8-K: Paragon 28 Addresses Stockholder Lawsuits and Provides Supplemental Disclosures Regarding Merger with Zimmer Biomet

Paragon 28 updates its proxy statement with supplemental disclosures to address stockholder lawsuits and demand letters related to its pending merger with Zimmer Biomet.

Summary

• Paragon 28 has filed a Form 8-K report addressing stockholder litigation and demand letters received in connection with the proposed merger with Zimmer Biomet.
• Two complaints have been filed in New York state court alleging misrepresentations in the definitive proxy statement filed on March 18, 2025.
• The company has also received demand letters alleging material misstatements and omissions in violation of the Securities Exchange Act of 1934.
• Plaintiffs in the litigation seek to enjoin the merger, rescind it, or receive damages, as well as attorneys' fees and expenses.
• Paragon 28 believes the allegations are without merit but is providing supplemental disclosures to avoid delays and minimize litigation costs.
• The supplemental disclosures do not change the merger consideration or the timing of the Special Meeting of Stockholders, scheduled for April 17, 2025.
• The board of directors continues to unanimously recommend voting FOR the merger proposals.
• The report includes amendments to the proxy statement regarding the opinion of Piper Sandler and the interests of the company's directors and executive officers in the merger.
• Diluted shares of Company common stock were calculated to amount to approximately 88.3 million using the treasury stock method as of January 27, 2025.
• Piper Sandler calculated an estimated range of theoretical enterprise values for the Company based on the net present value of projected unlevered after tax free cash flows from December 31, 2024, to December 31, 2034.
• The analysis indicated the range of implied per share values for the Company common stock was $8.91-$14.79, as compared to the $13.00 per share upfront cash consideration to be received by the holders of shares of Company common stock.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company faces litigation, it is taking proactive steps to address the issues and move forward with the merger. The board's continued support is a positive sign, but the litigation introduces uncertainty.

Positives

• The company is proactively addressing stockholder concerns to ensure the merger proceeds smoothly.
• The board's continued support for the merger provides reassurance to investors.
• Supplemental disclosures are being made to avoid potential delays and minimize costs associated with litigation.

Negatives

• Stockholder lawsuits and demand letters indicate potential dissatisfaction with the merger terms or disclosures.
• The need for supplemental disclosures suggests possible deficiencies in the original proxy statement, even if the company denies any wrongdoing.
• Litigation, even if ultimately unsuccessful, can be costly and disruptive.

Risks

• The litigation could potentially delay or prevent the merger from being completed.
• Unfavorable court rulings could result in damages or other remedies being awarded to the plaintiffs.
• The merger may not be completed if the stockholders do not approve the proposed transaction.
• The company may not realize the anticipated benefits of the proposed transaction.
• The revenue milestone necessary for the payment of any contingent value rights may not be achieved.

Future Outlook

The company anticipates holding a Special Meeting of Stockholders on April 17, 2025, to vote on the merger proposals and expects the merger to proceed subject to customary closing conditions and regulatory approvals.

Management Comments

• The Company believes that the allegations contained in the Litigation Matters are without merit and that no further disclosures are required to supplement the Proxy Statement under applicable laws.
• The Company board of directors continues to unanimously recommend that you vote FOR the proposals to be voted on at the Special Meeting as described in the Proxy Statement.

Industry Context

Mergers and acquisitions in the medical device industry are common as companies seek to expand their product portfolios and market reach. Stockholder litigation is also a frequent occurrence in M&A transactions, often leading to supplemental disclosures to address concerns and expedite the deal's completion.

Comparison to Industry Standards

• The implied per share value range of $8.91-$14.79, as calculated by Piper Sandler, can be compared to valuation multiples of similar medical device companies.
• Comparable companies might include Stryker, Medtronic, and Johnson & Johnson, which are often used as benchmarks in M&A transactions within the medical technology sector.
• The perpetuity growth rates ranging from 4.0% to 5.0% used in the discounted cash flow analysis are within the typical range for mature companies in the healthcare industry.
• The discount rates ranging from 11.0% to 13.0% are also within a reasonable range, reflecting the company's weighted average cost of capital and a size premium.

Legal Proceedings

• Two complaints have been filed in New York state court by purported Company stockholders against the Company and the members of the Company board of directors in connection with the Merger: Jones v. Paragon 28, Inc., et al. , Index No. 652025/2025 (filed Mar. 27, 2025)(N.Y. Sup. Ct.), and Smith v. Paragon 28, Inc., et al. , Index No. 652037/2025 (filed Mar. 28, 2025)(N.Y. Sup. Ct.) (the Stockholder Litigation).
• The Stockholder Litigation purports to allege misrepresentation claims under New York common law relating to the Proxy Statement.
• Additionally, the Company has received certain demand letters (collectively, the Demand Letters, and together with the Stockholder Litigation, the Litigation Matters) from purported stockholders of the Company generally alleging that the Proxy Statement contains alleged material misstatements and omissions in violation of Section 14(a), Section 20(a) and Rule 14a-9 of the Securities Exchange Act of 1934, as amended (the Exchange Act).

Stakeholder Impact

• Shareholders are impacted by the potential merger and the litigation surrounding it.
• Employees face uncertainty regarding their future roles and responsibilities post-merger.
• Customers may experience changes in product offerings and service levels.
• Suppliers and vendors could see shifts in procurement strategies and contract terms.
• Creditors may be affected by changes in the company's financial structure and creditworthiness.

Next Steps

• The company will hold a Special Meeting of Stockholders on April 17, 2025, to vote on the merger proposals.
• The company will continue to defend against the stockholder litigation.
• The company will work to satisfy the remaining closing conditions for the merger.

Key Dates

Keywords

merger, Paragon 28, Zimmer Biomet, stockholder litigation, proxy statement, supplemental disclosures, demand letters