424B3
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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-278992

 

 

LOGO

INFORMATION STATEMENT/PROSPECTUS AND NOTICE OF ACTION BY WRITTEN CONSENT

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY

Dear Sterling Check Corp. Stockholder:

On February 28, 2024, Sterling Check Corp. (referred to as Sterling), First Advantage Corporation (referred to as First Advantage) and Starter Merger Sub, Inc., an indirect wholly-owned subsidiary of First Advantage (referred to as Merger Sub) entered into an Agreement and Plan of Merger that provides for the acquisition of Sterling by First Advantage (such agreement, as it may be amended from time to time, is referred to as the merger agreement). A copy of the merger agreement is attached as Annex A to this information statement/prospectus. Pursuant to the terms of, and subject to the satisfaction or waiver of the conditions set forth in, the merger agreement, at the effective time, Merger Sub will merge with and into Sterling with Sterling surviving the merger with Merger Sub and becoming an indirect, wholly-owned subsidiary of First Advantage. The merger of Merger Sub with and into Sterling is referred to as the transaction. The respective boards of directors of Sterling and First Advantage have unanimously approved the merger agreement and the transaction.

Upon the terms and subject to the conditions of the merger agreement, at the effective time of the transaction, each share of common stock, par value $0.01 per share, of Sterling (referred to as Sterling common stock) that you own immediately prior to the effective time of the transaction will be converted into the right to receive, at your election, and subject to proration in accordance with the merger agreement, as described below: (i) $16.73 per share in cash, without interest (referred to as the cash consideration); or (ii) 0.979 shares of common stock, par value $0.001 per share, of First Advantage (referred to as the First Advantage common stock, and such consideration, referred to as the stock consideration). The stock consideration and the cash consideration are referred to as the merger consideration. You may elect a different form of merger consideration for each share you own. You may elect to receive (i) solely the cash consideration, (ii) solely the stock consideration or (iii) if you own more than one share, a combination of the cash consideration for a selected number of shares and the stock consideration for the remaining number of shares. The stockholder election will be subject to a proration mechanism, such that the total number of shares of Sterling common stock entitled to receive the cash consideration will be equal to 72%, and the total number of shares of Sterling common stock entitled to receive the stock consideration will be equal to 28% of the aggregate number of shares of Sterling common stock issued and outstanding immediately prior to the effective time of the transaction. Sterling stockholders that do not make an election will be treated as having elected to receive the stock consideration and the cash consideration in accordance with and subject to the proration methodology in the merger agreement. For further information on the proration mechanism, please see the section titled “Questions and Answers—What will I receive for my shares if the transaction is completed?” beginning on page 2.

Based on the First Advantage stock price as of the close of trading on February 28, 2024 (the last full trading day before the public announcement of the transaction), the terms of the transaction represent (i) an implied value per share of Sterling common stock of $16.73 assuming a cash election and no proration, (ii) an implied value per share of Sterling common stock of $16.49 assuming a stock election and no proration, and (iii) a blended value per share of Sterling common stock of $16.66 assuming proration of 72% cash and 28% stock (based on the treatment of Sterling common stock, stock options and restricted stock units pursuant to the merger agreement). Such implied values or blended value, as applicable, represented a premium of (i) approximately 35%, 33% and 34%, respectively, to the closing price per share of Sterling common stock on February 28, 2024 (the last full trading day before the public announcement of the transaction) of $12.42 and (ii) approximately 26%, 24% and 25%, respectively, to the volume weighted average price per share of Sterling common stock on The Nasdaq Stock Market LLC for the 30 trading days up to, and including, February 28, 2024 of $13.30. The implied value of the stock consideration will fluctuate as the market price of First Advantage common stock fluctuates because the stock consideration is payable in a fixed number of shares of First Advantage common stock. As a result, the value of the stock consideration that Sterling stockholders will receive upon completion of the transaction could be greater than, less than or the same as the value of the stock consideration on the date of the accompanying information statement/prospectus or on the date on which Sterling stockholders make their election. Accordingly, you should obtain current stock price quotations for First Advantage common stock and Sterling common stock before making your election. First Advantage common stock and Sterling common stock trade on The Nasdaq Stock Market LLC under the symbols “FA” and “STER,” respectively. Based on the number of shares of First Advantage common stock and Sterling common stock outstanding on February 28, 2024, upon completion of the transaction, former Sterling stockholders will own approximately 16% and the current First Advantage stockholders will own approximately 84% of the outstanding First Advantage common stock.

At a meeting of the board of directors of Sterling (referred to as the Sterling board), the Sterling board unanimously adopted resolutions (i) declaring that the terms of the merger agreement and the transactions contemplated thereby, including the transaction, were fair to, and in the best interests of Sterling and its stockholders, (ii) declaring


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that entry into the merger agreement is advisable and in the best interests of Sterling and its stockholders, (iii) approving the execution, performance and delivery by Sterling of the merger agreement and the transactions contemplated thereby, including the transaction, upon the terms and subject to the conditions contained in the merger agreement, (iv) directing that the merger agreement be submitted to a vote of the holders of Sterling common stock by written consent in lieu of a meeting, and (v) recommending, on the terms and subject to the conditions contained in the merger agreement, that the Sterling stockholders vote to adopt the merger agreement.

The adoption of the merger agreement, and the transactions contemplated thereby, including the transaction, required the affirmative vote or written consent by holders of at least a majority of the outstanding shares of the Sterling common stock entitled to vote thereon. Contemporaneously and in connection with the execution of the merger agreement, on February 28, 2024, First Advantage and Sterling entered into a support agreement with Broad Street Principal Investments, L.L.C., Checkers Control Partnership, L.P. and Broad Street Control Advisors, L.L.C., each of which is advised by and affiliated with The Goldman Sachs Group, Inc. (referred to collectively as the Specified Stockholders). On February 28, 2024, following the execution of the merger agreement, and pursuant to the support agreement, the Specified Stockholders, which together on February 28, 2024 owned 49,807,744 shares of Sterling common stock, representing approximately 53.5% of the aggregate voting power of the issued and outstanding shares of Sterling common stock, delivered a written consent approving and adopting in all respects the merger agreement and the transactions contemplated thereby, including the transaction, a copy of which has been attached to this information statement/prospectus as Annex D. In addition, on April 26, 2024, the Specified Stockholders delivered a written consent reapproving and readopting in all respects the merger agreement and the transactions contemplated thereby, including the transaction, and adopting the ratification of Sterling’s execution and delivery of the merger agreement (referred to, together with the February 28, 2024 written consent, as the written consent), a copy of which has been attached to this information statement/prospectus as Annex E. Accordingly, the execution and delivery of the written consent was sufficient to adopt the merger agreement and approve the transaction on behalf of Sterling stockholders and no further action by any Sterling stockholder is required under applicable law or the merger agreement (or otherwise) to adopt the merger agreement, and Sterling has not solicited and will not be soliciting your vote for or consent to the adoption of the merger agreement and the approval of the transactions contemplated by the merger agreement and will not call a stockholders’ meeting for purposes of voting on the adoption of the merger agreement and the approval of the transactions contemplated by the merger agreement. This notice and the accompanying information statement shall constitute notice to you from Sterling of the written consent contemplated by Section 228(e) of the General Corporation Law of the State of Delaware (referred to as the DGCL) and are being provided to you for informational purposes only. Sterling has not solicited and is not soliciting your adoption of the merger agreement or a proxy, and you are requested not to send us a proxy.

Under Section 262 of the DGCL, if the transaction is completed, subject to compliance with the requirements of Section 262 of the DGCL, stockholders and beneficial owners of Sterling common stock, other than the Specified Stockholders, will have the right to seek an appraisal for, and be paid the “fair value” in cash of, their shares of Sterling common stock (as determined by the Delaware Court of Chancery), together with interest, if any, on the amount determined to be fair value, instead of receiving the merger consideration. To exercise your appraisal rights, you must submit a written demand for an appraisal to Sterling no later than 20 days after the mailing of this information statement/prospectus, which mailing date is June 11, 2024, and comply precisely with other procedures set forth in Section 262 of the DGCL, which are summarized in the accompanying information statement/prospectus. A copy of the full text of Section 262 of the DGCL is attached to the accompanying information statement/prospectus as Annex H. This notice and the accompanying information statement/prospectus shall constitute notice to you from Sterling of the availability of appraisal rights under Section 262 of the DGCL in connection with the transaction. For further information about appraisal rights, please see the section titled “Appraisal Rights” beginning on page 157.

Please carefully read the entirety of the accompanying information statement/prospectus, including the risk factors set forth in the section titled “Risk Factors” beginning on page 23, for a discussion of the risks relating to the transaction, and the annexes and documents incorporated by reference.

On behalf of the Sterling board, thank you for your continued support.

Sincerely,

 

LOGO

Joshua Peirez

Chief Executive Officer

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE TRANSACTION OR OTHER TRANSACTIONS DESCRIBED IN THE ACCOMPANYING INFORMATION STATEMENT/PROSPECTUS OR THE SECURITIES TO BE ISSUED PURSUANT TO THE MERGER AGREEMENT UNDER THE ACCOMPANYING INFORMATION STATEMENT/PROSPECTUS NOR HAVE THEY DETERMINED IF THE ACCOMPANYING INFORMATION STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The accompanying information statement/prospectus is dated June 11, 2024 and is first being mailed to Sterling stockholders on or about June 11, 2024.


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ADDITIONAL INFORMATION

This information statement/prospectus incorporates important information about First Advantage and Sterling from other documents that First Advantage and Sterling have filed with the U.S. Securities and Exchange Commission (referred to as the SEC) and that are contained in or incorporated by reference into this information statement/prospectus. For a listing of documents incorporated by reference into this information statement/prospectus, please see the section titled “Where You Can Find More Information”. This information is available for you to review on the SEC’s website at www.sec.gov.

You can obtain copies of this information statement/prospectus and the documents incorporated by reference into this information statement/prospectus without charge upon your written or oral request at the following addresses and telephone numbers:

 

For Information Regarding First Advantage:   For Information Regarding Sterling:

First Advantage Corporation

1 Concourse Parkway NE, Suite 200

Atlanta, Georgia 30328

(888) 314-9761

Attention: Investor Relations

 

Sterling Check Corp.

6150 Oak Tree Boulevard, Suite 490

Independence, Ohio 44131

(800) 853-3228

Attention: Investor Relations

If you request any such documents, First Advantage or Sterling, as applicable, will mail them to you by first class mail, or another equally prompt means, after receipt of your request.

In addition, you may obtain copies of documents filed by First Advantage with the SEC by accessing First Advantage’s website at https://investors.fadv.com. You may also obtain copies of documents filed by Sterling with the SEC by accessing Sterling’s website at http://investor.sterlingcheck.com. We are not incorporating the contents of the websites of the SEC, First Advantage, Sterling or any other entity into this information statement/prospectus. We are providing the information about how you can obtain certain documents that are incorporated by reference into this information statement/prospectus at these websites only for your convenience.

 


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ABOUT THIS INFORMATION STATEMENT/PROSPECTUS

This information statement/prospectus, which forms part of a registration statement on Form S-4 (Registration No. 333-278992) filed with the SEC by First Advantage Corporation (referred to as First Advantage), constitutes a prospectus of First Advantage under Section 5 the Securities Act of 1933, as amended (referred to as the Securities Act), with respect to the First Advantage common stock to be issued to stockholders of Sterling Check Corp. (referred to as Sterling) pursuant to the merger agreement referred to in this information statement/prospectus (other than such shares of First Advantage common stock that are expected to be beneficially owned by the Specified Stockholders). This information statement/prospectus also constitutes an information statement for Sterling under Rule 14c-2 of the Securities Exchange Act of 1934, as amended (referred to as the Exchange Act).

You should rely only on the information contained in or incorporated by reference into this information statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this information statement/prospectus. This information statement/prospectus is dated June 11, 2024, and you should assume that the information contained in this information statement/prospectus is accurate only as of such date. You should also assume that the information incorporated by reference into this information statement/prospectus is accurate only as of the date of such information.

This information statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this information statement/prospectus regarding First Advantage has been provided by First Advantage, and information contained in this information statement/prospectus regarding Sterling has been provided by Sterling.

 

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ABOUT THIS INFORMATION STATEMENT/PROSPECTUS

     i  

QUESTIONS AND ANSWERS

     1  

SUMMARY

     10  

RISK FACTORS

     23  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     34  

INFORMATION ABOUT STERLING

     36  

INFORMATION ABOUT FIRST ADVANTAGE AND MERGER SUB

     37  

THE TRANSACTION

     38  

THE MERGER AGREEMENT

     83  

THE SUPPORT AGREEMENT

     118  

THE STOCKHOLDERS AGREEMENT

     120  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     121  

COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS OF FIRST ADVANTAGE AND STERLING

     138  

INFORMATION ABOUT THE STERLING BENEFICIAL OWNERS

     155  

APPRAISAL RIGHTS

     157  

LEGAL MATTERS

     162  

EXPERTS

     163  

HOUSEHOLDING OF INFORMATION STATEMENT/PROSPECTUS

     164  

WHERE YOU CAN FIND MORE INFORMATION

     165  

ANNEXES

 

Annex A   Merger Agreement

  

Annex B   Support Agreement

  

Annex C   Stockholders’ Agreement

  

Annex D   Specified Stockholders’ Written Consent, dated as of February 28, 2024

  

Annex E   Unanimous Written Consent of the Sterling Board of Directors, dated as of April 26, 2024

  

Annex F Specified Stockholders’ Written Consent, dated as of April 26, 2024

  

Annex G   Citi Fairness Opinion

  

Annex H   General Corporation Law of the State of Delaware, Section 262

  

 

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QUESTIONS AND ANSWERS

The following questions and answers are intended to briefly address some commonly asked questions regarding the transaction and the merger agreement. These questions and answers may not address all questions that may be important to you as a Sterling stockholder. For additional information, please see the section titled “Summary” and the more detailed information contained elsewhere in this information statement/prospectus, the annexes to this information statement/prospectus and the documents referred to in this information statement/prospectus, which you should read carefully and in their entirety. You may obtain the information incorporated by reference into this information statement/prospectus without charge by following the instructions under the section titled “Where You Can Find More Information”.

 

Q:

Why am I receiving this information statement/prospectus?

 

A:

On February 28, 2024, First Advantage, Sterling and Starter Merger Sub, Inc., an indirect, wholly-owned subsidiary of First Advantage (referred to as Merger Sub), entered into an agreement and plan of merger (referred to as the merger agreement) pursuant to which Sterling has agreed to be acquired by First Advantage. If the closing conditions under the merger agreement are satisfied or waived, Merger Sub will merge with and into Sterling (referred to as the transaction), with Sterling surviving the merger with Merger Sub and becoming an indirect, wholly-owned subsidiary of First Advantage. The transactions contemplated by the merger agreement are referred to as the transaction.

Applicable laws and securities regulations require Sterling to provide you with notice that, on February 28, 2024, Broad Street Principal Investments, L.L.C., Checkers Control Partnership, L.P. and Broad Street Control Advisors, L.L.C. (referred to collectively as the Specified Stockholders) duly executed and validly delivered to Sterling a written consent to adopt the merger agreement and approve the transactions contemplated thereby, including the transaction, a copy of which has been attached to this information statement/prospectus as Annex D, and on April 26, 2024, the Specified Stockholders duly executed and validly delivered to Sterling a written consent readopting the merger agreement and reapproving the transactions contemplated thereby, including the transaction, and adopting the ratification of Sterling’s execution and delivery of the merger agreement (referred to, together with the February 28, 2024 written consent, as the written consent), a copy of which has been attached to this information statement/prospectus as Annex E, as well as other information regarding the transaction, even though your vote or consent is neither required nor requested to adopt the merger agreement or complete the transaction. This information statement/prospectus also constitutes notice to you of the availability of appraisal rights in connection with the transaction under Section 262 of the General Corporation Law of the State of the Delaware (referred to as the DGCL), a copy of which is attached to this information statement/prospectus as Annex H. This document constitutes both an information statement of Sterling and a prospectus of First Advantage. It is an information statement because Sterling is required to provide its stockholders with notice of the written consent delivered by the Specified Stockholders. It is a prospectus because First Advantage will issue shares of First Advantage common stock to stockholders of Sterling (other than the Specified Stockholders) in exchange for shares of Sterling common stock in the transaction if the transaction is completed.

Please note that the delivery of the written consent is sufficient to adopt the merger agreement and approve the transactions contemplated thereby, including the transaction, on behalf of stockholders of Sterling. You are not being asked for a proxy, and you are requested not to send a proxy.

 

Q:

What is the transaction and what effects will it have on Sterling?

 

A:

Sterling has agreed to be acquired by First Advantage under the terms of the merger agreement, a copy of which is attached to this information statement/prospectus as Annex A. If the closing conditions under the merger agreement are satisfied or waived, Merger Sub will merge with and into Sterling, with Sterling surviving the merger with Merger Sub and becoming an indirect, wholly-owned subsidiary of First Advantage and will cease to be an independent publicly traded company.

 

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Q:

Did the Sterling board of directors approve the merger agreement?

 

A:

Yes. After careful consideration, the Sterling board of directors unanimously (i) determined that the terms of the merger agreement and the transactions contemplated thereby, including the transaction, are fair to, and in the best interests of, Sterling and its stockholders, (ii) determined that it is in the best interests of Sterling and its stockholders, and declared it advisable, to enter into the merger agreement, (iii) approved the execution and delivery by Sterling of the merger agreement, the performance by Sterling of its covenants and agreements contained in the merger agreement and the completion of the transactions contemplated by the merger agreement, including the transaction, upon the terms and subject to the conditions contained in the merger agreement, (iv) directed that the merger agreement be submitted to Sterling’s stockholders for adoption by written consent in lieu of a meeting and (v) recommended, on the terms and subject to the conditions contained in the merger agreement, that the Sterling stockholders vote to adopt the merger agreement. For a discussion of the factors the Sterling board of directors considered in determining to approve and recommend the merger agreement, please see the section titled “Sterling’s Reasons for the transaction”.

 

Q:

Why am I not being asked to vote on the transaction?

 

A:

Under Delaware law and Sterling’s organizational documents, adoption of the merger agreement by Sterling’s stockholders required the affirmative vote of the holders of a majority of the outstanding shares of Sterling common stock entitled to vote thereon. The Sterling organizational documents permit, at any time when the Specified Stockholders hold a majority of the voting power of the Sterling common stock entitled to vote generally in an election of directors, any action that is required or permitted to be taken at any annual meeting or special meeting of Sterling’s stockholders may be taken without a meeting if a written consent is signed by the holders of outstanding shares of Sterling common stock holding not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. The requisite Sterling stockholder approval was obtained following the execution of the merger agreement on February 28, 2024, when the written consent was delivered to Sterling by the Specified Stockholders, which owned 49,807,744 shares of Sterling common stock, representing approximately 53.5% of the issued and outstanding shares of Sterling common stock on that date. Therefore, your vote is not required and is not being sought. We are not asking you for a proxy, and you are requested not to send us a proxy.

 

Q:

What will I receive for my shares if the transaction is completed?

 

A:

At the effective time of the transaction (referred to as the effective time), you will be entitled to receive, at your election and subject to proration, for each share of Sterling common stock that you hold (i) $16.73 in cash, without interest (referred to as the cash consideration) or (ii) 0.979 shares of First Advantage common stock (referred to as the stock consideration and, together with the cash consideration, the merger consideration). You will receive cash in lieu of any fractional shares of First Advantage common stock that you would otherwise be entitled to receive.

You may elect a different form of merger consideration for each share you own. You may elect to receive (i) solely the cash consideration, (ii) solely the stock consideration or (iii) if you own more than one share, a combination of the cash consideration for a selected number of shares and the stock consideration for the remaining number of shares. Whether you receive your elected merger consideration will depend on the election of other Sterling stockholders and the proration mechanism. The impact of the proration of the merger consideration on each stockholder will not be known until immediately prior to or following the effective time. At such time, the merger consideration is subject to proration so that, in the aggregate, 72% of Sterling common stock issued and outstanding as of immediately prior to the effective time will be converted into the right to receive cash consideration and 28% of Sterling common stock issued and outstanding as of immediately prior to the effective time will be converted into the right to receive stock consideration. Sterling stockholders who do not make an election will be treated as having elected to receive

 

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cash consideration or stock consideration in accordance with and subject to the proration methodology in the merger agreement. On February 28, 2024, in connection with delivering the written consent to Sterling, the Specified Stockholders made an election to receive the cash consideration with respect to all of the shares of Sterling common stock held by them.

For example, if you elect to receive solely the cash consideration or solely the stock consideration, and all other Sterling stockholders make the same election, the consideration you receive will vary to the maximum extent possible compared to your original election. In such instance, you would receive the cash consideration in exchange for 72% of your shares of Sterling common stock and the stock consideration in exchange for 28% of your shares of Sterling common stock. The following examples illustrate the proration mechanism in the case of an oversubscription of either the cash consideration or the stock consideration (both if you elect solely the oversubscribed form of merger consideration and if you elect a combination of the cash consideration and the stock consideration). Note that for illustrative purposes, the following examples do not round shares to the nearest whole number.

 

   

If you own 100 shares of Sterling common stock and elect to receive solely the cash consideration, and holders of 80% of the outstanding shares of Sterling common stock elect to receive cash in respect of such shares, holders of 15% of the outstanding shares of Sterling common stock elect to receive First Advantage common stock in respect of such shares and holders of 5% of the outstanding shares of Sterling common stock do not make an election in respect of those shares, you will receive cash in exchange for 90 of your shares of Sterling common stock and First Advantage common stock in exchange for 10 of your shares of Sterling common stock.

 

   

If you own 100 shares of Sterling common stock and elect to receive solely the stock consideration, and holders of 80% of the outstanding shares of Sterling common stock elect to receive First Advantage common stock in respect of such shares, holders of 15% of the outstanding shares of Sterling common stock elect to receive cash in respect of such shares and holders of 5% of the outstanding shares of Sterling common stock do not make an election in respect of those shares, you will receive cash in exchange for approximately 65 of your shares of Sterling common stock and First Advantage common stock in exchange for approximately 35 of your shares of Sterling common stock.

 

   

If you own 100 shares of Sterling common stock and elect to receive the cash consideration for 55 shares and the stock consideration for 45 shares, and holders of 80% of the outstanding shares of Sterling common stock elect to receive cash in respect of such shares, holders of 15% of the outstanding shares of Sterling common stock elect to receive First Advantage common stock in respect of such shares and holders of 5% of the outstanding shares of Sterling common stock do not make an election in respect of those shares, you will receive cash in exchange for 49.5 of your shares of Sterling common stock and First Advantage common stock in exchange for 50.5 of your shares of Sterling common stock.

 

   

If you own 100 shares of Sterling common stock and elect to receive the cash consideration for 45 shares and the stock consideration for 55 shares, and holders of 80% of the outstanding shares of Sterling common stock elect to receive First Advantage common stock in respect of such shares, holders of 15% of the outstanding shares of Sterling common stock elect to receive cash in respect of such shares and holders of 5% of the outstanding shares of Sterling common stock do not make an election in respect of such shares, you will receive cash in exchange for approximately 80.75 of your shares of Sterling common stock and First Advantage common stock in exchange for approximately 19.25 of your shares of Sterling common stock.

On February 28, 2024 (the last full trading day before the public announcement of the transaction), the closing stock price per share of First Advantage common stock was $16.84, which, after giving effect to the exchange ratio of 0.979, has an implied value of approximately $16.49 per share. Based on this price, with respect to the stock consideration and the cash consideration of $16.73 per share, upon completion of the transaction, Sterling stockholders that receive the cash consideration for 72% of their shares of Sterling

 

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common stock and receive the stock consideration for 28% of their shares of Sterling common stock would receive total merger consideration with an implied value of approximately $16.66 per share.

On June 10, 2024 (the most recent practicable date prior to the date of this information statement/prospectus), the closing stock price per share of First Advantage common stock was $16.72, which, after giving effect to the exchange ratio of 0.979, has an implied value of approximately $16.37 per share. Based on this price, with respect to the stock consideration and the cash consideration of $16.73 per share, upon completion of the transaction, Sterling stockholders that receive the cash consideration for 72% of their shares of Sterling common stock and receive the stock consideration for 28% of their shares of Sterling common stock would receive total merger consideration with an implied value of approximately $16.63 per share.

The implied value of the stock consideration will fluctuate as the market price of First Advantage common stock fluctuates because the stock consideration is payable in a fixed number of shares of First Advantage common stock. As a result, the value of the stock consideration that Sterling stockholders will receive upon completion of the transaction could be greater than, less than or the same as the value of the stock consideration on the date of this information statement/prospectus or on the date on which Sterling stockholders make their election. Accordingly, you should obtain current stock price quotations for First Advantage common stock and Sterling common stock before making your election. First Advantage common stock trades on The Nasdaq Stock Market LLC under the symbol “FA” and Sterling common stock trades on The Nasdaq Stock Market LLC under the symbol “STER”.

For additional information regarding the consideration to be received in the transaction, please see the section titled “The Transaction—Merger Consideration”.

 

Q:

What will I receive for my shares of restricted stock, stock options or restricted stock units if the transaction is completed?

 

A:

If you hold Sterling common stock that is subject to a Sterling restricted stock award, at the effective time, you will be entitled to receive the merger consideration, subject to your election and the proration mechanism, for each share of Sterling common stock that is subject to a Sterling restricted stock award that you hold. The merger consideration will be subject to vesting conditions, as described below.

If you hold options to purchase Sterling common stock (referred to as Sterling stock options), at the effective time, each outstanding Sterling stock option will be canceled, and you will be entitled to receive the merger consideration, subject to your election and the proration mechanism, with respect to each net option stock (as defined below in the section titled “The Merger Agreement—Treatment of Sterling Equity Awards”) associated with any such Sterling stock option that is in-the-money (i.e., has an exercise price per share that is less than the per share cash consideration), whether vested or unvested. Any of your Sterling stock options that are out-of-the-money (i.e., has an exercise price per share that is equal to or greater than the per share cash consideration), whether vested or unvested, will be canceled for no consideration. The merger consideration payable with respect to net option stock attributable to vested, in-the-money Sterling stock options will be subject to reduction for any applicable tax withholding. Such merger consideration payable with respect to net option stock attributable to unvested in-the-money Sterling stock options will also be subject to vesting conditions, as described below.

If you hold Sterling restricted stock unit awards (referred to as Sterling RSU awards), at the effective time, each of your outstanding Sterling RSU awards will be canceled and you will be entitled to receive the merger consideration, subject to your election and the proration mechanism, with respect to each restricted stock unit (referred to as an RSU) subject to such Sterling RSU award. The merger consideration will be subject to vesting conditions, as described below.

In each case, you will receive cash in lieu of any fractional shares of First Advantage common stock that you would otherwise be entitled to receive.

 

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You may elect a different form of merger consideration for each Sterling restricted stock award, Sterling net option stock or Sterling RSU you hold. You may elect to receive (i) solely the cash consideration, (ii) solely the stock consideration or (iii) if you hold more than one Sterling restricted stock award, in-the-money Sterling net option stock or Sterling RSU award (collectively referred to as Sterling equity awards), or a combination thereof, a combination of the cash consideration for a selected number of Sterling equity awards you hold and the stock consideration for the remaining number of Sterling equity awards you hold. Whether you receive your elected merger consideration will depend on the elections of other Sterling stockholders and equity award holders and the proration mechanism. The proration of the merger consideration will not be known until immediately prior to or following the effective time. Except as otherwise described in the next five paragraphs, Sterling equity award holders who do not make an election will be treated as having elected to receive cash consideration or stock consideration in accordance with and subject to the proration methodology in the merger agreement. On February 28, 2024, in connection with delivering the written consent to Sterling, the Specified Stockholders made an election to receive the cash consideration with respect to all of the shares of Sterling common stock held by them.

If you are a holder of (i) any shares of net option stock attributable to unvested in-the-money Sterling stock options and reside in a jurisdiction where restricted stock is taxed only on vesting or settlement (and not on issuance) or (ii) Sterling common stock subject to a Sterling restricted stock award, you will receive the stock consideration pursuant to a restricted stock award agreement for First Advantage common stock. The stock consideration you receive will be subject to the same terms and conditions (including any accelerated vesting) as applied to such shares of net option stock or restricted Sterling common stock, as applicable, that you held.

If you are a holder of (i) any shares of net option stock attributable to unvested in-the-money Sterling stock options and reside in a jurisdiction where restricted stock is taxed on issuance or (ii) a Sterling RSU award, the stock consideration will be issued to you as an RSU over First Advantage common stock, pursuant to an RSU award agreement. Such RSUs will be subject to the same terms and conditions (including any accelerated vesting) as applied to such shares of net option stock or Sterling RSUs, as applicable, that you held.

If you are a holder of (i) any shares of net option stock attributable to unvested in-the-money Sterling stock options, (ii) a Sterling RSU award or (iii) any share of Sterling common stock subject to a Sterling restricted stock award, any cash consideration you receive will be deferred and paid to you on the regularly scheduled future vesting dates of the applicable award, subject to the same terms and conditions (including any accelerated vesting) as applied to the shares of net option stock, Sterling RSU award or restricted Sterling common stock, as applicable, that you held.

Notwithstanding the above, if you are a non-U.S. Holder (as defined in section titled “The Transaction—Material U.S. Federal Income Tax Consequences”) of Sterling restricted stock, in-the-money Sterling stock options or Sterling RSU awards and First Advantage determines in its reasonable discretion that it is impracticable or overly burdensome to provide you with the cash election or stock election, First Advantage will notify you as to whether your Sterling restricted stock, net option stock or Sterling RSU award will be converted wholly into cash awards or restricted shares of First Advantage common stock (or RSUs that will settle in First Advantage common stock).

The number of shares of “net option stock” subject to an in-the-money Sterling stock option is that number of shares of Sterling common stock having a value equal to the percentage of the aggregate spread value (as defined below in the section titled “The Merger Agreement—Treatment of Sterling Equity Awards”) of such Sterling stock option.

If you are a non-employee director and, at the effective time, you hold Sterling common stock that is subject to a Sterling restricted stock award, the vesting of such Sterling restricted stock award will fully accelerate at the effective time.

 

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Q:

What happens if I am eligible to receive a fraction of a share of First Advantage common stock as part of the stock consideration?

 

A:

If the aggregate number of shares of First Advantage common stock that you are entitled to receive as part of the stock consideration otherwise would include a fraction of a share of First Advantage common stock, you will receive cash in lieu of that fractional share. For additional information regarding the consideration to be received in respect of fractional shares, please see the section titled “The Transaction—Exchange of Shares; Elections as to Form of Consideration”.

 

Q:

Do any of the directors or executive officers of Sterling have interests in the transaction that may differ from or be in addition to the interests of Sterling stockholders?

 

A:

Yes. Some of the directors and executive officers of Sterling have interests in the transaction that may be different from, or in addition to, the interests of Sterling stockholders generally. The members of the Sterling board of directors were aware of and considered these interests, among other matters, in deciding to recommend and approve, respectively, the terms of the merger agreement and the transaction. For a further discussion of these interests, please see “The Transaction—Interests of Sterling’s Directors and Executive Officers in the Transaction”.

 

Q:

How and when do I make my merger consideration election?

 

A:

Each holder of record of shares of Sterling common stock and Sterling common stock equivalents will receive an election form after distribution of this information statement/prospectus. Such holders will make their cash and/or stock election by properly completing, signing and returning the election form. In addition, if such holders hold stock certificates representing Sterling common stock, they must return their stock certificates (or guaranty of delivery of such certificates) to the exchange agent in connection with the transaction. If such holders do not send in the election form (with such stock certificates, if applicable) by the election deadline, they will be treated as though they had not made an election. Carefully review and follow the instructions accompanying the election form. If you own Sterling common stock in “street name” through a bank, brokerage firm or other nominee and you wish to make an election, you should follow the instructions provided by your bank, brokerage firm or other nominee when making your election.

 

The election deadline is expected to be 5:00 p.m. local time (in the city in which the principal office of the exchange agent is located) on the date that is five business days prior to First Advantage’s good faith estimate of the closing date, or such other date as may be mutually agreed to by the parties. First Advantage and Sterling will publicly announce the election deadline at least three business days prior to the election deadline.

For additional information regarding the election procedures, please see the section titled “The Transaction—Exchange of Shares; Elections as to Form of Consideration”.

 

Q:

What do I do if I want to revoke my election?

 

A:

You may change or revoke your election at any time during the election period, by written notice to the exchange agent prior to the election deadline or by withdrawal of your Sterling stock certificates (or of the guarantee of delivery of such stock certificates), if applicable, previously deposited with the exchange agent prior to the election deadline. The Specified Stockholders have agreed that the election made by them on February 28, 2024, in connection with delivering the written consent to Sterling, to receive the cash consideration with respect to all of the shares of Sterling common stock held by them, is an irrevocable election.

 

Q:

What happens if I do not make a valid merger consideration election?

 

A:

If you do not properly complete, sign and return the election form by the election deadline, your shares of Sterling common stock will be considered “non-election” shares and will be converted into the right to receive the cash consideration or the stock consideration in accordance with and subject to the allocation

 

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procedures specified in the merger agreement. Generally, in the event one form of merger consideration (i.e., cash or shares of First Advantage common stock) is undersubscribed in comparison with the merger consideration to be issued as a result of the proration mechanism specified in the merger agreement (referred to as the undersubscribed consideration), “non-election” shares will be allocated the undersubscribed consideration, subject to the proration and adjustment procedures.

 

Q:

If I make a valid merger consideration election, could I receive a form of merger consideration that I did not elect to receive?

 

A:

If, after the “non-election” shares have been allocated any undersubscribed consideration, there still remains undersubscribed consideration, then shares of Sterling common stock electing the oversubscribed form of merger consideration will be allocated the undersubscribed consideration pursuant to the proration and adjustment procedures. Accordingly, there is no guarantee that you will receive your elected form of merger consideration for all of your shares of Sterling common stock. In the event proration is necessary, electing shares will be allocated the undersubscribed consideration only after the undersubscribed consideration is allocated to “non-election” shares.

 

Q:

How will I receive the merger consideration to which I am entitled?

 

A:

After receiving the proper documentation from you, following the completion of the transaction, the exchange agent will provide to you the cash consideration and/or stock consideration to which you are entitled. For additional information regarding the documentation you are required to deliver to the exchange agent, please see the section titled “The Merger Agreement—Exchange and Payment Procedures”.

 

Q:

What happens if I sell my shares before completion of the transaction?

 

A:

If you transfer your shares of Sterling common stock before completion of the transaction, you will have transferred the right to receive the merger consideration and lose your appraisal rights. In order to receive the merger consideration or exercise appraisal rights, you must hold (or beneficially own, as the case may be) your shares through the effective time.

 

Q:

How do I surrender my non-certificated shares of Sterling common stock held by Sterling’s transfer agent, Equiniti Trust Co. (formerly American Stock Transfer & Trust Company)?

 

A:

First Advantage will direct the exchange agent to mail to each holder of record of shares of Sterling common stock an election form, which will contain instructions to effect the surrender of such shares in exchange for the merger consideration. Upon the exchange agent’s receipt of a properly completed and signed election form, the holder of such shares will be entitled to receive the merger consideration in exchange for each share of Sterling common stock and such surrendered share will be canceled.

 

Q:

What will happen to Sterling as a result of the transaction?

 

A:

If the transaction is completed, Sterling, as the surviving corporation of the merger with Merger Sub, will become an indirect, wholly-owned subsidiary of First Advantage as a result of the transaction. As a result of the transaction, Sterling will no longer be a publicly held company and Sterling common stock will be delisted from The Nasdaq Stock Market LLC and deregistered under the Exchange Act.

 

Q:

What equity stake will Sterling stockholders hold in First Advantage?

 

A:

Based on the number of shares of Sterling common stock outstanding as of May 2, 2024, and the number of shares of First Advantage common stock outstanding as of May 3, 2024, it is expected that, immediately after completion of the transaction, former Sterling stockholders will own approximately 16% of the outstanding shares of First Advantage common stock.

 

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Q:

Will there be any change to the First Advantage board of directors or management after the completion of the transaction?

 

A:

Yes. Pursuant to the merger agreement, Joshua Peirez, Sterling’s Chief Executive Officer and a member of the Sterling board of directors, will be offered a position on First Advantage’s board of directors, effective at the effective time and on terms and conditions determined by First Advantage, to serve in such class of directors as First Advantage shall determine prior to the effective time, subject to Mr. Peirez’s acceptance of such appointment at or prior to (and which acceptance remains effective as of) the effective time.

 

Q:

Will the First Advantage common stock received at the time of completion of the transaction be traded on an exchange?

 

A:

Yes. It is a condition to completion of the transaction that the shares of First Advantage common stock to be issued to Sterling stockholders in the transaction be approved for listing on The Nasdaq Stock Market LLC, subject to official notice of issuance.

 

Q:

What conditions must be satisfied to complete the transaction?

 

A:

The respective obligations of First Advantage and Sterling to complete the transaction are subject to the satisfaction or waiver of a number of conditions, including (i) any waiting period applicable to the transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (referred to as the HSR Act) having expired or having been terminated and any other required approvals, consents or clearances under the antitrust and foreign direct investment laws of certain foreign jurisdictions having been obtained, (ii) the approval for listing on The Nasdaq Stock Market, LLC of the First Advantage common stock to be issued in connection with the transaction and (iii) the registration statement on Form S-4, of which this information statement/prospectus forms a part, becoming effective under the Securities Act and not being the subject of any stop order or any proceedings by the SEC seeking a stop order. For additional information regarding the merger agreement and its terms and conditions, please see the section titled “The Merger Agreement—Conditions to the Transaction”.

 

Q:

When is the transaction expected to be completed?

 

A:

First Advantage and Sterling currently expect the transaction to be completed in approximately the fourth quarter of 2024, subject to the expiration or termination of the waiting period (and any extensions thereof) applicable to the transaction under the HSR Act, the receipt of the clearances and approvals applicable to the transaction under the antitrust and foreign direct investment laws of certain foreign jurisdictions and the satisfaction or waiver of the other closing conditions contained in the merger agreement. However, First Advantage and Sterling cannot predict the actual date on which the transaction will be completed because completion is subject to conditions beyond their control, and it is possible that such conditions could result in the transaction being completed earlier or later than expected or not being completed at all. For additional information regarding when the transaction is expected to be completed, please see the sections titled “The Transaction—Regulatory Clearances and Approvals Required for the Transaction” and “The Merger Agreement—Conditions to the Transaction”.

 

Q:

Should I send in my Sterling stock certificates now?

 

A:

No. If you hold Sterling stock certificates, you should submit them with your election form. If a Sterling stockholder who holds Sterling common stock in certificated form does not submit its, his or her stock certificate(s) with the election form, such Sterling stockholder will be sent materials after the transaction closes to effect the exchange of such stockholder’s Sterling common stock for the merger consideration. For additional information regarding how to submit your Sterling stock certificates, please see the section titled “The Merger Agreement—Exchange and Payment Procedures”.

 

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Q:

What happens if the transaction is not completed?

 

A:

If, for any reason, the transaction is not completed, Sterling stockholders will not receive any payment for their shares of Sterling common stock in connection with the transaction. In this event, Sterling will remain a publicly traded company, and shares of Sterling common stock will continue to be traded on The Nasdaq Stock Market LLC.

 

Q:

What are the expected U.S. federal income tax consequences of the transaction for holders of Sterling common stock?

 

A:

The exchange of Sterling common stock for First Advantage common stock and cash (including cash received in lieu of a fractional share of First Advantage common stock) in the transaction generally will be a taxable transaction for U.S. Holders for U.S. federal income tax purposes and may also be taxable under state and local and other tax laws.

For a more complete summary of the material U.S. federal income tax consequences of the transaction, please read the section titled “The Transaction—Material U.S. Federal Income Tax Consequences”. The tax consequences to a particular holder of Sterling common stock will depend on such holder’s particular circumstances. All Sterling stockholders should consult their own tax advisors regarding the U.S. federal income tax consequences of the transaction to them, as well as tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

 

Q:

Do Sterling stockholders have appraisal rights?

 

A:

Yes. Sterling stockholders and beneficial owners are entitled to appraisal rights under Section 262 of the DGCL in connection with the transaction, if they follow the procedures and satisfy the conditions set forth in Section 262 of the DGCL. For additional information regarding appraisal rights, please see the section titled “Appraisal Rights”. In addition, a copy of Section 262 of the DGCL is attached to this information statement/prospectus as Annex H. Failure to strictly comply with Section 262 of the DGCL may result in your waiver of, or inability to exercise, appraisal rights.

 

Q:

Are there any important risks about the transaction, or the businesses of First Advantage and Sterling of which I should be aware?

 

A:

Yes, there are risks involved. You are encouraged to carefully read in its entirety the section titled “Risk Factors”.

 

Q:

How can I find more information about First Advantage and Sterling?

 

A:

You can find additional information about First Advantage and Sterling from various sources described in the section titled “Where You Can Find More Information”.

 

Q:

Who can answer any questions I may have about the transaction or this information statement/prospectus?

 

A:

If you have any questions about the transaction or this information statement/prospectus or would like additional copies of this information statement/prospectus, you should contact:

Sterling Check Corp.

6150 Oak Tree Boulevard, Suite 490

Independence, Ohio 44131

(800) 853-3228

Attention: Investor Relations

 

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SUMMARY

The following summary highlights selected information described in more detail elsewhere in this information statement/prospectus and the documents incorporated by reference into this information statement/prospectus, and may not contain all the information that may be important to you. To understand the transaction more fully and to obtain a more complete description of the legal terms of the merger agreement, you should carefully read this entire information statement/prospectus, including the annexes, and the documents to which First Advantage and Sterling refer you. Each item in this summary includes a page reference directing you to a more complete description of that topic. For additional information, please see the section titled “Where You Can Find More Information” beginning on page 165.

The Parties (see pages 36 and 37)

Sterling Check Corp.

Sterling Check Corp., a Delaware corporation (referred to as Sterling), is a leading global provider of technology-enabled background and identity verification services. Sterling offers a comprehensive hiring and risk management solution that begins with identity verification, followed by criminal background screening, credential verification, drug and health screening, processing of employee documentation required for onboarding and ongoing risk monitoring. Sterling’s services are generally delivered through its purpose-built, proprietary, cloud-based technology platform that empowers organizations with real-time and data-driven insights to conduct and manage their employment screening programs efficiently and effectively. Sterling common stock trades on The Nasdaq Stock Market LLC under the symbol “STER”. The corporate headquarters of Sterling are located at 6150 Oak Tree Boulevard, Suite 490, Independence, Ohio 44131, and its telephone number is (800) 853-3228.

First Advantage Corporation

First Advantage Corporation, a Delaware corporation (referred to as First Advantage), is a leading provider of employment background screening, identity, and verification solutions. First Advantage delivers innovative services and insights that help its customers manage risk and hire the best talent. Enabled by its proprietary technology, First Advantage helps companies protect their brands and provide safer environments for their customers and their most important resources: employees, contractors, contingent workers, tenants, and drivers. First Advantage common stock trades on The Nasdaq Stock Market LLC under the symbol “FA”. The principal executive offices of First Advantage are located at 1 Concourse Parkway NE, Suite 200, Atlanta, Georgia 30328, and its telephone number is (888) 314-9761.

Starter Merger Sub, Inc.

Starter Merger Sub, Inc., a Delaware corporation (referred to as Merger Sub), is an indirect, wholly-owned subsidiary of First Advantage. Merger Sub was formed by First Advantage solely in contemplation of the transaction, has not conducted any business and has no assets, liabilities or obligations of any nature other than as set forth in the merger agreement. The principal executive offices of Merger Sub are located at c/o First Advantage Inc., 1 Concourse Parkway NE, Suite 200, Atlanta, Georgia 30328, and its telephone number is (888) 314-9761.

The Merger Agreement (see pages 83 and A-1)

The terms and conditions of the transaction are contained in the merger agreement, a copy of which is attached as Annex A to this information statement/prospectus. Sterling encourages you to read the merger agreement carefully and in its entirety, as it is the legal document that governs the transaction.

 

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The merger agreement provides that First Advantage will indirectly acquire Sterling with Sterling becoming an indirect, wholly-owned subsidiary of First Advantage. Upon the terms and subject to the conditions set forth in the merger agreement and in accordance with Delaware law, Merger Sub will merge with and into Sterling (referred to as the transaction), with Sterling surviving the merger with Merger Sub and becoming an indirect, wholly-owned subsidiary of First Advantage.

At the effective time of the transaction, each share of Sterling common stock issued and outstanding immediately prior to the effective time of the transaction will be converted into the right to receive, at the election of the holder of such share and subject to proration: (i) $16.73 per share in cash, without interest (referred to as the cash consideration); or (ii) 0.979 shares of First Advantage common stock (referred to as the stock consideration). At the effective time of the transaction, each share of Sterling common stock equivalent will be converted into the right to receive, at the election of the holder of such share and subject to proration, cash consideration or stock consideration.

For additional information regarding the effects of the transaction, please see the section titled “The Merger Agreement—Effects of the Transaction” beginning on page 84.

Merger Consideration (see page 38)

At the effective time of the transaction, each issued and outstanding share of Sterling common stock (other than shares (i) owned or held in treasury by Sterling or owned by Parent or Merger Sub (referred to as canceled shares), (ii) owned by stockholders that have validly made a demand for appraisal and not validly withdrawn such demand or otherwise lost their rights of appraisal with respect to such shares pursuant to Section 262 of the DGCL (referred to as dissenting shares) and (iii) owned by any wholly-owned subsidiary of Sterling (referred to as excluded shares)) will be converted into the right to receive, at the election of the holder of such share and subject to proration, $16.73 in cash, without interest, or 0.979 of a share of First Advantage common stock. No fractional shares of First Advantage common stock will be issued in the transaction, and holders of Sterling common stock will instead receive cash in lieu of fractional shares of First Advantage common stock.

The merger consideration is subject to proration so that 72% of Sterling common stock issued and outstanding immediately prior to the effective time of the transaction will be converted into cash consideration and 28% will be converted into stock consideration. A holder of Sterling common stock may elect to receive (i) solely the cash consideration, (ii) solely the stock consideration or (iii) if the holder of Sterling common stock owns more than one share, a combination of the cash consideration for a selected number of shares and the stock consideration for the remaining number of shares. The election will be subject to the election of other holders of Sterling common stock and a proration. A holder of Sterling common stock who does not make an election will be treated as having elected to receive cash consideration or stock consideration in accordance with the proration methodology in the merger agreement, which is described in the section titled “The Merger Agreement—Effects of the Transaction—Proration and Allocation of Merger Consideration” beginning on page 85.

On February 28, 2024 (the last full trading day before the announcement of the transaction), the closing stock price per share of First Advantage common stock was $16.84, which, after giving effect to the exchange ratio of 0.979, has an implied value of approximately $16.49 per share. Based on this price, with respect to the stock consideration and the cash consideration of $16.73 per share, upon completion of the transaction, Sterling stockholders that receive the cash consideration for 72% of their shares of Sterling common stock and receive the stock consideration for 28% of their shares of Sterling common stock would receive total merger consideration with an implied value of approximately $16.66 per share.

On June 10, 2024 (the most recent practicable date prior to the date of this information statement/prospectus), the closing price per share of First Advantage common stock was $16.72, which, after giving

 

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effect to the exchange ratio of 0.979, has an implied value of approximately $16.37 per share. Based on this price, with respect to the stock consideration and the cash consideration of $16.73 per share, upon completion of the transaction, Sterling stockholders that receive the cash consideration for 72% of their shares of Sterling common stock and receive the stock consideration for 28% of their shares of Sterling common stock would receive total merger consideration with an implied value of approximately $16.63 per share.

The implied value of the stock consideration will fluctuate, however, as the market price of First Advantage common stock fluctuates because the stock consideration is payable in a fixed number of shares of First Advantage common stock. As a result, the value of the stock consideration that Sterling stockholders will receive upon completion of the transaction could be greater than, less than or the same as the value of the stock consideration on the date of this information statement/prospectus or on the date on which Sterling stockholders make their election. Accordingly, First Advantage and Sterling encourage you to obtain current stock price quotations for First Advantage common stock and Sterling common stock before making your election. First Advantage common stock trades on The Nasdaq Stock Market LLC under the symbol “FA” and Sterling common stock trades on The Nasdaq Stock Market LLC under the symbol “STER”.

Sterling’s Reasons for the Transaction; Recommendation of the Sterling Board of Directors (see page 51)

At its February 28, 2024 meeting held to evaluate the transaction, the Sterling board of directors unanimously (i) determined that the terms of the merger agreement and the transactions contemplated thereby, including the transaction, are fair to, and in the best interests of, Sterling and the Sterling stockholders, (ii) determined that it is in the best interests of Sterling and the Sterling stockholders, and declared it advisable, to enter into the merger agreement, (iii) approved the execution and delivery by Sterling of the merger agreement, the performance by Sterling of its covenants and agreements contained therein and the consummation of the transactions contemplated thereby, including the transaction, upon the terms and subject to the conditions contained in the merger agreement, (iv) directed that the merger agreement be submitted to the holders of Sterling common stock for adoption by written consent in lieu of a meeting, and (v) recommended, on the terms and subject to the conditions contained in the merger agreement, that the Sterling stockholders vote to adopt the merger agreement.

Please also see the notice regarding ratification under Section 204 of the DGCL in the section titled “Notice Regarding Ratification Under Section 204 of the Delaware General Corporation Law”.

First Advantage’s Reasons for the Transaction (see page 56)

The board of directors of First Advantage considered a number of factors in making its determination to approve the transaction. These factors include the view of the First Advantage board of directors that the transaction is expected to:

 

   

extend First Advantage’s high-quality and cost-effective background screening, identity, and verification technology products and solutions for the benefit of the combined company’s customers across industries and geographies;

 

   

accelerate investment in innovation and new technology solutions, including artificial intelligence-driven automation and next-generation digital identification technologies, for enhanced customer and applicant experience, fueling growth of the combined company and mitigating cost increases from key data vendors;

 

   

drive attractive total stockholder return outlook, including at least $50 million in run-rate synergies, implying immediate double-digit earnings per share accretion on a run-rate synergy basis and accelerated earnings growth potential from topline development, synergies, and deleveraging; and

 

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diversify revenue across customer segments, industries, and geographies, reducing seasonality and improving resource planning and operational efficiency.

Required Stockholder Approval for the Transaction (see page 57)

Under Delaware law and Sterling’s organizational documents, the adoption of the merger agreement required the affirmative vote or written consent of the holders of a majority of the outstanding shares of Sterling common stock entitled to vote thereon. As of February 28, 2024, the record date for determining stockholders of Sterling entitled to vote on or consent to the adoption of the merger agreement, there were 93,154,066 shares of Sterling common stock outstanding. Holders of Sterling common stock are entitled to one vote for each share held of record on all matters on which stockholders are entitled to vote generally, including adoption of the merger agreement.

On February 28, 2024, following the execution of the merger agreement, the Specified Stockholders, which owned 49,807,744 shares of Sterling common stock, representing approximately 53.5% of the issued and outstanding shares of Sterling common stock delivered the written consent to Sterling in accordance with Section 228 of the DGCL. In addition, on April 26, 2024, the Specified Stockholders delivered a written consent to Sterling in accordance with Section 228 of the DGCL readopting the merger agreement and adopting the ratification of Sterling’s execution and delivery of the merger agreement. No further action by any other holder of Sterling common stock is required under applicable law or the merger agreement (or otherwise) in connection with the adoption of the merger agreement. As a result, Sterling has not solicited and is not soliciting your vote for the adoption of the merger agreement and will not call a stockholders’ meeting for purposes of voting on the adoption of the merger agreement. No further action by the Sterling stockholders is required to complete the transaction and all requisite corporate action by and on behalf of Merger Sub required to complete the transaction has been taken.

When actions are taken by the written consent of less than all of the stockholders entitled to vote on a matter, Delaware law requires prompt notice of the action be given to those stockholders who, as of the record date for the action by written consent, have not consented and who would have been entitled to notice of the meeting if the action had been taken at a meeting and the record date for the notice of the meeting were the record date for the action by written consent, which, in this case, is February 28, 2024 (in respect of the action by written consent adopting the merger agreement on February 28, 2024) and April 26, 2024 (in respect of the action by written consent readopting the merger agreement and adopting the ratification of Sterling’s execution and delivery of the merger agreement, on April 26, 2024). This information statement/prospectus and the notice attached hereto constitute notice to you from Sterling of the written consent as required by Delaware law.

Opinion of Sterling’s Financial Advisor (see page 61)

Sterling engaged Citigroup Global Markets Inc. (referred to as Citi) as a financial advisor in connection with the transaction. On February 28, 2024, Citi rendered its oral opinion to the Sterling board of directors (which was subsequently confirmed in writing by delivery of Citi’s written opinion addressed to the Sterling board of directors dated the same date) to the effect that, as of February 28, 2024, and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Citi as set forth in its written opinion, the merger consideration to be received by the holders of Sterling common stock (other than First Advantage and its affiliates) in the transaction pursuant to the merger agreement was fair, from a financial point of view, to such holders.

The full text of Citi’s written opinion, which describes, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken, is attached as Annex G to this information statement/prospectus. The description of Citi’s opinion contained in this

 

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information statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Citi’s opinion was directed to the Sterling board of directors, in its capacity as such, and addressed only the fairness, from a financial point of view and as of the date of such opinion, to the holders of Sterling common stock (other than First Advantage and its affiliates) of the merger consideration to be received by such holders in the transaction pursuant to the merger agreement. Citi’s opinion did not address any other terms, aspects or implications of the transaction. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Sterling to effect or enter into the transaction, the relative merits of the transaction as compared to any alternative business strategies that might exist for Sterling or the effect of any other transaction which Sterling might engage in or consider. Citi’s opinion did not address what the value of the First Advantage common stock actually will be when issued pursuant to the transaction or the prices at which Sterling common stock, First Advantage common stock or any other securities will trade or otherwise be transferable at any time, including following the announcement or completion of the transaction. Citi’s opinion is not intended to be and does not constitute a recommendation as to how the Sterling board of directors or any stockholder should vote or act on any matters relating to the proposed merger or otherwise.

Interests of Sterling’s Directors and Executive Officers in the Transaction (see page 69)

Sterling’s directors and executive officers may have interests in the transaction that are different from, or in addition to, those of Sterling stockholders more generally. The Sterling board of directors was aware of these interests and considered them, among other matters, in evaluating and negotiating the merger agreement, in reaching its decision to approve the merger agreement and the consummation of the transaction, and in recommending that the Sterling stockholders adopt the merger agreement. These interests include, among others, the treatment of outstanding Sterling equity awards in connection with the transaction and certain potential severance payments in connection with the transaction and a qualifying termination of employment upon or following the transaction, as described in more detail in the section titled “The Transaction—Interests of Sterling’s Directors and Executive Officers in the Transaction” beginning on page 69.

Material U.S. Federal Income Tax Consequences (see page 76)

The exchange of Sterling common stock for First Advantage common stock and cash (including cash received in lieu of a fractional share of First Advantage common stock) in the transaction generally will be a taxable transaction for U.S. Holders for U.S. federal income tax purposes and may also be taxable under state and local and other tax laws. However, a non-U.S. Holder receiving the exchange of Sterling common stock for First Advantage common stock and cash will not be subject to U.S. federal income tax unless specific requirements are met. For additional information regarding the material U.S. federal income tax consequences of the transaction, please see the section titled “The Transaction—Material U.S. Federal Income Tax Consequences” beginning on page 76.

The tax consequences of the transaction to you will depend on your particular circumstances. Each Sterling stockholder should read the discussion under the section titled “Material U.S. Federal Income Tax Consequences” and should consult his, her or its tax advisor regarding the U.S. federal income tax consequences of the transaction to such holder, as well as tax consequences arising under the laws of any state, local or foreign tax jurisdiction.

Accounting Treatment of the Transaction (see page 75)

The transaction will be accounted for as a business combination, with First Advantage using the acquisition method of accounting in accordance with Accounting Standard Codification 805, Business Combinations, and, accordingly, will generally result in the recognition of Sterling assets acquired and liabilities assumed at fair value. However, as of the date of this information statement/prospectus, the valuation studies necessary to

 

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estimate the fair values of the assets acquired (including intangible assets, such as completed technology, customer relationships and customer lists, and trademarks and trade names) and liabilities assumed have been performed based on publicly available benchmarking information as well as a variety of other assumptions, including market participant assumptions, as there are limitations to the type of information that can be exchanged between First Advantage and Sterling at this time. Until the transaction is complete, First Advantage will not have complete access to all the relevant information. Differences between these preliminary estimates and the final acquisition accounting will occur and there can be no assurances that the final valuations will not result in material changes to this preliminary purchase price allocation. The excess of the consideration transferred over the identifiable net assets acquired reflected in the unaudited pro forma condensed combined financial information will be allocated to goodwill. A final determination of these fair values will reflect appraisals prepared by independent third-parties and will be based on the actual tangible and intangible assets and liabilities that exist as of the acquisition date. The actual allocation of the consideration transferred may differ from the allocation assumed in the unaudited pro forma condensed combined financial information and may result in adjustments to the unaudited pro forma condensed combined financial information.

Regulatory Clearances and Approvals Required for the Transaction (see page 80)

The transaction is subject to the requirements of the HSR Act, which prevents Sterling and First Advantage from completing the transaction until required information and materials are furnished to the Antitrust Division of the Department of Justice (referred to as the DOJ) and the Federal Trade Commission (referred to as the FTC) and the HSR Act waiting period is terminated or expires. The parties voluntarily withdrew their submission of the requisite notification and report forms under the HSR Act and refiled such notification and report on April 26, 2024. On May 28, 2024, First Advantage and Sterling each received a request for additional information and documentary material, often referred to as a “second request”, from the DOJ under the HSR Act. As a result of the second request, the closing of the transaction is now anticipated to occur in approximately the fourth quarter of 2024.

The completion of the transaction is subject to clearance under the antitrust and foreign direct investment laws of certain foreign jurisdictions, and the parties have filed the applicable notifications with the appropriate regulators in such jurisdictions. The parties must observe mandatory waiting periods and/or obtain the necessary approvals, clearances or consents pursuant to these foreign laws before completing the transaction. Other state or foreign antitrust, competition and foreign direct investment authorities may take action under the laws of their jurisdictions, which could include seeking to enjoin the completion of the transaction. For additional information about regulatory approvals relating to the transaction, please see the section titled “The Merger Agreement—Conditions to the Transaction”.

Although the parties expect that all required regulatory clearances and approvals will be obtained, the parties cannot assure you that these regulatory clearances and approvals will be timely obtained or obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the transaction, including the requirement to divest assets, create or modify contractual rights or obligations or enter into supply or services agreements. These conditions could result in the conditions to the transaction not being satisfied.

Expected Timing of the Transaction (see pages 109, 110 and 80)

First Advantage and Sterling currently expect the transaction to be completed in approximately the fourth quarter of 2024, subject to the satisfaction or waiver of a number of conditions, including, among others, the expiration or termination of the waiting period (and any extensions thereof) applicable to the transaction under the HSR Act, the receipt of the clearances and approvals applicable to the transaction under the antitrust and foreign direct investment laws of certain foreign jurisdictions, and the satisfaction or waiver of the other closing

 

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conditions contained in the merger agreement. However, First Advantage and Sterling cannot predict the actual date on which the transaction will be completed because completion is subject to conditions beyond their control and it is possible that such conditions could result in the transaction being completed earlier or later than expected or not being completed at all.

For additional information regarding the expected timing of the transaction, please see the sections titled “The Merger Agreement—Efforts to Obtain Regulatory Approvals” beginning on page 110, “The Merger Agreement—Conditions to the Transaction” beginning on page 109 and “The Transaction—Regulatory Clearances and Approvals Required for the Transaction” beginning on page 80.

Treatment of Sterling Equity Awards (see pages 70 and 90)

Stock Options, RSU Awards and Restricted Stock Awards

At the effective time, each outstanding in-the-money Sterling stock option, whether vested or unvested, will automatically be canceled, with the holder of such Sterling stock option becoming entitled to receive the merger consideration in accordance with his or her election (and otherwise in accordance with the terms of the merger agreement with respect to each share of net option stock). Each out-of-the-money Sterling stock option, whether vested or unvested, will be canceled for no consideration.

At the effective time, each outstanding Sterling RSU award, whether vested or unvested, will automatically be canceled, with the holder of such Sterling RSU award becoming entitled to receive the merger consideration in accordance with such holder’s election.

In each case, holders of Sterling stock options or Sterling RSU awards will receive cash in lieu of any fractional shares of First Advantage common stock such holders would otherwise be entitled to receive.

If First Advantage determines in its reasonable discretion that it is impracticable or overly burdensome to provide non-U.S. holders of Sterling stock options or Sterling RSU awards with an election, First Advantage will notify such holders as to whether their net option stock (in the case of holders of Sterling stock options) or their Sterling RSU award (in the case of holders of Sterling RSU awards) will be converted wholly into cash awards or restricted shares of (or RSUs over) First Advantage common stock.

Stock consideration received by a holder in respect of (i) shares of net option stock attributable to unvested in-the-money Sterling stock options (where the restricted stock is taxable only on vesting or settlement (and not on issuance)), or (ii) Sterling restricted stock awards, will be issued to such holder pursuant to a restricted stock award agreement in respect of First Advantage common stock. Such stock consideration will be subject to the same terms and conditions (including any rights to post-closing accelerated vesting upon a termination of employment) as applied to such shares of net option stock or Sterling restricted stock award, as applicable, immediately prior to the effective time.

Stock consideration received by a holder (other than a non-employee director of Sterling) in respect of (i) shares of net option stock attributable to unvested in-the-money Sterling stock options (where the restricted stock is taxable on issuance), or (ii) any share subject to a Sterling RSU award, will be issued to such holder in the form of an RSU over First Advantage common stock pursuant to an RSU award agreement. Such First Advantage RSUs will be subject to the same terms and conditions (including any accelerated vesting) as applied to such shares of net option stock or Sterling RSUs, as applicable, immediately prior to the effective time.

Cash consideration received by a holder (other than a non-employee director of Sterling) in respect of (i) shares of net option stock attributable to unvested in-the-money Sterling stock options, (ii) a Sterling RSU

 

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award, or (iii) any unvested shares of Sterling common stock subject to a Sterling restricted stock award, will be deferred and paid to the holder on the regularly scheduled future vesting dates of the applicable awards, subject to the same terms and conditions (including any rights to post-closing accelerated vesting upon a termination of employment) as applied to the net option stock, Sterling RSU award or Sterling restricted stock award, as applicable, immediately prior to the effective time.

At the effective time, the vesting of each Sterling restricted stock award held by a non-employee director will fully accelerate.

Employee Stock Purchase Plan

Pursuant to the terms of the merger agreement, Sterling, the Sterling board of directors or the compensation committee of the Sterling board of directors, as applicable, is required take all actions necessary pursuant to the terms of Sterling’s employee stock purchase plan, as amended (referred to as the ESPP), to terminate the ESPP effective as of immediately prior to the effective time, contingent upon the occurrence of the transaction, and to provide that, (i) no offering or purchase period will be continued or commenced under the ESPP, except for any offering or purchase period under the ESPP that was in effect on the date of the merger agreement (referred to as the current ESPP offering period); (ii) no new participants may elect to participate in the ESPP during the current ESPP offering period; and (iii) no participant may increase the participant’s payroll deductions with respect to the current ESPP offering period. In addition, the merger agreement requires that the ESPP be suspended and no new offering period commenced under the ESPP after the date of the merger agreement, and that the final exercise date for the ESPP offering period as in effect on the date of the merger agreement be accelerated to the first payroll date of Sterling that is reasonably practicable, but in no event to a date that is later than 30 days, thereafter. Sterling terminated the then-current offering period for the ESPP effective February 29, 2024.

Each ESPP participant’s accumulated contributions under the ESPP as of February 29, 2024, were used to purchase shares of Sterling common stock in accordance with the terms of the ESPP as of such date, which shares will be treated in accordance with the terms of the merger agreement, and Sterling has returned to each participant the funds, if any, that remained in such participant’s account after such purchase.

Listing of First Advantage Common Stock; Delisting of Sterling Common Stock (see page 82)

It is a condition to the completion of the transaction that the shares of First Advantage common stock to be issued to Sterling stockholders in the transaction be approved for listing on The Nasdaq Stock Market LLC, subject to official notice of issuance. As a result of the transaction, shares of Sterling common stock will cease to be listed on The Nasdaq Stock Market LLC.

Appraisal Rights (see page 157)

Sterling stockholders and beneficial owners who did not vote in favor of adoption of the merger agreement proposal, who continuously hold their shares of Sterling common stock through the effective time of the transaction and who otherwise comply precisely with the applicable provisions of Section 262 of the DGCL, will be entitled to seek appraisal of the fair value, in cash, of their shares of Sterling common stock, as determined by the Delaware Court of Chancery, if the transaction is completed, in lieu of the consideration they would otherwise be entitled to receive pursuant to the merger agreement. The “fair value” of each share of Sterling common stock as determined by the Delaware Court of Chancery could be greater than, the same as, or less than the value of the merger consideration that a Sterling stockholder would otherwise be entitled to receive under the terms of the merger agreement. Sterling stockholders and beneficial owners who wish to exercise the right to seek an appraisal of their shares must so advise Sterling by submitting a written demand for appraisal in the form described in this information statement/prospectus within 20 days after the date of mailing of this information statement/prospectus, and must otherwise follow the procedures prescribed by Section 262 of the DGCL.

 

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The text of Section 262 of the DGCL is attached as Annex H to this information statement/prospectus. You are encouraged to read these provisions carefully and in their entirety. Due to the complexity of the procedures for exercising appraisal rights, Sterling stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel and their financial advisors. Failure to strictly comply with these provisions may result in the loss of appraisal rights.

No Solicitation of Other Offers by Sterling (see page 101)

Under the terms of the merger agreement, from the date of the merger agreement until the earlier of the effective time or the date (if any) on which the merger agreement is validly terminated and subject to certain exceptions, Sterling has agreed not to solicit, knowingly encourage or facilitate any competing acquisition proposal for Sterling, enter into discussions or negotiations with any third parties regarding any competing acquisition proposal for Sterling or enter into any agreements with a third party regarding any competing acquisition proposal for Sterling.

Notwithstanding the restrictions described in the previous paragraph, if, prior to 11:59 p.m. New York City time on March 23, 2024, Sterling received a bona fide written acquisition proposal that did not result from a breach (irrespective of whether the breach was a de minimis and unintentional breach) of Sterling’s non-solicitation obligations and that the Sterling board of directors determined to be superior to the transaction or reasonably be expected to lead to a proposal that is superior to the transaction, subject to certain conditions set forth in the merger agreement, Sterling was permitted to engage in discussions and negotiations with the party that sent the competing acquisition proposal (and its representatives, advisors and financing sources) and furnish non-public information to that party (and its representatives, advisors and debt financing sources). No acquisition proposals were received by Sterling prior to 11:59 p.m. New York City time on March 23, 2024.

For additional information regarding the restrictions on Sterling’s ability to actively initiate, solicit, facilitate or knowingly encourage alternative acquisition proposals, please see the sections titled “The Merger Agreement—No Solicitation of Other Offers by Sterling” beginning on page 101 and “The Merger Agreement—Change of Recommendation; Match Rights” beginning on page 104.

Conditions to the Transaction (see page 109)

The respective obligations of Sterling, First Advantage and Merger Sub to consummate the transaction are subject to the satisfaction (or waiver if permitted under the merger agreement) of customary conditions, including the adoption of the merger agreement by Sterling’s stockholders by the affirmative vote of at least a majority of the outstanding shares of Sterling common stock and, if obtained pursuant to the written consent, this information statement/prospectus having been mailed to the Sterling stockholders and at least 20 business days having elapsed from the date of completion of such mailing, the expiration or termination of the waiting period under the HSR Act and the receipt of the clearances and approvals applicable to the transaction under the antitrust and foreign direct investment laws of certain foreign jurisdictions

The obligations of First Advantage and Merger Sub to complete the transaction are also subject to the absence of a Sterling material adverse effect (as defined in the section titled “The Merger Agreement—Representations and Warranties”) after the date of the merger agreement that is continuing, the accuracy of the Sterling representations and warranties and compliance by Sterling with its obligations and agreements under the merger agreement, as described in the section titled “The Merger Agreement—Representations and Warranties”.

The obligations of Sterling to consummate the transaction are also subject to the absence of a First Advantage material adverse effect (as defined in the section titled “The Merger Agreement—Representations and Warranties”) after the date of the merger agreement that is continuing, the accuracy of the First Advantage and

 

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Merger Sub representations and warranties and compliance by First Advantage and Merger Sub with their obligations and agreements under the merger agreement, as described in the section titled “The Merger Agreement—Representations and Warranties”.

The merger agreement does not include a financing condition.

Under the terms of the merger agreement, the parties are required to close the transaction on the fifth business day following the date on which the closing conditions to the transaction are satisfied. However, if the closing would occur on a date other than the last business day of a month, First Advantage may, upon written notice to Sterling, elect to defer the closing until the last business day of the month in which closing is otherwise required to occur (or to another date agreed to in writing between Sterling and First Advantage).

For additional information regarding the conditions to the transaction and the closing, please see the sections titled “The Merger Agreement—Conditions to the Transaction” beginning on page 109 and “The Merger Agreement—Closing; Effective Time” beginning on page 83.

Termination of the Merger Agreement (see page 112)

Among other circumstances, First Advantage or Sterling may terminate the merger agreement if:

 

   

any governmental entity of competent jurisdiction has issued a final, non-appealable order, injunction, decree or ruling permanently restraining, enjoining or otherwise prohibiting the consummation of the transaction;

 

   

the effective time has not occurred on or before 11:59 p.m. New York City time on February 28, 2025 (referred to as the outside date); provided, however, that (i) the outside date may be extended by First Advantage by providing written notice to Sterling on or prior to the outside date, for a period of up to six months if, on the outside date, (A) all of the conditions to complete the transaction (other than those conditions relating to antitrust approvals or no injunction (to the extent the relevant injunction or order is in respect of, or any such law is, the HSR Act or any other antitrust law) or such conditions that by their nature are to be satisfied at the closing date of the transaction (as long as such conditions would be satisfied as of such date if the closing were to take place on such date)) have been satisfied or waived (to the extent permitted by applicable law) or (B) (1) all of the conditions to complete the transaction (other than those conditions that by their nature are to be satisfied at the closing date of the transaction (as long as such conditions would be satisfied as of such date if the closing were to take place on such date)) have been satisfied or waived (to the extent permitted by applicable law) and (2) there are pending proceedings against First Advantage (or its affiliates) or Sterling (or its affiliates) by the DOJ or the FTC or any other governmental entity under any applicable antitrust law seeking to restrain, enjoin, prohibit or prevent the completion of the transaction, (ii) during the period that First Advantage may elect to extend the outside date, Sterling is required to provide written notice to First Advantage at least one business day prior to terminating the merger agreement pursuant to the right described in this paragraph and (iii) this right to terminate will not be available to any party whose action or failure to fulfill any obligation was the primary cause of the failure of the effective time to occur prior to the outside date and such action or failure to act constitutes a material breach of the parties’ obligations to use their respective reasonable best efforts to take all actions to complete the transaction; or

 

   

at the conclusion of the special meeting (including any adjournments or postponements thereof) that Sterling would be required to convene if the written consent had not been delivered to First Advantage immediately after the execution of the merger agreement and First Advantage did not terminate the merger agreement, the Sterling stockholders did not adopt the merger agreement.

 

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For additional information regarding the termination of the merger agreement, please see the section titled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 112.

Termination Fee and Expenses (see page 114)

Except as otherwise expressly provided in the merger agreement (including the termination fees described below), all costs and expenses incurred in connection with the merger agreement and the transaction will be paid by the party incurring the cost or expense.

Under the terms of the merger agreement, Sterling will pay (or cause to be paid to) First Advantage a termination fee of $66.3 million if:

 

   

(i) after the date of the merger agreement and prior to termination of the merger agreement, an acquisition proposal is made to the Sterling board of directors or to Sterling management or is publicly disclosed (whether by Sterling or a third party), (ii) First Advantage terminates the merger agreement due to Sterling’s breach of or failure to perform or comply with, one or more of its covenants or agreements under the merger agreement following the making of such acquisition proposal and (iii) within twelve months of such termination, an acquisition proposal is consummated or a definitive agreement providing for an acquisition proposal is entered into; or

 

   

First Advantage terminates the merger agreement because Sterling enters into a company acquisition agreement or Sterling has willfully breached in a material respect its obligations (as described in the section titled “The Merger Agreement—No Solicitation of Other Offers by Sterling” beginning on page 101 or “The Merger Agreement—Change of Recommendation; Match Rights” beginning on page 104).

Under the terms of the merger agreement, First Advantage will pay Sterling a termination fee of:

 

   

(i) $60 million, if First Advantage or Sterling terminate the merger agreement due to the effective time not having occurred on or prior to the outside date and First Advantage did not elect to extend the outside date, or (ii) $90 million, if First Advantage or Sterling terminates the merger agreement due to the effective time not having occurred on or prior to the extended outside date, and, in the case of both (i) and (ii) of this paragraph, at the time of such termination, the condition relating to antitrust approvals or the condition relating to no injunction (solely because the relevant injunction or order is in respect of, or any such law is, the HSR Act or any other applicable antitrust law) has not been satisfied and all of the other conditions to complete the transaction (other than those conditions that by their nature are to be satisfied at the closing (as long as such conditions would be satisfied as of such date if the closing were to take place on such date)), have been satisfied or waived (to the extent permitted by applicable law); or

 

   

$100 million, if Sterling terminates the merger agreement because First Advantage fails to complete the transaction within five business days after all of the required conditions have been satisfied and Sterling has confirmed in writing to First Advantage that it stands ready, willing and able to complete the transaction.

For additional information regarding the termination fees, please see the section titled “The Merger Agreement—Termination Fee and Expenses” beginning on page 114.

Comparison of Rights of Common Stockholders of First Advantage and Sterling (see page 138)

Upon the completion of the transaction, Sterling stockholders receiving shares of First Advantage common stock will become stockholders of First Advantage, and their rights will be governed by the governing corporate

 

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documents of First Advantage in effect at the effective time of the transaction, which are different from Sterling’s governing corporate documents, as further described in the section titled “Comparison of Rights of Common Stockholders of First Advantage and Sterling” beginning on page 138.

Comparative Market Price Data

First Advantage common stock is listed on The Nasdaq Stock Market LLC under the symbol “FA” and Sterling common stock is listed on The Nasdaq Stock Market LLC under the symbol “STER”. The following table sets forth, for the calendar periods indicated, the high and low sales prices per share of First Advantage common stock and per share of Sterling common stock as reported on The Nasdaq Stock Market LLC, respectively.

 

     First Advantage
common stock (FA)
     Sterling common
stock (STER)
 
     High      Low      High      Low  

2022

 

First Quarter

   $ 21.01      $ 14.76      $ 27.17      $ 17.28  

Second Quarter

   $ 20.98      $ 12.05      $ 28.76      $ 14.65  

Third Quarter

   $ 15.89      $ 11.68      $ 23.36      $ 15.93  

Fourth Quarter

   $ 14.83      $ 10.07      $ 20.43      $ 12.22  

2023

           

First Quarter

   $ 14.66      $ 11.90      $ 15.94      $ 10.58  

Second Quarter

   $ 15.67      $ 12.10      $ 15.26      $ 10.62  

Third Quarter

   $ 15.89      $ 13.14      $ 14.75      $ 10.93  

Fourth Quarter

   $ 16.73      $ 12.46      $ 14.03      $ 10.00  

2024

           

First Quarter

   $ 17.49      $ 14.01      $ 16.68      $ 12.38  

The following table sets forth the closing sale price per share of Sterling common stock and First Advantage common stock as reported on The Nasdaq Stock Market LLC, respectively, as of (i) February 28, 2024, the last full trading day before the public announcement of the transaction and (ii) June 10, 2024, the latest practicable trading date before the date of this information statement/prospectus. The table also shows the estimated implied value of the per share merger consideration for each share of Sterling common stock as of the same dates assuming (a) a cash election and no proration, (b) a stock election and no proration and (c) a blended value (assuming proration of 72% cash and 28% stock, based on the treatment of Sterling common stock, stock options and restricted stock units pursuant to the merger agreement).

 

     Sterling common
stock closing price
     First Advantage
common stock
closing price
     Implied per share
value of Sterling
common stock with
a cash election
     Implied per share
value of Sterling
common stock with
a stock election
     Blended value per
share of Sterling
common stock
 

February 28, 2024

   $ 12.42      $ 16.84      $ 16.73      $ 16.49      $ 16.66  

June 10, 2024

   $ 15.39      $ 16.72      $ 16.73      $ 16.37      $ 16.63  

The market prices of shares of First Advantage common stock and Sterling common stock have fluctuated since the date of the announcement of the transaction and will continue to fluctuate from the date of this information statement/prospectus to the closing date of the transaction. No assurance can be given concerning the market prices of shares of First Advantage common stock or Sterling common stock before completion of the transaction or shares of First Advantage common stock after completion of the transaction. The exchange ratio is fixed in the merger agreement and will only be adjusted as described in the section titled “The Merger Agreement—Merger Consideration”. However, the market price of shares of First Advantage common stock (and therefore the value of the merger consideration when received by Sterling stockholders upon completion of

 

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the transaction) could be greater than, less than or the same as shown in the table above. Accordingly, Sterling stockholders are advised to obtain current market quotations for shares of First Advantage common stock and Sterling common stock in connection with deciding how elect to receive the merger consideration.

First Advantage has never declared or paid any regular cash dividends on shares of First Advantage common stock. First Advantage’s board of directors declared a one-time special cash dividend of $1.50 per share of First Advantage common stock on August 8, 2023, that was paid on August 31, 2023 to First Advantage stockholders of record as of August 21, 2023. First Advantage anticipates retaining future earnings for the development, operation, and expansion of its business, and does not anticipate declaring or paying any cash dividends in the near term. Under the terms of the merger agreement, until the earlier of the effective time or the date (if any) on which the merger agreement is validly terminated, First Advantage is not permitted to authorize, declare, set aside, make or pay any special cash dividends on its outstanding shares of First Advantage common stock, or split, combine, subdivide or reclassify any of its capital stock, without the prior written consent of Sterling, except as may be expressly permitted under the merger agreement or required by applicable law. Sterling has never declared or paid any cash dividends on Sterling common stock. Under the terms of the merger agreement, until the earlier of the effective time or the date (if any) on which the merger agreement is validly terminated, Sterling is not permitted, and must not permit any of its subsidiaries, to authorize, declare, set aside, make or pay any dividends on or make any distribution with respect to its outstanding shares of capital stock or other equity interests (whether in cash, assets, shares or other securities of Sterling or any of its subsidiaries), except for dividends and distributions paid or made by a wholly-owned Sterling subsidiary to Sterling or another wholly-owned Sterling subsidiary, in each case, in the ordinary course of business, without the prior written consent of First Advantage, except as may be expressly permitted under the merger agreement or required by applicable law.

Risk Factors (see page 23)

You should consider all the information about the risks related to the transaction set forth under the section titled “Risk Factors”, together with information contained in or incorporated by reference into this information statement/prospectus. For additional information regarding where you can find information incorporated by reference into this information statement/prospectus, please see the section titled “Where You Can Find More Information” beginning on page 165.

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this information statement/prospectus, including, among other things, the matters addressed in the section titled “Cautionary Statement Regarding Forward-Looking Statements”. Sterling stockholders should carefully consider the following risks before making their election. In addition, you should read and consider the risks associated with each of the businesses of First Advantage and Sterling because these risks will relate to First Advantage following the completion of the transaction. Descriptions of some of these risks can be found in First Advantage’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and Sterling’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and, in each case, any amendments thereto, as such risk factors may be updated or supplemented in each company’s subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, which are incorporated by reference into this information statement/prospectus. You should also consider the other information in this information statement/prospectus and the other documents incorporated by reference into this information statement/prospectus. For additional information regarding where you can find information incorporated by reference into this information statement/prospectus, please see the section titled “Where You Can Find More Information”.

Risks Relating to the Transaction

Because the stock election exchange ratio is fixed and will not be adjusted for stock price changes and the market price of First Advantage common stock has fluctuated and will continue to fluctuate, Sterling stockholders cannot be sure of the value of the consideration they will receive.

Upon completion of the transaction, each issued and outstanding share of Sterling common stock (other than (i) canceled shares, (ii) dissenting shares and (iii) excluded shares) will be converted into the right to receive, at the election of the stockholder and subject to proration, the cash consideration or the stock consideration. With respect to each share, a Sterling stockholder may elect to receive (i) solely the cash consideration (referred to as a cash election) or (ii) solely the stock consideration (referred to as a stock election). If the Sterling stockholder owns more than one share, the Sterling stockholder may elect to receive a combination of the cash consideration for a selected number of shares and the stock consideration for the remaining number of shares. Whether you receive your elected merger consideration will depend on the election of other Sterling stockholders and the proration mechanism.

The market price of First Advantage common stock at the time of completion of the transaction may vary significantly from the market price of First Advantage common stock on the date the merger agreement was executed, the date of this information statement/prospectus and the date on which Sterling stockholders make their election. Because the stock consideration is payable in a fixed number of shares of First Advantage common stock, the value of the stock consideration that Sterling stockholders who elect to receive the stock consideration (or who elect to receive the cash consideration but are subject to proration) receive upon completion of the transaction may be higher or lower than the value of the stock consideration on such earlier dates. In addition, as discussed below, the merger consideration will be subject to proration. Accordingly, Sterling stockholders will not know or be able to calculate at the time of their election the market value of the stock consideration they will receive upon completion of the transaction.

If a Sterling stockholder makes a stock election and the market value of First Advantage common stock falls between the time of the election and the time the merger consideration is actually received, the value of the merger consideration received may be less than the value of the merger consideration such stockholder would have received under a cash election. Conversely, if a Sterling stockholder makes a cash election and the market value of First Advantage common stock rises between the time of the election and the time the merger consideration is actually received, the value of the merger consideration received may be less than the value of the merger consideration such stockholder would have received under a stock election.

Stock price changes may result from a variety of factors, including, among others, general market and economic conditions, changes in First Advantage’s and Sterling’s respective businesses, operations and

 

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prospects, market assessments of the likelihood that the transaction will be completed, the timing of the transaction, regulatory considerations and other risk factors set forth or incorporated by reference in this information statement/prospectus. Many of these factors are beyond First Advantage’s and Sterling’s control. Sterling stockholders are urged to obtain current market quotations for First Advantage common stock and Sterling common stock when they make their elections.

Sterling stockholders may not receive all consideration in the form they elect, and the form of consideration that they receive may have a lower value than the form of consideration that they elect to receive.

The merger consideration is subject to proration so that 72% of Sterling common stock issued and outstanding immediately prior to the effective time will be converted into the right to receive cash consideration and 28% will be converted into the right to receive stock consideration. Accordingly, some of the merger consideration a Sterling stockholder receives may differ from the type of consideration selected and such difference may be significant. For additional information regarding the proration mechanism, please the section titled “The Transaction—Merger Consideration”, and for additional information regarding the material U.S. federal income tax consequences of the transaction, please see the section titled “The Transaction—Material U.S. Federal Income Tax Consequences”.

Completion of the transaction is subject to the conditions contained in the merger agreement and if these conditions are not satisfied or waived, the transaction will not be completed.

The obligations of First Advantage and Sterling to complete the transaction are subject to the satisfaction or waiver of a number of conditions, including, among others, the expiration or termination of the waiting period (and any extensions thereof) applicable to the transaction under the HSR Act and the receipt of the clearances and approvals applicable to the transaction under the antitrust and foreign direct investment laws of certain foreign jurisdictions. For more information regarding the required regulatory approvals and the closing conditions, please see the sections titled “The Transaction—Regulatory Clearances and Approvals for the Transaction” and “The Merger Agreement—Conditions to the Transaction”.

Although First Advantage and Sterling have agreed in the merger agreement to use their reasonable best efforts to complete the transaction as promptly as practicable, many of the closing conditions are not within First Advantage’s or Sterling’s control, and neither company can predict when or if these conditions will be satisfied. If any of these conditions are not satisfied or waived prior to February 28, 2025, which deadline may be extended to August 28, 2025 under certain circumstances, it is possible that the merger agreement will be terminated. The failure to satisfy all of the required conditions could delay the completion of the transaction for a significant period of time or prevent it from occurring. Any delay in completing the transaction could cause First Advantage not to realize some or all of the benefits that it expects to achieve if the transaction is successfully completed within its expected timeframe. There can be no assurance that the closing conditions will be satisfied or waived or that the transaction will be completed. For additional information, please see the risk factor titled “Failure to complete the transaction could negatively affect the stock price and the future business and financial results of Sterling,” below.

First Advantage and Sterling each have rights to terminate the merger agreement under specified circumstances, in which case the transaction will not be completed.

First Advantage, on the one hand, and Sterling, on the other hand, can mutually decide to terminate the merger agreement at any time before the effective time. In addition, each of First Advantage and Sterling may elect to terminate the merger agreement under certain other circumstances. For more information regarding each party’s termination rights, please see the section titled “The Merger Agreement—Termination of the Merger Agreement”.

If the merger agreement is terminated, First Advantage and Sterling may incur fees in connection with termination of the merger agreement and neither of them will realize the anticipated benefits of the merger.

 

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Sterling would be required to pay First Advantage a termination fee of $66.3 million if:

 

   

(i) after the date of the merger agreement and prior to termination of the merger agreement, an acquisition proposal is made to the Sterling board of directors or to Sterling management or is publicly disclosed (whether by Sterling or a third party), (ii) (A) First Advantage or Sterling terminates the merger agreement due to the effective time not having occurred on or prior to the outside date or (B) First Advantage terminates the merger agreement due to Sterling’s breach of or failure to perform or comply with, one or more of its covenants or agreements under the merger agreement following the making of such acquisition proposal and (iii) within twelve months of such termination, an acquisition proposal is consummated or a definitive agreement providing for an acquisition proposal is entered into; or

 

   

First Advantage terminates the merger agreement because Sterling enters into a company acquisition agreement or Sterling has willfully breached in a material respect its obligations (as described under “The Merger Agreement—No Solicitation of Other Offers by Sterling” or “The Merger Agreement—Change of Recommendation; Match Rights”).

First Advantage would be required to pay Sterling a termination fee of:

 

   

(i) $60 million, if First Advantage or Sterling terminate the merger agreement due to the effective time not having occurred on or prior to the outside date and First Advantage did not elect to extend the outside date, or (ii) $90 million, if First Advantage or Sterling terminates the merger agreement due to the effective time not having occurred on or prior to the extended outside date, and, in the case of both (i) and (ii) of this paragraph, at the time of such termination, the condition relating to antitrust approvals or the condition relating to no injunction (solely because the relevant injunction or order is in respect of, or any such law is, the HSR Act or any other applicable antitrust law) has not been satisfied and all of the other conditions to complete the transaction (other than those conditions that by their nature are to be satisfied at the closing (as long as such conditions would be satisfied as of such date if the closing were to take place on such date)), have been satisfied or waived (to the extent permitted by applicable law); or

 

   

$100 million, if Sterling terminates the merger agreement because First Advantage fails to complete the transaction within five business days after all of the required conditions have been satisfied and Sterling has confirmed in writing to First Advantage that it stands ready, willing and able to complete the transaction.

For additional information regarding the reverse termination fees, please see the section titled “The Merger Agreement—Termination Fee and Expenses”.

The transaction is subject to the expiration of applicable waiting periods and the receipt of approvals, consents or clearances from certain regulatory authorities that may impose conditions that could have an adverse effect on First Advantage, Sterling or following the completion of the transaction, First Advantage or, if not obtained, could prevent completion of the transaction.

Before the transaction may be completed, the waiting period (and any extensions thereof) applicable to the transaction under the HSR Act must have expired or terminated and the clearances and approvals applicable to the transaction under the antitrust and foreign direct investment laws of certain foreign jurisdiction must have been received. In addition, the transaction may be reviewed under antitrust statutes or foreign direct investment regimes of other governmental authorities, including U.S. state laws. In deciding whether to grant the required regulatory approval, consent or clearance, the relevant governmental entities may consider, among other factors, the effect of the transaction on competition within their relevant jurisdiction.

The terms and conditions of the approvals, consents and clearances that are granted may impose requirements, limitations or costs or place restrictions on the conduct of First Advantage’s business following the

 

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completion of the transaction. Under the merger agreement, First Advantage and Sterling have agreed to use their reasonable best efforts to obtain such approvals, consents and clearances and therefore may be required to comply with conditions, terms, obligations or restrictions imposed by governmental authorities. There can be no assurance that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the transaction or imposing additional material costs on or materially limiting the revenues of First Advantage following the completion of the transaction. In addition, neither First Advantage nor Sterling can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the transaction. For additional information regarding conditions to the completion of the transaction, please see the sections titled “The Transaction—Regulatory Clearances and Approvals Required for the Transaction” and “The Merger Agreement—Conditions to the Transaction”.

Sterling’s directors and executive officers have interests in the transaction that may be different from, or in addition to, the interests of Sterling stockholders more generally.

Sterling stockholders should be aware that directors and executive officers of Sterling have certain interests in the transaction that may be different from, or in addition to, the interests of Sterling stockholders more generally. These interests generally include, among others, treatment of outstanding Sterling equity awards in connection with the transaction and certain potential severance payments in connection with the transaction and a qualifying termination of employment upon or following the transaction. For additional information regarding the interests of Sterling’s directors and executive officers in the transaction, please see the section titled “The Transaction—Interests of Sterling’s Directors and Executive Officers in the Transaction”. The Sterling board of directors was aware of these interests and considered them, among other matters, in evaluating and negotiating the merger agreement, in reaching its decision to approve the merger agreement and the completion of the transaction, and in recommending that Sterling stockholders adopt the merger agreement.

The merger agreement subjects Sterling to restrictions on its business activities.

The merger agreement subjects Sterling to restrictions on its business activities and obligates Sterling to generally conduct its business in a commercially reasonable manner and in all material respects in the ordinary course of business consistent with past practice. These restrictions could have an adverse effect on Sterling’s results of operations, cash flows and financial position.

The business relationships of First Advantage and Sterling and their respective subsidiaries may be subject to disruption due to uncertainty associated with the transaction, which could have an adverse effect on the results of operations, cash flows and financial position of First Advantage, Sterling and, following the completion of the transaction, First Advantage.

Parties with which First Advantage and Sterling, or their respective subsidiaries, do business may be uncertain as to the effects the transaction may have on them, including with respect to current or future business relationships with First Advantage, Sterling or their respective subsidiaries. These relationships may be subject to disruption as customers, suppliers and other persons with whom First Advantage and Sterling have a business relationship may delay or defer certain business decisions or might decide to terminate, change or renegotiate their relationships with First Advantage or Sterling, as applicable, or consider entering into business relationships with parties other than First Advantage, Sterling or their respective subsidiaries. These disruptions could have an adverse effect on the results of operations, cash flows and financial position of First Advantage or Sterling, including an adverse effect on First Advantage’s ability to realize the expected synergies and other benefits of the transaction. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the transaction or termination of the merger agreement.

The merger agreement limits Sterling’s ability to pursue alternatives to the transaction and may discourage other companies from trying to acquire Sterling.

The merger agreement contains provisions that make it more difficult for Sterling to sell its business to a party other than First Advantage. These provisions include a general prohibition on Sterling soliciting any

 

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takeover proposal or offer for a competing transaction, and the merger agreement does not permit Sterling to terminate the merger agreement to accept a takeover proposal or offer for a competing transaction after 11:59 p.m. New York City time on March 23, 2024. Sterling did not receive any unsolicited acquisition proposals prior to 11:59 p.m. New York City time on March 23, 2024. In addition, upon termination of the merger agreement, Sterling would have been required to pay First Advantage a termination fee of $66.3 million if the merger agreement were terminated in certain circumstances including Sterling entering into a definitive agreement with respect to a superior proposal or an adverse recommendation change prior to or at 11:59 p.m. New York City time on March 23, 2024 or a willful breach in a material respect of Sterling’s non-solicitation obligations under the merger agreement. Sterling did not receive any acquisition proposals prior to 11:59 p.m. New York City time on March 23, 2024.

The Sterling board of directors believes that permitting Sterling to terminate the merger agreement in order to accept a takeover proposal or offer for a competing transaction prior to or at 11:59 p.m. New York City time on March 23, 2024 provided Sterling with the ability to conduct a reasonable post-signing market check on the adequacy of the merger consideration payable to Sterling stockholders pursuant to the merger agreement. However, it is possible that this provision or the other provisions of the merger agreement could have discouraged a potential acquiror that might have had an interest in acquiring all or a significant part of Sterling from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the consideration First Advantage proposes to pay in the transaction. Alternatively, it might have resulted in a potential competing acquiror proposing to pay a lower per share price to acquire Sterling than it might otherwise have proposed to pay because of the termination fee that may have become payable to First Advantage in certain circumstances described in the section titled “The Merger Agreement—Termination Fee and Expenses”. The Sterling board of directors carefully considered the foregoing provisions of the merger agreement and concluded that they would not preclude a potential buyer with the strategic interest and financial wherewithal to make a competing proposal from doing so and that they were necessary to reach an agreement with First Advantage on the transaction.

Failure to complete the transaction could negatively affect the stock price and the future business and financial results of Sterling.

If the transaction is not completed for any reason, the ongoing business of Sterling may be adversely affected and, without realizing any of the benefits of having completed the transaction, Sterling could be subject to a number of negative consequences, including the following:

 

   

Sterling may experience negative reactions from the financial markets, including negative impacts on its stock price;

 

   

Sterling may experience negative reactions from its customers and suppliers;

 

   

Sterling may experience negative reactions from its employees and may not be able to retain key management personnel and other key employees;

 

   

Sterling will have incurred, and will continue to incur, significant non-recurring costs in connection with the transaction that it may be unable to recover;

 

   

the merger agreement places certain restrictions on the conduct of Sterling’s business prior to completion of the transaction, the waiver of which is subject to the consent of First Advantage (not to be unreasonably withheld, conditioned or delayed), which may prevent Sterling from making certain acquisitions, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the transaction that may be beneficial to Sterling (for additional information regarding the restrictive covenants applicable to Sterling, please see the section titled “The Merger Agreement—Conduct of Businesses of Sterling and First Advantage Prior to Completion of the Transaction”); and

 

   

matters relating to the transaction (including integration planning) will require substantial commitments of time and resources by Sterling management, which could otherwise be devoted to

 

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day-to-day operations and other opportunities that may be beneficial to Sterling as an independent company.

In addition, Sterling could be subject to litigation related to any failure to complete the transaction or related to any enforcement proceeding commenced against Sterling to perform its obligations under the merger agreement. If the transaction is not completed, any of these risks may materialize and may adversely affect Sterling’s businesses, financial condition, financial results and stock price.

First Advantage expects to obtain financing in connection with the transaction and cannot guarantee that it will be able to obtain such financing on favorable terms or at all.

First Advantage anticipates that the funds needed to complete the transaction will be derived from a combination of (i) available cash on hand and (ii) committed third-party debt financing. For additional information regarding the anticipated financing of the transaction, please see the section titled “The Transaction—Financing of the Transaction”. First Advantage’s ability to obtain any such new debt financing will depend on, among other factors, prevailing market conditions and other factors beyond First Advantage’s control. First Advantage cannot assure you that it will be able to obtain new debt financing on terms acceptable to it or at all, and any such failure could materially adversely affect its operations and financial condition. First Advantage’s obligation to complete the transaction is not conditioned upon the receipt of any financing.

The unaudited pro forma condensed combined financial information included in this information statement/prospectus is preliminary and the actual financial condition and results of operations after the transaction may differ materially from them.

The unaudited pro forma condensed combined financial information included in this information statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of what First Advantage’s actual financial condition or results of operations would have been had the transaction been completed on the dates indicated. The unaudited pro forma condensed combined financial information reflects adjustments, which are based upon assumptions, preliminary estimates and accounting reclassifications, to record the Sterling identifiable assets acquired and liabilities assumed at fair value and the resulting goodwill recognized. The allocation of the merger consideration reflected in this information statement/prospectus is preliminary, and final allocation of the merger consideration will be based upon the actual merger consideration and the fair value of the assets and liabilities of Sterling as of the date of the completion of the transaction. Accordingly, the final accounting adjustments as a result of the acquisition may differ materially from the pro forma adjustments reflected in this information statement/prospectus. For additional information, please see the section titled “Unaudited Pro Forma Condensed Combined Financial Information”.

The financial analyses, estimates and projections considered by the Sterling board of directors and its financial advisor may not be realized, which may adversely affect the market price of First Advantage’s common stock following the completion of the transaction.

In connection with the Sterling board of directors’ evaluation of the transaction, Sterling’s management prepared and provided to the Sterling board of directors certain unaudited financial projections regarding Sterling’s anticipated future operations as a standalone company without giving effect to the transaction and as if the transaction had not been contemplated by Sterling. Additionally, Sterling management provided to the Sterling board of directors certain unaudited financial projections of First Advantage, which were prepared by First Advantage’s management. Such unaudited financial projections were also provided to Citi for its use and reliance in connection with its financial analyses, projections and opinion. For further information, please see the section titled “The Transaction—Certain Unaudited Financial Projections Utilized by the Sterling Board of Directors and Sterling’s Financial Advisor”.

The unaudited financial projections regarding Sterling and First Advantage were prepared by, or directed by, the management of Sterling and First Advantage, respectively. Such unaudited financial projections are

 

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inherently based on various estimates and assumptions that are subject to the judgment of those preparing them and are also subject to significant economic, competitive, industry and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of Sterling and First Advantage. There can be no assurance that the projected results will be realized or that actual results will not be significantly higher or lower than estimated. Moreover, as such unaudited financial projections covers multiple years, such information by its nature becomes less predictive with each successive year. The failure of the prospective results to be realized or any deviation of actual results may adversely affect the financial position of First Advantage and, therefore, the market price of First Advantage’s common stock following completion of the transaction.

Completion of the transaction may trigger change in control provisions in certain agreements to which Sterling is a party.

The completion of the transaction may trigger change in control provisions in certain agreements to which Sterling is a party. If Sterling and First Advantage are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if Sterling and First Advantage are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Sterling or First Advantage.

Lawsuits may in the future be filed against Sterling, its directors, First Advantage, and/or Merger Sub challenging the transaction, and an adverse ruling in any such lawsuit may prevent the completion of the transaction or the completion of the transaction within the expected timeframe and/or result in substantial costs to First Advantage and Sterling.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, transaction or other business combination agreements like the merger agreement. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on First Advantage’s and Sterling’s respective liquidity and financial condition.

Further, one of the conditions to the completion of the transaction is that no injunction or law by any governmental entity of competent jurisdiction will be in effect that has the effect of restraining, enjoining or otherwise prohibiting the completion of the transaction. As such, if an injunction prohibiting the completion of the transaction is obtained, that injunction may prevent the transaction from becoming effective or from becoming effective within the expected timeframe.

The opinion of a financial advisor to Sterling will not reflect changes in circumstances between the signing of the merger agreement and the completion of the transaction.

The Sterling board of directors has received a written opinion from a financial advisor in connection with the signing of the merger agreement, but has not obtained an updated opinion from such financial advisor as of the date of this information statement/prospectus. Changes since the signing of the merger agreement in the operations and prospects of Sterling, general market and economic conditions and other factors that may be beyond the control of Sterling, and on which such financial advisor’s opinion was based, may significantly alter the value of Sterling or the shares of Sterling common stock by the closing. The opinion does not speak as of the time the transaction will be completed or as of any date other than the date of such opinion. Because Sterling does not currently anticipate asking such financial advisor to update its opinion, the only opinion from a financial advisor received by the Sterling board of directors will not address the fairness of the merger consideration from a financial point of view at the closing. For a description of the opinion that the Sterling board of directors received from such financial advisor, please see the section titled “The Transaction—Opinion of Sterling’s Financial Advisor”. A copy of the opinion of Citi is attached as Annex G to this information statement/prospectus.

 

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Risks Relating to First Advantage Following Completion of the Transaction

Failure to realize the benefits expected from the transaction could adversely affect the value of First Advantage common stock.

Although First Advantage expects significant benefits to result from the transaction, there can be no assurance that First Advantage will actually realize any of them, or realize them within the anticipated timeframe. Achieving these benefits will depend, in part, on First Advantage’s ability to integrate Sterling’s business successfully and efficiently. The challenges involved with the transaction, which will be complex and time consuming, include the following:

 

   

preserving customer and other important relationships of Sterling and attracting new business and operational relationships;

 

   

integrating financial forecasting and controls, procedures and reporting cycles;

 

   

consolidating and integrating corporate, information technology, finance and administrative infrastructures;

 

   

coordinating sales and marketing efforts to effectively position First Advantage’s capabilities; and

 

   

integrating employees and related human resources systems and benefits, maintaining employee morale and retaining key employees.

If these issues and the other challenges inherent in integrating an acquired business are not successfully managed, then First Advantage may not achieve the anticipated benefits of the transaction on First Advantage’s anticipated timeframe or at all, and First Advantage’s revenue, expenses, operating results, financial condition and stock price could be materially adversely affected. The successful completion of the transaction will require significant management attention both before and after the transaction, and may divert the attention of management from First Advantage’s business and operational issues.

After the transaction, Sterling stockholders will have a significantly lower ownership and voting interest in First Advantage than they currently have in Sterling and will exercise less influence over management.

Based on the number of shares of Sterling common stock outstanding as of May 2, 2024, and the number of shares of First Advantage common stock outstanding as of May 3, 2024, it is expected that, immediately after completion of the transaction, former Sterling stockholders will own approximately 16% of the outstanding shares of First Advantage common stock. Consequently, former Sterling stockholders will have less influence over the management and policies of First Advantage than they currently have over the management and policies of Sterling.

The shares of First Advantage common stock have rights different from the shares of Sterling common stock.

As a result of the transaction, Sterling stockholders will no longer be stockholders of Sterling. Former Sterling stockholders who receive stock consideration in the transaction will become First Advantage stockholders, and their rights as stockholders will be governed by the terms of First Advantage’s governing corporate documents. For additional information regarding the different rights associated with First Advantage common stock, please see the section titled “Comparison of Rights of Common Stockholders of First Advantage and Sterling”.

Silver Lake controls First Advantage and its interests may conflict with the interests of holders of First Advantage common stock in the future.

Silver Lake Group, L.L.C., together with its affiliates, successors, and assignees (referred to as Silver Lake), beneficially owned 61.7% of First Advantage’s outstanding common stock as of April 25, 2024. As of

 

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immediately after the transaction, Silver Lake is expected to beneficially own 52% of First Advantage’s outstanding common stock. As a result, Silver Lake is able to, and will be able to, control the election and removal of First Advantage’s directors and thereby determine its corporate and management policies, including potential mergers or acquisitions, payment of dividends, asset sales, amendment of its certificate of incorporation or bylaws and other significant corporate transactions for so long as Silver Lake and its affiliates retain significant ownership of First Advantage. This concentration of First Advantage ownership may delay or deter possible changes in control of First Advantage, which may reduce the value of an investment in its common stock. So long as Silver Lake continues to own a significant amount of First Advantage’s combined voting power, even if such amount is less than 50%, Silver Lake will continue to be able to strongly influence or effectively control First Advantage’s decisions and, so long as Silver Lake and its affiliates collectively own at least 5% of all outstanding shares of First Advantage’s stock entitled to vote generally in the election of directors, Silver Lake will be able to nominate individuals to First Advantage’s board of directors under the First Advantage Amended and Restated Stockholders’ Agreement, dated as of February 28, 2024, by and among First Advantage, SLP Fastball Aggregator, L.P. and the other parties thereto (referred to as the First Advantage and Silver Lake Stockholders’ Agreement). In addition, the First Advantage and Silver Lake Stockholders’ Agreement grants to Silver Lake and its affiliates and certain of their transferees certain governance rights for as long as Silver Lake and its affiliates and certain of their transferees maintain ownership of at least 25% of First Advantage’s outstanding common stock, including rights of approval over the entry into joint ventures or similar business alliances having a fair market value of more than $100 million, incurrence of debt for borrowed money in excess of $100 million, the increase or reduction in the size of First Advantage’s board of directors, initiation of any liquidation, dissolution, bankruptcy or other insolvency proceeding, the appointment or termination of First Advantage’s chief executive officer, or any material change in the nature of First Advantage’s business. The interests of Silver Lake may not coincide with the interests of other holders of First Advantage’s common stock.

In the ordinary course of their business activities, Silver Lake and its affiliates may engage in activities where their interests conflict with First Advantage’s interests or those of First Advantage’s stockholders. First Advantage’s certificate of incorporation provides that Silver Lake, any of its affiliates or any director who is not employed by First Advantage (including any non-employee director who serves as one of First Advantage’s officers in both his or her director and officer capacities) or his or her affiliates will not have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which First Advantage operates. Silver Lake also may pursue acquisition opportunities that may be complementary to First Advantage’s business and, as a result, those acquisition opportunities may not be available to First Advantage. In addition, Silver Lake may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to you.

In addition, Silver Lake and its affiliates are able to determine the outcome of all matters requiring stockholder approval and are able to cause or prevent a change of control of First Advantage or a change in the composition of First Advantage’s board of directors and could preclude any acquisition of First Advantage. Further, under the First Advantage and Silver Lake Stockholders’ Agreement, so long as Silver Lake and its affiliates and certain of their transferees maintain ownership of at least 25% of First Advantage’s outstanding common stock, they will have approval rights over any change of control transaction, which could preclude any unsolicited acquisition of First Advantage’s shares. This concentration of voting control could deprive you of an opportunity to receive a premium for your shares of First Advantage common stock as part of a sale of First Advantage and ultimately might affect the market price of First Advantage’s common stock.

First Advantage and Sterling will incur direct and indirect costs as a result of the transaction.

First Advantage and Sterling will incur substantial expenses in connection with and as a result of completing the transaction. Following completion of the transaction, First Advantage expects to incur additional expenses in connection with the integration of Sterling’s business. First Advantage may incur additional costs or suffer loss of business under third-party contracts that are terminated or that contain change in control or other provisions

 

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that may be triggered by the completion of the transaction, and/or losses of, or decreases in orders by, customers, and may also incur costs to maintain employee morale and to retain certain key management personnel and employees. First Advantage and Sterling will also incur transaction fees and costs related to formulating integration plans, and the execution of these plans may lead to additional unanticipated costs and time delays. Even though these incremental transaction-related costs are one-time costs, these transaction-related costs may exceed the cost synergies First Advantage expects to achieve, particularly in the near term. Factors beyond First Advantage’s control could affect the total amount or timing of these expenses, many of which, by their nature, are difficult to estimate accurately. See “Failure to realize the benefits expected from the transaction could adversely affect the value of First Advantage common stock” for additional integration risks.

Uncertainties associated with the transaction may cause a loss of management personnel and other key employees of First Advantage or Sterling, which could adversely affect the future business and operations of First Advantage following the transaction.

First Advantage and Sterling are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. Both First Advantage and Sterling must continue to retain, motivate and recruit officers and other key employees during the period prior to the completion of the transaction. Moreover, First Advantage’s success after the transaction will depend in part upon its ability to retain key management personnel and other key employees of First Advantage and Sterling. Experienced employees in the industries in which First Advantage and Sterling operate are in high demand and competition for their talents can be intense. Current and prospective employees of First Advantage and Sterling may be uncertain about their future roles with First Advantage following the transaction, which may materially adversely affect the ability of each of First Advantage and Sterling to attract and retain key personnel during the pendency of the transaction. Accordingly, there can be no assurance that First Advantage will be able to retain key management personnel and other key employees of First Advantage and Sterling. A failure by First Advantage or Sterling to attract, retain and motivate officers and other key employees during the period prior to or after the completion of the transaction could have a negative impact on the business of First Advantage or Sterling. Furthermore, if key employees of First Advantage or Sterling depart or are at risk of departing due to issues including the uncertainty and difficulty of integration or financial security, or if key employees of Sterling depart due to a desire not to become employees of First Advantage, First Advantage may incur significant costs to retain such individuals or to identify, hire and retain replacements for departing employees and may lose significant expertise and talent relating to the business of First Advantage and/or Sterling, and First Advantage’s ability to realize the anticipated benefits of the transaction may be adversely affected.

The market price of First Advantage common stock after the transaction is completed may be affected by factors different from those affecting shares of Sterling common stock before the transaction is completed.

Upon completion of the transaction, certain holders of Sterling common stock will become holders of First Advantage common stock. First Advantage’s business differs in certain respects from that of Sterling, and accordingly, the market price of First Advantage common stock after the completion of the transaction may be affected by factors different from those currently affecting the independent results of operations of each of First Advantage and Sterling. As a result, the market price of First Advantage common stock may fluctuate significantly following completion of the transaction and holders of Sterling common stock could lose the value of their investment in First Advantage common stock. For additional information regarding the businesses of First Advantage and Sterling and of some important factors to consider in connection with those businesses, please see the documents incorporated by reference into this information statement/prospectus and the section titled “Where You Can Find More Information”. In addition, if former Sterling stockholders sell substantial amounts of First Advantage common stock in the public market following completion of the transaction, this could decrease the market price of First Advantage common stock.

 

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In connection with the transaction, First Advantage expects to incur new indebtedness. First Advantage’s increased indebtedness could adversely affect First Advantage’s financial health and its ability to execute its business strategy.

First Advantage’s aggregate indebtedness as of March 31, 2024 was approximately $564.7 million. First Advantage’s pro forma indebtedness as of March 31, 2024, after giving effect to the transaction and the anticipated incurrence of indebtedness in connection therewith, will be as much as $2,225.4 million.

First Advantage’s increased indebtedness could have important consequences including:

 

   

increasing its vulnerability to adverse general economic and industry conditions;

 

   

exposing it to interest rate risk due to its variable rate term facilities, which First Advantage does not typically completely hedge against;

 

   

limiting its flexibility in planning for, or reacting to, changes in the economy and the background screening and identity verification industries;

 

   

placing First Advantage at a competitive disadvantage compared to its competitors with less indebtedness;

 

   

making it more difficult to borrow additional funds in the future to fund growth, acquisitions, working capital, capital expenditures and other purposes; and

 

   

potentially requiring First Advantage to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of its cash flow to fund its other business needs.

First Advantage receives debt ratings from the major credit rating agencies in the U.S. Factors that may impact its credit ratings include debt levels, planned asset purchases or sales. Liquidity, asset quality, cost structure and pricing levels could also be considered by the rating agencies. Any downgrade in First Advantage’s credit rating or the ratings of its indebtedness, or adverse conditions in the debt capital markets, could:

 

   

adversely affect the trading price of, or market for, its debt securities;

 

   

increase interest expense under its term facilities;

 

   

increase the cost of, and adversely affect its ability to refinance, its existing debt; and

 

   

adversely affect its ability to raise additional debt.

Certain of the indebtedness to be incurred in connection with the transaction may bear interest at variable interest rates. If interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect First Advantage’s cash flows.

Other Risks of First Advantage and Sterling

First Advantage’s and Sterling’s businesses are, and will be, subject to the risks described above. In addition, First Advantage and Sterling are, and will continue to be, subject to the risks described in First Advantage’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and Sterling’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this information statement/prospectus. The risks described above and in those filings represent all known material risks with respect to First Advantage’s and Sterling’s businesses.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This information statement/prospectus and the documents incorporated by reference into this information statement/prospectus contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that are not limited to historical facts but reflect First Advantage’s and Sterling’s current beliefs, expectations or intentions regarding future events. These forward-looking statements include but are not limited to statements that relate to the expected future business and financial performance, the anticipated benefits of the transaction, the anticipated impact of the transaction on the combined business, the expected amount and timing of the synergies from the transaction and the anticipated closing date of the transaction. These forward-looking statements are identified by words such as “will,” “expect,” “believe,” “anticipate,” “estimate,” “should,” “intend,” “plan,” “potential,” “predict,” “project,” “aim,” and similar words or phrases. These forward-looking statements are based on current expectations and beliefs of management and current market trends and conditions.

These forward-looking statements involve risks and uncertainties that are outside First Advantage’s and Sterling’s control and may cause actual results to differ materially from those contained in forward-looking statements. These risks and uncertainties include, among others, those set forth under “Risk Factors”, as well as risks and uncertainties relating to:

 

   

the risk that the transaction may not be completed in a timely manner or at all;

 

   

the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;

 

   

the satisfaction of the conditions precedent to completion of the transaction, including the ability to secure regulatory approvals on the terms expected, at all or in a timely manner;

 

   

unexpected costs, charges or expenses resulting from the transaction;

 

   

the effect of the transaction on the ability to maintain relationships with customers, suppliers and other business partners or operating results and business;

 

   

the ability to implement plans, achieve forecasts and meet other expectations with respect to the business after the completion of the transaction and realize expected synergies;

 

   

business disruption following the transaction;

 

   

difficulties in retaining and hiring key personnel and employees due to the transaction;

 

   

the diversion of management time on transaction-related issues;

 

   

significant indebtedness, including indebtedness incurred in connection with the transaction, and the need to generate sufficient cash flows to service and repay such debt;

 

   

the disruption of current plans and operations;

 

   

the outcome of any legal proceedings related to the transaction;

 

   

the ability of First Advantage to successfully integrate Sterling’s operations;

 

   

cyber-attacks, information security and data privacy;

 

   

global political and economic conditions, including rising interest rates, the impact of inflation and challenges in the global supply chain; and

 

   

events and trends on a national, regional and global scale, including the demand for the services provided by Sterling and First Advantage due to levels of employment and economic activity, and those of a political, economic, business, competitive and regulatory nature.

First Advantage and Sterling caution that the foregoing list of factors is not exhaustive. Additional information concerning these and other risk factors is contained in First Advantage’s and Sterling’s most recently

 

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filed Annual Reports on Form 10-K (as updated by subsequent Quarterly Reports on Form 10-Q), Current Reports on Form 8-K and other SEC filings, as such filings may be amended from time to time. All of the forward-looking statements made by First Advantage or Sterling contained or incorporated by reference in this information statement/prospectus and all subsequent written and oral forward-looking statements concerning First Advantage, Sterling, the transaction or other matters attributable to First Advantage or Sterling or any person acting on either of their behalf are expressly qualified in their entirety by the cautionary statement above.

Readers are cautioned not to place undue reliance on forward-looking statements contained in this information statement/prospectus, which speak only as of the date such statements were made. Neither First Advantage nor Sterling undertakes any obligation to update or revise any of these forward-looking statements to reflect events or circumstances that may arise after the date hereof, even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by applicable law.

 

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INFORMATION ABOUT STERLING

Sterling Check Corp.

Sterling Check Corp., a Delaware corporation (referred to as Sterling), is a leading global provider of technology-enabled background and identity verification services. Sterling offers a comprehensive hiring and risk management solution that begins with identity verification, followed by criminal background screening, credential verification, drug and health screening, processing of employee documentation required for onboarding and ongoing risk monitoring. Sterling’s services are generally delivered through its purpose-built, proprietary, cloud-based technology platform that empowers organizations with real-time and data-driven insights to conduct and manage their employment screening programs efficiently and effectively. Sterling common stock trades on The Nasdaq Stock Market LLC under the symbol “STER”. The corporate headquarters of Sterling are located at 6150 Oak Tree Boulevard, Suite 490, Independence, Ohio 44131, and its telephone number is (800) 853-3228.

 

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INFORMATION ABOUT FIRST ADVANTAGE AND MERGER SUB

First Advantage Corporation

First Advantage Corporation, a Delaware corporation (referred to as First Advantage), is a leading provider of employment background screening, identity, and verification solutions. First Advantage delivers innovative services and insights that help its customers manage risk and hire the best talent. Enabled by its proprietary technology, First Advantage helps companies protect their brands and provide safer environments for their customers and their most important resources: employees, contractors, contingent workers, tenants, and drivers. First Advantage common stock trades on The Nasdaq Stock Market LLC under the symbol “FA”. The principal executive offices of First Advantage are located at 1 Concourse Parkway NE, Suite 200, Atlanta, Georgia 30328, and its telephone number is (888) 314-9761.

Starter Merger Sub, Inc.

Starter Merger Sub, Inc., a Delaware corporation (referred to as Merger Sub), is an indirect, wholly-owned subsidiary of First Advantage. Merger Sub was formed by First Advantage solely in contemplation of the transaction, has not conducted any business and has no assets, liabilities or obligations of any nature other than as set forth in the merger agreement. The principal executive offices of Merger Sub are located at c/o First Advantage Inc., 1 Concourse Parkway NE, Suite 200, Atlanta, Georgia 30328, and its telephone number is (888) 314-9761.

 

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THE TRANSACTION

This section of the information statement/prospectus describes the material aspects of the transaction. This section may not contain all of the information that is important to you. You should carefully read this entire information statement/prospectus and the documents incorporated by reference into this information statement/prospectus, including the full text of the merger agreement, a copy of which is attached to this information statement/prospectus as Annex A, for a more complete understanding of the transaction. In addition, important information about each of First Advantage and Sterling is included in or incorporated by reference into this information statement/prospectus. For additional information regarding the location of information incorporated by reference into this information statement/prospectus, please see the section titled “Where You Can Find More Information”.

Effects of the Transaction

First Advantage, Merger Sub and Sterling have entered into the merger agreement, pursuant to which First Advantage will indirectly acquire Sterling with Sterling becoming an indirect, wholly-owned subsidiary of First Advantage. Upon satisfaction or waiver of the closing conditions set forth in the merger agreement, Merger Sub will merge with and into Sterling (referred to as the transaction). Sterling will be the surviving corporation of the merger with Merger Sub and become an indirect, wholly-owned subsidiary of First Advantage.

Merger Consideration

Upon completion of the transaction, each issued and outstanding share of Sterling common stock (other than (i) canceled shares, (ii) dissenting shares and (iii) excluded shares) will be converted into the right to receive, at the election of the holder of such share and subject to proration, $16.73 in cash, without interest, or 0.979 of a share of First Advantage common stock. Each Sterling stockholder may elect a different form of consideration for each share that such Sterling stockholder owns. Sterling stockholders may elect to receive (i) solely the cash consideration, (ii) solely the stock consideration or (iii) if a Sterling stockholder owns more than one share, a combination of the cash consideration for a selected number of shares and the stock consideration for the remaining number of shares. Whether a Sterling stockholder receives their elected merger consideration will depend on the election of other Sterling stockholders and the proration mechanism. No fractional shares of First Advantage common stock will be issued in the transaction, and holders of Sterling common stock will instead receive cash in lieu of fractional shares of First Advantage common stock.

The merger consideration is subject to proration so that 72% of Sterling common stock issued and outstanding immediately prior to the effective time will be converted into the right to receive cash consideration and 28% will be converted into the right to receive stock consideration, based on an exchange ratio of 0.979 of a share of First Advantage common stock. Holders of Sterling common stock who do not make an election will be treated as having elected to receive cash consideration or stock consideration in accordance with the proration methodology in the merger agreement.

On February 28, 2024 (the last full trading day before the announcement of the transaction), the closing stock price per share of First Advantage common stock was $16.84, which, after giving effect to the exchange ratio of 0.979, has an implied value of approximately $16.49 per share. Based on this price, with respect to the stock consideration and the cash consideration of $16.73 per share, upon completion of the transaction, Sterling stockholders that receive the cash consideration for 72% of their shares of Sterling common stock and receive the stock consideration for 28% of their shares of Sterling common stock would receive total merger consideration with an implied value of approximately $16.66 per share.

First Advantage will issue up to 27,150,000 shares of First Advantage common stock to Sterling stockholders as stock consideration pursuant to the merger agreement. The actual number of shares of First Advantage common stock to be issued pursuant to the transaction will be determined at completion of the

 

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transaction based on the exchange ratio and the number of shares of Sterling common stock outstanding at such time. Based on up to 27,150,000 shares of First Advantage common stock that may be issued to Sterling stockholders, and the number of shares of First Advantage common stock outstanding as of May 3, 2024, immediately after completion of the transaction, former Sterling stockholders would own approximately 16% of the outstanding shares of First Advantage common stock.

On June 10, 2024 (the most recent practicable date prior to the date of this information statement/prospectus), the closing price per share of First Advantage common stock was $16.72, which, after giving effect to the exchange ratio of 0.979, has an implied value of approximately $16.37 per share of Sterling common stock. Based on this price, with respect to the stock consideration and the cash consideration of $16.73 per share, upon completion of the transaction, Sterling stockholders that receive the cash consideration for 72% of their shares of Sterling common stock and receive the stock consideration for 28% of their shares of Sterling common stock would receive total merger consideration with an implied value of approximately $16.63 per share.

The implied value of the stock consideration will fluctuate, however, as the market price of First Advantage common stock fluctuates because the stock consideration is payable in a fixed number of shares of First Advantage common stock. As a result, the value of the stock consideration that Sterling stockholders will receive upon completion of the transaction could be greater than, less than or the same as the value of the stock consideration on the date of this information statement/prospectus, or on the date on which Sterling stockholders make their election. Accordingly, Sterling and First Advantage encourage you to obtain current stock price quotations for First Advantage common stock and Sterling common stock before making your election.

Background of the Transaction

Sterling’s senior management and the Sterling board of directors regularly review Sterling’s performance, strategy, competitive position, opportunities and prospects in light of current business and economic environments and developments in the background screening and identity verifications industry and the opportunities and challenges facing participants in the industry. These reviews have included consideration by Sterling’s senior management and the Sterling board of directors of potential strategic alternatives, including acquisitions, business combinations and other strategic transactions.

On June 27, 2022, Joshua Peirez, Chief Executive Officer of Sterling, and Scott Staples, Chief Executive Officer of First Advantage, had a telephonic meeting to discuss an unrelated commercial matter. During the meeting, Mr. Staples asked Mr. Peirez whether Sterling might consider a potential “merger of equals” transaction between Sterling and First Advantage. Messrs. Staples and Peirez discussed the strategic rationale with respect to such a transaction, but did not discuss the price or any other terms of a potential transaction. Mr. Peirez indicated that he would raise Mr. Staples’s suggestion with the Sterling board of directors.

On July 7, 2022, the Sterling board of directors met with representatives of Sterling management, and, at the invitation of the Sterling board of directors, Goldman Sachs’s Investment Banking business unit, a financial advisor to Sterling (referred to as Goldman Sachs IB), and Fried, Frank, Harris, Shriver & Jacobson LLP, legal counsel to Sterling (referred to as Fried Frank). During this meeting, the Sterling board of directors discussed, among other things, potential strategic alternatives for Sterling, including, among other things, a potential transaction between Sterling and First Advantage. Mr. Peirez reviewed with the Sterling board of directors his conversation with Mr. Staples. Representatives of Fried Frank reviewed with the Sterling board of directors possible transaction structures and other preliminary considerations for a potential transaction between Sterling and First Advantage. Representatives of Goldman Sachs IB discussed a potential transaction between Sterling and First Advantage from a financial perspective based upon publicly available market information. After discussion, the Sterling board of directors determined to continue evaluating the possibility of various strategic alternatives for Sterling, including a potential transaction with First Advantage, and authorized Goldman Sachs IB to engage in preliminary and exploratory discussions with First Advantage. Goldman Sachs IB has been an outside financial advisor to Sterling and the Sterling board of directors for many years. Goldman Sachs IB will

 

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receive a fee of up to $30 million for such services provided in connection with the transaction, of which $20 million is payable upon the completion of the transaction and an additional $10 million of which is payable at the sole discretion of Sterling in connection with the completion of the transaction.

In late July and early August 2022, representatives of Goldman Sachs IB spoke with representatives of First Advantage to gauge First Advantage’s interest in discussing a potential strategic transaction with Sterling.

On August 2, 2022, the First Advantage board of directors met with representatives of First Advantage management, as well as representatives of Silver Lake. During this meeting, the First Advantage board of directors discussed, among other things, a potential transaction between Sterling and First Advantage.

On August 12, 2022, First Advantage delivered a confidential proposal (referred to as the August 12, 2022 Proposal) to Mr. Peirez, proposing the acquisition of Sterling by First Advantage. The August 12, 2022 Proposal noted that First Advantage was prepared to offer Sterling stockholders shares of First Advantage common stock in a potential transaction that would result in the Sterling stockholders retaining a 45% pro forma ownership in the combined company, implying a price of $19.51 per share of Sterling common stock. The August 12, 2022 Proposal also proposed that (i) Mr. Staples would become Executive Chairman of the combined company and Mr. Peirez would become Chief Executive Officer of the combined company, (ii) the board of directors of the combined company would be proportionate to the pro forma ownership of the Sterling stockholders and First Advantage stockholders plus management representation, initially consisting of an eleven member board comprising three directors from Goldman Sachs’s Private Equity group (referred to as Goldman Sachs PE), three directors from Silver Lake, three independent directors, and Messrs. Staples and Peirez, and (iii) certain stockholders would enter into a stockholders agreement providing for director designation rights that fall away at certain ownership thresholds and a sell-down coordination for large stockholders, including pro rata tag-along and piggyback rights. The August 12, 2022 Proposal was shared with the entire Sterling board of directors.

On August 15, 2022, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB and Fried Frank. During the meeting, the Sterling board of directors reviewed the terms of the August 12, 2022 Proposal with Sterling management and its advisors. Representatives of Fried Frank reviewed with the Sterling board of directors its fiduciary duties in the context of considering a potential transaction as outlined in the August 12, 2022 Proposal. Representatives of Goldman Sachs IB reviewed the potential transaction outlined in the August 12, 2022 Proposal based upon publicly available market information. The Sterling board of directors noted that the exchange ratio proposed by First Advantage reflected a 2.5% discount to the one-month average relative stock prices and a 3.2% discount to the then-current relative stock prices. The Sterling board of directors discussed its potential willingness to consider a “merger of equals” transaction, but expected that such a transaction would be an “at the market” transaction. The Sterling board of directors also discussed that the proposed composition of the board of directors of the combined company would generally be proportionate to the pro forma ownership of the Sterling stockholders and First Advantage stockholders plus management representation. It was noted that, in connection with any potential transaction, the Goldman Sachs PE entities that hold shares of Sterling common stock would not accept any consideration in the merger for their shares that was greater or different than the consideration received by the public stockholders in the merger for their shares. After discussion, the Sterling board of directors determined to continue preliminary and exploratory discussions with First Advantage and authorized members of management and Goldman Sachs IB to engage in such discussions.

On August 16 and 17, 2022, Mr. Peirez and representatives of Goldman Sachs IB discussed the August 12, 2022 Proposal, including the calculation of the proposed exchange ratio and potential board composition, with representatives of First Advantage.

On August 18, 2022, on behalf of First Advantage, Mr. Staples delivered a confidential revised proposal (referred to as the August 18, 2022 Proposal) to Mr. Peirez. The August 18, 2022 Proposal noted that First Advantage was prepared to offer Sterling stockholders shares of First Advantage common stock in a potential

 

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transaction that would result in the Sterling stockholders receiving an increased pro forma ownership in the combined company of 46.5%, implying a price of $20.68 per share of Sterling common stock. The August 18, 2022 Proposal also noted that either Goldman Sachs PE or Silver Lake could replace one or more of its designated directors with additional independent directors. The August 18, 2022 Proposal additionally noted that all other terms of the August 12, 2022 Proposal would remain intact. The August 18, 2022 Proposal was made available to the entire Sterling board of directors.

Later on August 18, 2022, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB and Fried Frank. During the meeting, the Sterling directors reviewed the terms of the August 18, 2022 Proposal with Sterling management and its advisors. The Sterling board of directors noted that the proposed exchange ratio continued to reflect a discount to the then-current Sterling stock price. After discussion, the Sterling board of directors authorized management and its advisors to engage in discussions with representatives of First Advantage with respect to the proposal.

On August 19, 2022, representatives of Goldman Sachs IB discussed with representatives of First Advantage the exchange ratio reflected in the August 18, 2022 Proposal.

On August 22, 2022, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB and Fried Frank. During the meeting, the Sterling board of directors reviewed again the terms of the August 18, 2022 Proposal with Sterling management and its advisors. After discussion, the Sterling board of directors directed Goldman Sachs IB to respond to First Advantage and its representatives that a transaction at a discount to the market stock price was not acceptable to Sterling.

On August 22 and 24, 2022, representatives of Goldman Sachs IB discussed the exchange ratio calculations with representatives of First Advantage.

Later on August 24, 2022, Mr. Staples emailed Mr. Peirez to provide written notification of First Advantage’s termination and cessation of any further negotiations regarding a potential transaction between Sterling and First Advantage.

On January 19, 2023, Messrs. Peirez and Staples met for dinner in New York City with a representative of First Advantage and Adrian Jones, who is both Chairman of Global Equity at Goldman Sachs PE and a member of the Sterling board of directors. After Sterling and First Advantage ceased negotiations regarding a potential transaction, Messrs. Peirez and Staples stayed in touch on an informal basis unrelated to a potential transaction. In that regard, Messrs. Peirez and Staples had arranged the dinner and believed that having other representatives of Sterling and First Advantage meet in person was potentially beneficial to both companies. Among other things, the group discussed potentially re-engaging in discussions concerning a transaction involving Sterling and First Advantage, including whether such a potential transaction would be structured as a “merger of equals.”

On February 23, 2023, at its regularly scheduled quarterly meeting, the Sterling board of directors met with representatives of Goldman Sachs IB and Fried Frank. During such meeting, representatives of Fried Frank reviewed with the Sterling board of directors its fiduciary duties. Representatives of Goldman Sachs IB also discussed a potential “merger of equals” transaction between Sterling and First Advantage from a financial perspective based upon publicly available market information. After discussion, the Sterling board of directors determined not to pursue a potential transaction between Sterling and First Advantage at that time, given the relative stock price of each company since the August 18, 2022 Proposal and other market considerations.

On March 10, 2023, representatives of Sterling and Goldman Sachs IB met with a representative of First Advantage to discuss whether there were any further updates regarding a potential transaction involving Sterling and First Advantage. No price or other terms of a potential transaction were discussed, and the parties agreed that, given the relative stock prices of both companies and the previous discussions, it was not the right time to try to reach an agreement.

 

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On October 12, 2023, Messrs. Peirez and Staples met for lunch in New York City at Mr. Staples’ request. Among other things, they discussed the possibility of re-engaging in discussions concerning a potential transaction between Sterling and First Advantage. Mr. Staples stated that the First Advantage board of directors was considering potential structures for such a transaction, but Messrs. Peirez and Staples did not discuss the price or any other terms of a potential transaction between Sterling and First Advantage. Mr. Peirez subsequently updated the Sterling board of directors.

In late October 2023 and in November 2023, at the direction of the Sterling board of directors subsequent to the October 12, 2023 lunch meeting between Messrs. Peirez and Staples, representatives of Goldman Sachs IB contacted representatives of First Advantage to follow up regarding First Advantage’s interest in exploring a potential transaction with Sterling. The representatives of Goldman Sachs IB and First Advantage did not discuss the price or any other terms of a potential transaction.

On November 30, 2023, representatives of Sterling and Goldman Sachs IB met with a representative of First Advantage. First Advantage had indicated that the First Advantage board of directors continued to consider the possibility of a potential transaction between Sterling and First Advantage. No price or other terms of a potential transaction were discussed, and First Advantage did not provide any indication that a proposal would be forthcoming. The representatives of Sterling and Goldman Sachs IB updated the Sterling board of directors.

On December 12, 2023, representatives of Goldman Sachs IB spoke with a representative of First Advantage. The representative of First Advantage confirmed First Advantage’s interest in a potential transaction with Sterling and indicated that First Advantage planned to submit a confidential proposal to Sterling before the holidays and hoped to receive a response from Sterling within the first few weeks of January 2024. The representative of First Advantage stated that First Advantage was evaluating, among other things, pro forma ownership by the stockholders of each party, pro forma leverage of the combined company, cash consideration for a potential transaction, and other potential considerations. The representatives of Goldman Sachs IB and First Advantage did not discuss price or any other terms of a potential transaction. The representatives of Goldman Sachs IB updated the Sterling board of directors.

On December 22, 2023, a representative of First Advantage contacted representatives of Goldman Sachs IB to state that First Advantage was finalizing the terms of a confidential proposal and intended to deliver such proposal to Sterling the following week. The representatives of Goldman Sachs IB and First Advantage did not discuss price or any other terms of a potential transaction between Sterling and First Advantage. Goldman Sachs IB updated the Sterling board of directors with respect to the discussions.

On December 28, 2023, representatives of First Advantage contacted representatives of Goldman Sachs IB to preview the terms of an unsolicited confidential proposal to be delivered by First Advantage to Sterling the following day. Goldman Sachs IB updated the Sterling board of directors.

On December 29, 2023, First Advantage delivered an unsolicited confidential proposal letter (referred to as the December 29, 2023 Letter) to Mr. Peirez, proposing the acquisition of Sterling by First Advantage in a cash and stock transaction. The December 29, 2023 Letter was addressed to the Sterling board of directors and was made available to the Sterling board of directors. The December 29, 2023 Letter noted that First Advantage was prepared to offer Sterling stockholders approximately $15.88 per share of Sterling common stock, in the form of either $15.35 in cash or 0.99 shares of First Advantage common stock at the election of each Sterling stockholder and subject to proration such that the total merger consideration would be 45% cash and 55% stock. The December 29, 2023 Letter also noted that the Sterling stockholders would retain a 27% pro forma ownership in the combined company. The December 29, 2023 Letter noted that the proposed transaction would be approved by written consent of Silver Lake, as the majority stockholder of First Advantage, and that First Advantage would expect several of Sterling’s stockholders to sign customary voting agreements. The December 29, 2023 Letter further noted that the proposed transaction would be funded through a combination of cash on hand and committed debt financing. The December 29, 2023 Letter proposed that, in connection with Sterling’s pro forma

 

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ownership in the combined company, two members of the Sterling board of directors, as mutually agreed upon between Sterling and First Advantage, would be invited to join the board of directors of the combined company. The December 29, 2023 Letter acknowledged that First Advantage would propose a right of each party to terminate the merger agreement if the proposed transaction did not close within 12 months following the signing of the merger agreement but did not contemplate any reverse termination fee. First Advantage also noted in the December 29, 2023 Letter its desire to move quickly towards a definitive agreement with Sterling, with announcement of a signed transaction to coincide with the parties’ scheduled fourth quarter and full year 2023 earnings announcements.

On December 30, 2023, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB and Fried Frank. During the meeting, the Sterling board of directors reviewed the terms of the December 29, 2023 Letter with Sterling management and its advisors. Representatives of Fried Frank reviewed with the Sterling board of directors its fiduciary duties in the context of considering a potential transaction. Additionally, representatives of Fried Frank reviewed with the Sterling board of directors the potential regulatory approvals required in connection with the proposed transaction. Representatives of Goldman Sachs IB reviewed the proposal in the December 29, 2023 Letter from a financial perspective based on publicly available information. The representatives of Goldman Sachs IB provided a comparison of key financial metrics for the two companies and relative share and trading performance and multiples, preliminary and pro forma analyses, preliminary valuation analyses and premia analysis for precedent transactions. In addition, the Sterling board of directors discussed potential strategic alternatives including transactions with potential third parties that might have the strategic interest and financial resources to engage in a transaction with Sterling. It was noted that, in connection with any potential transaction, the Goldman Sachs PE entities that hold shares of Sterling common stock would not accept any consideration in the merger for their shares that was greater or different than the consideration received by the public stockholders in the merger for their shares. This point was reiterated at subsequent meetings of the Sterling board of directors. After discussion, the Sterling board of directors determined to further consider the proposal set forth in the December 29, 2023 Letter. The Sterling board of directors also discussed engaging a second investment bank, in addition to Goldman Sachs IB, to advise Sterling and the Sterling board of directors in connection with the proposal set forth in the December 29, 2023 Letter.

Beginning on December 30, 2023, Mr. Peirez, at the direction of the Sterling board of directors, contacted multiple global investment banks regarding Sterling’s potential engagement of such banks to serve as an additional financial advisor in connection with the proposed transaction with First Advantage.

On January 6, 2024, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB and Fried Frank. Mr. Peirez reported on his discussions with potential additional financial advisors. During the meeting, the Sterling board of directors again reviewed the terms of the December 29, 2023 Letter with Sterling management and its advisors. Representatives of Goldman Sachs IB again reviewed the proposal in the December 29, 2023 Letter from a financial perspective and also discussed certain preliminary financial metrics regarding the proposal in the December 29, 2023 Letter. The Goldman Sachs IB representatives reviewed with the Sterling board of directors illustrative pro forma analyses. The Goldman Sachs IB representatives also reviewed Sterling’s standalone business and prospects, including a detailed overview of the financial projections prepared by Sterling management for fiscal years 2024 through 2028 and the challenges facing Sterling and the industry more generally. The Goldman Sachs IB representatives provided a detailed review of Goldman Sachs IB’s preliminary analyses of the proposal set forth in the December 29, 2023 Letter. The Sterling board of directors then discussed potential responses to the December 29, 2023 Letter, including a potential purchase price per share increase, proposed changes to the consideration mix of cash and stock, and potential governance changes. Representatives of Fried Frank presented to the Sterling board of directors a timeline of potential regulatory approvals needed for the proposed transaction with First Advantage, if such a transaction were to occur.

On January 8, 2024, Mr. Peirez contacted Citi regarding Sterling’s potential engagement of Citi as a financial advisor in connection with the proposed transaction with First Advantage.

 

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On January 11, 2024, Citi provided the Sterling board of directors with customary relationship disclosures regarding Citi’s relationships with First Advantage, Silver Lake, Sterling, Goldman Sachs PE and Caisse de dépôt et placement du Québec (referred to as CDPQ), which is an investor in Sterling.

Also on January 11, 2024, representatives of Goldman Sachs IB discussed with representatives of First Advantage the potential synergies that could be expected from the proposed transaction between Sterling and First Advantage based upon publicly available information.

Additionally on January 11, 2024, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB, Citi and Fried Frank. Mr. Peirez noted that Sterling had engaged in preliminary discussions with Citi to serve as an additional financial advisor to provide financial advice and, if an agreement providing for a transaction could be reached, potentially a fairness opinion in connection with the proposed transaction. Representatives of Fried Frank noted that Citi had provided customary relationship disclosures regarding Citi’s relationships with First Advantage, Silver Lake, Sterling, Goldman Sachs PE and CDPQ. The Sterling board of directors discussed the independence, merits and qualifications of the Citi team. Following discussion, the Sterling board of directors approved the engagement of Citi as an additional financial advisor, subject to finalizing a customary engagement letter. During the meeting, the Sterling board of directors again reviewed the terms of the December 29, 2023 Letter with Sterling management and its advisors. Representatives of Goldman Sachs IB again reviewed the proposal in the December 29, 2023 Letter from a financial perspective and discussed certain updated financial metrics regarding First Advantage’s proposal. The Goldman Sachs IB representatives reviewed with the Sterling board of directors illustrative pro forma analyses, including a detailed overview of the financial projections prepared by Sterling management for fiscal years 2024 through 2028. Representatives of Citi separately shared their preliminary views of First Advantage’s proposal. The Sterling board of directors then discussed with its advisors the potential economic and governance terms of a counterproposal to the December 29, 2023 Letter, including (i) an increase in purchase price from approximately $15.88 to $18.50 per share of Sterling common stock, (ii) an increase in board representation to three directors designated by Sterling for appointment to the board of directors of the combined company, including Mr. Peirez who would become Vice Chair of the combined company, and (iii) a reverse termination fee payable by First Advantage in the event that regulatory approval were not received with 12 months after signing. The representatives of Goldman Sachs IB and Citi provided their views on the potential counterproposal and strategy and reviewed with the Sterling board of directors a draft response letter to First Advantage. The Sterling board of directors also discussed the merits of pursuing any transaction at this time, including the benefits to the holders of Sterling common stock and the likelihood of potential alternative transactions. Following such discussion, the Sterling board of directors authorized the delivery of the response letter to First Advantage.

On January 12, 2024, Sterling sent a letter to the First Advantage board of directors, setting forth the terms of Sterling’s counterproposal to the December 29, 2023 Letter (referred to as the January 12, 2024 Letter). The January 12, 2024 Letter proposed an acquisition of Sterling by First Advantage on the following terms: (i) a purchase price of $18.50 per share of Sterling common stock, with Sterling remaining willing to consider different mixes of consideration, (ii) Sterling’s designation of three directors for appointment to the board of directors of the combined company, including Mr. Peirez who would become Vice Chair of the combined company, and (iii) First Advantage would pay a reverse termination fee if the proposed transaction did not close in a timely manner for regulatory reasons.

On January 16, 2024, representatives of Goldman Sachs IB discussed with representatives of First Advantage the potential synergies that could be expected from the proposed transaction between Sterling and First Advantage based upon publicly available information.

On January 26, 2024, representatives of Sterling, First Advantage, Goldman Sachs IB and J.P. Morgan, financial advisor to First Advantage, had a telephonic meeting to discuss each party’s views concerning the potential synergies that could be expected from the proposed transaction between Sterling and First Advantage based upon publicly available information. The representatives of Sterling, First Advantage, Goldman Sachs IB

 

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and J.P. Morgan did not discuss price or any other terms of the proposed transaction between Sterling and First Advantage.

On February 3, 2024, Sterling received a letter from First Advantage responding to the January 12, 2024 Letter (referred to as the February 3, 2024 Letter). The February 3, 2024 Letter set out the following terms of First Advantage’s counterproposal: (i) total merger consideration of $1.175 billion in cash and 26.5 million shares of First Advantage common stock, (ii) each Sterling stockholder would have the right to elect to receive either cash or stock consideration, subject to proration such that the total merger consideration would be 73% cash and 27% stock, (iii) Sterling would designate two directors for appointment to the board of directors of the combined business, including Mr. Peirez who would serve as Vice Chair of the combined company, (iv) First Advantage would pay a $40 million reverse termination fee in the event that the proposed transaction did not close within 12 months due to a failure to receive required antitrust approval, and (v) certain stockholders of Sterling would enter into a stockholders agreement with First Advantage. The February 3, 2024 Letter also proposed that Sterling and First Advantage would enter into an exclusivity agreement through the date of First Advantage’s earnings announcement on February 29, 2024.

On February 4, 2024, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB, Citi and Fried Frank. During the meeting, the Sterling board of directors reviewed the terms of the February 3, 2024 Letter with Sterling management and its advisors. Fried Frank made a presentation reminding the Sterling board of directors of its fiduciary duties in the context of considering the proposed transaction. Representatives of Goldman Sachs IB reviewed with the board of directors the key economic and other terms of the February 3, 2024 Letter, including the revised purchase price and the consideration mix. The Goldman Sachs IB representatives provided a detailed review of the updated proposal, including, among other things, financial projections prepared by Sterling management, trading multiples, discounted cash flow, and precedent transactions. The Citi representatives previewed with the Sterling board of directors Citi’s preliminary financial analyses regarding the February 3, 2024 Letter, including, among other things, a discussion of financial projections prepared by Sterling management, trading multiples, discounted cash flow and precedent transactions. The Sterling board of directors then discussed with its advisors potential economic and governance terms of a counterproposal to the February 3, 2024 Letter, including (i) an increase in the total purchase price and (ii) an increase from $40 million to $60 million in the amount of the reverse termination fee payable by First Advantage in the event that antitrust approval is not received within 12 months after signing. The Sterling board of directors then unanimously directed Sterling management and Goldman Sachs IB to relay the counterproposal terms to First Advantage.

Later on February 4, 2024 and on February 5, 2024, representatives of Sterling and Goldman Sachs IB spoke with a representative of First Advantage to discuss the counterproposal terms.

On February 5, 2024, in response to discussions with representatives of Sterling and Goldman Sachs IB, a representative of First Advantage communicated to representatives of Sterling updates to the economic terms of First Advantage’s further revised proposal, namely: (i) a purchase price of $1.2 billion in cash and 27.15 million shares of First Advantage common stock, (ii) a $60 million reverse termination fee to be paid by First Advantage if antitrust approval is not received within 12 months after signing, and (iii) a cap of $20 million on the fees payable by Sterling to its financial advisors.

On February 6, 2024, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB, Citi and Fried Frank to discuss updates regarding the terms of the proposed transaction with First Advantage. Representatives of Goldman Sachs IB reviewed with the Sterling board of directors their updated analysis and the key economic terms of the updated proposal received from First Advantage. Representatives of Citi separately reviewed with the Sterling board of directors Citi’s preliminary financial analyses regarding the updated proposal. The Sterling board of directors acknowledged that the contemplated purchase price is predicated on the satisfactory completion of due diligence and the parties’ negotiation of a mutually acceptable merger agreement. After discussion, the Sterling board of directors unanimously determined

 

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that Sterling should enter into confidentiality arrangements with First Advantage to enable Sterling to engage in negotiating the proposed transaction with First Advantage.

Also on February 6, 2024, following the conclusion of the meeting of the Sterling board of directors, Mr. Peirez informed Mr. Staples that Sterling was willing to proceed with the proposed transaction with First Advantage on the terms approved by the Sterling board of directors, namely: (i) a purchase price of $1.2 billion in cash and 27.15 million shares of First Advantage common stock, (ii) a $60 million reverse termination fee to be paid by First Advantage if antitrust approval is not received within 12 months after signing, (iii) a cap of $30 million on the fees payable by Sterling to its financial advisors, and (iv) the other terms outlined in the February 3, 2024 Letter. Mr. Staples confirmed First Advantage’s agreement to move forward on the basis of these terms.

Also on February 6, 2024, representatives of Simpson Thacher & Bartlett LLP, legal counsel to First Advantage (referred to as Simpson Thacher), sent Fried Frank initial drafts of a confidentiality agreement and an exclusivity agreement to be entered into between Sterling and First Advantage in connection with the proposed transaction.

On February 7, 2024, representatives of Fried Frank and Simpson Thacher held a telephonic meeting to discuss the drafting of transaction documents, potential structures for the proposed transaction and the timeline of the proposed transaction. During such meeting, Simpson Thacher stated that First Advantage would expect the majority stockholders of Sterling to adopt and approve the merger agreement by stockholder written consent shortly after the execution of the merger agreement, thereby effectively eliminating the post-signing period during which the Sterling board of directors would, under certain circumstances, have the ability to consider acquisition proposals from third parties, and also confirmed the request that certain Sterling stockholders enter into a stockholders agreement with First Advantage in connection with the proposed transaction.

Also on February 7, 2024, representatives of Citi, Goldman Sachs IB and J.P. Morgan held a telephonic meeting to discuss the timeline of the proposed transaction and the scheduling of due diligence calls and meetings.

On February 7 and 8, 2024, representatives of Fried Frank and Simpson Thacher exchanged revised drafts of the confidentiality agreement and the exclusivity agreement.

On February 9, 2024, Sterling and First Advantage executed the mutual confidentiality agreement, which contained a customary standstill provision in respect of Sterling, and the mutual exclusivity agreement.

Between February 9, 2024 and February 14, 2024, representatives of J.P. Morgan, Citi, Goldman Sachs IB, Simpson Thacher and Fried Frank exchanged initial due diligence and reverse due diligence requests lists, and each of Sterling and First Advantage provided access to a virtual data room to the other party and its advisors.

Between February 13, 2024 and February 28, 2024, Sterling and First Advantage each engaged in due diligence with respect to accounting, business, technology, cybersecurity, human resources, legal, tax and other matters.

On February 16, 2024, representatives of Simpson Thacher delivered an initial draft of the merger agreement to representatives of Fried Frank.

On February 20, 2024, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB, Citi and Fried Frank to discuss the initial draft of the merger agreement received from Simpson Thacher. Representatives of Fried Frank reviewed with the Sterling board of directors key terms of the initial draft of the merger agreement. The initial merger agreement included provisions that included, among other things, (i) the majority stockholders of Sterling being required to deliver a stockholder written consent

 

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adopting the merger agreement within one hour after signing, (ii) Sterling not having any post-signing period to consider alternative acquisition proposals from third parties, (iii) First Advantage having a unilateral right to extend the termination date under the merger agreement by an additional six months in the event that antitrust approval is not received within 12 months after signing, without any increase in the $60 million reverse termination fee to be paid by First Advantage if antitrust approval is not received within such 18-month time period, and (iv) a $85 million reverse termination fee to be paid by First Advantage if the proposed transaction fails to close due to a financing failure. The Sterling management and directors instructed Fried Frank to revise the merger agreement to reflect (i) the solicitation of stockholder approval at a meeting of the stockholders of Sterling, (ii) Sterling having a 30-day post-signing “go shop” period to solicit alternative acquisition proposals from third parties, which period would be followed by a “window shop” period, (iii) a $60 million reverse termination fee payable by First Advantage if antitrust approval is not received within 12 months after signing and, if First Advantage elects to extend the termination date, a $90 million reverse termination fee payable by First Advantage if antitrust approval is not received within 18 months after signing, and (iv) a $125 million reverse termination fee to be paid by First Advantage if the proposed transaction fails to close due to a financing failure.

On February 21, 2024, representatives of Fried Frank delivered a revised draft of the merger agreement to Simpson Thacher reflecting the positions described above.

Also on February 21, 2024, the First Advantage board of directors met with representatives of First Advantage management, Silver Lake, J.P. Morgan and Simpson Thacher to receive an update on the negotiation of the merger agreement and related transaction documents and to discuss updates regarding First Advantage’s due diligence investigation of Sterling. Representatives of Simpson Thacher also reviewed with the First Advantage board of directors its fiduciary duties in the context of considering the proposed transaction with Sterling. Representatives of J.P. Morgan then reviewed with the First Advantage board of directors certain financial considerations associated with the terms of the proposed transaction.

Also on February 21, 2024, representatives of Sterling, First Advantage, Goldman Sachs IB and J.P. Morgan met in person in Atlanta, Georgia. At the meeting, representatives of First Advantage delivered a management presentation to Sterling regarding First Advantage’s historical evolution and recent financial performance.

Additionally, on February 21, 2024, representatives of Fried Frank and Simpson Thacher discussed the revised draft of the merger agreement, including (i) whether the majority stockholders of Sterling would be required to deliver a stockholder written consent adopting the merger agreement within one hour after signing and (ii) whether Sterling would have any post-signing period to consider potential alternative acquisition proposals from third parties.

Between February 21, 2024 and February 24, 2024, representatives of Sterling and First Advantage had multiple calls to discuss certain merger agreement terms.

On February 22, 2024, Mr. Peirez and representatives of Fried Frank had a telephonic meeting with representatives of Goldman Sachs PE. The representatives of Fried Frank relayed to Goldman Sachs PE that First Advantage had stated that the delivery by the Specified Stockholders of a stockholder written consent adopting the merger agreement within one hour after signing was a precondition to First Advantage’s willingness to proceed with the proposed transaction. The representatives of Goldman Sachs PE informed Mr. Peirez and Fried Frank that, while willing to consider the request, Goldman Sachs PE was not comfortable agreeing to such request unless (i) the Sterling board of directors had also indicated its willingness to agree to such request and (ii) Sterling would be permitted to consider alternative acquisition proposals from third parties for a reasonable period of time after signing the merger agreement and to terminate the merger agreement in order to accept a superior proposal.

On February 24, 2024, representatives of Simpson Thacher delivered an initial draft of the stockholders agreement and a revised draft of the merger agreement to representatives of Fried Frank. The revised draft of the

 

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merger agreement permitted the Sterling board of directors to consider alternative acquisition proposals for a period of 24 days after signing. The revised draft of the merger agreement also reinserted the proposal that the Specified Stockholders be required to adopt the merger agreement by stockholder written consent within one hour after signing, with the understanding that such stockholder approval would not impact Sterling’s ability to terminate the merger agreement in order to accept a superior proposal during such 24-day period. The revised draft of the merger agreement provided that, if Sterling terminated the merger agreement to accept a superior proposal during such 24-day period, Sterling would be required to pay a termination fee, the proposed amount of which remained unresolved.

On February 25, 2024, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB, Citi and Fried Frank to discuss the status of negotiations and key terms in the revised draft of the merger agreement received from Simpson Thacher. Representatives of Fried Frank reviewed with the Sterling board of directors the proposal that the Sterling board of directors be permitted to consider alternative acquisition proposals for a reasonable period of time after signing. Representatives of Fried Frank also reviewed with the Sterling board of directors the proposal that the Specified Stockholders be required to adopt the merger agreement by stockholder written consent within one hour after signing.

On February 26, 2024, representatives of Fried Frank delivered revised drafts of the merger agreement and the stockholders agreement to representatives of Simpson Thacher.

Also on February 26, 2024, representatives of Simpson Thacher delivered to representatives of Fried Frank an initial draft of a support agreement to be entered into by the Specified Stockholders, including the proposed form of stockholder written consent.

Between February 26, 2024 and February 28, 2024, representatives of Sterling, First Advantage, Goldman Sachs PE, Silver Lake, Goldman Sachs IB, Fried Frank and Simpson Thacher had multiple conference calls to discuss and resolve the open items in the draft merger agreement and related documentation.

On February 27, 2024, representatives of Simpson Thacher delivered revised drafts of the merger agreement and the stockholders agreement to representatives of Fried Frank.

Also on February 27, 2024, representatives of Fried Frank delivered revised drafts of the merger agreement, the stockholders agreement and the support agreement to representatives of Simpson Thacher.

On the afternoon of February 27, 2024, at its regularly-scheduled quarterly meeting, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB, Citi, Fried Frank and Cravath, Swaine & Moore LLP, antitrust counsel to Sterling (referred to as Cravath). Representatives of Fried Frank reviewed with the Sterling board of directors its fiduciary duties in the context of considering the proposed transaction. The Sterling board of directors received an update regarding First Advantage’s due diligence investigation of Sterling and the reverse due diligence performed on First Advantage. Representatives of Fried Frank also reviewed the key terms of the merger agreement and the support agreement to be entered into by the Specified Stockholders. Those agreements contained provisions that included, among other things, (i) the majority stockholders of Sterling being required to deliver a stockholder written consent adopting the merger agreement within one hour after signing, (ii) Sterling being permitted to consider alternative acquisition proposals from third parties for 24 days after signing the merger agreement, with the stockholder approval terminating if the Sterling board of directors determines to terminate the merger agreement to accept a superior proposal, (iii) the proposed termination fee of $85 million payable by Sterling if the Sterling board of directors determines to terminate the merger agreement to accept a superior proposal, the amount of which Fried Frank noted remained subject to ongoing negotiations between the parties, and (iv) a $100 million reverse termination fee payable by First Advantage if the proposed transaction fails to close due to a financing failure. Representatives of Cravath then reviewed with the Sterling board of directors antitrust considerations for the proposed transaction. Representatives of Goldman Sachs IB reviewed the potential transaction from a financial

 

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point of view with the Sterling board of directors and Citi reviewed with the Sterling board of directors Citi’s financial analyses of the merger consideration to be received by the holders of shares of Sterling common stock (other than First Advantage and its affiliates) pursuant to the merger agreement. The Sterling board of directors noted the customary relationship disclosures previously provided by Citi regarding Citi’s relationships with Sterling, First Advantage, Goldman Sachs PE, CDPQ and Silver Lake, and the Sterling board of directors concluded that nothing in those disclosures would compromise Citi’s ability to render independent financial advice.

After the Sterling board of directors meeting on February 27, 2024, representatives of Simpson Thacher delivered a revised draft of the merger agreement to representatives of Fried Frank.

Also on February 27, 2024, the First Advantage board of directors met with representatives of First Advantage management and Silver Lake to receive an update on the status of the proposed transaction with Sterling and to discuss updates regarding First Advantage’s due diligence investigation of Sterling.

On February 28, 2024, representatives of Fried Frank and Simpson Thacher exchanged revised drafts of the merger agreement, the support agreement and the stockholders agreement.

On the evening of February 28, 2024, the Sterling board of directors met with representatives of Sterling management, Goldman Sachs IB, Citi and Fried Frank. Representatives of Fried Frank provided an update on the negotiation of the merger agreement and related transaction documents, including a termination fee of $66.3 million payable by Sterling if the Sterling board of directors determines to terminate the merger agreement to accept a superior proposal. The representatives of Citi reviewed with the Sterling board of directors Citi’s financial analyses of the merger consideration to be received by the holders of shares of Sterling common stock (other than First Advantage and its affiliates) pursuant to the merger agreement. The representatives of Citi then rendered the oral opinion of Citi, subsequently confirmed by delivery of its written opinion, dated February 28, 2024, to the Sterling board of directors to the effect that, as of the date of the written opinion and based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Citi as set forth in its written opinion, the merger consideration to be received by the holders of shares of Sterling common stock (other than First Advantage and its affiliates) pursuant to the merger agreement was fair from a financial point of view to such holders. Following discussion, and taking into consideration various factors, including those described in the section titled “Sterling’s Reasons for the Transaction; Recommendation of the Sterling Board of Directors,” the Sterling board of directors unanimously (i) determined that the terms of the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of, Sterling and the Sterling stockholders, (ii) determined that it is in the best interests of Sterling and the Sterling stockholders, and declared it advisable, to enter into the merger agreement, (iii) approved the merger agreement, the execution and delivery by Sterling of the merger agreement, the performance by Sterling of its covenants and agreements contained therein and the consummation of the transactions contemplated thereby substantially upon the terms and conditions set forth in the merger agreement and (iv) resolved to recommend, on the terms and subject to the conditions contained in the merger agreement, that the Sterling stockholders vote to adopt the merger agreement.

Also on the evening of February 28, 2024, the First Advantage board of directors met with representatives of First Advantage management and Simpson Thacher. Representatives of Simpson Thacher provided an update on the negotiation of the merger agreement and related transaction documents. Following such discussion, the First Advantage board of directors unanimously (i) determined that it is in the best interests of First Advantage and First Advantage’s stockholders, and declared it advisable, to enter into the merger agreement and (ii) approved the execution and delivery by First Advantage of the merger agreement and the performance by First Advantage of its covenants and agreements contained therein.

Following the meetings of the Sterling and First Advantage boards of directors, the applicable parties executed the merger agreement, the support agreement and the stockholders agreement, and First Advantage

 

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delivered to Sterling a fully executed version of the debt commitment letter. Promptly following execution of the merger agreement, the Specified Stockholders executed and delivered to Sterling, and the sole stockholder of Merger Sub executed and delivered to Merger Sub, a written consent adopting the merger agreement and the transactions contemplated thereby.

Before the opening of normal trading hours on The Nasdaq Stock Market LLC on February 29, 2024, First Advantage and Sterling publicly announced their entry into the merger agreement and other transaction documents.

Sterling was subject to customary non-solicitation restrictions set forth in the merger agreement. However, prior to 11:59 p.m., New York City time, on March 23, 2024, subject to the terms and conditions set forth in the merger agreement, Sterling was entitled to engage in negotiations or discussions with, and furnish nonpublic information to, a third party (other than certain excluded parties) that made an unsolicited written bona fide acquisition proposal, if the Sterling board of directors determined in good faith that such acquisition proposal constituted, or would reasonably be expected to lead to, a superior proposal (as defined in the merger agreement). At 11:59 p.m., New York City time, on March 23, 2024, the period during which Sterling could entertain superior proposals expired without any party having contacted Sterling or its financial advisors concerning a potential competing proposal.

On February 29, 2024, the Delaware Court of Chancery issued an opinion, Sjunde AP-Fonden v. Activision Blizzard, Inc., et al., C.A. No. 2022-1001-KSJM (Del. Ch. Feb. 29, 2024) (referred to as the Activision case), in which it declined to grant defendants’ motion to dismiss plaintiff’s challenges to the due authorization of a merger agreement on the basis that the merger agreement adopted by the board, at the time of its adoption, was not “essentially complete”. In an abundance of caution in light of the Activision case, on April 26, 2024, the board of directors of each of Sterling and Merger Sub, each acting by unanimous written consent, ratified the execution and delivery of the merger agreement by Sterling and Merger Sub, as applicable, pursuant to Section 204 of the DGCL. In addition, the First Advantage board of directors, by unanimous written consent, ratified and confirmed the execution and delivery by First Advantage of the merger agreement. Promptly following such ratification, the Specified Stockholders delivered to Sterling, and the sole stockholder of Merger Sub delivered to Merger Sub, a written consent readopting the merger agreement and adopting the ratification by the board of directors of each of Sterling and Merger Sub, as applicable, of the execution and delivery of the merger agreement.

Notice Regarding Ratification Under Section 204 of the Delaware General Corporate Law

On February 29, 2024, the Delaware Court of Chancery issued an opinion, Sjunde AP-Fonden v. Activision Blizzard, Inc., et al., C.A. No. 2022-1001-KSJM (Del. Ch. Feb. 29, 2024) (referred to as the Activision case), in which it declined to grant defendants’ motion to dismiss plaintiff’s challenges to the due authorization of a merger agreement on the basis that the merger agreement adopted by the board, at the time of its adoption, was not “essentially complete”. In an abundance of caution in light of the Activision case, the Sterling board of directors adopted a unanimous written consent on April 26, 2024, in accordance with Section 204 of the DGCL, ratifying the execution and delivery of the merger agreement by Sterling to eliminate the risk that, or any uncertainty as to whether, the prior execution and delivery did not comply with Section 251 of the DGCL or was otherwise a “defective corporate act” (as defined in Section 204(h)(1) of the DGCL). A copy of such unanimous written consent is attached as Annex E. Promptly following such ratification, the Specified Stockholders delivered to Sterling a written consent on April 26, 2024, reapproving and readopting the merger agreement and, in accordance with Section 204 of the DGCL, adopting the ratification of the execution and delivery by Sterling of the merger agreement. A copy of such unanimous written consent is attached as Annex F.

This notice constitutes the notice required to be given to Sterling stockholders in accordance with Section 204 of the DGCL. Any claim that any potentially defective corporate act identified and ratified under Section 204 of the DGCL pursuant to the unanimous written consent attached as Annex E is void or voidable due

 

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to the failure of authorization, or that the Delaware Court of Chancery should declare in its discretion that the ratification thereof in accordance with Section 204 of the DGCL not be effective or be effective only on certain conditions, must be brought within 120 days from April 26, 2024, the date the Sterling board of directors adopted such unanimous written consent attached as Annex E.

Sterling’s Reasons for the Transaction; Recommendation of the Sterling Board of Directors

In the course of reaching its determination and recommendation, the Sterling board of directors consulted with and received advice from Sterling’s senior management and Sterling’s outside financial and legal advisors and considered a number of substantive factors, both positive and negative, and potential benefits and detriments of the transaction to Sterling and its stockholders. The Sterling board of directors concluded that, taken as a whole, the following factors supported its decision to approve the transaction.

Please also see the notice regarding ratification under Section 204 of the DGCL in the section titled “Notice Regarding Ratification Under Section 204 of the Delaware General Corporation Law”.

Positive Factors

In coming to its decision, the Sterling board of directors considered the following potentially positive factors, which are not intended to be exhaustive and are not presented in any relative order of importance, and believed that such factors, taken as a whole, supported its unanimous determinations and recommendations.

 

   

Merger Consideration. The value of the merger consideration to be received by Sterling stockholders in relation to the market prices of Sterling common stock prior to the Sterling board of directors’ approval of the merger agreement.

 

   

Premium to Trading Price of Sterling Common Stock. The fact that, based on the First Advantage stock price as of the close of trading on February 28, 2024 (the last full trading day before the public announcement of the transaction), the terms of the transaction represent (i) an implied value per share of Sterling common stock of $16.73 assuming a cash election and no proration, (ii) an implied value per share of Sterling common stock of $16.49 assuming a stock election and no proration, and (iii) a blended value per share of Sterling common stock of $16.66 assuming proration of 72% cash and 28% stock (based on the treatment of Sterling common stock, stock options and restricted stock units pursuant to the merger agreement). Such implied values or blended value, as applicable, represented a premium of (i) approximately 35%, 33% and 34%, respectively, to the closing price per share of Sterling common stock on February 28, 2024 (the last full trading day before the public announcement of the transaction) of $12.42 and (ii) approximately 26%, 24% and 25%, respectively, to the volume weighted average price per share of Sterling common stock on NASDAQ for the 30 trading days up to, and including, February 28, 2024 of $13.30.

 

   

Uncertainty of Future Market Price. The uncertainty of Sterling’s future stock market price if Sterling remained independent. The Sterling board of directors considered Sterling’s business, assets, financial condition, results of operations, management, competitive position and prospects, as well as current industry, economic and stock and credit market conditions. The Sterling board of directors also considered Sterling’s long-range plan and the initiatives and the potential execution risks associated with such plan. As a result of such considerations, the Sterling board of directors came to the belief that it was unlikely that the trading price of Sterling common stock would, in the near term, over an extended period of time, or at all reflect a net present value greater than the value of the merger consideration.

 

   

Negotiations with First Advantage. The benefits that Sterling and its advisors were able to obtain during its negotiations with First Advantage. The Sterling board of directors believed that the consideration reflected in the merger agreement was the best transaction that could be obtained by Sterling stockholders at the time, and that there was no assurance that a more favorable opportunity to sell Sterling would arise later or through any alternative transaction.

 

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Stockholder Election Opportunity. The fact that Sterling stockholders would have the right to elect to receive the merger consideration either in cash or shares of First Advantage common stock, subject to the proration mechanism in the merger agreement.

 

   

Significant Portion of Merger Consideration in Cash. The fact that 72% of Sterling common stock issued and outstanding immediately prior to the effective time will be converted into the right to receive cash consideration, giving Sterling stockholders the opportunity to realize value immediately for a significant portion of their investment and providing certainty of value. The Sterling board of directors also considered the fact that Sterling stockholders would be able to reinvest the cash consideration received pursuant to the merger agreement in shares of First Advantage common stock if they desired to do so.

 

   

Participation in Potential Upside/Synergies. The benefits to Sterling that could result from the transaction, including the potential to realize synergies arising from a combination of Sterling and First Advantage. The Sterling board of directors also considered the fact that, because a portion of the merger consideration will be paid in shares of First Advantage common stock, Sterling stockholders will benefit from equity ownership in First Advantage and have the opportunity to participate in future earnings or growth of First Advantage and future appreciation in the value of First Advantage common stock following the transaction should they determine to retain the shares of First Advantage common stock payable pursuant to the merger agreement.

 

   

Fixed Exchange Ratio for Stock Portion of Merger Consideration. The fact that because the stock consideration is based on a fixed exchange ratio of 0.979 shares of First Advantage common stock (subject to a limit of 27,150,000 shares of total First Advantage common stock to be issued in connection with the transaction), Sterling stockholders that elect to receive the stock consideration will have the opportunity to benefit from any increase in the trading price of First Advantage common stock between the announcement of the merger agreement and the completion of the transaction, and that the cash portion of the merger consideration will limit the impact of a decline in the trading price of the First Advantage common stock on the aggregate value of the merger consideration.

 

   

Expected Cost Synergies. The expectation that First Advantage will recognize anticipated cost synergies following completion of the transaction, from which Sterling stockholders that continue as stockholders of First Advantage will benefit. The Sterling board of directors also considered that there could be no assurance that any particular amount of such synergies would be achieved following completion of the transaction or the timeframe in which it would be achieved.

 

   

Financial Analyses and Opinion of Citigroup Global Markets Inc. The financial analyses reviewed and discussed with the Sterling board of directors by representatives of Citigroup Global Markets Inc. (referred to as Citi) as well as the oral opinion of Citi rendered to the Sterling board of directors on February 28, 2024 (which was subsequently confirmed in writing by delivery of Citi’s written opinion dated the same date) as to, as of February 28, 2024 and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Citi as set forth in its written opinion, the fairness, from a financial point of view, to the holders of Sterling common stock (other than First Advantage and its affiliates) of the merger consideration to be received by such holders in the transaction pursuant to the merger agreement. The opinion is more fully described in the section titled “Opinion of Sterling’s Financial Advisor” and the full text of the opinion is attached as Annex G to this information statement/prospectus. The Sterling board of directors considered that Citi, in connection with delivering its opinion, performed a variety of financial analyses described in the section titled “Opinion of Sterling’s Financial Advisor”.

 

   

Likelihood of Completion. The likelihood that the transaction would be completed, in light of, among other things, (i) the conditions to the transaction, (ii) the covenants by the parties to use their respective reasonable best efforts to obtain all necessary governmental approvals and (iii) the anticipated likelihood of obtaining required regulatory approvals for a transaction with First Advantage prior to the outside date (as defined in, and may be extended according to, the merger agreement, as more fully described in the section titled “The Merger Agreement—Termination of the Merger Agreement”).

 

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Board Representation. The benefit to Sterling stockholders resulting from the fact that one member of the Sterling board of directors, Joshua Peirez, will be offered a position on the First Advantage board of directors pursuant to the merger agreement, effective at the effective time and on terms and conditions determined by First Advantage, to serve in such class of directors as First Advantage shall determine prior to the effective time, subject to Mr. Peirez’s acceptance of such appointment at or prior to (and which acceptance remains effective as of) the closing.

 

   

Post-Signing Market Check Period. The 24-day period, starting after the date of the merger agreement and ending on 11:59 p.m. New York City time on March 23, 2024, in which to receive and respond to unsolicited acquisition proposals that may result in a superior proposal. In connection with the negotiation of the merger agreement, the Sterling board of directors required that Sterling be given the flexibility necessary to respond to any acquisition proposals that may result in a superior proposal through the inclusion of this period. The Sterling board of directors believed that these provisions and the terms of the merger agreement provided ample opportunity for Sterling to respond to any unsolicited third-party proposals, if any were received by Sterling, that may be more favorable from a financial point of view to Sterling’s stockholders. Sterling did not receive any unsolicited acquisition proposals during this period.

 

   

Terms and Conditions of the Merger Agreement. The Sterling board of directors believed that the terms and conditions of the merger agreement as discussed in more detail in the section titled “The Merger Agreement” were favorable to Sterling and its stockholders, including:

 

   

the reasonable likelihood that the transaction will be completed in light of the representations, warranties and covenants of the parties, the limited number and nature of the conditions to the parties’ obligations to complete the transaction, and the parties’ limited ability to terminate the merger agreement;

 

   

the fact that First Advantage is required to pay Sterling a termination fee of (i) $60 million if the merger agreement is terminated by either party because certain required antitrust approvals are not obtained by the initial outside date, which increases to $90 million if First Advantage elects to extend the initial outside date and the transaction is not completed by the extended outside date and (ii) $100 million if it fails to complete the transaction within five business days after all of the required conditions have been satisfied and Sterling terminates the merger agreement as a result of such failure, which in each case would help offset some of the costs of the transaction;

 

   

the fact that Sterling has considerable operating flexibility to conduct its business in the ordinary course between the execution of the merger agreement and the completion of the transaction;

 

   

the requirement that the parties use their respective reasonable best efforts to complete the transaction, including to obtain all necessary governmental approvals as promptly as reasonably practicable; and

 

   

the ability of Sterling to obtain specific performance of the terms of the merger agreement.

 

   

Strategic Benefits. The significant strategic opportunities, including the following (not necessarily listed in order of relative importance) presented by the transaction:

 

   

the transaction would combine Sterling’s extensive offerings with First Advantage’s in the background check and identity verification services industry;

 

   

the increased diversity of customers and the potential for net new business opportunities across the companies’ portfolios; and

 

   

the expectation that the transaction would result in a company with increased capabilities and world-class products that will be positioned to serve employers and applicants requiring background check, identity, screening and verification services.

 

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Strategic Alternatives. The likelihood and potential benefits of other potential strategic or other business combination transactions and continuing as a standalone company, including the following:

 

   

the potential values, benefits, risks and uncertainties facing Sterling associated with possible strategic alternatives to the transaction (including possible alternative business combinations and scenarios involving the possibility of remaining a standalone publicly trading company), and the timing, risks and likelihood of accomplishing such alternatives; and

 

   

the Sterling board of directors’ belief, after considering advice from Sterling’s financial advisors and senior management, that there were likely no other potential strategic purchasers or other parties that would be reasonably likely to engage in a transaction in the near term at a price greater than the price being offered by First Advantage.

 

   

First Advantage’s Business and Reputation. The results of the due diligence investigation that Sterling’s senior management conducted with the assistance of its advisors on First Advantage, together with the business reputation, experience and capabilities of First Advantage and its management.

 

   

Financing Strength of First Advantage. The fact that First Advantage has obtained committed debt financing for the transaction from reputable financial institutions and the high likelihood that First Advantage would be able to finance the transaction given First Advantage’s financial resources, financial profile and existing debt facilities.

 

   

Availability of Appraisal Rights. The fact that appraisal rights would be available to holders and beneficial owners of Sterling common stock under Delaware law who properly exercise their statutory rights under Section 262 of the DGCL and that there is no condition in the merger agreement relating to the maximum number of shares of Sterling common stock that could exercise appraisal rights.

 

   

Majority Stockholder Support. The support of the transaction by the Specified Stockholders, which collectively owned approximately 53.5% of the aggregate outstanding shares of Sterling common stock as of February 28, 2024. The Specified Stockholders will be receiving the same form and amount of merger consideration for their shares of Sterling common stock as all other stockholders of Sterling.

Negative Factors

In coming to its recommendation, the Sterling board of directors also considered the following potentially negative factors, which are not intended to be exhaustive and are not presented in any relative order of importance.

 

   

Fixed Stock Ratio of Merger Consideration. The fact that because the stock portion of the merger consideration is a fixed exchange ratio of shares of First Advantage common stock to Sterling common stock, Sterling stockholders could be adversely affected by a decrease in the trading price of First Advantage common stock during the pendency of the transaction and the fact that the merger agreement does not provide Sterling with a termination right or other similar protection relating to the trading price of First Advantage common stock. Nonetheless, the Sterling board of directors determined that this structure was appropriate and the risk acceptable in view of factors such as:

 

   

the Sterling board of directors’ review of the relative intrinsic values and financial performance of First Advantage and Sterling; and

 

   

the fact that Sterling stockholders may elect to receive cash consideration, subject to proration, which limits the impact of a decline in the trading price of First Advantage common stock on the value of the merger consideration.

 

   

No Solicitation Provision. The fact that the merger agreement restricts Sterling’s ability to actively initiate, solicit, facilitate or knowingly encourage alternative acquisition proposals.

 

   

Possible Failure to Achieve Synergies. The risk that the potential benefits and synergies sought in the transaction will not be realized or will not be realized within the expected time period, and the risks associated with the integration by First Advantage of Sterling.

 

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Smaller Ongoing Equity Participation in First Advantage by Sterling Stockholders. The fact that because only 28% of Sterling common stock issued and outstanding as of immediately prior to the effective time will be converted into the right to receive stock consideration, Sterling stockholders will have a smaller ongoing equity participation in First Advantage than they have in Sterling. Sterling stockholders will forgo the right to participate in any future earnings or growth of First Advantage to the extent that they receive cash consideration and, because only 28% of the Sterling common stock will be converted into the right to receive stock, Sterling stockholders will have a smaller proportionate interest in any future appreciation in the value of First Advantage common stock following the completion of the transaction than if Sterling had remained a standalone entity.

 

   

Risks and Costs Associated with Entering into the Transaction. The fact that entering into the merger agreement may have an effect on Sterling’s business. Such effects may include (i) distractions to Sterling’s management due to the negotiation of the merger agreement and the completion of the transaction, (ii) adverse effects on Sterling’s continuing business relationships with consultants, licensors, vendors and business partners, (iii) that Sterling may be impaired in its ability to attract, retain and motivate key personnel, (iv) adverse effects on the trading price of the shares of Sterling common stock and the market’s perceptions of Sterling’s prospects and (v) the fact that Sterling would incur significant transaction expenses and opportunity costs in connection with negotiating the merger agreement and completing the transaction. Further, such effects may occur, and associated costs may be incurred, regardless of whether the transaction is completed or not.

 

   

Restrictions on Operation of Sterlings Business Pending Completion. The fact that the merger agreement subjects Sterling to restrictions on its business activities (which restrictions may not be waived without the prior written consent of First Advantage) and obligates Sterling generally to conduct its business in a commercially reasonable manner and in all material respects in the ordinary course of business consistent with past practice during the pendency of the transaction. These restrictions and obligations on Sterling’s business activities may delay or prevent Sterling from undertaking business opportunities that may arise during the pendency of the transaction, whether or not the transaction is completed.

 

   

Timing Risks and Need to Obtain Required Regulatory Clearances. The amount of time it could take to complete the transaction, which requires the approval, or expiration or termination of the applicable waiting periods, under the HSR Act and the antitrust and foreign direct investment laws of certain foreign jurisdiction, including the risk that governmental authorities may oppose or refuse to approve the transaction or attempt to impose conditions on Sterling, First Advantage or any of their respective affiliates prior to approving the transaction. Any such conditions may reasonably be expected to have, individually or in the aggregate, a material impact on Sterling and its subsidiaries, taken as a whole, or on the existing business of First Advantage and its subsidiaries, taken as a whole, and therefore would excuse First Advantage from complying with such conditions and from completing the transaction.

 

   

Tax Treatment. The fact that any gains arising from the receipt of the merger consideration (including First Advantage common stock, if any) would generally be taxable to Sterling stockholders for U.S. federal income tax purposes.

 

   

Stockholder Litigation. The risk of litigation arising from stockholders in respect of the merger agreement or the transaction.

 

   

Costs of the Transaction. The fact that Sterling has incurred and will incur substantial expenses related to negotiating the merger agreement and the transactions contemplated by the merger agreement, including the transaction, regardless of whether the transaction is completed.

 

   

Other Risks. The risks of the type and nature described in the sections of this information statement/prospectus titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” beginning on pages 23 and 34, respectively.

 

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After taking into account all of the factors set forth above, as well as others, the Sterling board of directors determined that the potentially negative factors were significantly outweighed by the potential benefits that it expected the Sterling stockholders would achieve as a result of the transaction, including the Sterling board of directors’ belief that the transaction would maximize the immediate value of the Sterling stockholders’ shares and minimize the risks and uncertainty affecting the future prospects of Sterling, including the potential risks associated with its stand-alone financial plan.

Accordingly, the Sterling board of directors unanimously (i) determined that the terms of the merger agreement and the transactions contemplated thereby, including the transaction, are fair to, and in the best interests of, Sterling and its stockholders, (ii) determined that it is in the best interests of Sterling and its stockholders, and declared it advisable, to enter into the merger agreement, (iii) approved the execution and delivery by Sterling of the merger agreement, the performance by Sterling of its covenants and agreements contained therein and the consummation of the transactions contemplated thereby, including the transaction, upon the terms and subject to the conditions contained in the merger agreement, (iv) directed that the merger agreement be submitted to the holders of Sterling common stock for adoption by written consent in lieu of a meeting, and (v) recommended, on the terms and subject to the conditions contained in the merger agreement, that the Sterling stockholders vote to adopt the merger agreement.

In addition, during its consideration of the transaction with First Advantage, the Sterling board of directors was also aware of and considered that Sterling’s directors and executive officers may have interests in the transaction that differ from, or are in addition to, their interests as stockholders of Sterling generally, as described in the section titled “Interests of Sterling’s Directors and Executive Officers in the Transaction”.

The foregoing discussion is not intended to be exhaustive, but summarizes the material information and factors considered by the Sterling board of directors in its consideration of the merger agreement and the transactions contemplated thereby, including the transaction. In light of the variety of factors, the quality and amount of information considered and the complexity of these matters, the Sterling board of directors, both individually and collectively, did not find it practical to, and did not attempt to, quantify or otherwise assign any relative or specific weight to the various factors in reaching its determinations or the reasons for such determinations. The Sterling board of directors did not reach any specific conclusion with respect to any of the factors or reasons considered. Instead, the Sterling board of directors viewed its position and recommendation as being based on an overall analysis and on the totality of the information presented to and factors considered by it, including the discussions with, and questioning of, senior management of First Advantage. The Sterling board of directors based its recommendation on the totality of the information presented.

This explanation of Sterling’s reasons for the transaction and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in the section titled “Cautionary Statement Regarding Forward-Looking Statements”.

First Advantage’s Reasons for the Transaction

The board of directors of First Advantage considered a number of factors in making its determination to approve the transaction. These factors include the view of the First Advantage board of directors that the transaction is expected to:

 

   

extend First Advantage’s high-quality and cost-effective background screening, identity, and verification technology products and solutions for the benefit of the combined company’s customers across industries and geographies;

 

   

accelerate investment in innovation and new technology solutions, including artificial intelligence-driven automation and next-generation digital identification technologies, for enhanced customer and applicant experience, fueling growth of the combined company and mitigating cost increases from key data vendors;

 

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drive attractive total stockholder return outlook, including at least $50 million in run-rate synergies, implying immediate double-digit earnings per share accretion on a run-rate synergy basis and accelerated earnings growth potential from topline development, synergies, and deleveraging; and

 

   

diversify revenue across customer segments, industries, and geographies, reducing seasonality and improving resource planning and operational efficiency.

Further Stockholder Approval Not Required

Under Delaware law and Sterling’s organizational documents, adoption of the merger agreement by Sterling’s stockholders required the affirmative vote of the holders in the aggregate of a majority of the outstanding shares of Sterling common stock entitled to vote thereon in order to effect the transaction. The Sterling organizational documents permit, at any time when the Specified Stockholders hold a majority of the voting power of the Sterling common stock entitled to vote generally in an election of directors, any action that is required or permitted to be taken by Sterling’s stockholders to be taken without a meeting if a written consent is signed by the holders of outstanding shares of Sterling common stock holding not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. The requisite Sterling stockholder approval was obtained following the execution of the merger agreement on February 28, 2024, when the written consent was delivered to Sterling by the Specified Stockholders, which owned 49,807,744 shares of Sterling common stock, representing approximately 53.5% of the issued and outstanding shares of Sterling common stock on that date.

Accordingly, the execution and delivery of the written consent by the Specified Stockholders was sufficient to adopt the merger agreement and the transaction on behalf of Sterling stockholders. You are not being asked for a proxy, and you are requested not to send a proxy.

Certain Unaudited Financial Projections Utilized by the Sterling Board of Directors and Sterling’s Financial Advisor

While each of Sterling and First Advantage has from time to time provided limited financial guidance to investors, neither company’s management, as a matter of course, otherwise publicly discloses forecasts or internal projections as to such company’s future performance due to, among other things, the inherent difficulty of predicting financial performance for future periods and the likelihood that the underlying assumptions and estimates may not be realized. In connection with the transaction, Sterling provided certain unaudited non-public financial projections regarding Sterling to the Sterling board of directors (referred to as the Sterling financial projections). At the direction of the Sterling board of directors, the Sterling financial projections were also provided to, and approved for use by, Citi for purposes of performing its financial analyses in connection with rendering its opinion to the Sterling board of directors, as more fully described in the section titled “Opinion of Sterling’s Financial Advisor”. In addition, Sterling management provided to the Sterling board of directors and Citi certain unaudited non-public financial projections for First Advantage, which were prepared by First Advantage’s management (referred to as the First Advantage financial projections). Sterling management also provided to the Sterling board of directors and Citi estimates of certain net operating synergies that representatives of First Advantage, during the course of due diligence discussions, projected to result from the transaction, and Citi arithmetically calculated certain unaudited non-public financial projections for Sterling and First Advantage on a pro forma basis solely using such net synergy information and information provided to Citi, including in the Sterling financial projections and the First Advantage financial projections (referred to as the pro forma financial projections and, together with the Sterling financial projections and the First Advantage financial projections, the financial projections). The financial metrics set forth in the subsections titled “First Advantage Financial Projections” and “Pro Forma Financial Projections” were approved by Sterling for use by Citi for purposes of performing its financial analyses in connection with rendering its opinion to the Sterling board of directors, as more fully described in the section titled “Opinion of Sterling’s Financial Advisor”. A summary of these financial projections is included below to give Sterling stockholders access to certain information that was

 

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considered by the Sterling board of directors for purposes of evaluating the transaction. These projections are not, and should not be viewed as, public guidance or even targets.

The financial projections, while presented with numerical specificity, were based on numerous variables and assumptions, including about future performance, that are inherently uncertain and many of which are beyond Sterling’s and First Advantage’s control. The financial projections reflect numerous estimates, assumptions and judgments made by Sterling’s and First Advantage’s respective managements, based on information available at the time the financial projections were developed, with respect to industry performance and competition, general business, economic, regulatory, market and financial conditions, other future events and matters specific to Sterling’s and First Advantage’s business, all of which are difficult to predict and many of which are beyond Sterling’s and First Advantage’s control. There can be no assurances that the financial projections accurately reflect future trends or accurately estimate Sterling’s or First Advantage’s future financial and operating performance. The financial projections also reflect assumptions as to certain business decisions that are subject to change. Important factors that may affect actual results and cause the financial projections not to be achieved include, but are not limited to, risks and uncertainties relating to Sterling’s and First Advantage’s business (including the ability to achieve strategic goals, objectives and targets over the applicable periods), industry performance, general business and economic conditions and other factors described in or referenced under the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” and those risks and uncertainties detailed in Sterling’s and First Advantage’s public filings with the SEC. Further, the financial projections cover multiple years and by their nature become subject to greater uncertainty with each successive year. Accordingly, there can be no assurance that the financial projections will be realized, and actual results may vary materially from those shown. Modeling and forecasting the future performance of companies in the industry or industries in which Sterling and its subsidiaries or First Advantage and its subsidiaries operate is a highly speculative endeavor. Since the financial projections cover a long period of time, the financial projections by their nature are unlikely to anticipate each circumstance that will have an effect on the commercial value of Sterling’s and First Advantage’s products and services.

The financial projections were not prepared with a view toward public disclosure and, accordingly, do not necessarily comply with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation or presentation of prospective financial information or generally accepted accounting principles in the United States (referred to as GAAP).

The financial projections included in this document, including the financial projections set forth below in the subsections titled “Sterling Financial Projections”, “First Advantage Financial Projections”, and “Pro Forma Financial Projections” have been prepared by, and are the responsibility of, Sterling’s management and First Advantage’s management, as applicable. PricewaterhouseCoopers LLP, Sterling’s independent registered public accounting firm, has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the accompanying financial projections and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report on Sterling’s consolidated financial statements incorporated by reference from Sterling’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 relates to Sterling’s previously issued financial statements. It does not extend to the financial projections and should not be read to do so. Similarly, Deloitte & Touche LLP, First Advantage’s independent registered public accounting firm, has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the financial projections and, accordingly, Deloitte & Touche LLP does not express an opinion or any other form of assurance with respect thereto. The Deloitte & Touche LLP report on First Advantage’s consolidated financial statements incorporated by reference from First Advantage’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 relates to First Advantage’s previously issued financial statements. It does not extend to the financial projections and should not be read to do so.

The financial projections are not being included in this information statement/prospectus in order to influence any Sterling stockholder’s decision as to whether or not to elect the cash consideration or the stock consideration in the transaction or to seek appraisal rights with respect to shares of Sterling common stock held

 

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by such stockholder. The summary of the financial projections is being included in this information statement/prospectus solely because these financial projections were made available to the Sterling board of directors and Citi.

The financial projections do not take into account any circumstances or events occurring after the date they were prepared, including the announcement of the transaction and transaction-related expenses. The financial projections also do not take into account the effect of any failure of the transaction to close and should not be viewed as accurate or continuing in that context.

The inclusion of the financial projections in this information statement/prospectus should not be regarded as an indication that Sterling, First Advantage, Citi or any of their respective affiliates, advisors or representatives considered or consider the financial projections to be predictive of actual future events, and the financial projections should not be relied on as such. NONE OF STERLING, FIRST ADVANTAGE, CITI OR ANY OF THEIR RESPECTIVE AFFILIATES, ADVISORS, OFFICERS, DIRECTORS OR REPRESENTATIVES CAN GIVE ANY ASSURANCE THAT ACTUAL RESULTS WILL NOT DIFFER FROM THESE FINANCIAL PROJECTIONS, AND, EXCEPT AS REQUIRED BY APPLICABLE SECURITIES LAWS, NONE OF THE FOREGOING PERSONS INTENDS TO, AND EACH DISCLAIMS ANY OBLIGATION TO, MAKE PUBLICLY AVAILABLE ANY UPDATE OR OTHER REVISION TO THE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING SINCE THEIR PREPARATION OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS, EVEN IF ANY OR ALL OF THE UNDERLYING ASSUMPTIONS ARE SHOWN TO BE INAPPROPRIATE, INCLUDING WITH RESPECT TO THE ACCOUNTING TREATMENT OF THE TRANSACTION UNDER GAAP, OR TO REFLECT CHANGES IN GENERAL ECONOMIC OR INDUSTRY CONDITIONS. The financial projections do not take into account all of the possible financial and other effects of the transaction on Sterling or First Advantage, the effect on Sterling or First Advantage of any business or strategic decision or action that has been or will be taken as a result of the execution of the merger agreement, or the effect of any business or strategic decisions or actions that 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 transaction. Further, the financial projections do not take into account the effect on Sterling or First Advantage of any possible failure of the transaction to occur. None of Sterling, First Advantage, Citi or any of their respective affiliates, advisors, officers, directors or representatives has made or makes any representation to any stockholder or other investor regarding the ultimate performance of Sterling or First Advantage compared to the information contained in the financial projections or that projected results will be achieved.

Sterling’s and First Advantage’s respective stockholders are cautioned not to place undue, if any, reliance on the financial projections included in this information statement/prospectus.

The financial projections incorporate certain financial measures which are not GAAP measures. Such financial measures should not be considered in isolation from, or as a substitute for, financial information presented in accordance with GAAP. Sterling’s calculations of these financial measures may differ from other companies in the industry or industries in which Sterling and its subsidiaries operate, and are not necessarily comparable with information presented under similar captions used by other companies. Financial measures provided to a financial advisor are excluded from the SEC’s definition of non-GAAP financial measures and therefore are not subject to SEC rules regarding disclosures of non-GAAP financial measures, which may otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure in order to be presented. Reconciliations of these financial measures were not relied upon by Citi for purposes of performing its financial analyses in connection with rendering its opinion to the Sterling board of directors (as described in the section titled “—Opinion of Sterling’s Financial Advisor”) or by the Sterling board of directors. Accordingly, a reconciliation of the financial measures included in the financial projections is not provided.

 

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Subject to the foregoing qualifications, the following is a summary of the financial projections:

Sterling Financial Projections

 

     Fiscal Year Ending December 31,  
($ in millions)    2024E      2025E      2026E      2027E      2028E  

Revenue

   $ 777      $ 816      $ 873      $ 951      $ 1,037  

Adjusted EBITDA(1)

   $ 200      $ 219      $ 241      $ 269      $ 300  

 

(1)

Adjusted earnings before interest, taxes, depreciation, and amortization (referred to as EBITDA) for Sterling is calculated as Gross Profit, subtracting operating expenses and adding back stock-based compensation and non-recurring charges such as restructuring, integration and transaction expenses. Adjusted EBITDA is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

Citi arithmetically calculated the following unlevered free cash flow estimates for Sterling solely using information provided by Sterling, including the Sterling financial projections, and such estimates were approved by Sterling’s management for use by Citi for purposes of its opinion and financial analyses.

 

     Fiscal Year Ending December 31,  
($ in millions)    2024E     2025E      2026E      2027E      2028E  

Unlevered Free Cash Flow(1)

   $ 19 (2)    $ 111      $ 137      $ 148      $ 167  

 

(1)

Unlevered Free Cash Flow for Sterling is calculated as adjusted EBITDA, adjusted for taxes, stock-based compensation, depreciation and amortization (including amortization of acquisition-related intangible assets), changes in working capital, capital expenditures, capitalized development costs and other non-recurring charges such as acquisition, restructuring, integration and transaction expenses. Unlevered free cash flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

(2)

Takes into account Sterling’s acquisition of the equity interests of Vault Workforce Screening on January 2, 2024, for approximately $70 million.

First Advantage Financial Projections

 

     Fiscal Year Ending December 31,  
($ in millions)    2024E      2025E      2026E      2027E      2028E  

Revenue

   $ 775      $ 803      $ 850      $ 918      $ 1,001  

Adjusted EBITDA(1)

   $ 238      $ 252      $ 275      $ 305      $ 345  

 

(1)

Adjusted EBITDA for First Advantage is calculated as net income before interest, taxes, depreciation, and amortization, and as further adjusted for stock-based compensation, transaction and acquisition-related charges, integration and restructuring charges, and other non-cash charges. Adjusted EBITDA is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

 

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Pro Forma Financial Projections

 

     Fiscal Year Ending December 31,  
($ in millions)    2024E      2025E      2026E  

Adjusted EBITDA(1)

   $ 463      $ 521      $ 566  

 

(1)

Pro forma adjusted EBITDA was determined by adding Sterling’s adjusted EBITDA, First Advantage’s adjusted EBITDA, and expected net cost synergies of $25 million in 2024, $50 million in 2025 and $50 million in 2026. Pro forma EBITDA is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

For additional information on Sterling’s and First Advantage’s actual results and historical financial information, please see the section titled “Where You Can Find More Information”.

Opinion of Sterling’s Financial Advisor

Sterling engaged Citi as its financial advisor in connection with the transaction. On February 28, 2024, Citi rendered its oral opinion to the Sterling board of directors (which was subsequently confirmed in writing by delivery of Citi’s written opinion addressed to the Sterling board of directors dated the same date) as to, as of February 28, 2024, and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations on the review undertaken by Citi as set forth in its written opinion, the fairness, from a financial point of view, to the holders of Sterling common stock (other than First Advantage and its affiliates) of the merger consideration to be received by such holders in the transaction pursuant to the merger agreement.

The full text of Citi’s written opinion, which describes, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken, is attached as Annex G to this information statement/prospectus. The description of Citi’s opinion contained in this information statement/prospectus is qualified in its entirety by reference to the full text of the opinion. Citi’s opinion was directed to the Sterling board of directors, in its capacity as such, and addressed only the fairness, from a financial point of view and as of the date of such opinion, to the holders of Sterling common stock (other than First Advantage and its affiliates) of the merger consideration to be received by such holders in the transaction pursuant to the merger agreement. Citi’s opinion did not address any other terms, aspects or implications of the transaction. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Sterling to effect or enter into the transaction, the relative merits of the transaction as compared to any alternative business strategies that might exist for Sterling or the effect of any other transaction which Sterling might engage in or consider. Citi’s opinion did not address what the value of the First Advantage common stock actually will be when issued pursuant to the transaction or the prices at which Sterling common stock, First Advantage common stock or any other securities will trade or otherwise be transferable at any time, including following the announcement or completion of the transaction. Citi’s opinion is not intended to be and does not constitute a recommendation as to how the Sterling board of directors or any Sterling stockholder should vote or act on any matters relating to the transaction or otherwise.

In arriving at its opinion, Citi, among other things:

 

   

reviewed an execution version of the merger agreement;

 

   

held discussions with certain senior officers, directors and other representatives and advisors of Sterling and certain senior officers and other representatives and advisors of First Advantage concerning the businesses, operations and prospects of Sterling and First Advantage;

 

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examined certain publicly available business and financial information relating to Sterling and First Advantage, as well as certain unaudited non-public financial projections and other information and data relating to Sterling, which were provided to or discussed with Citi by the management of Sterling, and certain unaudited non-public financial projections and other information and data relating to First Advantage, which were prepared by First Advantage’s management and were provided to, and approved for use by, Citi by Sterling (for additional information, please see the summary of selected financial projections in the section titled “Certain Unaudited Financial Projections Utilized by the Sterling Board of Directors and Sterling’s Financial Advisor”);

 

   

reviewed information relating to the potential strategic implications and operational benefits (including the amount, timing, and achievability thereof) anticipated by the management of First Advantage to result from the transaction, which were provided to, and approved for use by, Citi by Sterling (for additional information, please see the summary of selected financial projections in the section titled “Certain Unaudited Financial Projections Utilized by the Sterling Board of Directors and Sterling’s Financial Advisor”);

 

   

reviewed the financial terms of the transaction as set forth in the merger agreement in relation to, among other things: current and historical market prices and trading volumes of Sterling common stock and First Advantage common stock; the historical and projected earnings and other operating data of Sterling and First Advantage; and the capitalization and financial condition of Sterling and First Advantage;

 

   

considered, to the extent publicly available, the financial terms of certain other transactions which Citi considered relevant in evaluating the transaction and analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations Citi considered relevant in evaluating those of Sterling and First Advantage;

 

   

evaluated certain potential pro forma financial effects of the transaction on First Advantage; and

 

   

conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion.

In rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with Citi and upon the assurances of the management of Sterling that they are not aware of any relevant information that has been omitted or that remains undisclosed to Citi. With respect to the unaudited non-public financial projections regarding Sterling, and other information and data relating to Sterling provided to or otherwise reviewed by or discussed with Citi, Citi was advised by the management of Sterling that such projections and other information and data were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Sterling as to the future financial performance of Sterling and the other matters addressed thereby. With respect to the unaudited non-public financial projections regarding First Advantage, and other information and data relating to First Advantage, provided to Citi by First Advantage and that Citi had been directed by the management of Sterling to utilize in its analyses, Citi assumed, with Sterling’s consent, that such projections and other information and data were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of First Advantage as to the future financial performance of First Advantage and the other matters addressed thereby. Citi also assumed, with Sterling’s consent, that the potential cost savings, strategic implications and financial and operational benefits anticipated by the management of First Advantage to result from the transaction (including the amount, timing and achievability thereof) that Citi had been directed by the management of Sterling to utilize in its analyses had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of First Advantage and of Sterling as to, and are a reasonable basis upon which to evaluate, such potential cost savings, strategic implications and financial and operational benefits. Citi expressed no view or opinion as to financial projections and other information or data (or underlying assumptions on which any such financial projections and other information or data are based) provided to or otherwise reviewed by or discussed

 

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with Citi and Citi assumed, with Sterling’s consent, that the financial results, including with respect to the potential cost savings, strategic implications and financial and operational benefits anticipated to result from the transaction, reflected in such financial projections and other information and data would be realized in the amounts and at the times projected.

Citi assumed, with Sterling’s consent, that the transaction would be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the transaction, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Sterling, First Advantage or the contemplated benefits of the transaction or that otherwise would be meaningful in any respect to Citi’s analyses or opinion. Representatives of Sterling advised Citi, and Citi further assumed, that the final terms of the merger agreement would not vary materially from those set forth in the draft reviewed by Citi. Citi did not express any opinion as to what the value of the First Advantage common stock actually will be when issued pursuant to the transaction or the prices at which Sterling common stock, First Advantage common stock or any other securities will trade or otherwise be transferable at any time, including following the announcement or completion of the transaction.

Citi did not express any view or opinion with respect to accounting, tax, regulatory, legal or similar matters, including, without limitation, as to tax or other consequences of the transaction or otherwise or changes in, or the impact of, accounting standards or tax and other laws, regulations and governmental and legislative policies affecting Sterling, First Advantage or the transaction (including the contemplated benefits thereof), and Citi relied, with Sterling’s consent, upon the assessments of representatives of Sterling as to such matters. Citi has not made or been provided with an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Sterling or First Advantage, nor has Citi made any physical inspection of the properties or assets of Sterling or First Advantage. Citi did not evaluate the solvency or fair value of Sterling, First Advantage or any other entity under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Citi expressed no view or opinion as to the potential impact on Sterling, First Advantage or any other entity of any actual or potential litigation, claims or governmental, regulatory or other proceedings, enforcement actions, consent or other orders or investigations.

Citi’s opinion addressed only the fairness, from a financial point of view and as of the date thereof, of the merger consideration (to the extent expressly specified therein), without regard to individual circumstances of specific holders (whether by virtue of control, voting, liquidity, contractual arrangements or otherwise) which may distinguish such holders. Citi’s opinion did not address any other terms, aspects or implications of the transaction, including, without limitation, the form or structure of the transaction (including the cash consideration and the stock consideration) or any terms, aspects or implications of any other agreement, arrangement or understanding to be entered into in connection with or contemplated by the transaction or otherwise (including any stockholders’ agreement, support agreement or stockholder written consent). Citi was not requested to, and Citi did not, solicit third party indications of interest in the possible acquisition of all or a part of Sterling. Citi expressed no view as to, and Citi’s opinion did not address, the underlying business decision of Sterling to effect or enter into the transaction, the relative merits of the transaction as compared to any alternative business strategies that might exist for Sterling or the effect of any other transaction which Sterling might engage in or consider. Citi expressed no view as to, and Citi’s opinion did not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation or other consideration to any officers, directors or employees of any parties to the transaction, or any class of such persons, relative to the merger consideration or otherwise. Citi’s opinion was necessarily based upon information available to Citi, and financial, stock market and other conditions and circumstances existing, as of the date of its opinion. Although developments occurring or coming to Citi’s attention after the date of its opinion may affect Citi’s opinion, Citi has no obligation to update, revise or reaffirm its opinion.

In preparing its opinion, Citi performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below is not a complete description of Citi’s opinion or the

 

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analyses underlying, and factors considered in connection with, Citi’s opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses and factors assessed as a whole, and it did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Citi believes that the analyses must be considered as a whole and in context and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.

In its analyses, Citi considered business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company, business or transaction used in Citi’s analyses for comparative purposes is identical to Sterling, First Advantage or the transaction. While the results of each analysis were taken into account in reaching its overall conclusion with respect to the fairness, from a financial point of view, of the merger consideration (to the extent expressly specified in Citi’s opinion), Citi did not make separate or quantifiable judgments regarding individual analyses. The reference ranges indicated by Citi’s financial analyses are illustrative and not necessarily indicative of actual values nor predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond Sterling’s control and the control of Citi. Much of the information used in, and accordingly the results of, Citi’s analyses are inherently subject to substantial uncertainty.

Citi was selected by Sterling to act as its financial advisor based on Citi’s qualifications, experience and reputation. Citi was not requested to, and it did not, recommend or determine the specific consideration payable in the transaction or opine that any specific consideration constituted the only appropriate consideration for the transaction. The type and amount of consideration payable in the transaction were determined through negotiations between Sterling and First Advantage and the decision of Sterling to enter into the merger agreement was solely that of the Sterling board of directors.

Citi’s opinion to the Sterling board of directors was one of many factors taken into consideration by the Sterling board of directors in deciding to consider, approve and declare the advisability of the merger agreement and the transactions contemplated thereby, and to recommend the approval of the transaction by the holders of Sterling common stock. Consequently, the analyses described above should not be viewed as determinative of the opinion of the Sterling board of directors with respect to the merger consideration or of whether the Sterling board of directors or Sterling’s management would have been willing to agree to a different merger consideration.

Summary of Financial Analyses of Citi

The following is a summary of the material financial analyses performed by Citi in connection with its oral opinion and the preparation of its written opinion to the Sterling board of directors, both provided as of February 28, 2024. The following summary is not a complete description of the financial analyses performed and factors considered by Citi in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 27, 2024. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Citi, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole. Assessing any portion of such

 

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analyses and of the factors reviewed, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Citi’s opinion. Furthermore, mathematical analysis is not in itself a meaningful method of using the data referred to below.

For purposes of its financial analysis and opinion, Citi compared ranges of values indicated by its analyses with the implied per share merger consideration of $16.73 (based on the cash election amount of $16.73 and the stock election amount of 0.979 shares of First Advantage common stock (which, based on the February 27, 2024 closing share price of the First Advantage common stock, reflected an implied value for the stock election of $16.73)). For purposes of its analyses, Citi utilized and relied upon the number of issued and outstanding shares of Sterling provided by the management of Sterling.

Selected Public Companies Analysis

Citi performed a selected public companies analyses of Sterling for which Citi reviewed certain financial and stock market information relating to Sterling and the selected publicly traded companies listed below that Citi deemed comparable to Sterling in one or more respects.

For the selected companies noted below, Citi considered, among other things, the ratio of enterprise value (defined as market capitalization plus net debt, preferred equity and minority interests) to 2024 estimated EBITDA based on research consensus estimates. For purposes of Citi’s analyses, in deriving ranges of implied values for Sterling, Citi used the estimates reflected in the Sterling financial projections for the applicable financial data for Sterling.

The selected companies considered by Citi for its analysis of Sterling were:

 

Selected Companies

  

 

HireRight Holdings Corporation

  

    

First Advantage

  

Citi noted that, based on market data as of February 27, 2024 for First Advantage and November 17, 2023 for HireRight (which reflected a possible unaffected date for HireRight common stock based on reports of public takeover interest in HireRight), the high and low Enterprise Value to 2024E EBITDA multiples for the selected companies were 10.9x and 7.0x, respectively. Based upon the application of its professional judgment and experience, Citi applied the multiple range of 7.0x to 10.9x to Sterling’s estimated 2024E EBITDA (based on the Sterling financial projections). This analysis indicated an approximate implied per share equity value reference range for Sterling of $10.20 to $17.80, as compared to the implied per share merger consideration in the transaction of $16.73.

Selected Precedent Transactions Analysis

Citi performed for Sterling a selected precedent transactions analysis, which is designed to derive an implied value of a company based on publicly available financial terms for selected transactions. In connection with its analysis, Citi reviewed publicly available financial data for certain change-of-control transactions since 2019 involving North American targets engaged in recruitment services with transaction values in excess of $500 million and deemed comparable in one or more respects, including with respect to size, geography and industry.

The selected transactions considered by Citi for its analysis of Sterling were:

 

Date Announced

  

Target

  

Acquiror

August 2021

  

ettain group

  

ManpowerGroup

July 2021

  

Oxford Global Resources, LLC

  

H.I.G. Capital

November 2019

  

Soliant Health

  

Olympus Partners

 

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The financial data reviewed by Citi included the implied transaction value as a multiple of EBITDA for the twelve months preceding the announcement of the transaction (referred to as LTM). Citi noted that the low and high transaction value to LTM EBITDA multiples for the selected transactions was 11.2x and 12.3x, respectively. Based on the application of its professional judgment and experience, Citi applied the multiple range of 11.2x to 12.3x to Sterling’s 2023 EBITDA (based on the Sterling financial projections). This analysis indicated an approximate implied per share equity value reference range for Sterling of $16.90 to $18.80, as compared to the implied per share merger consideration in the transaction of $16.73.

Discounted Cash Flow Analysis

Citi performed a discounted cash flow analysis for Sterling by calculating the estimated present value (as of December 31, 2023) of the standalone unlevered free cash flows that Sterling was forecasted to generate during the fiscal years ending December 31, 2024 through December 31, 2028 based on the Sterling financial projections, as described in the section titled “Certain Unaudited Financial Projections Utilized by the Sterling Board of Directors and Sterling’s Financial Advisor”. Based on its judgment and experience, Citi applied a perpetuity growth rate of 2.5% to 3.5% to Sterling’s terminal year unlevered free cash flow. The present values (as of December 31, 2023) of the cash flows and implied terminal values were then calculated using a selected range of discount rates of 10.6% to 12.0%. This analysis indicated an approximate implied per share equity value reference range for Sterling of $11.60 to $16.40, as compared to the implied per share merger consideration in the transaction of $16.73.

Illustrative Present Value of Future Share Price Analysis

Sterling

Using the Sterling financial projections, Citi performed an illustrative analysis of the implied present value of an illustrative future value per share of Sterling common stock. For this analysis, Citi first calculated the implied enterprise value for Sterling as of December 31 for each of the calendar years 2024 through 2026, by applying a range of illustrative enterprise value to next twelve months (referred to as NTM) EBITDA multiples of 7.0x to 9.0x to estimates of Sterling’s adjusted EBITDA for each of the calendar years 2025 through 2027. This illustrative range of NTM EBITDA multiples was derived by Citi utilizing its professional judgment and experience, taking into account current and historical NTM EBITDA trading multiples for Sterling.

Citi then subtracted estimates of the amount of Sterling’s year-end net debt for each of the calendar years 2024 through 2026, calculated using information provided by the management of Sterling and approved for Citi’s use by Sterling, from the respective implied enterprise values in order to derive a range of illustrative equity values as of December 31 for Sterling for each of the calendar years 2024 through 2026. Citi then divided these implied equity values by the projected year-end number of fully diluted outstanding shares of Sterling common stock for each of the calendar years 2024 through 2026, calculated using information provided by the management of Sterling and approved for Citi’s use by Sterling, to derive a range of implied future values per share of Sterling common stock. By applying an illustrative discount rate of 13.3%, reflecting an estimate of Sterling’s cost of equity, Citi discounted to present value as of December 31, 2023 the theoretical future values per share it derived for Sterling. This analysis resulted in a range of implied equity values per share of Sterling common stock of $10.40 to $15.70, as compared to the implied per share merger consideration in the transaction of $16.73.

Pro Forma First Advantage

Using the Sterling financial projections, the First Advantage financial projections and the pro forma financial projections, each as described in the section titled “Certain Unaudited Financial Projections Utilized by the Sterling Board of Directors and Sterling’s Financial Advisor”, for Sterling and First Advantage, including estimates of net synergies provided by First Advantage and approved by Sterling, Citi performed an illustrative analysis of the implied present value of an illustrative future value per share of First Advantage common stock, calculated on a pro forma basis

 

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giving effect to the transaction (referred to as pro forma First Advantage). For this analysis, Citi first calculated the implied enterprise value for pro forma First Advantage as of December 31 for each of the calendar years 2024 through 2026, by applying a range of illustrative enterprise value to NTM EBITDA multiples of 7.6x to 9.6x to estimates of pro forma First Advantage’s adjusted EBITDA for each of the calendar years 2025 through 2027. The range of illustrative NTM EBITDA multiples was derived by Citi utilizing its professional judgment and experience, taking into account current and historical NTM EBITDA trading multiples for Sterling and First Advantage.

Citi then subtracted estimates of the amount of pro forma First Advantage’s year-end net debt for each of the calendar years 2024 through 2026, calculated using information provided by the management of Sterling and approved for Citi’s use by Sterling, from the respective implied enterprise values in order to derive a range of illustrative equity values as of December 31 for pro forma First Advantage for each of the calendar years 2024 through 2026. Citi divided these implied equity values by the projected year-end number of fully diluted outstanding shares of pro forma First Advantage common stock for each of the calendar years 2024 through 2026, calculated using information provided by the management of Sterling and approved for Citi’s use by Sterling, to derive a range of implied future values per share of pro forma First Advantage common stock. By applying an illustrative discount rate of 14.0%, reflecting an estimate of pro forma First Advantage’s blended cost of equity, Citi discounted to present value as of December 31, 2023 the theoretical future values per share it derived for pro forma First Advantage.

After giving effect to the aggregate cash amount to be paid in the transaction and accounting for the aggregate number of shares of First Advantage common stock to be issued in the transaction, this analysis resulted in a range of implied average values for the merger consideration to be received in the transaction of $14.70 to $16.65 per share of Sterling common stock.

Certain Additional Information

Citi also observed certain additional information that was not considered part of its financial analyses with respect to its opinion but was noted for informational purposes, including the following:

Historical Trading Prices

Citi reviewed the historical trading range of the Sterling common stock for the 52-week period through February 27, 2024. Citi noted that the low and high intraday prices for Sterling common stock were as follows:

 

Subject

   Low      High  

Sterling common stock

   $ 10.00      $ 15.26  

Equity Research

Sterling

Citi reviewed sell-side analyst price targets for shares of Sterling common stock published by five equity research analysts during the time period from November 8, 2023 through January 18, 2024. These targets generally reflect each analyst’s estimate of the 12-month future public market trading price per share of Sterling common stock and were not discounted to reflect present values. The range of undiscounted price targets for shares of Sterling common stock was $12.00 per share to $16.00 per share. To facilitate a comparison with the offer consideration, Citi discounted the price target range to present value by applying, for a one-year discount period, an illustrative discount rate of 13.3%, which was selected by Citi based on Sterling’s assumed cost of equity. The resulting discount indicated a range of discounted price targets for shares of Sterling common stock of $10.60 per share to $14.10 per share. The price targets published by equity research analysts do not necessarily reflect current market trading prices for shares of Sterling common stock and these estimates are subject to uncertainties, including the future financial performance of Sterling and future financial market conditions.

 

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First Advantage

Citi reviewed sell-side analyst price targets for shares of First Advantage common stock published by six equity research analysts during the time period from November 9, 2023 through January 18, 2024. These targets generally reflect each analyst’s estimate of the 12-month future public market trading price per share of First Advantage common stock and were not discounted to reflect present values. The range of undiscounted price targets for shares of First Advantage common stock was $14.00 per share to $17.00 per share. The price targets published by equity research analysts do not necessarily reflect current market trading prices for shares of First Advantage common stock and these estimates are subject to uncertainties, including the future financial performance of First Advantage and future financial market conditions.

Illustrative Premiums Paid Analysis

Citi also considered acquisition transactions announced since 2019 involving North American public targets, a mix of cash and stock consideration and deal values in excess of $500 million. Citi reviewed the one-day premium implied by the transaction consideration to the last closing stock price of the target common stock prior to announcement of the transaction (or the last closing stock price on an unaffected date in the event of market rumors of a possible transaction in the month leading up to announcement). Citi observed that the 25th and 75th percentile of premiums paid were 14% and 45%, respectively. Applying these premiums to the closing stock price for Sterling common stock as of February 27, 2024 implied a range of prices for Sterling common stock of $14.50 to $18.45.

Miscellaneous

Citigroup Global Markets Inc. acted as financial advisor to Sterling in connection with the transaction and will receive a fee of up to $20 million for such services, of which $5 million is payable in connection with the delivery of the opinion and is payable upon the earlier of the completion of the transaction and the valid termination of the merger agreement, $5 million of which is payable upon completion of the transaction, and an additional $10 million of which is payable at the sole discretion of Sterling upon completion of the transaction. Sterling agreed to reimburse Citi for its expenses, including fees and expenses of counsel, incurred in connection with its engagement. In addition, Sterling agreed to indemnify Citi and related parties against certain liabilities, including liabilities under the federal securities laws, relating to or arising out of Citi’s engagement.

Citi and its affiliates in the past have provided, and currently provide, services to Sterling or its affiliates and to First Advantage or its affiliates, unrelated to the transaction, for which services Citi and its affiliates have received and expect to receive compensation, including, without limitation, (a) for Sterling and its affiliates, having acted as an underwriter in an offering of shares of Sterling common stock in June 2023, an arranger of a loan for Goldman Sachs or one of its affiliates in April 2022, and an underwriter or initial purchaser of debt securities for CDP Financial in June 2023 (for which Citi and its affiliates received in the aggregate approximately $1.3 million), and (b) for First Advantage and its affiliates, having acted as an arranger of a loan for Silver Lake or one of its affiliates in June 2023 (for which Citi and its affiliates received in the aggregate approximately $1.9 million). In addition, Citigroup Global Markets Inc. or one of its affiliates engaged in the commercial lending business as a lender and agent in one or more credit facilities of Sterling and as a lender in one or more credit facilities of First Advantage. Citi and its affiliates in the past have provided, and currently provide, financial advisory and financing services unrelated to the transaction to various affiliates and portfolio companies of the financial institutions that are significant stockholders in Sterling and First Advantage. In the ordinary course of its business, Citi and its affiliates may actively trade or hold the securities of Sterling and First Advantage for their own account or for the account of their customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Citi and its affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with Sterling, First Advantage, the financial institutions that are significant stockholders of Sterling or First Advantage, and their respective affiliates. Citi may seek to provide financial advisory and financing services to Sterling, First Advantage and their respective affiliates in the future and would expect to receive fees for the rendering of these services.

 

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Interests of Sterling’s Directors and Executive Officers in the Transaction

The Sterling stockholders should be aware that the executive officers and directors of Sterling have certain interests in the transaction that may be different from, or in addition to, the interests of the Sterling stockholders generally, including those items listed below. The Sterling board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the transaction.

These interests include:

 

   

cancellation of each outstanding stock option, whether vested or vested, for the right to receive the merger consideration, in accordance with the holder’s election, with respect to each share of net option stock (as defined below in the section titled “Treatment of Sterling Equity Awards”) that is associated with a Sterling stock option that is in-the-money (any out-of-the money stock options, whether vested or unvested, will be canceled for no consideration and, in the case of the unvested portion of the award, consideration remains unvested subject to the same terms and conditions as applied to the award immediately prior to closing);

 

   

receipt of the merger consideration, in accordance with the holder’s election, for each unvested share of Sterling common stock that is subject to a Sterling restricted stock award and such merger consideration remains unvested, subject to the terms and conditions as applied to the award immediately prior to closing;

 

   

accelerated vesting of Sterling restricted stock awards held by non-employee directors and receipt of the merger consideration in accordance with each such non-employee director’s election;

 

   

potential cash severance payments, including accelerated vesting of unvested awards, pursuant to the terms of the applicable severance agreement (as defined below), in connection with the transaction and a qualifying termination of an eligible executive officer’s employment upon or following the transaction; and

 

   

continued indemnification and directors’ and officers’ liability insurance to be provided by the surviving corporation.

Arrangements with First Advantage

As of the date of this information statement/prospectus, no executive officer of Sterling has entered into any agreement with First Advantage or any of its affiliates regarding employment with, or the right to purchase or participate in the equity of, the surviving corporation or one or more of its affiliates (other than any right to purchase or participate in the equity of First Advantage or its affiliates resulting from the treatment in the transaction of Sterling common stock, Sterling stock options, Sterling restricted stock, and Sterling RSUs). Prior to and following the closing of the transaction, however, certain of Sterling’s executive officers may have discussions, and may enter into agreements with, First Advantage or Merger Sub, or their subsidiaries or their respective affiliates regarding employment with, or the right to purchase or participate in the equity of, First Advantage or one or more of its affiliates.

Outstanding Shares Held by Executive Officers and Directors

Executive officers and directors of Sterling who own shares of Sterling common stock will receive the same cash or stock consideration on the same terms and conditions as the other Sterling stockholders. Like other Sterling stockholders, executive officers and directors will receive cash in lieu of any fractional shares of First Advantage common stock that they would otherwise be entitled to receive.

 

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The following table sets forth (i) the number of shares of Sterling common stock beneficially owned as of the record date (excluding shares of Sterling common stock subject to Sterling restricted stock awards, which are described below), by each of Sterling’s executive officers and directors, and (ii) the aggregate merger consideration that would be payable for such shares of Sterling common stock pursuant to the merger agreement if each such executive officer and director elected cash consideration (i.e., using the per-share cash consideration of $16.73).

 

Names of Executive Officers or Directors

   Number of
Shares

(#)
     Merger
Consideration for
Shares

($)
 

Joshua Peirez

     355,861        5,953,555  

Theresa Strong

     17,004        284,477  

Lou Paglia

     156,683        2,621,307  

Steven Barnett

     73,599        1,231,311  

Robyn Price Stonehill

     51,107        855,020  

Michael Grebe

     80,866        1,352,888  

Mark Jennings

     151,941        2,541,973  

Kristin Johnsen

     —         —   

Adrian Jones(1)

     —         —   

Mohit Kapoor

     55,913        935,424  

Jill Larsen

     51,172        856,108  

Jagtar Narula

     —         —   

Lewis (Fred) Sutherland

     491,746        8,226,911  

Bertrand Villon(1)

     —         —   

Peter Walker(2)

     89,977        1,505,315  

 

(1)

For further discussion about the share ownership of Adrian Jones and Bertrand Villon, please see the section titled “Information About the Sterling Beneficial Owners”.

(2)

This information is as of November 10, 2023, Mr. Walker’s last day of employment. Mr. Walker was formerly the Executive Vice President, Chief Financial Officer of Sterling. He voluntarily separated from Sterling and was paid up to November 10, 2023 and forfeited all unvested equity in Sterling.

Treatment of Sterling Equity Awards

At the effective time, each out-of-the-money Sterling stock option (i.e., a stock option that has an exercise price per share that is equal to or greater than the per-share cash consideration), whether vested or unvested, will be canceled for no consideration.

At the effective time, each outstanding in-the-money Sterling stock option (i.e., a stock option that has an exercise price per share that is less than the per-share cash consideration), whether vested or unvested, will automatically be canceled, with the holder of such Sterling stock option becoming entitled to receive the merger consideration in accordance with his election, with respect to each share of net option stock that is associated with such Sterling stock option.

Stock consideration received by a holder in respect of (i) shares of net option stock attributable to unvested in-the-money Sterling stock options or (ii) unvested shares of Sterling common stock subject to restricted stock awards granted under the Sterling equity plans (referred to as a Sterling restricted stock award) will be issued to such holder pursuant to a restricted stock award agreement in respect of First Advantage common stock. Such stock consideration will be subject to the same terms and conditions (including any rights to post-closing accelerated vesting upon a termination of employment) as applied to such unvested in-the-money Sterling stock options or Sterling restricted stock award, as applicable, immediately prior to the effective time.

Cash consideration received by a holder (other than a non-employee director of Sterling) in respect of (i) shares of net option stock attributable to unvested in-the-money Sterling stock options or (ii) unvested shares

 

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of Sterling common stock subject to a Sterling restricted stock award will be deferred and paid to the holder on the regularly scheduled future vesting dates of the applicable awards, subject to the same terms and conditions (including any rights to post-closing accelerated vesting upon a termination of employment) as applied to the unvested in-the-money Sterling stock options or Sterling restricted stock award, as applicable, immediately prior to the effective time.

The number of shares of “net option stock” subject to an in-the-money Sterling stock option is that number of shares of Sterling common stock having a value (based on the cash consideration per-share value of $16.73) equal to the aggregate spread value of such Sterling stock option (i.e., the excess of $16.73 over the per-share exercise price of such stock option multiplied by the number of shares of Sterling common stock underlying such stock option).

At the effective time, the vesting of each Sterling restricted stock award held by a non-employee director will fully accelerate.

The tables below represent the merger consideration received in connection with Sterling equity awards assuming that each holder elected cash consideration (i.e., using the per-share cash consideration of $16.73). As noted above, the merger consideration, whether in the form of cash or First Advantage stock, in respect of unvested awards will continue to vest on the same terms and conditions as applied to the award immediately prior to closing (including any rights to post-closing accelerated vesting upon a termination of employment). For further discussion about the share ownership of Sterling’s executive officers and directors, please see the section titled “Information About the Sterling Beneficial Owners”.

 

Names of Executive Officers or Directors

   Number of Unvested
Shares of Net Option
Stock

(#)
     Merger
Consideration
for Unvested
Shares of Net
Option Stock

($)
     Number of
Vested Shares
of Net Option
Stock

(#)
     Merger
Consideration
for Vested
Shares of Net
Option Stock

($)
     Total Merger
Consideration
for Shares of
Net Option
Stock

($)
 

Joshua Peirez

     71,201        1,191,196        1,026,429        17,172,165        18,363,361  

Theresa Strong

     —         —         7,358        123,095        123,095  

Lou Paglia

     26,232        438,865        302,549        5,061,646        5,500,510  

Steven Barnett

     14,990        250,781        223,764        3,743,571        3,994,352  

Robyn Price Stonehill

     14,990        250,781        4,996        83,591        334,372  

Michael Grebe

     —         —         45,823        766,617        766,617  

Mark Jennings

     —         —         45,823        766,617        766,617  

Kristin Johnsen

     10,167        170,095        —         —         170,095  

Adrian Jones

     —         —         —         —         —   

Mohit Kapoor

     —         —         30,792        515,150        515,150  

Jill Larsen

     —         —         30,792        515,150        515,150  

Jagtar Narula

     8,089        135,324        —         —         135,324  

Lewis (Fred) Sutherland

     —         —         45,823        766,617        766,617  

Bertrand Villon

     —         —         —         —         —   

 

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Names of Executive Officers or Directors

   Number of
Shares
Subject to
Restricted
Stock/RSUs

(#)
     Merger
Consideration
for Restricted
Stock/RSUs

($)
 

Joshua Peirez

     1,352,324        22,624,381  

Theresa Strong

     64,305        1,075,823  

Lou Paglia

     461,648        7,723,371  

Steven Barnett

     312,033        5,220,312  

Robyn Price Stonehill

     397,242        6,645,859  

Michael Grebe

     14,225        237,984  

Mark Jennings

     14,225        237,984  

Kristin Johnsen

     —         —   

Adrian Jones

     —         —   

Mohit Kapoor

     14,225        237,984  

Jill Larsen

     14,225        237,984  

Jagtar Narula

     —         —   

Lewis (Fred) Sutherland

     14,225        237,984  

Bertrand Villon

     —         —   

Payment Upon Termination of Employment or Service on the Board Following Change of Control

Joshua Peirez is party to an employment agreement by and between Sterling and Mr. Peirez (referred to as the Sterling CEO employment agreement), which contains severance provisions. Pursuant to the terms of the Sterling CEO employment agreement, in the event of a termination of employment of Mr. Peirez by Sterling without “cause” or for “good reason” (each as defined in the Sterling CEO employment agreement), in either case within three months prior to or twenty-four months following the completion of the transaction, Mr. Peirez would be eligible to receive (i) cash severance payments consisting of one and one-half (1.5) times the sum of Mr. Peirez’s annual base salary at the rate in effect on the termination date and his target annual bonus for the year in which the termination occurs, paid in installments over 18 months, (ii) continuation of healthcare benefits (with Mr. Peirez still responsible for the employee portion of the premium) for 18 months, (iii) a pro rata bonus for the year of termination based on the greater of (x) target annual performance and (y) the average annual bonus paid over the two years preceding the year of termination, and (iv) full vesting of all outstanding options, restricted stock units (or, following the effective time, the merger consideration received in respect of such unvested awards.)

Each of Sterling’s other executive officers is party to a severance agreement by and between Sterling and such executive officer (each, referred to as a severance agreement). Pursuant to the terms of the applicable severance agreement, in the event of a termination of employment of such other executive officer by Sterling without “cause” or by such other executive officer for “good reason” (each as defined in the applicable severance agreement), in either case within three months prior to or twenty-four months following the completion of the transaction, such other executive officer would be eligible to receive (i) cash severance payments consisting of twelve months of such other executive officer’s base salary at the rate in effect on the termination date and such other executive officer’s target annual bonus for the year in which the termination occurs, paid in installments over 12 months, (ii) continuation of healthcare benefits (with such other executive officer still responsible for the employee portion of the premium) for twelve months, (iii) a pro rata bonus for the year of termination based on the greater of (x) target performance and (y) the average annual bonus paid over the two years preceding the year of termination, and (iv) full vesting of all outstanding unvested options, restricted stock and RSUs (or, following the effective time, the merger consideration received in respect of such unvested awards).

The severance payments and benefits described above under the Sterling CEO employment agreement and the severance agreements are subject to the applicable executive’s execution and non-revocation of a general waiver and release of claims and continued compliance with the terms of any applicable non-compete, non-solicit, confidentiality or other restrictive covenant obligations. The Sterling CEO employment agreement

 

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and the severance agreements do not provide any tax gross-ups. Instead, the Sterling CEO employment agreement and the severance agreements contain a “modified cutback” provision, which reduces the benefits payable to the extent necessary so that no excise tax would be imposed on the benefits paid (including with respect to acceleration of equity outlined below), but only if doing so would result in the applicable executive retaining a larger after-tax amount.

Employee Benefits

Commencing at the effective time and ending on (i) the first anniversary of the effective time (if the effective time occurs after June 30 in any calendar year) or (ii) December 31 of the year in which the effective time occurs (if the effective time occurs on or before June 30 in any calendar year), First Advantage will provide, or will cause the surviving corporation to provide, each employee of Sterling or any of its subsidiaries who continues to be employed by First Advantage, the surviving corporation, or any of its subsidiaries following the effective time (referred to as a continuing employee) with (i) a base wage rate or base salary rate at least equal to that in effect immediately prior to the effective time; (ii) at least the same annual target cash incentive compensation opportunity as in effect immediately prior to the effective time (excluding, for the avoidance of doubt, any change-in-control, transaction and retention bonus payments); (iii) health and welfare benefits (excluding severance but including paid time off) that are no less favorable than those provided to similarly situated employees of First Advantage and its subsidiaries, and (iv) severance benefits that are the greater of (x) the severance benefits for which such continuing employee was eligible under the Sterling benefit plans in effect as of the date of the merger agreement and (y) the severance benefits for which similarly situated employees of First Advantage and its subsidiaries are eligible under the applicable First Advantage benefit plans.

For all purposes (including purposes of vesting, eligibility to participate, and level of benefits, but excluding eligibility to participate or benefit accrual under any defined benefit pension plan or any postemployment health or welfare plan) under the employee benefit plans of First Advantage and its subsidiaries providing benefits to any continuing employees after the effective time (including severance and paid time off) (referred to as the new plans), each continuing employee will be credited with his or her years of service with Sterling and its subsidiaries and their respective predecessors before the effective time; provided that the foregoing will not apply to the extent that its application would result in a duplication of benefits. In addition, each continuing employee will be immediately eligible to participate, without any waiting time, in any and all new plans to the extent that coverage under such new plan is of the same type as the Sterling benefit plan in which such continuing employee participated immediately before the effective time (such plans, collectively, referred to as the old plans), and (i) for purposes of each new plan providing medical, dental, pharmaceutical or vision benefits to any continuing employee, First Advantage or its applicable subsidiary will use their reasonable best efforts to cause all pre-existing condition exclusions and actively-at-work requirements of such new plan to be waived and (ii) First Advantage and its applicable subsidiary will use reasonable best efforts to cause any eligible expenses incurred by such continuing employee during the portion of the plan year of the old plan ending on the date such employee’s participation in the corresponding new plan begins to be taken into account under such new plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such for the applicable plan year as if such amounts had been paid in accordance with such new plan.

Board Seat on the First Advantage Board of Directors

Pursuant to the merger agreement, Joshua Peirez, who currently serves as Sterling’s Chief Executive Officer and as a member of the Sterling board of directors, will be offered a position on First Advantage’s board of directors, effective at the effective time and on terms and conditions determined by First Advantage, to serve in such class of directors as First Advantage shall determine prior to the effective time, subject to Mr. Peirez’s acceptance of such appointment at or prior to (and which acceptance remains effective as of) the closing.

 

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Management of Sterling Following the Transaction

The directors and officers of Merger Sub as of immediately prior to the effective time will become the directors and officers of Sterling, as the surviving corporation of the merger with Merger Sub, upon completion of the transaction. Merger Sub’s current directors are Scott Staples, David L. Gamsey and Bret Jardine, each of whom also serves as an officer of Merger Sub. It is expected that Merger Sub’s current directors and officers will become Sterling’s directors and officers upon completion of the transaction.

Potential Employment Arrangements with First Advantage

Any of Sterling’s executive officers who become officers or employees or who otherwise are retained to provide services to First Advantage may, prior to, on, or following the effective time, enter into new individualized compensation arrangements with First Advantage and may participate in cash or equity incentive or other benefit plans maintained by First Advantage. As of the date of this information statement/prospectus, no new individualized compensation arrangements between Sterling’s executive officers and First Advantage have been established.

Indemnification and Insurance

Under the merger agreement, for a period of six years after the effective time, First Advantage must cause Sterling to indemnify and hold harmless, to the fullest extent permitted by applicable law and the organizational documents of Sterling or its subsidiaries, or any indemnification agreements in existence as of the date of the merger agreement that were provided to First Advantage prior to the date of the merger agreement, each current and former director, officer and manager of Sterling and its subsidiaries against any costs and expenses in connection with any actual or threatened claims in respect of acts or omissions occurring or alleged to have occurred at or prior to the effective time, whether asserted or claimed prior to, at or after the effective time, in connection with such person serving as an officer, director or manager of Sterling or one of Sterling’s subsidiaries.

In addition, for a period of six years following the effective time, First Advantage is required to maintain in effect the provisions in the organizational documents of Sterling and any indemnification agreements in existence as of the date of the merger agreement that were provided to First Advantage (except to the extent such agreement provides for an earlier termination) regarding elimination of liability, indemnification of officers, directors and managers and advancement of expenses that were in existence as of the date of the merger agreement.

At or prior to the effective time, Sterling (or, at First Advantage’s election, First Advantage) is required to purchase a directors’ and officers’ liability insurance and fiduciary liability insurance “tail” insurance policy for a period of six years after the effective time with respect to matters arising at or prior to the effective time, and officers’ liability insurance and fiduciary liability insurance prior to the date of the merger agreement.

For additional information regarding director and officer indemnification and liability insurance, please see the section titled “The Merger Agreement—Directors’ and Officers’ Indemnification and Insurance”.

Treatment of Indebtedness

For a description of First Advantage’s and Sterling’s existing indebtedness, please see First Advantage’s Quarterly Report on Form 10-Q for the three months ended March 31, 2024, filed on May 9, 2024, and Sterling’s Quarterly Report on Form 10-Q for the three months ended March 31, 2024, filed on May 9, 2024, respectively, each of which is incorporated by reference herein.

For additional information regarding the treatment of Sterling’s existing indebtedness under the merger agreement, please see the section titled “The Merger Agreement—Actions with Respect to Sterling Debt”.

 

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This information statement/prospectus does not constitute an offer to sell or the solicitation of an offer to buy any debt securities of First Advantage or Sterling. It does not constitute a prospectus or prospectus equivalent document for any such securities. No offering of any debt securities of First Advantage shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act or an exemption therefrom.

Financing of the Transaction

The transaction is not conditioned upon any financing arrangements or contingencies. First Advantage anticipates that the funds needed to complete the transaction will be derived from a combination of cash on hand and third-party debt financing.

In connection with the execution of the merger agreement, First Advantage Holdings, LLC, a Delaware limited liability company and an indirect, wholly-owned subsidiary of First Advantage (referred to as the borrower), entered into a commitment letter (referred to as the debt commitment letter) with certain financial institutions that committed to provide, subject to the terms and conditions of the debt commitment letter, a senior secured incremental term loan in an aggregate principal amount of $1,820 million and incremental revolving commitments in an aggregate principal amount of $150 million (the incremental revolving commitment, together with the incremental term loan, referred to as the facilities), in each case, under the borrower’s existing credit agreement. Such financial institutions also agreed to extend the maturity date of the borrower’s revolving credit facility from July 31, 2026 to the date that is the fifth anniversary of the closing date of the transaction.

All principal, accrued but unpaid interest, fees and other amounts (other than contingent obligations not then due and payable) outstanding under the credit agreement, dated as of November 29, 2022, by and among Sterling Infosystems, Inc., as borrower, Sterling Intermediate Corp. and the other guarantors party thereto, KeyBank National Association, as administrative agent, and the other parties thereto (referred to as the Sterling credit agreement), on the closing date of the transaction will be repaid in full in connection with, and substantially concurrently with, the closing of the transaction. Additionally, all commitments to lend and guarantees and security in connection with the Sterling credit agreement will be terminated or released, or arrangements for such termination or release will have been agreed upon with the administrative agent under the borrower’s credit agreement (such termination or release, together with the repayment on the closing date of the transaction of outstanding amounts under Sterling credit agreement, referred to as the refinancing).

The proceeds of the facilities, on the closing date of the transaction, will be applied to pay (i) the merger consideration, (ii) the fees and expenses incurred in connection with the transaction, the financing of the transaction and the refinancing.

This summary is subject to, and qualified in its entirety by reference to, the debt commitment letter, which is incorporated by reference into this information statement/prospectus.

Accounting Treatment of the Transaction

The transaction will be accounted for as a business combination, with First Advantage using the acquisition method of accounting in accordance with Accounting Standard Codification 805, Business Combinations, and, accordingly, will generally result in the recognition of Sterling assets acquired and liabilities assumed at fair value. However, as of the date of this information statement/prospectus, the valuation studies necessary to estimate the fair values of the assets acquired (including intangible assets, such as completed technology, customer relationships and customer lists, and trademarks and trade names) and liabilities assumed have been performed based on publicly available benchmarking information as well as a variety of other assumptions, including market participant assumptions, as there are limitations to the type of information that can be exchanged between First Advantage and Sterling at this time. Until the transaction is complete, First Advantage will not have complete access to all the relevant information. Differences between these preliminary estimates and the final acquisition accounting will occur and there can be no assurances that the final valuations will not

 

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result in material changes to this preliminary purchase price allocation. The excess of the consideration transferred over the identifiable net assets acquired reflected in the unaudited pro forma condensed combined financial information will be allocated to goodwill. A final determination of these fair values will reflect appraisals prepared by independent third-parties and will be based on the actual tangible and intangible assets and liabilities that exist as of the acquisition date. The actual allocation of the consideration transferred may differ from the allocation assumed in the unaudited pro forma condensed combined financial information and may result in adjustments to the unaudited pro forma condensed combined financial information.

Material U.S. Federal Income Tax Consequences

The following is a summary of the material U.S. federal income tax consequences of the transaction to “U.S. Holders” and “non-U.S. Holders” (in each case, as defined below) of Sterling common stock that receive cash and First Advantage common stock in respect of such Sterling common stock in the transaction. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (referred to as the code), applicable U.S. Treasury regulations, judicial authority, administrative interpretations, and administrative rulings in effect as of the date of this information statement/prospectus, all of which may change, possibly with retroactive effect. This summary is general in nature and does not purport to be a complete analysis of all potential tax effects of the transaction.

This discussion addresses only the consequences of the exchange of shares of Sterling common stock held as capital assets within the meaning of Section 1221 of the code (generally, property held for investment). It does not consider the effect of the Medicare tax on net investment income or any applicable state, local or foreign income tax laws, or of any non-income tax laws. In addition, this discussion does not address all aspects of U.S. federal income tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject to special rules, such as:

 

   

a bank, insurance company, or other financial institution;

 

   

a tax-exempt organization;

 

   

a retirement plan or other tax-deferred account;

 

   

an entity or arrangement treated for U.S. federal income tax purposes as a partnership, S corporation or other pass-through entity (or an investor in such an entity or arrangement);

 

   

a real estate investment trust or regulated investment company;

 

   

a dealer or broker in stocks and securities or currencies;

 

   

a trader in securities that elects mark-to-market treatment;

 

   

a holder of shares subject to the alternative minimum tax provisions of the code;

 

   

a holder of shares that received the shares through the exercise of an employee stock option, through a tax qualified retirement plan or otherwise as compensation;

 

   

a U.S. Holder that has a functional currency other than the U.S. dollar;

 

   

a “controlled foreign corporation,” “passive foreign investment company,” or corporation that accumulates earnings to avoid U.S. federal income tax;

 

   

a holder of shares that exercises appraisal rights;

 

   

a foreign pension fund and its affiliates;

 

   

a holder that holds shares as part of a hedge, straddle, constructive sale, conversion or other integrated transaction;

 

   

a person that owns (directly or through attribution) 5% or more (by vote or value) of the outstanding Sterling common stock;

 

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a U.S. expatriate; or

 

   

a holder of shares that is required to accelerate the recognition of any item of gross income with respect to the shares as a result of such income being recognized on an applicable financial statement.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds Sterling common stock, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Sterling common stock and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of the transaction to them.

For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of Sterling common stock that is:

 

   

an individual citizen or resident, for U.S. federal income tax purposes, of the United States;

 

   

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

   

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust if it (i) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

A “non-U.S. Holder” means a beneficial owner of Sterling common stock that is not a U.S. Holder or a partnership (or any other entity classified as a partnership for U.S. federal income tax purposes).

Holders should consult with their own tax advisors as to the tax consequences of the transaction in light of their particular circumstances, including the applicability and effect of the alternative minimum tax and any U.S. state or local, non-U.S. or other tax laws and of changes in those laws.

U.S. Holders

General. Subject to the discussion under the section titled “Potential Application of Section 304 of the Code,” a U.S. Holder receiving First Advantage common stock and cash in exchange for Sterling common stock pursuant to the transaction generally will recognize capital gain or loss for U.S. federal income tax purposes on the exchange in an amount equal to the difference, if any, between (i) the sum of the fair market value of the First Advantage common stock (determined on the closing date of the transaction) and cash received (including cash received in lieu of fractional First Advantage common stock) and (ii) the U.S. Holder’s adjusted tax basis in the Sterling common stock surrendered in the exchange. A U.S. Holder’s adjusted tax basis generally will equal the price the U.S. Holder paid for such shares. Gain or loss will be determined separately for each block of shares of Sterling common stock (i.e., shares of Sterling common stock acquired at the same cost in a single transaction). If a U.S. holder acquired different blocks of shares of Sterling common stock at different times or different prices, such U.S. Holder must determine its adjusted tax basis and holding period separately with respect to each block of shares of Sterling common stock that it holds.

Gain or loss generally will be treated as long-term capital gain or loss if the U.S. Holder’s holding period in the Sterling common stock is more than one year on the closing date of the transaction. Long-term capital gains of certain non-corporate U.S. Holders, including individuals, are currently subject to U.S. federal income tax at preferential rates of taxation. The deductibility of capital losses is subject to certain limitations.

A U.S. Holder’s aggregate tax basis in shares of First Advantage common stock received in the transaction will equal the fair market value of such stock on the closing date of the transaction, and the U.S. Holder’s holding period in such shares will begin the day after the closing date of the transaction.

 

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Information Reporting and Backup Withholding. Information reporting and backup withholding (currently at a rate of 24%) may apply to payments made in connection with the merger. Backup withholding will not apply, however, to a U.S. Holder of Sterling common stock who (i) furnishes a correct taxpayer identification number (referred to as TIN), certifies that such U.S. Holder is not subject to backup withholding on the Internal Revenue Service (referred to as the IRS) Form W-9 (or appropriate successor form) included in the transmittal materials that such U.S. Holder will receive, and otherwise complies with all applicable requirements of the backup withholding rules; or (ii) provides proof that such U.S. Holder is otherwise exempt from backup withholding. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability, if any, provided that such U.S. Holder furnishes the required information to the IRS in a timely manner. The IRS may impose a penalty upon any taxpayer that fails to provide the correct TIN.

Non-U.S. Holders

General. Subject to the discussion under the section titled “Potential Application of Section 304 of the Code,” a non-U.S. Holder’s receipt of First Advantage common stock and cash in exchange for shares of Sterling common stock pursuant to the transaction generally will not be subject to U.S. federal income tax unless:

 

   

the gain, if any, on such shares is effectively connected with a trade or business of the non-U.S. Holder in the United States (and, if required by an applicable income tax treaty, is attributable to the non-U.S. Holder’s permanent establishment in the United States);

 

   

the non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the transaction and certain other conditions are met; or

 

   

Sterling is and has been a “United States real property holding corporation” for U.S. federal income tax purposes and certain other conditions are met.

A non-U.S. Holder described in the first bullet point immediately above will generally be subject to regular U.S. federal income tax on any gain realized as if the non-U.S. Holder were a U.S. Holder. If such non-U.S. Holder is a foreign corporation, it may also be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits (or a lower treaty rate). An individual non-U.S. Holder described in the second bullet point immediately above will be subject to tax at a rate of 30% (or a lower treaty rate) on any gain realized, which may be offset by U.S.-source capital losses recognized in the same taxable year.

Generally, a corporation is a “United States real property holding corporation” if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). Sterling believes it is not and has not during the five years preceding the transaction been a “United States real property holding corporation” for U.S. federal income tax purposes.

Information Reporting and Backup Withholding. Information reporting and backup withholding will generally apply to payments made pursuant to the transaction to a non-U.S. Holder effected by or through the U.S. office of any broker, whether domestic or foreign, unless the holder certifies its status as a non-U.S. Holder and satisfies certain other requirements, or otherwise establishes an exemption. Copies of applicable information returns reporting such payments and any withholding may also be made available to the tax authorities in the country in which such non-U.S. Holder resides under the provisions of an applicable treaty or agreement. Generally, information reporting and backup withholding will not apply to a payment of disposition proceeds to a non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a broker. However, for information reporting purposes, dispositions effected through a non-U.S. office of a U.S. broker or a non-U.S. broker with substantial domestic ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker. A non-U.S. Holder must generally submit an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable IRS Form W-8) attesting to its exempt foreign status in

 

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order to qualify as an exempt recipient. Notwithstanding the foregoing, backup withholding and information reporting may apply if Sterling, the paying agent or First Advantage has actual knowledge, or reason to know, that a non-U.S. Holder is a U.S. person. Backup withholding is not an additional tax. Rather, any amounts withheld under the backup withholding rules from a payment to a non-U.S. Holder can be refunded or credited against the non-U.S. Holder’s U.S. federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS and the required information is furnished to the IRS in a timely manner.

Potential Application of Section 304 of the Code

Notwithstanding the foregoing, the receipt of cash consideration in the transaction by holders of Sterling common stock that also actually or constructively own shares of First Advantage common stock may be subject to Section 304 of the code if, in the aggregate, holders who own 50% or more of Sterling common stock before the transaction own 50% or more of First Advantage common stock immediately after the transaction, in each case, taking into account certain constructive ownership rules under the code. Based on publicly available information about share ownership as of the date hereof, First Advantage and Sterling believe it is unlikely that the 50% ownership requirement is satisfied as of the date hereof. However, it may not be possible to establish with certainty at the time of the transaction, and no assurances can be provided, as to whether or not the 50% ownership requirement is satisfied because sufficient ownership information necessary to make such determination may not be available at that time.

If Section 304 of the code were to apply to the cash consideration received in the transaction, to the extent a holder of Sterling common stock would otherwise be treated for U.S. federal income tax purposes as selling shares of Sterling common stock for cash, such holder would instead be treated as receiving the cash consideration from First Advantage in a deemed redemption of shares of First Advantage common stock deemed issued to such holder. If such deemed redemption were treated as having the effect of a distribution of a dividend under the tests set forth in Section 302 of the code, then such holder generally would recognize dividend income up to the amount of the cash received. For non-U.S. Holders, any amount so treated generally would be subject to U.S. withholding tax at a rate of 30% (or lower treaty rate), unless such dividend is effectively connected with the non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to the non-U.S. Holder’s permanent establishment in the United States). Because it may not be possible to establish with certainty on the closing date of the transaction whether Section 304 of the code applies, and because the application of Sections 302 and 304 of the code will depend on a non-U.S. Holder’s particular circumstances, withholding agents may nonetheless withhold tax at a rate of 30%. If a withholding agent withholds excess amounts from the cash consideration payable to a non-U.S. Holder, such non-U.S. Holder may obtain a refund of any such excess amounts by timely filing an appropriate claim with the IRS.

Holders of Sterling common stock should consult their own tax advisors regarding the application of the foregoing rules in light of their particular circumstances, the procedures for claiming treaty benefits or otherwise establishing an exemption from U.S. withholding tax with respect to any portion of the cash consideration payable to them pursuant to the transaction, and whether to sell their shares of Sterling common stock (and considerations relating to the timing of any such sales).

THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. STERLING URGES YOU TO CONSULT WITH YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE TRANSACTION ARISING UNDER THE FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

 

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Regulatory Clearances and Approvals Required for the Transaction

HSR Act and U.S. Antitrust Matters

The transaction is subject to the requirements of the HSR Act, which prevents Sterling and First Advantage from completing the transaction until required information and materials are furnished to the Antitrust Division of the DOJ and the FTC and the HSR Act waiting period is terminated or expires. A transaction notifiable under the HSR Act may not be completed until the expiration of a 30-day waiting period (referred to as the HSR waiting period) (and any extension thereof) following the parties’ filings of their respective HSR Act notification forms or the early termination of that waiting period. The parties voluntarily withdrew their submission of the requisite notification and report forms under the HSR Act and refiled such notification and report on April 26, 2024. On May 28, 2024, First Advantage and Sterling each received a request for additional information and documentary material, often referred to as a “second request”, from the DOJ under the HSR Act. The effect of the second request is to extend the waiting period imposed under the HSR Act until 30 days after First Advantage and Sterling have substantially complied with the second request, unless that period is extended voluntarily by the parties or terminated sooner by the DOJ. The parties have been working cooperatively with the DOJ to bring its review of the transaction to a close as expeditiously as possible and will continue to do so. As a result of the second request, the closing of the transaction is now anticipated to occur in approximately the fourth quarter of 2024.

Foreign Regulatory Clearances

The completion of the transaction is subject to clearance under the antitrust and foreign direct investment laws of certain foreign jurisdictions, and the parties have filed the applicable notifications with the appropriate regulators in such jurisdictions. The parties must observe mandatory waiting periods and/or obtain the necessary approvals, clearances or consents pursuant to these foreign laws before completing the transaction.

Other state or foreign antitrust, competition and foreign direct investment authorities may take action under the laws of their jurisdictions, which could include seeking to enjoin the completion of the transaction. For additional information about regulatory approvals relating to the transaction, please see the section titled “The Merger Agreement—Conditions to the Transaction”.

Although the parties expect that all required regulatory clearances and approvals will be obtained, the parties cannot assure you that these regulatory clearances and approvals will be timely obtained or obtained at all or that the granting of these regulatory clearances and approvals will not involve the imposition of additional conditions on the completion of the transaction, including the requirement to divest assets, create or modify contractual rights or obligations or enter into supply or services agreements. These conditions could result in the conditions to the transaction not being satisfied.

Exchange of Shares; Elections as to Form of Consideration

At the effective time, each issued and outstanding share of Sterling common stock (other than (i) canceled shares, (ii) dissenting shares and (iii) excluded shares) will be converted into the right to receive, at the election of the stockholder and subject to proration, $16.73 in cash, without interest, or 0.979 of a share of First Advantage common stock. A Sterling stockholder may elect a different form of consideration for each share such Sterling stockholder owns. A Sterling stockholder may elect to receive (i) solely the cash consideration, (ii) solely the stock consideration or (iii) if a Sterling stockholder owns more than one share, a combination of the cash consideration for a selected number of shares and the stock consideration for the remaining number of shares. Whether a Sterling stockholder receives their elected merger consideration will depend on the election of other Sterling stockholders and the proration mechanism. No fractional shares of First Advantage common stock will be issued in the transaction, and holders of Sterling common stock will instead receive cash in lieu of fractional shares of First Advantage common stock.

 

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Prior to the effective time, First Advantage will enter into an exchange agent agreement with a bank or trust company reasonably acceptable to Sterling and anticipated to be Equiniti Trust Company, LLC. At or prior to the effective time, First Advantage will deposit (i) cash in immediately available funds in an amount sufficient to pay the aggregate cash consideration and, to the extent determinable, cash in lieu of fractional shares and (ii) evidence of First Advantage common stock in book-entry form representing the number of shares of First Advantage common stock sufficient to deliver the aggregate stock consideration.

As described above, Sterling stockholders will not receive any fractional shares of First Advantage common stock in the transaction. Instead, a Sterling stockholder who otherwise would have received a fractional share of First Advantage common stock will be entitled to receive a cash payment in lieu of such fractional share in an amount determined by multiplying (i) the last reported sale price of First Advantage common stock on The Nasdaq Stock Market LLC (as reported in the Wall Street Journal, or if not reported therein, in another authoritative source mutually selected by First Advantage and Sterling) on the last complete trading day prior to the date of the effective time by (ii) the fraction of a share (after taking into account all shares of First Advantage common stock held by such holder at the effective time and rounded to the nearest one thousandth when expressed in decimal form) of First Advantage common stock to which such holder would otherwise be entitled.

If a dividend or other distribution is declared with respect to shares of First Advantage common stock with a record date after the effective time, such declaration will include a dividend or other distribution in respect of all shares of First Advantage common stock issuable pursuant to the merger agreement.

The merger agreement provides that Sterling stockholders will be provided with an election form and other customary transmittal materials. The election form will allow each holder of Sterling common stock to specify (i) the number of shares of Sterling common stock owned by such holder with respect to which such holder desires to receive the cash consideration and (ii) the number of shares of Sterling common stock owned by such holder with respect to which such holder desires to receive the stock consideration.

First Advantage and Sterling will initially make available and mail the election form at least 20 business days prior to the anticipated election deadline to holders of record as of the fifth business day prior to such mailing date. Following the mailing date, First Advantage and Sterling will use all reasonable efforts to make available as promptly as possible an election form to any stockholder who requests an election form prior to the election deadline. The election deadline will be 5:00 p.m. local time (in the city in which the principal office of the exchange agent is located) on the date that is five business days prior to First Advantage’s good faith estimate of the closing date of the transaction or such other date as may be mutually agreed to by the parties. First Advantage and Sterling will cooperate to issue a press release reasonably satisfactory to each of them announcing the election deadline at least three business days prior to the election deadline.

To make a valid election, a Sterling stockholder must submit to the exchange agent a properly completed and signed election form (including duly executed transmittal materials included in the election form). The election form must also be accompanied by any certificates representing all certificated shares of Sterling common stock to which such election form relates (or by an appropriate customary guarantee of delivery of such certificates, as set forth in such election, from a member of any registered national securities exchange or a commercial bank or trust company in the United States).

A Sterling stockholder may change or revoke an election by providing written notice to the exchange agent, which must be received by the exchange agent prior to the election deadline, accompanied by a properly completed and signed revised election form, or by withdrawing his or her shares of Sterling common stock previously deposited with the exchange agent. If any election is not properly made with respect to any shares of Sterling common stock, such election will be deemed to be not in effect, and the shares of Sterling common stock covered by such election will be deemed to be non-election shares (as described more fully in the section titled “Effects of the Transaction”), unless a proper election is subsequently timely made.

 

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After the effective time, shares of Sterling common stock will no longer be outstanding, will be canceled and will cease to exist and each certificate or book entry share that previously represented shares of Sterling common stock (other than (i) canceled shares, (ii) dissenting shares and (iii) excluded shares) will represent only the right to receive the merger consideration pursuant to the merger agreement, cash in lieu of fractional shares and unpaid dividends and distributions, if any, as described above. With respect to such shares of First Advantage common stock deliverable upon the surrender of Sterling stock certificates or book-entry shares, until holders of such Sterling stock certificates or book-entry shares have properly surrendered such stock certificates or book-entry shares to the exchange agent (or another agent appointed by First Advantage) for exchange, along with a duly completed letter of transmittal in the case of holders of certificates and any other documents as may customarily be required by the exchange agent, those holders will not receive the merger consideration, any cash in lieu of fractional shares and any dividends or distributions that become due to the holders of converted Sterling common stock.

Promptly (and within five business days) after the effective time, First Advantage will cause the exchange agent to mail to each record holder of certificates who has not previously submitted an election form with duly executed transmittal materials and whose shares of Sterling common stock were converted in the transaction into the right to receive the merger consideration a letter of transmittal and instructions for surrendering Sterling share certificates in exchange for payment of the merger consideration. Holders of book-entry shares whose shares of Sterling common stock were converted in the transaction into the right to receive the merger consideration will not be required to deliver a certificate or an executed letter of transmittal to the exchange agent to receive the merger consideration. Upon surrender of Sterling share certificates or book-entry shares and a duly executed letter of transmittal in the case of holders of certificates to the exchange agent (or another agent appointed by First Advantage) in compliance with the instructions for surrender, such holders will be entitled to receive the merger consideration and any fractional share cash amounts.

First Advantage will instruct the exchange agent to accept the certificates upon compliance with such reasonable terms and conditions as the exchange agent may impose, to effect an orderly exchange in accordance with normal exchange practices. The time that any individual Sterling stockholder receives its, his or her merger consideration will vary depending on the underlying arrangements through which such Sterling stockholder holds its, his or her shares of Sterling common stock.

Listing of First Advantage Common Stock; Delisting of Sterling Common Stock

It is a condition to the completion of the transaction that the shares of First Advantage common stock to be issued to Sterling stockholders in the transaction be approved for listing on The Nasdaq Stock Market LLC, subject to official notice of issuance. As a result of the transaction, shares of Sterling common stock will cease to be listed on The Nasdaq Stock Market LLC.

 

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THE MERGER AGREEMENT

The following describes the material provisions of the merger agreement, which is attached as Annex A to this information statement/prospectus and is incorporated by reference herein. The summary of the material provisions of the merger agreement below and elsewhere in this information statement/prospectus is qualified in its entirety by reference to the merger agreement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. First Advantage and Sterling encourage you to read carefully the merger agreement in its entirety before making any decisions regarding the transaction as it is the legal document governing the transaction.

Explanatory Note Regarding the Merger Agreement

The merger agreement and this summary of its terms have been included to provide you with information regarding the terms of the merger agreement. First Advantage and Sterling are responsible for considering whether additional disclosure of material information is required to make the statements in this information statement/prospectus not misleading. Factual disclosures about First Advantage and Sterling contained in this information statement/prospectus or First Advantage’s or Sterling’s public reports filed with the SEC may supplement, update or modify the factual disclosures about First Advantage or Sterling contained in the merger agreement and described in this summary. The representations, warranties and covenants made in the merger agreement by First Advantage, Merger Sub and Sterling are qualified and subject to important limitations agreed to by the parties to the merger agreement in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were made solely for the benefit of the parties to the merger agreement, and were negotiated with the principal purpose of allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality that may be different from that generally relevant to stockholders or applicable to reports and documents filed with the SEC, and in some cases are qualified by confidential disclosures that were made by each party to the other, which disclosures are not publicly disclosed. The representations and warranties in the merger agreement will not survive the completion of the transaction. Moreover, information concerning the subject matter of the representations and warranties may have changed since the date of the merger agreement. For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone, but instead should be read together with the information provided elsewhere in this information statement/prospectus and in the documents incorporated by reference into this information statement/prospectus. For additional information regarding the location of information incorporated by reference into this information statement/prospectus, please see the section titled “Where You Can Find More Information”.

Transaction

Upon the terms and subject to the conditions of the merger agreement and in accordance with Delaware law, at the effective time, Merger Sub will merge with and into Sterling, and Sterling will survive the merger with Merger Sub and become an indirect wholly-owned subsidiary of First Advantage and the separate corporate existence of Merger Sub will cease.

Closing; Effective Time

Unless the parties otherwise agree in writing, the completion of the transaction (referred to as the closing) will take place remotely by electronic exchange of the fully executed documents on the fifth business day following the date on which all conditions to the transaction set forth in the merger agreement have been satisfied, or, to the extent permitted by applicable law, waived in writing by the applicable party (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions at the closing). The transaction will be effective at such

 

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time as Sterling files the certificate of merger with the Delaware Secretary of State or at such other date and time as is agreed to by the parties and specified in such certificate of merger (referred to as the effective time). The parties were not required to effect the closing prior to April 30, 2024.

In the event that, pursuant to the terms described in the immediately preceding paragraph, the closing would occur on a date other than the last business day of a month, First Advantage may elect in writing to Sterling to defer the closing until the last business day of the month in which closing is otherwise required to occur, unless another date or time is agreed to in writing by Sterling and First Advantage. Upon making such written election, until the day immediately following the last business day of such month neither First Advantage nor Sterling will have the right to terminate the merger agreement as a result of the effective time not having occurred prior to the outside date.

Effects of the Transaction

At the effective time, subject to the payment of cash in lieu of fractional shares of First Advantage common stock as described below under “—No Fractional Shares” and proration as described below under “—Proration and Allocation of Merger Consideration,” each share of Sterling common stock and each Sterling common stock equivalent, issued and outstanding immediately prior to the effective time (other than (i) canceled shares as described below “—Cancellation of Certain Sterling Common Stock,” (ii) dissenting shares as described below under “—Shares of Dissenting Stockholders” and (iii) excluded shares as described below under “—Conversion of Excluded Shares”), will be converted into the right to receive, without interest:

 

   

for each share of Sterling common stock and each Sterling common stock equivalent with respect to a cash election has been properly made and not properly changed or revoked (referred to as a cash election share), $16.73 in cash (referred to as the cash consideration);

 

   

for each share of Sterling common stock and each Sterling common stock equivalent with respect to which a stock election has been properly made and not properly changed or revoked (referred to as a stock election share), 0.979 of a share of First Advantage common stock (referred to as the stock consideration); and

 

   

for each share of Sterling common stock and each Sterling common stock equivalent that is not a cash election share or a stock election share (referred to as a non-election share), the right to receive cash consideration or stock consideration as determined in accordance with the proration methodology described below under “—Proration and Allocation of Merger Consideration”.

The stock consideration will be appropriately adjusted to reflect the effect of any stock split, subdivision, consolidation, combination or reclassification with respect to the outstanding shares of First Advantage common stock, Sterling common stock, payment of a stock dividend or other distribution in respect of such shares or the changing of such shares into other securities, in each case that occurs prior to the effective time.

Notwithstanding the above, if First Advantage determines in its reasonable discretion that it is impracticable or overly burdensome to provide the cash election or the stock election to current or former employees or other service providers of Sterling or any of its subsidiaries who are non-U.S. Holders of Sterling common stock that are subject to a Sterling restricted stock award, First Advantage will notify the applicable non-U.S. Holders as to whether such Sterling common stock will be converted wholly into cash awards or restricted shares of First Advantage common stock.

No Fractional Shares

Cash will be paid in lieu of fractional shares of First Advantage common stock as described in the next sentence. Each holder of shares of Sterling common stock or any Sterling common stock equivalent that would

 

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otherwise have been entitled to receive a fractional share of First Advantage common stock in the transaction will instead receive a cash payment equal to the product obtained by multiplying (i) the fraction of a share of First Advantage common stock to which such holder would otherwise be entitled (accounting for all shares of Sterling common stock and any Sterling common stock equivalent held by such holder at the effective time), rounded down to the nearest one-thousandth of one share, by (ii) the last reported sale price of First Advantage common stock on The Nasdaq Stock Market LLC (as reported in The Wall Street Journal, or if not reported therein, in another authoritative source mutually selected by First Advantage and Sterling) on the last complete trading day prior to the date of the effective time.

Proration and Allocation of Merger Consideration

The total number of shares of Sterling common stock and Sterling common stock equivalents to be entitled to receive the cash consideration (referred to as the maximum cash share number) will be equal to 72% of the aggregate number of shares of Sterling common stock issued and outstanding and all Sterling common stock equivalents, in each case, immediately prior to the effective time (other than any canceled shares and excluded shares), and the total number of shares of Sterling common stock and Sterling common stock equivalents to be entitled to receive the stock consideration will be equal to 28% of the aggregate number of shares of Sterling common stock issued and outstanding and Sterling common stock equivalents, in each case, as of immediately prior to the effective time (other than any canceled shares and excluded shares). Accordingly, depending on the elections made by other holders of Sterling common stock or Sterling common stock equivalents, a holder of Sterling common stock or Sterling common stock equivalents, may receive a portion of the merger consideration in the form such holder did not elect.

In no event will the aggregate number of shares of First Advantage common stock to be issued to holders of shares of Sterling common stock and Sterling common stock equivalents pursuant to the merger agreement exceed 27,150,000 (referred to as the maximum parent stock number). If, and to the extent that, the aggregate number of shares of First Advantage common stock to be issued would exceed the maximum parent stock number, then:

 

   

the cash consideration otherwise payable under the merger agreement will be proportionally increased in order to give effect to the maximum parent stock number by calculating (i) the number of shares of Sterling common stock and Sterling common stock equivalents resulting from the difference between (A) the total number of shares of First Advantage common stock that would have been issued but for the application of the maximum parent stock number and (B) the maximum parent stock number, divided by (ii) the exchange ratio of 0.979; and

 

   

each share of Sterling common stock and Sterling common stock equivalent resulting from the calculation in the foregoing bullet will be deemed to be a cash election share and will be converted into the right to receive cash consideration (and the percentages above will be recalculated based on such adjustment).

Within five business days after the effective time, First Advantage will cause the exchange agent for the payment of the merger consideration, referred to as the exchange agent, to effect the allocation among holders of Sterling common stock and Sterling common stock equivalents of rights to receive the cash consideration and the stock consideration as follows (with the exchange agent to determine, consistent with the immediately preceding paragraph, whether fractions of cash election shares, stock election shares and non-election shares, as applicable, will be rounded up or down):

Oversubscription of Cash Election Option. If the aggregate number of cash election shares (including, for this purpose, dissenting shares as of the effective time), referred to as the cash election number, equals or exceeds the maximum cash share number, then

 

   

the cash election shares of each holder of such cash election shares will be converted into the right to receive the cash consideration in respect of that number of cash election shares equal to the product

 

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obtained by multiplying (i) the number of cash election shares held by such holder by (ii) a fraction, the numerator of which is the maximum cash share number and the denominator of which is the cash election number, with the remaining number of such holder’s cash election shares being converted into the right to receive the stock consideration;

 

   

all stock election shares will be converted into the right to receive the stock consideration; and

 

   

all non-election shares will be converted into the right to receive the stock consideration.

Undersubscription of Cash Election Option. If the cash election number is less than the maximum cash share number (the amount by which the maximum cash share number exceeds the cash election number referred to as the shortfall number), then

 

   

all cash election shares will be converted into the right to receive the cash consideration;

 

   

if the shortfall number is less than or equal to the number of non-election shares, then all stock election shares will be converted into the right to receive the stock consideration, and the non-election shares of each holder of such non-election shares will be converted into the right to receive the cash consideration in respect of that number of non-election shares equal to the product obtained by multiplying (i) the number of non-election shares held by such holder by (ii) a fraction, the numerator of which is the shortfall number and the denominator of which is the total number of non-election shares, with the remaining number of such holder’s non-election shares being converted into the right to receive the stock consideration; and

 

   

if the shortfall number exceeds the number of non-election shares, then all non-election shares will be converted into the right to receive the cash consideration, and stock election shares of each holder of such stock election shares will be converted into the right to receive the cash consideration in respect of that number of stock election shares equal to the product obtained by multiplying (i) the number of stock election shares held by such holder by (ii) a fraction, the numerator of which is the amount by which the shortfall number exceeds the total number of non-election shares, and the denominator of which is the total number of stock election shares, with the remaining number of such holder’s stock election shares being converted into the right to receive the stock consideration.

Cancellation of Certain Sterling Common Stock

At the effective time, each share of Sterling common stock issued and outstanding immediately prior to the effective time that is owned or held in treasury by Sterling, referred to as canceled shares, will automatically be canceled and will cease to exist. No consideration will be delivered in exchange for any canceled shares.

Conversion of Excluded Shares

Each share of Sterling common stock issued and outstanding immediately prior to the effective time that is owned by any wholly-owned subsidiary of Sterling, referred to as excluded shares, will automatically be canceled and will cease to exist. No consideration will be delivered in exchange for any excluded shares.

Shares of Dissenting Stockholders

Shares of Sterling common stock issued and outstanding immediately prior to the effective time and held (or beneficially owned, as the case may be) by a person, referred to as a dissenting stockholder, (i) who did not vote in favor of the adoption of the merger agreement, (ii) who is entitled to demand and properly demands appraisal of such shares of Sterling common stock pursuant to Section 262 of the DGCL and (iii) who complies in all respects with the provisions of the DGCL concerning the rights of Sterling stockholders to require payment by the surviving corporation of the “fair value” of such shares of Sterling common stock, referred to as dissenting shares, will not be converted into the right to receive the merger consideration.

 

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Instead, if the transaction is completed, the dissenting shares will represent the right to receive whatever consideration may be determined to be due to such dissenting stockholder under Section 262 of the DGCL. If any dissenting stockholder fails to perfect or otherwise waives, withdraws or loses the right to appraisal under Section 262 or a court of competent jurisdiction determines that such holder is not entitled to the relief provided by Section 262, dissenting shares held by such dissenting stockholder will be treated as though such dissenting shares had been converted into the right to receive the applicable merger consideration as of the effective time. For additional information regarding appraisal rights, please see the section titled “Appraisal Rights”. In addition, a copy of Section 262 of the DGCL is attached to this information statement/prospectus as Annex H.

Governing Documents

At the effective time, by virtue of the transaction, the certificate of incorporation of Sterling as in effect immediately prior to the effective time will be amended and restated in its entirety in the form agreed to by the parties as of the date of the merger agreement and will be the certificate of incorporation of the surviving corporation, and the bylaws of Sterling as in effect immediately prior to effective time will be amended and restated to read in their entirety as set forth in the bylaws of Merger Sub as in effect immediately prior to effective time, except that all references therein to Merger Sub will be automatically amended and will become references to the surviving corporation.

Governance Matters; Officers and Directors

Pursuant to the merger agreement, First Advantage will offer Joshua Peirez a position on the board of directors First Advantage, effective at the effective time and on terms and conditions determined by First Advantage. Such appointment will be subject to Mr. Peirez’s acceptance of such appointment at or prior to the effective time, his compliance with all requirements generally applicable to members of the board of directors of First Advantage and all applicable law.

The directors and officers of Merger Sub immediately prior to the effective time will be the initial directors and the initial officers, respectively, of the surviving corporation.

Election Procedures

Except for the Specified Stockholders (which, pursuant to the support agreement, have made a cash election with respect to each share of Sterling common stock held by them), each holder of shares of Sterling common stock and Sterling common stock equivalents, in each case, to be converted into the right to receive the merger consideration, referred to in this information statement/prospectus as a holder, may specify in a request made in accordance with the procedures described in this “—Election Procedures” section (i) the number of shares of Sterling common stock and Sterling common stock equivalents held by such holder with respect to which such holder desires to make a stock election and (ii) the number of shares of Sterling common stock and Sterling common stock equivalents held by such holder with respect to which such holder desires to make a cash election. Any such request is referred to in this information statement/prospectus as an election.

The merger agreement provides that First Advantage will prepare a form reasonably acceptable to Sterling, including appropriate and customary transmittal materials, referred to in this information statement/prospectus as the election form, so as to permit holders to exercise their right to make an election.

First Advantage and Sterling (i) will initially make available and mail the election form at least 20 business days prior to the anticipated election deadline (as defined below) to holders of Sterling common stock and Sterling common stock equivalents as of the fifth business day prior to such mailing date, and (ii) following such mailing date, will use all reasonable efforts to make available as promptly as possible an election form to any holder who requests such election form prior to the election deadline. The time period between such mailing date and the election deadline is referred to in this information statement/prospectus as the election period.

 

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Any election will have been made properly only if the exchange agent will have received, during the election period, an election form properly completed and executed (including duly executed transmittal materials included in the election form). Unless otherwise agreed in advance by the parties to the merger agreement, election deadline means 5:00 p.m. local time (in the city in which the principal office of the exchange agent is located) on the date that is five business days prior to First Advantage’s good faith estimate of the closing date or such other date as may be mutually agreed to by the parties. First Advantage and Sterling will cooperate to issue a press release reasonably satisfactory to each of them announcing the date of the election deadline at least three business days prior to the election deadline.

Any holder may, at any time during the election period, change or revoke his, her or its election by written notice to the exchange agent prior to the election deadline accompanied by a properly completed and executed revised election form. If any election is not properly made with respect to any shares of Sterling common stock and Sterling common stock equivalents (none of First Advantage, Sterling or the exchange agent being under any duty to notify any holder of any such defect), such election will be deemed to be not in effect, and the shares of Sterling common stock and Sterling common stock equivalents, as applicable, covered by such election will be deemed to be non-election shares, unless a proper election is thereafter timely made.

All elections will be automatically deemed revoked upon receipt by the exchange agent of written notification from the parties that the merger agreement has been terminated.

Subject to the election form, First Advantage, in the exercise of its reasonable, good faith discretion, will have the right to make all determinations, not inconsistent with the terms of the merger agreement, governing (i) the validity of the forms of election and compliance by any holder with the election procedures described in this “—Election Procedures” section, (ii) the method of issuance of shares of First Advantage common stock into which shares of Sterling common stock and Sterling common stock equivalents are converted in the transaction and (iii) the method of payment of cash for shares of Sterling common stock and Sterling common stock equivalents converted into the right to receive the cash consideration and cash in lieu of fractional shares of First Advantage common stock.

Exchange and Payment Procedures

Prior to the effective time, First Advantage will enter into an exchange agent agreement with a bank or trust company reasonably acceptable to Sterling. Prior to or at the effective time (and subject to the treatment of shares of net option stock (as defined below in the section titled “Treatment of Sterling Equity Awards”) attributable to unvested Sterling stock options, Sterling restricted stock units and shares of Sterling common stock subject to Sterling restricted stock awards as described below in the section titled “Treatment of Sterling Equity Awards”), First Advantage will deposit, or cause to be deposited, with the exchange agent (i) cash in immediately available funds in an amount sufficient to pay the aggregate cash consideration and all fractional share cash amounts as is necessary for the payment to holders of Sterling common stock and Sterling common stock equivalents and (ii) evidence of First Advantage common stock in book-entry form representing the number of shares of First Advantage common stock sufficient to deliver the aggregate stock consideration. Such cash and book-entry shares, together with any dividends or other distributions with respect to such book-entry shares, are referred to in this information statement/prospectus as the exchange fund. No such deposits will be required to be made with respect to any dissenting shares.

Exchange of Sterling Share Certificates and Book-Entry Sterling Shares

Promptly (and no later than five business days) after the effective time, First Advantage will cause the exchange agent to mail to each record holder of certificates who has not previously submitted an election form with duly executed transmittal materials and whose shares of Sterling common stock were converted in the transaction into the right to receive the merger consideration a letter of transmittal and instructions for surrendering Sterling share certificates in exchange for payment of the merger consideration. Holders of book-

 

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entry shares whose shares of Sterling common stock were converted in the transaction and holders of Sterling common stock equivalents that were converted in the transaction, in each case, into the right to receive the merger consideration will not be required to deliver a certificate or an executed letter of transmittal to the exchange agent to receive the merger consideration. Upon surrender of Sterling share certificates or book-entry shares and a duly executed letter of transmittal in the case of holders of certificates to the exchange agent (or to another agent appointed by First Advantage) in compliance with the instructions for surrender, such holders will be entitled to receive the merger consideration, together with any fractional share cash amounts and any dividends or other distributions to which such certificates or book-entry shares become entitled as described below in the “—Dividends and Distributions” section or any canceled or converted Sterling common stock equivalent.

First Advantage will instruct the exchange agent to accept the certificates upon compliance with such reasonable terms and conditions as the exchange agent may impose, to effect an orderly exchange in accordance with normal exchange practices. The time that any individual stockholder receives its, his or her merger consideration will vary depending on the underlying arrangements through which such stockholder holds its, his or her shares of Sterling common stock.

In the event of a transfer of ownership of shares of Sterling common stock that is not registered in Sterling’s transfer or stock records, cash may be paid and/or shares may be issued to a person other than the person in whose name the surrendered Sterling share certificate or book-entry share is registered if such certificate or book-entry share is presented to the exchange agent accompanied by all documents reasonably required to evidence and effect such transfer and to evidence to the reasonable satisfaction of the exchange agent and First Advantage that any applicable stock transfer or other similar taxes have been paid.

Lost, Stolen or Destroyed Certificates

In the event that a Sterling share certificate is lost, stolen or destroyed, the previous holder of the Sterling share certificate may obtain the merger consideration and the amount of any owed dividends or distributions in respect of such certificate by (i) making an affidavit regarding the loss, theft or destruction of the Sterling share certificate and (ii) if required by First Advantage or the exchange agent, providing an indemnity (in a reasonable amount as determined by First Advantage or the exchange agent) as indemnity against any claim that may be made against First Advantage, the surviving corporation or the exchange agent with respect to the lost, stolen or destroyed Sterling share certificate.

No interest will be paid or accrue on any cash payable upon surrender of any Sterling share certificates or in respect of any book-entry shares.

Dividends and Distributions

No dividends or other distributions with a record date after the effective time with respect to First Advantage common stock will be paid to the holder of any shares of Sterling common stock until such holder properly surrenders its shares in accordance with the procedures described in this “—Exchange and Payment Procedures” section. After proper surrender, First Advantage will cause such holder to be paid, without interest, (i) the amount of any dividends or other distributions with a record date after the effective time and paid with respect to such shares of First Advantage common stock to which such holder is entitled pursuant to the merger agreement and (ii) at the appropriate payment date, the amount of any dividends or other distributions with a record date after the effective time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such shares of First Advantage common stock.

Rights of Sterling Stockholders Following the Effective Time and Transfers Following the Effective Time

The shares of First Advantage common stock delivered and the cash paid in accordance with the terms of the merger agreement in respect of any shares of Sterling common stock will be deemed to have been delivered

 

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and paid in full satisfaction of all rights pertaining to such shares of Sterling common stock (subject to any appraisal rights pursuant to Section 262 of the DGCL). From and after the effective time, all holders of Sterling share certificates and book-entry shares (including beneficial owners) will cease to have any rights as stockholders of Sterling other than the right to receive the merger consideration upon the surrender of such shares (together with the fractional share cash amount and any dividends or other distributions to which such shares become entitled in accordance with the merger agreement), without interest. From and after the effective time, the stock transfer books of Sterling will be closed with respect to all shares of Sterling common stock outstanding immediately prior to the effective time. From and after the effective time, there will be no further registration of transfers on the stock transfer books of Sterling and any certificates or book-entry shares formerly representing shares of Sterling common stock that are presented to First Advantage or the exchange agent for any reason will be canceled and exchanged for the merger consideration in accordance with the terms of the merger agreement (subject to any appraisal rights pursuant to Section 262 of the DGCL).

None of the parties to the merger agreement or the exchange agent will be liable to any person with respect to any portion of the exchange fund or the merger consideration delivered to a public official if required by any applicable abandoned property, escheat or similar law. Further, any portion of the merger consideration that remains undistributed to holders of Sterling share certificates and book-entry shares, or any holders of Sterling common stock equivalents, immediately prior to the date on which the merger consideration would otherwise escheat to or become the property of any governmental entity will, to the extent permitted by applicable law, become the property of First Advantage, free and clear of all claims or interest of any person previously entitled to such claims or interest.

Withholding Rights

Each party to the merger agreement, the exchange agent and any other person with a withholding obligation under applicable law will be entitled to deduct and withhold, from amounts otherwise payable pursuant to the merger agreement (including any stock consideration), any amounts required to be deducted or withheld with respect to such payment under the code or any other applicable tax law. To the extent that amounts are so deducted or withheld and timely remitted to the appropriate governmental entity, such amounts will be treated for all purposes of the merger agreement as having been paid to the person in respect of which such deduction or withholding was made.

Treatment of Sterling Equity Awards

Treatment of Stock Options, RSU Awards and Restricted Stock Awards

At the effective time, each outstanding in-the-money option to purchase Sterling common stock (i.e., has an exercise price per share that is less than the cash consideration) that was granted under the Sterling equity plans (referred to as Sterling stock options), whether vested or unvested, will automatically be canceled, with the holder of such Sterling stock option becoming entitled to receive the merger consideration in accordance with his election (and otherwise in accordance with the terms of the merger agreement with respect to each share of net option stock (as defined below)). Each out-of-the-money Sterling stock option (i.e., has an exercise price per share that is equal to or greater than the per share cash consideration), whether vested or unvested, will be canceled for no consideration. The merger consideration payable with respect to net option stock attributable to vested in-the-money Sterling stock options will be subject to reduction for any applicable tax withholding.

At the effective time, each outstanding Sterling restricted stock unit award (referred to as Sterling RSU award), whether vested or unvested, will automatically be canceled, with the holder of such Sterling RSU award becoming entitled to receive the merger consideration in accordance with such holder’s election.

In each case, holders of Sterling stock options or Sterling RSU awards will receive cash in lieu of any fractional shares of First Advantage common stock such holders would otherwise be entitled to receive.

 

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If First Advantage determines in its reasonable discretion that it is impracticable or overly burdensome to provide non-U.S. Holders of Sterling stock options or Sterling RSU awards with an election, First Advantage will notify such holders as to whether their net option stock (in the case of holders of Sterling stock options) or their Sterling RSU award (in the case of holders of Sterling RSU awards) will be converted wholly into cash awards or restricted shares of First Advantage common stock.

Stock consideration received by a holder in respect of (i) shares of net option stock attributable to unvested in-the-money Sterling stock options (where the restricted stock is taxable only on vesting or settlement (and not on issuance)) or (ii) Sterling restricted stock awards will be issued to such holder pursuant to a restricted stock award agreement in respect of First Advantage common stock. Such stock consideration will be subject to the same terms and conditions (including any rights to post-closing accelerated vesting upon a termination of employment) as applied to such shares of net option stock or Sterling restricted stock award, as applicable, immediately prior to the effective time.

Stock consideration received by a holder (other than a non-employee director of Sterling) in respect of (i) shares of net option stock attributable to unvested in-the-money Sterling stock options (where the restricted stock is taxable on issuance), or (ii) any share of Sterling RSU award, will be issued to such holder in the form of an RSU over First Advantage common stock pursuant to an RSU award agreement. Such First Advantage RSUs will be subject to the same terms and conditions (including any accelerated vesting) as applied to such shares of net option stock or Sterling RSUs, as applicable, immediately prior to the effective time.

Cash consideration received by a holder (other than a non-employee director of Sterling) in respect of (i) shares of net option stock attributable to unvested in-the-money Sterling stock options, (ii) a Sterling RSU award or (iii) any unvested shares of Sterling common stock subject to a Sterling restricted stock award will be deferred and paid to the holder on the regularly scheduled future vesting dates of the applicable awards, subject to the same terms and conditions (including any rights to post-closing accelerated vesting upon a termination of employment) as applied to the net option stock or Sterling restricted stock award, as applicable, immediately prior to the effective time.

The number of shares of “net option stock” subject to an in-the-money Sterling stock option is that number of shares of Sterling common stock having a value (based on the cash merger consideration per-share value of $16.73) equal to the aggregate spread value of such Sterling stock option (i.e., the excess of $16.73 over the per-share exercise price of such stock option multiplied by the number of shares of Sterling common stock underlying such stock option).

At the effective time, the vesting of each Sterling restricted stock award held by a non-employee director will fully accelerate.

Employee Stock Purchase Plan

Pursuant to the terms of the merger agreement, Sterling, the Sterling board of directors or the compensation committee of the Sterling board of directors, as applicable, is required to take all actions necessary pursuant to the terms of Sterling’s employee stock purchase plan, as amended (referred to as the ESPP) to terminate the ESPP effective as of immediately prior to the effective time, contingent upon the occurrence of the transaction, and to provide that, (i) no offering or purchase period will be continued or commenced under the ESPP, except for any offering or purchase period under the ESPP that was in effect on the date of the merger agreement (referred to as the current ESPP offering period); (ii) no new participants may elect to participate in the ESPP during the current ESPP offering period; and (iii) no participant may increase the participant’s payroll deductions with respect to the current ESPP offering period. In addition, the merger agreement requires that the ESPP be suspended and no new offering period commenced under the ESPP after the date of the merger agreement, and that the final exercise date for the ESPP offering period as in effect on the date of the merger agreement be accelerated to the first payroll date of Sterling that is reasonably practicable, but in no event to a date that is later

 

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than 30 days, thereafter. Sterling terminated the then-current offering period for the ESPP effective February 29, 2024.

Each ESPP participant’s accumulated contributions under the ESPP, as of February 29, 2024, were used to purchase shares of Sterling common stock in accordance with the terms of the ESPP as of such date, which shares will be treated in accordance with the terms of the merger agreement, and Sterling has returned to each participant the funds, if any, that remained in such participant’s account after such purchase.

Representations and Warranties

The merger agreement contains customary representations and warranties of the parties. These include representations and warranties of Sterling with respect to:

 

   

organization and qualification;

 

   

subsidiaries;

 

   

capitalization;

 

   

voting trusts or agreements;

 

   

corporate authority;

 

   

due execution, delivery and enforceability of the merger agreement;

 

   

required consents and approvals;

 

   

no violations;

 

   

SEC filings;

 

   

financial statements;

 

   

internal controls and procedures;

 

   

the absence of undisclosed liabilities;

 

   

absence of certain changes or events;

 

   

compliance with applicable laws;

 

   

permits;

 

   

employee benefit plans;

 

   

labor matters;

 

   

tax matters;

 

   

litigation and orders;

 

   

intellectual property;

 

   

privacy and data protection;

 

   

real property and assets;

 

   

material contracts;

 

   

environmental matters;

 

   

customers and suppliers;

 

   

insurance;

 

   

information supplied for SEC filings;

 

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opinion of Citi as financial advisor to Sterling;

 

   

takeover statutes;

 

   

related party transactions;

 

   

finders and brokers; and

 

   

outsourcing contracts or understandings.

The merger agreement also contains customary representations and warranties of First Advantage and Merger Sub, including among other things:

 

   

organization and qualification;

 

   

capitalization;

 

   

voting agreements;

 

   

ownership of Merger Sub;

 

   

corporate authority;

 

   

due execution, delivery and enforceability of the merger agreement;

 

   

required consents and approvals;

 

   

no violations;

 

   

SEC filings;

 

   

financial statements;

 

   

internal controls and procedures;

 

   

the absence of undisclosed liabilities;

 

   

absence of certain changes or events;

 

   

compliance with applicable laws;

 

   

permits;

 

   

litigation and orders;

 

   

information supplied for SEC filings;

 

   

financing and sufficiency of funds;

 

   

solvency;

 

   

finders and brokers;

 

   

activity of Merger Sub; and

 

   

no ownership of shares of Sterling common stock.

The representations and warranties made by the parties contained in the merger agreement are generally qualified by “material adverse effect,” as defined in the merger agreement and described below. The representations and warranties contained in the merger agreement will expire at the effective time. The representations, warranties and covenants made by Sterling in the merger agreement are qualified by information contained in the confidential disclosure letter delivered to First Advantage in connection with the execution of the merger agreement (referred to as the Sterling confidential disclosure letter) and by certain filings that Sterling has made with the SEC prior to the date of the merger agreement, and the representations, warranties and covenants made by First Advantage and Merger Sub in the merger agreement are qualified by information

 

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contained in the confidential disclosure letter delivered to Sterling in connection with the execution of the merger agreement and by certain filings that First Advantage has made with the SEC prior to the date of the merger agreement. Stockholders are not third-party beneficiaries of these representations, warranties and covenants under the merger agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Sterling or any of its affiliates or of First Advantage or any of its affiliates.

Material Adverse Effect

A “material adverse effect” with respect to Sterling or First Advantage, as applicable, means any change, effect, development, circumstance, condition, fact, state of facts, event or occurrence that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on the financial condition, business, assets, liabilities or results of operations of First Advantage and its subsidiaries or Sterling and its subsidiaries, as applicable, taken as a whole, except that no such change, effect, development, circumstance, condition, fact, state of facts, event or occurrence to the extent resulting or arising from any of the following will be deemed to constitute a material adverse effect or will be taken into account when determining whether a material adverse effect exists or has occurred or is reasonably expected to exist or occur:

 

   

any changes in general domestic or global economic conditions, including any changes affecting financial, credit, foreign exchange or capital market conditions;

 

   

any changes in general conditions in any industry or industries in which Sterling and its subsidiaries or First Advantage and its subsidiaries, as applicable, operate;

 

   

any changes in general political conditions;

 

   

any changes after the date of the merger agreement in GAAP or any authoritative interpretation thereof;

 

   

(i) any changes after the date of the merger agreement in applicable law or (ii) any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing, shut down, closure, sequester, safety or similar law promulgated by any governmental entity, including the Centers for Disease Control and Prevention and the World Health Organization, in each case, in connection with or in response to COVID-19 or another pandemic;

 

   

(i) any failure by Sterling or First Advantage, as applicable, to meet any internal or published projections, estimates or expectations of Sterling’s or First Advantage’s, as applicable, revenue, earnings or other financial performance or results of operations for any period, in and of itself, or (ii) any failure by Sterling or First Advantage, as applicable, to meet its internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations, in and of itself (except that the facts or occurrences giving rise or contributing to a failure of the sort described in clause (i) or (ii) of this bullet that are not otherwise excluded from the definition of a “material adverse effect” may be taken into account for the purpose of determining whether a material adverse effect exists or has occurred or is reasonably expected to exist or occur);

 

   

any changes in geopolitical conditions, acts of terrorism or sabotage, war (whether or not declared), the commencement, continuation or escalation of a war, acts of armed hostility, weather conditions, natural disasters, pandemics (including COVID-19) or other force majeure events, including any material worsening of such conditions threatened or existing as of the date of the merger agreement;

 

   

the execution and delivery of the merger agreement or the completion of the transaction, or the public announcement of the merger agreement or the transaction, including any litigation arising out of or relating to the merger agreement or the transaction, the identity of First Advantage (in the case of Sterling) or the identity of Sterling (in the case of First Advantage), departures of officers or employees, changes in relationships with suppliers or customers or other business relations, in each case only to the extent resulting from the execution and delivery of the merger agreement or the completion of the transaction, or the public announcement of the merger agreement or the transaction

 

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(except that this bullet will not apply to any representation or warranty (or related condition to the completion of the transaction) to the extent the purpose of such representation or warranty (or condition) is to address the consequences resulting from the execution and delivery of the merger agreement or the completion of the transaction);

 

   

any action or the failure to take any action which action or failure to act is requested in writing by First Advantage or Sterling, as applicable, or any action expressly required by, the terms of the merger agreement (including with respect to certain covenants relating to Sterling’s conduct of business pending the transaction related to employee benefits and executive compensation matters, but otherwise excluding (i) certain other covenants relating to Sterling’s conduct of business pending the transaction and (ii) certain covenants relating to First Advantage’s conduct of business pending the transaction);

 

   

any change in the price or trading volume of shares of Sterling or First Advantage common stock, as applicable, in and of itself (except that the facts or occurrences giving rise or contributing to such change that are not otherwise excluded from the definition of a “material adverse effect” may be taken into account for the purpose of determining whether a material adverse effect exists or has occurred or is reasonably expected to exist or occur); and

 

   

any reduction in the credit rating of Sterling or its subsidiaries or First Advantage or its subsidiaries, as applicable, in and of itself (except that the facts or occurrences giving rise or contributing to such reduction that are not otherwise excluded from the definition of a “material adverse effect” may be taken into account for the purpose of determining whether a material adverse effect exists or has occurred or is reasonably expected to exist or occur).

However, with respect to the exceptions in the first, second, third, fourth, fifth and seventh bullets above, if such change, effect, development, circumstance, condition, fact, state of facts, event or occurrence has had a disproportionate adverse impact on Sterling or any of its subsidiaries or First Advantage or any of its subsidiaries, as applicable, relative to other companies operating in the industry or industries in which Sterling and its subsidiaries or First Advantage or its subsidiaries, as applicable, operate, then the incremental disproportionate impact of such change, effect, development, circumstance, condition, fact, state of facts, event or occurrence will be taken into account for the purpose of determining whether a “material adverse effect” exists or has occurred or is reasonably expected to exist or occur.

Conduct of Business by Sterling Prior to Completion of the Transaction

The merger agreement provides for certain restrictions on Sterling’s and its subsidiaries’ activities until the earlier of the effective time or the date (if any) on which the merger agreement is validly terminated. In general, except as specifically required by the merger agreement, as required by applicable law or as consented to in writing by First Advantage (such consent not to be unreasonably withheld, conditioned or delayed), subject to specified exceptions set forth in the merger agreement and the Sterling confidential disclosure letter, each of Sterling and its subsidiaries is required to conduct its business in the ordinary course of business and use reasonable best efforts to preserve intact its and their present business organizations, goodwill and ongoing businesses and preserve its and their present relationships with key customers, suppliers, vendors, distributors, licensors, licensees, governmental entities, employees and other persons with whom it and they have material business relations. In addition, except as specifically required by the merger agreement, as required by applicable law or as consented to in writing by First Advantage (such consent not to be unreasonably withheld, conditioned or delayed), subject to specified exceptions set forth in the merger agreement and the Sterling confidential disclosure letter, Sterling must not and must not permit any of its subsidiaries to, directly or indirectly:

 

   

amend, modify, waive, rescind or otherwise change Sterling’s or any of its significant subsidiaries’ certificate of incorporation, bylaws or equivalent organizational documents or the certificate of incorporation, bylaws or equivalent organizational document of any other Sterling subsidiary in any material respect;

 

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authorize, declare, set aside, make or pay any dividends on or make any distribution with respect to its outstanding shares of capital stock or other equity interests (whether in cash, assets, shares or other securities of Sterling or any of its subsidiaries), except for dividends and distributions paid or made by a wholly-owned Sterling subsidiary to Sterling or another wholly-owned Sterling subsidiary, in each case, in the ordinary course of business;

 

   

enter into any agreement and arrangement with respect to voting or registration, or file any registration statement with the SEC (other than a registration statement on Form S-8 with respect to Sterling’s 2021 Omnibus Incentive Plan and its ESPP) with respect to any, of its capital stock or other equity interests or any other securities;

 

   

other than as specifically permitted by clause (iv) of the immediately succeeding bullet, adjust, split, combine, subdivide, reduce or reclassify any of its capital stock or other equity interests, or redeem, purchase or otherwise acquire any of its capital stock or other equity interests, in respect of, in lieu of or in substitution for, shares of its capital stock or other equity interests or any rights, warrants or options to acquire any such shares of capital stock or other equity interests, except for any such transaction involving only wholly-owned Sterling subsidiaries in the ordinary course of business;

 

   

grant any Sterling stock option or issue, deliver, grant, sell, dispose of or encumber, or authorize the issuance, delivery, grant, sale, disposition or encumbrance of, any shares of capital stock, voting securities or other equity interest in Sterling or any of its subsidiaries or any securities convertible into or exchangeable or exercisable for any such shares, voting securities or equity interest, or any rights, warrants or options to acquire any such shares, voting securities or equity interest, or any Sterling equity award, “phantom” stock, “phantom” stock rights, stock appreciation rights or stock based performance units, or take any action to cause to be exercisable or vested any otherwise unexercisable or unvested Sterling equity award, other than (i) subject to the requirements and restrictions contained in a separate interim operating covenant, issuances of shares of Sterling common stock in respect of any exercise of Sterling stock options outstanding as of the date of the merger agreement or the vesting or settlement of Sterling equity awards outstanding as of the date of the merger agreement, in all cases in accordance with their respective terms in effect on the date of the merger agreement, (ii) the issuance of up to an agreed number of shares of Sterling common stock pursuant to the terms of the ESPP in respect of the ESPP offering period in effect as of the date of the merger agreement, (iii) the grant of awards or issuance of up to an agreed number of shares of Sterling common stock pursuant to the terms of Sterling’s 2021 Omnibus Incentive Plan, (iv) the issuance, withholding and retaining of shares of Sterling common stock in connection with the net settlement of Sterling restricted stock awards, Sterling RSU awards and Sterling stock options to pay any applicable exercise or purchase price and taxes, and (v) transactions solely between Sterling and its wholly-owned subsidiaries or between such wholly-owned subsidiaries in the ordinary course of business;

 

   

except as specifically required by the terms of any Sterling benefit plan in effect as of the date of the merger agreement and subject to the restrictions and limitations set forth in the immediately preceding bullet, (a) increase the salaries, wages, bonuses, or any other compensation or benefits payable or to become payable to any directors, executive officers, employees or other service providers of Sterling, other than solely with respect to increases to the base compensation (i) of employees at or below the level of vice president in the ordinary course of business in connection with periodic reviews or promotions and (ii) which increases (A) would not result in an annualized increase in aggregate base compensation with respect to all Sterling employees in excess of an agreed amount and (B) are consistent with past practice with respect to individual increases in base compensation, (b) grant to any directors, executive officers, employees or other service providers of Sterling any rights to severance or termination pay or provide for any increase thereto, other than in the ordinary course of business and, with respect to U.S.-based employees, solely in accordance with Sterling’s severance plan; (c) pay or award, or commit to pay or award, (1) any ordinary course bonuses or similar incentive compensation in excess of agreed amounts or (2) any retention, change in control, “deal” or similar bonuses to any directors, executive officers, employees or other service providers or provide for any increase thereto,

 

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other than any such payments or awards to any employees below the level of the senior leadership team, in an aggregate amount not in excess of the amount set forth in the Sterling confidential disclosure letter; (d) establish, adopt, enter into, amend or terminate any Sterling benefit plan, other than in the ordinary course of business; (e) take any action to amend or waive any performance or vesting criteria or accelerate vesting, exercisability or funding under any Sterling benefit plan related to Sterling equity awards; (f) terminate the employment of any employees at the level of the senior leadership team other than for cause or due to permanent disability; (g) hire any new employees at the level of the Sterling senior leadership team other than to replace any such person whose employment is terminated by such person voluntarily or for cause or due to permanent disability, but (i) Sterling is not permitted to hire a new chief financial officer of Sterling until May 15, 2024, the total target compensation (defined, for purposes of this bullet, to include only annual base salary and annual target bonus) of any such newly hired chief financial officer of Sterling may not exceed the total target compensation of the employee such newly hired employee was hired to replace (such total target compensation of the employee being replaced referred to as the replacement target compensation) by more than 25% and any such newly hired chief financial officer of Sterling may not be entitled to any severance rights related to any termination of employment that occurs on or before February 28, 2025 (and any such severance rights must be consistent with the severance rights of the employee such newly hired chief financial officer of Sterling was hired to replace) and (i) the total target compensation of any other such newly hired employee may not exceed the replacement target compensation by more than 10% and any severance rights granted to any other such newly hired employee must be consistent with the severance rights of the employee such newly hired employee was hired to replace, and any equity award made to any such newly hired chief financial officer of Sterling or other newly hired employee will be subject to an equity award pool; or (h) provide any funding for any rabbi trust or similar arrangement;

 

   

acquire (including by merger, consolidation or acquisition of stock or assets or any other means) or authorize or announce an intention to so acquire, or enter into any agreements providing for (a) any acquisitions of, any equity interests in or all or a material portion of the assets of any person or any business or division thereof, or otherwise engage in any mergers, consolidations or business combinations or (b) acquisitions of material assets, except for (i) transactions solely between Sterling and its wholly-owned subsidiaries or between such wholly-owned subsidiaries in the ordinary course of business, (ii) with respect to the acquisition of material assets, acquisitions of supplies or equipment in the ordinary course of business, or (iii) with respect to the acquisition of material assets, the permitted capital expenditures set forth in the interim operating covenants;

 

   

liquidate (completely or partially), dissolve, merge, consolidate, restructure, recapitalize or effect any other reorganization or similar transaction (including any restructuring, recapitalization, or reorganization between or among any of Sterling and its subsidiaries), or adopt any plan or resolution providing for any of the foregoing;

 

   

make any loans, advances or capital contributions to, or investments in, any other person (it being understood that maintaining accounts receivable in the ordinary course of business will not be considered to be the making of a loan or advance), except for (a) loans, advances, or capital contributions solely among Sterling and its wholly-owned Sterling subsidiaries or solely among Sterling’s wholly-owned Sterling subsidiaries in the ordinary course of business and (b) advances to directors, officers or managers pursuant to any indemnification or advancement obligations in the Sterling charter, the Sterling bylaws, the governing documents of any Sterling subsidiary, or any indemnification agreement set forth in the Sterling confidential disclosure letter;

 

   

sell, lease, license, pledge, assign, transfer, exchange, swap, allow to lapse or expire, or otherwise dispose of, or subject to any lien (other than permitted liens), any of its properties, rights or assets (including shares in the capital of Sterling subsidiaries), except (a) sales of products or services in ordinary course commercial transactions, (b) dispositions of obsolete, damaged, worn-out or surplus equipment or property no longer necessary in the conduct of the business or other immaterial

 

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equipment or property (but excluding any consolidation of platforms), in each case, in the ordinary course of business, (c) leases or subleases of real property or interests therein not used for the conduct of Sterling’s or the Sterling subsidiaries’ business, as currently conducted, in each case in the ordinary course of business, (d) with regard to Sterling’s intellectual property rights, (i) non-exclusive licenses in the ordinary course of business, (ii) the disposition of immaterial Sterling intellectual property rights, or (iii) natural expirations of registered Sterling intellectual property in accordance with their statutory terms and (e) pursuant to transactions solely between Sterling and its wholly-owned subsidiaries or between such wholly-owned subsidiaries in the ordinary course of business;

 

   

other than in the ordinary course of business, (a) enter into any contract that would, if entered into prior to the date of the merger agreement, be a material contract and under which Sterling or a Sterling subsidiary will make payments above $2.5 million during the 12 months following execution of such contract, (b) materially modify, materially amend, extend, renew or terminate any material contract, (c) waive or release any material rights or claims under any material contract, (d) assign any material rights or claims thereunder or (e) grant any material (measured relative to amounts Sterling or a Sterling subsidiary will pay or receive under such material contract) refunds, discounts, credits, rebates or allowances to customers other than in the ordinary course of business, but neither Sterling nor any of its subsidiaries may (i) extend or renew the term of any specified contract to be in excess of 12 months following the end of the term of such specified contract as of the date of the merger agreement or (ii) modify or amend any specified contract so as to provide for new annual minimum commitments that exceed by more than 10% such annual minimum commitments of such specified contract as of the date of the merger agreement;

 

   

make any capital expenditure (including capitalized software development costs), enter into agreements or arrangements providing for capital expenditure (including capitalized software development costs) or otherwise commit to do so, except for capital expenditures not to exceed by more than 30% the amounts (prorated as necessary for any partial year) set forth in (a) for the fiscal year ended December 31, 2024, the annual capital budget for the fiscal year ended December 31, 2024 approved by Sterling board of directors prior to the date of the merger agreement or (b) for the fiscal year ended December 31, 2025, the annual capital budget for the fiscal year ended December 31, 2025 that is specifically reflected in Sterling’s long-range plan;

 

   

waive, release, assign, compromise, forgive any amount owed to Sterling other than in respect of immaterial sums in the ordinary course of business or settle any proceeding (for the avoidance of doubt, including with respect to matters in which Sterling or any Sterling subsidiary is a plaintiff, or in which any of their officers or their directors in their capacities as such are parties), other than the compromise or settlement of proceedings: that (a) (i) are for an amount for each such compromise or settlement that is, individually, less than $250,000 (net of any proceeds actually received in connection therewith pursuant to any applicable insurance coverage or actually recovered pursuant to any indemnification rights) and for all such compromises or settlements that is, in the aggregate, less than $10 million (net of any proceeds actually received in connection therewith pursuant to any applicable insurance coverage or actually recovered pursuant to any indemnification rights), (ii) do not impose any injunctive relief on Sterling or any of Sterling subsidiaries (other than (A) confidentiality and non-disparagement restrictions and covenants not to sue that are, in each case, customary and ancillary to the monetary relief granted and (B) requirements that Sterling or any Sterling subsidiaries comply with applicable law) and does not involve the admission of wrongdoing by Sterling, any of its subsidiaries or any of their respective officers, directors or employees, (iii) do not provide for the license of (or grant of any other rights in or to use) any Sterling intellectual property rights or Sterling technology, except to the extent otherwise permitted herein, and (iv) do not relate to claims, litigations, investigations or proceedings brought by governmental entities, other than solely in their capacities as customers of Sterling’s or Sterling subsidiaries’ products and services or in connection with ordinary course examinations or audits that do not target Sterling or Sterling subsidiaries, or (b) are tax audits,

 

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claims, litigations, investigations, or other proceedings that are subject to the restrictions contained in a separate interim operating covenant;

 

   

modify any policies or practices with respect to personal data (or the processing thereof) or Sterling’s artificial intelligence, automation and machine learning technology, or the operation or security of any Sterling technology, in each case, in any manner that is materially adverse to the business of Sterling or Sterling subsidiaries, except as required by applicable law or to comply with ethical best practices;

 

   

make any material change in financial accounting policies, practices, principles or procedures or any of its methods of reporting income, deductions or other material items for financial accounting purposes, in each case, except as required by GAAP or, in the case of any applicable Sterling subsidiaries, international financial reporting standards or other recognized accounting standards or principles in non-U.S. jurisdictions applicable to such Sterling subsidiaries or applicable law;

 

   

recognize any labor union, labor organization, works council, trade union, labor association or other employee representative as the representative of any employees involved in the operations of Sterling or any of its subsidiaries or enter into any collective bargaining agreement or any material agreement with any labor union, labor organization, works council, trade union, labor association or other employee representative, except as required by applicable law;

 

   

implement or announce any material group reductions in force, including those that trigger the Worker Adjustment and Retraining Notification Act of 1988 (as amended) and any similar state, foreign or local laws;

 

   

other than in the ordinary course of business (a) make, change or revoke any material tax election, or adopt or change any material tax accounting period or material method of tax accounting, (b) amend any material tax return, (c) file any material tax return in a manner that is materially inconsistent with past practices of Sterling or the applicable Sterling subsidiary (except to the extent required by applicable law), (d) settle or compromise any material tax audit, claim or other proceeding for an amount materially in excess of the amount accrued or reserved therefor in the most recent consolidated financial statements of Sterling included, or incorporated by reference, in the documents that Sterling has filed or furnished to the SEC prior to the date of the merger agreement, (e) enter into any material “closing agreement” within the meaning of Section 7121 of the code (or any similar provision of state, local or non-U.S. law), (f) surrender any right to claim a material refund of taxes, (g) initiate any voluntary disclosure with or request any material ruling from any governmental entity with respect to taxes; (h) agree to an extension or waiver of the statute of limitations with respect to a material amount of taxes (other than pursuant to automatic extensions of time to file tax returns) or (i) fail to timely file any material tax return or pay any material taxes when due;

 

   

redeem, repurchase, prepay, defease, incur, assume, endorse, guarantee or otherwise become liable for or modify in any material respects the terms of any indebtedness, or otherwise issue or sell any debt securities or calls, options, warrants or other rights to acquire any debt securities (directly, contingently or otherwise), except for (a) any indebtedness among Sterling and wholly-owned subsidiaries of Sterling or among wholly-owned subsidiaries of Sterling, in each case made in the ordinary course of business, (b) guarantees by Sterling of indebtedness (incurred in compliance with the merger agreement) of wholly-owned subsidiaries of Sterling or guarantees by subsidiaries of Sterling of indebtedness (incurred in compliance with the merger agreement) of Sterling or any wholly-owned subsidiary of Sterling, in each case made in the ordinary course of business, and (c) indebtedness for borrowed money under the revolving credit facility (as defined in the Sterling credit agreement) in the ordinary course of business, so long as such indebtedness (i) can be prepaid at par at any time without premium or penalty and (ii) is not comprised of debt securities or calls, options, warrants or other rights to acquire any debt securities (directly, contingently or otherwise); provided that, reasonably in advance of incurring indebtedness for borrowed money pursuant to clause (c) of this bullet that would reasonably be expected to exceed $10 million in the aggregate (together with all other borrowings after

 

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the date of the merger agreement pursuant to clause (c) of this bullet), Sterling must provide First Advantage with written notice of such planned incurrence;

 

   

other than in the ordinary course of business, (a) enter into any transactions or contracts with (i) any affiliate or other person that would be required to be disclosed by Sterling under Item 404 of Regulation S-K of the SEC or (ii) any person who beneficially owns, directly or indirectly, more than 5% of the outstanding shares of Sterling common stock or any affiliate thereof, (b) amend, modify, terminate or waive any material right or material obligation under any contract of the type described in clause (a) of this bullet (whether in existence prior to the date of the merger agreement or entered into following the date of the merger agreement), (c) settle or compromise any pending or threatened proceeding or any other dispute with any person of the type described in clause (a) of this bullet or (d) make any payment to any person of the type described in clause (a) of this bullet; provided, however, that, for the avoidance of doubt, the performance by Sterling of any contract in existence on the date of the merger agreement in accordance with the express terms thereof will not be restricted by the operating restrictions described herein;

 

   

cancel any of Sterling’s or Sterling subsidiaries’ material insurance policies or fail to pay the premiums on Sterling’s or its subsidiaries’ material insurance policies, other than any cancellation or termination of such policy in the ordinary course of business (including outside normal cycles, if reasonably deemed in good faith to be beneficial to Sterling) (it being understood that any such canceled or terminated policies will be promptly replaced by policies having terms and conditions (including retentions, limits and scopes of coverage) that are no less favorable to Sterling and the Sterling subsidiaries in any material respect than such canceled or terminated policies), or fail to maintain such insurance policies in a manner that is consistent with the ordinary course of business;

 

   

(a) acquire any real property, dispose of any real property or enter into any lease or sublease of real property (whether as a lessor, sublessor, lessee or sublessee) for annual rent payments above $500,000 or for a term longer than three years, (b) materially modify or materially amend or exercise any right to renew any lease or sublease of real property (except as set forth in clause (c) of this bullet) or waive any term or condition thereof or grant any consents thereunder or (c) fail to use reasonable best efforts to renew certain Sterling leases, so long as any such renewal is on terms no less favorable to Sterling and the Sterling subsidiaries than the terms in effect as of the date of the merger agreement;

 

   

voluntarily terminate or materially modify or waive in any material respect any material right under any material Sterling permit;

 

   

adopt or otherwise implement any stockholder rights plan, “poison-pill” or other comparable agreement;

 

   

apply for, seek or obtain any Sterling permit that would prevent, materially delay or materially impede the transaction, it being understood that Sterling must notify, and consult in good faith with, First Advantage prior to applying for, seeking or obtaining any Sterling permit that would require First Advantage or any of its affiliates to make any filing with, or provide any notice or disclosure to, any governmental entity;

 

   

pay or agree to pay an aggregate amount of fees or commissions to investment bankers, brokers or finders in connection with the merger agreement or upon or as a result of the completion of the transaction in excess of an agreed amount; or

 

   

agree or authorize, in writing or otherwise, to take any of the foregoing actions.

Immediately following the satisfaction, or, to the extent permitted by applicable law, waiver in writing by the applicable party (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions at the closing), Sterling will, and will cause its subsidiaries to, take such actions as are necessary under the Sterling equity plans to (i) suspend the ability of participants thereunder to exercise Sterling options and (ii) otherwise not allow for the issuance of shares of Sterling common stock in respect of any exercise of Sterling options.

 

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Conduct of Businesses of First Advantage Prior to Completion of the Transaction

The merger agreement also provides for certain restrictions on First Advantage’s activities until the earlier of the effective time or the date (if any) on which the merger agreement is validly terminated. In general, except as specifically required by the merger agreement, as required by applicable law or as consented to in writing by Sterling (which may not be unreasonably withheld, conditioned or delayed), subject to specified exceptions set forth in the merger agreement, First Advantage must not:

 

   

amend, modify, waive, rescind or otherwise change First Advantage’s certificate of incorporation or bylaws in a manner that would adversely affect in any material respect Sterling or its stockholders in a manner disproportionate to First Advantage and its stockholders or in a manner that would reasonably be expected to materially delay or prevent the completion of the transaction;

 

   

adopt or enter into a plan of, or any contract in respect of, complete or partial liquidation, dissolution, amalgamation, consolidation, merger, reorganization or recapitalization of First Advantage, other than with respect to the transaction or any transaction that does not adversely affect the ability of First Advantage or Merger Sub to complete the transaction;

 

   

authorize, declare, set aside, make or pay any special cash dividends on its outstanding shares of First Advantage common stock;

 

   

split, combine, subdivide or reclassify any of its capital stock; or

 

   

agree to take or authorize, in writing or otherwise, any of the foregoing actions.

Sterling Stockholder Written Consent

Under the merger agreement, in lieu of calling a meeting of holders of Sterling common stock, the Specified Stockholders were required to deliver a written consent to adopt the merger agreement and to approve the transactions contemplated therein, including the transaction (referred to as the written consent). The written consent was delivered to Sterling on February 28, 2024 shortly after the execution of the merger agreement, and was ratified and confirmed on April 26, 2024. Accordingly, the execution and delivery of the written consent by the Specified Stockholders was sufficient to adopt the merger agreement and the transaction on behalf of Sterling stockholders. Sterling has not solicited and is not soliciting your adoption of the merger agreement and the transaction. No further action by any other Sterling stockholder is required under applicable law, and Sterling will not solicit the vote of Sterling stockholders for the adoption of the merger agreement or the transaction and will not call a special meeting of Sterling stockholders for purposes of voting on the adoption of the merger agreement or the transaction. For this reason, this information statement/prospectus is being provided to you for informational purposes only. You are not being asked for a proxy, and you are requested not to send a proxy.

No Solicitation of Other Offers by Sterling

Under the terms of the merger agreement, subject to certain exceptions described below, Sterling has agreed that, from and after the date of the merger agreement until the earlier of the effective time or the date (if any) on which the merger agreement is validly terminated, Sterling will not, and Sterling will cause its subsidiaries not to, and Sterling will cause its and its subsidiaries’ respective directors, officers, employees and other representatives not to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage or facilitate (including by way of providing non-public information) any inquiry, proposal or offer, or the making, submission or announcement of any inquiry, proposal or offer, in each case which constitutes or could be reasonably expected to lead to an acquisition proposal;

 

   

participate in any negotiations regarding, or furnish to any person any non-public information relating to Sterling or any Sterling subsidiary in connection with an acquisition proposal, other than to state that

 

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Sterling and its representatives are prohibited under the merger agreement from engaging in any such discussions or negotiations;

 

   

adopt, approve, endorse or recommend, or publicly propose to adopt, approve, endorse or recommend, any acquisition proposal;

 

   

withdraw, change, amend, modify or qualify, or otherwise publicly propose to withdraw, change, amend, modify or qualify, in a manner adverse to First Advantage, the Sterling board of directors’ recommendation that Sterling stockholders vote to adopt the merger agreement;

 

   

if an acquisition proposal has been publicly disclosed, fail to publicly recommend against any such acquisition proposal within 10 business days after First Advantage’s written request that Sterling do so (or subsequently withdraw, change, amend, modify or qualify (or publicly propose to do so) in a manner adverse to First Advantage, such rejection of such acquisition proposal) and reaffirm the Sterling board of director’s recommendation that Sterling stockholders vote to adopt the merger agreement within such 10 business day period;

 

   

approve, or authorize, or cause or permit Sterling or any Sterling subsidiary to enter into, any merger agreement, acquisition agreement, reorganization agreement, letter of intent, memorandum of understanding, agreement in principle, option agreement, joint venture agreement, partnership agreement or similar agreement or document relating to, or any other agreement or commitment providing for, any acquisition proposal (other than certain confidentiality agreements);

 

   

approve, or authorize, or cause or permit Sterling or any Sterling subsidiary to enter into, any contract to reimburse any third party for costs, expenses or other liabilities incurred in connection with making (or evaluating for the purpose of making) a potential acquisition proposal; or

 

   

agree to or authorize any of the foregoing actions.

The actions set forth in the third, fourth, fifth, sixth and seventh bullets above and, to the extent related to the foregoing bullets, the final bullet above are referred to as a “change of recommendation”.

In addition, under the merger agreement, Sterling agreed that:

 

   

Sterling will, and Sterling will cause its subsidiaries to, and Sterling will cause its and its subsidiaries’ respective directors, officers, employees and other representatives to, immediately following the date of the merger agreement, cease any and all existing solicitation, discussions or negotiations with any persons, or provision of any non-public information to any persons, with respect to any inquiry, proposal or offer that constitutes, or could reasonably be expected to lead to, an acquisition proposal; and

 

   

Sterling will promptly following the date of the merger agreement (and in any event within three business days following the date of the merger agreement), (i) request that each person (other than First Advantage) that previously executed a confidentiality agreement with Sterling in connection with its consideration of an acquisition proposal or a potential acquisition proposal within the three years prior to the date of the merger agreement promptly destroy or return to Sterling all non-public information furnished by Sterling or any of its representatives to such person or any of its representatives in accordance with the terms of such confidentiality agreement, and (ii) terminate access to any physical or electronic data rooms relating to a possible acquisition proposal by any such person and its representatives.

Under the merger agreement and from and after the date of the merger agreement, Sterling must enforce, and not waive, terminate or modify without First Advantage’s prior written consent, any confidentiality, standstill or similar provision in any confidentiality, standstill or other agreement. However, if the Sterling board of directors determines in good faith after consultation with Sterling’s outside legal counsel that the failure to waive a particular standstill provision, or other provision with similar effect, would reasonably be expected to be

 

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inconsistent with the directors’ fiduciary duties under applicable law, Sterling may, without the prior written consent of First Advantage but with prior written notice to First Advantage, waive such standstill provision, or other provision with similar effect, solely to the extent necessary to permit the applicable person (if it has not been solicited in breach of the non-solicitation provisions of the merger agreement) to make, on a confidential basis to the Sterling board of directors, an acquisition proposal, conditioned upon such person agreeing to disclosure of such acquisition proposal to First Advantage, in each case as contemplated by the merger agreement. From the date of the merger agreement until the earlier of the effective time or the date (if any) the merger agreement is validly terminated, Sterling agreed to release First Advantage from its obligation to comply with the standstill provision contained in the confidentiality agreement between Sterling and First Advantage.

Notwithstanding the prohibitions described above, if, prior to 11:59 p.m. New York City time on March 23, 2024, Sterling received a bona fide written acquisition proposal that did not result from a breach (irrespective of whether the breach was a de minimis and unintentional breach) of Sterling’s non-solicitation obligations, (i) Sterling could contact the third party making such acquisition proposal solely to inform such person of Sterling’s non-solicitation obligations or (ii) Sterling could furnish non-public information to such person, its representatives and financing sources, and engage in discussions or negotiations with such person and its representatives and financing sources, in each case with respect to the acquisition proposal, as long as prior to taking such action the Sterling board of directors determined in good faith, after consulting with Sterling’s outside legal counsel and financial advisors, that such proposal constituted, or would reasonably be expected to lead to, a superior proposal and prior to providing any such non-public information, (a) the person making the acquisition proposal entered into a confidentiality agreement that contained terms that taken as a whole are not materially less favorable in the aggregate to Sterling than those contained in the confidentiality agreement between First Advantage and Sterling (it being understood that the confidentiality agreement is not required to include a standstill provision) and that does not in any way restrict Sterling or its representatives from complying with its disclosure obligations under the merger agreement, and (b) Sterling also provides First Advantage, prior to or substantially concurrently with the time such information is provided or made available to such person or its representatives, any non-public information furnished to such other person or its representatives that was not previously furnished to First Advantage. No acquisition proposals were received by Sterling prior to 11:59 p.m. New York City time on March 23, 2024.

Under the merger agreement, Sterling is obligated to notify First Advantage promptly (and in any event within six hours of receipt) of any receipt by any director or officer of Sterling or by any of Sterling’s subsidiaries or its or their respective representatives of any acquisition proposal or any proposals or inquiries that could reasonably be expected to lead to an acquisition proposal, or any inquiry or request for non-public information relating to Sterling or any Sterling subsidiary by any person who has made or could reasonably be expected to make an acquisition proposal. The notice must include the identity of the person making the acquisition proposal, inquiry or request and the material terms and conditions of any such proposal or offer or the nature of the information requested pursuant to any such inquiry or request, including unredacted copies of all written requests, proposals or offers (including any proposed agreements received by Sterling relating to such acquisition proposal) or, if such acquisition proposal is not in writing, a reasonably detailed written description of the material terms and conditions (with an amendments or proposed amendments to economic terms being deemed material for this purpose) thereof. Sterling also must keep First Advantage adequately informed on a current basis of the status and material terms, including any material amendments or proposed amendments to such material terms (with any amendments or proposed amendments to economic terms being deemed material for this purpose) of any such acquisition proposal or potential acquisition proposal, and as to the nature of any information requested of Sterling with respect thereto. Sterling must provide First Advantage, substantially concurrently, with any material non-public information concerning Sterling provided to any other person in connection with any acquisition proposal that was not previously provided to First Advantage. Without limiting the foregoing, Sterling must promptly (and in any event within six hours after such determination) inform First Advantage in writing if Sterling determines to begin providing information or to engage in discussions or negotiations concerning an acquisition proposal to the extent otherwise permitted by the merger agreement. Sterling has agreed that it will not, directly or indirectly, enter into any agreement with any person which directly

 

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or indirectly prohibits Sterling from providing any information to First Advantage in accordance with, or otherwise complying with, the obligations of Sterling described in this paragraph.

Unless the merger agreement has been validly terminated, Sterling is obligated not to take any action to exempt any person other than First Advantage or Merger Sub or their affiliates and associates from the restrictions on any “business combinations” contained in any applicable takeover statute or in Sterling’s certificate of incorporation or bylaws, or otherwise cause such restrictions not to apply (other than actions consistent with actions taken in connection with the support agreement prior to the approval of the transaction).

An “acquisition proposal” for purposes of the merger agreement and the support agreement means any offer or proposal from any person or group (as defined in Section 13(d) of the Exchange Act), other than a proposal or offer by First Advantage or a subsidiary of First Advantage, at any time relating to any transaction or series of related transactions (other than the transaction) involving:

 

   

any acquisition or purchase by any person, directly or indirectly, of more than 20% of any class of outstanding Sterling voting or equity securities (whether by voting power or number of shares);

 

   

any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in any person or group beneficially owning more than 20% of any class of outstanding Sterling voting or equity securities (whether by voting power or number of shares);

 

   

any merger, consolidation, share exchange, business combination, joint venture, recapitalization, conversion, division, domestication, reorganization or other similar transaction, in each case involving Sterling and any other person or group, pursuant to which the Sterling stockholders immediately prior to such transaction hold less than 80% of the equity interests in the surviving or resulting entity of such transaction (whether by voting power or economic interest); or

 

   

any sale, lease, exchange, transfer or other disposition, whether in one transaction or a series or related transactions, to any person or group of more than 20% of the consolidated assets of Sterling and its subsidiaries (measured by fair market value).

A “superior proposal” for purposes of the merger agreement means a bona fide, written acquisition proposal by a third party which the Sterling board of directors determines in good faith (after consultation with Sterling’s outside legal counsel and financial advisors) (i) to be, if consummated, more favorable to Sterling’s stockholders from a financial point of view than the transaction, taking into account all relevant factors (including all the terms and conditions of such acquisition proposal (including the transaction consideration, conditionality, timing, certainty of financing and/or regulatory approvals and likelihood of consummation) and the merger agreement (and any changes to the terms of the merger agreement proposed by First Advantage in response to any acquisition proposal)) and (ii) is reasonably likely to be consummated in accordance with the terms of such acquisition proposal on a timely basis and is not subject to any “due diligence” or financing contingencies, although any acquisition proposal by either (a) the Specified Stockholders (or their affiliates) or (b) the parties identified in the Sterling confidential disclosure letter (or their affiliates) will not constitute, and will in no case be expected to led to, a “superior proposal”. When determining whether an offer constitutes a superior proposal, references in the term “acquisition proposal” to “20%” or “80%” will be replaced with references to “50%”.

Change of Recommendation; Match Rights

The Sterling board of directors directed that the merger agreement be submitted to Sterling stockholders for adoption by written consent in lieu of a meeting and resolved to recommend that the Sterling stockholders vote to adopt the merger agreement. The merger agreement requires that the Sterling board of directors does not make a change of recommendation as defined in the above section. Notwithstanding the foregoing, prior to 11:59 p.m. New York City time on March 23, 2024, the Sterling board of directors could make a change of recommendation and cause Sterling to terminate the merger agreement in order to enter into a definitive agreement providing for an acquisition proposal that did not result from a breach (other than a de minimis and unintentional breach) of

 

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Sterling’s non-solicitation obligations (subject to payment by Sterling to First Advantage of the termination fee described under “—Termination Fee and Expenses”), which the Sterling board of directors determined in good faith after consultation with Sterling’s outside legal counsel and financial advisors is a superior proposal, if the Sterling board of directors has determined in good faith after consultation with Sterling’s outside legal counsel and financial advisors, that the failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties under applicable law. No acquisition proposals were received by Sterling prior to 11:59 p.m. New York City time on March 23, 2024.

Under the merger agreement, prior to making a change of recommendation with respect to a superior proposal and terminating the merger agreement to enter into a definitive agreement providing for such superior proposal, Sterling must provide First Advantage four business days’ prior written notice advising First Advantage that it intends to make a change of recommendation. The notice must specify in reasonable detail the material terms and conditions of the acquisition proposal (including true and complete copies of any proposed definitive documentation (together with any related financing commitments, fee letters and other transaction documents received by Sterling), or, if no such documentation exists, a written summary of the proposed material terms and conditions) for any change of recommendation due to a superior proposal. In each case, Sterling must cause its representatives (including executive officers) to negotiate in good faith (to the extent First Advantage desires to negotiate) any proposal by First Advantage to amend the merger agreement in a manner that would eliminate the need for the Sterling board of directors to make a change of recommendation, and the Sterling board of directors must make all of the required determinations regarding its fiduciary duties again at the end of such four business day negotiation period (after in good faith taking into account the amendments to the merger agreement proposed by First Advantage and all other relevant factors when comparing the amended terms and conditions of the merger agreement with the terms and conditions of such superior proposal, including the transaction consideration, conditionality, timing, certainty of financing and regulatory approvals and likelihood of completion). With respect to any change of recommendation in response to a superior proposal, if there is any material amendment, revision or change to the terms of the then-existing superior proposal (including any revision to the amount, form or mix of consideration proposed to be received by Sterling’s stockholders as a result of such superior proposal), Sterling must again comply with the obligations described in this paragraph, except that references to the applicable four business day period will be replaced with two business days.

Nothing in the merger agreement prohibits Sterling or the Sterling board of directors from (i) disclosing to Sterling’s stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, (ii) making any “stop, look and listen” communication to Sterling’s stockholders pursuant to Rule 14d-9(f) promulgated under the Exchange Act, or any similar statement in response to any publicly disclosed acquisition proposal, (iii) making any factually accurate public statement that solely describes Sterling’s receipt of an acquisition proposal, the terms thereof and the identity of the person making such acquisition proposal, and the operation of the merger agreement with respect thereto or (iv) making any disclosure to the Sterling stockholders, if the Sterling board of directors determines in good faith (after consultation with Sterling’s outside legal counsel) that the failure to so disclose would be reasonably likely to constitute a breach of the fiduciary duties of the Sterling board of directors under applicable law; provided that, in each case, any such disclosure also includes an express reaffirmation of the Sterling’s board recommendation that Sterling stockholders vote to adopt the merger agreement.

Actions with Respect to Sterling Debt

At the closing, Sterling will deliver all notices and take other actions to terminate all commitments and the repayment of all obligations outstanding under the credit agreement, dated as of November 29, 2022, by and among Sterling Infosystems, Inc., as borrower, Sterling Intermediate Corp. and the other guarantors party thereto, KeyBank National Association, as administrative agent, and the other parties thereto (referred to as the Sterling credit agreement). However, Sterling may rescind any such notice in accordance with the terms of the Sterling credit agreement if the effective time does not occur on the prepayment and termination date specified in such notice. The merger agreement also requires that Sterling deliver to First Advantage prior to the closing an

 

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executed payoff letter (and drafts reasonably in advance thereof) and related guarantee and lien release documentation from the agent on behalf of the lenders under the Sterling credit agreement. In addition, First Advantage and Merger Sub are required to use reasonable best efforts to enter into arrangements reasonably satisfactory to the administrative agent of the Sterling credit agreement in respect of any letters of credit issued under the Sterling credit agreement.

Access; Integration Committee

The merger agreement provides that from the date of the merger agreement until the earlier of the effective time or the date (if any) the merger agreement is validly terminated, to the extent permitted by applicable law, Sterling and its subsidiaries will give First Advantage and its representatives reasonable access during normal business hours and upon reasonable advance notice to Sterling’s and its subsidiaries’ offices, properties, contracts, personnel, data, books and records, including tax returns (so long as any such access does not unreasonably interfere with Sterling’s business), and will furnish as promptly as practicable to First Advantage all information concerning Sterling’s business, properties and personnel as First Advantage reasonably requests (including information for the purposes of transition and integration planning). However, Sterling is not required to provide access to or disclose information that may not be disclosed pursuant to certain contractual or legal restrictions or that is subject to attorney-client, attorney work product or other legal privilege, in each case subject to certain exceptions and requirements to make substitute arrangements.

The merger agreement provides that First Advantage and Sterling will establish a transition and integration planning team, which will discuss and plan for a transition and integration planning process concerning the combination of the operations of First Advantage, Sterling and their respective subsidiaries after the closing, and will meet from time to time as reasonably requested by First Advantage.

Financing Cooperation; Alternative Financing

Under the merger agreement, prior to the effective time, Sterling and its subsidiaries must, and must use their reasonable best efforts to cause their representatives to, provide all customary cooperation and all customary financial information, in each case, that is reasonably requested by First Advantage or Merger Sub in connection with any financing obtained by First Advantage or Merger Sub for the purpose of financing the transaction or any transaction undertaken in connection therewith (referred to as the financing), subject to certain limitations set forth in the merger agreement.

First Advantage and Merger Sub must use their reasonable best efforts to arrange and obtain, at or prior to the effective time, the financing on the terms and conditions described in the debt commitment letter (including, as necessary, the “market flex” provisions contained in any related fee letter) that First Advantage entered into with certain financial institutions in connection with the merger agreement, and may only amend or terminate the debt commitment letter (or terminate any definitive agreement with respect to the financing) subject to the limitations set forth in the merger agreement. At Sterling’s written request, First Advantage and Merger Sub must keep Sterling informed as reasonably promptly and in reasonable detail of the status of its efforts to consummate the financing. In addition, First Advantage must provide Sterling with prompt written notice of any material breach, material default, cancellation, early termination or repudiation by any party to the debt commitment letter or any definitive agreement with respect to the financing, in each case, which First Advantage obtains actual knowledge of (after reasonable inquiry), and of the receipt by First Advantage or Merger Sub of any written notice or communication from any financing entity with respect to the foregoing.

In the event that all or any portion of the financing becomes unavailable on the terms and conditions contemplated in the debt commitment letter as described above, each of First Advantage and Merger Sub must use reasonable best efforts to, as promptly as practicable, arrange and obtain alternative financing from the same or alternative sources in an amount sufficient, when taken together with the available portion of the financing and cash on hand at First Advantage, Sterling and their respective subsidiaries, for First Advantage and Merger Sub

 

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to make all cash payments contemplated to be made by them under the merger agreement at the closing in connection with the transaction (including the payment of all related fees and expenses required to be paid by them on the closing date) at the closing and on terms and conditions that, in the aggregate, when taken as a whole, are not less favorable from a conditionality and enforceability perspective than the terms and conditions set forth in the debt commitment letter.

In addition, the merger agreement provides that Sterling will, and will cause its subsidiaries to, deliver all notices and take all other actions reasonably requested by First Advantage that are required to terminate, in accordance with the terms thereof, all commitments outstanding under the Sterling credit agreement, repay in full all obligations, if any, outstanding thereunder, and facilitate the release of all liens, if any, securing such obligations, and the release of all guarantees in connection therewith on the closing date as of the effective time, subject to certain limitations set forth in the merger agreement. However, Sterling may rescind any such notice in accordance with the terms of the Sterling credit agreement if the effective time does not occur on the prepayment and termination date specified in such notice. The merger agreement also requires that Sterling deliver to First Advantage prior to the closing an executed payoff letter (and drafts reasonably in advance thereof) and related guarantee and lien release documentation from the agent on behalf of the lenders under the Sterling credit agreement.

Employee Matters

Commencing at the effective time and ending on (i) the first anniversary of the effective time (if the effective time occurs after June 30 in any calendar year) or (ii) December 31 of the year in which the effective time occurs (if the effective time occurs on or before June 30 in any calendar year), First Advantage will provide, or will cause the surviving corporation to provide, each continuing employee with (i) a base wage rate or base salary rate at least equal to that in effect immediately prior to the effective time; (ii) at least the same annual target cash incentive compensation opportunity as in effect immediately prior to the effective time (excluding, for the avoidance of doubt, any change-in-control, transaction and retention bonus payments); (iii) health and welfare benefits (excluding severance but including paid time off) that are no less favorable than those provided to similarly situated employees of First Advantage and its subsidiaries, and (iv) severance benefits that are the greater of (x) the severance benefits for which such continuing employee was eligible under the Sterling benefit plans in effect as of the date of the merger agreement and (y) the severance benefits for which similarly situated employees of First Advantage and its subsidiaries are eligible under the applicable First Advantage benefit plans.

For all purposes (including purposes of vesting, eligibility to participate and level of benefits but excluding eligibility to participate or benefit accrual under any defined benefit pension plan or any postemployment health or welfare plan) under the new plans, each continuing employee will be credited with his or her years of service with Sterling and its subsidiaries and their respective predecessors before the effective time; provided that the foregoing will not apply to the extent that its application would result in a duplication of benefits. In addition, each continuing employee will be immediately eligible to participate, without any waiting time, in any and all new plans to the extent that coverage under such new plan is of the same type as the old plans, and (i) for purposes of each new plan providing medical, dental, pharmaceutical or vision benefits to any continuing employee, First Advantage or its applicable subsidiary will use their reasonable best efforts to cause all pre-existing condition exclusions and actively-at-work requirements of such new plan to be waived and (ii) First Advantage and its applicable subsidiary will use reasonable best efforts to cause any eligible expenses incurred by such continuing employee during the portion of the plan year of the old plan ending on the date such employee’s participation in the corresponding new plan begins to be taken into account under such new plan for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such for the applicable plan year as if such amounts had been paid in accordance with such new plan.

Directors’ and Officers’ Indemnification and Insurance

Under the merger agreement, for a period of six years after the effective time, First Advantage must cause the surviving corporation to indemnify and hold harmless, to the fullest extent permitted by applicable law and

 

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the organizational documents of Sterling or its subsidiaries, or any indemnification agreements in existence as of the date of the merger agreement and identified in the confidential disclosure letter thereto, each current and former director, officer and manager of Sterling and its subsidiaries against any costs and expenses in connection with any actual or threatened claims in respect of acts or omissions occurring or alleged to have occurred at or prior to the effective time, whether asserted or claimed prior to, at or after the effective time, by reason of the fact of such person serving as an officer, director or manager of Sterling or any of its subsidiaries.

In addition, for a period of six years following the effective time, First Advantage is required to maintain in effect the provisions in the organizational documents of Sterling and any indemnification agreements identified in the Sterling confidential disclosure letter (except to the extent such agreement provides for an earlier termination) regarding elimination of liability, indemnification of officers, directors and managers and advancement of expenses that are in existence as of the date of the merger agreement.

At or prior to the effective time, Sterling (or, at First Advantage’s election, First Advantage) is required to purchase a directors’ and officers’ liability insurance and fiduciary liability insurance “tail” insurance policy for a period of six years after the effective time with respect to matters arising at or prior to the effective time, with a one-time cost not in excess of 300% of the last aggregate annual premium paid by Sterling for its directors’ and officers’ liability insurance and fiduciary liability insurance prior to the date of the merger agreement, and if the cost of such “tail” insurance policy would otherwise exceed such amount, Sterling may purchase as much coverage as reasonably practicable for such amount.

Other Covenants

The merger agreement contains additional agreements of First Advantage, Merger Sub and Sterling relating to, among other things:

 

   

the filing of the registration statement on Form S-4, of which this information statement/prospectus forms a part, and the information statement with the SEC (and cooperation in response to any comments from the SEC in respect to the filings);

 

   

the coordination of press releases and other public announcements or filings relating to the transaction or the merger agreement;

 

   

anti-takeover statutes or regulations that become applicable to the merger agreement, the support agreement or the transactions contemplated by the merger agreement, including the transaction, or the support agreement;

 

   

First Advantage taking all action necessary to cause Merger Sub to perform its obligations under the merger agreement;

 

   

the notification of certain matters and the settlement of any litigation in connection with the merger agreement;

 

   

actions to cause the disposition of equity securities of Sterling or acquisitions of the equity securities of First Advantage held by each individual who is a director or officer of First Advantage or Sterling pursuant to the transaction to be exempt pursuant to Rule 16b-3 promulgated under the Exchange Act;

 

   

the resignation of each member of Sterling’s board of directors;

 

   

the de-listing of Sterling shares from The Nasdaq Stock Market LLC and deregistration under the Exchange Act;

 

   

the listing of shares of First Advantage common stock issued in connection with the transaction on The Nasdaq Stock Market LLC;

 

   

Sterling or its subsidiaries notifying or seeking the consent of third parties as required under any contracts that are necessary, proper or advisable to complete the transaction;

 

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Sterling causing any written plan for trading securities that complies (or is intended to comply) with the requirements of Rule 10b5-1 under the Exchange Act to be terminated as soon as Sterling is not in possession of any material, non-public information of Sterling; and

 

   

the execution, if requested by First Advantage on no less than five business days’ notice, of cash transfers (or transfers of cash equivalents) to occur on the business day prior to the closing date of the transaction among bank accounts of Sterling or its subsidiaries to move such cash to or from certain jurisdictions or to make it available to First Advantage as a funding source in connection with the transaction.

Conditions to the Transaction

The respective obligations of each party to effect the transaction are subject to the satisfaction or waiver of the following conditions:

 

   

stockholders of Sterling having adopted the merger agreement and, if obtained pursuant to the written consent, this information statement/prospectus having been mailed to the Sterling stockholders and at least 20 business days having elapsed from the date of completion of such mailing;

 

   

First Advantage common stock to be issued in connection with the transaction having been approved for listing on The Nasdaq Stock Market LLC, subject to official notice of issuance;

 

   

the registration statement on Form S-4, of which this information statement/prospectus forms a part, having become effective under the Securities Act and not being the subject of any stop order or any proceedings by the SEC seeking a stop order;

 

   

no governmental entity of competent jurisdiction having (i) enacted, issued or promulgated any law that is in effect or (ii) issued or granted any order or injunction (whether temporary, preliminary or permanent) that is in effect, in each case which has the effect of restraining or enjoining or otherwise prohibiting, or making illegal, the completion of the transaction; and

 

   

any waiting period applicable to the transaction under the HSR Act having expired or having been terminated and any other required approvals, consents or clearances under the antitrust and foreign direct investment laws of certain foreign jurisdictions having been obtained.

The obligations of First Advantage and Merger Sub to effect the transaction are subject to the satisfaction or waiver of the following additional conditions:

 

   

(i) the representations and warranties of Sterling set forth in the merger agreement regarding organization, capitalization of subsidiaries, no voting debt, authority, takeover statutes and finders and brokers (other than with respect to the aggregate fee amount payable by Sterling to any investment banker, broker or finder in connection with the merger agreement or the completion of the transaction) being true and correct in all material respects, (ii) the representations and warranties of Sterling set forth in the merger agreement regarding Sterling’s capitalization and voting trusts or agreements being true and correct other than for such inaccuracies as would not result in increasing the merger consideration, individually or in the aggregate, by more than $2 million, (iii) the representations and warranties of Sterling set forth in the merger agreement regarding changes, events or effects that have or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on Sterling, Sterling not being a “United States real property holding corporation” within the meaning of the code and the aggregate fee amount payable by Sterling to any investment banker, broker or finder in connection with the merger agreement or the completion of the transaction, (iv) all other representations and warranties of Sterling set forth in the merger agreement (without giving effect to any materiality or material adverse effect qualifications contained therein) being true and correct, except in the case of this clause (iv), for such failure to be true and correct that would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Sterling, in the case of

 

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each of clauses (i) through (iv), as of the date of the merger agreement and as of the closing as though made on and as of the closing (except representations and warranties that by their terms speak specifically as of another date, in which case as of such date);

 

   

Sterling having performed and complied with (i) in all material respects the obligations, covenants and agreements (other than certain specified covenants relating to Sterling’s conduct of business pending the transaction) required to be performed or complied with by it under the merger agreement at or prior to the closing and (ii) in all respects, such specified covenants relating to Sterling’s conduct of business pending the transaction;

 

   

no material adverse effect on Sterling having occurred since the date of the merger agreement that is continuing; and

 

   

First Advantage and Merger Sub having received from Sterling a certificate, dated as of the date of the closing and signed by Sterling’s chief executive officer or chief financial officer, certifying to the effect that the conditions set forth in the foregoing three bullets have been satisfied.

The obligations of Sterling to effect the transaction are subject to the satisfaction or waiver of the following additional conditions:

 

   

(i) the representations and warranties of First Advantage and Merger Sub set forth in the merger agreement regarding organization, First Advantage’s capitalization, authority, and finders and brokers being true and correct in all material respects, (ii) the representations and warranties of First Advantage and Merger Sub set forth in the merger agreement regarding changes, events or effects that have or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on First Advantage being true and correct in all respects and (iii) all other representations and warranties of First Advantage and Merger Sub set forth in the merger agreement (without giving effect to any qualification as to materiality or material adverse effect contained therein) being true and correct, except in the case of this clause (iii), for such failure to be true and correct that would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on First Advantage, in the case of each of clauses (i) through (iii), as of the date of the merger agreement and as of the closing as though made on and as of the closing (except representations and warranties that by their terms speak specifically as of another date, in which case as of such date);

 

   

First Advantage and Merger Sub having performed and complied with in all material respects the obligations, covenants and agreements required to be performed or complied with by them under the merger agreement at or prior to the closing;

 

   

no material adverse effect on First Advantage having occurred since the date of the merger agreement that is continuing; and

 

   

Sterling having received from First Advantage a certificate, dated as of the date of the closing and signed by First Advantage’s chief executive officer or chief financial officer, certifying to the effect that the conditions set forth in the foregoing three bullets have been satisfied.

Efforts to Obtain Regulatory Approvals

Under the merger agreement, First Advantage and Sterling are required to use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law to complete the transaction as promptly as practicable, including:

 

   

preparing and filing or otherwise providing, in consultation with the other party and as promptly as practicable and advisable, all documentation to effect all necessary applications, notices, petitions, filings and other documents, and to obtain as promptly as practicable all waiting period expirations or terminations, consents, clearances, waivers, licenses, orders, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any governmental entity in order to complete the transaction as promptly as practicable after the date of the merger agreement; and

 

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taking all steps as may be necessary, subject to the limitations in the merger agreement, to obtain all such waiting period expirations or terminations, consents, clearances, waivers, licenses, registrations, permits, authorizations, orders and approvals as promptly as practicable after the date of the merger agreement.

In furtherance and not in limitation of the obligations described in the previous paragraph, the merger agreement requires First Advantage and Sterling to:

 

   

make an appropriate filing of a Notification and Report Form pursuant to the HSR Act with respect to the transaction as promptly as practicable, and in any event within 10 business days after the date of the merger agreement (unless a later date is mutually agreed between the parties), and to supply as promptly as practicable and advisable any additional information and documentary materials that may be requested pursuant to the HSR Act and to take all other actions necessary to cause the expiration or termination of the applicable waiting periods under the HSR Act as soon as practicable; and

 

   

make the filings set forth in the Sterling confidential disclosure letter as promptly as practicable and advisable after the date of the merger agreement, and to supply as promptly as practicable and advisable any additional information and documentary materials that may be requested under any applicable supranational, national, federal, state, county, local or foreign antitrust, competition, trade regulation, or foreign investment laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening competition or to review or regulate foreign investment through transaction or acquisition (referred to, as applicable, as antitrust or foreign direct investment laws).

In order to eliminate any impediments and resolve any objections asserted by any governmental entity with respect to the transaction under antitrust laws (other than the antitrust laws of certain jurisdictions set forth in the Sterling confidential disclosure letter), First Advantage agrees to propose, execute, carry out or agree to divest businesses or assets solely to the extent any such divestiture would not reasonably be expected to have, individually or in the aggregate, a material impact on Sterling and its subsidiaries, taken as a whole, or on the existing business of First Advantage and its subsidiaries, taken as a whole.

With regard to any governmental entity, Sterling or any of its affiliates may not, without First Advantage’s written consent, discuss or commit to any divestiture transaction or to alter their businesses or commercial practices in any way, or otherwise take or commit to take any action that limits First Advantage’s or its subsidiaries’ freedom of action to retain any of the businesses, product lines or assets of Sterling and the Sterling subsidiaries or otherwise receive the full benefits of the merger agreement and the transaction.

If any administrative or judicial action or proceeding, by a governmental entity or any other person, is instituted (or threatened to be instituted) challenging the transaction as violative of any antitrust law, each of Sterling and First Advantage must use reasonable best efforts to contest and resist any such action or proceeding, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that is in effect and that prohibits, prevents or restricts completion of the transaction. First Advantage is entitled to direct the defense of the transaction in any investigation or litigation by, or negotiations with, any governmental entity or other person relating to the transaction or regulatory filings under applicable law, taking in good faith any comments of Sterling before making any material decisions in connection with such defense or negotiations.

Under the merger agreement, First Advantage and Sterling also agree to:

 

   

cooperate in all respects and consult with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party in connection with the HSR Act or other antitrust laws;

 

   

promptly inform the other party of any communication with the Antitrust Division of the Department of Justice (referred to as the DOJ) and the Federal Trade Commission (referred to as the FTC) or any

 

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other governmental entity, by promptly providing copies to the other party of any such written communications; and

 

   

permit the other party a reasonable opportunity to review in advance any communication that it gives to, and consult with each other in advance of any meeting, substantive telephone call or conference with, the DOJ, the FTC or any other applicable governmental entity, or, in connection with any proceeding by a private party, with any other person, and to the extent permitted by the DOJ, the FTC or other applicable governmental entity or other person, give the other party the opportunity to attend and participate in any meetings, substantive telephone calls or conferences with the DOJ, the FTC or any other governmental entity or other person.

Without limiting First Advantage’s obligation described above to use reasonable best efforts to take all steps as may be necessary, subject to the limitations described above, to obtain all required approvals as promptly as reasonably possible, First Advantage and Sterling have agreed that First Advantage will control the ultimate strategy and timing for securing approvals and expiration of relevant waiting periods under the applicable antitrust laws and foreign direct investment laws, taking into account in good faith any comments of Sterling or its representatives relating to such strategy.

Each of the parties agree that, from the date of the merger agreement until the earlier of the effective time and the date, if any, on which the merger agreement is terminated in accordance with its terms, it will not take any action, including undertaking a corporate reorganization or consummate, enter into any agreement providing for, or announce any investment, acquisition, divestiture, transaction or other business combination that would reasonably be expected to materially delay or prevent the completion of the transaction, including by triggering additional mandatory filing obligations under the foreign direct investment laws.

Termination of the Merger Agreement

Termination by First Advantage or Sterling

The merger agreement may be terminated at any time before the effective time:

 

   

by mutual written consent of First Advantage and Sterling; or

 

   

by either First Advantage or Sterling, if:

 

   

any governmental entity of competent jurisdiction has issued a final, non-appealable order, injunction, decree or ruling permanently restraining, enjoining or otherwise prohibiting, or making illegal, the completion of the transaction;

 

   

the effective time has not occurred on or before 11:59 p.m. New York City time on February 28, 2025 (referred to as the outside date); provided, however, that (a) the outside date may be extended by First Advantage by providing written notice to Sterling on or prior to the outside date, for a period of up to six months if, on the outside date, (i) all of the conditions to complete the transaction (other than those conditions relating to antitrust approvals or no injunction (to the extent the relevant injunction or order is in respect of, or any such law is, the HSR Act or any other antitrust law) or such conditions that by their nature are to be satisfied at the closing date of the transaction (as long as such conditions would be satisfied as of such date if the closing were to take place on such date)) have been satisfied or waived (to the extent permitted by applicable law) or (ii) (A) all of the conditions to complete the transaction (other than those conditions that by their nature are to be satisfied at the closing date of the transaction (as long as such conditions would be satisfied as of such date if the closing were to take place on such date)) have been satisfied or waived (to the extent permitted by applicable law) and (B) there are pending proceedings against First Advantage (or its affiliates) or Sterling (or its affiliates) by the DOJ or the FTC or any other governmental entity under any applicable antitrust law seeking to restrain, enjoin, prohibit or prevent the completion of the transaction, (b) during the period that First

 

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Advantage may elect to extend the outside date, Sterling is required to provide written notice to First Advantage at least one business day prior to terminating the merger agreement pursuant to the right described in this paragraph and (c) this right to terminate will not be available to any party whose action or failure to fulfill any obligation was the primary cause of the failure of the effective time to occur prior to the outside date and such action or failure to act constitutes a material breach of the parties’ obligations to use their respective reasonable best efforts to take all actions to complete the transaction; or

 

   

at the conclusion of the special meeting (including any adjournments or postponements thereof) that Sterling would be required to convene if the written consent had not been delivered to First Advantage immediately after the execution of the merger agreement and First Advantage did not terminate the merger agreement, the Sterling stockholders did not adopt the merger agreement.

Termination by Sterling

The merger agreement may be terminated by Sterling if:

 

   

prior to 11:59 p.m. New York City time on March 23, 2024, the Sterling board of directors effects a change of recommendation with respect to a superior proposal and Sterling substantially concurrently with such termination enters into a definitive agreement providing for such superior proposal, as long as Sterling has complied in all material respects with its obligations described under “No Solicitation of Other Offers by Sterling” and “Change of Recommendation; Match Rights” (and First Advantage has provided its wire transfer instructions in writing to Sterling upon Sterling’s request), and immediately prior to or substantially concurrently with (and as a condition to) such termination, Sterling pays to First Advantage the $66.3 million termination fee described below;

 

   

at any time before the effective time, (i) First Advantage and/or Merger Sub has breached, failed to perform or violated their respective covenants or agreements under the merger agreement or any of the representations and warranties of First Advantage or Merger Sub in the merger agreement have become inaccurate; (ii) such breach, failure to perform, violation or inaccuracy would result in the failure of the related conditions to Sterling’s obligations to close the transaction to be satisfied and is incapable of being cured by the outside date or, if capable of being cured by the outside date, is not cured before the earlier of the business day immediately prior to the outside date and the 30th day following receipt of written notice from Sterling of such breach, failure to perform, violation or inaccuracy; and (iii) Sterling is not in material breach of the merger agreement; or

 

   

at any time before the effective time, (i) all of the conditions to each party’s obligations to complete the transaction (other than those conditions that by their nature are to be satisfied at the closing date of the transaction (as long as such conditions would be satisfied as of the date of the written confirmation referenced in clause (ii) of this paragraph if the closing were to take place on such date)) have been satisfied or waived (to the extent permitted by applicable law); (ii) Sterling has irrevocably confirmed in writing to First Advantage that (A) all of the conditions to Sterling’s obligations to complete the transaction (other than those conditions that by their nature are to be satisfied at the closing date of the transaction (as long as such conditions would be satisfied as of the date of such written confirmation if the closing were to take place on such date)) have been satisfied or waived (to the extent permitted by applicable law) and (B) Sterling is ready, willing and able to complete the transaction; and (iii) First Advantage has failed to complete the transaction on or prior to the later of the fifth business day after the date on which the closing should have occurred as described under “Closing; Effective Time” and the fifth business day following receipt of the notice from Sterling described clause (ii) of this paragraph (and during this five business day period, Sterling stood ready, willing and able to complete the transaction).

 

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Termination by First Advantage

The merger agreement may be terminated at any time before the effective time by First Advantage if:

 

   

the written consent had not been delivered to First Advantage by no later than one hour after the execution of the merger agreement;

 

   

Sterling enters into any acquisition proposal, any agreement or commitment providing for any acquisition proposal (any such agreement or commitment referred to as a company acquisition agreement) or Sterling has willfully breached in a material respect its obligations described under “No Solicitation of Other Offers by Sterling” or “Change of Recommendation; Match Rights”; or

 

   

(i) Sterling has breached, failed to perform or violated its covenants or agreements under the merger agreement or any of the representations and warranties of Sterling in the merger agreement have become inaccurate, (ii) such breach, failure to perform, violation or inaccuracy would result in the failure of the related conditions to First Advantage’s and Merger Sub’ obligation to close the transaction to be satisfied and is incapable of being cured by the outside date or, if capable of being cured by the outside date, is not cured before the earlier of the business day immediately prior to the outside date and the 30th day following receipt of written notice from First Advantage or Merger Sub of such breach, failure to perform, violation or inaccuracy and (iii) neither First Advantage nor Merger Sub are then in material breach of the merger agreement.

Termination Fee and Expenses

Expenses

Except as otherwise expressly provided in the merger agreement (including the termination fees described below), all costs and expenses incurred in connection with the merger agreement and the transaction will be paid by the party incurring the cost or expense.

Sterling Termination Fee

The merger agreement provides that Sterling will pay (or cause to be paid to) First Advantage a termination fee of $66.3 million if:

 

   

(i) First Advantage had terminated the merger agreement because the written consent had not been delivered to First Advantage by no later than one hour after the execution of the merger agreement or First Advantage or Sterling terminates the merger agreement because at the conclusion of the special meeting (including any adjournments or postponements thereof) that Sterling would be required to convene because such written consent was not delivered to First Advantage and First Advantage did not terminate the merger agreement, the Sterling stockholders did not adopt the merger agreement; (ii) after the date of the merger agreement and prior to the date of such termination, an acquisition proposal was made to the Sterling board of directors or to Sterling management or was publicly disclosed (whether by Sterling or a third party) and (iii) within twelve months of such termination, the acquisition proposal was consummated or a definitive agreement providing for such acquisition proposal was entered into;

 

   

(i) after the date of the merger agreement and prior to termination of the merger agreement, an acquisition proposal is made to the Sterling board of directors or to Sterling management or is publicly disclosed (whether by Sterling or a third party), (ii) First Advantage terminates the merger agreement due to Sterling’s breach of or failure to perform or comply with, one or more of its covenants or agreements under the merger agreement following the making of such acquisition proposal and (iii) within twelve months of such termination, an acquisition proposal is consummated or a definitive agreement providing for an acquisition proposal is entered into;

 

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First Advantage terminates the merger agreement because Sterling enters into a company acquisition agreement or Sterling has willfully breached in a material respect its obligations described under “No Solicitation of Other Offers by Sterling” or “Change of Recommendation; Match Rights”; or

 

   

Sterling terminated the merger agreement in order to enter into a definitive agreement providing for a superior proposal prior to 11:59 p.m. New York City time on March 23, 2024.

When determining whether Sterling will pay First Advantage a termination fee, the term “acquisition proposal” has the meaning assigned to such term as described under “No Solicitation of Other Offers by Sterling,” except that all references to “20%” and “80%” will be replaced with references to “50%”.

In no event will Sterling be obligated to pay the termination fee on more than one occasion. In the event that the termination fee is received by First Advantage and, if applicable, costs and expenses in accordance with the merger agreement, none of Sterling, any of its subsidiaries, any of their respective former, current or future officers, directors, partners, stockholders, managers, members, affiliates or agents will have any further liability or with respect to the merger agreement or the transaction to First Advantage or Merger Sub or any of their respective representatives or affiliates, and payment of the termination fee and such costs and expenses will be First Advantage’s or its affiliates’ sole and exclusive remedy.

First Advantage Termination Fee

The merger agreement provides that First Advantage will pay Sterling a termination fee of:

 

   

(i) $60 million, if First Advantage or Sterling terminate the merger agreement due to the effective time not having occurred on or prior to the outside date and First Advantage did not elect to extend the outside date, or (ii) $90 million, if First Advantage or Sterling terminates the merger agreement due to the effective time not having occurred on or prior to the extended outside date, and, in the case of both (i) and (ii), at the time of such termination, the condition relating to antitrust approvals or the condition relating to no injunction (solely because the relevant injunction or order is in respect of, or any such law is, the HSR Act or any other applicable antitrust law) has not been satisfied and all of the other conditions to complete the transaction (other than those conditions that by their nature are to be satisfied at the closing (as long as such conditions would be satisfied as of such date if the closing were to take place on such date)), have been satisfied or waived (to the extent permitted by applicable law); or

 

   

$100 million (referred to as the financing termination fee), if Sterling terminates the merger agreement because First Advantage fails to complete the transaction within five business days after all of the required conditions have been satisfied and Sterling has confirmed in writing to First Advantage that it stands ready, willing and able to complete the transaction, as described under “Termination of the Merger Agreement—Termination by Sterling”.

In no event will First Advantage be obligated to pay the termination fees described above (individually and collectively referred to as the First Advantage termination fee) on more than one occasion, and in no event will Sterling be entitled to receive both a grant of specific performance that results in completion of the transaction and payment of the First Advantage termination fee (or any kind of monetary damages in connection with the merger agreement or its termination). In the event that the First Advantage termination fee is received by Sterling, together with, if applicable, costs and expenses in accordance with the merger agreement, none of First Advantage, any of its subsidiaries, any financing parties, any of their respective former, current or future officers, directors, partners, stockholders, managers, members, affiliates or agents will have any further liability with respect to the merger agreement or the transaction to Sterling or any of its representatives or affiliates, and payment of the First Advantage termination fee and such costs and expenses will be Sterling’s sole and exclusive remedy.

If the merger agreement is terminated under circumstances in which First Advantage is not obligated to pay the First Advantage termination fee, none of First Advantage, any of its subsidiaries, any financing parties, any

 

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of their respective former, current or future officers, directors, partners, stockholders, managers, members, affiliates or agents will have any further liability with respect to the merger agreement or the transaction to Sterling or any of its representatives or affiliates, and Sterling will not have any other right, remedy or recourse with respect to the merger agreement (including its abandonment or termination) or the transaction or as a result of the failure of the closing to be completed or for a breach (other than, solely in the case of First Advantage and Merger Sub, for a willful and material breach) of any representation, warranty, obligation, covenant or agreement or otherwise as a result of any failure to perform under the merger agreement.

The maximum aggregate monetary liability of First Advantage, any of its subsidiaries, any financing parties, any of their respective former, current or future officers, directors, partners, stockholders, managers, members, affiliates or agents (including as a result of any willful and material breach of the merger agreement) is limited to an amount equal to the financing termination fee. The merger agreement further provides that Sterling, its subsidiaries or any of their respective former, current or future officers, directors, partners, stockholders, managers, members, affiliates or agents may not seek to recover (including by instituting judicial or arbitration proceedings) monetary damages in excess of an amount equal to the financing termination fee arising out of the merger agreement or the transaction or to institute judicial or arbitration proceedings to seek monetary damages if the merger agreement is terminated under circumstances in which First Advantage is not obligated to pay the First Advantage termination fee.

Effect of Termination

In the event of termination of the merger agreement in accordance with the terms of the merger agreement, the merger agreement will become void, (except that the confidentiality agreement between Sterling and First Advantage (together with any defined terms used therein) and provisions relating to (i) no representations (other than those set forth in the merger agreement) by the parties to the merger agreement, (ii) First Advantage’s indemnification, reimbursement and confidentiality obligations and (iii) the effect of termination, (iv) payment of the termination fees and (v) certain other miscellaneous provisions, together with any defined terms used in the provisions referenced in clauses (i) through (v), will survive any such termination), and there will be no liability on the part of any of the parties, except that no party will be relieved of liability for fraud or any willful and material breach of the merger agreement prior to such termination.

Specific Performance

Sterling, First Advantage and Merger Sub have agreed 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. The parties to the merger agreement have therefore agreed that they are entitled to injunctions to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement in the Court of Chancery of the State of Delaware, or, if (and only if) such court finds it lacks jurisdiction, the state or federal courts in the State of Delaware, and any appellate court from the applicable court in the State of Delaware, and, in any action for specific performance, each party waives the defense of adequacy of a remedy at law and waives any requirement for the securing or posting of any bond in connection with such remedy, this being in addition to any other remedy to which they are entitled at law or in equity.

In addition, Sterling is only entitled to specific performance to cause First Advantage to effect the closing if (i) all of the conditions to each party’s obligations to complete the transaction have been satisfied (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions at the closing) or waived in writing by First Advantage as of the date the closing should have occurred, (ii) the financing has been or would be funded at the closing if the closing occurred, (iii) Sterling has irrevocably confirmed in writing to First Advantage that (A) all of the conditions to Sterling’s obligations to complete the transaction (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions at the closing) or Sterling waives any unsatisfied conditions and (B) Sterling is

 

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ready, willing and able to complete the transaction and, if specific performance is granted, will take actions necessary to complete the transaction, and (iv) First Advantage fails to complete the closing on or prior to the date on which the closing should have occurred as described under “Closing; Effective Time”.

Governing Law

Other than in respect of certain actions against the parties providing financing to First Advantage or Merger Sub in connection with the transaction (which actions will be governed by the laws of the State of New York), the merger agreement is governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to conflicts of laws principles that would result in the application of the law of any other state.

Non-Recourse

The merger agreement may only be enforced against the entities that are expressly named as parties thereto, and only with respect to the specific obligations set forth in the merger agreement with respect to such parties. No former, current or future officers, directors, partners, stockholders, managers, members, affiliates or agents of any party will have any liability for any obligations or liabilities of any party under the merger agreement or for any claim or proceeding (whether in tort, contract or otherwise) related to the transaction or in respect of any representations made or alleged to be made in connection with the merger agreement.

 

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THE SUPPORT AGREEMENT

Concurrently with the execution of the merger agreement, on February 28, 2024, First Advantage entered into a support agreement (referred to as the support agreement) with the Specified Stockholders. The following section summarizes material provisions of the support agreement. This summary does not purport to be complete and may not contain all of the information about the voting agreements that is important to you. This summary is subject to, and qualified in its entirety by reference to, the support agreement, which is attached as Annex B to this information statement/prospectus, and which is incorporated by reference into this information statement/prospectus. The rights and obligations of the parties are governed by the express terms and conditions of the support agreement and not by this summary or any other information contained in this information statement/prospectus. You are urged to read the support agreement carefully and in its entirety.

Subject to the terms and conditions of the support agreement, the Specified Stockholders agreed, among other things, to duly execute and validly deliver to Sterling a written consent to adopt the merger agreement and approve the transactions contemplated thereby, including the transaction. The Specified Stockholders delivered such written consent on February 28, 2024. Under Delaware law and Sterling’s organizational documents, adoption of the merger agreement by Sterling’s stockholders required the affirmative vote of the holders of a majority of the issued and outstanding shares of Sterling common stock in order to effect the transaction. The requisite Sterling stockholder approval was obtained when the written consent was delivered by the Specified Stockholders, which owned 49,807,744 shares of Sterling common stock, representing approximately 53.5% of the issued and outstanding shares of Sterling common stock, on February 28, 2024.

The Specified Stockholders further agreed, in the event that Sterling is required, pursuant to the terms of the merger agreement, to hold a meeting of Sterling stockholders to approve the merger agreement and the transaction, to vote or cause to be voted (including by written consent) all of their shares of Sterling common stock (i) in favor of the adoption of the merger agreement and the approval of the transaction, the approval of any proposal to adjourn or postpone any meeting of Sterling stockholders to a later date if Sterling or First Advantage proposes or requests such postponement or adjournment in accordance with the terms of the merger agreement and the approval of any other proposal considered and voted upon by Sterling stockholders at any meeting of Sterling stockholders necessary for completion of the transaction, and against (ii) any acquisition proposal or any other proposal made in opposition to the merger agreement, any change in a majority of the Sterling board of directors, any amendment to Sterling’s organizational documents, any material change in the capitalization of Sterling or Sterling’s corporate structure or any liquidation, dissolution, winding up or reorganization of Sterling and any other action, agreement or transaction involving Sterling that is intended, or would reasonably be expected, to impede, interfere with, delay, postpone, adversely affect or prevent the completion of the transaction. The Specified Stockholders’ obligations set forth above apply whether or not the transaction is recommended by the Sterling board of directors or there has been any change in the Sterling board of director’s recommendation with respect to the transaction.

Prior to the termination of the support agreement, each Specified Stockholder agrees that it will not (ii) solicit, initiate or knowingly encourage or facilitate (including by way of providing non-public information) any inquiry, proposal or offer, or the making, submission or announcement of any inquiry, proposal or offer which constitutes or could be reasonably expected to lead to a competing proposal to acquire Sterling, (ii) participate in any negotiations regarding, or furnish to any Person any nonpublic information relating to Sterling or any of its subsidiaries in connection with a competing proposal to acquire Sterling, other than to state that the Specified Stockholder is prohibited under the support agreement from engaging in any such discussions or negotiations, (c) adopt, approve, endorse or recommend, or publicly propose to adopt, approve, endorse or recommend, any competing proposal to acquire Sterling, (d) approve or authorize, or cause or permit Sterling or any of its subsidiaries to enter into, any merger agreement, acquisition agreement, reorganization agreement, letter of intent, memorandum of understanding, agreement in principle, option agreement, joint venture agreement, partnership agreement or similar agreement or document relating to, or any other agreement or commitment providing for, any competing proposal to acquire Sterling or (e) agree to or authorize, in writing or otherwise, any of the foregoing actions.

 

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Except for certain obligations set forth therein, the support agreement terminates upon the earlier of (i) the completion of the transaction in accordance with the terms and conditions set forth in the merger agreement and (ii) the termination of the merger agreement in accordance with its terms.

On February 28, 2024, when the written consent was delivered to Sterling, the Specified Stockholders owned 49,807,744 shares of Sterling common stock, representing approximately 53.5% of the issued and outstanding shares of Sterling common stock on that date.

 

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THE STOCKHOLDERS AGREEMENT

Concurrently with the execution of the merger agreement, on February 28, 2024, First Advantage entered into a stockholders agreement (referred to as the stockholders agreement) with the Specified Stockholders. The stockholders agreement grants First Advantage the right to repurchase its shares from certain parties party thereto following certain sales or transfers of shares by such party (any such sale or transfer referred to as a sale), in an amount equal to up to 17.647% of the shares sold or transferred in such sale.

The stockholders agreement also grants certain of the parties thereto (referred to as the Specified Holders) customary shelf registration and piggyback registration rights. As long as the Specified Holders propose to sell registrable securities at an aggregate price to the public of at least $25 million dollars or they propose to sell all of their registrable securities, at any time that First Advantage is eligible to effect a registration on Form S-3 (or any successor to Form S-3), a majority in interest of the Specified Holders may request in writing that First Advantage effect a registration on Form S-3 or any similar shelf registration statement under the Securities Act covering the registrable securities owned by the Specified Stockholders.

In addition, First Advantage must notify the Specified Holders prior to the public filing of certain registration statements in connection with any underwritten offering of First Advantage common stock for the account of First Advantage or any First Advantage stockholder. The Specified Stockholders have the right to include the number of registrable securities they own in such registration statements as they request by providing written notice, and participate on such registration or offering on the same terms as the other participating First Advantage stockholders. Upon such written request by the Specified Stockholders, First Advantage will use its reasonable best efforts to effect the registration or offering. If the number of shares to be included in an underwritten offering needs to be limited due to marketing factors (as advised by the applicable underwriters), such as an adverse effect on the per share offering price, the number of shares that may be included in the underwriting will be allocated first to First Advantage for its own account (in the event of a First Advantage-initiated offering) or to the initial demanding stockholder and any other stockholder having pari passu registration rights as such demanding stockholder and to the Specified Holders that have duly requested shares to be included therein on a pro rata basis based on the number of registrable securities held by such stockholders.

The foregoing summary does not purport to be complete and may not contain all of the information about the stockholders agreement that is important to you. This summary is subject to, and qualified in its entirety by reference to, the stockholders agreement, which is attached to this information statement/prospectus as Annex C, and which is incorporated by reference into this information statement/prospectus. The rights and obligations of the parties are governed by the express terms and conditions of the stockholders agreement and not by this summary or any other information contained in this information statement/prospectus. You are urged to read the stockholders agreement carefully and in its entirety.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information presents the pro forma effects of the acquisition of Sterling by First Advantage.

On February 28, 2024, First Advantage, Sterling and Merger Sub entered into the merger agreement. Pursuant to the terms of the merger agreement, First Advantage will indirectly acquire Sterling via the merger of Merger Sub with and into Sterling, with Sterling surviving the merger with Merger Sub and becoming an indirect, wholly-owned subsidiary of First Advantage. For additional information regarding the effects of the transaction, please see the section titled “The Transaction”.

As a result of the transaction, each share of Sterling common stock issued and outstanding immediately prior to the effective time (other than (i) cancelled shares, (ii) dissenting shares and (iii) excluded shares) will be converted into the right to receive, at the election of each holder of such share of Sterling common stock, and subject to proration in accordance with the merger agreement, either:

(a) $16.73 in cash, without interest; or

(b) 0.979 of a share of First Advantage common stock.

The stockholder election will be subject to a proration mechanism, such that the total number of shares of Sterling common stock entitled to receive the cash consideration will be equal to 72%, and the total number of shares of Sterling common stock entitled to receive the stock consideration will be equal to 28%, of the aggregate number of shares of Sterling common stock issued and outstanding immediately prior to the completion of the transaction. Holders of Sterling common stock that do not make an election will be treated as having elected to receive the cash consideration or the stock consideration in accordance with and subject to the proration methodology in the merger agreement. In no event shall the aggregate number of First Advantage shares to be issued to holders of Sterling common stock exceed 27,150,000 shares. For additional information regarding the merger consideration, please see the section titled “The Transaction—Merger Consideration”.

The transaction will be treated as a business combination for accounting purposes. First Advantage will be determined to be the accounting acquirer after taking into account the relative share ownership, the composition of the governing body of the combined entity, and the designation of certain senior management positions. The purchase price of the transaction will be allocated to the assets acquired and liabilities assumed based on their preliminary fair values as of the closing date.

Financing

In connection with the merger agreement, First Advantage entered into a debt commitment letter with certain financial institutions that committed to provide, subject to the terms and conditions set forth therein, a senior secured incremental term loan in an aggregate principal amount of $1,820 million (referred to in this section as the term loan credit facility) and an increase of First Advantage’s existing revolving commitments in an aggregate principal amount of $150 million, bringing the total revolving commitment to $250 million (referred to in this section as the revolving credit facility and, together with the term loan facility, the term loan and revolving credit facility). For additional information regarding the anticipated financing of the transaction, please see the section titled “The Transaction—Financing of the Transaction.”

First Advantage plans to fund the cash portion of the transaction through a combination of (i) cash on hand and (ii) new debt financing. The unaudited pro forma condensed combined financial information assumes that First Advantage will borrow $1,661 million of the committed $1,820 million term loan credit facility in order to complete the transaction, as further discussed in Note 6. First Advantage does not anticipate borrowing under the revolving credit facility to finance the transaction based on cash on hand as of March 31, 2024, and instead

 

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plans to preserve the funding for future potential operational needs. For additional information regarding the anticipated financing of the transaction, please see the section titled “The Transaction—Financing of the Transaction.”

Debt issuance costs are expected to be incurred for the term loan and revolving credit facility and will be amortized over the respective terms of the agreements.

These assumptions and expectations are subject to change, and the debt issuance costs to be incurred and related interest expense could vary significantly from what is assumed in the unaudited pro forma condensed combined financial information based on the amount utilized under the term loan and revolving credit facility at the time of closing. Other factors that are subject to change include, but are not limited to, the timing of borrowings, the amount of cash on hand at the time of closing and inputs to interest rate determination on debt instruments issued.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 31, 2024

(in thousands, except share amounts)

 

    Historical                                         Pro Forma
Combined
 
    As of March 31, 2024                                      
    First
Advantage
    Sterling     Reclassification
Adjustment
(Note 2)
          Transaction
Accounting
Adjustment
(Note 4)
          Financing
Adjustment
(Note 6)
          As of
March 31,
2024
 

ASSETS

                 

CURRENT ASSETS

                 

Cash and cash equivalents

  $ 245,436     $ 66,979         $ (1,158,559     4(a)     $ 1,616,165       6(a)     $ 125,000  
            (559,317     4(a)        
            (40,242     4(b)        
            (45,462     4(c)        

Restricted cash

    135       —                    135  

Short-term investments

    600       —                    600  

Accounts receivable (net of allowance for doubtful accounts)

    129,011       157,392                   286,403  

Insurance receivables

    —        2,895                   2,895  

Prepaid expenses and other current assets

    21,795       —        15,909       2(a)       (3,397     4(d)           43,701  
        11,382       2(b)       (1,988     4(i)        

Prepaid expenses

    —        11,382       (11,382     2(b)               —   

Income tax receivable

    2,568       —        1,367       2(a)               3,935  

Other current assets

    —        17,276       (17,276     2(a)               —   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

Total current assets

    399,545       255,924       —          (1,808,965       1,616,165         462,669  

Property and equipment, net

    71,352       7,329       36,676       2(c)       198,324       4(g)           313,681  

Goodwill

    819,633       902,862           (902,862     4(e)           2,168,701  
            1,349,068       4(f)        

Trade names, net

    64,370       —        34,018       2(d)       111,982       4(g)           210,370  

Customer lists, net

    262,876       —        188,238       2(d)       414,762       4(g)           865,876  

Other intangible assets, net

    2,138       —        5,626       2(d)       (5,626     4(g)           2,138  

Intangible assets, net

    —        264,558       (36,676     2(c)               —   
        (227,882     2(d)            

Deferred tax asset, net

    2,797       4,748                   7,545  

Other assets

    9,202       —        15,605       2(e)       (2,585     4(d)           22,222  

Operating lease right-of-use asset

    —        5,872       (5,872     2(e)               —   

Other noncurrent assets, net

    —        9,733       (9,733     2(e)               —   
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

TOTAL ASSETS

  $ 1,631,913     $ 1,451,026     $ —        $ (645,902     $ 1,616,165       $ 4,053,202  
 

 

 

   

 

 

   

 

 

     

 

 

     

 

 

     

 

 

 

LIABILITIES AND EQUITY

                 

CURRENT LIABILITIES

                 

Accounts payable

  $ 47,956     $ 47,486           (3,354     4(b)         $ 92,088  

Accrued compensation

    12,742       —        16,499       2(h)       12,840       4(a)           42,081  

Litigation settlement obligation

    —        5,224       (5,224     2(g)               —   

Accrued liabilities

    24,102       73,605       16,066       2(f)       (7,227     4(b)           84,985  
        5,224       2(g)       (10,286     4(c)        
        (16,499     2(h)            

Current portion of long-term debt

    —        15,000           (15,000     4(j)       66,427       6(a)       66,427  

Current portion of operating lease liability

    3,367       3,879                   7,246  

Income tax payable

    2,988       3,523                   6,511  

Deferred revenues

    2,043       —        1,766       2(f)               3,809  

Other current liabilities

    —        17,832       (17,832     2(f)         </