SEC Form DEFM14A filed by Covetrus Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

☐	Preliminary Proxy Statement

 

☐	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

☒	Definitive Proxy Statement

 

☐	Definitive Additional Materials

 

☐	Soliciting Material under §240.14a-12

COVETRUS, 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 all boxes that apply):

 

☐	No fee required

 

☒	Fee paid previously with preliminary materials

 

☐	Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11

 

 

 

COVETRUS, INC.

7 Custom House Street

Portland, ME 04101

www.Covetrus.com

September 12, 2022

Dear Covetrus Stockholder:

You are cordially invited to attend a special meeting of the stockholders of Covetrus, Inc., a Delaware corporation (“Covetrus” or the “Company”). The special meeting will be held via live webcast on October 11, 2022, at 10:00 a.m., Eastern Time. To participate in the special meeting virtually via the Internet, please visit www.proxydocs.com/CVET. In order to participate, you must register at www.proxydocs.com/CVET before the commencement of the special meeting. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the virtual meeting, where you will be able to listen to the meeting live, submit questions and vote online. Please note that you will not be able to attend the special meeting in person. Details on how to access the meeting and the business to be conducted are provided in the accompanying proxy statement.

On May 24, 2022, Covetrus entered into an Agreement and Plan of Merger (as the same may be amended from time to time, the “Merger Agreement”) by and among the Company, Corgi Bidco, Inc., a Delaware corporation (“Parent”), Corgi Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which Merger Sub will be merged with and into the Company (the “Merger” and together with the other transactions contemplated by the Merger Agreement, the “Transactions”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are subsidiaries of investment funds managed by Clayton, Dubilier & Rice, LLC (“CD&R”). CD&R VFC Holdings, L.P., a Cayman Islands exempted limited partnership and an affiliate of CD&R (“CD&R VFC Holdings”), owns approximately 24.03% of the issued and outstanding shares of Company common stock, par value $0.01 per share (which we refer to as a “share” or, collectively, “shares”).

In connection with the Merger Agreement, an affiliate of CD&R and affiliates of TPG Global, LLC (“TPG”) have entered into equity commitment letters with Parent (the “Equity Commitment Letters”), pursuant to which they have agreed to provide equity commitments to Parent in an aggregate amount of $1.604 billion, and have entered into limited guarantees with the Company (as amended from time to time, the “Limited Guarantees”) with respect to the payment of a termination fee that may be payable by Parent to the Company under the Merger Agreement, as well as certain reimbursement obligations that may be owed by Parent pursuant to the Merger Agreement, in each case, subject to the terms of the Merger Agreement, the Equity Commitment Letters and the Limited Guarantees, as applicable. At the special meeting, Covetrus will ask you and the other Covetrus stockholders to adopt the Merger Agreement (the “Merger Agreement Proposal”).

At the effective time of the Merger (the “Effective Time”), each share of Company common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (other than shares of Company common stock owned by (i) Parent or Merger Sub or any of their respective subsidiaries (including the shares of Company common stock transferred by CD&R VFC Holdings, directly or indirectly, to Parent immediately prior to the Effective Time), (ii) Covetrus as treasury stock and (iii) Covetrus stockholders who have perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the Delaware General Corporation Law), will be converted into the right to receive $21.00 in cash, without interest thereon.

The transaction committee (the “Transaction Committee”) of the board of directors of the Company (the “Board”), consisting solely of non-management members of the Board that are unaffiliated with CD&R or its affiliates, evaluated the Merger in consultation with the Company’s management and legal and financial

advisors. The Transaction Committee unanimously (i) approved and declared advisable the Merger Agreement and the consummation of the Transactions, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) determined that the Merger is fair to, and in the best interests of, the Company and its stockholders and (iii) recommended to the Board to adopt and declare advisable the Merger Agreement and the Transactions, including the Merger, and recommend to the stockholders of the Company the adoption of the Merger Agreement.

The Board, other than Ravi Sachdev and Sandra Peterson, who recused themselves due to their affiliation with CD&R and whom we refer to as the “Recused Directors,” acting upon the recommendation of the Transaction Committee, unanimously (i) approved and declared advisable the Merger Agreement and the consummation of the Transactions, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) determined that the Merger is fair to, and in the best interests of, the Company and its stockholders, (iii) directed that the Merger Agreement be submitted to a vote at a meeting of the stockholders of the Company and (iv) resolved to recommend that the stockholders of the Company adopt the Merger Agreement.

Additionally, you will be asked to consider and vote at the special meeting on (1) a proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Merger and the other Transactions (the “Merger-Related Compensation Proposal”) and (2) a proposal to adjourn the special meeting, if necessary or appropriate and for a minimum period of time reasonable under the circumstances, to ensure that any necessary supplement or amendment to the proxy statement accompanying this notice is provided to Company stockholders a reasonable amount of time in advance of the special meeting, or to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the aforementioned proposal regarding the Merger Agreement (the “Adjournment Proposal”).

The Merger Agreement and the Merger have been unanimously approved and recommended by the Transaction Committee. The Board, by a unanimous vote of the Company’s directors (other than the Recused Directors), recommends a vote (i) “FOR” the Merger Agreement Proposal, (ii) “FOR” the Merger-Related Compensation Proposal and (iii) “FOR” the Adjournment Proposal.

Your vote is important. The Merger cannot be completed unless the Merger Agreement is adopted by stockholders holding a majority of the outstanding shares of Company common stock entitled to vote on such matter. The failure to vote will have the same effect as a vote “AGAINST” the Merger Agreement Proposal.

Therefore, whether or not you plan to attend the special meeting and regardless of the number of shares of Company common stock you own, your careful consideration of, and vote on, the Merger Agreement Proposal is important, and we encourage you to vote promptly. After reading the accompanying proxy statement, please make sure to vote your shares of Company common stock promptly (1) by completing, signing and dating the accompanying proxy card and returning it in the enclosed prepaid envelope, (2) by telephone or (3) through the internet. Instructions regarding all three methods of voting are provided on the proxy card. If you virtually attend the special meeting and vote during the special meeting, your vote by ballot will revoke any proxy previously submitted. If you hold shares of Company common stock through an account with a bank, broker, trust or other nominee, please follow the instructions you receive from your bank, broker, trust or other nominee to vote your shares.

Completion of the Merger is subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement.

The accompanying proxy statement provides you with more detailed information about the special meeting, the Merger Agreement and the Transactions, including the Merger. A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement. We encourage you to carefully read the entire proxy statement and its annexes, including the Merger Agreement and the documents referred to or incorporated by reference in the proxy statement. You may also obtain additional information about the Company from other documents we have filed with the U.S. Securities and Exchange Commission (the “SEC”). In particular, you should read the

“Risk Factors” section beginning on page 17 in the Company’s annual report on Form 10-K for the year ended December 31, 2021, and other risk factors detailed from time to time in the Company’s reports filed with the SEC and incorporated by reference in the proxy statement, for risks relating to the Company’s business and for a discussion of the risks that you should consider in evaluating the proposed transaction and how it may affect you.

If you have any questions or need assistance submitting your proxy, or if you need additional copies of the proxy statement or the proxy card or voting instructions enclosed thereto, please contact the Company’s proxy solicitor, Innisfree:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders in the U.S. and Canada may call toll-free at: (866) 239-1762

Stockholders in other locations may call: +1 (412) 232-3651

Banks and brokers may call collect at: (212) 750-5833

Your support of and interest in Covetrus, Inc. is sincerely appreciated.

Benjamin Wolin

President and Chief Executive Officer, Covetrus

The accompanying proxy statement is dated September 12, 2022, and is first being mailed to Covetrus stockholders on or about September 12, 2022.

Neither the United States Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Transactions (including the Merger), passed upon the merits or fairness of the Transactions (including the Merger) or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

 

COVETRUS, INC.

7 Custom House Street

Portland, ME 04101

www.Covetrus.com

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on October 11, 2022

Virtual Meeting Only—No Physical Meeting Location

To the Stockholders of Covetrus, Inc.:

A special meeting of stockholders of Covetrus, Inc., a Delaware corporation (“Covetrus” or the “Company”), will be held via live webcast on October 11, 2022, at 10:00 a.m., Eastern Time. To participate in the special meeting virtually via the Internet, please visit www.proxydocs.com/CVET. In order to participate, you must register at www.proxydocs.com/ CVET before the commencement of the special meeting. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the virtual meeting where you will be able to listen to the meeting live, submit questions and vote online. We encourage you to allow ample time for online check-in, which will open at 9:45 a.m., Eastern Time. Please note that you will not be able to attend the virtual special meeting in person. We are holding the special meeting for the following purposes:

 

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to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of May 24, 2022 (as the same may be amended from time to time, the “Merger Agreement”), by and among the Company, Corgi Bidco, Inc., a Delaware corporation (“Parent”), and Corgi Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), a copy of which is attached as Annex A to the accompanying proxy statement, pursuant to which Merger Sub will be merged with and into the Company (the “Merger” and together with the other transactions contemplated by the Merger Agreement, the “Transactions”), with the Company surviving the Merger as a wholly owned subsidiary of Parent (the “Merger Agreement Proposal”);

 

2.

to consider and vote on a proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Transactions, including the Merger (the “Merger-Related Compensation Proposal”); and

 

3.

to consider and vote on a proposal to adjourn the special meeting to a later date or time if necessary or appropriate to ensure that any necessary supplement or amendment to the accompanying proxy statement is provided to Company stockholders a reasonable amount of time in advance of the special meeting or to solicit additional proxies in favor of the Merger Agreement Proposal if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement (the “Adjournment Proposal”).

These items of business are more fully described in the accompanying proxy statement.

The record date for the special meeting is September 7, 2022. Only stockholders of record at the close of business on such record date are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof. Any stockholder entitled to attend and vote at the special meeting is entitled to appoint a proxy to attend and act on such stockholder’s behalf.

If the Merger is consummated, stockholders who continuously hold shares of Company common stock through the effective time and who properly demand appraisal of their shares of Company common stock and who do not withdraw their demands or otherwise lose their rights of appraisal will be entitled to seek appraisal of their shares

of Company common stock in connection with the Merger. Stockholders must comply with all the requirements of Delaware law, which are summarized in the proxy statement accompanying this notice and reproduced in their entirety in Annex D to the accompanying proxy statement.

The Merger Agreement and the Transactions, including the Merger, have been unanimously approved and recommended by the transaction committee (the “Transaction Committee”) of the board of directors of the Company (the “Board”), consisting solely of non-management members of the Board that are unaffiliated with Clayton, Dubilier & Rice, LLC or its affiliates. The Board, by a unanimous vote of the Company’s directors (other than Ravi Sachdev and Sandra Peterson, who recused themselves due to their affiliation with CD&R), recommends a vote (i) “FOR” the Merger Agreement Proposal, (ii) “FOR” the Merger-Related Compensation Proposal and (iii) “FOR” the Adjournment Proposal.

Your vote is very important. If you fail to return your proxy, vote by telephone or through the internet or virtually attend the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the Merger Agreement Proposal.

To ensure that your shares of Company common stock are represented at the special meeting, regardless of whether you plan to virtually attend the special meeting, please fill in your vote, sign and mail the enclosed proxy card as soon as possible. We have enclosed a return envelope, which requires no postage if mailed in the United States. Alternatively, you may vote by telephone or through the internet. Instructions regarding each of the methods of voting are provided on the enclosed proxy card. If you are voting by telephone or through the internet, then your voting instructions must be received by 11:59 p.m., Eastern Time on October 10, 2022, the day before the special meeting. Your proxy is being solicited by the Board.

The accompanying proxy statement provides you with more detailed information about the special meeting, the Merger Agreement and the Transactions, including the Merger. A copy of the Merger Agreement is attached as Annex A to the accompanying proxy statement. We encourage you to carefully read the entire proxy statement and its annexes, including the Merger Agreement and the documents referred to or incorporated by reference in the proxy statement. You may also obtain additional information about the Company from other documents we have filed with the U.S. Securities and Exchange Commission (the “SEC”). In particular, you should read the “Risk Factors” section beginning on page 17 in the Company’s annual report on Form 10-K for the year ended December 31, 2021, and other risk factors detailed from time to time in the Company’s reports filed with the SEC and incorporated by reference in the proxy statement, for risks relating to the Company’s business and for a discussion of the risks that you should consider in evaluating the proposed transaction and how it may affect you.

If you have any questions or need assistance submitting your proxy, or if you need additional copies of the proxy statement or the enclosed proxy card or voting instructions, please contact the Company’s proxy solicitor, Innisfree:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders in the U.S. and Canada may call toll-free at: (866) 239-1762

Stockholders in other locations may call: +1 (412) 232-3651

Banks and brokers may call collect at: (212) 750-5833

By Order of the Board of Directors,

Margaret Pritchard

Interim General Counsel, Secretary

September 12, 2022

Portland, Maine

Please Vote—Your Vote is Important

TABLE OF CONTENTS

 

		Page
SUMMARY TERM SHEET			1
The Parties			1
The Special Meeting			1
Special Factors			2
The Merger Agreement			2
Support and Rollover Agreement			4
Stockholders Entitled to Vote; Vote Required to Adopt the Merger Agreement			5
How to Vote			5
Background of the Merger			6
Reasons for the Merger; Recommendation of the Board; Fairness of the Merger			6
Position of the CD&R Entities as to the Fairness of the Merger; Purpose and Reasons of the CD&R Entities for the Merger			6
Opinion of Goldman Sachs & Co. LLC			7
Interests of Directors and Executive Officers in the Merger			7
Certain Effects of the Merger			8
Consequences if the Merger is Not Completed			8
Certain Financial Projections Utilized in Connection with the Merger			8
Material U.S. Federal Income Tax Consequences of the Merger			9
Fees and Expenses			9
Payment of Merger Consideration			9
Provisions for Unaffiliated Stockholders			10
Financing of the Merger			10
Treatment of Existing Debt			11
Regulatory Approvals			11
Litigation Related to the Merger			12
Appraisal Rights			12
Market Price and Dividend Data			12
Other Important Information Regarding the Company			13
Other Important Information Regarding the CD&R Entities			13
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER			14
SPECIAL FACTORS			22
Overview			22
Background of the Merger			22
Reasons for the Merger; Recommendation of the Board; Fairness of the Merger			32
Position of the CD&R Entities as to the Fairness of the Merger			39
Certain Financial Projections Utilized in Connection with the Merger			42
Opinion of Goldman Sachs & Co. LLC			45
Other Presentations by Financial Advisors			53
Deutsche Bank Securities Inc. Discussion Materials Provided to CD&R and TPG			56
Purpose and Reasons of the Company for the Merger			67
Purpose and Reasons of the CD&R Entities for the Merger			67
Plans for the Company After the Merger			67
Interests of Directors and Executive Officers in the Merger			68
Golden Parachute Compensation			72
Intent to Vote in Favor of the Merger			73
Certain Effects of the Merger			74
Consequences if the Merger is Not Completed			74
Material U.S. Federal Income Tax Consequences of the Merger			75
Treatment of Existing Debt			77
Regulatory Approvals			77

 

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		Page
Litigation Related to the Merger			77
Fees and Expenses			78
Payment of Merger Consideration			78
Provisions for Unaffiliated Stockholders			79
Financing of the Merger			79
Limited Guarantees			81
Accounting Treatment			81
THE MERGER AGREEMENT			82
SUPPORT AND ROLLOVER AGREEMENT			114
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			115
PARTIES TO THE MERGER			117
Covetrus			117
Parent			117
Merger Sub			117
THE SPECIAL MEETING			118
Date, Time and Place of the Special Meeting			118
Purpose of the Special Meeting			118
Recommendation of the Board			118
Record Date and Quorum			119
Vote Required for Approval			119
CD&R VFC Holdings’ Obligation to Vote in Favor of the Merger			120
Effect of Abstentions; Broker Non-Votes			120
How to Vote			121
Revocation of Proxies			122
Adjournments and Postponements			122
Solicitation of Proxies			123
Questions and Additional Information			123
PROPOSAL 1: THE MERGER AGREEMENT PROPOSAL			124
PROPOSAL 2: MERGER-RELATED COMPENSATION PROPOSAL			125
PROPOSAL 3: ADJOURNMENT PROPOSAL			126
APPRAISAL RIGHTS			127
MARKET PRICE AND DIVIDEND DATA			131
OTHER IMPORTANT INFORMATION REGARDING THE COMPANY			132
Directors and Executive Officers of the Company			132
Prior Public Offerings			136
Certain Transactions in the Shares of Common Stock			136
Book Value per Share			137
Security Ownership of Certain Beneficial Owners and Management			137
OTHER IMPORTANT INFORMATION REGARDING THE CD&R ENTITIES			139
DELISTING AND DEREGISTRATION OF COMMON STOCK			142
OTHER MATTERS			142
FUTURE STOCKHOLDER PROPOSALS			142
HOUSEHOLDING OF PROXY MATERIAL			144
WHERE YOU CAN FIND MORE INFORMATION			144
Annex A-Merger Agreement			A-1
Annex B-Support and Rollover Agreement			B-1
Annex C-Opinion of Goldman Sachs & Co. LLC			C-1
Annex D-Section 262 of the Delaware General Corporation Law			D-1

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers are intended to briefly address some commonly asked questions regarding the special meeting of stockholders and the Merger. These questions and answers do not address all questions that may be important to you as a Covetrus stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the Annexes to this proxy statement and the documents referred to in and incorporated by reference into this proxy statement.

 

Q:	Why am I receiving this proxy statement?

 

A:	On March 24, 2022, Covetrus entered into the Merger Agreement with Parent and Merger Sub. You are receiving this proxy statement in connection with the solicitation of proxies by the Board in favor of the Merger Agreement Proposal.

 

Q:	As a stockholder, what will I receive in the Merger?

 

A:

If the Merger is completed, you will be entitled to receive $21.00 in cash, without interest, for each share of Company common stock you own as of immediately prior to the Effective Time. For further information, see the section entitled “The Merger Agreement—Merger Consideration Received by Covetrus Stockholders,” beginning on page 85.

 

Q:	What are the material U.S. federal income tax consequences of the Merger?

 

A:

For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined below in the section entitled “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger”) in exchange for such U.S. Holder’s shares of Company common stock in the Merger generally will result in the recognition of gain or loss in an amount equal to the difference, if any, between the amount of cash that such U.S. Holder receives in the Merger and such U.S. Holder’s adjusted tax basis in the shares of Company common stock surrendered in the Merger. For more information, see the section entitled “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 75.

Stockholders should consult their own tax advisors concerning the U.S. federal income tax consequences relating to the Merger in light of their particular circumstances and any consequences arising under U.S. federal non-income tax laws or the laws of any state, local or non-U.S. taxing jurisdiction.

 

Q:	What will happen to outstanding Covetrus equity compensation awards in the Merger?

 

A:	For information regarding the treatment of outstanding Covetrus equity awards, see the section entitled “The Merger Agreement—Treatment of Outstanding Equity Awards; Company ESPP,” beginning on page 86.

 

Q:	What will happen to the Company ESPP?

 

A:	For information regarding the treatment of the Company’s Employee Stock Purchase Plan (the “ESPP”), see the section entitled “The Merger Agreement—Treatment of Outstanding Equity Awards; Company ESPP,” beginning on page 86.

 

Q:	When and where will the special meeting of stockholders be held?

 

A:

The special meeting of Covetrus stockholders will be held via live webcast on October 11, 2022, at 10:00 a.m., Eastern Time. To participate in the special meeting virtually via the Internet, please visit www.proxydocs.com/CVET. In order to participate, you must register at www.proxydocs.com/CVET before the commencement of the special meeting. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the virtual meeting, where you will be able to listen to the meeting live, submit questions and vote online. We encourage you to allow

 

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ample time for online check-in, which will open at 9:45 a.m., Eastern Time. Please note that you will not be able to attend the special meeting in person.

 

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

 

A:

Only holders of record of Company common stock as of the close of business on September 7, 2022, the record date for the special meeting, are entitled to notice of and to vote at the special meeting. You will be entitled to one vote on each of the proposals presented in this proxy statement for each share of Company common stock that you own as of the close of business on the record date.

Q: What is the difference between being a “holder of record” and a “beneficial owner” of shares of Company common stock held in “street name”?

A: If, on the record date, your shares of Company common stock are registered directly in your name with the Company’s transfer agent, Continental Stock Transfer & Trust Company, you are considered, with respect to those shares, the stockholder of record.

If your shares of Company common stock are held by a bank, broker or other nominee, you are considered the beneficial owner of shares held in “street name.”

 

Q:	What proposals will be considered at the special meeting?

 

A:	At the special meeting, you will be asked to consider and vote on:

 

•

a proposal to adopt the Merger Agreement (the “Merger Agreement Proposal”);

 

•

a proposal to approve, by a non-binding advisory vote, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Transaction, including the Merger (the “Merger-Related Compensation Proposal”), as discussed in the section entitled “Special Factors—Interests of Directors and Executive Officers in the Merger,” beginning on page 68; and

 

•

a proposal to adjourn the special meeting to a later date or time if necessary or appropriate to ensure that any necessary supplement or amendment to the accompanying proxy statement is provided to Company stockholders a reasonable amount of time in advance of the special meeting or solicit additional proxies in favor of the Merger Agreement Proposal if there are insufficient votes at the time of the special meeting to adopt the Merger Agreement (the “Adjournment Proposal”).

You should read the section of this proxy statement entitled “Special Factors—Reasons for the Merger; Recommendation of the Board; Fairness of the Merger” for a discussion of the factors that the Transaction Committee and the Board considered in deciding to recommend the approval of the Merger Agreement. See also the section entitled “Special Factors—Interests of Executive Officers and Directors of the Company in the Merger.”

 

Q:	What vote is required to approve each of the proposals?

 

A:

The approval of the Merger Agreement Proposal requires, assuming a quorum is present, the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote on such matter. Abstentions and failure to vote will have the same effect as a vote “AGAINST” the Merger Agreement Proposal.

The approval of the Merger-Related Compensation Proposal requires, assuming a quorum is present, the affirmative vote of the holders of a majority in voting power of the shares of Company common stock entitled to vote on such matter, present or represented by proxy. Although the Board intends to consider the vote resulting from this proposal, the vote is advisory only and, therefore, is not binding on Covetrus or

 

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Parent or any of their respective subsidiaries, and, if the Merger Agreement is adopted by Covetrus stockholders and the Merger is completed, the compensation that is based on or otherwise relates to the Merger will be payable to our named executive officers even if this proposal is not approved. Failure to vote will have no effect on approval of the proposal; however, the abstention from voting will have the same effect as a vote “AGAINST” the proposal.

The approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority in voting power of the shares of Company common stock entitled to vote on such matter, present or represented by proxy.

In addition, the Presiding Officer (as defined in the Amended and Restated Bylaws of Covetrus) or the affirmative vote of the holders of a majority in voting power of the shares of Company common stock entitled to vote on such matter, present or represented by proxy, may adjourn such meeting to a later date and time. Failure to vote will have no effect on approval of the proposal; however, the abstention from voting will have the same effect as a vote “AGAINST” the proposal.

 

Q:	How does the Board recommend that I vote on the proposals?

 

A:

The Merger Agreement and the Transactions, including the Merger, have been unanimously approved and recommended by the Transaction Committee. The Board, by a unanimous vote of the Company’s directors (other than the Recused Directors), recommends a vote (i) “FOR” the Merger Agreement Proposal, (ii) “FOR” the Merger-Related Compensation Proposal and (iii) “FOR” the Adjournment Proposal.

For a discussion of the material factors considered by the Board in reaching its conclusions, see the section entitled “Special Factors—Reasons for the Merger; Recommendation of the Board; Fairness of the Merger,” beginning on page 32. In addition, in considering the recommendation of the Board with respect to the Merger Agreement, you should be aware that our directors and executive officers have interests that may be different from, or in addition to, the interests of Covetrus stockholders generally. See the section entitled “Special Factors—Interests of Directors and Executive Officers in the Merger,” beginning on page 68.

 

Q:	How will CD&R vote the shares of Company common stock it holds?

 

A:

Pursuant to the Support and Rollover Agreement, CD&R VFC Holdings, which owns approximately 24.03% of the issued and outstanding shares of Company common stock, agreed to vote or cause to be voted any shares of Company common stock owned by it in favor of the Merger and the adoption of the Merger Agreement, each of the other actions contemplated by the Merger Agreement or necessary or desirable in furtherance of the Transactions, including the Merger, and the adjournment of any meeting of the Company’s stockholders in accordance with the Merger Agreement and against any action or agreement that would reasonably be expected to result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled. For more information, see the section entitled “Support and Rollover Agreement.”

 

Q:	Do I need to attend the special meeting?

 

A:

No. It is not necessary for you to attend the special meeting in order to vote your shares. If you are a stockholder of record as of the record date, you may vote by mail, by telephone or through the internet, as described in more detail below. If you are a “street name” holder of shares, you must follow the voting instructions provided to you by your bank, broker, trust or other nominee for your shares of Company common stock to be voted at the special meeting, as described in more detail below.

 

Q:	How many shares of Company common stock need to be represented at the special meeting?

 

A:	The presence at the special meeting, by attendance via the virtual meeting website or by proxy, of the holders of a majority in voting power of the shares of Company common stock entitled to vote at the meeting constitutes a quorum for the purpose of considering the proposals.

 

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As of September 7, 2022, there were 140,122,753 shares of Company common stock outstanding. If you are a Covetrus stockholder as of the close of business on the record date and you vote by mail, by telephone, through the internet or at the special meeting via the virtual meeting website, you will be considered part of the quorum. If you are a “street name” holder of shares of Company common stock and you provide your bank, broker, trust or other nominee with voting instructions, then your shares will be counted in determining the presence of a quorum. If you are a “street name” holder of shares of Company common stock and you do not provide your bank, broker, trust or other nominee with voting instructions, then your shares will not be counted in determining the presence of a quorum.

All shares of Company common stock held by stockholders that attend the special meeting via the virtual meeting website, or are represented by proxy, and entitled to vote at the special meeting, regardless of how such shares are voted or whether such stockholders have indicated on their proxy that they are abstaining from voting, will be counted in determining the presence of a quorum. In the absence of a quorum, the special meeting may be adjourned.

 

Q:	Why am I being asked to consider and cast a non-binding advisory vote to approve the compensation that may be paid or become payable to Covetrus’ named executive officers that is based on or otherwise relates to the Merger?

 

A:

In July 2010, the SEC adopted rules that require companies to seek a non-binding advisory vote to approve certain compensation that may be paid or become payable to their named executive officers that is based on or otherwise relates to corporate transactions such as the Merger. In accordance with the rules promulgated under Section 14A of the Exchange Act, Covetrus is providing its stockholders with the opportunity to cast a non-binding advisory vote on compensation that may be paid or become payable to Covetrus’ named executive officers in connection with the Merger. For additional information, see the section entitled “Proposal 2: Merger-Related Compensation Proposal,” beginning on page 125.

 

Q:	What will happen if Covetrus stockholders do not approve the Merger-Related Compensation Proposal?

 

A:

The vote to approve the Merger-Related Compensation Proposal is a vote separate and apart from the vote to adopt the Merger Agreement. Approval of the Merger-Related Compensation Proposal is not a condition to completion of the Merger, and it is advisory in nature only, meaning that it will not be binding on Covetrus or Parent or any of their respective subsidiaries. Accordingly, if the Merger Agreement is adopted by Covetrus’ stockholders and the Merger is completed, the compensation that is based on or otherwise relates to the Merger will be payable to our named executive officers even if this proposal is not approved.

 

Q:	What do I need to do now? How many votes do I have?

 

A:

After carefully reading and considering the information contained in this proxy statement and the Annexes attached to this proxy statement, please vote your shares of Company common stock in one of the ways described below as soon as possible. You will be entitled to one vote for each share of Company common stock that you owned on September 7, 2022, the record date.

 

Q:	How do I vote if I am a stockholder of record?

 

A:	You may vote by:

 

•

submitting your proxy by completing, signing and dating each proxy card you receive and returning it by mail in the enclosed prepaid envelope;

 

•

submitting your proxy by using the telephone number printed on each proxy card you receive;

 

•

submitting your proxy through the internet voting instructions printed on each proxy card you receive; or

 

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•

casting your vote at www.proxypush.com/CVET. Any stockholder can virtually attend the special meeting by visiting www.proxydocs.com/CVET and registering before the start of the special meeting. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the virtual meeting, where you will be able to listen to the meeting live, submit questions and vote online. The special meeting starts at 10:00 a.m., Eastern Time. We encourage you to allow ample time for online check-in, which will open at 9:45 a.m., Eastern Time. Instructions on who can attend and participate via internet, including how to demonstrate proof of stock ownership, are posted at proxydocs.com/CVET.

Submitting your proxy by mail, by telephone or through the internet will not prevent you from casting your vote at the special meeting via the virtual meeting website. You are encouraged to submit a proxy by mail, by telephone or through the internet even if you plan to attend the special meeting via the virtual meeting website to ensure that your shares of Company common stock are represented at the special meeting.

If you return your signed proxy card, but do not mark the boxes showing how you wish to vote, your shares will be voted “FOR” the Merger Agreement Proposal, “FOR” the Merger-Related Compensation Proposal and “FOR” the Adjournment Proposal.

 

Q:	What is the deadline for voting my shares of Company common stock?

 

A:	If you are submitting your proxy by telephone or through the internet, your voting instructions must be received by 11:59 p.m., Eastern Time on October 10, 2022.

If your shares of Company common stock were purchased through the ESPP and are held through your account with Continental Stock Transfer & Trust Company, you must vote such shares by 11:59 p.m. Eastern Time on October 10, 2022.

If you choose to submit your proxy by mailing a proxy card, your proxy card must be completed, signed, dated and returned in the enclosed postage-paid reply envelope or otherwise filed with our Corporate Secretary no later than 11:59 p.m. Eastern Time on October 10, 2022. You may also attend the special meeting virtually. If you are a beneficial owner, please review the voting instructions provided by your bank, broker or other nominee for information on the deadline for voting your shares.

 

Q:	If my shares are held for me by a bank, broker, trust or other nominee, will my bank, broker, trust or other nominee vote those shares for me with respect to the proposals?

 

A:

Your bank, broker, trust or other nominee will NOT have the power to vote your shares of Company common stock at the special meeting unless you provide instructions to your bank, broker, trust or other nominee on how to vote. You should instruct your bank, broker, trust or other nominee on how to vote your shares with respect to the proposals, using the instructions provided by your bank, broker, trust or other nominee. You may be able to vote by telephone or through the internet if your bank, broker, trust or other nominee offers these options.

 

Q:	What if I fail to instruct my bank, broker, trust or other nominee how to vote?

 

A:

Your bank, broker, trust or other nominee will NOT be able to vote your shares of Company common stock unless you have properly instructed your bank, broker, trust or other nominee on how to vote. Because the Merger Agreement Proposal requires the affirmative vote of holders of a majority of the outstanding shares of Company common stock entitled to vote on such matter, the failure to provide your nominee with voting instructions will have the same effect as a vote “AGAINST” the Merger Agreement Proposal. Furthermore, your shares of Company common stock will not be included in the calculation of the number of shares present at the special meeting for purposes of determining whether a quorum is present.

 

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Q:	May I change my vote after I have mailed my proxy card or after I have submitted my proxy by telephone or through the internet?

 

A:

Yes. You may revoke your proxy or change your vote at any time before it is voted at the special meeting. You may revoke your proxy by delivering a signed written notice of revocation stating that the proxy is revoked and bearing a date later than the date of the proxy delivered to Margaret Pritchard, Secretary, Covetrus, Inc., 7 Custom House Street, Portland, Maine 04101. You may also revoke your proxy or change your vote by submitting another proxy by telephone or through the internet in accordance with the instructions on the enclosed proxy card. You may also submit a later-dated proxy card relating to the same shares. If you voted by completing, signing, dating and returning the enclosed proxy card, you should retain a copy of the voter control number found on the proxy card in the event that you later decide to revoke your proxy or change your vote by telephone or through the internet. Alternatively, your proxy may be revoked or changed by attending the special meeting via the virtual meeting website and voting at the meeting. However, simply attending the special meeting without voting will not revoke or change your proxy. “Street name” holders of shares of Company common stock should contact their bank, broker, trust or other nominee to obtain instructions as to how to revoke or change their proxies.

If you have instructed a bank, broker, trust or other nominee to vote your shares of Company common stock, you must follow the instructions received from your bank, broker, trust or other nominee to change your vote.

All properly submitted proxies received by us before the special meeting that are not revoked or changed prior to being exercised at the special meeting will be voted at the special meeting in accordance with the instructions indicated on the proxies or, if no instructions were provided, “FOR” each of the proposals.

 

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

 

A:

If you receive more than one proxy card, it means that you hold shares of Company common stock that are registered in more than one account. For example, if you own your shares in various registered forms, such as jointly with your spouse, as trustee of a trust or as custodian for a minor, you will receive, and you will need to sign and return, a separate proxy card for those shares because they are held in a different form of record ownership. Therefore, to ensure that all of your shares of Company common stock are voted, you will need to submit your proxies by mailing in each proxy card you receive or by telephone or through the internet by using the different voter control number(s) on each proxy card.

 

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

 

A:

The SEC permits companies to send a single set of certain disclosure documents to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. This householding process reduces the volume of duplicate information and reduces printing and mailing expenses. If your family has multiple accounts holding shares of Company common stock, you may have already received a householding notification. For additional information, see the section entitled “Householding of Proxy Material,” beginning on page 144.

 

Q:	What happens if I sell my shares of Company common stock before the special meeting?

 

A:

The record date for the special meeting is earlier than the expected date of completion of the Merger. If you own shares of Company common stock as of the close of business on the record date but transfer your shares prior to the special meeting, you will retain your right to vote at the special meeting, but the right to receive the Merger Consideration will pass to the person who holds your shares as of immediately prior to the Effective Time.

 

Q:	May I exercise dissenters’ rights or rights of appraisal in connection with the Merger?

 

A:	Yes. In order to exercise your appraisal rights, you must follow the requirements set forth in Section 262 of the DGCL. Under Delaware law, holders of record of shares of Company common stock who have perfected

 

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and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the Merger is completed. Appraisal rights only will be available to these holders if they deliver a written demand for an appraisal to Covetrus prior to the vote on the Merger Agreement Proposal at the special meeting and they comply with the procedures and requirements set forth in Section 262 of the DGCL, which are summarized in this proxy statement. The appraisal amount could be more than, the same as or less than the amount a stockholder would be entitled to receive under the terms of the Merger Agreement. A copy of Section 262 of the DGCL is included as Annex D to this proxy statement. For additional information, see the section entitled “Appraisal Rights,” beginning on page 127.

 

Q:	If I hold my shares of Company common stock in certificated form, should I send in my stock certificates now?

 

A:

No. Shortly after the Merger is completed, you will be sent a letter of transmittal that includes detailed written instructions on how to return your stock certificates. You must return your stock certificates in accordance with such instructions in order to receive the Merger Consideration. PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATE(S) NOW.

 

Q:	When is the Merger expected to be completed?

 

A:

We and Parent are working toward completing the Merger as quickly as possible. We currently anticipate that the Merger will be completed during the second half of 2022, but we cannot be certain when or if the conditions to the Merger will be satisfied or, to the extent permitted, waived. The Merger cannot be completed until the conditions to closing are satisfied (or, to the extent permitted, waived), including the adoption of the Merger Agreement by Covetrus stockholders. For additional information, see the section entitled “The Merger Agreement—Conditions to the Merger,” beginning on page 107.

 

Q:	What happens if the Merger is not completed?

 

A:

If the Merger Agreement Proposal is not approved by the holders of a majority of the outstanding shares of Company common stock entitled to vote on such matter, or if the Merger is not completed for any other reason, you will not receive any consideration from Parent or Merger Sub for your shares of Company common stock. Instead, Covetrus will remain a public company, and Company common stock will continue to be registered under the Exchange Act and listed and traded on NASDAQ. We expect that our management will operate our business in a manner similar to that in which it is being operated today and that holders of shares of Company common stock will continue to be subject to the same risks and opportunities to which they are currently subject with respect to their ownership of Company common stock.

In addition, if the Merger Agreement is terminated under specified circumstances, Covetrus is required to pay Parent a termination fee of $88,315,000. The Merger Agreement also provides that Parent may be required to pay Covetrus a termination fee of $197,950,000 if the Merger Agreement is terminated due to certain reasons related to Parent’s breach or failure to close. For additional information, see the section entitled “The Merger Agreement—Termination Fees,” beginning on page 110.

For additional information, see the section entitled “Special Factors—Consequences if the Merger is Not Completed,” beginning on page 74.

 

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

 

A:	The Company will publish final voting results from the special meeting in a Current Report on Form 8-K to be filed with the SEC following the special meeting. For more information, please see the section entitled “Where You Can Find More Information.”

 

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Q:	Are there any requirements if I plan on attending the special meeting?

 

A:

The special meeting will be held via live webcast only. Any Covetrus stockholder can virtually attend the special meeting by visiting www.proxydocs.com/CVET and registering before the commencement of the special meeting. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the virtual meeting, where you will be able to listen to the meeting live, submit questions and vote online. The special meeting starts at 10:00 a.m., Eastern Time, on October 11, 2022. We encourage you to allow ample time for online check-in, which will open at 9:45 a.m., Eastern Time. If you hold your shares in “street name,” in order to be able to enter the special meeting you will need the control number included with your voting instruction card and voting instructions you received from your broker, bank or other nominee of your shares. Instructions on how to attend and participate online are also posted online at www.proxydocs.com/CVET.

 

Q:	Where can I find more information about Covetrus?

 

A:

Covetrus files periodic reports, proxy statements and other information with the SEC. Our SEC filings are available to the public at the SEC’s website at www.sec.gov. For a more detailed description of the information available, see the section entitled “Where You Can Find More Information,” beginning on page 144.

 

Q:	Who can help answer my questions?

 

A:	For additional questions about the Merger, assistance in submitting proxies or voting shares of Company common stock, or additional copies of this proxy statement or the enclosed proxy card, please contact our proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, New York 10022

Stockholders in the U.S. and Canada may call toll-free at: (866) 239-1762

Stockholders in other locations may call: +1 (412) 232-3651

Banks and brokers may call collect at: (212) 750-5833

If your shares are held for you by a bank, broker, trust or other nominee, you should also call your bank, broker, trust or other nominee for additional information.

Q: May stockholders ask questions at the special meeting?

Yes. Representatives of the Company will answer stockholders’ questions of general interest following the meeting. Questions can be asked by entering the question into the question and answer text box once in the virtual meeting. A representative of the Company will read the question allowed prior to responding. The questions and answers will be posted on the Company’s website on the same page as other investor presentations for thirty days after the special meeting. In case of technical issues, stockholders may call the technical support phone number(s) provided on the login page of the virtual shareholder meeting site.

 

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SPECIAL FACTORS

Overview

Covetrus is seeking the adoption by its stockholders of the Merger Agreement. Under the terms of the Merger Agreement, subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into Covetrus. Covetrus will survive the Merger as a wholly owned subsidiary of Parent. The Transaction Committee has approved and recommended to the Board the Merger Agreement Proposal, and the Board has approved the Merger Agreement and unanimously recommends that Covetrus stockholders vote “FOR” the Merger Agreement Proposal.

At the Effective Time, each share of Company common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (other than shares of Company common stock (i) owned by Parent or Merger Sub or any of their respective subsidiaries (including the shares of Company common stock transferred by CD&R VFC Holdings, directly or indirectly, to Parent immediately prior to the Effective Time), (ii) owned by Covetrus as treasury stock and (iii) owned by Covetrus stockholders who have perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL), will be converted into the right to receive $21.00 in cash, without interest thereon.

Following the completion of the Merger, Covetrus will cease to be a publicly traded company and will become a wholly owned subsidiary of Parent.

Background of the Merger

The Board, together with the Company’s management, regularly reviews and discusses the Company’s performance, risks, strategy and opportunities, as well as its competitive environment and trends. As part of this periodic review and assessment, from time to time, the Board and the Company’s management consider potential strategic alternatives, including strategic acquisitions and divestitures, and may receive inquiries from third parties seeking to determine the Company’s interest in a sale transaction in whole or in part.

CD&R VFC Holdings became the beneficial owner of approximately 10.1% of the outstanding shares of the Company common stock as a result of the February 2019 transaction between Henry Schein and Direct Vet Marketing, Inc., which created the Company and resulted in CD&R’s investment in Direct Vet Marketing, Inc. being exchanged for common stock in the Company. In connection with the closing of the 2019 transaction, Ravi Sachdev, a CD&R partner, became a director of the Company.

In an effort to strengthen the Company’s liquidity position and balance sheet, the Company, with the assistance of financial advisors Ardea Partners LP and Goldman Sachs, in early 2020 reached out to parties it believed could potentially be interested in a preferred equity investment in the Company. Following negotiations between the Company and several parties, on April 30, 2020, the Company entered into an investment agreement (the “Investment Agreement”) with CD&R VFC Holdings pursuant to which CD&R VFC Holdings agreed to purchase 250,000 shares of the Company’s Convertible Series A Preferred Stock (the “Private Placement”). In May 2020, as a result of the closing of the Private Placement, CD&R VFC Holdings’ shareholding increased to the equivalent of approximately 25% of the outstanding shares of Company common stock on an as-converted basis. In connection with the Private Placement and pursuant to the Investment Agreement, the Board increased in size to elect an additional director, to be nominated by CD&R VFC Holdings and mutually agreed by the Company and CD&R VFC Holdings. Shortly after the closing of the Private Placement, CD&R partner Sandra Peterson became a director of the Company. Effective November 18, 2020, all of CD&R VFC Holdings’ shares of Convertible Series A Preferred Stock had been converted into shares of Company common stock pursuant to the terms of the certificate of designation, resulting in CD&R VFC Holdings owning 33,670,541 shares of Company common stock.

The Investment Agreement includes a standstill provision (the “Standstill Agreement”) that, among other things, prohibits CD&R and its affiliates from increasing their ownership stake in the Company or making an

 

22

acquisition proposal of any kind to the Company without prior Board approval. From time to time, CD&R has considered alternatives for its investment in the Company, including the possibility of selling the Company common stock held by CD&R VFC Holdings or participating in some other form of transaction involving the Company. In August 2021, following the receipt by the Company of unsolicited inquiries from a few financial sponsors regarding the potential sale of the Company, Mr. Sachdev discussed with Benjamin Wolin, President and Chief Executive Officer of the Company, CD&R’s possible interest in having the Board explore potential strategic alternatives that may be available to the Company, including the acquisition of all of the outstanding shares of Company common stock by a third-party buyer or potentially by CD&R, although no proposal regarding an acquisition of additional shares of Company common stock was made by Mr. Sachdev. Mr. Wolin discussed with Philip Laskawy, Chairman of the Board, his discussion with Mr. Sachdev, and thereafter, Mr. Sachdev discussed CD&R’s perspectives on the receipt by the Company of unsolicited inquiries from financial sponsors, at a meeting of the Board held on September 20, 2021. Following discussions with the Board in September 2021, representatives of the Company’s management contacted Goldman Sachs and Lincoln International (“Lincoln”, together with Goldman Sachs, the “Financial Advisors”), based upon their respective reputations, qualifications, experience in mergers and acquisitions, financial analyses, financing and capital markets and familiarity with the Company and the industry in which the Company operates, to assist the Company in developing a preliminary view with respect to the Company’s valuation, the market generally and potential strategic alternatives, if any, that may be available to the Company.

At a meeting on September 23, 2021, the Board (other than the Recused Directors) reviewed with representatives of its legal advisor and Lincoln, the fact that the Company had received certain unsolicited indications of interest, and potential benefits and considerations in connection with pursuing any such indications, including the risk of a leak. The representatives of Lincoln discussed with the Board considerations regarding process and timing with respect to a review of potential strategic alternatives, as well as an initial list of potential counterparties that might have interest and capacity to engage in such a transaction. Following discussion regarding potential strategic alternatives, including continuing to execute on the Company’s plan on a standalone basis and the potential benefits of each alternative, the Board determined it would continue to review additional information to be prepared by management and its financial advisors at its next meeting.

At a meeting on September 30, 2021, the Board reviewed, together with its legal advisor and Goldman Sachs, the Company’s financial analyses, the market generally and potential strategic alternatives, if any, that may be available to the Company, including the possibility of exploring a transaction with a third-party buyer or potentially with CD&R. The Recused Directors (Ms. Peterson and Mr. Sachdev) recused themselves from participation in the Board’s discussion given the possibility that, if the Board were to explore a sale of the Company, CD&R could be among the parties that could be interested in participating in such a transaction. For that reason, references to the Board in this section of this proxy statement, unless otherwise specified, are to the Board without the participation of the Recused Directors. The Board discussed whether to engage with the parties that had expressed an interest in pursuing a transaction and, if so, whether to approach additional potential counterparties. Following discussion, the Board determined that the Company should not solicit indications of interest from potential acquirors at such time and should inform CD&R that the Company was not for sale, but that CD&R could receive limited due diligence materials, pursuant to the terms of the confidentiality provisions in the Investment Agreement, in order to permit CD&R to further develop its views regarding the Company. Following the Board meeting, Messrs. Laskawy and Wolin informed Mr. Sachdev of the Board’s determination.

At a meeting on October 25, 2021, the Board again met with representatives of Goldman Sachs to further discuss Goldman Sachs’s preliminary presentation to the Board in September, including in respect of market and industry conditions and their preliminary perspectives on financial analyses. Mr. Wolin discussed with the Board the fact that CD&R had, during the course of the prior weeks, asked certain follow-up questions related to due diligence matters, which the Company answered, but that the Company had not yet received any proposal from CD&R.

In late October 2021, Mr. Sachdev communicated to Mr. Wolin that he and Ms. Peterson would like the opportunity to speak with the other members of the Board regarding their perspectives on the Company. At a

 

23

regularly scheduled Board meeting on November 4, 2021, the Board discussed Mr. Sachdev’s request of Mr. Wolin. After discussion, the Board requested that Mr. Wolin coordinate with Mr. Sachdev and Ms. Peterson a time for them to share their perspectives on the Company.

At a Board meeting on November 24, 2021, which Mr. Sachdev and Ms. Peterson attended, Mr. Sachdev discussed with the Board CD&R’s perspectives on the Company’s business, including with respect to competition and potential growth strategies for the Company. In addition, Mr. Sachdev indicated that CD&R continued to consider alternatives for its investment in the Company, including the possibility of selling the Company common stock held by CD&R VFC Holdings, depending on price and terms, as well as acquiring all of the outstanding shares of Company common stock not then owned by CD&R VFC Holdings. Mr. Sachdev confirmed to the Board that CD&R did not have a proposal to make to the Company at that time and, prior to the making of any such proposal, the Board would need to waive the Standstill Agreement. Following that discussion, Mr. Sachdev and Ms. Peterson departed the meeting, and the rest of the Board continued its discussion regarding the conversation with Mr. Sachdev and Ms. Peterson, including in connection with Mr. Sachdev’s indication that CD&R may be supportive of transactions involving the sale of all outstanding shares of Company common stock, including shares of Company common stock then owned by CD&R VFC Holdings, to a third party, as well as a transaction involving the sale of all outstanding shares of Company common stock other than those then owned by CD&R VFC Holdings, in each case, depending upon price and terms.

At a meeting on December 3, 2021 with members of management and representatives of the Company’s legal advisor and Goldman Sachs participating, the Board discussed with management, among other things, the Company’s long-range business plan and potential challenges that might impact the Company’s execution of its business plan and the Company’s business generally, including customer consolidation, suppliers “going direct”, increased market competition, the performance of the Company’s compounding business and certain strategic business initiatives. Management also discussed with the Board certain potential opportunities with respect to the Company’s business, including the ability to leverage data to stabilize supplier economics and market share capture opportunities for generics and proprietary branded products. The Board then continued its discussions with management and representatives of Goldman Sachs regarding the Company’s business and the market and a range of potential strategic alternatives for the Company, including continuing to execute on the Company’s strategic plan, divestiture of non-core assets, return of capital to stockholders (either through a sale of the whole Company or a sale of its parts), as well as a potential timeline for a process to explore strategic alternatives, including a sale of the Company, and the identity of potential parties who might be interested in a transaction involving the Company and capable of acquiring the Company.

Following the December 3, 2021 Board meeting, Mr. Sachdev indicated to Mr. Wolin and Mr. Laskawy that, if the Board were to consider exploring a sale of the Company, CD&R’s preliminary view on the value of the Company at that time was in the range of $24.00 per share (which represented an approximately 43% premium to the closing price of $16.79 of the Company common stock on December 3, 2021). Mr. Wolin relayed this communication to other members of the Board and, as a result, the Board established the Transaction Committee, comprising Mr. Laskawy, Mark Manoff and Sharon Wienbar, each of whom is an independent member of the Board, unaffiliated with CD&R, to, among other things, review and evaluate strategic alternatives that might be available to the Company.

On December 9, 2021, the Board held a meeting attended by members of the Company’s management and representatives of Goldman Sachs and the Company’s legal advisors, at which, among other things, the Board received an update from representatives of Goldman Sachs on the recent performance of the Company’s stock price and preliminary financial analyses considerations, and continued their discussion from prior meetings regarding various strategic alternatives, as well as process and timing considerations with respect to such alternatives, including a divestiture of the Company’s international distribution business, a sale of the Company and an investment in certain areas of the Company’s business. The Board also discussed with management and its advisors the preliminary view on the value of the Company that had been communicated by CD&R to

 

24

Mr. Laskawy and Mr. Wolin. After deliberations and discussions, the Board determined that it was in the best interests of the Company and its stockholders to initiate a process to explore strategic alternatives, including a potential sale of the Company. Therefore, the Board directed the Company’s management to formally retain Goldman Sachs and Lincoln as the Company’s financial advisors (subject to negotiating an acceptable engagement letter with each), in each case, based upon their respective reputations, qualifications, experience in mergers and acquisitions, financial analyses, financing and capital markets and their familiarity with the Company. As part of this process, the Board authorized and directed the Financial Advisors to contact parties that might be interested in a potential strategic transaction with the Company, with the Transaction Committee providing guidance, oversight and support in connection with this process. During that period, Mr. Wolin, Mr. Laskawy and Mr. Sachdev further discussed CD&R’s preliminary view on the value of the Company communicated on December 3, 2021.

On December 23, 2021, the Transaction Committee met with representatives of the Company’s Financial Advisors and legal advisors, as well as management to discuss, among other things, process and timing considerations with respect to strategic alternatives that might be available to the Company, including a potential sale of the Company. Representatives of the Financial Advisors provided the Transaction Committee with an overview of a sale process, including an overview of the workstreams associated with the sale process, as well as a list of potential parties who might be interested and capable of engaging in a transaction involving the Company. The members of the Transaction Committee discussed and considered the likely timing of such a sale process. During the course of the discussion, Mr. Wolin informed the Transaction Committee that he had received an unsolicited indication of interest from a party with respect to the potential acquisition of the Company’s SmartPak business, and the Transaction Committee discussed with management and its advisors the impact of a sale of the SmartPak business on the Company, including the potential to dilute the Company’s technology segment financial performance. However, the Transaction Committee concluded that, if the third party proposed a compelling financial offer, the Transaction Committee and the Board would entertain such a proposal. Following discussion, the Transaction Committee directed the Financial Advisors to finalize the proposed list of potential parties, as well as work with management regarding the outreach script and the preparation of an initial data room.

In December 2021 and January 2022, the Company, with the assistance of the Financial Advisors, prepared materials for a potential sale process, including a management presentation, supplemental financial information, and a financial model, in advance of initial outreach to potential interested parties. The Company and the Financial Advisors also prepared a list of potential strategic companies and financial sponsors who might be interested in and capable of executing a transaction with the Company, for discussion with and approval by the Board.

Between January 3, 2022 and February 11, 2022, the Transaction Committee held several meetings with the Company’s management and representatives of the Financial Advisors and Weil, Gotshal & Manges LLP, its legal advisor (“Weil”), to discuss the process to review strategic alternatives, including a potential sale, during which Goldman Sachs provided updates on the process, including the level of interest initially expressed by potential parties. During this time, the Company’s Financial Advisors and Weil also discussed with CD&R the role that CD&R would play in the sale process, and CD&R agreed that it would not participate formally in the process at that time but would be willing to speak with potentially interested parties if requested to do so by, and subject to the prior approval of, the Transaction Committee.

During January 2022, representatives of the Financial Advisors, at the direction and on behalf of the Company, conducted a broad outreach to potential parties, which together with inbound contacts, resulted in the Financial Advisors engaging with 24 parties, five of which were strategic companies (including Company A (as defined below) but contact with Company A began in February, as described below)) and nineteen of which were financial sponsors (not including CD&R, but including each of the financial sponsors who made unsolicited inquiries in August 2021), regarding a potential strategic transaction with the Company. Of the 24 parties, the Company signed confidentiality agreements with 17 parties (including TPG, which entered into a confidentiality

 

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agreement with the Company on February 7, 2022), and each confidentiality agreement included a customary standstill provision. Other parties that the Financial Advisors contacted declined to participate in the process for a variety of reasons, including the complexity of the business, concerns regarding potential challenges facing the distribution business and the impact of consolidation. Each party that signed a confidentiality agreement was provided access to certain non-public materials regarding the Company’s business and operations and a call with members of the Company’s management team. Of the 17 parties, four declined to participate further in the process for various reasons including other business priorities and the size of the investment required by the potential transaction. On February 15, 2022, the Transaction Committee and the Company’s advisors relayed to the Board an overall summary update of the process.

On February 9, 2022 and February 16, 2022, the Company entered into engagement letters with Goldman Sachs and Lincoln, respectively, formalizing the engagement of the Financial Advisors to act as the Company’s co-financial advisors to, among other things, assist the Company in evaluating strategic alternatives for the Company, including a potential sale of the Company.

During February and early March 2022, members of the Company’s management team held management presentations and Q&A sessions (with two strategic companies and 15 financial sponsors, including TPG) and subsequent diligence sessions at certain of which representatives of the Financial Advisors participated, as did advisors of the strategic companies and financial sponsors. Management did not conduct a management presentation with CD&R, but did hold a Q&A session at which CD&R received an update on current performance trends.

On February 18, 2022, at the direction of the Company, representatives of the Financial Advisors delivered a process letter to the 12 remaining parties (comprising two strategic companies and 10 financial sponsors, including TPG but not including CD&R) that had signed confidentiality agreements and participated in management meetings with the Company requesting that each party submit a non-binding written proposal with respect to a strategic transaction with the Company by no later than March 9, 2022. On February 24, 2022, representatives of the Financial Advisors sent an additional process letter to one financial sponsor who executed a confidentiality agreement after the February 18, 2022 distribution.

During the course of February 2022, a representative of a strategic party (“Company A”), which has a commercial relationship with the Company, contacted Mr. Sachdev regarding pursuing a potential transaction involving the Company, as a result of hearing that the Company may be exploring strategic alternatives. Following that discussion, Mr. Sachdev informed Mr. Wolin of the contact, and they briefly discussed how Company A’s interest could potentially impact the Company’s general strategic plans, irrespective of whether a transaction with Company A or any other party was ultimately pursued. Mr. Wolin thereafter informed Mr. Laskawy of the discussion with Mr. Sachdev, and Messrs. Wolin and Laskawy discussed the possibility of a transaction with Company A and the considerations that could arise given Company A’s existing commercial relationship with the Company. Following that discussion, Mr. Wolin had several discussions with representatives of Company A, and Company A was invited to participate in the Company’s process to review strategic alternatives.

On March 9, 2022, the deadline for submitting indications of interest in connection with the sale process, TPG submitted a non-binding written proposal to acquire all of the shares of Company common stock for a purchase price in the range of $21.00 to $22.00 per share in cash, subject to TPG’s completion of its due diligence. TPG was the only party that submitted a non-binding written proposal to acquire all of the shares of Company common stock by the deadline reflected in the process letter.

On March 15, 2022, a representative of Company A called a representative of Goldman Sachs to indicate that an offer for the acquisition of the Company’s global technology business (the “GTS Business”) for cash consideration in an enterprise value range of between $1.6 billion and $1.8 billion would be forthcoming.

 

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On March 17, 2022, the Board held a meeting attended by members of the Company’s management and representatives of the Financial Advisors and Weil, as well as Mr. Sachdev and Ms. Peterson who attended a portion of the meeting. At the beginning of the meeting Mr. Sachdev shared CD&R’s perspective on the Company’s business. Following that discussion, Mr. Sachdev and Ms. Peterson departed the meeting, and the Board received an update on the status of the sale process, including the outreach and due diligence that had occurred to date. At the meeting, representatives of Goldman Sachs reviewed with the Board a summary of the outreach efforts and feedback received from parties who had declined to move forward. The representatives of Goldman Sachs also discussed with the Board changes in the market that had occurred since the previous Board meeting, including an approximate 10% decline in the equity markets since December 2021, significant volatility in the equity markets in 2022, increases in interest rates, geopolitical tension and the fact that equity market valuations were depressed relative to recent historical valuations, with the S&P 500 EV/EBITDA multiple being down 1.6x since December 7, 2021, and also discussed with the Board the Company’s stock price performance over the same period. Representatives of Goldman Sachs also discussed with the Board that Company A indicated a proposal for the acquisition of the GTS Business in an enterprise value range of between $1.6 billion and $1.8 billion was forthcoming. Goldman Sachs further discussed with the Board and management that Company A had been highly engaged and had indicated that it was interested in exploring a potential transaction. The Board, management and the advisors discussed key considerations with respect to the process, including timing, engagement of the potential buyers, strategies for creating competitive tension to try and drive the most successful outcome, whether there were other parties (in particular financial sponsors) who might be interested in acquiring the Company’s distribution business that could be partnered with Company A to facilitate a transaction involving the entire company, the risks of not reaching a successful outcome of the sale process, the possibility of separating the distribution and technology businesses, and considerations of the alternatives currently available. After deliberations and discussions, the Board determined that it was in the best interests of the Company and its stockholders to continue with the sale process and directed Goldman Sachs to both identify financial sponsors who might be interested in partnering with Company A, and to work with Company A to try and improve its valuation in order to provide a compelling price for the GTS Business. Later that day, the Transaction Committee met with representatives of management, the Financial Advisors and Weil to discuss next steps with respect to Company A, and strategies to maximize the value for the Company and the stockholders related to a transaction with Company A.

Following the Board meeting on March 17, 2022, Company A sent a non-binding written proposal for the acquisition of the GTS Business for cash consideration in an enterprise value range of between $1.6 billion and $1.8 billion, or approximately 18x to 21x their 2022 projected pro forma adjusted EBITDA for the GTS Business. Representatives of Goldman Sachs contacted representatives of Company A and provided the feedback from the Board meeting.

On March 20, 2022, a representative of Company A contacted a representative of Goldman Sachs and provided an updated verbal indication of interest to acquire the GTS Business for cash consideration in the range of $1.85 billion to $2.05 billion, subject to confirmatory due diligence, which increased offer reflected revised assumptions regarding corporate allocations, the exclusion of a particular product line, to which a lower multiple had been assigned and a willingness to increase the multiple they would ascribe to the GTS Business.

On March 22, 2022, the Transaction Committee held a meeting attended by members of the Company’s management and representatives of Goldman Sachs and Weil to discuss, among other things, the Company A proposal from March 20, 2022. The Transaction Committee asked questions of management and the advisors regarding Company A’s proposal and the likelihood of finding a financial sponsor to partner with Company A. Following discussion, the Transaction Committee directed Goldman Sachs to prepare a preliminary analysis regarding what they thought Company A could pay for the GTS Business, and requested that management and Goldman Sachs conduct an analysis with respect to a transaction with Company A that would leave behind a public company distribution business, and the considerations associated with such a transaction. The Transaction Committee also requested that the advisors discuss with CD&R to understand CD&R’s current views on valuation, given the changes in the stock market and the economy generally.

 

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On April 4, 2022, the Transaction Committee held a meeting, attended by members of the Company’s management and representatives of the Financial Advisors and Weil, as well as Mr. Sachdev and Ms. Peterson as representatives of CD&R. The CD&R representatives had been invited to attend the meeting to share CD&R’s current views on valuation. At the meeting, the representatives of CD&R communicated to the Transaction Committee that, if invited to make a proposal by the Board and subject to the Board granting a waiver of the Standstill Agreement, CD&R would be prepared to consider exploring a potential transaction at a valuation in the range of $21.00 to $22.00 per share of Company common stock (which represented a 23% to 29% premium to the closing price of $17.01 of the Company common stock on April 1, 2022). Mr. Sachdev discussed with the Transaction Committee the reasons for the view on valuation, including the increased cost of capital, as well as challenges facing the Company, including with respect to consolidation in its end-markets. Mr. Sachdev also informed the Transaction Committee that if CD&R were to move forward with exploring a possible transaction, it would need to partner with another financial sponsor and that it was willing to explore a possible transaction with a number of financial sponsors, including TPG. The members of the Transaction Committee and representatives of CD&R then discussed certain other matters regarding a possible transaction, and following that discussion, the representatives of CD&R left the meeting.

After the CD&R representatives left the meeting, the Transaction Committee discussed the Company A proposal and the possibility of exploring a transaction within the range of values communicated by CD&R. The Transaction Committee also discussed potential responses and options to proceed with the potential parties with management and the Company’s advisors, as well as the Company’s recent financial performance. The Transaction Committee and Goldman Sachs also discussed the possibility that a particular financial sponsor who had declined to move forward in the broader sale process, but who might have an interest in acquiring the Company’s distribution business, based on its investment history, might serve as a potential partner for Company A, so that a sale of the entire company could be accomplished. The Transaction Committee requested that Goldman Sachs connect with the financial sponsor (“Financial Investor A”) to ascertain its level of interest and to determine its willingness to partner with Company A, and determined that these matters would be discussed with the whole Board at the upcoming meeting and that it would be appropriate for the CD&R representatives to be invited to that meeting to discuss CD&R’s current views on valuation with the full Board. The Transaction Committee reconvened with its advisors on April 6, 2022 to briefly discuss the updates the Board would receive the following day.

On April 7, 2022, the Board held a meeting, attended by members of the Company’s management and representatives of Goldman Sachs and Weil, as well as, for certain portions, Mr. Sachdev and Ms. Peterson as representatives of CD&R. During the meeting, the Board (including the Recused Directors) received an update from Mr. Wolin on the performance of the Company. In addition, the CD&R representatives discussed with the Board CD&R’s current views on valuation and the reasons for their revised valuation relative to what they had communicated in December, including increased interest rates, higher financing costs and equity market deterioration. Following such discussion, Mr. Sachdev and Ms. Peterson departed the meeting.

The Board then discussed CD&R’s revised views on valuation and the factors identified by the CD&R representatives for its revised views, as well as the Company’s recent financial performance, the Company’s headwinds and tailwinds and the trends management was seeing both with respect to the Company and companies in similar industries. The Board also discussed the proposal from Company A and the viability of a sale of just the GTS Business. The Board further discussed the interest of Financial Investor A and potential partnering between Financial Investor A and Company A, as well as a partnering of CD&R and TPG, in each case, in order to achieve a sale of the entire Company. At the meeting, representatives of Goldman Sachs reviewed with the Board a financial overview of the valuation range communicated by CD&R and the proposal from Company A, and reviewed with the Board the fact that they had approached another company to see whether it would be interested in a distribution-only transaction, but that that company had declined. After deliberations and discussions, the Board determined that it was in the best interest of the Company and its stockholders to continue the process of exploring a sale, and that it would be beneficial to that process to allow CD&R to partner with TPG and to try and facilitate a partnering of Financial Investor A and Company A.

 

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Following the Board meeting on April 7, 2022, a representative of Goldman Sachs informed representatives of CD&R and TPG that they could proceed with discussions regarding potentially partnering together to make a proposal to acquire the Company. Additionally, on April 8, 2022, a representative of Goldman Sachs invited Financial Investor A into the sale process. On April 8, 2022, a representative of Goldman Sachs spoke with representatives of CD&R and TPG to communicate details on the process going forward.

Following the communication from the representative of Goldman Sachs, CD&R and TPG began their joint due diligence efforts. At the invitation of the Company, during April and May 2022, the Company’s management team, advisors to the Company, CD&R, TPG and representatives and advisors of CD&R and TPG, including Debevoise & Plimpton LLP (“Debevoise”), legal counsel to CD&R and TPG, held several due diligence meetings on subject areas including finance, strategy, product and technology, human resources, network, information technology, intellectual property, corporate governance, material contracts, regulatory, tax, data privacy, real estate, sanctions and compliance.

On April 14, 2022, the Transaction Committee met with representatives of the Company’s management and Goldman Sachs to discuss the partnership of Company A and Financial Investor A and directed the Financial Advisors and the Company’s management to facilitate due diligence for both parties. Later that day, the Company’s management, Goldman Sachs and Weil held a meeting with Financial Investor A and Company A to discuss due diligence and process going forward.

On April 15, 2022, Financial Investor A informed representatives of Goldman Sachs that it was not interested in pursuing an acquisition of the Company’s distribution business (nor an acquisition of the whole Company). As a result, Company A did not have a party with whom to partner to acquire the portions of the Company’s business that were not included in Company A’s GTS Business proposal.

On April 16, 2022, the Transaction Committee met with representatives of Goldman Sachs and Weil to discuss, among other things, the fact that Sponsor A had determined not to move forward with its evaluation of a potential transaction involving the Company and the implications that that determination had with respect to a potential transaction with Company A. The Transaction Committee also discussed and considered with the advisors next steps with respect to Company A, including whether there were other potential partners for Company A and negotiation strategies to obtain the maximum value for the Company in connection with a transaction with Company A, particularly in light of relevant tax considerations. The Transaction Committee requested that representatives of Goldman Sachs prepare materials to discuss with the Board at its upcoming meeting that include a calculation of illustrative net proceeds that would be recognized from a sale of the GTS Business, given the costs of separation and tax leakage identified by the Company’s management, and indicative values resulting from financial analyses of the “whole company.”

On April 20, 2022, Goldman Sachs made an initial draft of the Merger Agreement available in the virtual data room.

Also on April 20, 2022, the Board held a meeting, attended by members of the Company’s management and representatives of Goldman Sachs and Weil, at which, among other things, the Board received an update on the sale process, including the discussions with CD&R, TPG and Company A, as well as the update that Financial Investor A determined not to proceed with a potential acquisition of the Company’s distribution business, and due diligence that had occurred to date. The Board also received an overview from representatives of Goldman Sachs on the benefits and considerations of a sale of the whole Company, a sale of just the GTS Business (leaving a distribution-only public company remaining thereafter, including the tax implications thereof) and continuing to execute on the Company’s strategic plan on a standalone basis. The Board discussed with the representatives of Goldman Sachs and Weil the considerations and challenges of being a standalone distribution-only public company, including the likely valuation the public markets would ascribe to such a business and the challenges of separating the Company’s businesses in such a manner, the proceeds that would be received from the sale of the GTS Business and another product line in order to achieve the same valuation as a sale of the

 

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whole Company at various valuations (taking into account tax costs), and how that compared to the proposal from Company A, as well as the length of time it could take to consummate such a transaction and the execution risk associated with such a transaction, including as a result of regulatory approvals. The Board also discussed with the representatives of Goldman Sachs whether there were other potential parties, including CD&R, that may be interested in partnering with Company A. After deliberations and discussions, the Board determined that it was in the best interest of the Company to continue discussions with CD&R and TPG and with Company A regarding the possibility of a potential strategic transaction, and instructed the advisors to set a timeline for the remaining interested parties to make their proposals. Pursuant to the Board’s discussion, later on April 20, 2022, a representative of the Company reached out to CD&R to discuss whether CD&R would be interested in exploring a possible transaction with Company A. As a result of that discussion, representatives of CD&R and Company A briefly discussed the possibility of partnering in exploring a possible transaction, but following such discussions decided to not pursue such a partnership.

In April 2022, the Company’s management and representatives entered into discussions about a potential transaction with an additional potential strategic party; however, the party declined to enter into a confidentiality agreement and ultimately did not move forward in the process.

On May 16, 2022, representatives of CD&R and TPG spoke to a representative of Goldman Sachs, to communicate that, if invited by the Transaction Committee and subject to obtaining a waiver of the Standstill Agreement, CD&R and TPG acting together would be prepared to consider further exploring a possible transaction at a valuation of $20.00 in cash per share of Company common stock (which represented a 31% premium to the closing price of $15.27 of the Company common stock on May 13, 2022). The CD&R and TPG representatives indicated that the lower valuation was primarily due to volatile financing markets with widened credit spreads, an improved understanding of the number of shares of Company common stock that were outstanding (resulting in an increased cost of acquisition) and a decrease in the Company’s cash position forecasts. Later that day, the Transaction Committee met with representatives of the Company’s management, Goldman Sachs and Weil to discuss the valuation communicated by CD&R and TPG, including the recent trends in the equity and debt markets (including in light of recent macroeconomic conditions), as well as illustrative premia for a range of transaction values and proposed next steps with respect to negotiations with CD&R and TPG. The Transaction Committee determined it would discuss the matters the following day with the Board.

On May 17, 2022, the Board held a meeting, attended by members of the Company’s management and representatives of Goldman Sachs and Weil, at which the Board received an update on the sale process and due diligence that had occurred to date and an overview from representatives of Goldman Sachs on the valuation communicated by CD&R and TPG on May 16, 2022. The Board received an overview of the reasoning communicated for the proposed valuation being below TPG’s value range submitted on March 9, 2022 and CD&R’s value range communicated on April 4, 2022, and discussed the fact that there was no partner for the portions of the Company’s business that Company A would not acquire. After deliberations and discussions, including regarding the Company’s recent financial performance and management’s views regarding the strengths of and challenges facing the Company’s core businesses, the Board determined that it was in the best interest of the Company and its stockholders to continue discussions with CD&R and TPG to explore a possible transaction, but instructed the Transaction Committee and Goldman Sachs to inform CD&R and TPG that the valuation communicated by CD&R and TPG on May 16, 2022 did not reflect sufficient value for the Company’s stockholders. The Board authorized the Transaction Committee to go back to CD&R and TPG and indicate that the Company would not be willing to further explore a transaction at the valuation previously communicated by CD&R and TPG on May 16, 2022 and would need to receive a higher per share price in order to continue exploring a possible transaction.

On the evening of May 18, 2022, the Transaction Committee met with representatives of CD&R and TPG and conveyed the Board’s message from the May 17, 2022 meeting.

On May 19, 2022, Mr. Sachdev spoke with Mr. Laskawy to communicate that, if invited by the Transaction Committee to make a proposal and, subject to receiving a waiver of the Standstill Agreement, CD&R and TPG

 

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acting together would be prepared to consider exploring a possible transaction at a valuation of $20.50 in cash per share of Company common stock. Mr. Laskawy informed Mr. Sachdev that $20.50 per share did not represent sufficient value for the Company’s stockholders. Later that day, Mr. Sachdev spoke with Mr. Laskawy again and communicated an updated valuation of $21.00 in cash per share of Company common stock. Following the discussions on May 19, 2022, the Board convened with representatives of management, Goldman Sachs and Weil to discuss this communication.

During the meeting, the Board discussed with management and its advisors the updated valuation from CD&R and TPG, the alternatives to the Company of doing a transaction, including the execution risk, as well as benefits, associated with implementation of its long-term business plan and the immediate value for the Company’s stockholders that an all-cash transaction would provide. The Board also discussed with its advisors the fact that all parties that had signed confidentiality agreements and participated in management meetings with the Company, other than CD&R and TPG, had either declined to proceed with exploring a potential transaction with the Company for a variety of reasons or had been unable to submit an offer for the whole Company. Following deliberation and discussion, the Board determined that, subject to negotiation of the terms of the Merger Agreement and the other transaction documents, it believed that the valuation communicated on May 19, 2022 was in the best interest of the Company and its stockholders, and was supportive of moving forward with exploring a potential transaction with CD&R and TPG and, therefore, of granting CD&R a limited waiver (the “Limited Waiver”) of the Standstill Agreement in order to permit the submission of a proposal, as well as to permit CD&R to pursue, develop and, if later approved by the Board upon the recommendation of the Transaction Committee, enter into a transaction contemplated by such proposal. Following the Board meeting, Mr. Laskawy called Mr. Sachdev and relayed the Board’s determination.

On May 19, 2022, the Company granted CD&R the Limited Waiver. Following the granting of the Limited Waiver, on May 19, 2022, Debevoise, on behalf of CD&R and TPG, submitted a letter setting forth CD&R’s and TPG’s non-binding proposal to acquire all of the outstanding shares of Company common stock that were not owned by investment funds managed by CD&R for cash consideration of $21.00 per share of Company common stock (the “CD&R/TPG Proposal”) to the Transaction Committee. The CD&R/TPG Proposal represented a 37.5% premium to the closing price of $15.27 of the Company common stock on May 13, 2022 (the last trading day before the trading in the Company common stock appeared to be affected by market rumors or otherwise), a 38.8% premium to the Company’s 30-day volume weighted average price per share as of May 13, 2022 and a 34.8% premium to the Company’s 30-day volume weighted average price per share as of May 19, 2022, the last trading day before the Schedule 13D/A disclosing the CD&R/TPG Proposal was publicly filed.

On May 20, 2022, CD&R publicly disclosed the proposal letter in an amendment to its Schedule 13D filings with respect to the Company. On May 20, 2022, the Company filed a current report on Form 8-K disclosing the granting of the Limited Waiver and the receipt of the CD&R/TPG Proposal.

In connection with the delivery of the CD&R/TPG Proposal, representatives of Debevoise provided representatives of Weil with a revised draft of the Merger Agreement shared by the Company in the virtual data room on April 20, 2022. From May 19, 2022 through May 24, 2022, the Company, CD&R, TPG, Parent and their respective legal advisors negotiated the Merger Agreement and related transaction documents. Significant areas of discussion and negotiation included: (i) the level of conditionality in the Merger Agreement, including with respect to domestic and foreign antitrust and other regulatory filings, (ii) the regulatory efforts standards and the standard for possible divestitures or other remedies in connection with applicable antitrust and other regulatory clearances, (iii) the termination fees payable by the Company and Parent in certain circumstances, (iv) the financing and financing cooperation obligations of Parent and the Company and their impact on transaction certainty, (v) the “drop dead date,” and (vi) the scope of the representations and warranties and covenants of the parties.

On May 23, 2022, the Transaction Committee and the Board, which, for the avoidance of doubt, did not include the Recused Directors, held a meeting attended by members of the Company’s management and

 

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representatives of the Financial Advisors and Weil, at which the Transaction Committee and the Board discussed the potential transaction with Parent. Representatives of Goldman Sachs reviewed with the Transaction Committee and the Board its financial analyses of the merger consideration of $21.00 per share of Company common stock in cash, without interest thereon. At the conclusion of its presentation, Goldman Sachs rendered to the Board its oral opinion, subsequently confirmed in writing on May 24, 2022, to the effect that, as of May 24, 2022, and based upon and subject to the various assumptions, qualifications, limitations and other matters set forth in such written opinion, the merger consideration of $21.00 per share of Company common stock in cash, without interest thereon, to be paid to the holders of Company common stock (other than Parent and its affiliates) pursuant to the Merger Agreement was fair from a financial point of view to such holders. For a detailed discussion of Goldman Sachs’s opinion, please see below under the section entitled “Special Factors— Opinion of Goldman Sachs & Co. LLC.” Further, representatives of Weil reviewed with the directors their fiduciary duties and a summary of the key terms of the draft Merger Agreement, as of such date. Following the presentations by Goldman Sachs and Weil, and after further discussing the CD&R/TPG Proposal, the Transaction Committee and the Board discussed the potential reasons for and against the potential transaction (see below under the section entitled “Special Factors— Reasons for the Merger; Recommendation of the Board; Fairness of the Merger”). At the conclusion of the discussions, the Transaction Committee unanimously (i) approved and declared advisable the Merger Agreement and the consummation of the Transactions, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) determined that the Merger is fair to, and in the best interests of, the Company and its stockholders, and (iii) recommended to the Board to adopt and declare advisable the Merger Agreement and the Transactions, including the Merger, and recommend to the stockholders of the Company the adoption of the Merger Agreement. The Board, other than the Recused Directors, acting upon the recommendation of the Transaction Committee, unanimously (i) approved and declared advisable the Merger Agreement and the consummation of the Transactions, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) determined that the Merger is fair to, and in the best interests of, the Company and its stockholders, (iii) resolved to recommend to the stockholders of the Company the adoption of the Merger Agreement, and (iv) directed that the Merger Agreement be submitted to the stockholders of the Company for its adoption. The Board authorized the Company’s management to, together with the Company’s advisors, finalize the negotiation of the outstanding items in the transaction documentation in accordance with the Board’s guidance.

During the course of May 23, 2022 and May 24, 2022, Company management and the Company’s advisors finalized negotiating the transaction documentation with CD&R, TPG, Parent and their advisors.

On May 24, 2022, the Company and Parent executed the Merger Agreement, concurrently with which the Company, Parent and CD&R VFC Holdings executed the Support and Rollover Agreement.

On May 25, 2022, prior to the opening of trading of the Company common stock on NASDAQ, the Company and Parent issued press releases announcing the transaction and the execution of the Merger Agreement.

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

The Board (which, for purposes of this section of this proxy statement entitled “Reasons for the Merger; Recommendation of the Board; Fairness of the Merger,” means the Board without the participation of the Recused Directors), formed the Transaction Committee to evaluate and consider strategic alternatives that may be available to the Company, including any potential transaction involving CD&R.

After careful consideration, with the assistance of independent financial and legal advisors, the Transaction Committee unanimously (a) approved and declared advisable the Merger Agreement and the consummation of the Transactions, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (b) determined that the Merger is fair to, and in the best interests of, the Company and its stockholders and (c) recommended to the Board to adopt and declare advisable the Merger Agreement and the

 

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Transactions, including the Merger, and recommend to the stockholders of the Company the adoption of the Merger Agreement, and the Board (other than the Recused Directors), acting upon the recommendation of the Transaction Committee, unanimously (i) approved and declared advisable the Merger Agreement and the consummation of the Transactions, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) determined that the Merger is fair to, and in the best interests of, the Company and its stockholders, (iii) directed that the Merger Agreement be submitted to a vote at a meeting of the stockholders of the Company and (iv) resolved to recommend that the stockholders of the Company adopt the Merger Agreement. Accordingly, based on its evaluation and having received the recommendation of the Transaction Committee, the Board recommends that the Company’s stockholders vote “FOR” the Merger Agreement Proposal, “FOR” the Merger-Related Compensation Proposal and “FOR” the Adjournment Proposal. In addition, the Transaction Committee and the Board believe that the merger is fair to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act.

In evaluating the Merger, the Transaction Committee and the Board consulted with independent legal and financial advisors, as well as the Company’s management team, and considered a number of factors that supported its decision to approve the Merger Agreement (not necessarily in order of relative importance) and the Merger, including the following:

 

•

Cash Consideration; Certainty of Value. The Transaction Committee and the Board considered the fact that the Merger Consideration is all cash, which provides the Company’s stockholders immediate certainty of value and liquidity for their shares of Company common stock and enables the Company’s stockholders to realize value that has been created by the Company and does not expose them to any future risks related to the business or the financial markets generally, as compared to the Company remaining independent (especially when viewed against the potential risks and uncertainties inherent in Covetrus’ business, including risks related to management’s standalone plan and changing competitive dynamics). Specifically, among other things, the Transaction Committee and the Board considered:

 

•

the fact that the Merger Consideration represents a premium value for the Company’s stockholders, including a 39% premium to the Company’s 30-day volume weighted average price per share as of the unaffected date of May 13, 2022;

 

•

the trading history of the Company and the Merger Consideration relative to such history; and

 

•

the belief that the Merger Consideration represents the highest price that CD&R and TPG (together, the “Sponsors”) were willing to pay considering the negotiations between the parties.

 

•

Value Relative to Stand-Alone Prospects of the Company. The Transaction Committee and the Board considered the fact that the Merger Consideration compares favorably to the potential value of the Company and the Company common stock if the Company were to remain as a stand-alone entity after taking into account the risks and uncertainties associated with this alternative, in light of a number of factors, including:

 

•

assessing the Company’s business, assets and prospects, its competitive position and historical and projected financial performance and the nature of the animal health industry in which the Company operates, including recent industry trends and changing competitive dynamics;

 

•

the strategic alternatives reasonably available to the Company on a stand-alone basis, and the risks and uncertainties associated with those alternatives;

 

•

the risks and uncertainties relating to the Company’s efforts to develop and market new products, as well as the complexities associated with managing a business comprising both a technology platform and a distribution business;

 

•

the risks and uncertainties related to increased competition in the markets in which the Company competes or may compete in the future; and

 

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•

the possibility that the Company’s competitors may be more successful in gaining access to talent and resources and the negative result that such competitive pressure may have on the ability of the Company to execute on its core business objectives.

 

•

The Sale Process: The Transaction Committee and the Board also considered:

 

•

that a sale process was conducted and that the Company, together with Goldman Sachs and Lincoln, communicated with 24 potential strategic and financial sponsor parties believed by the Company, Goldman Sachs and Lincoln to be most likely to be interested in, and capable of entering into, a transaction to acquire all of the outstanding shares of the Company;

 

•

that of the 24 potential acquirers contacted, 17 entered into confidentiality agreements with the Company and were granted due diligence access to the Company;

 

•

that only one of the potential acquirers (TPG) that engaged in discussions regarding a potential acquisition of the Company submitted an indication of interest with regard to the acquisition of the entire Company;

 

•

the fact that, following the public disclosure on May 20, 2022 of the Sponsors’ proposal to acquire the shares of Company common stock that CD&R VFC Holdings did not already own at a price of $21.00 per share, none of the Company, Goldman Sachs or Lincoln received any inquiries from any third parties concerning a potential acquisition of all or any portion of the Company or any other strategic alternative. The Transaction Committee and the Board considered that, if any third parties were interested in exploring a transaction with the Company, such potential acquirers would have been motivated to approach the Company during the period following the May 20, 2022 public disclosure of the Sponsors’ $21.00 per share proposal, and considered, after consultation with Goldman Sachs and Lincoln, that no other potential transaction party was likely to be both willing and able to acquire all of the outstanding shares of the Company at a valuation of $21.00 per share or greater; and

 

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Sponsors’ indication to the Transaction Committee that the $21.00 merger consideration was the highest price they were willing to offer, and that such offer had been increased because of the negotiating efforts of the Transaction Committee and the Company’s advisors, and the Transaction Committee’s belief, after discussion with its advisors and based on the course of negotiations with the Sponsors that $21.00 per share was the maximum price that the Sponsors would offer.

 

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Negotiation Process. The Transaction Committee and the Board considered the fact that the terms of the Merger Agreement were the result of robust arm’s-length negotiations conducted by the Transaction Committee, with the knowledge and at the direction of the Board, and with the assistance of independent financial advisors and outside legal counsel.

 

•

Opinion of Financial Advisors. The Transaction Committee and the Board considered the oral opinion of Goldman Sachs, subsequently confirmed by delivery of its written opinion, dated May 24, 2022 that, as of such date, and based upon and subject to the limitations, qualifications and assumptions set forth therein, the offer price of $21.00 in cash per share of Company common stock to be paid to the holders (other than Parent and its affiliates) of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such Company stockholders, as more fully described below under the section of this proxy statement entitled “Special Factors—Opinion of Goldman Sachs & Co. LLC,” and the full text of the opinion, which is attached as Annex C to this proxy statement and is incorporated by reference in this proxy statement in its entirety.

 

•

Terms of the Merger Agreement. The Transaction Committee and the Board considered the terms and conditions of the Merger Agreement, including:

 

•

the provision allowing the Board to change its recommendation prior to obtaining the stockholder approval in specified circumstances relating to a superior proposal or intervening event, subject to

 

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Parent’s right to terminate the Merger Agreement and receive payment of the termination fee of $88,315,000;

 

•

the provision allowing the Board to terminate the Merger Agreement to enter into a superior proposal, subject to certain conditions (including certain rights of Parent to match the superior proposal and payment of the termination fee of $88,315,000);

 

•

that affiliates of the Sponsors provided limited guarantees with respect to their portion of the payment of the termination fee of $197,950,000 that may be owed by Parent pursuant to the Merger Agreement, as well as certain reimbursement obligations that may be owed by Parent pursuant to the Merger Agreement, in each case subject to the terms of the Merger Agreement and the limited guarantees;

 

•

the Board’s belief, after discussion with the Company’s advisors, that the $88,315,000 termination fee, which constitutes approximately 2.9% of the Company’s equity value in the Merger, would not preclude a superior proposal from being made;

 

•

Parent having obtained committed debt financing from reputable financial institutions and committed equity financing from affiliated funds of the Sponsors in an aggregate amount sufficient to fund the required amounts;

 

•

the provision obligating Parent and Merger Sub to use reasonable best efforts to do, or cause to be done all things necessary, proper or advisable to obtain the proceeds of the debt and equity financing on terms (including the “market flex” provisions) and conditions no less favorable to Parent than those described in the commitment letters;

 

•

the likelihood that the Merger would be consummated, including the limited number and nature of the conditions to complete the Merger (including regulatory conditions), and the provisions of the Merger Agreement requiring Parent to, subject to certain exceptions, use its reasonable best efforts to take (or cause to be taken) all actions, and do (or cause to be done) all things necessary, proper or advisable under the Merger Agreement and applicable law to obtain as expeditiously as possible all consents, registrations, approvals, permits, expirations of waiting periods and authorizations necessary or advisable to be obtained from any third party or any governmental entity in order to consummate the Merger or any of the other transactions contemplated by the Merger Agreement; and

 

•

the availability of statutory appraisal rights under Delaware law in connection with the Merger.

 

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Opportunity for the Company’s Stockholders to Vote. The Transaction Committee and the Board considered the fact that the Merger would be subject to the approval of the Company’s stockholders, and the Company’s stockholders would be free to evaluate the Merger and vote for or against the adoption of the Merger Agreement at the special meeting.

 

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Timing of Completion. The Transaction Committee and the Board considered the anticipated timing of the consummation of the Transactions, including the Merger, and the structure of the Merger and concluded that the Transactions, including the Merger, could be completed in a reasonable timeframe and in an orderly manner. The Transaction Committee and the Board also considered that the potential for closing the Merger in a reasonable timeframe could reduce the period during which the Company’s business would be subject to the potential uncertainty of closing and related disruption.

 

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Operating Flexibility. The fact that the Merger Agreement provides the Company sufficient operating flexibility to conduct its business in the ordinary course consistent with past practices until the earlier of the consummation of the Merger and the termination of the Merger Agreement (as more fully described under “The Merger Agreement—Covenants Regarding Conduct of Business by Covetrus Prior to Merger”).

 

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•

Specific Performance. The Company’s ability, under circumstances specified in the Merger Agreement, to seek specific performance of Parent and Merger Sub’s obligation to cause the Merger to occur and to prevent other breaches of the Merger Agreement.

 

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Commitment by CD&R. The Transaction Committee and the Board considered the commitment of CD&R VFC Holdings in the Support and Rollover Agreement to, among other things:

 

•

vote or cause to be voted at the special meeting any shares of Company common stock owned by it in favor of the Merger and the adoption of the Merger Agreement and the other actions contemplated by the Merger Agreement or necessary or desirable in furtherance of the Merger and the other Transactions, in each case, on the terms and subject to the conditions set forth in the Support and Rollover Agreement, and against any action or agreement that could reasonably be expected to result in any of the conditions to the consummation of the Merger under the Merger Agreement not being fulfilled (as more fully described under “The Merger Agreement—CD&R’s Obligation to Vote in Favor of the Merger” and “Support and Rollover Agreement”).

 

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Understanding of Different Interests. the Transaction Committee and the Board (other than the Recused Directors) made their evaluations of the Merger Agreement and the Merger based upon the factors discussed in this proxy statement and with the full knowledge of the interests of CD&R and its affiliates in the Merger.

In the course of their deliberations, The Transaction Committee and the Board also considered certain risks and other potentially negative factors concerning the Transactions, including:

 

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No Stockholder Participation in Future Growth or Earnings. The Board considered the fact that the nature of the Merger as an all cash transaction means that the Company would no longer exist as an independent public company following the consummation of the Merger and that the Company’s stockholders (other than CD&R VFC Holdings) will not participate in future earnings or growth of Parent and will not benefit from any appreciation in value of the Surviving Corporation.

 

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Closing Conditions and Financing. The Board considered the fact that there can be no assurance that all conditions to the parties’ obligations to consummate the Merger will be satisfied even if the Merger Agreement is adopted by the Company’s stockholders, as well as the risk that the equity or debt financing contemplated by the equity and debt commitment letters will not be obtained, resulting in Parent and Merger Sub not having sufficient funds to complete the Transactions.

 

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Risks Associated with Parent and Merger Sub. The Transaction Committee and the Board considered the fact that Parent and Merger Sub are newly formed entities with essentially no assets and the limited guarantees, provided by each of the Equity Investors, guarantees Parent’s and Merger Sub’s obligations under the Merger Agreement only with respect to payment of the termination fee of $197,950,000 payable by Parent and certain other reimbursement obligations.

 

•

Interim Operating Risks. The Transaction Committee and the Board considered the restrictions placed on the conduct of the Company’s business prior to the completion of the Merger pursuant to the terms of the Merger Agreement, which, despite providing sufficient flexibility for the Company to operate its business in the ordinary course consistent with past practices, could delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company absent the pending completion of the Merger.

 

•

Risk Associated with Failure to Consummate the Merger. The Transaction Committee and the Board considered the possibility that the Transactions, including the Merger, might not be consummated, and the fact that if the Merger is not consummated:

 

•

the Company’s directors, senior management and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the Transactions;

 

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•

the Company will have incurred significant transaction costs;

 

•

the Company’s continuing business relationships with customers, partners and employees may be adversely affected;

 

•

the trading price of shares of Company common stock could be materially and adversely affected; and

 

•

the market’s perceptions of the Company’s prospects could be adversely affected.

 

•

No Solicitation and Termination Fee. The Transaction Committee and the Board considered the fact that subject to certain exceptions, the Merger Agreement precludes the Company from soliciting or entertaining alternative acquisition proposals and requires the Company to pay Parent a termination fee of $88,315,000 in certain circumstances.

 

•

Remedies. The Transaction Committee and the Board considered the fact that the Company’s remedies in the event that the Merger Agreement is terminated may be limited to the termination fee of $197,950,000, payable by Parent under certain circumstances and certain associated enforcement costs and reimbursement obligations, which may be inadequate to compensate the Company for any damage caused.

 

•

Effects of Transaction Announcement. The Transaction Committee and the Board considered the effect of the public announcement of the Merger Agreement, including effects on the Company’s stock price, and the Company’s ability to attract and retain key personnel during the pendency of the Transactions, as well as the potential for legal proceedings, judgments or settlements following the announcement of the Transactions and the associated costs, burden and inconvenience involved in defending those proceedings, judgments and settlements.

 

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Risks Related to CD&R. The Transaction Committee and the Board considered the fact that CD&R VFC Holdings’s ownership interest in the Company would likely be taken into account by third parties considering whether to make an unsolicited acquisition proposal prior to the receipt of the adoption of the Merger Agreement by the Company’s stockholders, and the fact that, if the Merger Agreement is terminated in connection with the Company’s entry into a definitive agreement with respect to a superior proposal, such third parties would likely seek to have CD&R VFC Holdings agree to vote its shares of Company common stock in favor of such superior proposal.

 

•

Timing Risks. The Transaction Committee and the Board considered the amount of time it could take to complete the Merger, including that completion of the Merger depends on factors outside of the Company’s or Sponsors’ control (including the approval of the Merger by the Company’s stockholders), and the risk that the pendency of the Merger for an extended period of time following the announcement of the execution of the Merger Agreement could divert the Company’s management’s attention and have an adverse impact on the Company, including its client and other business relationships.

 

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Taxable Consideration. The Transaction Committee and the Board considered the fact that the exchange of Company common stock for cash in the Merger generally will be a taxable transaction for U.S. federal income tax purposes.

 

•

Other Risks. The Transaction Committee and the Board considered the other risks described in and incorporated by reference in this proxy statement, see “Risk Factors” in our annual report on Form 10-K for the fiscal year ended December 31, 2021 incorporated by reference herein and the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”

The Transaction Committee and the Board concluded that the uncertainties, risks and potentially negative factors relevant to the Merger were outweighed by the potential benefits of the Merger.

In addition to considering the factors described above, the Transaction Committee and the Board also considered that some of the Company’s directors and executive officers have interests that may be different from,

 

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or in addition to, the interests of the Company’s stockholders generally. The Board was aware of these interests and considered them at the time it approved the Merger Agreement and made its recommendation to the Company’s stockholders. See the section entitled “Special Factors—Interests of Directors and Executive Officers in the Merger.”

The foregoing discussion of the information and factors considered by the Transaction Committee and the Board is not intended to be exhaustive, but includes the material positive and negative factors considered by the Transaction Committee and the Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger Agreement and the Transactions, including the Merger, and the complexity of these matters, neither the Transaction Committee nor the Board find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. Neither the Transaction Committee nor the Board undertook to make any specific determination as to whether, or to what extent, any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The Transaction Committee and the Board each based their recommendation on the totality of the information presented, including the factors described above. This explanation of the reasoning of the Transaction Committee and the Board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in the section of this proxy statement entitled “Cautionary Statement Concerning Forward-Looking Information.”

The Transaction Committee and the Board (other than the Recused Directors) believe that sufficient procedural safeguards were and are present to ensure the fairness of the Merger and to permit the Transaction Committee and the Board (other than the Recused Directors) to represent effectively the interests of the unaffiliated stockholders. These procedural safeguards include the following:

 

•

the Board formed the Transaction Committee, consisting of three of the Company’s independent directors who are independent of, and not affiliated with, CD&R or its affiliates, to evaluate and consider any potential or actual proposal from CD&R and any other alternative proposals or other strategic alternatives that may be available to the Company, including the Merger;

 

•

the members of the Transaction Committee will not personally benefit from the consummation of the Transactions in a manner different from the Company’s stockholders (other than CD&R VFC Holdings and the other holders of excluded shares), except for indemnification and continuing directors and officers liability insurance coverage and the vesting of certain Company equity awards upon the closing;

 

•

the Company retained independent financial and legal advisors to evaluate the Merger, and the Transaction Committee was empowered to and did review and negotiate the Merger Agreement, the Transactions, including the Merger and the Merger Consideration, and any alternatives thereto, and to make a recommendation to the Board as to what actions, if any, should be taken by the Company with respect thereto;

 

•

at the direction of the Transaction Committee, the terms of the Merger Agreement and the Transactions, including the Merger, were extensively negotiated by the Transaction Committee and the Company’s independent financial and legal advisors, and were closely reviewed and scrutinized by the Transaction Committee, and, through negotiations, the Transaction Committee was able to increase the Merger Consideration from $20.00 per share to $21.00 per share;

 

•

the approval of the proposal to adopt the Merger Agreement requires the affirmative vote of the majority of the outstanding shares of Company common stock entitled to vote on such matter (as more fully described under “The Special Meeting—Vote Required for Approval”);

 

•

the various terms of the Merger Agreement, including the ability of the Company to receive, negotiate and, under specified circumstances, to terminate the Merger Agreement in order to accept a superior proposal (as more fully described under “The Merger Agreement”);

 

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•

the Transaction Committee and the Board (other than the Recused Directors) made their evaluations of the Merger Agreement and the Merger based upon the factors discussed in this proxy statement and with the full knowledge of the interests of CD&R and its affiliates in the Merger;

 

•

the members of the Transaction Committee and the Board met frequently through the execution of the Merger Agreement to receive updates; to review, among other things, the Company’s business, operations, financial condition, earnings and prospects, its strategic and competitive positioning and historical and projected financial performance, its valuation, its long-range plans and the risk in achieving those prospects and plans, as well as industry, economic and market conditions and trends; to review the Company’s strategic and commercial alternatives and options, including the results of the sale process conducted and the likelihood or unlikelihood of other parties being willing and able to engage in a stockholder-value-maximizing strategic transaction with the Company; and to consider and evaluate discussions with CD&R and, ultimately, the proposal from the Sponsors; and

 

•

the members of the Board who are affiliated with CD&R have recused themselves and were excluded from all deliberations with respect to the limited waiver of the standstill provisions of the Investment Agreement to allow the Sponsors to submit a proposal, the subsequent negotiation, evaluation and approval of the Merger Agreement and the Merger.

In the course of reaching its decision to approve and declare advisable the Merger Agreement and the Transactions, including the Merger, the Transaction Committee and Board (other than the Recused Directors) did not consider the liquidation value of the Company, and did not believe it to be a relevant methodology, because (1) they considered the Company to be a viable, going concern, (2) they considered determining a liquidation value to be impracticable given the significant execution risk involved in any breakup of the Company and (3) the Company will continue to operate its business following the Merger. Further, the Transaction Committee and Board (other than the Recused Directors) did not consider net book value, an accounting concept, of the Company as a factor because they believe that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs and because net book value does not take into account the prospects of the Company, market conditions, trends in the industries in which the Company operates or the business risks inherent in those industries. The Transaction Committee and Board (other than the Recused Directors) were not aware of any firm offer for a merger, sale of all or a substantial part of the Company’s assets, or a purchase of a controlling amount of the Company securities having been received by the Company from anyone other than CD&R, TPG and Company A with respect to the current transaction in the two years preceding the signing of the Merger Agreement.

The Transaction Committee and the Board (other than the Recused Directors) did not seek to establish a pre-merger going concern value for the Company to determine the fairness of the Merger, as they believed that such value was adequately reflected in the various analyses summarized in the section of this proxy statement entitled “Special Factors—Opinion of Goldman Sachs & Co. LLC,” that they considered in making their respective determinations. In making its determination as to the fairness of the Merger, the Transaction Committee and the Board (other than the Recused Directors) considered a number of factors as summarized in the section of this proxy statement entitled “Special Factors—Reasons for the Merger; Recommendation of the Board; Fairness of the Merger,” including the opinion and analyses provided by Goldman Sachs as more fully summarized in the section of this proxy statement entitled “Special Factors—Opinion of Goldman Sachs & Co. LLC”, which opinion and analyses the Transaction Committee and the Board (other than the Recused Directors) adopted.

Position of the CD&R Entities as to the Fairness of the Merger

Under the SEC rules governing “going-private” transactions, the CD&R Entities may be deemed to be affiliates of the Company and, therefore, required to express their beliefs as to the fairness of the Merger to the unaffiliated stockholders. Parent and Merger Sub are making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and the related rules and regulations under the Exchange Act. The view of Parent and Merger Sub as to the fairness of the Merger should not be construed as a

 

39

recommendation to any Company stockholder as to how that stockholder should vote on the Merger Agreement Proposal. The CD&R Entities have interests in the Merger that are different from, and in addition to, those of the unaffiliated stockholders of the Company.

The CD&R Entities did not participate in the deliberation of the Transaction Committee or the Board regarding, nor did they receive advice from the respective legal or other advisors of the Transaction Committee or the Board as to, the fairness of the Merger. While two directors affiliated with the CD&R Entities are on the Board, as discussed in “Special Factors—Background of the Merger,” such Recused Directors were excluded from all Board deliberations relating to the approval of the Merger Agreement. The CD&R Entities have 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 unaffiliated stockholders. Based on, among other things, the factors considered by, and the analysis and resulting conclusions of, the Board and the Transaction Committee discussed in “Special Factors—Reasons for the Merger; Recommendation of the Board; Fairness of the Merger” (which analysis and resulting conclusions the CD&R Entities adopt), the CD&R Entities believe that the Merger is substantively fair to the unaffiliated stockholders. In particular, the CD&R Entities considered the following:

 

•

the current and historical market prices of the shares of Company common stock, including the market performance of the shares of Company common stock relative to those of other participants in the Company’s industry and general market indices, and the fact that the Merger Consideration of $21.00 per share represented a premium of approximately 39% to the Company’s 30-day volume weighted average price per share as of the unaffected date of May 13, 2022 and a premium of approximately 35% to the Company’s 30-day volume weighted average price per share as of May 19, 2022, the last trading day before the Schedule 13D/A disclosing the proposal by CD&R and TPG to acquire the Company was publicly filed;

 

•

the fact that the Transaction Committee and the Board (other than the Recused Directors) unanimously approved and declared advisable the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, upon the terms and subject to the conditions set forth in the Merger Agreement, and determined that the Merger is fair to, and in the best interests of, the Company and its stockholders (including the unaffiliated stockholders);

 

•

the fact that the Merger Consideration is all cash, thus allowing the unaffiliated stockholders to immediately realize a certain and fair value for their shares, which value represents a significant premium over the Company’s 30-day volume weighted average price per share as of the unaffected date of May 13, 2022 and over the Company’s 30-day volume weighted average price per share as of May 19, 2022, the last trading day before the Schedule 13D/A disclosing the proposal by CD&R and TPG to acquire the Company was publicly filed;

 

•

the fact that the Merger will provide liquidity for the unaffiliated stockholders without the delays that would otherwise be necessary in order to liquidate the positions of larger holders, and without incurring brokerage and other costs typically associated with market sales;

 

•

the fact that there are no conditions to the Merger that are unlikely to be satisfied, increasing the likelihood that the Merger will be consummated and that the consideration to be paid to the unaffiliated stockholders in the Merger will be received; and

 

•

the potential risks to the Company of continuing to have publicly traded common stock, including the risks of market volatility and global economic uncertainty.

The CD&R Entities further believe that the Merger is procedurally fair to the unaffiliated stockholders based upon, among other things, the following factors:

 

•

the fact that a sale process was conducted, which included communication by the Company, together with Goldman Sachs and Lincoln, with 24 potential strategic and financial sponsor parties believed by the Company, Goldman Sachs and Lincoln to be most likely to be interested in, and capable of entering into, a transaction to acquire all of the outstanding shares of the Company;

 

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•

the Board was fully informed about the extent to which the interests of the CD&R Entities in the Merger differed from those of the unaffiliated stockholders;

 

•

the fact that the Recused Directors were excluded from certain Board discussions (including all discussions related to the Board’s consideration of the initial offer from TPG and the subsequent offer from CD&R and TPG and the evaluation and negotiation of the Transactions);

 

•

the fact that the Board formed a transaction committee consisting solely of non-management independent members of the Board not affiliated with CD&R, which was empowered to and did review and negotiate the Merger Agreement, the Transactions, including the Merger and the Merger Consideration, and any alternatives thereto, and was empowered to make a recommendation to the Board as to what actions, if any, should be taken by the Company with respect thereto;

 

•

the fact that the Company retained, and the Transaction Committee and the Board had the benefit of advice from, nationally recognized legal and financial advisors;

 

•

the fact that the Merger Consideration was the result of the Transaction Committee’s arm’s length negotiations with Parent;

 

•

notwithstanding the fact that the opinion of Goldman Sachs was delivered solely to the Transaction Committee and the Board, and not to the CD&R Entities, in connection with their consideration of the Merger, and is not a recommendation as to how any holder of shares of Company common stock should vote with respect to the Merger Agreement Proposal or any other matter, and that the CD&R Entities are not entitled to, nor did they, rely on such opinion, the fact that the Transaction Committee and the Board received an opinion from Goldman Sachs that, as of May 24, 2022 and based upon and subject to the various qualifications, assumptions, limitations and other matters set forth therein, the $21.00 in cash per share to be paid to the holders (other than Parent and its affiliates) of the outstanding shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders;

 

•

the fact that the closing of the Merger is conditioned on the adoption of the Merger Agreement by the Company’s stockholders;

 

•

the Company’s ability, under certain circumstances as set out in the Merger Agreement, to provide information to, or participate in discussions or negotiations with, third parties regarding acquisition proposals that constitute, or are reasonably likely to lead to, superior proposals;

 

•

the Company’s ability, under certain circumstances as set out in the Merger Agreement, to terminate the Merger Agreement to enter into a definitive agreement related to a superior proposal, subject to paying Parent a termination fee of $88,315,000 in cash, subject to and in accordance with the terms and conditions of the Merger Agreement; and

 

•

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

The CD&R Entities also considered a variety of risks and other countervailing factors related to the substantive and procedural fairness of the proposed Merger, including:

 

•

the unaffiliated stockholders will not participate in any future earnings, appreciation in value or growth of the Company’s business and will not benefit from any potential sale of the Company or its assets to a third party in the future;

 

•

the risk that the Merger might not be completed in a timely manner or at all;

 

•

that Parent and Merger Sub are newly formed corporations with essentially no assets other than the funding commitments of the Equity Investors and the Debt Commitment Parties;

 

•

the restrictions on the conduct of the Company’s business prior to the completion of the Merger set forth in the Merger Agreement, which may delay or prevent the Company from undertaking business

 

41

opportunities that may arise and certain other actions it might otherwise take with respect to the operations of the Company pending completion of the Merger;

 

•

the negative effect that the pendency of the Merger, or a failure to complete the Merger, could potentially have on the Company’s business and relationships with its employees, vendors and customers;

 

•

subject to the terms and conditions of the Merger Agreement, the Company and its subsidiaries are restricted from soliciting, initiating, knowingly encouraging or knowingly facilitating any inquiries or the making of any proposal or offer constituting, or that could reasonably be expected to lead to, an acquisition proposal;

 

•

the possibility that the amounts that may be payable by the Company upon the termination of the Merger Agreement, including payment to Parent of a termination fee of $88,315,000 in cash, and the processes required to terminate the Merger Agreement, including the opportunity for Parent to make revisions to its proposal, could discourage other potential acquirors from making a competing bid to acquire the Company; and

 

•

the fact that an all cash transaction would generally be taxable to the Company’s stockholders that are U.S. holders for U.S. federal income tax purposes.

The foregoing discussion of the information and factors considered and given weight by the CD&R Entities in connection with its evaluation of the fairness of the Merger is not intended to be exhaustive but includes all material factors considered by them. The CD&R Entities did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their conclusion as to the fairness of the Merger. Rather, the CD&R Entities reached their position as to the fairness of the Merger after considering all of the foregoing as a whole. The CD&R Entities believe these factors provide a reasonable basis upon which to form their position regarding the fairness of the Merger to the unaffiliated stockholders. This position should not, however, be construed as a recommendation to any Company stockholder to approve the Merger Agreement. The CD&R Entities make no recommendation as to how stockholders of the Company should vote their shares relating to the Merger. The CD&R Entities attempted to negotiate the terms of a transaction that would be most favorable to them, and not to the unaffiliated stockholders of the Company, and, accordingly, did not negotiate the Merger Agreement with a goal of obtaining terms that were fair to such stockholders.

Based on the CD&R Entities’ knowledge and analysis of available information regarding the Company, the Transaction Committee and the Board, as well as discussions with the Transaction Committee, the Board and members of the Company’s senior management regarding the Company and its business and the factors considered by, and findings of, the Transaction Committee and the Board and discussed in “Special Factors—Reasons for the Merger; Recommendation of the Board; Fairness of the Merger,” the CD&R Entities believe that the Merger is fair to the unaffiliated stockholders.

Certain Financial Projections Utilized in Connection with the Merger

Although Covetrus periodically provides guidance to the public regarding its financial performance for the then-current fiscal year, Covetrus does not, as a matter of course, publicly disclose other financial forecasts given, among other reasons, the uncertainty, unpredictability and subjectivity of these forecasts and the associated underlying assumptions.

However, Covetrus is including in this proxy statement a summary of certain unaudited prospective financial information prepared by its management (the “Financial Forecasts”) that has not previously been publicly disclosed, in order to provide Covetrus stockholders with access to information that was made available to the Transaction Committee and the Board in connection with their evaluation of the proposed Merger and the Merger Consideration. The Financial Forecasts with respect to Revenue and Adjusted EBITDA for the fiscal years ending December 31, 2022 through December 31, 2025 were provided to the Sponsors in February 2022. In addition, the Financial Forecasts, including for the fiscal years ending December 31, 2026 through December 31, 2028, and with respect to Unlevered Free Cash Flow, were provided to Goldman Sachs and were used by

 

42

Goldman Sachs in connection with the rendering of its opinion to the Transaction Committee and the Board and the performance of the related financial analyses, as described in the section entitled “Special Factors—Opinion of Goldman Sachs & Co. LLC,” beginning on page 45, but the Financial Forecasts for the fiscal years ending December 31, 2026 through December 31, 2028 were not provided to Parent or the Sponsors prior to entering into the Merger Agreement.

The inclusion of the Financial Forecasts in this proxy statement is not intended to influence any Covetrus stockholder with respect to the Merger Agreement Proposal or for any other purpose, including whether or not to seek appraisal rights with respect to a stockholder’s shares of Company common stock.

The Financial Forecasts were not prepared with a view toward public disclosure or toward complying with GAAP, nor were they prepared with a view toward compliance with the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. These projections are not fact and should not be relied upon as necessarily indicative of actual future results, and readers of this proxy statement are cautioned not to place undue reliance on the prospective financial information. Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the Financial Forecasts, nor have they expressed any opinion or any other form of assurance on the Financial Forecasts or the achievability of the results reflected in the Financial Forecasts, and they assume no responsibility for, and disclaim any association with, the Financial Forecasts. The Financial Forecasts may differ from published analyst estimates and the Financial Forecasts do not take into account any events or circumstances after the date they were prepared, including the announcement of the Merger (nor, relatedly, any failure of the Merger to be consummated).

Although presented with numerical specificity, the Financial Forecasts are subjective in many respects and, thus, are subject to interpretation and reflect numerous variables, estimates and assumptions made by Covetrus management that Covetrus management believed were reasonable at the time prepared, taking into account relevant information available to management at that time. Important factors that may affect actual results and result in such Financial Forecasts not being achieved include the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement and the inability to complete the Merger due to the failure to obtain stockholder approval of the Merger Agreement, the Merger or the principal terms thereof or the failure to satisfy other conditions to completion of the Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the Transactions, and risks and uncertainties pertaining to Covetrus’ business, including the factors listed under “Risk Factors” set forth in Covetrus’ reports filed with the SEC, which are incorporated by reference into this proxy statement. In addition, the Financial Forecasts may be affected by Covetrus’ ability to achieve strategic goals, objectives and targets over the applicable period. The assumptions upon which the Financial Forecasts are based necessarily involve judgments with respect to, among other things, industry performance and competition, general business, economic, regulatory, market and financial conditions, and other future events, and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industry in which Covetrus operates, and the risks and uncertainties described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” beginning on page 115, all of which are difficult or impossible to predict accurately and many of which are beyond Covetrus’ control. The Financial Forecasts also reflect assumptions that are subject to change and are susceptible to multiple interpretations and periodic revisions based on actual results, revised prospects for Covetrus’ business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated when the such forecasts were prepared. Therefore, Covetrus cannot provide any assurance that the assumptions underlying the Financial Forecasts will be realized. In addition, given that the Financial Forecasts pertain to multiple years, by their nature, they become subject to greater uncertainty with each successive year beyond their preparation. The estimates and assumptions in early periods have a

compounding effect on the projections shown for later periods. Thus, any failure of an estimate or assumption to

 

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be reflective of actual results in an early period would have a greater effect on projected results failing to be reflective of actual events in later periods. Accordingly, there can be no assurance that the Financial Forecasts will be realized, and actual results will differ, and may differ materially, from those shown.

The inclusion of the Financial Forecasts in this proxy statement should not be regarded as an indication that any of Covetrus, Goldman Sachs, the Sponsors, Parent, Merger Sub, the CD&R Entities or any of their respective affiliates, officers, directors, advisors or other representatives considered or consider the Financial Forecasts necessarily predictive of actual future events, and the Financial Forecasts should not be relied upon as such. None of Covetrus, Goldman Sachs, the Sponsors, Parent, Merger Sub, the CD&R Entities or any of their respective affiliates, officers, directors, advisors or other representatives can give any assurance that actual results will not differ from the Financial Forecasts, and Covetrus undertakes no obligation to update or otherwise revise or reconcile the Financial Forecasts to reflect circumstances existing after the date such Financial Forecasts were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the Financial Forecasts are shown to be in error. None of Covetrus, or, to the knowledge of Covetrus, the Sponsors, Parent or Merger Sub or the CD&R Entities intends to make publicly available any update or other revisions to the Financial Forecasts, unless required by applicable law. None of Covetrus, Goldman Sachs, the Sponsors, Parent, Merger Sub, the CD&R Entities or any of their respective affiliates, officers, directors, advisors or other representatives has made or makes any representation to any stockholder or other person regarding the ultimate performance of Covetrus compared to the information contained in the Financial Forecasts or that forecasted results will be achieved.

Adjusted EBITDA and Unlevered Free Cash Flow, included in the Financial Forecasts, are “non-GAAP financial measures,” which are financial performance measures that are not calculated in accordance with GAAP. Adjusted EBITDA and Unlevered Free Cash Flow were utilized by Goldman Sachs in connection with its opinion and by the Transaction Committee and the Board in connection their evaluation of the Merger. The SEC rules that would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure do not apply to non-GAAP financial measures included in disclosures relating to a proposed business combination such as the Merger if the disclosure is included in a document such as this proxy statement. In addition, reconciliations of Adjusted EBITDA and Unlevered Free Cash Flow were not relied upon by Goldman Sachs for purposes of its opinion or by the Transaction Committee or the Board in connection with their evaluation of the Merger. Accordingly, Covetrus has not provided a reconciliation of Adjusted EBITDA or Unlevered Free Cash Flow to the relevant GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and any non-GAAP financial measures as used by Covetrus may not be comparable to similarly titled amounts used by other companies. Furthermore, there are certain limitations in non-GAAP financial measures, because they exclude charges and credits that are required to be included in a GAAP presentation. Accordingly, these non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP.

The following table presents a summary of the Financial Forecasts:

 

($ in millions)		2022E				2023E				2024E				2025E				2026E				2027E				2028E
Revenue		$	4,916			$	5,330			$	5,775			$	6,233			$	6,600			$	6,918			$	7,208
Adjusted EBITDA(1)		$	285			$	349			$	397			$	459			$	500			$	537			$	570

 

(1)

Adjusted EBITDA is defined as net income attributable to Covetrus, before interest expense, net income tax expense, net depreciation and amortization, as adjusted by excluding (i) share-based compensation, (ii) strategic consulting costs, transaction costs, formation of Covetrus expenses, separation programs and executive severance (collectively, “Specified Expenses”), (iii) goodwill impairment charges, capital structure-related fees, other impairments, the proportionate share of the adjustments of consolidated and nonconsolidated affiliates where Covetrus ownership is less than 100%, and (iv) other income and expense items, net.

 

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($ in millions)		Q2-Q4 2022E				2023E				2024E				2025E				2026E				2027E				2028E
Unlevered Free Cash Flow(1)		$	170			$	175			$	197			$	247			$	278			$	319			$	345

 

(1)	Unlevered Free Cash Flow is defined as Adjusted EBITDA (i) less Specified Expenses, (ii) less cash tax expense, (iii) less capital expenditures and (iv) adjusted for net working capital changes over the projection period.

The material estimates and assumptions made by Covetrus management in connection with the Financial

Forecasts include:

 

•

With respect to Covetrus’s distribution business, projected compound annual growth rate in revenue through 2025 of approximately 6% to 9%, depending upon the geographic region;

 

•

With respect to Covetrus’s technology business (which includes SmartPak, Covetrus’s practice information management software systems and its North American veterinary storefront), projected compound annual growth rate in revenue through 2025 of approximately 15.5%;

 

•

With respect to Covetrus’s distribution business, improvement of gross margin of approximately 0.6% through 2025 as a result of, among other things, increasing penetration rates of high-margin private label products (depending upon the geographic region), partially offset by supplier margin pressure and customer consolidation;

 

•

With respect to Covetrus’s technology business, improvement of gross margin of approximately 1.4% through 2025;

 

•

Revenue growth and improvements of gross margin for 2026 through 2028 assumed generally in line with prior years;

 

•

Decline in operating expenses as a percentage of revenue, reflecting scale and leverage in Covetrus’s technology business and continued gains in operating efficiency in Covetrus’s distribution business, partially offset by 3% annual inflation; and

Capital expenditures and changes in net working capital generally scaling in line with revenue.

For the reasons described above, readers of this proxy statement are cautioned not to place undue, if any, reliance on the Financial Forecasts.

COVETRUS DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE ABOVE FORECASTS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH FORECASTS ARE NOT REALIZED.

Opinion of Goldman Sachs & Co. LLC

Goldman Sachs rendered its opinion to the Board and Transaction Committee that, as of May 24, 2022 and based upon and subject to the factors and assumptions set forth therein, the $21.00 in cash per share of Company common stock to be paid to the holders (other than Parent and its affiliates) of shares of Company common stock pursuant to the Merger Agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated May 24, 2022, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Board and, with respect to such opinion, the Transaction Committee in connection with its consideration of the Merger. The Goldman Sachs opinion is not a recommendation as to how any holder of shares of Company common stock should vote with respect to the Merger Agreement Proposal or any other matter.

 

45

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

•

the Merger Agreement;

 

•

annual reports to stockholders and Annual Reports on Form 10-K of the Company for the three fiscal years ended December 31, 2021, 2020, and 2019, and the fiscal year ended December 29, 2018;

 

•

the Company’s Registration Statement on Form S-1, including the prospectus contained therein dated February 7, 2019 relating to the Company’s resale of shares of its common stock by certain selling stockholders who acquired the securities in a private placement;

 

•

certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company;

 

•

certain other communications from the Company to its stockholders;

 

•

certain publicly available research analyst reports for the Company; and

 

•

certain internal financial analyses and forecasts for the Company prepared by its management, as approved for Goldman Sachs’ use by the Company (which are referred to for purposes of this section of the proxy statement as the “Forecasts”), which are summarized in the section entitled “Special Factors—Certain Financial Projections in Connection with the Merger.”

Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company; reviewed the reported price and trading activity for the shares of Company common stock; compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the healthcare distribution, companion animal health, and healthcare information technology industries and in other industries; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.

For purposes of rendering this opinion, Goldman Sachs, with the Company’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with the Company’s consent that the Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Merger will be obtained without any adverse effect on the expected benefits of the Transactions, including the Merger, in any way meaningful to its analysis. Goldman Sachs has also assumed that the Transactions, including the Merger, will be consummated on the terms set forth in the Merger Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the Transactions, including the Merger, or the relative merits of the Transactions, including the Merger, as compared to any strategic alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than Parent and its affiliates) of shares of Company common stock, as of the date of the opinion, of the $21.00 in cash per share of Company common stock to be paid to such holders pursuant to the Merger Agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the Merger Agreement or the Transactions, including the Merger, or any term or aspect of any other agreement or instrument contemplated by the Merger Agreement or entered into or amended in connection with

 

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the Transactions, including the Merger, including the fairness of the Transactions, including the Merger, to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the Transactions, including the Merger, whether relative to the $21.00 in cash per share of Company common stock to be paid to the holders (other than Parent and its affiliates) of such shares pursuant to the Merger Agreement or otherwise. Goldman Sachs does not express any opinion as to the prices at which the shares of Company common stock will trade at any time, as to the potential effects of volatility in the credit, financial and stock markets on the Company or Parent, or the Transactions, including the Merger, or as to the impact of the Transactions, including the Merger, on the solvency or viability of the Company or Parent or the ability of the Company or Parent to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion, and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and the opinion were provided for the information and assistance of the Board, and, with respect to such opinion, the Transaction Committee, in connection with their consideration of the Transactions, including the Merger, and such opinion does not constitute a recommendation as to how any holder of shares of Company common stock should vote with respect to the Merger Agreement Proposal or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

Summary of Material Financial Analysis

The following is a summary of the material financial analyses delivered by Goldman Sachs and presented to the Board and the Transaction Committee in connection with rendering the opinion described above. The full text of the written presentation made by Goldman Sachs to the Board and the Transaction Committee on May 23, 2022 has been attached as Exhibit (c)(2) to the Schedule 13e-3 in connection with the Transactions, including the Merger, and is incorporated by reference herein in its entirety (the “GS May 2022 Presentation”). The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before May 19, 2022, the last trading day before the Schedule 13D/A disclosing the proposal by CD&R and TPG to acquire the Company was publicly filed, and is not necessarily indicative of current market conditions.

Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices and volumes for the shares of Company common stock for the period beginning on February 8, 2019 and ending May 19, 2022. In addition, Goldman Sachs analyzed the consideration to be paid to holders of shares of Company common stock pursuant to the Merger Agreement in relation to (i) the closing price per share of Company common stock on May 19, 2022, the last trading day before the Schedule 13D/A disclosing the proposal by CD&R and TPG to acquire the Company was publicly filed, (ii) the volume weighted average price (which is referred to for purposes of this section of the proxy statement as “VWAP”) per share of Company common stock for the preceding 30-, 60- and 90-trading day periods ended May 19, 2022, (iii) the closing price per share of Company common stock on May 13, 2022, the last trading day before it appeared that the price of the shares of Company common stock may have been affected by market rumors or otherwise, and (iv) the VWAP per share of Company common stock for the preceding 30-, 60- and 90-trading day periods ended May 13, 2022.

This analysis indicated that the price per share of Company common stock to be paid to Company stockholders pursuant to the Merger Agreement represented:

 

•

a premium of 16.5% based on the closing price per share of Company common stock of $18.02 on May 19, 2022;

 

47

•

a premium of 34.8% based on the VWAP per share of Company common stock of $15.58 for the 30-trading day period ended May 19, 2022;

 

•

a premium of 29.4% based on the VWAP per share of Company common stock of $16.23 for the 60-trading day period ended May 19, 2022;

 

•

a premium of 25.7% based on the VWAP per share of Company common stock of $16.71 for the 90-trading day period ended May 19, 2022;

 

•

a premium of 37.5% based on the closing price per share of Company common stock of $15.27 on May 13, 2022;

 

•

a premium of 38.8% based on the VWAP per share of Company common stock of $15.13 for the 30-trading day period ended May 13, 2022;

 

•

a premium of 30.3% based on the VWAP per share of Company common stock of $16.12 for the 60-trading day period ended May 13, 2022; and

 

•

a premium of 25.6% based on the VWAP per share of Company common stock of $16.71 for the 90-trading day period ended May 13, 2022.

Illustrative Discounted Cash Flow Analysis. Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on the Company. Using discount rates ranging from 9.0% to 11.5%, reflecting estimates of the Company’s weighted average cost of capital, Goldman Sachs discounted to present value as of March 31, 2022, (i) estimates of unlevered free cash flow for the Company for the second, third and fourth quarters of 2022 and the years 2023 through 2028 as reflected in the Forecasts and (ii) a range of illustrative terminal values for the Company, which were calculated by applying perpetuity growth rates ranging from 2.5% to 3.5%, to a terminal year estimate of the unlevered free cash flow to be generated by the Company, as reflected in the Forecasts (which analysis implied exit terminal year EV/EBITDA multiples ranging from 6.5x to 10.7x). Goldman Sachs derived such discount rates by application of the Capital Asset Pricing Model (which is referred to for purposes of this section of the proxy statement as “CAPM”), which requires certain company-specific inputs, including the company’s target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the United States financial markets generally. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation.

Goldman Sachs derived ranges of illustrative enterprise values for the Company by adding the ranges of present values it derived as described above. Goldman Sachs then subtracted from the range of illustrative enterprise values it derived for the Company the net debt of the Company of $904 million as of March 31, 2022, as provided by the management of the Company and approved for Goldman Sachs’ use by the management of the Company, to derive a range of illustrative equity values for the Company. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of the Company as of May 20, 2022, as provided by the management of the Company and approved for Goldman Sachs’ use by the management of the Company, using the treasury stock method, to derive a range of illustrative present values per share of Company common stock ranging from $14.76 to $27.02.

Illustrative Present Value of Future Share Price Analysis. Goldman Sachs performed an illustrative analysis of the implied present value of an illustrative future price per share of Company common stock, which is designed to provide an indication of the present value of a theoretical future value of the Company’s equity as a function of the Company’s estimated future earnings and its assumed price to future earnings per share multiple. For this analysis, Goldman Sachs used the Forecasts to derive a range of theoretical future enterprise values for the Company for each of the fiscal years 2022 to 2024, by applying a range of illustrative multiples of enterprise value to next twelve months (which is referred to for purposes of this section of the proxy statement as “NTM”) EBITDA (which is referred to for purposes of this section of the proxy statement as “NTM EV/EBITDA”) of

 

48

10.0x to 13.0x to NTM EBITDA estimates for the Company, based on the Forecasts. These illustrative multiple estimates were derived by Goldman Sachs utilizing its professional judgment and experience, taking into account historical NTM EV/EBITDA multiples for the shares of Company common stock during the period beginning January 1, 2022, and ending May 19, 2022, and certain selected distribution companies described in the section below captioned “—Selected Public Company Comparables.”

Goldman Sachs then derived a range of theoretical future values per share of Company common stock for each of the fiscal years 2022 to 2024 by subtracting the Company’s projected net debt as of December 31, 2022, 2023, and 2024, respectively, and dividing the result by the estimated fully-diluted shares of Company common stock outstanding as of December 31, 2022, 2023, and 2024, respectively, all as reflected in the Forecasts. Using an illustrative discount rate of 11.7%, reflecting Goldman Sachs’ estimate of the Company’s cost of equity, Goldman Sachs discounted to present value the range of theoretical future values per share of Company common stock it derived for each of the fiscal years 2022 to 2024. Goldman Sachs derived the illustrative discount rate of 11.7% by application of the CAPM, which requires certain company-specific inputs, including a beta for the company, as well as certain financial metrics for the United States financial markets generally. This analysis resulted in a range of illustrative present values per share of Company common stock of $17.32 to $27.73.

Selected Precedent Transactions Analysis. Goldman Sachs analyzed certain information relating to the following selected transactions in the distribution, companion animal health and healthcare information technology industries since 2012 with a total enterprise value of at least $1 billion.

For each of the selected transactions, Goldman Sachs calculated and compared the implied enterprise value of the applicable target company based on the consideration paid in the transaction as a multiple of the target company’s EBITDA over the last twelve month (which is referred to for purposes of this section of the proxy statement as “LTM”) period ended prior to the announcement of the applicable transaction (which is referred to for purposes of this section of the proxy statement as “EV/LTM EBITDA”). While none of the companies that participated in the selected transactions is directly comparable to the Company, the companies included in the selected transactions are companies that operate in the distribution, companion animal health or healthcare information technology industries with operations that, for the purposes of analysis, may be considered similar to certain of the Company’s results, market size and product profile.

The following table presents the results of this analysis:

 

Announcement Date		Acquiror		Target		EV/LTM EBITDA Multiple
Distribution Industry
January 2021		AmerisourceBergen Corporation		Majority of Alliance Healthcare Business from Walgreens Boots Alliance, Inc.		12.0x
October 2012		McKesson Corporation		PSS World Medical, Inc.		11.9x
October 2013		McKesson Corporation		Celesio AG		11.0x
Animal Health Industry
January 2015		AmerisourceBergen Corporation		MWI Veterinary Supply, Inc.		19.3x
January 2017		Mars, Incorporated		VCA Inc.		18.3x
May 2015		Patterson Companies, Inc.		Animal Health International, Inc.		16.2x
May 2013		BC Partners, Inc.		Allflex Europe UK Ltd.		13.0x
December 2014		BC Partners, Inc.		PetSmart, Inc.		9.3x
Healthcare Information Technology Industry
June 2018		Verscend Technologies, Inc.		Cotiviti Holdings, Inc.		18.0x

 

49

Announcement Date		Acquiror		Target		EV/LTM EBITDA Multiple
January 2021		UnitedHealth Group Incorporated		Change Healthcare, Inc.		14.9x
December 2021		Oracle Corporation		Cerner Corporation		14.8x

Based on the results of the foregoing calculations of EV/LTM EBITDA multiples and Goldman Sachs’ professional judgment and experience, Goldman Sachs applied an illustrative range of EV/LTM EBITDA multiples of 11.0x to 19.3x to the Company’s LTM Adjusted EBITDA for the twelve-month period ended March 31, 2022 of $250 million, as provided by the management of the Company and approved for Goldman Sachs’ use by the management of the Company, to derive a range of implied enterprise values for the Company. Goldman Sachs subtracted from this range of implied enterprise values the net debt of the Company of $904 million as of March 31, 2022, as provided by the management of the Company and approved for Goldman Sachs’ use by the management of the Company, to derive a range of illustrative equity values for the Company. Goldman Sachs divided the results by the number of fully diluted outstanding shares of Company common stock as of May 20, 2022, as provided by the management of the Company and approved for Goldman Sachs’ use by the management of the Company, using the treasury stock method, to derive a range of implied values per share of Company common stock of $12.74 to $27.02.

Premia Paid Analysis. Goldman Sachs reviewed and analyzed, using publicly available information, the acquisition premia for 36 acquisition transactions that closed during the time period from January 1, 2010 through May 18, 2022 involving a public company in the healthcare industry, excluding transactions involving targets in the biopharmaceutical sector, involving a target based in the United States where the disclosed enterprise value for the transaction was between $1.0 billion and $5.0 billion. For the entire period, using publicly available information, Goldman Sachs calculated the mean, 25th percentile and 75th percentile premiums of the price paid in the transactions relative to the target’s last undisturbed closing stock price prior to announcement of the transaction. This analysis indicated a mean premium of 36.2% across the period. This analysis also indicated a 25th percentile premium of 23.9% and 75th percentile premium of 41.6% across the period. Using this analysis, Goldman Sachs applied a reference range of illustrative premia of 23.9% to 41.6% to the (i) closing price per share of Company common stock of $18.02 as of May 19, 2022 and calculated a range of implied equity values per share of Company common stock of $22.33 to $25.52 and (ii) unaffected closing price per share of Company common stock of $15.27 as of May 13, 2022 and calculated a range of implied equity values per share of Company common stock of $18.92 to $21.62.

Selected Public Company Comparables. Using publicly available information, Goldman Sachs reviewed and compared EV/EBITDA multiples for the Company and the following selected group of publicly traded companies in the distribution industry, each with a market capitalization in excess of $1 billion and headquartered in the U.S. and listed on a U.S. stock exchange, which are referred to in this section of the proxy statement as the “selected companies”:

 

•

Henry Schein, Inc.

 

•

McKesson Corporation

 

•

AmerisourceBergen Corporation

 

•

Patterson Companies, Inc.

 

•

Cardinal Health, Inc.

 

•

Owens & Minor, Inc.

Although none of the selected companies is directly comparable to the Company, Goldman Sachs selected these companies because they are publicly traded companies that operate in the distribution industry with certain operations that for purposes of analysis may be considered similar to certain operations of the Company.

 

50

Goldman Sachs calculated and compared the enterprise value as of May 19, 2022 as a multiple of EBITDA for calendar year 2022 for each of the Company and the selected companies, in each case based on Institutional Brokers’ Estimate System estimates and publicly available market data.

The results of this analysis are summarized as follows:

 

Selected Companies		EV/2022E EBITDA Multiple
Company (as of May 19, 2022)			12.7x
Company (as of May 13, 2022)			11.3x
Henry Schein, Inc.			12.0x
McKesson Corporation			11.3x
AmerisourceBergen Corporation			11.2x
Patterson Companies, Inc.			10.3x
Cardinal Health, Inc.			9.5x
Owens & Minor, Inc.			8.6x

Other Information. For reference purposes only, Goldman Sachs reviewed (i) the price targets for the Company’s common stock reflected in five publicly available Wall Street research analyst reports as of May 19, 2022, which indicated low to high price targets per share of Company common stock of $16.00 to $26.00, with a median price target per share of Company common stock of $22.00 per share, and (ii) the 52-week trading range of the Company’s common stock based upon market data for the period ending May 19, 2022, which indicated low to high intra-day prices per share of Company common stock during such period of $13.39 to $29.02.

General

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or Parent or the contemplated transaction.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Board and Transaction Committee as to the fairness from a financial point of view of the $21.00 in cash per share of Company common stock to be paid to the holders (other than Parent and its affiliates) of shares of Company common stock pursuant to the Merger Agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Parent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The Merger Consideration was determined through arm’s-length negotiations between the Company and Parent and was approved by the Board and Transaction Committee. Goldman Sachs provided advice to Company during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company, its Board, or the Transaction Committee, or that any specific amount of consideration constituted the only appropriate consideration for the Merger.

 

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As described above, Goldman Sachs’ opinion to the Board and Transaction Committee was one of many factors taken into consideration by the Board and the Transaction Committee in making their respective determinations to approve the Merger Agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex C.

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, Parent, any of their respective affiliates and third parties, including CD&R and TPG, and any of their respective affiliates and portfolio companies, or any currency or commodity that may be involved in the Transactions, including the Merger. Goldman Sachs acted as financial advisor to the Company in connection with, and participated in certain of the negotiations leading to, the Transactions, including the Merger. During the two year period ended May 24, 2022, the Investment Banking Division of Goldman Sachs has not been engaged by the Company or its affiliates to provide financial advisory or underwriting services for which Goldman Sachs has recognized compensation. Goldman Sachs has also provided certain financial advisory and/or underwriting services to CD&R and/or its affiliates and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as financial advisor to Beacon Roofing Supply, Inc., a portfolio company of CD&R, in connection with the sale of its interiors business in February 2021; as bookrunner with respect to the initial public offering by Agilon Health, Inc. (which is referred to for purposes of this section of the proxy statement as “Agilon”), a portfolio company of CD&R, of 53,590,000 shares of its common stock in April 2021 and with respect to the follow-on public offering of 19,550,000 shares of Agilon’s common stock in September 2021; as bookrunner with respect to the initial public offering by Core & Main LP (which is referred to for purposes of this section of the proxy statement as “Core & Main”), a portfolio company of CD&R, of 40,116,279 shares of its Class A common stock in July 2021 and with respect to the follow-on public offering of 20,000,000 shares of Core & Main’s Class A common stock in January 2022; as financial advisor to Clayton Dubilier and Rice (UK), an affiliate of CD&R, in connection with its acquisition of Wm Morrison Supermarkets plc in October 2021; as bookrunner with respect to a U.S. Dollar first-lien term loan (aggregate principal amount of $1,664,400,000) and a Euro first-lien term loan (aggregate principal amount of €500,000,000) to Fort Dearborn Company, a portfolio company of CD&R, in October 2021; and as financial advisor to CD&R in connection with its pending acquisition of Cornerstone Building Brands, Inc. announced in March 2022. During the two year period ended May 24, 2022, Goldman Sachs recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to CD&R and/or its affiliates and portfolio companies of approximately $100 million. Goldman Sachs has also provided certain financial advisory and/or underwriting services to TPG and/or its affiliates and portfolio companies from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted as financial advisor to Wellsky Corporation, a portfolio company of TPG, with respect to its recapitalization in September 2020; as bookrunner with respect to the public offering by Big River Steel LLC, a portfolio company of TPG, of 6.625% Senior Secured Notes due 2029 (aggregate principal amount of $900,000,000) in September 2020; as financial advisor to LLamasoft, Inc., a former portfolio company of TPG, with respect to its sale in November 2020; as bookrunner with respect to the initial public offering by Airbnb, Inc. (which is referred to for purposes of this section of the proxy statement as “Airbnb”), a portfolio company of TPG, of 56,323,531 shares of its Class A common stock in December 2020 and the private offering by Airbnb of 0% Convertible Senior Notes due 2026 (aggregate principal amount of $2,000,000,000) in March 2021; as junior lead manager with respect to the initial public offering by LifeStance Health Group Inc., a portfolio company of TPG, of 46,000,000 shares of its common stock in June 2021; and as financial advisor to McAfee Corp., a portfolio company of TPG, with respect to its sale in March 2022. During the two year period ended May 24, 2022, Goldman Sachs recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to TPG and/or its affiliates and portfolio companies of

 

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approximately $325 million. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to the Company, Parent, CD&R, and TPG and their respective affiliates and, as applicable, portfolio companies for which the Investment Banking Division of Goldman Sachs may receive compensation. Affiliates of Goldman Sachs also may have co-invested with CD&R and/or TPG and their respective affiliates from time to time and may have invested in limited partnership units of affiliates of CD&R and/or TPG from time to time and may do so in the future.

The Board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Merger. Pursuant to a letter agreement dated February 9, 2022, the Company engaged Goldman Sachs to act as its financial advisor in connection with the Merger. The engagement letter between the Company and Goldman Sachs provides for a transaction fee that is estimated, based on the information available as of the date of announcement, at approximately $32 million, $2.5 million of which became payable at announcement of the Merger, and the remainder of which is contingent upon consummation of the Merger. In addition, the Company has agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.

Other Presentations by Financial Advisors

In addition to the GS May 2022 Presentation summarized above, Goldman Sachs, and jointly with Lincoln in the instances noted below, also made preliminary written and oral presentations to the Transaction Committee or the Board, some of which contained preliminary illustrative financial analyses as noted below, on September 30, 2021, October 25, 2021, December 3, 2021, December 9, 2021, December 23, 2021, January 11, 2022, February 4, 2022, February 15, 2022, March 17, 2022, March 22, 2022, April 7, 2022, April 20, 2022 and May 17, 2022. Copies of the written preliminary presentation materials and a copy of the GS May 2022 Presentation have been filed as exhibits to the Schedule 13e-3 filed with the SEC in connection with the Merger. These materials will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested equity security holder of the Company or representative who has been so designated in writing.

None of the written and oral preliminary presentations to the Transaction Committee or the Board, alone or together, constitute, or form the basis for, an opinion of Goldman Sachs or Lincoln. Information contained in the written and oral preliminary presentations is substantially similar to the information provided in the GS May 2022 Presentation, as summarized above. A summary of these preliminary presentation materials is provided below. The following summary, however, does not purport to be a complete description of the preliminary presentation materials or of the preliminary financial analyses performed by Goldman Sachs or Lincoln.

The September 30, 2021 materials presented by Goldman Sachs to the Board reviewed the then-current preliminary management projections for fiscal years 2021-2026, and included, among other information, (a) observations on trading dynamics and public market perspectives, including historical share prices, trading multiples, and research analyst coverage of the Company, (b) observations on such management projections, including key assumptions, potential risks and opportunities and implications for the future price of the Company’s common stock, (c) an illustrative comparison of such management projections against stock analyst estimates and (d) certain preliminary illustrative financial analyses regarding the Company, including (i) an illustrative sum-of-the-parts analysis, (ii) an illustrative present value of future share price analysis, (iii) an illustrative discount cash flow analysis and (iv) a leveraged buyout analysis, including the applicable key assumptions. A copy of such written presentation by Goldman Sachs to the Board has been attached as Exhibit (c)(3) to the Schedule 13e-3.

The October 25, 2021 materials presented by Goldman Sachs to the Board included, among other information, (a) observations on the Company’s trading multiple over time, (b) an illustrative implied trading

 

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multiple for the animal health distribution industry based upon observations of (i) the historical premium of the trading multiple of MWI Veterinary Supply, Inc. (“MWI”), an animal health distribution company that was acquired by AmerisourceBergen, relative to the trading multiple of certain companies in the human health distribution industry and (ii) the then-current trading multiple for such companies in the human heath distribution industry, (c) observations on research analyst coverage of the Company and (d) certain preliminary illustrative financial analyses regarding the Company, including (i) an illustrative discounted cash flow analysis (and the illustrative weighted average cost of capital related thereto), (ii) an illustrative sum-of-the-parts analysis, (iii) an illustrative present value of future share price analysis, and (iv) a leveraged buyout analysis. A copy of such written presentation by Goldman Sachs to the Board has been attached as Exhibit (c)(4) to the Schedule 13e-3.

The December 3, 2021 materials presented by Goldman Sachs to the Board included, among other information, an overview of potential strategic alternatives, including continuing to execute on the Company’s strategic plan, divestiture of non-core assets, return of capital to stockholders and a sale of the whole Company or components thereof, as well as a potential timeline for a process to explore strategic alternatives, including a sale of the Company, and the identity of potential parties who might be interested in, and capable of completing, a transaction involving the Company. A copy of such written presentation by Goldman Sachs to the Board has been attached as Exhibit (c)(5) to the Schedule 13e-3.

The December 9, 2021 materials presented by Goldman Sachs to the Board included, among other information, (a) observations on trading dynamics and public market perspectives, including historical share prices, trading multiples of the Company and trading levels of MWI, (b) certain peer benchmarking, (c) management projections for fiscal years 2020-2028, (d) certain preliminary illustrative financial analyses regarding the Company based upon such projections, including an illustrative discounted cash flow analysis and illustrative present value of future share price analyses, including in the context of a possible divestiture of the Company’s international distribution business and an investment in certain areas of the Company’s business and certain sensitivity analyses and (e) an update on potential strategic alternatives, including continuing to execute on the Company’s strategic plan, divesting the Company’s international distribution business, investing in certain areas of the Company’s business and selling the Company, as well as an updated potential timeline for a process to explore strategic alternatives, including a sale of the Company, and the identity of potential parties who might be interested in a transaction involving the Company and capable of acquiring the Company. A copy of such written presentation by Goldman Sachs to the Board has been attached as Exhibit (c)(6) to the Schedule 13e-3.

The December 23, 2021 materials jointly presented by Goldman Sachs and Lincoln to the Transaction Committee included, among other information, a summary overview of a strategic alternative transaction process, an updated potential timeline for a process to explore strategic alternatives, including a sale of the Company, an overview of the workstreams associated with the strategic alternatives process, and the identity of potential parties who might be interested in a transaction involving the Company and capable of acquiring the Company. A copy of such written presentation by Goldman Sachs and Lincoln to the Transaction Committee has been attached as Exhibit (c)(7) to the Schedule 13e-3.

The January 11, 2022 materials jointly presented by Goldman Sachs and Lincoln to the Transaction Committee included, among other information, proposed communications for the outreach to potentially interested parties and the identity of such parties. A copy of such written presentation by Goldman Sachs and Lincoln to the Transaction Committee has been attached as Exhibit (c)(8) to the Schedule 13e-3.

The February 4, 2022 materials jointly presented by Goldman Sachs and Lincoln to the Transaction Committee included, among other information, a status update on the outreach to potentially interested parties and a proposed schedule of management presentations to certain of such parties. A copy of such written presentation by Goldman Sachs and Lincoln to the Transaction Committee has been attached as Exhibit (c)(9) to the Schedule 13e-3.

The February 15, 2022 materials jointly presented by Goldman Sachs and Lincoln to the Board included, among other information, a status update on the outreach to potentially interested parties, a schedule of

 

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management presentations to certain of such parties, selected feedback from potentially interested parties after management presentations with such potential counterparites, and observations on the market view of leverage and potential financing structures. A copy of such written presentation by Goldman Sachs and Lincoln to the Board has been attached as Exhibit (c)(10) to the Schedule 13e-3.

The March 17, 2022 materials jointly presented by Goldman Sachs and Lincoln to the Board included, among other information, (a) an update on the status of the sale process, (b) selected feedback from potential buyers, (c) changes in the market since the previous Board meeting, (d) observations on the Company’s share price performance since the previous Board meeting, (e) an overview of potential strategic alternatives, including continuing the sale process, continuing to execute on the Company’s strategic plan, or separating parts of the Company’s business and key considerations relating thereto, and (f) certain preliminary illustrative financial analyses regarding the Company including (i) an illustrative present value of future share price analysis (and sensitivities thereto), (ii) illustrative returns analyses, (iii) an overview of the Company’s current segments, and (iv) an illustrative sum-of-the-parts analysis and the friction costs related thereto. The materials also included key considerations with respect to a possible divestiture of the Company’s GTS Business. A copy of such written presentation by Goldman Sachs and Lincoln to the Board has been attached as Exhibit (c)(11) to the Schedule 13e-3.

The March 22, 2022 materials presented by Goldman Sachs to the Transaction Committee included, among other information, an overview of potential transaction structures, including a sale of the Company, a sale of the GTS Business to Company A and combinations thereof, and preliminary illustrative returns analyses with respect to such transaction structures. A copy of such written presentation by Goldman Sachs to the Transaction Committee has been attached as Exhibit (c)(12) to the Schedule 13e-3.

The April 7, 2022 materials jointly presented by Goldman Sachs and Lincoln to the Board included, among other information, (a) an update on the status of the sale process, (b) observations on trading dynamics and public market perspectives, including historical share prices, trading multiples and research analyst coverage of the Company, (c) preliminary illustrative premia for a range of transaction values, and certain preliminary illustrative financial analyses regarding the Company, including (i) an illustrative present value of future share price analysis (and sensitivities thereto), (ii) an illustrative discounted cash flow analysis, (iii) an illustrative sum-of-the-parts analysis, and (iv) illustrative leveraged buyout analyses of the whole company, as well as a subsequent sale of the GTS Business. A copy of such written presentation by Goldman Sachs and Lincoln to the Board has been attached as Exhibit (c)(13) to the Schedule 13e-3.

The April 20, 2022 materials jointly presented by Goldman Sachs and Lincoln to the Board included, among other information, (a) an update on the sale process, (b) the benefits and considerations of a sale of the whole Company, a sale of only the GTS Business and continuing to execute on the Company’s strategic plan on a standalone basis, and (c) certain preliminary illustrative financial analyses regarding the Company, including (i) an illustrative present value of future share price analysis (and sensitivities thereto), (ii) an illustrative discounted cash flow analysis, (iii) an illustrative sum-of-the-parts analysis, (iii) an illustrative monetization of the GTS Business and (iv) an illustrative value in a sum-of-the-parts approach. The materials also included considerations regarding ongoing engagement with Company A. A copy of such written presentation by Goldman Sachs and Lincoln to the Board has been attached as Exhibit (c)(14) to the Schedule 13e-3.

The May 17, 2022 materials presented by Goldman Sachs to the Board included, among other information, (a) an update on the sale process and the valuation communicated by CD&R and TPG on May 16, 2022, (b) observations on the recent trends in the equity and debt markets, including the impact of changing interest rates on returns, (c) preliminary illustrative premia for a range of transaction values, (d) observations on trading dynamics and public market perspectives, including historical share prices and trading multiples of the Company, (e) a summary of the Financial Forecasts, and (f) certain preliminary illustrative financial analyses regarding the Company based upon such Financial Forecasts, including (i) an illustrative present value of future share price analysis and (ii) an illustrative discounted cash flow analysis. A copy of such written presentation by Goldman Sachs to the Board has been attached as Exhibit (c)(15) to the Schedule 13e-3.

 

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The financial analyses in such other written and oral presentations were based on market, economic and other conditions as they existed as of the date of such presentations as well as other information that was available at such time. Accordingly, the results of the financial analyses may have differed due to changes in those conditions. Finally, Goldman Sachs and Lincoln continued to refine various aspects of their financial analyses with respect to the Company over time in advance of the GS May 2022 Presentation, which is summarized above.

Deutsche Bank Securities Inc. Discussion Materials Provided to CD&R and TPG

In connection with the Transactions, CD&R and TPG engaged Deutsche Bank Securities Inc. (“Deutsche Bank”), an internationally recognized investment banking firm, to provide limited financial advisory services to CD&R and TPG. In connection with Deutsche Bank’s engagement, Deutsche Bank provided to representatives of CD&R and TPG, for informational purposes only, (i) discussion materials dated April 29, 2022 (the “April 29 DB Discussion Materials”), (ii) discussion materials dated May 5, 2022 (the “May 5 DB Discussion Materials”), (iii) discussion materials dated May 7, 2022 (the “May 7 DB Discussion Materials”) and (iv) discussion materials dated May 13, 2022 (the “May 13 DB Discussion Materials” and, together with the April 29 DB Discussion Materials, the May 5 DB Discussion Materials and the May 7 DB Discussion Materials, the “DB Discussion Materials”). Copies of the DB Discussion Materials have been filed as exhibits to the Schedule 13e-3 and are incorporated herein by reference. The DB Discussion Materials will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested equity security holder of the Company or a representative thereof who has been so designated in writing. The description of the DB Discussion Materials set forth below is qualified in its entirety by reference to the full text of such DB Discussion Materials.

The DB Discussion Materials were provided for the information of CD&R and TPG in connection with the proposed Transactions and were not provided to the Company, the Transaction Committee or the Board prior to the execution of the Merger Agreement. Deutsche Bank was not asked to, and it did not, among other things, (i) assist with any price or other negotiations in connection with the Transactions or otherwise, (ii) render or deliver any opinion (whether as to the fairness of any consideration (including, without limitation, the Merger Consideration), the Transactions or otherwise) or (iii) provide any recommendation as to how to vote or act on any matters relating to the Transactions or otherwise. In addition, the financial analyses and observations reflected in the DB Discussion Materials were not analyses or observations with respect to the fairness of any consideration (including, without limitation, the Merger Consideration), the Transactions or otherwise, did not reflect an opinion of Deutsche Bank as to the fairness of any consideration (including, without limitation, the Merger Consideration), the Transactions or otherwise and should not be viewed as a factor considered by the CD&R Entities, TPG, the Board, the Transaction Committee, the Company’s management or otherwise with respect to the fairness of any consideration (including, without limitation, the Merger Consideration), the Transactions or otherwise. Further, the DB Discussion Materials do not constitute a recommendation to the CD&R Entities, TPG, the Board, the Transaction Committee, the Company’s management or otherwise with respect to the fairness of any consideration (including, without limitation, the Merger Consideration), the Transactions or otherwise. Deutsche Bank expressed no view as to, and it did not address, the underlying business decision of any party to the Transactions to effect or enter into the Transactions, the relative merits of the Transactions as compared to any alternative business strategies that might exist for any such party or the effect of any other transaction which any such party might engage in or consider. The DB Discussion Materials were preliminary and informational and are not reflective of certain procedures typically applicable to materials or presentations in connection with delivering an opinion.

While the DB Discussion Materials include various analyses and observations (as described below), the CD&R Entities and TPG believe that those analyses and observations were preliminary only and did not take into account all relevant factors; therefore, the CD&R Entities and TPG did not consider such materials in determining an appropriate price for the Company or any of its business divisions, either in connection

 

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with the Transactions or in future possible exit scenarios. The CD&R Entities and TPG did not rely on the DB Discussion Materials in negotiating the consideration payable in the Transactions or any other terms of the Transactions or in deciding to enter into the Merger Agreement or the Transactions. This section and the DB Discussion Materials have nevertheless been provided in response to certain regulations governing Schedule 13e-3 transactions.

In preparing the DB Discussion Materials, Deutsche Bank did not assume responsibility for independent verification of, and did not independently verify, any information, whether publicly available or furnished to, discussed with or reviewed by Deutsche Bank, concerning the Company, its business divisions or any other entity or business, including, without limitation, any financial information considered in connection with the preparation of the DB Discussion Materials. Accordingly, for purposes of the DB Discussion Materials, Deutsche Bank assumed and relied upon the accuracy and completeness of all such information. Deutsche Bank did not conduct a physical inspection of any of the properties or assets, and did not prepare, obtain or review any independent evaluation or appraisal of any of the assets or liabilities (contingent, accrued, derivative, off-balance sheet or otherwise), of the Company, its business divisions or any other entity or business, nor did Deutsche Bank evaluate the solvency or fair value of the Company, its business divisions or any other entity or business under any law relating to bankruptcy, insolvency or similar matters. Deutsche Bank expressed no view as to any pending or potential litigation, claims or governmental, regulatory or other proceedings or investigations or the potential impact thereof on the Company, its business divisions or any other entity or business, the Transactions or otherwise.

Deutsche Bank did not have access to or otherwise engage in any communications with the Board, the Transaction Committee, the management of the Company or any of their respective advisors in preparing the DB Discussion Materials. Deutsche Bank relied primarily on the portion of the Financial Forecasts provided to CD&R and TPG by the Company’s management. Deutsche Bank assumed that the financial and other information prepared or provided by or discussed with CD&R and TPG were reasonably prepared on bases reflecting the best then currently available estimates and judgments as to the matters covered thereby. Deutsche Bank expressed no view as to the reasonableness of any financial forecasts and projections or other information utilized in its analyses or the assumptions on which they were based or the consideration payable in the Transactions.

The DB Discussion Materials did not in any manner address the value of Company common stock or the Company taken as a whole or the prices at which Company common stock or other securities would trade following the announcement or consummation of the Transactions. Deutsche Bank did not express any view with respect to accounting, tax, regulatory, legal or similar matters, including, without limitation, as to accounting, tax or other consequences resulting from the proposed Transactions or otherwise or changes in, or the impact of, accounting standards or tax and other laws, regulations and governmental and legislative policies affecting the Company, its business divisions or any other entity or business or the Transactions.

The preliminary financial considerations and other information in the DB Discussion Materials reflected market data proximate to such DB Discussion Materials and were based on financial, economic, monetary, market and other conditions and circumstances in effect on, and information made available to Deutsche Bank as of, the respective dates on which the DB Discussion Materials were prepared, as well as the portion of the Financial Forecasts provided to CD&R and TPG by the Company’s management. Subsequent developments may affect the DB Discussion Materials and Deutsche Bank expressly disclaims any undertaking or obligation to update, revise or reaffirm the DB Discussion Materials or to advise any person of any change in any fact or matter affecting the DB Discussion Materials of which Deutsche Bank may become aware after the respective dates of the DB Discussion Materials.

In preparing the DB Discussion Materials, Deutsche Bank reviewed a variety of preliminary financial and comparative matters, including those summarized below. Deutsche Bank also considered industry performance, general financial, economic, monetary, market and other conditions and circumstances existing as of dates

 

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proximate to the DB Discussion Materials, many of which are beyond the control of the CD&R Entities, TPG and the Company.

The estimates or results contained in the DB Discussion Materials are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the DB Discussion Materials. In addition, the results of a financial review of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates utilized and results reflected in the DB Discussion Materials were inherently subject to substantial uncertainty.

Deutsche Bank was not requested to, and it did not, recommend, determine or otherwise participate in the negotiation of the consideration payable in the Transactions. The type and amount of consideration payable in the Transactions were determined through negotiations among the CD&R Entities and TPG, on the one hand, and the Company, the Transaction Committee and the Board (other than the Recused Directors), on the other hand, and the decision to enter into the Merger Agreement was that of the parties to the Merger Agreement. The DB Discussion Materials were viewed by the CD&R Entities and TPG as having limited relevance and were not relied on by the CD&R Entities or TPG in arriving at the decision to enter into the Merger Agreement or the Transactions, and the DB Discussion Materials had no influence on the CD&R Entities’ and TPG’s analysis or negotiation of the consideration payable in the Transactions or any other terms of the Transactions.

The summary set forth below does not purport to be a complete description of the financial analyses and observations performed by Deutsche Bank, nor does the order of the financial analyses or observations described represent the relative importance or weight given to those financial analyses or observations by Deutsche Bank. Certain financial analyses and observations summarized below include information presented in tabular format. In order to fully understand the financial analyses and observations, the tables must be read together with the text of each summary as the tables alone do not constitute a complete description of the financial analyses and observations. Considering the data in the tables below without considering the full narrative description of the financial analyses and observations, including the methodologies and assumptions underlying the financial analyses and observations, could create a misleading or incomplete view of such financial analyses and observations. Future results may be different from those described and such differences may be material.

Summary of the DB Discussion Materials.

The April 29 DB Discussion Materials, the May 5 DB Discussion Materials and the May 7 DB Discussion Materials were each prior iterations of the May 13 DB Discussion Materials and contain the same topics, financial analyses and observations and substantially similar information as those included in the May 13 DB Discussion Materials. The April 29 DB Discussion Materials, and the additional information provided in the May 5 DB Discussion Materials, the May 7 DB Discussion Materials and the May 13 DB Discussion Materials, are described below.

For purposes of the financial analyses and observations included in the DB Discussion Materials, Deutsche Bank separately considered each of the Company’s three divisions (global pharmacy management (“GPM”), global software services (“GSS”) and animal health distribution (“Distribution”)), without considering the Company as a whole and without taking into account certain financial data, including overhead and general and administrative expenses, attributable to each of the Company’s three divisions or that otherwise would be taken into account when considering the Company as a whole.

April 29 DB Discussion Materials. The April 29 DB Discussion Materials included, among other information, (i) observations on Company common stock performance and public market perspectives, (ii) various observations regarding selected public companies and selected precedent transactions and (iii) potential

 

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considerations regarding exit scenarios involving the Company or its divisions. The financial observations included in the April 29 DB Discussion Materials consisted of the following:

Selected Public Companies.

For the Company’s GPM division, Deutsche Bank reviewed publicly available financial and stock information of 11 selected publicly traded companies with operations in the software and marketplace industries that Deutsche Bank viewed as generally relevant, consisting of the following four publicly traded eCommerce companies with operations in the healthcare industry (the “GPM Healthcare eCommerce Selected Companies”), the following four publicly traded eCommerce companies with operations in the pet industry (the “GPM Pet eCommerce Selected Companies”) and the following three publicly traded eCommerce companies with operations in non-healthcare industries (the “GPM Non-Healthcare eCommerce Selected Companies” and, together with the GPM Healthcare eCommerce Selected Companies and the GPM Pet eCommerce Selected Companies, collectively, the “GPM Selected Companies”):

GPM Healthcare eCommerce Selected Companies:

 

•

GoodRx Holdings, Inc.

 

•

Hims & Hers Health, Inc.

 

•

Tabula Rasa HealthCare, Inc.

 

•

Teladoc Health, Inc.

GPM Pet eCommerce Selected Companies:

 

•

BARK, Inc.

 

•

Chewy, Inc.

 

•

PetMed Express, Inc.

 

•

Rover Group, Inc.

GPM Non-Healthcare eCommerce Selected Companies:

 

•

Etsy, Inc.

 

•

Farfetch Ltd.

 

•

The RealReal, Inc.

For the Company’s GSS division, Deutsche Bank reviewed publicly available financial and stock information of 12 selected publicly traded companies with operations in the provider-oriented software industry that Deutsche Bank viewed as generally relevant, consisting of the following four publicly traded mid-growth software companies with operations in the healthcare industry (the “GSS Healthcare Software Selected Companies”), the following four publicly traded mid-growth software companies with operations in non-healthcare industries (the “GSS Non-Healthcare Software Selected Companies”) and the following four publicly traded high-growth software companies with operations in the healthcare industry (the “GSS High-Growth Healthcare Software Selected Companies” and, together with the GSS Healthcare Software Selected Companies and the GSS Non-Healthcare Software Selected Companies, collectively, the “GSS Selected Companies”):

GSS Healthcare Software Selected Companies:

 

•

Allscripts Healthcare Solutions, Inc.

 

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•

Craneware plc

 

•

HealthStream, Inc.

 

•

NextGen Healthcare, Inc.

GSS Non-Healthcare Software Selected Companies:

 

•

DropBox, Inc.

 

•

MeridianLink, Inc.

 

•

Sapiens International Corporation NV

 

•

SS&C Technologies Holdings, Inc.

GSS High-Growth Healthcare Software Selected Companies:

 

•

Health Catalyst, Inc.

 

•

Model N, Inc.

 

•

Omnicell, Inc.

 

•

Veeva Systems Inc.

For the Company’s Distribution division, Deutsche Bank reviewed publicly available financial and stock information of nine selected publicly traded companies with operations in the healthcare distribution industry that Deutsche Bank viewed as generally relevant, consisting of the following three publicly traded specialty distribution companies (the “Distribution Specialty Selected Companies”), the following three publicly traded drug distribution companies (the “Distribution Drug Selected Companies”) and the following three publicly traded distribution companies with operations in the animal health supply industry (the “Distribution Animal Health Supply Selected Companies” and, together with the Distribution Specialty Selected Companies and the Distribution Drug Selected Companies, collectively, the “Distribution Selected Companies” and the Distribution Selected Companies, together with the GPM Selected Companies and the GSS Selected Companies, collectively, the “Selected Companies”):

Distribution Specialty Selected Companies:

 

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Henry Schein, Inc.

 

•

Owens & Minor, Inc.

 

•

Patterson Companies, Inc.

Distribution Drug Selected Companies:

 

•

AmeriSourceBergen Corporation

 

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Cardinal Health, Inc.

 

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McKesson Corporation

Distribution Animal Health Supply Selected Companies:

 

•

Elanco Animal Health Incorporated

 

•

IDEXX Laboratories, Inc.

 

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Zoetis Inc.

 

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Deutsche Bank reviewed, among other information, enterprise values, calculated as implied equity values based on closing stock prices on April 26, 2022 plus total debt, preferred equity and non-controlling interests (as applicable) minus cash and cash equivalents, as multiples of calendar year 2021 EBITDA, in the case of the Distribution Selected Companies, calendar year 2022 and calendar year 2023 estimated EBITDA, in the case of all of the Selected Companies, and also as multiples of calendar year 2022 and calendar year 2023 estimated gross profit and calendar year 2022 and calendar year 2023 estimated revenue, in the case of the GPM Selected Companies and the GSS Selected Companies. Financial data of the Selected Companies was based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information.

The average calendar year 2021 EBITDA multiples, calendar year 2022 and calendar year 2023 estimated EBITDA multiples, calendar year 2022 and calendar year 2023 estimated gross profit multiples and calendar year 2022 and calendar year 2023 estimated revenue multiples observed for the Selected Companies, as applicable and to the extent meaningful, were as follows (metrics deemed not meaningful have been designated below as “NM”):

GPM Selected Companies:

 

		Average EV / EBITDA		Average EV / Gross Profit		Average EV / Revenue
GPM Healthcare eCommerce Selected Companies		2022E – 19.5x 2023E – 14.7x		2022E – 4.3x 2023E – 3.5x		2022E – 3.1x 2023E – 2.5x
GPM Pet eCommerce Selected Companies		2022E – NM    2023E – 16.8x		2022E – 4.3x 2023E – 3.1x		2022E – 2.1x 2023E – 1.6x
GPM Non-Healthcare		2022E – 20.7x		2022E – 4.1x		2022E – 2.6x
eCommerce Selected Companies		2023E – 19.0x		2023E – 3.3x		2023E – 2.1x

GSS Selected Companies:

 

		Average EV / EBITDA		Average EV / Gross Profit		Average EV / Revenue
GSS Healthcare Software Selected Companies		2022E – 13.9x 2023E – 12.8x		2022E – 5.5x 2023E – 5.0x		2022E – 3.4x 2023E – 3.2x
GSS Non-Healthcare Software Selected Companies		2022E – 11.9x 2023E – 10.6x		2022E – 6.4x 2023E – 5.9x		2022E – 4.0x 2023E – 3.7x
GSS High-Growth Healthcare Software Selected Companies		2022E – 31.1x 2023E – 25.4x		2022E – 9.7x 2023E – 8.3x		2022E – 6.0x 2023E – 5.2x

Distribution Selected Companies:

 

		Average EV / EBITDA
Distribution Specialty Selected Companies		2021A – 13.0x 2022E – 11.4x 2023E – 10.3x
Distribution Drug Selected Companies		2021A – 10.5x 2022E – 10.2x 2023E – 9.8x
Distribution Animal Health Supply Selected Companies		2021A – 26.1x 2022E – 23.7x 2023E – 21.4x

No company identified above is identical or directly comparable to the Company or any of its business divisions. Accordingly, an evaluation of these observations is not entirely mathematical. Rather, these

 

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observations involve complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies.

Selected Precedent Transactions.

For the Company’s GPM division, Deutsche Bank reviewed, using publicly available and other information, financial data relating to the following 16 selected transactions that Deutsche Bank considered generally relevant as transactions involving companies with operations in the software and marketplace industries (the “GPM Selected Transactions”):

 

Date		Target		Acquiror
May 2017		Global Healthcare Exchange, LLC		Temasek Holdings Limited
August 2018		GoodRx Holdings, Inc.		Silver Lake Technology Management, L.L.C.
July 2019		Convey Health Solutions Holdings, Inc.		TPG Inc.
August 2019		GoHealth LLC		Centerbridge Partners LP
July 2020		Wellsky Corporation		Leonard Green & Partners, L.P. and TPG Inc.
November 2020		Quantum Health, Inc.		Warburg Pincus LLC
January 2021		Change Healthcare Inc.		Optum, Inc.
June 2021		Allocate Software Limited		RLDatix
July 2021		Availity, L.L.C.		Novo Holdings A/S
July 2021		PartsSource, Inc.		Bain Capital, LP
October 2020		Hims & Hers Health, Inc.		Oaktree Acquisition Corp.
November 2020		RxBenefits Inc.		Advent International Corporation
November 2021		athenahealth, Inc.		Bain Capital, LP and Hellman & Friedman LLC
December 2021		Cerner Corporation		Oracle Corporation
January 2022		Cloudmed		R1 RCM Inc.
February 2022		Pharma Intelligence (a division of Informa PLC)		Warburg Pincus LLC

Deutsche Bank reviewed, among other information and to the extent meaningful, transaction values, calculated as the enterprise value implied for the target company or assets based on the consideration paid or payable in the selected transaction, as multiples of the target company’s or asset’s next 12 months estimated EBITDA and next 12 months estimated revenue. Financial data of the GPM Selected Transactions was based on Wall Street research analysts’ and other estimates, public filings and other publicly available information.

The overall low to high next 12 months estimated EBITDA multiples observed for the GPM Selected Transactions was 7.0x to 28.6x (with a median of 18.7x). The overall low to high next 12 months estimated revenue multiples observed for the GPM Selected Transactions was 2.1x to 15.6x (with a median of 7.5x).

For the Company’s GSS division, Deutsche Bank reviewed, using publicly available and other information, financial data relating to the following 19 selected transactions that Deutsche Bank considered generally relevant as transactions involving companies with operations in the provider-oriented software industry (the “GSS Selected Transactions”):

 

Date		Target		Acquiror
February 2016		Brightree LLC		ResMed Inc.
June 2019		Nextech Systems, LLC		Thomas H. Lee Partners, L.P.
August 2019		WebPT, Inc.		Warburg Pincus LLC

 

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Date		Target		Acquiror
June 2020		QGenda, LLC		ICONIQ Capital LLC
July 2020		Wellsky Corporation		Leonard Green & Partners, L.P. and TPG Inc.
August 2020		eSolutions Inc.		Waystar Inc.
October 2020		CarePort Health, LLC		Wellsky Corporation
November 2020		nThrive, Inc.		Clearlake Capital Group, L.P.
January 2021		Change Healthcare Inc.		Optum, Inc.
January 2021		PointClickCare Technologies Inc.		Hellman & Friedman LLC
May 2021		Therapy Brands Holdings, LLC		KKR & Co. Inc.
June 2021		Allocate Software Limited		RLDatix
October 2021		TransUnion Healthcare, Inc.		Clearlake Capital Group, L.P. and nThrive, Inc.
November 2021		PatientPop, Inc.		Kareo, Inc.
November 2021		athenahealth, Inc.		Bain Capital, LP and Hellman & Friedman LLC
November 2021		Iodine Software, LLC		Advent International Corporation
December 2021		Cerner Corporation		Oracle Corporation
January 2022		Cloudmed		R1 RCM Inc.
February 2022		Pharma Intelligence (a division of Informa PLC)		Warburg Pincus LLC

Deutsche Bank reviewed, among other information and to the extent meaningful, transaction values, calculated as the enterprise value implied for the target company or assets based on the consideration paid or payable in the selected transaction, as multiples of the target company’s or asset’s next 12 months estimated EBITDA and next 12 months estimated revenue. Financial data of the GSS Selected Transactions was based on Wall Street research analysts’ and other estimates, public filings and other publicly available information.

The overall low to high next 12 months estimated EBITDA multiples observed for the GSS Selected Transactions was 10.4x to 38.1x (with a median of 19.2x). The overall low to high next 12 months estimated revenue multiples observed for the GSS Selected Transactions was 3.9x to 14.4x (with a median of 8.4x).

For the Company’s Distribution division, Deutsche Bank reviewed, using publicly available and other information, financial data relating to the following 17 selected transactions that Deutsche Bank considered generally relevant as transactions involving companies with operations in the healthcare distribution industry (the “Distribution Selected Transactions” and, together with the GPM Selected Transactions and the GSS Selected Transactions, collectively, the “Selected Transactions”):

 

Date		Target		Acquiror
October 2012		PSS World Medical, Inc.		McKesson Corporation
February 2013		AssuraMed, Inc.		Cardinal Health, Inc.
May 2014		Celesio AG		McKesson Corporation
January 2015		MWI Veterinary Supply, Inc.		AmerisourceBergen Corporation
May 2015		Animal Health International, Inc.		Patterson Companies, Inc.
July 2015		The Harvard Drug Group, L.L.C.		Cardinal Health, Inc.

 

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Date		Target		Acquiror
July 2015		Patterson Medical (a division of Patterson Companies, Inc.)		Madison Dearborn Partners, LLC
October 2015		PharMEDium Healthcare Holdings, Inc.		AmerisourceBergen Corporation
May 2016		Performance Health Holding, Inc.		Patterson Medical Holdings Inc.
August 2017		Byram Healthcare Centers, Inc.		Owens & Minor, Inc.
November 2017		RxCrossroads LLC		McKesson Corporation
February 2019		Henry Schein Animal Health (a division of Henry Schein, Inc.)		Covetrus, Inc.
January 2020		Solara Medical Supplies, LLC		AdaptHealth Corp.
January 2021		AeroCare Holdings Inc.		AdaptHealth Corp.
January 2021		Alliance Healthcare Services, Inc.		AmerisourceBergen Corporation
June 2021		Medline Industries, Inc.		Blackstone Inc., The Carlyle Group Inc. and Hellman & Friedman LLC
January 2022		Apria, Inc.		Owens & Minor, Inc.

Deutsche Bank reviewed, among other information and to the extent publicly available, transaction values, calculated as the enterprise value implied for the target company or assets based on the consideration paid or payable in the selected transaction, as multiples of the target company’s or asset’s next 12 months estimated EBITDA and next 12 months estimated revenue. Financial data of the Distribution Selected Transactions was based on Wall Street research analysts’ and other estimates, public filings and other publicly available information.

The overall low to high next 12 months estimated EBITDA observed for the Distribution Selected Transactions was 10.4x to 23.8x (with a median of 12.1x). The overall low to high next 12 months estimated revenue multiples observed for the Distribution Selected Transactions was 0.3x to 7.2x (with a median of 1.5x).

No company, business or transaction identified above is identical or directly comparable to the Company or any of its business divisions or the Transactions. Accordingly, an evaluation of these observations is not entirely mathematical. Rather, these observations involve complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, businesses or transactions.

May 5 DB Discussion Materials. In addition to the information contained in the April 29 DB Discussion Materials, the May 5 DB Discussion Materials included:

Preliminary Approximate Implied Enterprise Values. Preliminary approximate implied enterprise value reference ranges for the Company’s GPM, GSS and Distribution divisions derived by Deutsche Bank based on EBITDA, gross profit, revenue and unlevered free cash flow multiples, as applicable, observed for the Selected Companies and the Selected Transactions and, in the case of the Company, primarily utilizing the portion of the Financial Forecasts provided to the Sponsors by the Company’s management, which supported approximate implied enterprise values for the Company’s GPM division of approximately $800 million, for the Company’s GSS division of up to approximately $700 million and for the Company’s Distribution division of approximately $2,500 million to $3,000 million.

Preliminary Theoretical Leveraged Buyout. Preliminary theoretical leveraged buyout overviews of the Company’s GPM, GSS and Distribution divisions primarily utilizing the portion of the Financial Forecasts provided to the Sponsors by the Company’s management, by calculating a range of theoretical purchase

 

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prices that could be paid by a hypothetical financial buyer in an acquisition of the Company’s GPM, GSS

and Distribution divisions, which indicated approximate implied enterprise values for the Company’s GPM division of approximately $700 million to $800 million, for the Company’s GSS division of approximately $700 million to $800 million (or approximately $500 million to $600 million when assuming a mid-growth scenario) and for the Company’s Distribution division of approximately $2,500 million to $2,750 million.

May 7 DB Discussion Materials. The May 7 DB Discussion Materials were substantially similar to the May 5 DB Discussion Materials, but reflected certain updates relative to the May 5 DB Discussion Materials in addition to the information contained in the May 5 DB Discussion Materials. In the May 7 DB Discussion Materials, Deutsche Bank updated certain preliminary approximate implied enterprise value reference ranges derived by Deutsche Bank for the Company’s GSS division, which supported an approximate implied enterprise value for the Company’s GSS division of approximately $450 million or $600 million, depending on whether low-growth or high-growth scenarios were assumed. The May 7 DB Discussion Materials also updated the preliminary theoretical leveraged buyout overview of the Company’s GSS division, which indicated an approximate implied enterprise value for the Company’s GSS division of approximately $375 million to $425 million based on mid-growth scenario assumptions.

May 13 DB Discussion Materials. The May 13 DB Discussion Materials were substantially similar to the May 7 DB Discussion Materials, but included, among other things, certain financial data observed for additional selected publicly traded companies. For the Company’s GPM division, Deutsche Bank reviewed publicly available financial and stock information of the following eight additional selected publicly traded mature eCommerce companies that Deutsche Bank viewed as generally relevant (the “GPM Mature eCommerce Selected Companies”):

 

•

Alibaba Group Holding Limited

•

Booking Holdings Inc.

•

Chegg, Inc.

•

Expedia Group, Inc.

•

Netflix, Inc.

•

Shutterstock, Inc.

•

Tripadvisor, Inc.

•

Yelp Inc.

Deutsche Bank reviewed, among other information, enterprise values, calculated as implied equity values based on closing stock prices on May 11, 2022 plus total debt, preferred equity and non-controlling interests (as applicable) minus cash and cash equivalents, as multiples of calendar year 2022 and calendar year 2023 estimated EBITDA, calendar year 2022 and calendar year 2023 estimated revenue and calendar year 2022 and calendar year 2023 unlevered free cash flow. Financial Data of the GPM Mature eCommerce Selected Companies was based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information.

The average calendar year 2022 and calendar year 2023 estimated EBITDA multiples, calendar year 2022 and calendar year 2023 estimated revenue multiples and calendar year 2022 and calendar year 2023 unlevered free cash flow multiples observed for the GPM Mature eCommerce Selected Companies were as follows:

 

		Average EV / EBITDA		Average EV / Revenue		Average EV / Unlevered Free Cash Flow
GPM Mature eCommerce Selected Companies		2022E – 11.0x 2023E – 8.9x		2022E – 2.7x 2023E – 2.4x		2022E – 14.2x 2023E – 11.0x

No company identified above is identical or directly comparable to the Company or any of its business divisions. Accordingly, an evaluation of these observations is not entirely mathematical. Rather, these observations involve complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies.

 

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As further described above, the CD&R Entities and TPG believe that the above analyses and observations were preliminary only and did not take into account all relevant factors; therefore, the CD&R Entities and TPG did not consider such materials in determining an appropriate price for the Company or any of its divisions, either in connection with the Transactions or in future possible exit scenarios. The CD&R Entities and TPG did not rely on the DB Discussion Materials in negotiating the consideration payable in the Transactions or any other terms of the Transactions or in deciding to enter into the Merger Agreement or the Transactions.

Miscellaneous.

CD&R and TPG have agreed to pay Deutsche Bank for its financial advisory services in connection with the Transactions an aggregate fee of $2 million payable contingent upon consummation of the Merger. Deutsche Bank and/or certain of its affiliates also have participated and expect to participate further in certain financings for the Transactions, including acting as joint lead arranger and joint bookrunner for, and as a lender under, such financings. CD&R and TPG currently expect that Deutsche Bank’s aggregate fees in connection with such financings will be up to approximately $9.5 million. In addition, CD&R and TPG agreed to indemnify Deutsche Bank and related parties against certain liabilities, including liabilities under federal securities laws, arising from Deutsche Bank’s engagement.

Deutsche Bank and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Deutsche Bank and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, any of its affiliates and third parties, including CD&R and TPG and any of their respective affiliates and/or portfolio companies, or any currency or commodity that may be involved in the Transactions, including the Merger. Deutsche Bank is an affiliate of Deutsche Bank AG (together with its affiliates, the “DB Group”). One or more members of the DB Group have, from time to time, provided, are currently providing and in the future may provide, investment banking and commercial banking (including the extension of credit) services to CD&R and/or certain of its affiliates and/or portfolio companies for which services the DB Group has received, and in the future may receive, compensation, including during the approximately two-year period prior to May 24, 2022, having acted or acting as (i) financial advisor in connection with certain acquisition and disposition transactions, (ii) bookrunner and/or underwriter for certain equity and debt offerings and (iii) bookrunner for, and/or as a lender under, certain credit facilities, for which services described in the foregoing clauses (i) through (iii) the DB Group received during such approximately two-year period aggregate fees of approximately €50 million from CD&R and/or its affiliates and/or portfolio companies. One or more members of the DB Group also have, from time to time, provided, are currently providing and in the future may provide, investment banking and commercial banking (including the extension of credit) services to TPG and/or certain of its affiliates and/or portfolio companies for which services the DB Group has received, and in the future may receive, compensation, including during the approximately two-year period prior to May 24, 2022, having acted or acting as (i) financial advisor in connection with certain acquisition and disposition transactions, (ii) bookrunner and/or underwriter for certain equity and debt offerings and (iii) bookrunner for, and/or as a lender under, certain credit facilities, for which services described in the foregoing clauses (i) through (iii) the DB Group received during such approximately two-year period aggregate fees of approximately €74 million from TPG and/or its affiliates and/or portfolio companies. Although the DB Group did not provide investment banking or commercial banking services during the approximately two-year period prior to May 24, 2022 to the Company for which services the DB Group received or expect to receive compensation, one or more members of the DB Group may provide such services to the Company and/or its affiliates in the future, for which services the DB Group would expect to receive compensation.

 

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Purpose and Reasons of the Company for the Merger

The Company’s purpose for engaging in the Merger is to enable its stockholders to receive the Merger Consideration, which represents a per share premium of approximately (1) 37.5% above the unaffected closing price of the shares of Company common stock as of May 13, 2022 and (2) 16.5% above the closing price of the shares of Company common stock as of May 19, 2022, the last trading day prior to the day CD&R publicly disclosed the proposal letter in an amendment to its Schedule 13D filing with respect to the Company. The Transaction Committee and the Board believe that the Merger provides the best opportunity to maximize stockholder value. The Company has determined to undertake the Merger at this time based on the analyses, determinations and conclusions of the Transaction Committee and the Board described in detail above under the section of this proxy statement entitled “Special Factors—Reasons for the Merger; Recommendation of the Board; Fairness of the Merger.”

Purpose and Reasons of the CD&R Entities for the Merger

Under the SEC rules governing “going-private” transactions, the CD&R Entities may be deemed to be affiliates of the Company and, therefore, be required to express their reasons for the Merger to the Company’s unaffiliated stockholders, as defined in Rule 13e-3 of the Exchange Act. The CD&R Entities are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and the related rules under the Exchange Act. For the CD&R Entities, the primary purpose of the Merger is to allow Parent to own equity interests in the Company and to bear the rewards and risks of such ownership after the Merger is completed and the shares of Company common stock cease to be publicly traded. The CD&R Entities believe that, as a private company, the Company will be able to improve its ability to execute initiatives that over time will create additional enterprise value for the Company. The CD&R Entities believe that this, along with the Company’s existing business and potential future opportunities, will allow the CD&R Entities’ investment in the Company to achieve longer term returns consistent with its investment objectives, which are in some cases more difficult for businesses to achieve as a public company due to the investment community’s focus on short-term, often quarterly, financial results. Further, absent the reporting and associated costs and burdens placed on public companies, the CD&R Entities believe that the management and employees of Covetrus will be able to execute more effectively on future strategic plans. The CD&R Entities have undertaken to pursue the Merger at this time for the reasons described above, as well as due to the CD&R Entities desire to maximize long-term investment returns for their partners, following the decision by the Board and the Transaction Committee to conduct a review of strategic alternatives available to the Company that culminated in CD&R and TPG being invited to submit an offer for the acquisition of the Company. The CD&R Entities believe that structuring the transaction as a merger is preferable to other transaction structures because it (1) will enable Parent to acquire all of the shares of Company common stock at the same time, (2) will allow the Company to cease to be a publicly registered and reporting company, and (3) represents an opportunity for the Company’s unaffiliated stockholders to receive the Merger Consideration in cash, without interest and less any applicable withholding taxes, subject to and in accordance with the terms and conditions of the Merger Agreement.

Plans for the Company After the Merger

Following completion of the Merger, Merger Sub will have been merged with and into the Company, with the Company surviving the Merger as a subsidiary of Parent. The shares of Company common stock are currently listed on NASDAQ and registered under the Exchange Act. Following completion of the Merger, there will be no further market for the shares of Company common stock and, as soon as possible following the Effective Time, Company common stock will be delisted from NASDAQ, deregistered under the Exchange Act and cease to be publicly traded.

Given CD&R VFC Holdings’ long-standing ownership stake in the Company, the CD&R Entities currently anticipate that the Company’s strategy and operations will initially be conducted following completion of the Merger substantially as they are currently being conducted (except that the Company will cease to be a public company and will instead be a wholly owned subsidiary of Parent). Following completion of the Merger, the

 

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CD&R Entities, together with TPG, will continue to assess the Company’s assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what additional changes, if any, would be desirable to enhance the business and operations of the Company.

The names of the persons expected to become the directors of the Surviving Corporation from and after the Effective Time will be added to this proxy statement prior to its mailing. From and after the Effective Time, the officers of the Company immediately prior to the Effective Time are expected to be the officers of the Surviving Corporation, to hold office until their respective successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the DGCL, the certificate of incorporation and the bylaws of the Company.

Interests of Directors and Executive Officers in the Merger

In considering the recommendation of the Board that you vote “FOR” the proposal to adopt the Merger Agreement, you should be aware that our directors and executive officers have interests that may be different from, or in addition to, the interests of Covetrus stockholders generally. The Transaction Committee and the Board were aware of these interests and considered them at the time they approved the Merger Agreement and recommended that Covetrus’s stockholders adopt the Merger Agreement.

In addition to the matters described below, two directors, Sandra Peterson (an Operating Partner at CD&R) and Ravi Sachdev (a Partner at CD&R), were designated by CD&R VFC Holdings as directors on the Board (and they recused themselves from deliberations regarding the Merger due to their affiliation with CD&R).

Equity Awards

The Merger Agreement provides for the acceleration and cash-out of all outstanding equity awards upon the consummation of the Merger, including those held by our executive officers and directors.

The Merger Agreement provides that at the Effective Time each outstanding equity award will be treated as follows:

Treatment of Stock Options.

Outstanding options to purchase shares of Company common stock (other than rights to purchase shares of Company common stock under the ESPP (described below)) (each, an “Option”) granted under the Company’s 2019 Omnibus Incentive Compensation Plan, whether vested or unvested, will be treated as follows: (i) if the per share of Company common stock exercise price of such Option is equal to or greater than the Merger Consideration, such Option will terminate and be cancelled as of immediately prior to the Effective Time, without any consideration being payable in respect thereof, and have no further force or effect and (ii) if the per share of Company common stock exercise price of such Option is less than the Merger Consideration, such Option will terminate and be automatically cancelled as of immediately prior to the Effective Time in exchange for the right to receive a lump sum cash payment in the amount equal to (x) the number of shares of Company common stock underlying the Option immediately prior to the Effective Time, multiplied by (y) an amount equal to the Merger Consideration minus the applicable exercise price (the product of (x) and (y), the “Option Payment”). From and after the Effective Time, each Option will no longer be exercisable by the former holder thereof, but will only entitle such holder to the Option Payment, if any. The Option Payment will be made as soon as practicable following the Effective Time (but in any event not later than ten (10) calendar days thereafter), net of any taxes withheld pursuant to the Merger Agreement.

Treatment of Restricted Stock Units.

Outstanding restricted stock units that are subject to time-based vesting conditions (a “Restricted Stock Unit” or “RSU”), granted under the Company’s 2019 Omnibus Incentive Compensation Plan that are outstanding or payable as of immediately prior to the Effective Time, whether vested or unvested will fully vest (to the extent unvested or to the extent such Restricted Stock Unit would not otherwise vest) and will terminate and be

 

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automatically cancelled as of immediately prior to the Effective Time in exchange for the right to receive a lump sum cash payment in the amount equal to (i) the number of shares of Company common stock underlying such Restricted Stock Unit, multiplied by (ii) the Merger Consideration (the product of (i) and (ii), the “Restricted Stock Unit Payment”). From and after the Effective Time, no Restricted Stock Unit will remain outstanding and each former holder of any such Restricted Stock Unit will cease to have any rights with respect thereto, except the right to receive the Restricted Stock Unit Payment. The Restricted Stock Unit Payment will be made as soon as practicable following the Effective Time (but in any event not later than ten (10) calendar days thereafter), net of any taxes withheld pursuant to the Merger Agreement.

Treatment of Performance Restricted Stock Units.

Outstanding performance restricted stock units that are subject to performance-based vesting conditions (a “Performance Restricted Stock Unit” or “PRSU”) granted under the Company’s 2019 Omnibus Incentive Compensation Plan that are outstanding or payable as of immediately prior to the Effective Time, whether vested or unvested, will become fully vested (to the extent unvested or to the extent such Performance Restricted Stock Unit would not otherwise vest) and will terminate and be automatically cancelled as of immediately prior to the Effective Time in exchange for the right to receive a lump sum cash payment in an amount equal to (i) the number of shares of Company common stock subject to such Performance Restricted Stock Unit that would vest based on the target level of achievement (provided that in no event will such number of shares of Company common stock exceed 990,000), multiplied by (ii) the Merger Consideration (the product of (i) and (ii), the “Performance Restricted Stock Unit Payment”). From and after the Effective Time, no Performance Restricted Stock Unit will remain outstanding and each former holder of any such Performance Restricted Stock Unit will cease to have any rights with respect thereto, except the right to receive the Performance Restricted Stock Unit Payment. The Performance Restricted Stock Unit Payment will be made as soon as practicable following the Effective Time (but in any event not later than ten (10) calendar days thereafter), net of any taxes withheld pursuant to the Merger Agreement.

Treatment of Company Restricted Stock.

At the Effective Time, each share of Company common stock subject to vesting, repurchase or other lapse restriction outstanding immediately prior to the Effective Time will fully vest and be cancelled and converted automatically into the right to receive Merger Consideration and be treated in the same manner as all other shares of Company common stock for such purposes.

Treatment of the Employee Stock Purchase Plan.

The Company has agreed to take all actions necessary to terminate the ESPP and all outstanding rights thereunder as of the day immediately prior to the Effective Time, contingent upon the occurrence of the closing of the Merger (the “Closing”). The offering or purchase period under the ESPP that would be in effect as of the Effective Time (the “Final Offering Period”) will terminate no later than the day immediately prior to the Effective Time, and the Company has agreed to cause the exercise date applicable to the Final Offering Period to accelerate and occur on the termination date of the ESPP with respect to any then-outstanding purchase rights. All amounts allocated to each participant’s account under the ESPP at the end of the Final Offering Period will thereupon be used to purchase whole shares of Company common stock under the terms of the ESPP for such offering period, which shares of Company common stock will be cancelled at the Effective Time in exchange for the right to receive the Merger Consideration in the same manner as all other shares of Company common stock. Following the purchase of the shares of Company common stock, the Company will return to each participant the funds, if any, that remain in such participant’s account after such purchase. The Company has agreed to take such steps as may be necessary such that, between the date of the signing of the Merger Agreement and the Closing, (i) no new participants may commence participation in the ESPP, (ii) no current participant in the ESPP may increase his or her rate of contribution under the ESPP and (iii) no new offering period will commence after the date the Merger Agreement was signed.

 

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The following table sets forth the number of shares of Company common stock underlying outstanding RSUs, PRSUs and Options that would be held by our executive officers as of September 15, 2022 assuming the Merger closes on such date (solely for the purposes of the table below) (taking into account any vesting of their outstanding awards that occurs prior to such date) and the cash proceeds that such awards will be converted into in connection with the Merger, assuming a price per share of $21.00, which is the price per share of Company common stock to be paid in connection with the Merger. All share numbers have been rounded to the nearest whole number.

 

Executive Officer Payout Summary Table
Executive Officers		RSU Awards (#)				RSU Awards ($)				PRSU Awards (#)				PRSU Awards ($)				Options (#)				Options ($)				Estimated Total Cash Consideration
Benjamin Wolin			351,443				7,380,303				388,557				8,159,697				0				0				15,540,000
Dustin Finer			89,814				1,886,094				84,160				1,767,360				0				0				3,653,454
Georgina Wraight			134,297				2,820,237				97,350				2,044,350				61,805	(1)			766,382				5,630,969
Matthew Foulston			53,075				1,114,575				44,459				933,639				0				0				2,048,214
Matthew Malenfant			142,821				2,999,241				95,802				2,011,842				0				0				5,011,083
Andrew Coxhead			41,555				872,655				0				0				0				0				872,655
Rebecca Kidd			52,325				1,098,825				42,468				891,828				0				0				1,990,653

 

(1)	This amount does not include 23,624 Options with an exercise price of $37.47 as such exercise price exceeds the Merger Consideration of $21.00 per share.

The following sets forth the number of shares of Company common stock underlying outstanding RSUs and Options that would be held by our non-employee directors as of September 15, 2022 assuming the Merger closes on such date (solely for the purposes of this paragraph) (taking into account any vesting of their outstanding awards that occurs prior to such date) and the unvested cash proceeds that such unvested awards will be converted into in connection with the Merger, assuming a price per share of $21.00, which is the price per share of Company common stock to be paid in connection with the Merger. All share numbers have been rounded to the nearest whole number. For Deborah G. Ellinger, 14,638 RSUs totaling $307,398; for Paul Fonteyne, 14,638 RSUs totaling $307,398; for Sandra L. Helton, 14,638 RSUs totaling $307,398; for Philip A. Laskawy, 38,727 RSUs totaling $813,267; for Mark J. Manoff, 14,638 RSUs totaling $307,398; for Edward M. McNamara, 14,638 RSUs and 77,435 Options totaling $1,329,366; for Steven Paladino, 14,638 RSUs totaling $307,398; for Sandra Peterson 14,638 RSUs totaling $307,398; for Ravi Sachdev, 14,638 RSUs totaling $307,398; and for Sharon Wienbar, 46,445 RSUs totaling $975,345.

Employment Agreements

Each of our named executive officers is a party to an employment agreement with the Company which provide for enhanced severance payments and benefits upon a termination of their employment by the Company without “cause” or by the executive officer for “good reason” within a specified time period of a “change in control,” which would include the Merger (a “Qualifying Termination”). For Benjamin Wolin, such period commences three months prior to and ends 24 months following the consummation of the change in control. For Dustin Finer, Georgina Wraight, Matthew Malenfant and Matthew Foulston, such period commences two months prior (or the earlier date of execution of a definitive agreement to effectuate a change in control) and ends 12 months following the consummation of the change in control.

For each named executive officer, assuming their employment was terminated as a Qualifying Termination, the total severance payments would be as follows: (i) for Benjamin Wolin, a lump sum payment equal to eighteen (18) months of base salary in the amount of $1,575,000 plus his target pro-rated annual bonus for 2022 in the amount of $656,250 and eighteen (18) months of COBRA insurance coverage in the amount of $45,980; (ii) for Matthew Foulston, twelve (12) months of base salary continuation in the amount of $600,000 plus his target annual bonus for 2022 payable in equal installments over the twelve (12) month

 

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period following the termination in the amount of $540,000 and eighteen (18) months of COBRA insurance coverage in the amount of $32,667; (iii) for Matthew Malenfant, twelve (12) months of base salary continuation in the amount of $575,000 plus his target annual bonus for 2022 payable in equal installments over the twelve (12) month period following the termination in the amount of $460,000 and eighteen (18) months of COBRA insurance coverage in the amount of $47,108; (iv) for Georgina Wraight, twelve (12) months of base salary continuation in the amount of $550,000 plus her target annual bonus for 2022 payable in equal installments over the twelve (12) month period following the termination in the amount of $412,500 and twelve (12) months of COBRA insurance coverage in the amount of $31,813; and (v) for Dustin Finer, a lump sum payment equal to twelve (12) months of base salary in the amount of $480,000 plus his target annual bonus for 2022 in the amount of $360,000 and twelve (12) months of COBRA insurance coverage in the amount of $31,813.

In addition, upon a Qualifying Termination, all equity awards held by the executive officers that are subject to time-based vesting would become fully vested, and any equity awards that are subject to performance-based vesting will vest based on the “target” level of performance (for Benjamin Wolin) or based on the greater of “target” or “actual” performance at the time of termination (for Georgina Wraight, Matthew Foulston, Matthew Malenfant and Dustin Finer) in accordance with the relevant award agreements.

On August 5, 2022, the Company entered into an amendment (the “Foulston Amendment”) to Mr. Foulston’s employment agreement, dated as of May 11, 2020, in order to retain Mr. Foulston’s services through December 31, 2022 (the “Expiration Date”). The Foulston Amendment provides for, among other terms: (i) the vesting of outstanding equity grants held by Mr. Foulston on the earlier of the Expiration Date and the consummation of the transactions contemplated by the Merger Agreement; (ii) the payment of Mr. Foulston’s annual bonus at an amount equal to the greater of Mr. Foulston’s 2022 target bonus and the amount earned based on the actual achievement of performance goals under the Company’s 2022 annual bonus plan; (iii) severance of $2,020,000 paid over twelve months following the Expiration Date; (iv) eighteen-months COBRA continuation; and (v) the payment of his base salary through the Expiration Date if his employment is terminated prior to the Expiration Date. In the event that Mr. Foulston’s employment is terminated prior to the Expiration Date, either by the Company without “cause,” by Mr. Foulston for “good reason” or by reason of death or “disability” (each as defined in the Foulston Amendment), Mr. Foulston will continue to be entitled to the payments and benefits described above, as well as payment of his base salary and provision of health benefits through the Expiration Date.

On June 23, 2022, the Company entered into an amendment to Mr. Finer’s employment agreement, dated as of November 9, 2020, in order to clarify that Mr. Finer will continue to be an employee of the Company on unpaid leave from August 16, 2022 through the earlier of the consummation of the Merger and December 31, 2022 (at which time his employment will terminate) and that Mr. Finer, will be entitled to receive certain benefits upon the consummation of the Merger, including the vesting of all vested and unvested outstanding equity grants.

New Management Arrangements

It is expected that the Company and CD&R and TPG will work together to develop a new long-term incentive plan for the Company to be implemented following the closing, and representatives of CD&R and TPG have held and may hold further preliminary discussions with certain members of the Company’s management team regarding employment with, and the right to purchase (including by reinvesting all or a portion of their existing equity in the Company) or participate in the equity of, Parent or one or more of its affiliates. However, as of the date of this proxy statement, neither the Company nor Parent or any of its affiliates has entered into any agreements, arrangements or understandings with the Company’s executive officers with respect to the foregoing, and there can be no assurances that the terms of any such agreements, arrangements or understandings will be agreed upon with any executive officers in the future. If Parent or its affiliates and the Company’s executive officers do not enter into agreements regarding employment with Parent or its affiliates, then the Company’s executive officers will remain subject to their existing arrangements with the Company.

 

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Golden Parachute Compensation

In accordance with Item 402(t) of Regulation S-K, the tables below present the estimated amounts of compensation that each named executive officer could receive that are based on or otherwise related to the Merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section, we use such term to describe the Merger-related compensation payable to the Company’s named executive officers. This Merger-related compensation is subject to a non-binding advisory vote of Covetrus’ stockholders. See the section entitled “Proposal 2: Merger-Related Compensation Proposal,” on page 125.

The amounts set forth below have been calculated assuming the Merger is consummated on September 15, 2022 (solely for the purposes of the table below), and, where applicable, assuming each named executive officer experiences a Qualifying Termination of their employment as of September 15, 2022 (solely for the purposes of the table below). The amounts indicated below are estimates of amounts that would be payable to the named executive officers, and the estimates are based on multiple assumptions that may or may not actually occur. The amounts below are based on a price per share of Company common stock of $21.00, which is the price per share of Company common stock to be paid in connection with the Merger. Some of the assumptions are based on information not currently available, and as a result, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below. All dollar amounts set forth below have been rounded to the nearest whole number.

 

		Golden Parachute Payment
Name		Cash($)(1)				Equity($)(2)				Perquisites / Benefits($)(3)				Total($)
Benjamin Wolin President and Chief Executive Officer		$	2,231,250			$	15,540,000			$	45,980			$	17,817,230
Matthew Foulston Executive Vice President and Chief Financial Officer		$	1,140,000			$	2,048,214			$	32,667			$	3,220,881
Matthew Malenfant Chief Commercial Officer		$	1,035,000			$	5,011,083			$	47,108			$	6,093,191
Georgina Wraight Executive Vice President and President, Global Technology Solutions		$	962,500			$	5,630,969			$	31,813			$	6,625,282
Dustin Finer Chief Administrative Officer		$	840,000			$	3,653,454			$	31,813			$	4,525,267

 

(1)

The amounts in this column represent the aggregate of the payments of base salary plus the target pro-rated annual bonus for 2022 to which the named executive officers would be entitled to you in the event of a Qualifying Termination on September 15, 2022 (solely for the purposes of this table). See the section entitled “Special Factors—Interests of Directors and Executive Officers in the Merger” on page 68. These cash severance payments are “double trigger” benefits contingent upon a Qualifying Termination prior to or following the effective time of the merger.

(2)

Represents the value of the time-vesting RSU, PRSU and Options of (as applicable) held by each named executive officer that will be converted to cash in connection with the Merger. The amounts payable to named executive officers in respect of the RSUs, PRSUs, and Options will be paid to the named executive officers as a result of the Merger even if the named executive officer’s employment is not terminated. The table shows the numbers of PRSUs that would vest based on target performance. For further details regarding the treatment of Covetrus Equity Awards in connection with the Merger, see “Special Factors— Interests of Directors and Executive Officers in the Merger—Equity Awards,” on page 68 as well as “Special Factors—Interests of Directors and Executive Officers in the Merger—Employment Agreements” on page 70.

(3)

The amounts in the table include the estimated value of payments for COBRA coverage for up to twelve (12) months for Georgina Wraight and up to eighteen (18) months for Benjamin Wolin, Matthew Foulston and Matthew Malenfant following a Qualifying Termination, which are “double-trigger” benefits payable following a Qualifying Termination.

 

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Intent to Vote in Favor of the Merger

Our directors and executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of the shares of Company common stock owned directly by them in favor of the Merger Agreement Proposal, the Adjournment Proposal and the Merger-Related Compensation Proposal. As of September 7, 2022, the record date for the special meeting, our directors and executive officers directly owned, in the aggregate, 872,688 shares of Company common stock entitled to vote at the special meeting, or collectively approximately 0.6% of all the outstanding shares of Company common stock entitled to vote at the special meeting.

Director and Officer Indemnification and Insurance

The Merger Agreement provides that from and after the Effective Time, Parent will and will cause the Surviving Corporation to, indemnify, defend and hold harmless each present and former director and officer of the Company or any of its subsidiaries, determined as of the Effective Time (the “Indemnified Parties”) against any and all costs (including settlement costs) or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages, penalties or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (including with respect to matters existing or occurring at or prior to the Effective Time (including the Merger Agreement and the Transactions)), arising out of or based on the fact that such Indemnified Party is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another person prior to the Effective Time, in each case, whether threatened, pending or completed and whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that the Company would have been permitted under the laws of the State of Delaware, any applicable indemnification agreement to which such person is a party, the Company’s certificate of incorporation or bylaws in effect on the date of the Merger Agreement to indemnify such person (and Parent and the Surviving Corporation will also advance expenses as incurred to the fullest extent permitted under applicable law; provided that the person to whom expenses are advanced will provide an undertaking to repay such advances if it is ultimately determined by final adjudication that such person is not entitled to indemnification). Parent will, and will cause the Surviving Corporation to, ensure that the organizational documents of the Surviving Corporation and its subsidiaries, will, for a period of six (6) years from and after the Effective Time, contain provisions no less favorable, in the aggregate, with respect to indemnification, advancement of expenses and exculpation of present and former directors, officers, employees and agents of the Company and its subsidiaries than are presently set forth in the Company’s certificate of incorporation and bylaws (or equivalent organizational and governing documents of any subsidiary). The right of indemnification of an Indemnified Party pursuant to the Merger Agreement will not be amended, repealed or otherwise modified at any time in a manner that would adversely affect the rights of such Indemnified Party.

Prior to the Effective Time, the Company will and, if the Company is unable to, Parent will cause the Surviving Corporation as of the Effective Time to, obtain and fully pay for “tail” insurance policies with a claims period of at least six (6) years from and after the Effective Time from an insurance carrier with the same or better credit rating as the Company’s current insurance carrier with respect to directors’ and officers’ liability insurance and fiduciary liability insurance (collectively, “D&O Insurance”) with benefits and levels of coverage at least as favorable as the Company’s existing policies with respect to matters existing or occurring at or prior to the Effective Time (including in connection with the Merger Agreement or the Transactions); provided, however that in no event will the Company be required to expend for such policies an annual premium in excess of three- hundred percent (300%) of the annual premiums currently paid by the Company for such insurance. If the Company for any reason fails to obtain such “tail” insurance policies as of the Effective Time, the Surviving Corporation will, and Parent will cause the Surviving Corporation to, continue to maintain in effect for a period of at least six (6) years from and after the Effective Time the D&O Insurance in place as of the date of the Merger Agreement with benefits and levels of coverage at least as favorable, in the aggregate, as provided in the Company’s existing policies as of the date of the Merger Agreement, or the Surviving Corporation will, and Parent will cause the Surviving Corporation to, purchase comparable D&O Insurance for such six-year period

 

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with benefits and levels of coverage at least as favorable as provided in the Company’s existing policies as of the date of the Merger Agreement; provided, however that in no event will the Company expend, or Parent or the Surviving Corporation be required to expend for such policies, an annual premium amount in excess of three- hundred percent (300%) of the annual premiums currently paid by the Company for such insurance; and, provided, further that if the premium for such insurance coverage exceeds such amount, the Surviving Corporation will obtain a policy with the greatest coverage available for a cost not exceeding such amount.

Certain Effects of the Merger

If the Merger Agreement Proposal is approved by the Company stockholders, and the other conditions to the closing of the Merger are either satisfied or (to the extent permitted by applicable law) waived, Merger Sub will be merged with and into Covetrus upon the terms set forth in the Merger Agreement. As the Surviving Corporation, Covetrus will continue to exist following the Merger as a wholly owned subsidiary of Parent.

Following the Merger, all of Covetrus’ equity interests will be legally and beneficially owned by Parent, and none of Covetrus’ current stockholders will, by virtue of the Merger, have any ownership interest in, or be a stockholder of, the surviving corporation or Parent after the completion of the Merger (except CD&R VFC Holdings will have an indirect ownership interest in Covetrus as a result of the transactions contemplated by the Support and Rollover Agreement). As a result, Covetrus’ current stockholders (other than CD&R VFC Holdings) will no longer benefit from any increase in the value, nor will they bear the risk of any decrease in the value, of Company common stock. Following the Merger, Parent will benefit from any increase in Covetrus’ enterprise value and also will bear the risk of any decrease in Covetrus’ enterprise value.

For information regarding the effects of the Merger on Covetrus’ outstanding equity awards, see the sections entitled “Special Factors—Interests of Directors and Executive Officers in the Merger,” beginning on page 68, and “The Merger Agreement—Treatment of Outstanding Equity Awards; Company ESPP,” beginning on page 86.

Company common stock is currently registered under the Exchange Act and trades on NASDAQ under the symbol “CVET.” Following the completion of the Merger, the shares of Company common stock will no longer be traded on NASDAQ or any other public market. In addition, the registration of the shares of Company common stock under the Exchange Act will be terminated, and Covetrus will no longer be required to file periodic and other reports with the SEC with respect to Company common stock. Termination of registration of Company common stock under the Exchange Act will reduce the information required to be furnished by Covetrus to Covetrus’ stockholders and the SEC, and would make certain provisions of the Exchange Act, such as the requirement to file annual and quarterly reports pursuant to Section 13(a) or 15(d) of the Exchange Act, the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement to furnish a proxy statement in connection with stockholders’ meetings pursuant to Section 14(a) of the Exchange Act, no longer applicable to Covetrus to the extent that they apply solely as a result of the registration of Company common stock under the Exchange Act.

The primary detriments of the Merger to stockholders unaffiliated with Parent, CD&R and TPG include the lack of an interest of such stockholders in the potential future earnings, growth or value realized by the Company after the Merger.

Consequences if the Merger is Not Completed

If the Merger Agreement Proposal is not approved by the Company’s stockholders, or if the Merger is not completed for any other reason, you will not receive any consideration from Parent or Merger Sub for your shares of Company common stock. Instead, Covetrus will remain a public company, and the Company common stock will continue to be listed and traded on NASDAQ. We expect that our management will operate our business in a manner similar to that in which it is being operated today and that holders of shares of Company common stock will continue to be subject to the same risks and opportunities as they currently are subject to with

 

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respect to their ownership of Company common stock. If the Merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of Company common stock, including the risk that the market price of Company common stock may decline to the extent that the current market price of Company common stock reflects a market assumption that the Merger will be completed. If the Merger Agreement Proposal is not approved by the Company’s stockholders, or if the Merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operations will not be adversely impacted.

In addition, if the Merger Agreement is terminated under specified circumstances, (i) Covetrus may be required to pay Parent a termination fee of $88,315,000 or (ii) Parent may be required to pay Covetrus a termination fee of $197,950,000. For additional information, see the section entitled “The Merger Agreement—Termination Fees,” beginning on page 110.

You should also read and consider carefully the other information in this proxy statement, the Annexes to this proxy statement and the documents incorporated by reference herein, including the risk factors contained in the Company’s Annual Report on Form 10-K and other SEC filings. See the section entitled “Where You Can Find More Information.”

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

The following is a discussion of the material U.S. federal income tax consequences of the disposition of Company common stock for cash in the Merger to “U.S. Holders” (as defined below). This summary is for general information purposes only and does not purport to consider all aspects of U.S. federal income taxation that might be relevant to U.S. Holders. This summary is based on current provisions of the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), existing, proposed and temporary regulations thereunder and administrative and judicial interpretations thereof in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. Any such change could affect the accuracy of the statements and conclusions set forth in this discussion. We have not sought, and do not intend to seek, any ruling from the Internal Revenue Service (which we refer to as the “IRS”) with respect to the statements made and the conclusions reached in the following summary, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS.

The summary applies only to U.S Holders in whose hands shares of Company common stock are capital assets within the meaning of Section 1221 of the Code. This summary does not address foreign, state or local tax consequences of the Merger, nor does it address the U.S. federal income tax consequences of the transactions to special classes of taxpayers (e.g., stockholders that beneficially own (actually or constructively) more than 5% of the total fair market value of the shares of Company common stock, small business investment companies, S corporations, regulated investment companies, real estate investment trusts, controlled foreign corporations, passive foreign investment companies, qualified foreign pension funds or qualified collective investment vehicles, persons that accumulate earnings to avoid U.S. federal income tax, cooperatives, banks and certain other financial institutions, broker-dealers, insurance companies, tax-exempt organizations, governmental organizations, retirement plans, stockholders that are, or hold shares of Company common stock through, partnerships or other entities classified as partnerships or other pass-through entities for U.S. federal income tax purposes, stockholders whose functional currency is not the United States dollar, dealers in securities or foreign currency, traders that mark-to-market their securities, certain former citizens or residents of the United States, stockholders holding shares of Company common stock that are part of a straddle, hedging, constructive sale, conversion or other integrated security transaction for U.S. federal income tax purposes, stockholders who properly exercise appraisal rights with respect to their shares of Company common stock, stockholders who hold their shares of Company common stock as “qualified small business stock” or “section 1244 stock,” stockholders who received shares of Company common stock in compensatory transactions (including pursuant to the exercise of employee stock options, stock purchase rights or stock appreciation rights, as restricted stock or otherwise as compensation), stockholders who are not exchanging shares of Covetrus shares for cash, and stockholders who

 

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actually or constructively own an interest in Parent). In addition, this summary does not address U.S. federal taxes other than income taxes (including any U.S. federal estate or gift tax consequences), or any aspect of the U.S. alternative minimum tax or Medicare tax on net investment income.

If a partnership, or another entity or arrangement treated as a partnership for U.S. federal income tax purposes, holds shares of the Company common stock, the U.S. federal income tax treatment of its partners or members generally will depend upon the status of the partner or member and the partnership’s activities. Accordingly, partnerships or other entities treated as partnerships for U.S. federal income tax purposes that hold shares of Company common stock, and partners or members in those entities, are urged to consult their tax advisors regarding the specific U.S. federal income tax consequences to them of the Merger.

This discussion does not address the tax consequences of acquisitions or dispositions of shares of Company common stock outside the Merger, or transactions pertaining to options or other equity awards of the Company in connection with the Merger.

For purposes of this summary, the term “U.S. Holder” means a beneficial owner of shares of Company common stock that, for U.S. federal income tax purposes, is or is treated as: (i) an individual who is a citizen or resident of the United States; (ii) a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized under the laws 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 tax regardless of its source; or (iv) a trust, if (A) a United States court is able to exercise primary supervision over the trust’s administration and one or more United States persons (within the meaning of Section 7701(a)(30) of the Code) have authority to control all of the trust’s substantial decisions or (B) the trust has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

THIS DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS. WE URGE U.S. HOLDERS AND OTHER BENEFICIAL OWNERS OF SHARES TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, INCLUDING FEDERAL ESTATE, GIFT AND OTHER NON-INCOME TAX CONSEQUENCES, AND TAX CONSEQUENCES UNDER APPLICABLE U.S. TAX TREATIES AND STATE, LOCAL OR FOREIGN TAX LAWS, INCLUDING POSSIBLE CHANGES IN SUCH LAWS.

Tax Consequences of the Merger. The exchange of shares of Company common stock for cash pursuant to 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 Company common stock pursuant to the Merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the amount of cash received and (ii) the U.S. Holder’s adjusted tax basis in the shares of Company common stock surrendered for cash pursuant to the Merger. Gain or loss will be determined separately for each block of shares of Company common stock (that is, shares of Company common stock acquired at the same cost in a single transaction) surrendered for cash pursuant to the Merger. Such gain or loss would be long-term capital gain or loss, provided that the holding period for such block of shares of Company common stock is more than one year at the time of consummation of the Merger. Long-term capital gains recognized by certain non-corporate U.S. Holders are generally subject to U.S. federal income tax at preferential rates. The deductibility of capital losses by a U.S. Holder is subject to certain limitations.

Information Reporting and Backup Withholding. Information reporting and backup withholding may apply to the proceeds received by a holder pursuant to the Merger. Backup withholding generally will not apply to a U.S. Holder that furnishes a correct taxpayer identification number and certifies under penalty of perjury that such U.S. Holder is not subject to backup withholding on IRS Form W-9 (or a substitute or successor form). Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against the holder’s U.S. federal income tax liability, provided that the Required Information is timely furnished to the IRS.

 

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The tax discussion set forth above is included for general information only and is not tax advice. You are urged to consult your tax advisor to determine the particular tax consequences to you of the Merger, including the applicability and effect of U.S. federal, state, local, foreign and other tax laws and treaties.

Treatment of Existing Debt

The Company has agreed to (a) obtain the Debt Payoff Letter at least one (1) business day prior to the closing date of the Merger, guarantee terminations and lien terminations, if applicable, to the extent necessary for the termination of all guarantees granted in connection with, the release of all liens related to, and the prepayment, payoff, discharge and termination in full of all obligations outstanding under the Existing Credit Agreement, (b) provide Parent with a draft copy of such Debt Payoff Letter at least three (3) business days prior to the closing date of the Merger and (c) give (by the date required under the Existing Credit Agreement) any necessary notices (including notices of prepayment) to allow for the prepayment, payoff, discharge and termination in full of the Existing Credit Agreement at the Closing.

Regulatory Approvals

Under the Merger Agreement, completion of the Merger is conditioned on the expiration or termination of the waiting period applicable to the completion of the Merger under the HSR Act.

On June 8, 2022, Covetrus and Parent filed their respective notification and report forms under the HSR Act with respect to the Merger with the FTC and the DOJ, which triggered the start of the HSR Act waiting period. The HSR Act waiting period expired at 11:59 p.m. EST on July 8, 2022.

Completion of the Merger is further subject to the receipt of antitrust and/or foreign investment approvals and/or clearances in China, South Korea, Turkey, the European Union and Australia, as well as consents from certain state boards of pharmacy, with such approvals and/or clearances having been received from South Korea (on July 8, 2022), Turkey (on July 7, 2022), the European Union (on July 20, 2022), China (on August 5, 2022) and Australia (on September 9, 2022).

At any time before or after the Merger is completed, the FTC, the DOJ, U.S. state attorneys general as well as non-U.S. regulatory bodies could take action under antitrust laws and/or foreign investment laws in opposition to the Merger, including seeking to enjoin completion of the Merger, condition adoption of the Merger Agreement upon the divestiture of assets of Parent, Covetrus or their respective subsidiaries or impose restrictions on Parent’s post-Merger operations or other conditions. In addition, state boards of pharmacy could decide to not issue required consents for the Transactions. Private parties also may seek to take legal action under the U.S. federal or state antitrust laws under some circumstances.

For a description of Covetrus’ and Parent’s respective obligations under the Merger Agreement with respect to regulatory approvals, see the section entitled “The Merger Agreement—Efforts to Complete the Merger,” beginning on page 97.

Litigation Related to the Merger

As of September 11, 2022 six Actions have been filed in the S.D.N.Y. in connection with the transactions contemplated by the Merger Agreement: Shiva Stein v. Covetrus, Inc., et al., Case No. 1:22-cv-05737 (S.D.N.Y., filed July 6, 2022); Ryan O’Dell v. Covetrus, Inc., et al., Case No. 1:22-cv-05803 (S.D.N.Y., filed July 7, 2022); Joel Stanley v. Covetrus, Inc., et al., Case No. 1:22-cv-05818 (S.D.N.Y., filed July 8, 2022); Matthew Whitfield v. Covetrus, Inc., et al., Case No. 1:22-cv-05908 (S.D.N.Y., filed July 11, 2022); Jeffrey D. Justice, II. v. Covetrus, Inc., et al., Case No. 1:22-cv-05909 (S.D.N.Y., filed July 11, 2022), and Chris Rayfield v. Covetrus, Inc., et al., Case No. 1:22-cv-06298 (S.D.N.Y, filed July 25, 2022). Each of the Actions names Covetrus and its directors as defendants. The Actions assert claims under Section 14(a) and 20(a) of the Exchange Act, and Rule

 

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14a-9 promulgated under the Exchange Act, and allege that the Proxy Statement filed by Covetrus with the Securities Exchange Commission on June 30, 2022 in connection with the Merger contains alleged material misstatements or omissions. The Actions seek, among other things, to enjoin the defendants from proceeding with, consummating or closing the Merger, rescisissory damages should the Merger not be enjoined, and an award of attorneys’ and experts’ fees. The defendants believe that the allegations in the Actions are without merit. If additional similar complaints are filed, absent new or different allegations that are material, Covetrus will not necessarily announce such filings.

Fees and Expenses

The estimated fees and expenses incurred or expected to be incurred by the Company in connection with the Merger are as follows:

 

Description		Amount
Financial advisory, legal, accounting and other professional fees and expenses		$	46,500,000.00
SEC filing fees		$	281,906.81	(1)
Printing, proxy solicitation and mailing costs		$	210,000.00	(2)
Miscellaneous		$	500,000.00
Total		$	47,491,906.81

 

(1)	Pursuant to the terms of the Merger Agreement, the fees, costs and expenses incurred in connection with the filing of this proxy statement shall be shared equally by Parent and the Company.

(2)	Pursuant to the terms of the Merger Agreement, the fees, costs and expenses incurred in connection with the printing and mailing of this proxy statement shall be shared equally by Parent and the Company.

It is also expected that Merger Sub and/or Parent will incur approximately $34 million of legal, financial and other advisory fees.

The estimate for legal fees set forth in this proxy statement does not include any amounts attributable to any existing or future litigation challenging the Merger. All costs and expenses incurred in connection with the Merger Agreement and the Transactions, including the Merger, will be paid by the party incurring such expense, except that (i) the fees, costs and expenses incurred in connection with (x) the filing of the Schedule 13e-3 and this proxy statement and (y) the printing and mailing of this proxy statement, shall be shared equally by Parent and the Company, and (ii) Parent will be responsible for, and pay, one hundred percent (100%) of the fees, costs and expenses incurred in connection with the filings required under the HSR Act and any other filings required or advisable by any governmental entity.

Payment of Merger Consideration

Prior to the Effective Time, Parent will designate, with the Company’s prior written approval, a paying agent to exchange the shares of Company common stock for the Merger Consideration. At or prior to the Effective Time, Parent will deposit or cause to be deposited with the paying agent cash comprising approximately the aggregate Merger Consideration. Parent will cause the paying agent to promptly pay each holder of record as of immediately prior to the Effective Time (other than shares of Company common stock owned by (i) Parent or Merger Sub or any of their respective subsidiaries (including the shares of Company common stock transferred by CD&R VFC Holdings, directly or indirectly, to Parent immediately prior to the Effective Time), (ii) Covetrus as treasury stock and (iii) Covetrus stockholders who have perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL) the Merger Consideration upon the surrender of a certificate of shares of Company common stock in the case of certificated shares of Company common stock and promptly after the Effective Time (and in any event within two (2) business days thereafter) in the case of uncertificated shares of Company common stock. Interest will not be paid or

 

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accrue on any amount payable upon surrender of any shares of Company common stock. The paying agent will reduce the amount of any Merger Consideration paid by any applicable withholding taxes.

After the completion of the Merger, you will cease to have any rights as a stockholder of the Company other than the right to receive the Merger Consideration upon the terms and subject to the conditions set forth in the Merger Agreement.

The paying agent will return to Parent or the Surviving Corporation, as designated by Parent, all funds in its possession that remain unclaimed by the stockholders of the Company at the one-year anniversary of the effective time. After that time, if you have not received payment of the Merger Consideration, you may look only to the Surviving Corporation for payment of your claims for the Merger Consideration, subject to applicable abandoned property, escheat and other similar laws.

Provisions for Unaffiliated Stockholders

No provision has been made to grant the Company’s stockholders, other than CD&R VFC Holdings and its affiliates, access to the corporate files of the Company or any other party to the Merger or to obtain counsel or appraisal services at the expense of the Company or any other such party.

Financing of the Merger

The Merger Agreement does not contain any financing condition to consummation of the Merger. Parent estimates that the total funds necessary to complete the Merger and pay the Merger Consideration will be approximately $4.2 billion, including estimated transaction fees and expenses and the shares of Company common stock held by CD&R VFC Holdings valued at $21.00 per share. Parent expects these amounts to be funded through a combination of committed debt financing from specified lenders, consisting of an up to $1,525,000,000 first lien secured term loan facility, an up to $425,000,000 second lien secured term loan facility, and an up to $300,000,000 first lien secured cash-flow based revolving credit facility (up to $65,000,000 of which will be available at the Closing to finance the Transactions and pay related fees and expenses), and $1,604,000,000 from equity commitments by the Equity Investors.

Equity Financing

In connection with the Merger, Parent delivered to the Company (i) an equity commitment letter between Parent and CD&R Fund XI, pursuant to which CD&R Fund XI has committed, subject to the terms and conditions contained therein, to contribute, or cause to be contributed, to Parent (directly, or indirectly through one or more parent companies of Parent, or otherwise) an aggregate amount, in immediately available funds, of $802,160,400 on or prior to the closing of the Merger in connection with the funding of the Merger (the “CD&R Equity Financing”), (ii) an equity commitment letter between Parent and TPG VIII, pursuant to which TPG VIII has committed, subject to the terms and conditions contained therein, to contribute, or cause to be contributed, to Parent (directly, or indirectly through one or more parent companies of Parent, or otherwise) an aggregate amount, in immediately available funds, of $526,839,600 on or prior to the closing of the Merger in connection with the funding of the Merger (the “TPG VIII Equity Financing”) and (iii) an equity commitment letter between Parent and TPG Healthcare, pursuant to which TPG Healthcare has committed, subject to the terms and conditions contained therein, to contribute, or cause to be contributed, to Parent (directly, or indirectly through one or more parent companies of Parent, or otherwise) an aggregate amount, in immediately available funds, of $275,000,000 on or prior to the closing of the Merger in connection with the funding of the Merger (the “TPG Healthcare Equity Financing”, and together with the CD&R Equity Financing and TPG VIII Equity Financing, the “Equity Financing”).

The obligation of the Equity Investors to provide the Equity Financing is subject to a number of conditions, including (1) the satisfaction or waiver by Parent and Merger Sub of each of the conditions to Parent’s and Merger Sub’s obligations to effect the Closing set forth in Article 7 of the Merger Agreement (in each case, other than any conditions that by their nature are to be satisfied at the Closing, but subject to the prior or substantially concurrent satisfaction or waiver of such conditions) and (2) the substantially contemporaneous, or prior, funding

 

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of the debt financing contemplated by the Original Debt Commitment Letter (or, if applicable, any alternative financing, as described in the commitment letters for the Equity Financing) at the Closing (in each case, in accordance with the terms and conditions of the Original Debt Commitment Letter).

The Equity Investors’ obligations to fund the Equity Financing and all of its obligations under each of the Equity Commitment Letters will terminate automatically and immediately upon the earliest to occur of (1) the Closing and funding of the Equity Financing, to the extent required by the Equity Commitment Letters, (2) the termination of the Merger Agreement in accordance with its terms, subject to certain exceptions, (3) the Company or any of its controlled affiliates accepting all or any portion of the termination fee of $197,950,000 payable by Parent in certain circumstances pursuant to the Merger Agreement or accepting any payment from the Equity Investors under the limited guarantees that each Equity Investor provided in respect of such obligations, (4) the Company or any of its controlled affiliates asserting in writing a claim against any Equity Investor or any non-recourse party in connection with any limited guarantee or the Merger Agreement, subject to certain exceptions, and (5) the termination of any of the other Equity Commitment Letters entered into by the other Equity Investors.

The Company is an express third-party beneficiary only for the purpose of obtaining specific performance of Parent’s right to cause the equity financing to be funded by the Equity Investors to Parent, subject to the terms and conditions of the Equity Commitment Letters and the Merger Agreement.

Debt Financing

Parent and Merger Sub have obtained debt financing commitments consisting of an up to $1,525,000,000 first lien secured term loan facility, an up to $425,000,000 second lien secured term loan facility, and an up to $300,000,000 first lien secured cash-flow based revolving credit facility (up to $65,000,000 of which will be available at the Closing to finance the Transactions and pay related fees and expenses), the proceeds of which will be used to consummate the Merger and the other transactions contemplated by the Merger Agreement, including paying a portion of the Merger Consideration, and paying all fees and expenses of or payable by Parent, Merger Sub or CD&R (the “Required Amounts”). Deutsche Bank AG New York Branch, UBS AG, Stamford Branch, Bank of Montreal and Mizuho Bank Ltd. (the “Original Debt Commitment Parties”) have committed to provide Parent and Merger Sub, severally, but not jointly, with debt financing in connection with the consummation of the Merger, the other transactions contemplated by the Merger Agreement, and related transactions, in the amounts and on the terms and subject to the conditions set forth in the Original Debt Commitment Letter. Subsequent to the entry into the Original Debt Commitment Letter on May 24, 2022, (i) on June 15, 2022, Parent entered into a joinder to add The Toronto-Dominion Bank, New York Branch, Santander Bank, N.A. and ING Capital LLC (the “Joining Debt Commitment Parties”) as additional financing sources under the Original Debt Commitment Letter and (ii) on June 30, 2022, Parent entered into a second lien debt commitment letter with Owl Rock Capital Advisors LLC and Owl Rock Capital Corporation (collectively, the “Second Lien Lender” and, together with the Original Debt Commitment Parties and the Joining Debt Commitment Parties, the “Debt Commitment Parties”) (the “Second Lien Debt Commitment Letter” and, together with the Original Debt Commitment Letter, the “Debt Commitment Letters”), pursuant to which the Second Lien Lender committed to provide Parent and Merger Sub with alternate second lien debt financing in the amounts and on the terms and subject to the conditions set forth therein. The obligations of the Debt Commitment Parties to provide the debt financing under the Debt Commitment Letters are subject to certain customary conditions.

Each of Parent and Merger Sub has agreed to use reasonable best efforts to do, or cause to be done, all things necessary, proper or advisable to obtain the financing on terms (including the “market flex” provisions) and conditions no less favorable to Parent than those described in the Equity Commitment Letters and the Original Debt Commitment Letter, subject to the terms set forth in the Merger Agreement).

The Company has agreed to use reasonable best efforts to provide, and to cause its subsidiaries and its and their respective representatives to use reasonable best efforts to provide, to Parent all cooperation reasonably

 

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requested by Parent that is reasonably necessary and customary for financings of the type contemplated by the Original Debt Commitment Letter in connection with the arrangement and obtainment of the debt financing, subject to the terms set forth in the Merger Agreement.

Limited Guarantees

Subject to the terms and conditions set forth in the Limited Guarantees, CD&R Fund XI, TPG Healthcare and TPG VIII have each guaranteed a portion of, and in the aggregate 100% of, the due and punctual payment by Parent to the Company of (1) a termination fee of $197,950,000 (the “Parent Termination Fee”), if and when payable pursuant to the Merger Agreement, (2) any reasonable, documented and out-of-pocket cost and expenses incurred by the Company in connection with enforcement proceedings to collect the Parent Termination Fee, if and when payable pursuant to the Merger Agreement, (3) obligations of Parent under the Merger Agreement related to the fees, costs and expenses incurred in connection with the filing of the Schedule 13e-3 and this proxy statement and printing and mailing this proxy statement, and (4) obligations of Parent under the Merger Agreement related to the fees, costs and expenses incurred in connection with the filings required under the HSR Act and any other filings required or advisable by any governmental entity (collectively, the “guaranteed obligations”).

Subject to specified exceptions, each of the Limited Guarantees will terminate upon the earliest to occur of (1) the Closing of the Merger (but only if the Merger has been consummated and the required amounts to fund the Merger Consideration and the other required payments under the Merger Agreement have been funded), (2) payment in full by CD&R Fund XI, TPG Healthcare or TPG VIII of their respective guaranteed amounts under each respective guarantee, (3) the valid termination of the Merger Agreement under circumstances in which none of the guaranteed obligations is payable, (4) the six month anniversary after the date of the valid termination of the Merger Agreement under circumstances in which any of the guaranteed obligations is payable unless, prior to such date, the Company has commenced a legal proceeding in writing against CD&R Fund XI, TPG Healthcare or TPG VIII, as applicable, pursuant to the respective Limited Guarantee alleging any of the guaranteed obligations is due and owing, in which case such Limited Guarantee will survive until a final, non-appealable resolution of such action, either by judicial determination or pursuant to an agreement between such guarantor and the Company and satisfaction by such guarantor of any obligations finally determined or agreed to be owed by such guarantor. The Limited Guarantees will also terminate in the event the Company or any of its controlled affiliates in any litigation or other proceeding asserts that certain provisions of the Limited Guarantees are illegal, invalid or unenforceable or make certain other assertions related to expanding the scope of the Limited Guarantees or the persons that could be liable with respect to the Merger Agreement, the Limited Guarantees, the Equity Commitment Letters or any other agreement or instrument delivered in connection with the Transactions as further specified in the Limited Guarantees.

Accounting Treatment

The Merger will be accounted for in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company, as the surviving corporation in the Merger, is considered the acquirer for accounting purposes. The Merger will result in the recognition of net assets acquired based on their estimated fair value.

 

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THE MERGER AGREEMENT

The summary of the material provisions of the Merger Agreement set forth below and elsewhere in this proxy statement is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and which is incorporated by reference in this proxy statement. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. We encourage you to read the Merger Agreement carefully in its entirety.

The Merger Agreement is described in this proxy statement and included as Annex A only to provide you with information regarding its terms and conditions and not to provide any other factual information regarding Covetrus, Parent or Merger Sub or their respective businesses. Such information can be found elsewhere in this proxy statement or, in the case of Covetrus, in the public filings that Covetrus makes with the SEC, which are available without charge through the SEC’s website at www.sec.gov. See the section entitled “Where You Can Find More Information,” beginning on page 144.

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

The Merger

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, Merger Sub will be merged with and into Covetrus and the separate corporate existence of Merger Sub will thereupon cease. Covetrus will be the Surviving Corporation and a wholly owned subsidiary of Parent, and the separate corporate existence of Covetrus with all its rights, privileges, immunities, powers and franchises will continue unaffected by the Merger, except as set forth in the section entitled “The Merger Agreement—Organizational Documents; Directors and Officers” below. The Merger will have the effects specified in the DGCL.

Effective Time of the Merger

Unless the Merger Agreement has been terminated in accordance with its terms, the Closing will take place as soon as reasonably practicable, and in no event later than three (3) business days, following the day on which the last to be satisfied or waived of each of the conditions set forth in the Merger Agreement is satisfied or waived (other than those conditions that, by their terms, are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions); provided, that if the Marketing Period (as described in “The Merger Agreement—Marketing Period”) has not ended at the time of the satisfaction or waiver of the conditions set forth in the Merger Agreement (other than those conditions that by their terms are to be satisfied at the Closing), the Closing will instead occur on the date that is the earlier to occur of (a) any business day during the Marketing Period specified by Parent to the Company on no less than two (2) business days’ notice (unless a shorter period

 

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is agreed to by Parent and the Company) and (b) the third (3rd) business day after the final day of the Marketing Period. The date on which the Closing occurs is referred to as the “Closing Date.”

Concurrently with the Closing, Covetrus and Parent will cause a certificate of merger with respect to the Merger (the “Certificate of Merger”) to be executed, acknowledged and filed with the Secretary of State of the State of Delaware as provided in the DGCL. The Effective Time of the Merger will be on the date and time when the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware or such later date or time as otherwise agreed to by the Covetrus and Parent in writing and set forth in the Certificate of Merger in accordance with the DGCL.

Marketing Period

The “Marketing Period”, a time allotted to Parent and Merger Sub for purposes of marketing the debt financing, will be (A) through and including January 9, 2023, the first period of fifteen (15) consecutive business days after the date of the Merger Agreement throughout and at the end of which (1) Parent will have the Required Information (as described below) at such time and for the three (3) business days thereafter and (2) the conditions to the Merger for the benefit of Parent and Merger Sub have been satisfied or, to the extent permitted by applicable law, waived (other than any such conditions that by their nature are to be satisfied at the Closing) and nothing has occurred and no condition exists that would cause any of such conditions to fail to be satisfied assuming the Closing were to be scheduled for any time during such fifteen (15) consecutive business day period or (B) if the Extension Trigger (as defined in the section entitled, “The Merger Agreement—Termination of the Merger Agreement—Termination Rights Exercisable by Either Party”) has occurred and the Marketing Period has not then fully elapsed pursuant to clause (A), at all times from and after January 10, 2023, the first period of fifteen (15) consecutive business days after the date of the Merger Agreement throughout and at the end of which Parent will have the Required Information at such time and for the three (3) business days thereafter; provided, that, solely in the case of clause (A), (I) if such fifteen (15) consecutive business day period has not ended on or prior to August 19, 2022, then such fifteen (15) consecutive business day period will not commence prior to September 6, 2022, and (II) if such fifteen (15) consecutive business day period has not ended on or prior to December 22, 2022, then such fifteen (15) consecutive business day period will not commence prior to January 3, 2023.

Further, solely to the extent the Marketing Period is determined in accordance with clause (A) of the preceding paragraph, the Marketing Period will not be deemed to have commenced if (x) the Company’s auditor has withdrawn its audit opinion with respect to any of the audited financial statements of the Company that are included in the Required Information, (y) the Company restates, or the Board has determined to restate or the Company’s auditor has determined that it is necessary to restate any historical financial statements of the Company that are included in the Required Information or the Company has determined that a restatement of any such historical financial statements is required or (z) the Required Information, taken as a whole, contains any untrue statement of a material fact or omits to state any material fact, in each case with respect to the Company, necessary in order to make the statements contained in the Required Information, in light of the circumstances under which they were made, not materially misleading. If the Company in good faith reasonably believes that it has delivered the Required Information and that the Marketing Period has commenced, it is entitled to deliver to Parent a written notice to that effect (stating when it believes it completed such delivery and when it believes such period has commenced), in which case, subject to clauses (x) through (z) above, the Marketing Period will be deemed to have commenced on the first business day immediately following such notice unless Parent, in good faith, believes the Marketing Period has not commenced (including as a result of the occurrence of an event described in clauses (x) through (z) above) and within three (3) business days after the delivery of such notice by the Company, delivers a written notice to the Company to that effect (setting forth with reasonable specific detail why Parent believes the Marketing Period has not commenced). Notwithstanding the foregoing, the Marketing Period shall be deemed to be completed if the debt financing has been fully allocated in the primary syndication thereof prior to the Extended Termination Date (as defined in the section entitled, “The Merger Agreement—Termination of the Merger Agreement—Termination Rights Exercisable by Either Party”).

 

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As used in the Merger Agreement, “Required Information” means, at any date of determination, (A) (1) the audited consolidated balance sheets and the related audited consolidated statements of income or operations, stockholders’ equity and cash flows of the Company as of and for the three most recently completed fiscal years of the Company ended at least ninety (90) days prior to the date of determination, in each case accompanied by an audit report thereon, (2) the unaudited consolidated balance sheets and related unaudited consolidated statements of income or operations, stockholders’ equity and cash flows of the Company for any subsequent fiscal quarter (other than in each case the fourth quarter of any fiscal year) ended at least forty-five (45) days prior to the date of determination and the portion of the fiscal year through the end of such quarter and, in each case, for the comparable period of the prior fiscal year, together with all related notes and schedules thereto, in all cases prepared in accordance with GAAP (as determined by the Company in food faith) and (3) in certain specified circumstances, any replacements or restatements of and supplements to the information specified in item clauses (A)(1) or (A)(2) of this paragraph required on account of the fact that the Required Information, taken as a whole, previously contained any untrue statement of a material fact or omitted to state a material fact, in each case, with respect to the Company, necessary in order to make the statements contained in the Required Information, in light of the circumstances under which they were made, not materially misleading; (B) solely to the extent the Marketing Period is determined in accordance with clause (A) of the second preceding paragraph, (1) subject to the limitations set forth in the Merger Agreement, all financial or other information necessary to allow Parent to prepare pro forma financial statements that give effect to the Merger and related transactions as if such transactions had occurred as of such date at or at the beginning of such period (as applicable), but which need not be prepared in compliance with Regulation S-X or include adjustments for purchase accounting, (2) in certain specified circumstances, any replacements or restatements of and supplements to the information specified in item clause (B)(1) of this paragraph required on account of the fact that the Required Information, taken as a whole, previously contained any untrue statement of a material fact or omitted to state a material fact, in each case, with respect to the Company, necessary in order to make the statements contained in the Required Information, in light of the circumstances under which they were made, not materially misleading and (3) all financial or other information regarding the Company and its subsidiaries reasonably requested in connection with the preparation of bank information memoranda, lenders’ presentations and other customary marketing materials relevant to the debt financing, including the confidential information memorandum contemplated by the Original Debt Commitment Letter, in each case under this clause (B)(3), limited in scope to information of the type included in the confidential information memorandum and lenders’ presentation relating to the syndication of the credit facilities under the Existing Credit Agreement; and (C) customary authorization letters with respect to the Company authorizing the distribution of information to prospective lenders and investors (including customary 10b-5 and material non-public information representations).

Organizational Documents; Directors and Officers

At the Effective Time, the certificate of incorporation of the Surviving Corporation will be amended to read as the certificate of incorporation of Merger Sub in effect immediately prior to the Effective Time until thereafter amended, except (a) that references to the name of Merger Sub will be replaced by the name of the Surviving Corporation and (b) for such changes as agreed by the parties and are necessary to comply with the director and officer indemnification and insurance obligations described in “The Merger Agreement—Director and Officer Indemnification and Insurance,” beginning on page 100.

Additionally, at the Effective Time, the bylaws of Merger Sub in effect immediately prior to the Effective Time will become the bylaws of the Surviving Corporation until thereafter amended, except (i) that references to the name of Merger Sub will be replaced by the name of the Surviving Corporation and (ii) for such changes as are agreed by the parties and necessary to comply with the director and officer indemnification and insurance obligations described in “The Merger Agreement—Director and Officer Indemnification and Insurance,” beginning on page 100.

The Merger Agreement provides that, at the Effective Time, (x) the directors of Merger Sub immediately prior to the Effective Time will become the directors of the Surviving Corporation from and after the Effective

 

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Time and (y) the officers of Merger Sub immediately prior to the Effective Time will become the initial officers of the Surviving Corporation from and after the Effective Time.

Merger Consideration Received by Covetrus Stockholders

At the Effective Time, each share of Company common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time (other than shares of Company common stock owned by (i) Parent or Merger Sub or any of their respective subsidiaries (including the shares of Company common stock transferred by CD&R VFC Holdings, directly or indirectly, to Parent immediately prior to the Effective Time), (ii) Covetrus as treasury stock and (iii) Covetrus stockholders who have perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL) will be converted into the right to receive the Merger Consideration.

Excluded Shares

At the Effective Time, each share of Company common stock owned by (i) Parent or Merger Sub or any of their respective subsidiaries (including the shares of Company common stock transferred by CD&R VFC Holdings, directly or indirectly, to Parent immediately prior to the Effective Time) and (ii) Covetrus as treasury stock will be cancelled without payment of any consideration thereof.

Shares of Company Common Stock Held by Dissenting Stockholders

All shares of Company common stock that are issued and outstanding immediately prior to the Effective Time and held by Company stockholders who have perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL will be cancelled without payment of any consideration thereof. Instead, at the Effective Time, the shares of Company common stock held by such Company stockholders will thereafter represent only the right to receive the fair value of such shares of Company common stock in accordance with Section 262 of the DGCL. Any shares held by such Company stockholders who fail to properly perfect or who have effectively withdrawn or lost the right to dissent under Section 262 of the DGCL or who a court of competent jurisdiction has finally determined is not entitled to relief provided by Section 262 of the DGCL with respect to any shares of Company common stock, will no longer be considered shares of Company common stock of a Company stockholder who has perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL and will thereupon be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, net of any applicable withholding taxes and without interest and less any required tax withholding.

Covetrus is required to provide Parent with written notice as promptly as practicable of any written demands for appraisal, attempted withdrawals of such demands and any other instruments served pursuant to applicable law and received by Covetrus relating to stockholders’ right of appraisal. Absent the prior written consent of Parent, Covetrus is prohibited from voluntarily making any payment with respect to any demands for appraisal, from settling or offering to settle any such demands or from approving any withdrawal of any such demands. Parent shall have the right to participate in and direct and control all negotiations and proceedings with respect to any such demands. Any amounts required to be paid to a Covetrus stockholder who has perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL will be paid by the Surviving Corporation.

Merger Sub Common Stock

At the Effective Time, each share of common stock, par value $0.01, of Merger Sub issued and outstanding immediately prior to the Effective Time will be converted into one share of common stock, par value $0.01, of the Surviving Corporation.

 

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Treatment of Outstanding Equity Awards; Company ESPP

The Merger Agreement provides that at the Effective Time each outstanding equity award will be treated as follows:

Treatment of Stock Options

Outstanding Options granted under the Company’s 2019 Omnibus Incentive Compensation Plan, whether vested or unvested, will be treated as follows: (i) if the per share of Company common stock exercise price of such Option is equal to or greater than the Merger Consideration, such Option will terminate and be cancelled as of immediately prior to the Effective Time, without any consideration being payable in respect thereof, and have no further force or effect and (ii) if the per share of Company common stock exercise price of such Option is less than the Merger Consideration, such Option will terminate and be automatically cancelled as of immediately prior to the Effective Time in exchange for the right to receive a lump sum cash payment in the amount equal to the Option Payment. From and after the Effective Time, each Option will no longer be exercisable by the former holder thereof, but will only entitle such holder to the Option Payment, if any. The Option Payment will be made as soon as practicable following the Effective Time (but in any event not later than ten (10) calendar days thereafter), net of any taxes withheld pursuant to the Merger Agreement.

Treatment of Restricted Stock Units

Restricted Stock Units granted under the Company’s 2019 Omnibus Incentive Compensation Plan that are outstanding or payable as of immediately prior to the Effective Time, whether vested or unvested will become fully vested (to the extent unvested or to the extent such Restricted Stock Unit would not otherwise vest) and will terminate and be automatically cancelled as of immediately prior to the Effective Time in exchange for the right to receive the Restricted Stock Unit Payment. From and after the Effective Time, no Restricted Stock Unit will remain outstanding and each former holder of any such Restricted Stock Unit will cease to have any rights with respect thereto, except the right to receive the Restricted Stock Unit Payment. The Restricted Stock Unit Payment will be made as soon as practicable following the Effective Time (but in any event not later than ten (10) calendar days thereafter), net of any taxes withheld pursuant to the Merger Agreement.

Treatment of Performance Restricted Stock Units

Performance Restricted Stock Units granted under the Company’s 2019 Omnibus Incentive Compensation Plan that are outstanding or payable as of immediately prior to the Effective Time, whether vested or unvested, will become fully vested (to the extent unvested or to the extent such Performance Restricted Stock Unit would not otherwise vest) and will terminate and be automatically cancelled as of immediately prior to the Effective Time in exchange for the right to receive the Performance Restricted Stock Unit Payment. From and after the Effective Time, no Performance Restricted Stock Unit will remain outstanding and each former holder of any such Performance Restricted Stock Unit will cease to have any rights with respect thereto, except the right to receive the Performance Restricted Stock Unit Payment. The Performance Restricted Stock Unit Payment will be made as soon as practicable following the Effective Time (but in any event not later than ten (10) calendar days thereafter), net of any taxes withheld pursuant to the Merger Agreement.

Treatment of Company Restricted Stock

At the Effective Time, each share of Company common stock subject to vesting, repurchase or other lapse restriction outstanding immediately prior to the Effective Time will fully vest and be cancelled and converted automatically into the right to receive Merger Consideration and be treated in the same manner as all other shares of Company common stock for such purposes.

Treatment of the Employee Stock Purchase Plan

The Company has agreed to take all actions necessary to terminate the ESPP and all outstanding rights thereunder as of the day immediately prior to the Effective Time, contingent upon the occurrence of the Closing.

 

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The Final Offering Period will terminate no later than the day immediately prior to the Effective Time, and the Company has agreed to cause the exercise date applicable to the Final Offering Period to accelerate and occur on the termination date of the ESPP with respect to any then-outstanding purchase rights. All amounts allocated to each participant’s account under the ESPP at the end of the Final Offering Period will thereupon be used to purchase whole shares of Company common stock under the terms of the ESPP for such offering period, which shares of Company common stock will be cancelled at the Effective Time in exchange for the right to receive the Merger Consideration in the same manner as all other shares of Company common stock. Following the purchase of the shares of Company common stock, the Company will return to each participant the funds, if any, that remain in such participant’s account after such purchase. The Company has agreed to take such steps as may be necessary such that, between the date of the signing of the Merger Agreement and the Closing, (i) no new participants may commence participation in the ESPP, (ii) no current participant in the ESPP may increase his or her rate of contribution under the ESPP and (iii) no new offering period will commence after the date the Merger Agreement was signed.

Conversion of Shares; Exchange of Certificates

Exchange Procedures

At or prior to the Effective Time, Parent will deposit, or cause to be deposited, with a paying agent selected by Parent with Covetrus’ prior written approval (which will not be unreasonably withheld, conditioned or delayed) (the “Paying Agent”), for the benefit of the holders of shares of Company common stock, an aggregate amount of cash comprising the aggregate Merger Consideration to which holders of Company common stock will become entitled in connection with the Merger. No later than three (3) business days prior to the Closing Date, Parent is required to enter into an agreement with the Paying Agent, in form and substance reasonably satisfactory to the Company (which confirmation of satisfaction will not be unreasonably withheld, conditioned or delayed), to effect the applicable terms of the Merger Agreement.

Promptly after the Effective Time (and in any event within two (2) business days after the Effective Time), Parent will cause the Paying Agent to mail to each holder of record of certificates representing any of the shares of Company common stock outstanding immediately prior to the Effective Time (other than shares of Company common stock owned by (i) Parent or Merger Sub or any of their respective subsidiaries (including the shares of Company common stock transferred by CD&R VFC Holdings, directly or indirectly, to Parent immediately prior to the Effective Time), (ii) Covetrus as treasury stock and (iii) Covetrus stockholders who have perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL): (i) a letter of transmittal in customary form advising such holder of the effectiveness of the Merger and the conversion of its shares of Company common stock into the right to receive the Merger Consideration, and specifying that delivery will be effected, and risk of loss and title to the certificates will pass, only upon delivery of the certificates (or affidavits of loss in lieu of the certificates) and (ii) instructions for use in effecting the surrender of the certificates (or affidavits of loss in lieu of the certificates). Upon the surrender of a certificate (or affidavit of loss in lieu of the certificate) to the Paying Agent in accordance with the terms of such transmittal materials, the holder of such certificate will be entitled to receive in exchange for such certificate an amount in immediately available funds (or, if no wire transfer instructions are provided, a check, and in each case, after giving effect to any required tax withholding) equal to the cash amount that such holder is entitled to receive as the Merger Consideration, and the certificate so surrendered will be cancelled. No interest will be paid or accrued on any amount payable to holders of certificates. In the event of a transfer of ownership of shares of Company common stock represented by a certificate that is not registered in the transfer records of Covetrus, a check for any cash to be paid upon due surrender of the certificate may be issued and/or paid to such a transferee if the certificate representing such shares of Company common stock is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable, in each case, reasonably acceptable to Parent.

You should not send in your certificate(s) with your proxy card. A letter of transmittal with instructions for the surrender of certificates will be mailed to Company stockholders if the Merger is completed.

 

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Lost, Stolen and Destroyed Certificates

In the event that any certificate is lost, stolen or destroyed, upon the making of an affidavit (in form and substance satisfactory to the Surviving Corporation) of that fact by the person claiming such certificate to be lost, stolen or destroyed to the Paying Agent or the Surviving Corporation, the posting by such person of a bond in customary amount and upon such terms as may be required by Parent as an indemnity against any claim that may be made against it, Paying Agent or the Surviving Corporation, the Paying Agent will issue in exchange for such lost, stolen or destroyed certificate the cash that would have been issuable or payable (after giving effect to any required tax withholdings) had such lost, stolen or destroyed Certificate been surrendered.

Uncertificated Shares

Promptly after the Effective Time (and in any event within two (2) business days after the Effective Time), Parent will cause the Paying Agent to (i) mail to each registered holder of uncertificated shares of Company common stock (other than shares of Company common stock owned by (i) Parent or Merger Sub or any of their respective subsidiaries (including the shares of Company common stock transferred by CD&R VFC Holdings, directly or indirectly, to Parent immediately prior to the Effective Time), (ii) Covetrus as treasury stock and (iii) Covetrus stockholders who have perfected and not withdrawn a demand for appraisal rights in accordance with Section 262 of the DGCL) materials advising such holder of the effectiveness of the Merger and the conversion of its shares of Company common stock into the right to receive the Merger Consideration and (ii) deliver the cash that such holder is entitled to receive in respect of its shares of Company common stock (after giving effect to any required tax withholdings), without interest thereon.

Representations and Warranties

Covetrus, on the one hand, and Parent and Merger Sub, on the other hand, have each made representations and warranties to each other in the Merger Agreement.

The representations and warranties referenced below and included in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates, were solely for the benefit of the parties to the Merger Agreement, may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, and may be subject to limitations agreed upon by the parties, including being qualified by disclosures filed with or furnished to the SEC and confidential disclosures made by the parties to each other, including in the disclosure letter delivered by Covetrus in connection with the Merger Agreement (the “Company Disclosure Letter”). The representations and warranties contained in the Merger Agreement should not be relied upon as characterizations of the actual state of facts or condition of Covetrus, Parent, Merger Sub, or any of their respective subsidiaries, affiliates or businesses. The representations and warranties of each of the parties to the Merger Agreement will expire at the Effective Time.

Representations and Warranties of Covetrus

Covetrus has made customary representations and warranties to Parent and Merger Sub in the Merger Agreement regarding aspects of Covetrus’ business and various other matters pertinent to the Merger. The topics covered by its representations and warranties include the following:

 

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due organization, good standing and qualification to do business of Covetrus and its subsidiaries;

 

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the capital structure of, and the absence of restrictions with respect to the equity interests of, Covetrus and its subsidiaries;

 

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Covetrus’ authority to enter into, and, subject to the Company stockholder’s adoption of the Merger Agreement, consummate the Transactions;

 

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the recommendation of the Transaction Committee and the Board’s approval of the Merger Agreement;

 

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the governmental and regulatory approvals required to complete the Merger, and the absence of conflicts with, or violations of, laws, organizational documents or contracts to which Covetrus or any of its subsidiaries is a party, in each case as a result of Covetrus’ execution or delivery of the Merger Agreement or the performance by Covetrus of its covenants under the Merger Agreement, or the consummation by Covetrus of the Transactions;

 

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Covetrus’ SEC filings since December 31, 2019 and the financial statements contained in those filings;

 

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the absence of certain changes or events since January 1, 2022 and that since January 1, 2022 and through the date of the Merger Agreement, other than with respect to the negotiation and execution of the Merger Agreement and the consummation of the transactions contemplated thereby, the Company and its subsidiaries conducted their respective businesses in the ordinary course of such businesses in all material respects;

 

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the absence of pending or to the Company’s knowledge threatened litigation or outstanding judgments;

 

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the absence of any undisclosed liabilities;

 

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employee benefits matters;

 

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labor matters;

 

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compliance with laws and possession of licenses;

 

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certain material contracts;

 

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takeover laws;

 

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environmental matters;

 

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tax matters;

 

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intellectual property, information technology and data security matters;

 

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insurance policies and coverage;

 

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the opinion from Covetrus’ financial advisor;

 

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the absence of broker’s and finder’s fees in connection with the Transactions;

 

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the absence of affiliate transactions since January 1, 2022;

 

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health care and Federal Drug Administration regulatory matters; and

 

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real property matters.

Material Adverse Effect

Some of the Company’s representations and warranties are qualified by the concept of a “material adverse effect.” Under the terms of the Merger Agreement, a “Company Material Adverse Effect” on Covetrus means any fact, change, event, development, circumstance or effect that, individually or taken together with any other fact, change, event development, circumstance or effect, has or would reasonably be expected to have a material adverse effect on the business, assets, condition (financial or otherwise), properties, liabilities, operations or results of operations of the Company and its subsidiaries, taken as a whole; provided, that none of the following will be deemed, either alone or in combination, to constitute, and there will not be taken into account in determining whether there has been a Company Material Adverse Effect any adverse fact, change, event, development, circumstance or effect to the extent arising from or attributable or relating to:

 

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changes in the U.S. or global financial, securities or capital markets generally;

 

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general economic or political conditions in the United States or any foreign jurisdiction in which the Company or any of its subsidiaries operate, including any changes in currency exchange rates, interest rates, monetary policy or inflation;

 

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changes generally affecting, the industries in which the Company or any of its subsidiaries operate;

 

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any natural or man-made disaster or acts of God, including earthquakes, floods, hurricanes, tornados, volcanic eruptions, epidemics, pandemics or disease outbreak (including COVID-19) or certain COVID-19 measures or any change in such COVID-19 measures or interpretations thereof following the date of the Merger Agreement or any acts of terrorism, sabotage, riots, demonstrations, public disorders, military action or war or any escalation or worsening thereof;

 

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any failure by the Company or any of its subsidiaries to meet any internal or published budgets, projections, estimates, forecasts or predictions in respect of financial or operating performance for any period;

 

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a decline in the price of the shares of Company common stock, or a change in the trading volume of the shares of Company common stock, on NASDAQ, provided that the exceptions in this bullet and the one above will not prevent or otherwise affect a determination that any change, effect, circumstance or development underlying such failure or decline or change (if not otherwise falling within any of the exclusions in the other bullets of this section) has resulted in, or contributed to, a Company Material Adverse Effect;

 

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changes in law;

 

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changes in GAAP (or authoritative interpretation thereof);

 

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the taking of any specific action expressly required by the Merger Agreement or taken with Parent’s written consent or the failure to take any specific action expressly prohibited by the Merger Agreement and as for which Parent declined to consent;

 

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the announcement or pendency of the Merger Agreement and the Merger, including the impact specifically and particularly thereof on the relationships with customers, suppliers, distributors, partners, other third parties with whom the Company has a relationship or employees (including, but not limited to, any cancellation of or delays in customer orders, any reduction in sales, any disruption in or loss of customer, supplier, distributor, partner or similar relationships, or any loss of employees);

 

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any litigation brought by stockholders of the Company alleging breach of fiduciary duty or inadequate disclosure in connection with the Merger Agreement or any of the Transactions (it being understood that this exception will apply to the effects arising out of or relating to the bringing of such litigation and not those arising out of or resulting from an actual breach (or other claim) that is the subject thereof);

 

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the departure or threatened departure of, or adverse change or threatened adverse change in, the relationship of the Company or any of its subsidiaries with its employees;

 

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any matters disclosed in the Company Disclosure Letter; or

 

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the continuation or worsening of supply chain disruptions affecting the industry in which the Company and its subsidiaries conduct business.

However, notwithstanding the foregoing, the facts, changes, effects, circumstances or developments set forth in bullets one, two, three, four, seven, eight, and fourteen will be taken into account in determining whether a “Company Material Adverse Effect” has occurred to the extent such facts, changes, effects, circumstances or developments have a disproportionate adverse effect on the Company and its subsidiaries, taken as a whole, relative to other participants in the industries in which the Company and its subsidiaries operate, but, in such event, only the incremental disproportionate impact of such changes, effects, circumstances or developments will be taken into account in determining whether a “Company Material Adverse Effect” has occurred.

 

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Representations and Warranties of Parent and Merger Sub

Parent and Merger Sub made customary representations and warranties to Covetrus in the Merger Agreement, including representations and warranties relating to the following:

 

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the organization, good standing and qualification to do business of Parent and Merger Sub;

 

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Parent’s ownership of Merger Sub’s capital stock and Merger Sub’s lack of operating activities and assets and liabilities other than those incident to its formation and pursuant to the Merger Agreement and the Transactions, including the Merger;

 

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each of Parent’s and Merger Sub’s authority to enter into, and consummate the Transactions;

 

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the governmental and regulatory approvals required to complete the Merger, and the absence of conflicts with, or violations of, laws, organizational documents or contracts to which Parent or Merger Sub is a party, in each case as a result of Parent’s and Merger Sub’s execution or delivery of the Merger Agreement or the performance by Parent and Merger Sub of their respective covenants under the Merger Agreement, or the consummation by Parent and Merger Sub of the Transactions;

 

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the absence of pending or threatened litigation or outstanding judgments;

 

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the absence of broker’s and finder’s fees in connection with the Transactions;

 

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the financial ability of Parent to consummate the Merger and the commitment letters from equity and debt sources; and

 

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the solvency of the Surviving Corporation immediately after giving effect to the Transactions.

Covenants Regarding Conduct of Business by Covetrus Prior to Merger

Under the Merger Agreement, Covetrus agreed as to itself and its subsidiaries that, from and after the execution of the Merger Agreement and prior to the Effective Time, except (i) as required by applicable law, (ii) as Parent otherwise approves in writing (such approval not to be unreasonably withheld, conditioned or delayed), (iii) for commercially reasonable actions as required to comply with COVID-19 measures, (iv) as expressly set forth in the Company Disclosure Letter, or (v) expressly provided for in the Merger Agreement, Covetrus will use its commercially reasonable efforts to conduct its business and the business of its subsidiaries in the ordinary course of business consistent with past practice, and, in addition, Covetrus will not and will not permit any of its subsidiaries to:

 

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(i) amend, supplement or otherwise modify its certificate of incorporation or bylaws (or comparable governing documents), other than amendments to the governing documents of any wholly owned subsidiary of the Company that would not prevent, materially delay or materially impair the Merger or the other Transactions, (ii) split, combine, subdivide or reclassify its outstanding equity interests (except for any such transaction by a wholly owned subsidiary of the Company which remains a wholly owned subsidiary after consummation of such transaction), (iii) declare, set aside or pay any dividend or distribution payable in cash, stock or property (or any combination thereof) in respect of any of its equity interests (except for any dividends or distributions paid by a direct or indirect wholly owned subsidiary of the Company to another direct or indirect wholly owned subsidiary of the Company or to the Company) or (iv) purchase, repurchase, redeem or otherwise acquire any of its equity interests or any securities convertible or exchangeable into or exercisable for any of its equity interests (other than (A) pursuant to the exercise of Options or the forfeiture of, or withholding of taxes with respect to, Options, Restricted Stock Units or Performance Restricted Stock Units or (B) purchases, repurchases, redemptions or other acquisitions of securities of any wholly owned subsidiary of the Company by the Company or any other wholly owned subsidiary of the Company);

 

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merge or consolidate with any other person, or restructure, reorganize or completely or partially liquidate (other than mergers among, or the restructuring, reorganization or liquidation of any wholly owned subsidiaries of the Company that would not prevent, materially delay or materially impair the Merger or the other Transactions), or create any subsidiary of the Company or any of its subsidiaries;

 

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(i) increase in any material respect the compensation or benefits payable to any current or former director, officer, employee, consultant or other service provider with an annual salary in excess of $250,000, other than increases in base salary for promotions or as a result of salary reviews made in the ordinary course of business and consistent with past practices, (ii) grant any extraordinary bonus or any equity compensation to any current or former director, officer, employee, consultant or other service provider, (iii) establish, adopt or enter into, other than in the ordinary course of business in accordance with past practice, any new bonus, pension, other retirement, deferred compensation, equity compensation, change in control, retention or other benefit agreement, plan or arrangement or other employee benefit plan (including any employment agreement) for the benefit of any current or former director, officer, employee, consultant or other individual service provider or (iv) make any change to any employee benefit plan (including any employment agreement) that would materially increase the costs to the Company in respect of such employee benefit plan (including any employment agreement);

 

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incur any indebtedness, guarantee, endorse, assume or otherwise become liable or responsible (directly or indirectly) any indebtedness of another person or issue any rights to acquire any indebtedness, except (i) in the ordinary course of business, borrowings under the Company’s revolving credit facility as in effect as of the date of the Merger Agreement, including pursuant to the Company’s existing credit agreement, (ii) in replacement of existing indebtedness which has matured or is scheduled to mature, in each case after the date of the Merger Agreement, on then prevailing market terms or on terms substantially consistent with or more beneficial to the Company and its subsidiaries, taken as a whole, than the indebtedness being replaced, (iii) inter-company indebtedness among the Company and its wholly owned subsidiaries, (iv) (A) to the extent not drawn upon and payments are not triggered thereby, letters of credit, bank guarantees, security or performance bonds or similar credit support instruments and (B) overdraft facilities or cash management programs, in each case issued, made or entered into in the ordinary course of business consistent with past practice or (v) hedging in compliance with the hedging strategy of the Company as of the date of the Merger Agreement in the ordinary course of business consistent with past practice and not for speculative purposes;

 

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make or commit to any capital expenditures other than in the ordinary course of business consistent with past practice and which do not exceed, in the aggregate, for the period between the date of the Merger Agreement and the Effective Date, 110% of the capital expenditures provided for in the 2022 budget provided to Parent prior to the execution of the Merger Agreement;

 

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other than sales of inventory in the ordinary course of business consistent with past practice, transfer, lease, license, sell, assign, mortgage, pledge, encumber, place a lien upon or otherwise dispose of any properties, rights or assets (including equity interests of any of its subsidiaries), with a fair market value in excess of $5,000,000 individually or $20,000,000 in the aggregate (other than transactions among the Company and its wholly owned subsidiaries);

 

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issue, deliver, sell, grant, transfer, assign, pledge or encumber, agree or commit to or authorize the issuance, delivery, sale, grant, transfer, assignment, pledge or encumbrance of, any shares of its capital stock or any other equity interest in the Company or any Company subsidiary or any securities convertible or exchangeable into or exercisable for, or any options, warrants or other rights to acquire, any such shares or equity interest, except (i) for any shares of Company common stock issued pursuant to Options, Restricted Stock Units and Performance Restricted Stock Units outstanding on the date of the Merger Agreement in accordance with the existing terms of such awards and the Company stock plans as of the date of the Merger Agreement and (ii) by wholly owned subsidiaries to the Company or to any other wholly owned subsidiary of the Company;

 

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other than in the ordinary course of business, spend or commit to spend in excess of $5,000,000 individually or $20,000,000 in the aggregate to acquire any business or to acquire assets or other property, whether by merger, consolidation, purchase of property or assets or otherwise (valuing any non-cash consideration at fair market value as of the date of the agreement for such acquisition);

 

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make any material change with respect to its financial accounting policies or procedures, except as required by changes in GAAP (or any authoritative interpretation thereof) or by applicable law;

 

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abandon any material existing lines of business or enter into any material new line of business other than any line of business that is reasonably ancillary to and a reasonably foreseeable extension of any line of business as of the date of the Merger Agreement;

 

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other than in the ordinary course of business consistent with past practice, make any loans, advances or capital contributions to, or investments in, any person (other than loans, advances or capital contributions to the Company or any direct or indirect wholly owned subsidiary of the Company);

 

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(i) amend or modify in any material respect or terminate (excluding terminations upon expiration of the term thereof in accordance with the terms thereof) certain material contracts or waive, release or assign any material rights, claims or benefits under certain material contracts or (ii) enter into certain material contracts unless it is on terms substantially consistent with, or on terms more favorable to the Company or its subsidiaries (and to Parent and its subsidiaries following the Closing) than, either a contract it is replacing or a form of such material contract made available to Parent prior to the of the Merger Agreement; provided that the foregoing will not prohibit or restrict the ability of the Company or its subsidiaries to take any action described in this bullet in the ordinary course of business consistent with past practices with respect to contracts or material contracts; provided, further that for the avoidance of doubt, this bullet will not prohibit or restrict any employee benefit plan (including any employment agreement);

 

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(A) settle any action, suit, case, litigation, claim, hearing, arbitration, investigation or other proceedings before or threatened to be brought before a governmental entity, other than settlements if the amount of any such settlement is not in excess of $1,000,000 individually or $5,000,000 in the aggregate, in each case in excess of amounts available under the Company’s applicable insurance policy, provided that such settlements do not involve any admission of guilt (through a plea or otherwise), non-de minimis injunctive or equitable relief or impose non-de minimis restrictions on the business activities of the Company and its subsidiaries or Parent and its subsidiaries, or (B) waive, release, grant or transfer any material claim or right of material value or knowingly consent to the termination of any material claim or right of material value;

 

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other than in the ordinary course of business consistent with past practice, make or change any material tax election, make any material change to any annual tax accounting period, adopt or change any material method of tax accounting, amend any material tax returns or file any claims for material tax refunds, enter into any material closing agreement, settle any material tax claim, audit or assessment or surrender any right to claim a material tax refund, offset or other reduction in tax liability;

 

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enter into any material affiliate transaction; or

 

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agree, resolve or commit to do any of the foregoing.

Restriction on Solicitation of Competing Proposals

No Solicitation or Negotiation

Subject to certain exceptions described below, Covetrus has agreed that it will not, and will use reasonable best efforts to cause its and its subsidiaries’ and its and their respective directors, officers, employees and other representatives not to, directly or indirectly:

 

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solicit, initiate, knowingly encourage or knowingly facilitate any inquiries or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, (i) any proposal, offer, inquiry or indication of interest from any person or group relating to a merger, consolidation, dissolution, liquidation, tender offer (including a self-tender offer), recapitalization, reorganization, share exchange, share purchase, asset purchase, business combination, joint venture, partnership,

 

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dissolution, liquidation, spin-off, extraordinary dividend or similar transaction (or series of transactions) involving the Company or any of its subsidiaries which is structured to permit such person or group to, directly or indirectly, acquire beneficial ownership of twenty-five percent (25%) or more of the outstanding shares of Company common stock, or twenty-five percent (25%) or more of the consolidated net revenues, net income or total assets of the Company or (ii) any acquisition by any person or group resulting in, or proposal, offer, inquiry or indication of interest, which if consummated would result in, any person or group becoming the beneficial owner of, directly or indirectly, in one or a series of related transactions, twenty-five percent (25%) or more of the outstanding shares of Company common stock, or twenty-five percent (25%) or more of the consolidated net revenues, net income or total assets of the Company, in each case, other than the Transactions (each of (i) and (ii), an “Acquisition Proposal”);

 

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participate in any discussions or negotiations with any person regarding, or relating to, any Acquisition Proposal or any inquiry, proposal or offer that would reasonably be expected to lead to any Acquisition Proposal; or

 

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provide any non-public information concerning the Company or any of its subsidiaries to any person, or afford access to the business, assets, properties, books or records, other information or employees or other representatives of the Company or any of its subsidiaries in connection with, with the intent to induce, or that could reasonably be expected to lead to, any Acquisition Proposal.

The Company has agreed that it will, and will cause its subsidiaries and direct its representatives to, immediately (i) cease and cause to be terminated any discussions and negotiations with any person (other than Parent, Merger Sub and their representatives) conducted prior and up to the date of the Merger Agreement with respect to any Acquisition Proposal, or proposal that could reasonably be expected to lead to an Acquisition Proposal and cease providing any information to any such person or its representatives, (ii) with respect to any person with whom such discussions or negotiations have been terminated, promptly following the date of the Merger Agreement (and in any event within two (2) business days of the date of the Merger Agreement) request that such person and its representatives return or destroy, in accordance with the terms of the applicable confidentiality agreement, any information furnished by or on behalf of the Company and take all necessary action to secure its rights and ensure the performance of any such person’s obligations under any applicable confidentiality agreement, (3) promptly terminate all access granted to any person and its representatives to any physical or electronic data rooms relating (or other diligence access) and (4) not terminate, waive, amend or modify any provision of any existing confidentiality or standstill agreement with respect to a potential Acquisition Proposal; provided that the foregoing will not restrict the Company from informing any person that makes an Acquisition Proposal of the restrictions imposed by the Merger Agreement.

Fiduciary Exception to No Solicitation Provision

Notwithstanding anything to the contrary in the non-solicitation provisions of the Merger Agreement described above, prior to the time, but not after, the adoption of the Merger Agreement by the Company’s stockholders, the Company may, in response to an unsolicited, bona fide written Acquisition Proposal received after the date of the Merger Agreement that did not result from the Company’s breach of the non-solicitation provisions of the Merger Agreement described above, (i) provide access to non-public information regarding the Company or any of its subsidiaries to the person who made such Acquisition Proposal; provided that such information has previously been made available to Parent or is provided to Parent promptly (and in any event within twenty-four (24) hours) following the time such information is made available to such person and that, prior to furnishing any such non-public information, the Company receives from the person making such Acquisition Proposal an executed confidentiality agreement with terms at least as restrictive in all material respects on such person as the confidentiality agreement’s terms are (it being understood that such confidentiality agreement need not prohibit the making or amending of an Acquisition Proposal) and (ii) engage or participate in any discussions or negotiations with any such person regarding such Acquisition Proposal if, and only if, prior to taking any action described in clause (i) or (ii) above, (1) the Board (acting on the recommendation of the

 

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Transaction Committee) determines in good faith after consultation with outside legal counsel that (A) based on the information then available and after consultation with an independent financial advisor of nationally recognized reputation that such Acquisition Proposal either constitutes a Superior Proposal (as defined below) or would reasonably be expected to lead to a Superior Proposal and (B) the failure to take such action would reasonably be expected to be inconsistent with the Company directors’ fiduciary duties under applicable law and (2) with respect to clause (ii) above, the Company provides written notice to Parent at least twenty-four (24) hours prior to engaging or participating in any discussions or negotiations with any such person regarding such Acquisition Proposal.

The Merger Agreement provides that the Company will promptly (and, in any event, within twenty-four (24) hours) notify Parent if (i) any written or other bona fide inquiries, proposals or offers with respect to an Acquisition Proposal or that could be reasonably expected to lead to an Acquisition Proposal are received by the Company, (ii) any non-public information is requested in connection with any bona fide inquiries, proposals or offers with respect to an Acquisition Proposal or that could be reasonably expected to lead to an Acquisition Proposal or (iii) discussions or negotiations with any Person with respect to an Acquisition Proposal or that could be reasonably expected to lead to an Acquisition Proposal are sought to be initiated or continued with the Company, indicating, in connection with such notice, the name of such person and the material terms and conditions of any proposals or offers (including providing copies of any written materials delivered by such Person) and thereafter will keep Parent reasonably informed, on a current basis, of the status and terms of any such proposals or offers (including any material amendments thereto) and the status of any such discussions or negotiations (including delivery to Parent within twenty-four (24) hours of copies of all communications delivered by or on behalf of such person in connection with such proposal or offer).

“Superior Proposal” means any bona fide Acquisition Proposal made by a third party (and not made as a result of a breach by the Company in any material respect of non-solicitation provisions of the Merger Agreement) after the date of the Merger Agreement, which the Board (acting on the recommendation of the Transaction Committee) determines in good faith (after consultation with its outside legal counsel and financial advisors) to be (i) more favorable to the holders of shares of Company common stock from a financial point of view than the Merger (taking into account all of the terms and conditions (including any financing condition or the reliability of any debt or equity funding commitments (including whether fully committed)) of, the identity of the third party making, and the likelihood of completion of, such Acquisition Proposal and the Merger Agreement (including, if applicable at the time of such determination, any changes to the financial terms of the Merger Agreement then proposed by Parent in response to such offer or otherwise)), and (ii) reasonably likely to be capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal; provided that, for purposes of this definition of “Superior Proposal” only, references to fifteen percent (15%) in the definition of Acquisition Proposal will be deemed to be references to seventy-five percent (75%).

No Change in Recommendation or Alternative Acquisition Agreement

The Merger Agreement provides that, except as described below, neither the Board nor any committee thereof will (i) withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Parent, the recommendation of the Board to the Company’s stockholders to adopt the Merger Agreement or approve, recommend or otherwise declare advisable any Acquisition Proposal, (ii) fail to include the recommendation of the Board to the Company’s stockholders to adopt the Merger Agreement in this proxy statement, (iii) after receipt of any Acquisition Proposal, fail to recommend against such Acquisition Proposal and, after receipt of such Acquisition Proposal, reaffirm the recommendation of the Board to the Company’s stockholders to adopt the Merger Agreement within ten (10) days of receipt of a written request from Parent to do so (and if the Company stockholders meeting for adopting the Merger Agreement is scheduled to be held within ten (10) days, then within two (2) business days of such request), (iv) fail to recommend against any Acquisition Proposal that is a tender or exchange offer by a third party pursuant to Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act, (v) approve or recommend, or publicly propose to enter into an Alternative Acquisition Agreement (as defined below) (each of

 

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the foregoing clauses (i)-(v), a “Change in Recommendation”) or (vi) cause or permit the Company or any of its subsidiaries to enter into any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, option agreement or other agreement (other than a confidentiality agreement entered into in compliance with the non-solicitation provisions of the Merger Agreement) (an “Alternative Acquisition Agreement”) relating to any Acquisition Proposal.

Superior Proposal Exception to Change in Recommendation Provision or Entry into an Alternative Acquisition Agreement

Following receipt of a written Acquisition Proposal by the Company after the date of the Merger Agreement that did not result from a breach by the Company in any material respect of the non-solicitation provisions of the Merger Agreement and that the Board (acting on the recommendation of the Transaction Committee) determines in good faith, after consultation with its outside legal counsel and financial advisors, constitutes a Superior Proposal, the Board (acting on the recommendation of the Transaction Committee) may, at any time prior to the adoption of the Merger Agreement by the Company’s stockholders, make a Change in Recommendation or terminate the Merger Agreement in accordance with its termination provisions in order to enter into the Alternative Acquisition Agreement with respect to such Superior Proposal, or authorize, resolve, agree or propose publicly to take any such action, if all of the following conditions are met:

 

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the Company has (A) provided to Parent four (4) business days’ prior written notice, which will state expressly (1) that it has received a written Acquisition Proposal that constitutes a Superior Proposal, (2) the material terms and conditions of the Acquisition Proposal (including the consideration offered therein and the identity of the person or group making the Acquisition Proposal) and will have contemporaneously provided an unredacted copy of the Alternative Acquisition Agreement and all other documents (other than immaterial documents) related to the Superior Proposal (it being understood and agreed that any amendment to the financial terms or any other material term or condition of such Superior Proposal will require a new notice and an additional two (2) business day period) and (3) that, subject to the next bullet, the Board (acting on the recommendation of the Transaction Committee) has determined to make a Change in Recommendation or to terminate the Merger Agreement in order to enter into the Alternative Acquisition Agreement, as applicable and (B) prior to making such a Change in Recommendation or terminating the Merger Agreement, as applicable, used commercially reasonable efforts to engage in good faith with Parent (to the extent Parent wishes to engage) during such notice period, to consider any adjustments proposed in writing by Parent to the terms and conditions of the Merger Agreement such that the Alternative Acquisition Agreement ceases to constitute a Superior Proposal; and

 

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the Board (acting on the recommendation of the Transaction Committee) has determined, in good faith, after consultation with its financial advisors and outside legal counsel, that, in light of such Superior Proposal and taking into account any revised terms proposed in writing by Parent, such Superior Proposal continues to constitute a Superior Proposal and that the failure to make such Change in Recommendation or to so terminate the Merger Agreement, as applicable, would reasonably be expected to be inconsistent with the directors’ fiduciary duties under applicable law.

Intervening Event Exception to Change in Recommendation Provision

Notwithstanding anything to the contrary set forth in the provision restricting Changes in Recommendation or the Company entering into Alternative Acquisition Agreements in the Merger Agreement, upon the occurrence of any Intervening Event (as defined below), the Board may, at any time prior to the adoption of the Merger Agreement by the Company’s stockholders, make a Change in Recommendation, if all of the following conditions are met:

 

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the Company has (A) provided to Parent four (4) business days’ prior written notice, which will (1) set forth in reasonable detail information describing the Intervening Event and the rationale for the Change

 

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in Recommendation and (2) state expressly that, subject to the next bullet, the Board (acting on the recommendation of the Transaction Committee) has determined to make a Change in Recommendation and (B) prior to making such a Change in Recommendation, used reasonable best efforts to engage in good faith with Parent (to the extent Parent wishes to engage) during such four (4) business day notice period to consider any adjustments proposed in writing by Parent to the terms and conditions of the Merger Agreement such that the failure of the Board to make a Change in Recommendation in response to the Intervening Event in accordance with the next bullet would no longer reasonably be expected to be inconsistent with the directors’ fiduciary duties under applicable law; and

 

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the Board (acting on the recommendation of the Transaction Committee) will have determined in good faith, after consultation with its outside legal counsel, that in light of such Intervening Event and taking into account any revised terms proposed in writing by Parent, the failure to make a Change in Recommendation would be inconsistent with the directors’ fiduciary duties under applicable law.

“Intervening Event” means a material effect that was not known to, or reasonably foreseeable by, the Board prior to the execution of the Merger Agreement (or if known or reasonably foreseeable, the material consequences of which were not known or reasonably foreseeable), which effect, or any material consequence thereof, becomes known to, or reasonably foreseeable by, the Board prior to the adoption of the Merger Agreement by the Company’s stockholders; provided, that “Intervening Event” will exclude any event, circumstance, change or development (A) related to any Acquisition Proposal or other inquiry, offer or proposal that would reasonably be expected to lead to an Acquisition Proposal or any matter related thereto or to the consequences thereof, (B) related to changes in the price or trading volume of the shares of Company common stock, in and of itself (however, the underlying facts or occurrences giving rise or contributing to such change or event may be taken into account when determining whether an Intervening Event has occurred unless excluded by any other exclusion in this definition), or (C) related to the fact that, in and of itself, the Company exceeds (or fails to meet) any internal or published projections, estimates or expectations of the Company’s revenue, earnings or other financial performance or results of operations for any period, in and of itself (provided, that the underlying facts or occurrences giving rise or contributing to such for the Company exceeding such projections, estimates or expectations may be taken into account when determining whether an Intervening Event has occurred unless excluded by any other exclusion in this definition).

Obligations with Respect to this Proxy Statement, Schedule 13e-3 and the Special Meeting

As promptly as possible, and in any event within thirty (30) days of the date of the Merger Agreement, Covetrus was required to prepare and file this proxy statement in preliminary form. The Company and Parent were also each required to use their reasonable best efforts to promptly provide responses to the SEC with respect to any comments received on the proxy statement by the SEC. The Company was required to cause the definitive proxy statement to be mailed as promptly as possible after the date the staff of the SEC advises that it has no further comments thereon or that the Company may commence mailing the proxy statement.

The Company and the CD&R Entities has, concurrently with preparation and filing of this proxy statement, jointly prepared and filed with the SEC a Rule 13e-3 Transaction Statement on Schedule 13e-3 relating to the Transactions.

Covetrus is required, in coordination with the CD&R Entities, as promptly as reasonably practicable in accordance with applicable law and the Company’s certificate of incorporation and bylaws to establish a record date for, duly call and give notice of, and use its reasonable best efforts to convene a meeting of the holders of Company common stock to consider and vote upon the adoption of the Merger Agreement.

Efforts to Complete the Merger

Covetrus and Parent will, subject to the exceptions to the non-solicitation provisions of the Merger Agreement described above, cooperate with each other and use, and will cause their respective subsidiaries and

 

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controlled affiliates to use, their respective reasonable best efforts to take (or cause to be taken) all actions, and do (or cause to be done) all things necessary, proper or advisable under the Merger Agreement and applicable laws to consummate and make effective the Merger and the other Transactions as expeditiously as possible, and in no event later than November 24, 2022 (the “Termination Date”) including (i) preparing and filing all documentation to effect all necessary notices, reports and other filings (and in any event, by filing within ten (10) business days after the date of the Merger Agreement the notifications, filings and other information required to be filed under the HSR Act, and as promptly as practicable in the case of all other filings required under any other antitrust laws or laws relating to foreign investment with respect to the Transactions) and to obtain as expeditiously as possible all consents, registrations, approvals, permits, expirations of waiting periods and authorizations necessary or advisable to be obtained from any third party or any governmental entity in order to consummate the Merger or any of the other Transactions, (ii) satisfying the conditions to consummating the Merger, (iii) defending any lawsuits or other legal proceedings, whether judicial or administrative, challenging the Merger Agreement or the consummation of the Merger, (iv) obtaining (and cooperating with each other in obtaining) any consent, approval of, waiver or any exemption by, any non-governmental third party, in each case, to the extent necessary, proper or advisable in connection with the Merger and (v) executing and delivering any reasonable additional instruments necessary to consummate the Transactions and to fully carry out the purposes of the Merger Agreement.

Subject to the following paragraph, in the event that Covetrus and Parent receive a request for information or documentary material pursuant to the HSR Act or any other antitrust laws or laws relating to foreign investment, including a request for additional information and documentary material, unless otherwise agreed to by Parent and the Company, Covetrus and Parent will use their reasonable best efforts to submit an appropriate response to, and to certify compliance with, such request as promptly as practicable, and counsel for both parties will closely cooperate during the entirety of any such request review process. None of the parties, including their respective subsidiaries and controlled affiliates, will take, cause or permit to be taken, or omit to take, any action which such party reasonably expects is likely to materially delay or prevent consummation of the contemplated transactions, unless otherwise agreed to by the parties.

In furtherance of the foregoing, from the date of the Merger Agreement until the Effective Time, neither CD&R nor TPG (solely with respect to the TPG Capital platform) will directly or indirectly (but subject in all respects to the immediately succeeding sentence) acquire or agree to acquire by merger or consolidation with, or by purchasing the assets of or equity in, any person, if the entering into of a definitive agreement relating to or the consummation of such a transaction would reasonably be expected to prevent or delay past the Termination Date (as defined below) the satisfaction of the governmental consent condition to Closing. Notwithstanding anything to the contrary the restrictions in the foregoing sentence will not apply to any existing portfolio company (as such term is commonly understood in the private equity industry) of CD&R or TPG. Neither Covetrus or Parent, without the other party’s prior written consent, will (i) withdraw or refile any filing made under the HSR Act or any other antitrust laws or laws relating to foreign investment, (ii) enter into any timing, settlement or similar agreement, or otherwise agree or commit to any arrangement, that would have the effect of extending, suspending, lengthening or otherwise tolling the expiration or termination of the waiting period applicable to the contemplated transactions under the HSR Act or any other antitrust laws or laws relating to foreign investment or (iii) enter into any timing or similar agreement, or otherwise agree or commit to any arrangement, that would bind or commit the parties not to consummate the contemplated transactions (or that would otherwise prevent or prohibit the parties from consummating the contemplated transactions).

 

Parent and Covetrus will cooperate with respect to the antitrust laws and laws relating to foreign investment; however, after consulting with the Company, Parent will have final decision making authority with respect to the appropriate course of action with respect to obtaining the consents, approvals, permits, waiting period expirations or authorizations of any governmental entity required to consummate the Merger prior to the Termination Date. No party to the Merger Agreement or its counsel will independently participate in any substantive call or meeting relating to the antitrust laws or laws relating to foreign investment with any governmental entity in respect of

 

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such filings, investigation, or other inquiry without first giving the other party or its counsel prior notice of such call or meeting and, to the extent permitted by such governmental entity, the opportunity to attend and participate. In furtherance of the foregoing and to the extent permitted by applicable law:

 

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each party will notify the other, as far in advance as practicable, of any filing or material or substantive communication or inquiry it or any of its subsidiaries intends to make with any governmental entity relating to the Transactions;

 

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prior to submitting any such filing or making any such communication or inquiry, such party will provide the other party and its counsel a reasonable opportunity to review, and will consider in good faith the comments of the other party in connection with, any such filing, communication or inquiry;

 

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promptly following the submission of such filing or making such communication or inquiry, provide the other party with a copy of any such filing or, if in written form, communication or inquiry, or a summary of any oral communication; and

 

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consult with the other party in connection with any inquiry, hearing, investigation or litigation by, or negotiations with, any governmental entity relating to the Merger, including the scheduling of, and strategic planning for, any meetings with any governmental entity relating thereto.

Parent, including its subsidiaries and controlled affiliates, will use its reasonable best efforts to resolve such objections, if any, as may be asserted by any governmental entity in connection with the HSR Act, any other applicable antitrust laws or laws relating to foreign investment with respect to the Transactions and to avoid the entry of, or effect the dissolution of, any decree, order, judgment, injunction, temporary restraining order or other order in any suit or proceeding, that would otherwise have the effect of preventing the consummation of the Transactions.

If any administrative or judicial proceeding, including any such proceeding by a private party, is instituted (or threatened to be instituted) challenging the Merger or any other Transaction as violative of any antitrust law or laws relating to foreign investment, each of the Company and Parent will use its reasonable best efforts to contest and resist any such action or proceeding and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts the consummation of the Merger.

However, the Merger Agreement also provides that notwithstanding any of the obligations with respect to efforts relating to antitrust laws and laws relating to foreign investment described above or any other provisions of the Merger Agreement, nothing in the Merger Agreement will require Merger Sub, Parent or any of their affiliates (including CD&R and TPG or any investment funds or investment vehicles affiliated with, or managed or advised by, CD&R or TPG or any portfolio company (as such term is commonly understood in the private equity industry) or investment of CD&R, TPG or of any such investment fund or investment vehicle) to, and the Company will not, without the prior written consent of Parent, agree or otherwise be required to take any action (including any steps or actions contemplated by this section) with respect to CD&R, TPG or such affiliates, other than with respect to Parent and/or its subsidiaries.

Access to Information

Upon reasonable advance notice (and in any event not less than twenty-four (24) hours’ notice), and except as may otherwise be required by applicable law, (x) Covetrus will, and will cause its subsidiaries and its and its subsidiaries’ directors, officers or employees to, and will direct its other representatives to, afford Parent and its representatives reasonable access, during normal business hours during the period prior to the Effective Time, to Covetrus’ and its subsidiaries’ properties, assets, commitments, tax returns, contracts, books and records and, (y) during such period, Covetrus will, and will cause its subsidiaries to, furnish as promptly as reasonably practicable to Parent all information concerning its or any of its subsidiaries’ capital stock, business and personnel as may reasonably be requested by Parent in connection with the Merger; provided, that no investigation will affect or be

 

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deemed to modify any representation or warranty made by Covetrus; and provided further, that the foregoing will not require Covetrus to permit any invasive environmental sampling or any inspection or to disclose any information, to the extent that (A) in the reasonable good faith judgment of Covetrus’ outside legal counsel, any applicable law requires Covetrus or its subsidiaries to restrict or prohibit access to any such information or disclosure thereof would expose Covetrus to an unreasonable risk of liability for disclosure of sensitive personal information, (B) in the reasonable good faith judgment of Covetrus, the information is subject to confidentiality obligations to a third party or its disclosure would violate the terms of any confidentiality agreement or other contract that is binding on Covetrus or any of its subsidiaries, or (C) disclosure of any such information or document would result in the waiver or loss of attorney-client privilege, work product doctrine or any other legal privilege; provided further, that with respect to the foregoing clauses (A) through (C), Covetrus will use its commercially reasonable efforts to (1) obtain the required consent of any such third party to provide such disclosure, (2) develop an alternative to providing such information so as to address such matters that is reasonably acceptable to Covetrus and (3) in the case of clauses (A) and (C), implement appropriate and mutually agreeable measures to permit the disclosure of such information in a manner to remove the basis for the objection, including by arrangement of appropriate clean room procedures, redaction (solely to the extent necessary) or entry into a customary joint defense agreement with respect to any information to be so provided, if the parties determine that doing so would reasonably permit the disclosure of such information without violating applicable law or jeopardizing such privilege. Any investigation pursuant to the forgoing right of access will be conducted in such a manner as not to interfere unreasonably with the conduct of the business of the Company. All requests for information made pursuant to the foregoing right of access will be directed to an executive officer of the Company or such person as may be designated by any such executive officer.

Director and Officer Indemnification and Insurance

The Merger Agreement provides that from and after the Effective Time, Parent will and will cause the Surviving Corporation to, indemnify, defend and hold harmless the Indemnified Parties against any and all costs (including settlement costs) or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages, penalties or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (including with respect to matters existing or occurring at or prior to the Effective Time (including the Merger Agreement and the Transactions)), arising out of or based on the fact that such Indemnified Party is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another person prior to the Effective Time, in each case, whether threatened, pending or completed and whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that the Company would have been permitted under the laws of the State of Delaware, any applicable indemnification agreement to which such person is a party, the Company’s certificate of incorporation or bylaws in effect on the date of the Merger Agreement to indemnify such person (and Parent and the Surviving Corporation will also advance expenses as incurred to the fullest extent permitted under applicable law; provided that the person to whom expenses are advanced will provide an undertaking to repay such advances if it is ultimately determined by final adjudication that such person is not entitled to indemnification). Parent will, and will cause the Surviving Corporation to, ensure that the organizational documents of the Surviving Corporation and its subsidiaries, will, for a period of six (6) years from and after the Effective Time, contain provisions no less favorable, in the aggregate, with respect to indemnification, advancement of expenses and exculpation of present and former directors, officers, employees and agents of the Company and its subsidiaries than are presently set forth in the Company’s certificate of incorporation and bylaws (or equivalent organizational and governing documents of any subsidiary). The right of indemnification of an Indemnified Party pursuant to the Merger Agreement will not be amended, repealed or otherwise modified at any time in a manner that would adversely affect the rights of such Indemnified Party.

Prior to the Effective Time, the Company will and, if the Company is unable to, Parent will cause the Surviving Corporation as of the Effective Time to, obtain and fully pay for the D&O Insurance with benefits and levels of coverage at least as favorable as the Company’s existing policies with respect to matters existing or occurring at or prior to the Effective Time (including in connection with the Merger Agreement or the

 

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Transactions); provided, however that in no event will the Company be required to expend for such policies an annual premium in excess of three-hundred percent (300%) of the annual premiums currently paid by the Company for such insurance. If the Company for any reason fails to obtain such “tail” insurance policies as of the Effective Time, the Surviving Corporation will, and Parent will cause the Surviving Corporation to, continue to maintain in effect for a period of at least six (6) years from and after the Effective Time the D&O Insurance in place as of the date of the Merger Agreement with benefits and levels of coverage at least as favorable, in the aggregate, as provided in the Company’s existing policies as of the date of the Merger Agreement, or the Surviving Corporation will, and Parent will cause the Surviving Corporation to, purchase comparable D&O Insurance for such six-year period with benefits and levels of coverage at least as favorable as provided in the Company’s existing policies as of the date of the Merger Agreement; provided, however that in no event will the Company expend, or Parent or the Surviving Corporation be required to expend for such policies, an annual premium amount in excess of three-hundred percent (300%) of the annual premiums currently paid by the Company for such insurance; and, provided, further that if the premium for such insurance coverage exceeds such amount, the Surviving Corporation will obtain a policy with the greatest coverage available for a cost not exceeding such amount.

Employee Benefits

Parent has agreed that each employee of the Company or its subsidiaries who continues to remain employed with the Company or its subsidiaries following the Closing (a “Continuing Employee”) will, during the period commencing at the Effective Time and ending on the first anniversary of the Closing (the “Continuation Period”), be provided with (i) a base salary or base wage that is no less favorable than the base salary or base wage provided to such Continuing Employee by the Company and its subsidiaries immediately prior to the Effective Time, (ii) target annual (or shorter) cash bonus opportunities, that are no less favorable in the aggregate than the target annual (or shorter) cash bonus opportunities provided to such Continuing Employee by the Company and its subsidiaries immediately prior to the Effective Time and (iii) employee benefits that are substantially comparable in the aggregate to those provided by the Company and its subsidiaries to such Continuing Employees as of immediately prior to the Effective Time (excluding, for all purposes of this clause (iii) severance, defined benefit pension and post-employment medical benefits, equity or other long-term incentive compensation, stock purchase plan benefits and change-in-control, transaction or retention compensation or benefits). Additionally, Parent has agreed that each Continuing Employee will, as to any qualifying termination occurring during the period commencing at the Effective Time and ending on December 31^st of the year of the first anniversary of the Closing, be provided with severance benefits that are no less favorable than the severance benefits under the employee benefits plans set forth on the Company Disclosure Letter. Parent will and will cause the Surviving Corporation to honor and assume all obligations under employment agreements and severance plans listed on the Company Disclosure Letter with their terms as in effect immediately prior to the Effective Time.

Parent will and will cause the Surviving Corporation to provide that no pre-existing conditions, exclusions or waiting periods will apply to Continuing Employees under the benefit plans provided for those employees except to the extent such condition or exclusion was applicable to an individual Continuing Employee prior to the Effective Time. With respect to the plan year during which the Effective Time occurs, Parent will provide each Continuing Employee with credit for deductibles and out-of-pocket requirements paid prior to the Closing Date in satisfying any applicable deductible or out-of-pocket requirements under any Parent plan in which such Continuing Employee is eligible to participate following the Closing Date.

From and after the Closing Date, Parent will or will cause the Surviving Corporation to, provide credit (without duplication) to Continuing Employees for their service recognized by the Company and its subsidiaries as of the Effective Time for purposes of eligibility, vesting, continuous service, determination of service awards, vacation, paid time off, and severance entitlements to the same extent and for the same purposes as such service was credited under the employee benefits plans, provided that such service will not be recognized to the extent that such recognition would result in a duplication of benefits.

 

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The employee benefits provisions of the Merger Agreement described in this section are solely for the benefit of the parties to the Merger Agreement, and neither any current or former employee, nor any other individual associated therewith, is or will be regarded for any purpose as a third party beneficiary to the Merger Agreement. Nothing in the Merger Agreement will be construed to confer on any person, other than the parties, their successors and permitted assigns, any right to enforce the provisions of the employee benefits covenants in the Merger Agreement or be construed as an amendment of any employee benefits plan (including employment agreements) or the requirement to maintain any existing or adopt any new employee benefits plan (including employment agreements).

Financing Cooperation

Each of Parent and Merger Sub have agreed to, and Parent has agreed to cause Merger Sub to, use reasonable best efforts to do, or cause to be done, all things necessary, proper or advisable to obtain the proceeds of the financing on terms (including the “market flex” provisions) and conditions no less favorable to Parent than those described in the Equity Commitment Letters provided by affiliates of CD&R and TPG and the Original Debt Commitment Letter (collectively, the “Commitment Letters”), including using reasonable best efforts, after the date of the Merger Agreement and prior to the earlier of the Closing Date and the date the Merger Agreement is terminated in accordance with its terms, to:

 

•

negotiate definitive financing agreements with respect to the financing (the “Definitive Financing Agreements”) on terms and conditions no less favorable to Parent than those contained in the Commitment Letters (including any “market flex” terms and conditions), provided, however, that in no event will any of the Definitive Financing Agreements (A) reduce the aggregate amount of the financing provided for in the Commitment Letters (including by changing the amount of fees or original issue discount contemplated by the Commitment Letters) such that Parent would not have sufficient cash proceeds to permit Parent to pay the Required Amount on the Closing Date; (B) expand the conditions or other contingencies relating to the receipt or funding of the financing beyond those expressly set forth in the Commitment Letters, amend or modify any of such conditions or other contingencies or impose any new or additional condition or other contingency relating to the receipt or funding of the financing, in each case, in a manner that would reasonably be expected to (x) make the funding of the financing (or the satisfaction of the conditions to obtaining the financing) less likely to occur or (y) materially delay or prevent the Closing; (C) contain terms (other than those terms expressly set forth in the Commitment Letters) that could reasonably be expected to materially delay the Effective Time or the date on which the financing would be obtained or make the timely funding of the financing less likely to occur; or (D) adversely impacts the ability of Parent or Merger Sub to enforce its rights against any of the other parties to the Commitment Letters or Definitive Financing Agreements;

 

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enter into Definitive Financing Agreements with respect thereto and consummate the financing contemplated by the Commitment Letters substantially concurrently with the Closing;

 

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satisfy on a timely basis (taking into account the anticipated timing of the Marketing Period and the Closing) or obtain the waiver of all covenants and conditions in the Commitment Letters and the Definitive Financing Agreements that are within Parent’s control;

 

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pay in a timely manner any commitment or other fees that are or become payable under any of the Commitment Letters or Definitive Financing Agreements on or following the date of the Merger Agreement;

 

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enforce its rights under the Commitment Letters and Definitive Financing Agreements; and

 

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use its reasonable best efforts to cause the financing to be funded in full substantially concurrently with the Closing.

Parent has agreed to furnish promptly upon request correct and complete copies of all material Definitive Financing Agreements to the Company. Without limiting any of its obligations under the Merger Agreement,

 

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Parent has agreed to keep the Company informed in writing upon request on a reasonably current basis in reasonable detail with respect to the status of the financing. Without limiting the foregoing, Parent has agreed to give the Company and the Company’s legal counsel reasonable opportunity to review and comment upon drafts of all commitment letters and Definitive Financing Agreements, and to give due consideration to all reasonable comments and changes proposed on behalf of the Company. Without limiting the generality of the foregoing, Parent and Merger Sub have agreed to give the Company prompt notice upon having knowledge of (i) any material breach or default (or any event or circumstance that, with or without notice, lapse of time or both, could reasonably be expected to give rise to any material breach or default) on the part of any party to any Commitment Letter or Definitive Financing Agreement, (ii) the receipt by Parent or Merger Sub of any written notice or other written communication from any person with respect to any actual or potential material breach, default or dispute by or involving any party under any Commitment Letter or Definitive Financing Agreement, (iii) any actual or purported termination, rescission or repudiation of any Commitment Letter or Definitive Financing Agreement, or any provision thereof, (iv) any actual material dispute or disagreement with any person expected to provide any portion of the financing and (v) any other circumstance that could reasonably be expected to materially and adversely affect the ability of Parent to obtain, prior to the date the Closing is required to occur in accordance with the Merger Agreement, all or any portion of the financing on the terms, in the manner or from the sources contemplated by any of the Commitment Letters or Definitive Financing Agreements.

Neither Parent nor Merger Sub will agree to or permit any amendment or modification to be made to, or any waiver of any provision (including any termination or reduction of any commitment and/or any consent to any assignment, termination or release) or remedy under (including through the execution of any “side” letter), any Commitment Letter or Definitive Financing Agreement if such amendment, modification or waiver (i) reduces the aggregate amount of the financing provided for in the Commitment Letters (including by changing the amount of fees or original issue discount contemplated in the Commitment Letters) such that Parent would not have sufficient cash proceeds to permit Parent to pay the Required Amount on the Closing Date or (ii) would reasonably be expected to (x) make the funding of the financing (or the satisfaction of the conditions to obtaining the financing) less likely to occur, (y) materially delay or prevent the Closing or (z) adversely impact the ability of Parent or Merger Sub to enforce its rights against any of the other parties to the Commitment Letters; provided that (i) Parent may replace, amend, supplement or modify the Original Debt Commitment Letter to add bona fide lenders, lead arrangers, bookrunners, syndication agents or similar entities (or titles with respect to such entities) that have not executed the Original Debt Commitment Letter as of the date of the Merger Agreement (it being understood that the aggregate commitments of the lenders party to the Original Debt Commitment Letter prior to such replacement, amendment, supplement or modification may be reduced in the amount of such additional party’s binding commitments under the relevant replacement, amendment, supplement or modification, which will otherwise contain the terms set forth in the Original Debt Commitment Letter immediately prior to such replacement, amendment, supplement or modification, unless any modification (other than the addition of the relevant bona fide lender, lead arranger, bookrunner, syndication agent or similar entity (or additional title)) would otherwise be permitted by the terms of the provision of the Merger Agreement described in this section) and (ii) Parent will notify the Company in writing of any replacement, amendment, supplement or other modification of, or waiver of any of its rights under, any Commitment Letter reasonably promptly after the time such replacement, amendment, supplement, modification or waiver is agreed.

In the event that any portion of the debt financing becomes unavailable on the terms and conditions contemplated in the Original Debt Commitment Letter (including any “market flex” provisions that are contained in the redacted fee letter related to the Original Debt Commitment Letter (the “Redacted Fee Letter”) (other than as a result of the Company’s failure to satisfy the conditions to closing with respect to stockholder approvals, governmental consents and no law being enacted that would restrain, enjoin or prohibit the consummation of the Merger, representations and warranties of the Company, performance of obligations of the Company, no Company material adverse effect and delivery of a certificate with respect to such the immediately preceding conditions), Parent will (i) use its reasonable best efforts to obtain alternative debt financing (in an amount sufficient such that the aggregate funds that would be available to Parent at the Closing will be sufficient to pay the Required Amount) (the “Alternative Financing”); provided that Parent will not be required to arrange or obtain any Alternative Financing having terms and conditions (including “market flex” provisions), taken as a

 

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whole, less favorable to Parent than those contained in the Original Debt Commitment Letter (after giving effect to any “market flex” provision applicable under the Original Debt Commitment Letter); it being understood and agreed that in no event will the obligation of Parent under this provision require Parent to pay fees, interest rates or other amounts that, taken as a whole, exceed the aggregate fees, interest rates or such other amounts contemplated under the Original Debt Commitment Letter and the Redacted Fee Letter as of the date of the Merger Agreement (including giving effect to any market flex provisions set forth therein); provided, further, that Parent will provide the Company with a copy of, a new financing commitment letter pursuant to which any Alternative Financing will be made available to Parent promptly after the time such agreement is agreed, to the extent needed to fund the transactions contemplated by the Merger Agreement (the “New Commitment Letter”) (provided, that the existence and/or amount of fees, flex provisions, pricing terms, pricing caps and other commercially sensitive information set forth therein or in any fee letter may be redacted to the extent consistent with the redactions permitted by the term “Redacted Fee Letter”) which New Commitment Letter will not include any conditions to the consummation of the Alternative Financing that are more onerous than the conditions set forth in the debt financing taken as a whole and (ii) if applicable, promptly notify the Company of such unavailability and the reason therefor.

To the extent applicable, Parent has agreed to use its reasonable best efforts to take, or cause to be taken, all things reasonably necessary, proper or advisable to arrange promptly and consummate the Alternative Financing on the terms and conditions described in any New Commitment Letter. In the event Alternative Financing is obtained, references in the Merger Agreement to the financing will also be deemed to refer to such Alternative Financing, and if one or more commitment letters or definitive financing agreements are entered into or proposed to be entered into in connection with such Alternative Financing, references in the Merger Agreement to the Commitment Letters and the Definitive Financing Agreements will also be deemed to refer to such commitment letters and definitive financing agreements relating to such Alternative Financing, and all obligations of Parent and Merger Sub pursuant to this provision will be applicable thereto to the same extent as Parent’s and Merger Sub’s obligations with respect to the financing.

Prior to the Closing Date, the Company has agreed to, and has agreed to cause its subsidiaries and its and their respective representatives to, in each case, use reasonable best efforts to, provide to Parent all cooperation reasonably requested by Parent that is reasonably necessary and customary for financings of the type contemplated by the Original Debt Commitment Letter, and at Parent’s sole expense, in connection with Parent’s arrangement and obtaining the debt financing, including: using reasonable best efforts to:

 

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(x) furnish Parent (and Parent may then furnish to applicable financing sources) as promptly as practicable, with the Required Information and (y) furnishing any other information related to the Company and its subsidiaries customarily delivered by a borrower and reasonably necessary for the preparation of a customary confidential information memorandum and other marketing materials used in financing of the type contemplated by the debt financing; provided that, notwithstanding anything to the contrary herein, a breach of this requirement will not give rise to a failure of the condition set forth in the provision requiring compliance in all material respects with obligations under the Merger Agreement to be satisfied unless such breach is the primary cause of the failure of the debt financing to be obtained on or prior to the Closing Date;

 

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cause senior management of the Company, with appropriate seniority and expertise, to assist in preparation for, and participate in, a reasonable number of investor and lender meetings (including customary one-on-one meetings and calls with or by the parties acting as lead arrangers, bookrunners or agents for, and prospective lenders and buyers of, the debt financing) and presentations and sessions with rating agencies in each case, to the extent required in connection with the debt financing;

 

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provide assistance with the preparation of materials for rating agency presentations, bank information memoranda, syndication memoranda, lender presentations and other customary marketing materials required in connection with the debt financing, including the execution and delivery of customary authorization letters with respect to the Company authorizing the distribution of information to prospective lenders and investors (including customary 10b-5 and material non-public information representations);

 

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assist Parent in connection with Parent’s preparation of pro forma financial statements of the Company and its subsidiaries of the type necessary or reasonably requested by the financing sources to be included in any bank information memoranda or other customary marketing materials, including by providing such financial and other pertinent information regarding the Company and its subsidiaries and their respective businesses as may be required in connection with the preparation of such pro forma financial statements; provided that neither the Company nor any of its subsidiaries or representatives will be required to provide any information or assistance relating to (A) the proposed debt and equity capitalization that is required for such pro forma financial information or assumed interest rates and fees and expenses relating to such debt and equity capitalization, (B) any post-Closing or pro forma cost savings, synergies, capitalization, ownership or other pro forma adjustments desired to be incorporated into any information used in connection with the debt financing or (C) any information related to Parent or any of its subsidiaries or any adjustments that are not directly related to the acquisition of the Company;

 

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(A) assist in the preparation, execution and delivery of definitive financing documents, including any credit agreement, notes, guarantee and collateral documents, pledge and security documents, customary closing certificates and closing documents and back-up therefor and back-up for legal opinions in connection with the debt financing (including, if required certifications are true and correct on the Closing Date, executing and delivering a solvency certificate from the chief financial officer or treasurer (or other comparable officer) of the Company (in the form attached to the Original Debt Commitment Letter)) and other customary documents as may reasonably be requested by Parent or the financing sources and (B) facilitate the pledge of, grant of security interests in and obtain perfection of any liens on collateral in connection with the debt financing; provided, that, except in the case of customary authorization letters, (I) no liability will be imposed on the Company or any of its subsidiaries or any of their respective officers or employees involved prior to the Closing Date and (II) the effectiveness thereof will be conditioned upon, or become operative as of or after, the occurrence of the Closing;

 

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at the reasonable request of Parent, and subject to the consent of the Company (which consent will not be unreasonably withheld, conditioned or delayed), using commercially reasonable efforts to (A) file a Form 8-K with the SEC and (B) post on Debtdomain, IntraLinks, SyndTrak Online or similar electronic means, disclosing information identified by Parent relating to the Company for purposes of permitting such information to be included in any bank information memoranda or other customary marketing materials to be provided to potential financing sources who do not wish to receive material nonpublic information with respect to any of the Company, its subsidiaries or any of their respective securities; provided that, notwithstanding anything to the contrary herein, a breach of this requirement will not give rise to a failure of the condition set forth in the provision requiring compliance in all material respects with obligations under the Merger Agreement to be satisfied unless such breach is the primary cause of the failure of the debt financing to be obtained on or prior to the Closing Date;

 

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provide certain documentation and other information about the Company and its subsidiaries as is reasonably requested by Parent with respect to applicable “know your customer” and anti-money laundering rules and regulations including the USA PATRIOT Act, Title III of Pub. L. 107-56 (signed into law on October 26, 2001, as amended from time to time) and the Customer Due Diligence Requirements for Financial Institutions issued by the U.S. Department of Treasury Financial Crimes Enforcement Network under the Bank Secrecy Act (such rule published May 11, 2016 and effective May 11, 2018, as amended from time to time), in each case, at least four (4) business days prior to the Closing Date to the extent requested in writing at least nine (9) business days prior to the Closing Date; and

 

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take all corporate, limited liability company, partnership or other similar actions reasonably requested by Parent or any financing sources to permit the consummation of the debt financing (it being understood that, except as otherwise provided in the Merger Agreement, no such actions will be required to be effective prior to the Closing).

 

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Parent will, promptly upon request of the Company, reimburse the Company for all reasonable and documented out-of-pocket costs incurred by the Company or any of its subsidiaries in connection with such cooperation, including all reasonable and documented fees and expenses of counsel and other advisors (it being understood that the reimbursement set forth in this paragraph will not apply to any fees, costs and expenses incurred by, or on behalf of, the Company in connection with its ordinary course financial reporting requirements).

It is understood and agreed that the recipients of any lender presentation, confidential information memorandum and/or other marketing materials in connection with the debt financing will be subject to customary confidentiality arrangements (which may include customary click-through arrangements).

If the Closing Date occurs on or after February 15, 2023, the Company has agreed to furnish to Parent at least ten (10) business days prior to the Closing Date the unaudited consolidated balance sheets and related unaudited consolidated statements of income, shareholders’ equity and cash flows of the Company for the fiscal quarter ended December 31, 2022, and the portion of the fiscal year through the end of such quarter.

Parent has agreed to indemnify and hold harmless each of the Company and its subsidiaries and their respective representatives (collectively, the “Financing Indemnitees”) for and against any and all losses suffered or incurred by them in connection with the arrangement of the financing and any information utilized in connection therewith (other than to the extent any of the foregoing was suffered or incurred as a result of (I) the fraud, bad faith, gross negligence or willful misconduct of, or a material breach of the Merger Agreement by, the Company, any of its subsidiaries or any of their respective representatives (acting on behalf of the Company or its subsidiaries) or (II) information provided by or on behalf of the Company, any of its subsidiaries or any of their respective affiliates or representatives (on behalf of the Company or its subsidiaries).

The Company has consented to the use of its logos solely in connection with the financing; provided that Parent and Merger Sub will ensure that such logos are used solely (i) in a manner that is not intended to or reasonably likely to harm or disparage the Company or the Company’s reputation or goodwill (or otherwise adversely affect the Company or its reputation or goodwill), (ii) in connection with a description of the Company, its business and products or the Merger and (iii) in a manner that will comply with the Company’s usage requirements to the extent made available to Parent prior to the date of the Merger Agreement.

Other Covenants and Agreements

Covetrus and Parent have made certain other covenants to and agreements with each other regarding various other matters including:

 

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public statements and disclosure concerning the Merger Agreement and the Transactions;

 

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anti-takeover or other similar laws;

 

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control of their respective operations prior to the Effective Time;

 

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Company stockholder litigation relating to the Merger Agreement or the Transactions;

 

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pay-off of the Company’s obligations under its existing credit agreement;

 

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Covetrus’ ability to take all actions reasonably necessary or advisable to cause the Transactions and any other dispositions of equity securities of Covetrus (including derivative securities) in connection with the Transactions by each individual who is a director or executive officer of Covetrus to be exempt under Rule 16b-3 promulgated under the Exchange Act; and

 

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cooperation to delist Company common stock from NASDAQ and deregister such Company common stock under the Exchange Act as soon as possible following the Effective Time.

 

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Conditions to the Merger

Conditions to Each Party’s Obligations (“Mutual Closing Conditions”)

Each party’s obligations to effect the Merger are subject to the satisfaction (or mutual waiver if permitted by law) as of the Closing of each of the following conditions:

 

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adoption of the Merger Agreement by the Company’s stockholders in accordance with applicable law and the Company’s certificate of incorporation and bylaws;

 

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the waiting period applicable to the Merger under the HSR Act having expired or been earlier terminated (the HSR Act waiting period expired at 11:59 p.m. EST on July 8, 2022) and the other filings, notices, reports, consents, registrations, approvals, permits, expirations of waiting periods, clearances or authorizations set forth in the Company Disclosure Letter having been filed, occurred or been obtained, as applicable (the “Consent Condition”); and

 

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no governmental entity of competent jurisdiction having enacted, issued, promulgated, enforced or entered any law (whether temporary, preliminary or permanent) that is in effect and restrains, enjoins or otherwise prohibits consummation of the Merger (the “No Order Condition”).

Conditions to Parent’s and Merger Sub’s Obligations (“Parent’s and Merger Sub’s Closing Conditions”)

The obligations of Parent and Merger Sub to effect the Merger are also subject to the satisfaction or, to the extent permitted by law, waiver by Parent as of the Closing of the following additional conditions:

 

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certain of Covetrus’ representations and warranties contained in the Merger Agreement related to Covetrus’ organization, good standing and qualification to do business, capital structure, corporate authority and broker’s and finder’s fees must be true and correct, subject only to de minimis inaccuracies, as of the date of the Merger Agreement and as of the Closing Date (in each case except to the extent that any such representation and warranty speaks as of a particular date, in which case such representation and warranty must be true and correct as of such particular date);

 

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Covetrus’ representation and warranty contained in the Merger Agreement related to the absence of certain changes must be true and correct in all respects as of the date of the Merger Agreement and as of the Closing Date;

 

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each of Covetrus’ other representations and warranties contained in the Merger Agreement must be true and correct as of the date of the Merger Agreement and as of the Closing Date (in each case except to the extent that any such representation and warranty speaks as of a particular date, in which case such representation and warranty must be true and correct as of such particular date) (without regard to materiality, Company Material Adverse Effect or similar qualifications contained within such representations and warranties), except where the failure of such representations and warranties to be so true and correct, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect;

 

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Covetrus must have performed and complied with in all material respects all obligations required to be performed by or complied with by it under the Merger Agreement as of the Closing;

 

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Since the date of the Merger Agreement there must not have occurred a Company Material Adverse Effect; and

 

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Parent must have received a signed certificate by a senior executive officer of Covetrus at the Closing stating that the conditions set forth in the five bullets immediately above have been satisfied.

 

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