Item 1.01. Entry into a Material Definitive Agreement.
On June 24, 2022, Evolent Health, Inc., a Delaware corporation (“EVH, Inc.”), Evolent Health LLC, a Delaware limited liability company (“EVH LLC” and, together with EVH, Inc., the “Evolent Entities”), and Endzone Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of EVH LLC (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with TPG Growth Iceman Parent, Inc., a Delaware corporation, (the “Company”) and the parent entity of Implantable Provider Group, Inc., and TPG Growth V Iceman, L.P., a Delaware limited partnership, solely in its capacity as representative as set forth therein (the “Representative”), pursuant to which, subject to the satisfaction or waiver of certain conditions, Merger Sub will be merged with and into the Company (the “Merger”) with the Company surviving the Merger as a wholly-owned subsidiary of EVH LLC. The closing of the transactions contemplated by the Merger Agreement (the “Closing”), including the Merger, shall take place on the second business day following the satisfaction or waiver of certain conditions set forth in the Merger Agreement (or on such other date as the parties agree) (the “Closing Date”); provided, however, that the Evolent Entities will not be obligated to consummate the Closing prior to August 1, 2022.
Pursuant to the terms of and as set forth in the Merger Agreement, the Evolent Entities will pay and/or issue to the shareholders and optionholders of the Company (collectively, the “Seller Parties”), subject to certain adjustments and deductions as set forth in the Merger Agreement, cash in an aggregate amount equal to $250,000,000 (the “Cash Consideration”) and an aggregate of number of shares of EVH, Inc.’s Class A common stock (the “Equity Consideration” and together with the Cash Consideration, the “Merger Consideration”) equal to $125,000,000 divided by the volume weighted average closing price of EVH, Inc.’s Class A Common Stock (“Class A Shares”) on the New York Stock Exchange for the ten (10) trading days ending on the last trading day immediately prior to the Closing Date. The Merger Consideration is subject to certain post-Closing adjustments and deductions related to, among other things, the Company’s net working capital, cash and indebtedness, and certain Company transaction expenses as of the Closing Date. In EVH, Inc.’s discretion, the Cash Consideration can be increased with a corresponding decrease to the Equity Consideration.
In addition to the Merger Consideration, the Seller Parties shall be eligible to receive, subject to the satisfaction of certain conditions and metrics set forth in the Merger Agreement, including those related to certain operating results of the Company and its subsidiaries from August 1, 2022 through December 31, 2022 (the “First Earnout Period”) and the first three quarters of 2023 (the “Second Earnout Period”), additional consideration of up to $87,000,000 payable in cash and Class A Shares valued at a price equal to the volume weighted average closing price of such Class A Shares on the New York Stock Exchange for the ten (10) trading days ending immediately prior to the payment (the “Earnout Consideration”). Subject to the conditions applicable thereto, $31,071,000 of the Earnout Consideration will be payable and/or issuable following the First Earnout Period and $87,000,000 less any Earnout Consideration paid and/or issued with respect to the First Earnout Period will be payable and/or issuable following the Second Earnout Period. In EVH, Inc.’s discretion, the Earnout Consideration, if any, may be paid in all cash.
Class A Shares issued as part of the Merger Consideration and Earnout Consideration will be issued only to those Seller Parties who are “accredited investors” as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). Seller Parties who are not “accredited investors” as defined in Rule 501 of Regulation D under the Securities Act, or who do not otherwise comply with certain other requirements as set forth in the Merger Agreement, will receive, in lieu of Class A Shares, an amount of cash equivalent thereto.
Each of the boards of directors or managing member or partners, as applicable, of the Evolent Entities and the Company has approved the parties’ entry into the Merger Agreement and the
consummation of the transactions contemplated thereby, including the Merger, as applicable, with the parties making customary representations, warranties and covenants, including, but not limited to, that the Company shall conduct its business in the ordinary course from the date of the execution of the Merger Agreement through the earlier of the Closing Date or the date on which the Merger Agreement is terminated and shall not solicit or engage in negotiations or discussions regarding alternative transactions. The consummation of the transactions contemplated by the Merger Agreement, including the Merger, is also subject to customary closing conditions, including, among others, the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the absence of any legal impediments that would prevent the consummation of such transactions, the accuracy of the representations and warranties the parties made in the Merger Agreement, subject to certain exceptions contained therein, and the parties’ material compliance with their respective obligations under the Merger Agreement. The shareholders of the Company have approved the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, by the requisite percentage under applicable state law and the Company’s governing documents. The Merger is not subject to any financing condition.
The Merger Agreement may be terminated by EVH LLC and the Representative on behalf of the Company under the following circumstances: (i) by mutual written consent; (ii) by EVH LLC if there has been an uncured breach by the Company of the representations and warranties or covenants or agreements by the Company set forth in the Merger Agreement that results in the failure of certain conditions to Closing to be satisfied; (iii) by the Representative if there has been a material and willful breach by the Evolent Entities or Merger Sub of the representations and warranties or covenants or agreements by the Evolent Entities or Merger Sub set forth in the Merger Agreement that results in the failure of certain conditions to Closing to be satisfied; (iv) by either EVH LLC or the Representative in the event the Closing has not occurred by December 31, 2022 or in the event there is any law or injunction or other final and non-appealable order restraining, enjoining or otherwise prohibiting the transactions contemplated by the Merger Agreement; or (v) by the Representative if all conditions to the Evolent Entities to Closing have been satisfied, the date on which the Closing is required to occur has passed, the Company has irrevocably confirmed that its conditions to Closing have been satisfied or waived and the Evolent Entities do not consummate the Closing with five business days of such notice. The Merger Agreement provides that, upon termination of the Merger Agreement by the Representative as a result of a material and willful breach of the Merger Agreement by the Evolent Entities or Merger Sub or otherwise pursuant to (v) above, the Company and the Seller Parties will be entitled to a termination fee of $30,000,000. In addition, the parties to the Merger Agreement are, subject to limited exceptions, entitled to an injunction or injunctions to prevent breaches of the Merger Agreement and to enforce specifically the provisions of the Merger Agreement.
To provide for certain losses incurred by the Evolent Entities, Merger Sub, or the Company, the Evolent Entities purchased a buyer-side representations and warranties insurance policy (the “R&W Policy”), which R&W Policy shall be effective as of the Closing. The R&W Policy is subject to a cap and certain customary terms, exclusions and deductibles, which limit the Evolent Entities’ ability to make recoveries under the R&W Policy.
In connection with the Closing, certain Seller Parties and EVH, Inc. will enter into a registration rights agreement granting such Seller Parties certain registration rights with respect to the Equity Consideration to be received by such Seller Parties. In addition, in connection with the Closing, certain Seller Parties and EVH, Inc. will enter into a Purchase Price Adjustment Agreement, which provides for the escrowing of cash by both EVH, Inc. and certain Seller Parties equal to 15% of the value of the Equity Consideration received by such Seller Parties. Such escrowed amounts will be released to EVH, Inc. and/or such Seller Parties, upon the occurrence of certain events related to market fluctuations of the Class A Shares occurring during the 90-day period following the Closing.
The Evolent Entities intend to finance a portion of the Cash Consideration through debt financing. In connection with its entry into the Merger Agreement, EVH LLC entered into a debt financing commitment letter with Ares Capital Management LLC (“Ares”), pursuant to which Ares has committed to provide EVH LLC with secured debt financing in an aggregate principal amount of $225,000,000, structured as (i) a term loan facility of up to $175,000,000, with an initial interest rate of adjusted term SOFR (“Secured Overnight Financing Rate”) plus 5.50%, and (ii) a priority ABL revolving credit facility of up to $50,000,000, with an initial interest rate of adjusted term SOFR plus 3.50%, both of which are expected to be fully funded on the Closing Date. The debt financing commitment letter provides that borrowings under the credit facilities will mature on the earlier of (i) five years from the Closing Date and (ii) 91 days prior to the earliest maturity of outstanding indebtedness of EVH, Inc. or any of its subsidiaries that is secured by a lien that is junior to the lien securing the credit facilities, is unsecured or is subordinated in right of payment to the payment obligations under the credit facilities, subject to certain exceptions. The commitment to provide the credit facilities is subject to customary closing conditions for financings of this type, including consummation of the Merger in all material respects in accordance with the Merger Agreement.