CGNT Cognyte Software Ltd

PROXY STATEMENT

SPECIAL MEETING OF STOCKHOLDERS

 

TO BE HELD

ON

THURSDAY,

OCTOBER 27,

2016

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This proxy statement and the enclosed proxy card are being mailed to stockholders on or about September 23, 2016 and are furnished in connection with the solicitation of proxies by the Board of Directors of Cogentix Medical, Inc. (or, if applicable, a committee thereof) (the “Board” or “Board of Directors”) for use at a special meeting of stockholders (the “Special Meeting”) to be held on, Thursday, October 27, 2016 at 8:30 am, Central Daylight Time, at the Company’s headquarters at 5420 Feltl Road, Minnetonka, MN 55343 , and at any adjournments or postponements thereof.

This proxy statement summarizes the information you need to know to vote at the Special Meeting. You do not need to attend the Special Meeting to vote your shares. Instead, you may vote your shares by marking, signing, dating and returning the enclosed proxy card, or by following the Internet or telephone voting instructions as described herein, or by following the voting instructions on the Notice Regarding the Availability of Proxy Materials you received for the meeting .

Important Notice Regarding

the Availability of

Proxy Materials for the

Stockholder Meeting to Be

Held on Thursday, October 27,

2016

This proxy statement is available at

www.proxyvote.com

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND RELATED MATTERS

 

Why am I receiving these materials? What is the purpose of the Special Meeting?

The Company sent you this proxy statement and the proxy card on behalf of the Board of Directors, which is soliciting a proxy from you to vote your shares at the Special Meeting. This proxy statement contains information designed to assist you in voting your shares.

On September 7 , 2016, the Company and the Investor entered into the Purchase Agreement, pursuant to which the Company has agreed to sell to the Investor, and the Investor has agreed to purchase from the Company, 16,129,033 shares of Common Stock for an aggregate purchase price of $25 million, reflecting a purchase price per share of $1.55 (rounded up to the nearest whole share).  In connection with the Purchase Agreement, the Company also entered into the Note Exchange Agreement with Lewis C. Pell, one of the Company’s Class I directors, pursuant to which, among other things, all the outstanding principal amount of and accrued interest on the promissory notes made by the Company and purchased by Mr. Pell will be exchanged for shares of Common Stock, at a price per share of $1.67.  Assuming the closing of the Note Exchange Agreement occurs on October 27, 2016, Mr. Pell will be issued 17,684,613 shares of Common Stock thereunder.  In connection with the entry into the Purchase Agreement and Note Exchange Agreement, Mr. Pell and the Investor entered into a voting agreement on September 7, 2016 and, immediately prior to the closing of the Purchase Agreement, the Company, the Investor and Mr. Pell will enter into a registration rights agreement (collectively, with the transactions contemplated thereunder and under the Purchase Agreement and the Note Exchange Agreement, the “Proposed Transaction”). As described in more detail below, in accordance with the terms of the Purchase Agreement and applicable rules, regulations and guidance of The NASDAQ Stock Market LLC (“NASDAQ”), the Company is calling the Special Meeting to consider and vote on the proposals to approve the issuances of shares of Common Stock in connection with the Proposed Transaction.

At the Special Meeting, holders of our Common Stock will be asked to consider and vote on the following proposals:

1.

To consider and vote on a proposal to approve the issuance of 16,129,033 shares of Common Stock to the Investor,  at a purchase price per share of $1.55, on the terms and subject to the conditions set forth in the Purchase Agreement.

2.

To consider and vote on a proposal to approve the exchange of all the outstanding principal amount of and accrued interest on the promissory notes made by the Company and purchased by Mr. Pell for shares of Common Stock, at a price per share of $1.67, on the terms and subject to the conditions set forth in the Note Exchange Agreement, between the Company and Mr. Pell.  Assuming the closing of the Note Exchange Agreement occurs on October 27, 2016, Mr. Pell will be issued 17,684,613 shares of Common Stock thereunder.

3.

To approve the adjournment, if necessary or appropriate, of the Special Meeting to solicit additional proxies in favor of the foregoing proposals, if there are not sufficient votes to approve the proposals.

How does the Board recommend that I vote?

The Board unanimously recommends that the Company’s stockholders vote “FOR” Proposals 1, 2 and 3.

Why is the Company seeking approval of the Proposed Transaction?

 

We are required to seek approval of the Proposed Transaction pursuant to the terms of the Purchase Agreement. In addition, the Company’s Common Stock is listed on NASDAQ and, as a result, the Company is subject to certain NASDAQ listing rules and regulations. NASDAQ Rule 5635(b) requires stockholder approval prior to any issuance of securities when the issuance will result in a change of control of the Company, which NASDAQ deems to occur when, as a result of the issuance, an investor owns, or has the right to acquire, 20% or more of the outstanding shares of our Common Stock or voting power and such ownership would be the single largest ownership position in the Company. In exchange for the Investor’s $25 million investment in the Company, the Investor will receive 16,129,033 shares of our Common Stock at the closing of the Purchase Agreement, representing approximately 60.76% of our Common Stock outstanding prior to the issuance, and in exchange for the cancellation of the indebtedness held by Mr. Pell,  Mr. Pell will receive 17,684,613 shares of our Common Stock (assuming the closing of the Note Exchange Agreement occurs on October 27, 2016), representing approximately 66.63% of our Common Stock outstanding prior to the issuance.  The foregoing calculations assume that 26,544,299 shares of Common Stock are issued and outstanding, which is the number of shares issued and outstanding as of the record date.  After giving effect to the Proposed Transaction, the shares issued to the Investor pursuant to the Purchase Agreement will represent 26.72% of the Company’s issued and outstanding shares of Common Stock, and the shares issued to Mr. Pell pursuant to the Note Exchange Agreement will represent 29.30% of the Company’s issued and outstanding shares of Common Stock (assuming, in each case, that the closing of the Proposed Transaction occurs on October 27, 2016 and based in part on the number of shares of Common Stock outstanding as of the record date). Accordingly, we must obtain stockholder approval of the issuance of the shares pursuant to the Proposed Transaction.

Who is the Investor?

The Investor is the largest pure play medical device fund in Israel. The Investor focuses on global investments in mature companies that might serve as a platform to Israeli companies to create leading growing specialty medical device companies. The Investor manages over $250 million invested in medical devices.

Who are the Accelmed Directors?

In connection with the entry into the Purchase Agreement, Mr. Pell and the Investor entered into a voting agreement (the “Voting Agreement”), pursuant to which, among other things, the parties thereto have agreed to vote any shares of Common Stock controlled or owned by them as directed by the terms of the Voting Agreement.  Each of Mr. Pell and the Investor has agreed to vote their shares of Common Stock for the other party’s nominees to the Board and each of Mr. Pell and the Investor are entitled to nominate two directors.  The nominees of the Investor, collectively referred to herein as the “Accelmed Directors,” are expected to be appointed as members of the Board upon the closing of the Proposed Transaction. The initial nominees of Mr. Pell are Mr. Pell and Howard Zauberman, who are each current directors, and the Accelmed Directors are Dr. Uri Geiger and Mr. Nachum Shamir.

Dr. Uri Geiger.  Age 48.  Dr. Geiger is Managing Partner of Accelmed, a private equity investment firm he co-founded in 2009 that is focused on medical device companies.  Prior to that, Dr. Geiger served as the CEO of Exalenz Bioscience Ltd., a medical technology company, from May 2006 until December 2008. Prior to that, Dr. Geiger co-founded and was the CEO of GalayOr Networks, a developer of optical components from 2001 until 2003. Dr. Geiger has also served as the founding partner of Dragon Variation Fund, one of Israel’s first hedge funds, since 2000. Prior to returning to Israel in 1999, he gained a broad understanding and experience in capital markets working on Wall Street. Dr. Geiger was formerly an adjunct professor at Tel Aviv University’s Recanati School of Business where he lectured on private equity and venture capital and authored the books “Startup Companies and Venture Capital” and “From Concept to Wall Street”.   Dr. Geiger previously served on the board of directors of EndoChoice Holdings Inc. from January 2014 until March 2016.  Dr. Geiger earned his doctorate from New York’s Columbia University Center for Law & Economics, with a concentration in global equity markets.  Dr. Geiger also served as a major (Ret.) in the Israeli Air force.

 

Nachum (Homi) Shamir . Age 62.  Mr. Shamir currently serves as the President and Chief Executive Officer of Luminex Corporation, a publically traded biotechnology company based in Austin, Texas, a position he has held since October 2014.  Prior to joining Luminex, Mr. Shamir was the President, Chief Executive Officer and Director of Given Imaging Ltd. (“Given”), a developer, manufacturer and marketer of diagnostic products for the visualization and detection of disorders of the gastrointestinal tract which was acquired by Covidien PLC in early 2014 .  Mr. Shamir held this position from April 2006 to June 2014.  Mr. Shamir currently serves on the board of directors of Luminex Corporation and has been serving in such position since October 2014. Mr. Shamir previously served on the board of directors of Given from April 2006 to June 2014.  Mr.  Shamir holds a Bachelor of Science from the Hebrew University of Jerusalem and a Masters of Public Administration from Harvard University.

What will happen if the Company’s stockholders do not approve the Proposed Transaction?

If the Company’s stockholders do not approve the Proposed Transaction, then the issuance of shares of Common Stock to the Investor pursuant to the Purchase Agreement and the exchange of Mr. Pell’s outstanding promissory notes for shares of Common Stock pursuant to the Note Exchange Agreement will not become effective. Pursuant to the Purchase Agreement, the Company will also be required to pay a termination fee of $500,000 to the Investor if the Company’s stockholders do not approve the Proposed Transaction by December 22, 2016.  If the Company is required to pay this $500,000 termination fee, then the Company will not be required to reimburse the Investor’s fees and expenses that would otherwise be required to be reimbursed if the Purchase Agreement is terminated under certain other circumstances or if the Proposed Transaction is consummated (up to a $400,000 cap).

Who is Entitled to Vote at the Special Meeting?

Our stockholders of record at the close of business on September 23, 2016 will be entitled to notice of and to vote at the Special Meeting or any adjournment or postponement of the Special Meeting. As of the record date, 26,544,299 shares of our Common Stock were issued and outstanding. Each share of our Common Stock is entitled to one vote on each matter to be voted on at the Special Meeting.

How Do I Vote My Shares?

Your vote is important. Whether you hold shares directly as a stockholder of record or beneficially in “street name” (through a broker, bank or other nominee), you may vote your shares without attending the Special Meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or nominee.

If you are a stockholder whose shares are registered in your name, you may vote your shares in person at the meeting by attending the Special Meeting or by completing, signing, dating and mailing the enclosed proxy card in the envelope provided.

If your shares are held in street name, you will receive a separate voting instruction form from your broker or bank. Please follow the voting instructions on the enclosed voting instruction form to vote by Internet, telephone, or by mail.

 

The deadline for voting by telephone or on the Internet is 11:59 p.m., Eastern Daylight Time, on Wednesday, October 26, 2016. Please see the enclosed proxy card or the voting instruction form your bank, broker or other holder of record provided to you for more information on your options for voting.

If you return your signed proxy card or use the Internet or telephone voting before the Special Meeting, the named proxies will vote your shares as you direct.

        

What Does It Mean If I Get More Than One Proxy Card?

It means you hold shares registered in more than one account. Sign and return all proxy cards to ensure that all your shares are voted.

How Many Shares Must Be Present to Hold the Special Meeting?

The presence at the Special Meeting, in person or by proxy, of the holders of one-third of all of the issued and outstanding shares of our Common Stock as of the record date will constitute a quorum for the transaction of business at the Special Meeting. In general, shares of Common Stock represented by a properly signed and returned proxy card marked “FOR,” “AGAINST” or “ABSTAIN” with respect to at least one proposal will be counted as shares present and entitled to vote at the Special Meeting for purposes of determining a quorum. The Special Meeting may be adjourned to any other time and any other place by the stockholders present or represented at the meeting and entitled to vote even when such stockholders do not constitute a quorum. It is not necessary to send a new notice of meeting to the stockholders in conjunction with an adjournment of the meeting for 30 days or less if the time and place of the adjourned meeting are announced at the meeting at which adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At the adjourned meeting, our Company may transact any business which might have been transacted at the original meeting.

What Vote is Required for Each Proposal?

The affirmative vote of a majority of the votes cast by the holders of the Company’s Common Stock at the Special Meeting is required to approve Proposals 1, 2 and 3. All votes will be tabulated by the inspector of election appointed for the Special Meeting. Abstentions and “broker non-votes” with respect to Proposals 1, 2 or 3 will not be counted as votes cast on such Proposal. Accordingly, abstentions and “broker non-votes” will have no effect on the outcome of the voting on Proposals 1, 2 or 3.

A “broker non-vote” is a proxy returned by a broker on behalf of its beneficial owner customer with respect to shares held in a fiduciary capacity (generally referred to as being held in “street name”) that are not voted on a particular matter because voting instructions have not been received by the broker from the customer and the broker does not have discretionary voting power for that particular matter .  Because none of the proposals to be considered at the meeting is considered to be “discretionary” under applicable stock exchange rules, it is not anticipated that there will be any “broker non-votes” at the Special Meeting.

Who Will Count the Votes?

We currently expect that Broadridge Corporate Issuer Solutions will tabulate the votes, and an independent third party inspector of elections will be appointed by the Board of Directors to be our inspector of elections for the Special Meeting.

 

May I revoke my proxy?

Yes. Each stockholder giving a proxy has the power to revoke it at any time before the shares it represents are voted by giving written notice of the revocation to our Secretary, by delivering a later-dated proxy (which automatically revokes the earlier proxy), by submitting a proxy again by telephone, via fax or via the Internet or by voting in person at the Special Meeting. Attendance at the Special Meeting will not, by itself, constitute revocation of a previously granted proxy.  If you hold your shares through a broker, bank or other nominee, you may revoke your proxy by following the instructions your broker, bank or other nominee provides.

 

Who Do I Contact if I Have Questions Regarding the Special Meeting?

If you have any questions or require assistance in voting your shares of Common Stock, please call our proxy solicitor, The Proxy Advisory Group, LLC®, toll free at 844-997-7699 or 844-99PROXY.

How Will Business Be Conducted at the Special Meeting?

The presiding officer at the Special Meeting will determine how business at the meeting will be conducted.

 

OVERVIEW

Approval of the Proposed Transaction

Background of the Proposed Transaction; Reasons for Recommendation

Over a period of the past four years, when the Company had experienced liquidity concerns, Lewis C. Pell, a Class I director, had loaned money to the Company evidenced by the following promissory notes convertible into shares of Common Stock:  the convertible promissory note, dated September 19, 2012, in the principal amount of $20 million; the convertible promissory note, dated September 25, 2013, in the principal amount of $3.5 million; and the convertible promissory note, dated June 16, 2014, in the principal amount of $4.990 million (as amended from time to time, collectively, the “Notes”).

On December 21, 2014, the Company (then-named Vision-Sciences, Inc.) entered into an Agreement and Plan of Merger with Uroplasty, Inc., a Minnesota corporation (“Uroplasty”), providing for the merger of Uroplasty with and into a wholly owned subsidiary of the Company (the “Merger”).  Concurrently therewith, the Notes were amended to extend their maturity dates effective upon the completion of the Merger on March 31, 2015.  As amended, the Notes provided that they would be subordinated to any future loans reasonably approved by Mr. Pell and incurred by the Company to finance certain strategic initiatives.

In August 2014, the Company engaged Capital Advisors Group (“CAG”) to assist the Company in locating a source of debt financing.  During March and April 2015, CAG approached approximately twelve lenders that CAG believed would potentially be interested in providing long-term financing to the Company.  The Company directly approached one potential lender. Eight lenders executed non-disclosure agreements and reviewed financial information regarding the Company.  The Company received formal term sheets from two lenders (“Lender A” and “Lender B”) interested in providing up to $25 million in long-term financing to the Company.  The Company also received a verbal indication of interest from one other lender (“Lender C”), who ultimately declined to submit a formal term sheet.

After engaging in discussions with Lender A and Lender B in April and May 2015, the Company determined to proceed with a $25 million long-term loan with Lender A.  In June and July 2015, the Company and Lender A negotiated the terms of the proposed new loan.  While substantial agreement was reached between representatives of the Company and Lender A on certain material terms of the new loan, Mr. Pell did not agree with certain terms of the new loan and the anticipated use of the proceeds and, accordingly, was not willing to subordinate the Notes to the new loan upon the proposed terms.  Lender A ultimately declined to proceed with the proposed loan.

In August 2015, CAG reinitiated contact with potential long-term lenders (including Lender B and Lender C) to determine whether they were still interested in providing debt financing to the Company. Based on discussions with Mr. Pell, the Company did not believe that Mr. Pell would approve the anticipated terms of such new loans, and, as a result, the Company determined to seek a short-term, asset-based line of credit.  In August 2015, the Company contacted approximately seven lenders that the Company believed would potentially be interested in providing short-term financing to the Company.  Venture Bank, a Minnesota banking corporation (“Venture Bank”) and one other lender submitted written term sheets to provide short-term financing to the Company.

By September 2015, the Company was in urgent need of financing in order to continue to operate its business in the ordinary course and Venture Bank was the only remaining lender willing to provide short-term debt financing without requiring that Mr. Pell subordinate the Notes.  Mr. Pell was also in agreement with the other terms of the proposed loan. On September 18, 2015, the Company entered into a loan agreement with Venture Bank, providing the Company with a committed $7 million secured revolving credit facility with a maturity date of March 18, 2017.  Although Mr. Pell did not agree to subordinate the Notes to the Venture Bank loan, the Venture Bank loan provided that the Company would not pay, replace, amend or modify the Notes or make payments on any future promissory notes to Mr. Pell while the Venture Bank loan remained outstanding.

 

Since obtaining the Venture Bank Loan, the Company’s Board and management have continued to evaluate the Company’s options for securing future financing for its day-to-day operations and strategic initiatives, including at several Board meetings with respect thereto.

On December 23, 2015, Mr. Zauberman, the Chairman of our Board, began discussions with RM Global, advisors to Accelmed, regarding Accelmed’s potential interest in investing in the Company.

On January 4, 2016, Mr. Zauberman met with and introduced Uri Geiger, the managing director of Accelmed, to the then-chief executive officer of the Company, during the JP Morgan Chase Healthcare conference in San Francisco. At this meeting, it was agreed that further discussions would be held.

Following these discussions, on June 13, 2016, the Company and Accelmed entered into a confidentiality agreement. The Company’s then-current market price was $0.88.

Representatives of the Company and Accelmed held a preliminary meeting on June 13, 2016 to discuss the potential terms of a transaction between the Company and Accelmed.

On June 17, 2016, the Company engaged Proskauer Rose LLP (“Proskauer”) as outside counsel to the Company in connection with its consideration of a potential transaction with Accelmed.

On June 20, 2016, the Company received a term sheet setting forth the principal terms of a proposed equity investment by Accelmed in the Company.  The term sheet proposed that Accelmed would purchase an aggregate of $25 million of shares of Common Stock at a purchase price of $1.25 per share (the “Proposed Financing”).  As a condition to Accelmed’s investment, the term sheet provided that Mr. Pell would be required to exchange no less than $20 million of the Notes for shares of Common Stock at a price per share of not less than $1.25 (the “Proposed Debt Exchange”).  The term sheet contained certain other terms and conditions proposed by Accelmed, including, among other things, entry into a voting agreement between Accelmed and Mr. Pell to implement certain director nomination rights, amendments to certain provisions of the Company’s Certificate of Incorporation and Bylaws, Board approval under Section 203 of the DGCL, entry into a registration rights agreement and granting Accelmed certain protective provisions and approval rights over M&A transactions, changes in the size of the Board, issuance of certain new indebtedness and amendments to the Certificate of Incorporation or Bylaws.  In the term sheet, Accelmed also requested a 90-day exclusivity period.

On June 22, 2016, the Board held a meeting to consider the proposed term sheet, with representatives of Proskauer in attendance.  As part of the discussion, the Board considered the financial and other aspects of the Proposed Financing, including the Proposed Debt Exchange.  The Board discussed the difficulties with the Company’s previous attempts to secure financing on terms and conditions that were advantageous to the Company and acceptable to Mr. Pell, as the Company’s principal creditor.  The Proskauer representatives then provided the Board with an overview of the material terms proposed by Accelmed in the draft term sheet and advised the Board on their fiduciary duties in connection with the Proposed Transaction.  With the Proskauer representatives, the Board also considered the potential conflict of interest that Mr. Pell may have in evaluating Accelmed’s proposal due to the requirement in the term sheet that he exchange at least a portion of the Notes in connection with the Proposed Financing.  After discussion, the Board determined to establish a special committee (the “Special Committee”) of independent directors, consisting of James A. D’Orta, Cheryl Pegus and Kenneth A. Samet, to negotiate and approve (or not approve) the Proposed Debt Exchange.   The Special Committee was also delegated authority to engage its own legal and financial advisors to assist it with evaluating the Proposed Debt Exchange.

 

On June 24, 2016, the Special Committee held a meeting to interview a representative of Richards, Layton & Finger, P.A. (“Richards Layton”), to act as its independent legal counsel in connection with the Proposed Transaction and, following such interview, determined to engage Richards Layton.

On July 1, 2016, the Special Committee held a meeting with representatives of Richards Layton to consider the process of evaluating the Proposed Debt Exchange and to interview financial advisor candidates.  The Special Committee discussed the authority that they had been delegated by the Board.  At the meeting, the Special Committee determined to seek a broader delegation of authority from the Board to review, evaluate, negotiate and approve (or not approve) all aspects of the Proposed Transaction (including the price per share of the Proposed Financing and the terms and conditions of the Proposed Debt Exchange).  The Special Committee also determined that the Company’s ability to proceed with the Proposed Transaction should be conditioned on the receipt of a favorable recommendation of the Proposed Transaction by the Special Committee.

Also at the meeting, the Special Committee interviewed two potential financial advisor candidates.  After consideration of the potential candidates, the Special Committee determined to retain Duff & Phelps, LLC (“Duff & Phelps”) as its independent financial advisor.  In selecting Duff & Phelps, the Special Committee considered, among other things, its reputation as a nationally recognized financial advisor, its experience generally in M&A transactions and specifically in the context of advising special committees of boards of directors of public companies, its experience advising companies in the Company’s industry and the Special Committee’s determination, based on its interview of the Duff & Phelps representatives and in consultation with representatives of Richards Layton, that Duff & Phelps was free of any actual or potential conflicts of interest in connection with the Proposed Transaction.

On July 6, 2016, the Special Committee held a meeting to discuss the Proposed Transaction.  Representatives of Richards Layton and, for portions of the meeting, members of the Company’s management and Proskauer were in attendance.  During the meeting, representatives of Richards Layton advised the members of the Special Committee on their fiduciary duties under Delaware law in connection with their consideration of the Proposed Transaction.  The Special Committee also elected Mr. D’Orta to serve as the chairman of the Special Committee and discussed the proposed engagement letter for Duff & Phelps to serve as the financial advisor to the Special Committee.  In addition, members of the Company’s management team delivered a presentation regarding the Company’s past efforts to secure financing. Later that day, the Company and the Special Committee entered into an engagement letter with Duff & Phelps.  The engagement letter provided that Duff & Phelps would provide financial advisory services to the Special Committee and that Duff & Phelps would, if requested by the Special Committee, opine as to the fairness, from a financial point of view, to the unaffiliated public stockholders of the Company, of (1) the exchange price of the Proposed Debt Exchange and (2) the per share price of the Proposed Financing.

On July 11, 2016, the Board held a meeting to consider, among other things, the Proposed Transaction. During the meeting, the Board also considered and adopted resolutions that expanded the delegation of authority as requested by the Special Committee.

 

On July 14, 2016, the Special Committee held a meeting to discuss the Proposed Transaction, with representatives of Richards Layton and Duff & Phelps in attendance.  During the meeting, Duff & Phelps representatives discussed their preliminary financial analysis regarding the Company, the Proposed Financing and the Proposed Debt Exchange, noting, among other things, that the $1.25 per share proposed price of the Proposed Financing was at a premium to the Company’s then-current market price (of $1.09 as of the close of business on July 14, 2016) and that, based on Duff & Phelps’ preliminary analysis, the fair market value of the Notes was less than the face value of the Notes.  The Special Committee members and their advisors also discussed proposed comments to the initial term sheet submitted by Accelmed.  Among other things, the Special Committee members determined to revise the term sheet to increase the price per share of the Proposed Financing from $1.25 to $1.75, add the ability for the Company to issue up to $5 million in shares of Common Stock to an additional investor selected by the Company on the same terms as Accelmed, limit the proposed protective provisions and reduce the proposed exclusivity period from 90 days to 45 days.  The Special Committee also determined to revise the term sheet to clarify that the Proposed Transaction was subject to prior approval by the Special Committee.  The Special Committee considered whether to seek to require that the Proposed Transaction be subject to approval of a majority of the Company’s disinterested stockholders. Later that day, the Company’s management delivered to Accelmed a revised term sheet reflecting the comments discussed by the Special Committee at the meeting.

On July 15, 2016, Accelmed delivered a revised term sheet to the Company.  Accelmed accepted many of the Special Committee’s proposed changes to the term sheet, but requested a meeting between Accelmed’s business principals and the Special Committee to discuss the pricing of the Proposed Financing.  Accelmed also requested a right of first refusal to purchase the additional $5 million in shares of Common Stock that the Company proposed to issue to the additional investor.

On July 18, 2016, representatives of Proskauer and Richards Layton had a phone conversation with representatives of Pepper Hamilton LLP, outside counsel to Accelmed (“Pepper Hamilton”), to discuss the revised term sheet.  During the call, Pepper Hamilton advised that Accelmed would not agree to conditioning approval of the Proposed Financing on the approval of a majority of the Company’s disinterested stockholders.

On July 20, 2016, the Special Committee met with representatives of Richards Layton and Duff & Phelps to discuss the Proposed Transaction and the revised term sheet.  Members of the Company’s management were also present for portions of the meeting at the request of the Special Committee.  The Duff & Phelps representatives delivered a presentation to the Special Committee regarding their financial analysis and views with respect to the value of the Company, the Proposed Financing and the Proposed Debt Exchange.  The Duff & Phelps representatives also discussed the methodology used to estimate the fair market value of the Notes.  The Richards Layton representatives and the members of the Company’s management team reported to the Special Committee regarding the negotiations that had occurred between the Company and Accelmed about the term sheet.  After discussion, the Special Committee authorized and directed Mr. D’Orta, in his capacity as chairman of the Special Committee, to negotiate directly with Accelmed regarding the pricing of the Proposed Financing and with Mr. Pell regarding the Proposed Debt Exchange. The Special Committee also requested that Duff & Phelps prepare supplemental materials regarding the Proposed Debt Exchange, which supplemental materials were provided to the Special Committee on July 22, 2016.  These supplemental materials included an analysis of publicly traded debt securities to determine an appropriate yield to use to value the Notes, as well as a valuation of the Notes and a sensitivity table for purposes of assisting with the Special Committee’s evaluation of the Proposed Debt Exchange.

On July 21, 2016, Richards Layton sent a mark-up of the revised term sheet to Accelmed reflecting changes discussed by the Special Committee and its advisors, including, among other things, the deletion of Accelmed’s right of first refusal on the additional investor’s right to purchase up to $5 million in shares of Common Stock.  Later that day, representatives of Proskauer and Richards Layton had a phone conversation with representatives of Pepper Hamilton to discuss the revised term sheet and Mr. D’Orta and Darin Hammers, the Company’s President and Chief Executive Officer, had a phone conversation with Dr. Uri Geiger, the Managing Director of Accelmed, to negotiate the pricing of the Proposed Financing.  As a result of these discussions, Accelmed agreed to increase the price per share of its $25 million equity investment from $1.25 to $1.50.

 

Also on July 21, 2016, Mr. D’Orta had a conversation with Mr. Pell regarding the Proposed Debt Exchange.  During the discussions, Mr. D’Orta proposed that Mr. Pell exchange the Notes at an exchange price of $2.50 per share to adjust for the differential between the face value of the Notes and the estimated fair market value of the Notes.  The $2.50 per share exchange price implied that the Notes were worth 40% less than the face value of the Notes.  Such proposal was later confirmed in an email communication sent by Richards Layton on July 22, 2016.

On July 25, 2016, Mr. Pell notified Mr. D’Orta that he did not agree with the Special Committee’s proposal and countered with a proposal to exchange $25 million face value of the Notes at an exchange price that would reflect a 5% discount to the face value of the Notes and subsequent exchange of the Notes for shares of Common Stock at $1.50 per share.

On July 28, 2016, the Special Committee held a meeting to discuss the Proposed Transaction, with representatives of Richards Layton and Duff & Phelps present at the meeting.  Members of the Company’s management were also present for portions of the meeting at the request of the Special Committee.  Members of the Company’s management discussed the presentation that had been given to the members of the Special Committee during the earlier ad hoc meeting on July 28, 2016 regarding management’s recommendations with respect to the Proposed Debt Exchange.  Mr. Hammers advised the Special Committee that, based on the Company’s current and projected financial situation, it appeared unlikely that the Company would be able to repay the Notes in full before they became due.  He also discussed the impediment that the Notes had posed in the Company’s past attempts to obtain debt financing.  Based on the foregoing and taking into account Mr. Pell’s proposal to exchange the Notes at a 5% discount, the Special Committee discussed management’s recommendation to exchange approximately $25 million of the Notes at an exchange ratio that would reflect a 10% discount to the face value of the Notes, which would be equivalent to the exchange of $25 million face value of the Notes for shares of Common Stock at a price of $1.67 per share.  The Company’s management team also advised the Special Committee that it viewed the Proposed Transaction, as a whole, as being in the best interests of the Company and its stockholders due to, among other things, the above-market proposed purchase price of the Proposed Financing and the substantial reduction in the Company’s indebtedness.  The Special Committee and its advisors discussed the state of negotiations with Mr. Pell and the Special Committee’s desire not to jeopardize the Proposed Financing, including the view of the Special Committee and Duff & Phelps that the Proposed Transaction, as a whole, was very attractive to the Company.  After discussion with Duff & Phelps with respect to its financial analyses of the Proposed Debt Exchange, on the one hand, versus the Proposed Transaction as a whole, on the other hand, and given Accelmed’s requirement that the Proposed Financing be conditioned on the Proposed Debt Exchange, the Special Committee and Duff & Phelps agreed that Duff & Phelps would analyze the Proposed Transaction, as a whole, instead of analyzing each of the Proposed Debt Exchange and the Proposed Financing separately.  The Special Committee authorized Mr. D’Orta to engage with Mr. Pell to seek to obtain Mr. Pell’s acceptance of a higher implied discount to the face value of the Notes based on an exchange at $1.67 per share.

On July 29, 2016, Mr. D’Orta and representatives of Richards Layton had a conversation with Mr. Geiger regarding the Proposed Financing.  During that meeting, Mr. Geiger confirmed that Mr. Pell’s agreement to exchange at least $20 million of the Notes into shares of Common Stock at a price per share not less than the price per share of the Proposed Financing was a firm requirement to Accelmed’s willingness to enter into the Proposed Financing. Later that day, Mr. D’Orta also had a conversation with Mr. Pell and proposed that Mr. Pell agree to exchange $25 million of the Notes at an exchange price that would reflect a 15% discount to the face value of the Notes.  Mr. Pell did not agree with the Special Committee’s proposal, but indicated that he would consider submitting a revised proposal with respect to the Proposed Debt Exchange.  Representatives of the Company subsequently unsuccessfully sought to obtain Mr. Pell’s agreement to an exchange reflecting a 15% discount to the face value of the Notes.

 

On August 1, 2016, Mr. Pell delivered a written response to the Special Committee’s proposal, in which he indicated that he would not be willing to exchange the Notes at an exchange price of greater than $1.67 per share, or the equivalent of a 10% discount to the face value of the Notes and an exchange at $1.50 per share. Later that day, the Special Committee held a meeting with representatives of Richards Layton, Duff & Phelps and, for portions of the meeting, the Company’s management to discuss Mr. Pell’s proposal with respect to the Proposed Debt Exchange and potential alternatives thereto.  The Company’s management advised the Special Committee that they believed Mr. Pell’s offer to exchange the Notes at a $1.67 exchange price was his best and final offer and that they did not believe Accelmed would be willing to proceed with the Proposed Financing if Mr. Pell did not agree to exchange the Notes.  The Duff & Phelps representatives advised the Special Committee that, based on their preliminary analysis, Duff & Phelps would be able to deliver a favorable opinion with respect to the fairness, from a financial point of view, of the Proposed Transaction as a whole.  After discussion, the Special Committee authorized and directed its advisors to revise the term sheet to include the exchange of $25 million in face value of the Notes at an exchange price of $1.67 per share.

Following the meeting of the Special Committee, the Company and Duff & Phelps executed an amendment to Duff & Phelps’ engagement letter to provide that Duff & Phelps would analyze and provide a fairness opinion with respect to the fairness, from a financial point of view, to the unaffiliated public stockholders of the Company of the financial terms of the Proposed Transaction as a whole.

After market close on August 2, 2016, the Company released its financial results for the second quarter ended June 30, 2016.

On August 3, 2016, Richards Layton sent to Pepper Hamilton a revised version of the term sheet.

During this time period, Mr. Pell expressed a desire to exchange the full amount of his debt (approximately $29.4 million in principal and interest at the time) instead of $25 million.

On August 4, 2016, the Special Committee held a meeting with the representatives of Richards Layton and Duff & Phelps to consider the revised term sheet for the Proposed Transaction, which contemplated a $25 million equity investment by Accelmed at a purchase price of $1.50 per share and the exchange by Mr. Pell of $25 million in face value of the Notes at an exchange price of $1.67 per share.  The Duff & Phelps representatives made a presentation to the Special Committee regarding the fairness, from a financial point of view, of the terms of the Proposed Transaction and confirmed that, if requested by the Special Committee, Duff & Phelps could render a favorable fairness opinion based on the terms of the Proposed Transaction.  Mr. Hammers, who attended portions of the meeting at the request of the Special Committee, discussed the financial and strategic importance of the Proposed Transaction to the Company and confirmed his recommendation that the Special Committee approve the terms of the Proposed Transaction as set forth in the revised term sheet.  After further discussion, the Special Committee unanimously adopted resolutions approving the revised term sheet for the Proposed Transaction and recommending that the full Board approve the revised term sheet and direct it to be submitted to Accelmed.

Following the meeting of the Special Committee, Mr. Pell reaffirmed his desire to exchange the full amount of his debt, including all accrued interest, instead of $25 million in face value.  Accelmed also expressed an interest in having the Company have no outstanding debt following the Proposed Transaction.  Discussions took place among Messrs. D’Orta, Hammers, Pell and Geiger on August 5 and 6, 2016, during which it was negotiated that Accelmed would increase the purchase price of the Proposed Financing from $1.50 per share to $1.55 per share in exchange for the Company and Mr. Pell agreeing to the exchange of all of the principal amount and accrued interest on the Notes, totaling approximately $29.4 million at the time, into shares of Common Stock at an exchange price of $1.67 per share.  During this time period, Mr. D’Orta communicated with the other members of the Special Committee and Richards Layton with respect to the negotiations.

 

On August 8, 2016, Richards Layton sent to Pepper Hamilton a revised version of the term sheet reflecting the changes discussed by the parties.

On August 9, 2016, the Special Committee held a meeting to consider the revised proposal for the Proposed Transaction, which contemplated that Accelmed would make a $25 million equity investment at a purchase price of $1.55 per share and Mr. Pell would exchange all of the principal amount of and accrued interest under the Notes into shares of Common Stock at an exchange price of $1.67 per share.  Also present at the meeting at the request of the Special Committee were representatives of Richards Layton and Duff & Phelps as well as members of the Company’s management (for a portion of the meeting).  The Duff & Phelps representatives made a presentation to the Special Committee regarding the fairness, from a financial point of view, of the revised terms of the Proposed Transaction and confirmed that, if requested by the Special Committee, Duff & Phelps could render a favorable fairness opinion based on the terms of the Proposed Transaction.  Mr. Hammers advised the Special Committee that management considered the revised terms of the Proposed Transaction to be in the best interests of the Company and recommended that the Special Committee approve the Proposed Transaction.  After further discussion, the Special Committee unanimously adopted resolutions approving the revised terms of the Proposed Transaction and recommending that the full Board approve the revised term sheet and direct it to be submitted to Accelmed.

Immediately following the adjournment of the meeting of the Special Committee, the Board, with representatives of Proskauer in attendance, met to consider the revised terms of the Proposed Transaction and the Special Committee’s recommendation to the Board with respect thereto.  The Proskauer representatives reviewed the material terms of the Proposed Transaction with the Board and advised the Board members on certain questions related thereto.  After consideration of the recommendation of the Special Committee and the revised terms of the Proposed Transaction, the Board unanimously adopted resolutions approving the revised term sheet and directing the Company’s management to submit the revised term sheet to Accelmed.  Later that day, the revised term sheet was delivered to Accelmed and the term sheet was executed by the parties as of August 8, 2016.

Commencing on August 10, 2016, representatives of Proskauer, Richards Layton and Pepper Hamilton negotiated the terms of the Purchase Agreement as well as the Note Exchange Agreement, the Registration Rights Agreement and the Voting Agreement. The Note Exchange Agreement contemplated the exchange of the Notes as well as the cancellation of all of Mr. Pell’s outstanding warrants for no consideration.

On August 10, 2016, Pepper Hamilton delivered an initial draft of the Purchase Agreement to Proskauer and Richards Layton.  Among other things, the initial draft of the Purchase Agreement did not permit the Company to solicit or discuss alternative proposals with third parties and did not permit the Board or the Special Committee to change its recommendation with respect to the Proposed Transaction post-signing.

On August 15, 2016, Proskauer sent comments on the initial draft of the Purchase Agreement to Pepper Hamilton.  Among other things, the comments narrowed the scope of the proposed representations and warranties and interim operating covenants, limited the proposed closing conditions, termination rights of Accelmed and indemnification rights, and included comments provided by Richards Layton to the no solicitation provision.  Such comments would permit the Company to negotiate with respect to unsolicited offers and, under certain circumstances, permit the Board or Special Committee to change its recommendation with respect to the Proposed Transaction and to terminate the Purchase Agreement to enter into an agreement with respect to a superior proposal.

 

On August 19, 2016, Pepper Hamilton sent a revised draft of the Purchase Agreement to Proskauer and Richards Layton in which Accelmed, among other things, rejected the Company’s proposals with respect to the closing conditions, termination rights, indemnity provision and no solicitation provision.

On August 23, 2016, representatives of Proskauer, Richards Layton and Pepper Hamilton met telephonically to discuss the terms of the Purchase Agreement.  Among the issues discussed by the parties were the closing conditions, the no solicitation provision, the size of and circumstances under which termination fees would be payable by the Company and the proposed indemnity provisions.  Following the call, Proskauer sent comments on the revised draft of the Purchase Agreement to Pepper Hamilton, which reinstated the Company’s originally proposed no solicitation provision, but provided Accelmed with three business days to match any superior proposal before the Board or Special Committee could change its recommendation or terminate the Purchase Agreement for a superior proposal.

On August 24 and 25, 2016, Pepper Hamilton provided a revised draft of the Purchase Agreement to Proskauer and Richards Layton.  Pepper Hamilton’s revised draft proposed a more constrained no solicitation provision that limited the circumstances in which the Company could discuss unsolicited proposals and change its recommendation as well as removing the Company’s ability to terminate the Purchase Agreement to enter into a superior proposal. The revised draft also proposed a termination fee in the amount of $2.5 million if the Purchase Agreement was terminated due to a change of recommendation by the Board or the Special Committee.

On August 26, 2016, representatives of Proskauer and Pepper Hamilton had a telephonic conversation regarding the terms of the Purchase Agreement, including the closing conditions and termination rights of the parties based on the accuracy of the representations and warranties set forth in the Purchase Agreement.  Later that day, Pepper Hamilton sent a revised draft of the Purchase Agreement to Proskauer and Richards Layton, proposing changes based on that discussion.

On August 29, 2016, representatives of Proskauer, Richards Layton and Pepper Hamilton met telephonically to discuss the terms of the Purchase Agreement, including the Company’s representations and warranties, the no solicitation provision, the size of the termination fee, certain conditions to closing and the indemnity provision.  After the call, representatives of Proskauer sent written comments on the Purchase Agreement to Pepper Hamilton proposing changes based on the issues discussed during the call.

On August 30, 2016, Messrs. Hammers and Geiger and representatives of Proskauer, Richards Layton and Pepper Hamilton met telephonically to negotiate certain remaining open issues in the Purchase Agreement.    Later that day, representatives of Pepper Hamilton sent a revised draft of the Purchase Agreement to Proskauer and Richards Layton.

On August 30, 2016, Messrs. Pell, Geiger and Hammers met with representatives of the proposed additional investor to gauge interest in its participation in the Proposed Financing.  The proposed additional investor indicated that it would not be willing to invest $5 million subject to the restrictions proposed by Accelmed in the term sheet.

On August 31, 2016, representatives of Pepper Hamilton sent a revised draft of the Purchase Agreement to Proskauer and Richards Layton, reflecting the deletion of the provisions related to the possibility of the additional investor participating in the Proposed Transaction.  Messrs. Hammers and Geiger met telephonically later that day to discuss the amount of the fees and expenses that would be payable by the Company upon termination of the Purchase Agreement and the circumstances under which they would be required to be paid.  Following this discussion, Pepper Hamilton sent a further revised draft of the Purchase Agreement to Proskauer and Richards Layton proposing changes based on the parties’ discussion.

 

On September 1, 2016, Proskauer sent comments on the revised draft of the Purchase Agreement to Pepper Hamilton.  Among other things, the Proskauer draft of the Purchase Agreement revised the no solicitation provision to permit the Company to terminate the Purchase Agreement to enter into a superior proposal and provided that the Company could engage in discussions with third parties and change its recommendation with respect to the Proposed Transaction in a wider variety of circumstances.  Throughout the day, Proskauer and Pepper Hamilton exchanged revised drafts of the Purchase Agreement.  Notwithstanding a change of recommendation by the Board, the Company agreed that it would be required to hold a meeting of the stockholders to consider the Proposed Transaction in exchange for, among other things, a reduction of the termination fee payable by the Company from $2.5 million to $1 million if the Purchase Agreement was terminated by Accelmed following a change of recommendation by the Board or the Special Committee.

Throughout the day on September 1, 2016 and during the morning of September 2, 2016, representatives of Proskauer, Richards Layton and Pepper Hamilton met telephonically to finalize the terms of the Purchase Agreement, the Voting Agreement and the Registration Rights Agreement.

On September 7, 2016, the Special Committee met with representatives of Richards Layton and Duff & Phelps to consider the definitive transaction documents for the Proposed Transaction.  The Richards Layton representatives reviewed the material terms of the definitive transaction documents with the Special Committee and advised the members of the Special Committee with respect to their fiduciary duties in considering and evaluating the Proposed Transaction.  The Duff & Phelps representatives made a presentation to the Special Committee regarding their financial analyses with respect to the Proposed Transaction and delivered a written fairness opinion to the Special Committee that the Proposed Transaction, as a whole, was fair, from a financial point of view, to the Company’s unaffiliated public stockholders.  Messrs. Hammers and Reynolds also attended a portion of the meeting and confirmed management’s recommendation that the Special Committee approve the Proposed Transaction, noting the financial and strategic importance of the Proposed Transaction to the Company.  The Special Committee then adopted resolutions approving the Purchase Agreement and the other documents and transactions contemplated by the Proposed Transaction and recommending them to the full Board.

Immediately following the adjournment of the meeting of the Special Committee, the Board met, with representatives of Proskauer in attendance, to consider the definitive transaction documents the Proposed Transaction and the Special Committee’s recommendation to the Board with respect thereto.  Representatives of Proskauer delivered a presentation to the Board summarizing the material terms of the definitive transaction documents, the negotiation history and a comparison of the terms set forth in the term sheet and those ultimately negotiated in the definitive transaction documents.  After consideration of the recommendation of the Special Committee and the terms of the definitive transaction documents for the Proposed Transaction, the Board unanimously adopted resolutions approving the Purchase Agreement and the other documents and transactions contemplated by the Proposed Transaction.

Opinion of Duff & Phelps, LLC

As discussed above, pursuant to an engagement letter dated July 6, 2016, as amended by an addendum thereto dated August 1, 2016, the Special Committee retained Duff & Phelps, LLC, or Duff & Phelps, to serve as its independent financial advisor and to render an opinion in connection with the Proposed Transaction.  The Special Committee retained Duff & Phelps based on Duff & Phelps’ qualifications, reputation and experience in providing fairness opinions, and its experience in valuing companies, generally, and in the medical device industry, in particular.  Duff & Phelps is a premier global valuation and corporate finance advisor that is regularly engaged to provide financial advisory services, including fairness opinions and valuation advice, in connection with mergers and acquisitions, leveraged buyouts, going-private transactions and recapitalization transactions.

 

In the engagement letter dated July 6, 2016, Duff & Phelps agreed, if requested, to opine as to the fairness, from a financial point of view, to the unaffiliated public stockholders of the Company of the per-share price of the proposed $25 million investment by Accelmed in newly issued shares of Common Stock.  Duff & Phelps also agreed, if requested, to opine as to the fairness, from a financial point of view, to the unaffiliated public stockholders of the Company of the proposed exchange of no less than $20 million of Notes into shares of the Common Stock at a price per share of not less than the share purchase price implied by the proposed investment by Accelmed (without giving effect to any impact of the proposed transaction on any particular stockholder other than in its capacity as a stockholder).  In the addendum dated August 1, 2016, the Special Committee requested that Duff & Phelps analyze the fairness, from a financial point of view, to the unaffiliated public stockholders of the Company, of the financial terms of the Proposed Transaction, as a whole (without considering the fairness of either the investment by Accelmed or the note exchange by Mr. Pell, independently, and without giving effect to any impact of the proposed transaction on any particular stockholder other than in its capacity as a stockholder).

On September 7, 2016, Duff & Phelps delivered a written presentation and its oral opinion, and confirmed in writing, to the Special Committee that, as of that date, and based upon and subject to the assumptions, limitations and qualifications contained in its opinion, (1) the $25 million investment in newly issued shares of Common Stock by Accelmed at a price of $1.55 per share and (2) the exchange by Mr. Pell of $29.5 million in face value of Notes payable by the Company (including $1.0 million of accrued interest) into shares of Common Stock at a price per share of $1.67 per share and the cancellation of all outstanding warrants to purchase Common Stock held by Mr. Pell  (referred to by Duff & Phelps collectively as the “note exchange”), taken as a whole, are fair, from a financial point of view, to the unaffiliated stockholders of the Company.  The Accelmed investment and the note exchange were analyzed on a combined basis for purposes of Duff & Phelps’ analysis and are collectively referred to in their analysis as the “Proposed Transaction.” Duff & Phelps has consented to the reproduction of its opinion in this Proxy Statement.

The full text of Duff & Phelps’ written opinion, dated September 7, 2016, which sets forth, among other things, certain assumptions made, certain matters considered and the limitations on the review undertaken in connection with the Proposed Transaction, is attached as Exhibit A to this proxy statement and is incorporated herein by reference.  We urge you to read Duff & Phelps’ opinion carefully and in its entirety.

Duff & Phelps’ opinion was provided for the information and assistance of the Special Committee in connection with its consideration of the Proposed Transaction and (i) does not address the merits of the underlying business decision to enter into the Proposed Transaction versus any alternative strategy or transaction, (ii) does not address any transaction related to the Proposed Transaction, (iii) is not a recommendation as to how the Special Committee, the Board of Directors or any stockholder should vote or act with respect to any matters relating to the Proposed Transaction, or whether to proceed with the Proposed Transaction or any related transaction; and (iv) does not indicate that the pricing of the Common Stock or the other terms of the Proposed Transaction are the best possibly attainable under any circumstances.  The decision as to whether to proceed with the Proposed Transaction or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which Duff & Phelps’ opinion was based.

 

Duff & Phelps’ opinion was only one of the factors taken into consideration by the Special Committee in making its determination with respect to the Proposed Transaction.  Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.  Duff & Phelps has not undertaken, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to its attention after the date of its opinion.

The information set forth below summarizes the material financial and comparative analyses performed by Duff & Phelps, but does not purport to be a complete description of the financial analyses performed by Duff & Phelps or the data considered by it in connection with its opinion. The preparation of a financial opinion involves various subjective determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to particular circumstances.  In arriving at its opinion, Duff & Phelps considered a number of analytical methodologies.  Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the strengths, weaknesses and applicability of any particular technique.  While the conclusions reached in connection with each analysis were considered carefully by Duff & Phelps in arriving at its opinion, Duff & Phelps did not consider it practicable to, nor did it attempt to, assign relative weights to the individual analyses and specific factors considered in reaching its opinion.  The conclusion reached by Duff & Phelps was based on all analyses and factors, taken as a whole, and also on application of Duff & Phelps’ own experience and judgment. This conclusion may involve significant elements of subjective judgment and qualitative analysis. No one method of analysis should be regarded as critical to the overall conclusion.   Accordingly, Duff & Phelps believes that its analyses must be considered as a whole, and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading or incomplete view of the evaluation process underlying its opinion.

In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances.  Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and in transactions similar to the Proposed Transaction, in particular.  Duff & Phelps’ procedures, investigations and financial analyses with respect to the preparation of its opinion included, but were not limited to, the following:

1.	Duff & Phelps reviewed the following documents:

 

a.

The Company’s annual reports and audited financial statements on Form 10-K filed with the Securities and Exchange Commission (“SEC”) for the year ended March 31, 2015 and for the period April 1, 2015 through December 31, 2015, and the Company’s quarterly report and unaudited interim financial statements on Form 10-Q filed with the SEC for six months ended June 30, 2016;

 

b.

Vision-Sciences, Inc.’s annual reports and audited financial statements on Form 10-K filed with the SEC for the years ended March 31, 2012 through 2014;

 

c.

Uroplasty, Inc.’s annual reports and audited financial statements on Form 10-K filed with the SEC for the years ended March 31, 2012 through 2014;

 

d.

Unaudited financial information for the Company for year ended December 31, 2015 and the seven months ended July 31, 2015 and July 31, 2016, respectively;

 

e.

Detailed financial projections prepared by management of the Company for the years ending December 31, 2016 through 2020 (the “Management Projections”);

 

f.

Other internal documents relating to the history, current operations and probable future outlook of the Company provided to Duff & Phelps by management of the Company;

 

g.

Agreement and Plan of Merger dated December 21, 2014 by and among Vision-Sciences, Inc., Visor Merger Sub LLC and Uroplasty, Inc.;

 

h.

Documents related to the Company’s indebtedness, including the Notes between the Company and Lewis C. Pell, as well as a Common Stock purchase warrant by the Company in favor of Mr. Pell dated November 9, 2009 to purchase up to 272,727 shares of the Common Stock, a Common Stock purchase warrant by the Company in favor of Mr. Pell dated November  9, 2009 to purchase up to 378,788 shares of the Common Stock, and a Common Stock purchase warrant by the Company in favor of Mr. Pell dated September 30, 2011 to purchase up to 1,229,105 shares of Common Stock;

 

i.

Documents related to the Proposed Transaction, including the term sheet dated August 8, 2016 between the Company and Accelmed (the “Term Sheet”) and the unsigned execution version of the Purchase Agreement and the Exchange Agreement; and

 

j.

Various presentations and reports prepared by Company management, including debt financing updates presented to the Board of Directors.

 

2.	Discussed the information referred to above and the background and other elements of the Proposed Transaction with the management of the Company and with the Special Committee;

 

3.	Reviewed the historical trading prices and trading volume of the Company’s Common Stock and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

 

4.

Performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques, including a discounted cash flow analysis, an analysis of selected public companies and selected transactions that Duff & Phelps deemed relevant, and an analysis of selected publicly traded CCC-rated debt that Duff & Phelps deemed relevant; and

 

5.	Conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

 

No limits were placed on Duff & Phelps by the Company in terms of the information to which it had access or on the matters it could consider in rendering its opinion.

 

In performing its analyses and rendering its opinion with respect to the Proposed Transaction, Duff & Phelps, with the Company’s consent:

 

1.	Relied upon the accuracy, completeness and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including Company management, and did not independently verify such information;

 

2.

Relied upon the fact that the Special Committee, the Board of Directors and the Company have been advised by counsel as to all legal matters with respect to the Proposed Transaction, including that all procedures required by law to be taken in connection with the Proposed Transaction had been duly, validly and timely taken;

 

3.

Assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps, including the Management Projections, were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same and Duff & Phelps expresses no opinion with respect to the same or the underlying assumptions;

 

4.	Assumed that information supplied and representations regarding the Company and the Proposed Transaction made by management of the Company were substantially accurate;

 

5.	Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conformed in all material respects to the drafts reviewed;

 

6.

Assumed that there has been no material change in the assets, liabilities, financial condition, results of operations, business or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there is no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading;

 

7.	Assumed that all of the conditions required to implement the Proposed Transaction will be satisfied and that the Proposed Transaction will be completed in accordance with the Definitive Agreement without any amendments thereto or any waivers of any terms or conditions thereof; and

 

8.	Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Proposed Transaction will be obtained without any adverse effect on the Company or the contemplated benefits expected to be derived from the Proposed Transaction.

 

In Duff & Phelps’ analysis and in connection with the preparation of its opinion, Duff & Phelps also made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Proposed Transaction.  To the extent that any of the foregoing assumptions or any of the facts on which Duff & Phelps’ opinion is based prove to be untrue in any material respect, its opinion cannot and should not be relied upon.

 

Duff & Phelps prepared its opinion as of September 7, 2016.  Duff & Phelps’ opinion was necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of that date, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date of its opinion.

 

In rendering its opinion, Duff & Phelps is not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the consideration to be received by the unaffiliated public stockholders of the Company in the Proposed Transaction, or with respect to the fairness of any such compensation. The issuance of Duff & Phelps’ opinion was approved by an authorized fairness opinion committee of Duff & Phelps.

 

Although these paragraphs include some information in tabular format, those tables are not intended to stand alone and must be read together with the full text of each summary and the limitations and qualifications in Duff & Phelps’ opinion.

 

 

Valuation of Notes

 

Duff & Phelps estimated the value of the Notes using a binomial lattice model. In general, Duff & Phelps analysis included the following steps:

 

Construct a binomial lattice to model the future changes in the common equity value of the Company (the “Equity Lattice”). The Equity Lattice was developed using the Cox-Ross-Rubenstein methodology. Based on this methodology, the potential paths of the future Common Stock value can be modeled as.

Where:

 

S is the Common Stock value as of the valuation date.

 

The magnitude of up (u) and down (d) movements is determined by the equity’s volatility and the length of time increments .

 

These two parameters, along with the risk-free rate, determine the risk-neutral branching probabilities; that is, the probability of the Common Stock value moving up (pu) or down (pd) in the next time period.

 

Construct a convertible bond lattice for the Notes . The convertible bond lattice incorporates the following characteristics:

 

·

The scheduled accrued interest and principal payments.

 

·

The conversion option of the holder.

 

·

The call option of the issuer.

 

Calculate the Notes final payout . The convertible tree payouts at the final nodes of the lattice as the maximum of the conversion values or the principal payments plus accrued but unpaid interest.

 

Rollback value from the maturity date to the valuation date . At each node in the lattice, the value is determined based on a maximization of value from the holder’s perspective (conversion and continuation) and a minimization of value from the Company’s perspective (call option and continuation).

 

The continuation value at each node is a sum of two components:

 

·

The “stock component,” which is discounted at the risk-free rate.

 

·

The “bond component,” which is discounted at the Company’s borrowing rate (risk-free rate + credit spread = total yield)

 

The concluded values of the Notes are the sum of the present values of the stock components and the bond components.

 

Inputs and Assumptions

 

In addition to the terms described above, the following key inputs were applied in Duff & Phelps’ analysis:

 

·

Common Stock price of $1.25 per share, based on a per share value implied by the Proposed Transaction.

 

·

Conversion price of $6.00 per share for the Series A Promissory Note, $4.45 per share for the Series B Promissory Note and $5.55 per share for the Series C Promissory Note.

 

·

Remaining period of the Company’s call option of 3.58 years.

 

·

Coupon rate of 0.84% for the Series A Promissory Note, 1.66% for the Series B Promissory Note and 1.91% for the Series C Promissory Note.

 

·

Risk-free rate of 0.94%, interpolated from the constant maturity Treasury rates as of the valuation date   with the maturity matching the time to the maturity date.

 

·

Dividend yield of 0%.

 

·

Equity volatility of 45% - 60%, based on an analysis of the historical volatility of the Common Stock and the selected public companies (Boule Diagnostics AB, Bovie Medical Corporation, CU Medical Systems, Inc., Ellex Medical Lasers Limited, ITL Ltd., Misonix, Inc., Streamline Health Solutions, Inc., EndoChoice Holdings, Inc., and STAAR Surgical Company).

 

·

Yield range of 14% - 16%, based on Duff & Phelps’ assessment of the Company’s estimated cost of debt for the Notes, as described below.

 

Determination of Note Yield

 

Duff & Phelps identified 15 publicly traded high-yield debt securities to estimate a yield range to value the Notes.  The following table summarizes the term to maturity, debt rating and yield to maturity for each of the debt securities indicated:

 

None of the selected publicly traded high-yield debt securities are directly comparable to the Notes. These securities were selected based on similar terms to maturity and hypothetical credit ratings (CCC+  to CCC-) as the Notes.

 

Duff & Phelps also applied premiums to the yield range derived from the publicly traded debt securities to reflect differences in liquidity, interest payments (accrual vs. current) and the “creditor preference” described below, of the Notes relative to the selected public debt securities.

 

·

Liquidity Premium – The Notes are not publicly traded.  Duff & Phelps estimated that investors would require a higher yield of approximately 50 to 100 basis points relative to the selected publicly traded debt securities to reflect the relative illiquidity of the Notes.

 

·

Accrued Interest Premium – The Notes accrue interest and the payment of interest is not due until March 31, 2020, when the Notes mature. The selected publicly traded debt securities pay current cash interest ( i.e. , every six months). Duff & Phelps estimated that an investor would require a 75 to 100 basis point premium for notes such as the Notes that do not pay accrued interest until maturity.

 

·

Creditor Preference – The Notes could become subordinate to new borrowings by the Company, since the Notes do not prohibit the Company from incurring indebtedness senior to the Notes. For example, the Company was able to obtain a $7 million secured revolving credit facility in September 2015 based upon an eligible borrowing base.  The Company’s ability to incur indebtedness senior to the Notes would create additional risk for an investor in the Notes (the “creditor preference”) relative to the publicly traded debt securities.  Duff & Phelps estimated that the creditor preference would require a 50 to 100 basis point premium relative to the publicly traded debt securities.

 

Based on this analysis, Duff & Phelps estimated a yield range of 14.0% to 16.0%, with a midpoint of 15.0%, which was used as the assumed yield to determine the estimated fair market value of the Notes.

 

Concluded Value of the Notes

 

Based on the analysis and assumptions described above, Duff & Phelps determined that the estimated fair market value of the Notes in aggregate, including accrued interest, was approximately $18.5 million, representing a 37.2% discount to face value.

 

Per Share Value Implied by the Proposed Transaction

 

To determine the implied value of the Proposed Transaction, the value of the Note exchange by Mr. Pell was converted to a fair market value basis.  The exchange price of the Notes was based on the face value of the Notes of $29.490 million (which included  $991,000 of accrued interest).  The negotiated exchange price for the Notes in the Proposed Transaction is $1.67 per share. Dividing the face value of the Notes of  $29.490 million by the exchange price of $1.67 per share results in 17.659 million shares to be received by Mr. Pell.

 

Dividing the estimated fair market value of the Notes of $18.528 million by the 17.659 million shares to be received in the Note exchange results in an implied per share value of $1.05 per share.

 

To determine the per share value of the Proposed Transaction, Duff & Phelps aggregated the $25 million in cash from the Accelmed investment with the $18.528 million estimated value of the Notes, and  deducted estimated transaction expenses of approximately $1.3 million, to determine the aggregate equity value of the Proposed Transaction of $42.228 million.

 

The aggregate number of shares to be issued by the Company in the Proposed Transaction was determined by adding the 16.129 million shares to be received by Accelmed (determined by dividing $25 million investment amount by the negotiated price of $1.55 per share), plus the  17.659 million shares to be received by Mr. Pell in the Note Exchange.

 

Dividing the aggregate equity value of the Proposed Transaction of $42.228 million by the 33.788 million new shares issued results in the implied value of the Proposed Transaction of $1.25 per share.

 

Valuation Analysis

 

As part of its analysis, Duff & Phelps’ performed a valuation analysis of the Company using generally accepted valuation methodologies.

 

Discounted Cash Flow Analysis . Duff & Phelps performed a discounted cash flow (“DCF”) analysis using the Management Projections for fiscal years 2016 through 2020 to derive indications of total enterprise value. A DCF analysis is designed to provide insight into the intrinsic value of a business based on its projected earnings and capital requirements, as well as the net present value of projected free cash flows.  Management’s projected EBITDA amounts were estimated on a cash basis and reflect cash payments related to severance, the proxy solicitation pursuant to this proxy statement and the Proposed Transaction-related expenses.  These expenses were provided by management of the Company.  Furthermore, Duff & Phelps deducted stock-based compensation as if it were cash compensation.

 

In its analysis shown in the table below, Duff & Phelps calculated the projected debt-free free cash flows of the Company   for the fiscal years 2016 through 2020. Due to the fact that taxable income in the projection period would be offset by net operating loss carryforwards, no taxes were deducted from EBITDA.  Duff & Phelps then calculated the projected debt-free cash flows of the Company   by subtracting capital expenditures, changes in deferred rent and changes in working capital. All of the assumptions and estimates used to determine the Company’s debt-free cash flows were provided by management of the Company.

 

Discounted Cash Flow Analysis      

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($ in thousands)

		LTM (1)				2016P				2017P				2018P				2019P				2020P				5-YR CAGR
Revenue		$	51,191			$	50,784			$	52,561			$	55,573			$	58,716			$	62,096				4.7	%
Growth			10.0	%			3.0	%			3.5	%			5.7	%			5.7	%			5.8	%
EBITDA (2)			(2,054	)			(975	)			(831	)			315				1,633				2,917			NM
EBITDA Margin			(4.0	%)			(1.9	%)			(1.6	%)			0.6	%			2.8	%			4.7	%
						8/16-12/16
EBITDA						$	(1,725	)		$	(831	)		$	315			$	1,633			$	2,917
Pro Forma Taxes (3)							0				0				0				0				0
Deferred Rent							(2	)			(7	)			(10	)			(6	)			0
Capital Expenditures							(125	)			(788	)			(834	)			(881	)			(931	)
(Increase) Descrease in Working Capitlal							(517	)			(124	)			(405	)			(464	)			(499	)
Free Cash Flow						$	(2,370	)		$	(1,750	)		$	(934	)		$	282			$	1,486

 

Enterprise Value		Low				Mid				High
Terminal Revenue Exit Multiple (4)			1.4	x			1.5	x		1.6		x
Weighted Average Cost of Capital			16.50	%			16.00	%		15.50		%
Concluded Enterprise Value Range (Rounded)		$	41,000			$	45,500			$	49,500

 

Implied Enterprise Value Multiples
LTM Revenue (1)		$	51,191				0.80	x			0.89	x			0.97	x
2016 Revenue			50,784				0.81	x			0.90	x			0.97	x
2017 Revenue			52,561				0.78	x			0.87	x			0.94	x

 

 

Duff & Phelps calculated a terminal value for the Company by capitalizing the projected revenue in fiscal 2020 by multiples ranging from 1.4x to 1.6x based on an analysis of selected public companies and selected merger and acquisition (M&A) transactions, as described below.

 

Duff & Phelps then discounted the sum of the projected debt-free cash flows   for fiscal year 2016 through 2020 and the terminal value for the Company by the Company’s estimated weighted-average cost of capital ranging from 15.5% to 16.5%. Fiscal 2016 debt-free cash flows   were adjusted to include only the interim period from August 1, 2016 through December 31, 2016.

 

The Company’s estimated weighted-average cost of capital was based on the Capital Asset Pricing Model using information derived from the companies in the selected public company analysis. The weighted average cost of capital reflected the relative risk associated with the Company’s projected debt-free cash flows, the Company’s current and pro-forma capital structures, as well as the rates of return that security holders could expect to realize on alternative investment opportunities.

 

The DCF analysis resulted in an estimated total enterprise value ranging from $41.0 million to $49.5 million. Subtracting (i) the estimated fair market value of the Company’s outstanding debt balance of $18.5 million (as valued by Duff & Phelps), (ii) an unfunded pension liability as of July 31, 2016 of $0.7 million and (iii) the estimated fair market value of outstanding stock options of the Company ranging from $0.8 million to $1.2 million, and adding the Company’s cash balance as of July 31, 2016 of $2.9 million, resulted in an estimated total common equity value range of $23.9 million to $31.9 million, or $0.90 to  $1.20 per share of Common Stock.

 

Market Approach .   Duff & Phelps analyzed valuation multiples of selected public companies and selected M&A transactions to apply to the Company projected 2020 revenue as part of the DCF analysis.

 

The companies utilized for comparative purposes in the following analyses are not identical to the Company, and the transactions utilized for comparative purposes in the following analyses are not identical to the Proposed Transaction.  Duff & Phelps did not have access to nonpublic information of any of the companies or transactions used for comparative purposes. Accordingly, complete valuation analyses of the Company and the Proposed Transaction cannot rely solely upon a quantitative review of the selected public companies and selected transactions, but involve complex considerations and judgments concerning differences in financial and operating characteristics of such companies and transactions and other factors that could af fect their value relative to that of the Company and the Proposed Transaction.  Therefore, the selected public companies and selected M&A transactions analyses are subject to these limitations.

 

Selected Public Companies Analysis.   A selected public companies analysis compares a subject company to a group of public companies that investors may consider similar to the Company, and applies valuation multiples to the Company’s financial performance metrics based on the qualitative and quantitative comparison. Comparative factors include, but are not limited to, historical and projected growth and volatility in earnings and factors that affect the riskiness of future cash flows.

 

Duff & Phelps compared certain financial information of the Company to corresponding data and ratios from publicly traded companies that Duff & Phelps deemed relevant to its analysis. For purposes of its analysis, Duff & Phelps used certain publicly available historical financial data and consensus equity analyst estimates for the selected publicly traded companies. Duff & Phelps included the following nine companies in the selected public companies analysis based on their relative similarity, primarily in terms of industry, size, growth and profit margins, to those of the Company:

 

 

Duff & Phelps noted that the Company has not achieved profitability and does not expect to achieve positive EBITDA (as defined by Duff & Phelps deducting stock based compensation as if it were cash) until fiscal 2018.  Furthermore, the projected revenue growth rate for the Company  ranged from 3.0% to 5.8% in the projection period.  Companies that had the following characteristics were not considered and were excluded from the broader group: (i) latest twelve month revenue growth rate below 5% or above 15%; (ii) projected revenue growth rate below 0% or above 25%; (iii) latest twelve month EBITDA margin below (-50%) or above 10%; and (iv) enterprise values less than $10 million or greater than $250 million.  The tables below summarize certain observed trading multiples, on an aggregate basis, of the selected public companies.

 

In selecting multiples, Duff & Phelps reviewed the selected public companies, taken as a group. Duff & Phelps noted that the Company is significantly smaller in size relative to the selected public companies, with generally weaker profitability and weaker growth prospects, as illustrated in the table below.  Duff & Phelps selected enterprise value-to-revenue multiples to apply to the Company’s projected revenues in 2020. By 2020, the Company is projected to achieve EBITDA margin of 4.7%, which is above the median but below the mean of the selected public company projected margins for 2017, the latest year for which projections are publicly available.  Furthermore, the Company projected revenue growth is weaker than that of the selected public companies, taken as a group.

 

 

 

Duff & Phelps used publicly available historical financial data and equity research estimates as compiled by S&P Capital IQ, a web-based research and financial information database, to calculate certain valuation ratios for the public companies listed in the table below. Duff & Phelps analyzed historical and projected revenue and EBITDA for each of the publicly traded companies. Duff & Phelps then analyzed such public companies’ trading multiples of enterprise value to their respective reported and forecasted (as available) revenue. The table below summarizes such analysis:

 

 

Based on the risk analysis described above, Duff & Phelps selected multiples of enterprise value to revenue to apply to the Company’s projected 2020 revenue that were below the mean and median multiples of revenue, but above the bottom of the  range of the selected public companies due to the Company’s smaller size, weaker profitability and lower projected growth rates.  The range of multiples selected to apply to the Company’s projected 2020 revenue in the DCF analysis was 1.4x to 1.6x.

 

Furthermore, Duff & Phelps compared the valuation multiples from the selected public company analysis and the selected M&A transactions analysis to the range of implied enterprise value multiples for the Company based on the DCF analysis.  Based on the Company risk and growth profile relative to the selected publicly traded companies, the implied enterprise value to revenue multiples for the Company  were determined to be reasonable.

 

Selected Transactions Analysis .  Duff & Phelps also identified certain precedent M&A transactions involving target companies that had businesses somewhat similar to that of the Company.  Duff & Phelps compared the Company to the target companies involved in the selected M&A transactions listed in the table below. The selection of these M&A transactions was based, among other things, on the target company’s industry, the relative size of the M&A transaction compared to the Proposed Transaction and the availability of public information related to the M&A transactions.

 

 

Historical Stock Trading and Premium Analysis .  B ecause the Common Stock is publicly traded, Duff & Phelps considered the per share value ascribed to it by the public markets.  Duff & Phelps analyzed the Company’s historical stock prices, trading volume, level of institutional ownership and historical valuation multiples.  On September 1, 2016, the closing price of Common Stock as reported on The NASDAQ Capital Market was $1.16 per share.  Over the 30-day trading period from July 21, 2016 to September 1, 2016, the Common Stock traded in a range of $1.01 to  $1.25 per share, with a 30-day average share price of $1.11.  In performing its fundamental valuation, Duff & Phelps considered the reported price per share and the 30-day trading average of the Common Stock as indications of value.

 

Valuation Analysis Conclusions

 

Duff & Phelps’ valuation analysis, as summarized in the table below, resulted in indications of the Company’s total enterprise value ranging from $41.0 million to $49.5 million.  After s ubtracting (i) the estimated fair market value of the Company’s outstanding debt balance of $18.5 million (as valued by Duff & Phelps), (ii) an unfunded pension liability as of July 31, 2016 of $0.7 million and (iii) the estimated fair market value of outstanding stock options of the Company ranging from $0.8 million to $1.2 million, and adding the Company’s cash balance as of July 31, 2016 of $2.9 million, resulted in an estimated total common equity value range of $23.9 million to $31.9 million, or $0.90 to $1.20 per share of Common Stock.  These indications of value per share for the Common Stock were below the per share value implied by the Proposed Transaction of $1.25 per share.

 

In addition, as summarized in the table below, Duff & Phelps determined the indicated value per share of Common Stock factoring in the Accelmed investment of $25.0 million, the note exchange by Mr. Pell and the approximately $1.3 million in expected transaction costs.  The common equity values range from $65.8 million to $74.1 million and the increase in fully diluted shares to 60.3 million shares.  This results in a range of values from $1.09 to $1.23 per share.

Duff & Phelps observed that its analysis supported its determination of the fairness, from a financial point of view, of the Proposed Transaction, as a whole, to the unaffiliated public stockholders of the Company.

 

Valuation Conclusion

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(in thousands, except per share values and multiples)

		D&P Estimate - Pre-Transaction												Current				Current				D&P Estimate - Post Transaction												Proposed
		Low				Mid				High				Market Value (1)				Market Value (2)				Low				Mid				High				Transaction
Enterprise Value Conclusion		$	41,000			$	45,500			$	49,500			$	47,000			$	48,500			$	41,000			$	45,500			$	49,500
Cash and Equivalents (3)			2,924				2,924				2,924				2,924				2,924				2,924				2,924				2,924
Accelmed Investment																							25,000				25,000				25,000				25,000
Transaction Costs (4)			0				0				0				0				0				(1,300	)			(1,300	)			(1,300	)			(1,300	)
Unfunded Pension Liability (5)			(746	)			(746	)			(746	)			(746	)			(746	)			(746	)			(746	)			(746	)
FMV of Promissory Notes to be Exchanged (rounded) (6)			(18,528	)			(18,528	)			(18,528	)			(18,528	)			(18,528	)			0				0				0				18,528
Aggregate Equity Value			24,650				29,150				33,150				30,576				31,939				66,878				71,378				75,378				42,228
Est. Value of Stock Options (7)			(784	)			(1,004	)			(1,211	)			(1,077	)			(1,147	)			(1,048	)			(1,153	)			(1,249	)
Common Equity Value			23,866				28,146				31,939				29,499				30,791				65,830				70,225				74,129				42,228
Shares Outstanding as of September 1, 2016			26,137				26,137				26,137				26,137				26,137				26,137				26,137				26,137
Accelmed New Shares																							16,129				16,129				16,129				16,129
Pell New Shares																							17,659				17,659				17,659				17,659
Unvested Restricted Shares as of September 1, 2016			408				408				408				408				408				408				408				408
Fully Diluted Shares Outstanding			26,544				26,544				26,544				26,544				26,544				60,332				60,332				60,332				33,788
Indicated Value Per Share		$	0.90			$	1.06			$	1.20			$	1.11			$	1.16			$	1.09			$	1.16			$	1.23			$	1.25

Implied Enterprise Value Multiples

 

LTM Revenue (8)			$51,191				0.80	x			0.89	x			0.97	x			0.92	x			0.95	x			0.80	x			0.89	x			0.97	x
2016 Revenue			50,784				0.81	x			0.90	x			0.97	x			0.93	x			0.96	x			0.81	x			0.90	x			0.97	x
2017 Revenue			52,561				0.78	x			0.87	x			0.94	x			0.89	x			0.92	x			0.78	x			0.87	x			0.94	x