SEC Form DEFM14A filed by UpHealth Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Schedule 14A Information

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

 

 

Filed by the Registrant  ☒

Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

☐	Preliminary Proxy Statement

 

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

 

☒	Definitive Proxy Statement

 

☐	Definitive Additional Materials

 

☐	Soliciting Material Under § 240.14a-12

UpHealth, Inc.

 

(Name of Registrant as Specified In Its Charter)

N/A

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check 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

 

 

 

 

14000 S. Military Trail, Suite 203

Delray Beach, Florida 33484

January 24, 2024

Dear Stockholder:

You are cordially invited to attend a special meeting of the stockholders of UpHealth, Inc., a Delaware corporation (“UpHealth,” “we,” “us,” or “our”), to be held on February 29, 2024 at 1:00 p.m., Eastern time, virtually at www.virtualshareholdermeeting.com/UPH2024SM, or at such other time, on such other date and at such other place to which the special meeting may be adjourned.

On November 16, 2023, UpHealth and its wholly-owned subsidiary, Cloudbreak Health, LLC, a Delaware limited liability company (“Cloudbreak”), entered into a membership interests purchase agreement with Forest Buyer, LLC, a Delaware limited liability company (“Forest Buyer”) and an affiliate of GTCR LLC, a leading private equity firm (as it may be amended from time to time in accordance with its terms, the “Purchase Agreement”), pursuant to which UpHealth has agreed to sell to Forest Buyer all of the outstanding equity interests of Cloudbreak and the wholly-owned subsidiaries of Cloudbreak for $180.0 million in cash, subject to certain adjustments as more fully described in the accompanying proxy statement (the “Sale”). The Sale as contemplated by the Purchase Agreement constitutes the sale of substantially all of the assets of UpHealth under Delaware law, and we are therefore seeking the approval of the Sale pursuant to the Purchase Agreement by our stockholders. The board of directors (or equivalent body) of each of UpHealth, Cloudbreak and Forest Buyer has unanimously approved the Sale and the other transactions and agreements contemplated by the Purchase Agreement, which are more fully described in the accompanying proxy statement.

We are soliciting proxies for use at the special meeting, at which UpHealth’s stockholders will be asked to consider and vote upon proposals (1) to approve the Purchase Agreement for the Sale of Cloudbreak, as such Sale constitutes the sale of substantially all of the assets of UpHealth (which we refer to as the “Sale Proposal”) and (2) to adjourn the special meeting, if necessary or appropriate, in order to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Sale Proposal (which we refer to as the “Adjournment Proposal”).

After careful consideration, our Board of Directors unanimously recommends that you vote “FOR” each of the Sale Proposal and the Adjournment Proposal.

Your vote is very important. The approval of the Sale Proposal requires the affirmative vote of the holders of a majority of the shares of common stock, par value $0.0001 per share, of UpHealth (“UpHealth Common Stock”) issued and outstanding and entitled to vote thereon at the special meeting, voting together as a single class in person or by proxy (which we refer to as the “Requisite Stockholder Approval”). The approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of UpHealth Common Stock present in person or by proxy and entitled to vote on the matters to be considered at the special meeting. The closing of the Sale as contemplated by the Purchase Agreement is conditioned upon UpHealth obtaining the Requisite Stockholder Approval at the special meeting. Whether or not you plan to attend the special meeting, please vote your shares through the Internet, by telephone or by signing and returning the enclosed proxy card as soon as possible to ensure that your shares are represented at the special meeting.

The accompanying proxy statement describes the Purchase Agreement, a copy of which is attached thereto as Annex A, and the proposed Sale as contemplated thereby, and contains other important information about the

special meeting, the matters to be voted on and how to cast your vote. We encourage you to read the entire proxy statement and the Purchase Agreement carefully. You may also obtain more information about UpHealth from the annual, quarterly and current event reports, proxy statements and other information that we file with the U.S. Securities and Exchange Commission.

We thank you for your continued support.

 

This proxy statement is dated January 24, 2024 and is first being mailed to stockholders on or about January 24, 2024.

 

14000 S. Military Trail, Suite 203

Delray Beach, Florida 33484

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD FEBRUARY 29, 2024

A special meeting of the stockholders of UpHealth, Inc. (“UpHealth,” “we,” “us,” or “our”) will be held on February 29, 2024 at 1:00 p.m., Eastern time, virtually at www.virtualshareholdermeeting.com/UPH2024SM, or at such other time, on such other date and at such other place to which the special meeting may be adjourned, for the purpose of considering and voting on the following proposals:

 

1.

Proposal No. 1—The Sale Proposal—To approve the membership interests purchase agreement, dated November 16, 2023, by and among UpHealth and its wholly-owned subsidiary, Cloudbreak Health, LLC, a Delaware limited liability company (“Cloudbreak”), and Forest Buyer, LLC, a Delaware limited liability company (“Forest Buyer”) and an affiliate of GTCR LLC, a leading private equity firm (as it may be amended from time to time in accordance with its terms, the “Purchase Agreement”), providing for the sale by UpHealth to Forest Buyer of all of the outstanding equity interests of Cloudbreak and the wholly-owned subsidiaries of Cloudbreak (the “Sale”), as such Sale constitutes the sale of substantially all of the assets of UpHealth under Delaware law. We refer to this proposal as the “Sale Proposal.”

 

2.

Proposal No. 2—The Adjournment Proposal—To approve the adjournment of the special meeting, if necessary or appropriate, in order to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Sale Proposal. We refer to this proposal as the “Adjournment Proposal.”

After careful consideration, our Board of Directors has unanimously determined that the Sale and the other transactions contemplated by the Purchase Agreement are advisable, fair to and in the best interests of UpHealth and its stockholders, has authorized, adopted and approved the Purchase Agreement and the Sale as contemplated thereby, and unanimously recommends that you vote “FOR” the approval of the Sale Proposal and “FOR” the approval of the Adjournment Proposal.

Only holders of record of shares of the common stock, par value $0.0001 per share, of UpHealth (“UpHealth Common Stock”), at the close of business on January 24, 2024, which is the record date for the special meeting, are entitled to notice of and to vote at the special meeting and any postponements or adjournments thereof. There are 18,671,142 shares of UpHealth Common Stock outstanding and entitled to vote as of the record date.

Your vote is very important. The Sale constitutes the sale of substantially all of the assets of UpHealth under Section 271 of the Delaware General Corporation Law, and we are therefore seeking the approval of the Sale by our stockholders. The approval of the Sale Proposal requires the affirmative vote of the holders of a majority of the shares of UpHealth Common Stock issued and outstanding and entitled to vote thereon at the special meeting, voting together as a single class in person or by proxy (which we refer to as the “Requisite Stockholder Approval”). The Adjournment Proposal requires the approval by the affirmative vote of the holders of a majority of UpHealth Common Stock present in person or by proxy and entitled to vote on the matters to be considered at the special meeting. The closing of the Sale as contemplated by the Purchase Agreement is conditioned upon UpHealth obtaining the Requisite Stockholder Approval at the special meeting.

All of our stockholders are cordially invited to attend the special meeting. Whether or not you expect to attend the special meeting, we request that you complete, date, sign and return the enclosed proxy card in the postage-paid envelope or vote your shares through the Internet or by telephone as instructed in these materials as soon as possible to ensure that your shares will be represented at the special meeting. If you sign, date and return your proxy card without indicating how you wish to vote, all of your shares will be voted “FOR” the Sale Proposal and the Adjournment Proposal. If you hold shares of UpHealth Common Stock in “street name” through an account with a broker, dealer, bank or other nominee, please follow the instructions you receive from them to vote your shares. If you fail to return your proxy card or vote your shares through the Internet or by telephone, or if you hold your shares in “street name” and you fail to instruct your bank, broker or other nominee how to vote, and do not vote in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as an “AGAINST” vote with respect to the Sale Proposal and the Adjournment Proposal, but will have no effect on the approval of the Adjournment Proposal so long as a quorum is present. If you are a stockholder of record and you attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.

The accompanying proxy statement describes the Purchase Agreement and the proposed Sale as contemplated thereby, and contains other important information about the special meeting, the matters to be voted on and how to cast your vote. A copy of the Purchase Agreement is attached as Annex A to the accompanying proxy statement. We encourage you to read the entire proxy statement and the Purchase Agreement carefully.

 

January 24, 2024		By Order of the Board of Directors,
		/s/ Dr. Avi S. Katz
		Dr. Avi S. Katz
		Chairman of the Board

TABLE OF CONTENTS

 

				Page
SUMMARY TERM SHEET					1
QUESTIONS AND ANSWERS ABOUT THE SALE AND SPECIAL MEETING					15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS					22
RISK FACTORS					24
THE SPECIAL MEETING					29
Date, Time and Place of the Special Meeting					29
Purposes of the Special Meeting					29
Recommendation of the UpHealth Board					29
Record Date and Quorum					29
Required Vote					30
Voting by UpHealth’s Directors and Executive Officers					30
Voting; Proxies; Revocation					31
Abstentions					32
Adjournments and Postponements					33
Solicitation of Proxies					33
PROPOSAL NO. 1—THE SALE PROPOSAL					34
General Description of the Sale					34
Parties to the Purchase Agreement					34
Background of the Sale					35
Recommendation of the UpHealth Board and its Reasons for the Sale					57
Activities of UpHealth Following the Sale					60
Conditions to Closing of the Sale					61
Interests of UpHealth’s Directors and Executive Officers in the Sale					63
Certain Financial Projections					63
Regulatory Approvals					68
Material U.S. Federal Income Tax Consequences of the Sale					68
Accounting Treatment of the Sale					69
THE PURCHASE AGREEMENT					70
Explanatory Note Regarding the Purchase Agreement					70
Purchase and Sale of all Outstanding Equity Interests of Cloudbreak					70
Consideration for the Sale					71
Escrow Agreement					71
Representations and Warranties					73
No Survival; No Indemnification					76
Financing					76
Certain Covenants and Agreements					77
No Solicitation					81
Transition Services Agreement					82
Transaction Support Agreement					82
Fundamental Change Repurchase Offer					83
Additional Agreements in Support of the Transactions					83
Supplemental Indentures and Waivers and Recission Agreements					86
Voting and Support Agreement					87
Termination of the Purchase Agreement					87
Termination Fee					89
No Appraisal or Dissenters’ Rights					90
Employee Matters					90
Required Vote; Recommendation of the UpHealth Board					91
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION					92
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CLOUDBREAK AND SUBSIDIARIES					99

 

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				Page
PROPOSAL NO. 2—THE ADJOURNMENT PROPOSAL					119
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT					120
STOCKHOLDER PROPOSALS OR NOMINATIONS TO BE PRESENTED AT THE 2024 ANNUAL MEETING					124
DELIVERY OF DOCUMENTS TO STOCKHOLDERS SHARING ONE ADDRESS					125
WHERE YOU CAN FIND ADDITIONAL INFORMATION					125
ANNEX A		Membership Interests Purchase Agreement			A-1

 

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14000 S. Military Trail, Suite 203

Delray Beach, Florida 33484

PROXY STATEMENT

This proxy statement and the enclosed form of proxy are furnished in connection with the solicitation of proxies by our board of directors (the “UpHealth Board”) for use at the special meeting of the stockholders of UpHealth, Inc. (“UpHealth,” “we,” “us,” or “our”), which will be held on February 29, 2024 at 1:00 p.m., Eastern time, virtually at www.virtualshareholdermeeting.com/UPH2024SM, or at such other time, on such other date and at such other place to which the special meeting may be adjourned.

YOUR VOTE IS IMPORTANT. It is important that your shares be represented at the special meeting, regardless of the number of shares that you hold. You are, therefore, urged to execute and return, at your earliest convenience, the enclosed proxy card in the envelope that has also been provided.

SUMMARY TERM SHEET

This summary highlights selected information from this proxy statement. It may not contain all of the information that is important to you with respect to the Purchase Agreement and the Sale of Cloudbreak as contemplated thereby, or any other matter described in this proxy statement. We urge you to carefully read this entire proxy statement, as well as the documents attached to, referred to or incorporated by reference into this proxy statement, to fully understand the Sale Proposal. In particular, you should read the Purchase Agreement, which is described elsewhere in this proxy statement and is attached hereto as Annex A. Additional information regarding UpHealth is included in the documents incorporated by reference into this proxy statement and the other documents we file with the U.S. Securities and Exchange Commission (the “SEC”). See the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 125.

General Description of the Sale (page 34)

On November 16, 2023, UpHealth and its wholly-owned subsidiary, Cloudbreak Health, LLC, a Delaware limited liability company (“Cloudbreak”), entered into a membership interests purchase agreement (as it may be amended from time to time in accordance with its terms, the “Purchase Agreement”) with Forest Buyer, LLC, a Delaware limited liability company (“Forest Buyer”) and an affiliate of GTCR LLC, a leading private equity firm (“GTCR”), pursuant to which UpHealth has agreed to sell all of the outstanding equity interests of Cloudbreak and the wholly-owned subsidiaries of Cloudbreak to Forest Buyer for $180.0 million in cash, subject to certain adjustments for closing indebtedness, net working capital, cash and unpaid transaction expenses related to the transactions contemplated by the Purchase Agreement (the “Sale” and all of the transactions contemplated by the Purchase Agreement, as more fully described in this proxy statement, collectively, the “Transactions”). The terms of the Sale as contemplated by the Purchase Agreement provide that, at the closing of Transactions (the “Closing”), Forest Buyer will acquire complete equity ownership of Cloudbreak and its business, including the aggregate Cloudbreak employee base. Immediately following completion of the Sale, Forest Buyer will own all of Cloudbreak’s outstanding equity interests and Cloudbreak will be a wholly-owned subsidiary of Forest Buyer.

The Sale as contemplated by the Purchase Agreement constitutes the sale of substantially all of the assets of UpHealth under Section 271 of the Delaware General Corporation Law (the “DGCL”), and we are therefore

 

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seeking the approval of the Sale by our stockholders. The Closing is conditioned on, among other things, UpHealth obtaining the approval of the Sale pursuant to the Purchase Agreement by the affirmative vote of the holders of a majority of the common stock, par value $0.0001 per share, of UpHealth (“UpHealth Common Stock”) issued and outstanding and entitled to vote thereon at the special meeting, voting together as a single class in person or by proxy (which we refer to in this proxy statement as the “Requisite Stockholder Approval”). We expect the Closing of the Sale to occur on the date that is the third business day following the satisfaction or waiver of each of the conditions to Closing (including receipt of the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting), but in no event prior to March 15, 2024, unless consented to in writing by UpHealth and Forest Buyer (such date, the “Closing Date”).

Following the completion of the Sale, UpHealth will continue to own certain assets and liabilities associated with its behavioral health and services business (the “Retained Business”), including all of the equity interests in its wholly-owned subsidiary, UpHealth Holdings, Inc. (“UpHealth Holdings”) (which, along with certain subsidiaries of UpHealth Holdings, has filed for Chapter 11 protection in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), as further described in the section of this proxy statement entitled “Risk Factors” beginning on page 24), as well as TTC Healthcare, Inc., a wholly-owned subsidiary of UpHealth Holdings (“TTC Healthcare”) that is engaged in providing behavioral health services, and which has not filed for Chapter 11 protection and is operating in the normal course of business. At this time, it is contemplated that UpHealth will maintain the same corporate functions and the same senior executives as UpHealth had prior to the completion of the Sale and the same board of directors that will be in place following the conclusion of UpHealth’s 2023 Annual Meeting of Stockholders. For additional information, see the sections of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement” beginning on page 70 and “Proposal No. 1—The Sale Proposal—Activities of UpHealth Following the Sale” beginning on page 60.

Parties to the Purchase Agreement (page 34)

UpHealth, Inc.

UpHealth is a global digital health company that delivers infrastructure and services to dramatically improve how healthcare is delivered and managed. UpHealth creates digitally enabled “care communities” that improve access and achieve better patient outcomes at lower cost, through health solutions. UpHealth’s clients include health plans, healthcare providers and community-based organizations.

GigCapital2, Inc. (“GigCapital2”), UpHealth’s predecessor, was incorporated in Delaware on March 6, 2019. GigCapital2 was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. GigCapital2’s business combinations (the “Business Combinations”) were consummated on June 9, 2021, and in connection with the Business Combinations, GigCapital2 changed its corporate name to UpHealth, Inc. UpHealth is a Delaware corporation with its principal offices located at 14000 S. Military Trail, Suite 203, Delray Beach, FL 33484, and its telephone number is (888) 424-3646. UpHealth’s website address is https://uphealthinc.com/. UpHealth Common Stock is currently listed on the New York Stock Exchange (“NYSE”), however, the NYSE has commenced proceedings to delist UpHealth Common Stock, as previously reported in UpHealth’s Current Report on Form 8-K filed with the SEC on December 13, 2023, and has suspended trading of UpHealth Common Stock pending the completion of such proceedings. As a result, UpHealth Common Stock commenced trading in the over-the-counter market on December 12, 2023 under the trading symbol “UPHL.” UpHealth on December 26, 2023 filed an appeal with the NYSE that UpHealth Common Stock remain listed on the NYSE. For additional information regarding these delisting proceedings and the risks related thereto, see the section of this proxy statement entitled “Risk Factors” beginning on page 24.

Additional information regarding UpHealth is contained in the documents incorporated by reference into this proxy statement and the other documents that we file with the SEC. See the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 125.

 

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Cloudbreak Health, LLC

Cloudbreak, a Delaware limited liability company and a wholly-owned subsidiary of UpHealth (which UpHealth acquired on June 9, 2021 and made a part of UpHealth’s Virtual Care Infrastructure segment at that time), is a technology and technology-enabled services business that connects healthcare systems with platforms, analytics, and services that make clinical and administrative processes simpler and more efficient. Cloudbreak offers leading telehealth and video remote interpretation solutions and is recognized through its core solution, Martti^TM (“My Accessible Real-Time Trusted Interpreter”), and has constituted the entirety of UpHealth’s Virtual Care Infrastructure segment since July 1, 2022, when a majority owned subsidiary of UpHealth Holdings, Glocal Healthcare Systems Private Limited (“Glocal”) was deconsolidated by UpHealth. The Martti^TM solution provides medical interpreters in over 250 languages, which are delivered through custom Martti^TM devices, such as tablets and smartphones.

Forest Buyer, LLC, an affiliate of GTCR

Forest Buyer is a Delaware limited liability company and an affiliate of GTCR LLC (“GTCR”). Founded in 1980, GTCR is a leading private equity firm that pioneered The Leaders Strategy^™ – finding and partnering with management leaders in core domains to identify, acquire and build market-leading companies through organic growth and strategic acquisitions. GTCR is focused on investing in transformative growth in companies in the Business & Consumer Services, Financial Services & Technology, Healthcare and Technology, Media & Telecommunications sectors. Since its inception, GTCR has invested more than $25 billion in over 270 companies, and the firm currently manages over $35 billion in equity capital. GTCR is based in Chicago with offices in New York and West Palm Beach. For more information, please visit www.gtcr.com.

Recommendation of the UpHealth Board and its Reasons for the Sale (page 57)

The UpHealth Board considered a number of factors before determining to enter into the Purchase Agreement, including, among other things, the purchase price to be paid by Forest Buyer for Cloudbreak, the terms and conditions of the Purchase Agreement, the Sale and the other Transactions contemplated thereby, the financial condition of UpHealth (including that a sister subsidiary of Cloudbreak, UpHealth Holdings, and certain of the subsidiaries of UpHealth Holdings have filed for Chapter 11 protection in the Bankruptcy Court, as further described elsewhere in this proxy statement, and that such bankruptcy filings have resulted in UpHealth being in default under UpHealth’s 6.25% Unsecured Convertible Notes due 2026 (“2026 Notes”) and Variable Rate Convertible Senior Secured Notes due 2025 (“2025 Notes”)), the strategic and financial benefits to UpHealth that are expected to result from the Sale, including the ability to repay in full the 2026 Notes and repay in part the 2025 Notes and to waive certain events of default which have occurred under the Indentures (including due to the bankruptcy filings of UpHealth Holdings and certain of its subsidiaries) that accelerated UpHealth’s payment obligations under the Senior Secured Notes Indenture in respect of the 2025 Notes (as more fully described in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Transaction Support Agreement” beginning on page 82), the fact that retention of the Cloudbreak Business (as defined below) based on its projected cash flow as set forth in the Cloudbreak Business Projections (as defined below) (see the section of this proxy statement entitled “Certain Financial Projections—Cloudbreak Business Projections” beginning on page 66 for additional information) would not be sufficient to enable UpHealth to address such accelerated payment obligations, and the prospects for the Retained Business.

After taking into account all of the material factors relating to the Purchase Agreement and the Sale, the UpHealth Board has unanimously determined that the Sale as contemplated by the Purchase Agreement, and the other Transactions contemplated thereby, are advisable, fair to and in the best interests of UpHealth and its stockholders, has authorized, adopted and approved the Purchase Agreement and the Sale as contemplated thereby, and unanimously recommends that you vote:

 

1.

“FOR” the proposal to approve the Purchase Agreement for the Sale of Cloudbreak, as such Sale constitutes the sale of substantially all of the assets of UpHealth under Delaware law. We refer to this proposal as the “Sale Proposal”; and

 

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2.

“FOR” the proposal to approve the adjournment of the special meeting, if necessary or appropriate, in order to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Sale Proposal. We refer to this proposal as the “Adjournment Proposal.”

The Sale Proposal and the Adjournment Proposal are collectively referred to herein as the “Proposals.”

For a description of the reasons considered by the UpHealth Board in determining to recommend approval of the Sale Proposal, see the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Recommendation of the UpHealth Board and its Reasons for the Sale” beginning on page 57.

Use of Proceeds

Following the expiration or termination of all applicable waiting periods under the HSR Act (as defined below), which occurred on January 2, 2024, and receipt of the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting, and subject to the satisfaction of the other conditions to Closing under the Purchase Agreement, the Sale of Cloudbreak is expected to close during the first quarter of 2024. UpHealth will utilize the proceeds from the Sale for payment in full of the 2026 Notes and payment in part of the 2025 Notes (and interest due on such notes will be paid from a combination of cash of UpHealth and any dividends, interest, distributions and other income received in respect of the Notes Escrow Account (as defined below)), as well as other expenses related to the Transactions contemplated by the Purchase Agreement. Based on UpHealth’s outstanding debt obligations, UpHealth believes that the consummation of the Sale will result in proceeds sufficient to satisfy a substantial majority (approximately 81.75%) of UpHealth’s indebtedness as of the date of this proxy statement. UpHealth’s stockholders will not receive any proceeds from the Sale. For a detailed description of the use of proceeds from the Sale and how such proceeds will be utilized to repay in full UpHealth’s 2026 Notes and repay in part the 2025 Notes, see the sections of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—Escrow Agreement” beginning on page 71 and “—Fundamental Change Repurchase Offer” beginning on page 83.

Activities of UpHealth Following the Sale (page 60)

Following the completion of the Sale, UpHealth intends to pursue a more simplified business strategy that focuses on TTC Healthcare, a growing, cash-flow positive, behavioral health business. UpHealth will continue to be a public company operating under the name UpHealth, Inc., and will continue to own the assets and liabilities which comprise the Retained Business; however, as TTC Healthcare is owned by UpHealth Holdings, which is currently in Chapter 11 bankruptcy, UpHealth will need to resolve the Chapter 11 Proceedings (as defined below) in order to own TTC Healthcare without an intermediate entity that is in bankruptcy directly owning TTC Healthcare. At this time, it is contemplated that UpHealth will maintain the same corporate functions and the same senior executives as UpHealth had prior to the completion of the Sale and the same board of directors that will be in place following the conclusion of UpHealth’s 2023 Annual Meeting of Stockholders. As of immediately following the Closing, all of UpHealth’s revenues will be generated by the Retained Business. For additional information, see the sections of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Activities of UpHealth Following the Sale” beginning on page 60 and “Unaudited Pro Forma Condensed Consolidated Financial Information” beginning on page 92.

Conditions to Closing of the Sale (page 61)

The Purchase Agreement contains customary conditions to Closing for each of UpHealth, Cloudbreak and Forest Buyer.

Unless waived in writing by UpHealth, the obligations of UpHealth and Cloudbreak to complete the Sale and the other Transactions pursuant to the Purchase Agreement are subject to the satisfaction of the following conditions:

 

•

the representations and warranties of Forest Buyer being true and correct in all material respects as of the date of the Purchase Agreement and the Closing or, to the extent made as of an earlier date, as of such earlier date;

 

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•

compliance in all material respects with covenants and agreements required to be performed by Forest Buyer prior to the Closing;

 

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all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) having expired or been otherwise terminated;

 

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UpHealth’s receipt of the Requisite Stockholder Approval at the special meeting;

 

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no action having been taken or overtly threatened by any governmental authority of competent jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling or charge would reasonably be expected to (a) prevent the performance of the Purchase Agreement or the consummation of the Transactions or declare the Transactions unlawful or (b) cause the Transactions to be rescinded following consummation; and no such injunction, judgment, order, decree or ruling shall be in effect;

 

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receipt of the Escrow Agreement (as defined below), executed by each of Forest Buyer and the Escrow Agent (as defined below), and such agreement being in full force and effect;

 

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receipt of the Transition Services Agreement (as defined below), executed by Forest Buyer; and

 

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receipt of: (i) a certificate dated the date of the Closing and signed by an authorized officer of Forest Buyer, stating that the conditions specified in Section 7.2(a) and Section 7.2(b) of the Purchase Agreement have been satisfied; and (ii) certified copies of the resolutions of Forest Buyer’s board of managers authorizing the execution, delivery and performance of the Purchase Agreement and the other Transaction Agreements (as defined in the Purchase Agreement) to which Forest Buyer is a party and the consummation of the Transactions.

Unless waived in writing by Forest Buyer, the obligations of Forest Buyer to complete the Sale and the other Transactions pursuant to the Purchase Agreement are subject to the satisfaction of the following conditions:

 

•

each of the Fundamental Representations (as defined in the Purchase Agreement) of UpHealth and Cloudbreak (other than those regarding equity interests in Cloudbreak and its subsidiaries and title to the equity interests in Cloudbreak) being true and correct in all material respects as of the date of the Purchase Agreement and the Closing or, to the extent made as of an earlier date, as of such earlier date;

 

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each of the representations and warranties of UpHealth and Cloudbreak regarding equity interests in Cloudbreak and its subsidiaries and title to the equity interests in Cloudbreak being true and correct in all respects (other than de minimis inaccuracies) as of the date of the Purchase Agreement and the Closing or, to the extent made as of an earlier date, as of such earlier date;

 

•

each of the other representations and warranties of UpHealth and Cloudbreak contained in the Purchase Agreement being true and correct (without giving effect to any limitation as to “materiality,” “Material Adverse Effect” or similar qualifier set forth therein) as of the date of the Purchase Agreement and the Closing or, to the extent made as of an earlier date, as of such earlier date, except where the failure of any such representation or warranty to be so true and correct (without giving effect to any limitation as to “materiality,” “Material Adverse Effect” or similar qualifier that may be set forth in such representations and warranties) has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

•

compliance in all material respects with the covenants and agreements to be performed by UpHealth and Cloudbreak;

 

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since the date of the Purchase Agreement, no fact, event or circumstance having occurred or arisen that, individually or in combination with any other fact, event or circumstance, has had or would reasonably be expected to have a Material Adverse Effect on Cloudbreak and its subsidiaries;

 

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UpHealth having received the Requisite Stockholder Approval at the special meeting;

 

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Forest Buyer, UpHealth and Cloudbreak having received or obtained all governmental and regulatory consents, approvals, licenses and authorizations that are necessary for the consummation of the Transactions, and all applicable waiting periods under the HSR Act shall have expired or been terminated;

 

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no action having been taken or overtly threatened by any governmental authority of competent jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling or charge would reasonably be expected to (a) prevent the performance of the Purchase Agreement or the consummation of the Transactions or declare the Transactions unlawful, (b) cause the Transactions to be rescinded following consummation, (c) adversely affect the right of Forest Buyer to own the equity interests of Cloudbreak or operate the businesses of or control Cloudbreak and its subsidiaries, (d) affect adversely the right of Cloudbreak and its subsidiaries to own their respective assets or control their respective businesses or (e) result in any material damages being assessed against Cloudbreak or any of its subsidiaries; and no such injunction, judgment, order, decree or ruling shall have been entered or be in effect;

 

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receipt of the Escrow Agreement, executed by each of UpHealth and the Escrow Agent, and such agreement is in full force and effect;

 

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receipt of the Intellectual Property Assignment Agreement (as provided for by the Purchase Agreement), executed by UpHealth, and such agreement is in full force and effect;

 

•

receipt of the Transition Services Agreement, executed by UpHealth, and such agreement is in full force and effect;

 

•

receipt (in form and media reasonably acceptable to Forest Buyer) of a true and complete copy of all data relating to the Cloudbreak Business that is stored on any system owned or controlled by UpHealth or its affiliates (other than Cloudbreak and its subsidiaries), including all finance and human resources data, together with the full configuration files, of and from “Workday” as of the date of Closing;

 

•

receipt of (a) a customary fairness opinion confirming that the Transactions are fair to UpHealth’s stockholders and (b) a customary solvency opinion confirming that UpHealth will remain solvent following the Transactions, in each case, on terms and conditions reasonably satisfactory to Forest Buyer and duly completed by one of the independent financial advisors set forth on Schedule 7.1(k) of the Purchase Agreement;

 

•

the Senior Management Agreement (as defined below) shall remain in full force and effect as of the Closing;

 

•

no Seller Insolvency Event (as defined below, under “Proposal No. 1—The Sale Proposal—Conditions to Closing of the Sale”) has occurred;

 

•

receipt (in a form reasonably acceptable to Forest Buyer) of valid and enforceable evidence of the assignment of each of the contracts set forth on Schedule 7.1(n) of the Purchase Agreement from UpHealth or any of its affiliates (other than Cloudbreak and its subsidiaries) to Cloudbreak or one of its subsidiaries;

 

•

UpHealth and Cloudbreak having completed, to Forest Buyer’s reasonable satisfaction, all migration activities they are obligated to complete pursuant to the Purchase Agreement;

 

•

receipt of the fully executed Supplemental Indentures (as defined below), and such agreements being in full force and effect in accordance with their terms;

 

•

the Estimated Net Working Capital (as such term is defined in the Purchase Agreement) as set forth in the Estimated Closing Statement (as such term is defined in the Purchase Agreement) is equal to or greater than $5,000,000; and

 

•

receipt of: (i) a certificate dated the date of the Closing and signed by an authorized officer of UpHealth, stating that the conditions specified in Section 7.1(a), Section 7.1(b) and Section 7.1(c) of the Purchase

 

6

Agreement (with respect to Cloudbreak) have been satisfied as of the Closing; (ii) certified copies of the resolutions of UpHealth as Cloudbreak’s sole member authorizing the execution, delivery and performance of the Purchase Agreement and the other agreements contemplated thereby to which Cloudbreak is a party and the consummation of the Transactions; (iii) certified copies of the certificate of formation and limited liability company agreement (or similar governing documents) for each of Cloudbreak and its subsidiaries; and (iv) resignations of each of the officers and board members (or equivalent positions) of Cloudbreak and its subsidiaries, as applicable, effective as of the Closing.

The Closing of the Sale is not subject to any financing condition.

Interests of UpHealth’s Directors and Executive Officers in the Sale (page 63)

UpHealth does not believe any director, director nominee or executive officer of UpHealth since January 1, 2022 has any direct or indirect substantial interest in the Sale.

Regulatory Approvals (page 68)

The Closing of the Sale is conditioned on, among other things, all applicable waiting periods under the HSR Act having expired or been terminated, which occurred on January 2, 2024.

Material U.S. Federal Income Tax Consequences of the Sale (page 68)

For U.S. federal income tax purposes, the proposed Sale will be treated as a taxable sale of the individual assets comprising Cloudbreak and its wholly owned subsidiaries. The amount of gain or loss we recognize with respect to the sale of a particular asset will be measured by the difference between the amount realized by us on the sale of that asset (based on an allocation of the purchase price agreed to by Forest Buyer and us) and our tax basis in that asset. The determination of whether we will recognize gain or loss will be made with respect to each of the assets to be sold. Accordingly, we may recognize gain on the sale of certain assets and loss on the sale of certain others, depending on the amount of purchase price allocated to an asset as compared with the basis of that asset. Further, the sale of certain assets may result in ordinary income or loss, depending on the nature of the asset. To the extent the Sale results in our recognizing a net taxable gain, we will report any tax liability on our consolidated income tax return for the taxable period that includes the Sale. Based upon our financial position, we estimate that the maximum possible amount of taxes that would become due and payable by UpHealth as a result of the Transactions, including the Sale (the “Maximum Seller Tax Amount”), is equal to $27,000,000. At the Closing, a portion of the proceeds from the Sale equal to the Maximum Seller Tax Amount (i.e., $27,000,000, although UpHealth and Forest Buyer may mutually determine no later than one day prior to the Closing that the Maximum Seller Tax Amount should be less than $27,000,000) will be deposited in a segregated escrow account to enable UpHealth to pay any and all taxes that become due and payable by UpHealth as a result of the Transactions (the “Tax Escrow Account”). Furthermore, following the Closing, to the extent that any portion of the proceeds from the Sale remains in the Tax Escrow Account after UpHealth has paid all of its taxes that have come due and payable by UpHealth as a result of the Transactions, then after making provision for the payment of the taxes, (x) if the Fundamental Change Repurchase Date (as defined in the Senior Secured Notes Indenture (as defined below)) has not yet occurred, then the excess amount shall be paid to the Notes Escrow Account by wire transfer of immediately available funds for purposes of making an offer to repurchase the 2026 Notes and the 2025 Notes, or (y) if the Fundamental Change Repurchase Date has occurred, then the excess amount shall be released to UpHealth (and held in a deposit account subject to a control agreement in favor of the Consenting Noteholders (as defined below)) for the sole purpose of complying with mandatory repurchase requirements set forth in the Senior Secured Notes Supplemental Indenture (as defined below) with respect to any remaining 2025 Notes.

The proposed Sale is entirely a corporate action undertaken by UpHealth. Our stockholders will not realize any taxable gain or loss on their shares of UpHealth Common Stock for U.S. federal income tax purposes as a result of the Sale, as our stockholders will not receive any direct proceeds from the Sale. We do not anticipate that the

 

7

Sale or the other Transactions contemplated by the Purchase Agreement will result in any U.S. federal income tax consequences to our stockholders.

See the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Material U.S. Federal Income Tax Consequences of the Sale” beginning on page 68 for additional information.

Financing (page 76)

Equity Commitment Letter

In connection and concurrently with the entry into the Purchase Agreement, on November 16, 2023, GTCR Strategic Growth Fund I/B LP, GTCR Strategic Growth Fund I/C LP and GTCR Strategic Growth Co-Invest I LP, each a Delaware limited partnership (the “Guarantors”), entered into an equity commitment letter with Forest Buyer (the “Equity Commitment Letter”), pursuant to which, subject to the terms and conditions set forth in the Equity Commitment Letter, the Guarantors have committed to invest in Forest Buyer, directly or indirectly, the applicable amounts set forth therein, the proceeds of which may be used to consummate the Transactions (the “Equity Financing”). UpHealth is an express third-party beneficiary under the Equity Commitment Letter, and is entitled to specifically enforce the provisions thereof against Forest Buyer in accordance with the terms thereof. Forest Buyer has represented and warranted in the Purchase Agreement that, assuming the conditions set forth in Section 7.1 and Section 7.2 of the Purchase Agreement have been satisfied (or waived), and subject to the terms and conditions of the Equity Commitment Letter, Forest Buyer will have, as of the Closing, sufficient access to immediately available cash in an amount contemplated by the Equity Commitment Letter.

Limited Guaranty

In connection and concurrently with the entry into the Purchase Agreement, on November 16, 2023, Forest Buyer delivered to UpHealth and Cloudbreak a duly executed limited guaranty from the Guarantors in favor of UpHealth (the “Limited Guaranty”), pursuant to which, subject to the conditions expressly set forth in the Limited Guaranty, the Guarantors are guaranteeing certain payment obligations of Forest Buyer in connection with the Purchase Agreement. In the event the Purchase Agreement is terminated by UpHealth for an uncured breach of the Purchase Agreement by Forest Buyer which would give rise to the failure of certain of UpHealth’s Closing conditions, the Limited Guaranty, and the rights, obligations and agreements set forth therein, will survive the termination of the Purchase Agreement in accordance with its terms. Forest Buyer has represented and warranted in the Purchase Agreement that the Guarantors have sufficient cash, available lines of credit, capital commitments or other sources of available funds to satisfy the full amount of their guaranteed obligations under the Limited Guaranty.

Debt Commitment Letter

In connection and concurrently with the entry into the Purchase Agreement, on November 16, 2023, Forest Buyer delivered to UpHealth a debt commitment letter from Forest Buyer and certain debt financing sources (the “Debt Commitment Letter”), providing for, subject to the conditions set forth in the Debt Commitment Letter, a commitment to provide the debt financing described therein, the proceeds of which may be used to consummate the Transactions.

Transition Services Agreement (page 82)

Prior to the Closing, UpHealth and Cloudbreak will enter into a transition services agreement (the “Transition Services Agreement”), pursuant to which UpHealth will agree to provide, following the Closing, certain transition services to Cloudbreak with respect to the operation of the business of Cloudbreak on terms and conditions set forth in the Transition Services Agreement.

 

8

Transaction Support Agreement (page 82)

In connection and concurrently with the entry into the Purchase Agreement, UpHealth, Cloudbreak and Forest Buyer entered into a transaction support agreement, dated as of November 16, 2023 (as may be amended, modified, or supplemented from time to time, including any exhibits, schedules, or annexes thereto, the “Transaction Support Agreement”), with certain beneficial holders of the 2025 Notes (being the holders of at least 69% of the 2025 Notes, the “Consenting Senior Secured Noteholders”) and certain beneficial holders of the 2026 Notes (being the holders of at least 88% of the 2026 Notes, the “Consenting Unsecured Noteholders”, and together with the Consenting Senior Secured Noteholders, the “Consenting Noteholders”), pursuant to which the parties thereto have agreed, among other things, to support the Purchase Agreement and the Transactions, including the Sale, and to enter into and effect the Escrow Agreements, the Supplemental Indentures in connection with the Fundamental Change Repurchase Offer (as defined below) to be made by UpHealth and each other Definitive Document (as defined in the Transaction Support Agreement), in each case, subject to the terms and conditions set forth in the Transaction Support Agreement.

For a discussion of the terms and conditions of the Transaction Support Agreement and its relation to the Purchase Agreement for the Sale of Cloudbreak, see the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Transaction Support Agreement” beginning on page 82.

Voting and Support Agreement (page 87)

In connection and concurrently with the entry into the Purchase Agreement, on November 16, 2023, UpHealth entered into a voting and support agreement (the “Voting Agreement”) with Forest Buyer and certain stockholders of UpHealth which are directors and/or executive officers (or an affiliate thereof) of UpHealth (the “Supporting Stockholders”), pursuant to which such Supporting Stockholders have agreed, among other things, to vote (i) all of the shares of UpHealth Common Stock owned of record or beneficially by held by them as of the date of the Purchase Agreement and (ii) any additional shares of UpHealth Common Stock or other voting securities of UpHealth acquired by the Supporting Stockholders or their affiliates prior to the record date for the special meeting, (a) in favor of the approval of (1) any or all of the Transactions, including the Sale, pursuant to the Purchase Agreement, (2) any or all of the transactions contemplated by any amended and restated Purchase Agreement or amendment to the Purchase Agreement that, in any such case, does not decrease the Cash Consideration (as defined below) or result in the Purchase Agreement being less favorable to the Supporting Stockholders than the Purchase Agreement in effect as of the date of the Voting Agreement (excluding, for avoidance of doubt, any adverse amendment), (3) any proposal to adjourn or postpone the special meeting if UpHealth, Cloudbreak or Forest Buyer proposes or requests such postponement or adjournment in accordance with Section 5.14(b) of the Purchase Agreement and (4) any other proposal considered and voted upon by the Supporting Stockholders at the special meeting (or by written consent) that is necessary or desirable to effectuate the Transactions, including the Sale, as contemplated by the Purchase Agreement, and (b) against (1) any proposal, action or agreement that would reasonably be expected to result in a breach of any covenant, representation or warranty or other obligation or agreement of UpHealth or Cloudbreak contained in the Purchase Agreement or result in any condition set forth in the Purchase Agreement not being satisfied or not being fulfilled prior to the Closing, (2) any Acquisition Proposal (as defined below), or any other proposal made in opposition to, in competition with, or inconsistent with, the Purchase Agreement or the Transactions, including the Sale, (3) any reorganization, recapitalization, dissolution, liquidation, winding up or similar extraordinary transaction involving Cloudbreak (except as contemplated by the Purchase Agreement) and (4) any other action, agreement or proposal which would reasonably be expected to prevent or materially impede or materially delay any of the Transactions contemplated by the Purchase Agreement (clauses (a) and (b), collectively, the “Supported Matters”). The aggregate amount of shares of UpHealth Common Stock beneficially owned by the Supporting Stockholders constitutes 29.39% of the issued and outstanding shares of UpHealth Common Stock as of December 31, 2023. The Voting Agreement restricts the ability of the Supporting Stockholders to transfer or sell shares of UpHealth Common Stock, subject to certain limited exceptions. The Voting Agreement provides for customary representations, warranties and covenants by Forest Buyer and the Supporting Stockholders, and will

 

9

terminate automatically and without further action upon the earliest to occur of: (i) the valid termination of the Purchase Agreement in accordance with its terms, (ii) written notice of termination of the Voting Agreement by Forest Buyer to the Supporting Stockholders, (iii) the mutual written agreement of the parties to the Voting Agreement and (iv) the Closing.

No Solicitation (page 81)

The Purchase Agreement generally restricts the ability of UpHealth and Cloudbreak to solicit any Acquisition Proposal from third parties, or participate in discussions or negotiations with third parties regarding any Acquisition Proposal. Under certain circumstances, however, the UpHealth Board may consider and pursue an unsolicited Acquisition Proposal received after the execution of the Purchase Agreement and before the receipt of the Requisite Stockholder Approval that the UpHealth Board (or a committee thereof) has determined in good faith (after consultation with its financial advisor and outside legal counsel) either is or is reasonably likely to lead to a Superior Proposal (as defined below). Under certain circumstances, UpHealth is permitted to terminate the Purchase Agreement prior to the approval of the Purchase Agreement by our stockholders, in order to enter into an alternative transaction in response to an unsolicited Acquisition Proposal that constitutes a Superior Proposal, upon payment by UpHealth of a $7.2 million Termination Fee (as defined below) to Forest Buyer. See the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—No Solicitation” beginning on page 81 for additional information.

Termination of the Purchase Agreement (page 87)

UpHealth and Forest Buyer may terminate the Purchase Agreement by mutual written consent at any time prior to the Closing.

In addition, either UpHealth or Forest Buyer may terminate the Purchase Agreement at any time prior to the Closing by giving written notice to the other party if:

 

•

the Closing has not been consummated by May 16, 2024 (the “Outside Date”), provided, that this right to terminate the Purchase Agreement shall not be available to any party if the failure of the Closing to have been consummated on or before the Outside Date was primarily caused by the failure of such party to perform any of its covenants or obligations under the Purchase Agreement;

 

•

any law is enacted that makes the consummation of the Transactions illegal or otherwise prohibited, or if the consummation of the Transactions would violate any nonappealable final order, decree or judgment of a governmental authority of competent jurisdiction or require the approval of any court or any other governmental authority to consummate the Transactions; or

 

•

UpHealth fails to obtain the Requisite Stockholder Approval at the special meeting (or any adjournment or postponement thereof), except that such right will not be available to any party whose action or failure to act (which action or failure to act constitutes a breach by such party of the Purchase Agreement) was the primary cause of, or primarily resulted in, the failure to obtain the Requisite Stockholder Approval at the special meeting (or any adjournment or postponement thereof).

UpHealth may also terminate the Purchase Agreement at any time prior to the Closing by giving written notice to Forest Buyer:

 

•

if there has been a breach on the part of Forest Buyer of any of its (i) representations or warranties contained in the Purchase Agreement such that the condition set forth in Section 7.2(a) of the Purchase Agreement would not be satisfied (treating such time as if it were the Closing for purposes of applying this right) or (ii) covenants or agreements contained in the Purchase Agreement such that the condition set forth in Section 7.2(b) of the Purchase Agreement would not be satisfied (treating such time as if it were the Closing for purposes of applying this right), except that, in each case, if such breach is capable of being cured, UpHealth will not be entitled to terminate the Purchase Agreement pursuant to this

 

10

right prior to the delivery by UpHealth to Forest Buyer of written notice of such breach, delivered at least 30 days prior to such termination (or such shorter period of time as remains prior to the Outside Date; the shorter of such periods, the “Buyer Breach Notice Period”), stating UpHealth’s intention to terminate the Purchase Agreement pursuant to this right and the basis for such termination, it being understood that UpHealth will not be entitled to terminate the Purchase Agreement pursuant to this right if (A) such breach has been cured within the Buyer Breach Notice Period or (B) Forest Buyer has the valid right to terminate the Purchase Agreement pursuant to Section 8.1(b) of the Purchase Agreement; or

 

•

at any time prior to receiving the Requisite Stockholder Approval, if (a) UpHealth has received a Superior Proposal, (b) the UpHealth Board has authorized UpHealth to enter into a definitive Alternative Acquisition Agreement (as defined below) to consummate the Acquisition Transaction (as defined below) contemplated by such Superior Proposal in accordance with the non-solicitation provisions of the Purchase Agreement, (c) Cloudbreak has complied with its obligations with respect to the non-solicitation provisions of the Purchase Agreement, and (d) concurrently with such termination, Cloudbreak pays the Termination Fee due to Forest Buyer in accordance with the Purchase Agreement.

Forest Buyer may also terminate the Purchase Agreement at any time prior to the Closing by giving written notice to UpHealth:

 

•

if there has been a breach on the part of Cloudbreak or UpHealth of any of their (i) representations or warranties contained in the Purchase Agreement such that the condition set forth in Section 7.1(a) of the Purchase Agreement would not be satisfied (treating such time as if it were the Closing for purposes of applying this right) or (ii) covenants or agreements contained in the Purchase Agreement such that the condition set forth in Section 7.1(b) if the Purchase Agreement would not be satisfied (treating such time as if it were the Closing for purposes of applying this right), except that, in each case, if such breach is capable of being cured, Forest Buyer will not be entitled to terminate the Purchase Agreement pursuant to this right prior to the delivery by Forest Buyer to UpHealth of written notice of such breach, delivered at least 30 days prior to such termination (or such shorter period of time as remains prior to the Outside Date; the shorter of such periods, the “Seller Breach Notice Period”), stating Forest Buyer’s intention to terminate the Purchase Agreement pursuant to this right and the basis for such termination, it being understood that Forest Buyer will not be entitled to terminate the Purchase Agreement pursuant to this right if (A) such breach has been cured within the Seller Breach Notice Period or (B) UpHealth has the valid right to terminate the Purchase Agreement pursuant to Section 8.1(c) of the Purchase Agreement;

 

•

if the UpHealth Board (or a committee thereof) has effected a Seller Board Recommendation Change;

 

•

if UpHealth, its affiliates or any of their respective representatives has breached its obligations under the non-solicitation provisions of the Purchase Agreement; or

 

•

in the event (i) of the occurrence of a Seller Insolvency Event or (ii) UpHealth and Cloudbreak are not able to satisfy the condition that they deliver customary fairness and customary solvency opinions.

See the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—Termination of the Purchase Agreement” beginning on page 87 for additional information.

Termination Fee (page 89)

UpHealth will pay a termination fee of $7,200,000 (the “Termination Fee”) in the following scenarios:

 

•

if (a) the Purchase Agreement is validly terminated by either Forest Buyer or UpHealth by giving written notice to the other party if the Closing has not been consummated by the Outside Date (an “Applicable Termination”), (b) prior to an Applicable Termination, UpHealth or Cloudbreak has

 

11

received an Acquisition Proposal (and such Acquisition Proposal has not subsequently been irrevocably withdrawn prior to the Applicable Termination) or an Acquisition Proposal has been publicly made or disclosed (and not publicly irrevocably withdrawn at least 4 business days prior to the special meeting (or any adjournment or postponement thereof)), and (c) within 12 months following such Applicable Termination, an Acquisition Transaction is consummated or UpHealth enters into a definitive agreement with respect to an Acquisition Transaction, in which case, UpHealth will, concurrently with the earlier of the execution of the definitive agreement and the consummation of such Acquisition Transaction, pay to Forest Buyer the Termination Fee (and for these purposes, all references to “15%” and “85%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%”);

 

•

if the Purchase Agreement is validly terminated by UpHealth or Forest Buyer due to UpHealth’s failure to obtain the Requisite Stockholder Approval, in which case, UpHealth will promptly (and in any event within 2 business days) following such termination pay to Forest Buyer the Termination Fee;

 

•

if the Purchase Agreement is validly terminated by Forest Buyer (i) for the uncured breach of the Purchase Agreement by UpHealth or Cloudbreak, which breach would give rise to the failure of certain of Forest Buyer’s Closing conditions, (ii) if the UpHealth Board (or a committee thereof) has effected a Seller Board Recommendation Change or UpHealth, its affiliates or any of their respective representatives has breached its obligations under the non-solicitation provisions of the Purchase Agreement, or (iii) in the event of the occurrence of a Seller Insolvency Event or UpHealth and Cloudbreak are not able to satisfy the condition that they deliver customary fairness and customary solvency opinions, in which case, UpHealth will promptly (and in any event within 2 business days) following such termination pay to Forest Buyer the Termination Fee; or

 

•

if the Purchase Agreement is validly terminated by UpHealth at any time prior to receiving the Requisite Stockholder Approval due to (a) UpHealth having received a Superior Proposal, (b) the UpHealth Board (or a committee thereof) having authorized UpHealth to enter into a definitive Alternative Acquisition Agreement to consummate the Acquisition Transaction contemplated by such Superior Proposal in accordance with the non-solicitation provisions of the Purchase Agreement, (c) Cloudbreak has complied with its obligations with respect to the non-solicitation provisions of the Purchase Agreement, and (d) concurrently with such termination, Cloudbreak pays the Termination Fee due to Forest Buyer in accordance with the Purchase Agreement, in which case, UpHealth must prior to or concurrently with such termination pay to Forest Buyer the Termination Fee.

See the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—Termination Fee” beginning on page 89 for additional information.

No Survival; No Indemnification (page 76)

Subject to the rights of any party in the event of Fraud (as defined in the Purchase Agreement), the representations and warranties of the parties contained in the Purchase Agreement terminate as of, and do not survive, the Closing, and there are no indemnification rights for another party’s breach, and the covenants and agreements of the parties contained in the Purchase Agreement do not survive the Closing, provided that any covenants or agreements which by their terms contemplate performance (in whole or in part) after the Closing will survive to the extent so required to be performed after the Closing.

The Purchase Agreement provides for a mutual release of claims by UpHealth and by Forest Buyer (on behalf of itself, the Guarantors and Cloudbreak and its subsidiaries), effective as of the Closing.

No Appraisal or Dissenters’ Rights (page 90)

No appraisal or dissenters’ rights are available to our stockholders under Delaware law or our Second Amended and Restated Certificate of Incorporation or Bylaws in connection with the Sale or any other Transactions

 

12

contemplated by the Purchase Agreement, regardless of whether such stockholders vote for or against the approval of the Sale Proposal.

Risk Factors (page 24)

The Sale and the other Transactions contemplated by the Purchase Agreement, including the possibility that the Sale and such other Transactions may not be completed, involve and are subject to a number of risks to UpHealth and our stockholders, including the following:

 

•

the announcement and pendency of the Sale and the other Transactions contemplated by the Purchase Agreement, whether or not completed, may adversely affect the Retained Business;

 

•

if we fail to complete the Sale and the other Transactions contemplated by the Purchase Agreement, our business and financial performance may be adversely affected, including in the event UpHealth is required to pay the Termination Fee;

 

•

the Purchase Agreement contains provisions that limit our ability to pursue alternatives to the Sale;

 

•

if the Purchase Agreement is not approved or if we fail to complete the Sale, there may not be any other offer from potential acquirers that the UpHealth Board determines to be attractive;

 

•

the filing of the Chapter 11 Proceedings by the Debtors (as defined below) constituted an event of default under our Indentures that accelerated our obligations under the Senior Secured Notes Indenture, and the commencement of delisting procedures in respect of UpHealth Common Stock could also lead to an event of default under our Indentures that could result in the acceleration of our obligations under the Indentures, and as a result of such acceleration of our debt obligations in respect of the 2025 Notes, we believe there is substantial doubt about our ability to continue as a going concern;

 

•

our debt agreements, including the Senior Secured Notes Indenture, contain, and the Supplemental Indentures that we will enter into pursuant to the Transaction Support Agreement will contain, restrictions that may limit our flexibility in operating and financing our business, and any default on our secured credit facility or any future secured credit facilities (including certain liens to be granted by us in favor of the 2025 Noteholders and 2026 Noteholders (each as defined below) pursuant to the Supplemental Indentures), whether as a result of the failure to consummate the Transactions or otherwise, could result in foreclosure by our secured noteholders or future secured noteholders on our assets;

 

•

following the closing of the Sale, we will be subject to five-year non-competition and non-solicitation covenants under the Purchase Agreement, which may limit our ability to operate our business in certain respects; and

 

•

even if the Sale is completed, we cannot provide any assurances that we will realize the financial benefits we currently anticipate from the Sale.

For additional information regarding the risk factors related to the Purchase Agreement, the Sale and the other Transactions provided for thereby, and the operation of the Retained Business by UpHealth following the Closing of the Sale, see the section of this proxy statement entitled “Risk Factors” beginning on page 24.

The Special Meeting (page 29)

Date, Time and Place. The special meeting will be held on February 29, 2024 at 1:00 p.m., Eastern time, virtually at www.virtualshareholdermeeting.com/UPH2024SM, or at such other time, on such other date and at such other place to which the special meeting may be adjourned.

Matters to be Considered at the Special Meeting. At the special meeting, holders of UpHealth Common Stock as of the record date will consider and vote upon:

 

•

Proposal No. 1—The Sale Proposal; and

 

•

Proposal No. 2—The Adjournment Proposal.

 

13

Record Date. Holders of UpHealth Common Stock as of the close of business on January 24, 2024, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting and any postponements or adjournments of the special meeting.

Required Vote. The approval of the Sale Proposal requires the affirmative vote of the holders of a majority of the shares of UpHealth Common Stock issued and outstanding and entitled to vote thereon at the special meeting, voting together as a single class in person or by proxy (the Requisite Stockholder Approval). The approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of UpHealth Common Stock present in person or by proxy and entitled to vote on the matters to be considered at the special meeting.

 

14

QUESTIONS AND ANSWERS ABOUT THE SALE AND SPECIAL MEETING

The following are some questions that you, as a stockholder of UpHealth, may have regarding the Sale as contemplated by the Purchase Agreement and the special meeting, together with brief answers to those questions. UpHealth urges you to read carefully the remainder of this proxy statement, including the annexes and other documents referred to or incorporated by reference in this proxy statement, because the information in this section may not provide all of the information that might be important to you with respect to the Sale as contemplated by the Purchase Agreement and the special meeting.

 

Q.	What is the Sale?

 

A.

On November 16, 2023, UpHealth and its wholly-owned subsidiary, Cloudbreak, entered into the Purchase Agreement with Forest Buyer, an affiliate of GTCR, pursuant to which UpHealth has agreed to sell all of the outstanding equity interests of Cloudbreak and the wholly-owned subsidiaries of Cloudbreak to Forest Buyer for $180.0 million in cash, subject to certain adjustments for closing indebtedness, working capital, cash and the unpaid transaction expenses related to the transactions contemplated by the Purchase Agreement (which we refer to in this proxy statement as the Sale). The terms of the Sale as contemplated by the Purchase Agreement provide that, at the Closing of Transactions, Forest Buyer will acquire complete equity ownership of Cloudbreak and its business, including the aggregate Cloudbreak employee base. Immediately following completion of the Sale, Forest Buyer will own all of Cloudbreak’s outstanding equity interests and Cloudbreak will be a wholly-owned subsidiary of Forest Buyer. The Sale as contemplated by the Purchase Agreement constitutes the sale of substantially all of the assets of UpHealth under Section 271 of the DGCL, and we are therefore seeking the approval of the Sale by our stockholders.

A copy of the Purchase Agreement is attached to this proxy statement as Annex A.

 

Q.	Why is UpHealth proposing to effect the Sale?

 

A.

In the course of reaching its decision to approve the Sale, the UpHealth Board considered a number of factors, including, among other things, the purchase price to be paid by Forest Buyer for Cloudbreak, the terms and conditions of the Purchase Agreement, the Sale and the other Transactions contemplated thereby, the financial condition of UpHealth (including that a sister subsidiary of Cloudbreak, UpHealth Holdings, and certain of the subsidiaries of UpHealth Holdings have filed for Chapter 11 protection in the Bankruptcy Court, as further described elsewhere in this proxy statement, and that such bankruptcy filings have resulted in UpHealth being in default under UpHealth’s 2026 Notes and 2025 Notes), the strategic and financial benefits to UpHealth that are expected to result from the Sale, including the ability to repay in full the 2026 Notes and repay in part the 2025 Notes and to waive certain events of default which have occurred under the Indentures (including due to the bankruptcy filings of UpHealth Holdings and certain of its subsidiaries for Chapter 11 protection) that accelerated UpHealth’s payment obligations under the Senior Secured Notes Indenture in respect of the 2025 Notes (as more fully described in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Transaction Support Agreement” beginning on page 82), the fact that retention of the Cloudbreak Business based on its projected cash flow as set forth in the Cloudbreak Business Projections (see the section of this proxy statement entitled “Certain Financial Projections—Cloudbreak Business Projections” beginning on page 66 for additional information) would not be sufficient to enable UpHealth to address such accelerated payment obligations, and the prospects for the Retained Business. In particular, the UpHealth Board believes that the consummation of the Sale will result in proceeds sufficient to satisfy a substantial majority of UpHealth’s indebtedness. For additional information, see the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Recommendation of the UpHealth Board and its Reasons for the Sale” beginning on page 57.

 

Q.	Why am I receiving these materials?

 

A.	The Sale as contemplated by the Purchase Agreement constitutes the sale of substantially all of the assets of UpHealth under Section 271 of the DGCL, and we are therefore seeking the approval of the Sale pursuant to

 

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the Purchase Agreement by our stockholders. The Closing is conditioned on, among other things, UpHealth obtaining the Requisite Stockholder Approval of the Sale at the special meeting. UpHealth is sending these materials to you to help you decide how to vote your shares of UpHealth Common Stock with respect to the Sale Proposal and the Adjournment Proposal to be considered at the special meeting. This proxy statement contains important information about the Sale Proposal, the special meeting and the Adjournment Proposal, and you should read it carefully.

 

Q.	How would the proceeds from the Sale be used?

 

A.

Following the expiration or termination of all applicable waiting periods under the HSR Act, which occurred on January 2, 2024, and receipt of the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting, and subject to the satisfaction of the other conditions to Closing, the Sale of Cloudbreak is expected to close during the first quarter of 2024. UpHealth will utilize the proceeds from the Sale for payment in full of the 2026 Notes and payment in part of the 2025 Notes (and interest due on such notes will be paid from a combination of cash of UpHealth and any dividends, interest, distributions and other income received in respect of the Notes Escrow Account), as well as other expenses related to the Transactions contemplated by the Purchase Agreement. Based on UpHealth’s outstanding debt obligations, UpHealth believes that the consummation of the Sale will result in proceeds sufficient to satisfy a substantial majority (approximately 81.75%) of UpHealth’s indebtedness as of the date of this proxy statement. UpHealth’s stockholders will not receive any proceeds from the Sale.

For a detailed description of the use of proceeds from the Sale and how such proceeds will be utilized to repay UpHealth’s 2026 Notes and 2025 Notes, see the sections of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—Escrow Agreement” beginning on page 71 and “—Fundamental Change Repurchase Offer” beginning on page 83.

 

Q.	How will UpHealth stockholders be affected by the Sale and how will the Sale affect UpHealth’s Retained Business?

 

A.

Cloudbreak offers leading telehealth and video remote interpretation solutions and is recognized through its core solution, MarttiTM (“My Accessible Real-Time Trusted Interpreter”), and has constituted the entirety of UpHealth’s Virtual Care Infrastructure segment since July 1, 2022. The MarttiTM solution provides medical interpreters in over 250 languages, which are delivered through custom MarttiTM devices, such as tablets and smartphones. Pursuant to the Sale, Forest Buyer will acquire complete equity ownership of Cloudbreak, including the aggregate Cloudbreak employee base. See the section entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—Employee Matters” beginning on page 90. The Sale will have no effect on the number of shares or the attributes of shares of UpHealth Common Stock held by UpHealth’s stockholders. However, UpHealth’s business will undergo significant changes in connection with the Sale. As of immediately following the Closing, all of UpHealth’s revenues will be generated by the Retained Business through its ownership of TTC Healthcare. Following the completion of the Sale, UpHealth intends to pursue a more simplified business strategy that focuses on TTC Healthcare, a growing, cash-flow positive, behavioral health business that is a wholly-owned subsidiary of UpHealth Holdings, which is a wholly-owned subsidiary of UpHealth and which has filed for Chapter 11 protection in the Bankruptcy Court, as further described in the section of this proxy statement entitled “Risk Factors” beginning on page 24. TTC Healthcare has not filed for Chapter 11 protection and is operating in the normal course of business. At this time, it is contemplated that UpHealth will maintain the same corporate functions and the same senior executives as UpHealth had prior to the completion of the Sale and the same board of directors that will be in place following the conclusion of UpHealth’s 2023 Annual Meeting of Stockholders.

 

Q.	Are there any risks associated with the Sale?

 

A.	Yes. You should carefully review the section of this proxy statement entitled “Risk Factors” beginning on page 24, which presents risks and uncertainties related to the Sale and the operations of the Retained

 

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Business by UpHealth following the completion of the Sale or in the event the Purchase Agreement is terminated prior to completion of the Sale.

 

Q.	What stockholder approval is required to complete the Sale?

 

A.

As a condition to the Closing of the Sale, UpHealth’s stockholders must approve the Sale Proposal, which requires the affirmative vote of the holders of a majority of the shares of UpHealth Common Stock issued and outstanding and entitled to vote thereon at the special meeting, voting together as a single class in person or by proxy (which we refer to in this proxy statement as the Requisite Stockholder Approval).

In addition to the approval of the Sale Proposal by UpHealth’s stockholders, each of the other conditions to the Closing of the Sale contained in the Purchase Agreement must be satisfied or waived. For additional information, see the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—Conditions to Closing of the Sale” beginning on page 61.

 

Q.	Are there any other proposals to be considered and approved at the special meeting?

 

A.

Yes. In addition to the Sale Proposal, UpHealth is also asking its stockholders to approve the Adjournment Proposal, to adjourn the special meeting, if necessary or appropriate, in order to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Sale Proposal, which requires the affirmative vote of the holders of a majority of the shares of UpHealth Common Stock issued and outstanding and entitled to vote thereon at the special meeting, voting together as a single class in person or by proxy.

 

Q.	When is the Closing of the Sale expected to occur?

 

A.

We expect the Closing of the Sale to occur on the date that is the third business day following the satisfaction or waiver of each of the conditions to Closing, including receipt of the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting, but in no event prior to March 15, 2024, unless consented to in writing by UpHealth and Forest Buyer.

 

Q:	How does the UpHealth Board recommend that UpHealth stockholders vote with respect to each of the proposals?

 

A:	The UpHealth Board recommends that the UpHealth stockholders vote “FOR” the Sale Proposal and “FOR” the Adjournment Proposal.

 

Q.	What are the U.S. federal income tax consequences of the Sale to U.S. stockholders?

 

A.

The proposed Sale is entirely a corporate action undertaken by UpHealth. Our stockholders will not realize any gain or loss on their shares of UpHealth Common Stock for U.S. federal income tax purposes as a result of the Sale. We do not anticipate that the Sale or the other Transactions contemplated by the Purchase Agreement will result in any U.S. federal income tax consequences to our stockholders.

See the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Material U.S. Federal Income Tax Consequences of the Sale” beginning on page 68 for additional information.

 

Q.	Do I have appraisal or dissenters’ rights in connection with the Sale?

 

A.

No. No appraisal or dissenters’ rights are available to our stockholders under Delaware law or our Second Amended and Restated Certificate of Incorporation or Bylaws in connection with the Sale or any other Transactions contemplated by the Purchase Agreement, regardless of whether such stockholders vote for or against the approval of the Sale Proposal.

 

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Q.	When and where will the special meeting take place?

 

A.	The special meeting will be held on February 29, 2024 at 1:00 p.m., Eastern time, virtually at www.virtualshareholdermeeting.com/UPH2024SM, or at such other time, on such other date and at such other place to which the special meeting may be adjourned.

 

Q.	Who can attend and vote at the special meeting?

 

A.

Holders of UpHealth Common Stock as of the close of business on January 24 2024, the record date for the special meeting, are entitled to notice of, and to attend and vote at, the special meeting. Each share of UpHealth Common Stock is entitled to one vote on all matters that come before the special meeting. There are 18,671,142 shares of UpHealth Common Stock issued and outstanding as of the record date.

 

Q:	What do I need to do now and how do I vote?

 

A:	UpHealth urges you to read this entire proxy statement carefully, including its annexes, and to consider how the Sale as contemplated by the Purchase Agreement and the actions contemplated by each of the Proposals may affect you.

If your shares of UpHealth Common Stock are registered directly in your name with UpHealth’s transfer agent, Continental Stock Transfer and Trust Company, you are considered, with respect to those shares, to be the “stockholder of record,” and the proxy materials and proxy card are being sent directly to you by UpHealth. There are four methods by which you may vote your shares at the special meeting:

 

•

In Person. You may vote your shares in person at the special meeting if you attend the special meeting, which will be held virtually at www.virtualshareholdermeeting.com/UPH2024SM. Even if you plan to attend the special meeting in person, we encourage you to vote in advance through the Internet, by telephone or by mail so that your vote will be counted in the event you later decide not to attend the special meeting. When we refer to “in person” attendance and voting at the special meeting, we mean virtual attendance and voting over the Internet during the special meeting (such meaning having been authorized by the UpHealth Board in accordance with Section 9.5 of our Second Amended and Restated Bylaws (our “Bylaws”)).

 

•

By Internet. You may vote your shares 24 hours a day by logging onto the secure website included on the proxy card and following the instructions provided, at any time up until 11:59 p.m., Eastern time, on February 28, 2024.

 

•

By Telephone. You may vote your shares 24 hours a day by calling the telephone number listed on the proxy card and following the instructions provided by the recorded message, at any time up until 11:59 p.m., Eastern time, on February 28, 2024.

 

•

By Mail. You may vote by completing, signing, dating and promptly returning the proxy card in the postage-paid return envelope provided with the proxy materials, so that it is received not later than 11:59 p.m., Eastern time, on February 28, 2024.

If you hold shares of UpHealth Common Stock in “street name” through an account with a broker, dealer, bank or other nominee, please follow the instructions you receive from them to vote your shares.

 

Q.	What happens if I do not sign and return my proxy card or vote through the Internet, by telephone or in person at the special meeting or I do not otherwise provide proxy instructions?

 

A.

Assuming the presence of a quorum, which is required to transact business at the special meeting, if you fail to return your proxy card or vote your shares through the Internet or by telephone, or if you hold your shares in “street name” and you fail to instruct your bank, broker or other nominee how to vote, and do not vote in person at the special meeting, your shares will not be counted for purposes of determining whether a

 

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quorum is present at the special meeting and will have the same effect as an “AGAINST” vote with respect to the Sale Proposal and the Adjournment Proposal, but will have no effect on the approval of the Adjournment Proposal.

If you are a stockholder of record and you sign, date and mail your proxy card without indicating how you wish to vote, your proxy will be counted as present for the purpose of determining the presence of a quorum for the special meeting and all of your shares will be voted “FOR” each of the Proposals.

Whether or not you expect to attend the special meeting, we request that you complete, date, sign and return the enclosed proxy card in the postage-paid envelope or vote your shares through the Internet or by telephone as instructed in these materials as soon as possible to ensure that your shares will be represented at the special meeting. If you hold shares of UpHealth Common Stock in “street name” through an account with a broker, dealer, bank or other nominee, please follow the instructions you receive from them to vote your shares.

 

Q.	What if I abstain from voting?

 

A.

If you attend the special meeting or submit a proxy card, but affirmatively elect to abstain from voting, your proxy will be counted as present for the purpose of determining the presence of a quorum for the special meeting but will not be voted at the special meeting. As a result, your abstention will have the same effect as voting “AGAINST” each Proposal.

 

Q.	What is a broker non-vote?

 

A.

Broker non-votes relate to shares held in “street name” through brokers, dealers, banks and other nominees. If your shares are held in “street name” through an account with a broker, dealer, bank or other nominee, such broker, dealer, bank or other nominee is required to vote your shares according to your instructions, if provided. If you do not provide specific voting instructions, under NYSE rules governing banks and brokers who submit a proxy card with respect to shares held in “street name,” such banks and brokers have the discretionary authority to vote on routine matters, but not on non-routine matters. A broker non-vote occurs when a bank or broker has not received voting instructions from the beneficial owner of the shares and the bank or broker cannot vote the shares at its discretion because the matter is not considered a routine matter under NYSE rules. In tabulating the voting results for any particular proposal, shares that constitute broker non-votes are not considered entitled to vote on that proposal.

 

Q:	If my shares of UpHealth Common Stock are held in “street name” by my broker, dealer, bank or other nominee, will my broker, dealer, bank or nominee vote my shares for me and may I vote in person?

 

A:

If your shares of UpHealth Common Stock are held through an account with a broker, dealer, bank or nominee, you are considered the beneficial owner of shares held in “street name,” and these proxy materials are being forwarded to you together with a voting instruction card. You must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, dealer, bank or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to UpHealth.

As the beneficial owner, you are also invited to attend the special meeting in person. However, since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the special meeting unless you obtain a “legal proxy” from the broker, dealer, bank or other nominee that holds your shares giving you the right to vote the shares in person at the special meeting.

 

Q:	May I revoke or change my vote after I have provided proxy instructions?

 

A:	Yes. If you are a stockholder of record, you may revoke your proxy and change your vote at any time before your proxy is voted at the special meeting by returning a later-dated proxy card, by voting again over the

 

19

Internet, by telephone or in person at the special meeting as more fully detailed in your proxy card, or by delivering written instructions to the Secretary at the principal executive offices of UpHealth before the special meeting. Attendance at the special meeting will not in and of itself cause your previously voted proxy to be revoked unless you specifically so request or vote again at the special meeting. If your shares are held in an account at a bank, brokerage firm or other agent, you may change your vote by submitting new voting instructions to your bank, brokerage firm or other agent, or, if you have obtained a valid proxy from your bank, brokerage firm or other agent giving you the right to vote your shares, by attending the special meeting and voting in person. If you have instructed your broker, dealer, bank or other nominee to vote your shares, you must follow directions received from your broker, dealer, bank or other nominee in order to change those instructions.

 

Q.	What constitutes a quorum for the special meeting?

 

A.

At least one-third of the shares of UpHealth Common Stock outstanding as of the record date must be represented at the special meeting, either in person or by proxy, to constitute a quorum for the transaction of business at the special meeting. The 170,000 issued shares of UpHealth Common Stock held by UpHealth as treasury shares (which are not considered as outstanding), as a matter of Delaware law, do not count for purposes of determining whether a quorum is present at the special meeting and are not entitled to be voted. Your shares will be counted towards the quorum if you submit a valid proxy (or one is submitted on your behalf by your broker or bank) or if you vote in person at the special meeting. Abstentions will be counted as present for purposes of determining the presence of a quorum. Shares of UpHealth Common Stock held by stockholders in “street name” through a broker, bank or other nominee that do not instruct the nominee how to vote such shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting.

 

Q:	Who is soliciting proxies for the special meeting, and who is paying for this proxy solicitation?

 

A:

The UpHealth Board is soliciting your proxy, and UpHealth will bear the cost of this solicitation of proxies. This includes the charges and expenses for preparation, assembly, printing, mailing, and distribution of this proxy statement and the related proxy materials. Morrow Sodali, a proxy solicitor, has been retained to assist UpHealth in the solicitation of proxies for the special meeting, and UpHealth will pay Morrow Sodali $15,000, plus reimbursement for its reasonable out-of-pocket expenses, and indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses for its services as UpHealth’s proxy solicitor. Proxies may be solicited by mail, personal interview, e-mail, telephone, or via the Internet by Morrow Sodali, or, without any additional compensation, by certain of UpHealth’s directors, officers and employees.

UpHealth will ask banks, brokers and other institutions, nominees and fiduciaries holding shares of UpHealth Common Stock beneficially owned by others to forward this proxy statement and the related proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. UpHealth will reimburse brokerage firms and other custodians for their reasonable out-of-pocket expenses for forwarding this proxy statement and the related proxy materials to UpHealth’s stockholders.

 

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

 

A.

If you received more than one proxy card, your shares are likely registered in more than one name or are held in more than one account. Each proxy card you receive should be completed indicating how you wish to vote and returned separately in the postage-paid envelopes provided in order to ensure that all of your shares of UpHealth Common Stock are voted.

 

Q.	Will I receive any payment for my shares of UpHealth Common Stock in connection with the Sale?

 

A.	No. The proceeds from the Sale will be paid directly to UpHealth, not UpHealth stockholders.

 

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Q.	Whom should I contact if I have any questions about the Sale, the special meeting or voting?

 

A.

If you are a stockholder of UpHealth and have any questions about the Sale or the special meeting, or if you need assistance in submitting your proxy or voting your shares or need additional copies of this proxy statement or the enclosed proxy card, you should contact Morrow Sodali, our proxy solicitor, by calling (800) 662-5200 (toll-free), or banks and brokers can call (203) 658-9400, or by emailing [email protected].

If your shares are held through an account with a broker, dealer, bank or other nominee, you should call your broker, dealer, bank or other nominee for additional information.

 

21

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains forward-looking statements within the meaning of U.S. federal securities laws. Such forward-looking statements include, but are not limited to, statements regarding the delisting of UpHealth Common Stock from the NYSE, the trading of UpHealth Common Stock and our Warrants on the over-the-counter market, obtaining customary regulatory and stockholder approval of the Sale, the Cloudbreak Business Projections, the Closing, including its timing, of the Sale of Cloudbreak, the use of proceeds of the Sale, the projected operation and financial performance of UpHealth, including following the Sale of Cloudbreak, and anticipated cash flow of UpHealth, its product offerings and developments and reception of its product by customers, the arbitration and other legal disputes involving Glocal, and UpHealth’s expectations, hopes, beliefs, intentions, plans, prospects or strategies regarding the future revenue and the business plans of UpHealth’s management team. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. In addition, any statements that refer to projections (including the Cloudbreak Business Projections), forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this proxy statement are based on certain assumptions and analyses made by the management of UpHealth considering their respective experience and perception of historical trends, current conditions, and expected future developments and their potential effects on UpHealth as well as other factors they believe are appropriate in the circumstances. There can be no assurance that future developments affecting UpHealth will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the control of the parties), or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including whether UpHealth will be able to regain compliance with the continued listing standards of the NYSE or comply with the initial listing standards of another national securities exchange, the ability of UpHealth to service or otherwise pay its debt obligations, including to holders of UpHealth’s 2025 Notes and 2026 Notes in the event the Closing does not occur, the mix of services utilized by UpHealth’s customers and such customers’ needs for these services, market acceptance of new service offerings, the ability of UpHealth to expand what it does for existing customers as well as to add new customers, uncertainty with respect to how the ICA or the Indian courts shall decide various matters that are before them or that the board of directors of Glocal will act in compliance with their fiduciary duties to their shareholders, that UpHealth will have sufficient capital to operate as anticipated, and the impact that the novel coronavirus and the illness, COVID-19, that it causes, as well as government responses to deal with the spread of this illness and the reopening of economies that have been closed as part of these responses, may have on UpHealth’s operations, the demand for UpHealth’s products, global supply chains and economic activity in general. These forward-looking statements are also subject to a number of risks and uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied, including, but not limited to, risks and uncertainties relating to the following:

 

•

the ability of the parties to consummate the proposed Sale and the other Transactions contemplated by the Purchase Agreement in a timely manner or at all;

 

•

the satisfaction (or waiver) of Closing conditions to the consummation of the proposed Sale and the other Transactions, and potential delays in consummation of the proposed Sale;

 

•

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

 

•

significant transaction costs associated with the proposed Sale and the other Transactions;

 

•

potential litigation relating to the proposed Sale or any other Transaction;

 

•

the risk that disruptions from the proposed Transactions will harm UpHealth’s business, including current plans and operations;

 

22

•

the ability of UpHealth to retain and hire key personnel; and

 

•

potential adverse reactions or changes to business relationships resulting from the announcement or completion of the proposed Sale and the other Transactions.

Therefore, you should not place undue reliance on any such statements and caution must be exercised in relying on forward-looking statements. Should one or more of these risks or uncertainties materialize or should any of the assumptions being made prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

23

RISK FACTORS

In addition to the other information included and referred to in this proxy statement, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 22, you should carefully consider the following risk factors before deciding how to vote your shares of UpHealth Common Stock at the special meeting. These factors should be considered in conjunction with the other information included by UpHealth in this proxy statement and the risk factors described in UpHealth’s other filings with the SEC, including in the “Risk Factors” sections of UpHealth’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on March 31, 2023 and Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 as filed with the SEC on November 21, 2023, which filings are incorporated by reference in this proxy statement, and in all other filings incorporated herein by reference. In addition to those risk factors which are incorporated by reference herein, as of the date of this proxy statement, UpHealth supplements such risk factors with the following risk factors. If any of the risks described below, incorporated by reference or otherwise referred to in this proxy statement actually materialize, the business, financial condition, results of operations or prospects of UpHealth, or the stock price of UpHealth, could be materially and adversely affected.

Risks Related to the Sale

The announcement and pendency of the Sale and the other Transactions contemplated by the Purchase Agreement, whether or not completed, may adversely affect the Retained Business.

The announcement and pendency of the Sale may adversely affect the trading price of UpHealth Common Stock, our business or our relationships with clients, customers, suppliers and employees. Third parties may be unwilling to enter into material agreements with respect to the Retained Business. New or existing customers, suppliers and business partners may prefer to enter into agreements with our competitors who have not expressed an intention to sell their business because customers, suppliers and business partners may perceive that such new relationships are likely to be more stable. Additionally, employees working in the Retained Business may become concerned about the future of the Retained Business, as applicable, and lose focus or seek other employment. In addition, while the completion of the Sale is pending we may be unable to attract and retain key personnel and our management’s focus and attention and employee resources may be diverted from operational matters.

If we fail to complete the Sale and the other Transactions contemplated by the Purchase Agreement, our business and financial performance may be adversely affected, including in the event UpHealth is required to pay the Termination Fee.

The completion of the Sale and the other Transactions contemplated by the Purchase Agreement is subject to the satisfaction or waiver of various conditions, including the approval of the Sale by our stockholders, which may not be satisfied in a timely manner or at all.

If the Sale is not completed, we may have difficulty recouping the costs incurred in connection with negotiating the Sale and the other Transactions. Our directors, executive officers and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the Sale, and we will have incurred significant third-party transaction costs, in each case, without any commensurate benefit, which may have a material and adverse effect on our stock price and results of operations.

Furthermore, if the Sale and the other Transactions are not completed, the announcement of the termination of the Purchase Agreement may adversely affect our relationships with our customers, vendors and employees, which could have a material adverse impact on our ability to effectively operate our business, and we may be required to pay the Termination Fee of $7,200,000 under certain circumstances, each of which could have further adverse effects on our business, results of operations and the trading price of UpHealth Common Stock.

 

24

The Purchase Agreement contains provisions that limit our ability to pursue alternatives to the Sale.

The Purchase Agreement contains provisions that may make it more difficult for us to sell Cloudbreak to any party other than Forest Buyer. These provisions include the prohibition on our ability to solicit competing proposals and the requirement that we pay Forest Buyer the Termination Fee of $7,200,000 if we terminate the Purchase Agreement prior to the closing of the Sale as a result of our determining to accept an alternative Acquisition Proposal that we determine to be a Superior Proposal. For additional information, see the sections of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—No Solicitation” beginning on page 81and “—Termination Fee” beginning on page 89.

These provisions have, and could in the future, make it less advantageous for a third party that might have an interest in acquiring UpHealth or all of or a significant part of Cloudbreak to consider or propose an alternative transaction, even if that party were prepared to pay consideration with a higher value than the consideration to be paid by Forest Buyer. See the discussion in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Background of the Sale” beginning on page 35 for additional information.

If the Purchase Agreement is not approved or if we fail to complete the Sale, there may not be any other offer from potential acquirers that the UpHealth Board determines to be attractive.

If our stockholders do not approve the Purchase Agreement or if we fail to complete the Sale, the UpHealth Board, in discharging its fiduciary obligations to our stockholders, may evaluate other strategic alternatives including, but not limited to, continuing to operate Cloudbreak for the foreseeable future or an alternative sale transaction relating to Cloudbreak or UpHealth. An alternative sale transaction, if available, may yield lower consideration than the proposed Sale, be on less favorable terms and conditions than those contained in the Purchase Agreement and involve significant delay. Any future sale of substantially all of the assets of UpHealth or other similar transaction may be subject to further stockholder approval, and there is no guarantee that UpHealth would be able to obtain such stockholder approval in favor of any such sale or other transaction.

The filing of the Chapter 11 Proceedings by the Debtors constituted an event of default under our Indentures that accelerated our obligations under the Senior Secured Notes Indenture, and the commencement of delisting procedures in respect of UpHealth Common Stock could also lead to an event of default under our Indentures that could result in the acceleration of our obligations under the Indentures, and as a result of such acceleration of our debt obligations in respect of the 2025 Notes, we believe there is substantial doubt about our ability to continue as a going concern.

As discussed in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023, the filing by UpHealth Holdings and by two of UpHealth Holdings’ wholly-owned subsidiaries, Thrasys, Inc. (“Thrasys”) and Behavioral Health Services, LLC (“BHS”), and each of the subsidiaries of Thrasys and BHS (such subsidiaries, collectively with UpHealth Holdings, Thrasys and BHS, being referred to individually herein and collectively as the “Debtors”), of voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware on September 19, 2023 and October 20, 2023, respectively, which Chapter 11 cases are being jointly administered (for procedural purposes only) under the caption In re UpHealth Holdings, Inc., Case No. 23-11476 (U.S. Bankr. D. Del.) (the “Chapter 11 Proceedings”), constituted an event of default under the Indentures governing the 2025 Notes and 2026 Notes. The Senior Secured Notes Indenture provides that upon the commencement of the Chapter 11 Proceedings, the principal and interest due thereunder in respect of the 2025 Notes shall be immediately due and payable. As a result of such acceleration of our debt obligations in respect of the 2025 Notes, we believe there is substantial doubt about our ability to continue as a going concern. To address these concerns, on November 16, 2023, we entered into the Purchase Agreement and the Transaction Support Agreement, pursuant to which, among other things, we will enter into Waiver and Rescission Agreements with a sufficient percentage of each of the 2025 Noteholders and 2026 Noteholders necessary to waive the Specified Defaults (as defined below), and with a sufficient percentage of the 2025 Noteholders to rescind the 2025 Notes Acceleration (as defined below), with such Waiver and Rescission Agreements providing for such waivers and rescission, as applicable.

 

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In addition, on December 11, 2023, the NYSE informed us that it is commencing procedures to delist UpHealth Common Stock from listing on the NYSE. UpHealth on December 26, 2023 filed an appeal with the NYSE that UpHealth Common Stock remain listed on the NYSE. The failure to maintain a listing of the UpHealth Common Stock could also result in a separate event of default under the Indentures. To address the possibility of such a separate event of default, we will enter into the Supplemental Indentures with an intent that the delisting of UpHealth Common Stock from listing on the NYSE would not give rise to an event of default under the Indentures.

Notwithstanding these anticipated waivers of the Specified Defaults and recission of the 2025 Notes Acceleration to be provided for by the Waiver and Rescission Agreements, certain termination provisions contained in the Purchase Agreement and the Transaction Support Agreement could prevent us from consummating the Transactions, and as a result, cause us to not obtain the benefits of the anticipated waivers and the rescission. If the Purchase Agreement or the Transaction Support Agreement are terminated, and the Closing of the Transactions does not occur, the waiver of the events of default under the Indentures and rescission of the acceleration of our debt obligations with respect to the 2025 Notes provided under the Waiver and Rescission Agreements will be void, and we could be obligated to pay the full amount due and payable under the 2025 Notes under the terms of the Senior Secured Notes Indenture in the event of a Fundamental Change. If that were to occur, we believe it would raise substantial doubts about our ability to continue as a going concern.

Our debt agreements, including the Senior Secured Notes Indenture, contain, and the Supplemental Indentures that we will enter into pursuant to the Transaction Support Agreement will contain, restrictions that may limit our flexibility in operating and financing our business, and any default on our secured credit facility or any future secured credit facilities (including certain liens to be granted by us in favor of the 2025 Noteholders and 2026 Noteholders pursuant to the Supplemental Indentures), whether as a result of the failure to consummate the Transactions or otherwise, could result in foreclosure by our secured noteholders or future secured noteholders on our assets.

Our Indenture governing our 2025 Notes, Security Agreement and related documents contain a number of covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

 

•

create liens on certain assets;

 

•

incur additional debt or issue new equity;

 

•

consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and

 

•

sell certain assets.

The filing of the Chapter 11 Proceedings by the Debtors constituted an event of default giving rise to cross defaults under the Indentures, and accelerated our debt obligations under the Senior Secured Notes Indenture with respect to the 2025 Notes. While any efforts to enforce our payment obligations pursuant to such event of default under the Senior Secured Notes Indenture against the Debtors are automatically stayed as a result of the filing of the Chapter 11 Proceedings, a significant portion of our operations are conducted through the Debtors, and a significant portion of our assets are held by the Debtors. As a result, the filing of the Debtors for Chapter 11 protection has and could continue to limit our available resources and our ability to plan for or react to market conditions and could otherwise restrict corporate activities.

In addition, while that percentage of 2025 Noteholders and 2026 Noteholders necessary to waive the Specified Defaults and that percentage of 2025 Noteholders necessary to rescind the 2025 Notes Acceleration have agreed to enter into the Waiver and Rescission Agreements, in each case, in accordance with the terms of the Purchase Agreement and the Transaction Support Agreement, we can make no assurances that we will not in the future be in default under the Indentures, whether due to the failure to consummate the Transactions or otherwise. Any future default under our Senior Secured Notes Indenture or our Unsecured Notes Indenture (as defined below) (including as modified by the Supplemental Indentures, once entered into) could trigger a cross default under such agreements as well as agreements governing any future indebtedness, as has already occurred upon the commencement of the Chapter 11 Proceedings, which constituted an event of default under our Senior Secured Notes Indenture that triggered cross-defaults under our Unsecured Notes Indenture.

 

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Furthermore, in accordance with the terms of the Transaction Support Agreement, we and Cloudbreak have each agreed (severally and not jointly) to (a) grant liens in favor of the 2025 Noteholders and 2026 Noteholders with respect to the Escrow Accounts (as defined below) and the funds held therein, as applicable, subject to the terms of the Supplemental Indentures and any related intercreditor agreements; and (b) in connection with the Unsecured Notes Supplemental Indenture, grant a second priority lien on the assets of UpHealth and Cloudbreak and any subsidiaries of UpHealth and Cloudbreak that are not at the time of entry into the Supplemental Indentures a debtor or debtor in possession in any bankruptcy proceeding, including the Chapter 11 Proceedings, and in connection with those modifications to the Unsecured Notes Indenture, the Unsecured Notes Supplemental Indenture will incorporate provisions similar to those in the Senior Secured Notes Indenture, including with respect to covenants and events of default and as modified by the Senior Secured Notes Supplemental Indenture (provided, that any such liens on the issued and outstanding equity interests of Cloudbreak or the assets of Cloudbreak and its subsidiaries will be released at or prior to the Closing). In addition, the Senior Secured Notes Supplemental Indenture, once entered into, will modify the provisions of the Senior Secured Notes Indenture in respect of repurchases of 2025 Notes as a result of a Fundamental Change for the Consenting Noteholders in respect of the Sale, to account for a multi-step process for the repurchase of the 2025 Notes (i.e., to require a repurchase offer at Closing and in connection with subsequent paydowns with the proceeds of released funds from the Escrow Accounts), in each case, at a 5.00% premium to the principal amount of such 2025 Notes.

Any of these restrictions could limit our ability to plan for or react to market conditions and could otherwise restrict corporate activities. Any failure to comply with these covenants could result in further defaults under our Indentures or instruments governing any future indebtedness of ours, including the Supplemental Indentures. Additionally, each of our Senior Secured Notes Indenture, including as modified by the Senior Secured Notes Supplemental Indenture, is (and our Unsecured Notes Indenture, as modified by the Unsecured Notes Supplemental Indenture, will be) secured by substantially all of our assets and those of our domestic subsidiaries that are not at the time of entry into the Supplemental Indentures a debtor or debtor in possession in any bankruptcy proceeding, including the Chapter 11 Proceedings. Upon a default, unless waived, the 2025 Noteholders and the 2026 Noteholders could elect to terminate their commitments, cease making further loans, foreclose on our assets pledged to secure our obligations to such noteholders under our Security Agreement (or under the secured credit facilities provided under the Supplemental Indentures, once entered into) and force UpHealth into bankruptcy or liquidation. Our results of operations currently are not, and may not be in the future if the Transactions, including the Sale, are not consummated, sufficient to service our indebtedness and to fund our other expenditures, and we may not be able to obtain financing to meet these requirements. If we experience a default under our Indentures (including as modified by the Supplemental Indentures, once entered into) or instruments governing our future indebtedness, our business, financial condition and results of operations may be adversely impacted.

Risks Related to UpHealth and the Retained Business if the Sale is Completed

Following the closing of the Sale, we will be subject to five-year non-competition and non-solicitation covenants under the Purchase Agreement, which may limit our ability to operate our business in certain respects.

Following the closing of the Sale, we will be subject to five-year non-competition and non-solicitation covenants made in the Purchase Agreement, as more fully described in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—Certain Covenants and Agreements” beginning on page 77. During such five-year period, UpHealth and its affiliates and subsidiaries will be restricted from directly or indirectly owning any interest in, managing, controlling, participating in, consulting with, rendering services for, or in any other manner engaging anywhere in the United States (whether as an officer, director, employee, partner, member, agent, representative or otherwise) (the “Restricted Territories”) in any other business engaged directly or indirectly in the business of Cloudbreak (subject to limited exceptions for passive ownership). In addition, during this five-year period, UpHealth has agreed, and will cause its affiliates and subsidiaries to agree, not to directly or indirectly through another person, induce or attempt to induce any Company Employee (as defined below) to leave the employ of Cloudbreak, hire any person who is currently or

 

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was an employee of Cloudbreak at any time during the one-year period immediately prior to the date on which such hiring would take place, or solicit or service any customer, supplier, lessee, lessor, licensee, licensor or other business relation of Cloudbreak or its subsidiaries. These limitations may negatively impact the scope and/or volume of our business and our ability to hire key personnel, which may adversely affect our financial condition and results of operations.

Even if the Sale is completed, we cannot provide any assurances that we will realize the financial benefits we currently anticipate from the Sale.

We cannot provide any assurances that we will realize the financial benefits we currently anticipate from the Sale. We currently expect to realize a material reduction in UpHealth’s outstanding debt obligations, but also a significant decrease in revenue, as a result of the sale of Cloudbreak. Any failure to realize the financial benefits we currently anticipate from the Sale could have a material adverse impact on our future operating results and financial condition and could materially and adversely affect the trading price or trading volume of UpHealth Common Stock. Our results of operations currently are not, and may not be in the future even if the Transactions, including the Sale, are consummated, sufficient to service our indebtedness and to fund our other expenditures, and we may not be able to obtain financing to meet these requirements. Even if the Sale and the other Transactions are consummated, if we experience a default under our Indentures (including as modified by the Supplemental Indentures, once entered into) or instruments governing our future indebtedness, our business, financial condition and results of operations may be adversely impacted.

 

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THE SPECIAL MEETING

This proxy statement is being furnished to UpHealth’s stockholders as part of the solicitation of proxies by the UpHealth Board for use at the special meeting. This proxy statement provides UpHealth’s stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting.

Date, Time and Place of the Special Meeting

This proxy statement is being furnished to UpHealth’s stockholders as part of the solicitation of proxies by the UpHealth Board for use at the special meeting to be held which will be held on February 29, 2024 at 1:00 p.m., Eastern time, virtually at www.virtualshareholdermeeting.com/UPH2024SM, or at such other time, on such other date and at such other place to which the special meeting may be adjourned, to consider and vote upon the Sale Proposal and the Adjournment Proposal.

Purposes of the Special Meeting

The primary purpose of the special meeting is for UpHealth stockholders to consider and vote upon the Sale Proposal to approve the Purchase Agreement for the Sale of Cloudbreak. UpHealth stockholders must approve the Purchase Agreement for the Sale of Cloudbreak in order for the Sale to occur, as such Sale constitutes the sale of substantially all of the assets of UpHealth under Delaware law and, as a result, it is a condition to Closing of the Sale under the Purchase Agreement that UpHealth shall have received the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting. If UpHealth’s stockholders fail to approve the Purchase Agreement for the Sale of Cloudbreak, the Sale will not occur. A copy of the Purchase Agreement is attached to this proxy statement as Annex A, and the material terms of the Purchase Agreement are described under “Proposal No. 1—The Sale Proposal—The Purchase Agreement” beginning on page 70.

UpHealth’s stockholders are also being asked to approve the Adjournment Proposal, to adjourn the special meeting to a later date or dates, if necessary or appropriate, in order to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Sale Proposal.

This proxy statement and the enclosed form of proxy are first being mailed to stockholders on or about January 24, 2024.

Recommendation of the UpHealth Board

After careful consideration, the UpHealth Board has unanimously approved the Purchase Agreement and the consummation of the Sale and the other Transactions contemplated thereby, and determined that it is advisable, fair to and in the best interests of UpHealth and its stockholders to enter into the Purchase Agreement. Certain factors considered by the UpHealth Board in reaching its decision to approve the Purchase Agreement and the Sale may be found in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Recommendation of the UpHealth Board and its Reasons for the Sale” beginning on page 57.

 

In addition, the UpHealth Board unanimously recommends that the stockholders of UpHealth vote “FOR” the Adjournment Proposal, to adjourn the special meeting, if necessary or appropriate, in order to solicit additional proxies.

Record Date and Quorum

The holders of record of UpHealth Common Stock as of the close of business on January 24, 2024, the record date, are entitled to receive notice of and to vote at the special meeting. There are 18,671,142 shares of UpHealth Common Stock issued and outstanding as of the record date.

 

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At least one-third of the shares of UpHealth Common Stock outstanding as of the record date must be represented at the special meeting, either in person or by proxy, to constitute a quorum for the transaction of business at the special meeting. Once a share is represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting. However, if a new record date is set for an adjourned special meeting, then a new quorum will have to be established. Proxies received but marked as abstentions as described below under the sub-heading “The Special Meeting—Voting; Proxies; Revocation—Providing Voting Instructions by Proxy” will be included in the calculation of the number of shares considered to be present for purposes of a quorum at the special meeting.

Shares of UpHealth Common Stock held by stockholders of record that submit a proxy but fail to provide voting instructions or abstain on any of the Proposals listed on the proxy card will be counted for the purpose of determining whether a quorum is present at the special meeting.

Shares of UpHealth Common Stock held by stockholders in “street name” by a broker, bank or other nominee that do not instruct such broker, bank or other nominee on how to vote such shares will not be counted for purposes of determining whether a quorum is present at the special meeting.

The Supporting Stockholders, who are certain stockholders of UpHealth which are directors and/or executive officers (or affiliates thereof) of UpHealth, and who collectively hold approximately 29.39% of the voting power of the issued and outstanding shares of UpHealth Common Stock as of December 31, 2023, have entered into the Voting Agreement with UpHealth and Forest Buyer, pursuant to which the Supporting Stockholders have agreed to vote their shares “FOR” the Sale Proposal to approve the Purchase Agreement for the Sale of Cloudbreak, subject to, and in accordance with, the terms and conditions of the Voting Agreement.

Required Vote

Each share of UpHealth Common Stock issued and outstanding at the close of business on the record date is entitled to one vote at the special meeting.

In order for UpHealth to complete the Sale as contemplated by the Purchase Agreement, stockholders holding at least a majority of the shares of UpHealth Common Stock issued and outstanding at the close of business on the record date and entitled to vote on the matters to be considered at the special meeting, must vote “FOR” the Sale Proposal to approve the Purchase Agreement for the Sale of Cloudbreak. A failure to vote your shares of UpHealth Common Stock or an abstention from voting will have the same effect as a vote “AGAINST” the Sale Proposal to approve the Purchase Agreement for the Sale of Cloudbreak.

Approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of UpHealth Common Stock present in person or by proxy and entitled to vote on the matters to be considered at the special meeting. An abstention will have the same effect as a vote “AGAINST” the Adjournment Proposal, but the failure to vote your shares will have no effect on the outcome of the Adjournment Proposal so long as a quorum is present.

Voting by UpHealth’s Directors and Executive Officers

The directors and executive officers of UpHealth are entitled to vote 5,486,550 shares of UpHealth Common Stock as of the record date, or approximately 29.39% of the shares of UpHealth Common Stock issued and outstanding on that date. UpHealth currently expects that UpHealth’s directors and executive officers will vote their shares in favor of the Sale Proposal to approve the Purchase Agreement for the Sale of Cloudbreak and the Adjournment Proposal to be considered at the special meeting, although none of them is obligated to do so, except as required pursuant to the terms of the Voting Agreement. See the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Voting and Support Agreement” beginning on page 87 for additional information regarding the terms of the Voting Agreement.

 

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Voting; Proxies; Revocation

Attendance

All holders of shares of UpHealth Common Stock as of close of business on the January 24, 2024 record date, including stockholders of record and beneficial owners of UpHealth Common Stock registered in the “street name” of a bank, broker or other nominee, are invited to attend the special meeting.

Voting in Person

Stockholders of record will be able to vote in person at the special meeting. If you are not a stockholder of record, but instead hold your shares of UpHealth Common Stock in “street name” through a bank, broker or other nominee, you must provide a proxy executed in your favor from your bank, broker or other nominee in order to be able to vote in person at the special meeting.

Providing Voting Instructions by Proxy

To ensure that your shares of UpHealth Common Stock are voted at the special meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the special meeting in person.

Shares of UpHealth Common Stock Held by Record Holder

If you are a stockholder of record, you may provide voting instructions by proxy using one of the methods described below.

 

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Submit a Proxy via the Internet. This proxy statement is accompanied by a proxy card with instructions for submitting voting instructions via the Internet. You may vote via the Internet by accessing the Internet address as specified on the enclosed proxy card. Your shares of UpHealth Common Stock will be voted as you direct in the same manner as if you had completed, signed, dated and returned your proxy card, as described below.

 

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Submit a Proxy by Telephone. This proxy statement is accompanied by a proxy card with instructions for submitting voting instructions by telephone. You may vote by telephone by calling the telephone number specified on the enclosed proxy card. Your shares of UpHealth Common Stock will be voted as you direct in the same manner as if you had completed, signed, dated and returned your proxy card.

 

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

If you stockholder of record on the record date and you sign, date and return your proxy card without indicating how you wish to vote, all of your shares will be voted “FOR” the Sale Proposal and the Adjournment Proposal. If you fail to return your proxy card or vote your shares through the Internet or by telephone, unless you attend the special meeting and vote in person, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as an “AGAINST” vote with respect to the Sale Proposal and the Adjournment Proposal, but will have no effect on the approval of the Adjournment Proposal so long as a quorum is present. If you are a stockholder of record and you attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.

Shares of UpHealth Common Stock Held in “Street Name”

If your shares of UpHealth Common Stock are held by a bank, broker or other nominee on your behalf in “street name,” your bank, broker or other nominee will send you instructions as to how to provide voting instructions for your shares. Many banks and brokerage firms have a process for their customers to provide voting instructions via the Internet, in addition to providing voting instructions by a voting instruction form.

 

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In accordance with the rules of the NYSE, banks, brokers and other nominees who hold shares of UpHealth Common Stock in “street name” for their customers do not have discretionary authority to vote the shares with respect to the Sale Proposal and the Adjournment Proposal described in this proxy statement. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owner of such shares, they may not vote such shares with respect to the Sale Proposal and the Adjournment Proposal described in this proxy statement. Since all of the proposals currently expected to be voted on at the special meeting are considered non-routine matters, shares held in “street name” through a broker, bank or other nominee will not be counted as present for the purpose of determining the existence of a quorum if such broker, bank or other nominee does not have instructions to vote on any such proposals. For shares of UpHealth Common Stock held in “street name,” only shares UpHealth Common Stock affirmatively voted “FOR” the Sale Proposal to approve the Purchase Agreement for the Sale of Cloudbreak will be counted as a favorable vote for such proposal.

Revocation of Proxies

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

 

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submitting a new proxy with a later date, by using the Internet or telephone proxy submission procedures described above, or by completing, signing, dating and returning a new proxy card by mail to UpHealth as specified on the enclosed proxy card;

 

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attending the special meeting and voting in person; or

 

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delivering a written notice of revocation to UpHealth’s Secretary at c/o UpHealth, Inc., 14000 S. Military Trail, Suite 203, Delray Beach, Florida 33484.

Please note, however, that only your last-dated proxy will count. Attending the special meeting without taking one of the actions described above will not in itself revoke your proxy. Please note that if you want to revoke your proxy by mailing a new proxy card to UpHealth or by sending a written notice of revocation to UpHealth, you should ensure that you send your new proxy card or written notice of revocation in sufficient time for it to be received by UpHealth before the special meeting.

If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee in order to revoke your proxy or submit new voting instructions.

If you are a stockholder of record, you may revoke your proxy and change your vote at any time before your proxy is voted at the special meeting by returning a later-dated proxy card, by voting again over the Internet, by telephone or in person at the special meeting as more fully detailed in your proxy card, or by delivering written instructions to the Secretary at the principal executive offices of UpHealth before the special meeting. Attendance at the special meeting will not in and of itself cause your previously voted proxy to be revoked unless you specifically so request or vote again at the special meeting. If your shares are held in an account at a bank, brokerage firm or other agent, you may change your vote by submitting new voting instructions to your bank, brokerage firm or other agent, or, if you have obtained a valid proxy from your bank, brokerage firm or other agent giving you the right to vote your shares, by attending the special meeting and voting in person. If you have instructed your broker, dealer, bank or other nominee to vote your shares, you must follow directions received from your broker, dealer, bank or other nominee in order to change those instructions.

Abstentions

An abstention occurs when a stockholder attends a meeting, either in person or by proxy, but abstains from voting. Abstentions will be included in the calculation of the number of shares of UpHealth Common Stock

 

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represented at the special meeting for purposes of determining whether a quorum has been achieved. Abstaining from voting will have the same effect as a vote “AGAINST” the Sale Proposal to approve the Purchase Agreement for the Sale of Cloudbreak and a vote “AGAINST” the Adjournment Proposal.

Adjournments and Postponements

Although it is not currently expected, the special meeting may be adjourned or postponed for the purpose of soliciting additional proxies. In the event that there is present, in person or by proxy, sufficient favorable voting power to secure the vote of the stockholders of UpHealth necessary to approve the Sale Proposal to approve the Purchase Agreement for the Sale of Cloudbreak, UpHealth does not anticipate that it will adjourn or postpone the special meeting unless it is advised by counsel that failure to do so could reasonably be expected to result in a violation of applicable law.

Regardless of whether a quorum is present, the chairperson of the special meeting has the power under UpHealth’s Bylaws to adjourn the special meeting from time to time. Any signed proxies received by UpHealth in which no voting instructions are provided on such matter will be voted in favor of an adjournment in these circumstances. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow UpHealth’s stockholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

Solicitation of Proxies

The UpHealth Board is soliciting your proxy, and UpHealth will bear the cost of this solicitation of proxies. This includes the charges and expenses for preparation, assembly, printing, mailing, and distribution of this proxy statement and the related proxy materials. Morrow Sodali, a proxy solicitor, has been retained to assist UpHealth in the solicitation of proxies for the special meeting, and UpHealth will pay Morrow Sodali $15,000, plus reimbursement for its reasonable out-of-pocket expenses, and indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses for its services as UpHealth’s proxy solicitor. Proxies may be solicited by mail, personal interview, e-mail, telephone, or via the Internet by Morrow Sodali, or, without any additional compensation, by certain of UpHealth’s directors, officers and employees.

UpHealth will ask banks, brokers and other institutions, nominees and fiduciaries holding shares of UpHealth Common Stock beneficially owned by others to forward this proxy statement and the related proxy materials to their principals and to obtain their authority to execute proxies and voting instructions. UpHealth will reimburse brokerage firms and other custodians for their reasonable out-of-pocket expenses for forwarding this proxy statement and the related proxy materials to UpHealth’s stockholders.

 

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PROPOSAL NO. 1—THE SALE PROPOSAL

General Description of the Sale

On November 16, 2023, UpHealth and Cloudbreak, entered into the Purchase Agreement with Forest Buyer, an affiliate of GTCR, pursuant to which UpHealth has agreed to sell in the Sale all of the outstanding equity interests of Cloudbreak and the wholly-owned subsidiaries of Cloudbreak to Forest Buyer for $180.0 million in cash, subject to certain adjustments for closing indebtedness, net working capital, cash and unpaid transaction expenses related to the Transactions contemplated by the Purchase Agreement. The terms of the Sale as contemplated by the Purchase Agreement provide that, at the Closing, Forest Buyer will acquire complete equity ownership of Cloudbreak and its business, including the aggregate Cloudbreak employee base. Immediately following completion of the Sale, Forest Buyer will own all of Cloudbreak’s outstanding equity interests and Cloudbreak will be a wholly-owned subsidiary of Forest Buyer.

The Sale as contemplated by the Purchase Agreement constitutes the sale of substantially all of the assets of UpHealth under Section 271 of the DGCL, and we are therefore seeking the approval of the Sale by our stockholders. The Closing is conditioned on, among other things, UpHealth obtaining the approval of the Sale pursuant to the Purchase Agreement by the Requisite Stockholder Approval, which consists of the affirmative vote of the holders of a majority of the UpHealth Common Stock issued and outstanding and entitled to vote thereon at the special meeting, voting together as a single class in person or by proxy. We expect the Closing of the Sale to occur on the Closing Date, which shall be the date that is the third business day following the satisfaction or waiver of each of the conditions to Closing (including receipt of the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting), but in no event prior to March 15, 2024, unless consented to in writing by UpHealth and Forest Buyer.

Following the completion of the Sale, UpHealth will continue to own certain assets and liabilities associated with the Retained Business, including all of the equity interests in UpHealth Holdings (which, along with certain subsidiaries of UpHealth Holdings, has filed for Chapter 11 protection in the Bankruptcy Court, as further described in the section of this proxy statement entitled “Risk Factors” beginning on page 24), as well as TTC Healthcare, which is a wholly-owned subsidiary of UpHealth Holdings that is engaged in providing behavioral health services, and which has not filed for Chapter 11 protection and is operating in the normal course of business. At this time, it is contemplated that UpHealth will maintain the same corporate functions and the same senior executives as UpHealth had prior to the completion of the Sale and the same board of directors that will be in place following the conclusion of UpHealth’s 2023 Annual Meeting of Stockholders.

Parties to the Purchase Agreement

UpHealth, Inc.

UpHealth is a global digital health company that delivers infrastructure and services to dramatically improve how healthcare is delivered and managed. UpHealth creates digitally enabled “care communities” that improve access and achieve better patient outcomes at lower cost, through health solutions. UpHealth’s clients include health plans, healthcare providers and community-based organizations.

GigCapital2, UpHealth’s predecessor, was incorporated in Delaware on March 6, 2019. GigCapital2 was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. GigCapital2’s Business Combinations, which consisted of the separate acquisitions of Cloudbreak and UpHealth Holdings, were consummated on June 9, 2021, and in connection with the Business Combinations, GigCapital2 changed its corporate name to UpHealth, Inc. UpHealth is a Delaware corporation with its principal offices located at 14000 S. Military Trail, Suite 203, Delray Beach, FL 33484, and its telephone number is (888) 424-3646. UpHealth’s website address is https://uphealthinc.com/. UpHealth Common Stock is currently listed on the NYSE, however, the NYSE has commenced proceedings to delist UpHealth Common Stock, as previously reported in UpHealth’s Current

 

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Report on Form 8-K filed with the SEC on December 13, 2023, and has suspended trading pending the completion of such proceedings. As a result, UpHealth Common Stock commenced trading in the over-the-counter market on December 12, 2023 under the trading symbol “UPHL.” UpHealth on December 26, 2023 filed an appeal with the NYSE that UpHealth Common Stock remain listed on the NYSE. For additional information regarding these delisting proceedings and the risks related thereto, see the section of this proxy statement entitled “Risk Factors” beginning on page 24.

Additional information regarding UpHealth is contained in the documents incorporated by reference into this proxy statement and the other documents that we file with the SEC. See the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 125.

Cloudbreak Health, LLC

Cloudbreak, a Delaware limited liability company and a wholly-owned subsidiary of UpHealth (which UpHealth acquired on June 9, 2021 and made a part of UpHealth’s Virtual Care Infrastructure segment at that time), is a technology and technology-enabled services business that connects healthcare systems with platforms, analytics, and services that make clinical and administrative processes simpler and more efficient. Cloudbreak offers leading telehealth and video remote interpretation solutions and is recognized through its core solution, Martti^TM (“My Accessible Real-Time Trusted Interpreter”), and has constituted the entirety of UpHealth’s Virtual Care Infrastructure segment since July 1, 2022, when Glocal was deconsolidated by UpHealth. The Martti^TM solution provides medical interpreters in over 250 languages, which are delivered through custom Martti^TM devices, such as tablets and smartphones.

Forest Buyer, LLC, an affiliate of GTCR

Forest Buyer is a Delaware limited liability company and an affiliate of GTCR. Founded in 1980, GTCR is a leading private equity firm that pioneered The Leaders Strategy^™ – finding and partnering with management leaders in core domains to identify, acquire and build market-leading companies through organic growth and strategic acquisitions. GTCR is focused on investing in transformative growth in companies in the Business & Consumer Services, Financial Services & Technology, Healthcare and Technology, Media & Telecommunications sectors. Since its inception, GTCR has invested more than $25 billion in over 270 companies, and the firm currently manages over $35 billion in equity capital. GTCR is based in Chicago with offices in New York and West Palm Beach. For more information, please visit www.gtcr.com.

Background of the Sale

As part of their ongoing evaluation of UpHealth’s business, the UpHealth Board and UpHealth’s senior management periodically review and assess UpHealth’s operations, liquidity and debt obligations, financial performance, strategic direction, and prospects in light of industry conditions and the general economic environment and their potential impact on UpHealth’s short- and long-term strategic goals and plans, as well as the impact of UpHealth’s capital structure and indebtedness agreements on its business, operations and prospects. In the past, this review and assessment have included, among other things, whether to partner with another company, whether to accept investment from third parties, and whether to pursue potential merger and acquisition opportunities or opportunities to sell business units, in each case, in light of prevailing market conditions and the current and anticipated future prospects for UpHealth’s business and operations.

As noted above, UpHealth closed the Business Combinations on June 9, 2021, and acquired Cloudbreak and UpHealth Holdings at that time. UpHealth Holdings had separately since November 2020 acquired four separate businesses – TTC Healthcare, Thrasys, BHS and Innovations Group, Inc. (“IGI”), which operated a compounding pharmacy business. In addition, UpHealth Holdings owned in excess of 90% of an Indian company, Glocal. In connection with the Business Combinations, and to help pay for certain obligations of Cloudbreak and UpHealth Holdings, UpHealth at the time of the closing of the Business Combinations, borrowed $160 million through the issuance of the 2026 Notes pursuant to the terms of the Unsecured Notes Indenture.

 

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In July 2022, UpHealth began exploring financing options and strategic alternative transactions in order to generate cash for investment in business development and growth initiatives, as well as for repayment of certain seller notes due on September 1, 2022 (the “BHS and IGI Seller Notes”) that were entered into by UpHealth Holdings as partial consideration for the acquisitions by UpHealth Holdings of BHS and IGI, and which were payable to the former shareholders of BHS and IGI. After due consideration of the available alternatives, and in light of the fact that UpHealth Holdings was not able to secure an extension for repayment of the BHS and IGI Seller Notes from the holders thereof beyond November 1, 2022, the UpHealth Board determined that a senior secured convertible notes offering proposed by Oppenheimer & Co. Inc. (“OpCo”) was the only viable option available to UpHealth for raising cash in order for UpHealth Holdings to timely repay the BHS and IGI Seller Notes, and the UpHealth Board authorized UpHealth’s management to engage OpCo as placement agent for the proposed offering and negotiate the terms of such offering.

Also in July 2022, the UpHealth Board began considering the prospect of a divestment of IGI, and on July 11, 2022, the UpHealth Board authorized UpHealth’s management to engage Bourne Partners as UpHealth’s financial advisor to develop a plan for divestment options for IGI.

On August 15, 2022, UpHealth announced the offering of $67.5 million in aggregate principal amount of 2025 Notes in a private placement transaction, for which OpCo served as sole placement agent, and the concurrent repurchase of $45.0 million of UpHealth’s outstanding 2026 Notes. The 2025 Notes offering closed on August 19, 2022 and raised approximately $22.5 million in gross cash proceeds after paying for the partial repurchase of the 2026 Notes, which proceeds were used in part to repay the remaining $18.7 million in principal amount of the BHS and IGI Seller Notes plus accrued interest of $1.9 million.

Beginning in September 2022, UpHealth became involved in a dispute and litigation regarding control of the board of directors of Glocal, a majority (94.81%) owned subsidiary of UpHealth Holdings. The dispute is the subject of an arbitration brought by UpHealth Holdings against its counterparties to the October 30, 2020 Share Purchase Agreement pursuant to which UpHealth Holdings acquired Glocal. As a result of the ongoing control issues and legal proceedings with Glocal, UpHealth determined that a reconsideration event occurred in July 2022, which required a reassessment of whether Glocal was a Variable Interest Entity (“VIE”) and whether UpHealth continued to have a controlling financial interest in Glocal. Based on this assessment, UpHealth concluded that Glocal was a VIE, and furthermore, that UpHealth no longer has the ability to direct any activities of Glocal and no longer has a controlling financial interest. As a result, effective July 1, 2022, UpHealth deconsolidated Glocal.

On September 6, 2022, UpHealth received an unsolicited, non-binding proposal to purchase UpHealth from a private equity firm (“Entity A”) that stated that it had partnered with a former senior employee of Cloudbreak (“Individual A”), who at the time had engaged legal counsel who had asserted various claims related to Individual A’s employment at Cloudbreak and UpHealth, for the acquisition of UpHealth. The proposed purchase price to be paid was based on a multiple of the 10-day volume-weighted average price of UpHealth Common Stock as of August 30, 2022, and the proposed transaction was conditioned on, among other things, renegotiating the terms of UpHealth’s outstanding convertible notes. On September 14, 2022, the UpHealth Board discussed the terms of the unsolicited, non-binding proposal from Entity A to purchase UpHealth, including the fact that the proposal did not include the assumption or repayment (in full or in part) of UpHealth’s debt obligations in respect of its 2025 Notes and 2026 Notes. After careful consideration and with the assistance of its advisors, the UpHealth Board unanimously concluded, based on, among other things, the tentative price to be paid and the proposed renegotiation of UpHealth’s debt obligations in lieu of assumption or repayment of such debt, that the unsolicited proposal from Entity A significantly undervalued UpHealth, and was not in the best interests of UpHealth and its stockholders. Following this discussion, the UpHealth Board unanimously rejected the unsolicited proposal from Entity A.

On December 5, 2022, UpHealth’s stockholders approved an amendment to the Second Amended and Restated Certificate of Incorporation of UpHealth to effect a reverse split of the outstanding shares of UpHealth Common

 

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Stock, at a specific ratio within a range of 4:1 to 10:1, with the specific ratio to be fixed within this range by the UpHealth Board in its sole discretion without further stockholder approval. Following the receipt of stockholder approval, the UpHealth Board fixed the Reverse Stock Split ratio at 10:1, such that each ten shares of UpHealth Common Stock were combined and reconstituted into one share of UpHealth Common Stock effective December 8, 2022.

In early 2023, UpHealth made the decision to integrate BHS into UpHealth’s legacy TTC operations and wind down UpHealth’s provider practice operated by BHS in Missouri. During the course of 2023, UpHealth ceased the operations of BHS and has been in the process of winding BHS down.

On February 27, 2023, UpHealth announced that on February 26, 2023, UpHealth Holdings had agreed to sell 100% of the outstanding capital stock of its wholly-owned subsidiary, IGI, which comprised UpHealth’s Pharmacy business, to Belmar MidCo, Inc., a wholly-owned subsidiary of Belmar Holdings, Inc., a portfolio company of Webster Capital IV, L.P., pursuant to a Stock Purchase Agreement, dated February 26, 2023, for a purchase price of $56.0 million.

On March 7, 2023, UpHealth entered into a mutual nondisclosure agreement with a private equity firm (“Entity B”) (which contained no standstill provisions) for the purpose of exploring a business opportunity of mutual interest.

On May 1, 2023, Samuel J. Meckey, who served as the Chief Executive Officer of UpHealth from July 11, 2022 until his employment was terminated effective October 6, 2023, received an unsolicited email from Individual A, requesting that UpHealth provide access to diligence materials for the purposes of Individual A and unnamed financial partners of Individual A preparing a bid for the purchase of UpHealth. Individual A did not make a proposal for the purchase of UpHealth at such time, nor did he identify the purported financial partners. Mr. Meckey consulted with Mr. Beck, who then served as the Chief Financial Officer of UpHealth and currently serves as our Chief Executive Officer since October 6, 2023, Jeremy Livianu, the Chief Legal Officer of UpHealth, and Dr. Katz, the Chairman of the UpHealth Board, regarding the unsolicited email from Individual A, and after careful consideration, they unanimously concluded that this request did not include any offer to purchase UpHealth, and as such it was not appropriate to provide the requested diligence materials to Individual A and his purported financial partners. Accordingly, in an email sent to Individual A on May 10, 2023, Mr. Meckey declined to provide the requested materials and informed Individual A that any prospective acquisition interest should be presented to UpHealth by a licensed broker or an accredited financial institution. The UpHealth Board was informed of this exchange with Individual A on September 9, 2023 following a subsequent communication from Individual A discussed below.

On May 11, 2023, the sale of IGI closed for gross proceeds of $56.0 million, subject to working capital, closing debt and other adjustments. Proceeds from the sale were used to invest in building a fully integrated platform for UpHealth to drive growth and to pay down a portion of UpHealth’s secured debt obligations.

On June 8, 2023, Mr. Beck received an unsolicited email from a representative of GTCR who expressed his interest in scheduling an introductory call with Mr. Beck, which call was scheduled for June 20, 2023. This communication on June 8, 2023 was the first time GTCR contacted UpHealth for the purpose of exploring a business opportunity of mutual interest.

Following the closing of the sale of IGI, in accordance with the terms and conditions of the Senior Secured Notes Indenture, on June 9, 2023, UpHealth commenced an offer to purchase up to $10.3 million (representing 20% of the net proceeds from the sale subject to adjustment to maintain the authorized denominations of the 2025 Notes) in aggregate principal amount of the 2025 Notes for cash, at a repurchase price per 2025 Note equal to 100% of the principal amount thereof, plus accrued and unpaid interest (if any), from the 2025 Noteholders (the “Offer”).

On June 15, 2023, UpHealth completed the repurchase of $10.3 million in aggregate principal amount of the 2025 Notes, which were validly tendered and accepted for repurchase by UpHealth in accordance with the terms and conditions of the Offer (the “Note Repurchase”), representing 15.22% of the outstanding principal amount

 

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of the 2025 Notes before the Note Repurchase. Following the completion of the Note Repurchase, $57.2 million in aggregate principal amount of 2025 Notes remained outstanding.

On June 20, 2023, Mr. Beck and the representative of GTCR who had previously contacted Mr. Beck on June 8, 2023, attended their scheduled call, during which Mr. Beck and the representative of GTCR introduced themselves and GTCR requested more information about UpHealth. Mr. Beck told the representative of GTCR that UpHealth could only provide additional information about UpHealth if the parties execute a nondisclosure agreement, and the representative of GTCR requested that UpHealth send him a nondisclosure agreement for review and execution. Following this introductory call, UpHealth sent GTCR a mutual nondisclosure agreement for GTCR to review.

On June 27, 2023, UpHealth entered into the mutual nondisclosure agreement with GTCR that contained a standstill provision for the purpose of exploring a business opportunity of mutual interest.

On June 29, 2023, Mr. Beck sent the representative of GTCR in response to the request made by GTCR on June 20, 2023 for more information about UpHealth some financial and operating data regarding UpHealth, including financial projections with respect to UpHealth as a whole that were prepared by UpHealth’s senior management as of May 18, 2023, based on information available at that time, which projections included financial information on a business unit basis, including financial projections with respect to Cloudbreak assuming that UpHealth continued to operate the Cloudbreak Business as part of UpHealth after giving effect to associated costs, for GTCR to review. These financial projections were provided to GTCR for general informational purposes prior to any discussions between UpHealth and GTCR regarding a potential transaction, and such financial projections were not provided to or considered by the UpHealth Board in connection with its evaluation of the Sale or the other Transactions. The financial projections with respect to Cloudbreak that were provided to GTCR on June 29, 2023 are summarized in the section of this proxy statement entitled “Certain Financial Projections” beginning on page 63 (as discussed below, these financial projections were subsequently revised by UpHealth with a reduction in projected revenue and as otherwise set forth in the section entitled “Certain Financial Projections”; except as described below, the revised projections were not shared with anyone at GTCR). Subsequent to that, during the month of July 2023, Mr. Beck had several calls with the representative of GTCR to discuss the data which had been sent on June 29, 2023.

In late July 2023, in advance of its August 1, 2023 board meeting, the UpHealth Board was informed by Mr. Meckey that Entity B had during the latter part of July 2023 made an unsolicited indication of interest for a potential acquisition of UpHealth and/or its subsidiaries. On August 1, 2023, the UpHealth Board held a regularly scheduled meeting. During that meeting, the UpHealth Board discussed this unsolicited indication of interest from Entity B, as well as UpHealth’s strategic plan. Mr. Meckey reviewed for the UpHealth Board, UpHealth’s three-year strategy and told the UpHealth Board that UpHealth has three strategic options: (1) continuing to operate UpHealth in its current form according to its current business plan and grow all three of its business units, (2) sell UpHealth or (3) sell off one or more of UpHealth’s assets, including either Cloudbreak or TTC Healthcare, to fund operations and growth of the remainder. Dr. Katz informed the UpHealth Board that in addition to Entity B, there may be other interested parties who were interested in a potential transaction. UpHealth’s outside counsel, DLA Piper LLP (US) (“DLA”), then reviewed, and the UpHealth Board discussed, the fiduciary framework for the UpHealth Board in light of the unsolicited indication of interest from Entity B. Following this discussion, the UpHealth Board unanimously agreed that management should conduct a financial analysis of the three strategic options for presentation to the UpHealth Board, that Dr. Katz is authorized to reach out to Entity B to confirm the unsolicited indication of interest, as well as to do the same with other interested parties and ask such other parties to provide any proposal for a strategic transaction that they would like to have considered by the UpHealth Board, and to schedule an UpHealth Board meeting for September 1, 2023 to consider the analytical information from management and any proposals from Entity B and any other interested parties to explore their interest and solicit them to submit written proposals with respect to strategic transactions involving UpHealth.

Following the conclusion of the August 1, 2023 meeting and in light of the authority granted by the UpHealth Board to Dr. Katz at the meeting, on August 2, 2023, Mr. Meckey introduced Dr. Katz to a representative of

 

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Entity B, following which, that same day, Dr. Katz arranged by email for a meeting with such representative of Entity B for August 8, 2023. After setting up this meeting, Dr. Katz updated the UpHealth Board on August 2, 2023 on the upcoming meeting. Dr. Katz also asked the other members of the UpHealth Board to let him know whether any of them had received any unsolicited inquiries during the last few months so that he could reach out to those parties in the same manner as he was doing with Entity B.

On August 8, 2023, Dr. Katz and the representative of Entity B spoke for approximately 30 minutes. Following that meeting, on August 8, 2023, Dr. Katz told the UpHealth Board that during the meeting the representative of Entity B expressed a continuing interest in exploring the possibility of Entity B acquiring UpHealth and taking it private, and that Entity B was considering structuring an offer where Entity B will assume all the debt of UpHealth and in addition offer a “meaningful premium” to the equity price. Dr. Katz also told the UpHealth Board that he and the representative of Entity B had agreed to a further follow-up meeting that would include two other representatives of Entity B on August 14, 2023 to do a deeper exploration of the prospect of a transaction.

On August 9, 2023, management of UpHealth, which had separately informed Dr. Katz of the potential interest of GTCR in a strategic transaction involving UpHealth, introduced Dr. Katz to a representative of GTCR, and on August 10, 2023, Dr. Katz arranged to speak with this representative of GTCR in a couple of weeks after that. This call was eventually scheduled for August 24, 2023. Also on August 9, 2023, UpHealth represented to GTCR that incremental standalone costs to run Cloudbreak outside of UpHealth were estimated as at least $2.8 million, and UpHealth increased this estimate to at least $3.2 million on September 21, 2023. On August 10, 2023, Dr. Katz updated the UpHealth Board on his communications with GTCR and again asked that members of the UpHealth Board let him know if they had heard from any other potential parties with an interest in a strategic transaction involving UpHealth.

On the afternoon of August 14, 2023, Dr. Katz and the representatives of Entity B attended their scheduled meeting in person, during which they discussed Entity B’s previously stated unsolicited indication of interest.

On August 18, 2023, Dr. Katz received a phone call from a representative of Entity B, who told Dr. Katz that Entity B would be sending over a written proposal on August 21, 2023.

On August 21, 2023, Dr. Katz received a non-binding written proposal from Entity B, with a request for exclusivity, to acquire UpHealth, which included full repayment of UpHealth’s outstanding debt and a purchase price for the purchase of UpHealth Common Stock of $3.00 - $3.75 per share (which represented a 121% - 176% premium to the closing share price of UpHealth Common Stock on August 21, 2023 of $1.36) and proposed a negotiation process of 3-4 weeks. Dr. Katz forwarded this proposal by email to the UpHealth Board that same day and in this same email, told the UpHealth Board that GTCR may also make a proposal.

On August 22, 2023, Mr. Beck received an email from a representative of GTCR containing a list of due diligence questions and data requests.

On August 24, 2023, Dr. Katz attended the scheduled call with GTCR and told GTCR that the UpHealth Board would be meeting on September 1, 2023 to discuss strategic directions for UpHealth, and GTCR responded by stating its serious interest to acquire UpHealth and readiness to move immediately, and committed to send Dr. Katz a letter of intent during the coming weekend for consideration at the September 1, 2023 meeting of the UpHealth Board. Following the conclusion of this call, that same day, Dr. Katz informed the UpHealth Board that he had spoken with GTCR that day and the subject matter of that discussion.

On August 26, 2023, Dr. Katz informed the UpHealth Board that he had received a call from a representative of GTCR that afternoon and was told by that representative that GTCR would be preparing a proposal to acquire UpHealth as a whole and that they would consider offering to pay all debt at par and a price of $2.50 - $2.75 per share, but that Dr. Katz had informed this representative of GTCR that UpHealth would only consider its offer once a formal term sheet was provided for the UpHealth Board’s review and that GTCR should do its best to “sharpen its pencil” on its offer.

On the afternoon of August 29, 2023, Dr. Katz received a formal written indication of interest proposal from GTCR, with a request for exclusivity, to acquire UpHealth in a full cash transaction, which included repayment

 

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of all outstanding debt of UpHealth and a price per share in the range of $2.75 -$3.25 (which represented a 129% -171% premium to the closing share price of UpHealth Common Stock on August 29, 2023 of $1.20), which he communicated to the UpHealth Board that same afternoon. This was the first written indication of interest that UpHealth received from GTCR.

On August 29, 2023, Dr. Katz informed Entity B that there may be another proposal for a strategic transaction involving UpHealth, and that to the extent that Entity B would like to reconsider the value that it was willing to offer for the proposed strategic transaction, it should submit a revised written proposal in advance of the September 1, 2023 UpHealth Board meeting.

On the afternoon of August 30, 2023, Dr. Katz received a revised indication of interest proposal from Entity B, which reiterated Entity B’s earlier request for exclusivity in its initial written proposal, with an increased purchase price range of $3.25 -$4.00 per share (which represented a 171% -233% premium to the closing share price of UpHealth Common Stock on August 30, 2023 of $1.20). Dr. Katz forwarded this revised indication of interest proposal to the UpHealth Board that same day. By the end of August 2023, UpHealth had received a written indication of interest proposal from each of Entity B and GTCR, each setting forth the terms of a proposed transaction to take UpHealth private, which proposals had been circulated to the UpHealth Board by Dr. Katz.

On September 1, 2023, the UpHealth Board held a special meeting, telephonically and by video conference, and was joined by representatives of DLA and UpHealth’s management, to discuss the proposals and the other strategic alternatives available to UpHealth. Dr. Katz reviewed for the UpHealth Board the terms of the GTCR and Entity B indications of interest proposals. At the meeting, DLA reviewed, and the UpHealth Board discussed, its fiduciary duties in connection with these proposals and the draft exclusivity agreement, as well as the material legal terms of each proposal and exclusivity letter, including the four-week exclusivity periods. The UpHealth Board engaged in further discussion of the proposals, including the premium on the price of UpHealth Common Stock reflected by the proposed purchase price, the reputations of GTCR and Entity B, the lack of any financing contingency in the proposals, UpHealth’s ongoing liquidity needs including its outstanding debt obligations and the nonviability of refinancing such debt, the interests of the stockholders and UpHealth’s financing options and other strategic alternatives, the risk to UpHealth of non-compliance with the market capitalization and stock price requirements of the NYSE and the risk of being delisted from the NYSE, and potential alternative transactions, including a possible sale of TTC Healthcare or Cloudbreak. The UpHealth Board discussed and considered certain alternatives available to UpHealth, including (1) continuing to operate UpHealth in its current form according to its current business plan and (2) divesting Cloudbreak or TTC Healthcare from UpHealth and using the net proceeds to pay down some of UpHealth’s debt and grow the remaining business units of UpHealth, and following discussion and consideration of the significant premium to UpHealth’s current share price, which was the best price that was presented to the UpHealth Board, the fact that the UpHealth Board would have additional opportunities to discuss any potential transaction with Entity B prior to entry into any definitive agreement with Entity B, and further, that any definitive agreement entered into pursuant to Entity B’s proposal would provide that the UpHealth Board may consider and pursue, under certain circumstances and consistent with its fiduciary duties, an alternative acquisition proposal that constitutes a superior proposal, the risks to UpHealth’s operating budget, UpHealth’s ongoing liquidity needs and debt obligations, the interests of the stockholders and UpHealth’s financing options, the UpHealth Board approved pursuing a potential transaction with Entity B. The UpHealth Board authorized, with seven directors voting affirmatively, one director voting against and one director abstaining, that UpHealth further pursue the proposal from Entity B and enter into an exclusivity agreement to permit Entity B to commence due diligence of UpHealth and to commence negotiations with Entity B.

Also at the September 1, 2023 meeting, the UpHealth Board discussed the potential formation of a new transaction committee of the UpHealth Board (the “Special Strategic Committee”) as a matter of convenience and efficiency to manage the diligence, negotiation and communication process for potential strategic transactions involving UpHealth, including the proposals from Entity B and GTCR. Following discussion, the UpHealth Board, with seven directors voting affirmatively and two directors voting against, adopted resolutions establishing the Special Strategic Committee and adopting the charter of the Special Strategic Committee, and authorizing it to manage on behalf of UpHealth the due diligence process with Entity B, including managing all

 

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communications and discussions, and to oversee the negotiation of a proposed definitive agreement with Entity B. The UpHealth Board appointed independent directors Dr. Katz, as chairman of the Special Strategic Committee, and Messrs. Machuca and Locke as the other members of the Special Strategic Committee. The Special Strategic Committee was not formed for the purpose of mitigating potential conflicts of interest.

Following the conclusion of the September 1, 2023 meeting, Dr. Katz communicated to Entity B, on behalf of the UpHealth Board, that UpHealth would like to move forward with exploring the potential transaction and begin the due diligence process. UpHealth and Entity B then proceeded to finalize the terms of the exclusivity agreement and engage on preliminary transaction matters. On the morning of September 2, 2023, DLA was introduced to representatives of Entity B and its counsel. That morning, Entity B’s counsel sent a final version of the exclusivity agreement to DLA and on the evening of September 2, 2023, UpHealth and Entity B reached agreement regarding the terms of the exclusivity agreement and proceeded to arrange for execution of the exclusivity agreement.

Later that same night, on September 2, 2023, following the completion of negotiations regarding the exclusivity agreement with Entity B, the UpHealth Board received an unsolicited email from representatives of a law firm (“Entity C Counsel”), acting on behalf of Individual A’s investment firm (“Entity C”), providing an unsolicited letter (the “September 2 Letter”) from Individual A which stated that Entity C was preparing a proposal to acquire UpHealth for cash and requested that UpHealth engage in discussions with Individual A and Entity C regarding a potential acquisition of UpHealth by Entity C. The September 2 Letter did not include any offer or proposal to purchase UpHealth. It also did not identify any partners with which Entity C would work on a potential acquisition or how Entity C was otherwise proposing to pay for any potential acquisition. On September 3, 2023, in accordance with the terms of the exclusivity agreement agreed to the prior day with Entity B, DLA informed counsel to Entity B of UpHealth’s receipt of the September 2 Letter from Individual A and Entity C.

On September 3, 2023, UpHealth and Entity B executed the agreed-upon exclusivity agreement, following which Dr. Katz informed GTCR by telephone that UpHealth would be ceasing further discussions regarding potential transactions with GTCR until further notice.

Following the execution of the exclusivity agreement on September 3, 2023, on September 4, 2023, Entity B provided UpHealth with a detailed due diligence request list, and UpHealth commenced with preparing responses and gathering documents, which it provided to Entity B.

On September 5, 2023, Dr. Katz received an unsolicited email from Entity A, inquiring whether UpHealth would be interested in further discussion of a potential acquisition of UpHealth by Entity A. This email did not include any offer to purchase UpHealth.

On September 6, 2023, UpHealth and DLA conferred with Entity B’s counsel regarding the proposed response to the unsolicited September 2 Letter from Individual A and the September 5, 2023 inquiry from Entity A.

On September 7, 2023, Dr. Katz sent a letter on behalf of the UpHealth Board to each of Individual A, in response to the September 2 Letter, and Entity A, in response to its September 5, 2023 inquiry, confirming that UpHealth was not interested in engaging with Individual A and Entity C or Entity A, and their respective advisors, on a potential acquisition of UpHealth at such time.

At the request of the UpHealth Board, on September 7, 2023, Martin Beck, then the Chief Financial Officer, provided a comparison of the three unsolicited proposals that UpHealth had received to date from Entity A, Entity B and GTCR, to the UpHealth Board for its consideration in assessing the value provided by each proposal to UpHealth’s stockholders. Mr. Beck noted to the UpHealth Board that it is very difficult to compare the recent offers from Entity B and GTCR with the letter submitted in September 2022 by Entity A, because Entity A proposed negotiating with the 2025 Noteholders and 2026 Noteholders rather than repaying them in full (the position taken by both GTCR and Entity B). In addition, Mr. Beck informed the UpHealth Board that as of September 7, 2023, UpHealth had received no indication that the 2025 Noteholders and 2026 Noteholders would have an interest or incentive to permit Entity A to

 

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assume UpHealth’s obligations under the 2025 Notes and the 2026 Notes or to accept anything less than par value, plus the redemption premium for the 2025 Notes and the 2026 Notes, in connection with an acquisition transaction.

Since September 3, 2021, UpHealth Holdings has been a party to a legal action in the state court in New York entitled Needham & Company LLC (“Needham”) v. UpHealth Holdings, Inc. and UpHealth Services, Inc. (the “Needham Action”), which arose out of UpHealth Services, Inc.’s engagement of Needham to provide placement and other financial advisory services. On September 14, 2023, the court in New York issued a Decision and Order granting summary judgment in favor of Needham and denying UpHealth Holdings’ and UpHealth Services, Inc.’s motion for summary judgment. The court in New York entered that Decision and Order on its docket on September 15, 2023. The Decision and Order concluded that Needham is entitled to fees in the amount of $31.3 million, plus interest. UpHealth publicly announced the Decision and Order in the Needham Action on September 18, 2023. That same day, on September 18, 2023, the court in New York signed a judgment against UpHealth Holdings and UpHealth Services, Inc. in the amount of $31.3 million, plus prejudgment interest of $6.5 million, for a total judgment of $37.8 million, plus post-judgment interest of 9% per year.

Following the announcement by UpHealth of the Decision and Order on September 18, 2023, that same day, Entity B notified UpHealth that it was terminating its exclusivity agreement with UpHealth and withdrawing its proposal for a take-private acquisition of UpHealth.

Following the Decision and Order in the Needham Action and Entity B’s decision to withdraw from the potential take-private acquisition of UpHealth, on September 19, 2023, UpHealth Holdings filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court, commencing the Chapter 11 Proceedings.

Following the termination of exclusivity with Entity B, Dr. Katz, on behalf of the Special Strategic Committee, reached out on September 19, 2023 to GTCR regarding whether GTCR was willing to engage in discussions on a proposal for a strategic transaction. GTCR responded in the affirmative, and indicated that it was interested only in an acquisition of Cloudbreak and not of the entirety of UpHealth. On September 21, 2023, GTCR sent to the UpHealth Board a proposal to acquire Cloudbreak on a cash-free, debt-free basis for $130 million with a request for exclusivity. Upon receipt, Dr. Katz informed GTCR that this price was inadequate for UpHealth to proceed with a transaction for the sale of Cloudbreak.

The next day, on September 22, 2023, GTCR sent to the UpHealth Board a revised written proposal, in which GTCR increased its proposed purchase price for the acquisition of Cloudbreak to $180 million on a cash-free, debt-free basis. On September 23, 2023, the Special Strategic Committee determined to enter into an exclusivity agreement with GTCR for the purposes of negotiating a potential sale of Cloudbreak on the terms proposed by GTCR on September 22, 2023.

Also on September 23, 2023, DLA and counsel to GTCR, Kirkland & Ellis LLP (“K&E”), negotiated the terms of an exclusivity agreement between UpHealth and GTCR, following which UpHealth entered into this exclusivity agreement with GTCR, which provided for an exclusivity period of three weeks. GTCR then began its diligence of Cloudbreak and UpHealth, and UpHealth and GTCR commenced negotiations of the proposed terms of the Sale of Cloudbreak and its subsidiaries.

Following the execution of the exclusivity agreement, UpHealth commenced with preparing responses and gathering documents in response to the prior due diligence request from GTCR and, on September 24, 2023, UpHealth granted GTCR access to a virtual data room where responses to certain of GTCR’s diligence requests were posted. Over the next month, representatives of GTCR, K&E and UpHealth met periodically in person and via videoconference and teleconference to discuss various aspects of GTCR’s due diligence review of UpHealth, including its operations, product portfolio and roadmap, business unit and customer trends, unit economics, cost structure, financial forecast and growth strategy.

On October 5, 2023, the disinterested members of the UpHealth Board approved the payment of special board fees to the members of the Special Strategic Committee. The fees approved were a one-time retainer in the

 

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amount of $20,000 for the chairman and $10,000 for each other member and monthly fees of $10,000 per month to each member, with a cap on the total fees to be paid to the chairman of $80,000 and a cap on the total fees to be paid to each other member of $70,000. Such fees were not contingent on the successful consummation of a transaction. Mr. Locke disclaimed receipt of the fees payable to him for service on the Special Strategic Committee.

On October 20, 2023, two of UpHealth Holdings’ wholly-owned subsidiaries, Thrasys and BHS, and each of the subsidiaries of Thrasys and BHS, filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the Bankruptcy Court. The Chapter 11 Proceedings of the Debtors are being jointly administered under the caption In re UpHealth Holdings, Inc., Case No. 23-11476 (U.S. Bankr. D. Del.), for procedural purposes only.

During the month of October 2023, in anticipation of the potential Sale of the Cloudbreak Business, UpHealth’s senior management prepared certain updated financial projections for the Cloudbreak Business based on information available at that time and assuming that UpHealth continued to operate the Cloudbreak Business as part of UpHealth after giving effect to associated costs. On or about October 20, 2023, a representative of UpHealth verbally communicated to a representative of GTCR the revenue component of these updated Cloudbreak financial projections for fiscal year 2023, telling GTCR that UpHealth revised its projections down to $72,334,000 in revenue for Cloudbreak during that fiscal year, and revised down its forecast for fiscal year 2024 (management did not provide specific 2024 revenue to GTCR). UpHealth also communicated that it expected significant gross margin pressure into 2024, but did not provide a forecast to GTCR.

On October 21, 2023, K&E provided the initial draft of the Purchase Agreement to DLA for review, which included a purchase price of $180.0 million in cash, and the delivery of which had been requested by Dr. Katz, in his capacity as chairman of the Special Strategic Committee, as a condition to UpHealth’s agreement to an extension of exclusivity. On the same day, following the delivery of a satisfactory initial draft of the Purchase Agreement, and in consideration of the fact that the parties were continuing to negotiate the Transactions in good faith, and that the contemplated Transactions with GTCR would provide a mechanism for UpHealth to address its outstanding debt obligations, UpHealth and GTCR entered into an exclusivity extension to extend the exclusivity period to October 31, 2023.

In discussions of the Purchase Agreement that occurred over the days following the delivery of the initial draft of the Purchase Agreement, GTCR raised a concern regarding the ability of UpHealth to satisfy its financial obligations following the Sale of Cloudbreak in light of the Chapter 11 Proceedings involving UpHealth Holdings, Thrasys and BHS and given that upon the Sale of Cloudbreak, the only remaining direct subsidiary of UpHealth will be UpHealth Holdings and UpHealth itself has no operations. GTCR indicated to UpHealth that it wanted to receive a solvency opinion as a condition to Closing of the Sale and the other Transactions. GTCR also stated that it wanted to make sure that the Transactions were being structured in a manner that would not prevent the consummation of such Transactions as a result of the solvency of UpHealth at the Closing of the Sale. UpHealth responded to this concern that the consideration being paid was insufficient to enable it to repurchase all of the 2025 Notes and the 2026 Notes in full, but that it believed that it had sufficient assets on a consolidated basis, even with UpHealth Holdings and certain other indirect subsidiaries in bankruptcy, and that it had commenced discussions with the Consenting Noteholders around the structure of the Transactions to allow for it to be able to satisfactorily address the concern raised by GTCR. Starting the last week of October 2023, and into the first week of November 2023, DLA began holding separate discussions with counsel to the Consenting Noteholders, Akin Gump Strauss Hauer & Feld LLP (“Akin”), and K&E with respect to the Purchase Agreement and the structure of the Transactions. By November 1, 2023, DLA had discussed with Akin, K&E and UpHealth initiating three-way joint discussions between DLA, Akin and K&E regarding the structure of the Transactions, and repayment of the 2025 Notes and the 2026 Notes following the consummation of the Sale and the other Transactions, and the first of such joint discussions occurred on November 3, 2023.

Prior to that, on October 27, 2023, K&E provided the initial draft of the Voting Agreement to DLA. The initial draft of the Voting Agreement required that the Supporting Stockholders, among other things, agree to vote (i) all

 

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of the shares of UpHealth Common Stock owned of record or beneficially by held by them as of the date of the Purchase Agreement and (ii) any additional shares of UpHealth Common Stock or other voting securities of UpHealth acquired by the Supporting Stockholders or their affiliates prior to the record date for the special meeting, in favor of the approval of the Transactions, including the Sale, pursuant to the Purchase Agreement and against any proposals that would reasonably be expected to result in a breach of any covenant, representation or warranty or other obligation or agreement of UpHealth or Cloudbreak contained in the Purchase Agreement or result in any condition set forth in the Purchase Agreement not being satisfied or not being fulfilled prior to the Closing. Additionally, the initial draft of the Voting Agreement provided that from the date of the Purchase Agreement until the earliest to occur of (i) the valid termination of the Purchase Agreement in accordance with its terms or (ii) the Closing, the Supporting Stockholders are prohibited from tendering, transferring, entering into any contract, option, agreement, understanding or arrangement with respect to the transfer of any shares covered under the Voting Agreement.

On October 28, 2023, DLA provided a revised draft of the Purchase Agreement to K&E, which was revised, among other things, to (i) limit the representations and warranties provided by UpHealth and Cloudbreak from what GTCR had sought in the initial draft of the Purchase Agreement, (ii) provide additional carveouts to the no solicitation provision in the Purchase Agreement to allow UpHealth and Cloudbreak the ability to inform third parties of the existence of the no solicitation provision and (iii) allow UpHealth and Cloudbreak to contact third parties in writing to clarify any ambiguous terms and conditions of an Acquisition Proposal if reasonably necessary to determine whether an Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal. Also on October 28, 2023, DLA provided a revised draft of the Voting Agreement to K&E, which was revised to provide for additional events of termination of the Voting Agreement, including for (x) a Seller Board Recommendation Change, (y) written notice of termination of the Purchase Agreement by Forest Buyer to the Supporting Stockholders or mutual written agreement of the parties to the Voting Agreement and (z) the Requisite Stockholder Approval having been received. The revised draft of the Voting Agreement also allowed for the Supporting Stockholders to be able to effectuate certain transfers of the UpHealth Common Stock that such Supporting Stockholders hold. On the same day, representatives from K&E and DLA connected via email on the status of the draft of the Transition Services Agreement.

On October 29, 2023, UpHealth’s senior management provided the updated financial projections which they had prepared that month pertaining to the Cloudbreak Business to the UpHealth Board for review and consideration in advance of an UpHealth Board meeting that had been scheduled for October 31, 2023 for the purpose of considering the Sale of Cloudbreak and the Purchase Agreement and the ancillary agreements thereto. The projections provided to the UpHealth Board on October 29, 2023 are referred to in this proxy statement as the “Cloudbreak Business Projections” and are summarized in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Certain Financial Projections—Cloudbreak Business Projections” beginning on page 66. Other than changes to projected revenue amounts for 2023 and 2024 verbally communicated on or about October 20, 2023, UpHealth did not provide to GTCR the information set forth in the Cloudbreak Business Projections.

On October 30, 2023, DLA provided a further revised draft of the Purchase Agreement, which included additional revisions to the financing provisions of the Purchase Agreement, including Forest Buyer’s representation that it will have sufficient access to immediately available cash to enable it to (i) satisfy all payment obligations of Forest Buyer contemplated by the Purchase Agreement, (ii) repay the principal of and accrued and unpaid interest on all indebtedness outstanding and (iii) pay all fees and expenses required to be paid at Closing by UpHealth and Cloudbreak, and will provide a copy of the Equity Commitment Letter. Later that afternoon, K&E provided a revised draft of the Voting Agreement, which was circulated to the UpHealth Board for review in advance of its October 31, 2023 meeting. The revised draft of the Voting Agreement from K&E required the Supporting Stockholders to vote against any Acquisition Proposal, or any other proposal made in opposition to, in competition with, or inconsistent with, the Purchase Agreement or the Transactions contemplated by the Purchase Agreement. K&E also removed the occurrence of a Seller Board Recommendation Change and receipt of the Requisite Stockholder Approval as termination events for the Voting Agreement and limited the exempted transfers allowed under the Voting Agreement compared to those that had been included in the revised draft of the Voting Agreement

 

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circulated by DLA on October 28, 2023. In addition, given the ongoing negotiations of the Purchase Agreement and the related ancillary agreements, and the ongoing review of diligence and the disclosure schedules to the Purchase Agreement, GTCR requested an extension to the exclusivity agreement. Later that day, UpHealth and GTCR entered into a second exclusivity extension to extend the exclusivity period to November 3, 2023.

On October 31, 2023, the UpHealth Board held a meeting, telephonically and by video conference, and was joined by representatives of DLA and UpHealth’s management, to discuss the negotiations with GTCR for the Sale of Cloudbreak and to review and discuss the terms of the Purchase Agreement and the ancillary agreements thereto (other than the Transaction Support Agreement, which was not yet contemplated at this time). Dr. Katz provided the UpHealth Board with an update on the negotiations with GTCR for the Sale of Cloudbreak, including that UpHealth, GTCR and an ad hoc group of 2025 Noteholders and 2026 Noteholders, had begun three-way discussions with respect to the proposed Transactions, the solvency of UpHealth following the Closing of the proposed Transactions and the repayment of the 2025 Notes and the 2026 Notes. Mr. Beck, who had become the Chief Executive Officer a few weeks earlier, provided the UpHealth Board with an update on the extensiveness of the diligence activities of GTCR. At the meeting, DLA reviewed, and the UpHealth Board discussed, the status and terms of the draft Purchase Agreement, including that UpHealth would need to call a special meeting of stockholders to approve the Sale of Cloudbreak to GTCR under the Purchase Agreement as such Sale constitutes a sale of substantially all of the assets of UpHealth under Section 271 of the DGCL and that the receipt of the Requisite Stockholder Approval is a condition to Closing under the Purchase Agreement. DLA also reviewed for the UpHealth Board the ancillary agreements to the Purchase Agreement (other than the Transaction Support Agreement), including, among others, the Voting Agreement that each of the members of the UpHealth Board (including Mr. Beck) and Mr. Jennings, and any affiliates, would be asked to sign in furtherance of the Sale of Cloudbreak, and the UpHealth Board approved the Voting Agreement for purposes of Section 203 of the DGCL pertaining to business combinations with interested stockholders. In addition, DLA reviewed for the UpHealth Board the Escrow Agreement and the Transition Services Agreement. At the October 31, 2023 meeting, the UpHealth Board discussed that the terms of the Purchase Agreement would allow UpHealth to entertain certain unsolicited third-party proposals received by UpHealth following the execution and announcement of the Purchase Agreement and prior to the special meeting of stockholders to approve the Purchase Agreement for the Sale, and that if the UpHealth Board determines that any such proposals constitute a Superior Proposal, UpHealth could terminate the Purchase Agreement and move forward with a Superior Proposal subject to the payment of the Termination Fee, and that the terms of the Voting Agreement would provide that the obligations under the Voting Agreement will terminate if the Purchase Agreement is validly terminated for any reason. In addition, the UpHealth Board reviewed and discussed the Cloudbreak Business Projections that were provided by management in advance of the meeting, and concluded that retention of the Cloudbreak Business, based on the projected cash flows of the Cloudbreak Business as set forth in the Cloudbreak Business Projections, would not be sufficient to enable UpHealth to satisfy its outstanding payment obligations in respect of the 2025 Notes. After discussion and careful consideration of all of the material facts relevant to the Sale and the other Transactions, and having carefully considered the alternatives available to UpHealth at that time, and with knowledge of the financial position of UpHealth, including with regard to its obligations to UpHealth’s noteholders and the fact that retention of the Cloudbreak Business, based on its projected cash flows as set forth in the Cloudbreak Business Projections, would not be sufficient to enable UpHealth to satisfy its outstanding payment obligations in respect of the 2025 Notes, the UpHealth Board concluded that it would be in the best interests of UpHealth and its stockholders to secure the benefits of the proposed Sale and the other Transactions with GTCR. The UpHealth Board unanimously approved and adopted the Purchase Agreement and the ancillary agreements at the meeting on October 31, 2023 as being in the best interests of UpHealth and its stockholders, and unanimously authorized the execution and delivery of the Purchase Agreement and the ancillary agreements thereto, subject to any changes determined to be necessary or advisable by the executive officers of UpHealth.

On November 2, 2023, K&E sent a revised draft of the Purchase Agreement to DLA, pursuant to which K&E (i) removed the provision allowing UpHealth and Cloudbreak to contact third parties in order to clarify ambiguous terms and conditions of an Acquisition Proposal if reasonably necessary to determine whether an Acquisition Proposal constitutes or would be reasonably likely to lead to a Superior Proposal and (ii) further expanded the definition of a Board Recommendation Change and limited the exceptions to the definition.

 

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On November 3, 2023, DLA delivered a further revised draft of the Purchase Agreement to K&E, pursuant to which DLA added a representation that Forest Buyer would provide a copy of the Debt Commitment Letter to UpHealth and Cloudbreak in order understand the proposed scope of the debt financing assistance that UpHealth and Cloudbreak would be required to provide. Furthermore, as noted above, DLA, K&E and Akin met jointly for the first time to discuss issues pertaining to the use of proceeds of the Sale of Cloudbreak and the repurchase of 2025 Notes and 2026 Notes.

Following this initial joint meeting on November 3, 2023, DLA and Dr. Katz on November 4 and 5, 2023 had numerous separate conversations with each of K&E and representatives of GTCR, as well as certain of the Consenting Noteholders, to further discuss the structure of the Transactions and the repurchase of 2025 Notes and 2026 Notes. In the discussions between Dr. Katz and GTCR, it was agreed on November 4, 2023 that the exclusivity previously extended until November 3, 2023, would be further extended during the period of discussions involving the Consenting Noteholders, with such period to be expected to continue until November 14, 2023. During these discussions, on November 4, 2023, GTCR proposed a structure by which $27 million would be funded into an escrow account for the payment of taxes on the Sale as well as a separate working capital adjustment escrow amount that would still need to be determined, the 2025 Notes would be repurchased by UpHealth in full, and that after providing for those amounts, the remainder from the Sale proceeds would be used to repurchase the 2026 Notes, with any balance that was not repurchased to be acquired by GTCR for $5 million, with such 2026 Notes that GTCR would acquire to be converted into convertible preferred stock of UpHealth with no coupon and convertible into UpHealth Common Stock at $1.00 per share at GTCR’s option. GTCR’s proposal also sought that a supermajority of each of the 2025 Notes and the 2026 Notes enter into the Transaction Support Agreement.

Certain of the Consenting Noteholders raised concerns to Dr. Katz and DLA regarding the viability of the proposal presented by GTCR on November 4, 2023 under the terms of the Indentures, as well as whether holders of the 2026 Notes would be willing to sell the balance of such Notes that would not be repurchased by UpHealth to GTCR at the discounted price of $5 million given the expected value of UpHealth following the Sale of Cloudbreak. As an alternative, such Consenting Noteholders proposed that the 2026 Notes be repurchased in full following the Sale, and a portion of the 2025 Notes that only such Consenting Noteholders would hold would not be repurchased following the Sale, and that such Consenting Noteholders would then enter into the Transaction Support Agreement in furtherance and support of the Purchase Agreement and the repurchase of the 2025 Notes and the 2026 Notes. DLA discussed this counterproposal from the Consenting Noteholders with K&E on November 6 and 7, 2023.

On November 8, 2023, K&E provided the initial draft of the Transaction Support Agreement and a revised draft of the Purchase Agreement to DLA for review by DLA and Akin. DLA delivered this initial draft of the Transaction Support Agreement to Akin for Akin to review concurrently with DLA. The initial draft of the Transaction Support Agreement aligned with the counterproposal from the Consenting Noteholders with respect to the repurchase of the 2026 Notes in full and a portion of the 2025 Notes, with only Consenting Noteholders continuing to own 2025 Notes following the Closing of the Sale of Cloudbreak, as well as entry into the Supplemental Indentures. The revised draft of the Purchase Agreement included revisions to the requirements of the Estimated Closing Statement along with the requirement for additional Closing deliverables, including, among others, escrow amounts for the Tax Escrow Amount and to fund the repurchase of the 2025 Notes and the 2026 Notes. Additional revisions included changes to UpHealth’s and Cloudbreak’s covenants related to the operation of the business from the date of the Purchase Agreement until Closing or the valid termination of the Purchase Agreement.

On November 10, 2023, DLA provided a further revised draft of the Purchase Agreement to K&E, which provided revisions to (i) the percentage of 2025 Noteholders and 2026 Noteholders required to execute the Transaction Support Agreement in connection with the contemplated Transactions and (ii) Cloudbreak’s covenants with respect to the termination, modification or waiver of any Material Contracts and entry into any new contracts after the date of the Purchase Agreement and prior to Closing.

On the evening of November 10, 2023, the UpHealth Board and Akin received an unsolicited email from representatives of a boutique investment bank (“Investment Bank A”), acting on behalf of Individual A’s investment firm, Entity C, and a private equity firm which was introduced as partnering with Entity C (“Entity D”),

 

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providing an unsolicited letter from Individual A and Entity D which stated that, notwithstanding that UpHealth is engaged with another buyer on a potential transaction and was subject to exclusivity, Entity C and Entity D were prepared to make a proposal to acquire Cloudbreak and requested that UpHealth engage in discussions with Individual A, Entity C and Entity D regarding a potential acquisition of Cloudbreak by Entity C and Entity D. The letter did not include any offer or proposal to purchase Cloudbreak. On November 11, 2023, in accordance with the terms of the exclusivity agreement with GTCR, DLA informed counsel to GTCR of UpHealth’s receipt of this unsolicited communication from Investment Bank A on behalf of Individual A, Entity C and Entity D.

On November 11, 2023, K&E delivered a further revised draft of the Purchase Agreement to DLA, which, among other things, revised certain of the covenants regarding the operation of Cloudbreak between signing and Closing. On the same day, UpHealth and GTCR, in order to reflect what had been agreed a week earlier, executed the written third exclusivity extension to extend the exclusivity period to November 14, 2023. Later that evening, K&E provided a further revised draft of the Purchase Agreement to DLA.

On November 12, 2023, Dr. Katz sent an email on behalf of the UpHealth Board to representatives of Investment Bank A, in response to the November 10 Letter, confirming that UpHealth remained subject to exclusivity with another buyer and that, consistent with its obligations under the exclusivity agreement, UpHealth was not interested in engaging with Entity C and Entity D on a potential acquisition of Cloudbreak at such time. In response, later that same day, representatives of Investment Bank A responded to the email from Dr. Katz, on behalf of Entity C and Entity D, with an unsolicited email copied to the UpHealth Board and Akin which stated that Entity C and Entity D were prepared to offer a bid for Cloudbreak at an enterprise value of $190.0 million, subject to confirmatory due diligence. However, this unsolicited November 12, 2023 email did not include any offer or proposal to purchase Cloudbreak.

On November 12, 2023, Akin provided a revised draft of the Transaction Support Agreement to DLA. The revisions significantly expanded the Transaction Support Agreement, adding representations and warranties from Forest Buyer, placing support obligations on all of the parties to the Transaction Support Agreement, and not just the Consenting Noteholders, and expanding the grounds for termination of the obligations of the Consenting Noteholders, among other things. The revised draft of the Transaction Support Agreement also added conditions to the Consenting Noteholders’ obligations under such agreement. That same day, DLA forwarded the revised draft of the Transaction Support Agreement to K&E.

On November 13, 2023, K&E sent a revised draft of the Transaction Support Agreement to DLA for review by DLA and Akin. DLA provided the revised draft to Akin for review as well. Among other things, the revised draft of the Transaction Support Agreement removed a number of the termination grounds and the conditions that Akin had added into the Transaction Support Agreement the prior day.

Early in the morning on November 14, 2023, DLA provided a revised draft of the Purchase Agreement to K&E to reflect revisions to the escrow accounts being established for the repurchase of the 2025 Notes and the 2026 Notes and to add a provision requested by the Consenting Noteholders with respect to any disputes that may arise with them that Akin had requested DLA include in the Purchase Agreement.

In advance of the expiration of the exclusivity deadline at the end of November 14, 2023, on that same day, the UpHealth Board held a special meeting by video conference to review and consider the terms of the proposed Transactions with GTCR, including the Transaction Support Agreement, and to discuss whether to confirm its prior authorization of UpHealth to proceed with signing definitive agreements for the Sale and the other Transactions. As part of this discussion, the UpHealth Board reviewed and considered the material changes to the terms of the Purchase Agreement since the October 31, 2023 meeting, including that the parties had agreed to increase the Termination Fee from 3.0% of the purchase price to 4.0% of the purchase price, but that the terms enabling the UpHealth Board to consider and pursue Superior Proposals under certain circumstances had not changed. The UpHealth Board also considered how the escrows for the working capital purchase price adjustment and the payment of taxes in connection with the Transactions would work, and that the amount to be

 

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placed into the Tax Escrow Account was subject to adjustment prior to Closing, as well as the structure for the payments to be made in connection with the repurchase of the 2026 Notes and the 2025 Notes. In addition, DLA reviewed, and the UpHealth Board discussed and considered, the terms of the Transaction Support Agreement with GTCR and the Consenting Noteholders, including that it provides for entry into the Supplemental Indentures. DLA informed the UpHealth Board that final changes were being discussed with K&E and Akin to the terms of the Transaction Support Agreement and the Purchase Agreement concerning the repurchase of the 2025 Notes and the 2026 Notes, but that based on its discussions that day with both K&E and Akin, none of such changes concerned matters that were material to UpHealth (as opposed to matters that were of concern for the Consenting Noteholders and GTCR). The UpHealth Board also discussed the recent communications from Entity C and Entity D and its fiduciary obligations in light of such communications, and following this discussion, determined that it was not in the best interests of UpHealth and its stockholders to engage with Entity C and Entity D at such time as, despite the last communication of November 12, 2023 stating a proposed figure of $190.0 million, such communication did not present any bona fide offer for the purchase of Cloudbreak, and the complexity of the discussions between UpHealth, GTCR and the Consenting Noteholders was at such a level, that the UpHealth Board did not believe that trying to restart with a different potential buyer was going to result in an improved purchase price. After these discussions, and having carefully reviewed the facts, including the complexity of the Transactions and the Purchase Agreement and the agreements contemplated thereby, including the Transaction Support Agreement, and the difficulty in negotiating the terms of such agreements in light of UpHealth’s financial position, and the fact that retention of the Cloudbreak Business, based on its projected cash flows as set forth in the Cloudbreak Business Projections, would not be sufficient to enable UpHealth to satisfy its outstanding payment obligations in respect of the 2025 Notes, the UpHealth Board concluded that it remained in the best interests of UpHealth and its stockholders to secure the benefits of the proposed Sale and the other Transactions with GTCR. The UpHealth Board unanimously reaffirmed, as being in the best interests of UpHealth and its stockholders, its prior approval of the Purchase Agreement and the agreements and Transactions contemplated thereby, including the Sale, and the consummation of such Transactions, and unanimously adopted and approved the Transaction Support Agreement, and authorized the execution and delivery of the Purchase Agreement, the Transaction Support Agreement and the other agreements provided for therein.

On the evening of November 14, 2023, the parties continued to exchange drafts of the Transaction Support Agreement and the Purchase Agreement, and DLA spoke with both K&E and Akin in an effort to resolve outstanding matters between GTCR and the Consenting Noteholders relating to those agreements. As the expiration of the exclusivity deadline approached, a meeting of UpHealth, GTCR, the Consenting Noteholders, DLA, K&E and Akin was held to review the open items on these two agreements, and it was determined that one more day should be used to reach agreement between GTCR and the Consenting Noteholders on the matters that remained open between them. To implement that decision, UpHealth and GTCR agreed to a fourth extension of the exclusivity agreement, to extend the exclusivity period for an additional 24 hours to the end of the day on November 15, 2023.

On November 15, 2023, drafts of the Purchase Agreement that further refined the provisions regarding the escrows and the repurchase of the 2025 Notes and the 2026 Notes continued to be exchanged between K&E, DLA and Akin. Similarly, the three sets of counsel continued to revise and exchange drafts of the Transaction Support Agreement. As the deadline for the expiration of the exclusivity period approached that night, Akin informed DLA that it did not yet have all of the Consenting Noteholders ready to agree to the drafts of the two agreements as they had been finalized that day. As a result, GTCR, UpHealth, K&E and DLA met and decided to extend exclusivity until noon Pacific time the following day, and to ask for a meeting with UpHealth, GTCR, the Consenting Noteholders, DLA, K&E and Akin to be held two hours before that deadline to confirm whether all agreements were finalized and could be executed.

On the morning of November 16, 2023, DLA, K&E and Akin had further communications with respect to the drafts of the Purchase Agreement and Transaction Support Agreement. At 10:00 a.m. Pacific time on that day, as agreed the prior evening, a meeting was held with UpHealth, GTCR, the Consenting Noteholders, DLA, K&E

 

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and Akin to determine whether there were any remaining open issues with respect to the agreements that would require further revision. None were identified, and shortly after that (and in advance of the noon Pacific deadline), UpHealth, Cloudbreak and GTCR executed the Purchase Agreement and Transaction Support Agreement. The Supporting Stockholders also executed the Voting Agreement. On the afternoon of November 16, 2023, UpHealth and GTCR each issued press releases announcing the Sale and the other Transactions and their execution of a definitive Purchase Agreement.

Following this announcement, on November 29, 2023, UpHealth received an unsolicited email from Investment Bank A, attaching a letter dated November 29, 2023, from Entity D on behalf of itself and Entity C (the “November 29 Letter”). The November 29 Letter purported to set forth the terms upon which Entity C and Entity D would be willing to acquire Cloudbreak from UpHealth, including consideration of no less than $205 million in cash (subject to adjustments for indebtedness, cash and unpaid transaction expenses, on substantially the same terms as under the Purchase Agreement) payable to UpHealth and otherwise under terms and conditions that are substantially consistent with the Purchase Agreement. The November 29 Letter further indicated that Entity C and Entity D were prepared to quickly and diligently move forward with a targeted due diligence process, and were confident that they could execute an “Acceptable Confidentiality Agreement” as defined in the Purchase Agreement and that, assuming timely access to UpHealth management and requested UpHealth information, due diligence could be completed and definitive agreements executed on a reasonably expedited basis. While the November 29 Letter stated that Entity C and Entity D believed the contents of the November 29 Letter constituted a “Superior Proposal” as defined in the Purchase Agreement such that UpHealth would be entitled to engage with Entity C and Entity D toward consummation of the transactions contemplated by the November 29 Letter consistent with UpHealth’s obligations under Section 5.8(b) of the Purchase Agreement, the November 29 Letter also stated that it did not constitute a binding offer or commitment on the part of Entity C and Entity D to negotiate or execute a definitive agreement, and that Entity C and Entity D would not object to UpHealth’s payment of the Termination Fee pursuant to the terms of the Purchase Agreement.

Later that same day, on November 29, 2023, Dr. Katz notified GTCR of the November 29 Letter in accordance with the terms of the Purchase Agreement and scheduled a special meeting of the UpHealth Board to be held on November 30, 2023 to discuss the November 29 Letter. The next day, this special meeting of the UpHealth Board was rescheduled to the afternoon of December 1, 2023 to accommodate the schedule of members of the UpHealth Board and to allow for further preparation of management of UpHealth and UpHealth’s advisors to be able to discuss the November 29 Letter with the UpHealth Board.

On November 30, 2023, Dr. Katz spoke with Mr. Anderson, during which they discussed the November 29 Letter, including whether GTCR would be willing to amend the terms of the Purchase Agreement in favor of UpHealth in response to the terms outlined in the November 29 Letter. During such discussion, Mr. Anderson indicated to Dr. Katz that Mr. Anderson would contact Dr. Katz the next day with GTCR’s decision on whether to amend the Purchase Agreement in favor of UpHealth once Mr. Anderson had an opportunity to consult with GTCR’s investment committee and K&E.

Later that same day, on November 30, 2023, K&E contacted DLA to schedule a call between representatives of the two firms to discuss the November 29 Letter, which call was scheduled for the morning of December 1, 2023.

On December 1, 2023, DLA and K&E attended their scheduled call to discuss the November 29 Letter, which began with DLA noting that, per the discussion between Dr. Katz and Mr. Anderson, Dr. Katz expected to hear from GTCR that day (December 1, 2023) on whether GTCR would be willing to make any amendment to the terms of the Purchase Agreement in favor of UpHealth. Representatives of DLA further noted that the UpHealth Board had scheduled a special meeting for later that day (December 1, 2023) to discuss the November 29 Letter, presumably after Dr. Katz had heard back from Mr. Anderson, during which meeting DLA anticipated that the UpHealth Board would make a determination as to whether the November 29 Letter constituted a Superior Proposal or would be reasonably likely to lead to a Superior Proposal, and whether the failure to take the actions contemplated by Section 5.8(b) of the Purchase Agreement would or would reasonably be expected to be

 

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inconsistent with its fiduciary duties pursuant to applicable law. In response to a question from K&E, DLA noted that the UpHealth Board had not had an opportunity to assess whether the November 29 Letter was meritorious and constituted a legitimate Superior Proposal or would reasonably be likely to lead to a Superior Proposal, and that DLA did not expect that UpHealth would make the November 29 Letter public at the earliest until shortly after the UpHealth Board had an opportunity to make such a determination, and at the latest as part of UpHealth’s disclosures in this proxy statement. DLA and K&E then discussed whether UpHealth would seek a waiver from GTCR to permit UpHealth to engage with Entity C and Entity D in connection with the November 29 Letter without making a determination that the November 29 Letter constituted a Superior Proposal or would be reasonably likely to lead to a Superior Proposal under the terms of the Purchase Agreement. DLA then indicated that it would be helpful to the UpHealth Board to know whether GTCR would be willing to amend the Purchase Agreement in favor of UpHealth in consideration of the November 29 Letter, or to grant such a waiver (and if so, to receive a form of such waiver), prior to the UpHealth Board’s special meeting that had been scheduled later that day.

Later that same day, on December 1, 2023, Mr. Anderson called Dr. Katz to revisit the conversation they had on November 30, 2023. During that call, Mr. Anderson indicated to Dr. Katz that GTCR was unwilling to amend the Purchase Agreement, but that GTCR would be willing to grant UpHealth a waiver of the requirement under the Purchase Agreement that the UpHealth Board determine that the November 29 Letter either constitutes a Superior Proposal or would be reasonably likely to lead to a Superior Proposal, and that the failure to engage with Entity C and Entity D would or would reasonably be expected to be inconsistent with its fiduciary duties pursuant to applicable law, before UpHealth engages in discussions with, or provides access to non-public information regarding UpHealth and Cloudbreak to, Entity C and Entity D in connection with the November 29 Letter. Mr. Anderson further indicated that K&E was working on a form of such waiver, which it would send to DLA later that day. Mr. Anderson also stated to Dr. Katz that GTCR had reserved the right to come back to UpHealth if UpHealth received a Superior Proposal.

Later that same day, on December 1, 2023, the UpHealth Board convened the scheduled special meeting, during which the UpHealth Board considered the November 29 Letter in consultation with UpHealth management and DLA. During that meeting, the UpHealth Board discussed that, under the terms of the Purchase Agreement, in order for UpHealth to engage with Entity C and Entity D regarding the November 29 Letter, UpHealth would be required to enter into an “Acceptable Confidentiality Agreement” (as defined in the Purchase Agreement) with each of Entity C and Entity D, and that the UpHealth Board would be required to determine that the November 29 Letter constitutes a Superior Proposal or would reasonably be likely to lead to a Superior Proposal, and that the failure to engage with Entity C and Entity D would or would reasonably be expected to be inconsistent with the UpHealth Board’s fiduciary duties under law. The UpHealth Board also discussed that, under the terms of the Purchase Agreement, in order for UpHealth to terminate the Purchase Agreement to enter into a transaction with Entity C and Entity D, the UpHealth Board would be required to (i) find that Entity C and Entity D had made a Superior Proposal, (ii) provide GTCR with five business days written notice of such determination, and an opportunity to make a counteroffer to such Superior Proposal, and (iii) pay to GTCR the Termination Fee of $7,200,000. The UpHealth Board further discussed that it would need to make a determination as to whether the November 29 Letter would be reasonably likely to lead to a Superior Proposal, as on its face the November 29 Letter was not a Superior Proposal because it specifically stated that it is a non-binding indication of interest and, among other things, only contemplated that Entity C and Entity D “would not object” to UpHealth paying the Termination Fee to GTCR, but that UpHealth did not have the funds to make such a payment and the November 29 Letter did not address that fact. DLA informed the UpHealth Board, however, that GTCR had indicated earlier that day that GTCR would provide a waiver of the requirement that the UpHealth Board make such a determination before engaging with Entity C and Entity D, that a draft of such waiver had been sent to DLA by K&E during the course of the UpHealth Board’s special meeting, and that such a waiver would enable UpHealth to have conversations with Entity C and Entity D without having to make the determination as to whether the November 28 Letter would be reasonably likely to lead to a Superior Proposal.

Further, during such special meeting of the UpHealth Board on December 1, 2023, members of the UpHealth Board expressed concerns that, while they would welcome a credible Superior Proposal from Entity C and Entity D that

 

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would provide additional value for UpHealth’s noteholders and stockholders, the November 29 Letter may not represent such a credible offer or inquiry as (i) the members of the UpHealth Board, which had experience with numerous private equity firms, were not familiar with Entity D, and (ii) the actions of Individual A, as a principal of Entity C, given his prior employment with, and subsequent claims against, UpHealth, and, Individual A having apparently ceased to partner with Entity A, and reportedly been rejected as a partner by other potential private equity firms, may now be using Entity D to introduce uncertainty into the Cloudbreak sale process with the intent of impairing, preventing or delaying the Transactions with GTCR but without a realistic path or intent to make a legitimate Superior Proposal involving Entity D. Members of the UpHealth Board expressed further concern that allowing Individual A, as a former senior employee of the Cloudbreak Business, access to Cloudbreak’s sensitive customer pricing information and contracts would give Individual A and his potential business partners and affiliates, including Entity C and Entity D, the ability to establish a Cloudbreak competitor that could target Cloudbreak’s key customer relationships, and compromise GTCR’s interest in consummating the Purchase Agreement, despite such agreement being binding, and the viability of Cloudbreak’s business if the Transactions with GTCR failed to close for any reason. Members of the UpHealth Board therefore asked how the UpHealth Board could go about validating the credibility and seriousness of the November 29 Letter. The UpHealth Board discussed that the draft waiver that had been sent by K&E during the special meeting, once signed by the parties, would provide UpHealth with 10 days during which UpHealth, after entering into an Acceptable Confidentiality Agreement with each of Entity C and Entity D, could (i) engage in discussions with Entity C and Entity D toward establishing a Superior Proposal without making the determinations otherwise required under the terms of the Purchase Agreement, and (ii) commence a high-level inquiry to determine the credibility of the indication of interest from Entity C and Entity D and their ability to pay the $7,200,000 Termination Fee to GTCR as required under the Purchase Agreement and otherwise consummate a transaction that would constitute a Superior Proposal. The UpHealth Board further discussed that, despite the UpHealth Board’s concerns, without such waiver, the UpHealth Board would have a difficult time from a fiduciary perspective not making a determination that the November 29 Letter would reasonably be likely to lead to a Superior Proposal and engaging with Entity C and Entity D on that basis.

Further, during such special meeting of the UpHealth Board on December 1, 2023, the UpHealth Board then discussed how it could verify the validity and seriousness of the interest indicated by the November 29 Letter. During this discussion, members of the UpHealth Board expressed that, once UpHealth had entered into an Acceptable Confidentiality Agreement with each of Entity C and Entity D, it would be critical to confirm that Entity C and Entity D would be willing, and have the financial resources, to pay, the $7,200,000 Termination Fee to GTCR as required under the Purchase Agreement for UpHealth to terminate the Purchase Agreement and enter into an agreement for a Superior Proposal with Entity C and Entity D, and that without obtaining such confirmation, any discussions with Entity C and Entity D would be pointless and introduce unnecessary risk and delay into the Cloudbreak sale process, and compromise the value that UpHealth’s noteholders and stockholders, to whom the UpHealth Board owed its fiduciary duties, could realize from the Sale of Cloudbreak. Members of the UpHealth Board also expressed that, to confirm that Entity C and Entity D were serious about their interest indicated in the November 29 Letter and would be willing and able to pay the $7,200,000 Termination Fee to GTCR as a precondition to moving forward with UpHealth (since UpHealth did not have the financial resources to make such payment to GTCR on its own), UpHealth should seek to have as a pre-condition to UpHealth providing Entity C and Entity D with access to any diligence material, that Entity C and Entity D deposit $7,200,000 into an escrow account with a reputable third party escrow agent as a refundable earnest money deposit that would be paid to GTCR as required to terminate the Purchase Agreement in the event that Entity C and Entity D made a serious Superior Proposal following negotiations with UpHealth that UpHealth was prepared to enter into. The UpHealth Board discussed that a request for such an escrow would be atypical relative to other public company topping bid scenarios, and that UpHealth could make that ask of Entity C and Entity D, but that if Entity C and Entity D refused to agree to such an escrow, and instead provided bank account information and financial statements, along with a commitment to pay the $7,200,000 Termination Fee to GTCR as required under the Purchase Agreement, such a refusal to escrow the $7,200,000 would likely not be grounds for the UpHealth Board and UpHealth to walk away from discussions with Entity C and Entity D. Members of the UpHealth Board further expressed that UpHealth would need to verify that Entity C and Entity D have the financial ability to consummate a Superior Proposal on the terms outlined in the November 29 Letter by asking

 

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Entity C and Entity D a targeted set of due diligence questions aimed at assessing their creditworthiness, and that any diligence material provided to Entity C and Entity D after they committed to paying the $7,200,000 Termination Fee and depositing that amount into escrow, and providing UpHealth with evidence of their overall creditworthiness and ability to consummate a transaction on the terms indicated in the November 29 Letter, should not, in the first instance, include sensitive customer pricing information or customer contracts that could be used by Individual A and his affiliates to inappropriately disadvantage the Cloudbreak Business. The UpHealth Board then agreed that UpHealth should finalize Acceptable Confidentiality Agreements with Entity C and Entity D as soon as possible and prepare a set of targeted diligence questions through the weekend, aimed at establishing Entity C’s and Entity D’s creditworthiness and willingness to escrow and ultimately pay to GTCR the $7,200,000 Termination Fee, that could be delivered to Entity C and Entity D as soon as possible after the Acceptable Confidentiality Agreements had been finalized, and assuming the UpHealth Board was satisfied with Entity C’s and Entity D’s responses, UpHealth should provide them with initial diligence access with the goal of negotiating a Superior Proposal with Entity C and Entity D.

Later that same day, on December 1, 2023, DLA returned to K&E a revised draft of the proposed waiver that K&E delivered to DLA earlier that day during the UpHealth Board’s special meeting.

On December 2, 2023, K&E responded to DLA that the revised draft of the waiver was acceptable, and DLA requested that K&E provide a copy of the waiver signed by GTCR.

Later that same day, on December 2, 2023, DLA circulated a copy of the agreed form of waiver, the proposed Acceptable Confidentiality Agreements with Entity C and Entity D (which forms had been based on the form of mutual non-disclosure agreement that UpHealth had entered into with GTCR, including the standstill included in such non-disclosure agreement with GTCR but with a carveout for Entity C and Entity D to make a private proposal regarding certain acquisition transactions involving UpHealth and/or its subsidiaries to the UpHealth Board without obtaining the prior written approval of the UpHealth Board, consistent with the requirements of the Purchase Agreement), and a proposed Action by Unanimous Written Consent of the UpHealth Board approving such Acceptable Confidentiality Agreements, to the members of the UpHealth Board for their signatures to the Action by Unanimous Written Consent. Later that same day, the UpHealth Board signed such Action by Unanimous Written Consent.

Following the execution by the UpHealth Board of the Action by Unanimous Written Consent, on December 2, 2023, UpHealth sent the proposed Acceptable Confidentiality Agreements (which had been approved by the UpHealth Board via the Action by Unanimous Written Consent) to Entity C and Entity D and their advisors at Investment Bank A, Entity C Counsel and legal counsel to Entity D (“Entity D Counsel”), requesting that Entity C and Entity D confirm or update the address and other personal information for those parties in the proposed Acceptable Confidentiality Agreements, and return signed copies of the completed Acceptable Confidentiality Agreements to UpHealth.

On December 3, 2023, K&E sent DLA a copy of the aforementioned waiver executed by GTCR, and later that same day UpHealth accepted and agreed to such waiver by countersigning the waiver, and DLA returned a fully executed copy of the waiver to K&E.

On December 3 and 4, 2023, UpHealth management, members of the Special Strategic Committee and DLA exchanged emails to align on a proposed set of targeted diligence questions for Entity C and Entity D to assess their creditworthiness, ability and willingness to consummate a Superior Proposal and to escrow and pay to GTCR the $7,200,000 Termination Fee required under the Purchase Agreement, as had been discussed at the UpHealth Board’s special meeting.

On December 4, 2023, at approximately 2:48 p.m. Pacific time, and approximately 44 hours after UpHealth had delivered the proposed Acceptable Confidentiality Agreements to Entity C, Entity D and their advisors at Investment Bank A, Entity C Counsel and Entity D Counsel, Entity C Counsel delivered revised drafts of the Acceptable Confidentiality Agreements to UpHealth, which revised drafts, among other things, (i) expressly acknowledged that such agreements were “Acceptable Confidentiality Agreements” under the Purchase

 

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Agreement, and (ii) provided that Entity C and Entity D could make multiple private proposals to the UpHealth Board concerning the acquisition transactions described in UpHealth’s initial drafts of the proposed Acceptable Confidentiality Agreements with Entity C and Entity D, and that Entity C and Entity D could make multiple proposals, whether public or private, to the UpHealth Board concerning an acquisition by Entity C, Entity D and/or their respective affiliates of the membership interests or assets of Cloudbreak, in each case without obtaining the prior written approval of the UpHealth Board.

On December 5, 2023, at approximately 2:18 a.m. Pacific time, and approximately 11.5 hours after Entity C Counsel had delivered the aforementioned revised drafts of the proposed Acceptable Confidentiality Agreements to UpHealth, DLA delivered to Entity C Counsel and Entity D Counsel further revised drafts of the proposed Acceptable Confidentiality Agreements, which revised drafts, among other things, removed the right of Entity C and Entity D to make public proposals to the UpHealth Board concerning an acquisition by Entity C, Entity D and/or their respective affiliates of the membership interests or assets of Cloudbreak without obtaining the prior written approval of the UpHealth Board, and requested that Entity C Counsel arrange for their clients to sign and return executed copies of the proposed Acceptable Confidentiality Agreements to DLA.

Later that same day, on December 5, 2023, at approximately 8:38 a.m. Pacific time, a representative of Entity C Counsel responded to DLA that he expected to come back to DLA regarding the proposed Acceptable Confidentiality Agreements very shortly.

At approximately 10:06 a.m. Pacific time of that same day, this representative of Entity C Counsel left a voicemail for a representative of DLA stating that the representative of Entity C Counsel was calling on behalf of Entity C and Entity D with respect to Cloudbreak, confirming that his clients had received the revised drafts of the proposed Acceptable Confidentiality Agreements from DLA, and that he was hoping to touch base with the representative of DLA very quickly, not on the substance of the drafts, which he believed his clients were inclined to sign and send back to DLA, but on process, and requested a return call from DLA to discuss. Later that same day on December 5, 2023, at approximately 11:47 a.m. Pacific time, DLA responded to the representative of Entity C Counsel that DLA would be happy to participate in a call with Entity C Counsel to discuss process, but would like to have the proposed Acceptable Confidentiality Agreements in place before having that discussion, and that if Entity C Counsel could get the signed Acceptable Confidentiality Agreements back to DLA, DLA would get back to Entity C Counsel with DLA’s availability for a call. The representative of Entity C Counsel responded to DLA that day at approximately 12:21 p.m. Pacific time that he understood, and would be back to DLA shortly.

That same day, on December 5, 2023, members of the Special Strategic Committee, UpHealth management and DLA continued to exchange emails in which they proposed and refined a set of the targeted diligence questions that had been discussed at the UpHealth Board’s special meeting on December 1, 2023.

On December 6, 2023, at approximately 1:30 p.m. Pacific time, approximately 36 hours after DLA had delivered the aforementioned proposed Acceptable Confidentiality Agreements to Entity C Counsel and Entity D Counsel, Entity C Counsel sent to DLA those proposed Acceptable Confidentiality Agreements signed by Entity C and Entity D. That same day, at approximately 3:18 p.m. Pacific time, DLA returned to Entity C Counsel and Entity D Counsel copies of the Acceptable Confidentiality Agreements that had been fully executed by UpHealth, Entity C and Entity D, and asked if Entity C Counsel and Entity D Counsel would be available to speak at any time that evening as DLA was generally available. Later that evening on December 6, 2023, at approximately 8:09 p.m. Pacific time, DLA sent an email to Entity C Counsel indicating that, since DLA had not heard back from Entity C Counsel to schedule a call and it was getting late in New York City where the Entity C Counsel team was located, DLA assumed that a call would have to occur the next day on December 7, 2023, providing DLA’s availability for a call on December 7, 2023, and inviting Entity C Counsel to send a calendar invitation for a call on December 7, 2023 during DLA’s windows of availability. Entity C Counsel then responded that evening at approximately 8:36 p.m. Pacific time stating that Entity C Counsel would connect with Entity D Counsel and send an invitation to talk on December 7, 2023 as suggested by DLA.

 

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On December 7, 2023, DLA, Entity C Counsel and Entity D Counsel convened a call at 9:00 a.m. Pacific time. At the outset of that call, Entity C Counsel indicated that Entity C Counsel and Entity D Counsel would like to understand how they would receive access to UpHealth’s due diligence material concerning Cloudbreak, and whether they would be provided access to a virtual data room with such material. DLA responded that there were a few gating items that needed to be discussed and addressed before UpHealth would be prepared to provide Entity C and Entity D and their advisors with access to any diligence materials. First, DLA explained that UpHealth had received a waiver from GTCR that would allow UpHealth to engage with Entity C and Entity D, and provide them with access to UpHealth’s diligence materials, without having to make a determination that the November 29 Letter would be reasonably likely to lead to a Superior Proposal, but that the waiver would only be effective through December 12, 2023, and therefore UpHealth would like to have the diligence process and initial discussions with Entity C and Entity D completed by that date so that the UpHealth Board could assess whether the interest indicated by the November 29 Letter was reasonably likely to lead to a Superior Proposal. Second, DLA indicated that UpHealth would not have the financial ability to pay the $7,200,000 Termination Fee that would be required to be paid to GTCR under the Purchase Agreement if UpHealth and Entity C and Entity D were to otherwise desire to move forward with a Superior Proposal, and therefore in that situation UpHealth would need Entity C and Entity D to pay that Termination Fee on UpHealth’s behalf, a point which the Entity C Counsel and Entity D Counsel indicated they understood, even though they did not confirm that their clients would be prepared to make that payment on UpHealth’s behalf. Further, DLA indicated that, as a condition to granting Entity C and Entity D access to UpHealth’s due diligence materials, UpHealth would require that Entity C and Entity D deposit $7,200,000 into a refundable escrow to be held by a reputable escrow agent until released back to Entity C and Entity D if they decided they are no longer interested in pursuing a transaction with UpHealth, or paid to GTCR as required to terminate the Purchase Agreement once UpHealth, Entity C and Entity D had agreed upon the terms of a binding Superior Proposal. A representative of Entity D Counsel responded that the request for an escrow was a provocative request that was unlikely to be received well by Entity C and Entity D, and that he did not believe that Entity D could get comfortable with such an escrow. He also stated that he did not believe the parties would be able to find an escrow agent who was willing to provide such an escrow account, and that the request for an escrow seemed like a “solution looking for a problem” since it would cost UpHealth nothing to provide Entity C and Entity D with access to UpHealth’s diligence materials. A representative of DLA responded that, while he acknowledged that the request for an escrow was not a customary ask in a typical topping bid scenario, this was not a typical topping bid scenario given UpHealth’s precarious financial position with one of its key subsidiaries in bankruptcy, and that the UpHealth Board believed that allowing Entity C and Entity D access to diligence materials and to occupy UpHealth’s bandwidth would introduce unacceptable incremental risk and delay into the Cloudbreak sale process, which could get the UpHealth Board sued by its noteholders, to whom it principally owed its fiduciary duties, if anything were to threaten the deal with GTCR without a path to a legitimate Superior Proposal on the table from another party, and that therefore the UpHealth Board would need Entity C and Entity D to provide such an escrow to assure the UpHealth Board that their interest in making a Superior Proposal was serious and sincere before the UpHealth Board was willing to provide Entity C and Entity D with access to UpHealth’s diligence materials. The representative of Entity D Counsel indicated that Entity D Counsel and Entity C Counsel would take the escrow proposal back to their clients to discuss it, but reiterated his belief that it would not be received well. Third, the representative of DLA stated that UpHealth had prepared a set of diligence questions and requests that were aimed at assessing the creditworthiness of Entity C and Entity D and their ability to consummate a transaction on the terms outlined in the November 29 Letter, and the relationship between Entity C and Entity D, and that he would send those questions and requests to Entity C Counsel and Entity D Counsel following their call. Fourth, the representative of DLA stated that, once the escrow had been established and UpHealth’s diligence questions had been adequately addressed, UpHealth would only be willing to provide Entity C and Entity D with material public information, and information necessary to clarify material public information, and not sensitive customer pricing information or contracts. The representative of Entity D Counsel responded that Entity D would need access to such non-public information concerning the Cloudbreak Business in order to justify the higher purchase price of $205 million that Entity C and Entity D had indicated in the November 29 Letter, and that UpHealth should not be concerned about providing such information given that the parties had signed the Acceptable Confidentiality Agreements. A representative of Entity C Counsel then asked whether DLA and the UpHealth

 

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Board were comfortable that limiting Entity C’s and Entity D’s access to UpHealth’s diligence materials would be consistent with the UpHealth Board’s fiduciary duties. The representative of DLA responded that the UpHealth Board was comfortable that limiting Entity C’s and Entity D’s access to UpHealth’s diligence materials was consistent with the UpHealth Board’s fiduciary duties because, despite the Acceptable Confidentiality Agreements between UpHealth and Entity C and Entity D, Entity C and Entity D were working with Individual A, who as a former senior employee of the Cloudbreak Business could potentially utilize such non-public information to compete or otherwise disadvantage the Cloudbreak Business, and Entity C and Entity D should be able to rely on publicly available information, any incremental clarifying information UpHealth was willing to provide, and Individual A’s general industry knowledge, as well as the comfort that GTCR was willing to agree to a deal to acquire Cloudbreak after completing a fulsome diligence process, for sufficient information to justify the terms outlined in the November 29 Letter and make a Superior Proposal on that basis. The representatives of Entity C Counsel and Entity D Counsel indicated that they would speak with Entity C and Entity D about what had been discussed on the call, and follow up with DLA.

Later that same day, on December 7, 2023, shortly after the call among DLA, Entity C Counsel and Entity D Counsel, DLA sent the set of diligence questions and requests concerning Entity C and Entity D that had been prepared by UpHealth and DLA to Entity C Counsel and Entity D Counsel.

On December 10, 2023, Dr. Katz received a text message from Individual A stating, “Avi, I am struggling to understand the current situation and would appreciate a conversation. I have reached out multiple times and in the spirit of our relationship would like to connect. You never struck me as someone who avoided a constructive discussion and frankly [. . .] you told me the door was always open. Please let me know a time to connect over the next day or so. Thank you in advance for the consideration.”

On December 11, 2023, Dr. Katz responded to Individual A by text, stating, “Hi [   ] – thanks for the note. We are awaiting to hear back from your counsels. Happy Hanukkah, Avi.” Later that same day, Individual A responded to Dr. Katz by text, stating “Avi, we were told that we would not be given any information on which we could perform reasonable diligence so wanted to talk with you to discuss where to go from here. If we keep going through counsel, it may continue to go off the rails as it already has. Trying to be reasonable here and talk man to man. Given all we have been through together, I am sure you can agree a congenial and respectful discussion here is the least we can all do.”

Later that same day, on December 11, 2023, a representative of DLA sent an email to Entity C Counsel and Entity D Counsel copying a photo image of the aforementioned latest text message from Individual A to Dr. Katz, and stating that “First, the above contains an inaccurate statement. Second, Dr. Katz requests that Individual A cease reaching out to him directly as communications should be through counsel. In that regard, we have not received any communications with respect to whether Entity C and Entity D are committing to fund the $7.2 million termination fee that would be due to GTCR if the existing purchase agreement is to be terminated and that they will place that amount into a refundable escrow as an earnest money deposit in order for proceeding with discussions of a potential transaction. If the cash for payment of the termination fee is not made available from Entity C and Entity D, then UpHealth would not have the ability to pay the termination fee as it lacks the cash to do so. With respect to the contours of what diligence is provided by both parties, Jeff and I remain available to discuss with you. Please make sure that your clients understand this. Thank you.” Since the conclusion of the call between DLA, Entity C Counsel and Entity D Counsel on December 7, 2023, there had been no communications from Entity C Counsel and Entity D Counsel to DLA prior to the forgoing email being sent, notwithstanding the statement at the end of that call that there would be follow up.

Later that same day, on December 11, 2023, a representative of Entity D Counsel sent an email to the representative of DLA who had sent the email earlier that day, stating that “Entity D Counsel and Entity D were not involved in any way with the content of that text or any decision to send that text.”

In addition, on December 11, 2023, the NYSE informed UpHealth that it is commencing procedures to delist UpHealth Common Stock from listing on the NYSE because UpHealth is not currently in compliance with

 

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Section 802.01B of the NYSE Listed Company Manual, which requires listed companies to maintain an average global market capitalization over a consecutive 30 trading day period of at least $15,000,000. UpHealth on December 26, 2023 filed an appeal with the NYSE that UpHealth Common Stock remain listed on the NYSE.

On December 12, 2023, Investment Bank A sent an email to the UpHealth Board and DLA, copying Individual A and Entity C Counsel, but not any representatives of Entity D and Entity D Counsel, and attaching a letter signed by Individual A on behalf of Entity C (the “December 12 Letter”), which letter stated, among other things, that “we and our private equity partner submitted a written proposal, dated November 29, 2023” and that based on the UpHealth Board’s “hostile response to our proposal, and the subsequent obstacles to a reasonable and fair process as conveyed by your counsel on December 7, 2023, are withdrawing our proposal.” The December 12 Letter further stated that, “[i]n furtherance of our proposal, we executed non-disclosure agreements, including a burdensome standstill, with you on December 6, 2023, with the obvious intent to enter diligence in support of reaching an agreement, only to be told on December 7 that the Board had no intention of providing us with the same non-public information that the other bidder for Cloudbreak received – and in fact, that the Board would not provide to us any non-public information. The Board’s position is not required by its agreement with GTCR, is not consistent with its fiduciary obligation, and constitutes bad faith. It appears the NDA’s were a premediated ruse by the Board to stifle competition and an open process to maximize stakeholder value contrary to its fiduciary duties and the Board had no intent to engage in good faith despite indications to the contrary pre-signing. We stand ready to re-engage should you seek to maximize value and proceeds through a proper review of our superior proposal.”

Later that same day, on December 12, 2023, since neither Entity D nor Entity D Counsel had been copied on the aforementioned email from Investment Bank A, and Entity D had not been mentioned by name in the December 12 Letter, DLA contacted Entity D Counsel by forwarding the December 12 Letter via email to confirm whether Entity D had withdrawn its proposal, and Entity D Counsel responded later that same day that Entity D’s proposal had been withdrawn.

On December 13, 2023, the UpHealth Board convened a previously scheduled meeting, during which its members discussed, among other things, the December 12 Letter, and concluded that the December 12 Letter effectively confirmed that the November 29 Letter did not constitute and would not reasonably be expected to lead to a Superior Proposal, and otherwise that the allegations contained in the December 12 Letter lacked merit, and that there was no need to respond in writing to Individual A to address the unfounded allegations in the December 12 Letter.

Following the December 13, 2023 meeting of the UpHealth Board, on that same day, UpHealth informed GTCR and DLA informed K&E, that the November 29 Letter proposal had been withdrawn and no further discussions were occurring between UpHealth, Entity C and Entity D.

On January 3, 2024, in consideration for the significant time and effort expended by Dr. Katz as chairman of the Special Strategic Committee, the disinterested members of the UpHealth Board approved an increase in the monthly fees payable to Dr. Katz for his service as chairman of the Special Strategic Committee, from what had been previously approved on October 5, 2023 to $85,000 per month for the six-month period from September 2023 to February 2024. For the months of September 2023 through December 2023, Dr. Katz will be paid in January 2024 the amount equal to the difference between the fees which have previously been paid to Dr. Katz for his service as chairman of the Special Strategic Committee (including the $20,000 retainer payment), and the amount due to Dr. Katz factoring in the increased monthly fee of $85,000 for each of those months. For the months of January 2024 and February 2024, Dr. Katz will be paid the monthly fee of $85,000 in each of those months. Furthermore, 48% of the amounts being paid to Dr. Katz (as well as 48% of the amounts being paid to Mr. Machuca for service on the Special Strategic Committee), will be paid by the UpHealth Holdings bankruptcy estate pursuant to an approved budget.

 

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Recommendation of the UpHealth Board and its Reasons for the Sale

The UpHealth Board, with the assistance of UpHealth’s outside legal counsel, evaluated the terms and conditions of the Sale as contemplated by the Purchase Agreement. After careful consideration, the UpHealth Board, in meetings held on October 31, 2023 and November 14, 2023, (i) unanimously determined that the Transactions contemplated by the Purchase Agreement, including the Sale, are advisable, fair to and in the best interests of UpHealth and our stockholders, (ii) unanimously authorized, adopted and approved the Purchase Agreement and the Sale as contemplated thereby, and (iii) unanimously recommended that you vote “FOR” the Sale Proposal and “FOR” the Adjournment Proposal.

As described above in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Background of the Sale,” prior to and in reaching its determination to approve the Purchase Agreement and the Sale, the UpHealth Board consulted with and received the advice of UpHealth’s outside legal counsel, discussed certain issues with UpHealth’s management and considered a variety of factors weighing positively in favor of the Purchase Agreement and the Sale, each of which the directors believed supported their decision, including the following material factors:

 

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that the consideration for the Sale of $180.0 million is likely to be more favorable to UpHealth than the potential value that might result from other alternatives reasonably available to UpHealth, including the continued operation of UpHealth in its current form or the divestiture of TTC Healthcare or other subsidiaries of UpHealth, taking into account UpHealth’s financial condition (including that a sister subsidiary of Cloudbreak, UpHealth Holdings, and certain of the subsidiaries of UpHealth Holdings have filed for Chapter 11 protection in the Bankruptcy Court, as further described elsewhere in this proxy statement, and that such bankruptcy filings have resulted in UpHealth being in default under the 2025 Notes and 2026 Notes), the strategic and financial benefits to UpHealth that are expected to result from the Sale, including the ability to repay in full the 2026 Notes and repay in part the 2025 Notes and to waive certain events of default which have occurred under the Indentures (including due to the bankruptcy filings of UpHealth Holdings and certain of its subsidiaries for Chapter 11 protection) that accelerated UpHealth’s payment obligations under the Senior Secured Notes Indenture in respect of the 2025 Notes, and the fact that retention of the Cloudbreak Business based on its projected cash flow as set forth in the Cloudbreak Business Projections (see the section of this proxy statement entitled “Certain Financial Projections—Cloudbreak Business Projections” beginning on page 66 for additional information) would not be sufficient to enable UpHealth to address such accelerated payment obligations, and UpHealth’s short-and long-term prospects, in light of a number of factors, including the risks, costs, challenges, financial and industry-specific considerations and uncertainty associated with those alternatives;

 

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that UpHealth’s general and administrative expenses remain a significant issue and, without the use of proceeds from the Sale, UpHealth does not have and will not be able to generate sufficient cash to satisfy its payment obligations in respect of the 2025 Notes and 2026 Notes, which could result in UpHealth becoming insolvent and filing for bankruptcy protection, which would negatively impact UpHealth’s shareholder return;

 

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that none of the alternatives reasonably available to UpHealth, including retaining the Cloudbreak Business, allow for sufficient cash flow to repay UpHealth’s outstanding debt and avoid refinancing, and if UpHealth were to refinance its debts, the terms for repayment would be substantially worse for UpHealth than under its current debt agreements, including in light of the fact that applicable interest rates have increased to more than 15% and the terms of any refinancing of UpHealth’s debt would include the issuance of dilutive equity-linked securities;

 

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that the lack of significant forecasted growth in the healthcare industry poses as an operational risk for UpHealth for the next five years;

 

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that under the terms of the Purchase Agreement, the consideration for the Sale will enable UpHealth to satisfy a substantial majority of UpHealth’s outstanding debt, as the Supplemental Indentures and

 

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Waivers and Rescission Agreements, once entered into pursuant to the Transaction Support Agreement, will waive the existing events of default under the Indentures and provide a process to repay in full the 2026 Notes and repay in part the 2025 Notes pursuant to the Fundamental Change Repurchase Offer to be made by UpHealth using cash proceeds from the Sale;

 

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that UpHealth was at risk of being delisted from the NYSE due to both the trading price of UpHealth Common Stock and UpHealth’s market capitalization, and that UpHealth may not be able to regain compliance with the continued listing standards of the NYSE, which could lead to UpHealth Common Stock being delisted indefinitely (and since the time of the UpHealth Board’s determination to approve the Purchase Agreement and the Sale, NYSE Regulation has commenced delisting proceedings with respect to UpHealth Common Stock, as described in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Parties to the Purchase Agreement” beginning on page 34);

 

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that UpHealth’s projected cash at December 31, 2023 and 2024 would likely give rise to BPM LLP (“BPM”), the independent auditor of UpHealth’s audited financial statements for fiscal year 2022, raising doubt as to UpHealth’s ability to continue to operate as a going concern, as UpHealth’s projected amount of cash at such times would be insufficient to repay UpHealth’s debt due 12 months later (as previously reported in UpHealth’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 filed with the SEC on November 21, 2023, UpHealth believes there is substantial doubt about its ability continue to as a going concern, due to certain events of default under the Indentures in respect of the 2025 Notes and 2026 Notes as more fully described in the section of this proxy statement entitled “Risk Factors” beginning on page 24);

 

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the UpHealth Board’s understanding of UpHealth’s business, operations, financial condition, earnings, historical and projected financial performance, competitive position and the nature of the industries in which UpHealth competes;

 

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the review by UpHealth management of the historical and projected future financial performance of UpHealth’s business segments, including certain business lines that face challenging operating and financial conditions;

 

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the provisions of the Purchase Agreement that permit UpHealth to explore a Superior Proposal, including:

 

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UpHealth’s ability to receive unsolicited proposals during the no-shop period and to furnish information to and engage in negotiations with third parties under certain circumstances pursuant to the terms and conditions of the Purchase Agreement, as more fully described in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—No Solicitation” beginning on page 81; and

 

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the UpHealth Board’s ability to consider, and under certain conditions, to accept, a Superior Proposal, and UpHealth’s corresponding right to terminate the Purchase Agreement in order to enter into a definitive agreement providing for such Superior Proposal, subject to the terms and conditions of the Purchase Agreement as more fully described in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—No Solicitation” beginning on page 81;

 

•

that the unsolicited email received on November 12, 2023 from representatives of Investment Bank A, on behalf of Entity C and Entity D, contained no bona fide offer for an acquisition proposal to acquire Cloudbreak, and that, despite naming a proposed figure of $190.0 million as an enterprise value for Cloudbreak, when factoring in the contemplated break-up fee, as well as the legal fees, associated with the negotiation of the Purchase Agreement for the Sale of Cloudbreak to Forest Buyer, even if such email from Entity C and Entity D did contain a bona fide offer, as proposed, it would not constitute a Superior Proposal as compared to the Sale as contemplated by the Purchase Agreement;

 

•

that the consideration to be paid by Forest Buyer is all cash, which provides certainty of value, especially when viewed against the risks and uncertainties inherent in UpHealth’s business, including

 

58

short-and long-term business and execution risks, UpHealth’s outstanding debt obligations (a substantial majority of which will satisfied using the cash proceeds from the Sale by way of the Fundamental Change Repurchase Offer as described in the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—The Purchase Agreement—Fundamental Change Repurchase Offer” beginning on page 83) and uncertainty in global economic conditions;

 

•

GTCR’s reputation as a leading private equity firm, the fact that Forest Buyer, an affiliate of GTCR, has the financial capacity to consummate the Sale and UpHealth’s ability to seek specific performance to prevent breaches of the Purchase Agreement and to enforce specifically the terms of the Purchase Agreement;

 

•

the fact that a vote of UpHealth’s stockholders is required under Delaware law to approve the Sale pursuant to the Purchase Agreement, as such Sale constitutes the sale of substantially all of the assets of UpHealth under Delaware law; and

 

•

the belief that the terms of the Purchase Agreement, taken as a whole, provide protection against the risk that the consummation of the Sale is delayed or that the Sale cannot be completed, including due to required stockholder approval, based on, among other things:

 

•

the covenants contained in the Purchase Agreement obligating UpHealth and Forest Buyer to use reasonable best efforts to cause the Sale and the other Transactions contemplated by the Purchase Agreement to be consummated, subject to the terms and conditions of the Purchase Agreement;

 

•

the nature of the conditions to Closing of the Sale as provided by the Purchase Agreement, including that receipt of the approval by UpHealth’s stockholders in favor of the Purchase Agreement providing for the Sale is a condition to Closing under the Purchase Agreement;

 

•

the fact that the Supporting Stockholders have duly executed and entered into the Voting Agreement with UpHealth and Forest Buyer, pursuant to which the Supporting Stockholders, who hold approximately 29.39% of the voting power of the outstanding shares of Company Common Stock as of December 31, 2023, have agreed to vote their respective shares in favor of the approval of the Purchase Agreement providing for the Sale, subject to, and in accordance with, the terms and conditions of the Voting Agreement; and

 

•

the belief that the terms of the Purchase Agreement, taken as a whole, including the parties’ representations, warranties and covenants, and the conditions to the parties’ respective obligations, are reasonable.

In the course of its deliberations, the UpHealth Board also considered a variety of risks and countervailing factors related to the Purchase Agreement and the Sale, including the following material factors:

 

•

the possibility that the Sale might not be consummated in a timely manner or at all due to a failure of certain conditions to the parties’ obligations to complete the Sale, including with respect to the required approval of the Purchase Agreement for the Sale of Cloudbreak by UpHealth’s stockholders;

 

•

the risks and costs to UpHealth if the Sale does not close at all, including that if the Purchase Agreement or the Transaction Support Agreement are terminated, and the Closing of the Sale and the other Transactions does not occur, the anticipated waiver of the events of default under the Indentures and rescission of the acceleration of UpHealth’s debt obligations with respect to the 2025 Notes to be provided under the Waiver and Rescission Agreements to be entered into pursuant to the applicable Supplemental Indenture will be void, and UpHealth could be obligated to pay the full amount due and payable under the 2025 Notes under the terms of the Senior Secured Notes Indenture in the event of a Fundamental Change, which, if that were to occur, would raise substantial doubt about UpHealth’s ability to continue as a going concern;

 

•

the Supplemental Indentures that UpHealth will be entering into pursuant to the Transaction Support Agreement will contain covenants that may impose significant operating and financial restrictions on UpHealth;

 

59

•

the five-year non-competition and non-solicitation covenants under the Purchase Agreement may limit UpHealth’s ability to operate in certain respects following the Sale;

 

•

the possibility of distracting litigation from stockholder suits in connection with the Sale or attempts by stockholders to discourage a vote in favor of the Sale;

 

•

the possibility that if the Purchase Agreement for the Sale is not approved, there may not be any other offers to acquire Cloudbreak or to engage in another alternative transaction that UpHealth management determines to be attractive;

 

•

the significant costs involved in connection with negotiating the Purchase Agreement and completing the Sale, including in connection with any litigation that may result from the announcement, pendency or completion of the Sale, and the fact that if the Sale is not consummated, UpHealth may be required to bear such costs; and

 

•

the possibility that, if the Sale is not completed, UpHealth may become insolvent because retention of the Cloudbreak Business based on its projected cash flow as set forth in the Cloudbreak Business Projections would not be sufficient to enable UpHealth to address its accelerated payment obligations in respect of the 2025 Notes.

The foregoing discussion of the factors considered by the UpHealth Board is not intended to be exhaustive, but rather includes the material factors considered by the UpHealth Board. The UpHealth Board collectively reached the conclusion to approve the Purchase Agreement and deem the Purchase Agreement, the Sale and the other Transactions contemplated by the Purchase Agreement, to be advisable and in the best interests of UpHealth, in light of the various factors described above and other factors that the members of the UpHealth Board believed were appropriate. In view of the wide variety of factors considered by the UpHealth Board in connection with its evaluation of the Sale and the complexity of these matters, the UpHealth Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision and did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the UpHealth Board. Rather, the UpHealth Board made its recommendation based on the totality of the information available to the UpHealth Board, including discussions with, and questioning of, UpHealth’s management and the legal advisors. In considering the factors discussed above, individual members of the UpHealth Board may have given different weights to different factors.

This explanation of the UpHealth Board’s reasons for recommending the approval of the Purchase Agreement and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors described in the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 22.

Activities of UpHealth Following the Sale

Following the completion of the Sale, UpHealth intends to pursue a more simplified business strategy that focuses on TTC Healthcare, a growing, cash-flow positive, behavioral health business. UpHealth will continue to be a public company operating under the name UpHealth, Inc., and will continue to own the assets and liabilities which comprise the Retained Business; however, as TTC Healthcare is owned by UpHealth Holdings, which is currently in Chapter 11 bankruptcy, UpHealth will need to resolve the Chapter 11 Proceedings in order to own TTC Healthcare without an intermediate entity that is in bankruptcy directly owning TTC Healthcare. At this time, it is contemplated that UpHealth will maintain the same corporate functions and the same senior executives as UpHealth had prior to the completion of the Sale and the same board of directors that will be in place following the conclusion of UpHealth’s 2023 Annual Meeting of Stockholders. As of immediately following the Closing, all of UpHealth’s revenues will be generated by the Retained Business. For additional information, see the section of this proxy statement entitled “Unaudited Pro Forma Condensed Consolidated Financial Information” beginning on page 92.

 

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Conditions to Closing of the Sale

The Purchase Agreement contains customary conditions to Closing of each of UpHealth, Cloudbreak and Forest Buyer. We expect the Closing Date of the Sale to occur on the date that is the third business day following the satisfaction or waiver of each of the conditions to Closing, including the receipt of the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting, but in no event prior to March 15, 2024, unless consented to in writing by UpHealth and Forest Buyer.

Unless waived in writing by UpHealth, the obligations of UpHealth and Cloudbreak to complete the Sale and the other Transactions pursuant to the Purchase Agreement are subject to the satisfaction of the following conditions:

 

•

the representations and warranties of Forest Buyer being true and correct in all material respects as of the date of the Purchase Agreement and the Closing or, to the extent made as of an earlier date, as of such earlier date;

 

•

compliance in all material respects with covenants and agreements required to be performed by Forest Buyer prior to the Closing;

 

•

all applicable waiting periods under the HSR Act having expired or been otherwise terminated;

 

•

UpHealth’s receipt of the Requisite Stockholder Approval at the special meeting;

 

•

no action having been taken or overtly threatened by any governmental authority of competent jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling or charge would reasonably be expected to (a) prevent the performance of the Purchase Agreement or the consummation of the Transactions or declare the Transactions unlawful or (b) cause the Transactions to be rescinded following consummation; and no such injunction, judgment, order, decree or ruling shall be in effect;

 

•

receipt of the Escrow Agreement, executed by each of Forest Buyer and the Escrow Agent, and such agreement being in full force and effect;

 

•

receipt of the Transition Services Agreement, executed by Forest Buyer; and

 

•

receipt of: (i) a certificate dated the date of the Closing and signed by an authorized officer of Forest Buyer, stating that the conditions specified in Section 7.2(a) and Section 7.2(b) of the Purchase Agreement have been satisfied; and (ii) certified copies of the resolutions of Forest Buyer’s board of managers authorizing the execution, delivery and performance of the Purchase Agreement and the other Transaction Agreements (as defined in the Purchase Agreement) to which Forest Buyer is a party and the consummation of the Transactions.

Unless waived in writing by Forest Buyer, the obligations of Forest Buyer to complete the Sale and the other Transactions pursuant to the Purchase Agreement are subject to the satisfaction of the following conditions:

 

•

each of the Fundamental Representations of UpHealth and Cloudbreak (other than those regarding equity interests in Cloudbreak and its subsidiaries and title to the equity interests in Cloudbreak) being true and correct in all material respects as of the date of the Purchase Agreement and the Closing or, to the extent made as of an earlier date, as of such earlier date;

 

•

each of the representations and warranties of UpHealth and Cloudbreak regarding equity interests in Cloudbreak and its subsidiaries and title to the equity interests in Cloudbreak being true and correct in all respects (other than de minimis inaccuracies) as of the date of the Purchase Agreement and the Closing or, to the extent made as of an earlier date, as of such earlier date;

 

•

each of the other representations and warranties of UpHealth and Cloudbreak contained in the Purchase Agreement being true and correct (without giving effect to any limitation as to “materiality,” “Material Adverse Effect” or similar qualifier set forth therein) as of the date of the Purchase Agreement and the Closing or, to the extent made as of an earlier date, as of such earlier date, except where the failure of any such representation or warranty to be so true and correct (without giving effect to any limitation as

 

61

to “materiality,” “Material Adverse Effect” or similar qualifier that may be set forth in such representations and warranties) has not had, and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;

 

•

compliance in all material respects with the covenants and agreements to be performed by UpHealth and Cloudbreak;

 

•

since the date of the Purchase Agreement, no fact, event or circumstance having occurred or arisen that, individually or in combination with any other fact, event or circumstance, has had or would reasonably be expected to have a Material Adverse Effect on Cloudbreak and its subsidiaries;

 

•

UpHealth having received the Requisite Stockholder Approval at the special meeting;

 

•

Forest Buyer, UpHealth and Cloudbreak having received or obtained all governmental and regulatory consents, approvals, licenses and authorizations that are necessary for the consummation of the Transactions and all applicable waiting periods under the HSR Act shall have expired or been terminated;

 

•

no action having been taken or overtly threatened by any governmental authority of competent jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling or charge would reasonably be expected to (a) prevent the performance of the Purchase Agreement or the consummation of the Transactions or declare the Transactions unlawful, (b) cause the Transactions to be rescinded following consummation, (c) adversely affect the right of Forest Buyer to own the equity interests of Cloudbreak or operate the businesses of or control Cloudbreak and its subsidiaries, (d) affect adversely the right of Cloudbreak and its subsidiaries to own their respective assets or control their respective businesses or (e) result in any material damages being assessed against Cloudbreak or any of its subsidiaries; and no such injunction, judgment, order, decree or ruling shall have been entered or be in effect;

 

•

receipt of the Escrow Agreement, executed by each of UpHealth and the Escrow Agent, and such agreement is in full force and effect;

 

•

receipt of the Intellectual Property Assignment Agreement, executed by UpHealth, and such agreement is in full force and effect;

 

•

receipt of the Transition Services Agreement, executed by UpHealth, and such agreement is in full force and effect;

 

•

receipt (in form and substance reasonably acceptable to Forest Buyer) of a true and complete copy of all data relating to the Cloudbreak Business that is stored on any system owned or controlled by UpHealth or its affiliates (other than Cloudbreak and its subsidiaries), including all finance and human resources data, together with the full configuration files, of and from “Workday” as of the date of Closing;

 

•

receipt of (a) a customary fairness opinion confirming that the Transactions are fair to UpHealth’s stockholders and (b) a customary solvency opinion confirming that UpHealth will remain solvent following the Transactions, in each case, on terms and conditions reasonably satisfactory to Forest Buyer and duly completed by one of the independent financial advisors set forth on Schedule 7.1(k) of the Purchase Agreement;

 

•

the Senior Management Agreement shall remain in full force and effect as of the Closing;

 

•

no Seller Insolvency Event has occurred;

 

•

receipt (in a form reasonably acceptable to Forest Buyer) of valid and enforceable evidence of the assignment of each of the contracts set forth on Schedule 7.1(n) of the Purchase Agreement from UpHealth or any of its affiliates (other than Cloudbreak and its subsidiaries) to Cloudbreak or one of its subsidiaries;

 

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•

UpHealth and Cloudbreak having completed, to Forest Buyer’s reasonable satisfaction, all migration activities they are obligated to complete pursuant to the Purchase Agreement;

 

•

receipt of the fully executed Supplemental Indentures, and such agreements being in full force and effect in accordance with their terms;

 

•

the Estimated Net Working Capital as set forth in the Estimated Closing Statement is equal to or greater than $5,000,000; and

 

•

receipt of: (i) a certificate dated the date of the Closing and signed by an authorized officer of UpHealth, stating that the conditions specified in Section 7.1(a), Section 7.1(b) and Section 7.1(c) of the Purchase Agreement (with respect to Cloudbreak) have been satisfied as of the Closing; (ii) certified copies of the resolutions of UpHealth as Cloudbreak’s sole member authorizing the execution, delivery and performance of the Purchase Agreement and the other agreements contemplated thereby to which Cloudbreak is a party and the consummation of the Transactions; (iii) certified copies of the certificate of formation and limited liability company agreement (or similar governing documents) for each of Cloudbreak and its subsidiaries; and (iv) resignations of each of the officers and board members (or equivalent positions) of Cloudbreak and its subsidiaries, as applicable, effective as of the Closing.

Under the terms of the Purchase Agreement, “Seller Insolvency Event” means, collectively, (a) that UpHealth has (i) voluntarily commenced any case, proceeding or action or filed any petition seeking relief under Title 11 of the United States Code, Sections 101 et. seq. or any other federal, state or foreign bankruptcy, insolvency, liquidation or similar law (collectively, a “Bankruptcy Event”), (ii) consented to the institution of, or failed to contravene in a timely and appropriate manner, any such Bankruptcy Event or the filing of any such petition, (iii) applied for or consented to the appointment of a receiver, trustee, custodian, sequestrator or similar official for UpHealth or any of its subsidiaries, as applicable, or for a substantial part of its property or assets, (iv) filed an answer admitting the material allegations of a petition filed against it in any Bankruptcy Event, (v) made a general assignment for the benefit of creditors or (vi) taken any action or entered into any agreement for the purpose of effecting any of the foregoing; (b) there has been commenced against UpHealth any case, proceeding, action or petition that would constitute a Bankruptcy Event or any other action of a nature referred to in the foregoing clause (a) above; (c) there has been commenced against UpHealth any case, proceeding, action or petition seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets; or (d) UpHealth has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (a), (b) or (c) above.

The Closing of the Sale is not subject to any financing condition.

Interests of UpHealth’s Directors and Executive Officers in the Sale

UpHealth does not believe any director, director nominee or executive officer of UpHealth since January 1, 2022 has any direct or indirect substantial interest in the Sale.

Certain Financial Projections

Other than guidance that UpHealth historically has made available on a quarterly basis, UpHealth does not, as a matter of course, publicly disclose long-term forecasts or internal projections as to future performance, earnings or other results, given, among other things, the unpredictability of the underlying assumptions and estimates. However, as discussed in the section of this proxy statement entitled “Background of the Sale” beginning on page 35, prior to any discussions between UpHealth and GTCR regarding a potential transaction, Mr. Beck on June 29, 2023 provided to GTCR certain financial and operating data regarding UpHealth, including financial projections with respect to UpHealth as a whole that were prepared by UpHealth’s senior management as of May 18, 2023, based on information available at that time, which projections included financial information on a business unit basis, including financial projections with respect to Cloudbreak assuming that UpHealth continued to operate the Cloudbreak Business as part of UpHealth after giving effect to associated costs, for GTCR to

 

63

review. The financial projections with respect to Cloudbreak, which are summarized below under “Projections Provided to GTCR on June 29, 2023,” were provided to GTCR for general informational purposes pursuant to the mutual nondisclosure agreement entered into by UpHealth and GTCR on June 27, 2023. The financial projections provided to GTCR on June 29, 2023 were not provided to or considered by the UpHealth Board in connection with its evaluation of the Sale or the other Transactions.

Subsequently, in connection with the Sale, UpHealth’s senior management, during the month of October 2023 updated its financial projections for the Cloudbreak Business based on information available at that time and assuming that UpHealth continued to operate the Cloudbreak Business as part of UpHealth after giving effect to associated costs, which Cloudbreak Business Projections are summarized below under “Cloudbreak Business Projections”. On or about October 20, 2023, a representative of UpHealth verbally communicated to a representative of GTCR the revenue component of the Cloudbreak Business Projections for fiscal year 2023, telling GTCR that UpHealth revised down its projections to $72,334,000 in revenue for Cloudbreak during that fiscal year, and revised down its forecasted revenue for fiscal year 2024 (management did not provide specific 2024 revenue to GTCR; nor was the revised reduced information for 2023 or 2024 communicated in writing to GTCR). These financial projections for Cloudbreak updated and superseded the financial projections that Mr. Beck had provided to GTCR on June 29, 2023. On October 29, 2023, UpHealth’s senior management provided the updated financial projections which they had prepared that month pertaining to the Cloudbreak Business to the UpHealth Board for review and consideration in advance of an UpHealth Board meeting that had been scheduled for October 31, 2023 for the purpose of considering the Sale of Cloudbreak and the Purchase Agreement and the ancillary agreements thereto.

The financial projections were not prepared with a view toward public disclosure, however, UpHealth has included below a summary of the financial projections to provide stockholders with access to information that was furnished to other parties in connection with the Sale. The financial projections reflect numerous estimates and assumptions made by UpHealth’s senior management team with respect to general business and economic conditions and competitive, regulatory and other future events, as well as, among other things, matters related specifically to Cloudbreak’s recent operational performance and gross margins, all of which are difficult to predict and inherently subjective and many of which are beyond UpHealth’s control. Please read the information set forth in the section below entitled “Important Information About the Financial Projections.”

Projections Provided to GTCR on June 29, 2023

As discussed above and in the section of this proxy statement entitled “Background of the Sale” beginning on page 35, the following financial projections with respect to Cloudbreak were prepared by UpHealth’s senior management as of May 18, 2023, based on information available at that time, and were provided to GTCR on June 29, 2023. These projections were not provided to or considered by the UpHealth Board in connection with its evaluation of the Sale or the other Transactions, and these projections were updated and superseded by reduced revenue projections with respect to Cloudbreak that were verbally communicated by a representative of UpHealth to a representative of GTCR on or about October 20, 2023. These financial projections with respect to Cloudbreak that were provided to GTCR on June 29, 2023 (i) assume that UpHealth continues to operate the Cloudbreak Business (giving effect to associated costs), (ii) assume the continuity of Cloudbreak’s existing supplier and customer relationships, (iii) reflect uncertainties regarding gross margins and operating expenses and (iv) did not include incremental costs to operate Cloudbreak on a standalone basis, which were estimated to be at least $3.2 million as of late September 2023.

 

		Fiscal Year (dollars in thousands)
		2023 F (1)				2024 P (2)				2025 P (2)
Revenue		$	77,502			$	96,877			$	124,003
Cost of Goods Sold			37,302				46,143				58,133
Gross Profit			40,200				50,734				65,870
Gross Margin			51.9	%			52.4	%			53.1	%

 

64

		Fiscal Year (dollars in thousands)
		2023 F (1)				2024 P (2)				2025 P (2)
Sales and Marketing			6,455				7,423				8,537
Research and Development			337				371				408
General and Administrative			6,470				6,981				7,469
Stock Based Compensation (3)			8				—				—
Transformation Cost			46				—				—
Operating Expenses			13,316				14,775				16,414
Operating Income/(Loss)			26,884				35,959				49,456
Other Income/(Expense)			(157	)			—				—
Net Income/(Loss)			26,727				35,959				49,456
Add Backs (Depreciation and Amortization, Goodwill Impairment, Stock Based Compensation (3), etc.)			9,677				10,355				11,080
Adjusted EBITDA (4)(6)		$	36,561			$	46,314			$	60,535
Adjusted EBITDA Margin (5)(6)			47.2	%			47.8	%			48.8	%

 

(1)	The projected financial information for fiscal year 2023 includes actual results for the three months ended March 31, 2023, and forecasted results for the period from April 1, 2023 to December 31, 2023 based on information available to management as of May 18, 2023.

 

(2)	The projected financial information for fiscal years 2024 and 2025 is based on the following key assumptions of management relating to profit and loss:

 

(a)

revenue growth of 25% and 28% in fiscal years 2024 and 2025, respectively, with projected gross margin of 52% and 53% in fiscal years 2024 and 2025, respectively;

 

(b)

Sales and Marketing expenses equal to 15% of revenue in fiscal years 2024 and 2025, Research and Development expenses equal to 10% of revenue in fiscal years 2024 and 2025, and General and Administrative expenses equal to 7% of revenue in fiscal years 2024 and 2025; and

 

(c)

capital expenditures of approximately $4.2 million and $4.8 million in fiscal years 2024 and 2025, respectively.

 

(3)	Stock based compensation is accounted for as a non-cash expense.

 

(4)

Adjusted EBITDA consists of net income (loss) attributable to the Cloudbreak Business, excluding: depreciation and amortization; stock-based compensation; impairment of goodwill, intangible assets, and other long-lived assets; acquisition, integration, and transformation costs; other income (expense); income tax benefit (expense); net income (loss) attributable to noncontrolling interests; and other non-recurring charges to GAAP net income (loss) attributable to the Cloudbreak Business. Adjusted EBITDA is not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

 

(5)	Adjusted EBITDA Margin is the fraction of Adjusted EBITDA divided by revenue.

 

(6)	Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by UpHealth may not be comparable to similarly titled amounts used by other companies.

Cloudbreak Business Projections

The Cloudbreak Business Projections provided to the UpHealth Board (which contained reduced revenue and as shown by a comparison of the respective tables, other amounts, from the information prepared by UpHealth’s senior management as of May 18, 2023, which May 18, 2023 information was not provided to the UpHealth

 

65

Board), which include 2023 and 2024 fiscal years revenue projections that were verbally communicated by a representative of UpHealth to a representative of GTCR on or about October 20, 2023, (i) assume that UpHealth continues to operate the Cloudbreak Business (giving effect to associated costs), (ii) assume the continuity of Cloudbreak’s existing supplier and customer relationships, (iii) reflect uncertainties regarding gross margins and operating expenses and (iv) did not include incremental costs to operate Cloudbreak on a standalone basis, which were estimated to be at least $3.2 million as of late September 2023. The following written Cloudbreak Business Projections were not sent to GTCR for its review and comment.

 

		Fiscal Year (dollars in thousands)
		2023E (1)				2024F (2)				2025F (2)
Revenue		$	72,334			$	83,184			$	96,494
Cost of Goods Sold			32,289				41,592				47,282
Gross Profit			40,045				41,592				49,212
Gross Margin			55.4	%			50.0	%			51.0	%
Sales and Marketing			6,454				7,422				8,535
Research and Development			821				878				940
General and Administrative			3,048				3,262				3,490
Depreciation and Amortization			4,461				4,773				5,107
Stock Based Compensation (3)			74				70				75
Lease Abandonment Expenses			—				—				—
Acquisition, Integration and Transformation Costs			201				—				—
Operating Expenses			15,058				16,404				18,146
Operating Income/(Loss)			24,987				25,188				31,065
Other Income/(Expense)			(490	)			(400	)			(400	)
Gain (Loss) on Consolidation of Equity Method Investment			986				—				—
Income Taxes			(114	)			—				—
Net Income/(Loss)			25,597				24,788				30,665
Depreciation and Amortization			8,538				9,136				9,776
Stock Based Compensation (3)			74				70				75
Other Add Backs			201				—				—
Adjusted EBITDA (4)(6)		$	33,801			$	34,394			$	40,916
Adjusted EBITDA Margin (5)(6)			46.7	%			41.3	%			42.4	%
Capital Expenditures (7)			2,193				3,400				3,800

 

(1)	The projected financial information for fiscal year 2023 includes actual results for the nine months ended September 30, 2023, and forecasted results for the three months ending December 31, 2023 based on information available to management as of October 25, 2023.

 

(2)	The projected financial information for fiscal years 2024 and 2025 is based on the following key assumptions of management relating to profit and loss:

 

(a)

revenue growth of 15% and 16% in fiscal years 2024 and 2025, respectively, with projected gross margin of 50% and 51% in fiscal years 2024 and 2025, respectively;

 

(b)

an increase in Sales and Marketing expenses by 15% year-over-year, and an increase in General and Administrative expenses by 7% year-over-year; and

 

(c)

capital expenditures of $3.4 million and $3.8 million in fiscal years 2024 and 2025, respectively.

 

(3)	Stock based compensation is accounted for as a non-cash expense.

 

(4)	Adjusted EBITDA consists of net income (loss) attributable to the Cloudbreak Business, excluding: depreciation and amortization; stock-based compensation; impairment of goodwill, intangible assets, and

 

66

other long-lived assets; acquisition, integration, and transformation costs; other income (expense); income tax benefit (expense); net income (loss) attributable to noncontrolling interests; and other non-recurring charges to GAAP net income (loss) attributable to the Cloudbreak Business. Adjusted EBITDA is not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP.

 

(5)	Adjusted EBITDA Margin is the fraction of Adjusted EBITDA divided by revenue.

 

(6)	Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by UpHealth may not be comparable to similarly titled amounts used by other companies.

 

(7)	Capital expenditures excludes capitalized software development costs.

Important Information About the Financial Projections

While the financial projections were prepared in good faith and management believes the assumptions on which the financial projections were based were reasonable for the scenario considered, no assurance can be made regarding future events. Since the projections cover multiple years, such information by its nature becomes less predictive with each successive year. The estimates and assumptions underlying the financial projections involve judgments with respect to, among other things, future economic, competitive, regulatory, and financial market conditions 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 others, the risks and uncertainties described under the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” all of which are difficult to predict and many of which are beyond UpHealth’s and/or Forest Buyer’s control and will be beyond their control following the Sale. There can be no assurance that the underlying assumptions or projected results will be realized, and actual results may differ materially from those reflected in the financial projections, whether or not the Sale is completed.

The Cloudbreak Business Projections contain certain adjusted financial measures that UpHealth’s management believes is the most meaningful and useful to investors, analysts, rating agencies and others who use financial information in evaluating the performance of UpHealth. The adjusted financial measures are not meant to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. While we believe these adjusted financial measures provide meaningful and useful information to investors, analysts, rating agencies and others who use financial information in evaluating the performance of the Company, there are limitations associated with the use of these adjusted financial measures. These adjusted financial measures are not prepared in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes. The SEC rules that would otherwise require a reconciliation of an adjusted financial measure to a GAAP financial measure do not apply to adjusted financial measures provided to certain parties in connection with a proposed business combination such as the Sale if the disclosure is included in a document such as this proxy statement. In addition, reconciliations of adjusted financial measures prepared in accordance with SEC rules relating to the presentation of non-GAAP financial measures were not relied upon by the UpHealth Board in connection with its evaluation of the Sale. Accordingly, although the projections provided above include certain reconciliations of adjusted financial measures, those reconciliations are only those that were included in the projections, and do not purport to comply with SEC rules requiring a reconciliation of the adjusted financial measures to the relevant GAAP financial measures.

The financial projections summarized in this section were not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial data, published guidelines of the SEC regarding forward-looking statements, or GAAP. UpHealth’s senior management team prepared the financial projections in good faith and on a reasonable basis based on the best information available to UpHealth’s senior management team at the time such projections were prepared. The financial projections, however, are not actual

 

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results and should not be relied upon as being necessarily indicative of actual future results, and readers of this proxy statement are cautioned not to place undue reliance on the information provided in this “Certain Financial Projections” section of the proxy statement. All of the financial projections summarized in this section were prepared by, and are the responsibility of, UpHealth’s senior management team, as indicated. Neither BPM, UpHealth’s current independent registered public accounting firm, nor Plante & Moran, PLLC (“P&M”), UpHealth’s previous independent registered public accounting firm, provided any assistance in preparing the financial projections and neither BPM nor P&M has examined, compiled or otherwise performed any procedures with respect to the financial projections and, accordingly, neither BPM nor P&M has expressed any opinion or given any other form of assurance with respect thereto, and BPM and P&M assume no responsibility for the prospective financial information. The reports of BPM and P&M that are incorporated by reference into this proxy statement relate solely to the historical financial information of UpHealth. Such reports do not extend to the financial projections and should not be read to do so. By including in this proxy statement a summary of the financial projections, neither UpHealth nor any of its representatives has made or makes any representation to any person regarding the ultimate performance of the Cloudbreak Business compared to the information contained in UpHealth’s financial projections. UpHealth has made no representation to GTCR or Forest Buyer, in the Purchase Agreement or otherwise, concerning the financial projections. The financial projections summarized in this section were prepared during the periods described above and have not been updated to reflect any changes since the date of their preparation or any actual results of the Cloudbreak Business. UpHealth undertakes no obligation, except as required by law, to update or otherwise revise the financial projections to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are not realized, or to reflect changes in general economic or industry conditions. The inclusion of the financial projections in this proxy statement should not be regarded as an indication that UpHealth, the UpHealth Board, or any party that received the financial projections considered at such time, or now considers, the financial projections to be necessarily predictive of actual future events, and the financial projections should not be relied upon as such. UpHealth views the financial projections as immaterial because of the inherent risks and uncertainties associated with such long-range financial projections. The foregoing summary of the financial projections is not included in this proxy statement in order to induce any UpHealth stockholder to vote in favor of the Sale Proposal or the Adjournment Proposal.

Regulatory Approvals

The Closing of the Sale is conditioned on, among other things, all applicable waiting periods under the HSR Act having expired or been terminated, which occurred on January 2, 2024.

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

The following is a general summary of the anticipated material U.S. federal income tax consequences of the Sale. This summary is based upon the Internal Revenue Code (the “Code”), existing, proposed and temporary U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof, in each case as in effect and available on the date hereof. All the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to any U.S. federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. In addition, this summary does not discuss any non-U.S., alternative minimum tax, state or local tax considerations.

For U.S. federal income tax purposes, the proposed Sale will be treated as a taxable sale of the individual assets comprising Cloudbreak and its wholly owned subsidiaries. The amount of gain or loss we recognize with respect to the sale of a particular asset will be measured by the difference between the amount realized by us on the sale of that asset (based on an allocation of the purchase price agreed to by Forest Buyer and us) and our tax basis in that asset. The determination of whether we will recognize gain or loss will be made with respect to each of the assets to be sold. Accordingly, we may recognize gain on the sale of certain assets and loss on the sale of certain others, depending on the amount of purchase price allocated to an asset as compared with the basis of that asset.

 

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Further, the sale of certain assets may result in ordinary income or loss, depending on the nature of the asset. To the extent the Sale results in our recognizing a net taxable gain, we will report any tax liability on our consolidated income tax return for the taxable period that includes the Sale. Based upon our financial position, we estimate that the Maximum Seller Tax Amount, which is the maximum possible amount of taxes that would become due and payable by UpHealth as a result of the Transactions, including the Sale, is equal to $27,000,000. At the Closing, Forest Buyer shall place a portion of the proceeds from the Sale equal to the Maximum Seller Tax Amount (i.e., $27,000,000, although UpHealth and Forest Buyer may mutually determine no later than one day prior to the Closing that the Maximum Seller Tax Amount should be less than $27,000,000) will be deposited in the Tax Escrow Account, which is a segregated escrow account to enable UpHealth to pay any and all taxes that become due and payable by UpHealth as a result of the Transactions. For additional information, see the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Escrow Agreement” beginning on page 71.

The proposed Sale is entirely a corporate action undertaken by UpHealth. Our stockholders will not realize any taxable gain or loss on their shares of UpHealth Common Stock for U.S. federal income tax purposes as a result of the Sale, as our stockholders will not receive any direct proceeds from the Sale. We do not anticipate that the Sale or the other Transactions contemplated by the Purchase Agreement will result in any U.S. federal income tax consequences to our stockholders.

This summary is not a complete description of all of the tax consequences of the Sale that may be relevant to you. Holders of UpHealth Common Stock are urged to consult their own tax advisors to determine the particular tax consequences to them of the Sale, including the applicability and effect of any U.S. federal, state, local, foreign or other tax laws.

Accounting Treatment of the Sale

The Sale will be accounted for as a “sale of a business” by UpHealth, as that term is used under accounting principles generally accepted in the U.S. (“GAAP”), for accounting and financial reporting purposes.

 

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THE PURCHASE AGREEMENT

The following is a summary of the material provisions of the Purchase Agreement, a copy of which is attached to this proxy statement as Annex A and which is incorporated by reference into this proxy statement. This summary may not contain all of the information about the Purchase Agreement that is important to you. You should refer to the full text of the Purchase Agreement for details of the transaction and the terms and conditions of the Purchase Agreement. We encourage you to read carefully the Purchase Agreement in its entirety, as the rights and obligations of the parties thereto are governed by the express terms of the Purchase Agreement and not by this summary or any other information contained in this proxy statement.

Explanatory Note Regarding the Purchase Agreement

The following summary of the Purchase Agreement and the Sale and the other Transactions, and the copy of the Purchase Agreement attached as Annex A to this proxy statement, are intended to provide information regarding the terms of the Purchase Agreement and are not intended to modify or supplement any factual disclosures about UpHealth in its periodic and current reports filed with the SEC. In particular, the Purchase Agreement and the related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to UpHealth, Cloudbreak or Forest Buyer, or their respective subsidiaries or affiliates. In particular, the assertions embodied in the representations and warranties in the Purchase Agreement were made as of a specified date, may be subject to a contractual standard of materiality different from what might be viewed as material to investors, or may have been used for the purpose of allocating risk between the parties. Accordingly, the representations and warranties in the Purchase Agreement are not necessarily characterizations of the actual state of facts about UpHealth, Cloudbreak or Forest Buyer at the time they were made or otherwise and should only be read in conjunction with the other information that UpHealth makes publicly available in reports, statements and other documents filed with the SEC. Moreover, the below description of the Purchase Agreement, the Sale and the other Transactions is not complete and is subject to, and qualified in its entirety by reference to, the full text of such agreement, a copy of which is attached as Annex A to this proxy statement and which is incorporated herein by reference. Finally, information concerning the subject matter of the representations and warranties may have changed since the date of the Purchase Agreement or may change in the future, and these changes may not be fully reflected in the public disclosures made by UpHealth, Cloudbreak and Forest Buyer. As a result of the foregoing, you are strongly encouraged not to rely on the representations, warranties and covenants contained in the Purchase Agreement, or any descriptions thereof, as accurate characterizations of the state of facts or condition of UpHealth, Cloudbreak, Forest Buyer or any other party. You are likewise cautioned that you are not a third-party beneficiary under the Purchase Agreement and do not have any direct rights or remedies pursuant to the Purchase Agreement.

Additional information regarding UpHealth is contained in the documents incorporated by reference into this proxy statement and the other documents that we file with the SEC. See the section of this proxy statement entitled “Where You Can Find Additional Information” beginning on page 125.

Purchase and Sale of all Outstanding Equity Interests of Cloudbreak

On November 16, 2023, UpHealth, Cloudbreak and Forest Buyer entered into the Purchase Agreement providing for the Sale and the other Transactions. Subject to the terms and conditions of the Purchase Agreement, and to the approval of the Sale Proposal by our stockholders, Forest Buyer will purchase 100% of the outstanding equity interests of Cloudbreak, a wholly-owned subsidiary of UpHealth, and the wholly-owned subsidiaries of Cloudbreak, from UpHealth. The Closing of the Transactions are expected to occur on the Closing Date, which is the date that is the third business day following the satisfaction or waiver of each of the conditions to Closing, which include that the Sale Proposal is approved at the special meeting, but in no event prior to March 15, 2024, unless consented to in writing by UpHealth and Forest Buyer.

 

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Consideration for the Sale

Pursuant to the terms of the Purchase Agreement, the “Cash Consideration” for the Sale means an amount equal to $180,000,000, with adjustments for debt as of immediately prior to the Closing and cash as of 11:59 p.m. (Delray Beach, Florida time) on the day immediately prior to the Closing Date (the “Calculation Time”), Cloudbreak’s net working capital as of the Calculation Time, and unpaid expenses related to the Transactions. The consideration payable for the benefit of UpHealth at the Closing shall equal $180,000,000, subject to adjustments for the closing indebtedness, net working capital, cash and unpaid transaction expenses related to the Transactions (the “Estimated Cash Consideration”), with all such Estimated Cash Consideration to be delivered by Forest Buyer to the Escrow Agent for deposit into certain segregated escrow accounts to be established pursuant to the Escrow Agreement, as described below. Following the Closing, in connection with a customary adjustment to the Cash Consideration, which adjustment is expected, in the absence of any disagreement, to be determined within 120 days following the Closing Date, to the extent that the Cash Consideration exceeds the Estimated Cash Consideration, a payment shall be made for the purpose of repurchasing the 2026 Notes and/or the 2025 Notes of an amount equal to the amount by which the Cash Consideration exceeds the Estimated Cash Consideration (up to an excess equal to the amount of the Adjustment Escrow Amount (as defined below)). To the extent that following such customary adjustment to the Cash Consideration, the Estimated Cash Consideration is greater than the Cash Consideration, Forest Buyer and UpHealth shall cause the Escrow Agent to make payment to Forest Buyer (or its designees) of an amount equal to the lesser of (i) the amount by which the Estimated Cash Consideration exceeds the Cash Consideration, and (ii) the Adjustment Escrow Amount held in the Adjustment Escrow Account (as defined below), including any dividends, interest, distributions and other income received in respect thereof, less any losses on investment thereof, less distributions thereof in accordance with the Purchase Agreement and the Escrow Agreement (the “Adjustment Escrow Funds”), in each case, from the Adjustment Escrow Account, and after any such payments are made to Forest Buyer, the remaining Adjustment Escrow Funds (if any) shall be paid for the purpose of repurchasing the 2026 Notes and/or the 2025 Notes.

Escrow Agreement

Pursuant to the terms of the Purchase Agreement, prior to the Closing, UpHealth, Forest Buyer and an escrow agent (the “Escrow Agent”) will enter into one or more escrow agreements in a customary form to be agreed upon as provided under the Purchase Agreement by Forest Buyer, UpHealth, the Required Noteholders (as defined below) and the Escrow Agent (the “Escrow Agreement”), pursuant to which, at the Closing, Forest Buyer will remit to the Escrow Agent all of the Estimated Cash Consideration to be deposited as follows:

 

•

$3,000,000 (the “Adjustment Escrow Amount”) shall be deposited in a segregated escrow account to satisfy any adjustment to the Cash Consideration (the “Adjustment Escrow Account”);

 

•

the Maximum Seller Tax Amount of $27,000,000 (the “Tax Escrow Amount”) (although UpHealth and Forest Buyer may mutually determine no later than one day prior to the Closing that the Maximum Seller Tax Amount should be less than $27,000,000) will be deposited in the Tax Escrow Account, which is a segregated escrow account to enable UpHealth to pay any and all taxes that become due and payable by UpHealth as a result of the Transactions; provided, that to the extent any portion of the proceeds from the Sale remains in the Adjustment Escrow Account after the post-Closing adjustment or in the Tax Escrow Account after UpHealth has paid all of its taxes that have come due and payable by UpHealth as a result of the Transactions, then after making provision for the payment of taxes, (x) if the Fundamental Change Repurchase Date has not yet occurred, be paid to the Notes Escrow Account by wire transfer of immediately available funds for purposes of making an offer to repurchase the 2026 Notes and the 2025 Notes, or (y) if the Fundamental Change Repurchase Date has occurred, then the excess amount shall be released to UpHealth (and held in a deposit account subject to a control agreement in favor of the Consenting Noteholders) for the sole purpose of complying with mandatory repurchase requirements set forth in the Senior Secured Notes Supplemental Indenture with respect to any remaining 2025 Notes; and

 

•

the remaining portion of the Estimated Cash Consideration (such amount, the “Notes Escrow Amount”), shall be deposited in a segregated escrow account (the “Notes Escrow Account”, and

 

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together with the Adjustment Escrow Account and the Tax Escrow Account, the “Escrow Accounts”), the purpose of which shall be to fund the offer, on behalf of UpHealth,

 

•

to repurchase all of UpHealth’s 2026 Notes, issued under the indenture (as the same may be amended, restated, supplemented or otherwise modified from time to time, including pursuant to the Unsecured Notes Supplemental Indenture, the “Unsecured Notes Indenture”), dated as of June 9, 2021, by and among UpHealth and The Bank of New York Mellon Trust Company, N.A. (“BNY Mellon”), in its capacity as successor trustee thereunder, which repurchase shall use a portion of the Notes Escrow Account, together with any dividends, interest, distributions and other income received in respect thereof, less any losses on investment thereof, less distributions thereof in accordance with the Purchase Agreement and the Escrow Agreement (the “Notes Escrow Fund”), which portion as of the date of the Purchase Agreement and based on certain assumptions that are subject to change, is currently estimated to be equal to $115,000,000, and which payment is expected to occur on or around June 3, 2024, together with the payment of any other amounts, including interest, to be made to the beneficial holders of the 2026 Notes (the “2026 Noteholders”) concurrently with the payment of such portion of the Notes Escrow Funds as specified by the Unsecured Notes Indenture following a Fundamental Change (as such term is defined in the Unsecured Notes Indenture), which other amounts may be paid using amounts of the Notes Escrow Funds, and

 

•

in addition to the repurchase of up to all of the 2026 Notes, to repurchase in accordance with the terms of the Senior Secured Notes Indenture in the event of a Fundamental Change (as such term is defined in the Senior Secured Notes Indenture) the maximum principal amount of UpHealth’s 2025 Notes, issued under the indenture, dated as of August 18, 2022, by and among UpHealth, the subsidiary guarantors party thereto and Wilmington Trust, National Association (“Wilmington Trust”), in its capacity as trustee and as collateral agent thereunder (as the same may be amended, restated, supplemented or otherwise modified from time to time, including pursuant to the Senior Secured Notes Supplemental Indenture, the “Senior Secured Notes Indenture” and together with the Unsecured Notes Indenture, the “Indentures”), which, as of the date of the Purchase Agreement and based on certain assumptions that are subject to change and presuming that all of the 2026 Noteholders accept the repurchase of the 2026 Notes as well as any other amounts of the Notes Escrow Funds paid in respect of the repurchase of the 2026 Notes, is estimated to be approximately $25,800,000, and UpHealth, in accordance with such terms of the Senior Secured Notes Indenture, shall make such payments of other amounts required to be made in connection with such repurchase, including interest, which other amounts may be paid using amounts of the Notes Escrow Funds and other funds of UpHealth, such that following the payment of the amounts to be paid for such initial repurchase of the 2025 Notes, which payment is expected to occur on or around June 3, 2024, a portion of the 2025 Notes shall remain outstanding (which, as of the date of the Purchase Agreement and based on certain assumptions that are subject to change, is estimated to be approximately $31,427,000 in aggregate principal amount), the terms of which shall be governed by the 2025 Notes and the Senior Secured Notes Indenture and the Senior Secured Notes Supplemental Indenture (it being acknowledged and agreed that all of the beneficial holders of the 2025 Notes (the “2025 Noteholders”) that have not signed the Transaction Support Agreement will be repurchased in full with respect to their 2025 Notes to the extent such noteholders so elect and all of the 2025 Noteholders that have signed the Transaction Support Agreement will be partially repurchased with respect to their 2025 Notes on a pro rata basis).

In the event that any amounts remain outstanding of the Notes Escrow Funds, those amounts shall be used to offer to repurchase in part such anticipated outstanding amount of the 2025 Notes in accordance with the terms of the Senior Secured Notes Indenture in the event of a Fundamental Change (as such term is defined in the Senior Secured Notes Indenture). Furthermore, any repurchases of the 2025 Notes in accordance with the Purchase Agreement will be made at a premium of 5.00% to the principal amount of such 2025 Notes.

 

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Representations and Warranties

The Purchase Agreement contains customary representations and warranties by each of UpHealth, Cloudbreak and Forest Buyer as of the date of the Purchase Agreement and as of the Closing. The statements embodied in those representations and warranties were made for purposes of the Purchase Agreement and are subject to qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Purchase Agreement. In addition, some of those representations and warranties were made as of specified dates, may be subject to a contractual standard of materiality or material adverse effect different from that generally applicable to stockholders or may have been used for the purpose of allocating contractual risk between the parties to the Purchases Agreement rather than establishing matters as facts. Many of the representations and warranties contained in the Purchase Agreement are qualified by materiality or Material Adverse Effect, and are further modified and limited by confidential disclosure schedules delivered by UpHealth to Forest Buyer, as may or may not be specifically indicated in the text of the Purchase Agreement.

The representations and warranties concerning Cloudbreak (including, in certain cases, with respect to its subsidiaries) made by UpHealth to Forest Buyer relate to, among other things, the following:

 

•

Cloudbreak’s organization, existence and good standing;

 

•

Cloudbreak’s authority to execute, deliver, and perform the Purchase Agreement, and the enforceability of the Purchase Agreement;

 

•

the absence of conflicts with or defaults under Cloudbreak’s organizational documents, applicable law or material contracts of Cloudbreak;

 

•

Cloudbreak’s valid authorization and approval of issuance of Cloudbreak’s equity interest and Cloudbreak’s compliance with applicable law;

 

•

financial statements;

 

•

the absence of undisclosed liabilities;

 

•

the absence of certain facts or events that would have reasonably expected to have a material adverse effect since December 31, 2022;

 

•

the absence of certain developments affecting Cloudbreak since December 31, 2022;

 

•

good and marketable title to certain assets, including real property;

 

•

contracts and commitments;

 

•

intellectual property matters;

 

•

information technology, cybersecurity, and data matters;

 

•

litigation matters;

 

•

compliance with any applicable laws, absence of regulatory restrictions and validity of required permits;

 

•

certain business practices;

 

•

environmental matters;

 

•

employee matters;

 

•

employee benefit plans;

 

•

insurance;

 

•

tax matters;

 

•

brokerage and transaction bonuses;

 

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•

affiliate transactions;

 

•

customers and suppliers;

 

•

bank accounts;

 

•

healthcare regulatory matters;

 

•

powers of attorney;

 

•

sufficiency of assets; and

 

•

the disclaimer of any other representations or warranties, express or implied.

For purposes of the Purchase Agreement, “Material Adverse Effect” means any occurrence, change, event or effect that, individually or in the aggregate, (x) has had a material adverse effect on the assets, financial condition, liabilities or results of operations of Cloudbreak and the wholly-owned subsidiaries of Cloudbreak, taken as a whole or (y) would reasonably be expected to prevent or materially delay the consummation of the Transactions; provided, however, solely with respect to clause (x), that none of the following (individually or in combination) shall be deemed to constitute, or shall be taken into account in determining whether there has been, a Material Adverse Effect:

 

•

general business or economic conditions in the industries or geographic markets in which Cloudbreak and the wholly-owned subsidiaries of Cloudbreak operate, except to the extent such general business or economic conditions have a materially disproportionate effect on Cloudbreak and the wholly-owned subsidiaries of Cloudbreak as compared to any of the other companies in the industry in which Cloudbreak and the wholly-owned subsidiaries of Cloudbreak operate;

 

•

global, national or regional political conditions, including hostilities, acts of war, sabotage or terrorism or military actions or any escalation, worsening or diminution of any such hostilities, acts of war, sabotage or terrorism or military actions existing or underway, and any conditions affecting the financial, banking or securities markets (including any disruption thereof and any decline in the price of any security or any market index), in each case except to the extent such adverse effect has a materially disproportionate effect on Cloudbreak and the wholly-owned subsidiaries of Cloudbreak as compared to any of the other companies in which Cloudbreak and the wholly-owned subsidiaries of Cloudbreak operate;

 

•

hurricanes, earthquakes, floods, tsunamis, tornadoes, mudslides, wild fires or other natural disasters and other force majeure events in the United States or any other country or region in the world, except to the extent such event has a materially disproportionate effect on Cloudbreak and the wholly-owned subsidiaries of Cloudbreak as compared to any of the other companies in the industry in which Cloudbreak and the wholly-owned subsidiaries of Cloudbreak operate;

 

•

the announcement, execution, delivery or performance of the Purchase Agreement or the pendency or consummation of the Transactions;

 

•

any change in GAAP or any change in applicable laws or the interpretation thereof, in each case, following the date of the Purchase Agreement;

 

•

any pandemic, epidemic or disease outbreak, except to the extent such pandemic, epidemic or disease outbreak has a materially disproportionate effect on Cloudbreak and the wholly-owned subsidiaries of Cloudbreak as compared to any of the other companies in which Cloudbreak and the wholly-owned subsidiaries of Cloudbreak operate; and

 

•

the failure, in and of itself, of the financial or operating performance of Cloudbreak and the wholly-owned subsidiaries of Cloudbreak, or the business of providing video remote interpreter services, over the phone interpreter services, onsite interpreter services, document translation and localization services and/or any services related or ancillary thereto and/or any other services or activities presently

 

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conducted or presently proposed to be conducted, or conducted in the last 12 months, by or on behalf of Cloudbreak or any of the wholly-owned subsidiaries of Cloudbreak (the “Cloudbreak Business”), to meet internal or external (including Forest Buyer, the Guarantors or analysts) projections (including the projections that were provided to GTCR in advance of the entry into the Purchase Agreement with Forest Buyer), forecasts or budgets for any period (provided, that the underlying facts causing such failure, to the extent not otherwise excluded by this definition, may be deemed to constitute or contribute to a Material Adverse Effect).

The representations and warranties concerning UpHealth (including, in certain cases, with respect to its subsidiaries), made by UpHealth to Forest Buyer are more limited and relate to, among other things, the following:

 

•

UpHealth’s authority to execute, deliver, and perform the Purchase Agreement, and the enforceability of the Purchase Agreement;

 

•

approval of the Purchase Agreement and the Transactions contemplated thereby, including the Sale, by the UpHealth Board;

 

•

the requisite stockholder approval required to approve the Transactions, including the Sale;

 

•

title to the equity interests in Cloudbreak;

 

•

the absence of conflicts with or defaults under UpHealth’s organizational documents, applicable law or material contracts of UpHealth;

 

•

the absence of actions pending, threatened against, affecting UpHealth, that would adversely affect UpHealth’s performance under the Purchase Agreement;

 

•

financial statements;

 

•

the absence of undisclosed liabilities;

 

•

the solvency of UpHealth, including following the Sale, and the lack of insolvency events concerning UpHealth; and

 

•

disclaimer of any other representation or warranty, express or implied.

The representations and warranties made by Forest Buyer to UpHealth and Cloudbreak, are similarly limited and relate to, among other things, the following:

 

•

corporate organization and authority;

 

•

corporate power and authority to enter into the Purchase Agreement and perform their obligations thereunder, and the enforceability of the Purchase Agreement;

 

•

the absence of conflicts with Forest Buyer’s organizational documents, other contracts and applicable law;

 

•

the absence of actions pending, threatened against, affecting Forest Buyer, that would adversely affect Forest Buyer’s performance under the Purchase Agreement;

 

•

that Forest Buyer will have sufficient funds to consummate the Closing;

 

•

delivery and enforceability of the limited guaranty;

 

•

the solvency of Forest Buyer following the Sale;

 

•

the absence of prior business activities and material agreements or arrangements of Forest Buyer;

 

•

that the equity interests in Cloudbreak are restricted securities;

 

•

due diligence review;

 

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•

the absence of claims for brokerage commissions, finder’s fees or similar compensation in connection with the Sale for which UpHealth could become liable; and

 

•

disclaimer of any other representation or warranty, express or implied.

In the event that Forest Buyer or any of its affiliates obtains any third party representations and warranties insurance policy related to the representations and warranties in the Purchase Agreement (a “Forest Buyer Insurance Policy”), such Forest Buyer Insurance Policy shall expressly provide that the insurer issuing such policy shall have no right, and waive any right, of subrogation, contribution or otherwise against UpHealth (including any former, current or future representative of UpHealth) based upon, arising out of, or in any way connected to the Purchase Agreement, the Transactions, or such Forest Buyer Insurance Policy, except with respect to Fraud of UpHealth. The foregoing subrogation provision may not be amended, waived, modified or otherwise revised by Forest Buyer or any of its affiliates in any Forest Buyer Insurance Policy, and UpHealth shall be an intended third party beneficiary under any Forest Buyer Insurance Policy of such subrogation provision.

No Survival; No Indemnification

The representations and warranties of the parties contained in the Purchase Agreement terminate as of, and do not survive, the Closing, and there are no indemnification rights for another party’s breach, and the covenants and agreements of the parties contained in the Purchase Agreement do not survive the Closing; provided, that any covenants or agreements which by their terms contemplate performance (in whole or in part) after the Closing will survive to the extent so required to be performed after the Closing, and provided further, that the foregoing will not prevent or otherwise limit the rights of any party in the event of Fraud.

The Purchase Agreement provides for a mutual release of claims by UpHealth and by Forest Buyer (on behalf of itself, the Guarantors and Cloudbreak and its subsidiaries), effective as of the Closing.

Financing

Equity Commitment Letter

In connection and concurrently with the entry into the Purchase Agreement, on November 16, 2023, the Guarantors entered into the Equity Commitment Letter with Forest Buyer, pursuant to which, subject to the terms and conditions set forth in the Equity Commitment Letter, the Guarantors have committed to the Equity Financing by investing in Forest Buyer, directly or indirectly, the applicable amounts set forth therein, the proceeds of which may be used to consummate the Transactions. UpHealth is an express third-party beneficiary under the Equity Commitment Letter, and is entitled to specifically enforce the provisions thereof against Forest Buyer in accordance with the terms thereof. Forest Buyer has represented and warranted in the Purchase Agreement that, assuming the conditions set forth in Section 7.1 and Section 7.2 of the Purchase Agreement have been satisfied (or waived), and subject to the terms and conditions of the Equity Commitment Letter, Forest Buyer will have, as of the Closing, sufficient access to immediately available cash in an amount contemplated by the Equity Commitment Letter.

Limited Guaranty

In connection and concurrently with the entry into the Purchase Agreement, on November 16, 2023, Forest Buyer delivered to UpHealth and Cloudbreak a duly executed Limited Guaranty from the Guarantors in favor of UpHealth, pursuant to which, subject to the conditions expressly set forth in the Limited Guaranty, the Guarantors are guaranteeing certain payment obligations of Forest Buyer in connection with the Purchase Agreement. In the event the Purchase Agreement is terminated by UpHealth for an uncured breach of the Purchase Agreement by Forest Buyer which would give rise to the failure of certain of UpHealth’s Closing conditions, the Limited Guaranty, and the rights, obligations and agreements set forth therein, will survive the termination of the Purchase Agreement in accordance with its terms. Forest Buyer has represented and warranted in the Purchase Agreement that the

 

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Guarantors have sufficient cash, available lines of credit, capital commitments or other sources of available funds to satisfy the full amount of their guaranteed obligations under the Limited Guaranty.

Debt Commitment Letter

In connection and concurrently with the entry into the Purchase Agreement, on November 16, 2023, Forest Buyer delivered to UpHealth the Debt Commitment Letter from Forest Buyer and certain debt financing sources, providing for, subject to the conditions set forth in the Debt Commitment Letter, a commitment to provide the debt financing described therein, the proceeds of which may be used to consummate the Transactions.

Certain Covenants and Agreements

The Purchase Agreement also contains certain customary covenants by each of the parties during the period between the signing of the Purchase Agreement and the earlier of the Closing or the termination of the Purchase Agreement in accordance with its terms, including (i) that UpHealth and Forest Buyer will reasonably cooperate with each other and generally act reasonably and in good faith, and (ii) to the extent reasonably required, UpHealth shall (and shall procure that its affiliates shall), as may be requested by Forest Buyer, provide such documents or other information as reasonably necessary to implement certain migration activities to the extent required to be performed after the Closing.

Special Meeting of UpHealth Stockholders

UpHealth has agreed to use its reasonable best efforts to take all action necessary to hold the special meeting of its stockholders for the purpose of obtaining the Requisite Stockholder Approval, including the mailing of this proxy statement and the related proxy materials to its stockholders, as promptly as practicable following entry into the Purchase Agreement. Subject to the non-solicitation provisions of the Purchase Agreement with respect to Superior Proposals, and unless there has been a Seller Board Recommendation Change, UpHealth will use its reasonable best efforts to solicit proxies to obtain the Requisite Stockholder Approval.

Covenants Relating to the Conduct of the Cloudbreak Business Prior to Closing

Affirmative Covenants

The Purchase Agreement also contains certain customary covenants by each of the parties during the period between the signing of the Purchase Agreement and the earlier of the Closing or the termination of the Purchase Agreement in accordance with its terms, including the performance of certain migration activities in respect of Cloudbreak, as well as certain customary covenants that will continue after the Closing to the extent required to be performed after the Closing.

Negative Covenants

Prior to the completion of the Sale, UpHealth has agreed that it will not (and will cause Cloudbreak not to) take any of the following actions with respect to the Cloudbreak Business, subject to specified exceptions, without the prior written consent of Forest Buyer (which consent shall not be unreasonably withheld or delayed):

 

•

sell, assign, transfer, abandon, permit to lapse, license sublicense, lease, or subject to any lien, any material portion of the tangible properties or assets of Cloudbreak or any of its subsidiaries or UpHealth, with respect to the Cloudbreak Business;

 

•

sell, assign, transfer, lease, license, sublicense, or encumber any intellectual property, other than non-exclusive licenses granted in the ordinary course of business;

 

•

(i) disclose any confidential information, trade secret, or personal information (other than personal information that is publicly available business-to-business contact information) to any person,

 

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(ii) disclose, license, release, deliver, escrow or make available any source code or knowingly receive any confidential information or trade secret of any person in violation of any obligations of confidentiality, or (iii) take or fail to take any action that could reasonably be expected to result in the loss, lapse or abandonment of any intellectual property or confidential information;

 

•

make any material change to the operation or the security of, or any administrative, technical or physical safeguards, or any of the policies or procedures related to any system or personal information, except as required by applicable law;

 

•

terminate, modify, waive any rights under or amend any material contract or enter into any new contract that would be required to be set forth in Schedule 2.11(a) of the Purchase Agreement;

 

•

(i) increase the compensation or other benefits to any Cloudbreak employee, except increases in base compensation to non-officer Cloudbreak employees in the ordinary course of business or as required by law, (ii) enter into any new employment, incentive, severance, change of control, deferred compensation or similar agreement with any Cloudbreak employee or (iii) take any action to accelerate the timing, funding or vesting of any payment or benefit to any Cloudbreak employee;

 

•

(i) negotiate, modify, extend, terminate or enter into any collective bargaining agreement or other contract with any union, works council, or other labor organization or employee representative applicable to Cloudbreak or (ii) recognize or certify any labor union, works council, or other labor organization or group of employees as the bargaining representative for any employees of Cloudbreak or its wholly-owned subsidiaries;

 

•

implement or announce any actions that would implicate the WARN Act;

 

•

hire, engage, terminate (without cause), furlough, or temporarily layoff any employee of Cloudbreak or a wholly-owned subsidiary of Cloudbreak with an annual base salary in excess of $150,000;

 

•

waive or release any noncompetition, nonsolicitation, nondisclosure, noninterference, nondisparagement, or other restrictive covenant obligation of any employee of Cloudbreak or a wholly-owned subsidiary of Cloudbreak;

 

•

issue any equity interests, ownership interests, shares of capital stock, phantom equity, stock appreciation rights or other equity security of Cloudbreak or any of its subsidiaries or any security, right, option or warrant convertible into or exercisable or exchangeable for any such equity interests, ownership interests, shares of capital stock or other equity security of the Cloudbreak or any of its subsidiaries;

 

•

adjust, split, combine, reorganize, recapitalize or reclassify, or declare, set aside or pay any dividend or other distribution in respect of the equity interests of the Cloudbreak or any of its subsidiaries;

 

•

establish, enter into, terminate or amend (except amendments required to comply with changes in applicable law) any company plan;

 

•

acquire or agree to acquire in any manner (whether by merger or consolidation, the purchase of an equity interest in or a material portion of the assets of or otherwise) any business or any corporation, partnership, association or other business organization or division thereof or any other person, or acquire any material assets;

 

•

change any accounting principles, policies or procedures, except as required by GAAP;

 

•

divest or dispose of, or agree to divest or dispose of, in any manner, a material portion of the properties or assets of the Cloudbreak or any of its subsidiaries or UpHealth (with respect to the Cloudbreak Business);

 

•

make any capital expenditures in excess of $250,000 in the aggregate, except in the ordinary course of business or for such capital expenditures or commitments therefor that are reflected in the Cloudbreak Business’ current budget;

 

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•

settle any action or waive or forgive any amount paid exceeds $100,000;

 

•

make or change any material tax election, change any annual tax accounting period, adopt or change any method of tax accounting, file any tax return other than consistent with past practice, amend any tax return, file any claims for tax refunds, enter into any pre-filing agreement, advance pricing agreement, cost sharing agreement or closing agreement in relation to taxes, settle or compromise any tax claim, audit or assessment, consent to any extension or waiver of the limitation period, incur any liability for taxes outside the ordinary course of business, fail to pay any tax that becomes due and payable, or surrender any material right to claim tax refund, offset or other reduction in tax liability;

 

•

authorize or effect any liquidation or other dissolution;

 

•

assume, guaranty, or incur any indebtedness; or

 

•

commit to do any of the foregoing.

The foregoing restrictions apply only to operation of the Cloudbreak Business, and accordingly, UpHealth’s operation of the Retained Business is not subject to these restrictions, except that without the prior written consent of Forest Buyer, UpHealth shall not (i) borrow money (other than letters of credit (solely to the extent undrawn) or bankers’ acceptances) and (ii) enter into any bonds, debentures, notes, or other similar instruments or debt securities.

Public Announcements

Prior to the Closing, UpHealth and its subsidiaries, including Cloudbreak, and Forest Buyer have agreed to consult with each other before issuing any press release or making any other public announcement. UpHealth and Forest Buyer have also agreed not to issue any public release or announcement concerning the Purchase Agreement and the Transactions contemplated thereby without the consent of the other party, other than releases or announcements as may be required by law or as may be reasonably necessary in light of UpHealth’s public company status.

Amendment and Waiver

The Purchase Agreement may be amended, and any provision may be waived, only if such amendment or waiver is set forth in a writing executed by the parties that will be bound. No course of dealing between any persons having any interest in the Purchase Agreement shall be effective to modify, amend or waive any part of the Purchase Agreement. No waiver of any of the provisions of the Purchase Agreement shall constitute a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver.

Specific Performance

Each of the parties agree that the Purchase Agreement is intended to be specifically enforceable, and Forest Buyer, UpHealth, and Cloudbreak would be irreparably harmed if any provisions of the Purchase Agreement were not performed in accordance with their specific terms and that monetary damages would not be an adequate remedy. Accordingly, each party shall be entitled to injunctive relief, other equitable relief, and specific performance of the terms of the Purchase Agreement, in addition to any other remedy to which they are entitled at law or in equity.

Expenses

Except as otherwise expressly provided in the Purchase Agreement, all costs and expenses incurred in connection with the Purchase Agreement and all related documents and transactions shall be borne by the party incurring such costs and expenses.

Governing Law

Any and all claims, controversies, and causes of action arising out of or relating to the Purchase Agreement shall be governed by the laws of the State of Delaware, without giving effect to any conflict-of-laws or other rule that would result in the application of the laws of any jurisdiction other than the State of Delaware.

 

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Post-Closing Covenants

If at any time after Closing any further action is necessary to carry out the purposes of the Purchase Agreement, the parties will take such further action as any other party may reasonably request, at the sole cost and expense of the requesting party. UpHealth has agreed under the Purchase Agreement that, from and after Closing, Forest Buyer and Cloudbreak will be entitled to possession of all documents, books, records, agreements, and financial data of any sort to the extent relating to Cloudbreak; provided that UpHealth shall be entitled to retain copies of all such materials and records.

In addition, the Purchase Agreement provides for certain other covenants of UpHealth and Forest Buyer following the Closing, which relate to, among other things, the following:

 

•

cooperation and preparation of taxes, and indemnification by UpHealth in favor of Forest Buyer for certain losses;

 

•

use of Cloudbreak’s name and information by UpHealth and its affiliates (other than Cloudbreak and its subsidiaries);

 

•

the grant by UpHealth to Cloudbreak, its subsidiaries, Forest Buyer, and Forest Buyer’s affiliates, for a period of 12 months following the Closing, of a limited, non-exclusive, worldwide, royalty-free, fully paid-up license to use the UpHealth Marks (as defined in the Purchase Agreement) in connection with the business conducted by Cloudbreak or any of its subsidiaries; and

 

•

return of any misdirected payment, benefit or asset to the entitled party.

Non-Competition and Non-Solicitation

Following the closing of the Sale, we will be subject to five-year non-competition and non-solicitation covenants made in the Purchase Agreement. During such five-year period, UpHealth and its affiliates and subsidiaries will be restricted from directly or indirectly owning any interest in, managing, controlling, participating in (whether as an officer, director, employee, partner, member, agent, representative or otherwise), consulting with, rendering services for, or in any other manner engaging anywhere in the Restricted Territories in any other business engaged directly or indirectly in the business of Cloudbreak (subject to limited exceptions for passive ownership). In addition, UpHealth has agreed, and will cause its affiliates and subsidiaries to agree, not to directly or indirectly through another person, (i) induce or attempt to induce any director, officer employee, or other individual service provider of Cloudbreak or its subsidiaries as of the Closing Date or any such person who is currently employed by UpHealth but will continue with Cloudbreak following the completion of the Sale (each such person, a “Company Employee”), to leave the employ of Cloudbreak or its subsidiaries, or in any way interfere with the relationship between the Cloudbreak or its subsidiaries and any employee thereof, (ii) hire any person who is then an employee of Cloudbreak or its subsidiaries or who was an employee of Cloudbreak or its subsidiaries at any time during the one-year period immediately prior to the date on which such hiring would take place, or (iii) for so long as UpHealth has continuing non-competition obligations pursuant to the Purchase Agreement, call on, solicit or service any customer, supplier, lessee, lessor, licensee, licensor or other business relation of Cloudbreak or its subsidiaries (including any person that was a customer, supplier, lessee, lessor, licensee, licensor or other potential business relation of Cloudbreak or its subsidiaries at any time during the 12-month period immediately prior to such call, solicitation or service), induce or attempt to induce such person to cease doing business with Cloudbreak or its subsidiaries, or in any way interfere with the relationship between any such customer, supplier, lessee, lessor, licensee, licensor or other business relation and Cloudbreak or its subsidiaries (including making any negative statements or communications about Cloudbreak or its subsidiaries, other than as protected by law) in a manner harmful to Cloudbreak or its subsidiaries.

These limitations may negatively impact the scope and/or volume of our business and our ability to hire key personnel, which may adversely affect our financial condition and results of operations.

 

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No Solicitation

Under the terms of the Purchase Agreement, UpHealth and Cloudbreak have agreed, subject to certain exceptions described below, that during the period beginning on November 16, 2023 (the date of the Purchase Agreement) and continuing until the earlier of the termination of the Purchase Agreement or the Closing, they will not, and will cause their respective subsidiaries and its and their directors and officers not to, and will instruct their other representatives not to, directly or indirectly:

 

•

solicit, initiate, propose, induce the making of or knowingly encourage, facilitate or assist, any inquiry or offer or proposal that constitutes, or would reasonably be expected to lead to, a bona fide written offer or proposal (other than an offer or proposal by Forest Buyer) relating to an Acquisition Transaction (an “Acquisition Proposal”);

 

•

furnish any non-public information to any third party with the intent to induce, or that could reasonably be expected to result in, the making, submission or announcement of, or to knowingly encourage, facilitate or assist any inquiry or offer or proposal that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal;

 

•

participate in any discussions, communications or negotiations with third parties with respect to any inquiry or offer or proposal that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal;

 

•

approve, endorse or recommend any offer or proposal that constitutes, or would lead to, an Acquisition Proposal; or

 

•

enter into any letter of intent, agreement in principle, memorandum of understanding, merger agreement or other contract relating to an Acquisition Transaction, other than an Acceptable Confidentiality Agreement (as defined in the Purchase Agreement) (any such letter of intent, agreement in principle, memorandum of understanding, merger agreement, acquisition agreement or other contract relating to an Acquisition Transaction (other than an Acceptable Confidentiality Agreement), an “Alternative Acquisition Agreement”).

Provided, that notwithstanding the restrictions set forth above and subject to the terms and conditions of the Purchase Agreement, prior to UpHealth’s receipt of the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting, UpHealth may engage in discussions or negotiations regarding an Acquisition Transaction pursuant to a bona fide written Acquisition Proposal made or delivered to UpHealth or Cloudbreak after the execution and delivery of the Purchase Agreement and before the receipt of the Requisite Stockholder Approval, that the UpHealth Board (or a committee thereof) has determined in good faith (after consultation with its financial advisor and outside legal counsel) either constitutes or is reasonably likely to lead to a bona fide written Acquisition Proposal for an Acquisition Transaction that:

 

(i)

was not the result or effect of a violation of the non-solicitation provisions and agreements set forth in the Purchase Agreement; and

 

(ii)

is on terms that the UpHealth Board (or a committee thereof) has determined in good faith (after consultation with its financial advisor and outside legal counsel) is reasonably likely to be consummated in accordance with its terms, taking into account all legal, regulatory and financing aspects of the proposal (including certainty of closing), the identity of the person making the proposal and other aspects of the Acquisition Proposal that the UpHealth Board (or a committee thereof) deems relevant, and, if consummated, would be more favorable from a financial point of view to the stockholders of UpHealth (in their capacity as such) than the Transactions (taking into account (A) any revisions to the Purchase Agreement made or proposed in writing by Forest Buyer prior to the time of such determination by the UpHealth Board and (B) all legal, regulatory, financial (including any Termination Fee amounts and conditions), timing, financing and other aspects of such proposal) (a “Superior Proposal”; provided, that for purposes of the reference to an “Acquisition Proposal” in this definition, (x) all references to “15%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%” and (y) all references to “85%” in the definition of “Acquisition Transaction” will be deemed to be references to “50%”),

 

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and with respect to which the failure of the UpHealth Board to take action would be inconsistent with its fiduciary duties.

Under the terms of the Purchase Agreement, an “Acquisition Transaction” means any transaction or series of related transactions (other than the Sale or the other Transactions) involving:

 

(i)

any direct or indirect purchase or other acquisition by any person or “group” of persons (within the meaning of Section 13(d) of the Exchange Act), other than (a) UpHealth or any of its controlled affiliates, including Cloudbreak and the wholly-owned subsidiaries of Cloudbreak, or (b) Forest Buyer, any Guarantor or any their respective affiliates or any “group” including Forest Buyer, any Guarantor or any their respective affiliates (each such person or “group” other than as set forth in clauses (a) or (b), a “Third Party”) or “group” (as defined pursuant to Section 13(d) of the Exchange Act) of persons, whether from UpHealth or any other person(s), of securities representing more than 15% of the total outstanding voting power of UpHealth or any of its subsidiaries after giving effect to the consummation of such purchase or other acquisition, including pursuant to a tender offer or exchange offer by any person or “group” of persons that, if consummated in accordance with its terms, would result in such person or “group” of persons beneficially owning more than 15% of the total outstanding voting power of UpHealth or any of its subsidiaries after giving effect to the consummation of such tender or exchange offer;

 

(ii)

any direct or indirect purchase, exclusive license or other acquisition by any Third Party or “group” (as defined pursuant to Section 13(d) of the Exchange Act) of persons of assets constituting or accounting for more than 15% of the consolidated assets, revenue or net income of UpHealth and its subsidiaries, taken as a whole (measured by the fair market value thereof as of the date of such purchase or acquisition); or

 

(iii)

any joint venture, partnership, merger, consolidation, business combination, tender offer, exchange offer, recapitalization, reorganization, liquidation, dissolution or other transaction involving UpHealth pursuant to which (x) any Third Party or “group” (as defined pursuant to Section 13(d) of the Exchange Act) of persons would hold securities representing more than 15% of the total outstanding voting power of UpHealth or any of its subsidiaries outstanding after giving effect to the consummation of such transaction or (y) stockholders of UpHealth or any of its subsidiaries immediately preceding such transaction hold less than 85% of the equity interests of the surviving or resulting entity of such transaction.

Transition Services Agreement

Prior to the Closing, UpHealth and Cloudbreak will enter into the Transition Services Agreement, pursuant to which UpHealth will agree to provide, following the Closing, certain transition services to Cloudbreak with respect to the operation of the business of Cloudbreak on terms and conditions set forth in the Transition Services Agreement.

Transaction Support Agreement

In connection and concurrently with the entry into the Purchase Agreement, UpHealth, Cloudbreak and Forest Buyer entered into the Transaction Support Agreement, dated as of November 16, 2023 (as may be amended, modified, or supplemented from time to time, including any exhibits, schedules, or annexes thereto), with the Consenting Senior Secured Noteholders and the Consenting Unsecured Noteholders, pursuant to which the parties thereto have agreed, among other things, to support the Purchase Agreement and the Transactions and to enter into and effect the Escrow Agreements, the Supplemental Indentures in connection with the Fundamental Change Repurchase Offer to be made by UpHealth and each other Definitive Document (as defined in the Transaction Support Agreement), in each case, subject to the terms and conditions set forth in the Transaction Support Agreement.

 

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Fundamental Change Repurchase Offer

The Transaction Support Agreement provides that (i) UpHealth and Cloudbreak will abide by the proceeds waterfall set forth in the Purchase Agreement as described above, the Escrow Agreements and the Supplemental Indentures, including releasing the Escrow Funds as set forth in each Escrow Agreement, commencing offers to repurchase the 2025 Notes and the 2026 Notes in accordance with the terms of the applicable Indenture as a result of any or all of the Transactions constituting a Fundamental Change (as such term is defined in each of the Indentures) under the applicable Indenture (each, a “Fundamental Change Repurchase Offer”) and delivering the applicable Fundamental Change Company Notices (as such terms are defined in each of the Indentures) pursuant to the applicable Indenture, in each case, at the times and pursuant to the terms specified in the Supplemental Indentures; (ii) Forest Buyer will abide by the proceeds waterfall set forth in the Purchase Agreement as described above, the Escrow Agreements and the Supplemental Indentures, including, for the avoidance of doubt, depositing and releasing the Notes Escrow Funds as set forth in the Escrow Agreement; and (iii) the Consenting Noteholders will, so long as UpHealth complies with the applicable terms, conditions and procedures set forth in the Indentures, participate in and comply with the terms set forth in respect of any Fundamental Change Company Notice given under (and as defined in) the applicable Indenture and Supplemental Indenture in connection with each relevant Fundamental Change Repurchase Offer.

UpHealth and each Consenting Noteholder, in their separate and individual capacities, represent in the Transaction Support Agreement that, as of the date thereof and to the best of their knowledge, and assuming that all coupon payments on the 2025 Notes and the 2026 Notes due prior to June 3, 2024 are paid in full: if the Sale were to occur on March 15, 2024, (i) the outstanding amount due and payable in the aggregate to the 2025 Noteholders arising under or in connection with a Fundamental Change Repurchase Offer under the Senior Secured Notes Indenture to be consummated on June 3, 2024 would be $62,208,500, consisting of (a) $57,227,000 in aggregate principal amount of the 2025 Notes (assuming 100% participation), (b) $2,861,350 premium payable in respect of the 2025 Notes, and (c) $2,120,150 in accrued and unpaid interest; and (ii) the outstanding amount due and payable in the aggregate to the 2026 Noteholders arising under or in connection with a Fundamental Change Repurchase Offer under the Unsecured Notes Indenture to be consummated on June 3, 2024 would be $119,596,084, consisting of (x) $115,000,000 in aggregate principal amount of the 2026 Notes (assuming 100% participation) and (y) $4,596,084 of accrued and unpaid interest. Each of UpHealth, Cloudbreak and the Consenting Noteholders expressly agree and acknowledge under the Transaction Support Agreement that Forest Buyer is not assuming and shall not assume any Note Obligations (as defined in the applicable Indenture) as part of or in connection with the Transactions.

Additional Agreements in Support of the Transactions

The Transaction Support Agreement provides for certain agreements by and among UpHealth and Cloudbreak (severally and not jointly) and Forest Buyer, including, among other things, to support, execute necessary agreements, provide any necessary consents, and otherwise take all actions reasonably necessary or reasonably requested by any of such parties or the Consenting Noteholders to facilitate the consummation of the Transactions, including the Sale and entry into the Supplemental Indentures (it being understood and agreed that Forest Buyer will not be required to be a party to the Supplemental Indentures), and to take no action, nor solicit, encourage, direct or support any other person to take any action inconsistent with such party’s obligations under or seek to modify in whole or in part, in a manner inconsistent with the Transaction Support Agreement, each of the Transaction Support Agreement, the Purchase Agreement, the Escrow Agreement, the Supplemental Indentures and any documents or instruments relating to the Fundamental Change Repurchase Offer, or any action that directly or indirectly would, or would reasonably be expected to, breach the Transaction Support Agreement or prevent, interfere with, materially delay or impede the consummation of the Transactions, including the Sale and entry into the Supplemental Indentures; provided, that except as and to the extent limited by the terms of the Transaction Support Agreement, the foregoing does not in any way limit the rights and obligations of UpHealth or Cloudbreak under the terms of the Purchase Agreement with respect to alternative Acquisition Transactions.

 

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In addition, each of UpHealth and Cloudbreak has agreed (severally and not jointly) to (a) grant liens in favor of the 2025 Noteholders and 2026 Noteholders with respect to the Escrow Accounts and the funds held therein, as applicable, subject to the terms of the Supplemental Indentures and any related intercreditor agreements; and (b) in connection with the Unsecured Notes Supplemental Indenture, grant a second priority lien on the assets of UpHealth and Cloudbreak and any subsidiaries of UpHealth and Cloudbreak that are not at such time a debtor or debtor in possession in any bankruptcy proceeding, including the Chapter 11 Proceedings, provided, that any such liens on the issued and outstanding equity interests of Cloudbreak or the assets of Cloudbreak and its subsidiaries will be released at or prior to the Closing.

Subject to the terms of the Transaction Support Agreement, each Consenting Noteholder has agreed, severally and not jointly with respect to all 2025 Notes and 2026 Notes (as applicable) beneficially owned by such Consenting Noteholder as of the date of the Transaction Support Agreement, and agreed to direct the applicable trustee under the respective Indenture (“Trustee”) (solely to the extent permissible under the terms of the relevant Indenture), as applicable: (a) to support the Purchase Agreement and the Transactions on the terms set forth in the Transaction Support Agreement, execute necessary agreements, in form and substance acceptable to Forest Buyer and reasonably acceptable to the beneficial holders, as of any date of determination, of (i) more than 50% in principal amount of the 2025 Notes beneficially owned or controlled by the Consenting Noteholders in the aggregate as of such date and (ii) more than 50% in principal amount of the 2026 Notes beneficially owned or controlled by the Consenting Noteholders in the aggregate as of such date (provided, that if there are at least two unaffiliated Consenting Noteholders, then such beneficial holders must include at least two unaffiliated Consenting Noteholders) (the “Required Noteholders”) (provided that the Escrow Agreement and the Supplemental Indentures shall be acceptable to the Required Parties, and the Consenting Noteholder Critical Items shall be acceptable to the Required Noteholders), to provide any necessary consents, and to otherwise take all available actions necessary or requested by any party to the Transaction Support Agreement facilitate the consummation of the Transactions, including the Sale and entry into the Supplemental Indentures; provided, that notwithstanding the foregoing, nothing in the Transaction Support Agreement shall require the Consenting Noteholders to (x) assist UpHealth, Cloudbreak or Forest Buyer in obtaining additional support for the Transactions from UpHealth’s or Cloudbreak’s other stakeholders (including any of the 2025 Noteholders or 2026 Noteholders that are not Consenting Noteholders), (y) take any action that requires a specified percentage of the aggregate principal amount of the 2025 Notes or 2026 Notes, as applicable, in excess of the percentage thereof then beneficially held by the Consenting Noteholders, or (z) otherwise take any action that is not permitted under the Indentures or applicable law; (b) not to direct the Trustee to take any action, nor solicit, encourage, or support any other person to take any action, inconsistent with such Consenting Noteholder’s obligations under the Transaction Support Agreement and the approval, acceptance, and implementation of the Transactions, including the Sale and entry into the Supplemental Indentures; (c) to give, to the fullest extent able, any notice, order, instruction, or direction to the Trustee necessary or reasonably requested by any of UpHealth, Cloudbreak, Forest Buyer and the Consenting Noteholders to give effect to the Transactions, including the Sale and entry into the Supplemental Indentures; (d) to (i) not take any action, directly or indirectly, that would, or would reasonably be expected to, prevent, interfere with, materially delay, or impede, the consummation of the Transactions, including the Sale and entry into the Supplemental Indentures, (ii) not directly or indirectly propose, support, endorse, vote for, consent to, solicit, initiate, approve, or take any other action in furtherance of the negotiation or toward the pursuit of any alternative Acquisition Transaction, alternative Acquisition Proposal, or Alternative Acquisition Agreement, and (iii) not, nor direct any other person to take, any action that would, or would reasonably be expected to, breach the Transaction Support Agreement, or object to, or delay, or take any other negative action, directly or indirectly, to interfere with the implementation of the Transactions, including the Sale and entry into the Supplemental Indentures; (e) until the completion of the initial Fundamental Change Repurchase Offer, to not, and to not direct any other person (including, without limitation, the Trustee) to, exercise any right or remedy for the enforcement, collection or recovery of any right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, against UpHealth or Cloudbreak in respect of the 2025 Notes or the 2026 Notes (as applicable), including resulting from (i) the Specified Defaults and (ii) either of (A) the default in any payment of interest on any 2025 Note or 2026 Note when due and payable, and the default

 

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continues for a period of 30 days, or (B) the default in the payment of principal or premium, if any, of any 2025 Note or 2026 Note when due and payable on the Maturity Date (as defined in the applicable Indenture), upon (x) Optional Redemption, any required repurchase, declaration of acceleration or otherwise (with respect to the 2025 Notes), or (y) any required repurchase, declaration of acceleration or otherwise (with respect to the 2026 Notes), other than in accordance with the Transaction Support Agreement and/or the Purchase Agreement; provided, that the agreement pursuant to this clause (e) is subject to the limitations as set forth the Transaction Support Agreement, including that it shall not constitute a waiver of any defaults (including the Specified Defaults or any existing or future defaults or events of default), nor compliance with any term or provision of the applicable Indenture, nor shall it establish a custom or course of dealing or waiver, alter or impair the obligations of UpHealth and the Subsidiary Guarantors, as applicable, or the rights and remedies of the Trustee, the collateral agent or the Consenting Noteholders under the applicable Indenture, at law or in equity, and the Consenting Noteholders have expressly reserved all of their rights and remedies under the applicable Indenture and applicable law with respect to all defaults and events of default (including, without limitation, the Specified Defaults) except as expressly modified or limited by the Transaction Support Agreement; (f) to take no action, directly or indirectly, that would be inconsistent with the proceeds waterfall set forth in the Purchase Agreement as described above, the Escrow Agreement and the Supplemental Indentures; and (g) to agree (including in the Senior Secured Notes Supplemental Indenture) that the 2025 Notes beneficially held by noteholders who are not Consenting Noteholders and the 2026 Notes may each be paid with the proceeds of the Transactions, with any remaining 2025 Notes beneficially held by the Consenting Noteholders that are not fully paid with the proceeds of the Transactions (including the full depletion of the Notes Escrow Account) to be governed by the Senior Secured Notes Indenture as supplemented by the Senior Secured Notes Supplemental Indenture.

Transaction Support Agreement—Representations and Warranties

The Transaction Support Agreement provides for customary representations and warranties by each of the Consenting Noteholders (each only as to itself), UpHealth, Cloudbreak and Forest Buyer as of the date of the Transaction Support Agreement. Certain of the representations are subject to specified exceptions and qualifications contained in the Transaction Support Agreement.

Each of UpHealth, Cloudbreak and each Consenting Noteholder has expressly agreed and acknowledged that (a) its inability to perform under the Transaction Support Agreement as a result of or in light of (i) the effects of bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors generally and/or (ii) general principles of equity (regardless of whether such enforceability is considered), including any invocation thereof by the warranting party, shall create an immediate termination right in favor of Forest Buyer, and (b) Forest Buyer is not assuming and shall not assume any obligations under the 2025 Notes or 2026 Notes (or the applicable Indenture) as part of or in connection with the Transactions.

Transaction Support Agreement—Modification and Termination Events

Pursuant to the terms of the Transaction Support Agreement, certain amendments, modifications, waivers and supplements to the Purchase Agreement (including the provisions relating to the purchase and sale of interests and the Consenting Noteholders and any provision or term relating to the Fundamental Change Repurchase Offers, the Escrow Agreement, the Transaction Support Agreement or the Supplemental Indentures, as well as any modification, amendment, waiver, or supplement thereto that materially and adversely affects the Consenting Noteholders), will require the prior written consent of the Required Noteholders; provided, that any modification, amendment, waiver, or supplement that has a material, disproportionate, and adverse effect on any specific Consenting Noteholder as compared to other Consenting Noteholders will require the consent of each such affected Consenting Noteholder. Any modification, amendment, waiver or supplement to the Transaction Support Agreement, the Escrow Agreement or the Supplemental Indentures will require the prior written consent of the Required Noteholders; provided, that any modification or amendment to the definitions of “Required Parties,” “Required Noteholders,” and any other defined term whose definition affects the population thereby will require the consent of all Consenting Noteholders.

 

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The Transaction Support Agreement will terminate and, except as otherwise provided for therein, all obligations of the parties shall immediately terminate and be of no further force and effect upon the occurrence of certain events, including (a) the date upon which all of the funds held in each Escrow Account have been released and such funds have been applied in accordance with the Purchase Agreement, the Escrow Agreement, the Supplemental Indentures and any documents or instruments relating to the Fundamental Change Repurchase Offer, (b) the mutual written consent of each of the Required Parties or (c) if the Closing Date does not occur on or before the Outside Date (unless such date is extended by Forest Buyer, in its sole and exclusive discretion, for up to one month after the initial Outside Date and, thereafter, by the Required Parties). In addition, the Transaction Support Agreement may be terminated (a) by Forest Buyer (i) if the Supplemental Indentures have not been entered into and effected by such deadline date as may be further extended by Forest Buyer, (ii) upon any material breach of the Transaction Support Agreement by any of UpHealth, Cloudbreak or the Consenting Noteholders that goes unremedied for a period of 5 business days following written notice thereof, (iii) if the Purchase Agreement is terminated and/or there is a material default or event of default under the Purchase Agreement by any party other than Forest Buyer, unless waived by Forest Buyer, or (iv) if any of UpHealth, Cloudbreak or any Consenting Noteholder is either (A) unable to perform its obligations under the Transaction Support Agreement due to (x) the effects of bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors generally or (y) general principles of equity, or (B) invokes such inability, unless waived by Forest Buyer; and (b) by the Required Noteholders (i) upon any material breach by Forest Buyer of the Transaction Support Agreement that goes unremedied for a period of 5 business days following written notice thereof and (ii) upon the material breach by Forest Buyer of Article I of the Purchase Agreement, the Escrow Agreement or the Supplemental Indentures as they relate to the Fundamental Change Repurchase Offers or the release of Escrow Funds from the Escrow Accounts; provided, that the Transaction Support Agreement may be terminated by either Forest Buyer or the Required Noteholders if the Purchase Agreement is terminated.

Except as otherwise provided in the Transaction Support Agreement, upon termination in accordance with its terms, the Transaction Support Agreement shall be void and of no further force or effect, and each party shall be released from its commitments, undertakings, and agreements under or related thereto, and there shall be no liability or obligation on the part of any party (other than in the case of breach or non-performance by such party of its obligations thereunder prior to the date of such termination).

Supplemental Indentures and Waivers and Rescission Agreements

In accordance with the terms of the Purchase Agreement and the Transaction Support Agreement, UpHealth will enter into a supplement to the Senior Secured Notes Indenture with Wilmington Trust, in its capacity as trustee and collateral agent thereunder (the “Senior Secured Notes Supplemental Indenture”), the terms of which will, among other things (a) provide for certain changes to certain of the definitions in the Senior Secured Notes Indenture, including “Permitted Indebtedness”; (b) provide for certain modifications to covenants of UpHealth and certain changes with respects to events of default; (c) provide a carveout for the Sale from the terms of the Senior Secured Notes Indenture with respect to mergers and sale transactions; and (d) delete the rule prohibiting repurchases in connection with a Fundamental Change (as such term is defined in the Senior Secured Notes Indenture) arising from the Sale at the time the 2025 Notes have been accelerated, and will modify the provisions in respect of repurchases of 2025 Notes as a result of a Fundamental Change for the Consenting Noteholders in respect of the Sale to account for a multi-step process for the repurchase of the 2025 Notes (i.e., to require a repurchase offer at Closing and in connection with subsequent paydowns with the proceeds of released funds from the Escrow Accounts), in each case, at a 5.00% premium to the principal amount of such 2025 Notes. In addition, UpHealth and the Consenting Noteholders have agreed to enter into a Waiver and Rescission Agreement that will provide for the waiver, with respect to UpHealth and Cloudbreak, of the specified events of default under the Senior Secured Notes Indenture resulting from the commencement of the Chapter 11 Proceedings (the “2025 Indenture Events of Default”) and will rescind, with respect to UpHealth and Cloudbreak, the automatic acceleration of the 2025 Notes resulting from the occurrence of the foregoing events of default (the “2025 Notes Acceleration”).

 

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In addition, in accordance with the terms of the Purchase Agreement and the Transaction Support Agreement, UpHealth will enter into a supplement to the Unsecured Notes Indenture with BNY Mellon, in its capacity as successor trustee and collateral agent thereunder (the “Unsecured Notes Supplemental Indenture” and together with the Senior Secured Notes Supplemental Indenture, the “Supplemental Indentures”), the terms of which will, among other things (a) add each subsidiary of UpHealth, other than any subsidiary of UpHealth that is, as of the date of the Unsecured Notes Supplemental Indenture, a debtor or debtor in possession in any bankruptcy proceeding, including the Chapter 11 Proceedings, as a guarantor of the obligations under the 2026 Notes pursuant to the Unsecured Notes Indenture; (b) cause UpHealth and each of its subsidiaries, other than any subsidiary of UpHealth that is, as of the date of the Unsecured Notes Supplemental Indenture, a debtor or debtor in possession in any bankruptcy proceeding, including the Chapter 11 Proceedings, to grant a second-priority security interest on the same collateral that secures the 2025 Notes; (c) in connection with those items described in clauses (a) and (b) above, incorporate provisions similar to those in the Senior Secured Notes Indenture including with respect to covenants and events of default and as modified by the Senior Secured Notes Supplemental Indenture; and (d) provide a carveout for the Sale from the terms of the Unsecured Notes Indenture with respect to mergers and sale transactions. In addition, UpHealth and the Consenting Noteholders have agreed to enter into a Waiver and Rescission Agreement that will provide for the waiver, with respect to UpHealth and Cloudbreak, of the specified events of default under the Unsecured Notes Indenture resulting from the 2025 Notes Acceleration and the commencement of the Chapter 11 Proceedings (the “2026 Indenture Events of Default” and together with the 2025 Indenture Events of Default, the “Specified Defaults”).

UpHealth has agreed to use its reasonable best efforts to take all actions that may be required under or in connection with the execution of the Supplemental Indentures. The Supplemental Indentures, once entered into by UpHealth and the Trustee, may not be amended, modified or terminated in a manner that is material and adverse to Forest Buyer without its prior written consent.

Voting and Support Agreement

In connection and concurrently with the entry into the Purchase Agreement, on November 16, 2023, UpHealth entered into the Voting Agreement with Forest Buyer and the Supporting Stockholders pursuant to which the Supporting Stockholders have agreed, among other things, to vote (i) all of the shares of Common Stock owned of record or beneficially by held by them as of the date of the Purchase Agreement and (ii) any additional shares of Common Stock or other voting securities of UpHealth acquired by the Supporting Stockholders or their affiliates prior to the record date for the Stockholder Meeting, in favor of the Supported Matters. The Voting Agreement restricts the ability of the Supporting Stockholders to transfer or sell shares of UpHealth Common Stock, subject to certain limited exceptions. The Voting Agreement provides for customary representations, warranties and covenants by Forest Buyer and the Supporting Stockholders, and will terminate automatically and without further action upon the earliest to occur of: (i) the valid termination of the Purchase Agreement in accordance with its terms, (ii) written notice of termination of the Voting Agreement by Forest Buyer to the Supporting Stockholders, (iii) the mutual written agreement of the parties to the Voting Agreement and (iv) the Closing.

Termination of the Purchase Agreement

UpHealth and Forest Buyer may terminate the Purchase Agreement by mutual written consent at any time prior to the Closing.

 

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In addition, either UpHealth or Forest Buyer may terminate the Purchase Agreement at any time prior to the Closing by giving written notice to the other party if:

 

•

the Closing has not been consummated by the Outside Date, provided, that this right to terminate the Purchase Agreement shall not be available to any party if the failure of the Closing to have been consummated on or before the Outside Date was primarily caused by the failure of such party to perform any of its covenants or obligations under the Purchase Agreement;

 

•

any law is enacted that makes the consummation of the Transactions illegal or otherwise prohibited, or if the consummation of the Transactions would violate any nonappealable final order, decree or judgment of a governmental authority of competent jurisdiction or require the approval of any court or any other governmental authority to consummate the Transactions; or

 

•

UpHealth fails to obtain the Requisite Stockholder Approval at the special meeting (or any adjournment or postponement thereof), except that such right will not be available to any party whose action or failure to act (which action or failure to act constitutes a breach by such party of the Purchase Agreement) was the primary cause of, or primarily resulted in, the failure to obtain the Requisite Stockholder Approval at the special meeting (or any adjournment or postponement thereof).

UpHealth may also terminate the Purchase Agreement at any time prior to the Closing by giving written notice to Forest Buyer:

 

•

if there has been a breach on the part of Forest Buyer of any of its (i) representations or warranties contained in the Purchase Agreement such that the condition set forth in Section 7.2(a) of the Purchase Agreement would not be satisfied (treating such time as if it were the Closing for purposes of applying this right) or (ii) covenants or agreements contained in the Purchase Agreement such that the condition set forth in Section 7.2(b) of the Purchase Agreement would not be satisfied (treating such time as if it were the Closing for purposes of applying this right), except that, in each case, if such breach is capable of being cured, UpHealth will not be entitled to terminate the Purchase Agreement pursuant to this right prior to the delivery by UpHealth to Forest Buyer of written notice of such breach, delivered at least 30 days prior to the end of the Buyer Breach Notice Period, stating UpHealth’s intention to terminate the Purchase Agreement pursuant to this right and the basis for such termination, it being understood that UpHealth will not be entitled to terminate the Purchase Agreement pursuant to this right if (A) such breach has been cured within the Buyer Breach Notice Period or (B) Forest Buyer has the valid right to terminate the Purchase Agreement pursuant to Section 8.1(b) of the Purchase Agreement; or

 

•

at any time prior to receiving the Requisite Stockholder Approval, if (a) UpHealth has received a Superior Proposal, (b) the UpHealth Board has authorized UpHealth to enter into a definitive Alternative Acquisition Agreement to consummate the Acquisition Transaction contemplated by such Superior Proposal in accordance with the non-solicitation provisions of the Purchase Agreement, (c) Cloudbreak has complied with its obligations with respect to the non-solicitation provisions of the Purchase Agreement, and (d) concurrently with such termination, Cloudbreak pays the Termination Fee due to Forest Buyer in accordance with the Purchase Agreement.

Forest Buyer may also terminate the Purchase Agreement at any time prior to the Closing by giving written notice to UpHealth:

 

•

if there has been a breach on the part of Cloudbreak or UpHealth of any of their (i) representations or warranties contained in the Purchase Agreement such that the condition set forth in Section 7.1(a) of the Purchase Agreement would not be satisfied (treating such time as if it were the Closing for purposes of applying this right) or (ii) covenants or agreements contained in the Purchase Agreement such that the condition set forth in Section 7.1(b) if the Purchase Agreement would not be satisfied (treating such time as if it were the Closing for purposes of applying this right), except that, in each case, if such breach is capable of being cured, Forest Buyer will not be entitled to terminate the Purchase Agreement pursuant to this right prior to the delivery by Forest Buyer to UpHealth of written

 

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notice of such breach, delivered at least 30 days prior to the end of the Seller Breach Notice Period, stating Forest Buyer’s intention to terminate the Purchase Agreement pursuant to this right and the basis for such termination, it being understood that Forest Buyer will not be entitled to terminate the Purchase Agreement pursuant to this right if (A) such breach has been cured within the Seller Breach Notice Period or (B) UpHealth has the valid right to terminate the Purchase Agreement pursuant to Section 8.1(c) of the Purchase Agreement;

 

•

if the UpHealth Board (or a committee thereof) has effected a Seller Board Recommendation Change;

 

•

if UpHealth, its affiliates or any of their respective representatives has breached its obligations under the non-solicitation provisions of the Purchase Agreement; or

 

•

in the event (i) of the occurrence of a Seller Insolvency Event or (ii) UpHealth and Cloudbreak are not able to satisfy the condition that they deliver customary fairness and customary solvency opinions.

If the Purchase Agreement is terminated, all further obligations of the parties under the Purchase Agreement (except for certain obligations related to confidentiality, effect of termination, payment of the Termination Fee, fees and expenses and customary miscellaneous provisions) will terminate, and no party to the Purchase Agreement will have any further liability to any other party except for liability for any Fraud or willful breach of the Purchase Agreement prior to termination. In addition, no termination of the Purchase Agreement will affect the rights or obligations of any party under the Confidentiality Agreement (as defined in the Purchase Agreement), or, in the event of termination by UpHealth for an uncured breach of the Purchase Agreement by Forest Buyer that would give rise to the failure of certain of UpHealth’s Closing conditions, the Limited Guaranty, which rights, obligations and agreements will survive the termination of the Purchase Agreement in accordance with their respective terms.

Following the termination of the Purchase Agreement, the maximum aggregate liability of Forest Buyer and its affiliates for any and all liabilities or damages suffered as a result of the breach of the Purchase Agreement or any representation, warranty, covenant or agreement of Forest Buyer contained therein, or the failure to consummate the Transactions, including the Sale, shall in no event exceed $14,400,000.

Termination Fee

UpHealth will pay the Termination Fee of $7,200,000 in the following scenarios:

 

•

if (a) the Purchase Agreement is validly terminated in an Applicable Termination by either Forest Buyer or UpHealth by giving written notice to the other party if the Closing has not been consummated by the Outside Date, (b) prior to an Applicable Termination, UpHealth or Cloudbreak has received an Acquisition Proposal (and such Acquisition Proposal has not subsequently been irrevocably withdrawn prior to the Applicable Termination) or an Acquisition Proposal has been publicly made or disclosed (and not publicly irrevocably withdrawn at least 4 business days prior to the special meeting (or any adjournment or postponement thereof)), and (c) within 12 months following such Applicable Termination, an Acquisition Transaction is consummated or UpHealth enters into a definitive agreement with respect to an Acquisition Transaction, in which case, UpHealth will, concurrently with the earlier of the execution of the definitive agreement and the consummation of such Acquisition Transaction pay to Forest Buyer the Termination Fee (and for these purposes, all references to “15%” and “85%” in the definition of “Acquisition Transaction will be deemed to be references to “50%”);

 

•

if the Purchase Agreement is validly terminated by UpHealth or Forest Buyer due to UpHealth’s failure to obtain the Requisite Stockholder Approval, in which case, UpHealth will promptly (and in any event within 2 business days) following such termination pay to Forest Buyer the Termination Fee;

 

•

if the Purchase Agreement is validly terminated by Forest Buyer (i) for the uncured breach of the Purchase Agreement by UpHealth or Cloudbreak, which breach would give rise to the failure of certain of Forest Buyer’s Closing conditions, (ii) if the UpHealth Board (or a committee thereof) has effected a

 

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Seller Board Recommendation Change or UpHealth, its affiliates or any of their respective representatives has breached its obligations under the non-solicitation provisions of the Purchase Agreement, or (iii) in the event of the occurrence of a Seller Insolvency Event or UpHealth and Cloudbreak are not able to satisfy the condition that they deliver customary fairness and customary solvency opinions, in which case, UpHealth will promptly (and in any event within 2 business days) following such termination pay to Forest Buyer the Termination Fee; or

 

•

if the Purchase Agreement is validly terminated by UpHealth at any time prior to receiving the Requisite Stockholder Approval due to (a) UpHealth having received a Superior Proposal, (b) the UpHealth Board (or a committee thereof) having authorized UpHealth to enter into a definitive Alternative Acquisition Agreement to consummate the Acquisition Transaction contemplated by such Superior Proposal in accordance with the non-solicitation provisions of the Purchase Agreement, (c) Cloudbreak has complied with its obligations with respect to the non-solicitation provisions of the Purchase Agreement, and (d) concurrently with such termination, Cloudbreak pays the Termination Fee due to Forest Buyer in accordance with the Purchase Agreement, in which case, UpHealth must prior to or concurrently with such termination pay to Forest Buyer the Termination Fee.

In no event will UpHealth be required to pay the Termination Fee on more than one occasion, whether or not the Termination Fee may be payable pursuant to more than one provision of the Purchase Agreement at the same or at different times and upon the occurrence of different events.

No Appraisal or Dissenters’ Rights

No appraisal or dissenters’ rights are available to our stockholders under Delaware law or our Second Amended and Restated Certificate of Incorporation or Bylaws in connection with the Sale or any other Transactions contemplated by the Purchase Agreement, regardless of whether such stockholders vote for or against the approval of the Sale Proposal.

Employee Matters

Pursuant to the terms of the Purchase Agreement, prior to the Closing of the Sale, UpHealth or its affiliates shall transfer the employment of any Company Employee who is then employed by UpHealth or its affiliates (other than Cloudbreak or its subsidiaries) to Cloudbreak (other than any Company Employee who is currently employed in India, with respect to whom UpHealth and Forest Buyer will reasonably cooperate to transfer their employment to Cloudbreak following the Closing).

Upon the Closing of the Sale, the Cloudbreak Employees will continue their employment with Cloudbreak. Such employees include, among others, Andy Panos, who currently serves as UpHealth’s EVP, US Telehealth, but is not an executive officer or Section 16 filer of UpHealth. From and after the Closing Date, the terms of Mr. Panos’ employment will be subject to a Senior Management Agreement entered with Cloudbreak on November 16, 2023 (the “Senior Management Agreement”).

None of the executive officers of UpHealth have entered into any agreement, arrangement or understanding with UpHealth or our subsidiaries in connection with the Sale or any amendments or modifications to his or her existing employment agreement with UpHealth, as applicable, in connection with the Sale.

Treatment of Company Employee Restricted Stock Units and Stock Options

In accordance with the terms of the 2021 UpHealth Equity Incentive Plan, upon the Closing of the Sale, the vesting of each restricted stock unit of UpHealth (“RSU”) outstanding as of the Closing of the Sale and held by any Company Employee, which as of October 16, 2023 included 195,811 RSUs, will have become fully vested by the passage of time or shall be accelerated, such that all of such RSUs shall be fully vested as of the Closing. In addition, in accordance with the terms of the Cloudbreak Health, LLC 2015 Unit Incentive Plan, the vesting of

 

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each unvested stock option held by a Company Employee, which as of November 1, 2023 included 993 stock options for the purchase of UpHealth Common Stock, will have become fully vested by the passage of time or shall be accelerated, such that all such unvested stock options will be exercisable by a Company Employee. The exercise price of such unvested stock options is $73.80 per share of UpHealth Common Stock.

Required Vote; Recommendation of the UpHealth Board

The UpHealth Board recommends that our stockholders vote “FOR” the Sale Proposal.

For a discussion of the factors considered by the UpHealth Board in determining to recommend approval of the Purchase Agreement, and the Sale and other Transactions as contemplated thereby, see the section of this proxy statement entitled “Proposal No. 1—The Sale Proposal—Recommendation of the UpHealth Board and its Reasons for the Sale” beginning on page 57.

Approval of this Sale Proposal requires the affirmative vote of the holders of a majority of the shares of UpHealth Common Stock issued and outstanding and entitled to vote thereon at the special meeting, voting together as a single class in person or by proxy (which we refer to as the Requisite Stockholder Approval). For purposes of the vote on this Sale Proposal, an abstention, a “broker non-vote,” or a failure to submit a proxy card or vote over the Internet, by telephone or in person at the special meeting will have the same effect as voting “AGAINST” this Sale Proposal.

 

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

Introduction to Unaudited Pro Forma Condensed Consolidated Financial Information

UpHealth is the parent company of both UpHealth Holdings, and the wholly-owned subsidiaries of UpHealth Holdings, and Cloudbreak, and the wholly-owned subsidiaries of Cloudbreak.

On November 16, 2023, UpHealth agreed to sell 100% of the outstanding equity interests of Cloudbreak and the wholly-owned subsidiaries of Cloudbreak to Forest Buyer, an affiliate of GTCR, pursuant to the Purchase Agreement. UpHealth will utilize the proceeds from the Sale for payment in full or in part of the 2026 Notes and the 2025 Notes, as well as other expenses related to the Sale. The Closing is expected to occur on the date that is the third business day following the satisfaction or waiver of each of the conditions to Closing, including receipt of the Requisite Stockholder Approval in favor of the Sale Proposal at the special meeting, but in no event prior to March 15, 2024, unless consenting to in writing by UpHealth and Forest Buyer.

In connection and concurrently with the entry into the Purchase Agreement, UpHealth, Cloudbreak and Forest Buyer entered into the Transaction Support Agreement with the Consenting Senior Secured Noteholders, which are the holders of at least 69% of the 2025 Notes, and the Consenting Unsecured Noteholders, which are the holders of at least 88% of the 2026 Notes, pursuant to which the parties have agreed, among other things, to support the Purchase Agreement and the Transactions, including the Sale, and to enter into and effect the Escrow Agreements, the Supplemental Indentures in connection with the Fundamental Change Repurchase Offer to be made by UpHealth and each other Definitive Document, in each case, subject to the terms and conditions set forth in the Transaction Support Agreement.

On February 26, 2023, UpHealth Holdings agreed to sell 100% of the outstanding capital stock of UpHealth Holdings’ wholly-owned subsidiary, IGI, to Belmar MidCo, Inc., a Delaware corporation and a wholly-owned subsidiary of Belmar Holdings, Inc., a Delaware corporation, a portfolio company of Webster Capital IV, L.P., a Delaware limited partnership, pursuant to a Stock Purchase Agreement, dated February 26, 2023, by and among UpHealth, UpHealth Holdings, IGI and Belmar MidCo, Inc.

On May 11, 2023, UpHealth Holdings completed the closing of the sale of IGI pursuant to the Stock Purchase Agreement. The gross cash proceeds from the sale of IGI were approximately $56,000,000, before adjustments for the net working capital of IGI and its wholly-owned subsidiaries, closing debt and accrued but unpaid expenses related to the transactions contemplated by the Stock Purchase Agreement, and less the escrow amount provided for under the Stock Purchase Agreement.

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2023 gives effect to the Sale and the other Transactions as if they had occurred on that date. The unaudited pro forma condensed consolidated balance sheet is derived from the unaudited historical financial statements of UpHealth as of September 30, 2023.

The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2023 has been prepared to illustrate the effects of the Sale of Cloudbreak as if it had occurred on June 9, 2021. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 has been prepared to illustrate the effects of the Sale of Cloudbreak as if had occurred on June 9, 2021, and the sale of IGI as if it had occurred on January 1, 2022. Since the Sale of Cloudbreak qualifies as a discontinued operation, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 has been prepared to illustrate the effects of the Sale of Cloudbreak as if it had occurred on June 9, 2021. The unaudited pro forma condensed consolidated statements of operations are derived from the unaudited historical consolidated financial statements of UpHealth for the nine months ended September 30, 2023 and the audited historical consolidated financial statements of UpHealth for the years ended December 31, 2022 and 2021.

The unaudited pro forma condensed consolidated financial information does not necessarily reflect what UpHealth’s financial condition or results of operations would have been had the Sale of Cloudbreak and the sale of IGI occurred on the dates indicated. It also may not be useful in predicting the future financial condition and results of operations of UpHealth. The actual financial condition and results of operations of UpHealth may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

 

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UPHEALTH, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2023

(In thousands)

 

		UpHealth, Inc.				Transaction Accounting Adjustments - Cloudbreak Health, LLC				Notes				Pro Forma
ASSETS
Current assets:
Cash and cash equivalents		$	3,342			$	—				(b)(c	)		$	3,342
Accounts receivable, net			16,527				(16,524	)			(a	)			3
Prepaid expenses and other current assets			2,140				(1,093	)			(a	)			1,047
Total current assets			22,009				17,617								4,392
Property, plant and equipment, net			10,228				(9,354	)			(a	)			874
Operating lease right-of-use assets			1,653				(1,649	)			(a	)			4
Intangible assets, net			23,683				(23,683	)			(a	)			—
Goodwill			80,310				(80,310	)			(a	)			—
Equity investment			96,768				—								96,768
Other assets			493				(168	)			(a	)			325
Total assets		$	235,144			$	(132,781	)						$	102,363
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	5,187			$	(2,920	)			(a	)		$	2,267
Accrued expenses			11,032				(3,272	)			(a	)			7,760
Deferred revenue			52				(52	)			(a	)			—
Due to related parties			2,544				—								2,544
Debt, current			143,889				(119,784	)			(c	)			24,105
Lease liabilities, current			3,664				(3,660	)			(a	)			4
Total current liabilities			166,368				(129,688	)							36,680
Deferred tax liabilities			1,202				(1,202	)			(a	)			—
Lease liabilities, noncurrent			3,297				(3,297	)			(a	)			—
Other liabilities, noncurrent			147				—				(a	)			147
Total liabilities			171,014				(134,187	)							36,827
Stockholders’ equity:
Common stock			2				—								2
Additional paid-in capital			695,152				—				(a	)			695,152
Treasury stock, at cost			(17,000	)			—								(17,000	)
Retained earnings (deficit)			(614,024	)			1,406				(a)(d	)			(612,618	)
Total UpHealth, Inc., stockholders’ equity			64,130				1,406								65,536
Total liabilities and stockholders’ equity		$	235,144			$	(132,781	)						$	102,363

 

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UPHEALTH, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023

(In thousands, except per share amounts)

 

		UpHealth, Inc.				Transaction Accounting Adjustments - Innovations Group, Inc.				Notes				Subtotal				Transaction Accounting Adjustments - Cloudbreak Health, LLC				Notes				Pro Forma
Revenues		$	112,649			$	(12,540	)			(l	)		$	100,109			$	(52,802	)			(e	)		$	47,307
Cost of revenues			52,374				(6,730	)			(l	)			45,644				(23,358	)			(e	)			22,286
Gross profit			60,275				(5,810	)							54,465				(29,444	)							25,021
Operating expenses:
Sales and marketing			9,785				(937	)			(m	)			8,848				(4,711	)			(f	)			4,137
Research and development			4,111				—								4,111				(600	)			(f	)			3,511
General and administrative			32,591				(1,229	)			(m	)			31,362				(2,151	)			(f	)			29,211
Depreciation and amortization			5,175				—								5,175				(3,355	)			(f	)			1,820
Stock-based compensation			2,645				—								2,645				(57	)			(f	)			2,588
Goodwill and intangible asset impairment			49,959				(1,936	)			(m	)			48,023				—								48,023
Acquisition, integration, and transformation costs			40,319				—								40,319				(201	)			(f	)			40,118
Total operating expenses			144,585				(4,102	)							140,483				(11,075	)							129,408
Loss from operations			(84,310	)			(1,708	)							(86,018	)			(18,369	)							(104,387	)
Other income (expense):
Interest expense			(20,703	)			—								(20,703	)			16,006				(g)(i	)			(4,697	)
Gain on deconsolidation of subsidiary			59,065				—								59,065				(986	)			(g	)			58,079
Gain on fair value of warrant liabilities			(3	)			—								(3	)			—								(3	)
Other income, net, including interest income			425				91				(n	)			516				126				(g	)			642
Total other income (expense)			38,784				91								38,875				15,146								54,021
Net loss before income tax benefit			(45,526	)			(1,617	)							(47,143	)			(3,223	)							(50,366	)
Income tax benefit			(867	)			—								(867	)			(114	)			(h	)			(981	)
Net loss			(46,392	)			(1,617	)							(48,010	)			(3,337	)							(51,347	)
Less: net loss attributable to noncontrolling interest			1,423				—								1,423				—								1,423
Net loss attributable to UpHealth, Inc.		$	(47,816	)		$	(1,617	)						$	(49,433	)		$	(3,337	)						$	(52,770	)
Net loss per common share attributable to UpHealth, Inc.:
Basic and diluted		$	(2.74	)		$	(0.09	)						$	(2.83	)		$	(0.19	)						$	(3.02	)
Weighted average common shares outstanding:
Basic and diluted			17,459				17,459								17,459				17,459								17,459

 

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