UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

 

Filed by the Registrant  ☒

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

☒	Preliminary Proxy Statement

 

☐	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

☐	Definitive Proxy Statement

 

☐	Definitive Additional Materials

 

☐	Soliciting Material under §240.14a-12

BIGBEAR.AI HOLDINGS, INC.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

☒	No fee required.

 

☐	Fee paid previously with preliminary materials

 

☐	Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a–6(i)(1) and 0–11.

 

 

 

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION, DATED JANUARY 16, 2024

[        ], 2024

PROPOSED MERGERS—YOUR VOTE IS VERY IMPORTANT

To the Stockholders of BigBear.ai Holdings, Inc.:

On November 4, 2023, BigBear.ai Holdings, Inc. (“BBAI”) entered into an Agreement and Plan of Mergers (the “Merger Agreement”) with Pangiam Ultimate Holdings, LLC (“Seller”), Pangiam Intermediate Holdings, LLC (“Pangiam”), a direct, wholly-owned subsidiary of Seller, Pangiam Merger Sub, Inc. (“Merger Sub”), a direct, wholly-owned subsidiary of BBAI and Pangiam Purchaser, LLC, a direct, wholly-owned subsidiary of BBAI (“Purchaser”), pursuant to which, Merger Sub will first merge with and into Pangiam and Pangiam will subsequently merge with and into Purchaser, with Purchaser surviving such merger as a wholly-owned subsidiary of BBAI (the “Mergers”).

A transaction committee (the “BBAI Special Committee”) of the board of directors of BBAI (the “BBAI Board”) formed to independently evaluate the Mergers has approved the Merger Agreement and the transactions contemplated thereby, and BBAI intends to hold a special stockholder meeting to consider and vote upon the approval of the issuance (the “Stock Issuance”) of a number of shares of common stock of BBAI, par value $0.0001 per share (“BBAI Common Stock”), as consideration in the Mergers equal to $70,000,000, subject to customary adjustments for indebtedness, transaction expenses, working capital and cash (based on a price per share of BBAI Common Stock of $1.3439 which represents the 20-day VWAP for BBAI Common Stock ending on the trading day immediately prior to the date of the Merger Agreement) (the “Merger Consideration”).

As provided in the Merger Agreement, in connection with and at the time of the closing of the Mergers (the “Effective Time” or the “Closing”), all equity securities of Pangiam issued and outstanding immediately prior to the Effective Time will be converted into and represent solely the right to receive, without interest, the Merger Consideration. The Stock Issuance will be made in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended, set forth in Section 4(a)(2) thereof, relating to sales by an issuer not involving a public offering.

BBAI Common Stock trades on the New York Stock Exchange under the symbol “BBAI.”

BBAI will hold the special meeting of BBAI stockholders (the “BBAI Special Meeting”) on [DATE] at [TIME] a.m., Eastern Time, virtually via an Internet webcast at https://www.cstproxy.com/bigbearai/sm2024. At the BBAI Special Meeting, BBAI stockholders will be asked to:

 

i.

approve the Stock Issuance; and

 

ii.

approve one or more adjournments of the BBAI Special Meeting, if appropriate, to solicit additional proxies if there are insufficient votes to approve the Stock Issuance at the time of the BBAI Special Meeting.

The BBAI Special Committee recommends that BBAI stockholders vote “FOR” each of the proposals presented at the BBAI Special Meeting.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the BBAI Special Meeting virtually, please take the time to vote over the Internet as described in this proxy statement or by completing the enclosed proxy card and mailing it in the enclosed envelope. Information about the meeting, the Mergers and the other business to be considered at the meeting is contained in this proxy statement. You are urged to read this proxy statement, including the annexes and the documents incorporated by reference, carefully and in its entirety.

Thank you for your cooperation and continued support.

Sincerely,

 

Peter Cannito Chair of the Board BigBear.ai Holdings, Inc.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved the Merger Agreement and the Mergers described in this proxy statement or the BBAI Common Stock to be issued in the Mergers or passed upon the adequacy or accuracy of this proxy statement. Any representation to the contrary is a criminal offense.

This proxy statement is dated [DATE] and is first being mailed to BBAI stockholders of record on or about [DATE/TIME].

PRELIMINARY PROXY STATEMENT — SUBJECT TO COMPLETION, DATED JANUARY 16, 2024

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON [DATE], 2024

To Our Stockholders:

A special meeting of stockholders of BigBear.ai Holdings, Inc., a Delaware corporation (“BBAI”), will be held on [DATE] at [TIME] a.m., Eastern Time, virtually via an Internet webcast at https://www.cstproxy.com/bigbearai/sm2024. Stockholders of record at the close of business on the record date can attend the special meeting of stockholders (the “BBAI Special Meeting”), including to vote their shares and ask questions, by accessing the webcast shortly prior to the scheduled start of the meeting and entering the 12-digit control number included on your proxy card or voting instruction form. The BBAI Special Meeting is being held for the following purposes:

 

(1)

To approve the issuance (the “Stock Issuance”) of a number of shares of common stock, par value $0.0001 per share, of BBAI (“BBAI Common Stock”), equal to $70,000,000, subject to customary adjustments for indebtedness, transaction expenses, working capital and cash (based on a price per share of BBAI Common Stock of $1.3439 which represents the 20-day VWAP for BBAI Common Stock ending on the trading day immediately prior to the date of the Merger Agreement (as defined below)) (the “Merger Consideration”) in connection with the transactions contemplated by the Agreement and Plan of Mergers, dated as of November 4, 2023 (the “Merger Agreement”), by and among BBAI, Pangiam Ultimate Holdings, LLC (“Seller”), Pangiam Intermediate Holdings, LLC (“Pangiam”), a direct, wholly-owned subsidiary of Seller, Pangiam Merger Sub, Inc. (“Merger Sub”), a direct, wholly-owned subsidiary of BBAI and Pangiam Purchaser, LLC, a direct, wholly-owned subsidiary of BBAI (“Purchaser”), pursuant to which, Merger Sub will first merge with and into Pangiam and Pangiam will subsequently merge with and into Purchaser, with Purchaser surviving such merger as a wholly-owned subsidiary of BBAI (the “Mergers”) (“BBAI Proposal No. 1”); and

 

(2)

to approve one or more adjournments of the BBAI Special Meeting, if appropriate, to solicit additional proxies if there are insufficient votes to approve the Stock Issuance at the time of the BBAI Special Meeting (“BBAI Proposal No. 2”).

The above matters are more fully described in the accompanying proxy statement of BBAI, which provides you with information about BBAI, Pangiam, the BBAI Special Meeting, the Stock Issuance, the Mergers, the Merger Agreement and other documents related to the Mergers and other related matters. The accompanying proxy statement also includes, as Annex A, a copy of the Merger Agreement. BBAI encourages you to carefully read the accompanying proxy statement in its entirety, including the annexes and the documents incorporated by reference.

Only holders of BBAI Common Stock as of the close of business on January 24, 2024, which is the record date for the BBAI Special Meeting, are entitled to receive notice of, virtually attend and vote at the BBAI Special Meeting.

We hope that as many stockholders as possible will virtually attend the BBAI Special Meeting. Whether or not you plan to virtually attend the BBAI Special Meeting, please complete the enclosed proxy card and sign, date and return it promptly so that your shares of BBAI Common Stock will be represented. You also may vote your shares over the Internet by following the instructions included on the proxy card. Submitting your proxy in writing, over the Internet will not prevent you from voting virtually during the BBAI Special Meeting. The affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock, present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote on BBAI Proposal No. 1, assuming a quorum is present, is required to approve BBAI Proposal No. 1. The affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote on BBAI Proposal No 2 will be required to approve BBAI Proposal No. 2.

The transaction committee of the board of directors of BBAI formed to independently evaluate the Mergers (the “BBAI Special Committee”) recommends that BBAI stockholders vote “FOR” each of the proposals presented at the BBAI Special Meeting.

By Order of the BBAI Special Committee,

Peter Cannito

Chair of the Special Committee

BigBear.ai Holdings, Inc.

TABLE OF CONTENTS

 

CERTAIN DEFINED TERMS USED IN THIS PROXY STATEMENT			1
EXPLANATORY NOTE			3
QUESTIONS AND ANSWERS ABOUT THE BBAI SPECIAL MEETING			4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			10
SUMMARY			12
Parties to the Merger Agreement			12
The Merger and the Merger Agreement			12
The Investor Rights Agreement Amendment			14
Risk Factors			14
The BBAI Special Meeting			14
No Appraisal Rights			15
Termination of the Merger Agreement			16
Effect of Termination			16
Damages			17
Opinion of BBAI’s Financial Advisor			17
RISK FACTORS			18
THE BBAI SPECIAL MEETING			23
BBAI PROPOSAL NO. 1: APPROVAL OF THE STOCK ISSUANCE			28
BBAI PROPOSAL NO. 2: APPROVAL OF ONE OR MORE ADJOURNMENTS OF THE BBAI SPECIAL MEETING			29
THE MERGERS			30
General			30
Background of the Mergers			30
BBAI Special Committee’s Reasons for the Mergers			34
Opinion of BBAI’s Financial Advisor			37
Certain Forecasts			44
BBAI Management Forecasts			45
Estimated Cost Synergies			46
Effects of the Mergers			46
Merger Consideration			46
Interests of Certain BBAI Directors and Executive Officers in the Mergers			47
Regulatory Filings and Approvals Required to Consummate the Mergers			48
Closing and Effectiveness of the Mergers			48
THE MERGER AGREEMENT			49
Explanatory Note Regarding the Merger Agreement			49
The Mergers			49
Effective Time and Closing			50
Merger Consideration			50
Post-Closing Purchase Price Adjustment			51
Indemnification; RWI Policy			51
Representations and Warranties			51
Covenants			53
Exclusive Dealing; Change of Recommendation			59
Conditions to Completion of the Mergers			61
Termination of the Merger Agreement			62
Effect of Termination			63
Damages			63
Amendments and Waivers			63
No Third-Party Beneficiaries			63
Specific Performance			64
OTHER TRANSACTION AGREEMENTS			65
BUSINESS OF PANGIAM			66

Overview			66
Industry			66
Growth Strategy			67
Competition			67
Products and Services			68
Customers			69
Revenue Mix			69
Human Capital			69
Corporate Background			69
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PANGIAM			71
Overview			71
Results of Operations			71
Subsequent Events			80
Contractual Obligations and Commitments			80
Off Balance Sheet- Arrangements			81
Recently Adopted Accounting Pronouncements			81
Quantitative and Qualitative Disclosures About Market Risk			81
Critical Accounting Policies and Estimates			82
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF PANGIAM			86
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS			88
BENEFICIAL OWNERSHIP OF BBAI COMMON STOCK			100
OTHER MATTERS			102
NO APPRAISAL RIGHTS OF BBAI STOCKHOLDERS			104
WHERE YOU CAN FIND MORE INFORMATION			105
FINANCIAL STATEMENTS OF PANGIAM			107
ANNEXES			1

CERTAIN DEFINED TERMS USED IN THIS PROXY STATEMENT

Unless otherwise indicated or as the context otherwise indicates, when used in this proxy statement:

“BBAI” means BigBear.ai Holdings, Inc.

“BBAI Board” means the board of directors of BBAI.

“BBAI Common Stock” means common stock of BBAI, par value, $0.0001 per share.

“BBAI Special Committee” means a transaction committee of the BBAI Board formed to independently evaluate the Mergers.

“Business Day” means any day other than a Saturday, Sunday, or a day on which all banking institutions of New York, New York are authorized or obligated by law or executive order to close.

“Consulting Termination Agreement” means the Consulting Termination Agreement, to be entered into at Closing, between Linkware, LLC, Pangiam Labs, LLC, AE Industrial Operating Partners, LLC and AE Industrial Partners, described in the Merger Agreement.

“Closing” means the closing of the Mergers.

“DGCL” means Delaware General Corporation Law.

“DLLCA” means the Limited Liability Company Act of the State of Delaware, as amended from time to time.

“Effective Time” means the time of the Closing.

“EY” means Ernst & Young Investment Advisers LLP.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fairness Opinion” means the opinion letter delivered by EY, dated October 31, 2023, a copy of which is attached as Annex E of this proxy statement.

“First Effective Time” means the time at which the certificate of merger for the First Merger is duly filed with and accepted for record by the Secretary of State of the State of Delaware or such later time as the parties may specify in such certificate of merger.

“First Merger” means the merger of Merger Sub with and into Pangiam in accordance with the terms and conditions of the Merger Agreement and the DGCL, whereupon Merger Sub will cease to exist, and Pangiam will become a wholly-owned subsidiary of BBAI.

“GAAP” means United States generally accepted accounting principles.

“IRA” means the Amended & Restated Investors Rights Agreement, between BBAI and certain of its stockholders, including AE BBAI Aggregator, LP and BBAI Ultimate Holdings, LLC, dated as of December 6, 2021, as amended on July 20, 2023, a copy of which is attached as Annex D of this proxy statement.

“IRA Amendment” means the Joinder & Second Amendment to the IRA, between BBAI, Seller, and the other parties thereto, a copy of which is attached as Annex B of this proxy statement.

“K&E” means Kirkland & Ellis LLP, counsel to Pangiam and Seller.

 

1

“Latham & Watkins” means Latham & Watkins LLP, counsel to BBAI.

“Mergers” means collectively the First Merger and the Second Merger.

“Merger Agreement” refers to the Agreement and Plan of Mergers, dated November 4, 2023, by and among BBAI, Pangiam, Merger Sub, Purchaser and Seller, a copy of which is attached as Annex A to this proxy statement.

“Merger Consideration” means a number of shares of BBAI Common Stock equal to the Purchase Price (based on a price per share of BBAI Common Stock of $1.3439 which represents the 20-day VWAP for BBAI Common Stock ending on the trading day immediately prior to the date of the Merger Agreement).

“Merger Sub” means Pangiam Merger Sub, Inc., a direct wholly-owned subsidiary of BBAI.

“NYSE” means the New York Stock Exchange.

“Pangiam” means Pangiam Intermediate Holdings, LLC.

“Pangiam Board” means the board of managers of Pangiam.

“Purchase Price” means $70,000,000, subject to customary adjustments for indebtedness, cash, working capital and transaction expenses, subject to the terms and conditions of the Merger Agreement.

“Purchaser” means Pangiam Purchaser, LLC, a direct and wholly-owned subsidiary of BBAI.

“Recommendation” means the BBAI Special Committee’s recommendation to the holders of shares of BBAI Common Stock that such holders vote to approve the Stock Issuance.

“Requisite Vote” means the necessary approvals by the holders of a majority of the shares of BBAI Common Stock represented in attendance virtually at the BBAI Special Meeting or by proxy at the BBAI Special Meeting (including from its stockholders, proxies in favor of the approval) required to approve the Stock Issuance.

“SEC” means the U.S. Securities and Exchange Commission.

“Second Merger” means the merger of the surviving company of the First Merger with and into Purchaser in accordance with the terms and conditions of the Merger Agreement and the DLLCA whereupon the surviving company of the First Merger will cease to exist, and Purchaser will continue as a wholly-owned subsidiary of BBAI.

“Second Effective Time” means such time at which the second certificate of merger is duly filed with and accepted for record by the Secretary of State of the State of Delaware or such later time as the parties may specify in the second certificate of merger but in any event immediately following the First Merger.

“Securities Act” means the Securities Act of 1933, as amended.

“Seller” means Pangiam Ultimate Holdings, LLC.

“Stock Issuance” means an issuance of a number of shares of BBAI Common Stock equal to the Purchase Price based on a price per share of BBAI Common Stock equal to $1.3439 in connection with the transactions contemplated by the Merger Agreement, including the Mergers.

“VWAP” means volume-weighted average price.

 

2

EXPLANATORY NOTE

This proxy statement relates to the Merger Agreement.

Upon the terms and subject to the conditions of the Merger Agreement (a copy of which is attached to this proxy statement as Annex A), (i) Merger Sub will merge with and into Pangiam and (ii) immediately following the First Merger, Pangiam will merge with and into Purchaser with Pangiam ceasing to exist and Purchaser continuing as a wholly-owned subsidiary of BBAI.

As provided in the Merger Agreement, in connection with and at the time of the closing of the First Merger, all equity securities of Pangiam issued and outstanding immediately prior to the closing of the First Merger will be converted into and represent solely the right to receive, without interest, a number of shares of BBAI Common Stock equal to the Purchase Price (based on a price per share of BBAI Common Stock of $1.3439 which represents the 20-day VWAP for BBAI Common Stock ending on the trading day immediately prior to the date of the Merger Agreement). The Stock Issuance will be made in reliance on an exemption from the registration requirements of the Securities Act, set forth in Section 4(a)(2) thereof, relating to sales by an issuer not involving a public offering.

With respect to BBAI stockholders, this document serves as a proxy statement for a special meeting of BBAI stockholders being held on [DATE], virtually via Internet webcast at https://www.cstproxy.com/bigbearai/sm2024, where BBAI stockholders will vote, among other matters, on a proposal to approve the Stock Issuance in connection with the Mergers.

Unless the context otherwise requires, all references in this proxy statement to “we,” “us” or “our” refer to BBAI.

If you have questions about the Mergers or the BBAI Special Meeting, please feel free to contact investors@bigbear.ai.

You will not be charged for any of the documents you request.

Information on the Internet websites of BBAI and Pangiam are not part of the enclosed proxy statement. You should not rely on that information in deciding whether to approve the Stock Issuance unless that information is in this document or has been incorporated by reference into this document.

You should only rely on the information contained in or incorporated by reference into this document. BBAI has not authorized anyone to provide you with different information. This proxy statement is dated [DATE], and you should not assume that the information contained in this proxy statement is accurate as of any date other than that date unless otherwise specifically provided herein. Further, you should not assume that the information incorporated by reference into this proxy statement is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement to any person nor the issuance by BBAI of shares of BBAI Common Stock in connection with the transactions contemplated by the Merger Agreement will create any implications to the contrary.

 

3

QUESTIONS AND ANSWERS ABOUT THE BBAI SPECIAL MEETING

The BBAI Board is soliciting proxies from its stockholders to vote at a special meeting of BBAI stockholders, to be held virtually via an Internet webcast at https://www.cstproxy.com/bigbearai/sm2024 on [DATE] at [TIME] a.m., Eastern Time (the “BBAI Special Meeting”), and at any adjournment of the BBAI Special Meeting, if appropriate.

The questions and answers below highlight selected information from this proxy statement and are intended to briefly address some commonly asked questions about, among other matters, (a) the Merger Agreement and the Stock Issuance, (b) the Mergers and (c) the BBAI Special Meeting, where the stockholders of BBAI will be asked to consider and vote on the (i) proposal for stockholder approval of the issuance of BBAI Common Stock to Seller in connection with the Merger Agreement and (ii) proposal to permit BBAI to adjourn the BBAI Special Meeting, if necessary, for further solicitation of proxies if there are not sufficient votes at the originally scheduled time of the BBAI Special Meeting to approve the Stock Issuance.

The following questions and answers do not contain all of the information that is important to you. You should carefully read this proxy statement in its entirety, including the annexes and the documents incorporated by reference, to fully understand the matters to be acted upon and the voting procedures for the BBAI Special Meeting. You may obtain the information incorporated by reference into this proxy statement without charge by following the instructions in the section entitled “Where You Can Find More Information.”

 

Q.	Why have I received this proxy statement?

 

A.

You are receiving this proxy statement because you were a stockholder of BBAI as of the close of business on January 24, 2024 (the “Record Date”) for the BBAI Special Meeting. The Pangiam Board and the BBAI Special Committee each approved the Merger Agreement and the transactions contemplated by the Merger Agreement. A copy of the Merger Agreement is attached to this proxy statement as Annex A, which BBAI encourages you to read in its entirety.

 

Q.	What are the specific proposals on which I am asked to vote at the BBAI Special Meeting?

 

A.	BBAI stockholders are being asked to approve two proposals at the BBAI Special Meeting:

 

•

The Stock Issuance, as contemplated by the Merger Agreement (“BBAI Proposal No. 1” or the “Stock Issuance Proposal”); and

 

•

One or more adjournments of the BBAI Special Meeting, if appropriate, to solicit additional proxies if there are insufficient votes to approve the Stock Issuance at the time of the BBAI Special Meeting (“BBAI Proposal No. 2” or the “BBAI Adjournment Proposal”).

Under NYSE listing rules, stockholder approval is required prior to the issuance of common stock if the number of shares of common stock to be issued in a transaction equals 20% or more of the number of shares of common stock outstanding before the issuance. The Stock Issuance that will be effected in connection with the Mergers will result in the issuance of a number of shares of BBAI Common Stock equal to approximately 33.12% of the shares of BBAI Common Stock outstanding before the Stock Issuance, based on the number of shares of BBAI Common Stock outstanding on January 12, 2024. Accordingly, BBAI stockholders are being asked to consider and vote on the Stock Issuance.

 

Q.	What is the consideration that BBAI will pay to Seller in the Mergers?

 

A.

The aggregate consideration that BBAI will pay in respect of all equity securities of Pangiam issued and outstanding in the Mergers will be a number of shares of BBAI Common Stock equal to the Purchase Price (based on a price per share of BBAI Common Stock of $1.3439 which represents the 20-day VWAP for BBAI Common Stock ending on the trading day immediately prior to the date of the Merger Agreement).

 

4

Q.	How does the BBAI Special Committee recommend that BBAI stockholders vote?

 

A.	The BBAI Special Committee recommends that the BBAI stockholders vote:

 

•

“FOR” the Stock Issuance Proposal (BBAI Proposal No. 1); and

 

•

“FOR” the BBAI Adjournment Proposal (BBAI Proposal No. 2).

For a discussion of the reasons for the recommendation on BBAI Proposal No. 1 and BBAI Proposal No. 2, see the section entitled “The Mergers—BBAI Special Committee’s Reasons for the Mergers.”

Unless you give other instructions on your proxy card, the persons named as proxy holders on the enclosed proxy card will vote in accordance with the recommendations of the BBAI Special Committee.

 

Q.	How many votes are required to approve each proposal?

 

A.

Approval of the Stock Issuance Proposal requires the affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote on the Stock Issuance Proposal, assuming a quorum is present.

Approval of the BBAI Adjournment Proposal (if necessary to solicit additional proxies if there are not sufficient votes to approve the Stock Issuance Proposal) requires the affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote on the BBAI Adjournment Proposal, assuming a quorum is present.

 

Q.	When are the Mergers expected to be consummated?

 

A.

BBAI and Pangiam are working toward consummating the Mergers as expeditiously as possible. However, BBAI and Pangiam cannot be certain when, or if, the conditions to Closing will be satisfied or waived, or that the Mergers will be consummated. See the sections entitled “The Mergers—Regulatory Filings and Approvals Required to Consummate the Mergers” and “The Merger Agreement— Conditions to Completion of the Mergers.”

 

Q.	When and where is the BBAI Special Meeting?

 

A.

The BBAI Special Meeting will be held on [DATE] at [TIME] a.m., Eastern Time, virtually via an Internet webcast at https://www.cstproxy.com/bigbearai/sm2024. Stockholders of record at the close of business on the Record Date can attend the BBAI Special Meeting, including to vote their shares and ask questions, by accessing the webcast shortly prior to the scheduled start of the meeting and entering the 12-digit control number included on your proxy card or voting instruction form. For additional information about the BBAI Special Meeting, see the section entitled “The BBAI Special Meeting.”

 

Q.	What is a quorum?

 

A.

Holders of record of a majority of the voting power of the issued and outstanding shares of BBAI Common Stock entitled to vote, represented either in person virtually or by proxy, constitutes a quorum for the transaction of business at the BBAI Special Meeting. Your shares of BBAI Common Stock are counted as present if you attend the BBAI Special Meeting virtually or properly submit a valid proxy over the Internet or by mail. As of January 24, 2024, the Record Date for the BBAI Special Meeting, [●] shares of BBAI Common Stock were outstanding and entitled to vote. Further, for purposes of establishing a quorum, shares of BBAI Common Stock that a stockholder holds and that are represented by their proxy even if the stockholder does not vote on one or more of the matters to be voted upon are counted as present.

 

Q.	What are “broker non-votes”?

 

A.	Under the NYSE rules, banks, brokers and other nominees may use their discretion to vote “uninstructed” shares (i.e., shares of record held by banks, brokers or other nominees, but with respect to which the

 

5

beneficial owner of such shares has not provided instructions on how to vote on a particular proposal) with respect to matters that are considered to be “routine” but not with respect to “non-routine” matters. A “broker non-vote” occurs when there are both routine and non-routine proposals to be voted on at the meeting, but a bank, broker or other nominee is not permitted to vote on the non-routine proposal(s) because the beneficial owner has not provided the bank, broker or other nominee with instructions on how to vote on such non-routine proposal(s). Because all of the proposals to be voted on at the BBAI Special Meeting are “non-routine” matters, brokers, banks and other nominees will not have authority to vote on any proposals unless instructed, so BBAI does not expect there to be any broker non-votes at the BBAI Special Meeting. Uninstructed shares held of record by brokers, banks and other nominees will not be present at the meeting. In the event that a quorum is not present at the BBAI Special Meeting, BBAI expects that the BBAI Special Meeting will be adjourned to solicit additional proxies.

 

Q.	Who can vote at the BBAI Special Meeting?

 

A.	Holders of record of shares of BBAI Common Stock at the close of business on the Record Date will be entitled to vote shares held at that date at the BBAI Special Meeting or any adjournments thereof.

As of the close of business on the Record Date, there were [●] shares of BBAI Common Stock outstanding and entitled to vote at the BBAI Special Meeting, held by approximately [●] holders of record.

A complete list of stockholders entitled to vote at the BBAI Special Meeting will be available for examination by any stockholder at BBAI’s corporate headquarters, located at 6811 Benjamin Franklin Dr. Suite 200, Columbia, MD 21046, during normal business hours for a period of ten days before the BBAI Special Meeting.

 

Q.	How many votes do I have if I am a BBAI stockholder?

 

A.

Each share of BBAI Common Stock that you own at the close of business on the Record Date will entitle you to one vote on each proposal presented at the BBAI Special Meeting. As of the close of business on the Record Date, there were [●] shares of BBAI Common Stock outstanding and entitled to vote at the BBAI Special Meeting.

At the close of business on the Record Date, the directors and executive officers of BBAI and certain of their affiliates were entitled to vote approximately [●] shares of BBAI Common Stock, or [●]% of the shares of BBAI Common Stock outstanding on that date. Approval of the Stock Issuance Proposal requires the affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote, assuming a quorum is present. BBAI currently expects that BBAI’s directors and executive officers will vote their shares in favor of each of the proposals to be considered at the BBAI Special Meeting, although none of them has entered into any agreement obligating them to do so.

 

Q.	If I am a BBAI stockholder, what happens if I abstain from voting?

 

A.

Approval of the Stock Issuance Proposal requires the affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote, assuming a quorum is present. Abstentions will have the same effect as a vote AGAINST the Stock Issuance Proposal.

Approval of the BBAI Adjournment Proposal requires the affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote, assuming a quorum is present. Abstentions will have the same effect as a vote AGAINST the BBAI Adjournment Proposal.

 

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Q.	If my shares of BBAI Common Stock are held in “street name” by a broker, bank or other nominee, will my broker or bank automatically vote my shares for me?

 

A.

No. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” If this is the case, this proxy statement has been forwarded to you by your broker, bank or other nominee, or its agent. As the beneficial holder, you have the right to direct your broker, bank, nominee or other holder of record as to how to vote your shares. You should follow the procedures provided by your broker, bank or other nominee regarding the voting of your shares. Your broker, bank or other nominee will not be permitted to vote on the proposals at the BBAI Special Meeting without your instructions as they do not have discretionary authority to vote on such proposals. Uninstructed shares held of record by brokers, banks and other nominees will not be present at the meeting, will not be voted on any of the proposals described in this proxy statement and will have no effect on the outcome of any vote on either proposal. If you hold shares of BBAI Common Stock through a broker, bank, nominee or other holder of record with custody of your shares, follow the voting instructions you receive from that organization.

 

Q.	How do I vote my shares of BBAI Common Stock that are held in “street name” by a brokerage firm, bank or other nominee?

 

A.

If your shares are held in an account at a brokerage firm, bank or other nominee, then you are the beneficial owner of shares held in “street name” and this proxy statement is being sent to you by that organization. The organization holding your account is considered to be the stockholder eligible to vote at the BBAI Special Meeting for purposes of voting at the BBAI Special Meeting. As a beneficial owner, you have the right to direct your broker, bank or other nominee how to vote the shares of BBAI Common Stock in your account by following the instructions that the broker, bank or other nominee provides you along with this proxy statement. If your shares are held in “street name” and you would like to vote your shares at the BBAI Special Meeting, you may visit https://www.cstproxy.com/bigbearai/sm2024 and enter the 12-digit control number included in the voting instruction card provided to you by your bank or brokerage firm. If you hold your shares in street name and you do not receive a 12-digit control number, you may need to log in to your bank or brokerage firm’s website and select the shareholder communications mailbox to access the meeting and vote. Instructions should also be provided on the voting instruction card provided by your bank or brokerage firm.

 

Q.	Do any of the officers or directors of BBAI have interests in the Mergers that may differ from or be in addition to my interests as a BBAI stockholder?

 

A.

In considering the recommendation of the BBAI Special Committee that BBAI stockholders vote to approve the Stock Issuance Proposal and the BBAI Adjournment Proposal, BBAI stockholders should be aware that some of BBAI’s directors and executive officers have interests in the Mergers that may be different from, or in addition to, the interests of BBAI stockholders generally. The BBAI Special Committee was aware of and considered these potential interests, among other matters, in evaluating and negotiating the Merger Agreement and the transactions contemplated therein, in approving the Mergers and in recommending the approval of the Stock Issuance Proposal and the BBAI Adjournment Proposal.

For more information, please see “The Mergers—Interests of Certain BBAI Directors and Executive Officers in the Mergers.”

 

Q.	Will any other matters be presented for a vote at the BBAI Special Meeting?

 

A.	BBAI is not aware of any other matters that will be presented for a vote at the BBAI Special Meeting. However, if any other matters properly come before the BBAI Special Meeting, the proxies will have the discretion to vote upon such matters, in their discretion.

 

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Q.	Who can attend the BBAI Special Meeting?

 

A.

All holders of record of BBAI Common Stock as of the Record Date are entitled to receive notice of and attend and vote at the BBAI Special Meeting or any postponement or adjournment of the BBAI Special Meeting. Each stockholder will be entitled to cast one vote on each matter presented at the BBAI Special Meeting for each share of BBAI Common Stock that such holder owned as of the Record Date.

Additionally, beneficial holders can virtually attend the BBAI Special Meeting if they obtain a “legal proxy” from their bank or brokerage firm.

Regardless of whether you intend to virtually attend the BBAI Special Meeting, you are encouraged to vote your shares of BBAI Common Stock as promptly as possible. Voting your shares will not impact your ability to attend the BBAI Special Meeting.

 

Q.	How do I vote my shares if I am a BBAI stockholder of record?

 

A.

If you are a BBAI stockholder of record on the Record Date, you may vote at the BBAI Special Meeting or authorize a proxy to vote your shares at the BBAI Special Meeting. You can authorize your proxy by completing, signing, dating and returning the enclosed proxy card, or, if you prefer, by following the instructions on your proxy card for Internet proxy authorization. If the Internet option is available to you, BBAI strongly encourages you to use it because it is faster and less costly. Registered stockholders can transmit their voting instructions on the Internet at www.cstproxyvote.com. Internet proxy authorization is available 24 hours a day until 11:59 p.m., Eastern Time, the day immediately prior to the BBAI Special Meeting. You will need the 12-digit control number included on your proxy card or your paper voting instruction form (if you received a paper copy of the proxy materials) if you are going to authorize your proxy through the Internet. To authorize your proxy by mail, please complete sign, date and mail your proxy card. If you attend the virtual BBAI Special Meeting, you may vote online even if you previously authorized a proxy by one of the methods described above.

 

Q.	Can I change my vote after I have delivered my proxy?

 

A.

Yes. If you own BBAI Common Stock as a recordholder on the Record Date, you may revoke a previously authorized proxy at any time before it is exercised by authorizing a proxy to vote again over the Internet prior to 11:59 p.m., Eastern Time, on [●], by signing and returning another proxy card with a later date, provided, that BBAI receives the updated proxy card before the date of the BBAI Special Meeting, or by voting virtually at the BBAI Special Meeting. Attendance at the BBAI Special Meeting will not, in itself, constitute revocation of a previously authorized proxy. If you have instructed a broker to vote your shares, the foregoing options for changing your vote do not apply and instead you must follow the applicable instructions received from such broker to change your vote.

 

Q.	What if I receive more than one proxy card?

 

A.	If you receive more than one proxy card, it is an indication that your shares are held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted.

 

Q.	What do I need to do now to vote my shares?

 

A.

After carefully reading and considering the information contained in this proxy statement, please respond by completing, signing and dating the appropriate proxy card or voting instruction card and returning it in the enclosed postage-paid envelope, or, if available, by submitting your voting instruction over the Internet, as soon as possible so that your shares of BBAI Common Stock may be represented and voted at the BBAI Special Meeting. In addition, you may also vote your shares at the BBAI Special Meeting by virtually

 

8

attending. If you hold shares registered in the name of a broker, bank or other nominee, that broker, bank or other nominee has enclosed, or will provide, instructions for directing your broker, bank or other nominee on how to vote those shares.

 

Q.	As a BBAI stockholder, am I entitled to appraisal rights in connection with the Mergers?

 

A.	No. BBAI’s stockholders will not be entitled to exercise appraisal or dissenter’s rights under the DGCL, in connection with the Mergers or the Stock Issuance. See section entitled “No Appraisal Rights of BBAI Stockholders.”

 

Q.	Who is paying for this proxy solicitation?

 

A.

This solicitation is made by BBAI. BBAI will bear the expenses of soliciting proxies and the cost of preparing, printing, assembling and mailing all proxy materials that may be sent to BBAI stockholders in connection with this solicitation. Arrangements will also be made with brokerage houses, other custodians, nominees and fiduciaries, to forward soliciting material to the beneficial owners of BBAI Common Stock held by such persons. BBAI will reimburse such persons for reasonable out-of-pocket expenses incurred by them. In addition, BBAI officers and regular employees may solicit proxies without additional compensation, by telephone or facsimile transmission. BBAI will also reimburse brokerage firms and other custodians, nominees and fiduciaries for their expenses in forwarding proxy and solicitation materials to stockholders.

 

Q.	Who can help answer my questions?

 

A.	If you are a BBAI stockholder and have any questions about the Mergers, the BBAI Special Meeting or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card, you should contact investors@bigbear.ai.

 

9

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. BBAI intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical facts contained in this proxy statement, including without limitation statements regarding BBAI’s future results of operations and financial position, anticipated restructuring and integration-related expenses, business strategy, plans and objectives of management for future operations and plans for future product development and manufacturing are forward-looking statements. Without limiting the foregoing, words such as “believe” “may,” “will,” “expect,” “should,” “could,” “would,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “project,” “target,” “is/are likely to,” “forecast,” “future,” “guidance,” “possible,” “predict,” “seek,” “see,” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, though not all forward-looking statements use these words or expressions. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following:

 

i.

failure to consummate the proposed transaction, including the Mergers;

 

ii.

failure to make or take any filing or other action required to consummate the proposed transaction in a timely matter or at all;

 

iii.

failure to obtain applicable regulatory approval in a timely manner or otherwise;

 

iv.

failure to satisfy other closing conditions to the proposed transactions;

 

v.

risks that the new businesses will not be integrated successfully or that the combined companies will not realize estimated cost savings;

 

vi.

failure to realize anticipated benefits of the combined operations;

 

vii.

potential litigation relating to the proposed transaction and disruptions from the proposed transaction that could harm BBAI’s or Pangiam’s business;

 

viii.

reductions in customer spending, a slowdown in customer payments and changes in customer requirements;

 

ix.

ability to hire and retain key personnel;

 

x.

the potential impact of announcement or consummation of the proposed transaction on relationships with third parties, including clients, employees and competitors;

 

xi.

ability to attract new customers and retain existing customers in the manner anticipated;

 

xii.

reliance on and integration of information technology systems;

 

xiii.

changes in legislation or governmental regulations affecting the companies;

 

xiv.

international, national or local economic, social or political conditions that could adversely affect the companies or their customers;

 

xv.

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement relating to the Mergers;

 

xvi.

risks that the Mergers could disrupt BBAI’s or Pangiam’s current plans and operations or divert the attention of their respective management or employees from ongoing business operations;

 

xvii.

the risk that the Mergers may involve unexpected costs and/or unknown or inestimable liabilities, whether the Mergers will be consummated or not;

 

10

xviii.

the risk that BBAI’s or Pangiam’s respective businesses may suffer as a result of uncertainty surrounding the Mergers;

 

xix.

BBAI’s understanding of its competitors;

 

xx.

changes in BBAI’s or Pangiam’s respective industry and the market in which such company operates, interest rates, or the general economy, including a potential recessionary environment;

 

xxi.

increased interest rates and operating costs and the impact of inflation;

 

xxii.

the uncertainty and economic impact of pandemics, epidemics, or other public health emergencies or fear of such events, and the measures that international, federal, state and local governments, agencies and/or health authorities may implement to address such events, which may have adverse effects on BBAI’s financial conditions, results of operations, cash flows, and performance for an indefinite period of time;

 

xxiii.

risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings; and

 

xxiv.

the parties’ international operations, which are subject to the risks of currency fluctuations and foreign exchange controls.

These and other important factors discussed under the caption “Risk Factors” in BBAI’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023, as may be updated from time to time in other filings BigBear.ai makes with the SEC including its Quarterly Report on Form 10-Q for the quarter ended on September 30, 2023 that was filed with the SEC on November 9, 2023, could cause actual results to differ materially from those indicated by the forward-looking statements made in this proxy statement.

These statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this proxy statement. You should not put undue reliance on any forward-looking statements. Although BBAI believes that the expectations reflected in the forward-looking statements are reasonable, BBAI cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, BBAI undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

 

11

 

12

 

13

 

14

 

15

 

16

 

17

RISK FACTORS

The surviving company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement, you should carefully consider the material risks described below before deciding how to vote your shares of BBAI Common Stock. In determining whether you should approve the Stock Issuance you should carefully read the risk factors below.

The risks disclosed under the headings “Risk Factors-Risks Related to BBAI” will also apply to the surviving company after the Closing.

Risks Related to the Mergers

Failure to consummate the proposed transaction, including the Mergers, could harm the price of BBAI Common Stock and future business and operations of each of BBAI and Pangiam.

If the Mergers are not completed, the market price of BBAI Common Stock may decline significantly, and significant costs related to the Mergers will have been incurred, including financial advisor, legal and accounting fees, which must be paid even if the Mergers are not completed. In addition, failure to complete the Mergers could adversely affect the future business and operations of each company.

If the conditions of the Mergers are not satisfied or waived, the Mergers may not occur.

Even if BBAI Proposals No. 1 and 2, as described in this proxy statement, are approved, specified conditions must be satisfied or waived to complete the related Mergers. These conditions are set forth in the Merger Agreement and described in the section entitled “The Merger Agreement-Conditions to the Completion of the Mergers”. BBAI cannot assure you that all of the conditions to the consummation of the Mergers will be satisfied or waived. If the conditions are not satisfied or waived, the Mergers may not occur or the Closing may be delayed resulting in adverse effects on BBAI’s financial condition, BBAI Common Stock price and its ongoing business, and the surviving company may lose some or all of the intended benefits of the Mergers.

BBAI stockholders may not realize a benefit from the Mergers commensurate with the ownership dilution they will experience in connection with the Mergers.

If the surviving company is unable to realize the full strategic and financial benefits currently anticipated from the Mergers, BBAI stockholders will have experienced dilution of their ownership interests without receiving a commensurate benefit, or only receiving part of the commensurate benefit to the extent the surviving company is able to realize only part of the strategic and financial benefits currently anticipated from the Mergers.

BBAI may not achieve the benefits it expects from the Mergers, which may have an adverse effect on both BBAI’s and the surviving company’s business, financial condition and operating results.

BBAI entered into the Merger Agreement with the expectation that the Mergers will result in benefits to the surviving company. Post-merger challenges include, among others, the following:

 

•

retaining the management and employees of the surviving company;

 

•

attracting and hiring new personnel key to the growth and development of the surviving company;

 

•

retaining existing strategic partners and suppliers for the surviving company;

 

•

attracting new customers while maintaining existing customers; and

 

18

•

integrating the new combined businesses, including the information technology and other company systems, in the surviving company such that the estimated cost savings are realized.

If the surviving company is not successful in addressing these and other challenges, then the benefits of the Mergers may not be realized and, as a result, the surviving company’s operating results and the market price of BBAI Common Stock may be adversely affected.

If the Mergers are not completed, the price of BBAI Common Stock may decline.

The market price of BBAI Common Stock is subject to fluctuations. If the Mergers are not completed, the market price of BBAI Common Stock may decline significantly. Market prices for securities of technology and AI companies have historically been particularly volatile. In addition, the market price of BBAI Common Stock may be volatile based on, among other factors, whether stockholders and other investors believe that BBAI can complete the Mergers or otherwise maintain business continuity and productivity if the Mergers are not consummated.

Following the Mergers, the surviving company may be unable to integrate successfully the businesses of BBAI and Pangiam and realize the anticipated benefits of the Mergers.

The Mergers involve the combination of two companies which currently operate as independent companies. Following the Mergers, the surviving company will be required to devote significant management attention and resources to integrating its business practices and operations. The surviving company may fail to realize some or all of the anticipated benefits of the Mergers if the integration process takes longer than expected or is more costly than expected. Some of the potential difficulties the surviving company may encounter in the integration process include the following:

 

•

the inability to successfully combine the businesses of BBAI and Pangiam in a manner that permits the surviving company to achieve the anticipated benefits from the Mergers, which would result in those benefits of the Mergers not being realized partly or wholly in the time frame currently anticipated or at all;

 

•

creation of uniform standards, controls, procedures, policies and information systems; and

 

•

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Mergers.

In addition, BBAI and Pangiam have operated and, until the completion of the Mergers will continue to operate, independently. It is possible that the integration process also could result in the diversion of the attention of each company’s management team, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect the surviving company’s ability to maintain its business relationships or the ability to achieve the anticipated benefits of the Mergers, or could otherwise adversely affect the business and financial results of the surviving company.

Lawsuits may be filed against BBAI and the members of the BBAI Board arising out of the proposed Mergers, which may delay or prevent the proposed Mergers.

Putative stockholder complaints, including stockholder class action complaints, and other complaints may be filed against BBAI, the BBAI Board and others in connection with the transactions contemplated by the Merger Agreement. The outcome of litigation is uncertain, and BBAI may not be successful in defending against any such future claims. Lawsuits that may be filed against BBAI, the BBAI Board and others could delay or prevent the Mergers, divert the attention of BBAI’s management and employees from BBAI’s day-to-day business and otherwise adversely affect BBAI’s financial condition.

 

19

The Mergers may be completed even though certain adverse effects may result from the announcement of the Mergers, industry-wide changes or other causes.

In general, BBAI is not obligated to complete the Mergers if there is a Material Adverse Change (as defined below) affecting Pangiam between the date of the Merger Agreement and the Closing. However, certain types of causes are excluded from the concept of a “material adverse change.” Such exclusions include, but are not limited to: (i) any change in any law; (ii) any change in interest rates, credit markets, currency exchange rates or general economic conditions; (iii) the announcement or the execution of the Merger Agreement, the pendency or consummation of the transactions or the performance of the Merger Agreement, including the impact thereof on relationships, contractual or otherwise, with customers, suppliers, licensors, distributors, partners, providers and employees; (iv) any change that is generally applicable to the industries in which Pangiam or any of its subsidiaries operates; (v) the compliance with the terms of the Merger Agreement, the taking of any action required or expressly contemplated by the Merger Agreement or with the prior written consent of BBAI or the failure to take any action prohibited by the Merger Agreement; (vi) any national or international political event or occurrence, including acts of war or terrorism (including cyberattacks); (vii) any natural or manmade disasters, hurricanes, floods, tornados, tsunamis, earthquakes or other acts of God; (viii) any epidemic, pandemic or disease outbreak (including COVID-19 and monkeypox), or any COVID-19 measures or any worsening of such conditions; (ix) any political, geopolitical or social conditions, civil unrest, protests, public demonstrations or the response of any governmental body thereto or any escalation or any worsening thereof; (x) the availability or cost of equity, debt or other financing to BBAI or to Pangiam; (xi) any actual or potential sequester, stoppage, shutdown, default or similar event or occurrence by or involving any governmental body; or (xii) any failure by Pangiam or any subsidiary thereof to meet any projections, forecasts or estimates of revenue or earnings (it being understood that this clause (xii) shall not prevent a determination that any change underlying such failure to meet projections, forecasts or estimates has resulted in a Material Adverse Change (to the extent the effect(s) of such change is not otherwise excluded from the definition of Material Adverse Change)); provided, that, in the case of the foregoing clauses (i), (ii), (iv), (vi) (vii), (ix) and (xi), to the extent such change, effect, event, circumstance, development or occurrence materially and disproportionately affects Pangiam and its subsidiaries as compared to other persons or businesses that operate in the industry and in the markets in which Pangiam and its subsidiaries operate, then the material and disproportionate aspect of such effect may be taken into account in determining whether a Material Adverse Change has occurred or will occur. Therefore, if any of these events were to occur and materially adversely affect Pangiam, BBAI would still be obliged to consummate the Closing notwithstanding such Material Adverse Change. If any such Material Adverse Changes occur and BBAI and Pangiam consummate the Closing, the stock price of BBAI may suffer. This, in turn, may reduce the value of the Mergers to the stockholders of BBAI.

Some BBAI directors and executive officers have interests in the Stock Issuance and the related Mergers that are different from yours and that may influence them to support or approve the Stock Issuance and related Mergers without regard to your interests.

Certain directors and executive officers of BBAI may have interests in the Stock Issuance and the related Mergers that are different from, or in addition to, the interests of other BBAI stockholders generally. These interests include, among others: (1) the continued employment of BBAI executive officers, (2) the continued service of certain non-employee members of the BBAI Board, (3) continuing indemnification rights of non-employee members of the BBAI Board and BBAI executive officers following the Mergers and (4) certain members of the BBAI Board were appointed by AE Industrial Partners, LP (“AEIP”) and certain of its affiliates which beneficially owns a majority of both BBAI and Seller. The BBAI Special Committee was aware of and considered those interests, among other matters, in reaching its decision to approve and adopt the Stock Issuance Proposal. These interests, among other factors, may have influenced the directors and executive officers of BBAI to support or approve the Mergers. For more information regarding the interests of BBAI directors and executive officers in the Mergers, please see the section entitled “The Mergers – Interests of Certain BBAI Directors and Executive Officers in the Mergers”.

 

20

The financial projections included in this proxy statement under “The Mergers—Opinion of BBAI’s Financial Advisor”, which were considered by the BBAI Special Committee in evaluating the Mergers and used by BBAI’s financial advisor in rendering its fairness opinion and performing its related financial analyses, reflect numerous variables, estimates and assumptions and are inherently uncertain. If any of these variables, estimates and assumptions prove to be wrong, the actual results for the BBAI’s business may be materially different than the results reflected in the financial projections.

As further described below in the section entitled “The Mergers – Certain Forecasts,” certain preliminary internal financial projections for Pangiam were prepared by the management of Pangiam and provided to the management of BBAI, and then adjusted by the management of BBAI (the “Financial Projections”), solely for use by BBAI’s financial advisor, EY, in connection with the rendering of the Fairness Opinion, as described below under “The Mergers – Opinion of BBAI’s Financial Advisor.” Although presented with numerical specificity, the Financial Projections reflect numerous variables, estimates, and assumptions made by BBAI’s management at the time the Financial Projections were initially prepared and adjusted, including, without limitation estimates and assumptions concerning matters such as estimated time for research, development and regulatory approvals, the likelihood of successful commercial development and commercial success of approved products. If any of these variables, estimates and assumptions prove to be wrong, the actual results for the surviving company’s business may differ materially from the results reflected in the Financial Projections. These assumptions, including those with respect to regulatory approval and probability of success more broadly, are inherently uncertain and could prove inaccurate. The risks and uncertainties regarding the Financial Projections, including the potential for adverse developments such as delays in obtaining or failure to obtain regulatory approvals or additional competition or changes in the competitive or regulatory landscape, increase with each successive year and the likelihood that the actual results will differ materially from the projected results increase with each successive year. The Financial Projections also do not reflect general business, economic, market and financial conditions and any changes in any of these conditions over the period of the Financial Projections could result in the actual results differing materially from the results reflected in the Financial Projections.

Risks Related to BBAI and, After the Mergers, the Surviving Company

The risk factors below relating to BBAI will also apply to the surviving company after the Mergers. Accordingly, references in the risk factors below to “us,” “our,” “we,” “the company,” or similar terms are intended to refer to BBAI and also to the surviving company after the Mergers.

Pangiam’s potential products and technologies are in early stages of development.

The development of new technology products is a highly risky undertaking. Pangiam’s technologies and products will require additional research, development and trials. There can be no assurance that any future research, development or trial efforts will result in viable products. Future results may be negative or insufficient to allow the surviving company to pursue further development or to successfully market its products, if approved. Obtaining needed data and results may take longer than planned or may not be obtained at all. Any such delays or setbacks could have an adverse effect on the ability of the surviving company to achieve its financial goals.

Risk Relating to Business and Industry of BBAI and the Surviving Company

Business or economic disruptions or global health concerns could harm our business.

Business or economic disruptions or global health concerns, such as the COVID-19 pandemic, could adversely affect our business. The COVID-19 pandemic, which the World Health Organization announced in January 2020 was a global health emergency, spread throughout most of the world including the United States. The outbreak resulted in extended shutdowns of businesses in the United States and elsewhere and had ripple effects on businesses and activities around the world. The COVID-19 outbreak and continued spread of COVID-19, including the identification of novel strains of COVID-19, has affected and may continue to affect our operations, our customers and third parties on which we rely. In addition, we, and after the Mergers the surviving company, could experience delays in obtaining products or services from our third-party manufacturers or

 

21

suppliers as a result of the impact of the COVID-19 pandemic or other similar outbreaks on such parties. The extent to which the COVID-19 pandemic will continue to impact our business is difficult to predict and subject to change, and will depend on future developments, which are highly uncertain and cannot be predicted, including, without limitation, the severity of the disease and duration of the outbreak, travel restrictions and social distancing requirements in the United States and other countries, future mutations and variations of the coronavirus, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease and address its impact. In addition, a severe or prolonged economic downturn or political disruption could result in a variety of risks to our business, including our ability to raise capital when needed on acceptable terms, if at all. A weak or declining economy or political disruption could also strain our manufacturers or suppliers, possibly resulting in supply disruption, or cause our customers to delay making purchases or payments for our products. Any of the foregoing could harm our business and, after the Mergers, the business of the combined company. In addition, the COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including, at various times, quarantines, shelter-in-place or work-from-home orders or policies, travel restrictions, social distancing and business shutdowns. The effects of any such future measures could negatively impact productivity of our employees and disrupt our business activities, the magnitude of which will depend, in part, on the length and severity of the restrictions and our ability to conduct business in the ordinary course.

Legislative or regulatory reforms may affect our ability to sell our products profitably.

In both the United States and certain foreign jurisdictions, there may be legislative and regulatory changes to the development of technological systems, including AI and ML systems, in ways that could impact our ability to develop and grow our profitably. The U.S. Congress continues to consider issues relating to the development of AI and ML technologies, and future legislation or regulations may affect our ability, and, after the Mergers, the surviving company’s ability, to market and sell products on favorable terms, which would affect our results of operations. Such legislation or regulation may reduce our revenues, increase our expenses or limit the markets for our products.

 

22

THE BBAI SPECIAL MEETING

This proxy statement is being provided to BBAI stockholders as part of a solicitation of proxies for use at the BBAI Special Meeting. This proxy statement contains important information regarding the BBAI Special Meeting, the proposals on which you are being asked to vote, information you may find useful in determining how to vote and voting procedures.

Stockholders who owned shares of BBAI Common Stock at the close of business on January 24, 2024, the Record Date, are entitled to receive notice of, attend virtually and vote at the BBAI Special Meeting. As of the close of business on the Record Date, there were [●] shares of BBAI Common Stock outstanding.

 

Date, Time and Place		The BBAI Special Meeting will be held on [DATE], at [TIME] a.m., Eastern time, virtually via an Internet webcast at https://www.cstproxy.com/bigbearai/sm2024, unless the BBAI Special Meeting is adjourned. Stockholders who plan to virtually attend the BBAI Special Meeting will need to enter the 12-digit control number included in such stockholder’s proxy or voting instruction card.
Purpose of the BBAI Special Meeting		The BBAI Special Meeting will be held for the purpose of considering and acting upon the following matters:
		BBAI Proposal No. 1—Approval of the Stock Issuance (Item 1 on the BBAI proxy card). To approve the Stock Issuance.
		BBAI Proposal No. 2—Adjournment of the BBAI Special Meeting (Item 2 on the BBAI proxy card). To approve one or more adjournments of the BBAI Special Meeting, if appropriate, to solicit additional proxies if there are insufficient votes to approve the Stock Issuance at the time of the BBAI Special Meeting.
		The BBAI Special Committee recommends that BBAI stockholders vote “FOR” each of the proposals presented at the BBAI Special Meeting.
Who Can Vote at the BBAI Special Meeting		Only holders of record of shares of BBAI Common Stock at the close of business on the Record Date will be entitled to vote shares held at that date at the BBAI Special Meeting or any adjournments thereof. Each outstanding share of BBAI Common Stock entitles its holder to cast one vote.   As of the close of business on the Record Date, there were [●] shares of BBAI Common Stock outstanding (which includes [●] unvested shares underlying restricted stock grants that are not considered to be outstanding for accounting purposes) and entitled to vote at the BBAI Special Meeting.
Attending the BBAI Special Meeting		The BBAI Special Meeting will be completely virtual and will be conducted via live webcast. You will be able to participate in the BBAI Special Meeting if you were a stockholder as of the close of business on the Record Date. You will be able to listen to the BBAI Special Meeting, submit your questions during the BBAI Special Meeting, and vote during the live webcast of the BBAI Special Meeting by visiting https://www.cstproxy.com/bigbearai/sm2024 and entering the 12-digit control number on your proxy card. BBAI encourages

 

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		you to access the BBAI Special Meeting prior to the start time leaving ample time for the check-in process.
Vote Required for the Proposals		BBAI Proposal No. 1—Approval of the Stock Issuance (Item 1 on the BBAI proxy card). Approval of the Stock Issuance requires the affirmative vote of holders of a majority of the voting power of BBAI Common Stock, present virtually at the BBAI Special Meeting or represented by proxy, and entitled to vote on BBAI Proposal No. 1, assuming a quorum is present.   BBAI Proposal No. 2—Adjournment of the BBAI Special Meeting (Item 2 on the BBAI proxy card). Approval of one or more adjournments of the BBAI Special Meeting, if appropriate, to solicit additional proxies if there are insufficient votes to approve the Stock Issuance at the time of the BBAI Special Meeting, requires the affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote on BBAI Proposal No. 2, assuming a quorum is present.
Quorum Requirement		Holders of a majority of the shares of BBAI Common Stock issued and outstanding and entitled to vote at the BBAI Special Meeting, present in person virtually or represented by proxy, constitute a quorum. In the absence of a quorum, the chairman of the BBAI Special Meeting may adjourn the meeting to another place, date or time. As of the Record Date, [●] shares of BBAI Common Stock will be required to achieve a quorum.   Holders of shares of BBAI Common Stock present at the BBAI Special Meeting but not voting, and shares of BBAI Common Stock for which BBAI has received proxies indicating that their holders have abstained, will be counted as present at the BBAI Special Meeting for purposes of determining whether a quorum is established.   Brokers, banks and other nominees have the discretion to vote shares held in “street name”—a term that means the shares are held in the name of the broker, bank or other nominee on behalf of its customer, the beneficial owner—on routine matters, but not on non-routine matters. Generally, broker non-votes occur when shares held by a broker, bank or other nominee for a beneficial owner are not voted with respect to a non-routine matter because the broker, bank or other nominee has not received voting instructions from the beneficial owner and the broker, bank or other nominee lacks discretionary authority to vote the shares because of the non-routine nature of the matter. Because brokers, banks and other nominees do not have discretionary voting authority with respect to any of the proposals described in this proxy statement, if a beneficial owner of shares of BBAI Common Stock held in “street name” does not give voting instructions to the broker, bank, nominee or other holder of record, then those shares will not be voted as to any of the proposals described in this proxy statement. Broker non-votes

 

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		will not be included in determining whether a quorum is present. Your vote is very important, whether you hold directly or through a broker, bank or other nominee. BBAI encourages you to read this proxy statement carefully, and if you are a beneficial owner, please be sure to give voting instructions to your broker, bank or other nominee.
Shares Owned by BBAI Directors and Executive Officers		At the close of business on the Record Date, directors and executive officers of BBAI beneficially owned and were entitled to vote, in the aggregate, approximately [●] issued and outstanding shares of BBAI Common Stock, representing approximately [●]% of the shares of BBAI Common Stock outstanding on that date. BBAI currently expects that BBAI’s directors and executive officers will vote all of the shares of BBAI Common Stock they are entitled to vote (a) “FOR” the proposal to approve the Stock Issuance and (b) “FOR” the proposal to approve one or more adjournments of the BBAI Special Meeting, if appropriate, to solicit additional proxies if there are insufficient votes to approve the Stock Issuance at the time of the BBAI Special Meeting.
Methods of Voting—Stockholders of Record		If you are a BBAI stockholder entitled to vote at the BBAI Special Meeting, you may vote over the Internet, by mail or in person virtually at the BBAI Special Meeting. All votes, other than votes made while virtually attending the BBAI Special Meeting, must be received by 11:59 p.m., Eastern Time, on [DATE].   •  Over the Internet. To vote over the Internet, please follow the instructions included on your proxy card. If you vote over the Internet, you do not need to complete and mail a proxy card.   •  Mail. By signing the proxy card and returning it in the enclosed prepaid and addressed envelope, you are authorizing the individuals named on the proxy card to vote your shares at the BBAI Special Meeting in the manner you indicate. BBAI encourages you to sign and return the proxy card even if you plan to attend the BBAI Special Meeting so that your shares will be voted if you are ultimately unable to attend the BBAI Special Meeting. If you receive more than one proxy card, it is an indication that your shares are held in multiple accounts. Please sign and return all proxy cards to ensure that all of your shares are voted.   •  Voting while virtually attending the BBAI Special Meeting. If your shares are registered directly in your name, you have the right to vote while virtually attending the BBAI Special Meeting. If you hold your shares beneficially in street name, the availability of telephonic or Internet voting will depend on the voting process of your broker, trustee or other nominee. Please check with your broker, trustee or other nominee and follow the voting procedures your broker, trustee or other nominee provides to vote your shares.

 

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		BBAI recommends that you vote in advance even if you plan to virtually attend the BBAI Special Meeting so that BBAI will know as soon as possible that enough votes will be present for BBAI to hold the meeting. If you are a stockholder of record and virtually attend the BBAI Special Meeting, you may vote at the meeting.
Methods of Voting—Beneficial Owners		If your shares are held in an account at a brokerage firm, bank or other nominee, then you are the beneficial owner of shares held in “street name,” and this proxy statement is being sent to you by that organization. The organization holding your account is considered to be the stockholder entitled to vote at the BBAI Special Meeting for purposes of voting at the BBAI Special Meeting. As a beneficial owner, you have the right to direct your broker, bank or other nominee regarding how to vote the shares in your account by following the instructions that the broker, bank or other nominee provides you along with this proxy statement. All of the proposals at the BBAI Special Meeting are considered non-routine matters. As a result, your broker may not vote your shares without your specific instructions, which is called a “broker non-vote.”
Abstentions; Broker Non-Votes		Abstentions from voting will have the same effect as a vote AGAINST the proposal to approve the Stock Issuance (Proposal No. 1) and the proposal to approve one or more adjournments of the BBAI Special Meeting (Proposal No. 2). BBAI believes that brokers, banks and other nominees do not have discretionary authority to vote on Proposal No.1 or Proposal No. 2 absent instructions from the beneficial owner and therefore broker non-votes will have no effect on the proposal to approve the Stock Issuance (Proposal No. 1) and the proposal to approve one or more adjournments of the BBAI Special Meeting (Proposal No. 2).
Failure to Provide Voting Instructions		Stockholders should specify their choice for each matter on the enclosed proxy. If no specific instructions are given, proxies that are signed and returned will be voted (a) FOR the proposal to approve the Stock Issuance and (b) FOR the proposal to approve one or more adjournments of the BBAI Special Meeting, if appropriate.
Revoking a Proxy		You may revoke a previously authorized proxy at any time before it is exercised by authorizing a proxy to vote again over the Internet prior to [●] p.m., Eastern Time, on [●], or by signing and returning another proxy card with a later date, provided, that BBAI receives the updated proxy card before the date of the BBAI Special Meeting, or by voting virtually at the BBAI Special Meeting. Attendance at the BBAI Special Meeting will not, in itself, constitute revocation of a previously authorized proxy. If you have instructed a broker to vote your shares, the foregoing options for changing your vote do not apply and instead you must follow the applicable instructions received from such broker to change your vote.

 

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Solicitation of Proxies		BBAI will pay the costs of soliciting proxies from BBAI stockholders. In addition to soliciting proxies by mail, by telephone and via the Internet, BBAI’s directors, executive officers and other employees may solicit proxies, either personally or by other electronic means, on BBAI’s behalf, without additional compensation, other than the time expended and communications charges in making such solicitations. BBAI will also request brokerage houses, custodians, nominees and fiduciaries to forward copies of the proxy materials to those persons for whom they hold shares and request instructions for voting the proxies. BBAI will reimburse such brokerage houses and other persons for their reasonable expenses in connection with forwarding proxy and solicitation materials to the beneficial owners of BBAI Common Stock and in obtaining voting instructions from such beneficial owners.

 

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BBAI PROPOSAL NO. 1:

APPROVAL OF THE STOCK ISSUANCE

The issuance of shares of BBAI Common Stock in connection with the transactions contemplated by the Merger Agreement is subject to approval by BBAI stockholders as required by applicable rules of NYSE.

Under NYSE Listing Rule 312.03, a company listed on the NYSE is required to obtain stockholder approval for issuance of common stock or other securities convertible into or exercisable for common stock, in connection with any transaction or series of related transactions if (i) the common stock has, or will have upon issuance, voting power equal to or in excess of 20% of the voting power outstanding before the issuance of such stock or of securities convertible into or exercisable for common stock; or (ii) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the common stock or of securities convertible into or exercisable for common stock. The aggregate number of shares of BBAI Common Stock to be issued in the Mergers is expected to be approximately 52,087,209 (or approximately 33.12% of the shares of BBAI Common Stock outstanding before such issuance) based on the number of shares of BBAI Common Stock, and will exceed 20% of the shares of BBAI Common Stock outstanding before such issuance. For this reason, BBAI must obtain the approval of BBAI stockholders for the Stock Issuance. BBAI is asking its stockholders to approve the Stock Issuance. The Stock Issuance and the approval of the Stock Issuance are required for the consummation of the Mergers.

The affirmative vote of holders of a majority of the voting power of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote, assuming a quorum is present, on BBAI Proposal No. 1, is required for the approval of the Stock Issuance. Abstentions will have the effect of a vote AGAINST the Stock Issuance Proposal.

The BBAI Special Committee recommends a vote “FOR” the Stock Issuance (BBAI Proposal No. 1 on the accompanying BBAI proxy card).

 

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BBAI PROPOSAL NO. 2:

APPROVAL OF ONE OR MORE ADJOURNMENTS OF THE BBAI SPECIAL MEETING

BBAI is asking you to approve a proposal to approve one or more adjournments of the BBAI Special Meeting to a later date or dates, if appropriate, to solicit additional proxies if there are insufficient votes to approve the Stock Issuance at the time of the BBAI Special Meeting. If BBAI stockholders approve the adjournment proposal, BBAI could adjourn the BBAI Special Meeting and any adjourned session of the BBAI Special Meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders that have previously returned properly executed proxies voting against the approval of the Stock Issuance. Among other things, approval of the adjournment proposal could mean that, even if BBAI had received proxies representing a sufficient number of votes against the proposal to approve the Stock Issuance, such that the proposal would be defeated, BBAI could adjourn the BBAI Special Meeting without a vote on the proposal to approve the Stock Issuance and seek to convince the holders of those shares to change their votes to votes in favor of that proposal. Additionally, BBAI may seek to adjourn the BBAI Special Meeting if a quorum is not present at the meeting.

Approval of the BBAI Adjournment Proposal (if necessary to solicit additional proxies if there are not sufficient votes to approve the Stock Issuance Proposal) requires the affirmative vote of holders of a majority of the voting power of the shares of BBAI Common Stock present virtually at the BBAI Special Meeting or represented by proxy and entitled to vote, assuming a quorum is present. Abstentions will have the same effect as a vote AGAINST the BBAI Adjournment Proposal.

The BBAI Special Committee recommends a vote “FOR” one or more adjournments of the BBAI Special Meeting, if appropriate, to solicit additional proxies if there are insufficient votes to approve the Stock Issuance at the time of the BBAI Special Meeting (BBAI Proposal No. 2 on the accompanying BBAI proxy card).

 

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THE MERGERS

General

On October 31, 2023, the BBAI Special Committee approved the Merger Agreement, a copy of which is attached as Annex A to this proxy statement, and the transactions contemplated thereby.

Upon the terms and subject to the conditions of the Merger Agreement, (1) Merger Sub will merge with and into Pangiam, with Pangiam continuing as the surviving company and (2) immediately following such merger, Pangiam will merge with and into Purchaser with Pangiam ceasing to exist and Purchaser continuing as a wholly owned subsidiary of BBAI. In connection with the consummation of the Mergers, Seller will receive a number of shares of BBAI Common Stock equal to the Purchase Price (based on a price per share of BBAI Common Stock of $1.3439 which represents the 20-day VWAP for BBAI Common Stock ending on the trading day immediately prior to the date of the Merger Agreement, as described in the section entitled “The Merger Agreement—Merger Consideration.”)

Background of the Mergers

The following chronology summarizes the key meetings and events that led to the signing of the Merger Agreement. This chronology does not purport to catalogue every conversation of or among members of BBAI’s Special Committee, BBAI’s representatives, the Pangiam Board, Pangiam’s representatives and other parties.

BBAI’s senior management and the BBAI Board regularly explore, with the assistance of financial and legal advisors, potential strategic options available to BBAI, with the goal of enhancing stockholder value. As part of this process, BBAI regularly reviews a broad range of opportunities, including potential strategic acquisitions, joint ventures and business combinations with other companies. The BBAI Board and management have recognized that ongoing business development activities are required to identify and capitalize on growth opportunities.

On December 16, 2022, a representative of AEIP, which together with its affiliates beneficially owns a majority interest in both BBAI and Pangiam, facilitated an introduction via e-mail between Amanda Long, Chief Executive Officer of BBAI, and Kevin McAleenan, Chief Executive Officer of Pangiam.

On January 19, 2023, Ms. Long and Mr. McAleenan held an introductory phone call to discuss the possibility of a potential partnership between BBAI and Pangiam. In particular, BBAI and Pangiam intended to explore the potential opportunity for BBAI to assist Pangiam with its development project (more commonly known as “Project Dartmouth”), which is a collaboration between Pangiam and a third-party provider of cloud computing services to utilize artificial intelligence and pattern analysis technologies to identify potential prohibited items in carry-on baggage, checked baggage, airline cargo and shipments, in an effort to streamline and automate the baggage screening process.

Over the course of the months of January and February 2023, Ms. Long exchanged periodic correspondence via e-mail with representatives of AEIP, including Bryan McElwee, a Partner of AEIP, whereby representatives of AEIP shared certain business overview materials and other financial materials regarding Pangiam.

On February 1, 2023, Ms. Long contacted Mr. McAleenan via e-mail to schedule a subsequent meeting to discuss the possibility of a potential partnership between BBAI and Pangiam.

On February 16, 2023, Ms. Long, Mr. McAleenan and other representatives of Pangiam attended a videoconference to discuss, among other matters, Pangiam’s technical capabilities, Pangiam’s vision for growing its business and the possibility of a potential strategic partnership between BBAI and Pangiam.

 

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On February 27, 2023, Ms. Long and Mr. McElwee attended a videoconference to discuss, among other matters, Pangiam’s financial performance and anticipated business pipeline, as well as Pangiam’s ability to source data and its approach to data privacy protection and data rights. During this meeting, the parties also discussed that Pangiam was considering pursuing a formal sale process and the proposed valuation for Pangiam in connection with such sale process.

On March 2, 2023, Ms. Long contacted Mr. McElwee via e-mail and indicated that BBAI would not be interested in participating in the formal sale process for Pangiam, nor would BBAI be moving forward with discussions regarding a potential strategic partnership. BBAI’s decision was driven by, among other reasons, the disconnect between Pangiam’s proposed valuation and BBAI management’s perspective on Pangiam’s valuation.

During April and May of 2023, Ms. Long worked with members of BBAI management to develop a pipeline of potential acquisition candidates together with a set of evaluation criteria against which to evaluate acquisition candidates from a strategic and financial perspective (the “Evaluation Criteria”). A summary of the Evaluation Criteria was shared with the BBAI Board in May 2023.

On July 27, 2023, Ms. Long and Kirk Konert, a Managing Partner at AEIP, held a telephonic meeting during which, among other matters, Mr. Konert informed Ms. Long that the exclusivity restrictions in connection with Pangiam’s sale process had expired and asked whether Ms. Long would be interested in re-engaging with Pangiam regarding a possible transaction between BBAI and Pangiam, subject to the parties aligning on an acceptable valuation of Pangiam. After the meeting, Mr. Konert re-connected Ms. Long with Mr. McElwee.

On July 27, 2023, Mr. McElwee shared, via e-mail, updated materials providing a business overview of Pangiam with Ms. Long.

On July 28, 2023, BBAI and Seller entered into a mutual confidentiality agreement, which included, among other terms, a restriction on BBAI from soliciting any of Sellers’ employees for a period of 12 months from the date of the confidentiality agreement.

On the same day, BBAI engaged Latham & Watkins to represent them on the proposed transaction with Pangiam.

From late July until the signing of the Merger Agreement, BBAI and its legal and financial advisors continued further legal, business, and financial due diligence reviews of Pangiam and its subsidiaries.

On August 2, 2023, at a regularly-scheduled virtual meeting held by the audit committee of BBAI (the “BBAI Audit Committee”) (excluding Pamela Braden) with representatives of Latham & Watkins present, Ms. Long reviewed the Evaluation Criteria that had previously been distributed to members of the BBAI Board and how a potential transaction with Pangiam compared to such Evaluation Criteria. The BBAI Audit Committee noted that AEIP (together with its affiliates) beneficially owns a majority interest in both BBAI and Pangiam, and accordingly the BBAI Audit Committee would be required to approve any potential transaction with Pangiam pursuant to BBAI’s related party transactions policy (the “Related Party Policy”). The BBAI Audit Committee determined to discuss the potential transaction with Pangiam with the disinterested members of the BBAI Board at a regularly-scheduled meeting on the following day. The BBAI Audit Committee also determined to further consider whether additional governance mechanisms should be implemented to identify and mitigate potential conflicts of interest between AEIP and its affiliates and BBAI with respect to the potential transaction with Pangiam.

On August 3, 2023, at a regularly-scheduled virtual meeting held by the BBAI Board, after Pamela Braden, Jeffrey Hart and Mr. Konert excused themselves from the meeting, Dorothy Hayes, the chair of the BBAI Audit Committee, provided a briefing of the potential transaction with Pangiam that was discussed at the meeting of the BBAI Audit Committee that was held the day before. The BBAI Board (excluding Ms. Braden, Mr. Hart and Mr. Konert) authorized Ms. Long to seek to negotiate principal economic terms of a potential transaction with

 

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Pangiam and present such proposed terms to the BBAI Board (excluding Ms. Braden, Mr. Hart and Mr. Konert) and BBAI Audit Committee for further review.

On August 9, 2023, BBAI shared with Pangiam a preliminary, non-binding indication of interest regarding BBAI’s proposal to acquire Pangiam (the “IOI Letter”). The IOI Letter, proposed, among other terms, that the purchase price would be between $55,000,000 and $70,000,000, and that the purchase price would consist of a combination of cash (which would be payable on a deferred basis post-closing) and shares of BBAI Common Stock (which would be subject to certain transfer restrictions for a period of six months post-closing).

On August 10, 2023, representatives of Pangiam shared a revised draft of the IOI Letter (the “Pangiam Revised IOI Letter”), which proposed, among other changes, a revised purchase price of $75,000,000 which would consist of $25,000,000 of shares of BBAI Common Stock and a $50,000,000 convertible note issued by BBAI that could be repaid at maturity in either cash or BBAI Common Stock.

On August 14, 2023, at a virtual meeting held by the BBAI Audit Committee (excluding Ms. Braden), Ms. Long and other members of BBAI management discussed, among other matters, the various financial scenarios in connection with the consummation of the potential transaction with Pangiam, including drafts of the Forecasts and Estimated Synergies (as defined below) prepared by BBAI management. The BBAI Audit Committee also determined that it would be beneficial for BBAI to retain a financial advisor to evaluate the fairness, from a financial point of view, of the proposed transaction with Pangiam and authorized BBAI management to negotiate a potential engagement of EY for such purpose.

Also on August 14, 2023, EY delivered to AEIP and BigBear. AI, LLC, an affiliate of BBAI, a conflict of interest disclosure and consent letter, disclosing, among other matters, EY’s prior buy-side tax and financial diligence services provided to AEIP in connection with AEIP’s acquisition of Pangiam and its subsidiaries in 2020, and the scope of EY’s current transaction advisory services provided to BigBear. AI, LLC.

On August 17, 2023, Ms. Long and certain members of the BBAI Audit Committee discussed via e-mail, the proposed response to the Pangiam Revised IOI Letter, which response included, among other matters, revising the purchase price to a range of $55,000,000 to $70,000,000 and rejecting the proposal that the convertible note be repaid in cash. BBAI shared a revised IOI Letter reflecting the foregoing discussions (the “BBAI Revised IOI Letter”) with representatives of Pangiam, and later in the day, Mr. McAleenan contacted Ms. Long via telephone to advise that BBAI’s proposal in the BBAI Revised IOI Letter was not accepted by Pangiam and that Pangiam would be willing to consider a valuation of $75,000,000.

In response to Mr. McAleenan’s feedback to the BBAI Revised IOI Letter and after further discussions with members of the BBAI Audit Committee (excluding Ms. Braden) via e-mail, Ms. Long contacted Mr. McAleenan via telephone to advise that BBAI was not in a position to modify its proposed valuation range for Pangiam.

On August 21, 2023, at a virtual meeting held by the BBAI Audit Committee (excluding Ms. Braden), the BBAI Audit Committee discussed the benefit of broadening the group of disinterested directors involved in overseeing the evaluation and negotiation process and determined to recommend to the BBAI Board the creation of a special committee of seven disinterested directors for purposes of considering a potential transaction with Pangiam, as well as administering the Related Party Policy in connection with BBAI’s exploration of a potential transaction with Pangiam.

On August 24, 2023, at a virtual meeting held by the BBAI Board (excluding Ms. Braden, Mr. Hart and Mr. Konert), the BBAI Board approved the formation of the BBAI Special Committee which would comprise the following directors: Peter Cannito (Chair), Sean Battle, Raluca Dinu, Paul Fulchino, Dorothy Hayes, Avi Katz and Amanda Long, for purposes of administering the Related Party Policy and for reviewing and evaluating the potential transaction between BBAI and Pangiam. Ms. Braden, Mr. Hart and Mr. Konert recused themselves from all deliberations and votes regarding formation of the BBAI Special Committee.

 

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On August 25, 2023, representatives of Latham & Watkins and K&E, legal advisor to Pangiam and Seller, held a virtual meeting to discuss overall process and next steps with respect to a potential transaction between BBAI and Pangiam.

On September 4, 2023, K&E shared a term sheet (the “Term Sheet”) with Latham & Watkins reflecting Seller’s proposal of principal commercial terms of the proposed transaction, reflecting, among other matters, a total consideration of $75,000,000 comprised of $40,000,000 of convertible notes issued by BBAI or its affiliate and $35,000,000 of shares of BBAI Common Stock.

Over the course of the month of September, Latham & Watkins and K&E continued to exchange revised drafts of the Term Sheet.

On September 7, 2023, members of BBAI management shared via e-mail additional information regarding the proposed transaction with Pangiam with members of the BBAI Special Committee, including among other materials, an illustrative deal timeline that was prepared by Seller’s counsel and an overview of the actual and forecasted transaction expenses to be incurred in connection with the proposed transaction.

On September 14, 2023, an engagement letter formalizing BBAI’s engagement of EY in connection with the proposed transaction with Pangiam was executed.

On September 14, 2023, Ms. Long and other members of BBAI management provided a briefing to the BBAI Special Committee, discussing, among other matters, a status update regarding the proposed transaction with Pangiam and the expected timeline and the various consideration options that BBAI was considering which included, among others, (i) shares of BBAI Common Stock, a portion of which would be payable at the Closing and the remaining portion of which would be payable on a deferred basis, (ii) shares of BBAI Common Stock payable at Closing, (iii) a mix of shares BBAI Common Stock and BBAI convertible notes payable at Closing, and (iv) a mix of shares of BBAI Common Stock payable at Closing and a deferred cash payment (such option (iv) was not recommended based on BBAI’s cash balance). BBAI management also presented various financial scenarios in connection with the consummation of the potential transaction with Pangiam, including updated drafts of the Forecasts and Estimated Synergies prepared by BBAI management, which the BBAI Special Committee authorized EY to use in connection with its financial analyses regarding the potential transaction with Pangiam.

Over the course of the months of September and October, Ms. Long shared regular updates with and sought input from members of the Special Committee, via email, to keep them apprised of updates on the proposed transaction with Pangiam, including, among other matters, the overall transaction timeline, status of various diligence workstreams, status of key transaction documents and the material transaction terms contained therein.

On September 22, 2023, Latham & Watkins shared a revised Term Sheet with K&E reflecting, among other matters, a total consideration of $70,000,000 comprised solely of BBAI Common Stock and the RWI Policy serving as BBAI’s sole source of recourse so long as the costs of the RWI Policy would be borne 100% by Seller.

On September 24, 2023, K&E shared an initial draft Merger Agreement with Latham & Watkins relating to the proposed transaction, which substantially reflected the terms in the latest draft Term Sheet circulated by Latham & Watkins.

On September 28, 2023, representatives of BBAI and Pangiam, and their respective legal advisors, attended a legal diligence call regarding Pangiam.

On October 19, 2023, K&E shared an initial draft of the form of Business Covenants Agreement with Latham & Watkins.

 

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On October 26, 2023, Latham & Watkins shared an initial draft of the form of the IRA Amendment with K&E.

From late September and throughout the month of October, the parties and their respective legal advisors engaged in ongoing negotiations of various definitive transaction documents, including the Merger Agreement, Business Covenants Agreement and various ancillary agreements, and continued to exchange drafts of the Merger Agreement, Business Covenants Agreement and other transaction documents and conducted virtual meetings to negotiate the terms of these agreements, including, among other matters (1) the purchase price adjustment, such as the types of indebtedness and debt-like items that would be deducted from the Purchase Price at the Closing, (2) which party would bear the costs of the RWI Policy, (3) the cap on BBAI’s expense reimbursement obligations in the event BBAI effected a Change in Recommendation (as defined below) and the Merger Agreement was validly terminated in accordance with its terms and (4) the timing requirements with respect to Seller’s obligation to deliver to BBAI copies of Pangiam’s consolidated financial statements for purposes of this proxy statement and the scope of Seller’s obligations to deliver additional financial statements for purposes of BBAI’s subsequent filings with the SEC. These terms were ultimately determined based on commercial considerations among the parties and market precedent for similar transactions.

On the evening of October 31, 2023, the BBAI Special Committee held a virtual meeting at which time it reviewed with BBAI management, together with BBAI’s legal and financial advisors, including representatives of EY and Latham & Watkins, the current status of negotiations, results of due diligence and reviewed communications and the likely impact of the proposed transaction on BBAI’s stockholders, customers and other constituencies. Representatives of EY rendered an oral opinion, subsequently confirmed by delivery of a written opinion that, based upon and subject to the factors, procedures, assumptions, qualifications and limitations set forth in its opinion, as of October 31, 2023, the proposed transaction was fair, from a financial point of view, to BBAI. After discussing the near final terms of the Merger Agreement as well as the terms of the proposed transaction with Pangiam, the BBAI Special Committee ultimately and unanimously (subject to Ms. Long’s abstention from such vote) approved the execution by BBAI of definitive transaction documents consistent with the terms shared with the BBAI Special Committee and recommended that BBAI stockholders vote to approve the Stock Issuance.

Between November 1, 2023, and November 4, 2023, the parties and their respective legal advisors continued to engage in ongoing negotiations to finalize the various definitive transaction documents, including the Merger Agreement, the disclosure schedules to the Merger Agreement and various ancillary agreements.

On November 4, 2023, BBAI, Pangiam and the other parties thereto executed the Merger Agreement.

On November 6, 2023, before the opening of trading on NYSE, BBAI issued a press release announcing the execution of the Merger Agreement.

BBAI Special Committee’s Reasons for the Mergers

At a meeting held on October 31, 2023, the BBAI Special Committee unanimously (subject to Ms. Long’s abstention) (i) determined that the Merger Agreement and the transactions contemplated thereby, including without limitation the Mergers, are advisable, fair to and in the best interests of BBAI and the BBAI stockholders, (ii) adopted and approved the Merger Agreement and the transactions contemplated thereby and (iii) determined that it is in the best interests of BBAI to recommend to the BBAI stockholders that they vote to approve the Stock Issuance at the BBAI Special Meeting.

In the course of reaching its recommendation, the BBAI Special Committee consulted with BBAI’s senior management and financial and legal advisors, EY and Latham & Watkins, respectively, and considered a number of factors, both positive and negative, and potential benefits and detriments of the Mergers to BBAI and its stockholders. For the reasons described below, the BBAI Special Committee determined that the proposed transaction with Pangiam is the best course of action for BBAI.

 

34

The decision of the BBAI Special Committee to enter into the Merger Agreement was the result of careful consideration by the BBAI Special Committee of numerous factors weighing positively in favor of the Mergers, including the following material factors:

 

i.

the BBAI Special Committee’s belief, based on prior experience at BBAI and in the artificial intelligence (“AI”)-powered business intelligence solutions industry generally, that the Mergers will create one of the industry’s most comprehensive vision AI portfolios and will position BBAI as a foundational leader in one of the fastest growing categories for the application of AI because:

 

a.

the Mergers are expected to align with BBAI’s strategic direction to expand its ecosystem, penetrate new adjacent markets, including, without limitation, vision AI, AI orchestration and AI infrastructure and position BBAI for sustained growth;

 

b.

the Mergers are expected to bring more capabilities to BBAI’s customers by adding additional expertise in automation and AI, as well as products that are complimentary to existing and new BBAI customers;

 

c.

the Mergers are expected to position BBAI for accelerated growth based on the world-class talent and technology that it expects to obtain from the consummation of the Mergers;

 

d.

the Mergers are expected to unlock value for BBAI through a highly complementary customer mix with Pangiam, a strong pipeline and upsell opportunities;

 

e.

the Mergers are expected to increase the value that is created for BBAI stockholders by combining with Pangiam’s complementary business which will allow BBAI to scale faster by working together with Pangiam;

 

f.

the Mergers are expected to allow BBAI to leverage and share with Pangiam complementary investments in critical software capabilities which will allow BBAI to manage liquidity and mitigate cash outlay which would otherwise be needed to build such capabilities;

 

g.

the strategic review undertaken by the BBAI Special Committee, BBAI Board and management and their view of the challenges facing participants in the AI-powered business intelligence solutions industry, including increasing competition, declining valuation multiples, potential consolidation of other industry participants; and

 

h.

the synergies and other benefits to the combined company that could result from the Mergers, including an enhanced competitive and financial position and increased scale;

 

ii.

the BBAI Special Committee’s understanding of the respective businesses, operations, financial condition, earnings, strategy and prospects of BBAI and Pangiam, including the report of BBAI’s management and BBAI’s advisors on the results of their due diligence review of Pangiam and its assets, liabilities, earnings and financial condition, as well as BBAI’s and Pangiam’s historical and projected financial performance;

 

iii.

the fact that, since the consideration to be received by Seller in connection with the Mergers will consist solely of shares of BBAI Common Stock, the consummation of the Mergers will not require BBAI to draw down on its cash reserves;

 

iv.

the opinion of EY rendered to the BBAI Special Committee on October 31, 2023, which was subsequently confirmed by delivery of a written opinion dated such date;

 

v.

the Merger Agreement permits the BBAI Board (or the BBAI Special Committee) to change or withdraw its recommendation in favor of the Merger Agreement in connection with an Intervening Event (as described in the section entitled “The Merger Agreement—Change of Recommendation”) if the BBAI Board (or the BBAI Special Committee) determines in good faith, after consultation with outside legal counsel, that the failure to do so would be inconsistent with the fiduciary duties of BBAI’s directors under applicable law, subject to BBAI’s reimbursement of Seller’s, Pangiam’s or its

 

35

subsidiaries’ reasonable and documented out-of-pocket fees and expenses up to a maximum reimbursement of $1,250,000 in the aggregate if the BBAI Board (or the BBAI Special Committee) effects a Change in Recommendation (as defined below);

 

vi.

the ability of the parties to complete the Mergers, in a timely manner, including the lack of any financing conditionality in the Merger Agreement, BBAI’s ability to specifically enforce Seller’s and Pangiam’s obligations under the Merger Agreement, and the strong contractual commitments of both parties with respect to the regulatory approvals required to complete the Mergers; and

 

vii.

the other material terms and conditions of the Merger Agreement, including, among other matters, the representations, warranties and covenants of the parties, the conditions to Closing and the parties’ termination rights.

In the course of its deliberations, the BBAI Special Committee also identified and considered a variety of risks and countervailing factors weighing negatively against the Mergers, including the following material factors:

 

i.

the risk that the revenue synergies and other benefits expected to result from the Mergers may not be fully realized;

 

ii.

the challenges inherent in combining the businesses, operations and workforces of BBAI and Pangiam, including the potential for unforeseen difficulties in integrating operations and systems and the possible distraction of management attention for an extended period of time;

 

iii.

the possible disruption to BBAI’s business that may result from the announcement of the transaction and the risk that, despite the efforts of BBAI prior to the consummation of the Mergers, BBAI and Pangiam may not be able to retain key personnel during the transition and/or following the Mergers;

 

iv.

the potential for management focus and resources being diverted from operational matters and other strategic opportunities prior to Closing which could lead to the loss of business opportunities for BBAI;

 

v.

the risk that BBAI’s financial profile could change between the date of the Merger Agreement and the completion of the Mergers, which could impact the value of the BBAI Common Stock that Seller will receive as part of the consideration; and

 

vi.

the substantial costs to be incurred in connection with the transaction, including the costs of integrating the businesses of BBAI and Pangiam and the transaction expenses arising from the Mergers.

The BBAI Special Committee also considered the interests that the executive officers and directors of BBAI have with respect to the Mergers in addition to their interests as stockholders of BBAI generally (see the section entitled “The Mergers—Interests of Certain BBAI Directors and Executive Officers in the Mergers”).

The BBAI Special Committee concluded that the negative factors and potential detriments associated with the proposed transaction with Pangiam are significantly outweighed by the positive factors and potential benefits that it expects BBAI and the BBAI stockholders to achieve as a result of the transaction.

Accordingly, after careful consideration, the BBAI Special Committee unanimously (subject to Ms. Long’s abstention) (i) determined that the Merger Agreement and the transactions contemplated thereby, including without limitation the Mergers, are advisable, fair to and in the best interests of BBAI and the BBAI stockholders, (ii) adopted and approved the Merger Agreement and the transactions contemplated thereby and (iii) determined that it is in the best interests of BBAI to recommend to the BBAI stockholders that they vote to approve the Stock Issuance at the BBAI Special Meeting.

Although the foregoing discussion sets forth the material factors considered by the BBAI Special Committee in reaching its recommendation, it is not intended to be exhaustive and may not include all of the factors considered by the BBAI Special Committee, and each member of the BBAI Special Committee may have considered different factors or given different weight to each factor. The above factors are not presented in any order of

 

36

priority. In view of the variety of factors, the amount of information and the complexity of the matters considered, the BBAI Special Committee did not find it practicable to, and did not, make specific assessments of, or assign relative weights to, the specific factors considered in reaching its recommendation. The explanation of the reasoning of the BBAI Special Committee and certain information presented in this section are forward-looking in nature and should be read in light of the factors discussed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” of this proxy statement.

Opinion of BBAI’s Financial Advisor

Overview

Pursuant to an engagement letter dated September 14, 2023 (the “EY Engagement Letter”), BBAI retained EY to render a written opinion as to the fairness, from a financial point of view, to BBAI of the Merger Consideration to be paid by BBAI pursuant to the Merger Agreement. At the meeting of the BBAI Special Committee on October 31, 2023, EY rendered its oral opinion to the BBAI Special Committee which was subsequently confirmed by delivery of the Fairness Opinion, to the effect that, as of such date and based upon and subject to the factors, assumptions, qualifications and limitations set forth in the Fairness Opinion, the Merger Consideration to be paid by BBAI pursuant to the Merger Agreement was fair to BBAI from a financial point of view.

The full text of the Fairness Opinion, which sets forth, among other things, the assumptions made, matters considered and qualifications and limitations on the opinion and a description of the review undertaken by EY in connection with rendering its opinion, is attached as Annex E to this proxy statement and is incorporated herein by reference. The summary of the Fairness Opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. BBAI’s stockholders are urged to read the Fairness Opinion carefully and in its entirety. The Fairness Opinion was addressed to the BBAI Special Committee (in its capacity as such) in connection with and for the purposes of its evaluation of the Mergers, was directed only to the Merger Consideration paid by BBAI pursuant to the Merger Agreement and did not address any other aspect of the Mergers. The issuance of the Fairness Opinion was approved by a fairness opinion committee of EY. The Fairness Opinion does not constitute a recommendation to any stockholder of BBAI as to how such stockholder should vote with respect to the Mergers or any other matter.

In arriving at its opinion, EY had completed the following, among other things:

 

i.

Reviewed the financial terms of a draft of the Merger Agreement dated October 24, 2023;

 

ii.

Reviewed certain publicly available business and financial information relating to Pangiam;

 

iii.

Reviewed certain internal information relating to the business, earnings, cash flow, assets, liabilities and prospects of Pangiam, provided by BBAI’s management;

 

iv.

Reviewed certain historical and projected financial information for Pangiam, prepared and provided by, and used with the consent of, BBAI’s management;

 

v.

Reviewed certain internal information relating to cost savings, synergies and related expenses expected to result from the Mergers and certain other pro forma financial effects of the Mergers provided by, and used with the consent of, BBAI’s management (the “Synergy Information”);

 

vi.

Held discussions with members of BBAI’s management with respect to the operations, financial condition and prospects of Pangiam (items (i) through (vi) of this list, together with such other information provided to EY in connection with EY’s analyses, the “Transaction Information”);

 

vii.

Performed a discounted cash flow analysis of Pangiam based on the Financial Projections (discussions of which are included above in the section entitled “Risk Factors” and below in the section entitled “The Mergers – Certain Forecasts”);

 

37

viii.

Reviewed certain financial and stock market data, including valuation multiples, of certain publicly traded companies EY deemed relevant;

 

ix.

Reviewed the financial terms of certain transactions that EY deemed relevant; and

 

x.

Performed certain other financial studies and analyses, reviewed such other information and considered such other factors as deemed appropriate for the purpose of preparing its opinion.

With respect to the Transaction Information, EY did not examine, compile, or apply agreed-upon procedures to such information in accordance with attestation standards established by the American Institute of Certified Public Accountants and EY expressed no assurance of any kind on the Transaction Information presented. EY did not prepare, assemble, formulate, develop or process the Transaction Information data or the assumptions used to generate the Transaction Information. EY did not assist in the preparation or assembly of any prospective financial information contained in the Transaction Information or in the development of any assumptions therein, and assumed, with BBAI’s consent, that such prospective financial information (including with respect to synergies or other benefits) was reasonably prepared on bases reflecting the best available estimates and good faith judgments of the parties or individuals preparing such prospective financial information. EY did not provide any opinion, conclusion or any type of assurance about specific assumptions or components of the Transaction Information or on the Transaction Information as a whole and assumed no responsibility for and expressed no view as to any forecasts, synergies or other benefits contained in the Transaction Information or the assumptions on which they were based, including with respect to (i) the potential effects of the COVID-19 pandemic on such prospective financial information or (ii) any potential synergies or other benefits.

In connection with EY’s review, EY did not independently verify any of the foregoing information reviewed by EY and, with BBAI’s consent, EY assumed and relied on such information, including all Transaction Information, being complete and accurate in all material respects.

With BBAI’s consent, EY also assumed that, in the course of obtaining any regulatory or third-party consents, approvals or agreements in connection with the Mergers, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Pangiam and that the Mergers would be consummated in accordance with the terms of the binding offer without waiver, modification, amendment or addition of any material term, condition or agreement thereof. In addition, except as otherwise disclosed above, EY was not requested to make, and has not made, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Pangiam, nor has EY been furnished with any such evaluations or appraisals. In arriving at EY’s opinion, EY assumed that there had been no change in the assets, liabilities, financial condition, results of operations, business or prospects of Pangiam since the date of the most recent information made available to EY that would be material to the analyses conducted by EY, and that there was no information nor facts that would make the information EY reviewed incomplete or misleading.

In arriving at EY’s opinion, no due diligence review or other verification exercises were performed by EY in connection with the Mergers. EY did not review the completeness and/or accuracy of the Transaction Information, nor did EY make an independent evaluation or appraisal of any of Pangiam’s assets or liabilities (except as otherwise disclosed above). EY did not conduct a physical inspection of the assets or any properties of Pangiam, nor did EY conduct any analysis concerning the solvency of Pangiam.

To the extent that any of the assumptions described in the Fairness Opinion or any of the facts on which the Fairness Opinion is based prove to be untrue in any material respect, the Fairness Opinion cannot and should not be relied upon.    

The Fairness Opinion addressed only the fairness, from a financial point of view, to BBAI of the Merger Consideration to be paid by BBAI pursuant to the Merger Agreement, and did not address any other agreement, arrangement or understanding entered into in connection with the Mergers or otherwise include, without limitation, the fairness of the amount or nature of, or any other aspect relating to, any compensation paid or

 

38

payable to any officers, directors or employees of any party in connection with the Mergers, or any class of such persons, relative to the Merger Consideration to be paid in connection with the Mergers or otherwise. The issuance of the Fairness Opinion was approved and authorized for issuance by a fairness opinion committee of EY and was addressed to the BBAI Special Committee in connection with its evaluation of the Mergers.

The Fairness Opinion was necessarily based upon information made available to EY as of the date of the Fairness Opinion and financial, economic, market and other conditions as they existed and could be evaluated on the date of the Fairness Opinion. EY further noted that the current volatility and disruption in the credit and financial markets relating to, among others, the COVID-19 pandemic, may or may not have had an effect on Pangiam, BBAI or the Mergers (including with respect to potential synergies and other benefits in connection with the Mergers) and EY did not express an opinion as to the potential effects of any such volatility or disruption. EY assumes no responsibility for advising any person of any change in any matter affecting its opinion or for updating or revising its opinion based on circumstances or events occurring after the date of the opinion. EY has not addressed the merits of the Mergers as compared to alternative transactions or strategies that may be available to BBAI nor did it address BBAI’s underlying decision to proceed with the Mergers. Notwithstanding anything to the contrary in the Fairness Opinion, EY’s opinion regarding the fairness, from a financial point of view, of the Merger Consideration to be paid by BBAI pursuant to the Merger Agreement was not an opinion regarding the fairness or appropriateness of the terms or other legal aspects of the Mergers.

The Fairness Opinion did not constitute advice or a recommendation to any holder of BBAI’s securities, any creditor of BBAI, or any other person as to how to vote or act with respect to any matter relating to the Mergers.

EY did not express any opinion as to any tax or other consequences that might result from the Mergers, nor did the Fairness Opinion address any legal, tax, regulatory or accounting matters, as to which EY understood BBAI obtained such advice as it deemed necessary from qualified professionals.

The terms of the Merger Agreement, including the Merger Consideration, were determined through arm’s length negotiations between BBAI, Pangiam and Seller and the decision to enter into the Merger Agreement was solely that of the BBAI Special Committee. The Fairness Opinion, and EY’s financial analyses upon which the Fairness Opinion is based, were only one of the many factors considered by the BBAI Special Committee in its evaluation of the Mergers and should not be viewed as determinative of the views of the BBAI Special Committee with respect to the Mergers or the Merger Consideration.

In accordance with the customary practice of providing fairness opinion services, EY employed generally accepted valuation methodologies in rendering the Fairness Opinion to the BBAI Special Committee on October 31, 2023 and in the financial analyses presented to the BBAI Special Committee on such date in connection with the rendering of such opinion. The following is a summary of the material financial analyses utilized by EY in connection with rendering its opinion to the BBAI Special Committee and contained in the presentation delivered to the BBAI Special Committee on such date in connection with the rendering of such opinion and does not purport to be a complete description of the analyses or data presented by EY.

Certain of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by EY, the tables must be read together with the full text of each summary. Considering the data set forth below without the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of EY’s analyses.

Discounted Cash Flow Method

EY conducted a sum-of-the-parts discounted cash flow analysis for the purpose of calculating an implied enterprise value range for Pangiam based on the Financial Projections. EY considered Pangiam’s development, security, and operations services supporting U.S. Federal Government programs (the “Government Business”)

 

39

and its business of providing facial recognition, object detection software subscriptions, licenses, training, implementation, and consulting services (the “Commercial Business”).

EY calculated the unlevered free cash flows, as of October 25, 2023, that each of the Government Business and the Commercial Business was forecasted to generate during the period from October 25, 2023 to December 31, 2023 through the end of calendar year 2027 based upon the Financial Projections. EY then calculated a range of terminal values for each of these businesses by applying, at the direction of BBAI’s management, terminal growth rates ranging from 2.0% to 3.0% in the case of the Government Business, and from 3.0% to 4.0% in the case of the Commercial Business (the “Gordon Growth Method”). In the case of the Government Business, EY also calculated a range of terminal values by applying, at the direction of BBAI’s management, earnings before interest, taxes, depreciation, and amortization (“EBITDA”) exit multiples of 9.0x to 10.0x to normalized EBITDA of the Government Business at the end of 2027 (the “Exit Multiple Method”).

The unlevered free cash flows and the range of terminal values were then discounted to present value, as of October 25, 2023, using a range of discount rates from 11.5% to 12.5% for the Government Business and 30.0% to 35.0% for the Commercial Business, which ranges were chosen by EY based upon an analysis of the weighted average cost of capital of the Government Business and the Commercial Business, as applicable. The indicated implied enterprise values ranged from $36 million to $44 million for the Government Business (utilizing the Gordon Growth Method), $42 million to $47 million for the Government Business (utilizing the Exit Multiple Method) and $34 million to $48 million for the Commercial Business.

EY also calculated the unlevered free cash flows related to recurring cost reductions and non-recurring incremental costs that the Mergers were forecasted to generate (the “Synergies”) during the period from October 25, 2023 to December 31, 2023 through the end of calendar year 2027 based upon the Synergy Information. EY applied a terminal growth rate ranging from 2.5% to 3.5%. The unlevered free cash flows and the range of terminal values were discounted to present value using a range of discount rates from 20.0% to 30.0%, based on the weighted average of the Government Business and the Commercial Business discount rates to indicate a range of implied enterprise values of $32 million to $55 million.

Guideline Public Company Method

Using publicly available information, EY compared selected financial data of the Government Business and the Commercial Business with similar data for certain selected publicly traded companies engaged in businesses which EY judged, based on its experience and familiarity with the industries in which Pangiam operates, to be sufficiently analogous to the Government Business or the Commercial Business, as applicable. The companies selected by EY were:

Government Business companies:

 

i.

BBAI

 

ii.

Booz Allen Hamilton Holding Corporation

 

iii.

CACI International Inc.

 

iv.

ICF International, Inc.

 

v.

Leidos Holdings, Inc.

 

vi.

Science Applications International Corporation

Commercial Business companies:

 

i.

BBAI

 

40

ii.

Clear Secure, Inc.

 

iii.

Digimarc Corporation

 

iv.

Duos Technologies Group, Inc.

 

v.

Facephi Biometria, S.A.

 

vi.

GB Group plc

 

vii.

Intellicheck, Inc.

 

viii.

Mitek Systems, Inc.

 

ix.

OneSpan Inc.

 

x.

Palantir Technologies, Inc.

 

xi.

Perfect Corp.

 

xii.

secunet Security Networks Aktiengesellschaft

None of the selected companies reviewed are identical or directly comparable to the Government Business or the Commercial Business, and certain of these companies may have characteristics that are materially different from those of the Government Business or the Commercial Business. However, these companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of EY’s analysis, may be considered sufficiently similar in certain respects to the Government Business or the Commercial Business. EY’s analysis necessarily involved complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies differently than they would affect the Government Business or the Commercial Business.

Using publicly available information as of October 25, 2023, EY calculated and compared:

 

i.

the multiple of enterprise value (calculated as the market value of common equity on a fully diluted basis, plus debt and other adjustments, including non-controlling interests, less cash) to estimated EBITDA for the last twelve months (“LTM”) for each selected Government Business company listed above and for Pangiam;

 

ii.

the multiple of enterprise value to estimated EBITDA for the calendar year ending December 31, 2023 (“CY23”) for each selected Government Business company listed above and for Pangiam;

 

iii.

the multiple of enterprise value to estimated EBITDA for the calendar year ending December 31, 2024 (“CY24”) for each selected Government Business company listed above and for Pangiam; and

 

iv.

the multiple of enterprise value to estimated revenue for the calendar year ending December 31, 2024 (“CY24”) for each selected Commercial Business company listed above and for Pangiam.

Based on the results of this analysis and other factors which EY considered appropriate based on its experience and professional judgment, EY selected multiple reference ranges of 11.0x – 13.0x for enterprise value to LTM EBITDA (for the Government Business), 10.0x – 12.0x for enterprise value to CY23 EBITDA (for the Government Business), 9.0x – 11.0x for enterprise value to CY24 EBITDA (for the Government Business) and 2.5x – 3.5x for enterprise value to estimated CY24 revenue (for the Commercial Business).

EY then calculated ranges of implied enterprise values of the Government Business and ranges of implied enterprise values of the Commercial Business by applying the applicable multiple reference ranges to the LTM EBITDA, CY23 EBITDA and CY24 EBITDA of the Government Business, as applicable, and to the CY24 revenue of the Commercial Business, in each case, based on the Financial Projections. Using the reference ranges above, EY derived a range of enterprise values of $37 million to $45 million for the Government Business and $31 million to $44 million for the Commercial Business.

 

41

Guideline Transactions Method

EY conducted a sum-of-the-parts guideline transactions analysis for the purpose of estimating an implied enterprise value range for Pangiam.

EY reviewed transactions involving government information technology service providers and transportation technology providers announced since September 2018 and selected eleven transactions, although EY noted that none of the selected transactions or the entities that participated in the selected transactions were directly comparable to the Government Business:

 

Classification		Date Announced		Target		Buyer
Government IT service providers		5/16/2022		ManTech International Corporation		The Carlyle Group Inc.
		6/3/2021		Halfaker And Associates, LLC		Science Applications International Corporation
		1/27/2021		Perspecta Inc.		Peraton Corporation
		2/6/2020		Unisys Federal		Science Applications International Corporation
		1/13/2020		Incentive Technology Group, LLC		ICF Incorporated, L.L.C.
		6/14/2019		SCISYS Group PLC		CGI Group Holdings Europe Limited
		4/22/2019		The KeyW Holding Corporation		Jacobs Solutions Inc.
		3/22/2019		Scalian SAS		Cobepa S.A.; Andera Partners
		9/10/2018		Valinar, LLC		Science Applications International Corporation
Transportation technology providers		2/8/2021		Cubic Corporation		Veritas Capital Fund Management, L.L.C; Evergreen Coast Capital Corp.
		11/2/2018		Ultra Electronics Limited		ADB Safegate BVBA

EY also reviewed transactions involving image processing products providers announced since September 2018 and selected three transactions, although EY noted that none of the selected transactions or the entities that participated in the selected transactions were directly comparable to the Commercial Business:

 

Classification		Date Announced		Target		Buyer
Image processing products providers		12/13/2021		VisionLabs B.V.		Intema S.a.r.l.
		11/18/2021		Acuant Inc.		Audax Management Company, LLC; GB Group plc
		11/20/2019		PIXIA Corp.		Cubic Corporation

 

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EY noted that the mean and median of the implied enterprise value to LTM EBITDA multiples for the selected Government Business transactions were equal to 14.70x and 14.20x respectively and the mean and median of the implied enterprise value to LTM revenue multiples for the selected Commercial Business transactions were equal to 9.84x and 10.48x respectively.

Based on the results of this analysis and other factors which EY considered appropriate based on its experience and professional judgment, EY selected multiple reference ranges of 11.0x to 13.0x for enterprise value to LTM EBITDA (for the Government Business) and 5.0x to 6.0x for enterprise value to LTM revenue (for the Commercial Business). Using the reference ranges above, EY derived a range of implied enterprise values of $37 million to $44 million for the Government Business and $41 million to $49 million for the Commercial Business.

Sum-of-the-Parts Analysis

Based on the results of the discounted cash flow analysis, guideline public company analysis and guideline transaction analysis and other factors which EY considered appropriate based on its experience and professional judgment, EY selected reference ranges of implied enterprise values of $38 million to $45 million for the Government Business, $35 million to $47 million for the Commercial Business and $32 million to $55 million for the Synergies. The resulting implied enterprise value ranges were then summed together to yield a company-level enterprise value range of $105 million to $147 million for Pangiam.

Other Considerations

The foregoing summary of certain material financial analyses does not purport to be a complete description of the analyses or data presented by EY. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. EY believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of values resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of EY with respect to the actual value of Pangiam. The order of analyses described does not represent the relative importance or weight given to those analyses by EY. In arriving at its opinion, EY did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, EY considered the totality of the factors and analyses performed in determining its opinion.

Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by EY are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, EY’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be acquired or sold. None of the selected companies reviewed as described in the above summary is identical to Pangiam, and none of the selected transactions reviewed was identical to the Mergers. However, the companies selected were chosen because they are publicly traded companies with operations and businesses that, for purposes of EY’s analysis, may be considered sufficiently similar to those of Pangiam. The transactions selected were similarly chosen because their participants, for purposes of EY’s analysis, may be considered similar to the parties involved in the Mergers. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the companies compared to Pangiam and the transactions compared to the Mergers.

As a part of its transaction opinions business, EY and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control

 

43

purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for corporate and other purposes. EY was selected to advise BBAI with respect to the Mergers on the basis of, among other things, such experience and its qualifications and reputation in connection with such matters and its familiarity with BBAI and the industries in which it operates.

For services rendered in connection with the delivery of its opinion, BBAI has agreed to pay EY a fee of $450,000, a portion of which became payable by BBAI to EY at the time of execution of the EY Engagement Letter and the balance became payable upon the date on which EY informed BBAI or the BBAI Special Committee that EY was prepared to deliver its opinion. The terms of the fee arrangements with EY, which BBAI believes are customary for transactions of this nature, were negotiated at arm’s length, and the BBAI Special Committee is aware of these fee arrangements. In addition, BBAI has agreed to reimburse EY for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify EY against certain liabilities arising out of EY’s engagement. During the two years preceding the date of EY’s opinion, EY and its affiliates have provided certain audit, tax, transaction advisory, business consulting and other advisory (not involving audit or tax) services to BBAI and its affiliates for which EY and its affiliates have received or are expecting to receive material compensation.

Certain Forecasts

Apart from current fiscal year non-GAAP Adjusted EBITDA, BBAI does not as a matter of course make public projections as to future performance, earnings or other results beyond the current fiscal year due to the unpredictability of the underlying assumptions and estimates. The BBAI Special Committee was provided with non-public forward looking information and scenarios regarding Pangiam’s anticipated future operations for the fiscal years ending December 31, 2023 through 2027 that were prepared by BBAI management in connection with the BBAI Special Committee’s evaluation of the Mergers. Such forward-looking information was provided to EY for its use and reliance in connection with its financial analyses and opinion described above in the section entitled “Opinion of BBAI’s Financial Advisor”. In order to give stockholders access to information that was made available in connection with, and material to, the BBAI Special Committee’s consideration of the Mergers, certain forward-looking information, including financial projections, has been included in this proxy statement. However, this information is not intended to influence any stockholder to make any investment decision with respect to the Mergers or for any other purpose.

The financial projections and other forward-looking financial information set forth below were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants with respect to financial projections. BBAI management believes that the assumptions used as a basis for this projected financial information were reasonably based on the information available to BBAI management at the time prepared. However, this information is not fact and should not be relied upon in any way as necessarily predictive of actual future results, and readers of this proxy statement are cautioned not to place undue reliance on any such information.

Neither BBAI’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the financial projections described below, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the financial projections described below.

The financial projections and other forward-looking financial information included in this document has been prepared by, and is the responsibility of, Pangiam’s management and BBAI’s management. PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying financial projections and other forward-looking financial information and accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report included in this proxy statement relates to Pangiam’s previously issued financial statements. It does not extend to the financial projections and other forward-looking financial information and should not be read to do so.

 

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The reports of BBAI’s independent registered public accounting firm in this proxy statement relate to BBAI’s historical financial information. The report of Pangiam’s independent auditors in this proxy statement relate to Pangiam’s historical financial information. None of those reports extend to any of the financial projections described below and should not be read to do so. The summary of financial projections below is not being included in this proxy statement to influence the decision of any holders of BBAI Common Stock whether to approve the Stock Issuance, but because the information was included among the factors considered by the BBAI Special Committee in evaluating the Mergers.

The financial projections described below were based on numerous variables and assumptions that are inherently uncertain, many of which are beyond the control of BBAI’s management and BBAI’s management. Important factors that may affect actual results and cause the financial projections described below not to be achieved include the factors described in the section entitled “Cautionary Statement Regarding Forward-Looking Statements.” Even if such variables and assumptions prove to be correct, any delay in timing could cause future results to differ materially from projected amounts. The financial projections described below also reflect assumptions as to certain business decisions that are subject to change. As a result, actual results may differ materially from those contained in the financial projections described below. Accordingly, there can be no assurance that any aspects of the financial projections described below will be realized.

The inclusion of the financial projections described below in this proxy statement should not be regarded as an indication that any of BBAI, Pangiam or their respective affiliates, advisors or other representatives considered that any information contained in those financial projections are necessarily predictive of actual future events, and nothing in them should be relied upon as such. None of BBAI, Pangiam or their respective affiliates, officers, directors, partners, advisors or other representatives can give any assurance that actual results will not differ from the financial projections described below, and none of them undertakes any obligation to update or otherwise revise or reconcile them to reflect circumstances existing after October 2023 when they were generated or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error. BBAI does not intend to make publicly available any update or other revision to any such financial projections. None of BBAI, Pangiam or any of their respective affiliates, officers, directors, partners, advisors or other representatives has made, makes or is authorized in the future to make any representation to any stockholder regarding BBAI’s or Pangiam’s ultimate performance compared to the information contained in the financial projections described below or that forecasted results will be achieved.

BBAI Management Forecasts

In October 2023, BBAI management prepared non-public, unaudited prospective internal financial information (the “Financial Projections”) regarding Pangiam’s anticipated future operations for the fiscal years ending December 31, 2023 through 2027, which was based on non-public, unaudited prospective internal financial information provided by Pangiam management, but which reflected adjustments that BBAI management deemed appropriate. These adjustments consisted of revenue reductions in the commercial forecast in fiscal years 2024 and 2025 based on possible delays in contract awards.

The Financial Projections treat Pangiam on a stand-alone basis, without giving effect to, and as if Pangiam never contemplated, the Mergers, including the impact of negotiating or executing the Mergers, the expenses that may be incurred in connection with consummating the Mergers, the potential synergies that may be achieved by the combined company as a result of the Mergers, the effect of any business or strategic decision or action that has been or will be taken as a result of the Merger Agreement having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the Merger Agreement had not been executed but which were instead altered, accelerated, postponed or not taken in anticipation of the Mergers.

 

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The following table summarizes the Financial Projections:

Summary of the Financial Projections⁽¹⁾

 

		2023E				2024E				2025E				2026E				2027E
Governmental Revenue		$	31.0			$	33.3			$	36.5			$	41.2			$	47.1
Commercial Revenue		$	8.5			$	12.5			$	36.1			$	63.9			$	90.4
Aggregate Revenue		$	39.5			$	45.8			$	72.6			$	105.1			$	137.5
Governmental EBITDA(2)		$	3.7			$	4.1			$	4.0			$	4.8			$	5.9
Commercial EBITDA		$	(15.2	)		$	(11.1	)		$	2.6			$	21.3			$	39.2
Aggregate EBITDA		$	(11.5	)		$	(7.0	)		$	6.6			$	26.1			$	45.1

 

(1)	All figures in U.S. dollars in millions.

(2)	EBITDA is a non-GAAP measure. EBITDA is calculated as total earnings before interest, taxes, depreciation, and amortization.

Estimated Cost Synergies

In addition to the above Financial Projections, BBAI management prepared certain estimates of annual cost synergies expected to be realized following the completion of the Mergers, net of incremental costs related to the consummation of the Mergers, such as transactional, transitional and integration costs as well as retention equity awards and severance costs (the “Estimated Cost Synergies”). The Estimated Cost Synergies are not reflected in the Financial Projections, which only relates to stand-alone operations. BBAI provided the Estimated Cost Synergies to EY to use in connection with its financial analyses and to the BBAI Special Committee.

The Estimated Cost Synergies assumed that the Mergers would be consummated and that the expected benefits of the Mergers would be realized, including that no restrictions, terms or other conditions would be imposed in connection with the receipt of any necessary governmental, regulatory or other approvals or consents in connection with the consummation of the proposed Mergers, including any divestitures or other actions contemplated by the Merger Agreement.

The following table summarizes the Estimated Cost Synergies:

 

		2023E				2024E				2025E				2026E				2027E
Estimated Cost Synergies(1)		$	(3.6	)		$	5.0			$	11.1			$	12.2			$	13.6

 

(1)	All figures in U.S. dollars in millions.

Effects of the Mergers

On the terms and subject to the conditions of the Merger Agreement, (i) Merger Sub will be merged with and into Pangiam and (ii) immediately following such merger, Pangiam will be merged with and into Purchaser, whereupon the separate corporate existence of Pangiam will cease, and Purchaser will continue its existence as the surviving company in such merger and a wholly-owned subsidiary of BBAI.

At the Effective Time, by virtue of the Mergers and without any action on the part of BBAI, Merger Sub, Purchaser, Pangiam or Seller, each unit of Pangiam issued and outstanding immediately prior to the Effective Time will be converted automatically into the right to receive the Merger Consideration, as described in the section entitled “The Merger Agreement – Merger Consideration”.

Merger Consideration

As consideration for the Mergers, Seller will receive a number of shares of BBAI Common Stock equal to the Purchase Price (based on a price per share of BBAI Common Stock of $1.3439 which represents the 20-day

 

46

VWAP for BBAI Common Stock ending on the trading day immediately prior to the date of the Merger Agreement), as described in the section entitled “The Merger Agreement-Merger Consideration”.

Interests of Certain BBAI Directors and Executive Officers in the Mergers

In considering the recommendation of the BBAI Special Committee that holders of BBAI Common Stock vote “FOR” the Stock Issuance, BBAI stockholders should be aware that certain executive officers and directors of BBAI have interests in the Mergers that may be different from, or in addition to, the interests of BBAI stockholders generally. The BBAI Special Committee, consisting solely of disinterested directors, was aware of and considered the interests described below, among other matters, when they approved the Merger Agreement and recommended that BBAI stockholders approve the Stock Issuance. You should take these interests into account in deciding whether to vote “FOR” the approval of the Stock Issuance.

Interests of Certain Non-Employee Members of the BBAI Board

Kirk Konert, as previously mentioned, is a Managing Partner at AEIP and Jeffrey Hart is a Partner at AEIP. AEIP is the controlling equityholder of Pangiam and holds 65.3% of the outstanding BBAI Common Stock as of January 12, 2024. In light of these interests, both Mr. Konert and Mr. Hart recused themselves from deliberations of the BBAI Board (and committees thereof) regarding the Merger Agreement and the transactions contemplated thereby, including the Mergers, and neither Mr. Konert nor Mr. Hart was appointed to the BBAI Special Committee.

Pamela Braden and Kirk Konert are both members of the Board of Directors of Seller. Ms. Braden is an Operating Partner of AEIP and, as previously mentioned, Mr. Konert is a Managing Partner at AEIP. AEIP is the controlling equityholder of Pangiam and holds 65.3% of the outstanding BBAI Common Stock as of January 12, 2024. In light of these interests, both Ms. Braden and Mr. Konert recused themselves from deliberations of the BBAI Board (and committees thereof) regarding the Merger Agreement and the transactions contemplated thereby, including the Mergers, and neither Ms. Braden nor Mr. Konert was appointed to the BBAI Special Committee.

Each of Peter Cannito, Pamela Braden, and Paul Fulchino is an Operating Partner of AEIP. AEIP’s Operating Partners are independent contractors of AEIP who provide consulting services for AEIP in exchange for a fixed quarterly stipend. Neither of Mr. Cannito nor Mr. Fulchino has provided any consulting services with respect to Pangiam or Seller, and Mr. Cannito and Mr. Fulchino do not otherwise have any direct or indirect material interest in Pangiam, Seller or the Mergers (other than an interest by virtue of their ownership of capital stock of BBAI). Mr. Cannito and Mr. Fulchino nonetheless disclosed these interests to the BBAI Special Committee prior to the BBAI Special Committee approving the Merger Agreement and recommending that BBAI stockholders approve the Stock Issuance. Because Ms. Braden also serves as a director on Seller’s Board of Directors, Ms. Braden recused herself from deliberations of the BBAI Board (and committees thereof) and was not appointed to the BBAI Special Committee.

BBAI Special Committee Fees

Consistent with past practice of the BBAI Board and its committees, the members of the BBAI Special Committee, consisting solely of independent directors who do not have a material interest in the Merger (other than an interest by virtue of their ownership of capital stock of BBAI) and are disinterested with respect to the Merger, will not receive additional compensation in connection with their services to the Company as members of the BBAI Special Committee with respect to the Merger.

Indemnification Benefits

Each of the BBAI’s executive officers and directors is entitled to the indemnification benefits in favor of the Company’s directors and executive officers.

 

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Other than the interests described above, none of BBAI’s directors or executive officers or their associates has any substantial financial interest, direct or indirect, under the Mergers or the issuance of BBAI Common Stock to Seller under the Mergers, other than being a director or executive officer of BBAI and a stockholder of BBAI. The ownership interests of BBAI’s directors and executive officers in BBAI are described in more detail in the section entitled “Beneficial Ownership of BBAI Common Stock.”

Regulatory Filings and Approvals Required to Consummate the Mergers

Foreign Direct Investment

Under the investment screening control laws of the United Kingdom, BBAI, Merger Sub, Purchaser, Seller and Pangiam cannot consummate the Mergers until they file certain notification and report forms with the United Kingdom Secretary of the State that are required or deemed necessary and receive approval from the United Kingdom Secretary of State for the transactions contemplated by the Merger Agreement (or otherwise receive written confirmation that such approval is not required from the United Kingdom Secretary of State). BBAI is required, as a condition to receiving necessary competition and antitrust approvals, to agree to any divestiture of assets, categories of assets or businesses of Pangiam and its subsidiaries after the consummation of the Mergers (a “Remedy Action”); provided, that BBAI and its controlled affiliates will not be required to propose, offer, negotiate, accept, agree to, or commit to any Remedy Action if such Remedy Action, individually or together with any other proposed or required Remedy Actions, would (x) adversely affect the business of BBAI or its controlled affiliates in any material respect or the business of Pangiam or its subsidiaries in any material respect, or (y) materially reduce or materially impair the benefits or advantages that BBAI or its controlled affiliates reasonably expect to obtain from consummating the transactions contemplated by the Merger Agreement.

The investment screening filing with the United Kingdom Secretary of State in accordance with section 13(2) of the National Security and Investment Act 2021 was made on November 22, 2023. On January 10, 2024, BBAI received written confirmation from the United Kingdom Secretary of State that he would be taking no further action in relation to the Mergers, thereby enabling the lawful consummation of the Mergers for the purposes of the relevant United Kingdom legislation.

Closing and Effectiveness of the Mergers

The Closing will occur on the fourth business day after the full satisfaction or due waiver (to the extent permitted by law) of all of the conditions to Closing described in the section entitled “The Merger Agreement—Conditions to Completion of the Mergers.”

Subject to the provisions of the Merger Agreement, the Mergers will become effective at the time and on the date on which the relevant certificate of merger is duly filed with and accepted for record by the Delaware Secretary of State, or later if the parties so agree and specify in such certificates.

 

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THE MERGER AGREEMENT

The following section summarizes material provisions of the Merger Agreement, which is included in this proxy statement as Annex A, and is incorporated herein by reference in its entirety. The rights and obligations of BBAI, Seller and the other parties thereto are governed by the express terms and conditions of the Merger Agreement and not by this summary or any other information contained in this proxy statement. BBAI stockholders are urged to read the Merger Agreement carefully and in its entirety, as well as this proxy statement, before making any decisions regarding the Stock Issuance.

Explanatory Note Regarding the Merger Agreement

The Merger Agreement is included in this proxy statement only to provide public disclosure regarding its terms and conditions as required by U.S. federal securities laws, and it is not intended to provide any factual information about BBAI or Pangiam. Furthermore, any factual disclosures about BBAI or Pangiam contained in this proxy statement or in BBAI’s public reports filed with the SEC may supplement, update or modify the factual disclosures made by such person contained in the Merger Agreement.

The Merger Agreement contains representations and warranties by each of the parties to the Merger Agreement. These representations and warranties:

 

i.

were made solely to the parties to, and only for purposes of, the Merger Agreement and as of specific dates set forth therein and may be subject to more recent developments;

 

ii.

may not be intended as statements of fact, but rather as a means of allocating risk between the parties in the event the statements therein prove to be inaccurate;

 

iii.

have been qualified by certain disclosures that were made between the parties in connection with the negotiation of the Merger Agreement, which disclosures are not reflected in the Merger Agreement itself; and

 

iv.

may apply standards of materiality in a way that is different from what may be viewed as material by you or other investors.

Accordingly, the representations and warranties and other provisions of the Merger Agreement should not be read alone and should not be relied upon as characterizations of the actual state of facts of BBAI, Pangiam or any of their respective subsidiaries or affiliates.

This summary is qualified in its entirety by reference to the Merger Agreement.

The Mergers

On the terms and subject to the conditions of the Merger Agreement, (i) Merger Sub will merge with and into Pangiam, with Merger Sub ceasing to exist and Pangiam surviving as a wholly-owned subsidiary of BBAI (the First Merger will be effective at such time as the first Certificate of Merger is duly filed with and accepted for record by the Secretary of State of the State of Delaware or such later time as the parties may specify in the first Certificate of Merger) and (ii) immediately following the First Merger, the initial surviving company will merge with and into Purchaser, with the initial surviving company ceasing to exist and Purchaser continuing as a wholly-owned subsidiary of BBAI (the Second Merger will be effective at such time as the second Certificate of Merger is duly filed with and accepted for record by the Secretary of State of the State of Delaware or such later time as the parties may specify in the second Certificate of Merger but in any event immediately following the First Merger).

At the First Effective Time, by virtue of the First Merger and without any further action by any other person, each share of common stock of Merger Sub issued and outstanding immediately prior to the First Effective Time will be converted into and become one validly issued, fully paid and non-assessable unit of limited liability

 

49

company interest of the initial surviving company, and each unit of limited liability company interest of Pangiam issued and outstanding immediately prior to the First Effective Time, and all rights in respect thereof will forthwith cease to exist and be converted into and represent solely the right to receive, without interest, the proceeds deliverable in connection with the Closing, pursuant to, and subject to the terms and conditions of, the Merger Agreement.

At the Second Effective Time, by virtue of the Second Merger and without any further action by any other person, each unit of limited liability company interest of the initial surviving company issued and outstanding immediately prior to the Second Effective Time will be converted into and become one validly issued and fully paid unit of limited liability company interest of the final surviving company, and each unit of limited liability company interest of Purchaser issued and outstanding immediately prior to the Second Effective Time and all rights in respect thereof will be cancelled and forthwith cease to exist.

Effective Time and Closing

The Closing will occur on the fourth Business Day following full satisfaction or due waiver (to the extent permitted by applicable law) of all of the closing conditions (other than those to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at Closing) or on such other date as is mutually agreed to in writing by BBAI and Seller described in the section entitled “The Merger Agreement— Conditions to Completion of the Mergers.” The date and time of the Closing are referred to herein as the “Closing Date.”

Subject to the provisions of the Merger Agreement, the Mergers will become effective, in each case, at the time and on the date on which the relevant certificate of merger is duly filed with and accepted for record by the Secretary of State of the State of Delaware, or later if the parties so agree and specify in such certificate.

Merger Consideration

As consideration for the Mergers, Seller will receive the Purchase Price from BBAI, payable solely in shares of BBAI Common Stock. An amount equal to $3,500,000 will also be held back from the Purchase Price to cover any post-Closing adjustments to the Purchase Price.

Prior to the Closing Date, Pangiam will prepare and deliver to BBAI a written statement (the “Estimated Closing Statement”), setting forth in reasonable detail Pangiam’s good faith estimate of the proceeds deliverable in connection with the Closing (the “Estimated Closing Equity Proceeds”) and the consideration pursuant to the consummation of the Mergers (the “Estimated Closing Equity Consideration”), including each of the components thereof, and in each case, the determinations and calculations therein will be calculated in accordance with the Merger Agreement and certain agreed upon accounting principles. Following delivery of the Estimated Closing Statement, to the extent reasonably requested in writing by BBAI, Pangiam will make available to BBAI supporting documentation (subject to execution of any customary work paper access letter to the extent applicable) used in preparing the Estimated Closing Statement, BBAI and its representatives will be permitted reasonable access at reasonable times during normal business hours to review Pangiam’s books and records reasonably related to the preparation of the Estimated Closing Statement.

If Pangiam agrees to make any modification to the Estimated Closing Statement requested by BBAI, then the Estimated Closing Statement as so agreed by Pangiam to be modified will be deemed to be the Estimated Closing Statement for purposes of the Merger Agreement; provided, that, if there is a dispute over the Estimated Closing Statement, the Estimated Closing Statement delivered by Pangiam will govern in all respects and the obligation of Pangiam to consider such reasonable comments of BBAI regarding the Estimated Closing Statement will in no event require that Pangiam revise its calculation of the Estimated Closing Equity Proceeds or that the Closing be postponed or otherwise delayed.

 

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Post-Closing Purchase Price Adjustment

The Merger Agreement provides for post-Closing adjustments to the proceeds deliverable in connection with the Closing to the extent that the actual amounts of indebtedness, transaction expenses, cash or working capital are greater or less than the amounts included in the Estimated Closing Equity Proceeds calculated prior to Closing. The parties to the Merger Agreement have agreed to a Purchase Price adjustment holdback amount equal to $3,500,000.

Indemnification; RWI Policy

None of the pre-Closing covenants, representations or warranties in the Merger Agreement or in any ancillary agreement survive the Closing and no party may bring any claims with respect to breaches of pre-Closing covenants, representations and warranties from or after the Closing. BBAI has obtained a RWI Policy which provides coverage for certain breaches of the representations and warranties made by Pangiam and Seller in the Merger Agreement, subject to exclusions, deductibles and other terms and conditions. The RWI Policy serves as BBAI’s sole source of recourse against Seller in respect of any breaches of representations or warranties by Pangiam or Seller. The cost of the RWI Policy is shared 50% by BBAI and 50% by Seller.

Representations and Warranties

The Merger Agreement contains a number of representations and warranties made by BBAI, Pangiam and the other parties to the Merger Agreement that are subject in some cases to exceptions and qualifications (including exceptions that do not result in, and would not reasonably be expected to result in, a Material Adverse Change) (as defined below). The representations and warranties of BBAI, Seller and Pangiam relate to, among other matters:

 

i.

due incorporation and corporate organization;

 

ii.

due authorization to execute, deliver and perform the Merger Agreement and to consummate the transactions contemplated thereby;

 

iii.

capitalization;

 

iv.

the absence of any conflicts with, or violation of, such party’s organizational documents, certain of its contracts, applicable laws or government orders as a result of execution and performance of the Merger Agreement;

 

v.

consents and approvals required from, and filings made to, governmental entities;

 

vi.

the absence of certain legal proceedings, investigations and government orders; and

 

vii.

brokers’ fees related to the Mergers.

In addition, BBAI has made certain representations and warranties including representations and warranties relating to:

 

i.

documents BBAI has filed or furnished with the SEC and the compliance of BBAI’s financial statements with GAAP;

 

ii.

compliance with the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);

 

iii.

the intent and purpose of its investment in Pangiam;

 

iv.

solvency;

 

v.

the stockholder votes required to approve the transactions contemplated by the Merger Agreement;

 

vi.

certain tax matters; and

 

vii.

compliance with applicable listing and corporate governance rules and regulations of the NYSE.

 

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In addition, Pangiam has made certain representations and warranties including representations and warranties relating to:

 

i.

the audited and unaudited financial statements of Pangiam and its subsidiaries;

 

ii.

authority to conduct business;

 

iii.

absence of any undisclosed liabilities;

 

iv.

absence of certain changes, events or developments;

 

v.

internal controls over financial reporting;

 

vi.

the validity of, enforceability of and compliance with, certain material contracts;

 

vii.

certain employee benefits matters;

 

viii.

government contracts and facility security clearances;

 

ix.

labor and employment matters;

 

x.

environmental matters;

 

xi.

intellectual property and data privacy matters;

 

xii.

real and personal property;

 

xiii.

insurance policies with respect to its business and assets;

 

xiv.

material customers and suppliers;

 

xv.

compliance with anti-corruption and anti-bribery laws;

 

xvi.

permits and compliance with laws;

 

xvii.

certain tax matters; and

 

xviii.

certain relationships with related parties.

In addition, Seller has made certain representations and warranties relating to the intent and purpose of its investment in BBAI.

Certain of the representations and warranties made by the parties are qualified as to “materiality” or “Material Adverse Change.” For purposes of the Merger Agreement, “Material Adverse Change” means any change, effect, event, circumstance, development or occurrence that, individually or in the aggregate, (a) is or would reasonably be expected to be materially adverse to the business, assets, liabilities, results of operations or financial condition of Pangiam and its subsidiaries, taken as a whole, or (b) prevents, materially delays or materially impedes the performance by Seller or Pangiam to consummate the Mergers or any other transactions contemplated by the Merger Agreement; provided, however, that solely with respect to the immediately preceding clause (a), other than as set forth in the final proviso of this definition, in no event will any of the following (or the effect of any of the following), alone or in combination, be deemed to constitute, or taken into account in determining whether there has been or will be, a Material Adverse Change on the business, assets, liabilities, results of operations or financial condition of Pangiam and its subsidiaries, taken as a whole:

 

i.

any change in any law;

 

ii.

any change in interest rates, credit markets, currency exchange rates or general economic conditions;

 

iii.

the announcement or the execution of the Merger Agreement, the pendency or consummation of the transactions or the performance of the Merger Agreement, including the impact thereof on relationships, contractual or otherwise, with customers, suppliers, licensors, distributors, partners, providers and employees;

 

52

iv.

any change that is generally applicable to the industries in which Pangiam or any of its subsidiaries operates;

 

v.

the compliance with the terms of the Merger Agreement, the taking of any action required or expressly contemplated by the Merger Agreement or with the prior written consent of BBAI or the failure to take any action prohibited by the Merger Agreement;

 

vi.

any national or international political event or occurrence, including acts of war or terrorism (including cyberattacks);

 

vii.

any natural or manmade disasters, hurricanes, floods, tornados, tsunamis, earthquakes or other acts of God;

 

viii.

any epidemic, pandemic or disease outbreak (including COVID-19 and monkeypox), or any COVID-19 measures or any worsening of such conditions;

 

ix.

any political, geopolitical or social conditions, civil unrest, protests, public demonstrations or the response of any governmental body thereto or any escalation or any worsening thereof;

 

x.

the availability or cost of equity, debt or other financing to BBAI or to Pangiam;

 

xi.

any actual or potential sequester, stoppage, shutdown, default or similar event or occurrence by or involving any governmental body; or

 

xii.

any failure by Pangiam or any of its subsidiaries to meet any projections, forecasts or estimates of revenue or earnings (it being understood that this clause (xii) will not prevent a determination that any change underlying such failure to meet projections, forecasts or estimates has resulted in a Material Adverse Change (to the extent the effect(s) of such change is not otherwise excluded from this definition of Material Adverse Change)); provided, that, in the case of the foregoing clauses (i), (ii), (iv), (vi), (vii), (ix) and (xi), to the extent such change, effect, event, circumstance, development or occurrence materially and disproportionately affects Pangiam and its subsidiaries as compared to other persons or businesses that operate in the industry and in the markets in which Pangiam and its subsidiaries operate, then the material and disproportionate aspect of such effect may be taken into account in determining whether a Material Adverse Change has occurred or will occur.

Covenants

Conduct of Business Pending the Mergers

Each of Seller and Pangiam have agreed that, prior to the Closing, Pangiam will, and will cause its subsidiaries to, use commercially reasonable efforts to:

 

i.

conduct their businesses in all material respects in the ordinary course;

 

ii.

preserve current relationships with employees, customers, suppliers and other persons with which Pangiam or its subsidiaries have significant business relations; and

 

iii.

keep and maintain the assets and properties of Pangiam or its subsidiaries, as applicable, in good repair and normal operating condition, ordinary wear and tear excepted,

in each case, except as otherwise expressly contemplated by the Merger Agreement or as consented to in writing by BBAI (such consent not to be unreasonably withheld, conditioned or delayed).

Additionally, from the date of the Merger Agreement until the Closing Date, except as expressly contemplated by the Merger Agreement, or as consented to in writing by BBAI (such consent not to be unreasonably withheld, conditioned or delayed), Pangiam will not and will cause its subsidiaries not to:

 

i.

amend the respective governing documents of Pangiam or any of its subsidiaries in any manner or split, combine or reclassify the shares, capital stock or other equity interests of Pangiam or any of its subsidiaries;

 

53

ii.

issue, sell, pledge, transfer, or dispose of, or agree to issue, sell, pledge, transfer or dispose of, any shares, shares of capital stock or other equity interests of Pangiam or any of its subsidiaries or issue any shares, shares of capital stock or equity interests of any class or issue or become a party to any subscriptions, warrants, rights, options, convertible securities or other agreements or commitments of any character relating to the issued or unissued shares, capital stock or other equity interests of Pangiam or any of its subsidiaries (other than the Merger Agreement), or grant any stock appreciation or similar rights, in each case, other than issuances to employees or service providers of Pangiam or its subsidiaries in the ordinary course of business;

 

iii.

redeem, purchase or otherwise acquire any outstanding shares, shares of capital stock or other equity interests of Pangiam or any of its subsidiaries or declare or pay any dividend or make any other distribution to any person other than Pangiam or one or more of its subsidiaries on or prior to the Closing Date, in each case, other than redemptions, repurchases or other acquisitions from employees or service providers (including former employees or service providers) of Pangiam or its subsidiaries;

 

iv.

(A) grant or promise to grant to any current or former service provider of Pangiam or any of its subsidiaries any increase in compensation or benefits (including, without limitation, salary, wages, bonuses, employee benefits or any other compensation), except (1) with respect to employees whose annual base compensation is less than $150,000, or (2) for annual salary increases that occur in connection with promotions or new hires, in all cases, only if in the ordinary course of business consistent with past practices or (3) as may be required by applicable law or required by the terms of any benefits plan; (B) modify, adopt, establish or terminate any new benefits plan (or any arrangement that would constitute a benefits plan, if adopted), except to the extent required by law or required by the terms of any benefits plan or in connection with annual renewals of any welfare plan (other than a severance plan) that does not increase the cost to Pangiam, requires Pangiam to self-insure any benefits or to cover retirees; (C) hire or terminate the service (other than for cause) of any individual service provider whose annual base compensation is equal or greater than $150,000; (D) accelerate the vesting or payment of any compensation or benefit (including any benefits under any benefits plan or otherwise), except as required by any applicable law; (E) grant any equity award, change of control or retention bonus or award any right to severance pay to any service provider of Pangiam or any of its subsidiaries; or (F) implement any layoffs, reductions in force, plant closures, or other voluntary or involuntary employment separation programs other than individual employee separations in the ordinary course of business;

 

v.

sell, lease, transfer or otherwise dispose of, any material tangible property or material tangible assets owned by Pangiam or any of its subsidiaries, except for the sale, lease, transfer or disposition of inventory with de minimis or no book value, or obsolete machinery or equipment, in each case, in the ordinary course of business;

 

vi.

amend, cancel, waive, assign or terminate (except for a termination resulting from the expiration of a material contract in accordance with its terms) any material contract, or enter into any contract that (A) contemplates payments by any party thereto in excess of $500,000 and (B) would have been a material contract if in existence as of the date hereof, in each case, other than as required by law;

 

vii.

acquire any business or person, by merger or consolidation, purchase of assets or equity interests, or by any other manner, in a single transaction or a series of related transactions;

 

viii.

except in accordance with the capital budget of Pangiam and its subsidiaries (a copy of which has been made available to BBAI prior to the date of the Merger Agreement), commit or authorize any commitment to make any capital expenditures which will be made following the Closing in excess of $50,000 in the aggregate, or fail to make material capital expenditures in accordance with such budget;

 

ix.

make any material change in any method of accounting or auditing practice, except changes required as a result of changes in GAAP or applicable law;

 

x.

make any loans, advances or capital contributions to, or investments in, any other person other than loans, advances or capital contributions by Pangiam or any of its subsidiaries to any employee of

 

54

Pangiam or any of its subsidiaries in connection with travel, entertainment or related business expenses or other customary out-of-pocket expenses in the ordinary course of business or in the ordinary course of business to any material customer, distributor, licensor, supplier or other person with which Pangiam or any of its subsidiaries has significant business relations;

 

xi.

(A) make, change or rescind any material tax election (other than in the ordinary course of business consistent with past practice), (B) change any material method of tax accounting or any annual tax accounting period, (C) enter into any “closing agreement” with any taxing authority or any tax allocation, sharing or indemnification agreement (other than (i) any agreement solely among Pangiam or its subsidiaries or (ii) any agreement entered into in the ordinary course of business and not primarily concerning taxes), (D) settle any claim or assessment in respect of a material amount of tax, (E) consent to any extension or waiver of the statute of limitations applicable to a material tax claim or assessment, (F) file any tax return in a manner materially inconsistent with past practice of Pangiam and its subsidiaries or file any amended material tax return, (G) initiate any voluntary disclosure agreement or similar process with respect to taxes or (H) surrender any right to claim a material refund, credit or similar tax benefit;

 

xii.

settle any legal action if the amount payable by Pangiam or any of its subsidiaries in connection therewith would exceed $500,000;

 

xiii.

cancel or reduce any insurance coverage, other than in the ordinary course of business;

 

xiv.

change or modify in any material respect any of Pangiam’s or its subsidiaries respective business policies, procedures or practices with respect to credit, collection, payment, accounts receivable or accounts payable outside the ordinary course of business;

 

xv.

cancel any third-party indebtedness owed to Pangiam or its subsidiaries;

 

xvi.

incur any additional indebtedness for borrowed money or assume, guarantee, endorse or otherwise become liable or responsible for any such indebtedness of another person in excess of $20,000 in the aggregate or make any loans or advances to (except for customary loans and travel advances made in the ordinary course of business) any person in excess of $20,000 other than to other subsidiaries of Pangiam;

 

xvii.

commence any new lines of business in which it is both not engaged as of the date of the Merger Agreement (or actively preparing to engage as of the date of the Merger Agreement) and which are outside the scope of Pangiam and its subsidiaries core competencies as of the date of the Merger Agreement, in each case, that are material to Pangiam and its subsidiaries, taken as a whole;

 

xviii.

sell, assign, transfer or license any material intellectual property of Pangiam, except for non-exclusive licenses granted in the ordinary course of business;

 

xix.

abandon, withdraw, dispose of, permit to lapse or fail to preserve any material registered intellectual property (other than any statutory expiration) or disclose any source code of any material software owned by Pangiam or its subsidiaries to any third party who is not a service provider or contractor in the ordinary course of business of Pangiam or its subsidiaries and who is not subject to confidentiality obligations or is not an employee of Pangiam or its subsidiaries; or

 

xx.

authorize, or commit or agree to take, any action described above.

Further, nothing shall prevent Pangiam or any of its subsidiaries from taking or failing to take any action (including the establishment of any policy, procedure or protocol) in response to COVID-19 or any COVID-19 measure that would otherwise violate or breach the Merger Agreement (provided, that Pangiam shall consult in good faith with BBAI before taking (or omitting) any such actions in connection with COVID-19 measures) and no consent of BBAI shall be required with respect to any matter to the extent that the requirement of such consent (or the failure to take such action in the absence of such consent) would violate applicable law.

 

55

During the period from the signing of the Merger Agreement until the Closing Date, Pangiam and its subsidiaries may (x) use available cash to make cash dividends or distributions or pay transaction expenses or indebtedness of Pangiam and its subsidiaries, so long as (1) such use of cash does not interfere with the operation of Pangiam and its subsidiaries, (2) such dividends or distributions are declared, set aside and paid solely in cash, (3) the payment of such cash is completed prior to the Closing Date and reflected in full in the closing statement which will be delivered by BBAI to Seller in connection with the Closing and (4) as of the Closing, Pangiam and its subsidiaries will have at least $3,300,000 of cash and (y) enter into or pay any bonus arrangements with employees of Pangiam and its subsidiaries so long as such bonuses are paid prior to the Closing by or on behalf of Pangiam and such arrangements have been disclosed to BBAI prior to entering into such arrangements.

BBAI has also agreed that prior to Closing, neither BBAI, Purchaser nor Merger Sub is authorized to and will not (and will not permit any of their respective employees, agents, representatives or affiliates to) contact any director, manager, officer, employee (in each case, other than an authorized representative), or, with respect to the businesses of Pangiam or any of its subsidiaries or the transactions contemplated by the Merger Agreement, any customer, supplier, distributor or other material business relation, of Pangiam or any of its subsidiaries prior to the Closing without the prior written consent and coordination of an authorized representative (not to be unreasonably delayed, conditioned or withheld); provided, however, that the foregoing will not prohibit contact in the ordinary course of business unrelated to the transactions contemplated by the Merger Agreement.

Preparation of Proxy Statement; Stockholder Meeting

BBAI has delivered this proxy statement pursuant to the Merger Agreement, which requires BBAI to prepare and file this proxy statement following Pangiam’s and Seller’s reasonable opportunity for review and comment. BBAI will notify Pangiam and Seller promptly of the receipt of any comments (whether written or oral) from the SEC or the staff of the SEC and of any request by the SEC or the staff of the SEC for amendments or supplements to this proxy statement or for additional information and will supply Pangiam and Seller with copies of all correspondence between BBAI and any of its representatives, on the one hand, and the SEC or the staff of the SEC, on the other hand, with respect to this proxy statement or the transactions contemplated by the Merger Agreement.

BBAI will cause the definitive proxy statement to be mailed to BBAI’s stockholders as promptly as reasonably practicable (and in any event no later than five Business Days) after BBAI is made aware of the resolution of any comments of the SEC or the staff of the SEC with respect to the preliminary proxy statement (which resolution will be deemed to occur if the SEC has not affirmatively notified Pangiam prior to the end of the 10th calendar day after filing the preliminary proxy statement that the SEC will or will not be reviewing the proxy statement) (the “Clearance Date”).

Further, BBAI will take all action necessary in accordance with applicable law and its governing documents to set a record date for, duly give notice of, convene and hold the BBAI Special Meeting as soon as reasonably practicable following the Clearance Date and, in any event no later than 45 days following the Clearance Date and will submit such proposal to BBAI stockholders at the BBAI Special Meeting and will not submit any other proposal to such stockholders in connection with the BBAI Special Meeting (other than a customary proposal regarding adjournment of the BBAI Special Meeting) without the prior written consent of Pangiam and Seller (not to be unreasonably withheld, conditioned or delayed). Once established, BBAI will not change the Record Date without the prior written consent of Pangiam and Seller (not to be unreasonably withheld, conditioned or delayed) or as otherwise required by applicable law (including any requirement of law in connection with any rescheduling, postponement or adjournment of the BBAI Special Meeting that is permitted pursuant to the Merger Agreement).

Required Actions and Governmental Approvals

On the terms and subject to the conditions of the Merger Agreement, each of Seller and Pangiam will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary

 

56

to satisfy the conditions to the Closing (and refrain from taking any action that would reasonably be expected to have the effect of materially delaying, preventing or impeding the Closing). Subject to additional covenants of BBAI and Seller as related to antitrust and governmental notifications, each of Seller and Pangiam will (x) use its reasonable best efforts to make or cause to be made all filings and submissions under any laws or regulations, as applicable, required for the consummation of the transactions contemplated by the Merger Agreement, (y) reasonably coordinate and cooperate with BBAI in exchanging such information and providing such assistance as BBAI may reasonably request in connection with all of the foregoing, including, to the extent legally permissible, allowing BBAI to review and comment upon such filings and submissions and (z) supply promptly any additional information and documentary material that may be reasonably requested in connection with such filings, make any further filings pursuant thereto that may be necessary in connection therewith and take all actions reasonably necessary to obtain all required clearances.

As soon as reasonably practicable after the date of the Merger Agreement, Pangiam will submit to the United States Defense Counterintelligence and Security Agency (“DCSA”) and, to the extent applicable, any other governmental entity, a notification of the transfer of ownership contemplated hereby in accordance with the National Industrial Security Program Operating Manual (“NISPOM”) and the other applicable national or industrial security regulations (the “DCSA Notification”). Pangiam will reasonably cooperate with BBAI in preparing the DCSA Notification and any other submissions to DCSA required by NISPOM as soon as reasonably practicable, and BBAI will have the right to approve the DCSA Notification before its submission. Pangiam and BBAI will use their commercially reasonable efforts to obtain approval from DCSA as promptly as practicable for the continuation of all necessary United States government facility security clearances.

As soon as reasonably practicable after the date of the Merger Agreement, Pangiam and its subsidiaries will use good faith efforts to develop and initiate a plan in respect of certain operational workstreams, including data privacy actions, prior to the Closing Date (such plan, the “Remediation Plan”) and will reasonably consult with (and consider in good faith any comments from) BBAI with respect to the development of the Remediation Plan.

Lock-Up

Seller agrees that, for a period of one year following the Closing, without the prior written approval of BBAI, Seller will not sell any shares of BBAI Common Stock issued to it as Merger Consideration. Notwithstanding the foregoing, Seller will at all times be permitted to transfer such shares of BBAI Common Stock (i) to its affiliates, (ii) to any investment fund or other entity controlling, controlled by, managing or managed by or under common control with the Seller or its affiliates, (iii) to any direct equityholder of Seller, (iv) to any family member or any affiliate of any family member of Seller (other than any affiliate under this clause (iv) who operates or engages in a business which competes with the business of BBAI and its subsidiaries), (v) to any lender or other debt financing source who provides a bona fide revolving credit facility to Seller that is secured by equity securities held by such person, (vi) pursuant to any liquidation, merger, stock exchange or other similar transaction which results in all of BBAI’s stockholders having the right to exchange their shares of BBAI Common Stock for cash, securities or other property after the date of the Merger Agreement or (vii) to a charitable organization through a charitable distribution.

Indemnification, Exculpation and Insurance

Prior to or simultaneously with the Closing, Pangiam will purchase from an insurance carrier with the same or better credit rating as Pangiam’s current insurance carrier with respect to directors’, managers’ and officers’ liability insurance a prepaid insurance policy which provides “side A, B and C directors and officers” insurance coverage for each of the individuals who were officers, directors or managers of Pangiam or any of its subsidiaries at or prior to the Closing on terms no less favorable (including with respect to both policy limit and scope) as the policy or policy(ies) maintained by Pangiam or any of Pangiam’s subsidiaries immediately prior to the Closing for the benefit of such individuals for an aggregate period of not less than six years with respect to claims arising from acts, events or omissions that occurred at or prior to the Closing, including with respect to the

 

57

transactions contemplated by the Merger Agreement (such policies, the “D&O Tail Policies”); provided, that in no event will the aggregate cost for the D&O Tail Policies exceed 300% of Pangiam’s and its subsidiaries’ most recent annual premium allocation (the “Maximum Premium”). If the aggregate annual premiums of such insurance coverage exceed the Maximum Premium, then Pangiam will obtain a policy with the greatest coverage available for a cost not exceeding the Maximum Premium from insurance carriers with the same or better credit ratings as Pangiam’s and its subsidiaries’ current insurance carriers with respect to officers’ and directors’ liability insurance and fiduciary duty insurance.

For a period of six years after the Closing, BBAI will not, and will not permit Pangiam and its subsidiaries to, amend, repeal or otherwise modify any provision in Pangiam’s or any of its subsidiaries’ governing documents relating to the exculpation or indemnification of any officers, directors, managers or similar functionaries (unless to provide for greater exculpation or indemnification or unless required by law), it being the intent of the parties hereto that the current and former officers, directors and managers of Pangiam and its subsidiaries will continue to be entitled to such exculpation and indemnification (including with respect to advancement of expenses to the same extent provided for under such governing documents) to the full extent of the law.

Employees and Employee Benefits Matters

BBAI will cause Pangiam and its subsidiaries to provide each Retained Employee (as defined below) who remains employed with at least (i) the same base wage or annual base salary and (ii) same annual rate of total target incentive compensation potential provided to similarly situated employees of BBAI, in each case, for a period of at least one year following the Closing Date or, if earlier, until December 31, 2024; provided, however, that nothing will obligate BBAI or Pangiam or any of its subsidiaries to continue the employment of any Retained Employee for any specific period. All employees of Pangiam and its subsidiaries who are employed by Pangiam and its subsidiaries immediately following the Closing Date (including such employees on medical, disability, family or other leave of absence as of the Closing Date) are referred to as “Retained Employees”.

As of the Closing Date and for a period of at least one year thereafter or, if earlier, until December 31, 2024, BBAI will provide, or will cause Pangiam and its subsidiaries to provide, each Retained Employee with employee benefits (for the avoidance of doubt, excluding, without limitation, any equity or equity-based compensation or severance benefits) that are either, (i) substantially similar in the aggregate to the employee benefits provided to such Retained Employee immediately prior to the Closing Date or (ii) substantially similar in the aggregate to the employee benefits provided to similarly situated employees of BBAI.

Without limiting the foregoing paragraph, BBAI will cause Pangiam and its subsidiaries to pay severance benefits to Retained Employees whose employment with Pangiam or any of its subsidiaries is involuntarily terminated (without cause) within 12 months following the Closing Date pursuant to the certain terms set forth in the Merger Agreement.

BBAI will (i) give, or cause Pangiam and its subsidiaries to give, each Retained Employee credit under health and welfare benefit plans that cover the Retained Employee after the Closing Date, for purposes of eligibility, vesting and entitlement to benefits for the Retained Employee’s service with Pangiam and its affiliates prior to the Closing Date, to the same extent recognized by Pangiam or its subsidiaries or any predecessor thereof as of the Closing Date and (ii) use commercially reasonable efforts to allow such Retained Employees to participate in each plan providing welfare benefits (including medical, life insurance, long-term disability insurance and long-term care insurance) without regard to preexisting condition limitations, waiting periods, evidence of insurability or other exclusions or limitations not imposed on the Retained Employee by the corresponding plans immediately prior to the Closing Date, except, in all cases, (x) as would cause a duplication of benefits or coverage for the same period of service, (y) to the extent such credit was not recognized under the corresponding plans, or (z) for defined benefit pension plans, equity or equity-based plans or long-term incentive plans. BBAI will use commercially reasonable efforts to cause any eligible expenses incurred by such Retained Employee and his or her covered dependents to be taken into account under any replacement health benefit plans for purposes of

 

58

satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such Retained Employee and his or her covered dependents as if such amounts had been paid in accordance with such replacement plan in the plan year in which the Closing occurs.

Press Releases

Prior to the Closing, no press release or public announcement related to the Merger Agreement or the transactions contemplated therein or any other announcement or communication to the employees, customers, suppliers or other business relations of Pangiam or any of its subsidiaries may be issued or made without the joint approval of BBAI and Seller (such approval not to be unreasonably withheld, conditioned or delayed), unless required by law (in the reasonable opinion of counsel) in which case BBAI and Seller will have the right to review and comment on such press release or announcement prior to publication and BBAI and Seller will consider in good faith any such comments received; provided, that Seller will be entitled to communicate with and may disclose the terms and the existence of the Merger Agreement and the transactions contemplated therein to its direct and indirect equityholders, as applicable, in order that such persons may provide information about the subject matter of the Merger Agreement and the transactions contemplated therein to their respective investors and prospective investors (provided such investors are subject to customary confidentiality agreements) in connection with their ordinary course fundraising and reporting activities.

Other Covenants and Agreements

The Merger Agreement contains certain other covenants and agreements, including covenants relating to:

 

i.

Pangiam’s obligation to deliver certain consolidated audited financial statements of Pangiam and its subsidiaries for the fiscal year ended December 31, 2023 if Closing has not yet occurred and in no event later than March 31, 2024;

 

ii.

actions by Pangiam, if applicable, to seek waivers from persons who may be entitled to “parachute payments” under Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended, and Treasury Regulations promulgated thereunder; and

 

iii.

cooperation between BBAI, Pangiam, and Seller as related to certain tax matters.

Exclusive Dealing; Change of Recommendation

Exclusive Dealing

From and after the date of the Merger Agreement through the Closing or the earlier valid termination of the Merger Agreement, neither Seller nor Pangiam will take, directly or indirectly, any action to, and will direct its representatives not to, knowingly initiate, facilitate, participate, solicit, or engage in discussions or negotiations with, or provide any information to, any person (other than BBAI and its affiliates and representatives) concerning any purchase of units of limited liability company interest of Pangiam or any merger, sale of substantial assets or similar transaction involving Pangiam or any of its subsidiaries (other than assets and services sold in the ordinary course of business) (each such transaction, an “Acquisition Transaction”). Pangiam and Seller will cease and cause to be terminated any existing discussions, communications or negotiations with any person (other than BBAI and its representatives) conducted previously with respect to any Acquisition Transaction. Pangiam and the Seller will notify any person (other than BBAI and its representatives) with which Pangiam or the Seller is engaged in discussions concerning an Acquisition Transaction and any person that hereafter submits any offer or makes any inquiries concerning an Acquisition Transaction, that Pangiam and the Seller are contractually prohibited from continuing to engage or engaging in any such discussions, and will request that any such persons destroy or return any confidential information regarding Pangiam, its subsidiaries or their respective businesses, in accordance with the terms of the applicable confidentiality agreements between Pangiam and any such persons. Pangiam and the Seller will promptly (and in any event within five Business Day after receipt thereof by Pangiam or the Seller) advise BBAI in writing of any bona fide written proposal or offer

 

59

with respect to an Acquisition Transaction and the material terms and conditions of such proposal to the extent not prohibited by law or contract from doing so.

Change in Recommendation

Neither the BBAI Board nor any committee thereof will withdraw, qualify or modify in a manner adverse to Pangiam or Seller, or propose publicly to withdraw, qualify or modify in a manner adverse to Pangiam or Seller, the Recommendation or its declaration of advisability, or resolve or agree to take any such action (a “Change in Recommendation”). Notwithstanding the immediately preceding sentence, prior to the time the Requisite Vote is obtained, the BBAI Board (or, if applicable, special committee thereof) may make a Change in Recommendation in response to, and in respect of, an Intervening Event (as defined below) if (but only if) the following conditions are collectively satisfied:

 

i.

an Intervening Event has occurred,

 

ii.

in light of such Intervening Event, the BBAI Board (or, if applicable, special committee thereof) has determined in good faith, after consultation with outside legal counsel, that the failure to make a Change in Recommendation in response to such Intervening Event would be inconsistent with the directors’ fiduciary duties under applicable law,

 

iii.

BBAI has notified Pangiam and Seller in writing that the BBAI Board (or, if applicable, special committee thereof) intends to make a Change in Recommendation and the basis therefor (which notice will include a reasonably detailed description of the Intervening Event in connection with which the BBAI Board (or, if applicable, special committee thereof) has given such notice) (any such notice, a “Triggering Notice”),

 

iv.

at least four Business Days pass following Pangiam and Seller’s receipt of the Triggering Notice (it being understood that any material change to the Intervening Event will constitute a new Intervening Event and will require BBAI to provide a new Triggering Notice in respect of such Intervening Event, except that, in such case, the four Business Day period referred to in this clause (iv) and in clauses (v) and (vi) will be reduced to two Business Days following the giving of such new Triggering Notice),

 

v.

after providing such Triggering Notice and prior to effecting such Change in Recommendation, (x) BBAI will, during such four Business Day period, negotiate in good faith with Pangiam and Seller and their representatives, to the extent Pangiam and Seller wish to negotiate, with respect to any revisions to the terms of the transactions contemplated by the Merger Agreement proposed by Pangiam and Seller and (y) in determining whether it may still under the terms of the Merger Agreement make a Change in Recommendation, the BBAI Board (or, if applicable, special committee thereof) will take into account any changes to the terms of the Merger Agreement proposed by Pangiam and Seller during such four Business Day period, and

 

vi.

after taking into account any changes to the terms of the Merger Agreement proposed by Pangiam and Seller and any other information provided by Pangiam and Seller in response to a Triggering Notice during such four Business Day period, the BBAI Board (or, if applicable, special committee thereof) again determines in good faith, after consultation with outside counsel, that the failure to make a Change in Recommendation in response to such Intervening Event would be inconsistent with the directors’ fiduciary duties under applicable law.

In the event that the BBAI Board (or, if applicable, special committee thereof) effects a Change in Recommendation, then within five Business Days after written demand by Pangiam or Seller, BBAI will pay to Seller an amount equal to Seller’s, Pangiam’s and its subsidiaries’ actual, reasonable and documented out-of-pocket fees and expenses (including its actual, reasonable and documented legal fees and expenses) incurred by Seller, Pangiam or its subsidiaries on or prior to the termination of the Merger Agreement solely in connection with the transactions contemplated by the Merger Agreement in cash by wire transfer of immediately available funds to an account designated in writing by Seller; provided, in no event will such amount exceed $1,250,000 in the aggregate.

 

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“Intervening Event” means any event, change or development that has a material effect on BBAI and its subsidiaries, taken as a whole, that first occurs or arises after the date of the Merger Agreement that was not known to the BBAI Board and was not reasonably foreseeable to the BBAI Board, in either case, as of or prior to the date of the execution and delivery of the Merger Agreement; provided, that in no event will any of the following events, changes or developments constitute or be taken into account in determining an Intervening Event: (a) any change in the price or trading volume of BBAI’s equity securities (except that the underlying causes of such changes may constitute or be taken into account in determining whether there has been an Intervening Event to the extent not otherwise excluded hereunder), (b) any development or change in the industries in which BBAI and its subsidiaries operate, (c) any breach by BBAI, Purchaser or Merger Sub of the Merger Agreement or (d) the fact in and of itself that BBAI or any of its subsidiaries meets or exceeds internal or published projections.

Conditions to Completion of the Mergers

Conditions to BBAI’s, Purchaser’s, Merger Sub’s, Pangiam’s and Seller’s Obligation to Consummate the Mergers

The respective obligations of each party to consummate the Mergers are subject to the satisfaction or waiver of various conditions that include, among other matters, the following:

 

i.

the parties will have received the approval or otherwise received written confirmation that such approval is not required by the United Kingdom Secretary of State;

 

ii.

no injunctions or prohibitions to the Mergers will have been issued by any governmental entity;

 

iii.

BBAI will have received the Requisite Vote at the BBAI Special Meeting; and

 

iv.

the Merger Agreement will not have been validly terminated pursuant to the terms of the Merger Agreement.

Conditions to BBAI’s, Purchaser and Merger Sub’s Obligation to Consummate the Mergers

The obligations of BBAI, Purchaser and Merger Sub to consummate the Mergers are subject to the satisfaction or waiver of various conditions that include the following:

 

i.

each of the representations and warranties of the Seller and Pangiam (i) with respect to organization, authorization, ownership, brokerage and subsidiaries will be true and correct in all respects (except for any de minimis exceptions) and (ii) with respect to all other matters under the Merger Agreement, without giving effect to any qualifications as to materiality or a material adverse effect contained therein, will be true and correct, except in the case of clause (ii) above, for such failures to be true and correct as would not constitute a Material Adverse Change;

 

ii.

Seller and Pangiam will have performed, in all material respects, all covenants and agreements required to be performed under the Merger Agreement;

 

iii.

since the date of the Merger Agreement, no Material Adverse Change has occurred and is continuing;

 

iv.

each of Seller and Pangiam will have delivered to BBAI a certificate, signed by an officer of the Seller and of Pangiam, respectively, certifying to the effect that the conditions in the preceding three paragraphs have been satisfied;

 

v.

Seller will have delivered to BBAI an executed copy of the Consulting Termination Agreement;

 

vi.

Seller will have delivered to BBAI customary evidence of the termination of any other affiliate agreements;

 

vii.

Seller will have repaid, or will have caused Pangiam to have paid, all outstanding indebtedness and all transaction expenses as set forth in the Merger Agreement;

 

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viii.

Seller will have delivered to BBAI the required consolidated financial statements of Pangiam and its subsidiaries for inclusion in this proxy statement; and

 

ix.

Seller will have delivered to BBAI an executed copy of the IRA Amendment.

Conditions to Seller’s and Pangiam’s Obligation to Consummate the Mergers

The obligations of Seller and Pangiam to consummate the Mergers are subject to the satisfaction or waiver of various conditions that include the following:

 

i.

each of the representations and warranties of BBAI (i) with respect to organization, authorization, ownership and brokerage will be true and correct in all respects (except for any de minimis exceptions) and (ii) with respect to all other matters under the Merger Agreement, without giving effect to any qualifications as to materiality contained therein, will be true and correct, except in the case of clause (ii) above, for such failures to be true and correct as would not have a material adverse effect on the ability of BBAI, Purchaser or the Merger Sub to consummate the transactions contemplated by the Merger Agreement;

 

ii.

each of BBAI, Purchaser and Merger Sub will have performed in all material respects all covenants and agreements required to be performed under the Merger Agreement;

 

iii.

BBAI will have delivered to Seller and Pangiam a certificate, signed by an officer of BBAI, certifying to the effect that the conditions in the preceding two paragraphs have been satisfied; and

 

iv.

BBAI will have delivered to the Seller an executed copy of the IRA Amendment.

Termination of the Merger Agreement

The Merger Agreement may be terminated at any time prior to the Closing as follows:

 

i.

By mutual written consent of each of BBAI, Purchaser and Merger Sub, on the one hand, and Pangiam and Seller, on the other hand;

 

ii.

by BBAI, Purchaser and Merger Sub, on the one hand, or by Pangiam or Seller, on the other hand, by written notice to the other, upon the issuance by any governmental entity of an order, decree or ruling or its taking of any other action permanently restraining, enjoining or otherwise prohibiting the performance of the Merger Agreement or the consummation of the transactions contemplated thereby, which order, decree, ruling or any other action will have become final and non-appealable and which renders the closing conditions incapable of being satisfied; provided, that no termination may be made pursuant to this provision if the issuance of such order, decree, ruling or such other action has been primarily caused by the action or inaction of the terminating party;

 

iii.

by BBAI, Purchaser and Merger Sub, on the one hand, or by Pangiam or Seller, on the other hand, by written notice to the other, if the Closing will not have occurred on or before the Outside Date; provided, however, that no termination may be made pursuant to this provision if the failure to close will have been caused by the action or inaction of the terminating party;

 

iv.

by either BBAI, Purchaser or Merger Sub if neither BBAI, Purchaser nor Merger Sub is in material breach of the Merger Agreement, by written notice to Pangiam, upon a breach of any covenant or agreement on the part of Seller or Pangiam set forth in the Merger Agreement, or if any representation or warranty contained therein, will be or have become untrue, in either case, such that any of the Closing conditions would not be satisfied; provided that the right to terminate the Merger Agreement will not be available if BBAI’s, Purchaser’s or Merger Subs’ failure(s) (collectively or individually) to fulfill any obligation under the Merger Agreement has been the primary cause of, or primarily result in, the failure of the Closing to occur on or before such date;

 

v.

by Pangiam or Seller if Pangiam and Seller, as applicable, are not then in material breach of the Merger Agreement, by written notice to BBAI, upon a breach of any covenant or agreement on the part of

 

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BBAI, Purchaser or Merger Sub set forth in the Merger Agreement, or if any representation or warranty of BBAI, Purchaser or Merger Sub will be or have become untrue, in either case, such that any of the Closing conditions would not be satisfied; provided that the right to terminate the Merger Agreement will not be available if Pangiam’s or Seller’s failure(s) (collectively or individually) to fulfill any obligation under the Merger Agreement has been the primary cause of, or primarily result in, the failure of the Closing to occur on or before such date; and

 

vi.

by BBAI or Seller if BBAI fails to obtain the Requisite Vote at the BBAI Special Meeting at which a vote is taken on the Mergers, except that the right to terminate the Merger Agreement will not be available to any party whose action or failure to act (which action or failure to act constitutes a breach by such party of the Merger Agreement) has been the cause of, or resulted in, the failure to obtain the Requisite Vote at the BBAI Special Meeting.

Effect of Termination

In the event of termination of the Merger Agreement as described in the section entitled “The Merger Agreement—Termination of the Merger Agreement,” there will be no liability or obligation on the part of any party under the Merger Agreement, except:

 

i.

for fraud or for any willful breaches of the Merger Agreement prior to the termination thereof;

 

ii.

certain provisions of the Merger Agreement will survive the termination, including, without limitation, provisions related to the reimbursement of expenses in connection with a Change in Recommendation; and

 

iii.

the confidentiality agreement, dated as of July 28, 2023, by and between Seller and BBAI will survive the termination of the Merger Agreement.

For purposes of clarification, the parties to the Merger Agreement agree that if a party does not close the transactions contemplated hereby in circumstances in which all of the Closing conditions set forth the Merger Agreement have been satisfied or waived (other than those conditions that, by their terms, are to be satisfied at the Closing), such failure or refusal to close will be deemed to be a willful breach of the Merger Agreement by such party.

Damages

A party may be liable to the other if the Merger Agreement is terminated as described in the section entitled “The Merger Agreement—Termination of the Merger Agreement,” if such termination resulted, directly or indirectly, from fraud or a willful breach of any representation, warranty, covenant or other agreement contained in the Merger Agreement. In determining losses or damages recoverable upon termination by a party thereto for another party’s breach, such losses and damages will not be limited to reimbursement of expenses or out-of-pocket costs, and will include the benefit of the bargain lost by such party, taking into consideration all relevant matters (including other opportunities and the time value of money), which will be deemed to be damages of such party.

Amendments and Waivers

Except as provided in the Merger Agreement, any provision thereof may be amended or waived only in a writing signed by Seller, Pangiam (or, following the Closing, the final surviving company) and BBAI. No waiver of any provision thereunder or any breach or default thereof will extend to or affect in any way any other provision or prior or subsequent breach or default.

No Third-Party Beneficiaries

Except as otherwise expressly provided in the Merger Agreement, nothing expressed or referred to in the Merger Agreement will be construed to give any legal or equitable right, remedy, or claim under or with respect to the Merger Agreement or any provision thereof to any person other than as specified in the Merger Agreement.

 

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Specific Performance

The parties to the Merger Agreement agree that irreparable damage would occur in the event that any of the provisions of the Merger Agreement were not performed in accordance with their specific terms or were otherwise breached, and that money damages or legal remedies would not be an adequate remedy for any such damages. As a result, each party will be entitled to enforce specifically the terms and provisions of the Merger Agreement, or to enforce compliance with, the covenants and obligations of any other party, in any court of competent jurisdiction, and appropriate injunctive relief will be granted in connection therewith, and no party will assert that a remedy of specific performance or other equitable relief is unenforceable, invalid, contrary to law or inequitable for any reason, nor that a remedy of monetary damages would provide an adequate remedy or that the parties otherwise have an adequate remedy at law. Any party seeking an injunction, a decree or order of specific performance will not be required to provide any bond or other security in connection therewith and any such remedy will be in addition and not in substitution for any other remedy to which such party is entitled at law or in equity. The remedies available to the parties pursuant to the Merger Agreement will be in addition to any other remedy to which they were entitled at law or in equity.

If, before the Outside Date, any party to the Merger Agreement brings any action to enforce specifically the performance of the terms and provisions thereof by any other party, then the Outside Date will automatically be extended (i) for the period during which such action is pending and until such action has been finally resolved by a non-appealable ruling by an arbitrator or court of competent jurisdiction in accordance with the terms thereof, plus 10 Business Days, or (ii) by such greater time period established by the court or arbitrator presiding over such action, as the case may be.

 

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OTHER TRANSACTION AGREEMENTS

Investor Rights Agreement Amendment

The following is a summary of certain material terms and provisions of the IRA Amendment. This summary does not purport to describe all of the terms and provisions of the IRA Amendment and is qualified in its entirety by the complete text of the IRA Amendment, a form of which is included as Annex B of this proxy statement and incorporated by reference herein. All stockholders of BBAI are urged to read the IRA Amendment carefully and in its entirety, as well as this proxy statement, before making any decisions regarding the Merger Agreement and the transactions contemplated thereby, including the Mergers.

BBAI is currently party to an Amended & Restated Investors Rights Agreement, between itself and certain of its stockholders, including AE BBAI Aggregator, LP and BBAI Ultimate Holdings, LLC, dated as of December 6, 2021, as amended on July 20, 2023. The Merger Agreement contemplates, as a condition to the Closing, BBAI and Seller will execute the IRA Amendment, which will be effective from and after the Closing. Under the IRA Amendment, Seller will become a party to the IRA and be treated as a “Holder” thereunder and be entitled to the same registration rights offered to other BBAI stockholders that are party to the IRA.

Business Covenants Agreement

The following is a summary of certain material terms and provisions of the Business Covenants Agreement (as defined below). This summary does not purport to describe all of the terms and provisions of the Business Covenants Agreement and is qualified in its entirety by the complete text of the Business Covenants Agreement, a form of which is included as Annex C of this proxy statement and incorporated by reference herein. All stockholders of BBAI are urged to read the Business Covenants Agreement carefully and in its entirety, as well as this proxy statement, before making any decisions regarding the Merger Agreement and the transactions contemplated thereby, including the Mergers.

Simultaneously with the execution of the Merger Agreement, on November 4, 2023, BBAI entered into the Business Covenants Agreement with the AE Consultants pursuant to which the AE Consultants agreed, for a period of two years after the Closing (the “Restricted Period”), to not directly or indirectly solicit or attempt to hire, any of the management-level employees of Pangiam or its subsidiaries who were employed by Pangiam or its subsidiaries at any time between six months prior to the Closing and the Closing (collectively, the “Restricted Employees”), or induce, attempt to persuade or intentionally encourage any of the Restricted Employees to leave his or her respective position of employment with BBAI or any of its affiliates (including, from and after the Closing, Pangiam and its subsidiaries), subject to certain exceptions. The AE Consultants further agreed to not, during the Restricted Period, directly or indirectly, disclose, reveal, divulge or make accessible to any person, any confidential information of Pangiam or its subsidiaries, subject to certain exceptions.

 

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BUSINESS OF PANGIAM

Overview

Pangiam aims to revolutionize the future of operations, security, and safety at airports, seaports, and land border crossings through the use of emerging technologies. Pangiam provides vision AI and biometrics products, and custom software solutions to transform customer efforts to secure and facilitate movement of increasing volumes of travelers and goods. Pangiam’s deep domain expertise enables it to solve its customers’ toughest challenges, through a combination of technology solutions and professional services.

Pangiam believes travel and border infrastructure needs to be modernized. The current ecosystem is challenged with aging infrastructure, outdated technology systems, and failures to adopt emerging technologies. From passenger check in and bag drop at security checkpoints, through security and customs clearance processes and on to boarding, the technologies in use today have created security gaps and inefficiencies. Pangiam combines its expertise using professional services with facial recognition technology, cloud-based applications, and data-driven digital identity solutions to improve efficiencies and to facilitate the safe, secure, and expedited movement of people and goods around the world.

Pangiam was founded by a team of customs and security professionals with decades of collective senior-level executive experience. Through innovation, emerging technologies, and the power of data, Pangiam solves the security, facilitation, and operational challenges of cross border movement of people and goods. As a team of experts and technologists from both the private and public sectors, Pangiam solves challenges by reimagining what is possible and designing and delivering solutions to achieve that vision.

Pangiam has built and acquired key capabilities and technologies that it uses to help its customers deliver mission-critical security applications. Today, a majority of Pangiam’s revenue comes from its government customers, whom Pangiam helps use cloud platforms to transform how they serve the public and achieve their missions. A growing portion of Pangiam’s revenue comes from its commercial customers, for whom Pangiam has adopted much of its know-how in the government services, combined with emerging technologies such as facial recognition and AI/computer vision capabilities, to deliver biometric and identity management solutions that solve real world problems.

Industry

Pangiam specializes in the trade and travel industry, a dynamic and interconnected sector that encompasses the movement of goods and people across borders. Travel and border infrastructure needs to be modernized. Outdated infrastructure, disparate information technology systems, and failures to adopt emerging technology have created gaps and inefficiencies across the travel ecosystem. Various industry stakeholders, including airlines, airports, hotels, government agencies, and individuals are seeking cutting-edge digital solutions to solve these challenges while enhancing the traveler experience.

Pangiam’s core technology expertise in AI and computer vision—particularly facial recognition and object detection—combined with decades of border and aviation security, policy, and operations experience, is sought by its industry partners to better enable the movement of people and goods across borders, contributing to global economic development. The movement of people for tourism, business, and personal reasons is the engine of the global economy and involves air, land and sea carriers, hospitality providers, and government agencies. Transportation infrastructure, including air, sea, and land ports and routes, plays a crucial role in facilitating trade and travel. Additionally, border security measures are implemented to ensure the safety and legality of goods and individuals crossing borders. Pangiam provides technology solutions serving each segment of the industry.

Government border agencies play a pivotal role in the trade and travel industry, acting as key regulators and enforcers of policies that govern the movement of goods and people across borders. The interaction between businesses in the trade and travel sector and these agencies is crucial for ensuring compliance with regulations, enhancing security measures, and streamlining the overall flow of cross-border activities.

 

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Pangiam actively engages with all of these stakeholders through software development and technology deployments to solve stakeholder challenges, enabling travelers and goods to move safely and frictionlessly. Pangiam aims to create innovative solutions that not only meet regulatory requirements but also contribute to the efficiency and effectiveness of border control processes.

The integration of advanced technologies in border security, such as biometrics, data analytics, and AI, reflects the industry’s commitment to enhancing security measures while facilitating smoother trade and travel experiences. The partnership between technology firms and government agencies underscores the importance of modernized approaches to address the evolving challenges of border management. As these collaborations continue to evolve, the trade and travel industry remains at the forefront of innovation, working together with government entities to strike a balance between security imperatives and the facilitation of global trade and travel.

Pangiam’s industry is influenced by various factors, such as economic conditions, geopolitical events, and advancements in technology. Ongoing developments, such as the integration of Pangiam’s digital solutions for customs and immigration processes, further shape the landscape of the trade and travel industry. Overall, this sector is characterized by its complexity, global interconnectedness, and the continuous evolution of processes and technologies.

Growth Strategy

The key elements of Pangiam’s growth strategy within its target markets include the following:

 

i.

Invest in its core technologies, including facial recognition and AI/computer vision capabilities, and establish the organizational capacity for simultaneous research and development, product development, sales engineering, and scaling deployment and sustainment;

 

ii.

Pursue the seamless travel market, including both facial recognition for trusted movement of people and computer vision/AI for secure movement of luggage and cargo;

 

iii.

Expand government solutions growth efforts to prioritize sales of biometric and AI/computer vision technologies to U.S. and global government customers, building on Pangiam’s reputation and access from continued services delivery through its government contracts; and

 

iv.

Develop and implement proactive approaches to targeting both physical and virtual, identity-based access control markets.

Competition

In the dynamic landscape of Software as a Service (“SaaS”) within the trade and travel industry, several competitors vie for market share, each offering solutions to address the complex needs of businesses and government agencies involved in cross-border activities. Pangiam competes against companies specializing in travel technology solutions, offering comprehensive platforms that facilitate seamless passenger experiences and optimize operational efficiency for airlines, airports, and travel agencies. These SaaS applications cover a broad spectrum, from reservation systems and ticketing to baggage handling and passenger management. Companies seek to distinguish themselves through continuous innovation, incorporating emerging technologies like AI and predictive analytics to enhance the overall travel experience.

In addition to software-focused competitors, Original Equipment Manufacturers (“OEMs”) also play a significant role in the competitive landscape of the trade and travel industry. OEMs often offer integrated hardware and software solutions tailored for specific applications within the sector. OEMs proport to provide end-to-end solutions that combine cutting-edge hardware components with sophisticated software functionalities. Their offerings cater to a wide range of needs, including tracking and monitoring systems for logistics, smart infrastructure for airports, and advanced scanning technologies for border security. The competition between

 

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pure SaaS providers and OEMs underscores the industry’s demand for comprehensive solutions that seamlessly integrate software, hardware, and data analytics to address the intricate challenges associated with international trade and travel. This dynamic interaction between diverse competitors further fuels innovation and drives the evolution of technology within the trade and travel ecosystem.

Pangiam also competes with system integrators engaged in developing border security software solutions for governments. System integrators specialize in combining various technologies, including software, hardware, and networking components, to create seamless and interoperable systems tailored for government border agencies to provide advanced tools for effective border control and management. These system integrators leverage their expertise to design end-to-end solutions that enhance the efficiency and effectiveness of border control processes. Their competitive edge lies in their ability to integrate existing infrastructure with innovative technologies, offering a holistic approach to government entities seeking robust and scalable solutions. Their offerings focus on identity verification, risk assessment, and data analytics to ensure the secure and efficient movement of people and goods across borders.

These competitors collectively contribute to the vibrant and innovative landscape within the trade and travel industry.

Products and Services

Pangiam develops and deploys cutting-edge technologies for secure and facilitated movement across the commercial transportation and identity verification sectors, as well as providing customized software solutions to the U.S. Federal Government and other government customers internationally.

Due to the sensitive and often classified nature of Pangiam’s work with its federal government customers, a significant portion of its contracts require its data scientists and software engineers to co-locate on-premises in order to deliver its services.

Pangiam performs these services under multi-year subcontracts with prime vendors for its government customers on a time and material (“T&M”) basis.

Since its formation, Pangiam has also acquired and developed products and technologies that form the foundation of its solutions offerings, which are comprised of facial recognition, AI/computer vision and biometric identification:

 

i.

veriScan: Pangiam’s industry-leading facial recognition technology takes fast, accurate authentications in real time and transmits them securely to the biometric matching service for convenient, rapid identity verification. Pangiam sells veriScan to airlines and airports, as well as other environments where access and identity management are critical to safety and security. Pangiam generally includes revenue from sales of veriScan within SaaS revenue.

 

ii.

Trueface: Pangiam’s facial recognition software uses photos and videos taken in real time and performs a one-to-many (1:N) or one-to-one (1:1) match against a temporary gallery of client images—delivering a safer, smoother, and more efficient identity verification process. Offered as an on-premises deployment, mobile deployment, or cloud-based SaaS product, Trueface is versatile to meet a variety of needs and requirements for authentication in real time. Pangiam sells Trueface to a diverse set of commercial customers, identity and verification, gaming, security operators and other providers of security services and products. Pangiam generally includes revenue from sales of Trueface within software license revenue.

 

iii.

Bridge: Bridge is Pangiam’s groundbreaking, AI-driven solution to automate portions of the customs inspection process by using vision AI to aid customs administrations in identifying the contents of cargo shipments for security and customs/tax purposes. Pangiam’s goal is to provide new tools that

 

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increase operational effectiveness, integrate seamlessly into port operations, and provide customs officials with new insights into cargo and conveyance traffic. Pangiam currently provides Bridge to the U.S. government for cargo anomaly detection at U.S. border crossings and is actively marketing the product to a number of other government agencies around the world. Pangiam generally includes revenue from sales of Bridge within software license revenue.

 

iv.

Dartmouth: Project Dartmouth is named after the 1956 Dartmouth Summer Research Project on Artificial Intelligence. Dartmouth utilizes AI and pattern analysis technologies to digest and analyze vast amounts of data in real-time and identify potential prohibited items in baggage. After Dartmouth is launched as a product, Pangiam intends to sell it to airports and aviation security operators globally.

In conjunction with the sale of its various products, Pangiam sells professional services, including technology and operational consulting, for the design, implementation, and configuration of its products in the customer environment.

The majority of Pangiam’s revenue from customer contracts for products and services include multi-year commitments.

Customers

Pangiam offers its products and consulting services to the federal government and commercial customers across the global transportation and security sectors within the trade and travel industry. Pangiam’s customers include U.S. Customs and Border Protection, a relationship that has spanned over a decade, as well as some of the largest airlines and airports in the world. Pangiam also sells its products and professional services across a wide range of industries where identity management is a critical factor for its customers, including identity verification, gaming, hospitality, security integrators and sports and entertainment venues.

Revenue Mix

Pangiam derives a significant portion of its revenue from services under contracts with the federal government and government agencies. However, as Pangiam has continued to develop and deploy more product-based solutions, its revenue mix has changed, and Pangiam expects that it will continue to change. Pangiam’s commercial SaaS and software sales, coupled with the professional services required to design, install, and configure the products, have been increasing as an overall percentage of its revenue.

Human Capital

Pangiam’s employees are critical to its success. As of September 30, 2023, Pangiam employed 183 employees. Pangiam also engages consultants and contractors to supplement its permanent workforce. Pangiam considers its relationship with its employees to be in good standing. None of its employees are subject to a collective bargaining agreement or represented by a labor union.

Corporate Background

Seller was formed in Delaware on September 28, 2020.

On October 30, 2020, Pangiam acquired 100% of the issued and outstanding stock of Linkware, LLC (“Linkware”) and 100% of the issued and outstanding stock of Pre, LLC (“Pre”) to create a travel and security solutions technology platform. Linkware is an information technology consulting firm specializing in the delivery of customized software solutions to the federal government and commercial customers. Pre is a public-private partnership company creating a network of industry partners aimed at revolutionizing the future of operations, security and safety at airports, seaports, and land border crossings.

 

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On May 28, 2021, Pangiam acquired 100% of the issued and outstanding stock of 214 Technologies, LLC (“Trueface”). Trueface is a computer vision company that transforms video and imagery into intelligent, actionable data, empowering users to enhance their operating capacity and reduce risks associated with identity. The acquisition was completed to expand Pangiam’s technology capabilities.

On March 17, 2021, Pangiam entered into an asset purchase agreement to acquire the software assets of veriScan. veriScan’s traveler verification solution is an integrated biometric facial recognition system that delivers a fast, secure, seamless boarding experience for airports and airlines meeting the U.S. Customs and Border Protection compliance requirements for biometric exit. veriScan biometrically verifies the identity of travelers, allowing their faces to serve as both their passport and, for many airlines, their boarding pass.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF PANGIAM

Overview

Pangiam aims to revolutionize the future of operations, security, and safety at airports, seaports, and land border crossings through the use of emerging technologies. Pangiam provides vision AI and biometrics products, and custom software solutions to transform customer efforts to secure and facilitate movement of increasing volumes of travelers and goods. Pangiam’s deep domain expertise enables Pangiam to solve its customer’s toughest challenges, through a combination of technology solutions and professional services.

Pangiam believes travel and border infrastructure needs to be modernized. The current ecosystem is challenged with aging infrastructure, outdated technology systems, and failures to adopt emerging technologies. From passenger check in and bag drop at security checkpoints, through security and customs clearance processes and on to boarding, the technologies in use today have created security gaps and inefficiencies. Pangiam combines its expertise using professional services with facial recognition technology, cloud-based applications, and data-driven digital identity solutions to improve efficiencies and to facilitate the safe, secure, and expedited movement of people and goods around the world.

Pangiam was founded by a team of customs and security professionals with decades of collective senior-level executive experience. Through innovation, emerging technologies, and the power of data, Pangiam solves the security, facilitation, and operational challenges of cross border movement of people and goods. As a team of experts and technologists from both the private and public sectors, Pangiam solves challenges by reimagining what is possible and designing and delivering solutions to achieve that vision.

Pangiam has built and acquired key capabilities and technologies that Pangiam uses to help its customers deliver mission-critical security applications. Today, a majority of Pangiam’s revenue comes from its government customers, whom Pangiam helps use cloud platforms to transform how they serve the public and achieve their missions. A growing portion of Pangiam’s revenue comes from its commercial customers, for whom Pangiam has adopted much of its know-how in the government services, combined with emerging technologies such as facial recognition and AI/computer vision capabilities, to deliver biometric and identity management solutions that solve real world problems.

Results of Operations

Components of Results of Operations

Revenues

Pangiam generates revenue by offering technology solutions and services to its customers, specializing in digital identity, biometrics, AI, machine learning, and advanced analytics software. Pangiam serves a diverse base of customers, including U.S. government agencies, airlines, airports, as well as various commercial enterprises. These customers rely on its expertise in vision AI, analytics capabilities, and innovative solutions to optimize operations, secure facilities, and verify identities.

Pangiam’s revenue growth is dependent on its ability to maintain and increase its market share, leverage overall market growth, and successfully develop and introduce new software solutions, designed to drive performance enhancements and to streamline its customer’s operations, securing facilities and facilitating identity verification.

Cost of Revenues and Gross Margin

Cost of revenues primarily includes salaries and benefits for personnel involved in performing the services described above, third-party professional services, products, amortization of certain intangible assets and other direct costs.

 

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Pangiam expects that cost of revenues will increase in absolute dollars as its revenues grow and will vary from period-to-period as a percentage of revenues. Pangiam also expects an increase in its gross margin as more revenue is generated from SaaS and Software sales.

Operating Expenses

Research and Development

Research and development expenses primarily consist of salaries, third-party professional services and fees, and benefits for personnel involved in research and development activities as well as allocated overhead. Research and development expenses are expensed in the period incurred.

Pangiam expects research and development expenses to decrease in future periods as a percentage of revenue when its products gain more adoption and its sales increase, and when Pangiam establishes technological feasibility and begins to capitalize software development costs. Pangiam may also continue to invest in research and development activities for its existing products to achieve its operational and commercial goals.

Selling, General and Administrative (“SG&A”)

SG&A expenses include, among other things, salaries and benefits for personnel involved in Pangiam’s executive, finance, accounting, legal, human resources, sales and marketing, and administrative functions, as well as third-party professional services and fees, and allocated overhead.

Pangiam expects that SG&A expenses will increase in absolute dollars as Pangiam hires additional personnel and enhance its systems, processes, and controls to support the growth in its business.

Transaction Expenses

Transaction expenses consist of diligence, legal and other acquisition-related expenses.

Pangiam may incur acquisition costs and other related expenses periodically in the future if Pangiam identifies acquisition opportunities to expand its technological capabilities.

Depreciation and Amortization

Depreciation and amortization expenses include depreciation expense associated with Pangiam’s utilization of property and equipment used to support its administrative functions, and amortization of its intangible assets, including acquired customer relationships and datasets over their expected period of use.

Goodwill Impairment

Goodwill impairment consists of a non-cash impairment of goodwill.

Non-Operating Expenses

Interest Expense

Interest expense consists primarily of interest incurred under Pangiam’s debt agreements.

Income Tax (Benefit) Expense

Income tax (benefit) expense consists of income taxes related to federal, state, and foreign jurisdictions in which Pangiam conducts business.

 

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Results of Operations

This section provides a discussion of the results of operations for the following periods:

 

i.

Nine-month period ended September 30, 2023

 

ii.

Nine-month period ended September 30, 2022

 

iii.

The year ended December 31, 2022

 

iv.

The year ended December 31, 2021

Comparison of the nine-months periods ended September 30, 2023 and September 30, 2022

The financial information and the discussion below should be read in conjunction with Pangiam’s unaudited condensed consolidated financial statements and notes thereto included in the section entitled “Financial Statements of Pangiam”.

 

		(Unaudited) For the nine months ended
In ‘000s, except percentages		September 30, 2023				September 30, 2022				Change
Condensed Consolidated Statements of Operations
Revenue		$	29,356			$	25,726			$	3,630				14.1	%
Cost of revenue			19,759				18,058				1,701				9.4	%
Gross margin			9,597				7,668				1,929				25.2	%
Research and development			7,559				3,848				3,711				96.4	%
Selling, general and administrative			13,205				13,847				(642	)			-4.6	%
Transaction expenses			996				—				996				0.0	%
Depreciation and amortization			1,808				1,755				53				3.0	%
Total operating expenses			23,568				19,450				4,118				21.2	%
Operating loss			(13,971	)			(11,782	)			(2,189	)			18.6	%
Interest expense, net			4,630				1,912				2,718				142.2	%
Loss before tax			(18,601	)			(13,694	)			(4,907	)			35.8	%
Income tax (expense) benefit			(190	)			136				(326	)			-239.7	%
Net loss		$	(18,791	)		$	(13,558	)		$	(5,233	)			38.6	%

Revenue

 

		(Unaudited) For the nine months ended
In ‘000s, except percentages		September 30, 2023								September 30, 2022								Change
Services		$	22,789				77.6	%		$	20,581				80.0	%		$	2,208				10.7	%
SaaS			1,183				4.0	%			813				3.2	%			370				45.5	%
Software licenses			2,075				7.1	%			579				2.3	%			1,496				258.4	%
Professional services			3,223				11.0	%			3,720				14.5	%			(497	)			-13.4	%
Other			86				0.3	%			33				0.1	%			53				160.6	%
Total revenue		$	29,356				100.0	%		$	25,726				100.0	%		$	3,630				14.1	%

Revenue increased by $3.6 million, or 14.1%, for the nine-month period ended September 30, 2023 compared to the nine-month period ended September 30, 2022. The increase was driven by $2.2 million organic growth of the services revenue primarily by the top two government-related customers. The remaining $1.4 million increase was driven by a $1.5 million increase in software licenses revenue from new long-term contracts entered into in 2023, an increase of $0.4 million of SaaS revenue attributed to veriScan installations partially offset by a decrease of $0.5 million in professional services revenue as a result of projects completion.

 

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Cost of revenue

Cost of revenue increased by $1.7 million, or 9.4%, for the nine-month period ended September 30, 2023 compared to the nine-month period ended September 30, 2022. The increase was driven mostly by an increase in direct labor costs of $1.2 million due to hiring of additional employees in connection with the organic growth of the government-related services revenue. Direct material costs also rose by $0.5 million due to new installations and ongoing contracts for certain airport customers.

Research and development

Research and development expenses increased by $3.7 million, or 96.4%, for the nine-month period ended September 30, 2023 compared to the nine-month period ended September 30, 2022. The increase was primarily driven by increased spend incurred in connection with Dartmouth.

SG&A

SG&A expenses decreased by $0.6 million, or 4.6%, for the nine-month period ended September 30, 2023 compared to the nine-month period ended September 30, 2022. The cost reduction was primarily driven by a $0.3 million decrease in marketing and advertising costs and another $0.2 million decrease in third-party consultant costs.

Transaction expenses

Transaction expenses were $1.0 million for the nine-month period ended September 30, 2023 compared to no transaction expenses for the nine-month period ended September 30, 2022. The increase was driven by certain due diligence efforts undertaken in merger pursuits during 2023, of which $0.3 million was incurred in connection with the Mergers.

Depreciation and amortization

Depreciation and amortization expenses increased by $0.1 million, or 3.0%, for the nine-month period ended September 30, 2023 compared to the nine-month period ended September 30, 2022. The increase was driven by an increase in leasehold improvements, computers, and equipment.

Interest expense, net

Interest expense, net increased by $2.7 million, or 142.2%, for the nine-month period ended September 30, 2023 compared to the nine-month period ended September 30, 2022. The increase was driven by the debt refinancing on June 2, 2022, which resulted in an increase to an average interest rate of 8.1% during the nine-months period ended September 30, 2023, compared to an interest rate of 2.75% for the first five months of 2022 prior to the refinancing. Changes in the refinanced loan terms include the incorporation of interest paid in kind into the principal. In addition to the higher interest rate, the average outstanding principal balance increased by $13 million to $74 million on the outstanding debt under the Original Loan Agreement (as defined below) and New Credit Agreement (as defined below) and Related Party Promissory Notes (as defined below) for the nine-months period ended September 30, 2023, compared to $61 million for the nine-months period ended September 30, 2022.

Income tax (benefit) expense

Income tax expense increased by $0.3 million, or 239.7%, for the nine-month period ended September 30, 2023 compared to the nine-month period ended September 30, 2022, driven by an increase in the annual effective tax rate. Pangiam’s quarterly provision for income taxes is measured using an estimated annual effective tax rate adjusted for discrete items that occur within the quarter.

 

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For the nine months ended September 30, 2023, Pangiam reported a tax provision of $0.2 million on pretax book loss of $18.6 million, which resulted in an effective tax rate of 1.0%. Pangiam’s effective tax rate differed from the U.S. statutory rate of 21% primarily due to the mix of earnings and unbenefited tax losses generated in the period.

For the nine months ended September 30, 2022, Pangiam reported a tax benefit of $0.1 million on pretax book loss of $13.7 million, which resulted in an effective tax rate of 1.0%. Pangiam’s effective tax rate differed from the U.S. statutory rate primarily due to the unbenefited tax losses generated in the period.

Comparison of the fiscal years ended December 31, 2022 and December 31, 2021

 

		For the years ended
In ‘000s except percentages		December 31, 2022				December 31, 2021				Change
Condensed Consolidated Statements of Operations
Revenue		$	34,532			$	28,013			$	6,519				23.3	%
Cost of revenue			24,391				19,747				4,644				23.5	%
Gross margin			10,141				8,266				1,875				22.7	%
Research and development			5,688				2,834				2,854				100.7	%
Selling, general and administrative			19,235				12,632				6,603				52.3	%
Transaction expenses			—				1,667				(1,667	)			(100.0	%)
Depreciation and amortization			2,358				2,146				212				9.9	%
Goodwill impairment			32,985				—				32,985				100.0	%
Total operating expenses			60,266				19,279				40,987				212.6	%
Operating loss			(50,125	)			(11,013	)			(39,112	)			355.1	%
Interest expense, net			3,097				1,075				2,022				188.1	%
Loss before tax			(53,222	)			(12,088	)			(41,134	)			340.3	%
Income tax benefit			258				200				58				29.0	%
Net loss		($	52,964	)		($	11,888	)		($	41,076	)			345.5	%

Revenue

 

		For the years ended
In ‘000s except percentages		December 31, 2022								December 31, 2021								Change
Services		$	27,601				79.9	%		$	24,483				87.4	%		$	3,118				12.7	%
SaaS			1,305				3.8	%			371				1.3	%			934				251.8	%
Software licenses			853				2.5	%			390				1.4	%			463				118.7	%
Professional services			4,715				13.7	%			2,718				9.7	%			1,997				73.5	%
Other			58				0.1	%			51				0.2	%			7				13.7	%
Total revenue		$	34,532				100.0	%		$	28,013				100.0	%		$	6,519				23.3	%

Revenue increased by $6.5 million, or 23.3%, for fiscal year 2022 compared to fiscal year 2021. The increase was driven by a $3.1 million increase in services revenue from Pangiam’s two top government-related customers, and $0.9 million increase in revenue from SaaS and $0.5 million from software licenses primarily due to an increase in veriScan and Trueface software products being sold for the entire year in 2022, compared to the periods of nine months for veriScan and seven months for Trueface software product post-acquisition in fiscal year 2021. Professional services revenue increased by $2.0 million in line with an increase in the number of consulting customers with larger volume contracts in fiscal year 2022 compared to fiscal year 2021.

 

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Cost of Revenue

Cost of revenue increased by $4.6 million, or 23.5%, for fiscal year 2022 compared to fiscal year 2021. The increase was primarily driven by increased direct labor costs of $4.3 million, and an increase in combined amortization costs of $0.2 million for veriScan software and Trueface intangible assets due to full year amortization in fiscal year 2022 versus nine months for veriScan and seven months for Trueface intangible assets for the post-acquisition period during fiscal year 2021.

Research and development

Research and development expenses increased by $2.9 million, or 100.7%, for fiscal year 2022 compared to fiscal year 2021. The increase is driven primarily by $1.8 million in third-party consultant and sub-contractor costs and $0.8 million in labor and software costs incurred on in-house research and development projects.

SG&A

SG&A expenses increased by $6.6 million, or 52.3%, for fiscal year 2022 compared to fiscal year 2021. The increase was driven primarily by higher compensation and benefits costs of $4.7 million from increased hiring as well as additions through the acquisition of Trueface, higher travel expenses of $0.7 million, increased use of consultants of $0.2 million and higher advertising and marketing spending of $0.3 million, and the commencement of a lease for Pangiam’s McLean, VA headquarters which resulted in an increase of $0.6 million in lease-related expense.

Transaction expenses

Pangiam did not incur any transaction expenses in fiscal year 2022, compared to $1.7 million incurred for due diligence, legal and other fees related to acquisitions in fiscal year 2021.

Depreciation and amortization

Depreciation and amortization expenses increased by $0.2 million, or 9.9% for fiscal year 2022 compared to fiscal year 2021. The increase in depreciation and amortization expenses was driven by the acquisition of $0.6 million in fixed assets during fiscal year 2022, which resulted in $0.1 million increase in depreciation expense, and $0.2 million acquisition of datasets, which resulted in the $0.1 million increase in amortization expense.

Goodwill impairment

Pangiam recognized a non-cash goodwill impairment charge of $33.0 million in fiscal year 2022, compared to no goodwill impairment charge in 2021.

Interest expense, net

Interest expense, net increased by $2.0 million, or 188.1%, for fiscal year 2022 compared to fiscal year 2021. The increase was driven by the debt refinancing on June 2, 2022, which resulted in an increase in interest rate to an average rate of 5.4% in 2022 from 2.75% in 2021 prior to the refinancing, as well as a change in the terms of the refinanced loan whereby interest paid in kind was added to the principal outstanding balance in fiscal year 2022. In addition to the higher interest rate, average principal outstanding balance increased by $23.1 million to $61.7 million in fiscal year 2022 on the outstanding debt under the Original Loan Agreement (as defined below) and New Credit Agreement (as defined below) and Related Party Promissory Notes (as defined below), compared to $38.6 million in fiscal year 2021.

 

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Income tax benefit

Income tax benefit increased by $0.1 million or 29.0% for fiscal year ended 2022 compared to fiscal year 2021. The increase was driven by a lower effective tax rate of 0.5% for the year ended December 31, 2022, compared to 1.7% for the year ended December 31, 2021. Pangiam’s effective tax rates were below the 21% statutory rate primarily due to non-deductible goodwill and changes in valuation allowance.

As of December 31, 2021, Pangiam determined that it is more likely that Pangiam would not be able to utilize its net deferred tax assets and has established a valuation allowance against its net deferred tax assets. As of December 31, 2022, Pangiam determined that it is more likely that substantially all of its deferred tax assets will not be realized in the future and continues to have a valuation allowance established against its net deferred tax assets.

Liquidity and Capital Resources

Since inception, Pangiam has funded operations through internally generated revenues, supplemented by proceeds from the issuance of debt and equity issued to AEIP, Pangiam’s majority investor (the “Pangiam Majority Investor”). Management assesses liquidity in terms of Pangiam’s ability to generate adequate amounts of cash to meet current and future liquidity needs. The expected primary uses of cash on a short and long-term basis are for working capital requirements, capital expenditures, and other general corporate services. The primary working capital requirements are for project execution activities, including payroll costs driven primarily by the timing and extent of activities required on new and existing projects. Capital expenditures are primarily related to IT equipment, computers, software, and leases.

Related Party Promissory Notes

During 2021, Pangiam received a loan of $2.0 million from the Pangiam Majority Investor which was used by Pangiam to provide a bidding deposit on a project during 2021. During 2022, the loan was increased by $0.9 million, and the entire balance was converted into promissory notes on November 29, 2022 due in November 2023 (the “Related Party Promissory Notes”). The promissory notes due to the Pangiam Majority Investor totaled $2.9 million for the amounts received as of December 31, 2022.

During 2023, Pangiam drew an additional $5.0 million through September 30, 2023 and extended the maturity date to November 29, 2025. The interest rate is one-month term secured overnight financing rate (“SOFR”), plus 3.25%, effective from November 29, 2022, and interest is paid-in-kind until the principal is due. Additional information about transactions after September 30, 2023 are discussed in the section entitled “Subsequent Events”.

Loan Agreements with Third Parties

On December 30, 2020, Pangiam entered into a loan agreement with a third-party lending institution, Silicon Valley Bank (the “Original Loan Agreement”) for $28.8 million at a 2.75% interest rate. The Original Loan Agreement was guaranteed by the Pangiam Majority Investor, and matured at the earlier of December 31, 2021, or the guarantor facility maturity date (i.e., October 3, 2022).

During 2021, Pangiam executed four amendments to the Original Loan Agreement to receive an additional $32.7 million and extend the maturity date to October 3, 2022. An amount of $9.3 million was repaid on March 29, 2021. The outstanding loan payable and accrued interest under the Original Loan Agreement was $52.3 million of which $0.1 million was accrued interest as of December 31, 2021.

On January 31, 2022, Pangiam entered into a fifth amendment to the Original Loan Agreement resulting in a term loan advance of $9.0 million being made to Pangiam.

 

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On June 3, 2022, the balance of $61.2 million under the Original Loan Agreement was refinanced, whereby Pangiam entered into a new promissory note with a new third-party financial institution (the “New Credit Agreement”). The New Credit Agreement is a credit facility of the Pangiam Majority Investor where Pangiam is a qualified borrower. The New Credit Agreement provides for a maximum outstanding principal of $350.0 million and is fully guaranteed by the Pangiam Majority Investor and is repayable on demand. The outstanding loan payable and accrued interest under the New Credit Agreement was $72.1 million of which accrued interest was $6.4 million as of September 30, 2023.

Pangiam believes that its existing cash, coupled with the support from the Pangiam Majority Investor, is adequate to sustain anticipated operations until achieving positive cash flow, based on the current operating plan. Because the process of conducting research and development activities on new technologies is costly and the timing of progress is uncertain, it is possible that the assumptions upon which Pangiam has based this estimate may prove to be wrong, and Pangiam could use its capital resources sooner than Pangiam currently expect. Pangiam’s ability to fund its cash needs will depend, in part, on its ability to generate cash in the future, which depends on its future financial results. Pangiam’s future results are subject to general economic, financial, competitive, legislative, and regulatory factors that may be outside of its control. Its future access to, and the availability of credit on acceptable terms and conditions, is impacted by many factors, including capital market liquidity and overall economic conditions. Refer to Note 2 – Summary of Significant Accounting Policies in the Notes to Pangiam’s Consolidated Financial Statements for going concern considerations.

Cash Flows Analysis

The table below summarizes certain information from Pangiam’s consolidated statements of cash flows for the following periods:

 

		(Unaudited) Nine months Ended September 30								Fiscal Year Ended December 31
In ‘000s		2023				2022				2022				2021
Net cash used in operating activities		$	(10,591	)		$	(10,598	)		$	(13,642	)		$	(8,182	)
Net cash used in investing activities			(117	)			(776	)			(785	)			(23,478	)
Net cash provided by financing activities			9,500				9,000				9,850				36,883
Effect of foreign exchange rate changes on cash and restricted cash			(44	)			—				5				—
Net increase/(decrease) in cash and restricted cash during the period			(1,252	)			(2,374	)			(4,572	)			5,223
Cash and restricted cash at the beginning of the period			3,498				8,070				8,070				2,847
Cash and restricted cash at the end of the period		$	2,246			$	5,696			$	3,498			$	8,070

Nine-month period ended September 30, 2023

Net cash used in operating activities was $10.6 million during the nine-months period ended September 30, 2023. Total cash used in operating activities during the period was driven by the net loss of $18.8 million adjusted for non-cash charges which primarily included $2.7 million related to depreciation and amortization and $4.6 million in non-cash interest expense. Cash used in operating activities was offset by an overall increase in Pangiam’s net operating assets and liabilities, primarily its net working capital accounts, resulting in an inflow of $0.7 million.

Net cash used in investing activities was $0.1 million for the nine-month period ended September 30, 2023, and is directly attributed to the purchase of dataset intangible assets and additional property and equipment.

 

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Net cash provided from financing activities was $9.5 million for the nine-month period ended September 30, 2023. The financing included $5.0 million proceeds from the Related Party Promissory Notes and $4.5 million proceeds from the New Credit Agreement to fund on-going operational needs of the business.

Nine-month period ended September 30, 2022

Net cash used in operating activities was $10.6 million during the nine-months period ended September 30, 2022. Total cash used during the period was driven by the net loss of $13.6 million adjusted for non-cash charges which primarily included $2.7 million related to depreciation and amortization and $1.0 million in non-cash interest expense. Cash used in operating activities had an overall decrease in Pangiam’s net operating assets and liabilities, primarily its net working capital accounts, resulting in an outflow of $0.5 million.

Net cash used in investing activities was $0.8 million for the nine-month period ended September 30, 2022. This amount is directly attributable to $0.2 million purchase of dataset intangible assets, and $0.6 million purchase of leasehold improvements and furnishments of Pangiam’s headquarters office space, and additional purchases of computer equipment for the increased hiring activity.

Net cash provided from the financing activities was $9.0 million for the nine-month period ended September 30, 2022. Pangiam refinanced its term loan under the New Credit Agreement with a different lender. The financing activities included $70.2 million proceeds from a new term loan offset by a $61.2 million repayment of the original term loan.

Fiscal Year 2022

Net cash used in operating activities was $13.6 million during the fiscal year 2022. Total cash used during the period was driven by the net loss of $53.0 million adjusted for non-cash charges which primarily included $33.00 million related to goodwill impairment, $3.6 million related to depreciation and amortization, and $2.2 million in non-cash interest expense. Cash used in operating activities was offset by an overall increase in Pangiam’s net operating assets and liabilities, primarily its net working capital accounts, resulting in an inflow of $0.8 million.

Cash used in investing activities was $0.8 million during the fiscal year 2022. This amount is directly attributable to the purchase of dataset intangible assets for $0.2 million, leasehold improvements and furnishments of Pangiam’s headquarters office space for $0.5 million, and additional purchases of $0.1 million of computer equipment for the increased headcount.

Net cash provided by financing activities was $9.9 million during the fiscal year 2022. Pangiam refinanced its term loan under the New Credit Agreement with a different lender. The financing activities included $70.2 million proceeds from a new term loan and $0.9 million proceeds from a Related Party Promissory Notes offset by $61.2 million repayment of the original term loan.

Fiscal Year 2021

Net cash used in operating activities was $8.2 million during the fiscal year 2021. Total cash used during the period was driven by the net loss of $11.9 million adjusted for non-cash charges which primarily included $3.1 million related to depreciation and amortization. Cash used in operating activities was offset by an overall increase in Pangiam’s net operating assets and liabilities, primarily its net working capital accounts, resulting in an inflow of $0.6 million.

Cash used in investing activities was $23.5 million during the fiscal year 2021 directly attributed to acquisitions of $12.4 million for Trueface and $10.7 million for veriScan. The remaining investment activities relate to $0.2 million leasehold improvements on Pangiam’s headquarters office space and $0.2 million of other investments.

 

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Cash provided from financing activities was $36.9 million during the fiscal year 2021. Cash received included $10.7 million proceeds from issuance of units, $2.8 million from the Related Party Promissory Notes, $32.7 million proceeds from the term loan and was offset by $9.3 million repayment of the Original Loan Agreement.

Subsequent Events

As disclosed in the subsequent events footnote to Pangiam’s unaudited condensed consolidated financial statements for the nine-months ended September 30, 2023, included in the section entitled “Financial Statements of Pangiam”, the following transactions took place after the end of the period.

During October 2023, Pangiam borrowed $2.5 million of new promissory notes from the Pangiam Majority Investor.

On October 23, 2023, Pangiam refinanced its Related Party Promissory Notes to extend the maturity date to November 29, 2025. See Note 10—Debt in the Notes to Consolidated Financial Statements for additional information related to the Related Promissory Notes.

On November 4, 2023, Pangiam entered into the Merger Agreement as further described in the section entitled “The Merger Agreement”.

The consideration to be received consists of shares of BBAI Common Stock. The number of shares issued will be based off an agreed enterprise value of $70.0 million and a price per share of BBAI Common Stock of $1.3439 which represents the 20-day VWAP for BBAI Common Stock ending on the trading day immediately prior to the date of the Merger Agreement. The purchase price is subject to customary adjustments for indebtedness, cash, working capital, and transaction expenses. Initially $3.5 million of shares of BBAI Common Stock will be held back at the time of the closing of the Merger to cover any post-Closing adjustments to the Purchase Price. For further information, see the section entitled “The Merger Agreement—Merger Consideration”.

The Closing is subject to customary closing conditions, including approval by the holders of a majority of BBAI’s shareholders and receipt of regulatory approval. On January 10, 2024, BBAI received written confirmation from the United Kingdom Secretary of State that he would be taking no further action in relation to the Mergers, thereby enabling the lawful consummation of the Mergers for the purposes of the relevant United Kingdom legislation. The Merger Agreement contains termination rights for Pangiam and BBAI, including in the event that the Mergers are not consummated by August 4, 2024. Each party may also terminate the Merger Agreement if the other party breaches its representations, warranties or covenants in a manner that would lead to the failure of a condition, subject to a 30-day cure period. For further information, see the section entitled “The Merger Agreement”.

Pangiam drew an additional $3.5 million on January 4, 2024, under its New Credit Agreement to fund operations prior to the closing of the transactions contemplated by the Merger Agreement from the Pangiam Majority Investor. This transaction represents a related party transaction.

Contractual Obligations and Commitments

The contractual obligations include long-term borrowings, operating lease commitments, and certain purchase obligations.

Long-Term Borrowing Obligations

This includes Related Party Promissory Notes from the Pangiam Majority Investor. See Note 10—Debt in the Notes to Consolidated Financial Statements for additional information related to long-term borrowing obligations.

 

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Operating Lease Obligations

Operating lease obligations includes non-cancelable lease terms. See Note 9—Leases in the Notes to Consolidated Financial Statements in the section entitled “Financial Statements of Pangiam” for additional information related to operating lease obligation.

Purchase Obligations

Pangiam has outstanding firm purchase orders with certain suppliers for the purchase of consulting services and certain software licenses most of which are generally short-term in nature. As of September 30, 2023, its purchase obligations were approximately $1.4 million. Pangiam intends to use its existing cash balances, together with anticipated cash flows from operations to fund its existing and future contractual obligations.

Off Balance Sheet- Arrangements

Pangiam does not participate in off-balance sheet financial arrangements.

Recently Adopted Accounting Pronouncements

Refer to Note 2 – Summary of Significant Accounting Policies in the Notes to Pangiam’s Consolidated Financial Statements included in the section entitled “Financial Statements of Pangiam” of this proxy statement for a discussion of recently adopted accounting pronouncements.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk

Pangiam is exposed to market risk in the ordinary course of its business. Market risk represents risk of loss that may impact its financial position due to adverse changes in financial market prices and rates. Pangiam’s market risk exposure primarily relates to changes in interest rates. Its financial instruments that are subject to interest rate risk principally include variable-rate debt (payable on demand), which bears interest monthly at 3.25% plus one-month SOFR. As of September 30, 2023, the outstanding principal amount of Pangiam’s debt was $72.1 million, including paid in kind interest of $6.4 million, and $8.2 million from a related party, including paid in kind interest of $0.4 million. As of December 31, 2022, the outstanding principal amount of its debt was $63.4 million, including paid in kind interest of $2.1 million, and $2.9 million from its related party, including paid in kind interest of $0.02 million.

Inflation affects the way Pangiam operates in its target markets. In general, Pangiam believes that, over time, Pangiam will be able to increase prices to counteract the majority of the inflationary effects of increasing costs and to generate sufficient cash flows to maintain its productive capability.

Concentration

Major Customers

Pangiam’s customer base consists primarily of government-related subcontractors and commercial customers. The loss of any one of its top two customers could have a materially adverse effect on the revenue and profits of Pangiam.

The following table sets forth the revenue from Pangiam’s customers that exceeded 10% of its total revenue during the periods presented below. No other customer besides its top two customers exceeded 10% of Pangiam’s total revenue.

 

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		(Unaudited) As of September 30,																As of December 31,
In ‘000s, except percentages		2023								2022								2022								2021
Customer A		$	12,073				41	%		$	10,498				41	%		$	14,035				41	%		$	7,905				28	%
Customer B		$	10,506				36	%		$	9,795				38	%		$	13,194				38	%		$	16,183				58	%
All others		$	6,777				23	%		$	5,433				21	%		$	7,303				21	%		$	3,925				14	%

Trade accounts receivables and contract assets are from entities with which Pangiam performs under subcontracts for the U.S. government, airlines, airports, and other commercial customers and, as such, Pangiam is exposed to normal industry credit risks. Pangiam periodically evaluates its reserves for potential credit losses and establish reserves for such losses.

The following table sets forth the total accounts receivable from Pangiam’s top customers that exceed 10% of its total accounts receivable during the periods presented below. No other customer besides its top two customers exceeded 10% of Pangiam’s total accounts receivable.

 

		(Unaudited) As of September 30,																As of December 31,
In ‘000s, except percentages		2023								2022								2022								2021
Customer A		$	1,300				20	%		$	2,529				43	%		$	2,329				39	%		$	1,066				33	%
Customer B		$	2,800				44	%		$	929				16	%		$	1,058				18	%		$	1,018				31	%
All others		$	2,263				36	%		$	2,463				41	%		$	2,539				43	%		$	1,176				36	%

Major Suppliers

Pangiam’s suppliers provide goods and services in the ordinary course of business. Pangiam depends on one supplier to provide services to develop its new commercial software product. The loss of this supplier could have a materially adverse effect on Pangiam’s ability to continue research and development activities until Pangiam transfers these activities in-house or identifies another supplier. Pangiam incurred $2.6 million for the nine-month period ended September 30, 2023, and $1.6 million for fiscal year 2022 in expense related to this supplier.

Credit Risk

Financial instruments that potentially expose Pangiam to concentrations of credit risk consist primarily of cash, restricted cash, and accounts receivable. Pangiam places its cash with financial institutions of high credit quality. At times, such amounts may exceed federally insured limits. Cash and restricted cash on deposit with financial and lending institutions was $2.2 million and $3.5 million, as of September 30, 2023 and December 31, 2022, respectively.

Critical Accounting Policies and Estimates

This section discusses the accounting policies and estimates that Pangiam considers important to its financial condition and results of operations and that require significant judgment and estimates on the part of management in their application. In addition, Pangiam’s significant accounting policies, including critical accounting policies, are summarized in Note 2 to the accompanying Notes to Pangiam’s Consolidated Financial Statements.

For the critical accounting estimates used in preparing its consolidated financial statements, Pangiam makes assumptions and judgments that can have a significant impact on revenue and expenses in its consolidated statements of operations, as well as on the value of certain assets and liabilities on its consolidated balance sheets. Pangiam bases its assumptions, judgments and estimates on historical experience and various other factors that Pangiam believes are reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. Pangiam believes the following critical accounting policies affect the more significant estimates, assumptions, and judgments that Pangiam uses to prepare its consolidated financial statements.

 

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Business Combinations, Goodwill and Intangible Assets

Under the acquisition method of accounting, Pangiam recognizes tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at acquisition date. The accounting for business combinations requires Pangiam to make significant estimates and assumptions, especially with respect to goodwill and intangible assets.

Goodwill

Pangiam allocates the fair value of purchase consideration in a business combination to tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is allocated to goodwill. The allocation of the purchase consideration requires management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates can include, but are not limited to, future expected cash flows from acquired customers and acquired technology from a market participant perspective, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable, and, as a result, actual results may differ from estimates. During the measurement period, which is up to one year from the acquisition date, Pangiam may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Pangiam assesses goodwill for impairment at least annually, as of December 31, and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. For the purposes of impairment testing, Pangiam has determined that Pangiam has two reporting units. Pangiam’s test of goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed.

The discounted cash flow approach requires management to make certain assumptions based upon information available at the time the valuations are performed. Actual results could differ from these assumptions. Pangiam believes the assumptions used are reflective of what a market participant would have used in calculating fair value considering current economic conditions.

Additional risks for goodwill across all reporting units include, but are not limited to:

 

i.

Pangiam’s failure to reach its internal forecasts could impact its ability to achieve its forecasted levels of cash flows and reduce the estimated discounted value of its reporting units;

 

ii.

adverse technological events that could impact Pangiam’s performance;

 

iii.

volatility in equity and debt markets resulting in higher discount rates; and

 

iv.

significant adverse changes in the regulatory environment or markets in which Pangiam operates.

It is not possible at this time to determine if an impairment charge would result from these factors. Pangiam will continue to monitor its goodwill for potential impairment indicators in future periods.

Goodwill Impairment Testing

During the fiscal year ended December 31, 2022, Pangiam identified factors indicating that the fair value of the reporting units may be less than their respective carrying amounts. These factors were related to the decline in overall market conditions, which resulted in lower revenues and related cash flows than anticipated during the period. As a result, Pangiam determined that a quantitative goodwill impairment assessment should be performed.

 

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Pangiam utilized a combination of the discounted cash flow method of the income approach. Under the income approach, the future cash flows of Pangiam’s reporting units were projected based on estimates of future revenues, gross margins, operating income, excess net working capital, capital expenditures, and other factors. Pangiam utilized estimated revenue growth rates and cash flow projections. Pangiam then estimated fair value of its reporting units as of the valuation date. The carrying value of the reporting units exceeded its fair value and accordingly Pangiam recorded a goodwill impairment charge of $33.0 million for the year ended 2022, which is included within the consolidated statements of operations.

Intangible assets

Identifiable finite-lived intangible assets have been acquired through Pangiam’s various business combinations. The fair value of the acquired intangible assets have been estimated using various underlying judgments, assumptions, and estimates. Potential changes in the underlying judgments, assumptions, and estimates used in Pangiam’s valuations of acquired intangible assets could result in different estimates of the future fair values. A potential increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in estimated fair values, which may result in impairment charges that could materially affect Pangiam’s financial statements in any given year. The approaches used for determining the fair value of finite-lived technology, dataset, and customer relationships acquired depends on the circumstances. Pangiam has used the income approach (within the income approach, various methods are available such as multi-period excess earnings, with and without incremental relief from royalty methods).

Finite-lived intangible assets are reported at cost, net of accumulated amortization, and are amortized on a straight-line basis over their estimated useful lives. Significant judgment is also required in assigning the respective useful lives of intangible assets. Pangiam’s assessment of intangible assets that have a finite life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, attrition rate, operating plans, cash flows (i.e., economic life based on the discounted and undiscounted cash flows), future usage of intangible assets and the macroeconomic environment.

Pangiam evaluates the recoverability of its intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amounts to the future undiscounted cash flows the intangible assets are expected to generate. If such review indicates that the carrying amount of its intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value.

Revenue Recognition

The recognition and measurement of revenue requires the use of judgments and estimates. Specifically, judgment is used in interpreting complex arrangements with non-standard terms and conditions and determining when all criteria for revenue recognition have been met. Pangiam’s revenues are derived from the sale of term-based subscription SaaS arrangements, term-based software licenses, technical consulting solutions and services, and professional services.

Pangiam engages in short-term and long-term contracts for the subscription SaaS, software licenses, and professional services activities. For service arrangements Pangiam generally performs under T&M contracts. For consulting arrangements, Pangiam generally performs under fixed fee arrangements.

Pangiam assesses each contract at its inception to determine whether it should be combined with other contracts. When making this determination, Pangiam considers factors such as whether two or more contracts were negotiated and executed at or near the same time or were negotiated with an overall profit objective. If combined, Pangiam treats the combined contracts as one single contract for revenue recognition purposes.

 

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Pangiam evaluates the solutions or services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. Significant judgment is required in determining performance obligations, and these decisions could change the amount of revenue and profit recorded in a given period.

Pangiam determines the transaction price for each contract based on the consideration Pangiam expects to receive for the solutions or services being provided under the contract. For contracts where a portion of the price may vary, Pangiam estimates variable consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. Pangiam analyzes the risk of a significant revenue reversal and if necessary, constrains the amount of variable consideration recognized in order to mitigate this risk.

At the inception of a contract, Pangiam estimates the transaction price based on its current rights and does not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Pangiam’s contracts may contain options to renew existing contracts for an additional period of time (generally a year at a time) under the same terms and conditions as the original contract, and generally do not provide the customer any material rights under the contract. Pangiam accounts for renewal options as separate contracts when they include distinct goods or services at standalone selling prices.

For contracts with multiple performance obligations, Pangiam allocates the transaction price to each performance obligation based on the estimated standalone selling price of the solution, license, or service underlying each performance obligation.

Pangiam recognizes revenue as performance obligations are satisfied and the customer obtains control of the solutions and services. In determining when performance obligations are satisfied, Pangiam considers factors such as contract terms, payment terms and whether there is an alternative future use of the solution or service. Pangiam recognizes revenue at a point in time for certain software licenses. Professional services performance obligations are generally satisfied over time, as services are performed or at a point in time when services or training activities are completed. Professional services may include incidental hardware which the customer may purchase through Pangiam or on its own. Revenue from sales of hardware is generally recognized at a point in time when the control passes to the customers. For all other arrangements, including subscription SaaS and professional and consulting services, revenue is recognized over time or as services are performed based on the amounts invoiced to the customer.

In most arrangements, Pangiam receives cash consideration in exchange for the sale of services or products. When non-cash consideration is received, Pangiam evaluates the fair value of the non-cash consideration as of the inception date of the arrangement.

Research & Development

Pangiam applies provisions of ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed to account for software development costs. Pangiam has not established technological feasibility for Dartmouth in accordance with ASC 985-20-25-1. Currently, the costs associated with planning new developments and maintaining Pangiam’s software products are expensed as incurred. There is judgment involved in determination of the stage and nature of the development activities and whether the costs should be capitalized, and a significant change to this determination could have a material impact on the amount capitalized or expensed in subsequent periods.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF PANGIAM

The following summary historical financial data reflects the assets and results of operations and other operating data of the operations of Pangiam and its subsidiaries and should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Pangiam” and the consolidated financial statements and the related footnotes included in the section entitled “Financial Statements of Pangiam”. The summary historical consolidated statement of operations for the nine-month periods ended September 30, 2023 and September 30, 2022 and the years ended December 31, 2022 and December 31, 2021, and the consolidated balance sheet data as of September 30, 2023 and December 31, 2022 and December 31, 2021 are derived from Pangiam’s unaudited condensed consolidated financial statements and its audited consolidated financial statements, respectively, included in the section entitled “Financial Statements of Pangiam”.

Consolidated Statements of Operations Data:

 

		Unaudited Nine Months Ended September 30								Fiscal Year Ended December 31
In ‘000s		2023				2022				2022				2021
Revenue		$	29,356			$	25,726			$	34,532			$	28,013
Cost of revenue			19,759				18,058				24,391				19,747
Gross margin			9,597				7,668				10,141				8,266
Research and development			7,559				3,848				5,688				2,834
Selling, general and administrative			13,205				13,847				19,235				12,632
Transaction expenses			996				—				—				1,667
Depreciation and amortization			1,808				1,755				2,358				2,146
Goodwill impairment			—				—				32,985				—
Total operating expenses			23,568				19,450				60,266				19,279
Operating loss			(13,971	)			(11,782	)			(50,125	)			(11,013	)
Interest expense, net			4,630				1,912				3,097				1,075
Loss before tax			(18,601	)			(13,694	)			(53,222	)			(12,088	)
Income tax (expense) benefit			(190	)			136				258				200
Net loss		$	(18,791	)		$	(13,558	)		$	(52,964	)		$	(11,888	)

Consolidated Balance Sheet Data:

 

		Unaudited As of September 30,								As of December 31,
In ‘000s		2023				2022				2022				2021
Working capital (1)		$	(73,284	)		$	(58,498	)		$	(61,370	)		$	(46,457	)
Total assets			76,329				114,762				78,859				118,384
Total non-current liabilities			14,709				6,989				9,480				7,215
Capital contributions			66,032				66,031				66,032				66,032
Total accumulated deficit		$	(86,808	)		$	(28,616	)		$	(67,944	)		$	(14,980	)

 

(1)	Working capital is defined as current assets, less current liabilities.

 

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