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Item 1.01
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Entry into a Material Definitive Agreement
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The Merger Agreement
On May 6, 2021 (the “Agreement Date”), Bill.com Holdings, Inc. (“Bill.com” or the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Delano Merger Sub I, Inc., a Delaware corporation and direct, wholly owned subsidiary of Bill.com (“Merger Sub I”), Delano Merger Sub II, LLC, a Delaware limited liability company and direct, wholly owned subsidiary of Bill.com (“Merger Sub II” and together with Merger Sub I, the “Merger Subs”), DivvyPay, Inc., a Delaware corporation (“DivvyPay”), and Shareholder Representative Services LLC, a Colorado limited liability company (in its capacity as the equityholder’s agent).
Upon the consummation of the transactions contemplated by the Merger Agreement (the “Closing”), Merger Sub I will merge with and into DivvyPay, with DivvyPay surviving as a wholly owned subsidiary of Bill.com, and immediately thereafter, as part of the same overall integrated transaction, DivvyPay will merge with and into Merger Sub II, pursuant to which Merger Sub II will survive and remain a direct wholly owned subsidiary of Bill.com (such transactions, collectively or in seriatim, the “Merger”).
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, including customary purchase price adjustments, the aggregate consideration Bill.com will pay and issue upon the Closing in exchange for all of the outstanding equity interests of DivvyPay is approximately $2.5 billion, with approximately $625 million payable in cash (the “Cash Consideration”), subject to adjustments, and the remainder issuable in shares of Bill.com’s common stock (“Shares”), options to acquire Shares and restricted stock units covering Shares (the “Share Consideration” and, together with the Cash Consideration, the “Merger Consideration”). The Share Consideration will be calculated based on a fixed value of $157.2697 per Share (the “Share Price”), which represents the average of the daily volume-weighted average sales price per Share for each of the twenty consecutive trading days ending on and including May 3, 2021. The Merger Consideration assumes that DivvyPay will have $125 million in cash as of the Closing (the “Cash Target”), and the Cash Consideration will be adjusted for amounts above or below such Cash Target, with the Cash Target being reduced at a rate of $3.5 million per month if the Closing occurs after July 1, 2021.
In addition, pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Bill.com will grant 953,776 RSUs under the 2019 Equity Incentive Plan (the “Employee RSUs”) to certain employees of DivvyPay who will continue as employees of Bill.com or its subsidiaries, including the surviving entity in the Merger (“Continuing Employees”), of which 635,850 will be granted to Blake Murray, DivvyPay’s chief executive officer. The Employee RSUs will vest over three years from the applicable vesting commencement date (which will occur within one fiscal quarter of Bill.com after the Closing), with one-third vesting on the one-year anniversary of such vesting commencement date, and the remainder vesting quarterly thereafter.
At the effective time of the Merger, all outstanding shares of DivvyPay’s capital stock and warrants will be cancelled and converted into the right to receive a pro rata portion of the Merger Consideration, except that shares of DivvyPay capital stock held by unaccredited stockholders may convert into the right to receive cash in lieu of the Share Consideration. All options to acquire DivvyPay’s common stock (“DivvyPay Options”) outstanding as of immediately prior to the effective time of the Merger will be treated as follows: (i) all vested and unvested DivvyPay Options that were granted prior to May 1, 2019 and are held by a Continuing Employee will be cancelled and the holder thereof will be entitled to receive cash equal to the value of such options (other than such options that are unvested and held by certain key employees, which will be cancelled for no consideration), (ii) all vested and unvested DivvyPay Options that were granted on or after May 1, 2019 and are held by Continuing Employees will be assumed by Bill.com, (iii) all other vested DivvyPay Options will be cancelled and the holder thereof will be entitled to receive cash equal to the value of such option and (iv) all other unvested DivvyPay Options will be cancelled for no consideration.
The Merger Agreement contains customary representations, warranties and covenants by DivvyPay and Bill.com.
Bill.com and DivvyPay’s obligations to consummate the Merger are subject to customary closing conditions, including, among other things, (i) the adoption of the Merger Agreement and approval of the Merger in accordance with Delaware law, (ii) the expiration or termination of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), (iii) the accuracy of certain representations and warranties made by the other party in the Merger Agreement (subject to certain materiality exceptions), (iv) the other party’s material compliance with its covenants set forth in the Merger Agreement and (v) the absence of a material adverse effect with respect to the other party. Bill.com’s obligations to consummate the Merger are also subject to (i) the execution of the Joinder Agreements (as defined below) by stockholders holding at least 90% of DivvyPay’s outstanding shares, (ii) the continued effectiveness of certain agreements entered into with key employees of DivvyPay in connection with the execution of the Merger Agreement and the retention of 90% of DivvyPay employees and (iii) DivvyPay’s delivery of audited financial statements for its fiscal year ended December 31, 2020.
The Merger Agreement may be terminated (i) by mutual written consent of Bill.com and DivvyPay, (ii) by Bill.com or DivvyPay, if the closing of the Merger has not occurred on or before September 3, 2021 (which date may be extended to March 3, 2022 by mutual agreement if all closing conditions have been satisfied or waived, other than the expiration or termination of the applicable waiting period under the HSR Act, as of such original date), (iii) by either Company or DivvyPay, if the other party (a) materially breaches its representations, warranties or covenants in the Merger Agreement, (b) has not cured such breach within 30 days of written notice of such breach and (c) such breach would result in the failure of any condition of the closing to be satisfied, or
(iv) by Bill.com, if DivvyPay’s stockholders do not adopt the Merger Agreement and approve the Merger within eight hours after the execution of the Merger Agreement.
Pursuant to the terms of the Merger Agreement, Bill.com will deposit approximately $125 million of the Merger Consideration (the “Escrow Amount”), consisting of cash and Shares, in a third-party escrow account for a period of 15 months to partially secure the indemnification obligations of DivvyPay’s stockholders and warrantholders (the “Indemnifying Parties”) under the Merger Agreement. The Indemnifying Parties have agreed to indemnify Bill.com for, among other things, (i) breaches of representations, warranties and covenants, (ii) inaccuracies in the calculation and distribution of the Merger Consideration, (iii) outstanding litigation and other specified matters, (iv) liabilities for pre-Closing taxes and (v) fraud, intentional misrepresentation or willful misconduct by or on behalf of the DivvyPay in connection with the transactions contemplated by the Merger Agreement. In general, subject to certain exceptions, including for outstanding litigation and specified indemnity matters, certain fundamental representations, pre-closing taxes and fraud, the Indemnifying Parties will not be required to pay any amounts in respect of its indemnification obligations related to breaches of representations and warranties until the aggregate amount of all losses exceeds a deductible of $10 million, in which case the Indemnifying Parties will be required to indemnify only for such losses in excess of the deductible. The Indemnifying Parties’ aggregate indemnity obligations are generally capped at the Escrow Amount, except for fraud.
The Company intends to issue the Shares in reliance upon the exemptions from registration afforded by Section 4(a)(2) and Rule 506 promulgated under the Securities Act of 1933, as amended. Under the terms of the Merger Agreement, Bill.com has agreed to file a registration statement on Form S-3 covering the resale of the Shares to be issued to Company securityholders (the “Resale Registration Statement”).
The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Merger Agreement, a copy of which will be filed as an exhibit on the earlier to be filed of (i) Bill.com’s Annual Report on Form 10-K for the fiscal year ending June 30, 2021 and (ii) the Resale Registration Statement.
Joinder Agreements
In connection with the execution and delivery of the Merger Agreement, certain of DivvyPay’s stockholders and executive officers (each, a “Consenting Stockholder”) entered into Joinder Agreements with Bill.com (collectively, the “Joinder Agreements”), pursuant to which each Consenting Stockholder has agreed, pursuant to the terms and subject to the conditions of the Joinder Agreements, to be bound by and have the benefit of all of the terms and conditions of the Merger Agreement applicable to such Consenting Stockholder.
Subject to the terms and conditions set forth in the Joinder Agreements, each Consenting Stockholder has agreed, among other things, to vote each share of DivvyPay’s capital stock that they own in favor of the adoption of the Merger Agreement. The Joinder Agreements also restrict each Consenting Stockholder from, among other things, transferring or agreeing to transfer any of shares of DivvyPay’s capital stock, except to certain transferees, who shall agree to be bound by the terms and conditions of the Joinder Agreement.
Subject to the terms and conditions set forth in the Joinder Agreements, after the Closing, (i) Bill.com has agreed to register the Shares issued to DivvyPay stockholders who execute the Joinder Agreements on the Resale Registration Statement and (ii) Shares issued to certain Consenting Stockholders pursuant to the Merger Agreement will be subject to a six-month lockup restriction, including 75% of the Shares issued to Blake Murray, DivvyPay’s chief executive officer, and certain relatives of Mr. Murray, and 40% of the Shares issued to certain institutional and strategic investors.
The foregoing summary of the Joinder Agreements does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Joinder Agreements, a form of which will be filed as an exhibit on the earlier to be filed of (i) Bill.com’s Annual Report on Form 10-K for the fiscal year ending June 30, 2021 and (ii) the Resale Registration Statement.