Item 1.01
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Entry into a Material Definitive Agreement
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Secured Credit Agreement
As contemplated in the May 13, 2019
Current Report and the Company’s definitive proxy statement for its August 27, 2019 special meeting of stockholders,
which was filed with the SEC on July 31, 2019 (the “Proxy Statement”), on September 11, 2019, Apollo Medical
Holdings, Inc. (the “Company”) entered into a secured credit agreement (the “Credit Agreement”) with
SunTrust Bank, in its capacity as administrative agent for the lenders (in such capacity, the
“Agent”), as a lender, an issuer of letters of credit and as swingline lender, and Preferred Bank, JPMorgan Chase
Bank, N.A., MUFG Union Bank, N.A., Royal Bank of Canada, Fifth Third Bank and City National Bank, as lenders (the
“Lenders”). In connection with the closing of the Credit Agreement, the Company, its subsidiary, Network Medical
Management, Inc. (“NMM”), and the Agent entered into a Guaranty and Security Agreement (the “Guaranty and
Security Agreement”), pursuant to which, among other things, NMM guaranteed the obligations of the Company under the
Credit Agreement.
The Credit Agreement provides for a
five-year revolving credit facility to the Company of $100,000,000, which includes a letter of credit subfacility of up to
$25,000,000. The Credit Agreement also provides for a term loan of $190,000,000. The unpaid principal amount of the term loan
is payable in quarterly installments on the last day of each fiscal quarter commencing on December 31, 2019. The principal
payment for each of the first eight fiscal quarters is $2,375,000, for the following eight fiscal quarters is $3,562,000 and
for the following three fiscal quarters is $4,750,000. The remaining principal payment on the term loan is
due on September 11, 2024.
The proceeds of the term loan and up to
$60,000,000 of the revolving credit facility may be used to (i) finance a portion of the $545,000,000 loan made by the Company
to AP-AMH Medical Corporation, a California professional medical corporation (“AP-AMH”), concurrently with the closing
of the Credit Agreement (the “AP-AMH Loan”) as described in the May 13, 2019 Current Report and the August 29, 2019
Current Report, (ii) refinance certain indebtedness of the Company and its subsidiaries and, indirectly, Allied Physicians of California,
a Professional Medical Corporation, a California professional medical corporation (“APC”), (iii) pay transaction costs
and expenses arising in connection with the Credit Agreement, the AP-AMH Loan and certain other related transactions and (iv) provide
for working capital, capital expenditures and other general corporate purposes. The remainder of the revolving credit facility
will be used to finance future acquisitions and investments and to provide for working capital needs, capital expenditures and
other general corporate purposes.
The Company is required to pay an annual
facility fee of 0.20 percent to 0.35 percent on the available commitments under the Credit Agreement, regardless of usage, with
the applicable fee determined on a quarterly basis based on the Company’s leverage ratio. The Company is also required to
pay customary fees as specified in a separate fee agreement between the Company and SunTrust Robinson Humphrey, Inc., the lead
arranger of the Credit Agreement.
Amounts borrowed under the Credit Agreement
will bear interest at an annual rate equal to either, at the Company’s option, (a) the rate for Eurocurrency deposits for
the corresponding deposits of U.S. dollars appearing on Reuters LIBOR01screen page (“LIBOR”), adjusted for any reserve
requirement in effect, plus a spread of from 2.00 to 3.00 percent, as determined on a quarterly basis based on the Company’s
leverage ratio, or (b) a base rate, plus a spread of 1.00 percent to 2.00 percent, as determined on a quarterly basis based on
the Company’s leverage ratio. The base rate is defined in a manner such that it will not be less than LIBOR. The Company
will pay fees for standby letters of credit at an annual rate equal to 2.00 percent to 3.00 percent, as determined on a quarterly
basis based on the Company’s leverage ratio, plus facing fees and standard fees payable to the issuing bank on the respective
letter of credit. Loans outstanding under the Credit Agreement may be prepaid at any time without penalty, except for LIBOR breakage
costs and expenses. If LIBOR ceases to be reported, the Credit Agreement requires the Company and the Agent to endeavor to establish
a commercially reasonable alternative rate of interest and until they are able to do so, all borrowings must be at the base rate.
The Credit Agreement requires the Company
and its subsidiaries to comply with various affirmative covenants, including, without limitation, furnishing updated financial
and other information, preserving existence and entitlements, maintaining properties and insurance, complying with laws, maintaining
books and records, requiring any new domestic subsidiary meeting a materiality threshold specified in the Credit Agreement to become
a guarantor thereunder and paying obligations. The Credit Agreement requires the Company and its subsidiaries to comply with, and
to use commercially reasonable efforts to the extent permitted by law to cause certain material associated practices of the Company,
including APC, to comply with, restrictions on liens, indebtedness and investments (including restrictions on acquisitions by the
Company), subject to specified exceptions. The Credit Agreement also contains various other negative covenants binding the Company
and its subsidiaries, including, without limitation, restrictions on fundamental changes, dividends and distributions, sales and
leasebacks, transactions with affiliates, burdensome agreements, use of proceeds, maintenance of business, amendments of organizational
documents, accounting changes and prepayments and modifications of subordinated debt.
The Credit Agreement requires the Company
to comply with two key financial ratios, each calculated on a consolidated basis. The Company must maintain a maximum consolidated
leverage ratio of not greater than 3.75 to 1.00 as of the last day of each fiscal quarter. The maximum consolidated leverage ratio
decreases by 0.25 each year, until it is reduced to 3.00 to 1.00 for each fiscal quarter ending after September 30, 2022. The Company
must maintain a minimum consolidated interest coverage ratio of not less than 3.25 to 1.00 as of the last day of each fiscal quarter.
Pursuant to the Guaranty and Security Agreement,
the Company and NMM have granted the Lenders a security interest in all of their assets, including, without limitation, all stock
and other equity issued by their subsidiaries (including NMM) and all rights with respect to the AP-AMH Loan. The Guaranty and
Security Agreement requires the Company and NMM to comply with various affirmative and negative covenants, including, without limitation,
covenants relating to maintaining perfected security interests, providing information and documentation to the Agent, complying
with contractual obligations relating to the collateral, restricting the sale and issuance of securities by their respective subsidiaries
and providing the Agent access to the collateral.
The Credit Agreement contains events of
default, including, without limitation, failure to make a payment when due, default on various covenants in the Credit Agreement,
breach of representations or warranties, cross-default on other material indebtedness, bankruptcy or insolvency, occurrence of
certain judgments and certain events under the Employee Retirement Income Security Act of 1974 aggregating more than $10,000,000,
invalidity of the loan documents, any lien under the Guaranty and Security Agreement ceasing to be valid and perfected, any change
in control, as defined in the Credit Agreement, an event of default under the AP-AMH Loan, failure by APC to pay dividends in cash
for any period of two consecutive fiscal quarters, failure by AP-AMH to pay cash interest to the Company, or if any modification
is made to the Certificate of Determination or the Special Purpose Shareholder Agreement that directly or indirectly restricts,
conditions, impairs, reduces or otherwise limits the payment of the Series A Preferred dividend by APC to AP-AMH. In addition,
it will constitute an event of default under the Credit Agreement if APC uses all or any portion of the consideration received
by APC from AP-AMH on account of AP-AMH’s purchase of Series A Preferred Stock for any purpose other than certain specific
approved uses described in the following sentence, unless not less than 50.01% of all holders of common stock of APC at such time
approve such use; provided that APC may use up to $50,000,000 in the aggregate of such consideration for any purpose without any
requirement to obtain such approval of the holders of common stock of APC. The approved uses include (i) any permitted investment,
(ii) any dividend or distribution to the holders of the common stock of APC, (iii) any repurchase of common stock of APC, (iv)
paying taxes relating to or arising from certain assets and transactions, or (v) funding losses, deficits or working capital support
on account of certain non-healthcare assets in an amount not to exceed $125,000,000. If any event of default occurs and is continuing
under the Credit Agreement, the Lenders may terminate their commitments, and may require the Company and its guarantors to repay
outstanding debt and/or to provide a cash deposit as additional security for outstanding letters of credit. In addition, the Agent,
on behalf of the Lenders, may pursue remedies under the Guaranty and Security Agreement, including, without limitation, transferring
pledged securities of the Company’s subsidiaries in the name of the Agent and exercising all rights with respect thereto
(including the right to vote and to receive dividends), collect on pledged accounts, instruments and other receivables (including
the AP-AMH Loan), and all other rights provided by law or under the loan documents and the AP-AMH Loan.
In the ordinary course of business, certain
of the Lenders under the Credit Agreement and their affiliates have provided to the Company and its subsidiaries and the associated
practices, and may in the future provide, (i) investment banking, commercial banking (including pursuant to certain existing business
loan and credit agreements being terminated in connection with entering into the Credit Agreement), cash management, foreign exchange
or other financial services, and (ii) services as a bond trustee and other trust and fiduciary services, for which they have received
compensation and may receive compensation in the future.
The foregoing summary of the material terms
of the Credit Agreement and the Guaranty and Security Agreement are qualified in its entirety by reference to the Credit Agreement
and the Guaranty and Security Agreement, copies of which are filed as Exhibits 10.1 and 10.2 to this Current Report on Form 8-K
and are incorporated herein by reference.
Agreements Entered into at the Closing of the APC Transactions
(1) Security
Agreement
As contemplated in the description
of the APC Transactions set forth in the May 13, 2019 Current Report and the Proxy Statement, on September 11, 2019, in
connection with the AP-AMH Loan, the Company and AP-AMH entered into the Security Agreement under the terms of which AP-AMH
granted the Company a first priority security interest in the designated collateral to secure AP-AMH’s payment and
performance under the Loan Agreement.
(2) Voting
and Registration Rights Agreement
On September 11, 2019, the Company and
APC entered into the Voting and Registration Rights Agreement initially summarized in the May 13, 2019 Current Report.
In the August 29, 2019 Current Report, in connection with the disclosure that the Company and APC had entered into the First
Amendment to Stock Purchase Agreement and filing of such amended agreement as an exhibit, a revised form of Voting and
Registration Rights Agreement was attached thereto. As set forth in the August 29, 2019 Current Report and as had previously
been described in the Proxy Statement, the Company and APC agreed to change the manner in which the shares of the
Company’s common stock owned by APC would be voted. Pursuant to the Voting and Registration Rights Agreement, APC is
eligible to vote its shares up to 9.99% of the then-outstanding shares. APC will be required to grant its proxy to the
Company’s management to vote any shares of the Company’s voting securities in excess of 9.99%, and management
will vote those shares in the same proportion as all other votes cast on the matters voted thereon. The Voting and
Registration Rights Agreement executed on September 11, 2019 did not deviate from the agreement as amended by the
First Amendment to the Stock Purchase Agreement.
The foregoing summaries of the material
terms of the Security Agreement and the Voting and Registration Rights Agreement are qualified in their entirety by reference to
the Security Agreement and the Voting and Registration Rights Agreement, copies of which are filed as Exhibits 10.7 and 10.9, respectively,
to this Current Report on Form 8-K and are incorporated herein by reference.
The information contained in Item
8.01 of this Current Report on Form 8-K with respect to the amended agreements entered into by the Company and/or its
affiliated entities in connection with the closing of the APC Transactions is incorporated by reference into this Item
1.01.