Item 1.01 Entry into a Material Definitive
Agreement
Agreement and Plan of Merger
On December 20, 2020, HMS Holdings Corp.,
a Delaware corporation (“HMS”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with
Gainwell Acquisition Corp., a Delaware corporation (“Gainwell”), Mustang MergerCo Inc., a Delaware corporation and
wholly owned subsidiary of Gainwell (“Merger Sub”), and Gainwell Intermediate Holding Corp., a Delaware corporation
(“Intermediate Holdco”). The Merger Agreement provides that, upon the terms and subject to the satisfaction or waiver
of the conditions set forth therein, Merger Sub will merge with and into HMS (the “Merger”), with HMS continuing as
the surviving corporation and a wholly owned subsidiary of Gainwell. The board of directors of HMS (the “HMS Board”)
has unanimously approved the Merger Agreement and the transactions contemplated thereby (including the Merger) and directed that
the Merger Agreement be submitted to the stockholders of HMS for their adoption.
Pursuant to the terms of the Merger Agreement,
at the effective time of the Merger (the “Effective Time”) and as a result of the Merger, each share of common stock
of HMS issued and outstanding immediately prior to the Effective Time will be cancelled and extinguished and, except with respect
to shares held by Gainwell or any subsidiary of Gainwell (or any of their respective subsidiaries), by a subsidiary of HMS, in
the treasury of HMS or by a stockholder who properly exercises and perfects appraisal of his, her or its shares under Delaware
law, automatically converted into and thereafter represent the right to receive $37 in cash (the "Merger Consideration").
In addition, immediately prior to the Effective Time and as a result of the Merger, (a) each option to purchase shares of HMS common
stock with an exercise price that is less than the Merger Consideration that is outstanding and unexercised immediately prior to
the Effective Time, whether vested or unvested, will be cancelled and converted into the right to receive a cash payment equal
to the product of the Merger Consideration, net of the exercise price (and subject to applicable tax withholding) and the aggregate
number of shares subject to the option, (b) each option to purchase shares of HMS common stock with an exercise price that is equal
to or greater than the Merger Consideration that is outstanding and unexercised immediately prior to the Effective Time, whether
vested or unvested, will be cancelled for no consideration, (c) except as set forth in item (d) of this sentence, each award of
restricted stock units and deferred stock units covering shares of HMS common stock that is outstanding immediately prior to the
Effective Time, will be cancelled and converted into the right to receive a cash payment equal to the product of the Merger Consideration
and the aggregate number of shares subject to the award (with any performance-based goals deemed to be achieved at the “target”
level of performance, and subject to applicable tax withholding) and (d) each award of restricted stock units covering shares of
HMS common stock that is granted or awarded after the signing date of the Merger Agreement and that is outstanding immediately
prior to the Effective Time, will be cancelled and converted into the right to receive a cash payment equal to the product obtained
by multiplying (i) the product of the number of shares of HMS common stock underlying the award and a fraction, the numerator of
which is the number of days completed from the date of grant until the closing date of the Merger (the “Closing Date”)
and the denominator of which is 1,095, and (ii) the Merger Consideration (subject to applicable tax withholding).
The consummation of the Merger is subject
to customary closing conditions, including, among others, the following mutual conditions to the obligations of the parties: (i)
the adoption of the Merger Agreement by the holders of a majority of HMS's outstanding common stock; (ii) any applicable waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 having expired or having been terminated; (iii) the
Merger having not then been enjoined, restrained, made illegal or otherwise prohibited by any applicable law or any order, judgment,
decree, injunction or ruling (whether preliminary or final) of any governmental authority; (iv) the truth and accuracy of
the other party's representations and warranties in the Merger Agreement, subject in certain cases to a materiality or material
adverse effect (each as described in the Merger Agreement) standard; and (v) the compliance with or performance, in all material
respects, or in certain instances, in all respects, of the other party's covenants and obligations in the Merger Agreement required
to be performed at or prior to the consummation of the Merger. In addition, the consummation of the Merger is subject to the following
closing condition to the obligations of Gainwell and Merger Sub: the absence of a "Company Material Adverse Effect" (as
defined in the Merger Agreement) with respect to HMS and its subsidiaries, taken as a whole.
HMS has made customary representations,
warranties and covenants in the Merger Agreement, including, among others, covenants (i) to conduct its business, in all material
respects, in the ordinary course of business and in a manner consistent with past practice during the interim period between the
execution of the Merger Agreement and the consummation of the Merger; (ii) not to engage in specified types of transactions
or take specified actions during this period unless agreed to in writing by Gainwell; (iii) to convene and hold a meeting
of its stockholders for the purpose of the adoption of the Merger Agreement by HMS's stockholders; and (iv) subject to certain
exceptions, not to withdraw, modify or qualify in a manner adverse to Gainwell the recommendation of the HMS Board in its proxy
statement for the foregoing stockholders' meeting that its stockholders vote for the adoption of the Merger Agreement.
HMS has agreed, in each case subject to
the fulfillment of certain fiduciary obligations of the HMS Board, (i) to cease any existing, and not to solicit, initiate or knowingly
facilitate any additional discussions or negotiations with or encouragement of third parties regarding other proposals to acquire
HMS or any alternative business combination transactions to the Merger, (ii) not to furnish non-public information to or participate
or engage in negotiations with any third parties in connection with other proposals to acquire HMS or any alternative business
combination transactions to the Merger, and (iii) to certain other restrictions on its ability to respond to such proposals. However,
subject to the satisfaction of certain conditions, HMS and the HMS Board, as applicable, are permitted to take certain actions
which may, as more fully described in the Merger Agreement, include changing the recommendation of the HMS Board following receipt
of a "Superior Proposal" (as defined in the Merger Agreement) or after an "Intervening Event" (as defined in
the Merger Agreement) if the HMS Board has concluded in good faith after consultation with its financial and outside legal advisors
that the failure to effect a change of recommendation could reasonably be expected to be inconsistent with the fiduciary duties
owed by the HMS Board to the stockholders of HMS under applicable law. The Merger Agreement contains certain termination rights
for HMS and Gainwell, including the right of HMS to terminate the Merger Agreement to accept a Superior Proposal after complying
with certain requirements. In addition, either party may terminate the Merger Agreement if the Merger is not consummated on or
before June 20, 2021. The Merger Agreement further provides that HMS may be required to pay Gainwell a termination fee of $67,392,807
under certain specified circumstances. The Merger Agreement also provides that Gainwell may be required to pay HMS a termination
fee of $185,330,219 under certain specified circumstances, as well as to reimburse up to $10,000,000 of out-of-pocket expenses
of HMS under certain specified circumstances. In addition, The Veritas Capital Fund VII, L.P. has agreed to guarantee the obligation
of Gainwell to pay any termination fee that may become payable by Gainwell to HMS, as well as Gainwell’s obligation to reimburse
HMS for certain cooperation costs to be incurred by HMS in connection with its cooperation with Gainwell’s efforts to obtain
financing and Gainwell’s obligation to reimburse HMS for certain out-of-pocket expenses under certain specified circumstances.
Gainwell, Intermediate Holdco and Gainwell
Holding Corp., a Delaware corporation and wholly-owned subsidiary of Intermediate Holdco (“Holdings”), have obtained
financing commitments for the purpose of financing the transactions contemplated by the Merger Agreement and paying related fees
and expenses (the "Financing"). JPMorgan Chase Bank, N.A. (together with certain of its affiliates, the “Lenders”)
has agreed to provide Gainwell with debt financing in an aggregate principal amount of up to $2,486 million on the terms set forth
in a debt commitment letter. Additionally, Intermediate Holdco and Holdings have received a preferred equity/payment-in-kind debt
commitment in an aggregate amount of up to $1,068 million on the terms set forth in a preferred equity/mezzanine commitment letter.
The obligations of the Lenders to provide debt financing under the debt commitment letter, and the obligations of the preferred
Investors (as defined in the preferred equity/mezzanine commitment letter) to provide preferred equity financing and payment-in-kind
debt financing under the preferred equity/mezzanine commitment letter are subject to customary terms and conditions. The Merger
Agreement provides that Gainwell, Merger Sub and Intermediate Holdco will use reasonable best efforts to do all things necessary
or advisable to arrange or obtain the Financing as promptly as practicable following the date of the Merger Agreement and to consummate
the Financing on or prior to the Closing Date. The Merger is not conditioned on Gainwell’s and Intermediate Holdco’s
receipt of the Financing.
This summary of the principal terms of
the Merger Agreement and the copy of the Merger Agreement filed as an exhibit to this report are intended to provide information
regarding the terms of the Merger Agreement and are not intended to modify or supplement any factual disclosures about HMS in its
public reports filed with the Securities and Exchange Commission ("SEC"). In particular, the Merger Agreement and related
summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to
HMS, Gainwell, Merger Sub or Intermediate Holdco or their respective affiliates.
The Merger Agreement includes customary
representations, warranties and covenants of HMS, Gainwell, Merger Sub and Intermediate Holdco made only for the purposes of the
Merger Agreement and solely for the benefit of the parties to the Merger Agreement, in accordance with and subject to the terms
of the Merger Agreement. The assertions embodied in those representations and warranties were made for the principal purpose of
establishing the circumstances in which the parties to the Merger Agreement may have the right not to consummate the transactions
contemplated thereby (based on the closing conditions therein that relate to the accuracy of such representations and warranties),
rather than establishing matters as facts, and the representations, warranties and covenants set forth in the Merger Agreement
(i) may be subject to important qualifications and limitations agreed to by HMS, Gainwell, Merger Sub and Intermediate Holdco in
connection with the negotiated terms thereof and (ii) are not intended to, and do not, confer upon any person other than the parties
thereto any rights or remedies thereunder, including the right to rely upon the representations and warranties set forth therein.
Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject
to a contractual standard of materiality different from those generally applicable to HMS's SEC filings or may have been used for
purposes of allocating risk among HMS, Gainwell, Merger Sub and Intermediate Holdco rather than establishing matters as facts.
Investors should not rely on the representations, warranties and covenants or any description thereof as characterizations of the
actual state of facts of HMS, Gainwell, Merger Sub and Intermediate Holdco or any of their respective subsidiaries or affiliates.
Moreover, information concerning the subject matter of the representations, warranties and covenants do not purport to be accurate
as of the date of filing of this Form 8-K and may change after the date of the Merger Agreement, which subsequent information may
or may not be fully reflected in public disclosures by HMS. Accordingly, investors should read the representations and warranties
in the Merger Agreement not in isolation but only in conjunction with the other information about HMS, Gainwell, Merger Sub and
Intermediate Holdco and their respective subsidiaries, affiliates and businesses that the respective companies include in reports,
statements and other filings they may make with the SEC.
The foregoing description of the Merger
Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement,
which is filed as Exhibit 2.1 hereto and incorporated herein by reference.