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Xactly Investors Say More Info Needed on $564M Vista Buy

A proposed class of investors for Xactly Corp. launched a lawsuit in California federal court Thursday, accusing the sales incentive software provider and its board of providing misleading information in a recent proxy statement related to Vista Equity Partners’ $564 million acquisition of the company.

The proposed class said Xactly’s June 16 filing — submitted to the U.S. Securities and Exchange Commission and distributed to investors in advance of a July 28 shareholder vote — contained “material misrepresentations and omissions” concerning employment negotiations, financial metrics and confidentiality agreements with Vista and former prospective buyers. The investors seek to halt the shareholder vote until Xactly produces a complete proxy statement that complies with SEC regulations.

“Absent disclosure of this material information prior to the vote on the proposed transaction, plaintiff and the other members of the class will be unable to make an informed decision about whether to vote in favor of the proposed transaction and are thus threatened with irreparable harm for which damages are not an adequate remedy,” the complaint said.

Vista and Xactly announced the deal in late May, with affiliates of the private equity company paying $15.65 per share in cash per Xactly share, a 17 percent premium on its share price at the time.

According to the complaint, the proxy statement noted that members of Xactly’s management team had not participated in employment negotiations with Vista before the deal was struck. But the statement allegedly went on to say that certain Xactly executive officers “have had and may continue to have discussions” regarding future employment or the purchase of equity in the new company in the aftermath of the deal.

The shareholders said this discrepancy makes it unclear whether the board’s decision not to conduct further analyses on merger price was swayed by these talks, or if the deal itself was impacted by a conflict of interest. Xactly should provide information on any communications concerning the continued employment of Xactly management team members.

The investors said the proxy does not disclose the compensation received by J.P. Morgan Securities LLC for its role as the lead bookrunner on the company’s June 2015 initial public offering either. The shareholders said this information is required because J.P. Morgan was also responsible for evaluating and exploring potential buyers for Xactly following its work on the IPO.

Additionally, the statement allegedly relied on nongenerally accepted accounting principles without providing comparable GAAP metrics when discussing earnings before interest, tax, depreciation and amortization, and unlevered free cash flow. The investors argue that these non-GAAP metrics do not have a clear definition across all companies, saying the SEC has made it clear that these types of analyses can be misleading.

The statement also describes several confidentiality agreements Xactly struck with possible merger partners including Vista, but does not adequately disclose their details, the complaint said. The shareholders seek more information as to whether these agreements used standstill provisions with terms that would have prohibited other interested parties from offering a better deal.

Counsel for the proposed class and representatives for Xactly did not respond Friday to requests for comment.

The shareholders are represented by Rosemary M. Rivas, Donald J. Enright and Elizabeth K. Tripodi of Levi & Korsinsky LLP.

Counsel information for Xactly and the board members was not immediately available Friday.

The case is DePalo v. Xactly Corporation et al, case number 5:17-cv-03838 in the U.S. District Court for the Northern District of California.