Item 1.01. Entry Into A Material Definitive Agreement.
Agreement and Plan of Merger
On December 1, 2020, AdaptHealth Corp., a Delaware corporation (the "Company"),
AeroCare Holdings, Inc., a Delaware corporation ("AeroCare"), AH Apollo Merger
Sub Inc., a Delaware corporation and wholly-owned subsidiary of the Company
("Merger Sub I"), AH Apollo Merger Sub II Inc., a Delaware corporation and
wholly-owned subsidiary of the Company ("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
"Stockholder Representative"), entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which the Company agreed to acquire AeroCare
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 corporation of such merger (the "Second Merger" and,
collectively with the First Merger, the "Acquisition"), subject to the
satisfaction or waiver of certain conditions as further described below.
The purchase price for the Acquisition consists of $1.1 billion in cash plus
shares (the "Common Shares") of Class A Common Stock, par value $0.0001 per
share ("Class A Common Stock"), of the Company, and shares (the "Preferred
Shares" and, collectively with the Common Shares, the "Shares") of a new series
of preferred stock of the Company designated as "Series C Convertible Preferred
Stock," par value $0.0001 per share ("Series C 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 rights and preferences of the Series C Preferred Stock will be designated by
the Company's board of directors in a certificate of designations (the
"Certificate of Designations") forming part of the Company's second amended and
restated certificate of incorporation, which Certificate of Designations will be
filed prior to the closing of the Acquisition with the Delaware Secretary of
State in the form attached to the Merger Agreement.
The Series C Preferred Stock will rank senior to the Class A Common Stock with
respect to rights on the distribution of assets on any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, having a
liquidation preference equal to its par value of $0.0001 per share. The Series C
Preferred Stock will participate equally and ratably on an as-converted basis
with the holders of Class A Common Stock in all cash dividends paid on the Class
A Common Stock.
The conversion of Series C Preferred Stock into Class A Common Stock is subject
to Stockholder Approval (as defined and further described below); provided that,
subject to certain exceptions in connection with a change of control, the holder
thereof may elect to exchange the Series C Preferred Stock following the
one-year anniversary of the issuance thereof for the cash value of such shares
as calculated based on the volume-weighted average price per share of Class A
Common Stock on the day immediately prior to the date of conversion, in lieu of
delivery of shares of Class A Common Stock (if the issuance of the shares
deliverable upon conversion would otherwise violate the Nasdaq Listing Rules
(the "Nasdaq Rules")). After the Stockholder Approval is obtained, the Company
or the holder thereof may convert the Series C Preferred Stock into Class A
Common Stock at its election. The Series C Preferred Stock will be non-voting.
Pursuant to the Merger Agreement, the Company agreed to hold a meeting of
stockholders at which a proposal will be considered with respect to the
Stockholder Approval and to prepare and file a preliminary proxy statement
relating to such meeting as promptly as reasonably practicable and in any event
no later than the 60th day following the closing of the Acquisition (the
"Closing Date"). In addition, as further described below, on December 1, 2020,
certain stockholders of the Company entered into agreements with the Stockholder
Representative to vote all shares of common stock of the Company owned by such
persons as of the applicable record date in favor of the Stockholder Approval.
Pursuant to the Merger Agreement, the Company agreed to increase the size of its
board of directors by two members in order to elect to the board of directors,
promptly following and in any event within five business days following the
Closing Date, Ted Lundberg as a Class II director (and as the initial appointee
of the Rights Holders as described below) and Stephen Griggs, the current
President and Chief Executive Officer of AeroCare, as a Class I director. For as
long as Peloton Equity AeroCare SPV I, L.P. and SkyKnight Aero Holdings, LLC
(the "Rights Holders") or their respective affiliates collectively among them
hold beneficial ownership of at least 35% of the shares of Class A Common Stock
and Series C Preferred Stock, on an as-converted basis, issued to the Rights
Holders pursuant to the Merger Agreement, the Rights Holders will have the right
to designate for nomination one director for election to the Company's board of
directors. In addition to the foregoing director designation right, for as long
as the Rights Holders or their respective affiliates collectively among them
hold beneficial ownership of at least 35% of the shares of Class A Common Stock
and Series C Preferred Stock, on an as-converted basis, issued to the Rights
Holders pursuant to the Merger Agreement, the Rights Holders will have the right
to designate a non-voting observer to the board of directors of the Company.
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The obligations of the Company and AeroCare to consummate the transactions
contemplated by the Merger Agreement are subject to the satisfaction or waiver
of, among other closing conditions, the accuracy of the representations and
warranties in the Merger Agreement, the compliance by the parties with the
covenants in the Merger Agreement, the absence of any legal order barring the
Acquisition, the termination or expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and the receipt
of certain regulatory approvals. The obligation of the Company to effect the
closing is also subject to the satisfaction or waiver of the condition that no
more than 3.5% of the shares of common stock of AeroCare issued and outstanding
as of immediately prior to the closing have properly demanded appraisal for such
shares pursuant to Section 262 of the General Corporation Law of the State of
Delaware.
The Merger Agreement contains customary representations and warranties given by
AeroCare, the Company, Merger Sub I and Merger Sub II, in each case generally
subject to customary materiality qualifiers. The Company and AeroCare have also
each made customary covenants in the Merger Agreement, including covenants by
each of the parties relating to conduct of their respective businesses prior to
the closing of the Acquisition. The Merger Agreement also contains a covenant by
AeroCare not to, and to cause its affiliates, subsidiaries, officers, directors,
employees and representatives not to, solicit, initiate or encourage the
initiation of, participate in any discussions or negotiations regarding, or
agree to any acquisition proposal by a third party.
Pursuant to the Merger Agreement, the parties are provided with customary
termination rights, including the right of either party to terminate the Merger
Agreement if the consummation of the Acquisition has not occurred on or prior to
May 31, 2021 unless the party electing to terminate the Merger Agreement is in
breach of its representations or obligations under the Merger Agreement and such
breach caused the failure of a condition to closing or was the primary cause of
the failure to consummate the closing prior to outside date. The Company will be
required to pay a termination fee to AeroCare equal to $60 million if the Merger
Agreement is terminated for breach by the Company that primarily gives rise to
the failure of certain conditions to closing of AeroCare or for failure of the
Company to close when required. The Acquisition is expected to close in the
first quarter of 2021 subject to the satisfaction of the closing conditions as
described above.
The representations, warranties and pre-closing covenants of AeroCare under the
Merger Agreement do not survive the closing of the Acquisition, and the Company
disclaims any remedies for any such matters following the closing; however, the
Company and the surviving company following the Acquisition will be entitled to
recovery with respect to certain losses as a result of, or in connection with, a
specified matter solely out of an indemnity escrow account established pursuant
to the Merger Agreement. The Company intends to bind a representations and
warranties insurance policy in connection with the Acquisition.
Pursuant to the Merger Agreement, subject to certain exceptions, each
equityholder of AeroCare receiving shares of Class A Common Stock and Series C
. . .
Item 3.02. Unregistered Sale of Equity Securities.
A portion of the consideration to be 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 will be 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.
Nasdaq Listing and Stockholder Approval; Registration
The Company's Class A Common Stock is currently listed on The Nasdaq Capital
Market, and the Company is subject to the Nasdaq Rules. Pursuant to the terms of
the Merger Agreement, the Company has covenanted to seek approval of its
stockholders (the "Stockholder Approval") as may be required by the Nasdaq
Rules, including pursuant to Nasdaq Rule 5635(a), applicable in connection with
the removal of the conversion restrictions as will be applicable to the Series C
Preferred Stock to prevent conversions of such Series C Preferred Stock into
Class A Common Stock.
The Company plans to hold a meeting of stockholders at which a proposal to
obtain the Stockholder Approval is considered as promptly as reasonably
practicable following the closing of the Acquisition. In addition, on December
1, 2020, certain stockholders of the Company entered into agreements with the
Stockholder Representative to vote all shares of common stock of the Company
owned by such persons as of the applicable record date over which such persons
have voting power as of the date hereof, amounting to greater than 50% of all
current voting power of the Company, (i) in favor of the Stockholder Approval
for the removal of the conversion restrictions applicable to the Series C
Preferred Stock and (ii) against matters that would reasonably be expected to
impede the Stockholder Approval. The Stockholder Representative may enter into
additional voting agreements with other stockholders of the Company with such
obligations.
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 Securities and Exchange Commission. 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.
(d) Exhibits
4.1 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 thereto.
10.1 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 equityholders.
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ADAPTHEALTH CORP. 
