Indaba Capital Management L.P. (together with its affiliates, “Indaba” or “we”), which is the largest shareholder of Tabula Rasa HealthCare Inc. (NASDAQ: TRHC) (“Tabula Rasa” or the “Company”) with an ownership interest of approximately 25% of the Company’s outstanding shares, today issued an open letter to the independent members of the Company’s Board of Directors (the “Board”): Samira K. Beckwith, Jan Berger, MD, MJ, Dennis K. Helling, PharmD, ScD, Kathy O’Brien, Michael Purcell and Rear Admiral Pamela Schweitzer, PharmD (retired).
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Independent Directors,
As you know, Indaba is Tabula Rasa’s largest shareholder by a significant margin and holds more than seven times the number of shares owned by the current Board.1 While we prefer to have a constructive, private dialogue with you, your apparent disregard for sound corporate governance and unwillingness to substantively engage with us forces us to once again make our concerns public. Today, we are writing to demand answers to the following questions:
- Why are you refusing to directly engage with us despite our substantial shareholdings, valid concerns and willingness to collaborate on a necessary Board refresh?
- Why did you feel it was appropriate to dilute shareholders in order to issue more equity to Chief Executive Officer and Chairman Dr. Calvin H. Knowlton, President and Director Dr. Orsula V. Knowlton and their relatives – especially given shareholders’ resounding “withhold” votes against the Knowltons and opposition to the executive compensation proposal at the 2022 Annual Meeting of Shareholders (the “Annual Meeting”)?
- Why are you unwilling to reduce the boardroom influence of the husband-and-wife management team by demanding the resignations of the Knowltons from the Board? You approved a term sheet from Indaba that provided for their resignations earlier in the summer.
While Mr. Tunstall’s and Ms. Beckwith’s apparent intransigence can be explained by their conflicts and historical interlocks to the Knowltons, we cannot understand why the rest of you continue to ignore the highly problematic governance issues plaguing the Company today. Your silence and unwillingness to take action force us – and presumably other shareholders – to conclude you may not take your service on this Board seriously. In our view, independent directors who want to disassociate themselves from egregious governance practices and protect all shareholders would retain their own legal counsel to either commence an independent investigation of the Knowltons’ various self-serving acts or add new independent directors who will have the courage to do so. We hope you finally engage in good faith with us and take actions that benefit all shareholders, instead of acting in conflict with the shareholders to whom you owe your fiduciary duties.
With respect to your decision to approve more dilutive equity compensation that benefits the Knowltons, we remain confounded. The decision calls into question your independence given the overwhelming investor rebuke of the Knowltons at this year’s Annual Meeting, whereat approximately three out of four shareholders voted down the egregious compensation package put forth for the Company’s named executive officers. This year’s generous award also comes on the heels of the Knowltons’ value-destructive share pledging transactions. Shareholders are now being forced to suffer approximately 3% dilution despite the Company’s share price being down more than 65% year-to-date, the vast majority of shareholders voting against the Company’s say-on-pay vote at this year’s Annual Meeting and the Knowltons already having received millions of dollars in equity grants in the preceding years.This is all in the face of both of the Knowltons receiving a majority of “withhold” votes cast at the Annual Meeting by unaffiliated stockholders, which we understand to be exceedingly rare.
We certainly hope you are not accommodating the Knowltons because they may be in financial distress after recently being forced to sell a majority of their Tabula Rasa shares under pledging arrangements. We suspect this selling may have been undertaken to finance the development of a home that has been described as a “44,000+ square foot mega mansion” with “6 bedrooms, 12 bathrooms, grand double staircase, elevator, formal living & dining rooms, gourmet kitchen, breakfast room, family room, 2-story library, 2-story great room/ballroom, home theater, golf simulator, wine cellar, indoor pool, garage and more.”2 We believe more disclosure is required to explain why this was the right time to essentially take from aggrieved shareholders and employees and give to the Knowltons and their relatives – and we intend to do everything it takes to claw back these egregious grants on behalf of all stockholders. Prioritizing and perpetuating nepotism at a publicly traded company is a sure way to lose favor with employees, partners, customers and shareholders alike. To put it bluntly, we believe your actions are unjustifiably putting the Company’s business and its stakeholders at serious risk.
Lastly, you should explain why you backtracked on your support for having the Knowltons step down from the Board. We were informed that the independent directors voted in a unanimous manner to approve our term sheet, which included the resignations of the Knowltons from the Board. You must recognize the absurdity of the Company’s corporate governance and conflicts of interest. We note that if the Knowltons will not voluntarily resign from the Board, they will be required to step off the Board if they are terminated from their employment with the Company – thereby allowing the independent directors to achieve the very result they previously supported. Backtracking on a previously approved term sheet is a very curious move that raises questions about where your allegiance really lies.
We expect to receive prompt answers through either direct engagement or a public disclosure. We are going to continue shining light on your apparent prioritization and protection of the Knowltons, their relatives and their friends – in an increasingly detailed manner – until the status quo changes. We can assure you that, as the Company’s largest shareholder, we will not tire in this pursuit and the longer this journey takes, the endgame is no less inevitable and the risk each of you bear as individuals will likely only increase.
Sincerely,
Derek Schrier
Managing Partner
| Alex Lerner Partner Indaba Capital Management, L.P. |
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About Indaba Capital
Indaba was founded in 2010 to invest in corporate equity and debt. Based in San Francisco, Indaba manages approximately $1.5 billion in assets. Learn more at www.IndabaCapital.com.
1 Prior to the Board’s recently disclosed grant of 525,000 shares of restricted stock to the Knowltons, Indaba held approximately seven times the number of shares owned by the current Board.
2 Homes of the Rich, "44,000+ Square Foot Mega Mansion Under Construction In New Jersey (FLOOR PLANS)," February 13, 2022 (link).
View source version on businesswire.com: https://www.businesswire.com/news/home/20220809005485/en/
