Item 1.01 - Entry into a Material Definitive Agreement.
On July 12, 2016, Evolent Health, Inc., a Delaware corporation (the “
Company
”), and Electra Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“
Merger Sub
”), entered into an Agreement and Plan of Merger by and among the Company, Merger Sub, Valence Health, Inc., a Delaware corporation (“
Valence
”), and North Bridge Growth Management Company LLC and Philip Kamp, in their capacity as representative of the securityholders of Valence (the “
Merger Agreement
”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Valence will be merged with and into Merger Sub (the “
Merger
”) with Merger Sub surviving the Merger as a wholly-owned subsidiary of the Company. Under the Merger Agreement, the Company will acquire Valence’s business, excluding its contracts serving state insurance cooperatives; the state insurance cooperative contracts will be transferred to a separate entity that will be owned by current Valence stockholders. The closing of the Merger is currently anticipated to occur within 120 days, subject to regulatory approvals and other closing conditions set forth in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, the Company is expected to pay an aggregate of approximately $142.8 million to $144.1 million in merger consideration based on the closing price of the Company’s Class A common stock on the New York Stock Exchange on July 12, 2016 (the “
Merger Consideration
”), consisting of 5.29 million to 5.84 million shares of the Company’s Class A common stock (the “
Share Consideration
”) and approximately $35 million to $44 million in cash (the “
Cash Consideration
”). The aggregate Merger Consideration payable in the transaction is subject to certain post-closing adjustments based on working capital, indebtedness, liabilities and transaction expenses as of the closing date of the Merger. The Company will also pay additional contingent share consideration, if earned, in the form of an earn-out of up to $50 million (payable in shares of the Company’s Class A common stock) (the “
Additional Share Consideration
”), the payment of which is subject to the satisfaction of certain conditions and the achievement of new business activity completed by Valence over the balance of calendar year 2016 impacting 2017 results.
The Share Consideration and Additional Share Consideration will be issued only to those Valence stockholders who are “accredited investors” as defined under Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “
Securities Act
”). Pursuant to the Merger Agreement, $11.4 million of the Share Consideration will be held in a separate escrow account as partial security for the indemnification obligations of the Valence securityholders and other recipients of merger consideration. The consideration remaining in the escrow account will be released after 15 months from the closing date of the Merger, less the aggregate amount of any pending and unresolved claims as of such date.
Each of the Company’s and Valence’s board of directors has approved the Merger Agreement and the transactions contemplated thereby, including the Merger. The Company and Valence each made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants by Valence to conduct its business in the ordinary course during the interim period between the execution of the Merger Agreement and the consummation of the Merger. The consummation of the Merger is subject to customary closing conditions, including, among others, the approval of Valence’s stockholders, the absence of certain legal impediments to the consummation of the Merger, the receipt of specified consents and approvals, the early termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and, subject to materiality exceptions, the accuracy of representations and warranties made by the Company and Valence, respectively, and compliance by the Company and Valence with their respective obligations under the Merger Agreement. The Merger is not subject to any financing condition.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the full text of the Merger Agreement, which is filed herewith as Exhibit 2.1 and is incorporated herein by reference.