UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

 

 

Filed by the Registrant  ☒                             Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

☒		Preliminary Proxy Statement
☐		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☐		Definitive Proxy Statement
☐		Definitive Additional Materials
☐		Soliciting Material under §240.14a-12

WageWorks, Inc.

(Name of Registrant as Specified in its Charter)

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

Payment of Filing Fee (Check the appropriate box):

 

☐		No fee required.
☒		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1)		Title of each class of securities to which transaction applies:   Common stock of WageWorks, Inc.
		(2)		Aggregate number of securities to which transaction applies:   As of July 1, 2019, there were outstanding: (a) 40,176,571 shares of common stock; (b) 1,278,076 shares of common stock issuable pursuant to outstanding options with exercise prices below the per share merger consideration of $51.35; and (c) 1,014,266 shares of common stock underlying restricted stock units (assuming target performance of performance based restricted stock units).
		(3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):   In accordance with Exchange Act Rule 0-11(c), the filing fee of $258,826.82 was determined by multiplying .0001212 by the aggregate merger consideration of $2,135,534,792.15. The aggregate merger consideration was calculated based on the sum of (a) the product of 40,176,571 shares of common stock and the per share merger consideration of $51.35; (b) the product of (i) 1,278,076 shares of common stock issuable pursuant to outstanding options with exercise prices below the per share merger consideration of $51.35 and (ii) the difference between $51.35 and $35.40, the weighted average exercise price of such options; and (c) the product of 1,014,266 shares of common stock underlying restricted stock units (assuming target performance of performance based restricted stock units) and the per share merger consideration of $51.35;
		(4)		Proposed maximum aggregate value of transaction:   $2,135,534,792.15
		(5)		Total fee paid:   $258,826.82
☐		Fee paid previously with preliminary materials.
☐		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1)		Amount Previously Paid:
		(2)		Form, Schedule or Registration Statement No.:
		(3)		Filing Party:
		(4)		Date Filed:

 

 

 

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

 

July [●], 2019

Dear WageWorks, Inc. Stockholder:

On June 26, 2019, WageWorks, Inc. (which we refer to as “WageWorks,” “we” or “us”) entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”) with HealthEquity, Inc. (which we refer to as “HealthEquity”) and Pacific Merger Sub Inc., a wholly owned subsidiary of HealthEquity (which we refer to as “Merger Sub”), pursuant to which HealthEquity will acquire WageWorks in a merger transaction (which we refer to as the “merger”) if certain conditions to the merger are satisfied, including the affirmative vote of the holders of a majority of outstanding shares of WageWorks common stock. We are calling a special meeting of WageWorks’ stockholders, to be held on [●], 2019, at WageWorks’ headquarters, located at 1100 Park Place, 4^th Floor, San Mateo, California 94403, at [●], Pacific time, to enable WageWorks’ stockholders to vote on the merger agreement in order to satisfy this condition to the merger.

Upon completion of the merger, you will be entitled to receive $51.35 in cash, without interest, for each share of WageWorks common stock that you hold as of immediately prior to the effective time of the merger (unless you properly exercise your appraisal rights under applicable law). This price represents a premium of approximately:

 

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29% over the $39.89 volume weighted average trading price of WageWorks’ common stock during the 30-day period prior to the public announcement of HealthEquity’s acquisition proposal;

 

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40% over the $36.62 volume weighted average trading price of WageWorks’ common stock during the 60-day period prior to the public announcement of HealthEquity’s acquisition proposal; and

 

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52% over the $33.77 volume weighted average trading price of WageWorks’ common stock during the 90-day period prior to the public announcement of HealthEquity’s acquisition proposal.

At a meeting on June 26, 2019, the board of directors of WageWorks (which we refer to as the “WageWorks board”) unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable, and fair to and in the best interests of WageWorks’ stockholders, and approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger. The WageWorks board unanimously recommends that you vote “FOR” the proposal described herein to adopt the merger agreement in order to satisfy a condition to the merger.

Your vote is very important. Whether or not you plan to attend the special meeting in person, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or the internet. If you attend the special meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted. The failure to vote your shares of WageWorks common stock will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement. If your shares of WageWorks common stock are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of WageWorks common stock without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote your shares of WageWorks common stock in accordance with the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of WageWorks common stock “FOR” the proposal to adopt the merger agreement will have the same effect as voting “AGAINST” the proposal to adopt the merger agreement.

We are also soliciting the approval of WageWorks stockholders for two additional proposals to be considered at the special meeting. The first is a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement. The second is a proposal to approve certain compensation matters that we are required to submit for the approval, on an advisory basis, of WageWorks stockholders at the special meeting under applicable law. However, because approval of such compensation matters is advisory in nature, it will not be binding upon WageWorks, the WageWorks board, the WageWorks board’s compensation committee or HealthEquity. Further, some of the compensation plans and arrangements that are being submitted for stockholder approval are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, if the merger is completed, certain compensation plans and arrangements will or may become payable to WageWorks’ named executive officers in connection with the merger in accordance with the terms and conditions applicable to such compensation plans and arrangements regardless of the outcome of the vote on this compensation proposal.

The accompanying proxy statement provides you with detailed information about the merger, the merger agreement, the special meeting and the compensation related proposal described above. A copy of the merger agreement is attached as Annex A to the proxy statement. We encourage you to read the entire proxy statement and its annexes, including the merger agreement, carefully. You may also obtain additional information about WageWorks from documents we have filed with the Securities and Exchange Commission. 

If you have any questions or need assistance voting your shares of WageWorks common stock, please contact our proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders may call toll-free: (888) 750-5834

Banks and brokers may call collect: (212) 750-5833

Thank you in advance for your cooperation and continued support.

 

 

The proxy statement is dated [●], 2019 and is first being mailed to WageWorks’ stockholders on or about [●], 2019.

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION

WAGEWORKS, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

Notice is hereby given that a special meeting of stockholders (including any adjournments or postponements thereof, the “special meeting”) of WageWorks, Inc. (which we refer to as “WageWorks,” “we” or “us”) will be held on [●], 2019, at WageWorks’ headquarters, located at 1100 Park Place, 4^th Floor, San Mateo, California 94403, at [●], Pacific time. The special meeting is being held for the following purposes:

1. To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of June 26, 2019 (as it may be amended or modified from time to time, the “merger agreement”), by and among WageWorks, Inc., a Delaware corporation, HealthEquity, Inc., a Delaware corporation (“HealthEquity”), and Pacific Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of HealthEquity (“Merger Sub”), pursuant to which Merger Sub will be merged with and into WageWorks (the “merger”) and WageWorks will survive the merger and become a wholly owned subsidiary of HealthEquity.

2. To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement.

3. To approve, on an advisory (non-binding) basis, certain compensation that will or may become payable to the named executive officers of WageWorks in connection with the merger (the “WageWorks advisory proposal on certain compensation”).

In accordance with our bylaws, the close of business on [●], 2019 has been fixed as the record date for the determination of the stockholders entitled to notice of, and to vote at, the meeting or any adjournment thereof. All stockholders of record are cordially invited to attend the special meeting.

Your vote is very important, regardless of the number of shares of WageWorks common stock that you own. Whether or not you plan to attend the special meeting in person, please sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or grant your proxy electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). If you attend the special meeting and vote in person by ballot, your vote will revoke any proxy that you have previously submitted. If you hold your shares in “street name,” you should instruct your bank, broker or other nominee how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the proposal to adopt the merger agreement, without your instructions.

If you are a stockholder of record, voting in person by ballot at the special meeting will revoke any proxy that you previously submitted. If you hold your shares through a bank, broker or other nominee, you must obtain a “legal proxy” in order to vote in person at the special meeting. If you fail to (1) return your proxy card, (2) grant your proxy electronically over the internet or by telephone or (3) vote by ballot in person at the special meeting, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and, if a quorum is present, will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement, but will have no effect on the adjournment proposal.

The WageWorks board has unanimously determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable, and fair to and in the best interests of WageWorks’ stockholders, and has unanimously approved and declared advisable in all respects the merger agreement and the transactions contemplated by the merger agreement, including the merger. The WageWorks board made its determination after consultation with its legal and financial advisors and consideration of a number of factors. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.

The WageWorks board unanimously recommends that you vote:

 

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“FOR” the proposal to adopt the merger agreement

 

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“FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement

 

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“FOR” the WageWorks advisory proposal on certain merger-related compensation to our named executive officers

The accompanying proxy statement provides a detailed description of the merger and the merger agreement. We urge you to read the accompanying proxy statement, including any documents incorporated by reference, and the annexes carefully and in their entirety. If you have any questions concerning the special meeting, the merger agreement, the merger or the proxy statement of which this notice forms a part, would like additional copies of the proxy statement or need help voting your shares of WageWorks common stock, please contact WageWorks’ proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders may call toll-free: (888) 750-5834

Banks and brokers may call collect: (212) 750-5833

 

San Mateo, California

[●], 2019

TABLE OF CONTENTS

 

		Page
SUMMARY			1
Parties to the Merger			1
The Merger			1
Material U.S. Federal Income Tax Consequences of the Merger			2
Financing of the Merger			2
Conditions to the Merger			3
Recommendation of the WageWorks Board of Directors			3
Opinion of Evercore Group L.L.C.			4
Interests of Directors and Officers in the Merger			4
No-Solicitation of Competing Acquisition Proposals			4
Termination of Merger Agreement			5
Appraisal Rights			6
Proposal to Approve, on a Non-Binding, Advisory Basis, Certain Merger-Related Compensation to Our Named Executive Officers			6
The Special Meeting			7
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING, THE MERGER AGREEMENT AND THE MERGER			10
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION			19
PARTIES TO THE MERGER			21
WageWorks			21
HealthEquity			21
Merger Sub			21
THE MERGER (PROPOSAL 1)			22
General			22
Background of the Merger			22
Reasons for the Merger; Recommendation of the WageWorks Board of Directors			35
Opinion of Evercore Group L.L.C.			39
Certain Financial Projections			46
Financing of the Merger			49
Closing and Effective Time of Merger			50
Payment of Merger Consideration and Surrender of Stock Certificates			50
Interests of Directors and Officers in the Merger			51
Golden Parachute Compensation			54
Accounting Treatment			56
Material U.S. Federal Income Tax Consequences of the Merger			56
Regulatory Approvals and Notices			58
THE MERGER AGREEMENT			59
Explanatory Note Regarding the Merger Agreement			59
The Merger			59
When the Merger Becomes Effective			60
Merger Consideration Payable Pursuant to the Merger			60
Treatment of Equity Awards			60
Treatment of the 2012 Employee Stock Purchase Plan			61
Dissenters’ Rights			61
Exchange and Payment Procedures			62
Withholding Rights			63
Representations and Warranties			63
Material Adverse Effect			65
No Solicitation of Other Offers by WageWorks			66

 

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Change in Recommendation; Match Rights			68
Conduct of Business Before Completion of the Merger			69
Access			71
Financing Cooperation			71
Efforts to Obtain Regulatory Approvals			72
Other Covenants			73
Employee Matters			74
Directors’ and Officers’ Indemnification and Insurance			75
Conditions to the Merger			76
Termination of the Merger Agreement			77
Termination Fee and Expenses			79
Effect of Termination			80
Governing Law			80
Amendments, Enforcements and Remedies, Extensions and Waivers			81
THE SPECIAL MEETING			82
Time, Place and Purpose of the Special Meeting			82
Recommendation of the WageWorks Board of Directors			82
Record Date and Quorum			82
Vote Required			83
Shares Held by WageWorks’ Directors and Executive Officers			84
Proxies and Revocation			85
Adjournments and Postponements			85
Anticipated Date of Completion of the Merger			85
Rights of Stockholders Who Seek Appraisal			86
Solicitation of Proxies; Payment of Solicitation Expenses			86
Householding			87
Questions and Additional Information			87
MARKET PRICE DATA AND DIVIDEND INFORMATION			88
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			89
AUTHORITY TO ADJOURN THE SPECIAL MEETING (PROPOSAL NO. 2)			91
PROPOSAL TO APPROVE, ON A NON-BINDING, ADVISORY BASIS, CERTAIN MERGER-RELATED COMPENSATION TO OUR NAMED EXECUTIVE OFFICERS (PROPOSAL NO. 3)			92
APPRAISAL RIGHTS			93
DELISTING AND DEREGISTRATION OF WAGEWORKS COMMON STOCK			99
CONDUCT OF OUR BUSINESS IF THE MERGER IS NOT COMPLETED			99
OTHER MATTERS			100
Other Matters for Action at the Special Meeting			100
Future Stockholder Proposals			100
WHERE YOU CAN FIND MORE INFORMATION			101
ANNEX A — AGREEMENT AND PLAN OF MERGER.			A-1
ANNEX B — OPINION OF EVERCORE GROUP L.L.C			B-1
ANNEX C — SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE			C-1

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING, THE MERGER AGREEMENT AND THE MERGER

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting, the merger agreement and the merger. These questions and answers may not address all questions that may be important to you as a WageWorks stockholder. Please refer to the “Summary” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, which you should read carefully and in their entirety. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under the section of this proxy statement entitled “Where You Can Find More Information” beginning on page 101.

 

Q:	What is the proposed transaction and what effects will it have on WageWorks?

 

A:

The proposed transaction is the acquisition of WageWorks by HealthEquity pursuant to the merger agreement. If the proposal to adopt the merger agreement is approved by our stockholders and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will merge with and into WageWorks, with WageWorks being the surviving corporation in the merger. As a result of the merger, WageWorks will become a wholly owned subsidiary of HealthEquity and will no longer be a publicly held corporation, and you will no longer have any equity in WageWorks. In addition, WageWorks common stock will be delisted from the NYSE and deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC on account of WageWorks common stock.

 

Q:	What will I receive if the merger is completed?

 

A:

Upon completion of the merger, you will be entitled to receive the $51.35 merger consideration in cash, without interest, for each share of WageWorks common stock that you own immediately prior to the effective date of the merger (as described in more detail in the section of this proxy statement entitled “The Merger Agreement — Merger Consideration Payable Pursuant to the Merger” beginning on page 60), unless you have properly exercised, perfected and not validly withdrawn or otherwise lost your appraisal rights under the DGCL with respect to such shares, and certain other conditions under the DGCL are satisfied (as described in more detail in the section of this proxy statement entitled “The Merger Agreement — Dissenters’ Rights” beginning on page 61). You will not own any shares of the capital stock in the surviving corporation.

 

Q:	Am I entitled to appraisal rights under the DGCL?

 

A:

If the merger is consummated, stockholders who do not vote in favor of the adoption of the merger agreement, who continuously hold such shares through the effective time of the merger, who have properly exercised, perfected and not withdrawn or otherwise lost their rights to appraisal of their shares and who meet certain other conditions and statutory requirements described under Section 262 of the DGCL will be entitled to seek appraisal of their shares in connection with the merger. This means that holders of shares of WageWorks common stock may be entitled to have their shares appraised by the Delaware Court of Chancery and to receive payment in cash of the “fair value” of the shares of WageWorks common stock, exclusive of any elements of value arising from the accomplishment or expectation of the merger, together with interest (unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown) to be paid on the amount determined to be “fair value” from the effective time of the merger through the date of payment of the judgment, as determined by the court (subject, in the case of interest payments, to any voluntary cash payments made by WageWorks pursuant to subsection (h) of Section 262 of the DGCL, as described in more detail in the section of this proxy statement entitled “Appraisal Rights” beginning on page 93). Stockholders who wish to seek appraisal of their shares are in any case encouraged to seek the advice of legal counsel with respect to the exercise of appraisal rights due to the complexity of the appraisal

 

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process. The DGCL requirements for exercising appraisal rights are described in additional detail in this proxy statement, which description is qualified in its entirety by the relevant section of the DGCL regarding appraisal rights attached as Annex C to this proxy statement.

 

Q:	How does the $51.35 merger consideration in cash compare to the market price of WageWorks common stock prior to announcement of the merger?

 

A:

The $51.35 merger consideration in cash represents a premium of approximately: 29% over the $39.89 volume weighted average trading price of WageWorks’ common stock during the 30-day period prior to the public announcement of HealthEquity’s acquisition proposal; 40% over the $36.62 volume weighted average trading price of WageWorks’ common stock during the 60-day period prior to the public announcement of HealthEquity’s acquisition proposal; and 52% over the $33.77 volume weighted average trading price of WageWorks’ common stock during the 90-day period prior to the public announcement of HealthEquity’s acquisition proposal.

 

Q:	After the merger is completed, how will I receive the cash for my shares?

 

A:	How you receive payment of the merger consideration for your shares depends on how you hold your shares. The following paragraphs describe the different payment processes. In all cases, the amount of your payment will be without interest and will be reduced by any required tax withholding.

Shares held at a bank, brokerage firm or other nominee, or “street name” shares: If your shares of WageWorks common stock are held on your behalf by a bank, brokerage firm or other nominee, although each bank, brokerage firm or other nominee establishes its own procedures, we believe that payment for those shares will be deposited in your account with such bank, brokerage firm or other nominee.

Shares held in direct registration form at our transfer agent, American Stock Transfer & Trust Company, LLC, or “book entry” shares: If you hold only book entry shares at American Stock Transfer & Trust Company, LLC, an exchange agent that will be designated by HealthEquity (which we refer to as the “exchange agent”) will mail you a check in the amount of the aggregate merger consideration payable for those shares upon receipt of an “agent’s message” in customary form.

Shares for which you have a stock certificate, or “certificated” shares: If you hold stock certificates representing shares of WageWorks common stock, the exchange agent will mail you a letter of transmittal that you must complete and return to the exchange agent. Once the exchange agent receives your properly completed letter of transmittal and stock certificate(s), the exchange agent will mail you a check in the amount of the aggregate merger consideration for your certificated shares.

 

Q:	What will happen to my stock options, restricted stock units and performance stock units in connection with the merger?

 

A:

At the effective time of the merger, each option to purchase shares of WageWorks common stock (each, referred to as a “WageWorks option”) that is outstanding immediately before the effective time of the merger, whether vested or unvested, will become fully vested and will be cancelled and converted into the right to receive an amount in cash equal to (i) the number of shares of WageWorks common stock covered by the WageWorks option, multiplied by (ii) the excess (if any) of the merger consideration over the per share exercise price of the WageWorks option, less applicable tax withholdings. If the per share exercise price of the WageWorks option equals or exceeds the merger consideration, the WageWorks option will be cancelled without consideration.

At the effective time of the merger, each WageWorks restricted stock unit award (each, referred to as a “WageWorks RSU award”) outstanding as of the date of the merger agreement that is subject to only time-based vesting conditions will become fully vested. At the effective time of the merger, each WageWorks RSU award that is subject to performance-based vesting (each, referred to as a “WageWorks performance

 

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unit”) for which the performance period is complete but for which the achievement of the underlying performance goals has not yet been determined as of the effective time of the merger will vest based on actual performance during the performance period, and each WageWorks performance unit for which the performance period is incomplete as of the effective time of the merger will vest based on the target performance. Each WageWorks performance unit that does not vest as described in the previous sentence will be cancelled without consideration immediately before the effective time of the merger. Each WageWorks RSU award that vests as described in this paragraph will be cancelled and converted into the right to receive an amount in cash equal to (i) the total number of shares of WageWorks common stock covered by the vested WageWorks RSU award, multiplied by (ii) the merger consideration.

At the effective time of the merger, each outstanding WageWorks RSU award that is granted on or after June 26, 2019, will be assumed by HealthEquity and converted into a restricted stock unit award covering a number of shares of HealthEquity common stock equal to (i) the total number of shares of WageWorks common stock covered by the WageWorks RSU award immediately before the effective time of the merger multiplied by (ii)) the equity award exchange ratio (which is discussed below), rounded down to the nearest whole share, with the same terms and conditions that applied to the WageWorks RSU award immediately before the effective time of the merger, including vesting, settlement and acceleration.

The “equity award exchange ratio” is the quotient (rounded to four decimal places) obtained by dividing (1) the merger consideration, by (2) the volume weighted average price of one share of HealthEquity common stock, as reported on NASDAQ for the 20 consecutive trading days ending with the trading day immediately preceding the date of the closing of the merger.

 

Q:	What will happen to the 2012 Employee Stock Purchase Plan in the merger?

 

A:

There will be no further purchases under WageWorks’ 2012 Employee Stock Purchase Plan (the “ESPP”), as no new offering period under the ESPP will commence on or after June 26, 2019, and the ESPP will be terminated no later than 5 days before the effective time of the merger, subject to the consummation of the merger.

 

Q:	What will be the consequences of the merger to WageWorks’ directors and executive officers?

 

A:

A number of WageWorks’ directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of WageWorks’ stockholders generally. These interests include, among others, (i) the assumption of certain WageWorks equity awards in connection with the merger, (ii) the cancellation of certain WageWorks equity awards in exchange for specified cash payments in connection with the merger, (iii) the payment of severance benefits upon certain qualifying terminations of employment in connection with or following the merger, and (iv) the right to certain indemnification and insurance benefits pursuant to the terms of the merger agreement.

For a description of these interests, see the section of this proxy statement entitled “The Merger (Proposal 1) — Interests of Directors and Officers in the Merger” beginning on page 51.

 

Q:	Who will be the directors of WageWorks if the merger is completed?

 

A:

If the merger is completed, the board of directors of the surviving corporation immediately following the completion of the merger will be composed of the directors of Merger Sub immediately prior to the completion of the merger and all directors of WageWorks immediately prior to the completion of the merger will cease to be directors of WageWorks as of the time of the completion of the merger.

 

Q:	How does the WageWorks board recommend that I vote?

 

A:	The WageWorks board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose

 

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of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement, and “FOR” the WageWorks advisory proposal on certain merger-related compensation to our named executive officers.

 

Q:	When do you expect the merger to be completed?

 

A:

We are working toward completing the merger as quickly as possible, and we presently anticipate that the merger will be completed during 2019, subject to the satisfaction or waiver of all closing conditions. However, the exact timing of the completion of the merger cannot be predicted. In order to complete the merger, our stockholders must adopt the merger agreement and the other closing conditions under the merger agreement must be satisfied or waived, as described in the section of this proxy statement entitled “The Merger Agreement — Conditions to the Merger” beginning on page 76.

 

Q:	What governmental and regulatory approvals are required?

 

A:	Under the terms of the merger agreement, the merger cannot be completed until the waiting period applicable to the merger under the HSR Act has expired or been terminated.

 

Q:	What happens if the merger is not completed?

 

A:

If the merger agreement is not adopted by the stockholders of WageWorks or if the merger is not completed for any other reason, the stockholders of WageWorks will not receive any payment for their shares of WageWorks common stock in connection with the merger. Instead, WageWorks will remain an independent public company and WageWorks common stock will continue to be listed and traded on the NYSE. Under specified circumstances, WageWorks may be required to pay to HealthEquity a termination fee in the amount of approximately $69.66 million in connection with the termination of the merger agreement, all as described under the section of this proxy statement entitled “The Merger Agreement — Termination Fee and Expenses” beginning on page 79. In the event that the merger agreement is not adopted by our stockholders, WageWorks will announce the date of the regular annual meeting of its stockholders for 2019 within 10 business days of the special meeting.

 

Q:	What happens to the derivative litigation that is pending against WageWorks if the merger is completed?

 

A:

If the merger is completed, the plaintiffs in the derivative lawsuit that is pending against WageWorks would lose standing, and the litigation would end. The WageWorks board did not engage in a valuation of the derivative litigation, and the valuation of the derivative litigation was not the subject of any discussions with HealthEquity concerning the amount of merger consideration.

 

Q:	Is the merger expected to be taxable to me?

 

A:

Yes. The exchange of shares of WageWorks common stock for cash pursuant to the merger will generally be a taxable transaction for U.S. federal income tax purposes, and may also be a taxable transaction under applicable state, local and/or non-U.S. income or other tax laws. In general, for U.S. federal income tax purposes, a U.S. holder (as defined below in the section of this proxy statement entitled “The Merger (Proposal 1) — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 56) who exchanges WageWorks common stock for cash in the merger will recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received (determined before deduction of any applicable withholding taxes) with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. You should read the section of this proxy statement entitled “The Merger (Proposal 1) — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 56 for a more complete discussion of the material U.S. federal income tax consequences of the merger to U.S. holders. Because individual circumstances may differ, you should consult your tax advisor to determine the particular U.S. federal, state, local and/or non-U.S. tax consequences of the merger to you.

 

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Q:	Why am I receiving this proxy statement and proxy card or voting instruction form?

 

A:

You are receiving this proxy statement and proxy card or voting instruction form because you owned shares of WageWorks common stock as of the record date of [●], which entitles you to receive notice of, and to vote at, the special meeting. This proxy statement describes matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of WageWorks common stock with respect to such matters.

 

Q:	When and where is the special meeting?

 

A:	The special meeting of stockholders of WageWorks will be held on [●], 2019, at WageWorks’ headquarters, located at 1100 Park Place, 4th Floor, San Mateo, California 94403, at [●], Pacific time.

 

Q:	What am I being asked to vote on at the special meeting?

 

A:

You are being asked to consider and vote on (1) a proposal to adopt the merger agreement that provides for the acquisition of WageWorks by HealthEquity; (2) a proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement; and (3) a proposal to approve, on an advisory (non-binding) basis, certain compensation that will or may become payable to the named executive officers of WageWorks in connection with the merger.

 

Q:	What vote is required for WageWorks’ stockholders to approve the proposal to adopt the merger agreement?

 

A:

The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of WageWorks common stock entitled to vote thereon. Because the affirmative vote required to approve the proposal to adopt the merger agreement is based upon the total number of outstanding shares of WageWorks common stock, if you fail to submit a proxy or vote at the special meeting, or abstain, or you do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, this will have the same effect as a vote “AGAINST” the proposal to adopt the merger agreement.

 

Q:	What vote of WageWorks stockholders is required to approve the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement?

 

A:

Assuming a quorum exists, approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement, requires the affirmative vote of holders of a majority of the voting power of the issued and outstanding shares of WageWorks common stock present or represented by proxy at the special meeting and entitled to vote thereon. Abstaining will have the same effect as a vote “AGAINST” the proposal to adjourn the special meeting, if necessary or appropriate, for the purpose of soliciting additional proxies. If you fail to submit a proxy or vote at the special meeting or if your shares of WageWorks common stock are held through a bank, brokerage firm or other nominee and you do not instruct your bank, brokerage firm or other nominee on how to vote your shares of WageWorks common stock, your shares of WageWorks common stock will not be voted, but this will not have an effect on the proposal to adjourn the special meeting if a quorum is present.

 

Q:	What vote is required for WageWorks’ stockholders to approve the WageWorks advisory proposal on certain merger-related compensation to our named executive officers?

 

A:	Assuming a quorum exists, the adoption of the WageWorks advisory proposal on certain merger-related compensation to our named executive officers requires the affirmative vote of holders of a majority of the

 

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voting power of the issued and outstanding shares of WageWorks common stock present or represented by proxy at the special meeting and entitled to vote thereon. Abstaining will have the same effect as a vote “AGAINST” the WageWorks advisory proposal on certain merger-related compensation to our named executive officers. If you fail to submit a proxy or to vote at the special meeting or if your shares of WageWorks common stock are held through a bank, brokerage firm or other nominee and you do not instruct your bank, brokerage firm or other nominee on how to vote your shares of WageWorks common stock, your shares of WageWorks common stock will not be voted, but this will not have an effect on the WageWorks advisory proposal on certain merger-related compensation to our named executive officers if a quorum is present.

 

Q:	What will happen if WageWorks’ stockholders do not approve the WageWorks advisory proposal on certain merger-related compensation to our named executive officers?

 

A:

The vote on the WageWorks advisory proposal on certain merger-related compensation to our named executive officers is a vote separate and apart from the vote to adopt the merger agreement. You may vote for this proposal and against adoption of the merger agreement, or vice versa. Because the vote on the WageWorks advisory proposal on certain merger-related compensation to our named executive officers is advisory only, it is not binding on WageWorks, the WageWorks board, the WageWorks board’s compensation committee or HealthEquity. Approval of the WageWorks advisory proposal on certain merger-related compensation to our named executive officers is not a condition to completion of the merger and failure to adopt the WageWorks advisory proposal on certain merger-related compensation to our named executive officers will have no effect on the vote to adopt the merger agreement. Accordingly, because we are contractually obligated to pay the compensation, the compensation will be payable, subject only to the conditions applicable thereto and any future amendments thereto, regardless of the outcome of the advisory (non-binding) vote.

 

Q:	What is the difference between holding shares as a stockholder of record and as a beneficial owner?

 

A:

If you hold your shares in an account at our transfer agent American Stock Transfer & Trust Company, LLC or have a WageWorks stock certificate, you are considered, with respect to those shares of WageWorks common stock, the “stockholder of record.” This proxy statement and your proxy card have been sent directly to you by WageWorks.

If your shares of WageWorks common stock are held in “street name” through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of those shares of WageWorks common stock. In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee how to vote those shares of WageWorks common stock by following their instructions for voting.

 

Q:	Who can vote at the special meeting?

 

A:

All stockholders of record of WageWorks common stock as of the close of business on [●], 2019, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. Each holder of WageWorks common stock is entitled to cast one vote on each matter properly brought before the special meeting for each share of WageWorks common stock that such holder owned as of the record date. If your shares of WageWorks common stock are held through a bank, brokerage firm or other nominee, in order to vote those shares at the special meeting, you must request and obtain a legal proxy from your bank, brokerage firm or other nominee at the special meeting.

 

Q:	May I attend the special meeting and vote in person?

 

A:	Yes. All stockholders as of the Record Date may attend the special meeting and vote in person. Seating will be limited. Stockholders will need to present proof of ownership of shares of common stock, such as a bank

 

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or brokerage account statement, and a form of personal identification to be admitted to the special meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the special meeting.

 

Q:	What is a quorum?

 

A:	The holders of a majority of the voting power of the issued and outstanding shares of WageWorks common stock entitled to vote thereat, present or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting.

 

Q:	How may I vote?

 

A:	If you are a stockholder of record (that is, if your shares of common stock are registered in your name with American Stock Transfer & Trust Company, LLC, our transfer agent), there are four ways to vote:

 

•

by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope;

 

•

by visiting the internet at the address on your proxy card;

 

•

by calling toll-free (within the U.S. or Canada) at the phone number on your proxy card; or

 

•

by attending the special meeting and voting in person by ballot.

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of common stock, and to confirm that your voting instructions have been properly recorded when voting electronically over the internet or by telephone (using the instructions provided in the enclosed proxy card). Please be aware that, although there is no charge for voting your shares, if you vote electronically over the internet or by telephone, you may incur costs such as internet access and telephone charges for which you will be responsible.

Even if you plan to attend the special meeting in person, you are strongly encouraged to vote your shares of common stock by proxy. If you are a record holder or if you obtain a “legal proxy” to vote shares that you beneficially own, you may still vote your shares of common stock in person by ballot at the special meeting even if you have previously voted by proxy. If you are present at the special meeting and vote in person by ballot, your previous vote by proxy will not be counted.

 

Q:	If my shares of WageWorks common stock are held in “street name” by my bank, brokerage firm or other nominee, will my bank, brokerage firm or other nominee vote my shares of WageWorks common stock for me?

 

A:

Your bank, brokerage firm or other nominee will only be permitted to vote your shares of WageWorks common stock if you instruct your bank, brokerage firm or other nominee how to vote. If your shares of WageWorks common stock are held in “street name” through a bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of WageWorks common stock using the instructions provided by your bank, brokerage firm or other nominee. If you do not give instructions to your bank, brokerage firm or other nominee on how to vote your shares of WageWorks common stock for any of the proposals described in this proxy statement, your bank, brokerage firm or nominee will not be entitled to vote your shares for you and a broker “non-vote” will occur for such proposal. Banks, brokerage firms and other nominees typically have discretionary voting authority with respect to “routine” matters; however, they typically do not have discretionary authority to vote on “non-routine” matters. We believe the proposals described in this proxy statement are “non-routine” matters. Accordingly, if you hold your shares of WageWorks common stock through a bank, brokerage firm or other nominee and do not provide your bank, brokerage firm or other nominee with instructions on how to vote your shares of WageWorks common stock on the proposal to adopt the merger agreement, your

 

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bank, brokerage firm or other nominee will generally not be permitted to vote your shares of WageWorks common stock on the proposal to adopt the merger agreement or the other proposals described in this proxy statement.

You should follow the procedures provided by your bank, brokerage firm or other nominee regarding the voting of your shares of WageWorks common stock. If you do not instruct your bank, brokerage firm or other nominee to vote your shares of WageWorks common stock, your shares of WageWorks common stock will not be counted for purposes of determining whether a quorum is present and will not be voted and the effect will be the same as a vote “AGAINST” the proposal to adopt the merger agreement, but this will not have an effect on the other two proposals if a quorum is present.

 

Q:	How can I change or revoke my vote?

 

A:	You have the right to revoke a proxy, whether delivered over the internet, by telephone or by mail, at any time before it is exercised, by voting again at a later date through any of the methods available to you or by attending and voting at the special meeting.

 

Q:	What is a proxy?

 

A:

A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of WageWorks common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of WageWorks common stock is called a “proxy card.” We have designated each of [●], as proxies for the special meeting.

 

Q:	If a stockholder gives a proxy, how are the shares of WageWorks common stock voted?

 

A:

Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares of WageWorks common stock in the way that you indicate. When completing the internet or telephone processes or the proxy card, you may specify whether your shares of WageWorks common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement and “FOR” the WageWorks advisory proposal on certain merger-related compensation to our named executive officers.

 

Q:	What do I do if I receive more than one proxy or set of voting instructions?

 

A:	If you hold shares directly as a stockholder of record and as a beneficial owner through a bank, brokerage firm or other nominee, you may receive more than one proxy and/or set of voting instructions relating to the special meeting.

These should each be voted and/or returned separately as described elsewhere in this proxy statement in order to ensure that all of your shares are voted.

 

Q:	What happens if I sell my shares of WageWorks common stock before the special meeting?

 

A:	The record date for stockholders entitled to vote at the special meeting is earlier than both the date of the special meeting and the date of the consummation of the merger. If you transfer your shares of WageWorks

 

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common stock after the record date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares and each of you notifies WageWorks in writing of such special arrangements, you will retain your right to vote such shares at the special meeting, but will transfer the right to receive the merger consideration to the person to whom you transfer your shares.

 

Q:	What do I need to do now?

 

A:

We urge you to carefully read this proxy statement in its entirety, including its annexes, and to consider how the merger would affect you. Even if you plan to attend the special meeting, after carefully reading and considering the information contained in this proxy statement, please vote promptly to ensure that your shares are represented at the special meeting. If you are a stockholder of record, please vote your shares of WageWorks common stock by (i) completing, signing, dating and returning the appropriate portion of the enclosed proxy card in the accompanying prepaid reply envelope, (ii) using the telephone number printed on your proxy card, or (iii) using the internet voting instructions printed on your proxy card. If you decide to attend and vote at the special meeting, your vote will revoke any proxy previously submitted. If you are a beneficial owner of WageWorks common stock, please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you.

 

Q:	Should I send in my stock certificates now?

 

A:

No. If you are a record holder of certificated shares of WageWorks common stock, you will be sent a letter of transmittal promptly after the completion of the merger, describing how you may exchange your shares of WageWorks common stock for the merger consideration. Please do NOT return your stock certificate(s) with your proxy.

 

Q:	How will I receive the merger consideration if I have lost my stock certificate?

 

A:

If your stock certificate is lost, stolen or destroyed, you must deliver an affidavit of that fact and may be required by the surviving corporation to post a bond (of a reasonable amount) as indemnity against any claim that may be made with respect to such certificate prior to receiving the merger consideration.

 

Q:	Will a proxy solicitor be used?

 

A:	We have engaged Innisfree M&A, Incorporated to assist in the solicitation of proxies and provide related advice and informational support for a services fee of $15,000 per month, plus customary reimbursement of expenses.

 

Q:	Who can help answer my other questions?

 

A:	If you have additional questions about the merger, need assistance in submitting your proxy or voting your shares of WageWorks common stock, or need additional copies of the proxy statement or the enclosed proxy card, please contact our proxy solicitor:

Innisfree M&A Incorporated

501 Madison Avenue, 20th Floor

New York, NY 10022

Stockholders may call toll-free: (888) 750-5834

Banks and brokers may call collect: (212) 750-5833

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us, contain not only historical information, but also forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995., Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “forecasts,” “should,” “estimates,” “contemplate,” “future,” “goal,” “potential,”, “predict,” “project,” “projection,” “target,” “seek,” “may,” “will,” “could,” “should,” “would,” “assuming,” and similar expressions are intended to identify forward-looking statements, which appear in a number of places in this proxy statement (and the documents to which we refer you in this proxy statement) and include, but are not limited to, all statements relating directly or indirectly to the timing or likelihood of completing the merger to which this proxy statement relates, plans for future growth and other business development activities as well as capital expenditures, financing sources and the effects of regulation and competition and all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers. You should read any such forward-looking statements carefully, as they involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly from those projected or contemplated in any such forward-looking statement. Due to known and unknown risks, our actual results may differ materially from our expectations or projections.

The following factors, among others, could cause our actual results to differ materially from those described in these forward-looking statements:

 

•

the risk that the conditions to the closing of the merger are not satisfied (including a failure of our stockholders to approve, on a timely basis or otherwise, the merger and the risk that regulatory approvals required for the merger are not obtained, on a timely basis or otherwise, or are obtained subject to conditions that are not anticipated);

 

•

the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement and risk that the circumstances of such termination could require us to pay HealthEquity the approximately $69.66 million termination fee;

 

•

litigation or other legal proceedings relating to the merger;

 

•

uncertainties as to the timing of the consummation of the merger and the ability of WageWorks and HealthEquity to consummate the merger;

 

•

risks that the proposed transaction disrupts the current plans and operations, and diverts the attention of management or employees, of WageWorks or HealthEquity;

 

•

the ability of WageWorks to retain and hire key personnel;

 

•

the fact that under the terms of the merger agreement, we are unable to solicit other acquisition proposals during the pendency of the merger;

 

•

the fact that the merger would be a taxable transaction to WageWorks’ stockholders for U.S. federal income tax purposes;

 

•

the risk that the tax consequences to the receipt of $51.35 merger consideration may change due to changes in tax law;

 

•

unknown liabilities;

 

•

unexpected costs, charges or expenses resulting from the merger;

 

•

the fact that, if the merger is completed, stockholders will forgo the opportunity to realize the potential long-term value of the successful execution of WageWorks’ current strategy as an independent company;

 

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•

risks that our stock price may decline significantly if the merger is not completed;

 

•

potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger; and

 

•

legislative, regulatory and economic developments.

The foregoing review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere, including the risk factors included in WageWorks’ and HealthEquity’s respective most recent Annual Reports on Form 10-K and WageWorks’ and HealthEquity’s more recent other reports filed with the SEC. WageWorks and HealthEquity can give no assurance that the conditions to the merger will be satisfied. Except as required by applicable law, neither WageWorks nor HealthEquity undertakes any obligation to revise or update any forward-looking statement, or to make any other forward-looking or other statements, whether as a result of new information, future events or otherwise.

 

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PARTIES TO THE MERGER

WageWorks

WageWorks, Inc. (which we refer to as “WageWorks,” “we” or “us”) is a Delaware corporation headquartered in San Mateo, California. WageWorks is a leader in administering Consumer-Directed Benefits (“CDBs”) which empower employees to lower their tax expense and provide healthcare related tools for employers to provide to their employees. WageWorks provides companies with the technology, tools and a comprehensive understanding of current regulations, and are dedicated to administering CDBs. These include pre-tax spending accounts, such as Health Savings Accounts, health and dependent care Flexible Spending Accounts, Health Reimbursement Arrangement, plus commuter benefit services, including transit and parking programs, wellness programs, Consolidated Omnibus Budget Reconciliation Act, and other employee benefits. Our principal executive offices are located at 1100 Park Place, 4^th Floor, San Mateo, California 94403 and our telephone number is (650) 577-5200. For more information about WageWorks, please visit our website at https://www.wageworks.com/. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. See also the section of this proxy statement entitled “Where You Can Find More Information,” beginning on page 101. WageWorks common stock is publicly traded on the New York Stock Exchange (which we refer to as the “NYSE”) under the symbol “WAGE.”

HealthEquity

HealthEquity, Inc. (which we refer to as “HealthEquity”) is a Delaware corporation headquartered in Draper, Utah. HealthEquity connects health and wealth, delivering health savings account (HSA) and other consumer driven health and retirement solutions in partnership directly with employers and leading health, retirement and other benefit plan providers nationwide. HealthEquity members have access to its end-to-end platform and remarkable “purple” service to become consumers of healthcare while building health and retirement savings for tomorrow. HealthEquity is the custodian of $8.3 billion in assets for 4.1 million HSA members nationwide. HealthEquity’s principal executive offices are located at 15 West Scenic Pointe Drive, Suite 100, Draper, Utah 84020, and its telephone number is (801) 727-1000.

Merger Sub

Merger Sub is a Delaware corporation that was formed by HealthEquity solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement. Upon completion of the merger, Merger Sub will cease to exist.

 

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THE MERGER (PROPOSAL 1)

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

General

The merger agreement provides that, subject to the terms and conditions therein, Merger Sub will merge with and into WageWorks. WageWorks will be the surviving corporation in the merger and will continue to do business following the merger as a wholly owned subsidiary of HealthEquity. As a result of the merger, WageWorks will cease to be a publicly traded company. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation.

In the merger, each issued and outstanding share of WageWorks common stock (other than shares (i) owned by WageWorks as treasury stock or owned by HealthEquity, Merger Sub, or any other direct or indirect wholly owned subsidiary of HealthEquity, (ii) owned by any wholly owned subsidiary of WageWorks and (iii) held by stockholders of WageWorks who have properly and validly exercised, and not withdrawn or otherwise lost, their appraisal rights in accordance with the General Corporation Law of the State of Delaware (which we refer to as the “DGCL”)) will be converted into the right to receive $51.35 in cash, without interest.

Background of the Merger

The WageWorks board and our management team regularly evaluate WageWorks’ strategic direction and ongoing business plans with a view toward strengthening its business and enhancing stockholder value. As part of this evaluation, we have considered a variety of strategic alternatives for WageWorks, including (1) the continuation of WageWorks’ current business plan as an independent enterprise; (2) modifications to WageWorks’ strategy and product direction; (3) possible expansion opportunities through acquisitions; and (4) accelerating WageWorks’ revenue growth through strategic partnerships. Although we have been focused on growing WageWorks as an independent company, the WageWorks board and our management team have remained open to the possibility of a sale of WageWorks or other strategic business transactions if we received a transaction proposal that presented a compelling opportunity for WageWorks’ stockholders.

On October 24, 2018, the WageWorks board held a special meeting (which we refer to as the “October 24^th Meeting”) with members of management and representatives of Evercore Group L.L.C., a financial services firm (which we refer to as “Evercore”), Wilson Sonsini Goodrich and Rosati P.C., WageWorks’ outside corporate legal counsel (which we refer to as “Wilson Sonsini”), Skadden, Arps, Slate, Meagher & Flom LLP, outside legal counsel to the independent directors of the WageWorks board (which we refer to as “Skadden”), BDO USA, LLP, an accounting firm (which we refer to as “BDO”), Macias Gini & O’Connell LLP, an accounting firm (which we refer to as “MGO”), and KPMG LLP, at the time, WageWorks’ outside accounting firm (which we refer to as “KPMG”) in attendance at certain times. At the time of the October 24^th Meeting, WageWorks’ shares of common stock were trading at approximately $40.17 per share, approximately 23.4% less than the $52.45 per share closing price of WageWorks’ shares of common stock on February 28, 2018.

The decline in the trading price of WageWorks’ shares of common stock after February 28, 2018 coincided with a series of events stemming from issues with WageWorks’ financial accounting and reporting. As described in WageWorks’ prior public filings with the Securities and Exchange Commission (which we refer to as the “SEC”), those events included the following: (i) the audit committee of the WageWorks board (which we refer to as the “Audit Committee”) conducted an independent investigation of WageWorks’ accounting practices, financial statement reporting and internal control over financial reporting for fiscal years 2016 and 2017, (ii) it was concluded that the financial statements of WageWorks for certain periods in 2016 and 2017 needed to be restated and could no longer be relied upon, (iii) those financial restatements led to decreases in revenue, net income and adjusted EBITDA for fiscal year 2016, (iv) WageWorks reported material weaknesses in its internal

 

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control over financial reporting as of December 31, 2017 relating to managing change and assessing risk in the areas of non-routine and complex transactions, tone at the top, and commitment to competencies in the areas of non-routine and complex transactions, (v) as a result of such material weaknesses, the WageWorks board, upon recommendation of the Audit Committee, concluded that WageWorks’ internal control over financial reporting and disclosure controls and procedures were ineffective as of December 31, 2017, (vi) WageWorks could not file its Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Form 10-K”) or Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018 by the prescribed due date, (vii) the formation of a special committee of directors independent from the Audit Committee to carry out an independent investigation of the Audit Committee’s investigation in response to concerns raised by KPMG, (viii) the resignations of several members of WageWorks’ management, including its chief executive officer, chief financial officer and general counsel, and (ix) WageWorks’ failing to comply with the New York Stock Exchange’s (which we refer to as the “NYSE”) continued listing requirements and operating under an extension period for the continued listing of its common stock on the NYSE through March 19, 2019 in order for it to complete and file its 2017 Form 10-K.

At the October 24th Meeting, the WageWorks board discussed how to remedy WageWorks’ financial reporting situation and bring WageWorks current in its SEC filing obligations. Representatives of BDO and MGO presented to the WageWorks board proposals for BDO and MGO to provide audit services to WageWorks, indicating that they would commit the resources necessary to timely complete the outstanding audits and related SEC filings. Representatives of KPMG also led the WageWorks board through a detailed discussion of the significant ongoing audit challenges facing KPMG, provided updates on the status and timeline of its audit and the items impacting such timeline, and communicated to the WageWorks board that KPMG could not commit to a timeline to complete the financial statement filings and that other audit firms might be able to complete the required filings more quickly. Finally, representatives of Evercore assessed recent actions undertaken by WageWorks’ stockholders and advised the WageWorks board and management regarding strategic alternatives and contingency plans available to WageWorks should WageWorks not become current in its SEC filings by March 19, 2019. The WageWorks board discussed that it may be prudent to have some limited discussions with third parties regarding a potential sale of WageWorks as a contingency plan for responding to activist pressures.

On October 28, 2018, the WageWorks board held a special meeting with members of management and representatives of Wilson Sonsini, Skadden, and Paul Hastings LLP (which we refer to as “Paul Hastings”), outside legal counsel for the Audit Committee in its investigation of the financial reporting and accounting issues described above (which we refer to as the “Audit Committee Investigation”), in attendance at certain times. At the meeting, representatives from an independent third party accounting firm presented to the WageWorks board a proposal for such firm to provide audit services to WageWorks, including its preference to commence with auditing WageWorks’ fiscal year 2018, and noting that, if such accounting firm were required to complete the financial statement filings for fiscal years 2016 and 2017, the time frame for completing the 2018 audit could be delayed.

On October 31, 2018, the WageWorks board held a special meeting with members of management and representatives of Wilson Sonsini, Skadden and Paul Hastings in attendance at certain times. Stuart Harvey, the Executive Chairman of the WageWorks board, updated the WageWorks board that, based on recent discussions with KPMG, KPMG would not be able to meet the audit timeline necessary to complete WageWorks’ financial statement filings by March 19, 2019. The Audit Committee discussed reasons for terminating the engagement of KPMG as the Company’s independent registered public accounting firm and determined that it was in the best interests of WageWorks and its stockholders to dismiss KPMG. The Audit Committee proceeded to consider the engagement of, including independence matters related to, BDO and MGO and, after discussion, determined that it was in the best interests of WageWorks and its stockholders to engage BDO and MGO as its independent registered public accounting firms. The WageWorks board also discussed the engagement of a financial advisor to assess stockholder activities and the strategic alternatives and contingency plans that Evercore had raised at the October 24th meeting. The WageWorks board instructed members of management to initiate discussions with third parties, including financial sponsors, that could have an interest in engaging in a strategic transaction with WageWorks, and to involve Evercore in such discussions, as appropriate.

 

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On November 26, 2018, representatives of Evercore had a telephone call with a representative of a financial sponsor (which we refer to as “Sponsor A”), in which Sponsor A discussed the potential merits of a business combination between WageWorks and a portfolio company of Sponsor A, as well as Sponsor A’s desire to meet with WageWorks management to learn more about WageWorks’ business.

On December 3, 2018, a representative of a financial sponsor contacted Mr. Harvey to discuss such financial sponsor’s potential interest in exploring discussions regarding a strategic transaction with WageWorks. The financial sponsor sent a letter to Mr. Harvey on December 7, 2018 confirming its interest to partner with another financial sponsor in acquiring WageWorks. Ultimately, this financial sponsor did not engage in further substantive discussions with management regarding a strategic transaction, and it did not execute a confidentiality agreement with WageWorks.

On December 3, 2018, a representative of an investment bank contacted Evercore to broker a meeting between a strategic party (which we refer to as “Party A”) and WageWorks.

On December 3, 2018, the WageWorks board held a regularly scheduled meeting with members of management and representatives of BDO, MGO, Evercore, Wilson Sonsini, Skadden, and Sidley Austin LLP, outside counsel for the independent investigation of the Audit Committee Investigation, in attendance at certain times. Representatives of BDO and MGO updated the WageWorks board regarding the status of the audit work completed to date, the work that remained in progress, the expected timing to completion, and the preliminary results of their review thus far. Representatives from Evercore then discussed the strategic alternatives and contingency plans available to WageWorks in response to actions undertaken by stockholders and the possibility that WageWorks might not become current in its SEC filings by March 19, 2019 and provided a summary of recent discussions and inquiries that certain third parties, including Sponsor A, had with Evercore or members of WageWorks management. The WageWorks board instructed management to prepare financial projections and, with the assistance of Evercore, to evaluate the various alternatives available to WageWorks, including a potential strategic transaction, in the event WageWorks did not become current in its SEC filings by March 19, 2019. After representatives of Evercore left the meeting, the WageWorks board instructed members of WageWorks management to engage Evercore formally to assist WageWorks management in assessing and developing strategic alternatives that might be available to WageWorks in response to stockholder actions and the possibility that WageWorks might not become current in its SEC filings in time to avoid delisting with the NYSE, and in advising the Company in the event it received potential interest from third parties in acquiring WageWorks. The WageWorks board selected Evercore because of Evercore’s qualifications, expertise and reputation, and its knowledge of and involvement in recent transactions in WageWorks’ industry.

On December 3, 2018, WageWorks engaged Evercore as its financial advisor.

On December 5, 2018, a representative of Sponsor A informed representatives of Evercore on a telephone call that Sponsor A could not engage in any type of discussions regarding a possible strategic transaction until 2019.

On December 5, 2018, a representative of an investment bank contacted Mr. Harvey on behalf of a financial sponsor (which we refer to as “Sponsor B”) to discuss Sponsor B’s potential interest in engaging in a strategic transaction involving WageWorks and the possibility of arranging a meeting between Sponsor B and WageWorks in January 2019.

On December 19, 2018, a representative of Party A met with Mr. Harvey to discuss WageWorks’ business, its performance, and Party A’s potential interest in pursuing a strategic transaction with WageWorks.

On December 31, 2018, a financial sponsor delivered a letter to WageWorks management indicating its general interest in exploring a potential strategic transaction with WageWorks. The letter stated the sponsor was interested in acquiring 100% of the outstanding shares of WageWorks for a cash consideration of at least $35 per share. The letter followed a meeting on December 12, 2019 between a representative of such sponsor and Mr. Harvey in which the financial sponsor communicated its possible interest in exploring discussions regarding

 

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a strategic transaction. Ultimately, this financial sponsor did not engage in further substantive discussions with management regarding a strategic transaction and did not execute a confidentiality agreement with WageWorks.

On January 8, 2019, Mr. Harvey held a meeting with a representative of a financial sponsor to discuss the financial sponsor’s potential interest in a strategic transaction involving WageWorks. The next day, the financial sponsor emailed Mr. Harvey to confirm its interest. Ultimately, this financial sponsor did not engage in further substantive discussions with management regarding a strategic transaction and did not execute a confidentiality agreement with WageWorks.

On January 10, 2019, a representative of an investment bank had a telephone call with members of WageWorks management regarding Sponsor B’s interest in pursuing a material equity investment in WageWorks.

On January 11, 2019, Sponsor B delivered a letter to WageWorks management indicating its general interest in exploring a potential strategic transaction with WageWorks. The letter did not contain pricing terms.

The WageWorks board held a regularly scheduled meeting on January 11, 2019 with members of management and representatives of BDO, MGO, Evercore and Wilson Sonsini in attendance at certain times. During the meeting, among other items, representatives of Evercore updated the WageWorks board regarding significant market developments, including the Company’s stock price performance and recent analyst reports and potential areas that stockholder activists might focus on, including WageWorks’ board structure, compensation structure, stockholder rights, and audit and risk oversight. Representatives of Evercore also updated the WageWorks board regarding inquiries and unsolicited submissions of letters or emails of interest from third parties received since November 2018 regarding such third parties’ interest in exploring transactions with the Company. The WageWorks board and representatives of Evercore discussed such inquiries and submissions, including the WageWorks board’s belief that such third parties were looking to take advantage of WageWorks’ then-current stock price of approximately $27.87 per share, which, in the WageWorks board’s estimation, did not reflect WageWorks’ intrinsic value. The WageWorks board and representatives of Evercore also discussed the likelihood that BDO and MGO would complete their respective audits, and that WageWorks would complete its restatement of certain prior financial statements, in time for WageWorks to become current in its SEC filings by March 19, 2019. At the request of the WageWorks board, representatives of Wilson Sonsini addressed the WageWorks board’s fiduciary duties in the context of a potential sale of WageWorks.

On January 14, 2019, Mr. Harvey had a telephone call with a representative of a financial sponsor (which we refer to as “Sponsor C”) regarding Sponsor C’s interest in pursuing a strategic investment and/or transaction with WageWorks. Mr. Harvey and representatives from Sponsor C had previously held a lunch meeting in September 2018 to discuss WageWorks’ business and Sponsor C’s potential interest in a strategic transaction.

On January 15, 2019, at the request of WageWorks management, a representative of Evercore spoke with a representative of a financial sponsor (which we refer to as “Sponsor D”) to discuss Sponsor D’s potential interest in a strategic transaction with WageWorks.

On January 16, 2019, Mr. Harvey and representatives of Sponsor C organized a dinner meeting for February 13, 2019.

On January 28, 2019, a representative of Evercore spoke with Sponsor A telephonically. In the discussion, Sponsor A reiterated its interest in a strategic combination involving WageWorks and Sponsor A’s portfolio company.

The WageWorks board held a regularly scheduled meeting on January 29, 2019 with members of management and representatives of Evercore and Wilson Sonsini in attendance at certain times. Members of management updated the WageWorks board regarding the work completed, in progress and scheduled by BDO and MGO and the timeline to complete the restatement of certain prior financial statements and the audit for

 

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fiscal year 2017, including management’s expectation that WageWorks would be in compliance with the listing requirements of the NYSE by early March 2019. Management then led the WageWorks board through a discussion regarding the Company’s financial projections, and Evercore led the WageWorks board through an initial valuation framework, as well as stockholder engagement strategies the WageWorks board and management should consider implementing following the anticipated completion of the financial statement filings. The WageWorks board then had a discussion regarding strategic alternatives and contingency plans available to WageWorks in the event that WageWorks failed to be in compliance with the NYSE listing requirements by the March 19, 2019 deadline.

On January 30, 2019 a representative of an investment bank had a telephone call with members of WageWorks management on behalf of Sponsor B to explain Sponsor B’s interest in investing in WageWorks and how this partnership with Sponsor B would be beneficial to WageWorks.

On February 13, 2019, Mr. Harvey, members of management, and certain members of the WageWorks board held a dinner meeting with representatives from Sponsor C in attendance during which the parties discussed Sponsor C’s potential interest in a strategic transaction with WageWorks. Ultimately, Sponsor C did not engage in further substantive discussions with management and did not execute a confidentiality agreement with WageWorks.

The WageWorks board held a regularly scheduled meeting on February 14, 2019 with members of management and representatives of Evercore and Wilson Sonsini in attendance at certain times. Members of management updated the WageWorks board regarding the progress of the audit work by BDO and MGO and the timeline to complete the restatement of certain prior financial statements and the audit for fiscal year 2017. Representatives of Evercore led the WageWorks board through a detailed discussion of stockholder engagement strategies the WageWorks board and management should consider implementing following the anticipated completion of the financial statement filings, and the WageWorks board had a discussion regarding strategic alternatives and contingency plans available to WageWorks in the event that WageWorks failed to be in compliance with the NYSE listing requirements by the March 19, 2019 deadline.

On February 28, 2019, WageWorks made a filing with the SEC stating that WageWorks did not expect to file its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (which we refer to as the “2018 Form 10-K”) by the prescribed due date. In this filing, WageWorks stated that it was working to complete the preparation of its financial statements for the fiscal quarters ended September 30, 2018, June 30, 2018 and March 31, 2018, the 2017 Form 10-K and 2018 Form 10-K, and its 2016 and 2017 restated financials, as soon as practicable.

The WageWorks board held a regularly scheduled meeting on March 11, 2019 with members of management and representatives of Wilson Sonsini in attendance. Among other matters discussed at the meeting, members of management updated the WageWorks board regarding the timeline to complete the restatement of WageWorks’ financial statements for the periods ended June 30, 2016 and September 30, 2016, the audit for fiscal year 2017, and the financial statements for the first three quarters of fiscal year 2018, and the anticipated timing of the filings of the related periodic reports.

On March 18, 2019, WageWorks filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2018, June 30, 2018 and September 30, 2018, as well amended Quarterly Reports on Form 10-Q for the quarters ended June 30, 2016 and September 30, 2016.

On March 25, 2019, WageWorks filed a Current Report on Form 8-K announcing that it had received a notice from the NYSE that the Company was not in compliance with the NYSE’s continued listing requirements as a result of the Company’s failure to timely file the 2018 Form 10-K. In the Current Report on Form 8-K, WageWorks announced that, under the NYSE’s listing rules, WageWorks had six months from March 1, 2019 to file the 2018 Form 10-K or risk delisting. The Current Report on Form 8-K specified that WageWorks planned to file the 2018 Form 10-K with the SEC as soon as possible, but in any event no later than May 2019, and that it would file its Quarterly Report on Form 10-Q for the quarter ended March 30, 2019 in June 2019.

 

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On April 1, 2019, Edgar Montes, the President and Chief Executive Officer of WageWorks, had a telephone call with a representative of a strategic party (which we refer to as “Party B”) to discuss the possible expansion of the parties’ commercial relationship.

The WageWorks board held a regularly scheduled meeting on April 4, 2019 with members of management and representatives of Wilson Sonsini in attendance. Among other matters discussed at the meeting, members of management updated the WageWorks board regarding the timeline to file the 2018 Form 10-K.

On April 8, 2019, representatives of a financial sponsor (which we refer to as “Sponsor E”) met with a representative of WageWorks to discuss the business, financial and technical aspects of WageWorks.

On April 11, 2019, Jon Kessler, the President and Chief Executive Officer of HealthEquity, Inc. (which we refer to as “HealthEquity”) contacted Mr. Montes to propose a meeting. That same day, Messrs. Kessler and Montes had a brief introductory telephone call during which Mr. Kessler informed Mr. Montes that HealthEquity would be delivering a letter later that day to Mr. Montes regarding HealthEquity’s interest in pursuing a strategic transaction with WageWorks.

On April 11, 2019, WageWorks received an unsolicited, non-binding indication of interest from HealthEquity expressing its interest in acquiring WageWorks for $50.50 per share in cash (which we refer to as the “April 11 Offer”), attached to which was a proposed confidentiality and standstill agreement intended to facilitate a 30 day due diligence period and a letter from Wells Fargo Bank, N.A. and Wells Fargo Securities, LLC evidencing an initial commitment to finance the proposed acquisition. At that time, shares of WageWorks’ common stock were trading at approximately $40.13 per share. The April 11 Offer requested that WageWorks provide HealthEquity with a response no later than April 19, 2019.

On April 14, 2019, Mr. Harvey, an independent director of the WageWorks board, and representatives of Evercore and Wilson Sonsini held a telephone call to discuss the key terms of the April 11 Offer.

The WageWorks board held a special meeting on April 17, 2019 with members of management and representatives of Evercore and Wilson Sonsini in attendance at certain times. After introductory remarks, Mr. Harvey summarized for the WageWorks board the key features of the April 11 Offer, including the terms of the confidentiality and standstill agreement proposed by HealthEquity. At the WageWorks board’s request, representatives of Evercore discussed potential strategies in response to the April 11 Offer. Representatives of Wilson Sonsini outlined the WageWorks board’s fiduciary duties with respect to its consideration of a potential sale of WageWorks and described certain legal and process considerations which would likely be implicated by any potential sale of WageWorks. The WageWorks board discussed that a more comprehensive review of the April 11 Offer and the potential strategies in response thereto would be had at the next meeting of the WageWorks board scheduled for April 25, 2019. Following the April 17, 2019 meeting of the WageWorks board, Mr. Harvey delivered an email message to Mr. Kessler acknowledging the WageWorks board’s receipt of the April 11 Offer and indicating that WageWorks would not be in a position to respond by the April 19, 2019 deadline.

On April 24, 2019, Mr. Kessler contacted Mr. Harvey by telephone to inquire as to the status of WageWorks’ deliberations on the April 11 Offer. On the telephone call, Mr. Harvey again thanked Mr. Kessler for the April 11 Offer, noted the WageWorks board’s heavy workload, and committed to provide a meaningful response to the April 11 Offer during the week of April 29.

The WageWorks board held a regularly scheduled meeting on April 25, 2019 with members of management and representatives of Evercore and Wilson Sonsini in attendance at certain times. Management and representatives from Wilson Sonsini and Evercore led a discussion regarding the 2019 annual meeting of WageWorks’ stockholders that focused on the timing of and preparations for such meeting, including a proposed outreach to stockholders in advance thereof. Mr. Harvey then updated the WageWorks board regarding recent communications with representatives of HealthEquity. At the WageWorks board’s request, representatives of Evercore presented a

 

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preliminary valuation of WageWorks based on financial projections generated by WageWorks management and discussed the valuation in the context of the April 11 Offer. Representatives of Evercore then led a discussion of potential strategies in response to the April 11 Offer, including contacting other parties to assess their interest in a potential acquisition or other form of business combination with WageWorks and entering into a confidentiality and standstill agreement with HealthEquity acceptable to WageWorks so that WageWorks could share non-public information with HealthEquity to enable HealthEquity to better understand WageWorks’ business and operations and thereby allow HealthEquity to potentially increase its proposed purchase price above the $50.50 per share price set forth in the April 11 Offer. The WageWorks board discussed each alternative, noting that any confidentiality agreement must contain standstill provisions acceptable to WageWorks that would restrict HealthEquity’s ability to engage in hostile behavior during a reasonable time period, especially if it were to become privy to WageWorks’ confidential information. The WageWorks board then led a discussion regarding the challenges arising from the April 11 Offer and considerations management must be mindful of, including stockholder and employee welfare, and customer satisfaction and retention.

On April 29, 2019, Messrs. Harvey, Montes and Kessler participated in a previously scheduled telephone call to provide Mr. Kessler with feedback from the WageWorks board in respect of the April 11 Offer. On the telephone call, Mr. Harvey indicated that the WageWorks board did not believe that the proposed price of $50.50 per share was sufficient, but that the WageWorks board supported continued discussions between WageWorks and HealthEquity and intended to provide HealthEquity with access to confidential diligence materials in furtherance of pricing discussions, subject to HealthEquity agreeing to the terms of a revised confidentiality and standstill agreement.

On April 29, 2019, Mr. Kessler delivered a text message to Mr. Harvey explaining that HealthEquity had received questions from the press regarding the April 11 Offer, and that HealthEquity would be compelled to publicly comment regarding the April 11 Offer in the event of any press reports regarding the offer.

On April 29, 2019, following Mr. Kessler’s communication to Mr. Harvey and press reports speculating over a potential offer from HealthEquity to acquire the Company, WageWorks issued a press release confirming that it had received an unsolicited, non-binding proposal from HealthEquity to acquire the Company.

On April 30, 2019, HealthEquity issued a press release confirming that it had made a non-binding proposal to acquire WageWorks for $50.50 per share in cash.

The WageWorks board held a special meeting on April 30, 2019 with members of management and representatives of Evercore, Wilson Sonsini, and Sard Verbinnen & Co., LLC, WageWorks’ outside public relations consultant (which we refer to as “Sard”), in attendance at certain times. After introductory remarks, Mr. Harvey updated the WageWorks board regarding his discussions with HealthEquity, recent news reports regarding the April 11 Offer, WageWorks’ response to such news reports, and WageWorks’ stock performance following news reports publicizing the April 11 Offer. At the WageWorks board’s request, representatives of Evercore led a discussion regarding potential strategies in response to the April 11 Offer, including conducting a market check to gauge the interest of third parties in a potential acquisition of WageWorks, instituting a preferred stockholder rights plan to increase the leverage of WageWorks’ existing stockholders, and/or entering into a confidentiality and standstill agreement with HealthEquity to permit the sharing of non-public information to potentially increase the purchase price of the April 11 Offer. At the WageWorks board’s request, representatives of Wilson Sonsini outlined the WageWorks board’s fiduciary duties with respect to its consideration of a potential sale of WageWorks and the legal standard for review with respect to potentially adopting a preferred stockholder rights plan and described certain legal and process considerations that would likely be implicated by any potential sale of the Company. Following extended discussion and consideration, the WageWorks board instructed Evercore to commence a market check of financial sponsors and strategic parties that may have interest in a strategic transaction with WageWorks, stipulated to Evercore and Wilson Sonsini that any third-party with interest in pursuing such a strategic transaction must enter into a confidentiality agreement with WageWorks, which confidentiality agreement should contain standstill provisions unless, in the determination of WageWorks management, there is sufficient justification to not require such provisions, and directed Evercore

 

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and Wilson Sonsini to negotiate a confidentiality agreement with HealthEquity that prevented HealthEquity from commencing takeover efforts or using confidential information of WageWorks in any hostile action to acquire the Company for a reasonable period of time.

On April 30, 2019, representatives of Evercore commenced a strategic process that would result in Evercore reaching out to seventeen strategic parties and/or financial sponsors, consistent with the directions of the WageWorks board and management. Beginning on April 30, 2019, Evercore distributed WageWorks’ proposed confidentiality agreement to most participants in the strategic process. Ten parties, including HealthEquity, executed confidentiality agreements with WageWorks, with nine of such agreements, including that of HealthEquity, containing standstill provisions preventing the applicable counterparties from making public acquisition proposals for a prescribed period of time, all of which standstill provisions would terminate upon WageWorks having entered into a definitive agreement to effectuate a business combination, and certain of which standstill provisions, including that of HealthEquity, would terminate upon a third party announcing a tender offer to acquire more than 50% of WageWorks’ outstanding shares of common stock. In addition, the standstill provision applicable to HealthEquity would terminate if WageWorks announced the date of its 2019 annual meeting of stockholders, among other similar termination triggers. Eight parties, including HealthEquity, received access to a virtual data room containing non-public information of WageWorks, and five parties attended management meetings with WageWorks.

On April 30, 2019, members of Evercore held a telephone call with a representative of a strategic party (which we refer to as “Party C”) regarding Party C’s potential interest in a strategic transaction with WageWorks.

On April 30, 2019, representatives of management communicated with a representative of Party B, who confirmed Party B’s interest in a potential strategic transaction with WageWorks.

On May 1, 2019, representatives of Evercore communicated with representatives of Sponsor A, who confirmed that Sponsor A was still interested in exploring a potential business combination between WageWorks and a portfolio company of Sponsor A.

Also on May 1, 2019, representatives of Evercore communicated with representatives of Party A regarding its continued interest in a potential strategic transaction with WageWorks.

On May 2, 2019, representatives of Evercore communicated with Sponsor D and Sponsor E, respectively, confirming their continued interest in exploring a potential strategic transaction with WageWorks.

On May 3, 2019, representatives of Evercore had a telephone call with a representative of Party C in which Party C confirmed its interest in pursuing a strategic transaction with WageWorks.

On May 3, 2019, representatives of Evercore had a telephone call with a representative of a strategic party (which we refer to as “Party D”) regarding Party D’s potential interest in a strategic transaction involving WageWorks.

On May 3, 2019, representatives of Willkie Farr & Gallagher LLP (which we refer to as “Willkie”), outside legal counsel to HealthEquity, delivered a second letter to the WageWorks board on behalf of HealthEquity (which we refer to as the “May 3 Letter”) via Wilson Sonsini in the context of ongoing negotiations over the terms of the proposed confidentiality and standstill agreement. An initial draft of a merger agreement, pursuant to which HealthEquity proposed to acquire all of the issued and outstanding shares of common stock of WageWorks, accompanied the May 3 Letter. Willkie’s initial draft of the merger agreement contemplated, among other things, merger consideration in the amount of $50.50 for each share of WageWorks common stock outstanding, a 30 day “go-shop” period with the ability to continue discussions with a party that has submitted a written proposal that is a superior proposal, and a termination fee of 3.5% of the equity value of WageWorks in the event WageWorks entered into an alternative proposal, or 1.5% of the equity value of WageWorks in the event WageWorks entered

 

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into an alternative proposal with an “excluded party”. Following Willkie’s delivery of the May 3 Letter to Wilson Sonsini, Mr. Kessler communicated to Mr. Harvey that the delivery of the May 3 Letter and the accompanying draft merger agreement was intended to serve as a constructive means to advance discussions between the parties in the context of the ongoing negotiations over the terms of the proposed confidentiality and standstill agreement.

On May 5, 2019, the WageWorks board held a special meeting with members of management and representatives of Evercore and Wilson Sonsini in attendance at certain times. Following introductory remarks, Mr. Harvey updated the WageWorks board regarding his communications with HealthEquity, other potentially interested third parties, and certain significant customers and stockholders. At the request of the WageWorks board, representatives of Wilson Sonsini summarized the material terms of the initial draft of the merger agreement and potential revisions thereto to create a more Company-friendly document. The WageWorks board, together with members of management and representatives of Evercore and Wilson Sonsini, discussed the inadequacy of HealthEquity’s $50.50 offer, the optimal strategy for obtaining a higher purchase price, the likelihood that a higher purchase price would be achieved through engagement with HealthEquity or through the strategic process underway with third parties, and timing considerations in respect of the 2019 first quarter earnings call, the 2019 annual meeting of stockholders and the potential disruption to customers and sales as a result of recent developments. The WageWorks board also authorized Evercore to request initial indications from the parties involved in the strategic process by May 24, 2019. The WageWorks board concluded that it was in the best interests of WageWorks and its stockholders for management both to engage directly with HealthEquity and to continue the strategic process with potentially interested third parties, subject to HealthEquity agreeing to execute a confidentiality agreement with an acceptable standstill provision to foreclose further hostile actions and to prevent HealthEquity from using non-public information in connection with any aggressive actions.

On May 5, 2019, Mr. Harvey and Mr. Kessler had a telephone call during which Mr. Harvey communicated to Mr. Kessler on behalf of the WageWorks board that the May 3 Letter and accompanying draft merger agreement was viewed as constructive, that a confidentiality agreement with appropriate standstill provisions was a prerequisite to further discussions between WageWorks and HealthEquity, that the WageWorks board had directed Evercore to work with HealthEquity’s financial advisors at Perella Weinberg Partners LP (which we refer to as “PWP”) to facilitate a mutually acceptable resolution to the ongoing negotiations on the standstill terms, and that an in-person meeting between Mr. Harvey and Mr. Kessler should occur following resolution of the confidentiality and standstill agreement discussions.

On May 6, 2019, representatives of Evercore had a telephone call with Sponsor A to discuss Sponsor A’s interest and the likely timeline of its due diligence process.

On May 6, 2019, representatives of Evercore had a telephone call with a representative of a strategic party (which we refer to as “Party E”) to inquire regarding Party E’s potential interest in a strategic transaction with WageWorks.

On May 7, 2019, WageWorks and HealthEquity entered into a mutually acceptable confidentiality and standstill agreement.

On May 13, 2019, Mr. Harvey, Mr. Kessler and Stephen D. Neeleman, HealthEquity’s Founder and Vice Chairman, held a dinner meeting to meet in-person and discuss HealthEquity’s due diligence process in respect of the Company. During the meeting, Mr. Harvey reiterated that the WageWorks board had not agreed to sell the Company for $50.50 per share, and that the WageWorks board expected HealthEquity to increase its proposed offer price following the due diligence process. Mr. Kessler indicated that prompt access to comprehensive due diligence materials would be the fastest path to potential additional value for WageWorks’ stockholders, and the parties committed to schedule management meetings between members of WageWorks’ and HealthEquity’s respective extended management teams.

On May 14, 2019, the WageWorks board held a special meeting with members of management and representatives of Evercore and Wilson Sonsini in attendance at certain times. Following introductory remarks,

 

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Mr. Harvey updated the WageWorks board regarding his communications with HealthEquity, other potentially interested third parties, and certain significant customers and stockholders. The WageWorks board reviewed the principal terms of the confidentiality agreement entered into with HealthEquity, including the standstill provision, which prevented HealthEquity for a period of 60 days beginning May 7, 2019 from acquiring shares of WageWorks common stock or making a proposal to acquire the Company, but which provisions would fall away once WageWorks announced the date of its 2019 annual meeting of stockholders or solicited proposals from stockholders for the 2019 annual meeting, or at such time WageWorks’ stockholders had the right to submit proposals for the 2019 annual meeting (in addition to other customary termination rights). Representatives of Evercore then updated the WageWorks board regarding the status of the strategic process, including that 10 parties had entered into confidentiality agreements, that 9 of these contained standstill provisions, that all of these standstill provisions would terminate if WageWorks entered into a definitive agreement with a third-party to effectuate a business combination, and that Evercore was engaged in discussions with certain third parties regarding their interest in attending due diligence or management meetings. The WageWorks board then directed Wilson Sonsini to deliver a revised draft of the merger agreement to Willkie in line with the discussion of the material terms of the merger agreement and approaches with respect thereto that was had at the May 5, 2019 WageWorks board meeting. The WageWorks board directed members of management and representatives of Evercore again to convey to HealthEquity that the WageWorks board believed that HealthEquity’s offer of $50.50 per share did not adequately value the Company.

On May 14, 2019, Mr. Kessler emailed Mr. Harvey regarding plans for an upcoming due diligence meeting between the parties in Arizona, including the possible topics for discussion and the groups to be involved.

On May 17, 2019, Wilson Sonsini delivered a revised draft of the merger agreement to Willkie that contemplated, among other things, a 60 day “go-shop” period with an ability to continue discussions with a party that has submitted a written proposal that is reasonably likely to lead to a superior proposal, and a termination fee of 3% of the equity value of WageWorks in the event WageWorks entered into an alternative proposal, or 1% of the equity value of WageWorks in the event WageWorks entered into an alternative proposal with an “excluded party”.

On May 20, 2019, WageWorks hosted Sponsor A for an in-person management meeting where members of WageWorks management presented regarding business, financial and technical aspects of WageWorks.

On May 21, 2019, representatives of Evercore held a telephone call with representatives of Sponsor E to discuss Sponsor E’s due diligence progress and its expected timeline. The parties spoke the next day regarding WageWorks’ financial projections and Sponsor E’s financial modeling in connection therewith.

On May 21, 2019, WageWorks hosted Sponsor D for an in-person management meeting where members of WageWorks management presented regarding business, financial and technical aspects of WageWorks.

On May 21 and May 22, 2019, Mr. Harvey and Mr. Kessler exchanged several emails regarding data room access rights for representatives of HealthEquity.

On May 22 and May 23, 2019, WageWorks management and representatives of Evercore conducted due diligence calls with representatives of HealthEquity and PWP, which calls focused on the tax, finance, accounts and information technology aspects of WageWorks. During these meetings, members of WageWorks management and representatives of Evercore conveyed to HealthEquity that the WageWorks board did not believe that HealthEquity’s offer to acquire WageWorks for $50.50 per share was indicative of the intrinsic value of WageWorks.

On May 24, 2019, Parties A, D and E, and Sponsors A, B, D, and E, did not submit an initial indication, citing, among other things, their inability to exceed the price set forth in the April 11 Offer. Party C submitted a preliminary, non-binding letter of intent to acquire WageWorks for $55.50 per share in cash, which proposal was

 

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conditioned on Party C identifying a third-party financial sponsor that would provide financial assistance to Party C in acquiring WageWorks and also agree to acquire a related carve-out business. Party C communicated that it would likely need six-to-eight weeks to select a third-party financial sponsor partner and conduct the requisite due diligence on WageWorks. At this time, WageWorks made non-public information available to Party C in order to permit Party C to conduct detailed due diligence on WageWorks’ technical and business operations. Party B communicated to Evercore that it maintained interest in acquiring WageWorks and provided a high-level illustrative transaction structure involving a subsidiary of Party B, but did not provide specificity on purchase price.

From May 28, 2019 through May 30, 2019, members of WageWorks management hosted representatives of HealthEquity and PWP in Tempe, Arizona for management meetings that included a detailed review of WageWorks’ business operations, with an enhanced focus on WageWorks’ financial, informational technology, accounting, regulatory and legal departments.

On May 30, 2019, WageWorks filed its 2018 Form 10-K with the SEC.

On June 4, 2019, management learned that HealthEquity had acquired approximately 1.6 million shares of WageWorks common stock from February 1, 2019 through April 4, 2019, which represented in the aggregate approximately 4% of the issued and outstanding shares of WageWorks common stock.

On June 5^, 2019, WageWorks held an in-person management meeting with Party C in New York, New York where members of management presented regarding legal, compliance, operations, sales and marketing aspects of the business, as well as potential synergies between Party C and WageWorks. Following the meeting, representatives of Evercore contacted Party C’s financial advisors frequently to remind Party C that timing was critical.

On June 9, 2019, Party C delivered its due diligence request list to Evercore and Wilson Sonsini, and representatives of Party C and Evercore and Wilson Sonsini had a telephone call on June 10, 2019 to discuss certain aspects of Party C’s due diligence request list.

On June 12, 2019, WageWorks hosted Party B for an in-person management meeting where members of WageWorks management presented regarding business, financial and technical aspects of WageWorks.

On June 13, 2019, Party C and Party C’s outside counsel had a call with members of WageWorks management and representatives of Wilson Sonsini regarding litigation matters that were outstanding as of such date.

On June 14, 2019, HealthEquity submitted a revised proposal to acquire WageWorks for $51.00 per share in cash, which offer was not subject to due diligence but was subject to the successful negotiation of the merger agreement. HealthEquity explained that it had increased its offer by $0.50 per share in response to the WageWorks board’s stated belief that $50.50 was not adequate nor indicative of the intrinsic value of WageWorks, but that HealthEquity was not prepared to offer a higher price because its due diligence review uncovered several issues with respect to the Company’s lower revenue and earnings trajectory for 2019, concerns over the lack of meaningful new sales activity, the lack of meaningful revenue generation from HSAs, and a higher fully diluted share count than anticipated by HealthEquity due to WageWorks’ commitment to issue equity awards to employees that had not been issued due to WageWorks’ failure to remain current in its SEC periodic reporting obligations.

That same day, representatives of Willkie delivered a revised draft of the merger agreement to Wilson Sonsini, which contemplated, among other things, the elimination of the go-shop period and a termination fee of 3.25% of the equity value of WageWorks in the event WageWorks entered into an alternative proposal.

On June 16, 2019, Party C’s financial advisor notified Evercore that Party C had selected a financial sponsor to assist in its acquisition of WageWorks in accordance with the conditions of Party C’s proposal to acquire WageWorks set forth in its non-binding letter of intent, dated May 24, 2019.

 

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The WageWorks board held a special meeting on June 17, 2019 with members of management and representatives of Evercore and Wilson Sonsini in attendance at certain times. Following introductory remarks, Mr. Harvey updated the WageWorks board regarding his communications with HealthEquity, HealthEquity’s completion of due diligence, and the valuation reflected in HealthEquity’s June 14 revised offer to acquire WageWorks for $51.00 per share. Mr. Harvey and representatives of Evercore updated the WageWorks board regarding their respective communications with other potential acquirors, including that Party C was the only third-party other than HealthEquity that had submitted an indication of interest, that no third-party contacted during the strategic process other than HealthEquity and Party C appeared to have any remaining interest in pursuing a strategic transaction with WageWorks, and that Party C’s proposal to acquire WageWorks for $55.50 per share was subject to due diligence and conditioned on Party C identifying a third-party financial sponsor that would be required not only to provide financial assistance to Party C in acquiring WageWorks but to also agree to acquire a related carve-out business. Mr. Harvey and representatives of Evercore informed the WageWorks board that Party C was still weeks away from completing due diligence, that Party C had identified its financial partner the day before, and that such financial partner had not yet conducted any due diligence. The WageWorks board, together with members of management and representatives of Evercore and Wilson Sonsini, then discussed HealthEquity’s increased offer of $51.00 per share and how it compared to a valuation of the Company based on financial projections generated by WageWorks management, the timing of the completion of Party C’s due diligence, the expected timing of Party C’s revised offer, the complexity involved in the proposed transaction with Party C and its financial partner, the low likelihood that a revised offer from Party C would still approach $55.50 per share, and the inherent uncertainty and risks associated with Party C’s proposal. At the request of the WageWorks board, representatives of Wilson Sonsini reviewed the fiduciary duties of the directors and the legal standard for review with respect to the potential sale of the Company. The WageWorks board then directed representatives of Evercore to inform HealthEquity and/or PWP that HealthEquity’s offer on June 14, 2019 for $51.00 per share was insufficient, and that Evercore had authorization to propose $53.50 per share if HealthEquity or PWP requested a price that the WageWorks board believed may be indicative of the intrinsic value of the Company.

On June 18, 2019, representatives of Evercore and Mr. Harvey informed PWP that HealthEquity’s June 14 revised offer of $51.00 per share was insufficient. Evercore informed PWP that WageWorks was not prepared to make a counteroffer, but that if HealthEquity raised the price to $53.50, that may be high enough for Mr. Harvey to reconvene the WageWorks board.

On June 19, 2019, HealthEquity revised its proposal to acquire WageWorks to $52.00 per share, which offer was subject to the successful negotiation of a final merger agreement by June 23, 2019, at which time HealthEquity’s offer would expire.

The WageWorks board held a special meeting on June 20, 2019 with members of management and representatives of Evercore and Wilson Sonsini in attendance at certain times. Mr. Harvey updated the WageWorks board regarding his communications with HealthEquity, the increase in HealthEquity’s offer to $52.00 per share, and that the offer was conditioned upon the successful negotiation of the merger agreement by June 23, 2019. The WageWorks board, together with members of management and representatives of Evercore, discussed HealthEquity’s revised offer of $52.00 per share and how it compared to a valuation of the Company based on financial projections generated by WageWorks management, whether $52.00 per share sufficiently captured the intrinsic value of the Company, the expected timing of the completion of Party C’s due diligence, the timing of Party C’s revised offer, the complexity involved in the proposed transaction with Party C and its financial partner, the low likelihood that a revised offer from Party C would still approach $55.50 per share, and the inherent uncertainty and risks underlying Party C’s proposal. At the request of the WageWorks board, representatives of Wilson Sonsini reviewed the fiduciary duties of the directors and the legal standard for review with respect to the potential sale of WageWorks, including the interplay between evaluating the probability of competing offers coming to fruition, break-up fees, potential challenges in connection with the sale, and the risks in waiting for Party C to provide a revised offer in light of various timing considerations, such as the 2019 annual meeting of stockholders and potential customer and sales disruption. Following a substantial discussion, the WageWorks board concluded it was not advisable to wait for Party C (and its financial partner) to complete due

 

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diligence and make a revised proposal, and the WageWorks board directed Evercore to convey to HealthEquity and PWP that the WageWorks board was prepared to accept the revised offer of $52.00 per share and directed Wilson Sonsini to prepare a revised draft of the merger agreement with the goal of finalizing the merger agreement by June 23, 2019.

Following the WageWorks board meeting, representatives of Evercore informed PWP that the WageWorks board was prepared to accept HealthEquity’s revised offer to acquire WageWorks for $52.00 per share.

Later that same day, representatives of Wilson Sonsini delivered a revised draft of the merger agreement to Willkie.

Between June 20, 2019 and June 23, 2019, the parties and representatives of Willkie and Wilson Sonsini negotiated and finalized the remaining open issues in the merger agreement, and representatives of Wilson Sonsini and Willkie also finalized the ancillary transaction documents.

On June 23, 2019, shortly before the WageWorks board was to hold a special meeting to consider the terms of the proposed transaction, the parties discovered there was a misunderstanding between the parties regarding the outstanding fully diluted share count of WageWorks due to WageWorks’ treatment of outstanding RSUs that had vested but not yet settled. Between June 23, 2019 and June 26, 2019, the parties and their respective representatives discussed the fully diluted share count and the origins of the misunderstanding. HealthEquity and PWP advised members of WageWorks management and representatives of Evercore that the $52.00 price per share would need to be adjusted in light of the misunderstanding, and that additional revisions to the merger agreement would be necessary as well.

On June 25, 2019, HealthEquity revised its offer to $51.20 per share, attributing the decrease in the price per share primarily to the additional shares that HealthEquity had not factored into its valuation analysis. That same day, representatives of Willkie delivered a revised draft of the merger agreement to representatives of Wilson Sonsini, which, among other things, contemplated a new closing condition that, subject to certain exceptions, required WageWorks and its auditors, if requested by HealthEquity, to deliver customary auditor consents and comfort letters and confirm in writing at the time of a debt or equity financing that they were prepared to deliver comfort letters with respect to such financing.

On June 26, 2019, WageWorks management confirmed to representatives of HealthEquity that an adjustment to the per share price was acceptable based on the fully diluted share count being higher than originally contemplated by HealthEquity, but that a proportionate adjustment did not equate to a decrease to $51.20 per share. After negotiation, the parties agreed to a revised price of $51.35 per share. Later that same day, the parties and representatives of Willkie and Wilson Sonsini once again negotiated and finalized the remaining open issues in the merger agreement.

On June 26, 2019, the WageWorks board held a special meeting to consider the terms of the proposed transaction with members of WageWorks management and representatives of Evercore and Wilson Sonsini in attendance at certain times. Representatives of Wilson Sonsini addressed the WageWorks board’s fiduciary duties in connection with a sale of WageWorks, summarized the strategic process led by WageWorks management with the assistance of Evercore, reviewed the terms of the draft merger agreement circulated prior to the WageWorks board meeting, and led the WageWorks board through a discussion regarding the resolutions it would adopt to approve the merger agreement and the merger. Evercore then reviewed with the WageWorks board its financial analysis of the merger consideration and delivered to the WageWorks board its oral opinion, subsequently confirmed in writing, to the effect that, as of that date and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s opinion, the merger consideration of $51.35 per share to be received by the holders of shares of WageWorks common stock in the merger was fair, from a financial point of view, to such holders (other than HealthEquity, Merger Sub and their respective affiliates). For more information about Evercore’s opinion, see below under the caption “The Merger (Proposal 1)—Opinion of Evercore Group L.L.C.”. After discussing potential reasons for and against the proposed

 

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transaction (see below under the caption “The Merger — Reasons for the Merger; Recommendation of the WageWorks Board of Directors”), the WageWorks board unanimously (i) determined that it was in the best interests of WageWorks and its stockholders, and declared it advisable to enter into the merger agreement, (ii) approved the execution, delivery and performance by WageWorks of the merger agreement and the consummation of the transactions contemplated by the merger agreement, including the merger and (iii) resolved to recommend adoption of the merger agreement by the stockholders of WageWorks at any meeting of stockholders to be called for the purposes of acting thereon.

On the evening of Wednesday, June 26, 2019, the parties executed the merger agreement and the related agreements in connection with the transaction, and issued a joint press release on the morning of Thursday, June 27, 2019 announcing the transaction.

Reasons for the Merger; Recommendation of the WageWorks Board of Directors

At a meeting held on June 26, 2019, the WageWorks board unanimously (1) determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger are advisable, and fair to and in the best interests of the WageWorks stockholders, (2) approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement, including the merger, (3) directed that a special meeting of the WageWorks stockholders be held for the purposes of voting on the adoption of the merger agreement, and (4) resolved to recommend that the WageWorks stockholders vote in favor of the adoption of the merger agreement at the special meeting.

The WageWorks board hereby unanimously recommends that, at the special meeting, the WageWorks stockholders vote:

 

•

“FOR” the proposal to adopt the merger agreement;

 

•

“FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement; and

 

•

“FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related compensation to our named executive officers.

In considering these recommendations, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. The WageWorks board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in making the foregoing recommendations. Please see the section of this proxy statement entitled “The Merger (Proposal 1) — Interests of Directors and Officers in the Merger” beginning on page 51 for additional information regarding these matters.

The WageWorks Board’s Reasons for Approving the Merger Agreement and Recommending that Stockholders Adopt the Merger Agreement

The WageWorks board routinely and regularly evaluates WageWorks’ business strategy and prospects to ensure the company is addressing market trends and opportunities and seeking to build long term stockholder value. Throughout its evaluation of the merger, the WageWorks board consulted regularly with our senior management team, our financial advisor and our outside legal advisor. As part of its evaluation, the WageWorks board determined that the following important factors suggested that the merger is in the best interests of the WageWorks stockholders:

 

•

The WageWorks board believes that WageWorks has a strong management team, a solid business strategy and strong prospects for earnings growth, all of which suggest optimism about the expected trading price of WageWorks common stock price over the long term. However, the WageWorks board

 

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believes the merger consideration represents an opportunity for the WageWorks stockholders to receive a premium price for the WageWorks common stock today relative to expected future trading prices of WageWorks common stock if the company remains independent and without the execution risks, macro-economic risks and market risks inherent in WageWorks’ stand-alone business strategy as an independent company. In this regard, the WageWorks board considered various risks to WageWorks’ business if it were to remain an independent company, including risks and uncertainties with respect to:

 

•

achieving WageWorks’ growth plans in light of inherent risks in executing our stand-alone business plans, uncertainties regarding future conditions in the markets, including the risks and uncertainties in the U.S. and global economies generally and risks and uncertainties related to tax-advantaged Consumer Directed Benefits specifically;

 

•

the specific “risk factors” in WageWorks’ business set forth in the company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and subsequent reports filed with the SEC and the matters described under the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements,” beginning on page 19;

 

•

the announcement of WageWorks financial results for the first quarter of fiscal year 2019; and

 

•

market conditions that could negatively affect the trading price of WageWorks’ common stock.

 

•

The merger consideration represents a significant premium over the market price at which WageWorks common stock traded prior to the public announcement of HealthEquity’s acquisition proposal:

 

•

29% over the $39.89 volume weighted average trading price of WageWorks’ common stock during the 30-day period prior to the public announcement of HealthEquity’s acquisition proposal;

 

•

40% over the $36.62 volume weighted average trading price of WageWorks’ common stock during the 60-day period prior to the public announcement of HealthEquity’s acquisition proposal; and

 

•

52% over the $33.77 volume weighted average trading price of WageWorks’ common stock during the 90-day period prior to the public announcement of HealthEquity’s acquisition proposal.

 

•

The WageWorks board received an oral opinion of Evercore on June 26, 2019 (which was subsequently confirmed by the written opinion of Evercore to the WageWorks board dated June 26, 2019) to the effect that, as of that date, and based upon and subject to the assumptions, limitations, qualifications, and conditions set forth in such written opinion, the merger consideration to be received by the holders of WageWorks common stock in the merger, was fair, from a financial point of view, to such holders (other than HealthEquity, Merger Sub and their respective affiliates), and Evercore’s related financial analyses presented to the WageWorks board in connection with the delivery of its oral opinion. You are urged to read Evercore’s written opinion, which is set forth in its entirety in Annex B to this proxy statement, and the summary of the opinion and Evercore’s analyses in the section of this proxy statement entitled “The Merger (Proposal 1) — Opinion of Evercore Group L.L.C.” beginning on page 39.

 

•

The WageWorks board believes the merger consideration is the highest price HealthEquity is willing to pay for WageWorks because the merger consideration was the result of thorough negotiations between the parties and their respective advisors and, at the culmination of those negotiations, HealthEquity emphasized that the merger consideration was its “best and final” offer price for WageWorks.

 

•

The WageWorks board’s consideration of WageWorks’ strategic and financial alternatives, including that:

 

•

17 different parties and potential buyers were contacted or solicited during the strategic process following HealthEquity’s unsolicited offer to acquire WageWorks in an effort to obtain the best value reasonably available to stockholders;

 

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•

Of these parties, only one third party submitted an indication of interest to acquire WageWorks, and that proposal was subject to due diligence, and involved a complex transaction in which an additional third-party would be required to not only provide financial assistance to acquire WageWorks but to also agree to acquire a related carve-out business; and

 

•

The risk that prolonging the process in order to afford more time to the one third party that had submitted an indication of interest to complete its due diligence and see whether such third party would ultimately offer a higher price to acquire WageWorks following the completion of its due diligence prior to executing a definitive agreement with HealthEquity could have resulted in the loss of a favorable opportunity to successfully consummate the transaction with HealthEquity.

 

•

The WageWorks board believes that the terms of the merger agreement give the WageWorks board a high degree of confidence that the merger will be completed on the terms contemplated thereby, while also giving the WageWorks board the flexibility to consider any legitimate and unsolicited competing acquisition proposals it might receive prior to receipt of stockholder approval of the merger agreement, including:

 

•

the limited and otherwise customary conditions to HealthEquity’s obligations to complete the merger, including the absence of a financing condition, which provide significant comfort that the merger will be consummated on a timely basis;

 

•

terms that enable WageWorks to legally enforce HealthEquity’s obligations under the merger agreement, including its obligation to complete the merger upon satisfaction (and subject to) the conditions set forth in the merger agreement;

 

•

terms that enable WageWorks, under certain circumstances and subject to certain conditions, to engage in discussions and negotiations with any third party from whom WageWorks receives a unsolicited acquisition proposal that is superior to the merger from a financial point of view or can reasonably be expected to lead to a transaction that is more favorable to WageWorks’ stockholders from a financial point of view than the merger, and to provide confidential information to any such party in connection with such discussions and negotiations; and

 

•

terms that enable WageWorks to terminate the merger agreement in order to accept a competing acquisition proposal that is more favorable to WageWorks’ stockholders from a financial point of view than the merger, under certain circumstances and subject to certain conditions, including paying HealthEquity a fee of $69.66 million (equal to approximately 3.25% of the equity value of WageWorks), which the WageWorks board determined, with the assistance of its legal and financial advisors, was reasonable in light of, among other things, the benefits of the merger to the WageWorks stockholders, the typical size of such fees in similar transactions and the belief that a fee of this size would not preclude or unreasonably restrict the emergence of alternative transaction proposals.

 

•

The WageWorks board considered the fact that, under applicable Delaware law, the WageWorks stockholders who do not vote in favor of the merger and otherwise comply with the requirements of Delaware law would have the right to pursue their appraisal rights under Delaware law if the merger is completed.

The WageWorks board also considered a variety of potentially negative factors in its deliberations concerning the merger agreement and the merger, including the following:

 

•

the fact that the completion of the merger will preclude the WageWorks stockholders from maintaining any ongoing equity interest in the company and, as such, the WageWorks stockholders will not be able to participate directly in the company’s future successes or benefit from any increases in the value of the company;

 

•

the fact that during the pendency of the merger, WageWorks may not solicit, initiate, encourage or knowingly facilitate or encourage the submission of any inquiry, discussion, offer, proposal or request

 

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from any person that could constitute, or could reasonably be expected to lead to, a competing acquisition proposal for the company, and WageWorks may only engage in discussions and negotiations with a third party from whom WageWorks receives a unsolicited acquisition proposal under certain circumstances;

 

•

the fact that completion of the merger is subject to certain conditions that are outside WageWorks’ control, such as the approval of the WageWorks stockholders and regulatory clearance in the US, and the fact that the company (and the trading price of WageWorks common stock) would likely be significantly and negatively impacted if the merger was not completed due to the failure of any of those conditions;

 

•

the potential risk of diverting management attention and resources from the operation of WageWorks’ business, including other strategic opportunities and operational matters, while working toward the completion of the merger;

 

•

the potential negative impact of the pendency of the merger on the company’s business, including its relationships with employees, customers, resellers, global system integrators and other business partners;

 

•

significant restrictions in the merger agreement on WageWorks’ conduct of business prior to the completion of the merger, including on its ability to make capital expenditures under certain circumstances, enter certain material contracts, hire certain employees or change its employment practices in a material way;

 

•

the possibility that some key members of our senior management team might elect to resign prior to the completion of the merger;

 

•

the fact that some of WageWorks’ directors and executive officers may have interests in the merger that are different from, or in addition to, those of the WageWorks stockholders generally (as more fully described in the section of this proxy statement entitled “The Merger (Proposal 1) — Interests of Directors and Officers in the Merger” beginning on page 51); and

 

•

the fact that the receipt of cash in exchange for shares of WageWorks common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes.

The foregoing discussion of the information and factors considered by the WageWorks board is not intended to be exhaustive, but describes the material factors considered by the WageWorks board. In view of the variety of factors considered, the WageWorks board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The WageWorks board did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The WageWorks board based its recommendation on the totality of the information presented to it, including the input from WageWorks’ senior management and its outside legal and financial advisors.

In considering the recommendation of the WageWorks board with respect to the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. The WageWorks board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the stockholders of WageWorks. See the section of this proxy statement entitled “The Merger (Proposal 1) — Interests of Directors and Officers in the Merger” beginning on page 51.

The WageWorks board unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement; “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to adopt the merger agreement; and “FOR” the WageWorks advisory proposal on certain merger-related compensation to our named executive officers.

 

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Opinion of Evercore Group L.L.C.

We retained Evercore to act as our financial advisor in connection with the WageWorks board’s evaluation of strategic and financial alternatives, including the merger. As part of this engagement, WageWorks requested that Evercore evaluate the fairness, from a financial point of view, of the merger consideration to be received by the holders of WageWorks common stock (other than HealthEquity, Merger Sub and their respective affiliates) in the merger. At a meeting of the WageWorks board held on June 26, 2019, Evercore rendered to the board its oral opinion, subsequently confirmed in writing, to the effect that, as of that date and based upon and subject to the assumptions, limitations, qualifications and conditions described in Evercore’s written opinion, the merger consideration to be received by the holders of WageWorks common stock in the merger was fair, from a financial point of view, to such holders (other than HealthEquity, Merger Sub and their respective affiliates).

The full text of the written opinion of Evercore, dated June 26, 2019, which sets forth, among other things, the procedures followed, assumptions made, matters considered and qualifications and limitations on the scope of review undertaken in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. WageWorks encourages you to read this opinion carefully and in its entirety. Evercore’s written opinion was addressed to, and provided for the information and benefit of, the WageWorks board (in its capacity as such) in connection with its evaluation of the proposed merger. The opinion does not constitute a recommendation to the WageWorks board or to any other persons in respect of the merger, including as to how any holder of shares of WageWorks common stock should vote or act in respect of the merger. Evercore’s opinion does not address the relative merits of the merger as compared to other business or financial strategies that might be available to WageWorks, nor does it address the underlying business decision of WageWorks to engage in the merger.

In connection with rendering its opinion Evercore, among other things:

 

i.

reviewed certain publicly available business and financial information relating to WageWorks that Evercore deemed to be relevant, including publicly available research analysts’ estimates;

 

ii.

reviewed certain internal projected financial data relating to WageWorks, reflecting both a “base case” and an “alternative scenario”, in each case prepared by management of WageWorks under alternative business assumptions with respect to WageWorks’ potential growth initiatives and hypothetical acquisitions and furnished to Evercore by management of WageWorks, as approved for Evercore’s use by WageWorks (which are referred to in this section of the proxy statement as the “WageWorks forecasts”);

 

iii.

discussed with management of WageWorks their assessment of the past and current operations of WageWorks, the current financial condition and prospects of WageWorks, and the WageWorks forecasts (including their views on the risks and uncertainties of achieving the WageWorks forecasts);

 

iv.

reviewed the reported prices and the historical trading activity of the WageWorks common stock;

 

v.

compared the financial performance of WageWorks and its stock market trading multiples with those of certain other publicly traded companies that Evercore deemed relevant, including, trading multiples adjusted to reflect market expectations for projected growth;

 

vi.

compared the financial performance of WageWorks and the valuation multiples relating to the merger with the financial terms, to the extent publicly available, of certain other transactions that Evercore deemed relevant;

 

vii.

reviewed the financial terms and conditions of a draft, dated June 26, 2019, of the merger agreement; and

 

viii.

performed such other analyses and examinations and considered such other factors that Evercore deemed appropriate.

 

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Set forth below is a summary of the material financial analyses reviewed by Evercore with the board on June 26, 2019 in connection with rendering its opinion. The following summary, however, does not purport to be a complete description of the analyses performed by Evercore. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by Evercore. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data that existed on or before June 25, 2019 (the last full trading date prior to the rendering of Evercore’s opinion), and is not necessarily indicative of current market conditions.

For purposes of its analyses and reviews, Evercore considered general business, economic, market and financial conditions, industry sector performance, and other matters, as they existed and could be evaluated as of the date of its opinion, many of which are beyond the control of WageWorks. The estimates contained in Evercore’s analyses and reviews, and the ranges of valuations resulting from any particular analysis or review, are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Evercore’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Evercore’s analyses and reviews are inherently subject to substantial uncertainty.

The following summary of Evercore’s financial analyses includes information presented in tabular format. In order to fully understand the analyses, the tables should be read together with the full text of each summary. The tables are not intended to stand alone and alone do not constitute a complete description of Evercore’s financial analyses. Considering the tables below without considering the full narrative description of Evercore’s financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of such analyses.

Summary of Evercore’s Financial Analyses

Discounted Cash Flow Analysis

Evercore performed a discounted cash flow analysis of WageWorks to calculate the estimated present value of the standalone unlevered, after-tax free cash flows, defined as net operating profit after tax, plus depreciation and after-tax amortization, less after-tax share based compensation, changes in net working capital and capital expenditures, that WageWorks was forecasted to generate during WageWorks’ fiscal years 2019 through 2024 based on the base case projections, with and without taking into account alternative business assumptions with respect to WageWorks’ hypothetical acquisitions furnished to Evercore by management of WageWorks. Evercore calculated terminal values for WageWorks by applying perpetuity growth rates of 2.0% to 5.0%, which range was selected based on Evercore’s professional judgment and experience, to a terminal year estimate of the unlevered, after-tax free cash flows that WageWorks was forecasted to generate based on the base case projections, with and without taking into account alternative business assumptions with respect to WageWorks’ hypothetical acquisitions furnished to Evercore by management of WageWorks. The cash flows and terminal values in each case were then discounted to present value as of June 30, 2019 using discount rates ranging from 9.5% to 10.5%, which were based on an estimate of WageWorks’ weighted average cost of capital, and the mid-year cash flow discounting convention. Based on this range of implied enterprise values, WageWorks’ estimated net debt (calculated as total debt less cash, cash equivalents and customer obligations) as of June 30, 2019, and the number of fully diluted shares of WageWorks common stock (including promised but ungranted employee options), in each case as provided by WageWorks’ management, this analysis indicated a range of implied equity values per share of WageWorks common stock of $29.02 to $47.52 without taking into account alternative business assumptions with respect to WageWorks’ hypothetical acquisitions and $29.02 to $52.36 taking into account alternative business assumptions with respect to WageWorks’ hypothetical acquisitions, compared to the merger consideration of $51.35 per share of WageWorks common stock.

Evercore also performed a discounted cash flow analysis of WageWorks to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that WageWorks was forecasted to generate during

 

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WageWorks’ fiscal years 2019 through 2024 based on the alternative scenario, with and without taking into account alternative business assumptions with respect to WageWorks’ hypothetical acquisitions furnished to Evercore by management of WageWorks. Evercore calculated terminal values for WageWorks by applying perpetuity growth rates of 2.0% to 5.0%, which range was selected based on Evercore’s professional judgment and experience, to a terminal year estimate of the unlevered, after-tax free cash flows that WageWorks was forecasted to generate based on the alternative scenario, with and without taking into account alternative business assumptions with respect to WageWorks’ hypothetical acquisitions furnished to Evercore by management of WageWorks. The cash flows and terminal values in each case were then discounted to present value as of June 30, 2019 using discount rates ranging from 9.5% to 10.5%, which were based on an estimate of WageWorks’ weighted average cost of capital, and the mid-year cash flow discounting convention. Based on this range of implied enterprise values, WageWorks’ estimated net debt (calculated as total debt less cash, cash equivalents and customer obligations) as of June 30, 2019, and the number of fully diluted shares of WageWorks common stock (including promised but ungranted employee options), in each case as provided by WageWorks’ management, this analysis indicated a range of implied equity values per share of WageWorks common stock of $21.63 to $34.38 without taking into account alternative business assumptions with respect to WageWorks’ hypothetical acquisitions and $21.36 to $39.32 taking into account alternative business assumptions with respect to WageWorks’ hypothetical acquisitions, compared to the merger consideration of $51.35 per share of WageWorks common stock.

Selected Transactions Analysis

Evercore reviewed financial information related to the following selected transactions involving target companies in the benefit services and technology industry announced since 2005 (the “selected transactions”). The selected transactions reviewed by Evercore, and the month and year each was announced, were as follows:

 

Month and Year Announced		Acquiror		Target
January 2019		WEX Inc.		Discovery Benefits, Inc.
November 2016		WageWorks, Inc.		Automatic Data Processing Inc.’s Consumer Health Spending Account and Consolidated Omnibus Reconciliation Act Business
May 2015		Towers Watson & Co.		Acclaris Holdings, Inc.
June 2014		WEX Inc.		Evolution1, Inc.
June 2012		Lightyear Capital LLC		Fidelity National Information Services, Inc.’s Healthcare Benefit Solutions Business
July 2011		Aetna Inc.		PayFlex Holdings, Inc.
May 2005		WellPoint, Inc.		Lumenos, Inc.

For each selected transaction, Evercore calculated the implied total enterprise value (defined as the target company’s implied equity value based on the consideration paid in the applicable transaction plus total debt, plus preferred equity and minority interest, less cash, cash equivalents and customer obligations) as a multiple of last twelve-month revenue and last twelve-months earnings before interest, taxes, depreciation and amortization, stock-based compensation expense and non-recurring items (“Adjusted EBITDA”) for the target company at the time of the announcement of the applicable transaction (or, in some cases where last twelve months financial information was not publicly available, as a multiple of current year or prior year revenue and Adjusted EBITDA), which are referred to in this section of the proxy statement as “LTM Revenue” and “LTM Adjusted EBITDA”, respectively. Estimated financial data of the selected transactions were based on publicly available information at the time of announcement of the relevant transaction.

 

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This analysis indicated the following:

 

Benchmark

High

Low

Mean

LTM Revenue

6.0x

1.8x

3.8x

LTM Adjusted EBITDA

20.0x

7.0x

12.3x

Based on the multiples it derived from the selected transactions and based on its professional judgment and experience, Evercore selected a reference range of total enterprise value to LTM Revenue of 2.5x to 4.5x and applied this range of multiples to WageWorks’ LTM Revenue as of June 30, 2019 based on the financial results for WageWorks provided by WageWorks’ management. Based on this range of implied total enterprise values, WageWorks’ estimated net debt (calculated as total debt less cash, cash equivalents and customer obligations) as of June 30, 2019, and the number of fully diluted shares of WageWorks common stock, in each case as provided by WageWorks’ management, this analysis indicated a range of implied equity values per share of WageWorks common stock of $31.38 to $54.00 compared to the merger consideration of $51.35 per share of WageWorks common stock.

In addition, based on the multiples it derived from the selected transactions and based on its professional judgment and experience, Evercore selected a reference range of total enterprise value to LTM Adjusted EBITDA of 10.0x to 20.0x and applied this range of multiples to WageWorks’ LTM Adjusted EBITDA as of June 30, 2019 based on the financial results for WageWorks provided by WageWorks’ management. Based on this range of implied total enterprise values, WageWorks’ estimated net debt (calculated as total debt less cash, cash equivalents and customer obligations) as of June 30, 2019, and the number of fully diluted shares of WageWorks common stock, in each case as provided by WageWorks’ management, this analysis indicated a range of implied equity values per share of WageWorks common stock of $35.59 to $67.72 compared to the merger consideration of $51.35 per share of WageWorks common stock.

Although none of the target companies or businesses reviewed in the selected transactions analysis is directly comparable to WageWorks and none of the selected transactions is directly comparable to the merger, Evercore selected these transactions because they involve companies or businesses that Evercore, in its professional judgment and experience, considered generally relevant to WageWorks for purposes of its financial analyses. In evaluating the selected transactions, Evercore made judgments and assumptions with regard to general business, economic and market conditions and other factors existing at the time of the selected transactions, and other matters, as well as differences in financial, business and operating characteristics and other factors relevant to the target companies or businesses in the selected transactions. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments regarding many factors that could affect the relative values of the target companies or businesses in the selected transactions and the multiples derived from the selected transactions. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using the data of the selected transactions.

Selected Public Company Trading Analysis

Evercore reviewed and compared certain financial information of WageWorks to corresponding financial multiples and ratios for the following selected publicly traded companies in the benefit services and technology, healthcare management/human resources information technology (“HCM/HR IT”) and financial processing and outsourcing industries (collectively, the “selected companies”):

Benefit Services and Technology

 

•

Willis Towers Watson plc

 

•

Teladoc Health, Inc.

 

•

HealthEquity, Inc.

 

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•

eHealth, Inc.

 

•

Benefitfocus, Inc.

 

•

Castlight Health, Inc.

HCM/HR IT

 

•

Automatic Data Processing Inc.

 

•

Workday, Inc.

 

•

Paychex Inc.

 

•

Paycom Software, Inc.

 

•

Paylocity Holding Corp.

 

•

Cornerstone OnDemand, Inc.

Financial Processing & Outsourcing

 

•

Fidelity National Information Services, Inc.

 

•

Fiserv, Inc.

 

•

Global Payments Inc.

 

•

Jack Henry & Associates, Inc.

 

•

ACI Worldwide, Inc.

For each of the selected companies, Evercore calculated total enterprise value (defined as equity market capitalization plus total debt, plus preferred equity and minority interest, less cash, cash equivalents and customer obligations) as a multiple of estimated 2019 revenue, which are referred to in this section of the proxy statement as “2019E Revenue multiples”, and as a multiple of estimated 2019 Adjusted EBITDA, which are referred to in this section of the proxy statement as “2019E Adjusted EBITDA multiples”, in each case based on closing share prices as of June 25, 2019. Evercore also calculated total enterprise value as a multiple of estimated 2019 revenue and 2019 Adjusted EBITDA on a growth-adjusted basis by dividing the 2019E Adjusted EBITDA multiples and 2019E Revenue multiples by the compound annual growth rate of estimated revenue and Adjusted EBITDA from 2019 to 2021, respectively. Estimated financial data of the selected companies were based on publicly available research analysts’ estimates.

This analysis indicated the following:

 

Benchmark

High

Low

Mean

Benefit Services and Technology

2019E Revenue

13.3x

2.5x

6.2x

2019E Adjusted EBITDA

13.1x

13.1x

13.1x

Growth-Adjusted 2019E Revenue

0.72x

0.18x

0.40x

Growth-Adjusted 2019E Adjusted EBITDA

2.12x

2.12x

2.12x

HCM/HR IT

2019E Revenue

17.7x

5.0x

10.2x

2019E Adjusted EBITDA

29.0x

19.0x

22.7x

Growth-Adjusted 2019E Revenue

1.13x

0.42x

0.68x

Growth-Adjusted 2019E Adjusted EBITDA

1.48x

1.48x

1.48x

Financial Processing & Outsourcing

2019E Revenue

7.4x

2.9x

5.9x

2019E Adjusted EBITDA

20.3x

10.7x

16.4x

Growth-Adjusted 2019E Revenue

1.12x

0.49x

0.76x

Growth-Adjusted 2019E Adjusted EBITDA

2.15x

1.07x

1.62x

 

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Based on the multiples it derived for the selected companies and based on its professional judgment and experience, Evercore applied a total enterprise value/revenue multiple reference range of 3.0x – 7.0x to WageWorks’ estimated 2019 revenue and a total enterprise value/Adjusted EBITDA multiple reference range of 12.0x – 18.0x to WageWorks’ estimated 2019 Adjusted EBITDA, in each case based on the base case projections. Based on this range of implied total enterprise values, WageWorks’ estimated net debt (calculated as total debt less cash, cash equivalents and customer obligations) as of June 30, 2019, and the number of fully diluted shares of WageWorks common stock, in each case as provided by WageWorks’ management, this analysis indicated a range of implied equity values per share of WageWorks common stock as set forth in the below table, compared to the merger consideration of $51.35 per share of WageWorks common stock.

 

Benchmark		Implied Equity Value per Share
Total Enterprise Value / 2019E Revenue		$	36.83 to $81.03
Total Enterprise Value / 2019E Adjusted EBITDA			$38.43 to $55.96

In addition, based on the multiples it derived for the selected companies and based on its professional judgment and experience, Evercore applied a total enterprise value/revenue growth-adjusted multiple reference range of 0.5x – 0.9x to WageWorks’ estimated 2019 revenue multiplied by the compound annual growth rate of WageWorks’ estimated revenue from 2019 to 2021 and a total enterprise value/Adjusted EBITDA growth-adjusted multiple reference range of 1.1x – 1.8x to WageWorks’ estimated 2019 Adjusted EBITDA multiplied by the compound annual growth rate of WageWorks’ estimated Adjusted EBITDA from 2019 to 2021, in each case based on the base case projections and the alternative scenario. Based on this range of implied total enterprise values, WageWorks’ estimated net debt (calculated as total debt less cash, cash equivalents and customer obligations) as of June 30, 2019, and the number of fully diluted shares of WageWorks common stock, in each case as provided by WageWorks’ management, this analysis indicated a range of implied equity values per share of WageWorks common stock as set forth in the below table, compared to the merger consideration of $51.35 per share of WageWorks common stock.

 

Benchmark		Implied Equity Value per Share
“Base Case”; Growth-Adjusted; Total Enterprise Value / 2019E Revenue		$29.89 to $51.38
“Alternative Scenario”; Growth-Adjusted; Total Enterprise Value / 2019E Revenue		$17.45 to $29.24
“Base Case”; Growth-Adjusted; Total Enterprise Value / 2019E Adjusted EBITDA		$50.52 to $80.02
“Alternative Scenario”; Growth-Adjusted; Total Enterprise Value / 2019E Adjusted EBITDA		$20.07 to $31.11

Although none of the selected companies is directly comparable to WageWorks, Evercore selected these companies because they are publicly traded companies that Evercore, in its professional judgment and experience, considered generally relevant to WageWorks for purposes of its financial analyses. In evaluating the selected companies, Evercore made judgments and assumptions with regard to general business, economic and market conditions affecting the selected companies and other matters, as well as differences in the selected companies’ financial, business and operating characteristics. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments regarding many factors that could affect the relative values of the selected companies and the multiples derived from the selected companies. Mathematical analysis, such as determining the mean or median, is not in itself a meaningful method of using the data of the selected companies.

 

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Other Factors

Evercore also noted certain other factors, which were not considered material to its financial analyses with respect to its opinion, but were referenced for informational purposes only, including, among other things, the following:

Equity Research Analyst Price Targets

Evercore reviewed selected public market trading price targets for the shares of WageWorks common stock prepared and published by equity research analysts that were publicly available as of April 29, 2019, the last full trading day prior to media reports of the possibility of a merger, and as of June 25, 2019, the last full trading day prior to the delivery by Evercore of its opinion to the board. These price targets reflect analysts’ estimates of the future public market trading price of the shares of WageWorks common stock at the time the price target was published. The range of selected equity research analyst price targets per share of WageWorks common stock was $43.00 to $50.00 as of April 29, 2019 and $50.00 to $60.00 as of June 25, 2019. Public market trading price targets published by equity research analysts do not necessarily reflect current market trading prices for the shares of WageWorks common stock and these target prices and the analysts’ earnings estimates on which they were based are subject to risk and uncertainties, including factors affecting the financial performance of WageWorks and future general industry and market conditions.

Miscellaneous

The foregoing summary of Evercore’s financial analyses does not purport to be a complete description of the analyses or data presented by Evercore to the board. In connection with the review of the merger by the board, Evercore performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary described above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Evercore’s opinion. In arriving at its fairness determination, Evercore considered the results of all the analyses and did not draw, in isolation, conclusions from or with regard to any one analysis or factor considered by it for purposes of its opinion. Rather, Evercore made its determination as to fairness on the basis of its professional judgment and experience after considering the results of all the analyses. In addition, Evercore may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above should not be taken to be the view of Evercore with respect to the actual value of the shares of WageWorks common stock. Rounding may result in total sums set forth in this section not equaling the total of the figures shown.

Evercore prepared these analyses for the purpose of providing an opinion to the board as to the fairness, from a financial point of view, of the merger consideration to the holders of shares of WageWorks common stock (other than HealthEquity, Merger Sub and their respective affiliates). These analyses do not purport to be appraisals or to necessarily reflect the prices at which the business or securities actually may be sold. Any estimates contained in these analyses are not necessarily indicative of actual future results, which may be significantly more or less favorable than those suggested by such estimates. Accordingly, estimates used in, and the results derived from, Evercore’s analyses are inherently subject to substantial uncertainty, and Evercore assumes no responsibility if future results are materially different from those forecasted in such estimates.

Evercore’s financial advisory services and its opinion were provided for the information and benefit of the board (in its capacity as such) in connection with its evaluation of the proposed merger. The issuance of Evercore’s opinion was approved by an Opinion Committee of Evercore.

Evercore did not recommend any specific amount of consideration to the board or WageWorks’ management or that any specific amount of consideration constituted the only appropriate consideration in the merger for the holders of WageWorks common stock.

 

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Pursuant to the terms of Evercore’s engagement letter with WageWorks, WageWorks has agreed to pay Evercore a fee for its services in the amount of approximately $26.0 million, of which $0.4 million was paid as an initial fee upon execution of Evercore’s engagement letter with WageWorks and $2.0 million was paid upon execution of the merger agreement, and the balance of which will be payable contingent upon the consummation of the merger, as well as a potential discretionary fee of $1.5 million. WageWorks has also agreed to reimburse Evercore for its expenses and to indemnify Evercore against certain liabilities arising out of its engagement.

During the two year period prior to the date of its opinion, Evercore and its affiliates have provided financial advisory services to WageWorks and received fees for the rendering of these services in the amount of less than $1.0 million. In addition, during the two year period prior to the date of its opinion, Evercore and its affiliates have not been engaged to provide financial advisory or other services to HealthEquity and Evercore has not received any compensation from HealthEquity during such period. Evercore may provide financial advisory or other services to WageWorks and HealthEquity in the future, and in connection with any such services Evercore may receive compensation.

Evercore and its affiliates engage in a wide range of activities for its and their own accounts and the accounts of customers, including corporate finance, mergers and acquisitions, equity sales, trading and research, private equity, placement agent, asset management and related activities. In connection with these businesses or otherwise, Evercore and its affiliates and/or its or their respective employees, as well as investment funds in which any of them may have a financial interest, may at any time, directly or indirectly, hold long or short positions and may trade or otherwise effect transactions for their own accounts or the accounts of customers, in debt or equity securities, senior loans and/or derivative products or other financial instruments of or relating to WageWorks or its affiliates, HealthEquity, potential parties to the merger and their respective affiliates or persons that are competitors, customers or suppliers of WageWorks or HealthEquity.

WageWorks engaged Evercore to act as a financial advisor based on Evercore’s qualifications, experience and reputation. Evercore is an internationally recognized investment banking firm and regularly provides fairness opinions to its clients in connection with mergers and acquisitions, leveraged buyouts and valuations for corporate and other purposes.

Certain Financial Projections

WageWorks does not as a matter of course issue public projections as to future performance or earnings beyond the current fiscal year or issue public projections for extended periods due to the unpredictability of the underlying assumptions and estimates. In connection with the merger, our management prepared and provided to the WageWorks board in connection with its evaluation of the merger, and to Evercore, its financial advisor, in connection with its financial analyses described in “The Merger (Proposal 1) — Opinion of Evercore Group L.L.C.” beginning on page 39, certain nonpublic, internal financial projections regarding WageWorks’ future performance for fiscal years 2019 through 2024, which are referred to in this proxy statement as the base case projections. The base case projections were prepared by our management to project WageWorks’ financial performance for fiscal years 2019 through 2024 based on management’s operating business plan and strategy and assuming full achievement of WageWorks’ potential growth and cost savings initiatives. Our management also considered an alternative scenario assuming 50% achievement of WageWorks’ potential growth and cost savings initiatives (which is referred to in this proxy statement as the “alternative scenario”). In addition, each of the base case projections and the alternative scenario include separate information for WageWorks’ financial performance for fiscal years 2019 through 2024 that reflect, at the direction of the WageWorks board, our management’s business assumptions with respect to WageWorks’ hypothetical potential acquisitions. These base case projections and the alternative scenario were reviewed by the WageWorks board and provided by our management to Evercore, and were approved by the WageWorks board for use by Evercore in performing its financial analyses described in “The Merger (Proposal 1) — Opinion of Evercore Group L.L.C.” beginning on page 39. The WageWorks board also approved the base case projections to be provided to HealthEquity in connection with its due diligence review of WageWorks.

 

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The following tables present the base case projections and the alternative scenario:

 

Fiscal Year Ended December 31
(in millions)		FY2019				FY2020				FY2021				FY2022				FY2023				FY2024
Base Case Projections — Without Hypothetical Acquisitions
Revenue		$	465			$	487			$	511			$	537			$	555			$	574
Adjusted EBITDA(1)		$	122			$	147			$	160			$	173			$	179			$	188
Operating Income		$	41			$	82			$	96			$	110			$	118			$	129
Net Income		$	29			$	75			$	89			$	102			$	110			$	122
NOPAT(2)		$	48			$	69			$	80			$	91			$	97			$	105
Free Cash Flow(3)		$	62			$	66			$	81			$	89			$	95			$	99
Base Case Projections — With Hypothetical Acquisitions(4)
Revenue		$	465			$	497			$	541			$	588			$	627			$	669
Adjusted EBITDA(1)		$	122			$	148			$	166			$	185			$	198			$	213
Operating Income		$	41			$	83			$	100			$	118			$	131			$	148
Net Income		$	29			$	72			$	86			$	101			$	112			$	125
Alternative Scenario — Without Hypothetical Acquisitions
Revenue		$	465			$	477			$	489			$	503			$	513			$	524
Adjusted EBITDA(1)		$	122			$	131			$	135			$	138			$	139			$	140
Operating Income		$	41			$	67			$	73			$	77			$	79			$	84
Net Income		$	29			$	59			$	64			$	70			$	73			$	79
NOPAT(2)		$	48			$	58			$	63			$	66			$	68			$	72
Free Cash Flow(3)		$	62			$	59			$	66			$	68			$	68			$	68
Alternative Scenario — With Hypothetical Acquisitions(4)
Revenue		$	465			$	487			$	519			$	554			$	586			$	619
Adjusted EBITDA(1)		$	122			$	133			$	140			$	150			$	157			$	165
Operating Income		$	41			$	68			$	76			$	86			$	93			$	103
Net Income		$	29			$	57			$	64			$	71			$	77			$	84

 

(1)	“Adjusted EBITDA” is a non-GAAP financial measure calculated as earnings before interest, taxes, depreciation and amortization, stock-based compensation expense and non-recurring items.

(2)	“NOPAT” is a non-GAAP financial measure calculated as Adjusted EBITDA less depreciation and amortization and tax expenses.

(3)	“Free Cash Flow” is a non-GAAP financial measure calculated as NOPAT, plus depreciation and after-tax amortization, and less after-tax share based compensation, changes in net working capital and capital expenditures.

(4)

NOPAT and Free Cash Flow for the base case projections and the alternative scenario, in each case taking into account management’s business assumptions with respect to WageWorks’ hypothetical acquisitions, were calculated by Evercore in connection with its financial analyses described in “The Merger (Proposal 1) — Opinion of Evercore Group L.L.C.” beginning on page 39, utilizing the same methodology set forth in footnotes 2 and 3 above, respectively.

The base case projections and the alternative scenario were developed by our management without giving effect to the merger and the other transactions contemplated by the merger agreement, and therefore do not give effect to the merger and the other transactions contemplated by the merger agreement or any changes to our operations or strategy that may be implemented after the consummation of the merger, including any costs incurred in connection with the merger and the other transactions contemplated by the merger agreement. Furthermore, the base case projections and the alternative scenario do not take into account the effect of any failure of the transactions contemplated by the merger agreement to be completed and should not be viewed as accurate or continuing in that context.

 

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WageWorks does not as a matter of course make public long-term projections as to its future financial performance. The base case projections and the alternative scenario are included herein because (1) the base case projections were made available to HealthEquity in connection with its due diligence review; (2) the base case projections and the alternative scenario were made available to Evercore by our management and were approved by the WageWorks board for Evercore’s use in connection with Evercore’s financial analysis as described in the section of this proxy statement captioned “The Merger (Proposal 1) — Opinion of Evercore Group, L.L.C.” beginning on page 39) and (3) the base case projections and the alternative scenario were made available to the WageWorks board in connection with its consideration of the merger and other strategic alternatives available to WageWorks. In the view of our management, the base case projections have been reasonably prepared by our management on bases reflecting the best currently available estimates and judgments of our management of the future financial performance of WageWorks.

The base case projections and the alternative scenario are included in this proxy statement solely to give WageWorks’ stockholders access to information that was made available to the WageWorks board and Evercore in connection with the WageWorks board’s evaluation of the merger. The base case projections and the alternative scenario were not prepared with a view toward public disclosure or complying with accounting principles generally accepted in the United States (which we refer to as “GAAP”). In fact, Adjusted EBITDA, NOPAT and Free Cash Flow contained in the base case projections and the alternative scenario set forth above are “non-GAAP financial measures,” which are financial performance measures that are not calculated in accordance with GAAP. These non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures, and may be different from non-GAAP financial measures used by other companies. Furthermore, there are limitations inherent in non-GAAP financial measures, because they exclude charges and credits that are required to be included in a GAAP presentation. Accordingly, these non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP. In addition, the base case projections and the alternative scenario were not prepared with a view toward complying with the guidelines established by the SEC or by the American Institute of Certified Public Accountants with respect to prospective financial information. The base case projections and the alternative scenario are not fact and should not be relied upon as being necessarily indicative of future results. Readers of this proxy statement are cautioned not to place undue reliance on the base case projections and the alternative scenario.

The inclusion of the base case projections and the alternative scenario in this proxy statement should not be regarded as an indication that the WageWorks board, Evercore, any of their affiliates, or any other recipient of this information (including HealthEquity) considered, or now considers, the base case projections or the alternative scenario to be a reliable prediction of future results or any actual future events. None of WageWorks, Evercore, HealthEquity or any of their respective affiliates or any other person assumes any responsibility for the validity, reasonableness, accuracy or completeness of the WageWorks projections included in this proxy statement.

The WageWorks projections are forward-looking statements. For information on factors that may cause WageWorks’ future results to differ materially from the base case projections and the alternative scenario, see the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Information,” beginning on page 19. The base case projections and the alternative scenario were developed from historical financial statements and a series of WageWorks management’s assumptions and estimates related to future trends, including assumptions and estimates related to future business initiatives for which historical financial statements were not available.

WageWorks’ future financial results may materially differ from those expressed in the base case projections and the alternative scenario due to numerous factors, including many that are beyond WageWorks’ ability to control or predict. We cannot assure you that any of the base case projections or the alternative scenario will be realized or that our future financial results will not materially vary from the base case projections or the alternative scenario. Furthermore, while presented with numerical specificity, the base case projections and the

 

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alternative scenario necessarily are based on numerous assumptions, many of which are beyond our control and difficult to predict, including with respect to industry performance, competitive factors, industry consolidation, general business, economic, regulatory, market and financial conditions, as well as matters specific to our business, including with respect to future business initiatives and changes to our business model for which we have no historical financial data, which assumptions may not prove to have been, or may no longer be, accurate. The base case projections and the alternative scenario do not take into account any circumstances or events occurring after the date they were prepared, including the June 27, 2019 public announcement of the merger and any of the transactions contemplated by the merger agreement or subsequent integration planning activities, and have not been updated since their respective dates of preparation. In addition, the base case projections and the alternative scenario do not take into account any adverse effects that may arise out of the termination of the merger agreement, and should not be viewed as accurate or continuing in that context.

The base case projections and the alternative scenario were estimated in the context of the business, economic, regulatory, market and financial conditions that existed at the time the base case projections and the alternative scenario were prepared, and have not been updated to reflect revised prospects for our business, changes in general business, economic, regulatory, market and financial conditions or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the base case projections and the alternative scenario were prepared. The base case projections and the alternative scenario cover multiple years, and such information by its nature becomes less reliable with each successive year. The base case projections and the alternative scenario should not be utilized as public guidance and will not be provided in the ordinary course of our business in the future.

The inclusion of the base case projections and the alternative scenario in this proxy statement should not be deemed an admission or representation by WageWorks, Evercore, HealthEquity or any of their respective affiliates with respect to the base case projections or the alternative scenario or that they are viewed by WageWorks, Evercore, HealthEquity or any of their respective affiliates as material information regarding WageWorks. We in fact view the base case projections and the alternative scenario as non-material because of the inherent risks and uncertainties associated with the base case projections and the alternative scenario. The base case projections and the alternative scenario are not included in this proxy statement in order to induce any stockholder of WageWorks to vote in favor of any proposal to be considered at the special meeting, but are being included because the base case scenario and the alternative scenario, or portions thereof, were provided to the WageWorks board, Evercore and/or HealthEquity (with respect to the base case projections).

The information from the base case projections and the alternative scenario should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding WageWorks contained in WageWorks’ public filings with the SEC. In light of the foregoing factors and the uncertainties inherent in the base case projections and the alternative scenario, WageWorks’ stockholders are cautioned not to place undue, if any, reliance on the base case projections and the alternative scenario included in this proxy statement, including in making a decision as to whether to vote in favor of any proposal to be considered at the special meeting.

None of WageWorks, the WageWorks board, its advisors (including, but not limited to, Evercore), or any other person intends to, and each of them disclaims any obligations to, update or otherwise revise the base case projections and the alternative scenario to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the base case projections and the alternative scenario are shown to be in error or no longer appropriate, except as required by securities laws.

Financing of the Merger

The merger is not conditioned upon any financing arrangements or contingencies. We anticipate that the total funds needed to complete the merger, including amounts due to WageWorks’ stockholders and holders of equity awards under the merger agreement and amounts required to refinance certain indebtedness of

 

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WageWorks or its subsidiaries and to pay all fees and expenses related to the foregoing, will be funded through cash on hand of HealthEquity and WageWorks and their respective subsidiaries and new third party debt financing.

In connection with its entry into the merger agreement, HealthEquity entered into a debt commitment letter with certain financial institutions pursuant to which such financial institutions have committed to provide, subject to the terms and conditions of the debt commitment letter, (i) a $200 million senior secured revolving credit facility and (ii) a $1.236 million senior secured term loan facility, which was subsequently amended and restated on July 12, 2019 (collectively, the “Facilities”). The availability of the Facilities is conditioned on the consummation of the merger in accordance with the terms of the merger agreement (subject to certain customary exceptions and qualifications) and certain other customary conditions. We believe, but cannot assure you, that the cash on hand of HealthEquity and its subsidiaries, combined with the debt financing described in the debt commitment letter, will be sufficient to complete the merger.

Closing and Effective Time of Merger

Unless the parties otherwise agree in writing, the closing of the merger will occur on the second business day following the date on which all conditions to the merger set forth in the merger agreement (described under the section of this proxy statement entitled “The Merger Agreement — Conditions to the Merger” beginning on page 76) have been satisfied, or, to the extent permitted by applicable law, waived (excluding those conditions that by their terms cannot be satisfied until the Closing, but subject to the satisfaction or, where permitted, waiver of those conditions as of the closing of the merger).

However, in the event that the marketing period (described under the section of this proxy statement entitled “The Merger Agreement — When the Merger Becomes Effective” beginning on page 60) has not ended at the time of the satisfaction or waiver (subject to applicable law) of the conditions to the closing of the merger (excluding those conditions that, by their terms, cannot be satisfied until the closing of the merger, but subject to satisfaction or, where permitted, waiver of those conditions as of the closing of the merger), the closing of the merger will not occur until the earlier of (a) a business day before or during the market period specified by HealthEquity on no less than three business days’ prior written notice to WageWorks and (b) the second business day after the final day of the marketing period.

Payment of Merger Consideration and Surrender of Stock Certificates

If your shares of WageWorks common stock are held on your behalf by a bank, brokerage firm or other nominee, although each bank, brokerage firm or other nominee establishes its own procedures, we believe that payment for those shares will be deposited in your account with such bank, brokerage firm or other nominee promptly after consummation of the merger. If you hold only book entry shares at American Stock Transfer & Trust Company, LLC, we believe that the exchange agent will mail you a check in the amount of the merger consideration payable for those shares after consummation of the merger upon receipt of an “agent’s message” in customary form. If you hold WageWorks stock certificates and the shares represented by that certificate have not been delivered to a government authority under unclaimed property, escheat or similar laws, the exchange agent will mail you a letter of transmittal promptly after the consummation of the merger that you must complete and return to the exchange agent. Once the exchange agent receives your properly completed letter of transmittal and stock certificate(s), the exchange agent will mail you a payment check in the amount of the aggregate merger consideration for your certificated shares.

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the exchange agent without a letter of transmittal.

If you hold WageWorks stock certificates, you will not be entitled to receive the merger consideration until you deliver a duly completed and executed letter of transmittal to the exchange agent. You must also surrender

 

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your stock certificate or certificates to the exchange agent. If you have lost a stock certificate or if it has been stolen or destroyed, then to receive your merger consideration with respect to the shares of WageWorks common stock represented by that stock certificate, you will have to make an affidavit of the loss, theft or destruction of that stock certificate and, if required by the surviving corporation, post a bond (of a reasonable amount) as indemnity against any claim that may later be made with respect to such stock certificate. If ownership of your shares is not registered in the transfer records of WageWorks, a check for any cash to be delivered will only be issued if the applicable letter of transmittal is accompanied by all documents reasonably required by HealthEquity to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable. 

Interests of Directors and Officers in the Merger

When considering the recommendation of the WageWorks board that you vote to approve the proposal to adopt the merger agreement, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, those of our stockholders generally. The WageWorks board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be adopted by the stockholders of WageWorks. In the discussion below, we have quantified payments and benefits on a pre-tax basis to our executive officers and to our non-employee directors. For the purposes of the agreements and plans described below, the completion of the transactions contemplated by the merger agreement will constitute a change in control and/or merger of WageWorks, as applicable.

Treatment of Equity Awards

WageWorks equity awards held by our executive officers and non-employee directors that are outstanding immediately prior to the effective time of the merger will be cancelled and converted into the right to receive an amount in cash or assumed by HealthEquity at the effective time of the merger, as described in more detail in the section of the proxy statement entitled “The Merger Agreement — Treatment of Equity Awards” beginning on page 60.

As of July 1, 2019, our executive officers and non-employee directors held WageWorks options to purchase shares of WageWorks common stock that have a per share exercise price less than the merger consideration (which we refer to as the “in-the-money WageWorks options”) covering an aggregate of 218,500 shares and WageWorks RSU awards (including WageWorks performance units) covering an aggregate of 352,200 shares of WageWorks common stock (assuming achievement at target levels for WageWorks performance units).

 

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The following table shows, as of July 1, 2019, for each of our executive officers and non-employee directors, (i) the number and value of shares of WageWorks common stock that he or she beneficially owns (other than shares covered by WageWorks options or WageWorks RSU awards), (ii) the number of shares of WageWorks common stock covered by his or her WageWorks in-the-money options and the value of such WageWorks in-the-money options (in each case, determined based on the merger consideration), and (iii) the number of shares of WageWorks common stock covered by his or her WageWorks RSU awards and the value of such WageWorks RSU awards (determined based on the merger consideration), in each case, calculated assuming the merger is consummated on July 1, 2019.

 

Executive Officers and Directors		Number of Shares Held (#)(1)				Value of Shares Held ($)(2)				Number of Shares Covered by In-the-Money WageWorks Options (#)(3)				Value of In-the-Money WageWorks Options ($)(4)				Number of Shares Covered by WageWorks RSU Awards (#)(5)				Value of WageWorks RSU Awards ($)(6)				Total Value of WageWorks Equity ($)(7)
Stuart C. Harvey, Jr.			—				—				—				—				43,928				2,255,703				2,255,703
Edgar O. Montes			90,447				4,644,453				165,000				3,628,900				156,792				8,051,269				16,324,623
Ismail Dawood			—				—				—				—				59,679				3,064,517				3,064,517
Scott R. Rose			4,845				248,791				—				—				33,736				1,732,344				1,981,135
John G. Saia			—				—				—				—				29,212				1,500,036				1,500,036
Thomas A. Bevilacqua			16,644				854,669				15,500				517,965				3,603				185,014				1,557,648
Bruce G. Bodaken			15,544				798,184				—				—				3,603				185,014				983,198
Carol A. Goode			—				—				—				—				6,421				329,718				329,718
Jerome D. Gramaglia			16,644				854,669				23,000				807,680				3,603				185,014				1,847,363
Robert L. Metzger			16,103				826,889				15,000				115,800				3,603				185,014				1,127,703
George P. Scanlon			—				—				—				—				8,020				411,827				411,827

 

(1)

The numbers shown represent the shares beneficially owned by our executive officers and non-employee directors (other than shares covered by WageWorks options or WageWorks RSU awards), as described in more detail under the section of this proxy statement entitled “Security Ownership of Certain Beneficial Owners and Management.”

(2)	These amounts are the product obtained by multiplying the corresponding number of shares in the “Number of Shares Held” column by the merger consideration.

(3)	The numbers shown represent the shares covered by WageWorks options held by our executive officers that have a per share exercise price less than the merger consideration.

(4)	These amounts are the excess of (i) the product obtained by multiplying the corresponding number of shares in the “Number of Shares Covered by In-the-Money WageWorks Options” column by the merger consideration over (ii) the aggregate exercise price for such shares.

(5)	The numbers shown represent the number of shares covered by WageWorks RSU awards (assuming achievement at target levels for WageWorks performance units held by certain of our current and former executive officers) held by our executive officers and non-employee directors.

(6)

These amounts represent the value of WageWorks RSU awards (assuming achievement at target levels for WageWorks performance units held by certain of our current and former executive officers) held by our executive officers and non-employee directors, which are the product obtained by multiplying the corresponding number of shares in the “Number of Shares Covered by WageWorks RSU Awards” column by the merger consideration.

(7)	These amounts represent the sum of the corresponding amounts in the “Value of Shares Held,” “Value of In-the-Money WageWorks Options,” and “Value of WageWorks RSU Awards” columns.

Employment Agreement with Edgar Montes

We entered into an at-will employment agreement with Mr. Montes, which provides that if, during the period beginning with WageWorks’ execution of a definitive agreement for a change in control (as defined in the employment agreement and which includes the merger) and ending 24 months after the closing of that change in control, he has an involuntary termination (as defined in the employment agreement), then, provided he timely

 

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executes and does not revoke a release of claims and complies with his obligations under his proprietary information and inventions assignment agreement, and complies with the non-solicitation provision in his employment agreement, Mr. Montes will receive the following benefits:

 

•

continued payment of his base salary as then in effect for 15 months;

 

•

reimbursement of COBRA premiums for him and his qualified dependents for up to 15 months (or monthly taxable payments to him for the same period in lieu of our payment of such premiums) and, to the extent such reimbursements or the payments in lieu of such reimbursements constitute taxable income, an additional cash payment in a dollar amount sufficient to cover the federal and state income tax liability attributable to such taxable income and the additional tax gross-up payment;

 

•

a lump-sum payment equal to 100% of his target annual bonus in effect for the year in which his involuntary termination occurs; and

 

•

accelerated vesting as to 100% of his unvested equity awards that are outstanding immediately prior to his involuntary termination.

If any of the severance and other benefits provided for in his employment agreement or otherwise payable to Mr. Montes would constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code and could be subject to the related excise tax, he will be entitled to receive either full payment of such payments and benefits or such lesser amount that will result in no portion of the payments and benefits being subject to the excise tax, whichever results in the greater amount of after-tax benefits to him. Mr. Montes is not entitled to any tax gross-up payments on any parachute payments.

Offer Letter with Stuart C. Harvey, Jr.

We entered into an at-will employment offer letter with Mr. Harvey, which provides that if, during the period beginning with WageWorks’ execution of a definitive agreement for a change in control (as defined in the employment agreement and which includes the merger) and ending 24 months after the closing of that change in control, Mr. Harvey has an “involuntary termination” (as defined in the offer letter), then provided he timely executes and does not revoke a release of claims and complies with his obligations under his confidential information and invention assignment agreement with WageWorks, he will receive accelerated vesting as to 100% of his WageWorks RSU awards.

Change in Control and Severance Agreements

We entered into change in control and severance agreements with Messrs. Dawood, Rose, and Saia, each of which provides that if, on or after the 12-month period following a change in control (as defined in the change control and severance agreement and which includes the merger), the applicable executive officer’s employment is terminated by us other than for cause, death, or disability or he resigns for “good reason”, he will be entitled to the following benefits:

 

•

a lump-sum payment equal to 100% of his annual base salary as of immediately before his termination (or if the termination is due to a resignation for good reason based on a material reduction in base salary, then as of immediately before such reduction) or, if such amount is greater, as of immediately before the change in control;

 

•

a lump-sum payment equal to 100% of his target annual bonus (for the year of his termination);

 

•

company payment of the monthly premium for the executive officer and his eligible dependents to continue health coverage pursuant to COBRA continuation coverage for up to 12 months following his termination date (or monthly taxable payments to him for the same period in lieu of our payment of such premiums); and

 

•

100% accelerated vesting of all outstanding equity awards, and, with respect to equity awards with performance-based vesting, unless otherwise specified in the award agreements governing such equity awards, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels.

 

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In the event of the executive officer’s termination due to his death, then 100% of the unvested portion of each of his equity awards will become immediately vested and exercisable.

The receipt of the payments and benefits above is conditioned on the executive officer timely executing and not revoking a release of claims, returning all documents and property belonging to us, resigning from all officer and director positions with us, and complying with his obligations under his confidential information and inventions assignment agreement with WageWorks (including the covenants with respect to non-solicitation).

If any of the payments or benefits provided for under the change in control and severance agreement or otherwise payable to the executive officer would constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code and could be subject to the related excise tax, he will be entitled to receive either full payment of such payments and benefits or such lesser amount that will result in no portion of the payments and benefits being subject to the excise tax, whichever results in the greater amount of after-tax benefits to him. None of these executive officers is entitled to tax gross-up payments on any parachute payments.

Golden Parachute Compensation

In accordance with Item 402(t) of Regulation S-K, the table below sets forth the estimated amounts of compensation and benefits that each named executive officer of WageWorks could receive that are based on or otherwise relate to the merger. For additional details regarding the terms of the payments quantified below, see the section of this proxy statement entitled “The Merger — Interests of Directors and Officers in the Merger” beginning on page 51.

These amounts have been calculated based on (i) compensation and benefit levels as of July 1, 2019; (ii) the assumption that the merger is consummated on July 1, 2019, and (iii) the assumption that Messrs. Montes, Harvey, and Dawood experience qualifying terminations of their employment under Mr. Montes’ employment agreement, Mr. Harvey’s offer letter, and Mr. Dawood’s change in control and severance agreement, respectively, as of July 1, 2019. The amounts shown do not reflect any taxes payable by the named executive officers. Please see the section of this proxy statement entitled “The Merger (Proposal 1) — Interests of Directors and Officers in the Merger” beginning on page 51 for further information about the applicable compensation and benefits.

WageWorks’ named executive officers will not receive pension, non-qualified deferred compensation, tax reimbursements or other compensation in connection with the merger.

Some of the amounts set forth in the table would be payable solely by virtue of the consummation of the merger. In addition to the assumptions regarding the consummation date of the merger and the termination of employment, these estimates are based on certain other assumptions that are described in the footnotes accompanying the table below. Accordingly, the ultimate values to be received by a named executive officer in connection with the merger will differ, and may differ substantially, from the amounts set forth below.

Golden Parachute Compensation

 

Named Executive Officers		Cash ($)(1)				Equity ($)(2)				Perquisites/ Benefits ($)(3)				Total ($)(4)
Edgar O. Montes			1,350,000				8,147,769				37,071				9,534,840
Stuart C. Harvey, Jr.			—				2,255,703				—				2,255,703
Ismail Dawood			700,000				3,064,517				29,657				3,794,174
Joseph L. Jackson(5)			—				2,874,573				—				2,874,573
Colm M. Callan(6)			—				—				—				—
Kimberly L. Wilford(6)			—				—								—

 

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(1)

These amounts represent the “double-trigger” cash severance payments to which Messrs. Montes and Dawood may become entitled under Mr. Montes’ employment agreement and Mr. Dawood’s change in control and severance agreement, respectively, as described in further detail in the section of this proxy statement entitled “The Merger (Proposal 1) — Interests of Directors and Officers in the Merger.” The amount for Mr. Montes represents (i) $750,000 for the continued payment of his base salary (as in effect on July 1, 2019) for 15 months plus (ii) $600,000 for the lump-sum payment equal to 100% of his target annual bonus for 2019. The amount for Mr. Dawood represents (i) $400,000 for the lump-sum payment equal to 100% of his annual base salary (as in effect on July 1, 2019) plus (ii) $300,000 for the lump-sum payment equal to 100% of his target annual bonus for 2019.

(2)

These amounts represent (i) the “double-trigger” vesting acceleration of WageWorks RSU awards that are granted to Messrs. Montes, Harvey, and Dawood on or after June 26, 2019, and assumed by HealthEquity, if they experience a qualifying termination of employment, as described in further detail in the section of this proxy statement entitled “The Merger (Proposal 1) — Interests of Directors and Officers in the Merger” and (ii) the “single-trigger” vesting acceleration of all other WageWorks equity awards held by our named executive officers. The following table quantifies the value of such “single-trigger” and “double-trigger” vesting acceleration, which is calculated for each such WageWorks equity award by multiplying (i) the number of shares subject to such WageWorks equity award for which vesting is accelerated by (ii) the difference between the merger consideration and the exercise price per share, if any, attributable to such WageWorks equity award.

 

Named Executive Officers		Single-Trigger Vesting Acceleration				Double-Trigger Vesting Acceleration
Edgar O. Montes			3,947,750				4,200,019
Stuart C. Harvey, Jr.			—				2,255,703
Ismail Dawood			—				3,064,517
Joseph L. Jackson			2,874,573				—
Colm M. Callan			—				—
Kimberly L. Wilford			—				—

 

(3)

These amounts represent the “double-trigger” benefit of WageWorks’ payment or reimbursement of the premiums for COBRA health continuation coverage for Messrs. Montes and Dawood and their eligible dependents at the levels in effect as of July 1, 2019, for a period of (i) 15 months for Mr. Montes and (ii) 12 months for Mr. Dawood, as described in further detail in the section of this proxy statement entitled “The Merger (Proposal 1) — Interests of Directors and Officers in the Merger.” We do not expect such payments and reimbursements to constitute taxable income, in which case Mr. Montes would not receive an additional cash payment to cover the federal and state income tax liability attributable to such taxable income and the additional tax gross-up payment.

(4)

As noted above, Mr. Montes’ employment agreement and Mr. Dawood’s change in control and severance agreement each provides that if any of the payments or benefits payable to the executive officer would constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code and could be subject to the related excise tax imposed by Section 4999 of the Internal Revenue Code, then he will receive such payment as would entitle him to receive the greatest after-tax benefit, even if it means WageWorks paying him a lower aggregate payment so as to minimize or eliminate the related excise tax.

(5)

We entered into a separation agreement with Mr. Jackson in 2018, which provides that a pro-rata portion of his 2017 WageWorks performance units (pro-rated based on the number of days during the performance period he was actually employed by WageWorks), will remain outstanding and be eligible to vest based on the actual achievement of the applicable performance metric. As described elsewhere in this proxy, at the effective time of the merger, each WageWorks performance unit outstanding as of the date of the merger agreement for which the performance period is incomplete as of the effective time of the merger (which will include the 2017 Wageworks performance units) will vest based on the target performance.

(6)	The employment of Mr. Callan and Ms. Wilford terminated in 2018. Mr. Callan and Ms. Wilford are not entitled to any compensation or benefits that are based on or otherwise relate to the merger.

 

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Arrangements with the Surviving Corporation

As of the date of this proxy statement, no members of WageWorks’ current management have entered into any agreement, arrangement or understanding with HealthEquity, Merger Sub or their affiliates regarding employment with, or the right to invest or participate in the equity of, the surviving corporation, HealthEquity or any of its affiliates. Although it is possible that certain members of WageWorks’ current management team will enter into arrangements with HealthEquity or their affiliates regarding employment (and severance arrangements) with, and the right to purchase or participate in the equity of, HealthEquity, as of the date of this proxy statement, no discussions have occurred between members of WageWorks’ management and representatives of HealthEquity or their affiliates regarding any such arrangements.

Indemnification and Insurance

Please see the description of certain indemnification arrangements and the continuation of certain insurance arrangements for WageWorks’ directors and officers in the section of this proxy statement entitled “The Merger Agreement — Directors’ and Officers’ Indemnification and Insurance” beginning on page 75 and the benefits provided to WageWorks employees under the merger agreement in the section of this proxy statement entitled “The Merger Agreement — Employee Matters” beginning on page 74.

Accounting Treatment

Acquisition accounting will apply for this transaction.

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

The following is a general discussion of the material U.S. federal income tax consequences of the merger to “U.S. holders” (as defined below) whose shares of WageWorks common stock are converted into the right to receive cash pursuant to the merger. This discussion does not address U.S. federal income tax consequences with respect to holders other than U.S. holders. This discussion is based on the Code, the U.S. Treasury regulations promulgated under the Code, published rulings by the Internal Revenue Service (which we refer to as the “IRS”), and judicial authorities and administrative decisions, all as in effect as of the date of this proxy statement and all of which are subject to change or differing interpretations, possibly with retroactive effect. Any such changes or interpretations could affect the accuracy of the statements and conclusions set forth herein. This discussion is not binding on the IRS or a court, and there can be no assurance that the tax consequences described in this discussion will not be challenged by the IRS or that they would be sustained by a court if so challenged. No ruling has been or will be sought from the IRS, and no opinion of counsel has been or will be rendered as to the U.S. federal income tax consequences of the merger.

For purposes of this summary, the term “U.S. holder” means a beneficial owner of shares of WageWorks common stock that is, for U.S. federal income tax purposes:

 

•

an individual who is a citizen or resident of the United States;

 

•

a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

•

a trust that (i) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

•

an estate the income of which is subject to U.S. federal income tax regardless of its source.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds WageWorks common stock, the tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A partner in a partnership holding

 

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WageWorks common stock should consult the partner’s tax advisor regarding the U.S. federal income tax consequences of the merger to such partner.

This discussion applies only to U.S. holders who hold shares of WageWorks common stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment), and does not address or consider all of the U.S. federal income tax consequences that may be applicable to U.S. holders of WageWorks common stock in light of their particular circumstances. For instance, this summary does not address the alternative minimum tax or the tax consequences to U.S. holders who validly exercise appraisal or dissenters’ rights under the DGCL. In addition, this summary does not address the U.S. federal income tax consequences of the merger to U.S. holders who are subject to special treatment under U.S. federal income tax rules, including, for example, banks and other financial institutions; insurance companies; securities dealers or broker-dealers; mutual funds; real estate investment trusts; traders in securities who elect to use the mark-to-market method of accounting; tax-exempt investors; retirement plans, individual retirement accounts or other tax-deferred accounts; S corporations; holders classified as partnerships or other flow-through entities under the Code (or investors in such partnerships or other flow-through entities); certain former citizens or long-term residents of the United States; holders who hold their shares of WageWorks common stock as part of a hedge, straddle, conversion transaction, or other integrated investment; U.S. holders whose functional currency is not the U.S. dollar; holders who acquired their shares of WageWorks common stock through the exercise of WageWorks options or otherwise as compensation; holders who actually or constructively own (or owned at any time during the five-year period ending on the date of the disposition of such holder’s WageWorks common stock pursuant to the merger) 5% or more of the outstanding shares of WageWorks common stock; holders who actually or constructively own any interest in HealthEquity; holders subject to special tax accounting rules as a result of any item of gross income with respect to the shares of common stock being taken into account in an “applicable financial statement” (as defined in the Code); and holders who do not hold their shares of WageWorks common stock as capital assets within the meaning of Section 1221 of the Code. In addition, this summary does not address the impact of the Medicare contribution tax on net investment income, the Foreign Account Tax Compliance Act of 2010 (including the Treasury Regulations promulgated thereunder and intergovernmental agreements entered into pursuant thereto or in connection therewith), or any aspects of non-U.S., state, local, non-U.S., estate, gift, or other tax laws (or any U.S. federal tax laws other than those pertaining to income tax) that may be applicable to a particular holder in connection with the merger.

Further, this summary does not address any tax consequences of the merger to holders of WageWorks options, WageWorks RSU awards or WageWorks performance awards. Such holders should consult their tax advisors regarding the tax consequences of the merger to them.

All stockholders should consult their own tax advisors to determine the particular tax consequences to them (including the application and effect of any state, local or non-U.S. income and other tax laws) of the merger.

A U.S. holder’s receipt of the merger consideration in exchange for shares of WageWorks common stock will generally be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder whose shares of WageWorks common stock are converted into the right to receive cash pursuant to the merger will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before deduction of any applicable withholding taxes) with respect to such shares and the U.S. holder’s adjusted tax basis in such shares. The amount of gain or loss must be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) surrendered by the U.S. holder in the merger. Such gain or loss will generally be long-term capital gain or loss if the U.S. holder’s holding period for such shares is more than 12 months at the effective time of the merger. Long-term capital gains recognized by individual and certain other non-corporate U.S. holders are generally taxed at preferential U.S. federal income tax rates. A U.S. holder’s ability to deduct capital losses may be limited.

 

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Backup Withholding and Information Reporting

A U.S. holder may be subject to backup withholding on all payments to which such U.S. holder is entitled in connection with the merger, unless the U.S. holder provides its correct taxpayer identification number and complies with applicable certification procedures or otherwise establishes an exemption from backup withholding. In addition, if the exchange agent is not provided with a U.S. holder’s correct taxpayer identification number or other adequate basis for exemption, the U.S. holder may be subject to certain penalties imposed by the IRS. Each U.S. holder should complete and sign the IRS Form W-9 included as part of the letter of transmittal and timely return it to the exchange agent in order to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the exchange agent.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will generally be allowable as a refund or credit against a holder’s U.S. federal income tax liability, provided that certain required information is timely furnished to the IRS.

Payments made pursuant to the merger will also be subject to information reporting unless an exemption applies.

This summary is provided for general information only and is not tax advice or a complete analysis or discussion of all potential tax consequences relevant to stockholders. The U.S. federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each stockholder should consult the stockholder’s tax advisor regarding the applicability of the rules discussed above to the stockholder and the particular tax effects to the stockholder of the merger in light of such stockholder’s particular circumstances and the application of state, local, foreign, estate, gift and other tax laws (or any U.S. federal tax laws other than those pertaining to income tax).

Regulatory Approvals and Notices

Under the HSR Act, the merger cannot be completed until each of WageWorks and HealthEquity files a notification and report form with the FTC and the DOJ and the applicable waiting period has expired or been terminated. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30 calendar day waiting period following the parties’ filing of their respective HSR Act notification forms or the early termination of that waiting period. Each of WageWorks and HealthEquity filed their respective HSR Act notification forms on July 11, 2019.

At any time before or after consummation of the merger, notwithstanding the termination of the waiting period under the HSR Act, the DOJ or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger. At any time before or after the completion of the merger, and notwithstanding the termination of the waiting period under the HSR Act, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger. Private parties may also seek to take legal action under the antitrust laws under certain circumstances.

There can be no assurance that the regulatory clearances and approvals described above will be obtained and, if obtained, there can be no assurance as to the timing of any approvals, the ability of the parties to obtain the approvals on satisfactory terms or the absence of any litigation challenging such approvals. There can also be no assurance that the DOJ, the FTC, or any other governmental entity or any private party will not attempt to challenge the merger and, if such a challenge is made, there can be no assurance as to its result.

 

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THE MERGER AGREEMENT

This section describes the material terms of the merger agreement. The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety. This section is not intended to provide you with any factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section of this proxy statement entitled “Where You Can Find More Information” beginning on page 101.

Explanatory Note Regarding the Merger Agreement

The following summary of the merger agreement, and the copy of the merger agreement attached hereto as Annex A to this proxy statement, are intended to provide information regarding the terms of the merger agreement and are not intended to modify or supplement any factual disclosures about WageWorks or HealthEquity in its public reports filed with the SEC. In particular, the merger agreement and the related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to WageWorks or HealthEquity or any of their respective subsidiaries or affiliates. The merger agreement contains representations and warranties by the parties which were made only for purposes of that agreement and as of specified dates. The representations, warranties and covenants in the merger agreement were made solely for the benefit of the parties to the merger agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in WageWorks’ or HealthEquity’s public disclosures. Moreover, the description of the merger agreement below does not purport to describe all of the terms of such agreement, and is qualified in its entirety by reference to the full text of such agreement, a copy of which is attached hereto as Annex A and is incorporated herein by reference.

Additional information about WageWorks may be found elsewhere in this proxy statement and in WageWorks’ other public filings. See “Where You Can Find Additional Information,” beginning on page 101.

The Merger

The merger agreement provides that, upon the terms and subject to the conditions set forth in the merger agreement and in accordance with the DGCL, Merger Sub will be merged with and into WageWorks, whereupon the separate existence of Merger Sub will cease and WageWorks will continue as the surviving corporation and a wholly owned subsidiary of HealthEquity.

Following the effective time of the merger, the officers of the Company immediately prior to the effective time of the merger will be the officers of the surviving corporation unless otherwise determined by HealthEquity prior to the effective time of the merger, and the directors of Merger Sub will be the directors of the surviving corporation.

Subject to HealthEquity’s and the surviving corporation’s commitments with respect to indemnification of WageWorks’ current and former directors and officers, at the effective time of the merger, the certificate of incorporation and the bylaws of Merger Sub as in effect immediately prior to the effective time of the merger will be the certificate of incorporation and bylaws of the surviving corporation until amended in accordance with their terms and applicable law (except that the name of the surviving corporation will be “WageWorks, Inc.”).

 

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Following the consummation of the merger, WageWorks common stock will be delisted from the NYSE and deregistered under the Exchange Act and will cease to be publicly traded.

When the Merger Becomes Effective

Unless the merger agreement is terminated in accordance with its terms or parties otherwise agree in writing, the closing of the merger will occur on the second business day following the date on which all conditions to the merger set forth in the merger agreement have been satisfied, or, to the extent permitted by applicable law, waived (excluding those conditions that by their terms cannot be satisfied until the Closing, but subject to the satisfaction or, where permitted, waiver of those conditions as of the closing of the merger).

However, in the event that the marketing period (defined below) has not ended at the time of the satisfaction or waiver (subject to applicable law) of the conditions to the closing of the merger (excluding those conditions that, by their terms, cannot be satisfied until the closing of the merger, but subject to satisfaction or, where permitted, waiver of those conditions as of the closing of the merger), the closing of the merger will not occur until the earlier of (a) a business day before or during the market period specified by HealthEquity on no less than three business days’ prior written notice to WageWorks and (b) the second business day after the final day of the marketing period.

Subject to the terms, exceptions and qualifications provided in the merger agreement, the “marketing period” is the first period of 15 consecutive business days (a) beginning on the later of (i) the date HealthEquity has access to the financial statements and other financial information of WageWorks set forth in the definition of “Required Financial Information” provided in the merger agreement and (ii) the date the initial preliminary proxy statement has been filed with the SEC and all required notifications and report forms under the HSR Act with respect to the merger and the other transactions contemplated by the merger agreement has been filed, and (b) throughout which nothing has occurred and no conditions exists that would cause of the conditions to the closing of the merger relating to (i) laws or orders having the effect of making the merger illegal or otherwise preventing or prohibiting the consummation of the merger, (ii) WageWorks’ performance and compliance in all material respects with all agreements and covenants required to be performed by it under the merger agreement, or (iii) the absence of certain events and developments that are, or would reasonably be expected to become, materially adverse to WageWorks, to fail to be satisfied, assuming that the closing date were to occur during the marketing period.

Merger Consideration Payable Pursuant to the Merger

In the merger, except as provided below, each issued and outstanding share of WageWorks common stock immediately prior to the effective time of the merger will be cancelled and automatically converted into the right to receive $51.35 in cash, without interest (which we refer to as the “merger consideration”).

In the merger, shares of WageWorks common stock that immediately prior to the effective time of the merger are owned or held in treasury by WageWorks or owned by HealthEquity, Merger Sub or any direct or indirect wholly owned subsidiary of HealthEquity of WageWorks will be canceled and will cease to exist, and no consideration will be delivered in connection with the merger with respect to such shares.

Treatment of Equity Awards

At the effective time of the merger, each WageWorks option that is outstanding immediately before the effective time of the merger, whether vested or unvested, will become fully vested and will be cancelled and converted into the right to receive an amount in cash equal to (i) the number of shares of WageWorks common stock covered by the WageWorks option, multiplied by (ii) the excess (if any) of the merger consideration over the per share exercise price of the WageWorks option, less applicable tax withholdings. If the per share exercise price of the WageWorks option equals or exceeds the merger consideration, the WageWorks option will be cancelled without consideration.

 

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At the effective time of the merger, each WageWorks RSU award outstanding as of the date of the merger agreement that is subject to only time-based vesting conditions will become fully vested. At the effective time of the merger, each WageWorks performance unit for which the performance period is complete but for which the achievement of the underlying performance goals has not yet been determined as of the effective time of the merger will vest based on actual performance during the performance period, and each WageWorks performance unit for which the performance period is incomplete as of the effective time of the merger will vest based on the target performance. Each WageWorks performance unit that does not vest as described in the previous sentence will be cancelled without consideration immediately before the effective time of the merger. Each WageWorks RSU award that vests as described in this paragraph will be cancelled and converted into the right to receive an amount in cash equal to (i) the total number of shares of WageWorks common stock covered by the vested WageWorks RSU award, multiplied by (ii) the merger consideration.

At the effective time of the merger, each outstanding WageWorks RSU award that is granted on or after June 26, 2019, will be assumed by HealthEquity and converted into a restricted stock unit award covering a number of shares of HealthEquity common stock equal to (i) the total number of shares of WageWorks common stock covered by the WageWorks RSU award immediately before the effective time of the merger multiplied by (ii)) the equity award exchange ratio (which is discussed below), rounded down to the nearest whole share, with the same terms and conditions that applied to the WageWorks RSU award immediately before the effective time of the merger, including vesting, settlement and acceleration.

The “equity award exchange ratio” is the quotient (rounded to four decimal places) obtained by dividing (1) the merger consideration, by (2) the volume weighted average price of one share of HealthEquity common stock, as reported on NASDAQ for the 20 consecutive trading days ending with the trading day immediately preceding the date of the closing of the merger.

Treatment of the 2012 Employee Stock Purchase Plan

There will be no further purchases under the ESPP, as no new offering period under the ESPP will commence on or after June 26, 2019, and the ESPP will be terminated no later than 5 days before the effective time of the merger, subject to the consummation of the merger.

Dissenters’ Rights

Shares of WageWorks common stock that are issued and outstanding immediately prior to the effective time of the merger and that are held by a WageWorks stockholder who has properly exercised and perfected its, his or her appraisal rights under Section 262 of the DGCL, will not be converted into or be exchangeable for the right to receive the merger consideration (which we refer to as “dissenting shares”), but instead such stockholder will be entitled to receive such consideration as may be determined to be due pursuant to Section 262 of the DGCL (or any successor provision) (and at the effective time of the merger, such dissenting shares will no longer be outstanding and will automatically be canceled and will cease to exist, and such stockholder will cease to have any rights with respect thereto, except the rights set forth in Section 262 of the DGCL), unless and until such stockholder has failed to perfect or has effectively withdrawn or lost rights to appraisal under the DGCL. If, after the effective time of the merger, any such stockholder has failed to perfect or has effectively withdrawn or lost its, his or her appraisal rights under Section 262 of the DGCL, then the shares held by such stockholder will be treated as if they had been converted into and become exchangeable for the right to receive the merger consideration, as of the effective time of the merger, without any interest thereon. WageWorks has agreed to give HealthEquity prompt written notice of any demands for appraisal of any shares of WageWorks common stock, attempted withdrawals of such demands and any other instruments served pursuant to the DGCL and received by WageWorks relating to stockholders’ rights of appraisal and HealthEquity will have the opportunity to participate in all negotiations and proceedings with respect to such demands for appraisal. Prior to the effective time of the merger, WageWorks has agreed not to make any payment or agree to make any payment with respect to any demands for appraisal, offer to settle or settle any such demands or waive any failure to timely deliver a

 

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written demand for appraisal or timely take any other action to perfect appraisal rights in accordance with the DGCL, in each case without the prior written consent of HealthEquity.

Exchange and Payment Procedures

At or prior to the effective time of the merger, HealthEquity will (a) designate an exchange agent reasonably satisfactory to WageWorks to handle the exchange of shares of WageWorks common stock for the merger consideration and (b) deposit immediately available funds equal to the aggregate merger consideration payable to the holders of WageWorks common stock with the exchange agent, to be held in trust for the benefit of holders of shares of WageWorks common stock in accordance with the terms of the merger agreement.

As promptly as practicable after the effective time of the merger, and in any event within three business days thereafter, the exchange agent will send to each record holder of shares of WageWorks common stock (other than holders of dissenting shares or shares to be cancelled without the right to receive the merger consideration), a letter of transmittal and instructions for effecting the surrender of a WageWorks stock certificate and non-certificated shares of WageWorks common stock represented by book-entry (which we refer to as “book-entry shares”) in exchange for the merger consideration.

As soon as reasonably practicable after the effective time of the merger, each holder of a WageWorks stock certificate or book-entry shares, upon surrender of a WageWorks stock certificate or book-entry shares to the exchange agent together with the letter of transmittal, duly executed and completed, and such other documents as may reasonably be required by the exchange agent, will be entitled to receive the merger consideration (less any applicable withholding taxes), without interest, for each share of WageWorks common stock formerly represented by such WageWorks stock certificate or book-entry shares, as the case may be, and the WageWorks stock certificate or book-entry shares so surrendered will be cancelled.

Notwithstanding the foregoing, no holder of book-entry shares will be required to provide a stock certificate or an executed letter of transmittal to the exchange agent in order to receive the payment that such holder is entitled to receive pursuant to the merger agreement. In lieu thereof, each holder of record of one or more book-entry shares (other than dissenting shares or shares to be cancelled without the right to receive the merger consideration) will, upon receipt of the exchange agent of an “agent’s message” in customary form, be entitled to receive the merger consideration (less any applicable withholding taxes), without interest, for each shares of WageWorks common stock formerly represented by such book-entry shares, and the book-entry shares of so surrendered will be cancelled.

WageWorks stockholders should NOT return stock certificates with the enclosed proxy card, and WageWorks stockholders should NOT forward stock certificates to the exchange agent without a letter of transmittal.

At the close of business, New York time, on the date of the effective time of the merger, the stock transfer books will be closed and there will be no further registration of transfers of WageWorks common stock. From and after the effective time of the merger, the holders of stock certificates and book-entry shares will cease to have any rights with respect to such WageWorks common stock, except as otherwise provided under the merger agreement or by law.

Any portion of the exchange fund that remains undistributed to the holders of stock certificates or book-entry shares for 12 months after the effective time of the merger will be delivered to HealthEquity, and any holders of stock certificates or book-entry shares who have not complied with the foregoing exchange procedures must thereafter look only to HealthEquity (subject to abandoned property, escheat or other similar laws) for the merger consideration with respect to the shares of WageWorks common stock formerly represented thereby to which such holders are entitled pursuant to the merger agreement. Any amounts remaining unclaimed by such holders at such time at which such amounts would otherwise escheat to or become property of any governmental

 

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entity will become, to the extent permitted by applicable abandoned property, escheat or similar laws, the property of the surviving corporation or its designee, free and clear of all claims or interest of any person previously entitled thereto.

If payment of the merger consideration is to be made to a person other than the person in whose name the surrendered certificate is registered, it will be a condition precedent of payment that (x) the certificate so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer and (y) the person requesting such payment shall have paid any transfer and other taxes required by reason of the payment of the merger consideration to a person other than the registered holder of the stock certificate surrendered or shall have established to the satisfaction of the surviving corporation that such tax either has been paid or is not required to be paid. Payment of the merger consideration with respect to book-entry shares will only be made to the person in whose name such book-entry shares are registered.

No interest will be paid or will accrue on any cash payable upon surrender of any stock certificate or book-entry share.

In the event that any WageWorks common stock certificates have been lost, stolen or destroyed, the exchange agent will issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof and, if required by the surviving corporation, an indemnity bond of a reasonable amount, the merger consideration payable in respect of such shares subject to the other provisions of the merger agreement.

None of HealthEquity, Merger Sub, WageWorks, the Surviving Corporation or the exchange agent shall be liable to any person in respect of any merger consideration from the exchange fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

At and after the Effective Time, the officers and directors of the Surviving Corporation will be authorized to execute and deliver any deeds, bills of sale, assignments or assurances and to take and do any other actions and things in each case to vest, perfect or confirm of record or otherwise in the Surviving Corporation any and all right, title and interest in, to and under any of the rights, properties or assets acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the merger.

Withholding Rights

The surviving corporation and HealthEquity will each be entitled to deduct and withhold (or cause or direct to be deducted and withheld) any amounts required to be withheld or deducted under applicable tax law from the amounts that would otherwise be payable under the terms of the merger agreement, and any such deducted or withheld amounts that are paid over to the relevant governmental entity will be treated as having been paid to the person in respect of whom such amounts were deducted and withheld.

Representations and Warranties

The merger agreement contains customary representations and warranties of the parties. These include representations and warranties of WageWorks with respect to:

 

•

corporate organization;

 

•

qualification to do business;

 

•

no conflicts or violations;

 

•

consents and approvals;

 

•

authorization and validity of the merger agreement;

 

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•

capitalization;

 

•

subsidiaries;

 

•

SEC filings;

 

•

absence of certain changes or events;

 

•

privacy and data security;

 

•

tax matters;

 

•

the absence of undisclosed liabilities;

 

•

real property;

 

•

intellectual property;

 

•

licenses and permits;

 

•

compliance with applicable laws;

 

•

litigation and orders;

 

•

material contracts;

 

•

employee benefit plans;

 

•

employees;

 

•

insurance;

 

•

affiliate transactions;

 

•

environmental matters;

 

•

health or other benefit laws;

 

•

finders and brokers;

 

•

takeover statutes;

 

•

opinion of the financial advisor to WageWorks; and

 

•

required vote.

The merger agreement also contains customary representations and warranties of HealthEquity and Merger Sub, including among other things:

 

•

organization and qualification;

 

•

no conflicts or violations;

 

•

consents and approvals;

 

•

authorization and validity of the merger agreement;

 

•

capitalization of Merger Sub;

 

•

finders and brokers;

 

•

litigation;

 

•

ownership of WageWorks capital stock;

 

•

no HealthEquity vote or approval required;

 

•

financing and sufficiency of financing.;

 

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•

solvency; and

 

•

exclusivity of representations.

Certain representations and warranties made by WageWorks contained in the merger agreement are generally qualified by “material adverse effect,” as described below. The representations and warranties contained in the merger agreement will expire at the effective time of the merger. The representations, warranties and covenants made by WageWorks in the merger agreement are qualified by information contained in the confidential disclosure schedules delivered to HealthEquity in connection with the execution of the merger agreement and by certain filings that WageWorks has made with the SEC prior to the date of the merger agreement. Stockholders are not third-party beneficiaries of these representations, warranties and covenants under the merger agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of WageWorks or any of its affiliates or of HealthEquity or any of its affiliates.

Material Adverse Effect

A “material adverse effect” with respect to WageWorks means any event, change, circumstance, effect, development or state of facts that, individually or in the aggregate, (i) is or would reasonably be expected to become, materially adverse to the business, assets and liabilities (taken as a whole), financial condition or results of operations of WageWorks and its subsidiaries (taken as a whole), except that that the determination of whether a “material adverse effect” has occurred or may, would or could occur, will not include the effect of any event, change, circumstance, effect, development or state of facts (by itself or when aggregate) to the extent arising out of or attributable to:

 

(a)

changes in general economic conditions in the United States or any other country or region in the world, or changes in conditions in the global economy generally;

 

(b)

changes in conditions in the financial markets, credit markets or capital markets in the United States or any other country or region in the world, including changes in interest rates or credit ratings in the United States or any other country, changes in exchange rates for the currencies of any country, or any suspension of trading in securities generally on any securities exchange or over-the-counter market operating in the United States or any other country or region in the world;

 

(c)

changes generally affecting the industries in which WageWorks and its subsidiaries operate;

 

(d)

changes in regulatory, legislative or political conditions in the United States or any other country or region in the world;

 

(e)

changes after the date of the merger agreement in law or enforcement or the interpretations thereof;

 

(f)

changes or proposed changes after the date of the merger agreement in GAAP or other accounting standards, or the interpretation of such standards;

 

(g)

the public announcement of the merger agreement or the transactions contemplated thereby (including by reason of the identity of HealthEquity) or the pendency or consummation of the transactions contemplated by the merger agreement, including the impact thereof on the relationships, contractual or otherwise, of WageWorks or its subsidiaries with employees, suppliers, customers, partners, vendors or any other third person (except that this clause (g) will not apply to any representation or warranty to the extent the purpose of such representation or warranty is to address the consequences resulting from the merger agreement or the consummation of the transactions contemplated by the merger agreement);

 

(h)

geopolitical conditions, acts of war, outbreak of hostilities, sabotage, terrorism, or military actions or any escalation or worsening of any such acts of war, outbreak of hostilities, sabotage, terrorism or military actions threatened or underway as of the date of the merger agreement in the United States or any other country or region in the world;

 

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(i)

earthquakes, hurricanes, tornados, mudslides, floods, tsunamis, wild fires or other natural disasters, weather conditions and other force majeure events in the United States or any other country or region in the world;

 

(j)

the failure of WageWorks to meet internal or analysts’ expectations or projections (it being understood that the underlying causes of such failure may be taken into consideration in determining whether a “material adverse effect” has occurred unless otherwise expressly excluded elsewhere in this definition);

 

(k)

changes in the price or trading volume of WageWorks common stock, in and of itself (it being understood that any cause of such change may be deemed to constitute, in and of itself, a “material adverse effect” and may be taken into consideration when determining whether a “material adverse effect” has occurred);

 

(l)

the availability or cost of equity, debt or other financing to HealthEquity or Merger Sub; or

 

(m)

any action taken (or refrained from being taken) by WageWorks at the written direction of HealthEquity or any action specifically required to be taken (or refrained from being taken) by WageWorks by the express terms of the merger agreement;

except, in the case of the foregoing clauses (a) through (f), clause (h) and clause (i), to the extent that such event, change, circumstance, effect, development or state of facts (i) adversely affects WageWorks and its subsidiaries in a materially disproportionate manner when compared to the effect of such event, change, circumstance, effect, development or state of facts on other persons in the industries in which WageWorks and its subsidiaries operate, in which case only the incremental disproportionate adverse impact may be taken into account in determining whether there has occurred a “material adverse effect”, or (ii) would or would reasonably be expected to prevent or materially impair or materially delay the ability of WageWorks to perform its obligations under the merger agreement, including the satisfaction of the conditions precedent to the merger and consummation of the merger and the other transactions contemplated by the merger agreement.

No Solicitation of Other Offers by WageWorks

Under the terms of the merger agreement, subject to certain exceptions described below, WageWorks has agreed that, from the date of the merger agreement until the earlier of the effective time of the merger or the date (if any) the merger agreement is validly terminated, neither WageWorks nor any its subsidiaries will, nor will WageWorks or any of its subsidiaries authorize or permit any of their respective directors, officers, employees and other representatives to, directly or indirectly:

 

(a)

solicit, initiate or knowingly facilitate or encourage the submission of any inquiry, discussion, offer, proposal or request from any person (other than HealthEquity or any of its subsidiaries) that could constitute, or could reasonably be expected to lead to, an acquisition proposal (as defined below);

 

(b)

engage in or enter into, continue or otherwise participate in any discussions or negotiations in connection with an acquisition proposal or any inquiry, discussion, offer proposal or request that could reasonably be expected to lead to an acquisition proposal;

 

(c)

furnish non-public information relating to WageWorks and its subsidiaries or afford access to WageWorks’ and its subsidiaries’ officers, employees, agents, properties, books, contracts and records to any third party (and its directors, officers, employees and other representatives) (other than to HealthEquity, Merger Sub or any designees of HealthEquity or Merger Sub) in connection with an acquisition proposal or any inquiry, discussion, offer, proposal or request that could reasonably be expected to lead to an acquisition proposal;

 

(d)

otherwise cooperate with or assist or participate in, or facilitate any such inquiries, proposals, discussions or negotiations or any effort or attempt to make any acquisition proposal; or

 

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(e)

approve, endorse or recommend any transaction under, or any person becoming an “interested stockholder” under, Section 203 of the DGCL.

In addition, under the merger agreement, WageWorks has agreed that:

 

•

WageWorks will immediately cease, and cause its directors, officers, employees and other representatives to immediately cease, any and all existing activities, discussions or negotiations with any parties conducted prior to the date of the merger agreement with respect any of the actions set forth in the foregoing clauses (a) through (e); and

 

•

WageWorks will promptly after the date of the merger agreement instruct each person which, prior to the date of the merger agreement, has executed a confidentiality agreement relating to any acquisition proposal with or for the benefit of WageWorks to promptly return or destroy all confidential information, documents and materials relating to any such acquisition proposal or to WageWorks or its businesses, operations or affairs furnished by WageWorks or any of its directors, officers, employees and other representatives to such person or any of its directors, officers, employees and other representatives prior to the date of the merger agreement in accordance with the terms of any confidentiality agreement with such person and immediately terminate any “data room” or similar access of such person and their directors, officers, employees and other representatives.

Notwithstanding the prohibitions described above, WageWorks and the WageWorks board (or any committee thereof), directly or indirectly through affiliates, may prior to the special meeting (a) participate or engage in negotiations or discussions with any person (and its representatives and financing source) in response to a bona fide written acquisition proposal submitted by such person after the date of the merger agreement and which was not solicited in material violation of the prohibitions described above, (b) furnish to such person information relating to WageWorks or any of its subsidiaries, and provide access to WageWorks’ or its subsidiaries’ officers, employees, agents, properties, books, contracts and records (in each case pursuant to an acceptable confidentiality agreement), or (c) otherwise cooperate with (or facilitate) such acquisition proposal not solicited as a result of any material violation of the prohibitions described above; provided, that WageWorks and its representatives may communicate in writing with a person who has made an unsolicited bona fide written acquisition proposal (and its representatives) solely to clarify, and not negotiate, the existing terms of, and ascertain additional facts regarding, such acquisition proposal for the purpose of the WageWorks board informing itself about such acquisition proposal and the person making it; provided, further, that WageWorks or the WageWorks board may only take an action described in the foregoing clauses (a) through (c) if, prior to taking such action, (i) the WageWorks board (or a committee thereof) has determined in good faith, after consultation with outside legal counsel and financial advisors, that such acquisition proposal constitutes (or would be reasonably expected to result in) a superior proposal (as defined below) and failure to take such action would be inconsistent with the fiduciary duties of the WageWorks board to the WageWorks stockholders under applicable law, and (ii) prior to furnishing such information or affording such access, WageWorks has entered into an acceptable confidentiality agreement with such person and, to the extent non-public information that has not been made available to HealthEquity is made available to such person, has furnished such non-public information to HealthEquity substantially at the same time that it is furnished to such other person.

An “acquisition proposal” for purposes of the merger agreement means any offer or proposal (a) for a merger, reorganization, recapitalization, consolidation, tender offer, share exchange, business combination or other similar transaction involving WageWorks or any of its subsidiaries that would result in any person beneficially owning more than 20% of the issued and outstanding WageWorks common stock after giving effect to the consummation of such transaction, (b) to acquire, directly or indirectly, WageWorks common stock representing more than 20% of the issued and outstanding shares of WageWorks common stock after giving effect to the consummation of such acquisition, or (c) for the sale, lease, exchange, mortgage, transfer or other disposition of more than 20% of the consolidated assets of WageWorks or to which more than 20% or more of WageWorks’ consolidated revenue or earnings are attributable; in each case other than the merger contemplated by the merger agreement.

 

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A “superior proposal” for purposes of the merger agreement means any bona fide written acquisition proposal (on its most recently amended or modified terms, if amended or modified) made by a third party that is not affiliated with WageWorks and received by WageWorks after the date of the merger agreement, without any solicitation in material violation of the non-solicitation restrictions described above, that the WageWorks board (or a committee thereof) determines in its good faith judgment (after consultation with WageWorks’ outside legal counsel and financial advisors of nationally recognized reputation and taking into account all financial, legal, regulatory and other aspects of the acquisition proposal, including the timing and likeliness of the consummation of such acquisition proposal) would be more favorable to the WageWorks stockholders from a financial point of view than the merger agreement and the merger; provided that, for purposes of this definition of “superior proposal,” each reference to “20%” in the definition of “acquisition proposal” will be deemed to be a reference to “51%.” Reference to “the merger agreement” and “the merger” in this paragraph will be deemed to include any proposed alteration of the terms of the merger agreement or the merger that are agreed to in writing by HealthEquity in response to a written notice that the WageWorks board intends to make a change in recommendation due to an intervening event or a bona fide written acquisition proposal, as described in the section of this proxy statement entitled “Change in Recommendation; Matching Rights” beginning on page 68.

Change in Recommendation; Match Rights

The merger agreement requires the WageWorks board (and any committee thereof) to recommend that WageWorks stockholders vote to adopt the merger agreement and not do any of the following:

 

•

withdraw, qualify, modify or amend (or publicly propose to withdraw, qualify, modify or amend) the recommendations of the WageWorks board described in the section of this proxy statement entitled “The Special Meeting— Recommendation of the WageWorks Board of Directors” beginning on page 82;

 

•

approve, endorse or recommend an acquisition proposal; or

 

•

approve, recommend or allow WageWorks to enter into any term sheet, letter of intent, merger agreement, acquisition agreement, contract or understanding relating to or involving an acquisition proposal (other than an acceptable confidentiality agreement entered into following compliance with the provisions of the merger agreement related to non-solicitation of offers by WageWorks).

Notwithstanding the foregoing, prior to the WageWorks stockholders adopting the merger agreement, the WageWorks board (or a committee thereof) may withdraw, modify or amend in a manner adverse to HealthEquity its approval of the merger agreement and the merger or the WageWorks board recommendation (we refer to any such change as a “change in recommendation”) if:

 

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there is an intervening event (as defined below) and the WageWorks board (or a committee thereof) has determined in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be inconsistent with the fiduciary duties of the WageWorks board to the WageWorks stockholders under applicable law; or

 

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WageWorks receives a bona fide written acquisition proposal (provided that such acquisition proposal was not solicited in material violation of WageWorks’ non-solicitation obligations under the merger agreement) that the WageWorks board determines in good faith, in consultation with its financial advisors and outside legal counsel, is a superior proposal, but only if the WageWorks board has determined in good faith, after consultation with its financial advisors and outside legal counsel, that the failure to take such action would be inconsistent with the fiduciary duties of the WageWorks board to the WageWorks stockholders under applicable law.

Prior to making a change in recommendation in response to an intervening event as set forth above, (a) WageWorks must provide HealthEquity with three business days’ prior written notice advising HealthEquity that WageWorks intends to effect a change in recommendation and specifying, in reasonable detail, the reasons

 

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for such change in recommendation, (b) during such three business day period, if requested by HealthEquity, WageWorks must engage in good faith negotiations with HealthEquity to amend the terms of the merger agreement in a manner that obviates the need to effect a change in recommendation, and (c) HealthEquity must not have made, before the end of such three business day period, a definitive written proposal such that the WageWorks board (or a committee thereof) no longer determines in good faith, after consulting with its financial advisors and outside legal counsel, that the failure to make a change in recommendation would be inconsistent with the fiduciary duties of the WageWorks board to the WageWorks stockholders under applicable law.

Prior to making a change in recommendation in response to the receipt of a bona fide written acquisition proposal as set forth above, (a) WageWorks must provide HealthEquity three business days’ prior written notice (provided that any material amendment to the amount or form of consideration payable in connection with such acquisition proposal, or any material amendment to such acquisition proposal, will require a new notice and an additional two business day period) advising HealthEquity that that the WageWorks board (or a committee thereof) intends to effect a change in recommendation and, if applicable, specifying the material terms and conditions of the superior proposal, (b) WageWorks must have engaged in good faith negotiations with HealthEquity (to the extent that HealthEquity desires to so negotiate) to amend the terms of the merger agreement such that such acquisition proposal would no longer constitute a superior proposal, and (c) HealthEquity must not have made, before the end of such three business day period (or subsequent two business day period), a definitive written proposal that the WageWorks board (or a committee thereof) determines in good faith, after consulting with its financial advisors and outside legal counsel, causes such superior proposal to no longer be a superior proposal.

An “intervening event” for purposes of the merger agreement is a material change or development that affects the business and operations of WageWorks that (a) is unknown to or by, and not reasonably foreseeable by, the WageWorks board as of the date of the merger agreement, (b) becomes known to or by the WageWorks board prior to adoption of the merger agreement by the WageWorks stockholders and (c) does not relate to or involve (i) any acquisition proposal, (ii) any event, fact, circumstance, development or occurrence relating to HealthEquity, Merger Sub or any of their affiliates, (iii) clearance of the merger under the HSR Act, (d) the fact in and of itself that WageWorks meets or exceeds any internal or published projections, forecasts, estimates or predictions of revenue, earnings or other financial or operating metrics for any period ending on or after the date of the merger agreement or (e) changes after the date of the merger agreement in the market price or trading volume of the WageWorks common stock or credit rating of WageWorks in and of itself.

Nothing in the merger agreement prohibits WageWorks or the WageWorks board (or any committee thereof) from (a) taking and disclosing to the WageWorks stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, including any “stop, look and listen” communication to the WageWorks stockholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act (or any substantially similar communication), (b) complying with Item 1012(a) of Regulation M-A promulgated under the Exchange Act, or (c) making any disclosure to the WageWorks stockholders (including regarding the business, financial condition or results of operations of WageWorks and its subsidiaries) to comply with applicable law; it being understood and agreed by the parties that nothing in the foregoing will be deemed to permit WageWorks or the WageWorks board (or any committee thereof) to effect a change in recommendation other than as set forth in the merger agreement.

Conduct of Business Before Completion of the Merger

The merger agreement provides for certain restrictions on WageWorks’ and its subsidiaries’ activities until the earlier of the effective time of the merger or the date (if any) the merger agreement is validly terminated. In general, except as specifically permitted or required by the merger agreement, as required by applicable law or as consented to in writing by HealthEquity (which may not be unreasonably withheld, conditioned or delayed), subject to specified exceptions set forth in the merger agreement and the confidential schedules thereto, each of WageWorks and its subsidiaries is required to conduct its business in the ordinary course of business consistent

 

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with past practice and use reasonable best efforts to maintain all material leased real property leased, in excess of 10,000 rentable square feet, in good operating condition and repair, to preserve substantially intact the business organization of WageWorks and its subsidiaries, to keep available the services of the present officers and key employees of WageWorks and its subsidiaries and to preserve, in all material respects, the present relationships of WageWorks and its subsidiaries with their material customers and suppliers and others having material business relations with WageWorks such that its business will not be materially impaired. In addition, except as expressly permitted by the merger agreement, as set forth in the confidential schedules thereto or as required by applicable law, WageWorks must not and must not permit any of its subsidiaries to, directly or indirectly, without the prior written consent of HealthEquity (which may not be unreasonably withheld, conditioned or delayed):

 

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amend or propose to amend any of its organizational documents;

 

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issue, grant, change or alter any shares of capital stock, outstanding securities, equity securities, other ownership interests, or any options, warrants or rights to acquire any capital stock or other equity securities;

 

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sell, assign, transfer, abandon, lease, sublease, convey, grant or take any action that will result in a lien on any material asset or leased real property (in excess of 10,000 rental square feet);

 

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redeem, retire, purchase or otherwise acquire any shares of capital stock, or other ownership interests of WageWorks or declare, set aside or pay any dividend or other distribution;

 

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(A) grant or announce any increase in any compensation or compensatory arrangement of any current or former employee of WageWorks or any of its subsidiaries, (B) increase or accelerate the vesting or payment of any compensation or benefit payable or available to any current or former employee, (C) adopt, establish, amend or terminate any agreement, plan, policy or arrangement that would constitute a WageWorks benefit plan, (D) terminate, promote or change the title of any employee or consultant with annual cash compensation of greater than $150,000, (E) hire or make an offer to hire any new employee, officer, director or consultant with annual cash compensation of greater than $150,000, or (F) amend or modify the right to use any paid time off accrued as of immediately prior to the effective time of the merger;

 

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enter into, amend, terminate or extend any collective bargaining agreement or agreement with a works council or other union;

 

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make any capital expenditures or commitments in excess of such capital expenditures or commitments reflected in WageWorks’ current budget provided to HealthEquity prior to the effective date of the merger agreement or $500,000 individually or $3,000,000 in the aggregate;

 

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change accounting practices;

 

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make or change any material tax elections or an annual accounting period, or settle any tax claims;

 

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settle, release or forgive any claim requiring payments to be made by WageWorks or any of its subsidiaries in excess of $750,000, individually, or $5,000,000 in the aggregate, or waive any right to any material claim held by WageWorks or any of its subsidiaries, or settle or resolve any claim against WageWorks or any of its subsidiaries on terms that require WageWorks or any of its subsidiaries to materially alter its existing business practices;

 

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incur, assume, endorse or guarantee or otherwise become liable for any indebtedness, or issue or sell any debt securities or rights to acquire debt securities in excess of $25,000,000;

 

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adopt or enter into a plan of complete or partial liquidation, dissolution or restructuring or effect any recapitalization, reclassification, stock split or like change in the capitalization of WageWorks or any of its subsidiaries;

 

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enter into, terminate, amend, modify in any material respect, or waive any material rights under any material contract;

 

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