Item 1.01 Entry Into a Material Definitive Agreement.
On December 31, 2019, Universal Care Acquisition Partners, LLC, a Delaware
limited liability company ("UCAP"), entered into a Stock Purchase Agreement (the
"SPA") among UCAP, Bright Health Company of California, Inc., a California
corporation ("Bright"), Bright Health, Inc., a Delaware corporation (solely for
purposes of section 13.22 thereto), Universal Care, Inc., a California
corporation doing business as Brand New Day ("Universal"), Howard E. And Elaine
H. Davis Family Trust, Howard E. And Elaine H. Davis Grandchildren's Trust,
Jeffrey V. Davis, Jay B. Davis, Laura Davis-Loschiavo, Marc M. Davis, Peter And
Helen Lee Family Trust, and, in their respective capacities as seller
representatives, Kenneth Sim, M.D., Thomas Lam, M.D., Jay Davis and Jeffrey
Davis.
Pursuant to the SPA, UCAP and all of the other shareholders of Universal agreed
to sell to Bright all of their respective shares of capital stock in Universal
(collectively, the "Shares"). Universal is a private full-service health plan.
UCAP has a 48.9% ownership interest in Universal (the "Percentage Interest").
UCAP is a wholly-owned subsidiary of Allied Physicians of California, a
Professional Medical Corporation dba Allied Pacific of California IPA ("APC"),
and both are consolidated variable interest entities of Apollo Medical Holdings,
Inc. (the "Company"). As set forth in the Company's definitive proxy statement
filed with the Securities and Exchange Commission (the "SEC") on July 31, 2019
(the "Proxy Statement"), the Percentage Interest is an "Excluded Asset" that
remains solely for the benefit of APC and its shareholders. As such, any
proceeds or gain on the sale of APC's indirect ownership interest in Universal
will have no impact on the Series A Dividend payable by APC to AP-AMH Medical
Corporation as described in the Proxy Statement and consequently the sale will
not affect net income attributable to the Company.
The aggregate purchase price for the Shares is $200 million in cash plus
non-cash consideration consisting of shares of Bright Health, Inc.'s preferred
stock having a stipulated value of $80 million, subject to certain adjustments
for: (i) indebtedness of Universal existing as of the closing of the transaction
(including, to the extent not otherwise repaid by Universal prior to the
closing, indebtedness owed to shareholders of Universal of which $16.5 million
is allocable as owing to UCAP); (ii) maintenance of stipulated tangible net
equity, and (iii) customary transaction expenses. In addition, an aggregate of
$44 million will be deducted from the purchase price and held in escrow: (A) for
reconciliation of purchase price adjustments (the "Adjustment Escrow"), and (B)
for seller indemnification obligations and achievement by Universal of certain
target gross margins for the calendar year ending December 31, 2020 (the
"Indemnity Escrow"). Any amounts remaining in the Adjustment Escrow that have
not been offset or reserved for claims are to be released pursuant to a purchase
price reconciliation process commencing 12 months after the closing. Amounts
remaining in the Indemnity Escrow that have not been offset or reserved for
claims are to be released in a process with defined amounts and timing
concluding 24 months after the closing. APC will receive UCAP's Percentage
Interest of the aggregate purchase price and escrowed amounts to be released.
The completion of the transaction is subject to certain closing conditions,
including but not limited to, certain regulatory or governmental filings and
approvals having been made or obtained, and receipt of various third party
consents. The SPA includes customary representations, warranties, covenants and
termination provisions for each of the parties. UCAP has also agreed to
indemnify Bright, to the extent of its Percentage Interest, for covered losses
arising from liabilities incurred from breaches of UCAP's and/or Universal's
respective representations, warranties and covenants.
The SPA also contains a non-compete provision which restricts UCAP and its
affiliates, for a period of two years following the closing, from competing with
Bright as a licensed full service health care service plan in certain designated
California counties, but expressly permits UCAP and its affiliates to engage in
any other form of managed care services business, including owning and operating
one or more restricted health care service plans, accountable care
organizations, medical groups, independent physician practice associations,
hospitals and/or other healthcare providers.
The parties may terminate the SPA if the transaction is not consummated on or
prior to December 31, 2020 through no fault of the parties. If the closing fails
to occur by December 31, 2020 due to Bright's insufficient financing to
consummate the transaction or failure to obtain a required regulatory or
governmental approval due to a final, non-appealable determination that Bright
or its affiliates is insufficiently capitalized, Bright will then be obligated
to pay Universal a $15 million termination fee.
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