain in effect and unchanged, except that the Termination Fee would be proportionately increased to $25,797,000 to reflect the increased aggregate equity value of the Merger. It was further noted that the voting covenants of the shareholder parties to the Amendment to Rollover and Voting Agreement similarly would remain in effect and unchanged.

Representatives of J.P. Morgan then presented to and reviewed with the Board its updated financial analysis of the $49.25 per share merger consideration now being offered by TPG. At the conclusion of such review, and following a question and answer period with respect to J.P. Morgan’s financial analysis, J.P. Morgan rendered to the Board its oral opinion, which was confirmed by delivery of a written opinion dated December 2, 2017, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the consideration to be paid to the holders of the Common Stock in the proposed merger, was fair, from a financial point of view, to such shareholders, as more fully described below in the section “Opinion of Financial Advisor” beginning on page 41 of this proxy statement.

After further deliberation and discussion by the Board, in consultation with J.P. Morgan and Greenberg Traurig, regarding the terms of the proposed definitive merger agreement, as amended, and consideration of all of the business, financial, legal, Company-specific, macro-economic, industry, and structural and procedural matters set forth below under “Reasons for the Merger Transactions; Recommendation of the Board of Directors; Fairness of the Merger”, all of the Company’s independent, non-employee directors, constituting a majority of the Board, adopted the Amendment to Merger Agreement and the Amendment to Equity Commitment Letter, determined that the Merger Agreement, as amended, and the merger were advisable, fair to and in the best interests of the Company and the holders of the Common Stock, and resolved to recommend that the Company’s shareholders vote to approve the Merger Agreement and the merger. Dr. Petty and Mr. Petty recused themselves from voting in their capacities as directors with respect to the Merger Agreement, as amended, and the merger.

Following this meeting, Greenberg Traurig and Ropes & Gray finalized various technical and conforming changes in the Merger Agreement and the Rollover and Voting Agreement.

On December 3, 2017, the Company, Parent and Merger Sub entered into the Amendment to the Merger Agreement and the Amendment to the Equity Commitment Letter and the Company’s founding shareholders, an investment vehicle controlled by such shareholders, and certain additional shareholder members of the Company’s management team entered into the Amendment to Rollover and Voting Agreement with Parent.

Prior to the opening of trading on the Nasdaq Global Market on December 4, 2017, the Merger Agreement was announced via press release. Promptly thereafter the Company filed with the SEC this proxy statement in preliminary form and the related Schedule 13E-3, as well as a Current Report on Form 8-K disclosing the Merger Agreement, the Rollover and Voting Agreement and the Equity Commitment Letter.

 

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

In evaluating the merger, the Merger Agreement, and the other transactions and agreements contemplated thereby, the Board consulted its legal and financial advisors, consulted with management and considered a number of factors, including, but not limited to, the following potentially positive factors (which are not intended to be exhaustive and are not listed in any relative order of importance):

 

    the fact that the Merger Consideration consists solely of cash, providing the shareholders with certainty of value and immediate liquidity upon consummation of the merger, particularly in light of the relatively limited trading volume of the Common Stock and the risks and uncertainties relating to Company’s prospects and the market, economic and other risks and uncertainties inherent in owning an equity interest in a public company (many of which are beyond the Company’s control);

 

    the Board’s understanding, following discussions with management, of the business, assets, financial condition and results of operations, the competitive position, the strategic options and prospects and the risks involved in achieving those prospects, the historical and projected financial performance of the Company and the nature of the industry in which the Company competes, and current macro-economic and market conditions, both on a historical basis and on a prospective basis, which, in the Board’s belief, makes the merger the best strategic and financial return on investment alternative available to the Company and its shareholders at this time;

 

    the current and historical market prices for the Common Stock, including the market performance of the Common Stock relative to other participants in the industry, general market indices and the historical volatility of the Common Stock, as compared to the Merger Consideration, including the fact that the expected per share Merger Consideration of $49.25 represents an approximate premium of:

 

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    53.9% over the $32.00 trading price for the Common Stock on October 20, 2017, the last trading day before the public announcement of the signing of the Original Merger Agreement;

 

    16.3% over the $42.35 trading price per Common Stock on December 1, 2017, the last trading day before the public announcement of the signing of the Amendment to Merger Agreement.

 

    50.5% to the $32.73 volume weighted average price per share of the Common Stock for the 30-day period ended October 20, 2017;

 

    61.1% to the $30.57 volume weighted average price per share of the Common Stock for the 90-day period ended October 20, 2017;

 

    75.4% to the $28.08 volume weighted average price per share of the Common Stock for the 1-year period ended October 20, 2017;

 

    45.1% to the $33.95 highest per share trading price of the Common Stock during the 52-week period ended October 20, 2017; and

 

    117.9% to the $22.60 lowest per share trading price of the Common Stock during the 52-week period ended October 20, 2017;

 

    the arms’-length negotiations by the Company’s independent directors, in consultation with the Company’s legal and financial advisors, with respect to the Merger Consideration, which led to increases thereof from $39.00 per share, to $41.00 per share, to $42.00 per share and ultimately to $49.25 (an overall increase of $10.25 per share or approximately 26.3% of the initial offer price), and TPG’s assertion to the independent directors that $49.25 per share constituted TPG’s highest, best and final offer and, accordingly, the independent directors (and Board’s) determination that $49.25 per share was, in fact, the highest price that TPG was willing to pay, and the risk that further negotiation or delay created a meaningful risk that TPG might determine not to enter into the Merger Agreement and to terminate negotiations, in which event the non-affiliate shareholders would lose the opportunity to accept the premium being offered;

 

    the possibility that it could take a considerably long period of time, if ever, for the trading price of the Common Stock to trade at $49.25 per share, as adjusted for the time value of money;

 

    the Board’s consideration that the merger was reasonably likely to deliver greater value to the Company’s non-affiliate shareholders than other strategic alternatives considered, including continuing as an independent public company and pursuing the Board’s strategic plan, which could include the implementation of capital management strategies and/or the divestiture or acquisition of certain businesses, or pursuing a potential sale of the Company to a third party financial buyer other than TPG or to a strategic buyer at price per share higher than $49.25, all of which alternatives were ultimately determined, in consultation with the Company’s financial advisor, not to be realistically available at this time or likely to result in value equal or approximate to the Merger Consideration, as adjusted for the time value of money;

 

    the Board’s review of the merger transaction structure and the financial and other terms and conditions of the Merger Agreement and the Equity Commitment Letter, including, among others, the following specific terms of the Merger Agreement:

 

    the high likelihood of consummation of the merger during the first fiscal quarter of 2018, including the limited and customary conditions to the parties’ obligations to complete the merger, the commitment by TPG and Merger Sub to use their reasonable best efforts to take or cause to be taken all actions to consummate the merger and the transactions contemplated thereby, including all actions necessary to obtain applicable regulatory approvals ;

 

    the fact that the Merger Agreement does not contain any financing-related contingencies, “outs” or conditions to consummation of the merger, the fact that the Fund has committed to finance 100% of the Merger Consideration and all of Parent’s and Merger Sub’s fees and expenses contemplated by the Merger Agreement (without any debt financing therefor), the fact that the Fund is a substantial net worth entity with more than $10 billion in available capital and assets under management, the fact that, under certain circumstances prescribed by the Merger Agreement, the Company can pursue monetary damages against the Fund up to the full value of the transaction, and the fact that the Company is a direct party to the Equity Commitment Letter with the ability to specifically enforce the Fund’s financing commitment thereunder and to cause Parent under the Merger Agreement to specifically enforce the Fund’s commitment thereunder;

 

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    the absence of any anticipated substantive anti-trust and other regulatory risks with respect to the consummation of the merger;

 

    the fact that there are no financial contingencies to the merger and TPG has provided a fully equity backstop to ensure certainty regarding the financial ability of Parent to consummate the merger pursuant to the Merger Agreement;

 

    in accordance with the terms of the Merger Agreement the ability of the Company and its representatives, at any time prior to obtaining shareholder approval of the Merger Agreement at the special meeting, to engage in discussions and negotiations with, and provide non-public information to, any person in response to a bona fide unsolicited acquisition proposal for the Company submitted by a proposed topping bidder, if the Board determines, after consultation with its legal and financial advisors, that such acquisition proposal constitutes or would reasonably be expected to lead to a superior proposal;

 

    the ability of the Board, in certain circumstances specified in the Merger Agreement, to withdraw its recommendation that the shareholders approve the Merger Agreement and to terminate the Merger Agreement in order to enter into a definitive agreement with a topping bidder who submits to us a superior proposal (as that term is defined in the Merger Agreement) and that, under certain circumstances specified in the Merger Agreement, we can terminate the Merger Agreement in response to an intervening event, provided that in each case the Company pays or causes to be paid to Parent upon any such termination a fee of $25,797,000;

 

    the ability of the Rollover Investors, in certain circumstances specified in the Rollover and Voting Agreement, to withdraw their support for the merger and the Merger Agreement in order to support a topping bid, with the Rollover and Voting Agreement terminating coincidentally with the termination of the Merger Agreement in such circumstance;

 

    the fact that the termination fee payable to TPG in the circumstances described above constitutes 3.5% of the aggregate equity value of the merger that the Board considered, in consultation with its legal and financial advisors, customary and reasonable in the context of obtaining for the Company’s non-affiliate shareholders in its arms’-length negotiations with TPG the $49.25 of cash Merger Consideration and further in light of the overall terms of the Merger Agreement (including the Company’s fiduciary outs, maximum closing certainty and the remedies available to the Company against the Fund, Parent and Merger Sub in certain circumstances as described elsewhere in this proxy statement);

 

    the other terms and conditions of the Merger Agreement that the Board, after consulting with its legal advisors, considered to be generally “market”, reasonable and consistent with transactions substantially similar to the proposed merger with TPG;

 

    the availability of appraisal rights under Florida law to the Company’s non-affiliate shareholders who do not vote “for” the Merger Agreement and who comply with all of the required procedures under Florida law, which provides those eligible shareholders with an opportunity to have a Florida court determine the fair value of their shares, which may be more than, less than, or the same as the amount such shareholders would have received under the Merger Agreement;

 

    the absence of any material risk that any governmental authority would prevent or materially delay the merger;

 

    the independent directors’ (with respect to the Merger Agreement’s substantive terms, including the Merger Consideration, and with respect to the procedural aspects of the transaction), conclusions and unanimous determination, which the full Board adopted (with Dr. William Petty and Mr. David Petty recusing themselves from voting in their respective capacities as directors), that the Merger Agreement is advisable, fair to and in the best interest of the Company and the Company’s non-affiliate shareholders, and the Board’s recommendation to the Company’s shareholders that they vote “for” approval of the Merger Agreement and the merger;

 

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    the oral opinion of J.P. Morgan rendered to the Board, which was confirmed by delivery of a written opinion dated December 2, 2017, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the consideration to be paid to the holders of the Common Stock in the proposed merger was fair, from a financial point of view, to such shareholders, as more fully described below in the section “Opinion of Financial Advisor” beginning on page 41 of this proxy statement. The full text of the written opinion of J.P. Morgan, dated December 2, 2017, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, is attached as Annex B to this proxy statement; and

 

    the fact that the termination date under the Merger Agreement allows for sufficient time to complete the merger.

The Board also considered a number of factors that are discussed below relating to the procedural safeguards that it believes were and are present to ensure the fairness of the merger and to permit the Board to represent effectively the interests of the Company’s non-affiliate shareholders. These procedural safeguards, which are not intended to be exhaustive and are not listed in any relative order of importance are discussed below:

 

    a majority of the Board consisted and consists of independent, non-employee directors not affiliated, or a party to any extraneous business relationships, with TPG (or any of its portfolio companies) or any member of the Company’s management;

 

    in considering the merger and the other transactions contemplated by the Merger Agreement, the independent directors were charged with representing the interests of the Company’s non-affiliate shareholders, and the independent directors had exclusive and independent control of the arms’-length negotiations with TPG and its legal advisors on behalf of such non-affiliate shareholders;

 

    although it was determined that no formal “special committee” of the Board was required to be established because a majority of the Board consisted of non-employee, independent directors and the Company’s founding and management shareholders do not beneficially own, control or hold a majority of the Company’s voting power, the Company’s independent directors were authorized and empowered to actively negotiate and to take all actions in their discretion, in consultation with the Company’s legal and financial advisors, with respect to all substantive discussions and negotiations of TPG’s written proposals to acquire the Company, the negotiation of the terms and conditions of the Merger Agreement and the financing arrangements by the Fund (and had determinative authority over the decision whether or not to enter into the Merger Agreement), and the consideration and recommendation of any strategic and financial alternatives to a merger transaction involving TPG or any other person;

 

    the Company’s independent legal and financial advisors worked directly with and were involved throughout the transaction process and were instructed by and updated the independent directors directly and regularly;

 

    the procedural fairness of the transaction, including the fact that the transaction was negotiated over a period of approximately five weeks with such negotiations designed and led by the Company’s independent, non-employee directors, that the independent directors did not have an interest in the merger different from, or in addition to, that of the Company’s shareholders who are not affiliated with management, other than certain severance payments not to exceed $600,000 in the aggregate, which will be paid to our independent directors in connection with their services to the Company with respect to the merger (but which are not conditioned on the consummation of the merger), and that the independent directors were advised by highly qualified and experienced M&A legal and financial advisors;

 

    the fact that, as a condition to consummation of the merger, the Merger Agreement must be adopted by the holders of a majority of the outstanding Common Stock which, irrespective of any vote by the Company’s founding and management shareholders under the Rollover and Voting Agreement, enables the holders of a majority of the outstanding non-affiliate shares of Common Stock to vote on an informed basis in respect of approval of the Merger Agreement and the merger;

 

    the fact that, in view of the Rollover Shares component of the merger, that the Board considered but determined it was very unlikely that TPG would agree to a so-called “majority of the non-affiliate shares” voting condition, and the fact that there was downside risk that such a voting condition could present should arbitrageurs, hedge funds and other investors with short-term investment interests accumulate shares of Common Stock after the Merger Agreement;

 

    the fact that forming a special committee was not required or useful under these circumstances and the delay inherent in the establishment thereof could actually risk the consummation of a transaction that was negotiated at arms’-length and that provided what the Board believed to be maximum current value for the Company’s non-affiliate shareholders; and

 

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    the fact that the full Board met multiple times over the course of approximately nine weeks to evaluate TPG’s various proposals to acquire the Company (including consideration of TPG’s three price increases submitted to the Company subsequent to its initial proposal on October 11, 2017, October 14, 2017 and December 1, 2017) and the economic merits and risks of the transactions contemplated by the Merger Agreement, as well as the fact that during these meetings, the independent directors discussed the advantages and disadvantages of the merger, designed and oversaw the negotiating strategy and made various strategic and tactical recommendations relating thereto.

The Board also considered a variety of uncertainties, risks and potentially negative factors in its deliberations concerning the merger, including the factors discussed below, concerning the Merger Agreement and the merger (which are not intended to be exhaustive and are not listed in any relative order of importance):

 

    the fact that following consummation of the merger the equity interests in the Company currently owned by the Company’s non-affiliate shareholders will be extinguished and, therefore, such former holders of Common Stock will no longer participate in the Company’s future earnings or growth, if any, or benefit from increases, if any, in the value of the shares of the Common Stock, and, following consummation of the merger, they will not be able to receive any potential future control premium attributable to their previous ownership that may be paid in a future sale of control the Company to a third party;

 

    the possibility that TPG could sell part or all of the Company following the merger to one or more purchasers at a valuation higher than the $49.25 per share being paid by TPG in the merger;

 

    the risks and costs to the Company if the merger is not consummated, including the diversion of management and employee attention, potential employee attrition, the potential disruptive effect on business and customer relationships, as well as the negative impact of a public announcement of the merger on the Company’s sales and operating results and the ability of the Company to attract and retain key management, marketing and technical personnel;

 

    the fact that the Company’s directors, officers and employees have expended and will expend extensive efforts attempting to complete the transactions contemplated by the Merger Agreement and such persons have experienced and will experience distractions from their work during the pendency of such transactions;

 

    the risk of incurring substantial expenses related to the merger, including in connection with potential litigation related to the merger;

 

    the restrictions in the Merger Agreement on the Company’s business operations prior to completion of the merger which, although customary in tenor and scope, may delay or prevent the Company from undertaking certain business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company pending completion of the merger;

 

    the fact that, as set forth in this proxy statement under the caption “Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 55, certain members of the Board and executive officers of the Company may have interests in the merger that may be different from, or in addition to, those of the Company’s shareholders;

 

    the fact that the Company may be required, under certain circumstances, to pay TPG a termination fee equal to $25,797,000 (which is approximately $1.72 per share), which may discourage other potential acquirers from making an unsolicited topping bid for the Company or result in a lower-priced topping bid being made;

 

    the taxability of the gain on an all-cash transaction is 100% taxable to the Company’s non-affiliate U.S. shareholders that are U.S. Holders for U.S. federal income tax purposes;

 

    the possibility that the Company’s shareholders may not vote “for” approval of the Merger Agreement and the merger; and

 

    the risk that, while the merger is expected to be completed during the first quarter of 2018, there can be no assurance that all conditions to the parties’ obligations to complete the merger will be timely satisfied (or satisfied at all), and, as a result, it is possible that the merger may not be completed even if approved by the Company’s shareholders.

The Board also considered the following factors in the Merger Agreement which are intended to expedite consummation of the merger and to ensure maximum closing certainty:

 

    the fact that the Merger Agreement eliminates the previous “No Company Material Adverse Effect” closing condition;

 

    the fact that the Merger Agreement eliminates the Company’s previous contractual obligations to cooperate with TPG and assist it with any potential debt financing that TPG may seek to obtain; and

 

    the fact that TPG has reaffirmed that it will consummate the merger entirely with its fully committed equity financing if at the time of closing debt financing either is not available or would delay the closing.

 

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The Board did not consider the liquidation value of Company’s assets because the Board considers Company to be a viable going concern business that will continue to operate regardless of whether the merger is consummated, where value is derived from cash flows generated from its continuing operations. In addition, the Board believes that the value of Company’s assets that might be realized in a liquidation would be significantly less than its going concern value for the reasons that (i) liquidation sales generally result in proceeds substantially less than the sales of a going concern; (ii) it is impracticable to determine a liquidation value given the significant execution risk involved in any breakup of a company; (iii) an ongoing operation has the ability to continue to earn profit, while a liquidated company does not, such that the “going-concern value” will be higher than the “liquidation value” of a company because the “going concern value” includes the liquidation value of a company’s tangible assets as well as the value of its intangible assets, such as goodwill; and (iv) a liquidation process would involve additional legal fees, costs of sale and other expenses that would reduce any amounts that shareholders might receive upon liquidation. Furthermore, Company has no intention of liquidation and the merger will not result in the liquidation of Company. The Board believes the analyses and additional factors it reviewed provided an indication of the Company’s going concern value. The Board also considered the historical market prices of the Common Stock. The Board did not seek to determine a pre-merger going concern value for the Common Stock to determine the fairness of the Merger Consideration to the Company’s non-affiliate shareholders. The Board believes that the trading price of the Common Stock at any given time represents the best available indicator of the Company’s going concern value at that time, so long as the trading price at that time is not impacted.

After considering the foregoing potentially negative and potentially positive factors, the Board concluded that the uncertainties, risks and potentially negative factors relevant to the merger were outweighed by the potential benefits that it expected the non-affiliate shareholders would achieve as a result of the merger.

The foregoing discussion of information and factors considered by the Board is not intended to be exhaustive and may not include all of the factors considered by the Board. In view of the wide variety of factors considered by the Board, the Board found it impracticable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Board adopted J.P. Morgan’s opinion and analyses, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the Merger Agreement, including the merger. The Board recommended that the Board approve, and the Board approved, the Merger Agreement based upon the totality of the information presented to it.

In considering the recommendation of the Board of Directors with respect to the proposal to approve the Merger Agreement, you should be aware that certain of our officers and directors have certain interests in the merger that may be different from, or in addition to, your interests as a shareholder generally. The Board was aware of these interests, considered them and took them into account, together with other factors, in determining whether to approve the Merger Agreement and recommending that our shareholders vote for the approval of the Merger Agreement. See the section entitled “Special Factors — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 55. The Board of Directors, on behalf of the Company, further believes that the merger is fair to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 under the Exchange Act.

ACCORDINGLY, ALL OF THE COMPANY’S INDEPENDENT, NON-EMPLOYEE DIRECTORS, CONSTITUTING A MAJORITY OF THE COMPANY’S BOARD, RECOMMEND THAT YOU VOTE “FOR” APPROVAL OF THE MERGER AGREEMENT AND “FOR” APPROVAL, BY NON-BINDING ADVISORY VOTE, OF CERTAIN COMPENSATION THAT WILL OR MAY BECOME PAYABLE TO THE COMPANY’S NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER.

Opinion of Financial Advisor

Pursuant to an engagement letter, dated October 13, 2017, the Company retained J.P. Morgan as its financial advisor in connection with the proposed merger.

 

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At the meeting of the Board on December 2, 2017, J.P. Morgan rendered its oral opinion to the Board that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the consideration to be paid to the holders of the Common Stock in the proposed merger was fair, from a financial point of view, to such shareholders. J.P. Morgan has confirmed its oral opinion by delivering its written opinion to the Board, dated December 2, 2017, that, as of such date, the consideration to be paid to the holders of the Common Stock in the proposed merger was fair, from a financial point of view, to such shareholders.

The full text of the written opinion of J.P. Morgan, dated December 2, 2017, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The Company’s shareholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the Board (in its capacity as such) in connection with and for the purposes of its evaluation of the proposed merger, was directed only to the consideration to be paid in the proposed merger and did not address any other aspect of the proposed merger. J.P. Morgan expressed no opinion as to the fairness of the consideration to the holders of any other class of securities, holders of the Rollover Shares, creditors or other constituencies of the Company or as to the underlying decision by Company to engage in the proposed merger. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The summary of the opinion of J.P. Morgan set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The opinion does not constitute a recommendation to any shareholder of the Company as to whether or how such shareholder should vote with respect to the proposed merger or any other matter.

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

 

    reviewed the Merger Agreement;

 

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

 

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

 

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

 

    reviewed certain internal financial analyses and forecasts prepared by the management of the Company relating to its business; and

 

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

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

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by the Company or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (and did not assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of the Company or Parent under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by management as to the expected future results of operations and

 

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financial condition of the Company to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. J.P. Morgan also assumed that the proposed merger and the other transactions contemplated by the Merger Agreement will be consummated as described in the Merger Agreement. J.P. Morgan also assumed that the representations and warranties made by the Company, Parent and Merger Sub in the Merger Agreement and the related agreements were and will be true and correct in all respects material to its analysis. J.P Morgan is not a legal, regulatory or tax expert and relied on the assessments made by advisors to the Company with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the proposed merger will be obtained without any adverse effect on the Company or on the contemplated benefits of the proposed merger.

The projections furnished to J.P. Morgan for the Company were prepared by Company management. The Company does not publicly disclose internal management projections of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the proposed merger, and such projections were not prepared with a view toward public disclosure. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Company management, including, without limitation, factors related to general economic, market and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections. For more information regarding management’s projections, please refer to the section entitled “Projected Financial Information” beginning on page 52 of this proxy statement.

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

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

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methodology in rendering its opinion to the Board on December 2, 2017. The following is a summary of the material financial analyses utilized by J.P. Morgan in connection with providing its opinion to the Board and does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The financial analyses summarized below include information presented in tabular format. The tables are not intended to stand alone and, in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s analyses.

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

 

    Globus Medical, Inc.

 

    NuVasive, Inc.

 

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    Wright Medical Group N.V.

 

    CONMED Corporation

 

    Orthofix International N.V.

 

    K2M Group Holdings, Inc.

 

    RTI Surgical, Inc.

 

    ConforMIS, Inc.

 

    SeaSpine Holdings Corporation

None of the selected companies reviewed is identical to the Company. However, these companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analysis, may be considered similar to those of the Company. However, certain of these companies may have characteristics that are materially different from those of the Company. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the selected companies differently than they would affect the Company.

Using publicly available information, J.P. Morgan calculated, for each selected company, the ratio of the company’s firm value (calculated as the market value of the Common Stock on a fully diluted basis, plus preferred equity, any debt and minority interest, less cash and cash equivalents) to the consensus equity research analyst estimate for the company’s EBITDA (calculated as earnings before interest, taxes, depreciation and amortization) for the year ending December 31, 2018 (the “2018E FV/EBITDA”).

Based on the results of this analysis, J.P. Morgan selected a multiple reference range for 2018E FV/EBITDA of 9.0x –14.0x. After applying such range to the projected adjusted EBITDA for the Company for the year ending December 31, 2018 based on projections provided by the Company’s management, the analysis indicated the following implied per share equity value range for the Common Stock, rounded to the nearest one quarter US dollar:

 

     Implied Per Share Equity Value  
     Low      High  

2018E FV/EBITDA

   $ 33.25      $ 51.00  

The range of implied per share equity value for Common Stock was compared to the Company’s closing share price of $32.00 on October 20, 2017, the Nasdaq trading day immediately preceding the execution of the Original Merger Agreement, and the proposed Merger Consideration of $49.25 per share of Common Stock.

Selected Transaction Analysis. Using publicly available information, J.P. Morgan reviewed selected transactions involving acquired businesses and assets that, for purposes of J.P. Morgan’s analysis, may be considered similar to the Company’s business or assets. Specifically, J.P. Morgan reviewed the following transactions:

 

Month/Year
Announced

  

Target

  

Acquiror

February 2017

  

Johnson & Johnson’s Codman Neurosurgery business

  

Integra LifeSciences Holdings Corporation

October 2016

  

Hospira’s Infusion Systems business

  

ICU Medical Inc.

February 2014

  

ArthroCare Corporation

  

Smith & Nephew plc

July 2013

  

Systagenix

  

Kinetic Concepts, Inc.

June 2013

  

Wright Medical Group, Inc.’s OrthoRecon business

  

MicroPort Medical B.V.

August 2012

  

Kinetic Concepts Inc.’s Therapeutic Support Services business

  

Getinge AB

May 2012

  

Kensey Nash Corporation

  

Royal DSM

None of the selected transactions reviewed was identical to the proposed merger. However, the transactions selected were chosen because certain aspects of the transactions, for purposes of J.P. Morgan’s analysis, may be

 

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considered similar to the proposed merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the transactions differently than they would affect the proposed merger.

Using publicly available information, J.P. Morgan calculated, for each selected transaction, the ratio of the target company’s firm value to the target company’s EBITDA for the twelve-month period prior to announcement of the applicable transaction (“FV/LTM EBITDA”).

Based on the results of this analysis, J.P. Morgan selected a multiple reference range for FV/LTM EBITDA of 9.0x – 13.5x and applied it to the Company’s LTM adjusted EBITDA as of October 31, 2017. This analysis indicated the following implied per share equity value range for the Common Stock, rounded to the nearest one quarter US dollar:

 

     Implied Per Share Equity Value  
     Low      High  

FV/LTM EBITDA as of October 31, 2017

   $ 29.50      $ 43.50  

The range of implied per share equity value for the Common Stock was compared to the Company’s closing share price of $32.00 on October 20, 2017, the Nasdaq Global Market trading day immediately preceding the execution of the Original Merger Agreement and the proposed Merger Consideration of $49.25 per share of Common Stock.

Discounted Cash Flow Analysis. J.P. Morgan conducted a discounted cash flow analysis for the purpose of determining an implied fully diluted equity value per share of Common Stock. A discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered cash flows generated by the asset and taking into consideration the time value of money with respect to those cash flows by calculating their “present value”. The “unlevered free cash flows” refers to a calculation of the future cash flows generated by an asset without including in such calculation any debt servicing costs. Specifically, unlevered free cash flow represents unlevered net operating profit after tax, adjusted for depreciation and amortization, capital expenditures and changes in net working capital. “Present value” refers to the current value of the cash flows generated by the asset, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital and other appropriate factors. “Terminal value” refers to the present value of all future cash flows generated by the asset for periods beyond the projections period.

J.P. Morgan calculated the unlevered free cash flows that the Company is expected to generate during fiscal years 2017 through 2023 based upon financial projections prepared by Company management. J.P. Morgan also calculated a range of terminal values of the Company at the end of the seven-year period ending in 2023 by applying a perpetual growth rate ranging from 2.5% to 3.5% to the unlevered free cash flow of the Company during the terminal period of the projections. The unlevered free cash flows for fiscal years 2018 through 2023 and the range of terminal values were then discounted to present values as of December 31, 2017 using a range of discount rates from 8.5% to 9.5%. This discount rate range was based upon J.P. Morgan’s analysis of the weighted-average cost of capital of the Company.

Based on the foregoing, this analysis indicated the following implied per share equity value range for the Common Stock, rounded to the nearest one quarter US dollar:

 

     Implied Per Share Equity Value  
     Low      High  

Discounted Cash Flow Analysis

   $ 23.00      $ 33.25  

The range of implied per share equity value for the Common Stock was compared to the Company’s closing share price of $32.00 on October 20, 2017, the Nasdaq trading day immediately preceding the execution of the Original Merger Agreement, and the proposed Merger Consideration of $49.25 per share of Common Stock.

Miscellaneous. The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes

 

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

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

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

J.P. Morgan received a fee from the Company of $2 million, which was payable upon the earlier of public announcement of the proposed merger or delivery by J.P. Morgan of its opinion. For services rendered in connection with the proposed merger, the Company has agreed to pay J.P. Morgan an additional fee of approximately $9 million upon the closing of the merger. J.P. Morgan may also receive a fee from the Company in the event that the Company receives a break-up fee in connection with the termination or abandonment of the proposed merger, or failure of the merger to occur. In addition, the Company has agreed to reimburse J.P. Morgan for certain of its expenses incurred in connection with its services, including the fees and disbursements of counsel, and has agreed to indemnify J.P. Morgan against certain liabilities arising out of J.P. Morgan’s engagement.

During the two years preceding the date of J.P. Morgan’s opinion, and as disclosed to the Board at the time of J.P. Morgan’s engagement by the Company, J.P. Morgan and its affiliates have had commercial or investment banking relationships with the Company and affiliates of TPG for which J.P. Morgan and such affiliates have received customary compensation. Such services during such period have included J.P. Morgan acting as lead arranger and lead bookrunner on the Company’s facility agreement in December 2015, as joint lead arranger and bookrunner on the affiliates of TPG facility agreement in August 2016, as joint lead bookrunner on the initial public offering of equity securities by TPG Pace Holdings in June 2017, and as passive bookrunner on the initial public offering of equity securities by TPG RE Finance Trusts in July 2017. Further, during such period, J.P. Morgan and its affiliates have provided debt and equity underwriting, financial advisory and loan syndication services to portfolio companies of TPG that are unrelated to the proposed merger. J.P. Morgan has been paid in the aggregate many multiples of the compensation J.P. Morgan would receive from the Company under the terms of this engagement in respect of such other engagements with TPG. In addition, J.P. Morgan’s commercial banking affiliate is an agent bank and a lender under outstanding credit facilities of the Company, Parent and such portfolio companies, for which J.P. Morgan receives customary compensation or other financial benefits. In addition, J.P.

 

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Morgan and its affiliates hold, on a proprietary basis, less than 2% of the outstanding Common Stock of each of the Company and Parent. In the ordinary course of their businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of the Company for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.

Position of the Rollover Investors as to Fairness of the Merger

Under SEC rules governing “going-private” transactions, each of the Rollover Investors is required to express its belief as to the fairness of the proposed merger to the unaffiliated shareholders. Each of the Rollover Investors is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Rollover Investors as to the fairness of the merger are not intended and should be not be construed as a recommendation to any shareholder of the Company as to how to vote on the proposal to approve the Merger Agreement. The Rollover Investors have interests in the merger that are different from, and/or in addition to, those of the unaffiliated shareholders of the Company by virtue of its continuing interests in Parent after the completion of the merger. These interests are described under “Special Factors-Interests of the Company’s Directors and Executive Officers in the Merger beginning on page 55.

None of the Rollover Investors has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the merger to the Company’s unaffiliated shareholders. The merger was approved by a majority of the directors on the Board who are not employees of the Company. Dr. Petty, the Company’s Executive Chairman, and Mr. Petty, the Company’s President and Chief Executive Officer, each of whom is a Rollover Investor and a director of the Company, recused themselves from voting in their respective capacities as directors with respect to the Merger Agreement and the merger. Based on the knowledge and analysis of the Rollover Investors of available information regarding the Company, as well as discussions with the Company’s management regarding the Company and its business and the factors considered by, and the analysis and resulting conclusions of, the Board discussed under -Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 36 (which analysis and conclusions the Rollover Investors adopt), each of the Rollover Investors believes that the merger is substantively and procedurally fair to the Company’s unaffiliated shareholders based on its consideration of the factors enumerated below under “Position of Parent and Merger Sub as to Fairness of the Merger”, among others. Additionally, the transaction is structured so that approval of at least a majority of unaffiliated shareholders is required.

The Rollover Investors believe that these factors provide a reasonable basis for their belief that the merger is fair to the Company’s unaffiliated shareholders. This belief should not, however, be construed as a recommendation to any of the Company shareholders to approve the Merger Agreement. The Rollover Investors do not make any recommendation as to how shareholders of the Company should vote their shares of Common Stock relating to the merger.

In their consideration of the fairness of the proposed merger, the Rollover Investors did not find it practicable to, and did not, appraise the assets of the Company to determine the liquidation value for the Company’s unaffiliated shareholders (i) because of their belief that liquidation sales generally result in proceeds substantially less than sales of a going concern, (ii) because of the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, (iii) because they considered the Company to be a viable going concern and (iv) because the Company will continue to operate its business following the merger. None of the Rollover Investors considered the net book value, which is an accounting concept, for purposes of determining the fairness of the per share Merger Consideration to the Company’s unaffiliated shareholders because, in their view, it does not reflect, or have any meaningful impact on, either the market trading prices of common stock or the Company’s value as a going concern. Each of the Rollover Investors note, however, that the merger consideration of $49.25 is higher than the net book value of the Company per share of $6.15 as of October 20, 2017 and than the net book value of the Company per share of $6.19 as of December 1, 2017.

Position of Parent and Merger Sub as to Fairness of the Merger

Under a possible interpretation of the SEC rules governing “going-private” transactions, each of the Fund, Parent and Merger Sub may be deemed to be affiliates of the Company and required to express their beliefs as to the fairness of the merger to the unaffiliated shareholders of the Company. The Fund, Parent and Merger Sub believe that the merger (which is the Rule 13e-3 transaction for which a Schedule 13E-3 Transaction Statement has been filed with the SEC) is fair to the Company’s unaffiliated shareholders on the basis of the factors described under “Special Factors - Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Mergerbeginning on page 36, and the additional factors described below.

 

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In this section and in the section captioned “Special Factors—Position of the Rollover Investors as to the Fairness of the Merger” beginning on page 47, we refer to the Rollover Investors, each of whom has committed to contribute a portion of the shares of Company Common Stock owned by him, her or it to Parent in connection with the merger and after the merger will be an equity holder in Parent. Dr. Petty, the Company’s Executive Chairman, and Mr. Petty, the Company’s President and Chief Executive Officer, each of whom is a director of the Company, recused themselves from voting in their respective capacities as directors with respect to the Merger Agreement and the merger.

The Fund did not participate in the deliberations of the Board regarding, or received advice from the Company’s legal advisor or financial advisors as to, the fairness of the merger. The Fund has not performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the merger to the Company’s unaffiliated shareholders. Based on these entities’ knowledge and analysis of available information regarding the Company, as well as discussions with members of the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Board discussed in this proxy statement in the section entitled “Special Factors - Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 36 (which findings the Fund adopts). The Fund believes that the merger is substantively fair to the Company’s unaffiliated shareholders. In particular, the Fund considered the following:

 

    no member of the senior management other than the Rollover Investors has a substantial financial interest in the merger that is different from, or in addition to, the interests of the Company’s unaffiliated shareholders generally, although the merger agreement does include customary provisions for indemnity and the continuation of liability insurance for the Company’s officers and directors;

 

    the Board determined, by the unanimous vote of all independent, non-employee members of the Board, that the merger is fair to, and in the best interests of, the Company and its shareholders;

 

    the per share price of $49.25 represents a 53.9% premium to the closing price of the Company’s stock of $32.00 on October 20, 2017, the last trading day before the public announcement of the signing of the Original Merger Agreement;

 

    the per share price of $49.25 represents a 16.3% premium to the closing price of the Company’s stock of $42.35 on December 1, 2017, the last trading day before the public announcement of the signing of the Amendment to Merger Agreement;

 

    the per share price of $49.25 represents a 50.5% premium over the Company’s volume weighted average closing share price for the one-month period prior to and ending on October 20, 2017;

 

    the merger will provide consideration to the Company’s shareholders entirely in cash, allowing the Company’s shareholders (other than the Rollover Investors and Parent Affiliates) to immediately realize a certain and fair value for all their shares of Common Stock.

The Fund did not establish, and did not consider, a pre-merger going concern value of the Common Stock as a public company for the purposes of determining the per share Merger Consideration or the fairness of the per share Merger Consideration to the unaffiliated shareholders because, following the merger, the Company will have a significantly different capital structure. However, to the extent the pre-merger going concern value was reflected in the per share price of the Common Stock before the public announcement of the signing of the Original Merger Agreement, the per share Merger Consideration of $49.25 represented a premium to the going concern value of the Company. In addition, the Fund did not consider net book value because they believe that net book value, which is an accounting concept, does not reflect, or have any meaningful impact on, either the market trading prices of the Common Stock value as a going concern. The Fund does note, however, that the per share merger consideration of $49.25 is higher than the net book value of the Company per share of $6.15 as of October 20, 2017 and than the net book value of the Company per share of $6.19 as of December 1, 2017. The Fund did not consider liquidation value in determining the fairness of the merger to the unaffiliated shareholders because of their belief that liquidation sales generally result in proceeds substantially less than sales of a going concern, because of the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, because they considered the Company to be a viable, going concern and because the Company will continue to operate its business following the merger.

 

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Fund believes that the merger is procedurally fair to the Company’s unaffiliated shareholders based upon the following factors:

 

    the fact that, other than the indemnification and liability insurance rights under the Merger Agreement and severance payments, consisting solely of directors who are not officers or employees of the Company and who are not affiliated with the Fund, and who have no financial interest in the merger different from, or in addition to, the Company’s unaffiliated shareholders generally, was given exclusive authority to, among other things, review, evaluate and negotiate the terms of the proposed merger, to decide not to engage in the merger, and to consider alternatives to the merger;

 

    the oral opinion of J.P. Morgan rendered to the Board, which was confirmed by delivery of a written opinion dated December 2, 2017, to the effect that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the consideration to be paid to the holders of the Common Stock in the proposed merger was fair, from a financial point of view, to such shareholders, as more fully described below in the section “Opinion of Financial Advisor” beginning on page 41 of this proxy statement. The full text of the written opinion of J.P. Morgan, dated December 2, 2017, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, is attached as Annex B to this proxy statement; and

 

    $49.25 per share cash consideration and the other terms and conditions of the merger agreement resulted from extensive arm’s-length negotiations between Parent and its advisors, on the one hand, and the Board and its advisors, on the other hand;

 

    the merger was approved by the Board;

 

    the affirmative vote of a majority of the outstanding shares of Common Stock is required under Florida law and under the Merger Agreement to approve the Merger Agreement and that, in this regard, TPG and its respective affiliates (excluding the Rollover Investors) do not own a significant enough interest, in the aggregate, in the shares of the Common Stock to influence substantially the outcome of the shareholder vote;

 

    the Company’s ability to terminate the Merger Agreement if shareholders do not approve it, subject to paying an expense reimbursement of up to $5 million (equal to approximately .7% of the equity value of the transaction) and, in certain circumstances, a termination fee; and

 

    the availability of appraisal rights to the Company’s shareholders who comply with all of the required procedures under Florida law for exercising appraisal rights, which allow such holders to seek appraisal of the fair value of their stock.

The foregoing discussion of the information and factors considered and given weight by the Fund in connection with the fairness of the merger agreement and the merger is not intended to be exhaustive but is believed to include all material factors considered by it. The Fund did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching its position as to the fairness of the Merger Agreement and the merger. Rather, the Fund made the fairness determinations after considering all of the foregoing as a whole. The Fund believes these factors provide a reasonable basis upon which to form their belief that the merger is fair to the Company’s unaffiliated shareholders. This belief should not, however, be construed as a recommendation to any Company shareholder to adopt the Merger Agreement. The Fund does not make any recommendation as to how shareholders of the Company should vote their shares of Common Stock relating to the merger.

Neither Parent nor Merger Sub participated in the deliberations of the Board regarding, or received advice from the Company’s legal advisor or financial advisors as to, the fairness of the merger to the Company’s unaffiliated shareholders. Based on these entities’ knowledge and analysis of available information regarding the Company, as well as discussions with members of the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Board and discussed in this proxy statement in the sections entitled “Special Factors Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger” Parent and Merger Sub believe that the merger is fair to the Company’s unaffiliated shareholders. In addition, as entities jointly owned by the Fund, Parent and Merger Sub considered the same factors considered by, and adopted the analyses of, the Fund, as discussed above in this proxy statement.

 

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Parent and Merger Sub believe that these factors provide a reasonable basis for their belief that the merger is fair to the Company’s unaffiliated shareholders. This belief should not, however, be construed as a recommendation to any of the Company shareholders to approve the Merger Agreement. Parent and Merger Sub do not make any recommendation as to how shareholders of the Company should vote their shares of Company common stock relating to the merger. Parent and Merger Sub attempted to negotiate the terms of a transaction that would be most favorable to them, and not to the shareholders of the Company, and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were fair to such shareholders. None of the Fund, Parent or Merger Sub believes that it has or had any fiduciary duty to the Company or its shareholders, including with respect to the merger and its terms.

Purposes and Reasons of Exactech for the Merger

The Company’s purpose for engaging in the merger is to enable its shareholders to receive $49.25 per share in cash, without interest and less any applicable withholding taxes, which represents a premium of approximately 53.9% above the closing price of the Common Stock on October 20, 2017, the last trading day before the public announcement of the signing of the Original Merger Agreement, a premium of approximately 16.3% above the closing price of the Common Stock on December 1, 2017, the last trading day before the public announcement of the signing of the Amendment to Merger Agreement, a premium of approximately 50.5% over the Company’s $32.73 volume weighted average price per share of the Common Stock for the 30-day period ended October 20, 2017, and a premium of approximately 75.4% over the volume weighted average closing price of the Common Stock for the 1-year period that ended on October 20, 2017. The Company believes its long-term objectives can best be pursued as a private company. The Company has determined to undertake the merger at this time based on the analyses, determinations and conclusions of the independent directors of the Board described in detail above under “Special Factors —Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 36.

Purposes and Reasons of the Rollover Investors for the Merger

Under the SEC rules governing “going private” transactions, each of the Rollover Investors is an affiliate of the Company, and, therefore, is required to express its purposes and reasons for the merger to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act. Each of the Rollover Investors is making the statements in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of each of the Rollover Investors should not be construed as a recommendations to any Company shareholder as to how that shareholders should vote on the proposal to adopt the Merger Agreement.

Each of the Rollover Investors believes that it is in the best interests of the Company to operate as a privately held entity. The Rollover Investors believe that, as a privately held entity, the Company will have greater operational flexibility to pursue alternatives than it would have as a public company, and management will be able to concentrate on long-term growth, reducing the focus on the quarter-to-quarter performance often emphasized by the public equity market’s valuation of the Common Stock. Each of the Rollover Investors also believe that the merger will provide the Company with flexibility to pursue transactions with a risk profiled that may be unacceptable to many public shareholders, and that these transactions can be more effectively executed as a private company.

Although each of the Rollover Investors believes that there will be significant opportunities associated with the Rollover Investors’ contribution to Parent of the Rollover Shares, each of the Rollover Investors realizes that there are also substantial risks (including the risks and uncertainties relating to the prospects of the Company) and that such opportunities may not ever be fully realized.

If the merger is completed, the Company will become a wholly owned subsidiary of Parent, and the Common Stock will cease to be publicly traded. For the Rollover Investors, the purpose of the merger is to effectuate the transactions contemplated by the Merger Agreement and the Rollover and Voting Agreement, which will allow the Rollover Investors to own equity interests of Parent and to bear the rewards and risks of such ownership after the merger is completed and the Common Stock ceases to be publicly traded. The Rollover Investors believe that structuring the transaction in such manner is preferable to other alternative transaction structures because (i) it will enable Parent to acquire all of the outstanding shares of the Company at the same time, (ii) it will allow the Company to cease to be a publicly registered and reporting company, (iii) it represents an

 

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opportunity for the Company’s unaffiliated shareholders to immediately realize the value of their investment in the Company and (iv) it allows the Rollover Investors to continue to own indirect equity interests in the Company after the merger and to bear the rewards and risks of such ownership after the merger. The Rollover Investors did not consider any other alternative transaction structures or other alternative means to accomplish the purposes set forth above because no other alternatives would enable them to continue their respective investments in the Company and allow the Company to cease to be a publicly registered and reporting company.

Purposes and Reasons of Parent and Merger Sub for the Merger

Under a possible interpretation of the SEC rules governing “going-private” transactions, each of the Fund, Parent, and Merger Sub may be deemed to be affiliates of the Company and, therefore, required to express their reasons for the merger to the Company’s unaffiliated shareholders, as defined in Rule 13E-3 of the Exchange Act. The Fund, Parent, Merger Sub are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13E-3 and related rules under the Exchange Act. For the Fund, Parent, Merger Sub, the purpose of the merger is to enable Parent to acquire control of the Company, in a transaction in which the unaffiliated shareholders will be cashed out for $49.25 per share, so Parent will bear the rewards and risks of the ownership of the Company after shares of Company common stock cease to be publicly traded.

Plans for the Company after the Merger

Upon consummation of the merger, the Company will cease to have publicly traded equity securities and will instead be a wholly owned subsidiary of Parent. Following consummation of the merger, Parent may seek to buy or combine the Company with target companies that provide earnings and growth synergies, however no such contracts, arrangements, plans, proposals, commitments or understanding currently exist. Although presently there are no such contracts, arrangements, plans, proposals, commitments or understandings regarding any such transactions, TPG and certain of its affiliates (including Parent) may seek, from and after the Effective Time, to acquire target companies or assets that operate in the Company’s industry.

Certain Effects of the Merger

If the Merger Agreement is approved by the requisite vote of the Company’s shareholders and all other conditions to the closing of the merger are either satisfied or waived, Merger Sub will merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent.

At the Effective Time, each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than Rollover Shares, appraisal shares and shares held by the Company in treasury) will be converted into the right to receive the Merger Consideration. All such shares of Common Stock, when so converted, will no longer be outstanding and shall automatically be canceled and will cease to exist, and each holder of a certificate (or evidence of shares in book-entry form) that immediately prior to the Effective Time represented any such shares of Common Stock will cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

Each Stock Option, to the extent outstanding and unexercised as of immediately prior to the Effective Time, whether vested or unvested, will be cancelled immediately prior to the Effective Time, and in consideration for such cancellation, the holder thereof will be entitled to receive an amount in cash, without interest, equal to the Option Consideration. Each Stock Option with a per share exercise price that is equal to or greater than the Merger Consideration will be cancelled immediately prior to the Effective Time with no consideration payable to the holder thereof. As of the Effective Time, each outstanding Stock Option will no longer be outstanding and will automatically be cancelled and each holder thereof will cease to have any rights with respect thereto, other than the right to receive the Option Consideration.

Each share of Restricted Stock that is outstanding immediately prior to the Effective Time will become fully vested as of immediately prior to the Effective Time and will be treated as an outstanding share of Common Stock for purposes of this Agreement and the holder thereof will be entitled to receive the Merger Consideration with respect thereto, less applicable withholdings.

 

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The Common Stock is currently registered under the Exchange Act and is quoted on the Nasdaq Global Market under the symbol “EXAC.” As a result of the merger, the Company will be a privately held corporation and there will be no public market for its Common Stock. After the merger, the Common Stock will cease to be quoted on Nasdaq Global Market and price quotations with respect to sales of Common Stock in the public market will no longer be available. In addition, the registration of the Common Stock under the Exchange Act will be terminated and the Company will no longer file periodic reports with the SEC with respect to the Common Stock. Termination of registration of our Common Stock under the Exchange Act will reduce the information required to be furnished by the Company to our shareholders and the SEC, and would make certain provisions of the Exchange Act, such as the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement to furnish a proxy statement in connection with shareholders’ meetings pursuant to Section 14(a) of the Exchange Act, no longer applicable to the Company.

Projected Financial Information

We do not, as a matter of course, publicly disclose detailed financial forecasts. However, in connection with the negotiation of the proposed merger and the other transactions contemplated by the Merger Agreement, Company management prepared certain non-public unaudited financial forecasts, which were furnished to Parent and J.P. Morgan for its use and reliance in connection with its financial analyses and opinion. We provided J.P. Morgan with (i) a management “base case” (which management used to forecast the operating performance of the Company’s day-to-day business based on the most current information available to management, including reasonable assumptions as to business risk, unlevered free cash flows, cost of capital and volatility) that was considered the most accurate and reliable estimate of the Company’s prospects; and (ii) an illustrative “upside case” (containing aggressive growth estimates and speculative assumptions, which were considered far less realistic and highly unlikely to be achieved). It was then determined that, for purposes of the Board’s assessment of the Company’s intrinsic value and J.P Morgan’s derivation of an implied equity valuation range, management’s “upside case” forecasts were inherently unreliable and not a material input for the Board’s overall analysis or J.P. Morgan’s financial analysis of TPG’s offer. Accordingly, included in this proxy statement are the “base case” forecasts which were deemed material by, and relied on by, the Board and J.P. Morgan for purposes of its fairness opinion.

The unaudited financial forecasts were not prepared for the purpose of public disclosure, nor were they prepared in compliance with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or GAAP. The summary of the unaudited financial forecasts is not being included in this proxy statement/prospectus to influence Company shareholders with respect to the approval of the Merger Agreement, including whether or not to seek appraisal rights with respect to shares of Common Stock held by shareholders. The inclusion of the unaudited financial forecasts in this proxy statement/prospectus should not be regarded as an indication that any of Parent, the Company or any of their respective affiliates, directors, officers, advisors or other representatives, or any other recipient of the unaudited financial forecasts, considered, or now considers, the forecasts to be material or necessarily predictive of actual future results or events, and the unaudited financial forecasts should not be relied upon as such.

The unaudited financial forecasts include certain non-GAAP financial measures, including unlevered free cash flow (in each case, as defined below). Company management included forecasts of unlevered free cash flow in the unaudited financial forecasts because Company management believes that unlevered free cash flow could be useful in evaluating the future cash flows generated by the Company without taking into account debt servicing costs. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as presented in this proxy statement/prospectus may not be comparable to similarly titled measures used by the Company or other companies. The footnotes to the tables below provide certain supplemental information with respect to the calculation of these non-GAAP financial measures. The unaudited financial forecasts were not prepared with a view toward compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information.

All of the unaudited financial forecasts summarized below were prepared by, and are the responsibility of, Company management. No independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in the unaudited financial forecasts and, accordingly, no independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto, and no independent registered public accounting firm assumes any responsibility for the prospective financial information. The reports of the independent registered public accounting firms incorporated by reference into this proxy statement/prospectus relate to the Company’s historical financial information. These reports do not extend to the unaudited financial forecasts and should not be read to do so.

The unaudited financial forecasts do not give effect to the merger and the other transactions contemplated by the Merger Agreement or any changes to the Company’s operations or strategy that may be implemented after the completion of the merger, including any potential synergies realized as a result of the merger and the other transactions contemplated by the Merger Agreement, or to any costs related to, or that may arise in connection with, the merger and the other transactions contemplated by the Merger Agreement, including the effect of any failure of the merger to occur.

 

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The unaudited financial forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of Company management. In preparing these unaudited financial forecasts, Company management used assumptions that were substantially based on and consistent with the Company’s recent historical results. These assumptions included assumptions with respect to the growth rate by segment anticipated in each fiscal period, average sales prices, gross and contribution margins, general and administrative, sales and marketing and research and development expenses as a percentage of sales, and the Company’s effective tax rate. The unaudited financial forecasts were prepared by the Company in the second and third quarters of 2017, and Company management believes the unaudited financial forecasts were prepared on a reasonable basis and reflected the best then-currently available estimates and judgments of Company management at that time. Important factors that may affect actual results and cause the unaudited financial forecasts to not be realized include, but are not limited to, the risks, contingencies and other uncertainties described under Cautionary Information Regarding Forward-Looking Statements beginning on page 67. The unaudited financial forecasts are forward-looking in nature. The forecasts relate to expectations of multiple future years’ performance, and such information by its nature becomes less predictive with each succeeding year. As a result, actual results may differ materially, and will differ materially if the merger and the other transactions contemplated by the Merger Agreement are completed, from the unaudited financial forecasts, and there can be no assurance that the forecasts will be realized. None of Company, Parent, or any of their respective affiliates, directors, officers, advisors or other representatives made or makes any representation to any shareholder or other person regarding the Company’s ultimate performance compared to the information contained in the unaudited financial forecasts. Except as may be required under applicable law, the Company does not undertake any obligation to update or otherwise revise the unaudited financial forecasts to reflect events or circumstances after the date the forecasts were made, including events or circumstances that may have occurred during the period between that date and the date of this proxy statement/prospectus, or to reflect the occurrence of unanticipated events, even in the event that any or all of the assumptions are not realized.

 

$mm                                               
     Management projections  
     2017E     2018E     2019E      2020E      2021E      2022E      2023E  

Revenue

   $ 270     $ 300     $ 326      $ 354      $ 384      $ 417      $ 452  

EBITDA

   $ 49     $ 52     $ 56      $ 61      $ 68      $ 75      $ 83  

Diluted EPS

   $ 1.10     $ 1.35     $ 1.41      $ 1.53      $ 1.72      $ 1.93      $ 2.15  

Free cash flow

   ($ 9   ($ 22   $ 3      $ 6      $ 10      $ 12      $ 14  

 

(1) EBITDA is defined as net earnings plus depreciation and amortization expense, interest and financing costs, one-time, non-recurring expenses, currency gains and losses and income tax expense is a non-GAAP financial measure because it excludes amounts included in net earnings, the most directly comparable measure calculated in accordance with GAAP. This measure should not be considered as an alternative to net earnings or other measures derived in accordance with GAAP.

 

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The unaudited forecasted financial information is based on various assumptions, including the following principal assumptions:

 

    Revenue Compounded Average Growth Rates (CAGR) by reportable segment for the years 2018-2023 are Extremities – 10%; Knee – 8%; Hip - 9% resulting in a companywide CAGR of 9%

 

    Gross margins will decrease by 0.40% on average over the period from 2018-2023 due to projected annual average sales price decreases of 3%

Free Cash Flow” is defined as net operating profits after tax plus depreciation and amortization, less capital expenditures and less net changes in net working capital and is a non-GAAP financial measure because it excludes amounts included in net earnings.

 

    Capital expenditures range from 10-18% of sales during 2018-2020 as the company completes existing facility enhancement investments and normalizes at approximately 9.6% of sales during 2021-2023

The estimates and assumptions underlying the unaudited forecasted financial information are inherently uncertain and, though considered reasonable by the management as of the date of the preparation of such unaudited forecasted financial information, are subject to a wide variety of significant business, economic, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the unaudited forecasted financial information. Accordingly, there can be no assurance that the forecasted results are indicative of the future performance, or that actual results will not differ materially from those presented in the unaudited forecasted financial information.

Financing of the Merger

The Merger Agreement does not contain any financing-related contingencies or financing conditions to consummation of the merger. On October 22, 2017, we entered into the Original Equity Commitment Letter with the Fund and Parent. On December 3, 2017, we entered into the Amendment to Equity Commitment Letter with the Fund and Parent. Pursuant to the Equity Commitment Letter, upon the terms and conditions specified therein, the Fund will commit to purchase or will cause the purchase of, directly or indirectly, equity securities of Parent with an aggregate price not to exceed $737,057,000, which will be used to either (i) fund the payment, in full, of the Merger Consideration and all other amounts required to be paid by Parent at the Closing under the Merger Agreement, including all fees and expenses required to be paid by Parent thereunder or (ii) under certain circumstances fund the payment to up to $737,057,000 in monetary damages required to be paid by Merger Sub in accordance with the Merger Agreement. The Company is a direct party to the Equity Commitment Letter and is entitled thereunder and under the Merger Agreement to specifically enforce the performance by the Fund of its obligations thereunder and to cause Parent to enforce against the Fund the performance by the Fund of its obligations thereunder.

 

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The unavailability for any reason of the financing contemplated by the Equity Commitment Letter will not, in and of itself, affect, delay or alter the performance and payment obligations of Parent, Merger Sub or the Fund under the Merger Agreement or the Financing Letter. We will use reasonable best efforts to provide Parent and Merger Sub with such information that is reasonably necessary or customary in connection with the Financing Letter as may be reasonable requested by Parent. Parent will (i) promptly, upon request by the Company, reimburse the Company for all out-of-pocket costs and expenses (including reasonable attorneys’ fees) incurred by the Company or any of the Company subsidiaries in connection with the Company’s obligations with respect to the Financing Letter and (ii) on a joint and several basis with Merger Sub, indemnify and hold harmless the Company, its affiliates and its Representatives from and against any and all liabilities, losses, damages, claims, costs, expenses, interest, awards, judgments and penalties suffered or incurred in connection with the arrangement of the Financing Letter and the provision of any information utilized in connection therewith and the delivery of the payoff letters pursuant to the Merger Agreement, except to the extent arising from (A) fraud or intentional misrepresentation by the Company or its subsidiaries or (B) any written information provided by the Company or its subsidiaries.

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

Overview

The vested Common Stock held by our directors and executive officers, other than the Rollover Shares, will be treated in the same manner as outstanding Common Stock held by our other shareholders. As of the Record Date, our directors and Named Executive Officers together owned 3,702,323 shares of Common Stock, or approximately [25.7%] of the issued and outstanding Common Stock as of such date. The foregoing number of shares of Common Stock held by Named Executive Officers and directors does not include any shares of Common Stock issuable upon exercise of Stock Options granted by us and held by such individuals. The foregoing number of shares of Common Stock held by Named Executive Officers and directors includes Restricted Stock granted by us and held by such individuals. If the merger is completed, our directors and executive officers and their affiliates, would receive an aggregate amount of 71,277,313 net in cash, without interest thereon and less any required withholding taxes.

Aside from their interests as shareholders of the Company, certain of our officers and directors have certain interests in the merger that may be different from, or in addition to, your interests as a shareholder generally. These interests are summarized below. In considering the recommendation of the Board of Directors that you vote to approve the Merger Agreement and the merger, you should be aware of these interests. The Board of Directors was aware of these interests, considered them and took them into account, together with other factors, in determining whether to approve the Merger Agreement and recommend that you vote for approval of the Merger Agreement. The interests of our directors and employees, including our executive officers, in the merger that may be different from, or in addition to, those of other shareholders of the Company include, but are not limited to:

 

    accelerated vesting of all Stock Options held by our employees, including certain Named Executive Officers, at the Effective Time, and the conversion of such Stock Options into the right to receive the Option Consideration (See “Merger Agreement – Treatment of Company Stock Options and Company Restricted Stock” beginning on page 75);

 

    accelerated vesting of all Restricted Stock held by our employees, including our Named Executive Officers, at the Effective Time, and the conversion of such Restricted Stock into the right to receive the Merger Consideration (See “Merger Agreement – Treatment of Company Stock Options and Company Restricted Stock” beginning on page 75);

 

    payment of certain severance payments, not to exceed $600,000, to our independent directors in connection with their services to the Company with respect to the merger (but which are not conditioned on the consummation of the merger);

 

    some of our Named Executive Officers that have employment agreements with us will receive payments and benefits under their employment agreements upon certain types of termination of employment following the Effective Time; and

 

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    our founders and certain management shareholders have entered into the Rollover and Voting Agreement pursuant to which the Rollover Shares will be exchanged, at a price per share equal to the Merger Consideration.

The dates used below to quantify these interests have been selected for illustrative purposes only. They do not necessarily reflect the dates on which certain events will occur.

As described below, consummation of the merger will constitute a “change in control” of the Company for the purpose of determining certain severance payments and other benefits and monetary entitlements due to our Named Executive Officers and directors.

Rollover and Voting Agreement

In connection with the Merger Agreement, the Company’s founders and certain management shareholders, the Rollover Investors, entered into the Rollover and Voting Agreement with Parent, pursuant to which the Rollover Investors have agreed to exchange, the Rollover Shares for new equity securities in Parent. As a condition to receiving new equity securities in Parent, the Rollover Investors have agreed to vote all of their shares of Common Stock “FOR” the proposal to approve the Merger Agreement and the merger. The Rollover Agreement will terminate if the Merger Agreement is terminated.

Pursuant to the Rollover and Voting Agreement, the Rollover Investors have agreed: (i) to waive their appraisal rights with respect to the merger, (ii) not to, and to cause its affiliates not to make or in any way participate in any “solicitation” of “proxies”, and (iii) to terminate all existing shareholders agreements and arrangements between the Rollover Investors and the Company. The Rollover Investors have also agreed that, except in the circumstance where an Adverse Recommendation Change has occurred, the Rollover Investors will vote (i) in favor of the approval of the Merger Agreement and the merger and (ii) against (A) any proposal or action submitted to the Company’s shareholders that would constitute, or could reasonably be expected to result in, a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement or of the Rollover Investors under the Rollover and Voting Agreement or otherwise reasonably would be expected to impede, interfere with, delay, postpone, discourage or adversely affect the merger or any of the other transactions contemplated by the Merger Agreement, and (B) any Alternative Proposal or any proposal relating to an Alternative Proposal.

The Rollover and Voting Agreement will terminate at the earliest to occur of (i) the Effective Time, (ii) such date that the Merger Agreement is terminated pursuant to Article VIII of the Merger Agreement, and (iii) the mutual written agreement of the parties to the Rollover and Voting Agreement.

The foregoing summary of the Rollover and Voting Agreement is qualified in its entirety by reference to the copy of such agreement attached hereto as Annex D.

Interests of Directors and Officers in Common Stock and Preexisting Company Stock Awards

All of the Company’s Named Executive Officers and directors who own Common Stock will receive the same $49.25 per share in cash, without interest thereon and less any required withholding taxes, and otherwise on the same terms and conditions as all other shareholders. As of the Record Date, the directors and Named Executive Officers together owned 3,702,323 shares of Common Stock, or approximately [25.7%] of the issued and outstanding shares of Common Stock as of such date. The foregoing number of shares of Common Stock held by Named Executive Officers and directors does not include (i) Restricted Stock granted by us and held by such individuals or (ii) any shares of Common Stock issuable upon exercise of Stock Options granted by us and held by such individuals. For a description of the treatment of Common Stock Awards held by the directors and Named Executive Officers, see below under the heading “The Merger AgreementEffect of the Merger on Company Stock Awards,” beginning on page 75.

 

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The following table sets forth, as of the Record Date, the cash consideration that each Named Executive Officer and non-employee director would be entitled to receive if the merger is consummated (excluding Company Stock Awards).

 

Name

  

Position

   Number of Shares      Aggregate Merger
Consideration
Payable for
Shares
 

William Petty, M.D.

  

Executive Chairman and Chairman of the Board

     3,258,071      $ 160,459,997  

David W. Petty

  

Chief Executive Officer, President and Director

     65,622      $ 3,231,884  

Joel C. Phillips

  

Executive Vice President, Chief Financial Officer and Treasurer

     115,654      $ 5,695,960  

Gary J. Miller, Ph.D.

  

Executive Vice President, Research and Development

     181,359      $ 8,931,931  
     

 

 

    

Bruce Thompson

  

Senior Vice President-Strategic Initiatives

     25,279      $ 1,244,991  

James G. Binch

  

Director

     4,650      $ 229,013  

William B. Locander, Ph.D.

  

Director

     6,840      $ 336,870  

Richard C. Smith

  

Director

     25,097      $ 1,236,027  

Fern S. Watts

  

Director

     5,823      $ 286,783  

W. Andrew Krusen, Jr.

  

Director

     13,928      $ 685,954  
     

 

 

    

 

 

 

Total

        3,702,323      $ 182,339,408  
     

 

 

    

 

 

 

Effect of the Merger on Company Stock Awards

With respect to Company Stock Awards, the Merger Agreement provides that (i) each Stock Option, to the extent outstanding and unexercised as of immediately prior to the Effective Time, whether vested or unvested, shall be fully cancelled as of immediately prior to the Effective Time, and the holder thereof shall be entitled to receive an amount in cash equal to the Option Consideration; and (ii) each Company share of Restricted Stock that is outstanding as of immediately prior to the Effective Time shall become fully vested as of such time and shall be treated as an outstanding share of Common Stock for purposes of the Merger Agreement.

The following table sets forth, as of the Record Date, the cash consideration that the Company’s directors and Named Executive Officers would be entitled to receive (before deduction for withholding taxes) for their respective Company Stock Awards if the merger is consummated.

 

Name

  

Position

   Number of
Shares
Subject to
Stock
Options
(#)
     Weighted
Average
Exercise
Price per
Share

($)
     Payment in
Respect of
Stock
Options

($)
     Number of
Shares of
Restricted
Stock
     Payment in
Respect of
Restricted
Stock

($)
 

William Petty, M.D.

   Executive Chairman and Chairman of the Board      331,117        20.91        9,383,120        —          —    

David W. Petty

   Chief Executive Officer, President and Director      104,150        22.48        2,787,753        —          —    

Joel C. Phillips

   Executive Vice President, Chief Financial Officer and Treasurer      133,000        20.55        3,816,900        —          —    

Gary J. Miller, Ph.D.

   Executive Vice President, Research and Development      65,800        20.59        1,885,696        —          —    

Bruce Thompson

   Senior Vice President-Strategic Initiatives      70,800        19.82        2,083,926        —          —    

Total Payments For Stock Options:

           19,957,394        
           

 

 

       

 

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Employment Arrangements Following the Merger

There have been no discussions or negotiations as of the date hereof between any executive officer or other management personnel of the Company and Parent regarding the potential terms or conditions of any existing or future employment, retention, bonus, equity participation, option or stock award, change-in-control, severance or other agreement regarding such officers and management personnel of the Company. Parent has informed us that Parent currently intends to retain our executive officers and management personnel after the consummation of the merger. However, there can be no assurance that mutually acceptable agreements or arrangements can or will be negotiated and, if negotiated, what the terms thereof will be.

Potential Payments to Certain Officers on Termination or Change in Control

In February 2007, the Board of Directors adopted a change of control plan that is effective for the Company as a whole (the “Change of Control Plan”). The Board of Directors adopted the Change of Control Plan in recognition that as a publicly held company, there exists a potential for a change in control of ownership of the Company, and that the threat or occurrence of a change in control can result in the loss or significant disruption of the performance of key employees as a result of the uncertainty surrounding such threat or occurrence. As such, the Board of Directors determined that it is in our best interest and in the best interest of our shareholders to retain the commitment of its key employees and ensure their continued commitment to the Company in the event of a threat or occurrence of a change in control. The Change of Control Plan provides for severance pay to all of our employees, including the Named Executive Officers, upon termination of employment as a result of a change in control and within one year after the occurrence of a change in control. Certain circumstances of termination are excluded from severance pay under the Change of Control Plan, including termination for cause and the Named Executive Officer voluntarily initiating the termination. Terms of the Change of Control Plan provide for the payment of salary, benefits and any bonus earned for a period of up to one year from the date of termination from the Company or from the successor company. The time period of severance is dependent upon the employee’s responsibility level at the Company. Severance pay under the Change of Control Plan is reduced by the amount of severance pay provided for in any person’s employment agreement with the Company.

 

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Potential Payments Upon Termination Following a Change of Control

 

Name

   Severance Pay
($)(1)(2)
     Benefit
Continuation
($)(3)
     Accelerated
Vesting Stock
Options
($)(4)
     Total
($)
 

William Petty, M.D.

     1,395,000        98,804        2,653,295        4,147,099  

David W. Petty

     1,288,298        35,285        1,155,611        2,479,194  

Joel C. Phillips

     535,684        35,285        1,080,940        1,651,909  

Gary J. Miller, Ph.D.

     1,122,365        85,965        543,308        1,751,638  

Bruce Thompson

     495,628        33,313        511,618        1,040,559  

Betty Petty

     1,044,813        81,285        296,382        1,422,480  

Donna Edwards

     381,799        26,754        333,222        741,775  

 

(1) The annual base salaries and incentive compensation used in the computation were based on the Named Executive Officers’ respective employment agreements or the Change of Control Plan adopted in February 2007 in effect at the date of the filing.
(2) In calculating the incentive compensation for the year in which the change in control occurs, we assumed that we would pay the incentive compensation for a full year. The actual incentive compensation payout amount would be a pro-rated amount through the termination date for the relevant fiscal year.
(3) Benefit amounts include payments for medical, dental, vision, life and long-term disability insurance. Amounts represent the projected costs for one year based on current benefit elections.
(4) The Named Executive Officers have Stock Options with exercise prices ranging from $16.33 to $30.50. Amounts represent payment of the Option Consideration.

Director and Officer Indemnification and Insurance

The FBCA generally provides that a director of a Florida corporation is not personally liable for monetary damages to the corporation or any other person for any statement, vote, decision or failure to act regarding corporate management or policy, unless the director breached or failed to perform his or her duties as a director and the director’s breach of or failure to perform those duties constitutes (i) a violation of criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (iii) an unlawful distribution, (iv) in a proceeding by or in the right of the corporation or in the right of a shareholder, conscious disregard for the best interest of the corporation or willful misconduct, or (v) in a proceeding by or in the right of someone other than the corporation or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety or property.

In addition, the FBCA provides that a Florida corporation has the power to indemnify any person who was or is a party to any proceeding (other than an action by, or in the right of, the corporation), because he or she was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against liability incurred in connection with such proceeding, including any appeal thereof, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

The FBCA further provides that a Florida corporation has the power to indemnify any person who was or is a party to any proceeding by or in the right of the corporation to procure a judgment in its favor because that person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors of the corporation, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding, including any appeal thereof. Such indemnification is authorized if such person acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification with regard to a proceeding by or in the right of the corporation is to be made in respect of any claim, issue or matter as to which such person has been found liable unless, and only to the extent that, the court in which the proceeding was brought, or any other court of

 

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competent jurisdiction, determines upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court will deem proper.

Under the FBCA, to the extent that a director, officer, employee or agent of a Florida corporation has been successful on the merits or otherwise in defense of any proceeding referred to in the preceding two paragraphs, or in defense of any claim, issue or matter therein, he or she will be indemnified against expenses actually and reasonably incurred by him or her in connection therewith.

The Company’s By-laws provide that we will indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, including any appeal thereof, if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent will not, of itself, create a presumption that the person did not act in good faith and in a manner that such person reasonably believed to be in, or not opposed to, the best interests of the corporation or, with respect to any criminal action or proceeding, had reasonable cause to believe that its conduct was unlawful.

We maintain insurance policies insuring our directors and officers, including those of our subsidiaries, against certain liabilities they may incur in their capacity as directors and officers. Under such policies, the insurer, on our behalf, may also pay amounts for which we have granted indemnification to the directors or officers.

Additionally, we have entered into indemnification agreements with all of our directors and some of our officers to provide them with the maximum indemnification allowed under the Company By-laws and applicable law, including indemnification for all judgments and expenses incurred as the result of any lawsuit in which such person is named as a defendant by reason of being our director, officer or employee, to the extent indemnification is permitted by the laws of the State of Florida.

Effect of the Merger Agreement on Directors’ and Officers’ Indemnification and Insurance

The Merger Agreement provides that, from the Effective Time through the sixth anniversary of the date on which the Effective Time occurred, we (and following the Effective Time, the Surviving Corporation), will indemnify and hold harmless each individual who is or was entitled to indemnification pursuant to the Company Charter, the FBCA or any indemnification agreement with us at or at any time prior to the Effective Time (each such person, a “Company Indemnified Party” and collectively, the “Company Indemnified Parties”) against all claims, losses, liabilities, damages, judgments, inquiries, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements (collectively, “Costs”), incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (an “Action”), arising out of or pertaining to (i) matters existing or occurring at or prior to the Effective Time (including the decision of the Board to enter into the Merger Agreement, the terms of the Merger Agreement and the pendency and consummation of the transactions and actions contemplated thereby) or (ii) the fact that the Company Indemnified Party is or was a director, officer or employee of the Company or any Company Subsidiary or is or was serving at the request of the Company or any Company Subsidiary as a director, officer or employee of another Person, whether asserted or claimed prior to, at or after the Effective Time. In the event of any such Action, (A) each Company Indemnified Party will be entitled to advancement of expenses incurred in the defense of any claim, action, suit, proceeding or investigation from the Surviving Corporation within ten (10) Business Days of receipt by the Surviving Corporation from the Company Indemnified Party of a request therefor; provided, however, that any person to whom expenses are advanced provides an undertaking, if and only to the extent required by the FBCA or the Company Charter or Company By-laws (in each case as in effect immediately prior to the Effective Time), to repay such advances if it is ultimately determined that such person is not entitled to be indemnified by the Surviving Corporation as authorized by the FBCA, (B) without limiting the foregoing, each Company Indemnified Party may retain the Company’s regularly

 

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engaged independent legal counsel (provided that such engagement would not create a conflict of interest under applicable rules of ethics) or other counsel satisfactory to them, and Parent and the Surviving Corporation will pay all reasonable fees and expenses of such counsel for the Company Indemnified Party as promptly as statements therefor are received, (C) the Surviving Corporation will not settle, compromise or consent to the entry of any judgment in any proceeding or threatened action, suit, proceeding, investigation or claim (and in which indemnification could be sought by such Company Indemnified Party hereunder), unless such settlement, compromise or consent includes an unconditional release of such Company Indemnified Party from all liability arising out of such action, suit, proceeding, investigation or claim or such Company Indemnified Party otherwise consents, and (D) Parent and the Surviving Corporation will use their reasonable best efforts to assist in the defense of any such matter.

In addition, the Merger Agreement requires that, for a period of six years after the Effective Time, the respective articles of incorporation and bylaws or similar organizational or governing documents of the Surviving Corporation and the Company subsidiaries will contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of Company Indemnified Parties for periods prior to and including the Effective Time than are currently set forth in the Company Charter and Company By-laws and the articles of incorporation, bylaws, or similar organizational and governing documents of the Company subsidiaries.

The Merger Agreement further provides that Parent will, or will cause the Surviving Corporation to, maintain and extend all our existing directors’ and officers’ liability insurance (“D&O Insurance”) for a period of six years from and after the Effective Time with respect to claims arising in whole or in part from facts or events that actually or allegedly occurred on or before the Effective Time, including in connection with the approval of the merger and the other transactions contemplated by the Merger Agreement. Notwithstanding the foregoing, Parent may substitute (or cause the Surviving Corporation to substitute) therefor policies of substantially equivalent coverage and amounts, containing terms no less favorable to the Company Indemnified Parties than the existing D&O Insurance (so long as such policies are provided by our current insurance carrier or by a carrier with at least an “A” rating by A.M. Best); and provided, further, that if the existing D&O Insurance expires or is terminated or cancelled during such period through no fault of Parent or the Surviving Corporation, then Parent will, or will cause the Surviving Corporation to, obtain and maintain substantially similar D&O Insurance (with such replacement policies to be provided by our current insurance carrier or by a carrier with at least an “A” rating by A.M. Best). Notwithstanding the foregoing, in no event will Parent be required to pay aggregate premiums for insurance in excess of 350% of the most recent aggregate annual premiums paid by us for such purpose (the “Maximum Amount”); and provided, further, that if Parent or the Surviving Corporation is unable to obtain the amount of insurance required by the Merger Agreement for such aggregate premium, Parent will, or will cause the Surviving Corporation to, obtain as much insurance as can be obtained for aggregate premiums not in excess of the Maximum Amount. At our option, we may elect to obtain prepaid “tail” or “runoff” policies prior to the Effective Time, covering a period of six years from and after the Effective Time with respect to acts and omissions occurring on or prior to the Effective Time; provided that the premium therefor does not exceed the Maximum Amount. In the event we purchase a “tail” or “runoff” policy prior to the Effective Time, Parent and the Surviving Corporation will maintain such tail or runoff policy in full force and effect in lieu of providing additional or separate D&O Insurance for so long as any such tail or runoff policy remains in full force and effect.

The foregoing summary is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached as Annex A hereto.

Advisory Vote on Specified Compensation

In accordance with Section 14A of the Exchange Act, the Company is providing its shareholders with the opportunity to cast an advisory (non-binding) vote on the compensation that will or may become payable to the named executive officers of the Company in connection with the merger, the value of which is set forth in the table above. As required by Section 14A of the Exchange Act, the Company is asking its shareholders to vote on the adoption of the following resolution:

“FURTHER RESOLVED, by all of the members of the Compensation Committee of the Board, each of whom is present, that each employment compensation, severance or other employee benefit arrangement between the Company and any holder of Common Stock, including, but not limited to, such arrangements to be effected in accordance with the Merger Agreement, pursuant to which vesting of all Company stock options and Company Restricted Stock will be accelerated, is hereby approved, ratified and confirmed.”

 

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The vote on executive compensation payable in connection with the merger is a vote separate and apart from the vote on the proposal to approve the Merger Agreement. Accordingly, you may vote to approve the executive compensation and vote not to approve the Merger Agreement and vice versa. Because the vote to approve the executive compensation is advisory in nature only, it will not be binding on either the Company or Parent. Because the Company is contractually obligated to pay such executive compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the proposal to approve the Merger Agreement is approved and regardless of the outcome of the advisory vote.

Approval of the advisory resolution on executive compensation payable to the Company’s named executive officers in connection with the merger requires the affirmative vote of the holders of a majority of the voting power of the Common Stock present or represented by proxy and entitled to vote thereon. Abstentions will have the same effect as a vote “AGAINST” the proposal, but the failure to vote your shares will have no effect on the outcome of the proposal. Broker non-votes will have no effect on the outcome of the proposal.

The Board recommends a vote “FOR” this proposal.

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

The following discussion is a summary of material U.S. federal income tax consequences of the merger to U.S. Holders and certain non-U.S. Holders (each as defined below) whose shares of Common Stock are converted into the right to receive cash in the merger. This summary is for general information purposes only. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), and applicable Treasury Regulations, rulings, administrative pronouncements and judicial decisions as of the date hereof, all of which are subject to change or differing interpretations at any time with possible retroactive effect. Any such changes could affect the accuracy of the statements and conclusions set forth herein. This summary is not binding on the Internal Revenue Service (the “IRS”) or a court, and there can be no assurance that the tax consequences described in this summary will not be challenged by the IRS or that they would be sustained by a court if so challenged. No ruling has been or will be sought from the IRS, and no opinion of counsel has been or will be rendered as to the U.S. federal income tax consequences of the merger.

This discussion is limited to the U.S. federal income tax consequences to holders of Common Stock who hold the Common Stock as capital assets within the meaning of Section 1221 of the Code (i.e., generally, held for investment). It does not consider all aspects of U.S. federal income taxation that may be relevant to particular holders in light of their individual circumstances or to certain types of holders subject to special tax rules including, for example, holders who validly exercise appraisal rights under the FBCA, small business investment companies, brokers, dealers in securities or currencies, banks and other financial institutions, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, hybrid entities, certain former citizens or residents of the United States, individual retirement and other tax-deferred accounts, tax-exempt entities, insurance companies, partnerships or other pass-through entities or investors in those entities, persons holding Common Stock as a part of a hedging, integrated, conversion or constructive sale transaction or a straddle, U.S. Holders (as defined below) that have a functional currency other than the U.S. dollar, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, persons subject to the alternative minimum tax or who received Common Stock under the ESPP or pursuant to the exercise of employee stock options or otherwise as compensation. This summary does not purport to address the U.S. federal income tax consequences of the transactions to shareholders who will actually or constructively (under the rules of Section 318 of the Code) own any stock of the Company following the merger, and it does not address the impact of the Medicare contribution tax on net investment income, state, local or foreign tax considerations or any U.S. federal tax considerations other than U.S. federal income tax (for example, U.S. estate or gift tax considerations). Further, this summary does not address any tax consequences of the merger to holders of warrants, options, shares of restricted stock, performance stock units or restricted stock units. Such holders should consult their tax advisors regarding the tax consequences of the merger to them.

 

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For purposes of this discussion, a “U.S. Holder” is a beneficial owner of shares of Common Stock that is, for U.S. federal income tax purposes: (i) an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under the U.S. federal income tax laws; (ii) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) that is created or organized in or under the law of the United States, any state thereof or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or a trust that has made a valid election to be treated as a United States person to the extent provided in applicable Treasury Regulations. A “Non-U.S. Holder” is any beneficial owner of Common Stock who for U.S. federal income tax purposes is a nonresident alien individual or a corporation, trust or estate that is not a U.S. Holder.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Common Stock, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding Common Stock, you should consult your tax advisor regarding the U.S. federal income tax consequences of the merger to such partner.

U.S. Holders

The exchange of Common Stock for cash pursuant to the merger generally will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder who receives cash in exchange for Common Stock pursuant to the merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before the deduction of any withholding tax) and the U.S Holder’s adjusted tax basis in the Common Stock exchanged for cash pursuant to the merger. Gain or loss will be determined separately for each block of Common Stock (that is, Common Stock acquired at the same cost in a single transaction) exchanged for cash pursuant to the merger. Such gain or loss generally will be long-term capital gain or loss provided that a U.S. Holder’s holding period for such Common Stock is more than one year at the time of consummation of the merger. Long term capital gain recognized by an individual and certain other non-corporate U.S. Holders are generally taxed at preferential U.S. federal income tax rates. A U.S. Holder’s ability to deduct capital losses may be limited.

Non-U.S. Holders

Payments made to a Non-U.S. Holder with respect to the Common Stock that are exchanged for cash pursuant to the merger generally will not be subject to U.S. federal income or withholding tax, unless:

 

    such Non-U.S. Holder is an individual who was present in the United States for 183 days or more in the taxable year of the merger and certain other conditions are satisfied, in which case, the Non-U.S. Holder generally will be subject to tax at a rate of 30% (or lower applicable treaty rate) on the amount by which its U.S.-source gains from sales or exchanges of capital assets exceed its U.S.-source losses from such sales or exchanges during its taxable year in which the merger occurs;

 

    the gain with respect to the Common Stock is effectively connected with such Non-U.S. Holder’s conduct of a trade or business in the United States (and, if an income tax treaty applies and so requires, is attributable to such shareholder’s permanent establishment or fixed base in the United States), in which case, the Non-U.S. Holder generally will be required to pay U.S. federal income tax on the net gain derived from the disposition of Common Stock pursuant to the merger in the same manner as U.S. Holders, as described above, and if such Non-U.S. Holder is a corporation, it may be subject to a 30% branch profits tax (or lower applicable treaty rate) on its effectively connected earnings and profits attributable to such gain; or

 

    we are or have been a “United States real property holding corporation” (a “USRPHC”) for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of the merger and the period that such Non-U.S. Holder held such Common Stock, and the Non-U.S. Holder owned, actually or constructively, more than 5% of Common Stock at any time during the five-year period preceding the merger. The determination of whether we are a USRPHC depends on the fair market value of our U.S. real property interests relative to the fair market value of our other trade or business assets and our foreign real property interests. The Company does not believe it is, or has been during the five years preceding the merger, a USRPHC for U.S. federal income tax purposes.

 

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Backup Withholding and Information Reporting

A U.S. Holder whose Common Stock is exchanged for cash pursuant to the merger may be subject to information reporting and backup withholding tax at the applicable rate, unless the U.S. Holder (i) timely furnishes an accurate taxpayer identification number and otherwise complies with applicable U.S. information reporting or certification requirements (typically by completing and signing an IRS Form W-9, a copy of which will be included as part of the letter of transmittal to be timely returned to the paying agent) or (ii) is a corporation or other exempt recipient and, when required, establishes such fact. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS in a timely manner.

In general, Non-U.S. Holders whose Common Stock is exchanged for cash pursuant to the merger will not be subject to U.S. backup withholding and information reporting if they provide the paying agent with an applicable IRS Form W-8 and neither we nor the paying agent has actual knowledge (or reason to know) that the relevant Non-U.S. Holder is a U.S. Holder. If the Common Stock is held through a non-U.S. partnership or other flow-through entity, certain documentation requirements also may apply to the partnership or other flow-through entity. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding rules may be refunded or credited against a Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS in a timely manner.

THE U.S. FEDERAL INCOME TAX CONSEQUENCES DESCRIBED ABOVE ARE NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL OF THE TAX CONSEQUENCES RELATING TO THE MERGER. EACH SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES (INCLUDING THE STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES) OF THE MERGER TO IT IN LIGHT OF ITS OWN PARTICULAR CIRCUMSTANCES.

Regulatory Approvals

Antitrust Laws of the United States

The merger is subject to the HSR Act, which provides that certain transactions may not be consummated unless certain information has been furnished to the DOJ and the FTC and applicable waiting period requirements have been satisfied.

In connection with the merger, we and Parent have filed pursuant to the HSR Act a Notification and Report Form with the DOJ and the FTC. On November 17, 2017, each of Parent and Exactech, received early termination of the waiting period required by the HSR Act.

Private parties, as well as state governments, may also bring legal action under the Antitrust Laws under certain circumstances. Based upon an examination of information relating to the businesses in which Parent and its subsidiaries and the Company are engaged, we believe that the merger will not violate the Antitrust Laws. Nevertheless, there can be no assurance that a challenge to the merger on antitrust grounds will not be made or, if

 

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such a challenge is made, as to the result of such challenge. As used in this proxy statement, “Antitrust Laws” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other federal and state statutes, rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade.

Other U.S. Governmental Approvals

Other than as described in this proxy statement, none of the Company, Parent or Merger Sub are aware of any approval or other action by any governmental, administrative or regulatory agency or authority that would be required for the acquisition or ownership of Common Stock pursuant to the merger. Should any such approval or other action be required, each of the Company, Parent and Merger Sub expect such approval or other action would be sought or taken.

Fees and Expenses

We have retained MacKenzie Partners, Inc., an independent proxy solicitation firm, to assist in the proxy solicitation. We will pay Mackenzie Partners, Inc., fees not greater than $15,000, plus reasonable out-of-pocket expenses as compensation for their services. We will indemnify MacKenzie Partners, Inc. against any losses arising out of its proxy soliciting services on our behalf.

Whether or not the merger is completed, in general, all fees and expenses incurred in connection with the merger will be paid by the party incurring those fees and expenses. Total fees and expenses incurred or to be incurred by the Company in connection with the merger are estimated at this time to be as follows:

 

     Amount to be Paid  

Financial advisory fee and expenses

   $ 11,415,854  

Legal, accounting and other professional fees

   $ 4,250,000  

SEC filing fees

   $ 91,764  

Proxy solicitation, printing and mailing costs

   $ 15,000  

Miscellaneous

  
  

 

 

 

Total

   $ 15,772,618  
  

 

 

 

These expenses will not reduce the Merger Consideration to be received by our shareholders.

Effective Time of Merger

If the merger is approved by our shareholders at the special meeting then, subject to the satisfaction or, to the extent permitted by applicable law, waiver of certain conditions set forth in the Merger Agreement, we anticipate that the merger will be completed promptly thereafter. The Effective Time will occur as soon as practicable on the closing date of the merger upon the filing of a articles of merger with the Secretary of State of the State of Florida executed in accordance with the relevant provisions of the FBCA (or at such later time as we, Parent and Merger Sub may agree and specify in the certificate of merger).

Payment of Merger Consideration and Surrender of Stock Certificates

Prior to the Effective Time of the merger, Parent will deposit, or cause to be deposited, with the Paying Agent, in trust for the benefit of the holders of the Common Stock, sufficient cash to pay to the holders of the Common Stock (other than the holders of the Rollover Shares and appraisal shares) the Merger Consideration. In the event any appraisal shares cease to be appraisal shares, Parent will deposit, or cause to be deposited, with the Paying Agent sufficient cash to pay to the holders of such Common Stock the Merger Consideration. In the event that the cash amount deposited with the Paying Agent is insufficient to make the aggregate payments of the Merger Consideration, Parent will promptly deposit, or will cause Merger Sub or the Surviving Corporation to promptly deposit, additional funds with the Paying Agent in an amount sufficient to make such payments.

 

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Within three business days following the Effective Time, each record holder of shares of Common Stock that were converted into the Merger Consideration will be sent a letter of transmittal and instructions for use in effecting the surrender of certificates that formerly represented shares of the Common Stock or non-certificated shares represented by book-entry in exchange for the Merger Consideration. You will not be entitled to receive the Merger Consideration until you deliver a duly completed and executed letter of transmittal to the paying agent. If your shares of Common Stock are certificated, you must also surrender your stock certificate or certificates to the Paying Agent. If ownership of your shares of Common Stock is not registered in our transfer records, a check for any cash to be delivered will only be issued if the applicable letter of transmittal is accompanied by all documents reasonably required by the Paying Agent to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable.

You should not return your stock certificates with the enclosed proxy card and you should not forward your stock certificates to the paying agent without a letter of transmittal.

As soon as practicable following the Closing, the Surviving Corporation will pay to each holder of Company Stock Options and each holder of Company Restricted Stock, the cash amounts described under Merger Agreement—Treatment of Company Stock Options and Restricted Stock” on page 68.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement, and the documents incorporated by reference into this proxy statement, include “forward-looking statements” that reflect our current views as to future events and financial performance with respect to our operations, the expected completion and timing of the merger and other information relating to the merger. All forward-looking statements included in this document are based on information available to the Company on the date hereof. These statements are identifiable because they do not relate strictly to historical or current facts. There are forward-looking statements throughout this proxy statement, including, among others, under the headings “Summary Term Sheet,” “Questions and Answers About the Special Meeting and the Merger,” “The Special Meeting,” “Special Factors” and “Important Information Regarding Exactech,” and in statements containing the words “aim,” “anticipate,” “are confident,” “estimate,” “expect,” “will be,” “will continue,” “will likely result,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in conjunction with a discussion of future operating or financial performance or other future events. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date as of which the statements were made. We cannot guarantee any future results, levels of activity, performance or achievements. Although we believe that the expectations reflected in these forward-looking statements are based upon reasonable assumptions, we give no assurance that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of the Company. In addition to other factors and matters contained in or incorporated by reference in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

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

 

    the inability to complete the proposed merger due to the failure to obtain the Company Shareholder Approval or the failure to satisfy other conditions to completion of the proposed merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction;

 

    the failure to obtain the necessary financing arrangements as set forth in the Equity Commitment Letter delivered pursuant to the Merger Agreement, or the failure of the merger to close for any other reason;

 

    risks related to disruption of management’s attention from the Company’s ongoing business operations due to the transaction;

 

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

 

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

 

    the effect of the announcement of the proposed merger on the Company’s relationships with its customers, suppliers, operating results and business generally; and

 

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

and additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements, which are discussed in reports we have filed with the SEC, including our most recent filings on Forms 10-Q and 10-K. See “Where You Can Find More Information” beginning on page 102.

Forward-looking statements speak only as of the date of this proxy statement or the date of any document incorporated by reference in this document. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to us or any person acting on our 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 law or regulation, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this proxy statement or to reflect the occurrence of unanticipated events.

 

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THE PARTIES TO THE MERGER AGREEMENT

The Company

Exactech, Inc.

2320 N.W. 66th Court

Gainesville, Florida 32653

(352) 377-1140

Exactech is a Florida corporation and is a leading developer and producer of orthopaedic implant devices and surgical instrumentation for extremities and large joints. Exactech manufactures many of its orthopaedic devices at its Gainesville facility. Exactech’s orthopaedic products are used in the restoration of bones and joints that have deteriorated as a result of injury or diseases such as arthritis. Exactech markets its products in the United States, in addition to more than 30 markets in Europe, Latin America, Asia and the Pacific. For more information about Exactech, please visit our website at https://www.exac.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See also “Where You Can Find More Information” beginning on page 102. Our Common Stock is publicly traded on the Nasdaq Global Market under the symbol “EXAC.”

Parent

Osteon Holdings, L.P.

c/o TPG Capital, L.P.

301 Commerce Street

Suite 3300

Fort Worth, TX 76102

(415) 438-6893

Parent is a Delaware limited partnership and affiliate of TPG. TPG is a leading global alternative asset firm founded in 1992 with more than $73 billion of assets under management and offices in Austin, Beijing, Boston, Dallas, Fort Worth, Hong Kong, Houston, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, San Francisco, Seoul, and Singapore. TPG’s investment platforms are across a wide range of asset classes, including private equity, growth venture, real estate, credit, and public equity. TPG aims to build dynamic products and options for its investors while also instituting discipline and operational excellence across the investment strategy and performance of its portfolio.

Merger Sub

Osteon Merger Sub, Inc.

c/o TPG Capital, L.P.

301 Commerce Street

Suite 3300

Fort Worth, TX 76102

(415) 438-6893

Merger Sub is a Florida corporation and a wholly owned subsidiary of Parent that was formed by Parent solely for the purpose of facilitating the acquisition of the Company in accordance with the terms and subject to the conditions of the Merger Agreement. To date, Merger Sub has not conducted any activities other than those related to its formation and completing the transactions contemplated by the Merger Agreement. Upon completion of the, Merger Sub will cease to exist.

 

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THE SPECIAL MEETING

Time, Place and Purpose of the Special Meeting

This proxy statement is being furnished to our shareholders as part of the solicitation of proxies by the Board of Directors for use at the special meeting to be held on [●], starting at [●], local time, at [            ], or at any postponement or adjournment thereof. At the special meeting, our shareholders will be asked to vote on the proposal to approve the Merger Agreement and to vote on the proposal to approve, by non-binding advisory vote, certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger.

Our shareholders must approve the Merger Agreement in order for the merger to occur. If our shareholders fail to approve the Merger Agreement, the merger will not occur. A copy of the Merger Agreement is attached as Annex A hereto, which we encourage you to read carefully in its entirety.

Board Recommendation of the Merger Agreement

All of the company’s independent, non-employee directors, constituting a majority of the Board: (i) determined that the transactions contemplated by the Merger Agreement, including the merger, are fair to, and in the best interests of, the Company’s shareholders, (ii) adopted and declared advisable the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated therein, including the merger and (iii) resolved to recommend that the Company’s shareholder vote for the approval of the Merger Agreement.

Accordingly, the Board recommends that the shareholders of the Company vote “FOR” the proposal to approve the Merger Agreement.

The Board also recommends that the shareholders of the Company vote “FOR” the proposal to approve, on an advisory (non-binding) basis, the compensation that will or may become payable to the named executive officers of the Company in connection with the merger, as disclosed in the table under “Special Factors—Interests of the Companys Directors and Executive Officers in the Merger—Quantification of Payments and Benefits—Potential Change of Control Payments to Named Executive Officers Table,” including the associated footnotes and narrative discussion.

Record Date and Quorum

We have fixed the close of business on [●] as the Record Date for the special meeting, and only holders of record of Common Stock on the Record Date are entitled to vote at the special meeting. You are entitled to receive notice of, and to vote at, the special meeting if you owned Common Stock at the close of business on the Record Date. You will have one vote for each Share that you owned on the Record Date. As of the Record Date, there were 14,413,421 shares of Common Stock issued and outstanding, and entitled to vote at the special meeting.

Holders of a majority of the votes entitled to be cast at the special meeting must be present, in person or by proxy, at the special meeting to achieve the required quorum for the transaction of business at the special meeting. Therefore, the presence in person or by proxy of our shareholders representing at least 7,206,711 votes will be required to establish a quorum. Common Stock represented at the special meeting but not voted, including shares of Common Stock for which a shareholder directs an “abstention” from voting, as well as broker non-votes, will be counted for purposes of establishing a quorum. A quorum is necessary to transact business at the special meeting. Once a share is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting.

 

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Attendance

Only shareholders of record or their duly authorized proxies have the right to attend the special meeting. To gain admittance, you must present proof that you are a shareholder of the Company as well as valid picture identification, such as a current driver’s license or passport, in order to attend the meeting. If your shares of Common Stock are held through a bank, brokerage firm or other nominee, please bring to the special meeting a copy of your brokerage statement evidencing your beneficial ownership of our Common Stock and a valid photo identification. If you are the representative of a corporate or institutional shareholder, you must present valid photo identification along with proof that you are the representative of such shareholder. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.

Vote Required

If a quorum is present, approval of the Merger Agreement requires the affirmative vote of holders (in person or by proxy) of a majority of the outstanding shares of Common Stock entitled to vote thereon at the special meeting.

If a quorum is present, approval, by non-binding, advisory vote, of certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger will be approved if the number of votes cast at the special in favor of such proposal exceeds the number of votes cast opposing such proposal. The outcome of this vote is not binding on the Company.

Abstentions will not be counted as votes cast in favor of the proposal to approve the Merger Agreement, the proposal to approve, by non-binding, advisory vote, of certain compensation that will or may become payable to the Company’s named executive officers in connection with the merger. If you fail to submit a proxy or to vote in person at the special meeting, or abstain, it will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement.

If your shares of Common Stock are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered, with respect to those shares of Common Stock, the “shareholder of record.” This proxy statement and proxy card have been sent directly to you by the Company.

If your shares of Common Stock are held through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of shares of Common Stock held in street name. In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of Common Stock, the shareholder of record. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee how to vote your shares of Common Stock by following their instructions for voting.

Under the rules of the Nasdaq Global Market, banks, brokerage firms or other nominees who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, such as the proposal to approve the Merger Agreement, and, as a result, absent specific instructions from the beneficial owner of such shares of Common Stock, banks, brokerage firms or other nominees are not empowered to vote those shares of Common Stock on non-routine matters, which we refer to generally as broker non-votes. These broker non-votes will be counted for purposes of determining a quorum, but will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement.

If you are a shareholder of record, you may have your shares of Common Stock voted on matters presented at the special meeting in any of the following ways:

Telephone Voting: You may vote by calling the toll-free telephone number indicated on your proxy card. Please follow the voice prompts that allow you to vote your shares of Common Stock and confirm that your instructions have been properly recorded.

 

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Internet Voting: You may vote by logging on to the website indicated on your proxy card. Please follow the website prompts that allow you to vote your shares of Common Stock and confirm that your instructions have been properly recorded.

Return Your Proxy Card By Mail: You may vote by completing, signing and returning the proxy card in the postage-paid envelope provided with this proxy statement. The proxy holders will vote your shares of Common Stock according to your directions. If you sign and return your proxy card without specifying choices, your shares of Common Stock will be voted by the persons named in the proxy in accordance with the recommendations of the Board of Directors as set forth in this proxy statement.

Vote at the Meeting: You may cast your vote in person at the special meeting. Written ballots will be passed out to shareholders or legal proxies who want to vote in person at the meeting.

If you are a beneficial owner, you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of Common Stock voted. Those instructions will identify which of the above choices are available to you in order to have your Common Stock voted.

Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.

Please refer to the instructions on your proxy or voting instruction card to determine the deadlines for voting over the Internet or by telephone. If you choose to vote by mailing a proxy card, your proxy card must be filed with our Corporate Secretary by the time the special meeting begins. Please do not send in your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the Merger Consideration in exchange for your stock certificates.

If you vote by proxy, regardless of the method you choose to vote, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, or your proxies, will vote your Common Stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of Common Stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares of Common Stock should be voted on a matter, the shares of Common Stock represented by your properly signed proxy will be voted “FOR” the proposal to approve the Merger Agreement.

If you have any questions or need assistance voting your shares of Common Stock, please call MacKenzie Partners, Inc., toll-free at (800) 322-2885.

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES OF OUR COMMON STOCK PROMPTLY. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

In addition, concurrently with the execution of the Merger Agreement, certain Named Executive Officers and shareholders of the Company, the Rollover Investors, entered into the Rollover and Voting Agreement pursuant to which the Rollover Investors have agreed to, among other things, vote all of their shares of Common Stock in favor of the proposal to approve the Merger Agreement and the plan of merger. The shares of Common Stock subject to the voting requirements of the Rollover and Voting Agreement comprise approximately [25.5%] of the outstanding shares of Common Stock. The Rollover and Voting Agreement will terminate upon certain circumstances, including upon termination of the Merger Agreement.

 

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Proxies and Revocation

Any shareholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person at the special meeting. If your shares of Common Stock are held in “street name” by your bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your Common Stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or vote in person at the special meeting, or abstain, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of Common Stock will not be voted on any of the proposals described in this proxy statement, which will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement, but will not affect the outcome of any other proposal.

If you are a shareholder of record, you have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is voted at the special meeting by:

 

    delivering written notice to our Corporate Secretary at Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653;

 

    executing and delivering to our Corporate Secretary at the address above a proxy bearing a later date;

 

    attending the special meeting in person, at which time the powers of the proxy holders will be suspended if you so request; or

 

    submitting a vote by telephone or via the Internet with a later date.

Your attendance at the special meeting will not by itself revoke a previously granted proxy.

If you hold your shares of Common Stock in street name, you may submit new voting instructions by contacting your bank, brokerage firm or other nominee. You may also vote in person at the special meeting if you obtain a legal proxy from your bank, brokerage firm or other nominee.

Anticipated Date of Completion of the Merger

The Company and Parent have agreed in the Merger Agreement to complete the merger as soon as possible. If the Merger Agreement and the merger is approved at the special meeting then, assuming timely satisfaction or, to the extent permitted by the Merger Agreement and applicable law, waiver of the other necessary closing conditions, we anticipate that the merger will be completed promptly thereafter.

Appraisal Rights

If the merger is consummated, under the FBCA, if you do not wish to accept the Merger Consideration provided for in the Merger Agreement and you do not vote for the approval of the Merger Agreement, you are entitled to appraisal rights under the FBCA in connection with the merger. This means that you are entitled to have the fair value of your shares of Common Stock determined by a court of competent jurisdiction and to receive payment based on that valuation in lieu of the right to receive the Merger Consideration. The ultimate amount you receive in an appraisal proceeding may be less than, equal to or more than the Merger Consideration.

To exercise your appraisal rights, you must submit a written demand for appraisal to us before the vote is taken on the Merger Agreement and you must not vote in favor of the proposal to approve the Merger Agreement. Your failure to follow exactly the procedures specified under the FBCA may result in the loss of your appraisal rights. See “Appraisal Rights” beginning on page 72 and the text of the Florida appraisal rights statute reproduced in its entirety as Annex C hereto. If you hold your shares of Common Stock through a bank, brokerage firm or other nominee and you wish to exercise appraisal rights, you should consult with your bank, brokerage firm or other nominee to determine the appropriate procedures for the making of a demand for appraisal by your bank, brokerage firm or nominee. In view of the complexity of the FBCA, shareholders who may wish to pursue appraisal rights should consult their legal and financial advisors.

 

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Pursuant to the Rollover and Voting Agreement, the Rollover Investors have waived their appraisal rights under the FBCA.

Solicitation of Proxies

The Company will bear all costs of this proxy solicitation. Proxies may be solicited by mail, in person, by telephone, or by facsimile or by electronic means by officers, directors and regular employees of the Company. In addition, to assist in the proxy solicitation we will pay Mackenzie Partners, Inc. fees not greater than $15,000, plus reasonable out-of-pocket expenses as compensation for their services. We will indemnify MacKenzie Partners against any losses arising out of its proxy soliciting services on our behalf. The Company may also reimburse brokerage firms, custodians, nominees and fiduciaries for their expenses to forward proxy materials to beneficial owners. Parent, directly or through one or more affiliates or representatives, may, at its own cost, also make solicitations of proxies by mail, telephone, facsimile or other contact in connection with the merger.

Questions and Additional Information

If you have more questions about the merger, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, please contact MacKenzie Partners Inc., which is acting as the Company’s proxy solicitation agent and information agent in connection with the merger.

 

LOGO

105 Madison Avenue

New York, New York 10016

(212) 929-5500 (Call Collect)

or

Call Toll-Free (800) 322-2885

Email: proxy@mackenziepartners.com

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

 

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THE MERGER AGREEMENT

This section describes the material terms of the Merger Agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This description does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read the Merger Agreement carefully and in its entirety. This section is not intended to provide you with any factual information about us, Parent or Merger Sub. Capitalized terms used herein but otherwise not defined herein shall have the meanings ascribed to such terms in the Merger Agreement. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled, “Where You Can Find More Information,” beginning on page  102.

Explanatory Note Regarding the Merger Agreement

The Merger Agreement has been attached to this proxy statement as Annex A solely to inform you of its terms. The Merger Agreement contains representations, warranties and covenants, which were made only for the purposes of such agreement and as of specific dates, were made solely for the benefit of the parties to the Merger Agreement and are intended not as statements of fact, but rather as a way of allocating risk to one of the parties if those statements prove to be inaccurate or incomplete. In addition, such representations, warranties and covenants may have been qualified by certain disclosures not reflected in the text of the Merger Agreement and may apply standards of materiality in a way that is different from what may be viewed as material by shareholders of the Company. Our shareholders are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of the Company, Parent, Merger Sub or any of their respective subsidiaries or affiliates.

The Company and Parent have entered into the Original Merger Agreement, which was subsequently amended by the Amendment to Merger Agreement. Accordingly, unless otherwise expressly stated otherwise, all discussions in this proxy statement concerinig the merger, the merger agreement, and all transaction documentation, including all discussions concerning the events leading thereto, the applicable proceedings of the board, the fairness opinion, and all other considerations, all relate to the Merger Agreement.

Structure of the Merger; Charter; Bylaws

The Merger Agreement provides that, at the Effective Time, Merger Sub will be merged with and into the Company, and the Company will be the Surviving Corporation. Following the merger, the separate corporate existence of Merger Sub will cease, and the Company will continue as the Surviving Corporation and a wholly owned subsidiary of Parent. The directors of Merger Sub immediately prior to the Effective Time will be the initial directors of the Surviving Corporation. The Company will be the Surviving Corporation in the merger and will continue to exist and conduct business following the merger.

If the merger is completed, our Common Stock will be delisted from the Nasdaq Global Market and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC.

The Company Charter, as in effect immediately prior to the Effective Time, will be amended in the merger to read as Exhibit B to the Merger Agreement, and such amended articles of incorporation will be the articles of incorporation of the Surviving Corporation until thereafter amended as provided therein or by applicable law. The by-laws of Merger Sub, as in effect immediately prior to the Effective Time, will be the by-laws of the Surviving Corporation until thereafter changed or amended as provided therein, by the articles of incorporation and by applicable law.

Terms of the Merger Agreement

The following is a summary of certain provisions of the Merger Agreement. This summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached hereto as Annex A and is incorporated herein by reference. For a complete understanding of the Merger Agreement, you are encouraged to carefully read the full text of the Merger Agreement. Copies of the Merger Agreement, and any other filings that we make with the SEC with respect to the merger, may be obtained in the manner set forth in “Where You Can Find More Information” beginning on page 102. For the purposes of this section, capitalized terms used but not defined herein will have the meanings set forth in the Merger Agreement.

 

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Effect of the Merger on the Common Stock

Pursuant to the Merger Agreement, at the Effective Time, each share of Common Stock held by us as treasury stock by us immediately prior to the Effective Time automatically will be cancelled and will cease to exist, and no consideration will be delivered in exchange therefor.

Each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than Rollover Shares, appraisal shares and shares held by us as treasury shares to be cancelled as described in the preceding paragraph) automatically will be converted into the right to receive the Merger Consideration payable to the holder thereof in accordance with the terms of the Merger Agreement described herein. All such shares when so converted will no longer be outstanding and automatically will be cancelled and will cease to exist, and each holder of a certificate (or evidence of shares in book-entry form) that immediately prior to the Effective Time represented any such shares will cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

Shares of Common Stock that are issued and outstanding immediately prior to the Effective Time and which are held by a shareholder who did not vote in favor of the merger and who is entitled to demand and properly demands appraisal of such shares pursuant to, and who complies in all respects with, the provisions of Section 607.1302 of the FBCA will not be converted into or be exchangeable for the right to receive the Merger Consideration, but instead, such holder will be entitled to payment of the fair value of such appraisal shares in accordance with the provisions of Section 607.1302 (and, at the Effective Time, such appraisal shares will no longer be outstanding and automatically will be cancelled and will cease to exist, and such holders will cease to have any rights with respect thereto, except the right to receive the fair value of such appraisal shares in accordance with the provisions of Section 607.1320 and 607.1322). If any such holder will have failed to perfect or effectively withdraws or loses the right to appraisal under Section 607.1320, such shares will be treated as if they had been converted into and become exchangeable for the right to receive, as of the Effective Time, the Merger Consideration for each share, without any interest thereon.

Treatment of Company Stock Options and Company Restricted Stock

Company Stock Options

The Merger Agreement provides that each Stock Option, to the extent outstanding and unexercised as of immediately prior to the Effective Time, whether vested or unvested, will be fully canceled as of immediately prior to the Effective Time, and in consideration for such cancellation, the holder thereof will be entitled to receive an amount in cash, without interest, equal to the Option Consideration. Each Stock Option with a per share exercise price that is equal to or greater than the Merger Consideration will be cancelled as of immediately prior to the Effective Time with no consideration payable to the holder thereof. As of the Effective Time, each outstanding Company Stock option will no longer be outstanding and will automatically be cancelled and each holder thereof will cease to have any rights with respect thereto, other than the right to receive the Option Consideration. The Merger Agreement provides that the Board will take all necessary actions to terminate, as of the Effective Time, all Company Stock Plans and the Company ESPP.

Company Restricted Stock

The Merger Agreement provides that each share of Restricted Stock that is outstanding as of immediately prior to the Effective Time will become fully vested as of immediately prior to the Effective Time and will be treated as an outstanding share of the Common Stock for purposes of the Merger Agreement and the holder thereof will be entitled to receive the Merger Consideration with respect thereto, less applicable withholdings.

Representations and Warranties

In the Merger Agreement, we have made customary representations and warranties to Parent and Merger Sub, including representations relating to:

 

    organization, standing, and power;

 

    company subsidiaries

 

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    capital structure;

 

    authority, execution and delivery, enforceability;

 

    no conflicts; consents;

 

    SEC documents; undisclosed liabilities;

 

    information supplied;

 

    absence of certain changes or events;

 

    taxes;

 

    benefits matters; ERISA compliance;

 

    litigation;

 

    compliance with applicable laws

 

    regulatory compliance;

 

    anti-corruption, anti-money laundering and global trade laws;

 

    environmental matters;

 

    contracts;

 

    properties;

 

    intellectual property;

 

    labor matters

 

    anti-takeover provisions;

 

    brokers’ fees and expenses;

 

    opinion of financial advisor;

 

    customers and suppliers;

 

    insurance;

 

    interested party transactions; and

 

    no other representations or warranties.

Some of the representations and warranties in the Merger Agreement made by us are qualified as to “materiality” or “Company Material Adverse Effect.” For purposes of the Merger Agreement, “Company Material Adverse Effect” means any fact, circumstance, occurrence, effect, change, event or development that, individually or in the aggregate, is or would reasonably be expected to be materially adverse to the business, assets, liabilities, financial condition or results of operations of the Company and its subsidiaries, taken as a whole; provided, however, that none of the following facts, circumstances, occurrences, effects, changes, conditions, events or developments will be deemed, in and of themselves or in any combination to constitute, and none of the following facts, circumstances, occurrences, effects, changes, conditions, events or developments will be taken into account in determining whether a Company Material Adverse Effect has occurred or is reasonably likely to occur (except that in the case of clauses (a), (b), (c), (d), (e), (f) or (k) below, to the extent disproportionately affecting the Company and its Subsidiaries relative to other companies in the industries in which the Company and its Subsidiaries operate):

 

    (a) conditions affecting the United States economy, or any other national or regional economy or the global economy generally;

 

    (b) political conditions (or changes in such conditions) in the United States or any other country or region in the world, acts of war, sabotage or terrorism or epidemics or pandemics (including any escalation or general worsening of any of the foregoing) in the United States or any other country or region of the world occurring after the date hereof;

 

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    (c) changes in the financial, credit, banking or securities markets in the United States or any other country or region in the world (including any disruption thereof and any decline in the price of any security or any market index);

 

    (d) changes required by GAAP or other accounting standards (or interpretations thereof);

 

    (e) changes in any Laws or other binding directives issued by any Governmental Entity (or interpretations thereof);

 

    (f) changes that are generally applicable to the industries in which the Company and its subsidiaries operate;

 

    (g) any failure by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending on or after the date of the Merger Agreement or any decline in the market price or trading volume of the Common Stock (provided that the underlying causes of any such failure or decline may be considered in determining whether a Company Material Adverse Effect has occurred);

 

    (h) the negotiation, execution or delivery of the Merger Agreement, the performance by any party hereto of its obligations hereunder (other than its obligations set forth in the first sentence of Section 5.01) (provided that this clause (h) shall not diminish the effect of, and shall be disregarded for purposes of, the representations and warranties contained in Section 4.05) or the public announcement (including as to the identity of the parties hereto) or pendency of the merger or any of the other transactions contemplated hereby;

 

    (i) the termination of employment of or by any of the Company’s executive officers or other employees after the public announcement of the Merger Agreement;

 

    (j) changes in the Company’s credit rating (provided that the underlying causes of such decline may be considered in determining whether a Company Material Adverse Effect has occurred);

 

    (k) the occurrence of natural disasters;

 

    (l) shareholder litigation arising from or relating to the Merger Agreement, the merger or any strategic alternatives considered by the Company;

 

    (m) any action taken with the prior written consent or at the written direction of Parent;

 

    (n) any Action commenced by any Person (whether derivatively in the name and right of the Company directly by any holder of Common Stock, or otherwise) alleging any breach of fiduciary duty by any officer or director of the Company or any violation of Law in respect of the Merger Agreement, the merger and any of the other transactions contemplated by the Merger Agreement) or

 

    (o) any breach, violation or non-performance by Parent or Merger Sub of any of their respective obligations under the Merger Agreement.

In the Merger Agreement, Parent and Merger Sub, jointly and severally have made customary representations and warranties to us, including representations relating to:

 

    organization, standing and power;

 

    authority; execution and delivery; enforceability

 

    no conflicts; consents;

 

    information supplied;

 

    litigation;

 

    brokers’ fees and expenses;

 

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    Merger Sub;

 

    Florida Business Corporation Act;

 

    financing;

 

    solvency of the Surviving Corporation following the merger;

 

    certain arrangements; and

 

    no other representations or warranties.

Some of the representations and warranties in the Merger Agreement made by Parent and Merger Sub are qualified by “knowledge” or subject to “materiality” or “Parent Material Adverse Effect” qualifiers. For purposes of the Merger Agreement, “Parent Material Adverse Effect” means, with respect to Parent or Merger Sub, any fact, circumstance, occurrence, effect, change, event or development that, individually or taken together with other facts, circumstances, occurrences, effects, changes, events or developments, is or would be reasonably likely to prevent or materially impair the consummation of the merger or the other transactions contemplated by the Merger Agreement.

Other Covenants and Agreements

The Merger Agreement provides that, except as expressly permitted by the Merger Agreement, as required by applicable law or as consented to by Parent in writing, during the period from the date of the Merger Agreement until the Effective Time, we will, and will cause each of our Subsidiaries to (i) conduct our and their business in the ordinary course consistent with past practice, (ii) comply in all material respects with all applicable Laws and the requirements of all material contracts, (iii) use commercially reasonable efforts to maintain and preserve intact our business organization and the goodwill of those having business relationships with us and retain the services of our present officers and key employees, (iv) keep in full force and effect all material insurance policies and (v) maintain, or cause to be maintained, all facilities in good condition.

From the date of the Merger Agreement to the Effective Time, we are subject to customary operating covenants and restrictions, including restrictions relating to the issuance, sale, grant, disposal of, pledge or other encumbrance of our stock, voting securities or equity interests; redemption, purchase or acquisition of our capital stock, voting securities or equity interests; the declaration, setting aside for payment or payment of any dividends or other distributions; split, combination, subdivision or reclassification of any Common Stock; the amendment or waiver of any rights under any Company Stock Plans or agreement evidencing a right to acquire Common Stock or any restricted stock purchase agreement or any similar or related contract; the incurrence, assumption or guarantee of indebtedness or issuance or sale of any debt securities or options, warrants, calls or other rights to acquire any debt securities of the Company or any of our subsidiaries; the sale, transfer, lease, sublease, license, mortgage, encumbrance or other disposal or purchase of or subjection to any lien of material property or material assets; the making of certain capital expenditures; the acquisition of equity interests or assets of another person, other than for consideration not in excess of limits specified in the Merger Agreement; making investments, loans, or advances; entrance into, amendment, termination or modification of material contracts; the release of any person from, modification or waiver of any provision of, any confidentiality, standstill or similar agreement; increase in compensation of current or former directors, officers, employees or consultants; certain tax matters; changes in accounting policies; the amendment of the Company Charter; approval of a plan or agreement of complete or partial liquidation, dissolution, restructuring, recapitalization, merger, consolidation or other reorganization; settlement or satisfaction of certain claims, liabilities, or obligations; communications with employees, suppliers, vendors or customers, settlement or compromise of any material litigation or proceeding; failure to take appropriate actions as necessary to prevent the abandonment, loss or impairment of material intellectual property; and the sale, assignment, license, transfer, conveyance, lease, disposal of or encumbrance on intellectual property or technology.

Shareholders’ Meeting

The Merger Agreement provides that, as soon as practicable after the date of the Merger Agreement, we will prepare and will cause to be filed with the SEC in preliminary form a proxy statement on Schedule 14A relating to the Company Shareholders Meeting, which, except as expressly permitted by the Merger Agreement, will include the Company Recommendation with respect to the merger, a copy of the Merger Agreement, the opinion of our financial advisor and a copy of Sections 607.1301 through 607.1333 of the FBCA. Parent has agreed that the content and filing with the SEC of this proxy statement satisfies such obligation.

 

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The Merger Agreement provides that, except if the Board has made an Adverse Recommendation Change or the Merger Agreement has been validly terminated in accordance with its terms, the Company will, as reasonably promptly as practicable after the later of (i) the 10-day waiting period under Rule 14a-6(a) under the Exchange Act and (ii) the date on which the SEC confirms that it has no further comments on the Proxy Statement and Schedule 13E-3 (such later date, the “Clearance Date”), duly call, give notice of, convene and hold the Company Shareholders Meeting for the purpose of seeking to obtain the Company Shareholder Approval (it being hereby acknowledged and agreed that the date of the Company Shareholders Meeting will not be less than 30 days nor more than 35 days after notice of such meeting is first furnished, sent or given by the Company to the Company’s Shareholders). In connection with the foregoing, the Company will (A) as reasonably promptly as practicable after the Clearance Date cause this proxy statement to be mailed to the Company’s shareholders (and in no event more than four Business Days after the Clearance Date); and (B) subject to certain exceptions, use its commercially reasonable efforts to solicit proxies to obtain the Company Shareholder Approval.

The Board has recommended to its shareholders that they affirmatively vote to approve the Merger Agreement and the merger (the “Company Recommendation”) at the Company Shareholders Meeting and has included the Company Recommendation in this proxy statement. Pursuant to the Merger Agreement the Board may make an Adverse Recommendation Change only in a manner permitted by the Merger Agreement.

No Solicitation and the Company’s Fiduciary Exceptions Thereto

The Merger Agreement provides that until the Effective Time or, if earlier, the termination of the Merger Agreement, (i) we will and will cause each of our subsidiaries and the Company’s and our subsidiaries’ respective officers, directors and employees to and (ii) we will instruct and use commercially reasonable efforts to cause each of our Representatives) to (A) immediately cease any discussions or negotiations with any Persons that have occurred or were ongoing at the date of the Merger Agreement with respect to an Alternative Proposal and (B) not, directly or indirectly, (x) solicit, initiate or knowingly facilitate or encourage (including by way of furnishing non-public information) any inquiries regarding, or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, an Alternative Proposal or (y) engage in, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any other Person any non-public information in connection with or for the purpose of encouraging or facilitating, an Alternative Proposal.

If at any time prior to obtaining the Company Shareholder Approval (but not thereafter), we or any of our Representatives receives a written Alternative Proposal from any Person or group of Persons, which Alternative Proposal did not result from any breach of our obligations above, the Company and its Representatives may (i) furnish, pursuant to an Acceptable Confidentiality Agreement, information (including non-public information) with respect to the Company and its subsidiaries to the Person or group of Persons who has made such Alternative Proposal and (ii) engage in or otherwise participate in discussions or negotiations with the Person or group of Persons making such Alternative Proposal, if the Board determines (A) that the failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties under Florida law and (B) in good faith, After Consultation, that such Alternative Proposal constitutes or would reasonably be expected to result in a Superior Proposal.

The Company has agreed to promptly (and in any event within 24 hours) provide to Parent (i) to the extent in the possession of the Company, its subsidiaries or their respective Representatives, an unredacted copy of the transaction documents for any such Alternative Proposal provided to the Company or any of its subsidiaries (including unredacted copies of any proposal letters, side letters, other ancillary document and/or financing commitments (including any fee letters) relating thereto) and (ii) a written summary of the material terms of any such Alternative Proposal not covered by clause (i) (including any financing commitments relating thereto). In addition, we have agreed to promptly provide to Parent any material non-public information concerning the Company or any of its subsidiaries that is provided to any Person given access to the same to the extent such information was not previously provided to Parent.

For purposes of the Merger Agreement:

 

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    After Consultation means, with respect to the Board, after consultation with the Company Financial Advisor and the Company’s outside legal counsel; provided, however, that if such consultation relates solely to matters of Law, “After Consultation” means, with respect to the Board, after consultation with the Company’s outside legal counsel, in either case directly or through a committee of the Company Board.

 

    Alternative Proposal” means any bona fide proposal or offer (whether or not in writing), with respect to any (i) merger, consolidation, share exchange, tender or exchange offer, dual listed company structure, other business combination or similar transaction involving the Company which would result in any Person or Group beneficially owning 25% or more of the outstanding equity interests of the Company or any successor or parent company thereto; (ii) sale, contribution or other disposition, directly or indirectly (including by way of merger, consolidation, share exchange, other business combination, partnership, joint venture, sale of capital stock of or other equity interests in a Company Subsidiary or otherwise) of any business or assets of the Company or the Company Subsidiaries representing 25% or more of the consolidated revenues, net income or assets of the Company and the Company Subsidiaries, taken as a whole; (iii) issuance, sale or other disposition, directly or indirectly, to any Person (or the shareholders of any Person) or Group of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 25% or more of the voting power of the Company; (iv) transaction in which any Person (or the shareholders of any Person) or Group shall acquire, directly or indirectly, beneficial ownership, or the right to acquire beneficial ownership, of 25% or more of the Company Common Stock or securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 25% or more of the voting power of the Company; (v) any recapitalization (leveraged or otherwise) or special dividend, reorganization, liquidation or dissolution; or (vi) any combination of the foregoing (in each case, other than the merger or the other transactions contemplated by the Merger Agreement).

 

    Superior Proposal” means a bona fide written Alternative Proposal (provided, that for purposes of this definition all references to 25% contained in the definition of “Alternative Proposal” shall be deemed to be references to 80% which the Board determines in good faith, After Consultation, to be more favorable to the Company’s shareholders, from a financial point of view, than the merger, and is reasonably capable of being consummated, taking into account all financial, legal, financing, regulatory and other aspects of such Alternative Proposal that are reasonably relevant to a determination of the likelihood of consummation of such Alternative Proposal (including the reputation of the Person or Group making the Alternative Proposal) and after having considered any binding proposed definitive amendment to the Merger Agreement made by Parent and considered and negotiated in good faith by the Company as required by Section 5.04(d).

Adverse Recommendation Change and Fiduciary Termination of Merger Agreement in the Case of a Superior Proposal or Intervening Event

The Merger Agreement provides that, except as provided below, the Board will not (i)(A) fail to make the Company Recommendation or fail to include the Company Recommendation in this proxy statement, (B) change, qualify, withhold, withdraw or modify, or publicly propose to change, qualify, withhold, withdraw or modify, in a manner adverse to Parent, the Company Recommendation, (C) if requested in writing by Parent, fail to publicly recommend to the Company’s shareholders a rejection of an Alternative Proposal (including any tender or exchange offer) within 10 Business Days after the public announcement or commencement thereof, or (D) adopt, approve or recommend, or publicly propose to approve or recommend to the shareholders of the Company an Alternative Proposal (actions described in this clause (i) being referred to as an “Adverse Recommendation Change”), (ii) authorize, cause or permit the Company or any of its subsidiaries to enter into any letter of intent, agreement or agreement in principle with respect to any Alternative Proposal (other than an Acceptable Confidentiality Agreement in accordance with Section 5.04(b)) (each, a “Company Acquisition Agreement”) or (iii) terminate the Merger Agreement.

Notwithstanding the foregoing, pursuant to the Merger Agreement, the Board may at any time prior to the time the Company Shareholder Approval is obtained, but not thereafter, in connection with an Alternative Proposal that did not result from a violation of our no solicitation covenant, the Board may make an Adverse

 

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Recommendation Change or terminate the Merger Agreement if the Board has determined in good faith, After Consultation, (i) that failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties under Florida Law and (ii) that such Alternative Proposal constitutes a Superior Proposal; provided, however, that prior to making any such Adverse Recommendation Change or terminating the Merger Agreement (A) the Company has given Parent at least four Business Days’ prior written notice of its intention to take such action (which notice will include, to the extent in the possession of the Company, its subsidiaries or their respective Representatives, an unredacted copy of the Superior Proposal, an unredacted copy of the most recent draft of the relevant proposed transaction agreements and an unredacted copy of any proposal letter, side letter, other ancillary document and/or financing commitments (including fee letters) relating thereto and a written summary of the material terms of any Superior Proposal not made in writing, including any financing commitments relating thereto), (B) the Company has negotiated, and has caused its Representatives to negotiate, in good faith with Parent during such notice period, to the extent Parent has notified the Company that it wishes to so negotiate, to enable Parent to submit to the Company prior to the expiration of the aforementioned notice period a proposed definitive amendment to the Merger Agreement (in such form which, if accepted and approved by the Board and entered into, would constitute a binding definitive agreement among the Company, Parent and Merger Sub) (and, if applicable, the Financing Letter and/or any other material transaction documents), and (C) if Parent will have submitted to the Company prior to the expiration of such notice period the proposed definitive amendments described in clause (B), the Board will have determined in good faith, After Consultation, that after giving effect to such proposed amendments and entering into the definitive amendment to the Merger Agreement (and, if applicable, the Financing Letter and/or any other material transaction documents) proposed by Parent that the Superior Proposal would continue to constitute a Superior Proposal; provided, further, however, (x) that any change to the price or other material change to the material terms of such Superior Proposal will require a new written notice to be delivered by the Company to Parent consistent with the content requirements described in clause (A) above and a new two Business Day period and negotiation period will commence, (y) the Company has complied in all material respects with its obligations, and (z) purported termination of the Merger Agreement pursuant to this sentence will be void and of no force and effect, unless the Company termination is made in accordance with the termination provisions of the Merger Agreement and the Company pays Parent the applicable Termination Fee in accordance with the Merger Agreement prior to or concurrently with such termination.

Additionally, prior to the time the Company Shareholder Approval is obtained, but not after, solely in response to an Intervening Event, the Board may effect an Adverse Recommendation Change if the Board has determined in good faith, After Consultation, (i) that failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties under Florida Law and (ii) that such Alternative Proposal constitutes a Superior Proposal; provided, however, that prior to taking such action, (A) the Board must give Parent at least four business days’ prior written notice of its intention to take such action (which notice shall include an unredacted copy of the Superior Proposal including all related agreements related thereto and in the Company’s possession), (B) the Company must negotiate, and cause its representatives to negotiate, in good faith with Parent during such notice period, to the extent Parent has notified the Company that it wishes to so negotiate, to enable Parent to submit to the Company prior to the expiration of the aforementioned notice period a proposed definitive amendment to the Merger Agreement (in such form which, if accepted and approved by the Board and entered into, would constitute a binding definitive agreement among the Company, Parent and Merger Sub) (and, if applicable, the Equity Commitment Letter and/or any other material transaction documents) and (C) if Parent will have submitted to the Company prior to the expiration of such notice period the proposed definitive amendments described in clause (B), the Board will have determined in good faith, After Consultation, that after giving effect to such proposed amendments and entering into the definitive amendment to the Merger Agreement (and, if applicable, the Equity Commitment Letter and/or any other material transaction documents) proposed by Parent, that failure to effect an Adverse Recommendation Change would reasonably be expected to be inconsistent with the directors’ fiduciary duties under Florida Law.

For purposes of the Merger Agreement, “Intervening Event” means any material event, change, effect, condition, occurrence, development, fact or circumstances that (i) is unknown and not reasonably foreseeable (or if known or reasonably foreseeable, the probability or magnitude of consequences of which were not known or reasonably foreseeable) to the Board as of the date hereof and (ii) does not relate to any Alternative Proposal by a third party; any development, general change in the industries the Company and its Subsidiaries operate in, changes in the market price or trading volume of the shares of Company Common Stock; or the fact in and of itself that the Company exceeds internal or published projections.

 

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Certain Permissible Disclosures not Constituting an Adverse Recommendation Change

Notwithstanding our No Solicitation obligations, nothing will prohibit us from (i) taking and disclosing to our shareholders a position contemplated by Rule 14d-9, Rule 14e-2(a) or Item 1012 of Regulation M-A under the Exchange Act or (ii) making any disclosure to our shareholders if the Board determined, in good faith, After Consultation, that making such disclosure would be required by applicable Law or (iii) making any “stop-look-and-listen” communication to our shareholders pursuant to Section 14d-9(f) of the Exchange Act (or any similar communications to our shareholders whether or not in the context of a tender offer or exchange offer that discloses the occurrence of any state of facts, events, conditions or developments but does not include an Adverse Recommendation Change); provided that, it is hereby acknowledged and agreed that a factually accurate public or other statement made by us (including in response to any unsolicited inquiry, proposal or expression of interest made to us) that describes the operations of the “No Solicitation” and “Termination” provisions of the Merger Agreement will not, in and of itself, constitute an Adverse Recommendation Change (so long as any such statement includes an express reaffirmation of the Company Recommendation).

Reasonable Best Efforts to Consummate the Merger; Regulatory Filings

The Merger Agreement provides that each of the parties will use their respective reasonable best efforts to reasonably promptly take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under the Merger Agreement and applicable Laws to consummate and make effective as reasonably promptly as practicable after the date hereof the transactions contemplated by the Merger Agreement, including (i) preparing as reasonably promptly as practicable all necessary applications, notices, petitions, filings, ruling requests, and other documents and to obtain as reasonably promptly as practicable all Consents necessary or advisable to be obtained from any Governmental Entity in order to consummate the transactions contemplated by the Merger Agreement (collectively, the “Governmental Approvals”) and (ii) as reasonably promptly as practicable taking all steps as may be necessary to obtain all such Governmental Approvals. In furtherance and not in limitation of the foregoing, each party agrees to (A) make an appropriate and complete filing of a Notification and Report Form pursuant to the HSR Act with respect to the transactions contemplated hereby within 15 Business Days immediately following the date of the Merger Agreement, (B) make all other required filings pursuant to other Regulatory Laws with respect to the transactions contemplated hereby as reasonably promptly as practicable, and (C) not extend any waiting period under the HSR Act or enter into any agreement with the FTC or the DOJ or any other Governmental Entity not to consummate the transactions contemplated by the Merger Agreement, except with the prior written consent of the other party hereto (which will not be unreasonably withheld, conditioned or delayed). Parent and the Company will supply as reasonably promptly as practicable any additional information or documentation that may be requested pursuant to the HSR Act or any other Regulatory Law and use its reasonable best efforts to take all other actions necessary, proper or advisable to cause the expiration or termination of the applicable waiting periods under the HSR Act and any other Regulatory Law as soon as possible.

In furtherance and not in limitation of the foregoing, the Company and Parent will (i) reasonably cooperate in all respects with each other in connection with any communication, filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party; (ii) keep the other party and/or its counsel reasonably informed of any communication received by such party from, or given by such party to, the FTC, the DOJ or any other U.S. or other Governmental Entity and of any communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated hereby; (iii) consult with each other in advance of any meeting or conference with the FTC, the DOJ or any other Governmental Entity or, in connection with any proceeding by a private party, with any other person, and to the extent permitted by the FTC, the DOJ or such other Governmental Entity or other person, give the other party and/or its counsel the opportunity to attend and participate in such meetings and conferences; and (iv) permit the other party and/or its counsel to review in advance any submission, filing or communication (and documents submitted therewith) intended to be given by it to the FTC, the DOJ or any other Governmental Entity; provided that materials may be redacted to remove references concerning the valuation of the businesses of the Company and its subsidiaries.

The Merger Agreement provides that unless Parent and the Company will otherwise agree, Parent and the Company will use reasonable best efforts to take any and all steps permitted by Law to (i) avoid the entry of, or to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that would restrain, prevent or delay the Closing on or before the End Date, including

 

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defending through litigation on the merits any claim asserted in any court with respect to the transactions contemplated by the Merger Agreement by the FTC, the DOJ or any other applicable Governmental Entity or any private party in respect of Regulatory Laws, and (ii) avoid or eliminate each and every impediment under any Regulatory Law so as to enable the Closing to occur no later than the End Date, including (A) proposing, negotiating, committing to and effecting, by consent decree, hold separate order, or otherwise, the sale, divestiture or disposition of such businesses, product lines or assets of Parent, the Company and their respective subsidiaries or (B) otherwise taking or committing to take actions that after the Closing would limit Parent’s and/or its subsidiaries’ (including the Company’s and the Company Subsidiaries’) freedom of action with respect to, or its or their ability to operate and/or retain, one or more of the businesses, product lines or assets of Parent, the Company and/or their respective subsidiaries; provided, however, that any action contemplated by the immediately precedent clauses (A) and (B) will be conditioned upon the consummation of the transactions contemplated by the Merger Agreement, including the merger.

Each of the parties will use its reasonable best efforts to give any notices to third parties other than Governmental Entities, and use reasonable best efforts to obtain any consents from third parties other than Governmental Entities required in connection with the merger that are (i) necessary to consummate the transactions contemplated hereby, (ii) disclosed or required to be disclosed in the Company Disclosure Letter or the Parent Disclosure Letter, as the case may be, or (iii) required to prevent the occurrence of an event that is reasonably likely to have a Company Material Adverse Effect or a Parent Material Adverse Effect prior to or after the Effective Time, in each case, to the extent reasonably requested by the other Party; it being understood that neither the Company nor Parent will be required to make any payments or concessions in connection with the fulfillment of its obligations.

Indemnification and Insurance

The Merger Agreement provides that, from the Effective Time through the sixth anniversary of the date on which the Effective Time occurred, we (and following the Effective Time, the Surviving Corporation), will indemnify and hold harmless the Company Indemnified Parties against all Costs incurred in connection with any Action arising out of or pertaining to (i) matters existing or occurring at or prior to the Effective Time (including the decision of the Board to enter into the Merger Agreement, the terms of the Merger Agreement and the pendency and consummation of the transactions and actions contemplated thereby) or (ii) the fact that the Company Indemnified Party is or was a director, officer or employee of the Company or any Company Subsidiary or is or was serving at the request of the Company or any Company Subsidiary as a director, officer or employee of another Person, whether asserted or claimed prior to, at or after the Effective Time. In the event of any such Action, (A) each Company Indemnified Party will be entitled to advancement of expenses incurred in the defense of any claim, action, suit, proceeding or investigation from the Surviving Corporation within ten (10) Business Days of receipt by the Surviving Corporation from the Company Indemnified Party of a request therefor; provided, however, that any person to whom expenses are advanced provides an undertaking, if and only to the extent required by the FBCA or the Company Charter or Company By-laws (in each case as in effect immediately prior to the Effective Time), to repay such advances if it is ultimately determined that such person is not entitled to be indemnified by the Surviving Corporation as authorized by the FBCA, (B) without limiting the foregoing, each Company Indemnified Party may retain the Company’s regularly engaged independent legal counsel (provided that such engagement would not create a conflict of interest under applicable rules of ethics) or other counsel satisfactory to them, and Parent and the Surviving Corporation will pay all reasonable fees and expenses of such counsel for the Company Indemnified Party as promptly as statements therefor are received, (C) the Surviving Corporation will not settle, compromise or consent to the entry of any judgment in any proceeding or threatened action, suit, proceeding, investigation or claim (and in which indemnification could be sought by such Company Indemnified Party hereunder), unless such settlement, compromise or consent includes an unconditional release of such Company Indemnified Party from all liability arising out of such action, suit, proceeding, investigation or claim or such Company Indemnified Party otherwise consents, and (D) Parent and the Surviving Corporation will use their reasonable “best efforts to assist in the defense of any such matter.”

In addition, the Merger Agreement requires that, for a period of six years after the Effective Time, the respective articles of incorporation and bylaws or similar organizational or governing documents of the Surviving Corporation and the Company subsidiaries will contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of Company Indemnified Parties for periods prior to and including the Effective Time than are currently set forth in the Company Charter and Company By-laws and the articles of incorporation, bylaws, or similar organizational and governing documents of the Company subsidiaries.

 

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Parent will, or will cause the Surviving Corporation to, maintain and extend the existing D&O Insurance for a period of six years from and after the Effective Time with respect to claims arising in whole or in part from facts or events that actually or allegedly occurred on or before the Effective Time, including in connection with the approval of the merger and the other transactions contemplated by the Merger Agreement. Notwithstanding the foregoing, Parent may substitute (or cause the Surviving Corporation to substitute) therefor policies of substantially equivalent coverage and amounts, containing terms no less favorable to the Company Indemnified Parties than the existing D&O Insurance (so long as such policies are provided by our current insurance carrier or by a carrier with at least an “A” rating by A.M. Best); and provided, further, that if the existing D&O Insurance expires or is terminated or cancelled during such period through no fault of Parent or the Surviving Corporation, then Parent will, or will cause the Surviving Corporation to, obtain and maintain substantially similar D&O Insurance (with such replacement policies to be provided by our current insurance carrier or by a carrier with at least an “A” rating by A.M. Best). Notwithstanding the foregoing, in no event will Parent be required to pay aggregate premiums for insurance in excess of the Maximum Amount; and provided, further, that if Parent or the Surviving Corporation is unable to obtain the amount of insurance required by the Merger Agreement for such aggregate premium, Parent will, or will cause the Surviving Corporation to, obtain as much insurance as can be obtained for aggregate premiums not in excess of the Maximum Amount. At our option, we may elect to obtain prepaid “tail” or “runoff” policies prior to the Effective Time, covering a period of six years from and after the Effective Time with respect to acts and omissions occurring on or prior to the Effective Time; provided that the premium therefor does not exceed the Maximum Amount. In the event we purchase a “tail” or “runoff” policy prior to the Effective Time, Parent and the Surviving Corporation will maintain such tail or runoff policy in full force and effect in lieu of providing additional or separate D&O Insurance for so long as any such tail or runoff policy remains in full force and effect.

State and Federal Takeover Laws

In the Merger Agreement, we represent and warrant that the Board has taken all necessary action so that no “fair price,” “moratorium,” “control share acquisition” or other state or federal anti-takeover statute or regulation (including Section 607.0902 of the FBCA) is applicable to the merger or the other Transactions, and that the action of the Board in approving the Merger Agreement and the Transactions is sufficient to render inapplicable to the Merger Agreement and the Transactions the restrictions on “control-share acquisitions” (as defined in Section 607.0902 of the FBCA) as set forth in Section 607.0902 of the FBCA.

Securityholder Litigation

The Merger Agreement provides that the Company and Parent will jointly participate in the defense or settlement of any securityholder litigation against us or our directors relating to the merger in accordance with the terms of a mutually agreed upon joint defense agreement. We may not enter into any settlement agreement in respect of any securityholder litigation against us or our directors relating to the Transactions without Parent’s prior written consent (such consent not to be unreasonably withheld or delayed).

Directors and Officers

The Merger Agreement provides that the Directors of Merger Sub immediately prior to the Effective Time will be the directors of the Surviving Corporation until the earlier of their death, resignation or removal and until their respective successors are duly elected and qualified. The officers of the Company immediately prior to the Effective Time will be the officers of the Surviving Corporation until the earlier of their death, resignation or removal or until their respective successors are duly elected or appointed and qualified.

Conditions to the Merger

The Merger Agreement provides that the obligations of the Company, Parent and Merger Sub to consummate the merger are subject to the satisfaction at or prior to the Effective Time of the following: (i) the Company Shareholder Approval; (ii) the waiting period applicable to the consummation of the merger under the HSR Act (or any extension thereof) will have expired or early termination thereof will have been granted; and (iii) no law, injunction, judgment or ruling enacted, promulgated, issued, entered, amended or enforced by an governmental authority will be in effect enjoining, restraining, preventing or prohibiting consummation of the merger or making the consummation of the merger illegal.

 

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The Merger Agreement provides that the obligations of the Parent and Merger Sub to consummate the merger are subject to the satisfaction at or prior to the Effective Time of the following additional conditions:

 

    (i) The representations and warranties of the Company contained in the Merger Agreement (except for the representations and warranties contained in the first, second, third-to-last and last sentences of Section 4.03(a), Section 4.03(c), Section 4.04, the first sentence of Section 4.08, Section 4.14, Section 4.20 and the first sentence of Section 4.21) of the Merger Agreement must be true and correct (without giving effect to any limitation as to “materiality”, “Company Material Adverse Effect” or similar materiality qualifiers set forth therein) at and as of the date hereof and at and as of the Closing as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality”, “Company Material Adverse Effect” or similar materiality qualifiers set forth therein), individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect, (ii) the representations and warranties of the Company contained in the first, second, third-to-last and last sentences of Section 4.03(a), Section 4.03(c), Section 4.04, the first sentence of Section 4.08, Section 4.14, Section 4.20 and the first sentence of Section 4.21 of the Merger Agreement must be true and correct in all material respects at and as of the date hereof and at and as of the Closing as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date); provided, that if one or more inaccuracies in the representations and warranties set forth in the first, second, third-to-last or last sentence of Section 4.03(a) or Section 4.03(c) would cause the aggregate amount required to be paid by Parent or Merger Sub to effectuate the merger or consummate the other transactions contemplated by this Agreement, whether pursuant to Article II or otherwise, to increase by $5,000,000 or more, such inaccuracy or inaccuracies will be considered material for purposes of clause (ii); and (iii) the representations and warranties of the Company contained in the first sentence of Section 4.08 must be true and correct in all respects at and as of the date hereof and at and as of the Closing as if made at and as of such time we will have performed or complied in all material respects with its obligations, agreements or covenants required to be performed or complied with under the Merger Agreement at or prior to the Closing Date; and

 

    We must have performed in all material respects all obligations required to be performed by us under the Merger Agreement.

In addition, Parent must have received a certificate signed on our behalf to the effect that the conditions in the three bullet points immediately above have been satisfied.

The Merger Agreement provides that the obligations of the Company to consummate the merger are subject to the satisfaction at or prior to the Effective Time of the following additional conditions:

 

    (i) The representations and warranties of Parent and Merger Sub contained in the Merger Agreement (except for the representations and warranties contained in Sections 3.01, Section 3.02 and 3.06) must be true and correct (without giving effect to any limitation as to “materiality” or “Parent Material Adverse Effect” or similar materiality qualifiers set forth therein) at and as of the date hereof and at and as of the Closing as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be true and correct (without giving effect to any limitation as to “materiality”, “Parent Material Adverse Effect” or similar materiality qualifiers set forth therein), individually or in the aggregate, has not had and would not reasonably be expected to have a Parent Material Adverse Effect and (ii) the representations and warranties of Parent and Merger Sub contained in Section 3.01, Section 3.02 and 3.06 must be true and correct in all material respects at and as of the date hereof and at and as of the Closing as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case as of such earlier date).; and

 

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    Parent and Merger Sub must have performed in all material respects all obligations required to be performed by them under the Merger Agreement at or prior to the Closing Date.

In addition, we must have received a certificate signed on behalf of Parent to the effect that the conditions in the two bullet points immediately above have been satisfied.

Termination

The Merger Agreement may be terminated and the merger may be abandoned at any time prior to the Effective Time, whether before or after receipt of the Company Shareholder Approval:

 

  (a) by the mutual written consent of us and Parent;

 

  (b) by either us or Parent:

 

  i. if the merger is not consummated on or before the End Date, provided, that this right to terminate will not be available to any party whose breach of any provision of the Merger Agreement caused the failure of the Closing to be consummated by the End Date;

 

  ii. if any governmental authority enacts, promulgates, issues, enters, amends or enforces (A) a law prohibiting the merger or making the merger illegal, or (B) an injunction, judgment, order, decree, ruling or any other similar action, in each case, permanently enjoining, restraining, preventing or prohibiting the merger or making the merger illegal and such injunction, judgment, order, decree or ruling or other action becomes final and non-appealable;

 

  iii. if the Company Shareholder Approval is not been obtained at the Company Shareholders Meeting or at any adjournment or postponement thereof at which the vote is taken;

 

  (c) by us, (provided that the Company is not then in breach of any representation, warranty, covenant or agreement contained in the Merger Agreement) if Parent or Merger Sub has (i) breached any representation, warranty, covenant or agreement contained in the Merger Agreement, or if any representation or warranty of Parent or Merger has become untrue, in each case, such that the closing conditions could not be satisfied as of the Closing Date and (ii) such breach is either incapable of being cured by the End Date or is not cured within 30 days of written notice thereof;

 

  (d) by us, prior to receipt of the Company Shareholder Approval, but not after, in order to accept a Superior Proposal or in the event that an Adverse Recommendation Change has occurred, in each case to the extent we have complied in all material respects with our No Solicitation obligations and provided that we pay or cause to be paid to Parent the Termination Fee prior to or simultaneously with such termination (it being understood that we may enter into a definitive written agreement with respect to a Superior Proposal simultaneously with such termination of the Merger Agreement);

 

  (e) by us, if (i) all of the conditions to each party’s obligations to effect the merger have been satisfied or waived (other than delivery of items to be delivered at the Closing and other than satisfaction of those conditions that by their nature are to be satisfied by actions taken at the Closing, but subject to such conditions being capable of being satisfied at the time of such termination), (ii) we have irrevocably notified Parent in writing that we are ready and willing to consummate the transactions contemplated by the Merger Agreement and that all conditions to close have been satisfied or waived (other than satisfaction of those conditions that by their nature are to be satisfied by actions taken at the Closing, but subject to such conditions being capable of being satisfied at the time of such termination) and (iii) Parent and Merger Sub have failed to consummate the transactions contemplated by the Merger Agreement within two business days following our delivery of such notice;

 

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  (f) by Parent (provided that Parent is not then in breach of any of its representations, warranties or covenants contained in the Merger Agreement), if (i) we have breached any representation, warranty, covenant or agreement contained in the Merger Agreement, or if any representation or warranty of the Company has become untrue, in each case, such that the closing conditions could not be satisfied as of the Closing and (ii) such breach is either incapable of being cured by the End Date or is not cured within 30 days of written notice thereof; or

 

  (g) by Parent, if an Adverse Recommendation Change occurs.

Termination Fees and Expenses

The Merger Agreement contemplates that we will pay to Parent a nonrefundable cash termination fee equal to $25,797,000 and reimburse certain expenses under certain circumstances, as follows:

 

    if the Merger Agreement is terminated by us pursuant to paragraphs (d) (Company Enters into Definitive Agreement for Superior Proposal or Company Makes Adverse Recommendation Change) under “Termination” above; or

 

    if the Merger Agreement is terminated by Parent pursuant to paragraphs (f) (Company Makes Adverse Recommendation Change) or (g) (in respect of the Company’s failure to comply in all material respects with any of its No Solicitation obligations (Company Breaches No Solicitation Provision)) under “Termination” above; or

 

    if (i) an Alternative Proposal is made by a third party or group and is publicly disclosed or announced, or otherwise becomes publicly known, or any Person or group publicly announced an intention (whether or not conditional and whether or not withdrawn) to make an Alternative Proposal, (ii) thereafter the Merger Agreement is terminated pursuant to paragraphs (b)(i) (Lapse of Outside Date), (b)(iii) (Failure to Obtain Company Shareholder Approval) or (f) (other than in respect of the Company’s failure to comply in all material respects with any of its No Solicitation obligations (Company Breaches No Solicitation Provision)) under “Termination”, and (iii) within 12 months of such termination, the Company enters into a definitive agreement providing for any Alternative Proposal, or does consummate, an Alternative Proposal; provided, however, that for purposes of “Termination Fees and Expenses,” the references to “25%” in the definition of “Alternative Proposal” shall be deemed to be references to “a majority”.

Any termination fee due will be paid by wire transfer of same-day funds (i) in the case the Merger Agreement is terminated pursuant to paragraphs (d) (Company Enters into Definitive Agreement for Superior Proposal or Company Makes Adverse Recommendation Change), (f) (Company Makes Adverse Recommendation Change) or (g) (in respect of the Company’s failure to comply in all material respects with any of its No Solicitation obligations (Company Breaches No Solicitation Provision)) under “Termination” above; simultaneously with any such termination and (ii) in the case of (A) an Alternative Proposal being made by a third party or group and is publicly disclosed or announced, or otherwise becomes publicly known or any Person or group publicly announced an intention (whether or not conditional and whether or not withdrawn) to make an Alternative Proposal, (B) thereafter the Merger Agreement is terminated pursuant to paragraphs (b)(i) (Lapse of Outside Date), (b)(iii) (Failure to Obtain Company Shareholder Approval), or (f) (other than in respect of the Company’s failure to comply in all material respects with any of its No Solicitation obligations (Company Breaches No Solicitation Provision) under “Termination”, and (C) within 12 months of such termination, the Company enters into a definitive agreement providing for any Alternative Proposal, or does consummate, an Alternative Proposal, on the earlier of the date of entering into a definitive agreement providing for any Alternative Proposal or the date of consummation of any Alternative Proposal.

Except as specifically provided for in the Merger Agreement, all fees and expenses incurred in connection with the merger and the other transactions contemplated by the Merger Agreement will be paid by the party incurring such fees or expenses, whether or not such transactions are consummated.

 

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Amendment

At any time prior to the Effective Time, the Merger Agreement may be amended or supplemented in any and all respects, whether before or after receipt of the Company Shareholder Approval, by written agreement of the parties, by action taken by their respective boards of directors; provided that, after receipt of the Company Shareholder Approval, no amendment may be made which by law would require further approval by such shareholders.

Specific Performance

Under the Merger Agreement, the parties acknowledge and agree that irreparable damage would occur in the event that any of the provisions of the Merger Agreement were not performed in accordance with their specific terms or were otherwise breached, and that monetary damages, even if available, would not be an adequate remedy therefor. Accordingly, the parties under the Merger Agreement will be entitled to an injunction or injunctions to prevent breaches or threatened breaches of the Merger Agreement and to enforce specifically the performance of the terms and provisions of the Merger Agreement, including the right of a party to cause the other parties to consummate the merger. Notwithstanding anything to contrary in the Merger Agreement, the parties acknowledge and agree that we will be entitled to specific performance of Parent’s and Merger Sub’s obligations pursuant to the terms of the Merger Agreement; including to cause the Financing to be funded and to consummate the merger. The Company is a party to the Equity Commitment Letter.

Specific performance is the Company’s primary remedy. However, if a court of competent jurisdiction has declined, for any reason, to specifically enforce the obligations of Parent and Merger Sub to consummate the merger pursuant to a claim for specific performance brought against Parent and Merger Sub in accordance with the terms of the Merger Agreement, the Merger Agreement provides that the maximum aggregate liability of Parent and its related parties will be limited to $737,057,000.

If the Company then seeks and obtains a judgment for monetary damages, then Parent will have three business days to complete the merger, and, if it fails to do so, it would be required to pay the judgment, up to the aggregate merger consideration. Additionally, if the Company obtains a judgment in its favor, Parent will pay to the Company its reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and expenses) in connection with obtaining such judgment and interest on the amount of such payment from the date such payment was required to be made until the date of payment, provided, however, that the maximum additional costs and expenses to Parent will not exceed $5,000,000.

Governing Law

The Merger Agreement is governed by the laws of the State of Florida.

Rollover and Voting Agreement

In connection with the Merger Agreement, the Rollover Investors entered into the Rollover and Voting Agreement with Parent, pursuant to which the Rollover Investors have agreed to exchange the Rollover Shares for new equity securities in Parent. As a condition to receiving new equity securities in Parent, the Rollover Investors have agreed to vote all of their shares of Common Stock “FOR” the proposal to approve the Merger Agreement and the merger. The Rollover Agreement will terminate if the Merger Agreement is terminated.

Pursuant to the Rollover and Voting Agreement, the Rollover Investors have agreed: (i) to waive their appraisal rights with respect to the merger, (ii) not to, and to cause its affiliates not to make or in any way participate in any “solicitation” of “proxies”, and (iii) to terminate all existing shareholders agreements and arrangements between them.

The foregoing summary of the Rollover and Voting Agreement is qualified in its entirety by reference to the copy of such agreement attached hereto as Annex A.

 

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Equity Commitment Letter

On October 22, 2017, we entered into the Original Equity Commitment Letter with the Fund and Parent. On December 3, 2017, we entered into the Amendment to Equity Commitment Letter with Fund and Parent. Pursuant to the Equity Commitment Letter, upon the terms and conditions specified therein, the Fund committed to purchase, or cause the purchase of, directly or indirectly through one or more intermediate entities, equity securities of Parent with an aggregate purchase price not to exceed $737,057,000, which will be used to either (i) fund the payment, in full, of the Merger Consideration and all other amounts required to be paid by Parent at the Closing under the Merger Agreement, including all fees and expenses required to be paid by Parent thereunder (the “Closing Commitment”) or (ii) fund the payment to up to $737,057,000 in monetary damages required to be paid by Merger Sub in accordance with the Merger Agreement (the “Damages Commitment”).

The Equity Commitment Letter explicitly provides that the Company may enforce the obligations of the Fund to fund the Closing Commitment or the Damages Commitment, as applicable. The Closing Commitment is subject to the continued satisfaction or waiver of the closing conditions set forth in the Merger Agreement (other than those that by their nature are to be satisfied at the Closing). The Damages Commitment is also subject to the continued satisfaction or waiver of the closing conditions set forth in the Merger Agreement (other than those that by their nature are to be satisfied at the Closing) as well as a final judgment awarding monetary damages being entered against Parent in accordance with the Merger Agreement and the merger not having been consummated within three business days thereafter as set forth in the Merger Agreement.

The Company and the Fund made customary representations and warranties with respect to Equity Commitment Letter. The obligation of the Fund under or in connection with the Equity Commitment Letter will terminate automatically upon the earliest to occur of (i) the Closing, (ii) the termination of the Merger Agreement, (iii) the payment of the Damages Commitment and (iv) the Company its security holders or any of its affiliates, or any person claiming by, through or for the benefit of any of the foregoing, asserting a claim against any non-recourse party under or in connection with the transaction agreements (other than the Company asserting any retained claim against any non-recourse party as permissible under the Equity Commitment Letter).

The foregoing summary of the Equity Commitment Letter is qualified in its entirety by reference to the copy of such letter attached as an exhibit to the Schedule 13E-3 filed with the SEC in connection with the merger and incorporated herein by reference.

 

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PROVISIONS FOR NON-AFFILIATE SHAREHOLDERS

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

IMPORTANT INFORMATION REGARDING EXACTECH

Company Background

Exactech was incorporated in Florida on November 13, 1985. The Company develops, manufactures, markets, distributes and sells orthopedic implant devices, related surgical instrumentation and biologic services to hospitals and physicians in the United States and internationally. The Company’s segments include knee, hip, extremity and other products. Its other products segment includes miscellaneous sales categories, such as bone cement, biologics, instrument rental fees, shipping charges and other product lines. The Company distributes joint replacement systems, including knee, hip, extremity implant systems, and biologic products and services and bone cement materials used in orthopedic surgery and dental procedures.

The Company manufactures some components of its knee, extremity and hip joint replacement systems at its facility in Gainesville, Florida. The Company’s joint replacement products are used by orthopedic surgeons to repair or replace joints that have deteriorated as a result of injury or disease. The Company’s United States sales and distribution activities are conducted by its subsidiary Exactech U.S., Inc. The Company’s international development, sales and distribution activities are conducted by its subsidiary Exactech International Operations, AG.

If the proposal to approve the Merger Agreement is approved by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock entitled to vote thereon, Exactech will continue as a private company and a wholly owned subsidiary of Parent.

During the past five years, neither the Company nor any of the Company directors or executive officers listed below has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). In addition, during the past five years, except as set forth below, neither the Company nor any of the Company directors or executive officers listed below has been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. Each of the individuals listed below is a citizen of the United States.

Directors and Executive Officers

Our executive officers and directors are as follows:

 

Name

  

Age

  

Position

William Petty, M.D.    75    Executive Chairman and Chairman of the Board
David W. Petty    51    Chief Executive Officer, President and Director
Joel C. Phillips    50    Executive Vice President, Chief Financial Officer and Treasurer
Gary J. Miller, Ph.D.    70    Executive Vice President, Research and Development
Bruce Thompson    60    Senior Vice President, Strategic Initiatives
Betty Petty    75    Vice President, Administration and Corporate Secretary
Donna Edwards    45    Vice President, Legal and General Counsel
James G. Binch    70    Director
William B. Locander, Ph.D.    74    Director
Richard C. Smith    56    Director
Fern S. Watts    59    Director
W. Andrew Krusen, Jr.    69    Director

 

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William Petty, M.D. is a founder of Exactech. He has been Chairman of the Board since its inception, and he served as the Company’s Chief Executive Officer from its inception until 2014. Additionally, Dr. Petty served as the Exactech’s President from January 2002 until December 2007. Dr. Petty was a Professor at the University of Florida College of Medicine from July 1975 to September 1998. Dr. Petty also served as Chairman of the Department of Orthopaedic Surgery at the University of Florida College of Medicine from July 1981 to January 1996. Dr. Petty has served as a member of the Hospital Board of Shands Hospital, Gainesville, Florida, as an examiner for the American Board of Orthopaedic Surgery, as a member of the Orthopaedic Residency Review Committee of the American Medical Association, on the Editorial Board of the Journal of Bone and Joint Surgery, on the Executive Board of the American Academy of Orthopaedic Surgeons, and as President of the Corporate Advisory Council of the American Academy of Orthopaedic Surgeons. He holds the Kappa Delta Award for Outstanding Research from the American Academy of Orthopaedic Surgeons. His book, Total Joint Replacement, was published in 1991. Dr. Petty received his B.S., M.S., and M.D. degrees from the University of Arkansas. He completed his residency in Orthopaedic Surgery at the Mayo Clinic in Rochester, Minnesota. Dr. Petty is the husband of Betty Petty, and the father of David W. Petty.

Dr. Petty’s extensive experience in the orthopaedic industry, both as a founder of Exactech and as an orthopaedic surgeon, is invaluable to our business development and strategy.

David W. Petty has served as Exactech’s Chief Executive Officer since March 2014, and he has served as Exactech’s President since November 2007. Mr. Petty previously served the Company in various capacities in the areas of operations and sales and marketing since joining the Company in 1988. From February 2000 to November 2007, Mr. Petty served as Executive Vice President of Sales and Marketing, from 1993 to 2000, he served as Vice President of Marketing and, from April 1991 until April 1993, he served as Vice President of Operations. Mr. Petty received his B.A. from the University of Virginia in 1988 and completed The Executive Program of the Darden School of Business in 1999. He is the son of Dr. and Mrs. Petty.

Mr. Petty’s long-term experience with the Company and in marketing orthopaedic products makes him a valuable contributor to our strategy and growth.

Joel C. Phillips, CPA has been Chief Financial Officer of Exactech since July 1998 and Treasurer since March 1996. Mr. Phillips was promoted to Executive Vice President in February 2015. Mr. Phillips was Manager, Accounting and Management Information Systems at the Company from April 1993 to June 1998. From January 1991 to April 1993, Mr. Phillips was employed by Arthur Andersen. Mr. Phillips received a B.S. and a Masters in Accounting from the University of Florida and is a Certified Public Accountant. During 2008, Mr. Phillips completed the Advanced Executive Program at the Kellogg School of Management at Northwestern University.

Gary J. Miller, Ph.D. is a founder and has been Executive Vice President, Research and Development of Exactech since February 2000. He was Vice President, Research and Development from 1986 until 2000 and was a Director from March 1989 through May 2003. Dr. Miller was Associate Professor of Orthopaedic Surgery and Director of Research and Biomechanics at the University of Florida College of Medicine from July 1986 until August 1996. Dr. Miller received his B.S.M.E. from the University of Florida, his M.S.M.E. (Biomechanics) from the Massachusetts Institute of Technology, and his Ph.D. in Mechanical Engineering (Biomechanics) from the University of Florida (UF). He previously held an Adjunct Associate Professorship in the College of Veterinary Medicine’s Small Animal Surgical Sciences Division and served as an Adjunct Associate Professor in the Department of Aerospace, Mechanics and Engineering Sciences from 1995 until 2010 at UF. He has held a Courtesy Professorship in the Department of Mechanical and Aerospace Engineering, University of Florida since 2011. He was a consultant to the FDA from 1989 to 1992 and has served as a consultant to such companies as Johnson & Johnson Orthopaedics, Dow-Corning Wright and Orthogenesis.

Bruce Thompson has been Senior Vice President-Strategic Initiatives since May 2017 and was previously Senior Vice President-General Manager – Spine and Biologics Division since joining the Company in July 2004. In 2008 he assumed the role of general manager of both the biologics and spine divisions of Exactech. Prior to joining Exactech, Mr. Thompson spent 22 years with Smith & Nephew in their Orthopaedic Division. During that time, he held various positions within Smith & Nephew, including Vice President - International Sales, Vice President - Product Planning and Launch,

 

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Vice President, General Manager - Spine Division, Group Director of Trauma Manufacturing, Director of Materials Management, and held various product and sales management positions. Mr. Thompson earned a B.S. in Accountancy at Miami University, Oxford, Ohio, and completed the Executive MBA program at the University of Memphis in 1989.

Betty Petty is a founder, Vice President, Administration and Corporate Secretary. She was Vice President Human Resources and Administration from February 2000 to May 2010. She has also been Corporate Secretary of Exactech since its inception and served as Treasurer and a Director until March 1996. Mrs. Petty served in the dual capacities of Human Resources Coordinator and Director of Marketing Communications from the founding of the Company until 2001. She received her B.A. from the University of Arkansas at Little Rock and her M.A. in English from Vanderbilt University. Mrs. Petty is the wife of Dr. Petty and the mother of Mr. Petty.

Donna Edwards has been our Vice President, Legal since August 2011. She has been employed by Exactech since January 2001, serving in the capacity of Interim Compliance Officer from April 2011 to August 2011, Corporate Attorney from February 2003 to April 2011, and Legal Coordinator from January 2001 to February 2003. Previously, she was employed by Exactech as Regulatory Affairs Coordinator from June 1996 to 1998. Ms. Edwards received her B.S. degree from Duke University and her J.D. degree from the University of Alabama.

William B. Locander, Ph.D. has been a Director since May 2003. Dr. Locander has been the Dean at the Joseph A. Butt, S.J. College of Business at Loyola University in New Orleans, LA since 2008. He was the Director of the Davis Leadership Center and held the Davis Chair of Leadership at Jacksonville University in Jacksonville, Florida. Dr. Locander was the Chairman of Marketing, Professor of Marketing and Quality at the University of South Florida in Tampa, Florida from 1992 to 2004. He was also the Director of the USF Leadership Center. He was previously Professor of Marketing at the University of Tennessee, Knoxville from 1983 until 1992. From 1973 through 1983 he was a faculty member at the University of Houston, serving as Associate Professor, Chairman of the Department of Marketing, and Associate Dean for Research and Administration. Dr. Locander has authored numerous articles in reference publications and has served on the editorial board of the Journal of Marketing and the Journal of Marketing Research. He was president of the National American Marketing Association in 1988 and 1989. He was an examiner for the Malcolm Baldridge National Quality Award in 1991 and 1992. Dr. Locander has spoken and consulted in the areas of marketing, total quality, organizational change, strategic planning, and customer satisfaction, with companies such as IBM, General Electric, 3M, Proctor and Gamble, and Chevron. In 2004, Dr. Locander received an award from the American Marketing Association for strategic facilitation to the Academic Division. He received his B.S., M.S. and Ph.D. degrees from the University of Illinois in Champaign-Urbana.

Dr. Locander’s knowledge of marketing and the customer is valuable in discussions regarding our product strategy and development of our customer-centric culture. In our rapidly growing company, organizational change is a constant and Dr. Locander also lends his expertise in this area.

James G. Binch was elected Lead Director in January 2016, and has been a Director since May 2007. Mr. Binch has been Managing Director, Lincolnshire Management since February 2007, where his principal duties are oversight, assistance and guidance to the operating companies within the Lincolnshire Management portfolio of investments. Prior to joining Lincolnshire, Mr. Binch was Chief Executive Officer of Memry Corporation, an AMEX-listed company, from 1992 until 2006. During his tenure, Memry acquired a division of Raychem Corporation and Putnam Plastics and was named among the fifty fastest-growing technology firms in Connecticut for eight consecutive years. In 1988, Mr. Binch founded Trinity Capital Corporation, a merchant bank in Stamford, Connecticut, where he served as President and Chief Executive Officer until 1991. From 1980 to 1987, he held senior roles with Combustion Engineering of Stamford, including three years as President and Chief Operating Officer of the engineering sector of Combustion Engineering and its principal subsidiary, Lummus-Crest, Inc., with more than 3,000 employees, offices in eight countries and annual contract volumes in excess of two billion dollars. He was vice president of planning and business development at Champion International’s building products division from 1978 to 1980. Mr. Binch began his career in 1972 as a principal with the general management consulting firm of Cresap, McCormick and Paget in New York, serving there until 1978. Mr. Binch is a Trustee of Trinity College School, in Ontario, Canada, and is a Director of The Trinity College School Foundation, Nursery Supplies, Inc., Latite Roofing & Sheet Metal, Inc. and Precision Kidd, Inc. He is a graduate engineer from Princeton University, and holds an MBA from the Wharton School at the University of Pennsylvania.

 

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Mr. Binch, with his experience in investments and portfolio management, his many years as a chief executive officer, and his years of expertise as management of enterprises within the healthcare arena brings vast knowledge of business and finance to the Board.

Richard C. Smith has been a Director since May 2010. Mr. Smith is a partner at Quinn Emanuel Urquhart & Sullivan, LLP, Washington, DC office since September 2016, where his practice focuses on complex litigation, white collar criminal defense, transactional and third party due diligence, risk assessment, creation and review of anticorruption policies and procedures, and US-centric and transnational corporate internal investigations for public and private companies. Prior to joining Quinn Emanuel, Mr. Smith was with Norton Rose Fulbright, US LLP, from June 2007 to September 2016, where he was chair of Global White Collar Crime and Investigations Group and co-chair of the firm’s Subprime and Credit Crisis practice group. Prior to joining Fulbright & Jaworski (Norton Rose Fulbright), Mr. Smith was with Akerman Senterfitt in Washington, DC from October 2005 to May 2007, where he was chair of their Litigation Group, and co-chair of the White Collar, Parallel Proceedings and Corporate Advisory Practice Group. He has extensive experience in representing corporate entities, their executives and employees in connection with various government investigations, prosecutions and judicial and administrative proceedings. Mr. Smith also has experience representing business entities and executives in such civil matters as breach of contracts, tortious interference of business relationships, business conspiracy, fraud, criminal conversion and forum non conveniens. He received his B.A. in Political Science from Alabama A&M University, his M.A. and J.D. from the University of Florida, and his LL.M. in Health Law from the University of Houston Law Center.

Mr. Smith’s experience in litigation, corporate governance, government investigations and enforcement, and antitrust, marketing and trade regulation provide us a great resource in navigating today’s heightened regulatory and compliance environment.

Fern S. Watts has been a Director since May 2012. Ms. Watts is an attorney specializing in corporate and securities law, and she has served clients by providing both legal and business advice as external as well as internal counsel. Ms. Watts is engaged in private practice in Miami, Florida representing businesses and entrepreneurs in connection with private placements, acquisitions, debt financings and other business transactions. From 2007 until 2009, Ms. Watts was General Counsel of MGM International Group, a privately held developer of carbon emission reduction projects, where she was responsible for worldwide legal operations and provided legal and business advice to senior management. From 2004 until 2005, Ms. Watts was Chief Legal Officer of Terremark Worldwide, Inc., a provider of managed information technology solutions, which, during her tenure, was publicly traded. Previously, Ms. Watts was a Shareholder for ten years in the Miami office of Greenberg Traurig, P.A., specializing in representing public and private companies in numerous types of corporate and finance transactions. Ms. Watts began her legal career at corporate law firms in New York City. She received her B.A. in Linguistics from Barnard College, Columbia University, and her J.D. from Harvard Law School.

Ms. Watts’ experience as internal counsel for both publicly and privately held companies as well as her extensive experience in securities law, mergers and acquisitions and financings is valuable in the Board’s oversight of securities law compliance and its evaluation of future business and financing opportunities.

W. Andrew Krusen, Jr. has served as a Director since May 2014. Mr. Krusen has been Chairman and Chief Executive Officer of Dominion Financial Group, Inc. since 1987, a merchant banking organization that provides investment capital to the natural resources, communications, manufacturing and distribution sectors. He has also been the managing member of Gulf Standard Energy, LLC, an oil and gas concern, since June 2004; and the managing member of Krusen- Douglas, LLC, a large landowner in the Tampa, Florida area, since January 2001. Mr. Krusen serves as a director of Raymond James Trust Company, a subsidiary of Raymond James Financial, Inc., as well as numerous privately held companies, including Beall’s Inc. and Romark Laboratories, L.C. He is currently a director of publicly traded Alico, Inc., a director and chairman of Florida Capital Group, Inc. - a Florida bank holding company, as well as Florida Capital Bank, N.A., its wholly owned subsidiary. Mr. Krusen served as a director of Florida Banks, Inc. (“Florida Banks”) from August 1998 until its acquisition in July 2004. He also served as Chairman of the Board of First National Bank of Tampa from 1995 until its acquisition by Florida Banks in August 1998. Mr. Krusen is a member of the World President’s Organization and the Society of International Business Fellows. Mr. Krusen holds a Bachelor of Arts degree in Geology from Princeton University.

Having served as chief executive officer in different organizations, Mr. Krusen provides us with relevant business and financial expertise. Mr. Krusen’s past and current responsibilities on audit and compensation committees, in both the public and private environment, enhance the Board’s expertise for valuable oversight to the Company’s strategies and tactical operations.

 

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Selected Summary Historical Financial Data

Set forth below is certain selected historical consolidated financial information relating to Exactech. The selected consolidated statements of financial position data, consolidated statements of income data, consolidated and consolidated statements of shareholders’ equity data of the Company as of and for the fiscal years ended December 31, 2012 through December 31, 2016 have been derived from our consolidated financial statements, which have been audited by RSM US, LLP, an independent registered public accounting firm. This information is only a summary and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which is incorporated by reference into this proxy statement. More comprehensive financial information is included in that report, including management’s discussion and analysis of financial condition and results of operations, and the following summary is qualified in its entirety by reference to such report and all of the financial information and notes contained therein. For additional information, see “Where You Can Find More Information” beginning on page 102.

 

     Year Ended December 31,  

(in thousands, except per share amounts)

   2016     2015     2014     2013     2012  

Statement of Income Data:

          

Net sales

   $ 257,573     $ 241,838     $ 248,373     $ 237,088     $ 224,337  

Cost of goods sold

     80,251       73,639       74,244       73,019       68,731  

Gross profit

     177,322       168,199       174,129       164,069       155,606  

Operating expenses:

          

Sales and marketing

     92,452       87,095       89,796       84,999       81,979  

General and administrative

     22,182       22,483       22,692       21,149       20,139  

Research and development

     21,377       19,384       18,377       17,802       16,803  

Restructuring and impairment

     15,673       —         —         —         —    

Depreciation and amortization

     18,008       16,940       16,990       16,190       15,343  

Total operating expenses

     169,692       145,902       147,855       140,140       134,264  

Income from operations

     7,630       22,297       26,274       23,929       21,342  

Other income (expense):

          

Interest expense, net

     (998     (1,304     (1,095     (1,215     (1,445

Other income (expense)

     448       468       78       138       87  

Foreign currency exchange (loss) gain

     (332     (1,131     (1,129     (444     (90

Income before income taxes and equity in loss of investee

     6,748       20,330       24,128       22,408       19,894  

Provision for income taxes

     6,533       5,563       7,640       7,036       7,153  

Income before equity in loss of investee

     215       14,767       16,488       15,372       12,741  

Equity in loss of investee, net of tax

     (53     —         —         —         —    

Net income

     162       14,767       16,488       15,372       12,741  

Basic earnings per common share

   $ 0.01     $ 1.05     $ 1.20     $ 1.14     $ 0.96  

Diluted earnings per common share

   $ 0.01     $ 1.04     $ 1.18     $ 1.12     $ 0.96  
(in thousands)    2016     2015     2014     2013     2012  

Balance Sheet Data:

          

Total current assets

   $ 143,059     $ 139,622     $ 139,157     $ 142,559     $ 130,218  

Total assets

     294,209       275,507       261,040       261,842       245,141  

Total current liabilities

     33,105       24,825       26,205       30,517       31,562  

Total long-term debt, net of current portion

     20,000       16,000       20,250       33,982       38,447  

Total liabilities

     59,967       47,118       49,669       69,418       74,244  

Total shareholders’ equity

     234,242       228,389       211,371       192,424       170,897  

 

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Book Value Per Share

Our net book value per share as of December 1, 2017 was approximately $6.19 (calculated based on 14,413,421 shares of Common Stock outstanding as of such date).

Market Price of the Common Stock and Dividend Information

Our Common Stock trades on the Nasdaq Global Market under the symbol “EXAC”.

The following table sets forth, for the fiscal quarters indicated, the high and low sales prices for our Common Stock as reported on the Nasdaq Global Market:

 

     Prices  

Fiscal Year 2017 Quarter Ended

   High      Low  

First Quarter

   $ 29.00      $ 23.30  

Second Quarter

   $ 31.90      $ 24.35  

Third Quarter

   $ 33.65      $ 27.40  
     Prices  

Fiscal Year 2016 Quarter Ended

   High      Low  

First Quarter

   $ 20.46      $ 16.88  

Second Quarter

   $ 27.07      $ 19.42  

Third Quarter

   $ 28.66      $ 25.55  

Fourth Quarter

   $ 28.90      $ 22.20  
     Prices  

Fiscal Year 2015 Quarter Ended

   High      Low  

First Quarter

   $ 26.14      $ 20.50  

Second Quarter

   $ 26.20      $ 20.31  

Third Quarter

   $ 21.61      $ 16.12  

Fourth Quarter

   $ 19.40      $ 16.11  

The closing price of our Common Stock on the Nasdaq Global Market on October 20, 2017, the last trading day prior to the public announcement of the Original Merger Agreement, was $32.00 per share of our Common Stock. The closing price of our Common Stock on the Nasdaq Global Market on December 1, 2017, the last trading day prior to the public announcement of Amendment No. 1 to Merger Agreement, was $42.35 per share of our Common Stock. The Merger Consideration of $49.25 per share represented a premium of approximately 53.9% over the closing price per share on October 20, 2017 and 16.3% over the closing price per share on December 1, 2017. On [December 1, 2017], the most recent practicable date before this proxy statement was mailed to our shareholders, the closing price for our Common Stock on the Nasdaq Global Market was $[●] per share. You are encouraged to obtain current market quotations for our Common Stock in connection with voting your shares of Common Stock.

As of the Record Date, we had [●] shareholders.

We have never paid any cash dividends and do not anticipate paying any cash dividends in the foreseeable future. Under the terms of the Merger Agreement, we are not permitted to declare or pay any dividends on any shares of our capital stock unless consented to in writing by Parent (or as expressly permitted by the Merger Agreement or as required by applicable law).

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding the beneficial ownership of Common Stock of our capital stock as of the Record Date, held by:

 

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    each of our directors;

 

    each of our named executive officers;

 

    all of our directors and executive officers as a group; and

 

    each person known by us to beneficially own more than 5% of our outstanding Common Stock.

As of the Record Date, 14,413,421 shares of Common Stock were issued and outstanding.

Except as indicated by footnote and subject to community property laws where applicable, to our knowledge, the persons named in the table below have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. In computing the number of shares of Common Stock beneficially owned by a person and the percentage ownership of that person, shares of Common Stock subject to Stock Options and warrants held by that person that are currently exercisable or will become exercisable within 60 days after the Record Date are deemed outstanding for purposes of that person’s percentage ownership but not deemed outstanding for purposes of computing the percentage ownership of any other person.

Ownership information for those persons who beneficially own 5% or more of shares of Common Stock is based upon Schedule 13D, Schedule 13G and Form 4 filings by such persons with the SEC. Unless otherwise indicated, the mailing address for each person listed in the following table is c/o Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653.

 

     Common Stock Beneficially Owned  

Name and Address of Beneficial Owner (1)

   Number of Shares
(2)(3)
     Percentage of
Common Stock
Outstanding
 

William Petty, M.D. (4)

     3,589,188        24.3

David W. Petty (5)

     169,772        1.2

Joel C. Phillips, CPA (6)

     248,654        1.7

Gary J. Miller, Ph.D. (7)

     247,159        1.7

Bruce Thompson (8)

     96,079        *  

James G. Binch

     4,650        *  

William B. Locander, Ph.D.

     6,840        *  

Richard C. Smith

     25,097        *  

Fern S. Watts

     5,823        *  

W. Andrew Krusen, Jr. (8)

     13,928        *  

Prima Investments, Limited Partnership (9)

     3,080,271        21.4

Gamco Investors, Inc. et al (10)

     1,863,658        12.9

BlackRock, Inc. (11)

     800,197        5.6

Dimensional Fund Advisors LP (12)

     751,750        5.2

All current executive officers and directors as a group (12 persons)

     4,463,942        29.5

 

* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653.
(2) Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
(3) A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof upon exercise of options, warrants and convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants y and convertible securities that are held by such person (but not those held by any other person) and that are currently exercisable or will become y exercisable within 60 days from the Record Date have been exercised.
(4) Includes 3,080,271 shares of common stock held by Prima Investments, Limited Partnership, a Florida limited partnership (“Prima Partnership”). Prima Investments, Inc., a Florida corporation wholly-owned by Dr. and Mrs. Petty, is the general partner of Prima Partnership. Dr. and Mrs. Petty along with their children hold all limited partnership interests in Prima Partnership. Also includes (i) 102,400 shares of common stock held by y William Petty, (ii) 75,400 shares of common stock held by Betty Petty, (iii) 188,129 shares of common stock issuable upon the exercise of option granted to William Petty which are issuable within 60 days, and (iv) 21,500 shares of common stock issuable upon the exercise of options granted» to Betty Petty which are issuable within 60 days.
(5) Includes 53,990 shares of common stock issuable upon the exercise of options granted to Mr. Petty which are issuable within 60 days.
(6) Includes (i) 88,200 shares of common stock issuable upon the exercise of options granted to Mr. Phillips which are issuable within 60 days and (ii) 16,290 shares of common stock held by Mr. Phillips’ minor children.
(7) Includes 144,370 shares of common stock held by Miller Family Holdings. LLC, a Florida limited liability company (“MFH. LLC”). Miller Family Holdings, Inc., a Florida corporation wholly-owned by Dr. Miller, his wife and his children, is the principal member of MFH, LLC. Dr. Miller, his wife and children hold all membership interests in MFH, LLC. Also includes (i) 36,989 shares of common stock held by Dr. Miller and (ii) 43,400 shares of common stock issuable upon the exercise of options granted to Dr. Miller which are issuable within 60 days.
(8) Includes 50,600 shares of common stock issuable upon the exercise of options granted to Mr. Thompson which are issuable within 60 days. y
(9) See notes (4)-(8). Includes 470,919 shares of common stock issuable upon the exercise of options which are issuable within 60 days.
(10) Based on Amendment No. 6 to Schedule 13D filed November 21, 2017. GAMCO Investors, Inc. and its affiliates (“GAMCO”), a wholly-owned subsidiary of Gabelli Asset Management, Inc. and an investment adviser registered under Section 203 of the Investment Advisers Act of 1940 is the beneficial owner of 1,863,658 shares or 12.9% of the Company’s outstanding common stock as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. GAMCO has its principal business office at One Corporate Center, Rye, New York 10580. In addition, Mario Gabelli may be deemed beneficial owner of the shares due to his status as an affiliate of GAMCO.
(11) Based on Schedule 13G/A filed January 30, 2017, BlackRock, Inc., an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 800,197 shares or 5.6% of the Company’s outstanding common stock as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. BlackRock, Inc. has its principal business office at 55 East 52nd Street, New York, New York 10022.
(12) Based on Schedule 13G filed February 9, 2017, Dimensional Fund Advisors LP, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 751,750 shares or 5.2% of the Company’s outstanding common stock as a result of acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. Dimensional Fund Advisors LP has its principal business office at Building One, 6300 Bee Cave Road, Austin, Texas 78746.

 

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Transactions in Common Stock During the Past 60 Days

Other than the Merger Agreement and agreements entered into in connection therewith, including the Rollover and Voting Agreement, the parties and their respective affiliates have not made any transactions with respect to the Common Stock during the past 60 days.

Transactions in Common Stock by the Company During the Past Two Years

The table below contains information with respect to shares of our common stock we repurchased during the three months ended March 31, 2016.

 

Period

   Total Shares
Repurchased
(#)
     Avg Price
per Share
($)
     Total Number of
Shares Purchased
as Part of Publicly

Announced Plans
or Programs  (#)
     Total Number of
Shares That

May Yet Be
Purchased Under

The Program (#)(1)
 

January 1 – March 31, 2016

     163,529        18.60        163,529        836,471  

 

(1)  In December 2015, our Board of Directors authorized the repurchase of up to 1.0 million shares of our common stock over a two year period.

Transactions in Common Stock by the Rollover Investors During the Past Two Years

The following table sets forth all securities purchased or sold by the Rollover Investors within the past two years:

 

Name

   Quantity     Price ($)      Transaction Date     

Transaction Description

R. William Petty

     3,000       13.40        1/2/2015      Option Exercise

R. William Petty

     (3,000     22.30        1/2/2015      Sale

R. William Petty

     3,000       13.4        2/2/2015      Option Exercise

R. William Petty

     (3,000     20.72        2/2/2015      Sale

R. William Petty

     3,000       13.4        3/2/2015      Option Exercise

R. William Petty

     (3,000     23.07        3/2/2015      Sale

R. William Petty

     3,000       13.4        4/1/2015      Option Exercise

R. William Petty

     (3,000     25.45        4/1/2015      Sale

R. William Petty

     3,000       13.4        5/1/2015      Option Exercise

R. William Petty

     (3,000     21.64        5/1/2015      Sale

R. William Petty

     4,964       17.02        3/8/2006      Option Exercise

R. William Petty

     (4,964     19.19        3/8/2006      Sale

R. William Petty

     5,000       14.27        12/15/2016      Option Exercise

R. William Petty

     17,200       18.95        2/22/2017      Option Exercise

R. William Petty

     (17,200     24.07        5/16/2017      Sale

Betty Petty

     4,500       14.12        1/2/2015      Option Exercise

Betty Petty

     (4,500     22.30        1/2/2015      Sale

Betty Petty

     4,500       14.12        2/2/2015      Option Exercise

Betty Petty

     (4,500     20.76        2/2/2015      Sale

Betty Petty

     4,500       14.12        3/2/2015      Option Exercise

Betty Petty

     (4,500     23.04        3/2/2015      Sale

Betty Petty

     4,500       14.12        4/1/2015      Option Exercise

Betty Petty

     (4,500     25.49        4/1/2015      Sale

Betty Petty

     4,500       14.12        5/1/2015      Option Exercise

Betty Petty

     (4,500     21.67        5/1/2015      Sale

Betty Petty

     9,227       17.02        3/7/2016      Option Exercise

Betty Petty

     (9,227     19.02        3/7/2016      Sale

Betty Petty

     1,773       17.02        3/8/2006      Option Exercise

Betty Petty

     (1,773     18.9        3/8/2006      Sale

Betty Petty

     5,000       14.27        12/15/2016      Option Exercise

Betty Petty

     2,800       18.95        2/22/2017      Option Exercise

Betty Petty

     (2,800     24.76        2/22/2017      Sale

Prima Investments, Limited Partnership

     (36,123     23.15        2/23/2015      Sale

Prima Investments, Limited Partnership

     (8,944     22.78        2/24/2015      Sale

Prima Investments, Limited Partnership

     (12,491     22.71        4/28/2016      Sale

Prima Investments, Limited Partnership

     (5,509     22.53        4/29/2016      Sale

Prima Investments, Limited Partnership

     (3,000     0        9/20/2016      Gifted

David Petty

     (17,731     —          —        Transfer Pursuant to divorce decree

David Petty

     12,500       14.12        5/4/2015      Option Exercise

David Petty

     17,000       17.02        3/4/2016      Option Exercise

David Petty

     (15,850     19.23        3/4/2016      Sale

David Petty

     (3,550     27.75        8/19/2016      Sale

David Petty

     2,500       14.27        12/15/2016      Option Exercise

David Petty

     4,400       18.95        2/22/2017      Option Exercise

David Petty

     (4,400     24.06        2/22/2017      Sale

Joel C. Phillips

     277       19.26        3/31/2015      ESPP Purchase

Joel C. Phillips

     2,700       14.12        5/4/2015      Option Exercise

Joel C. Phillips

     -2700       21.67        5/4/2015      Sale

Joel C. Phillips

     7300       14.12        5/7/2015      Option Exercise

Joel C. Phillips

     -5000       21.76        5/28/2015      Sale

Joel C. Phillips

     267       17.71        6/30/2015      ESPP Purchase

Joel C. Phillips

     373       14.82        9/30/2015      ESPP Purchase

Joel C. Phillips

     -1422       0        12/23/2015      Gifted

Joel C. Phillips

     -358       0        12/23/2015      Gifted

Joel C. Phillips

     186       15.43        12/31/2015      ESPP Purchase

Joel C. Phillips

     6000       17.02        1/8/2016      Option Exercise

Joel C. Phillips

     12000       17.02        3/4/2016      Option Exercise

Joel C. Phillips

     2000       17.02        3/10/2016      Option Exercise

Joel C. Phillips

     -400       18.92        3/10/2016      Sale

Joel C. Phillips

     -1600       18.5        3/10/2016      Sale

Joel C. Phillips

     2000       17.02        3/16/2016      Option Exercise

Joel C. Phillips

     306       15.43        3/31/2016      ESPP Purchase

Joel C. Phillips

     -3900       23.13        5/9/2016      Sale

Joel C. Phillips

     1000       14.27        6/30/2016      Option Exercise

Joel C. Phillips

     -1000       26.5        6/30/2016      Sale

Joel C. Phillips

     100       14.27        6/30/2016      Option Exercise

Joel C. Phillips

     -100       26.75        6/30/2016      Sale

Joel C. Phillips

     307       15.43        6/30/2016      ESPP Purchase

Joel C. Phillips

     900       14.27        7/1/2016      Option Exercise

Joel C. Phillips

     -900       26.75        7/1/2016      Sale

Joel C. Phillips

     1000       14.27        7/1/2016      Option Exercise

Joel C. Phillips

     -1000       27        7/1/2016      Sale

Joel C. Phillips

     -1000       0        8/6/2016      Gifted

Joel C. Phillips

     358       15.43        9/30/2016      ESPP Purchase

Joel C. Phillips

     -500       0        12/9/2016      Gifted

Joel C. Phillips

     -1475       0        12/23/2016      Gifted

Joel C. Phillips

     357       15.43        12/31/2016      ESPP Purchase

Joel C. Phillips

     5500       18.95        2/24/2007      Option Exercise

Joel C. Phillips

     228       21.42        3/31/2017      ESPP Purchase

Joel C. Phillips

     -5500       30.72        5/25/2017      Sale

Joel C. Phillips

     246       21.42        6/30/2017      ESPP Purchase

Joel C. Phillips

     211       21.42        9/30/2017      ESPP Purchase

Gary Miller

     10,000       14.12        5/5/2015      Option Exercise

Gary Miller

     16,000       17.02        12/1/2015      Option Exercise

Gary Miller

     -625       0        12/28/2015      Gifted

Gary Miller

     -7017       19.23        3/3/2016      Sale

Gary Miller

     -7000       19.95        3/31/2016      Sale

Gary Miller

     5000       14.27        11/30/2016      Option Exercise

Gary Miller

     -750       0        12/14/2016      Gifted

Gary Miller

     2800       18.95        2/2/2017      Option Exercise

Gary Miller

     -975       0        4/7/2017      Gifted

Miller Family

     (1,480     23.32        1/2/2015      Sale

Miller Family

     -4145       23.17        1/8/2015      Sale

Miller Family

     -5625       23.19        2/23/2015      Sale

Miller Family

     -5950       24.27        3/16/2015      Sale

Miller Family

     -10300       24.4        3/19/2015      Sale

Miller Family

     -22500       25.2        3/20/2015      Sale

Miller Family

     -1075       0        11/30/2015      Gifted

Miller Family

     -4725       23.14        4/25/2016      Sale

Miller Family

     -3260       23.06        4/26/2016      Sale

Miller Family

     -9851       24.06        4/27/2016      Sale

Miller Family

     -9664       24.37        5/18/2016      Sale

Miller Family

     -6964       25.1        5/24/2016      Sale

Miller Family

     -2355       25.1        5/25/2016      Sale

Miller Family

     -3381       25.11        6/2/2016      Sale

Miller Family

     -2406       25.1        6/6/2016      Sale

Miller Family

     -1500       25.11        6/7/2016      Sale

Miller Family

     -5894       25.19        6/8/2016      Sale

Miller Family

     -325       0        12/13/2016      Gifted

Miller Family

     -750       0        8/8/2016      Gifted

Bruce Thompson

     1,186       14.27        3/5/2015      Option Exercise

Bruce Thompson

     (1,186     22.68        3/5/2015      Sale

Bruce Thompson

     274       19.26        3/31/2015      ESPP Purchase

Bruce Thompson

     257       17.71        6/30/2015      ESPP Purchase

Bruce Thompson

     2107       17.02        9/1/2015      Option Exercise

Bruce Thompson

     -2107       19.45        9/1/2015      Sale

Bruce Thompson

     89       17.02        9/8/2015      Option Exercise

Bruce Thompson

     -89       19.3        9/8/2015      Sale

Bruce Thompson

     359       14.82        9/30/2015      ESPP Purchase

Bruce Thompson

     900       17.02        11/24/2015      Option Exercise

Bruce Thompson

     -900       17.75        11/24/2015      Sale

Bruce Thompson

     2800       17.02        11/30/2015      Option Exercise

Bruce Thompson

     -2800       17.72        11/30/2015      Sale

Bruce Thompson

     19104       17.02        12/1/2015      Option Exercise

Bruce Thompson

     -19104       17.55        12/1/2015      Sale

Bruce Thompson

     213       15.43        12/31/2015      ESPP Purchase

Bruce Thompson

     295       15.43        3/31/2016      ESPP Purchase

Bruce Thompson

     2000       14.27        6/7/2016      Option Exercise

Bruce Thompson

     -2000       25.07        6/7/2016      Sale

Bruce Thompson

     295       15.43        6/30/2015      ESPP Purchase

Bruce Thompson

     381       14.27        8/15/2016      Option Exercise

Bruce Thompson

     -381       28.32        8/15/2016      Sale

Bruce Thompson

     1433       14.27        8/22/2016      Option Exercise

Bruce Thompson

     -1433       27.97        8/22/2016      Sale

Bruce Thompson

     344       15.43        9/30/2016      ESPP Purchase

Bruce Thompson

     345       15.43        12/30/2016      ESPP Purchase

Bruce Thompson

     3306       18.95        2/23/2017      Option Exercise

Bruce Thompson

     -3306       24.75        2/23/2017      Sale

Bruce Thompson

     1600       18.95        2/24/2017      Option Exercise

Bruce Thompson

     -1600       24.82        2/24/2017      Sale

Bruce Thompson

     994       18.95        2/28/2017      Option Exercise

Bruce Thompson

     -994       24.23        2/28/2017      Sale

Bruce Thompson

     216       21.42        3/31/2017      ESPP Purchase

Bruce Thompson

     232       21.42        6/30/2017      ESPP Purchase

Bruce Thompson

     200       21.42        9/30/2017      ESPP Purchase

Donna Edwards

     171       19.26        3/31/2015      Option Exercise

Donna Edwards

     5,000       14.12        5/6/2015      Sale

Donna Edwards

     (1,657     20.69        5/6/2015      ESPP Purchase

Donna Edwards

     162       17.71        6/30/2015      ESPP Purchase

Donna Edwards

     225       14.82        9/30/2015      Option Exercise

Donna Edwards

     216       15.43        12/31/2015      Sale

Donna Edwards

     10,000       17.02        3/7/2016      Option Exercise

Donna Edwards

     (10,000     18.85        3/7/2016      Sale

Donna Edwards

     185       15.43        3/31/2016      ESPP Purchase

Donna Edwards

     185       15.43        6/30/2016      Option Exercise

Donna Edwards

     247       15.43        9/30/2016      Sale

Donna Edwards

     8,000       14.27        12/15/2016      Option Exercise

Donna Edwards

     270       15.43        12/30/2016      Sale

Donna Edwards

     1,700       18.95        2/23/2017      Option Exercise

Donna Edwards

     (1,349     24.53        2/23/2017      Sale

Donna Edwards

     (1,500     24.24        3/7/2017      ESPP Purchase

Donna Edwards

     172       21.42        3/31/2017      ESPP Purchase

Donna Edwards

     187       21.42        6/30/2017      Option Exercise

Donna Edwards

     160       21.42        9/30/2017      Sale

Transactions in Common Stock between Parent and Merger Sub and the Company

Neither Parent nor Merger Sub have made any purchases of the Common Stock during the past two years.

The Company Financial Advisor

Pursuant to an engagement letter, dated October 13, 2017, the Company retained J.P. Morgan as its financial advisor in connection with the proposed merger.

At the meeting of the Board on December 2, 2017, J.P. Morgan rendered its oral opinion to the Board that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered and limitations on the review undertaken by J.P. Morgan in preparing the opinion, the consideration to be paid to the holders of the Common Stock in the proposed merger was fair, from a financial point of view, to such shareholders. J.P. Morgan confirmed this oral opinion by delivering its written opinion to the Board, dated December 2, 2017.

The Company selected J.P. Morgan on the basis of J.P. Morgan’s experience with, among other things, investment banking and financial advisory matters, including transactions with private equity firms and capital markets, and the industries in which the Company operates. In connection with its engagement, the Company has agreed to pay J.P. Morgan financial advisory fees of $2 million and a transaction fee of $9 million upon the closing of the proposed merger. In addition, the Company has agreed to reimburse J.P. Morgan for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify J.P. Morgan and related persons against various liabilities, including certain liabilities under federal securities laws.

 

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APPRAISAL RIGHTS

Overview

Our shareholders are entitled to pursue appraisal rights in connection with the merger. Accordingly, shareholders who do not vote, or cause or permit to be voted, any of their shares of Common Stock in favor of the Merger Agreement and who comply with the other appraisal rights procedures set forth in Sections 607.1301 to 607.1333 of the FBCA will be entitled to receive from the Surviving Corporation a cash payment in an amount equal to the “fair value” of the shares of Common Stock as to which they are exercising appraisal rights (plus interest thereon). As described below, “fair value” under the appraisal rights provisions of the FBCA means the value of a dissenting holder’s shares of Common Stock determined immediately preceding the consummation of the merger and excluding any appreciation or depreciation in anticipation of the merger (unless exclusion would be inequitable). This amount could be more than, less than or equal to $44.25. A Company shareholder that wishes to exercise his, her or its appraisal rights in connection with the merger must strictly comply with the procedures set forth in Sections 607.1301 to 607.1333 of the FBCA, a summary of which is set forth below and the complete text of which is attached hereto as Annex C. Any failure to follow the required procedures will result in a termination or loss of appraisal rights.

Summary of Florida Appraisal Rights Statutes.

To assert appraisal rights, a Company shareholder must not vote, or cause or permit to be voted, any of his, her or its shares of Common Stock in favor of the Merger Agreement and must provide written notice to the Company indicating that such shareholder intends to demand payment for his, her or its shares of Common Stock if the merger is effected. Such written notification must be received by us before the vote on the Merger Agreement is taken at the special meeting (which is scheduled to be held on [DATE]) and delivered either in person or by mail (certified mail, return receipt requested, being the recommended form of transmittal) to Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653, Attention: Corporate Secretary. All such notices must be signed in the same manner as the shares to which the notices relate are registered on the books of the Company. If a Company shareholder votes, or causes or permits to be voted, any of his, her or its shares of Common Stock in favor of the Merger Agreement or we do not receive written notice of such shareholder’s intent to exercise appraisal rights before the vote is taken at the special meeting, the shareholder will be deemed to have waived and relinquished his, her or its appraisal rights.

If the merger is consummated, then within ten days after effective date of the merger, the Surviving Corporation will provide to each former Company shareholder who did not vote, or cause or permit to be voted, any of his, her or its shares in favor of the Merger Agreement and who properly and timely provided the required written notification of his, her or its intent to exercise appraisal rights, a written appraisal notice and appraisal election form which will set forth, among other items required by the FBCA, the Surviving Corporation’s estimate of the “fair value” of the Common Stock (as determined in accordance with the FBCA). The appraisal notice and appraisal election form provided by the Surviving Corporation will also include a copy of Sections 607.1301 to 607.1333 of the FBCA as well as the financial statements of the Company required thereunder.

Pursuant to the FBCA, the “fair value” of the shares of our Common Stock held by a shareholder exercising appraisal rights means the value of such shares determined immediately preceding the consummation of the merger and excluding any appreciation or depreciation of the merger (unless exclusion would be inequitable). This amount could be more than, less than or equal to $49.25 or the value of the shares of Common Stock that the shareholder would otherwise have been entitled to receive in connection with the merger. “Fair value” is determined based on the value of the shares immediately preceding consummation of the merger and without regard to when the vote on the Merger Agreement is taken.

A shareholder asserting appraisal rights must execute and return the appraisal election form to the Surviving Corporation and deposit the shareholder’s certificates representing the shares of Common Stock as to which he, she or it is exercising appraisal rights in accordance with the terms of the appraisal notice on or before the date specified therein (which will not be fewer than 40 or more than 60 days after the date on which the appraisal notice and appraisal election form were sent to the shareholder). A shareholder who timely complies with the required procedures and does not timely withdraw his, her or its appraisal rights demand (as described in further detail below) will not have any rights with respect to the merger other than the right to receive the “fair value” of his,

 

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her or its shares in accordance with the appraisal rights procedures. A dissenting shareholder who does not execute and return the appraisal election form and deposit his, her or its stock certificates by the date set forth in the appraisal notice will lose his, her or its appraisal rights and will thereafter be entitled to receive, pursuant to the terms of the Merger Agreement, $49.25 in cash, without interest, in exchange for each share of Common Stock owned by such shareholder at the Effective Time.

A shareholder who complies with the requirements for asserting and exercising appraisal rights but subsequently wishes to withdraw from the appraisal process may do so by providing the Surviving Corporation with written notification of such withdrawal by the deadline set forth in the appraisal notice (which will not be more than 20 days after the date on which the appraisal election form was due). Any such written notification of withdrawal must be delivered either in person or by mail (certified mail, return receipt requested, being the recommended form of transmittal) to the Surviving Corporation at, [●], Attention: Corporate Secretary. A shareholder who fails to timely withdraw from the appraisal process may not thereafter withdraw without the Surviving Corporation’s written consent.

A Company shareholder wishing to assert appraisal rights must do so with respect to all of the shares of Common Stock registered in his, her or its name, except that a record shareholder may assert appraisal rights as to fewer than all of the shares registered in the record shareholder’s name but which are owned by a beneficial shareholder if the record shareholder objects with respect to all shares owned by the beneficial shareholder. A record shareholder must notify the Surviving Corporation in writing of the name and address of each beneficial shareholder on whose behalf appraisal rights are being asserted. A beneficial shareholder may assert appraisal rights as to any shares held on behalf of the shareholder only if the shareholder submits to the Surviving Corporation the record shareholder’s written consent to the assertion of such appraisal rights before the date specified in the appraisal notice and does so with respect to all shares that are beneficially owned by the beneficial shareholder.

If a Company shareholder timely accepts the Surviving Corporation’s offer to pay the “fair value” of the shares of Common Stock as set forth in the appraisal notice, payment will be made within 90 days after the Surviving Corporation receives the appraisal election form from the shareholder. A Company shareholder who is dissatisfied with the Surviving Corporation’s payment offer set forth in the appraisal notice must include in his, her or its returned appraisal election form the shareholder’s estimate of the “fair value” of his, her or its shares, as well as a demand for payment in such amount (plus interest). Otherwise, the shareholder will be entitled to payment of only the amount offered by the Surviving Corporation. Pursuant to the FBCA, interest accrues from the Effective Time until the date of payment at the interest rate on judgments in Florida on the effective date of the merger. Once the Surviving Corporation has made payment of an agreed upon value to a Company shareholder, such shareholder will cease to have any interest in, or rights with respect to, his, her or its shares.

If the Surviving Corporation and a shareholder who has exercised appraisal rights are unable to agree on the “fair value” of the shares of Common Stock, then within 60 days after the Surviving Corporation’s receipt of the dissenting shareholder’s payment demand described above, the Surviving Corporation may file an appraisal action in a court of competent jurisdiction in Alachua County, Florida requesting that the “fair value” of the shares of Common Stock be determined by the court. If the Surviving Corporation fails to file such proceeding within such 60-day period, any shareholder who has exercised appraisal rights and made a payment demand based on his, her or its estimate of the “fair value” of the Common Stock may file the appraisal action in the name of Exactech. All such shareholders, other than shareholders who have agreed upon a value with the Surviving Corporation, are deemed to be parties to the proceeding. In such proceeding, the court may, if it so elects, appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of “fair value.” Each shareholder that is a party to the appraisal rights proceeding will be entitled to receive a payment from the Surviving Corporation in the amount determined by the presiding court within ten days after final determination of the proceeding. Upon payment of the amount determined by the court, the shareholders will cease to have any interest in, or rights with respect to, their shares of Common Stock.

The court in an appraisal rights proceeding will determine the cost and expense of such proceeding, and such costs and expenses will be assessed against the Surviving Corporation. However, all or any part of such costs and expenses may be apportioned and assessed against all or some of the shareholders that are parties to the proceeding in such amount as the court deems equitable if the court determines that such shareholders acted arbitrarily, vexatiously or not in good faith with respect to their appraisal rights. The court may also assess the fees and expenses of counsel and experts for the respective parties in the amounts the court finds equitable against the

 

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Surviving Corporation if the court finds that the Surviving Corporation did not substantially comply with the requirements applicable to it under Sections 607.1320 and 607.1322 of the FBCA, or against any party which the court finds acted arbitrarily, vexatiously, or not in good faith with respect to the appraisal rights. In the event the Surviving Corporation fails to make any required payments, the shareholders to which such payments are due may sue directly for the amount owed and, to the extent successful, will be entitled to recover all costs and expenses of the suit, including attorneys’ fees.

The foregoing discussion is not a complete statement of the law pertaining to appraisal rights under the FBCA and is qualified in its entirety by reference to the full text of Sections 607.1301 to 607.1333 of the Florida Business Corporation Act, which is attached to this proxy statement/prospectus as Annex C. The foregoing discussion does not constitute any legal or other advice nor does it constitute a recommendation that holders of the Common Stock exercise or waive their appraisal rights. Any Company shareholder wishing to assert and exercise appraisal rights is urged to consult with his, her or its legal counsel before attempting to assert and exercise those rights.

Waiver. Based on Florida’s appraisal rights statutes as well as principles of waiver and estoppel, we intend to take the position with respect to any lawsuit seeking recovery outside of the appraisal rights process that appraisal rights represent the exclusive remedy to challenge the Merger Consideration and that any shareholder who either (i) votes for the Merger Agreement, (ii) does not exercise appraisal rights or (iii) accepts Merger Consideration pursuant to the Merger Agreement, whether by making a valid election or by exchanging any of such shareholder’s stock certificates for Merger Consideration, will have waived and relinquished all claims arising out of or relating to the consideration provided to the Company’s shareholders under the Merger Agreement and be barred from seeking recovery of other consideration.

 

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DELISTING AND DEREGISTRATION OF OUR COMMON STOCK

If the merger is completed, our Common Stock will be delisted from the Nasdaq Global Market and deregistered under the Exchange Act and we will no longer file periodic reports with the SEC on account of our Common Stock.

OTHER BUSINESS

As of the date of this proxy statement, we do not know of any other matters to be brought before the special meeting other than as described in this proxy statement.

SHAREHOLDER PROPOSALS FOR THE 2018 ANNUAL MEETING

If the merger is completed as expected during the first quarter of 2018, we will not hold an annual meeting of shareholders in 2018. If the merger is not completed, you will continue to be entitled to attend and participate in our annual meetings of shareholders, and we will hold a 2018 annual meeting of shareholders, in which case we will provide notice of or otherwise publicly disclose the date on which such 2018 annual meeting will be held. If the 2018 annual meeting is held, shareholder proposals will be eligible for consideration for inclusion in the proxy statement and form of proxy for our 2018 annual meeting of shareholders in accordance with Rule 14a-8 under the Exchange Act and our advance notice Bylaws, as described below.

Shareholder proposals intended to be included in our proxy statement for, and have been presented at, our 2018 annual meeting of shareholders pursuant to the provisions of Rule 14a-8 or the Exchange Act must be received by us at our executive offices by November 24, 2017 for inclusion in our proxy statement and form of proxy relating to such meeting. Any shareholder wishing to propose a nominee for membership on our Board of Directors should submit a recommendation in writing in accordance with the foregoing, to the Governance Committee, indicating the nominee’s qualifications and other biographical information and providing confirmation of the nominee’s consent to serve as a director. If, however, the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the shareholder of all of the nominees for director must be received not later than the close of business on the 10th day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure was first made.

A shareholder of ours may wish to have a proposal presented at the 2018 annual meeting of shareholders, but not to have such proposal included in our proxy statement and form of proxy relating to that meeting. Rule 14a-4 under the Exchange Act allows a company to use discretionary voting authority to vote on matters coming before an annual meeting of shareholders, if the Company does not have notice of the matter at least 45 days before the date corresponding to the date on which the Company first mailed its proxy materials for the prior year’s annual meeting of shareholders or the date specified by a superseding advance notice provision in the Company Charter or Company By-laws. The Company By-laws contain such an advance notice provision. This provision provides that nominations to our Board of Directors or proposals for other business presented at the 2018 annual meeting by shareholders must be made in writing to the Corporate Secretary and must be delivered to or mailed and received at our principal executive offices (at the address appearing on the first page of this proxy statement) not less than 90 days nor more than 120 days prior to the anniversary of the date of our last annual meeting of shareholders. Accordingly, for our 2018 annual meeting of shareholders, shareholders must submit such written notice to the Corporate Secretary on or before February 3, 2018 and on or after January 4, 2018. If, however, the date of the annual meeting is changed by more than 30 days from such anniversary date, notice by the shareholder of all of the nominees for director must be received not later than the close of business on the 10th day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure was first made.

MULTIPLE SHAREHOLDERS SHARING ONE ADDRESS

Some brokers, banks, trusts and other nominees may be participating in the practice of “householding” proxy statements. This means that only one copy of this notice and proxy statement may have been sent to multiple shareholders in your household. If you would prefer to receive separate copies of a proxy statement either now or in the future, you may request separate copies by written or telephonic request directed to Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653, telephone number (352) 377-1140. Upon written or oral request, we will provide a separate copy of this proxy statement. In addition, shareholders sharing an address can request delivery of a single copy of a proxy statement if you are receiving multiple copies upon written or oral request at the address and telephone number stated above.

 

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IMPORTANT INFORMATION REGARDING PARENT PARTIES

Fund Entities Information

Set forth below for each director or officer of TPG GenPar VII Advisors, LLC (“Advisors”) (the ultimate general partner of the Fund), Parent, Parent’s general partner and Merger Sub, is his or her respective present principal occupation or employment, the name of the organization in which such occupation or employment is conducted and the five-year employment history of each such person. The directors of each of Advisors and Merger Sub are Michael LaGatta and Ken Murphy (Directors) and the officers of each of Advisors, Parent’s general partner and Merger Sub are Ken Murphy (Vice President), Michael LaGatta (Vice President) (also Vice President of Parent), Clive Bode (Vice President and Secretary), Steven Willmann (Treasurer), Joann Harris (Chief Compliance Officer) and Martin Davidson (Chief Accounting Officer).

During the past five years, none of Parent, Parent’s general partner, Merger Sub, the Fund, Advisors, and none of their respective directors and executive officers has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). In addition, during the past five years, none of Parent, Merger Sub, the Fund, Advisors, and none of their respective directors and executive officers has been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining such directors and executive officers from future violations of, or prohibiting activities subject to, federal or state securities laws or a finding of any violation of federal or state securities laws. Each of the individuals listed below are citizens of the United States.

The Fund

Ken Murphy is a Partner at TPG and the Managing Partner of TPG services and new business operations. Prior to joining TPG in 2015, Ken worked at Mount Kellett Capital Management for three years and Goldman, Sachs & Co. for 23 years.

Michael LaGatta is General Counsel of TPG Holdings and Deputy General Counsel of TPG, where he has worked since 2011.

Clive Bode is a Partner at TPG, where he has worked since 2006.

Steve Willmann is a Managing Director and the Treasurer for TPG, where he has worked since 2007.

Joann Harris is the Chief Compliance Officer at TPG, based in Fort Worth. Prior to joining TPG in 2015, Joann served as an Assistant Regional Director of Enforcement and an Enforcement Attorney at the U.S. Securities and Exchange Commission.

Martin Davidson is a Managing Director and Chief Accounting Officer of TPG, where he has worked since 2005.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC website at www.sec.gov. You also may obtain free copies of the documents we file with the SEC, including this proxy statement, by going to the Investors page of our corporate website at www.exac.com. Our website address is provided as an inactive textual reference only. The information provided on our website, other than copies of the documents listed below that have been filed with the SEC, is not part of this proxy statement, and therefore is not incorporated herein by reference.

Statements contained in this proxy statement, or in any document incorporated by reference in this proxy statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC.

 

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The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. We incorporate by reference the documents listed below, and, with respect to this proxy statement but not with respect to the Schedule 13E-3, any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the special meeting.

 

    Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (filed with the SEC on March 8, 2017);

 

    Quarterly Reports on Form 10-Q (filed with the SEC on May 3, 2017, August 8, 2017 and November 8, 2017); and

 

    Current Reports on Form 8-K (filed with the SEC on May 8, 2017; October 12, 2017; October 23, 2017; and December 4, 2017).

 

    the portions of the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on March 24, 2017, that are deemed “filed” with the SEC under the Exchange Act.

Notwithstanding the foregoing, information furnished under Items 2.02, 7.01 or 9.01 of any Current Report on Form 8-K, or any other information that is identified as “furnished” rather than “filed” is not incorporated by reference into this proxy statement.

Because the merger is a “going private” transaction, the Company has filed with the SEC a Transaction Statement on Schedule 13E-3 with respect to the merger. The Schedule 13E-3, including any amendments and exhibits filed or incorporated by reference as a part of it, is available for inspection as set forth above. The Schedule 13E-3 will be amended to report promptly any material change in the information set forth in the most recent Schedule 13E-3 filed with the SEC.

We will amend the Schedule 13E-3 to incorporate by reference any additional documents that we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and prior to the date of the special meeting to the extent required to fulfill our obligations under the Exchange Act.

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of proxy statements and any of the documents incorporated by reference in this document or other information concerning us, without charge, by written or telephonic request directed to Jody Phillips at Exactech, Inc., 2320 N.W. 66th Court, Gainesville, Florida 32653, telephone number (352) 377-1140 or from the SEC through the SEC website at the address provided above. Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents.

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES OF OUR COMMON STOCK AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED []. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

 

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ANNEX A

Execution Version

Composite of Agreement and Plan of Merger, dated October 27, 2017,

as amended by Amendment No. 1 thereto, dated December 3, 2017

AGREEMENT AND PLAN OF MERGER

Dated as of October 22, 2017

among

EXACTECH, INC.

OSTEON HOLDINGS, L.P.

and

OSTEON MERGER SUB, INC.

 

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TABLE OF CONTENTS

 

ARTICLE I The Merger      A-6  
Section 1.01      The Merger      A-6  
Section 1.02      Closing      A-6  
Section 1.03      Effective Time      A-6  
Section 1.04      Effects      A-6  
Section 1.05      Articles of Incorporation and By-Laws      A-6  
Section 1.06      Directors and Officers of Surviving Company      A-6  
ARTICLE II Effect on the Capital Stock of the Constituent Entities; Exchange of Certificates      A-7  
Section 2.01      Effect on Capital Stock      A-7  
Section 2.02      Exchange of Certificates; Payment Fund; Deliverables      A-8  
Section 2.03      Dissenters’ Rights      A-12  
ARTICLE III Representations and Warranties of Parent and Merger Sub      A-12  
Section 3.01      Organization, Standing and Power      A-12