As previously disclosed, on December 23,
2019, AquaVenture Holdings Limited (the “Company” or “AquaVenture”) entered into the Agreement and Plan
of Merger (the “merger agreement”), among the Culligan International Company (“Culligan”), Amberjack Merger
Sub Limited (“Merger Sub”) and the Company providing for the merger of Merger Sub with and into the Company (the “merger”),
with the Company surviving the merger as a wholly-owned subsidiary of Culligan. On February 18, 2020, the Company filed with the
Securities and Exchange Commission (the “SEC”) a definitive proxy statement (the “Definitive Proxy Statement”)
with respect to the special meeting of the Company’s shareholders scheduled to be held on March 16, 2020, in connection with
the merger (the “special meeting”).
Litigation Related to the Merger
In
connection with the merger with Culligan announced on December 23, 2019, a putative class action lawsuit, Post v. AquaVenture
Holdings Ltd., et al., 1:20-cv-174, was filed by purported shareholder Joseph Post against the Company and its directors in
the United States District Court for the District of Delaware on February 4, 2020. On February 12, 2020, in connection with
the merger, a lawsuit, Hamilton v. AquaVenture Holdings Ltd., et al., 1:20-cv-01227, was filed as an individual action by
purported shareholder Peter Hamilton against the Company and its directors in the United States District Court for the Southern
District of New York. On February 20, 2020, purported shareholder Christopher Jagt filed an individual lawsuit against the
Company and its directors in the United States District Court for the Eastern district of New York, captioned Jagt v. AquaVenture
Holdings Ltd., et. al.. 1:20-cv-931. The merger actions generally allege that the Preliminary Proxy Statement filed with the
SEC on January 27, 2020 or the Definitive Proxy Statement filed on February 18, 2020, as applicable, misrepresents and/or omits
certain purportedly material information and assert violations of Sections 14(a) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and Rule 14a-9 promulgated thereunder against all defendants and violations of Section 20(a)
of the Exchange Act against the Company’s directors. The merger actions seek, among other things, an injunction enjoining
consummation of the merger, costs of the action, including plaintiff’s attorneys’ fees and experts’ fees, and
other relief the Court may deem just and proper. The defendants believe that the respective allegations asserted against
them in the merger actions are without merit and intend to defend against the lawsuits vigorously. Similar cases may be filed in
connection with the proposed merger.
While the Company believes the merger actions
lack any merit and that the disclosures in the Definitive Proxy Statement comply fully with applicable law, solely in order to
avoid the expense and distraction of litigation, the Company has determined voluntarily to supplement the Definitive Proxy Statement
with the supplemental disclosures set forth below (the “Supplemental Disclosures”).
Nothing in the Supplemental Disclosures
shall be deemed an admission of the legal necessity or materiality under applicable law of the Supplemental Disclosures. To the
contrary, the Company specifically denies all allegations that any of the Supplemental Disclosures, or any other additional disclosures,
were or are required.
The board of directors continues to
unanimously recommend that shareholders vote “FOR” the proposal to adopt the merger agreement and “FOR”
the other proposal being considered at the special meeting.
Supplemental Disclosures to Definitive
Proxy Statement
These Supplemental Disclosures should be
read in conjunction with the Definitive Proxy Statement, which should be read in its entirety. All page references in the information
below are to pages in the Definitive Proxy Statement, and all defined and capitalized terms used below shall have the meanings
set forth in the Definitive Proxy Statement. Paragraph references used herein refer to the Definitive Proxy Statement before any
additions or deletions resulting from the Supplemental Disclosures. As noted in the Definitive Proxy Statement, the opinions of
Citi and UBS were necessarily based upon market, economic and other conditions as they existed on, and could be evaluated as of,
December 23, 2019. Citi and UBS assumed no responsibility for updating or revising their opinions based on events or circumstances
that may have occurred after December 23, 2019, and Citi and UBS have not updated or revised its opinion subsequent to such date.
The
section of the Definitive Proxy Statement titled “The Merger (Proposal 1)—Opinion of Citigroup
Global Markets Inc.” is hereby supplemented by amending the paragraph on page 43 that begins with “Citi conducted
a discounted cash flow analysis…” to insert the underlined words in the following sentence:
Citi also calculated estimated terminal
values for AquaVenture based on the following selected illustrative ranges of terminal growth rates, selected by Citi based on
its professional judgment and experience, and applied to AquaVenture's estimated terminal year unlevered after-tax free cash flow
of $60 million (referred to as the "terminal cash flow"): (i) 2.0% to 3.0% in relation to the estimated
terminal cash flow contribution from Quench, (ii) 1.0% to 2.0% in relation to the estimated terminal cash flow contribution
from Seven Seas Water and (iii) 1.5% to 2.5% in relation to the estimated terminal cash flow expenditure attributable to AquaVenture's
Corporate and Other administration function. The estimated terminal values for AquaVenture were then discounted to present values
(as of September 30, 2019) and added to the estimated present values of the projected cash flows referred to above in order
derive a range of implied firm values for AquaVenture.
Also on page 43, the paragraph
that begins with “In calculating the present values…” to insert the underlined words in the following sentence:
From the derived range of implied firm
values referenced above, Citi subtracted AquaVenture's reported net debt balance of approximately $206 million (excluding
unamortized debt discounts and deferred financing fees) as of September 30, 2019, and divided the result by the number
of AquaVenture ordinary shares outstanding on a fully diluted basis of 32.5 million to 33.5 million, calculated
using the treasury stock method, based on information provided by management.
The
section of the Definitive Proxy Statement titled “The Merger (Proposal 1)—Opinion of UBS Securities
LLC” is hereby supplemented by amending the paragraph that begins on page 47 and ends on page 48 that begins with “Unless
the context indicates otherwise…” to insert the underlined words in the following sentence:
Unless the context indicates otherwise,
(1) Enterprise Values derived from the selected companies analysis described below were calculated using the closing price
of the common stock of the selected publicly traded companies in the U.S.-listed water services and related infrastructure industry
listed below as of December 20, 2019, (2) transaction values for the target companies derived from the selected transactions
analysis described below were calculated based on implied Enterprise Values as of the public announcement date of the relevant
transaction, assuming equity values equal to the estimated purchase prices paid for the common equity of the target companies in
the selected transactions, or the estimated purchase prices paid for the target business units, as applicable, and (3) net
debt for the Company was based on such amount as of September 30, 2019 of approximately $206 million, and was
calculated including restricted cash.
Also on page 48, the paragraph that
begins with “In addition, unless the context indicates otherwise…” to insert the underlined words in the following
sentence:
In addition, unless the context indicates
otherwise, (1) per share amounts for the Company's ordinary shares were calculated on a diluted basis, using the treasury
stock method, based on shares, options and warrants outstanding as of December 20, 2019, as provided by the management of
the Company of approximately 33.0 million, (2) Enterprise Value for the Company was calculated by adjusting
for (a) estimated cash payments in connection with acquisitions consummated or expected to be consummated during the fourth
quarter of 2019, (b) the present value of estimated principal payments to be collected with respect to long-term receivables
from the Company's Peru construction contract and the contracts with the government of St. Maarten (and not otherwise reflected
in estimated Adjusted EBITDA) and (c) the net value of estimated usage of net operating loss carryforwards, (3) estimated
2019 data for the Company was based on data pro forma for acquisitions consummated or expected to be consummated during 2019 and
(4) estimated data based on internal forecasts and estimates for the Company were based on the base case forecast described
more fully below under "—Projected Financial Information.”
The section of the Definitive Proxy
Statement titled “The Merger (Proposal 1)—Projected Financial Information—Summary of Base Case Forecast”
is hereby supplemented by inserting the following information at the end of note (2) on page 55:
|
|
Fiscal Year Ending December 31,
|
|
(In USD millions)
|
|
2019Q4E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
Share-based compensation
|
|
$
|
(1
|
)
|
|
$
|
(6
|
)
|
|
$
|
(6
|
)
|
|
$
|
(7
|
)
|
|
$
|
(7
|
)
|
|
$
|
(7
|
)
|
Unlevered cash taxes
|
|
$
|
(1
|
)
|
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
Capitalized contract costs
|
|
$
|
(3
|
)
|
|
$
|
(10
|
)
|
|
$
|
(11
|
)
|
|
$
|
(12
|
)
|
|
$
|
(14
|
)
|
|
$
|
(15
|
)
|
Principal payments on Peru Long-Term Receivable
|
|
$
|
1
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
5
|
|
Principal payments on St. Maarten Long-Term Receivable
|
|
$
|
0
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Change in Net Working Capital and other items
|
|
$
|
0
|
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
$
|
3
|
|
|
$
|
4
|
|
|
$
|
5
|
|
Net cash paid for acquisitions
|
|
$
|
(12
|
)
|
|
$
|
(1
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
The section of the Definitive Proxy
Statement titled “The Merger (Proposal 1)—Projected Financial Information—Summary of Base Case Forecast”
is hereby supplemented by inserting the following information at the end of note (4) on page 55:
|
|
Fiscal Year Ending December 31,
|
|
(In USD millions)
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
Unlevered Cash Taxes
|
|
|
–
|
|
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(5
|
)
|
Capitalized Contract Costs
|
|
|
–
|
|
|
$
|
(10
|
)
|
|
$
|
(11
|
)
|
|
$
|
(12
|
)
|
|
$
|
(14
|
)
|
|
$
|
(15
|
)
|
Change in Net Working Capital
|
|
|
–
|
|
|
$
|
0
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
4
|
|
The section of the Definitive Proxy
Statement titled “The Merger (Proposal 1)—Projected Financial Information—Summary of M&A Forecast”
is hereby supplemented by inserting the following information at the end of note (2) on page 56:
|
|
Fiscal Year Ending December 31,
|
|
(In USD millions)
|
|
2019E
|
|
|
2020E
|
|
|
2021E
|
|
|
2022E
|
|
|
2023E
|
|
|
2024E
|
|
Unlevered Cash Taxes
|
|
|
–
|
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
|
$
|
(8
|
)
|
Capitalized Contract Costs
|
|
|
–
|
|
|
$
|
(10
|
)
|
|
$
|
(11
|
)
|
|
$
|
(12
|
)
|
|
$
|
(14
|
)
|
|
$
|
(15
|
)
|
Change in Net Working Capital
|
|
|
–
|
|
|
$
|
0
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
4
|
|
The
sections of the Definitive Proxy Statement titled “The Merger (Proposal 1)—Projected Financial Information—Summary
of Base Case Forecast” and “The Merger (Proposal 1)—Projected Financial Information—Summary
of M&A Forecast” are hereby supplemented by changing the references to “(In USD $000s)” in the tables
at the top of pages 55 and 56 to be “(In USD millions).”
Important Information and Where to Find
It
This communication is being made in respect
of the proposed transaction involving AquaVenture and Culligan. AquaVenture has scheduled a special meeting in order to obtain
shareholder approval of the proposed merger. AquaVenture has filed with the SEC a Definitive Proxy Statement in connection with
the proposed merger, which has been mailed to the shareholders of AquaVenture and contains important information about the proposed
transaction and related matters. INVESTORS OF AQUAVENTURE ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT TOGETHER WITH SUPPLEMENTAL
DISCLOSURES AND OTHER RELEVANT MATERIALS CAREFULLY AND IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT AQUAVENTURE
AND CULLIGAN , AND THE PROPOSED MERGER. Investors may obtain a free copy of these materials and other documents filed by AquaVenture
with the SEC at the SEC’s website at www.sec.gov, at the Company’s website (https://aquaventure.com/investors/)
or by contacting AquaVenture’s investor relations at investors@aquaventure.com or the investors hotline at 855-278-WAAS (9227).
Participants in the Solicitation
AquaVenture and its directors, executive
officers and certain other members of management and employees may be deemed to be participants in soliciting proxies from its
shareholders in connection with the proposed merger. Information regarding the Company’s directors and executive officers
is set forth in the Company’s definitive proxy statement for its 2019 annual meeting of shareholders, which was filed with
the SEC on April 26, 2019, and its Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was filed
with the SEC on March 11, 2019 and amended on April 26, 2019. These documents may be obtained for free at the SEC’s
website at www.sec.gov, and via the Company’s Investors section of its website at https://aquaventure.com/investors/.
Additional information regarding persons who may be deemed to be participants in soliciting proxies and any direct or indirect
interests they may have in the proposed merger are set forth in the Definitive Proxy Statement.
Cautionary Statement Regarding Forward-Looking
Statements
This document may contain forward-looking
statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and of Section 21E
of the Securities Exchange Act of 1934. The forward-looking statements in this document do not constitute guarantees of future
performance. Investors are cautioned that statements in this press release regarding management’s future expectations, beliefs,
intentions, goals, strategies, plans or prospects, including, without limitation, statements relating to AquaVenture’s strategic
focus; its forecast of future financial results; expectations regarding future business development and acquisition activities;
its expectations regarding performance, growth, cash flows and margins from recently completed and pending acquisitions; its ability
to capitalize on vertical integration opportunities; and the impacts on operating results of the timing, size, integration and
accounting treatment of acquisitions, constitute forward-looking statements. Forward-looking statements can be identified by terminology
such as “anticipate,” “believe,” “could,” “could increase the likelihood,” “estimate,”
“expect,” “intend,” “is planned,” “may,” “should,” “will,”
“will enable,” “would be expected,” “look forward,” “may provide,” “would”
or similar terms, variations of such terms or the negative of those terms. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors including those risks, uncertainties and factors detailed in AquaVenture’s other filings
with the Securities and Exchange Commission. As a result of such risks, uncertainties and factors, AquaVenture’s actual results
may differ materially from any future results, performance or achievements discussed in or implied by the forward-looking statements
contained herein. AquaVenture is providing the information in this document as of this date and assumes no obligations to update
the information included in this document or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
The Supplemental Disclosures included in
this Current Report on Form 8-K include projections of the Company’s future financial results. These disclosures were not
prepared with a view toward public disclosure or compliance with the guidelines established by the American Institute of Certified
Public Accounts for preparation and presentation of prospective financial data, published guidelines of the SEC regarding forward-looking
statements or generally accepted accounting principles in the United States. For a description of the inherent limitations and
inherent risks and uncertainties surrounding the Company’s projected financial results, please see the discussion under the
section titled “The Merger (Proposal 1)—Projected Financial Information” beginning on page 53 of
the Definitive Proxy Statement.