Item 8.01 Other Events.
In connection with the Merger, two purported class action complaints have been filed on behalf of the stockholders against the Company, the
members of the board of directors, Symantec and Acquisition Sub in Arizona Superior Court, Maricopa County, and the United States District Court for the District of Arizona. The two complaints are captioned as follows:
Minzer v. LifeLock, Inc. et
al,
CV-2016-53742 (filed December 15, 2016 ) and
Parshall v. LifeLock, Inc. et al
, Civ. No. 2:16-cv-04434-DKD (filed December 16, 2016), which we refer to collectively as the Stockholder Actions.
The Company believes that no supplemental disclosures are required under applicable laws; however, to avoid the risk of the Stockholder
Actions delaying or adversely affecting the Merger and to minimize the expense of defending the Stockholder Actions, and without admitting any liability or wrongdoing, the Company is making certain disclosures below that supplement and revise those
contained in the Definitive Proxy Statement, which we refer to as the litigation-related supplemental disclosures. The litigation-related supplemental disclosures contained below should be read in conjunction with the Definitive Proxy
Statement, which is available on the Internet site maintained by the Securities and Exchange Commission at http://www.sec.gov, along with periodic reports and other information the Company files with the Securities and Exchange Commission. The
Company and the other named defendants have denied, and continue to deny, that they have committed or assisted others in committing any violations of law or breaches of duty to LifeLock stockholders, and expressly maintain that, to the extent
applicable, they complied with their fiduciary and other legal duties and are providing the litigation-related supplemental disclosures below solely to try to eliminate the burden and expense of further litigation, to put the claims that were or
could have been asserted to rest, and to avoid any possible delay to the closing of the Merger that might arise from further litigation. Nothing in the litigation-related supplemental disclosures shall be deemed an admission of the legal necessity
or materiality under applicable laws of any of the litigation-related supplemental disclosures set forth herein. To the extent that the information set forth herein differs from or updates information contained in the Definitive Proxy Statement, the
information set forth herein shall supersede or supplement the information in the Definitive Proxy Statement. All page references are to pages in the Definitive Proxy Statement, and terms used below, unless otherwise defined, have the meanings set
forth in the Definitive Proxy Statement.
LifeLocks Board of Directors continues to unanimously recommend that you vote
(1) FOR the adoption of the merger agreement; (2) FOR the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to
adopt the merger agreement at the time of the special meeting; and (3) FOR the approval, on a non-binding, advisory basis, of compensation that will or may become payable by LifeLock to our named executive officers in connection
with the merger.
Forward-Looking Statements
All statements included or referenced may contain statements that are not historical facts and that constitute forward-looking
statements within the meaning of such term under the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which
we refer to as the Exchange Act. These forward-looking statements include statements regarding our business outlook, the expected completion and timing of the merger and other information relating to the merger and all other statements included
herein other than recitation of historical facts. Words such as will, intends, expects, anticipates, estimates, predicts, believes, should,
potential, may, forecast, objective, plan, targets or similar expressions are intended to identify such forward-looking statements. Forward-looking statements included herein
are subject to risks and uncertainties that could cause actual results or events to differ from such statements, including, but not limited to: (i) the risk that the transaction may not be completed in a timely manner or at all, which may
adversely affect the Companys business and the price of the common stock of the Company, (ii) the failure to satisfy the conditions to the consummation of the transaction, including the adoption of the merger agreement by the stockholders
of the Company, (iii) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement, (iv) the effect of the announcement or pendency of the transaction on the Companys
business relationships, operating results, and business generally, (v) risks that the proposed transaction disrupts current plans and operations of the Company and potential difficulties in the Companys employee retention as a result of
the transaction, (vi) risks related to diverting managements attention from the Companys ongoing business operations, (vii) the outcome of any legal proceedings that may be instituted against the Company, its officers or
directors related to the Merger Agreement or the transaction, (viii) the possibility that competing offers or acquisition proposals for the Company will be made; (ix) risks regarding the failure to obtain the necessary financing to
complete the proposed transaction; (x) risks related to the equity and debt financing and related guarantee arrangements entered into in connection with the proposed transaction; and (xi) the ability of Symantec to implement its plans,
forecasts, and other expectations with respect to the Companys business after the completion of the proposed Merger and realize additional opportunities for growth and innovation. For additional information, please see Item 1A of Part II
of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, which we refer to as our Quarterly Report, entitled Risk Factors and in other sections of our Quarterly Report, including Managements
Discussion and Analysis of Financial Condition and Results of Operations. Actual results may differ materially from those contained in the forward-looking statements included herein. Any forward-looking statements are based on information
currently available to us and we assume no obligation to update these statements as circumstances change, except as required by law. All subsequent written and oral forward-looking statements concerning the Merger or other matters addressed herein
and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
SUPPLEMENTAL DISCLOSURES TO DEFINITIVE PROXY STATEMENT RELATED TO
STOCKHOLDER ACTIONS
The The Merger section of the Definitive Proxy Statement under the heading Background of the Merger is hereby
amended by:
Amending and restating the first sentence in the fourth paragraph on Page 46.
Later on November 17, 2016, representatives of Goldman Sachs informed Sponsor A-Sponsor B that LifeLock was pursuing a transaction with
another party, but did not inform Sponsor A-Sponsor B that LifeLock was planning on entering into exclusive negotiations with such party.
Adding the below additional sentence to the end of the last full paragraph on page 47.
No potential acquirors have made any confidential proposals to LifeLock or its representatives or requested the waiver of any standstill
provisions since LifeLock, Symantec and Acquisition Sub entered into the merger agreement.
The The Merger section of the
Definitive Proxy Statement under the heading Fairness Opinion of Goldman, Sachs & Co. is hereby amended by:
Amending and restating the third and fourth sentences in the first full paragraph on Page 54.
Goldman Sachs first calculated the implied future equity values per share of common stock at year-end for each of the fiscal years 2017 to
2020 using the forward free cash flow per share set forth in the Five-Year Forecasts for those years and then applying a Forward FCF Yield range of 6.6% (based upon the three-month average of the one year forward trading multiples of LifeLock on and
prior to November 10, 2016, the last trading day prior to the public report of a potential transaction involving LifeLock, which date we refer to here as the Pre-Leak date) to 9.9% (based upon the 12-month Pre-13D date average of
the one year forward trading multiples of LifeLock). In addition, Goldman Sachs calculated implied future equity values per share of common stock at year-end for each of the fiscal years 2017 through 2020 using the next-12 month Adjusted EBITDA set
forth in the Five-Year Forecasts for those years by applying Forward EV/EBITDA multiples ranging from 9.0x (based upon the 12-month Pre-13D date average of the one year forward trading multiples of LifeLock) to 13.6x (based upon the three-month
Pre-Leak date average of the one year forward trading multiples of LifeLock) to the applicable next-twelve month Adjusted EBITDA as set forth in the Five-Year Forecasts.
Amending and restating the second, third and fourth sentences in the first paragraph under the
section entitled Illustrative Discounted Cash Flow Analysis on Page 54 through 55.
Using discount rates ranging from
7.50% to 8.50%, reflecting estimates of LifeLocks weighted average cost of capital (and derived by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including the target capital structure
weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and beta, as well as certain financial metrics for the United States financial markets generally), Goldman Sachs
discounted to present value as of September 30, 2016 (1) estimates of unlevered free cash flow for LifeLock for the fourth calendar quarter of 2016 and the fiscal years 2017 through 2021 as reflected in the Five-Year Forecasts and
(2) a range of illustrative terminal values for LifeLock, which were calculated by applying perpetuity growth rates ranging from 2.50% to 3.50%, to a terminal year estimate of the free cash flow to be generated by LifeLock, as reflected in the
Five-Year Forecasts. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Five-Year Forecasts and market expectations regarding long-term growth of gross
domestic product and inflation. Goldman Sachs derived ranges of illustrative enterprise values for LifeLock by adding the ranges of present values it derived above and the present value of the net operating losses, as prepared by LifeLocks
management. Goldman Sachs then added to the range of illustrative enterprise values it derived for LifeLock the amount by which LifeLocks cash, cash equivalents and marketable securities exceeded its indebtedness as of September 30, 2016
(approximately $166 million according to the LifeLock Form 10-Q for the period ended September 30, 2016, filed on November 9, 2016), as provided by the management of LifeLock, to derive a range of illustrative equity values for LifeLock.
The The Merger section of the Definitive Proxy Statement under the heading Financial Forecasts is hereby
amended by:
Amending and restating the first full paragraph on Page 58.
As referred to below, EBITDA and Adjusted EBITDA is a financial measure commonly used in the technology industry but
is not defined under GAAP. We calculate EBITDA as net income (loss) before depreciation and amortization, interest expense, interest income, and income tax (benefit) expense. We calculate Adjusted EBITDA as net income (loss) before
depreciation and amortization, stock-based compensation, interest expense, interest income, other income (expense), income tax (benefit) expense, and acquisition related expenses, when applicable. For fiscal year 2016, we have also excluded from
Adjusted EBITDA expenses related to the FTC litigation and the impact of a legal reserve for the settlement of a stockholder derivative lawsuit. We believe that the exclusion of certain items of income and expense from net income (loss) in
calculating Adjusted EBITDA is useful because the amount of such income or expense may not directly correlate to the underlying operational performance of our business and/or such income and expense can vary significantly between periods.
Amending and restating the third and fourth full paragraphs on Page 58.
We define Unlevered Free Cash Flow as net income excluding depreciation and amortization, less acquisitions of property and
equipment and adjusted for changes in working capital.
We included Adjusted EBITDA and Free Cash Flow because they are key measures we
used to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short- and long-term operational plans. We included EBITDA and Unlevered Free Cash Flow because they are key measures
used to evaluate the proposed transaction by the board of directors and potential acquirors. In particular, the exclusion of certain expenses and cash flows in calculating EBITDA, Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash Flow can
provide a useful measure for period-to-period comparisons of our core business. Additionally, Adjusted EBITDA is a key financial measure used in determining managements incentive compensation.
Although EBITDA, Adjusted EBITDA, Free Cash Flow and Unlevered Free Cash Flow are frequently used by investors in their evaluations of
companies, these non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Because of these limitations, these non-GAAP
financial measures should be considered alongside other financial performance measures. Further, these non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to
similarly-titled measures presented by other companies.
Amending and restating the chart in the section entitled Forecasts at the bottom
of page 58.
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(in millions)
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July
Forecasts
2016E
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October
Revisions
2016E
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2017E
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2018E
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2019E
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2020E
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2021E
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Revenue
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$
|
666
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$
|
668
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$
|
743
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$
|
832
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|
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$
|
938
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$
|
1,060
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|
|
$
|
1,200
|
|
Gross Profit
(1)
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|
$
|
516
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|
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$
|
517
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(2)
|
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$
|
589
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$
|
664
|
|
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$
|
754
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|
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$
|
862
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|
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$
|
986
|
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EBITDA
|
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$
|
47
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|
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$
|
46
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|
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$
|
63
|
|
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$
|
76
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|
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$
|
105
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|
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$
|
147
|
|
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$
|
205
|
|
Adjusted EBITDA
|
|
$
|
86
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|
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$
|
90
|
|
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$
|
100
|
|
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$
|
118
|
|
|
$
|
152
|
|
|
$
|
200
|
|
|
$
|
264
|
|
Free Cash Flow
|
|
$
|
87
|
|
|
$
|
86
|
|
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$
|
113
|
|
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$
|
133
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|
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$
|
153
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|
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$
|
171
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$
|
216
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Unlevered Free Cash Flow
(3)
|
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$
|
39
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$
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14
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$
|
61
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|
|
$
|
71
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|
|
$
|
90
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|
|
$
|
116
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|
|
$
|
155
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(1)
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Gross Profit for each period provided consists of Revenue less cost of servicing. Cost of servicing was $150 million, $151 million, $154 million, $168 million, $184 million, $198 million, and $214 million for the
periods covered by the July Forecasts 2016E, the October Revisions 2016E, 2017E, 2018E, 2019E, 2020E, and 2021E, respectively.
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(2)
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This figure was calculated in accordance with GAAP and was the figure presented to the LifeLock Board. The October Revisions provided to Symantec reflected a non-GAAP adjusted gross margin of $523 million, which was
calculated by adding expenses for stock-based compensation and depreciation back to gross profit as calculated in accordance with GAAP.
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(3)
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LifeLock estimated the net present value of standalone net operating losses to be $77 million. The net present value was determined based on an estimated combined federal and state tax rate and a discount rate that
accounts for the assumed cost of debt.
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Amending and restating the section entitled Reconciliation of Adjusted
EBITDA to Net Income on page 59.
Reconciliation of Adjusted EBITDA and EBITDA to Net Income
The Forecasts include a forecast of our Adjusted EBITDA and EBITDA. A reconciliation of the differences between Adjusted EBITDA and EBITDA and
net income, a financial measurement prepared in accordance with GAAP, is set forth below. In the calculation of EBITDA, the Company assumed zero interest expense and interest income. In the calculation of Adjusted EBITDA, the Company assumed zero
interest expense, interest income, other income (expense) and acquisition related expenses.
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|
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(in millions)
|
|
July
Forecasts
2016E
|
|
|
October
Revisions
2016E
|
|
|
2017E
|
|
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2018E
|
|
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2019E
|
|
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2020E
|
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2021E
|
|
Reconciliation of Adjusted EBITDA and EBITDA to Net Income
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|
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|
Net Income
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
26
|
|
|
$
|
34
|
|
|
$
|
54
|
|
|
$
|
79
|
|
|
$
|
114
|
|
Depreciation and amortization
|
|
|
22
|
|
|
|
22
|
|
|
|
20
|
|
|
|
20
|
|
|
|
16
|
|
|
|
15
|
|
|
|
15
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|
Income tax (benefit) Expense
|
|
|
10
|
|
|
|
9
|
|
|
|
17
|
|
|
|
23
|
|
|
|
36
|
|
|
|
53
|
|
|
|
76
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
47
|
|
|
|
46
|
|
|
|
63
|
|
|
|
76
|
|
|
|
105
|
|
|
|
147
|
|
|
|
205
|
|
Share-based compensation
|
|
|
34
|
|
|
|
34
|
|
|
|
37
|
|
|
|
42
|
|
|
|
47
|
|
|
|
53
|
|
|
|
60
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|
FTC litigation expense and legal settlements
|
|
|
6
|
|
|
|
10
|
|
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|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
86
|
|
|
$
|
90
|
|
|
$
|
100
|
|
|
$
|
118
|
|
|
$
|
152
|
|
|
$
|
200
|
|
|
$
|
264
|
|
|
|
|
|
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Adding the below additional sentence to the end of the first full paragraph under the section entitled
Reconciliation of Free Cash Flow to Net Cash Provided by Operating Activities on page 59.
Other than as indicated in the
reconciliation below, no other line items were used in the calculation of Free Cash Flow.
Adding the below additional sentence to the
end of the first full paragraph under the section entitled Reconciliation of Unlevered Free Cash Flow to Net Income on page 59.
Other than as indicated in the reconciliation below, no other line items were used in the calculation of Unlevered Free Cash Flow.