Item 1.01. Entry Into A Material Definitive Agreement.
On February 1, 2021, AdaptHealth Corp., a Delaware corporation (the "Company"),
completed the previously announced acquisition of AeroCare Holdings, Inc., a
Delaware corporation ("AeroCare"), pursuant to the terms of that certain
Agreement and Plan of Merger, dated as of December 1, 2020, by and among the
Company, AeroCare, AH Apollo Merger Sub Inc., a Delaware corporation and
wholly-owned subsidiary of the Company ("Merger Sub I"), AH Apollo Merger Sub II
LLC, a Delaware corporation and wholly-owned subsidiary of the Company (formerly
known as AH Apollo Merger Sub II Inc., a Delaware corporation) ("Merger Sub
II"), and Peloton Equity, LLC, a Delaware limited liability company, solely in
its capacity as the representative, agent and attorney-in-fact of the AeroCare
equityholders (the "Merger Agreement") through (a) the merger of Merger Sub I
with and into AeroCare, with AeroCare continuing as the surviving corporation of
such merger (the "First Merger") and (b) the merger of AeroCare with and into
Merger Sub II, with Merger Sub II continuing as the surviving limited liability
company of such merger (the "Second Merger" and, collectively with the First
Merger, the "Acquisition"). In connection with the Second Merger, the surviving
limited liability company changed its name to AeroCare Holdings LLC.
Certificate of Designations
On January 29, 2021 in connection with the Acquisition, the Company filed a
Certificate of Designation, Preferences and Rights of Series C Convertible
Preferred Stock, par value $0.0001 per share, of the Company (the "Certificate
of Designations") with the Secretary of State of the State of Delaware.
The terms of the Series C Preferred Stock have been previously disclosed in Item
1.01 of the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission (the "SEC") on December 7, 2020, which description is
incorporated herein by reference. Such description is qualified in its entirety
by the full text of the Series C Certificate of Designations, which was filed as
Annex B to the Schedule 14A filed with the SEC on January 20, 2021 and is
incorporated herein by reference.
Joinders to Amended and Restated Registration Rights Agreement
On February 1, 2021, in connection with the Acquisition and pursuant to the
terms of the Merger Agreement, the Company entered into joinders to that certain
Amended and Restated Registration Rights Agreement, dated as of July 1, 2020 (as
amended, the "Registration Rights Agreement"), by and among the Company,
AdaptHealth Holdings LLC, a Delaware limited liability company and direct
subsidiary of the Company, and certain other holders of the Company's capital
stock, which joinders, among other things, provide stockholders of AeroCare
receiving Class A Common Stock and Series C Preferred Stock pursuant to the
Merger Agreement with certain registration rights with respect to the shares of
Class A Common Stock and the shares of Class A Common Stock issuable upon
conversion (subject to the terms and conditions of the Certificate of
Designations) of the Series C Preferred Stock.
The foregoing summary of the Registration Rights Agreement is qualified in its
entirety by the full text thereof, which was filed as Exhibit 4.1 to the Form
8-K filed with the SEC on July 2, 2020, including an amendment thereto filed as
Exhibit 4.1 to the Form 8-K filed with the SEC on December 7, 2020 and is
incorporated herein by reference.
Credit Agreement
On January 20, 2021, AdaptHealth LLC (the "Borrower"), a subsidiary of the
. . .
Item 2.01. Completion of Acquisition or Disposition of Assets.
As a result of the Acquisition, on February 1, 2021, the Company acquired all of
the issued and outstanding equity interests in AeroCare, which resulted in
AeroCare becoming an indirect subsidiary of the Company pursuant to the terms of
the Merger Agreement.
The base purchase price for the Acquisition was $1.1 billion in cash plus shares
of Class A Common Stock and shares of Class C Convertible Preferred Stock,
representing, in the aggregate, on an as-converted basis, the economic
equivalent of 31,000,000 shares of Class A Common Stock, subject to customary
adjustments to the cash portion of such consideration for cash, indebtedness,
transaction expenses and net working capital (as compared to an agreed target
net working capital amount) and certain other adjustments and subject to escrows
to fund certain potential indemnification matters and potential amounts owed by
AeroCare equityholders with respect to post-closing purchase price adjustments,
if any. The Company funded the cash portion of the Acquisition and associated
costs with cash on hand, an unsecured senior notes issuance, issuances of equity
and incremental debt pursuant to the Credit Agreement.
The terms and conditions of the Merger Agreement have been previously
disclosed in Item 1.01 of the Company's Current Report on Form 8-K filed with
the SEC on December 7, 2020, which description is incorporated herein by
reference.
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Item 3.02. Unregistered Sale of Equity Securities.
A portion of the consideration issued pursuant to the Merger Agreement, as
described in Item 1.01 of this report, which description is incorporated by
reference into this Item 3.02, will consist of unregistered shares of Class A
Common Stock and Series C Preferred Stock. Such shares were issued in private
placements exempt from registration under 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), because the offer and sale of such securities
does not involve a "public offering," as defined in Section 4(2) of the
Securities Act, and other applicable requirements will be met.
Item 3.03. Material Modifications to Rights of Security Holders.
The information contained in Item 1.01 above is incorporated herein by
reference.
Possible Effects on Rights of Existing Stockholders
Existing shareholders will suffer dilution in ownership interests and voting
rights as a result of the issuance of shares of the Company's Class A Common
Stock upon the conversion of the Series C Preferred Stock following the removal
of the conversion restrictions thereon. The sale into the public market of Class
A Common Stock issued upon the conversion of such securities also could
materially and adversely affect the market price of the Class A Common Stock.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Pursuant to the Merger Agreement, the Company agreed to increase the size of its
Board of Directors (the "Board") by two members and to appoint to the Board
Stephen Griggs and one individual designated by Peloton Equity AeroCare SPV I,
L.P. and SkyKnight Aero Holdings, LLC. Effective as of February 2, 2021, the
Board voted to increase the size of the Board by two members and appointed (i)
Mr. Griggs to the Board as a Class I director with a term expiring at the
Company's 2023 annual meeting of stockholders and (ii) Theodore Lundberg as a
Class II director with a term expiring at the Company's 2021 annual meeting of
stockholders, to fill the newly-created vacancies. Mr. Lundberg will receive the
same compensation opportunities as the Company's other non-employee directors.
Effective February 2, 2021, the Company hired and appointed Mr. Griggs, age 63,
as the Company's Co-Chief Executive Officer ("Co-CEO"), and changed the title of
Luke McGee, the Company's Chief Executive Officer to the Company's Co-Chief
Executive Officer. On January 28, 2021, in recognition of Mr. McGee's
significant contributions and efforts in connection with the Acquisition, the
Compensation Committee of the Board approved a cash transaction bonus of $2
million to Mr. McGee, subject to the consummation of, and payable on the first
regularly scheduled payroll date following, the closing of the Acquisition.
There were no arrangements or understandings between Mr. Griggs and any other
person pursuant to which Mr. Griggs was selected as an officer. Mr. Griggs has
no family relationships subject to disclosure under Item 401(d) of Regulation
S-K or any direct or indirect material interest in any transaction required to
be disclosed pursuant to Item 404(a) of Regulation S-K.
Mr. Griggs has served as the President and Chief Executive Officer of AeroCare,
a leading national technology-enabled respiratory and home medical equipment
("HME") distribution platform in the United States, since November 2002. Mr.
Griggs holds a B.S.B.A. in Business Management from East Tennessee State
University and B.S.B.A. in Accounting from the University of Central Florida.
On February 2, 2021, the Company entered into an employment agreement with Mr.
Griggs (the "Employment Agreement") that will govern the terms of his employment
as the Company's Co-CEO. Pursuant to the terms of the Employment Agreement, Mr.
Griggs is entitled to receive an annual base salary of $500,000 and is eligible
to receive a target annual incentive bonus equal to 100% of his base salary
based on the achievement of annual company and individual performance objectives
for such fiscal year, subject to continued employment through the applicable
payment date. Mr. Griggs is also eligible to participate in the Company's
employee benefit programs offered to similarly situated employees.
Pursuant to the Employment Agreement, if Mr. Griggs' employment is terminated by
the Company without "cause" or (y) by Mr. Griggs for "good reason" (as such
terms are defined in the Employment Agreement), subject to his execution and
non-revocation of a general release of claims in favor of the Company and its
affiliates, Mr. Griggs is entitled to entitled to (x) any unpaid annual bonus in
respect of any completed fiscal year that has ended prior to the date of such
termination, (y) continued payment of base salary for a period of 24 months
following such date of termination, and (z) an amount equal to two times his
then-current target annual bonus, payable in substantially equal installments
during the 24-month period following such date of termination in accordance with
regular payroll practices.
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In connection with the Employment Agreement, Mr. Griggs entered into a
restrictive covenant agreement, which includes a 24-month post-termination
non-compete and non-solicit of the employees, consultants, clients, customers
and other business relationships of the Company and its affiliates, and an
indefinite covenant against making any disparaging or defamatory comments
regarding the Company or any of its affiliates.
The foregoing description of the Employment Agreement is qualified in its
entirety by reference to the full text of the Employment Agreement, which is
attached as Exhibit 10.2 hereto and incorporated by reference herein.
There were no other arrangements or understandings between Mr. Lundberg or Mr.
Griggs, on the one hand, and any other person, on the other, pursuant to which
Mr. Lundberg or Mr. Griggs were selected as a director. Mr. Lundberg has no
direct or indirect material interest in any transaction required to be disclosed
pursuant to Item 404(a) of Regulation S-K. Pursuant to the Merger Agreement, Mr.
Griggs received (i) 1,808,366 shares of the Company's Class A Common Stock; (ii)
16,862.19 shares of the Company's Series C Preferred Stock; (iii) 559,071 stock
options to purchase Class A Common Stock at an exercise price of $4.38 per share
and 782,699 stock options to purchase Class A Common Stock at an exercise price
of $8.50 per share, in each case, as merger consideration; and (iv)
approximately $74.9 million (net) cash consideration.
For more information on the Merger Agreement, including the aggregate
consideration, please refer to the description thereof under the heading
"Agreement and Plan of Merger" in Item 1.01 of the Company's Current Report on
Form 8-K filed with the SEC on December 7, 2020 and the full text of the Merger
. . .
Item 5.03. Amendments to Articles of Incorporation or Bylaws, Change in Fiscal
Year.
The information contained in Item 1.01 above with respect to the Series C
Certificate of Designations is incorporated herein by reference.
Item 7.01. Regulation FD Disclosure.
On February 1, 2021, the Company issued a press release announcing the
consummation of the Acquisition, a copy of which is furnished as Exhibit 99.1
hereto and incorporated herein by reference. Such exhibit and the information
set forth therein shall not be deemed to be filed for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise be subject to the liabilities of that section, nor shall it be deemed
to be incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act.
Forward-looking Statements
This Current Report on Form 8-K includes certain statements that are not
historical facts but are forward-looking statements for purposes of the safe
harbor provisions under the United States Private Securities Litigation Reform
Act of 1995. Forward-looking statements generally are accompanied by words such
as "believe," "may," "will," "estimate," "continue," "anticipate," "intend,"
"expect," "should," "would," "plan," "predict," "potential," "seem," "seek,"
"future," "outlook," and similar expressions that predict or indicate future
events or trends or that are not statements of historical matters. These
forward-looking statements include, but are not limited to, statements regarding
projections, estimates and forecasts of revenue and other financial and
performance metrics, projections of market opportunity and expectations, the
Company's acquisition pipeline and the impact of the recent coronavirus
(COVID-19) pandemic and our response to it. These statements are based on
various assumptions and on the current expectations of Company management and
are not predictions of actual performance. These forward-looking statements are
provided for illustrative purposes only and are not intended to serve as, and
must not be relied on, by any investor as, a guarantee, an assurance, a
prediction or a definitive statement of fact or probability. Actual events and
circumstances are difficult or impossible to predict and will differ from
assumptions. Many actual events and circumstances are beyond the control of the
Company.
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These forward-looking statements are subject to a number of risks and
uncertainties, including the outcome of judicial and administrative proceedings
to which the Company may become a party or governmental investigations to which
the Company may become subject that could interrupt or limit the Company's
operations, result in adverse judgments, settlements or fines and create
negative publicity; changes in the Company's clients' preferences, prospects and
the competitive conditions prevailing in the healthcare sector; and the impact
of the recent coronavirus (COVID-19) pandemic and the Company's response to it.
A further description of such risks and uncertainties can be found in the
Company's filings with the SEC. If the risks materialize or assumptions prove
incorrect, actual results could differ materially from the results implied by
these forward-looking statements. There may be additional risks that the Company
presently knows or that the Company currently believes are immaterial that could
also cause actual results to differ from those contained in the forward-looking
statements. In addition, forward-looking statements reflect the Company's
expectations, plans or forecasts of future events and views as of the date of
this press release. The Company anticipates that subsequent events and
developments will cause the Company's assessments to change. However, while the
Company may elect to update these forward-looking statements at some point in
the future, the Company specifically disclaims any obligation to do so. These
forward-looking statements should not be relied upon as representing the
Company's assessments as of any date subsequent to the date of this press
release. Accordingly, undue reliance should not be placed upon the
forward-looking statements.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
· The audited consolidated financial statements of AeroCare Holdings, Inc. as
of December 31, 2019 and 2018 and for the years then ended and the related
notes to the financial statements are incorporated herein by reference to
Exhibit 99.3 to the Current Report on Form 8-K filed with the SEC on December
14, 2020.
· The unaudited consolidated interim financial statements of AeroCare
Holdings, Inc. as of September 30, 2020 and December 31, 2019 and for the nine
months ended September 30, 2020 and 2019, and the related notes to the
financial statements are incorporated herein by reference to Exhibit 99.4 to
the Current Report on Form 8-K filed with the SEC on December 14, 2020.
(b) Pro Forma Financial Information.
? The unaudited pro forma condensed combined financial information, and the
related notes thereto, of AdaptHealth Corp. as of and for the nine months ended
September 30, 2020 and for the year ended December 31, 2019 are incorporated
herein by reference to Exhibit 99.6 to the Current Report on Form 8-K filed
with the SEC on December 14, 2020
(d) Exhibits
3.1 Certificate of Designation, Preferences and Rights of Series C
Convertible Preferred Stock, par value $0.0001 per share, of the
Company1
4.1 Amended and Restated Registration Rights Agreement, dated as of July 1,
2020, by and among the Company, the OEP Purchaser, Deerfield Partners,
Deerfield Private Design Fund IV, L.P. and the other persons listed on
the signature pages thereto2
4.2 Amendment to Amended and Restated Registration Rights Agreement, dated
as of December 1, 2020, by and among the Company, AdaptHealth Holdings
LLC and the other persons listed on the signature pages thereto3
10.1 Credit Agreement, dated January 20, 2021, by and between AdaptHealth
LLC, the lenders party thereto and Regions Bank, as administrative
agent
10.2 Employment Agreement, dated February 2, 2021, by and between Stephen
Griggs and AdaptHealth Corp.
10.3 Agreement and Plan of Merger, dated as of December 1, 2020, by and
among the Company, AeroCare Holdings, Inc., AH Apollo Merger Sub Inc., AH
Apollo Merger Sub II Inc. and Peloton Equity I, L.P., solely in its
capacity as the representative, agent and attorney-in-fact of the
AeroCare equityholders4
10.4 Form of Indemnification Agreement5
99.1 Press Release, dated February 1, 2021
99.3 Audited consolidated financial statements of AeroCare Holdings, Inc. as
of December 31, 2019 and 2018 and for the years ended December 31, 2019
and 20186
99.4 Unaudited consolidated interim financial statements of AeroCare
Holdings, Inc. as of September 30, 2020 and December 31, 2019 and for the
nine months ended September 30, 2020 and 20197
99.6 Unaudited pro forma condensed combined financial information, and the
related notes thereto, of AdaptHealth Corp. as of and for the nine months
ended September 30, 2020 and 2019 and for the year ended December 31,
20198
104 The cover page form this Current Report on Form 8-K, formatted Inline
XBRL
1 Incorporated by reference to Annex B to the Schedule 14A filed with the SEC on
January 20, 2021.
2 Incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on
July 2, 2020.
3 Incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on
December 7, 2020.
4 Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC
on December 7, 2020.
5 Incorporated by reference to Exhibit 10.4 to the Form 8-K filed with the SEC
on November 14, 2019.
6 Incorporated by reference to Exhibit 99.3 to the Form 8-K filed with the SEC
on December 14, 2020.
7 Incorporated by reference to Exhibit 99.4 to the Form 8-K filed with the SEC
on December 14, 2020.
8 Incorporated by reference to Exhibit 99.6 to the Form 8-K filed with the SEC
on December 14, 2020.
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