Anirudh Modi, et al. v. Envision Healthcare Corporation, et al. 18-CV...

- 1 -CLASS ACTION COMPLAINT

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IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF TENNESSEE

ANIRUDH MODI, individually and onbehalf of all others similarly situated,

Plaintiff,

v.

ENVISION HEALTHCARECORPORATION, WILLIAM A.SANGER, CHRISTOPHER A. HOLDEN,CAROL J. BURT, JAMES A. DEAL,LEONARD M. RIGGS, JOHN T.GAWALUCK, STEPHEN I. GERINGER,JAMES D. SHELTON, JOEY A.JACOBS, MICHAEL L. SMITH, KEVINP. LAVENDER, CYNTHIA S. MILLER,ENTERPRISE PARENT HOLDINGSINC., and ENTERPRISE MERGER SUBINC.

Defendants.

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Civil Action No. ______________

CLASS ACTION COMPLAINT FORBREACH OF FIDUCIARY DUTIES ANDVIOLATIONS OF SECTIONS 14(a) AND20(a) OF THE SECURITIES EXCHANGEACT OF 1934

JURY TRIAL DEMAND

Plaintiff Anirudh Modi (“Plaintiff”), by his attorneys, on behalf of himself and those

similarly situated, files this action against the defendants, and alleges upon information and

belief, except for those allegations that pertain to him, which are alleged upon personal

knowledge, as follows:

SUMMARY OF THE ACTION

1. Plaintiff brings this stockholder class action on behalf of himself and all other

public stockholders of Envision Healthcare Corporation (“Envision” or the “Company”), against

Envision, and the Company’s Board of Directors (the “Board” or the “Individual Defendants”)

for violations of Sections 14(a) and 20(a) of the Securities and Exchange Act of 1934 (the

“Exchange Act”) and for breaches of fiduciary duty as a result of Defendants’ efforts to sell the

Company to Enterprise Parent Holdings, Inc. (“Parent”), and its affiliate Enterprise Merger Sub,

Inc. (collectively with Parent, “KKR”), both of which are affiliates of private equity funds

associated with KKR & Co. L.P. (KKR, the Board, and the Company are collectively referred to

Case 3:18-cv-00648 Document 1 Filed 07/14/18 of 31 PageID #: 1


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herein as the “Defendants”) as a result of an unfair process for an unfair price, and to enjoin the

stockholder vote on a proposed stock and cash transaction valued at approximately $9.9 Billion

(the “Proposed Transaction”).

2. The terms of the Proposed Transaction were memorialized in a June 13, 2018

filing with the Securities and Exchange Commission (“SEC”) on Form 8-K attaching the

definitive Agreement and Plan of Merger (the “Merger Agreement”). Under the terms of the

Merger Agreement, Envision will become an indirect wholly-owned subsidiary of KKR, and

Envision stockholders will receive $46.00 in cash for every share of Envision Common stock

they own.

3. Thereafter, on July 9, 2018, Envision filed a Preliminary Proxy Statement on

Schedule 14A (the “Preliminary Proxy”) with the Securities and Exchange Commission (the

“SEC”) in support of the Proposed Transaction.

4. The Proposed Transaction is unfair and undervalued for a number of reasons.

Significantly, the Preliminary Proxy describes an insufficient sales process in which the Board

failed to create a proper committee of disinterested directors to run the sales process.

5. Next, it appears as though the Board has entered into the Proposed Transaction to

procure for themselves and senior management of the Company significant and immediate

benefits with no thought to the Company’s public stockholders. For instance, pursuant to the

terms of the Merger Agreement, upon the consummation of the Proposed Transaction, Company

Board Members and executive officers will be able to exchange all Company equity awards for

the merger consideration. Moreover, certain Directors and other insiders will also be the

recipients of lucrative change-in-control agreements, triggered upon the termination of their

employment as a consequence of the consummation of the Proposed Transaction.

6. Further contributing to the sales process’ inadequacy is the fact that the Company

engaged no less than three different financial advisors during the sales process, resulting in

millions of dollars unnecessarily spent on advisory services.

7. Defendants breached their fiduciary duties to the Company’s stockholders by

agreeing to the Proposed Transaction which undervalues Envision and is the result of a flawed



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sales process. Significantly, all three (3) of the Company’s financial advisors, J.P. Morgan

Securities LLC (“JP Morgan”), Evercore Group L.L.C. (“Evercore”), and Guggenheim

Securities, LLC (“Guggenheim”) performed a discounted cash flow analysis (“DCF”) based on

the Management Case projections provided by the Company and all three (3) advisors concluded

a DCF range the low end of which was above the deal price. Only by utilizing a questionable

management sensitivity case were the advisors able to provide a DCF that placed the deal price

above the low end of the sensitized range.

8. In violation of sections 14(a) and 20(a) of the Securities and Exchange Act of

1934 (the “Exchange Act”), and in violation of their fiduciary duties, Defendants caused to be

filed the materially deficient Preliminary Proxy on July 9, 2018 with the United States Securities

and Exchange Commission (“SEC”) in an effort to solicit stockholders to vote their Envision

shares in favor of the Proposed Transaction. The Preliminary Proxy is materially deficient and

deprives Envision stockholders of the information they need to make an intelligent, informed and

rational decision of whether to vote their shares in favor of the Proposed Transaction. As

detailed below, the Preliminary Proxy omits and/or misrepresents material information

concerning, among other things: (a) the sales process leading up to the Proposed Transaction; (b)

the financial projections for Envision, provided by Envision to the Company’s financial advisors

J.P. Morgan, Evercore, and Guggenheim for use in their financial analyses; and (c) the data and

inputs underlying the financial valuation analyses that purport to support the fairness opinions

provided by the Company’s financial advisors, JP Morgan, Evercore, and Guggenheim.

9. Absent judicial intervention, the Proposed Transaction will be consummated,

resulting in irreparable injury to Plaintiff and the Class. This action seeks to enjoin the Proposed

Transaction or, in the event the Proposed Transaction is consummated, to recover damages

resulting from violation of the federal securities laws by Defendants.



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PARTIES

10. Plaintiff is a citizen of Oregon and, at all times relevant hereto, has been an

Envision stockholder.

11. Defendant Envision, through its subsidiaries, provides various healthcare services

in the United States. Envision is incorporated under the laws of the State of Delaware and has its

principal place of business at 1A Burton Hills Boulevard, Nashville, Tennessee, 37125. Shares

of Envision common stock are traded on the New York Stock Exchange (“NYSE”) under the

symbol “EVHC.”

12. Defendant William A. Sanger (“Sanger”) has been a director of the Company at

all relevant times. In addition, Sanger serves as the Chairman of the Board of Directors of the

Company.

13. Defendant Christopher A. Holden ("Holden") has been a director of the

Company at all relevant times. In addition, Holden serves as the Company’s President and Chief

Executive Officer (“CEO”).

14. Defendant Carol J. Burt ("Burt") has been a director of the Company at all

relevant times. In addition, Burt serves on the Board’s Audit and Nominating Committees.

15. Defendant James A. Deal ("Deal") has been a director of the Company at all

relevant times. In addition, Deal serves on the Board’s Audit Committee.

16. Defendant Leonard M. Riggs ("Riggs") has been a director of the Company at

all relevant times. In addition, Riggs serves on the Board’s Compliance and Nominating

Committees.

17. Defendant John T. Gawaluck ("Gawaluck") has been a director of the Company at

all relevant times. In addition, Gawaluck serves on the Board’s Audit and Compliance

Committees.

18. Defendant Steven I. Geringer (“Geringer”) has been a director of the Company at

all relevant times. In addition, Geringer serves as a member on the Compensation and

Nominating Committees.



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19. Defendant James D. Shelton (“Shelton”) has been a director of the Company at all

relevant times. In addition, Shelton serves as a member on the Board’s Compensation and

Compliance Committees.

20. Defendant Joey A. Jacobs (“Jacob”) has been a director of the Company at all

relevant times. In addition, Jacobs serves as a member on the Board’s Nominating Committee.

21. Defendant Michael L. Smith (“Smith”) has been a director of the Company at all

relevant times. In addition, Smith serves as a member on the Board’s Audit and Compensation

Committees.

22. Defendant Kevin P. Lavender (“Lavender”) has been a director of the Company at

all relevant times. In addition, Lavender serves as a member on the Board’s Compensation

Committee.

23. Defendant Cynthia S. Miller (“Miller”) has been a director of the Company at all

relevant times. In addition, Miller serves as a member on the Board’s Audit and Compliance

Committee.

24. Defendants identified in ¶¶ 12 - 23 are collectively referred to as the “Individual

Defendants.”

25. Parent is a Delaware Corporation and an affiliate of KKR & Co. L.P. Parent can

be served care of its agent for service of process, Maples Fiduciary Services (Delaware) Inc., at

4001 Kennett Pike, Suite 302, Wilmington, DE 19807.

26. Merger sub is a Delaware Corporation and an affiliate of Parent and KKR & Co.

L.P. Merger Sub can be served care of its agent for service of process, Maples Fiduciary

Services (Delaware) Inc., at 4001 Kennett Pike, Suite 302, Wilmington, DE 19807.

27. Non-Party KKR & Co. L.P. is a private global investment firm that manages

multiple alternative asset classes, including private equity, energy, infrastructure, real estate,

credit, and, through its strategic partners, hedge funds.

JURISDICTION AND VENUE

28. This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange

Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges



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violations of Sections 14(a) and Section 20(a) of the Exchange Act. This action is not a collusive

one to confer jurisdiction on a court of the United States, which it would not otherwise have.

29. Personal jurisdiction exists over each defendant either because the defendant

conducts business in or maintains operations in this District, or is an individual who is either

present in this District for jurisdictional purposes or has sufficient minimum contacts with this

District as to render the exercise of jurisdiction over defendant by this Court permissible under

traditional notions of fair play and substantial justice.

30. Venue is proper in this District pursuant to 28 U.S.C. § 1391, because Envision

has its principal place of business is located in this District, and each of the Individual

Defendants, as Company officers or directors, has extensive contacts within this District.

CLASS ACTION ALLEGATIONS

31. Plaintiff brings this action pursuant to Federal Rule of Civil Procedure 23,

individually and on behalf of the stockholders of Envision common stock who are being and will

be harmed by Defendants’ actions described herein (the “Class”). The Class specifically

excludes Defendants herein, and any person, firm, trust, corporation or other entity related to, or

affiliated with, any of the Defendants.

32. This action is properly maintainable as a class action because:

a. The Class is so numerous that joinder of all members is impracticable. As of

May 4, 2018, there were more than 121 million common shares of Envision

stock outstanding. The actual number of public stockholders of Envision will

be ascertained through discovery;

b. There are questions of law and fact which are common to the Class, including

inter alia, the following:

i. Whether Defendants have violated the federal securities laws;

ii. Whether Defendants made material misrepresentations and/or omitted

material facts in the Preliminary Proxy; and



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iii. Whether Plaintiff and the other members of the Class have and will

continue to suffer irreparable injury if the Proposed Transaction is

consummated.

c. Plaintiff is an adequate representative of the Class, has retained competent

counsel experienced in litigation of this nature and will fairly and adequately

protect the interests of the Class;

d. Plaintiff’s claims are typical of the claims of the other members of the Class

and Plaintiff does not have any interests adverse to the Class;

e. The prosecution of separate actions by individual members of the Class would

create a risk of inconsistent or varying adjudications with respect to individual

members of the Class which would establish incompatible standards of

conduct for the party opposing the Class;

f. Plaintiff anticipates that there will be no difficulty in the management of this

litigation and, thus, a class action is superior to other available methods for the

fair and efficient adjudication of this controversy; and

g. Defendants have acted on grounds generally applicable to the Class with

respect to the matters complained of herein, thereby making appropriate the

relief sought herein with respect to the Class as a whole.

THE INDIVIDUAL DEFENDANTS’ FIDUCAIRY DUTIES

33. By reason of the Individual Defendants’ positions with the Company as officers

and/or directors, said individuals are in a fiduciary relationship with Envision and owe the

Company the duties of due care, loyalty, and good faith.

34. By virtue of their positions as directors and/or officers of Envision, the Individual

Defendants, at all relevant times, had the power to control and influence, and did control and

influence and cause Envision to engage in the practices complained of herein.



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35. Each of the Individual Defendants is required to act with due care, loyalty, good

faith and in the best interests of the Company. To diligently comply with these duties, directors

of a corporation must:

a. act with the requisite diligence and due care that is reasonable under

the circumstances;

b. act in the best interest of the company;

c. use reasonable means to obtain material information relating to a given

action or decision;

d. refrain from acts involving conflicts of interest between the fulfillment

of their roles in the company and the fulfillment of any other roles or

their personal affairs;

e. avoid competing against the company or exploiting any business

opportunities of the company for their own benefit, or the benefit of

others; and

f. disclose to the Company all information and documents relating to the

company’s affairs that they received by virtue of their positions in the

company.

36. In accordance with their duties of loyalty and good faith, the Individual

Defendants, as directors and/or officers of Envision, are obligated to refrain from:

a. participating in any transaction where the directors’ or officers’

loyalties are divided;

b. participating in any transaction where the directors or officers are

entitled to receive personal financial benefit not equally shared by the

Company or its public stockholders; and/or

c. unjustly enriching themselves at the expense or to the detriment of

the Company or its stockholders.



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37. Plaintiff alleges herein that the Individual Defendants, separately and together, in

connection with the Proposed Transaction, violated, and are violating, the fiduciary duties they

owe to Envision, Plaintiff and the other public stockholders of Envision, including their duties of

loyalty, good faith, and due care.

38. As a result of the Individual Defendants’ divided loyalties, Plaintiff and Class

members will not receive adequate, fair or maximum value for their Envision common stock in

the Proposed Transaction.

SUBSTANTIVE ALLEGATIONS

Company Background

39. Envision Healthcare Corporation, through its subsidiaries, provides various

healthcare services in the United States.

40. Envision operates through two segments, Physician Services and Ambulatory

Services. As of December 31, 2017, its physician-led services encompassed providers at

approximately 1,800 clinical departments at healthcare facilities in 45 states and the District of

Columbia that include emergency department and hospitalist, anesthesiology, radiology/tele-

radiology, and children's services. The Company also offers ambulatory surgical centers (ASCs)

services that provide surgical procedures across multiple specialties, including gastroenterology,

ophthalmology, orthopedics, and others. Envision operated 264 ASCs in 35 states and the

District of Columbia.

41. In addition, Envision provides surgery services, such as management, oversight,

and surgeon staffing for trauma surgery services; offers direct patient care and care coordination

by clinicians outside the acute care setting through physician-led post-acute care services; and

operates office-based medical practices that primarily focus on women's health, as well as

provides physician staffing and related management services.

42. Further, the Company offers medical transportation services in 41 states and the

District of Columbia. The Company offers its clinical solutions for health systems, payors,

providers, and patients.



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43. The Company’s most recent financial performance press release before the

announcement of the Proposed Transaction indicated sustained and solid financial performance.

For example, in a May 7, 2018 press release announcing its 2018 Q1 financial results, the

Company noted such positive results as an increase in net revenues for Physician Services of

13.2% year-on-year.

44. Company CEO Holden spoke on these positive results, stating, “Our results for

the first quarter of 2018 build on the momentum we established at the end of 2017, with our

focus on operational improvements beginning to bear fruit towards our goal of realizing $50

million in operational efficiencies in 2018 and anticipated run-rate savings of $100 million.”

45. Defendant Holden went on to comment on a strong future outlook for Envision

noting that “We expect the impact of these efforts to accelerate through the remainder of 2018.

We are also making good progress in improving our revenue cycle functions to achieve

operational efficiencies, which we expect to realize during the second half of this year,” and that,

“We are also advancing a number of initiatives to improve the efficiency of our clinical teams as

they care for patients.”

46. These positive results are not an anomaly, but rather, are indicative of a trend of

continued financial success by Envision. For example, in a February 27, 2018, press release

announcing the Company’s 2017 Q4 financial results, Envision reported such positive results an

increase in net revenues for Physician Services of 8.3% year-on-year.

47. Speaking on these results, Defendant Holden stated, “We’re pleased to report

results for the fourth quarter of 2017 that were above the high end of our most recent guided

range.”

48. Clearly, based upon these positive financial results, the Company is likely to have

tremendous future success and should command a much higher consideration than the amount

contained within the Proposed Transaction. Moreover, the public statements regarding

breaching even the high end of the Company’s guidance raises questions as to the necessity of

the so-called Management Sensitivity Case and whether the Management Sensitivity Case was

nothing more than an effort to capture a DCF the low end of which was below the deal price.



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49. Despite this upward trajectory and continually increasing financial results, the

Individual Defendants have caused Envision to enter into the Proposed Transaction for

insufficient consideration.

The Flawed Sales Process

50. As detailed in the Preliminary Proxy, the process deployed by the Individual

Defendants was flawed and inadequate, was conducted out of the self-interest of the Individual

Defendants, and was designed with only one concern in mind – to effectuate a sale of the

Company to KKR.

51. First and foremost, it appears that no committee of disinterested directors was

created by the Board to run the sales process. Moreover, the Preliminary Proxy does not indicate

who, if any, of the individual defendants took a leading role in directing the sales process.

Should one such Individual Defendant have had more sway over the sale proceedings than

others, Plaintiff and public stockholders are entitled to such knowledge, especially if any such

Individual Defendant was considered an inside director.

52. Additionally, the Preliminary Proxy makes several references to “certain of its

stockholders” behaving in an activist manner. Specifically, the Preliminary Proxy indicates that,

“In the third quarter of 2017, the Company received communications from certain of its

stockholders suggesting that the Company should review various strategic or financial

alternatives, including executing share repurchase or exploring a sale of the Company.” The

Preliminary Proxy also contains a passage that states, “On February 21, 2018, one of the

Company’s stockholders submitted a notice of its intention to nominate four candidates for

election to the board at the Company’s 2018 annual meeting of stockholders, which notice was

subsequently supplemented on March 16, 2018 with notice of a fifth candidate…The stockholder

subsequently withdrew its nomination notice on July 2, 2018.”

53. Moreover, also indicating the large influence of some institutional investors on

the Board’s decision making abilities throughout the sales process, the Preliminary Proxy

indicates that members of Company management, along with the Chair of the Nominating and

Corporate Governance Committee of the Board (Defendant Burt), had to go on an “investor



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roadshow” to drum up support from the Company’s top twenty institutional investors who held,

in aggregate, roughly 50% of the outstanding stock of the Company.

54. Despite these facts, the Preliminary Proxy fails to indicate the specific nature or

identity of any such stockholder behaving in an activist manner, what their demands were, if any,

the reasons for the February 21, 2018 nomination and subsequent withdrawal, communications

between such investors and the Board, and what impact, if any, such investors had on the sales

process.

55. Furthermore, the Preliminary Proxy is unclear as to the nature of specific

confidentiality and/or non-disclosure agreements Envision entered into with various third parties

and KKR throughout the sales process, if any such agreements were different from one another,

the terms of any included “don’t-ask, don’t-waive” provisions or standstill provisions in those

agreements, and if so, the specific conditions, if any, under which such provisions would fall

away or prevent parties from submitting a bid.

56. It is not surprising, given this background to the overall sales process, that it was

conducted in a completely inappropriate manner, with an obvious end-goal of a KKR

transaction.

The Proposed Transaction

57. On June 11, 2018, Envision issued a press release announcing the Proposed

Transaction. The press release stated, in relevant part:

NASHVILLE, Tenn.--(BUSINESS WIRE) --Envision Healthcare Corporation(“Envision” or the “Company”) (NYSE: EVHC) today announced it has enteredinto a definitive agreement to be acquired by global investment firm KKR in anall-cash transaction for approximately $9.9 billion, including the assumption orrepayment of debt. Under the terms of the agreement, which has beenunanimously approved by Envision’s Board of Directors (the “Board”), KKRwill acquire all of the outstanding shares of Envision’s common stock for $46.00per share in cash, representing a 32% premium to Envision’s volume-weightedaverage share price (VWAP) from November 1, 2017, the day immediatelyfollowing the Company’s first announcement that it was reviewing strategicalternatives. The transaction price represents a multiple of 10.9x trailing 12months Adjusted EBITDA and 10.1x 2018 anticipated Adjusted EBITDA.1

The agreement represents the culmination of the Board’s comprehensive reviewof strategic alternatives to enhance shareholder value. During the last sevenmonths, the Board, with the assistance of three independent financial advisors



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and legal counsel, examined a full range of options to generate shareholdervalue, including capital structure alternatives, potential acquisitions, portfoliooptimization, a potential sale of the whole company, and continued operation asa standalone business. The Board oversaw an extensive process that involvedoutreach to 25 potential buyers, including financial sponsors and strategicentities, and invited proposals for all or parts of the business. Afterconsideration of the opportunities, risks and uncertainties facing the Companyand the broader sector, as well as the alternatives available to the Company, theBoard determined that the KKR proposal presented the best opportunity tomaximize value for shareholders.

James D. Shelton, Envision’s Lead Independent Director, commented, “Afterconducting a robust review of the business and competitive landscape, theCompany’s opportunities and challenges, and the strategic and financialalternatives available to the Company, the Board unanimously believes that thistransaction will deliver the most value to Envision’s shareholders.”

Christopher A. Holden, Envision’s President, Chief Executive Officer andDirector, added, “Envision’s leadership team – including both the Board andmanagement – have been singularly focused on driving value for ourshareholders and have taken decisive action in furtherance of that goal,including the implementation of a comprehensive operational improvement planand a robust review of strategic alternatives. Today’s announcement reflects theextensive efforts by our team to explore all opportunities to deliver value for ourshareholders.”

“Envision is a leading provider of physician-led services in a health care systemin which physician-patient interactions have a pronounced impact on nearly allhealth care decisions. Envision has a very strong reputation for delivering high-quality, patient-focused care through its network of 25,000 clinical professionalsat thousands of hospitals, surgery centers and alternate sites of care across thecountry,” said Jim Momtazee, Head of KKR’s Health Care investment team.“We are excited to partner with the outstanding team led by Chris Holden tohelp build upon the strong foundation in place and accelerate Envision’s growthgoing forward.”

The completion of the transaction, which is targeted for the fourth quarter of2018, is subject to customary closing conditions and regulatory approvals.Envision intends to present the proposed transaction to its shareholders forapproval at the Company’s 2018 Annual Meeting, which will be scheduled assoon as practicable following the filing and review of proxy materials. TheCompany intends to hold its Annual Meeting no later than October 1, 2018.Upon the completion of the transaction, Envision will become a privatecompany, and its common stock will no longer be traded on the New YorkStock Exchange.

KKR will be making the investment primarily from its KKR Americas FundXII.



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J.P. Morgan Securities LLC, Evercore and Guggenheim Securities LLC areserving as financial advisors and Wachtell, Lipton, Rosen & Katz and Bass,Berry & Sims are serving as legal counsel to Envision. Simpson Thacher &Bartlett LLP is acting as legal counsel to KKR. Fully committed debt financingfor the transaction will be provided by Citigroup Global Markets, Credit Suisse,Morgan Stanley, Barclays, Goldman Sachs, Jefferies, UBS Investment Bank,RBC Capital Markets, HSBC, Mizuho, and KKR Capital Markets.

The Inadequate Merger Consideration

58. Significantly, the Company’s financial prospects and opportunities for future

growth, establish the inadequacy of the merger consideration.

59. First, the compensation afforded under the Proposed Transaction to Company

stockholders significantly undervalues the Company. The proposed valuation does not

adequately reflect the intrinsic value of the Company. Moreover, the valuation does not

adequately take into consideration how the Company is performing, considering key financial

improvements and increases in the cash position of the Company in recent years. Further, as

stated herein, the DCF analysis by three (3) different financial advisors all reflect a valuation

with a low end that is above the deal price.

60. For example, financial analysts at Raymond James valued the Company as high

as $51.00 per share one day after the announcement of the Proposed Transaction, a value more

than 10.87% greater than that contained in the implied value contained in the Proposed

Transaction.

61. Furthermore, financial analysts at Oppenheimer valued Envision as high as

$77.00 per shares as recently within approximately seven months from the date of the

announcement of the Proposed Transaction, representing a value greater than 67.39% more

than that contained in the merger consideration.

62. Moreover, the Company’s stock has traded as high as $64.00 per share within a

fifty-two week period before the announcement of the proposed transaction, or a value more

than 39.13% greater than that contained in the Proposed Transaction.

63. Additionally, Envision’s future success is extremely likely, given the consistent

positive financial results it has posted over the past several quarters. Obviously, the opportunity



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to invest in such a company on the rise is a great coup for KKR, however it undercuts the

investment of Plaintiff and all other public stockholders.

64. Clearly, while the deal will be beneficial to KKR it comes at great expense to

Plaintiff and other public stockholders of the Company.

65. Moreover, post-closure, Envision stockholders will be frozen out of their

ownership stake in Envision, forever disclosing any possibility of reaping the full return on their

investment.

66. It is clear from these statements and the facts set forth herein that this deal is

designed to maximize benefits for KKR at the expense of Envision stockholders, which clearly

indicates that Envision stockholders were not an overriding concern in the formation of the

Proposed Transaction.

Preclusive Deal Mechanisms

67. The Merger Agreement contains certain provisions that unduly benefit KKR by

making an alternative transaction either prohibitively expensive or otherwise impossible.

Significantly, the Merger Agreement contains a termination fee provision that is especially

onerous and impermissible. Notably, in the event of termination, the merger agreement requires

Envision to pay up to $167 million to KKR, if the Merger Agreement is terminated under certain

circumstances. Moreover, under one circumstance, Envision must pay this termination fee even

if it consummates any Alternative Proposal (as defined in the Merger Agreement) within 12

months following the termination of the Merger Agreement. The termination fee will make the

Company that much more expensive to acquire for potential purchasers. The termination fee in

combination with other preclusive deal protection devices will all but ensure that no competing

offer will be forthcoming.

68. The Merger Agreement also contains a “No Solicitation” provision that restricts

Envision from considering alternative acquisition proposals by, inter alia, constraining

Envision’s ability to solicit or communicate with potential acquirers or consider their proposals.

Specifically, the provision prohibits the Company from directly or indirectly soliciting, initiating,

proposing or inducing any alternative proposal, but permits the Board to consider an unsolicited



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bona fide “Alternative Proposal” if it constitutes or is reasonably calculated to lead to a

“Superior Proposal” as defined in the Merger Agreement.

69. Moreover, the Agreement further reduces the possibility of a topping offer from

an unsolicited purchaser. Here, the Individual Defendants agreed to provide KKR information in

order to match any other offer, thus providing KKR access to the unsolicited bidder’s financial

information and giving KKR the ability to top the superior offer. Thus, a rival bidder is not

likely to emerge with the cards stacked so much in favor of KKR.

70. These provisions, individually and collectively, materially and improperly impede

the Board’s ability to fulfill its fiduciary duties with respect to fully and fairly investigating and

pursuing other reasonable and more valuable proposals and alternatives in the best interests of

the Company and its public stockholders.

71. Accordingly, the Company’s true value is compromised by the consideration

offered in the Proposed Transaction.

Potential Conflicts of Interest

72. The sales process as indicated in the Preliminary Proxy leading up to the

Proposed Transaction indicates serious flaws in the supposed unbiased nature of the decision to

enter into the Proposed Transaction.

73. First, no committee of independent and disinterested directors was created to run

the sales process.

74. In addition, the breakdown of the benefits of the deal indicate that Envision

insiders are the primary beneficiaries of the Proposed Transaction, not the Company’s public

stockholders. The Board and the Company’s executive officers are conflicted because they will

have secured unique benefits for themselves from the Proposed Transaction not available to

Plaintiff and the public stockholders of Envision.

75. Certain insiders stand to receive massive financial benefits as a result of the

Proposed Transaction. Notably, Company insiders, including the Individual Defendants,

currently own large, illiquid portions of Company stock that will be exchanged for significant



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stakes in the combined corporation upon the consummation of the Proposed Transaction.

Members of the Company Board and Management hold Company stock as follows:

Name

OutstandingShares(1)

Acquirablewithin

60 Days(2)

Percent ofClass(2)

Christopher A. Holden 486,716 — *

Kevin D. Eastridge 41,718 — *

Craig A. Wilson 5,775 25,610 *

Claire M. Gulmi 115,328 — *

Patrick B. Solomon 25,298 1,750 *

Randel G. Owen — — *

William A. Sanger 250,503 1,634,072 1.53%

James A. Deal 36,882 — *

Steven I. Geringer 33,562 — *

Kevin P. Lavender 12,180 — *

Cynthia S. Miller 19,375 — *

Joey A. Jacobs 13,455 — *

John T. Gawaluck 9,204 — *

James D. Shelton 34 — *

Michael Smith 10,751 — *

Carol J. Burt 11,304 — *

Leonard M. Riggs 46,268 — *

All directors and executive officers as a group (21 persons) 1,175,500 1,661,432 2.31%

76. As evidenced above, several Company insiders will be able to exchange their

large illiquid stock blocks for millions of dollars in cash.

77. Furthermore, upon the consummation of the Proposed Transaction, each

outstanding Company option, restricted share, RSU, and/or PSU will be canceled and converted

into the right to receive cash considerations. Specifically, the Preliminary Proxy indicates that

the amount that such equity awards payable to Company Insiders will be in excess of $8.5

million, however it does not specify to whom and in what specific amounts such awards will be

paid.

78. Moreover, certain employment agreements with all Envision’s executives are

entitled to severance packages should their employment be terminated under certain

circumstances. These ‘golden parachute’ packages are significant, and will grant each director

or officer entitled to them millions of dollars, compensation not shared by Envision’s common

stockholders. Defendant Holden will receive more than $27 million under his golden parachute



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agreement. Specifically, such golden parachute compensation will be paid out to Company

insiders as follows:

NameCash($)(1)

Equity($)(2)

Pension /NQDC

($)(3)

Perquisites /Benefits

($)(4)Total

($)

Christopher A. Holden 9,900,000 16,936,694 135,699 48,138 27,020,531Kevin D. Eastridge 1,437,500 1,956,610 66,882 7,851 3,468,843Randel G. Owen(5) — — — — —Craig A. Wilson 1,140,000 1,687,326 31,336 7,851 2,866,513Patrick B. Solomon 1,980,000 1,290,530 59,301 9,107 3,338,938William A. Sanger(6) — 5,467,514 — — 5,467,514Claire M. Gulmi(7) — 1,181,878 72,959 — 1,254,837Robert J. Coward(8) — — — — —

79. Additionally, an as-of-yet known number of Company executive officers and

insiders will continue in their management roles in the surviving corporation. Such employment

carries with it significant compensation not shared amongst Plaintiff or Envision’s public

stockholders.

80. Moreover, no information is given in the Preliminary Proxy to explain the

necessity for engaging three separate financial advisors for the sales process, resulting in an

increase of expenses for the Company throughout the sales process of millions of dollars.

Specifically, JP Morgan is receiving a fee of approximately $32.0 million, while Evercore and

Guggenheim are receiving fees of $10 million each for services rendered as part of the Proposed

Transaction, however the Preliminary Proxy doesn’t indicate why such expenses were required

or necessary.

81. One reason may be that the financial advisors to the Company are heavily

conflicted. For instance, JP Morgan has made $46 million in services to the Company in the last

two years, and $110 million in services to KKR in the same time frame. In addition, Evercore

has received fees from Envision and KKR within the last two years in the amount of $5 million

and $32.5 million, respectively, and Guggenheim has received fees from Envision and KKR

within the last two years in the amount of $38 million and $9 million, respectively.

82. Further, it appears that Evercore’s involvement in the deal may have been

precipitated by its association with the activist investor. The Preliminary Proxy indicates



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Evercore’s involvement on behalf of the Company with “recent stockholder communications;”

however, it fails to adequately disclose the scope of Evercore’s involvement and the necessity of

retaining Evercore to provide valuation analyses.

83. It is no wonder that, in light of the extremely lucrative profits for themselves, the

Board allowed the Company to be sold far under its proper value in order to secure a quick sale.

84. Thus, while the Proposed Transaction is not in the best interests of Envision

stockholders, it will produce lucrative benefits for the Company’s officers and directors.

The Materially Misleading and/or Incomplete Preliminary Proxy

85. On July 9, 2018, Envision filed with the SEC a materially misleading and

incomplete Preliminary Proxy that failed to provide the Company’s stockholders with material

information and/or provides them with materially misleading information critical to the total mix

of information available to the Company’s stockholders concerning the financial and procedural

fairness of the Proposed Transaction.

Omissions and/or Material Misrepresentations Concerning the Sales Process leading up

to the Proposed Transaction

86. Specifically, the Preliminary Proxy fails to provide material information

concerning the process conducted by the Company and the events leading up to the Proposed

Transaction. In particular, the Proxy fails to disclose:

a. The Preliminary Proxy fails to disclose sufficient information regarding the

number and nature of all confidentiality agreements entered into between

Envision and any interested third party during the sales process, if their terms

differed from one another, and if they contained “don’t-ask, don’t-waive” or

standstill provisions, and if so, the specific conditions, if any, under which

such provisions would fall away or prevent parties from submitting a bid.

b. The Preliminary Proxy fails to disclose the basis for failing to create any

committee of independent and disinterested directors to run the sales process;

c. The Preliminary Proxy fails to indicate the specific nature or identity of the

“certain stockholders” behaving in an activist manner, what their demands



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were, if any, the reasons for the February/March 2018 nomination and

subsequent withdrawal, communications between such investors and the

Board, and what impact, if any, such investors had on the sales process.

d. The Preliminary Proxy fails to disclose the basis for the engagement of three

separate financial advisors during the sales process; and

e. The Preliminary Proxy fails to supply adequate information to identify the

Company insiders who will be the benefit of “potential post-closing

arrangements” as described on page 80 of the Preliminary Proxy discussing

employment and investment arrangements with unnamed Company

executives.

Omissions and/or Material Misrepresentations Concerning Envision’s Financial

Projections

87. The Preliminary Proxy fails to provide material information concerning financial

projections provided by Envision’s management and relied upon by JP Morgan, Evercore, and

Guggenheim in their analyses. The Preliminary Proxy discloses management-prepared financial

projections for the Company which are materially misleading. The Preliminary Proxy indicates

that in connection with the rendering of JP Morgan, Evercore, and Guggenheim’s respective

fairness opinions, the financial advisors utilized such information. Accordingly, the Preliminary

Proxy should have, but fails to provide, certain information in the projections that Envision

management provided to the Board and JP Morgan, Evercore, and Guggenheim. Courts have

uniformly stated that “projections … are probably among the most highly-prized disclosures by

investors. Investors can come up with their own estimates of discount rates or [] market

multiples. What they cannot hope to do is replicate management’s inside view of the company’s

prospects.” In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 201-203 (Del. Ch. 2007).

88. Specifically, regarding the “Management Case,” the Preliminary Proxy fails to

provide material information concerning the financial projections prepared by Envision

management. Specifically, the Preliminary Proxy fails to disclose the material line items for the

following metrics:



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i. Adjusted EBITDA;

ii. Adjusted EBITEDA margin;

iii. Adjusted EPS; and

iv. Unlevered Free Cash Flow.

89. Regarding the “Management Sensitivity Case,” the Preliminary Proxy fails to

provide material information concerning the financial projections prepared by Envision

management. Specifically, the Preliminary Proxy fails to disclose the material line items for the

following metrics:

i. Adjusted EBITDA;

ii. Adjusted EBITEDA margin;

iii. Adjusted EPS; and

iv. Unlevered Free Cash Flow.

90. Additionally, the Preliminary Proxy provides several non-GAAP financial metrics

in both the Management Case and the Management Sensitivity Case, including the above-

mentioned metrics of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EPS, and

Unlevered Free cash Flow, and unlevered free cash flows, but fails to disclose a reconciliation of

all non-GAAP to GAAP metrics, as described above. The Preliminary Proxy indicates that

Company management did not have “sufficient data” to accurately provide a reconciliation, but

fails to provide the reason for the lack of such data.

91. Regarding the Management Sensitivity Case, the Preliminary Proxy indicates it

was created in response to “feedback received from stockholders and bidders regarding risk and

uncertainties affecting the Company’s business, as well as management’s ongoing testing of the

potential impact of these risks and uncertainties;” however, the Preliminary Proxy does not give

adequate information as to what specific “risks and uncertainties” are referenced.

92. Additionally, with regards the Management Sensitivity Case, the Preliminary

Proxy fails to indicate when it was prepared and why it was not provided to the bidding parties

throughout the sales process.



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93. Moreover, the Preliminary Proxy indicates that JP Morgan, for the purposes of its

opinion, and based upon certain conversations with the Company, assumed that the Management

Case and Management Sensitivity Cases were equally likely; however, the Preliminary Proxy

gives no information regarding the timing and nature of these conversations or the basis for this

conclusion. This is particularly important because of the fact that with respect to the

Management Case projections, JP Morgan, as well as Evercore and Guggenheim, arrived at a

DCF valuation range that was entirely above the deal price.

94. This information is necessary to provide Company stockholders a complete and

accurate picture of the sales process and its fairness. Without this information, stockholders

were not fully informed as to Defendants’ actions, including those that may have been taken in

bad faith, and cannot fairly assess the process.

95. Without accurate projection data presented in the Preliminary Proxy, Plaintiff and

other stockholders of Envision are unable to properly evaluate the Company’s true worth, the

accuracy of JP Morgan, Evercore, and Guggenheim’s financial analyses, or make an informed

decision whether to vote their Company stock in favor of the Proposed Transaction.

Omissions and/or Material Misrepresentations Concerning the Financial Analyses by JP

Morgan

96. In the Preliminary Proxy, JP Morgan describes its respective fairness opinion and

the various valuation analyses performed to render such opinion. However, the descriptions fail

to include necessary underlying data, support for conclusions, or the existence of, or basis for,

underlying assumptions. Without this information, one cannot replicate the analyses, confirm

the valuations or evaluate the fairness opinions.

97. With respect to the Public Trading Multiples analysis, the Preliminary Proxy fails

to disclose the following:

a. The reasoning to include only data from two publicly traded companies;

b. The specific benchmark multiples for each analyzed comparable company.

98. With respect to the Selected Transactions Analysis, the Preliminary Proxy fails to

disclose the following:



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a. The specific date on which each selected transaction closed;

b. The value of each selected transaction;

c. The specific benchmark multiples for each transaction

99. With respect to the Discounted Cash Flow Analysis, the Preliminary Proxy fails to


a. the specific inputs and assumptions used to calculate the perpetuity growth

rates of Envision’s estimated free cash flows and terminal asset values range

at the end of the five-year period ending in 2022 ranging from 1.0 % to 1.5%;

b. the specific inputs and assumptions, including the weighted average cost of

capital, used to calculate the discount rate range of 8.0% to 9.0%;

100. These disclosures are critical for stockholders to be able to make an informed

decision on whether to vote their shares in favor of the Proposed Transaction.

101. Without the omitted information identified above, Envision’s public stockholders

are missing critical information necessary to evaluate whether the proposed consideration truly

maximizes stockholder value and serves their interests. Moreover, without the key financial

information and related disclosures, Envision’s public stockholders cannot gauge the reliability

of the fairness opinion and the Board’s determination that the Proposed Transaction is in their

best interests.

Omissions and/or Material Misrepresentations Concerning the Financial Analyses by

Evercore

102. In the Preliminary Proxy, Evercore describes its respective fairness opinion and

the various valuation analyses performed to render such opinion. However, the descriptions fail

to include necessary underlying data, support for conclusions, or the existence of, or basis for,

underlying assumptions. Without this information, one cannot replicate the analyses, confirm

the valuations or evaluate the fairness opinions.

103. With respect to the Precedent Transactions Analysis, the Preliminary Proxy fails





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rates of Envision’s estimated 2023 unlevered free cash flows ranging from 1.0

% to 2.0%; and

b. the specific inputs and assumptions used to calculate the discount rate range of

8.0% to 9.0%.








best interests.

Omissions and/or Material Misrepresentations Concerning the Financial Analyses by

Guggenheim

107. In the Preliminary Proxy, Guggenheim describes its respective fairness opinion

and the various valuation analyses performed to render such opinion. However, the descriptions

fail to include necessary underlying data, support for conclusions, or the existence of, or basis

for, underlying assumptions. Without this information, one cannot replicate the analyses,

confirm the valuations or evaluate the fairness opinions.




rates of ranging from 1.0 % to 1.5%;



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b. the specific inputs and assumptions, including the weighted average cost of

capital, used to calculate the discount rate range of 8.0% to 9.0%;

109. With respect to the Selected Transactions Analysis, the Preliminary Proxy fails to




110. With respect to the Public Trading Multiples analysis, the Preliminary Proxy fails


a. The reasoning to include only data from two publicly traded companies;








best interests

FIRST COUNT

Claim for Breach of Fiduciary Duties

(Against the Individual Defendants)

113. Plaintiff repeats all previous allegations as if set forth in full herein.

114. The Individual Defendants have violated their fiduciary duties of care, loyalty and

good faith owed to Plaintiff and the Company’s public stockholders.

115. By the acts, transactions and courses of conduct alleged herein, Defendants,

individually and acting as a part of a common plan, are attempting to unfairly deprive Plaintiff

and other members of the Class of the true value of their investment in Envision.

116. As demonstrated by the allegations above, the Individual Defendants failed to

exercise the care required, and breached their duties of loyalty and good faith owed to the



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stockholders of Envision by entering into the Proposed Transaction through a flawed and unfair

process and failing to take steps to maximize the value of Envision to its public stockholders.

117. Indeed, Defendants have accepted an offer to sell Envision at a price that fails to

reflect the true value of the Company, thus depriving stockholders of the reasonable, fair and

adequate value of their shares.

118. Moreover, the Individual Defendants breached their duty of due care and candor

by failing to disclose to Plaintiff and the Class all material information necessary for them to

make an informed vote on whether to approve the Merger.

119. The Individual Defendants dominate and control the business and corporate

affairs of Envision, and are in possession of private corporate information concerning Envision’s

assets, business and future prospects. Thus, there exists an imbalance and disparity of

knowledge and economic power between them and the public stockholders of Envision which

makes it inherently unfair for them to benefit their own interests to the exclusion of maximizing

stockholder value.

120. By reason of the foregoing acts, practices and course of conduct, the Individual

Defendants have failed to exercise due care and diligence in the exercise of their fiduciary

obligations toward Plaintiff and the other members of the Class.

121. As a result of the actions of the Individual Defendants, Plaintiff and the Class will

suffer irreparable injury in that they have not and will not receive their fair portion of the value

of Envision’s assets and have been and will be prevented from obtaining a fair price for their

common stock.

122. Unless the Individual Defendants are enjoined by the Court, they will continue to

breach their fiduciary duties owed to Plaintiff and the members of the Class, all to the irreparable

harm of the Class.

123. Plaintiff and the members of the Class have no adequate remedy at law. Only

through the exercise of this Court’s equitable powers can Plaintiff and the Class be fully

protected from the immediate and irreparable injury which Defendants’ actions threaten to

inflict.



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SECOND COUNT

Violations of Section 14(a) of the Exchange Act

(Against All Defendants)


125. Defendants have disseminated the Preliminary Proxy with the intention of

soliciting stockholders to vote their shares in favor of the Proposed Transaction.

126. Section 14(a) of the Exchange Act requires full and fair disclosure in connection

with the Proposed Transaction. Specifically, Section 14(a) provides that:

It shall be unlawful for any person, by the use of the mails or by any means or

instrumentality of interstate commerce or of any facility of a national securities

exchange or otherwise, in contravention of such rules and regulations as the

[SEC] may prescribe as necessary or appropriate in the public interest or for the

protection of investors, to solicit or to permit the use of his name to solicit any

proxy or consent or authorization in respect of any security (other than an

exempted security) registered pursuant to section 78l of this title.

127. As such, SEC Rule 14a-9, 17 C.F.R. 240.14a-9, states the following:

No solicitation subject to this regulation shall be made by means of any proxy

statement, form of proxy, notice of meeting or other communication, written or

oral, containing any statement which, at the time and in the light of the

circumstances under which it is made, is false or misleading with respect to any

material fact, or which omits to state any material fact necessary in order to make

the statements therein not false or misleading or necessary to correct any

statement in any earlier communication with respect to the solicitation of a proxy

for the same meeting or subject matter which has become false or misleading.



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128. The Preliminary Proxy was prepared in violation of Section 14(a) because it is

materially misleading in numerous respects and omits material facts, including those set forth

above. Moreover, in the exercise of reasonable care, Defendants knew or should have known

that the Preliminary Proxy is materially misleading and omits material facts that are necessary to

render them non-misleading.

129. The Individual Defendants had actual knowledge or should have known of the

misrepresentations and omissions of material facts set forth herein.

130. The Individual Defendants were at least negligent in filing a Preliminary Proxy

that was materially misleading and/or omitted material facts necessary to make the Preliminary

Proxy not misleading.

131. The misrepresentations and omissions in the Preliminary Proxy are material to

Plaintiff and the Class, and Plaintiff and the Class will be deprived of its entitlement to decide

whether to vote its shares in favor of the Proposed Transaction on the basis of complete

information if such misrepresentations and omissions are not corrected prior to the stockholder

vote regarding the Proposed Transaction.

THIRD COUNT

Violations of Section 20(a) of the Exchange Act

(Against all Individual Defendants)


133. The Individual Defendants were privy to non-public information concerning the

Company and its business and operations via access to internal corporate documents,

conversations and connections with other corporate officers and employees, attendance at

management and Board meetings and committees thereof and via reports and other information

provided to them in connection therewith. Because of their possession of such information, the

Individual Defendants knew or should have known that the Preliminary Proxy was materially

misleading to Company stockholders.



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134. The Individual Defendants were involved in drafting, producing, reviewing and/or

disseminating the materially false and misleading statements complained of herein. The

Individual Defendants were aware or should have been aware that materially false and

misleading statements were being issued by the Company in the Preliminary Proxy and

nevertheless approved, ratified and/or failed to correct those statements, in violation of federal

securities laws. The Individual Defendants were able to, and did, control the contents of the

Preliminary Proxy. The Individual Defendants were provided with copies of, reviewed and

approved, and/or signed the Preliminary Proxy before its issuance and had the ability or

opportunity to prevent its issuance or to cause it to be corrected.

135. The Individual Defendants also were able to, and did, directly or indirectly,

control the conduct of Envision’s business, the information contained in its filings with the SEC,

and its public statements. Because of their positions and access to material non-public

information available to them but not the public, the Individual Defendants knew or should have

known that the misrepresentations specified herein had not been properly disclosed to and were

being concealed from the Company’s stockholders and that the Preliminary Proxy was

misleading. As a result, the Individual Defendants are responsible for the accuracy of the

Preliminary Proxy and are therefore responsible and liable for the misrepresentations contained

herein.

136. The Individual Defendants acted as controlling persons of Envision within the

meaning of Section 20(a) of the Exchange Act. By reason of their position with the Company,

the Individual Defendants had the power and authority to cause Envision to engage in the

wrongful conduct complained of herein. The Individual Defendants controlled Envision and all

of its employees. As alleged above, Envision is a primary violator of Section 14 of the Exchange

Act and SEC Rule 14d-9. By reason of their conduct, the Individual Defendants are liable

pursuant to section 20(a) of the Exchange Act.



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WHEREFORE, Plaintiff demands injunctive relief, in its favor and in favor of the Class,

and against the Defendants, as follows:

A. Ordering that this action may be maintained as a class action and certifying

Plaintiff as the Class representatives and Plaintiff’s counsel as Class counsel;

B. Enjoining the Proposed Transaction;

C. In the event Defendants consummate the Proposed Transaction, rescinding it and

setting it aside or awarding rescissory damages to Plaintiff and the Class;

D. Declaring and decreeing that the Merger Agreement was agreed to in breach of

the fiduciary duties of the Individual Defendants and is therefore unlawful and

unenforceable;

E. Directing the Individual Defendants to exercise their fiduciary duties to

commence a sale process that is reasonably designed to secure the best possible

consideration for Envision and obtain a transaction which is in the best interests of

Envision and its stockholders;

F. Directing defendants to account to Plaintiff and the Class for damages sustained

because of the wrongs complained of herein;

G. Awarding Plaintiff the costs of this action, including reasonable allowance for

Plaintiff’s attorneys’ and experts’ fees; and

H. Granting such other and further relief as this Court may deem just and proper.

DEMAND FOR JURY TRIAL

Plaintiff hereby demands a jury on all issues which can be heard by a jury.

Dated: July 13, 2018 ______s/Paul Kent Bramlett_______________Paul Kent Bramlett #7387BRAMLETT LAW OFFICESPaul Kent Bramlett #7387/MS#4291Robert Preston Bramlett #2589540 Burton Hills Blvd., Suite 200P.O. Box 150734



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Nashville, TN 37215Tel.: 615.248.2828Fax: 866.816.4116E-mail: [email protected]@BramlettLawOffices.com

Attorneys for Plaintiff

OF COUNSEL: Motions for Pro Hac Admission ForthcomingBRODSKY & SMITH, LLCEvan J. SmithMarc L. AckermanTwo Bala Plaza, Suite 510Bala Cynwyd, PA 19004Telephone: [email protected]@brodskysmith.com


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Anirudh Modi, et al. v. Envision Healthcare Corporation, et al. 18-CV...

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