Suit: Mind­body ac­qui­si­tion is un­fair to share­hold­ers

The Tribune (SLO) - - Front Page - BY KAYTLYN LESLIE

The $1.9 bil­lion ac­qui­si­tion agree­ment be­tween Mind­body and Vista Eq­uity Part­ners is un­fair to share­hold­ers, claims a class ac­tion law­suit re­cently filed in San Luis Obispo Su­pe­rior Court.

The law­suit was filed by Joseph Sch­mit — iden­ti­fied in the law­suit as a Mind­body share­holder — on Jan. 24.

In the suit, Sch­mit claims that Mind­body and its board of di­rec­tors “breached their fidu­ciary du­ties of loy­alty, good faith, due care and dis­clo­sure” by agree­ing to the deal in De­cem­ber 2018 with­out ap­pro­pri­ate con­sid­er­a­tion to stock­hold­ers’ in­ter­est. He also claims the board en­gi­neered the deal to ben­e­fit it­self and Vista Eq­uity Part­ners.

“The process de­ployed by the in­di­vid­ual de­fen­dants was flawed and in­ad­e­quate, was con­ducted out of self-in­ter­est of the in­di­vid­ual de­fen­dants and was de­signed with only one con­cern in mind — to ef­fec­tu­ate a sale of the com­pany to Vista,” read the suit.

Nei­ther Sch­mit nor his le­gal rep­re­sen­ta­tion could be reached for com­ment Mon­day evening.

Vista Eq­uity Part­ners, a San Fran­cisco-based pri­vate eq­uity firm spe­cial­iz­ing in tech and soft­ware com­pa­nies, is propos­ing to buy back all the com­pany’s com­mon stock for $36.50. This deal would take the com­pany, which went pub­lic in 2015, pri­vate again.

The law­suit was brought “on be­half of all hold­ers of Mind­body com­mon stock who are be­ing and will be harmed by the in­di­vid­ual de­fen­dants’ ac­tions.” It asks for a jury trial to de­cide the is­sue.

A Mind­body rep­re­sen­ta­tive said in an email to The Tri­bune on Mon­day that the com­pany was un­able to com­ment on the law­suit at this time.

HOW MUCH WILL MIND­BODY EX­EC­U­TIVES, BOARD OF DI­REC­TORS MAKE FROM DEAL?

In the suit, Sch­mit al­ludes to the sub­stan­tial sums that Mind­body ex­ec­u­tives and its board of di­rec­tors stand to make from the deal — point­ing to that as a fac­tor in the board’s ap­proval of the ac­qui­si­tion.

“The break­down of the ben­e­fits of the deal in­di­cate that

Mind­body in­sid­ers are the pri­mary ben­e­fi­cia­ries of the pro­posed trans­ac­tion, not the com­pany’s pub­lic stock­hold­ers,” the law­suit read. “Cer­tain in­sid­ers stand to re­ceive mas­sive fi­nan­cial ben­e­fits as a re­sult of the pro­posed trans­ac­tion.

In the com­pany’s most re­cent fil­ing to the fed­eral Se­cu­ri­ties and Ex­change Com­mis­sion, a merger re­port for share­hold­ers showed CEO Rick Stollmeyer will re­ceive more than $58 mil­lion from sales of his shares of Mind­body stock once the deal is fi­nal­ized.

Stollmeyer, the largest share­holder among the com­pany’s top ex­ec­u­tives, held 529,251 com­mon stock shares, more than 1.2 mil­lion vested and un­vested op­tions and more than 146,000 re­stricted stock units (RSUs) as of Jan. 18, ac­cord­ing to the doc­u­ments.

Stollmeyer is also likely to re­ceive an ad­di­tional $3.5 mil­lion from an an­nual eq­uity award grant in Fe­bru­ary just be­fore the deal closes, which would bring his grand to­tal to more than $61 mil­lion.

Chief op­er­at­ing of­fi­cer Brett White — the next largest ex­ec­u­tive share­holder — would re­ceive $11.1 mil­lion from his shares, fol­lowed by pres­i­dent Michael Mans­bach with $4.3 mil­lion, for­mer coun­sel Kim­berly Lytikainen with $2.6 mil­lion and chief rev­enue of­fi­cer Mark Baker with $1.08 mil­lion. (Ly­takainen has since re­signed from the com­pany.)

Mind­body’s board of di­rec­tors also stands to make sig­nif­i­cant sums once their shares are sold as well. Of the seven nonem­ployee di­rec­tors, two will bring home more than $2 mil­lion a piece, two more than $1 mil­lion each, and the re­main­ing three be­tween $460,000 and $899,000 each, ac­cord­ing to the doc­u­ments.

Stollmeyer and other ex­ec­u­tives also have ex­ist­ing “golden parachute agree­ments” in their con­tracts that spec­ify large pay­outs in the event they are ter­mi­nated within a year of a merger.

Stollmeyer’s parachute agree­ment prom­ises him ap­prox­i­mately $41. 9 mil­lion, White’s $11.9 mil­lion, Mans­bach’s $5.8 mil­lion and Baker’s $2.8 mil­lion.

IS DEAL FAIR TO SHARE­HOLD­ERS OR NOT?

Other na­tional law firms have also be­gun so­lic­it­ing share­hold­ers say­ing the deal was un­fair, and re­sulted in peo­ple los­ing thou­sands of dol­lars.

The Schall Law Firm, a na­tional share­holder rights lit­i­ga­tion firm, an­nounced Jan. 15 that it is in­ves­ti­gat­ing Mind­body in­vestor claims “for po­ten­tial breaches of fidu­ciary duty by both of­fi­cers and the com­pany and po­ten­tial vi­o­la­tions of law.”

The firm is en­cour­ag­ing share­hold­ers “with losses in ex­cess of $100,000 to con­tact the firm.”

Other firms with in­ves­ti­ga­tions into po­ten­tial class ac­tion law­suits stem­ming from the deal in­clude John­son Fis­tel, LLP; Ri­grod­sky & Long, P.A., and Levi & Korsinky, LLP.

Those in­ves­ti­ga­tions all also ques­tion whether Vista’s pro­posed share buy­out is fair.

Sch­mit’s law­suit claims the $36.50 per share pro­posal is not a fair deal to Mind­body share­hold­ers, given the pre­vi­ous suc­cess of the com­pany on the mar­ket. (The com­pany’s pre-deal share high was $43.85 in May 2018; since the ac­qui­si­tion an­nounce­ment, shares have traded at or close to the $36.50 mark.)

He claims that the pro­posed amount is too low, and largely ben­e­fi­cial to Vista.

“Ob­vi­ously the op­por­tu­nity to in­vest in such a com­pany on the rise is a great coup for Vista, how­ever it un­der­cuts the in­vest­ment of Plain­tiff (Sch­mit) and all other pub­lic stock­hold­ers,” read the law­suit. “More­over, post-clo­sure, Mind­body stock­hold­ers will be frozen out of any own­er­ship of the com­pany, for­ever fore­clos­ing them from reaping the likely fu­ture ben­e­fits of Mind­body’s con­tin­ued suc­cess.”

In its proxy state­ment, filed with the fed­eral Se­cu­ri­ties Ex­change Com­mis­sion on Jan. 23, Mind­body said it em­ployed in­vest­ment bank Qat­a­lyst Part­ners LP to ad­vise the com­pany on the fair­ness of the ac­qui­si­tion deal.

Af­ter ex­am­in­ing the merger agree­ment, Mind­body’s fi­nan­cial fil­ings, its op­er­a­tions, his­tor­i­cal mar­ket prices and trad­ing ac­tiv­ity, Qat­a­lyst found that the deal was fair to share­hold­ers from a fi­nan­cial per­spec­tive, ac­cord­ing to the doc­u­ments.

Qat­a­lyst served as the fi­nan­cial ad­viser for an­other re­cent Vista buy­out as well: the firm ad­vised soft­ware com­pany App­tio Inc. for its $1.94 bil­lion ac­qui­si­tion agree­ment with Vista in Novem­ber 2018.

Mind­body share­hold­ers are ex­pected to gather in San Luis Obispo on Feb. 14 to vote on the ac­qui­si­tion.

CHRISTOPHER GALLUZZO Tri­bune file

Mind­body CEO Rick Stollmeyer rings the bell at the Nas­daq ex­change on the first day of trad­ing for his com­pany’s stock af­ter it went pub­lic in 2015.

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