Indaba Issues Letter to Tabula Rasa’s Independent Directors Regarding Their Apparent Prioritization of the Knowltons’ Interests Over Shareholders’ Interests
August 09 2022 - 9:00AM
Business Wire
Questions Why the “Independent” Directors
Decided to Dilute Shareholders by Issuing More Equity to the
Family-Run Management Team in the Face of the Company’s Share Price
Dropping 65% Year-to-Date
Demands Prompt Answers from Samira K. Beckwith, Jan
Berger, MD, MJ, Dennis K. Helling,
PharmD, ScD, Kathy O’Brien,
Michael Purcell, and Rear Admiral Pamela Schweitzer, PharmD
(Retired)
Indaba Capital Management L.P. (together with its affiliates,
“Indaba” or “we”), which is the largest shareholder of Tabula Rasa
HealthCare Inc. (NASDAQ: TRHC) (“Tabula Rasa” or the “Company”)
with an ownership interest of approximately 25% of the Company’s
outstanding shares, today issued an open letter to the independent
members of the Company’s Board of Directors (the “Board”): Samira
K. Beckwith, Jan Berger, MD, MJ, Dennis K. Helling, PharmD, ScD,
Kathy O’Brien, Michael Purcell and Rear Admiral Pamela Schweitzer,
PharmD (retired).
***
Independent Directors,
As you know, Indaba is Tabula Rasa’s largest shareholder by a
significant margin and holds more than seven times the number of
shares owned by the current Board.1 While we prefer to have a
constructive, private dialogue with you, your apparent disregard
for sound corporate governance and unwillingness to substantively
engage with us forces us to once again make our concerns public.
Today, we are writing to demand answers to the following
questions:
- Why are you refusing to directly
engage with us despite our substantial shareholdings, valid
concerns and willingness to collaborate on a necessary Board
refresh?
- Why did you feel it was appropriate to
dilute shareholders in order to issue more equity to Chief
Executive Officer and Chairman Dr. Calvin H. Knowlton, President
and Director Dr. Orsula V. Knowlton and their relatives –
especially given shareholders’ resounding “withhold” votes against
the Knowltons and opposition to the executive compensation proposal
at the 2022 Annual Meeting of Shareholders (the “Annual
Meeting”)?
- Why are you unwilling to reduce the
boardroom influence of the husband-and-wife management team by
demanding the resignations of the Knowltons from the Board? You
approved a term sheet from Indaba that provided for their
resignations earlier in the summer.
While Mr. Tunstall’s and Ms. Beckwith’s apparent intransigence
can be explained by their conflicts and historical interlocks to
the Knowltons, we cannot understand why the rest of you continue to
ignore the highly problematic governance issues plaguing the
Company today. Your silence and unwillingness to take action force
us – and presumably other shareholders – to conclude you may not
take your service on this Board seriously. In our view, independent
directors who want to disassociate themselves from egregious
governance practices and protect all shareholders would retain
their own legal counsel to either commence an independent
investigation of the Knowltons’ various self-serving acts or add
new independent directors who will have the courage to do so. We
hope you finally engage in good faith with us and take actions that
benefit all shareholders, instead of acting in conflict with the
shareholders to whom you owe your fiduciary duties.
With respect to your decision to approve more dilutive equity
compensation that benefits the Knowltons, we remain confounded. The
decision calls into question your independence given the
overwhelming investor rebuke of the Knowltons at this year’s Annual
Meeting, whereat approximately three out of four shareholders voted
down the egregious compensation package put forth for the Company’s
named executive officers. This year’s generous award also comes on
the heels of the Knowltons’ value-destructive share pledging
transactions. Shareholders are now being
forced to suffer approximately 3% dilution despite the Company’s
share price being down more than 65% year-to-date, the vast
majority of shareholders voting against the Company’s say-on-pay
vote at this year’s Annual Meeting and the Knowltons already having
received millions of dollars in equity grants in the preceding
years. This is all in the face of both of the Knowltons
receiving a majority of “withhold” votes cast at the Annual Meeting
by unaffiliated stockholders, which we understand to be exceedingly
rare.
We certainly hope you are not accommodating the Knowltons
because they may be in financial distress after recently being
forced to sell a majority of their Tabula Rasa shares under
pledging arrangements. We suspect this selling may have been
undertaken to finance the development of a home that has been
described as a “44,000+ square foot mega mansion” with “6
bedrooms, 12 bathrooms, grand double staircase, elevator, formal
living & dining rooms, gourmet kitchen, breakfast room, family
room, 2-story library, 2-story great room/ballroom, home theater,
golf simulator, wine cellar, indoor pool, garage and more.”2 We
believe more disclosure is required to explain why this was the
right time to essentially take from aggrieved shareholders and
employees and give to the Knowltons and their relatives – and we
intend to do everything it takes to claw back these egregious
grants on behalf of all stockholders. Prioritizing and perpetuating nepotism at a publicly
traded company is a sure way to lose favor with employees,
partners, customers and shareholders alike. To put it bluntly, we
believe your actions are unjustifiably putting the Company’s
business and its stakeholders at serious risk.
Lastly, you should explain why you backtracked on your support
for having the Knowltons step down from the Board. We were informed
that the independent directors voted in a unanimous manner to
approve our term sheet, which included the resignations of the
Knowltons from the Board. You must recognize the absurdity of the
Company’s corporate governance and conflicts of interest. We note
that if the Knowltons will not voluntarily resign from the Board,
they will be required to step off the Board if they are terminated
from their employment with the Company – thereby allowing the
independent directors to achieve the very result they previously
supported. Backtracking on a previously approved term sheet is a
very curious move that raises questions about where your allegiance
really lies.
We expect to receive prompt answers through either direct
engagement or a public disclosure. We are going to continue shining
light on your apparent prioritization and protection of the
Knowltons, their relatives and their friends – in an increasingly
detailed manner – until the status quo changes. We can assure you
that, as the Company’s largest shareholder, we will not tire in
this pursuit and the longer this journey takes, the endgame is no
less inevitable and the risk each of you bear as individuals will
likely only increase.
Sincerely,
Derek Schrier
Managing Partner Indaba Capital
Management, L.P.
Alex Lerner
Partner
Indaba Capital Management, L.P.
***
About Indaba Capital
Indaba was founded in 2010 to invest in corporate equity and
debt. Based in San Francisco, Indaba manages approximately $1.5
billion in assets. Learn more at www.IndabaCapital.com.
1 Prior to the Board’s recently disclosed grant of 525,000
shares of restricted stock to the Knowltons, Indaba held
approximately seven times the number of shares owned by the current
Board. 2 Homes of the Rich, "44,000+ Square Foot Mega Mansion Under
Construction In New Jersey (FLOOR PLANS)," February 13, 2022
(link).
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Longacre Square Partners Greg Marose / Charlotte Kiaie,
646-386-0091 gmarose@longacresquare.com
/ ckiaie@longacresquare.com
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