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Item 2.01.
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Completion
of Acquisition or Disposition of Assets.
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On December 8, 2017,
Apollo Medical Holdings, Inc. (the “Company”) completed its business combination with Network Medical Management,
Inc. (“NMM”) following the satisfaction or waiver of the conditions set forth in the Agreement and Plan of Merger,
dated as of December 21, 2016 (as amended on March 30, 2017 and October 17, 2017), among the Company, Apollo Acquisition Corp.
(“Merger Sub”), NMM and Kenneth Sim, as the Shareholders’ Representative (the “Merger Agreement”),
pursuant to which Merger Sub merged with and into NMM, with NMM surviving as a wholly owned subsidiary of the Company (the “Merger”).
In connection with
the Merger and as of the effective time of the Merger (the “Effective Time”):
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·
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each
issued and outstanding share of NMM common stock was converted into the right to receive
such number of shares of common stock of the Company that results in the former NMM shareholders
who did not dissent from the Merger (“Former NMM Shareholders”) having a
right to receive an aggregate of 30,071,197 shares of common stock of the Company, subject
to the 10% holdback pursuant to the Merger Agreement and as further described below;
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·
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the
Company issued to Former NMM Shareholders each Former NMM Shareholder’s pro rata
portion of (i) warrants to purchase an aggregate of 850,000 shares of common stock of
the Company, exercisable at $11.00 per share, and (ii) warrants to purchase an aggregate
of 900,000 shares of common stock of the Company, exercisable at $10.00 per share;
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·
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the
Company held back an aggregate of 3,006,995 shares of common stock issuable to Former
NMM Shareholders, representing 10% of the total number of shares of Company common stock
issuable to Former NMM Shareholders, to secure indemnification rights of the Company
and its affiliates under the Merger Agreement (the “Holdback Shares”);
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·
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Suresh
Nihalani and Edward Schreck resigned from the board of directors of the Company and the
board of directors of the Company was reconstituted as follows:
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(i)
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Michael
Eng, Thomas Lam, M.D. and David Schmidt were designated as Class I directors with a term
expiring at the first annual meeting of stockholders held after the Effective Time;
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(ii)
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Mitchell
Kitayama, Kenneth Sim, M.D. and Mark Fawcett were designated as Class II directors with
a term expiring at the second annual meeting of stockholders held after the Effective
Time; and
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(iii)
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Li
Yu, Warren Hosseinion, M.D. and Gary Augusta were designated as Class III directors with
a term expiring at the third annual meeting of stockholders held after the Effective
Time.
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·
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the
committees of the board of directors of the Company were reconstituted as follows:
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(i)
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the
Audit Committee of the Company was reconstituted to consist of David Schmidt, Li Yu and
Mitchell Kitayama;
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(ii)
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the Compensation Committee of the
Company was reconstituted to consist of David Schmidt, Michael Eng and Mark Fawcett;
and
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(iii)
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the Nominating and Corporate Governance
Committee of the Company was reconstituted to consist of David Schmidt, Michael
Eng and Mitchell Kitayama.
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·
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the
following persons were appointed as officers of the Company to the office set forth opposite
his name to serve until his successor is elected and qualified or until his removal,
resignation, death or disability:
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Name:
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Office
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Kenneth Sim, M.D.
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Executive Chairman
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Thomas Lam, M.D.
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Co-Chief Executive
Officer
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Warren Hosseinion,
M.D.
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Co-Chief Executive
Officer
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Gary Augusta
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President
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Hing Ang
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Chief Operating
Officer
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Mihir Shah
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Chief Financial
Officer
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Adrian Vazquez,
M.D.
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Co-Chief Medical
Officer
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Albert Young, M.D.
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Co-Chief Medical
Officer
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Warrants
As described above,
Former NMM Shareholders were issued Warrants as part of the merger consideration (the “Warrant Consideration”). A
summary of the terms and provisions of the Warrants issued as Warrant Consideration is described in the Company’s joint
proxy statement/prospectus filed with the U.S. Securities and Exchange Commission (the “SEC”) on November 15, 2017
(the “Proxy Statement/Prospectus”) in the section entitled “
Warrants to be Issued as Merger Consideration
”
beginning on page 304 and is incorporated herein by reference.
The foregoing is qualified
in its entirety by the form of Warrant, a copy of which is filed herewith as Exhibit 4.1 and which is incorporated herein by reference.
Maverick Stock
Purchase Agreement
On December 8, 2017,
Warren Hosseinion, M.D., the sole shareholder of Maverick Medical Group, Inc., a California professional corporation (“MMG”)
and an affiliate of the Company, sold to APC-LSMA Designated Shareholder Medical Corporation, a California professional corporation
(“APC-LSMA”) and affiliate of NMM, all the issued and outstanding shares of capital stock of MMG for $100 under the
Stock Purchase Agreement between Warren Hosseinion and APC-LSMA (the “Maverick Stock Purchase Agreement”). A summary
of the terms and provisions of the Maverick Stock Purchase Agreement is described in the Proxy Statement/Prospectus in the section
entitled “
Agreements Related to the Merger – Maverick Stock Purchase Agreement
” beginning on page 157
and is incorporated herein by reference.
At the closing of
the Merger, under the Maverick Stock Purchase Agreement, Apollo Medical Management, Inc., and wholly-owned subsidiary of the Company
executed and delivered to APC-LSMA a Termination of Amended and Restated Management Services Agreement, Intercompany Loan Agreement,
Subordination Agreement and Physician Shareholder Agreement (the “Termination Agreement”), which Termination Agreement
became effective at the Effective Time. Pursuant to the Termination Agreement, the termination of the Amended and Restated Management
Services Agreement and the Physician Shareholder Agreement was effective as of the Effective Time and the termination of the Intercompany
Loan Agreement and the Subordination Agreement is delayed for a period of thirty days after the Effective Time. As a termination
payment, APC-LSMA agreed to pay AMM $400,000.
Director Agreements
Each of the newly
elected directors of the Company has entered or will enter into a board of director’s agreement, a director proprietary
information agreement, and an indemnification agreement with the Company, effective on December 8, 2017, the forms of which are
attached hereto as Exhibit 10.1, 10.2 and 10.3, respectively, and incorporated herein by reference.
Conversion of
Alliance Note
As previously reported
in a Current Report on Form 8-K filed by the Company on April 5, 2017 and October 20, 2017, the Company issued a Convertible Promissory
Note (the “Alliance Note”) to Alliance Apex, LLC (“Alliance”) in the principal amount of $4,990,000 on
March 30, 2017. On December 11, 2017, the business day following the closing of the Merger, the Alliance Note automatically converted
into 520,081 shares of the Company’s common stock. The securities were sold by the Company to Alliance in reliance upon the
exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506(b) of Regulation
D promulgated by the SEC thereunder.
Series A and
B Warrants
Immediately prior
to the Effective Time, NMM made an in-kind distribution to its shareholders on a pro-rata basis of its Series A warrant to purchase an
aggregate of 1,111,111 shares of Company common stock and its Series B warrant to purchase an aggregate of 555,555 shares of Company
common stock.
Dissenting Shareholder
Interests
In connection with
the closing of the Merger, the Company waived certain closing conditions to the Merger (the “Waiver”), including the
covenant requiring NMM to repurchase any shares of stock held by NMM shareholders who did not vote for the Merger prior to the
closing (“dissenting shareholder interests”). In the Waiver, it was agreed that so long as NMM complies with Section
3.15 of the Merger Agreement and keeps at least $10 million of NMM cash in NMM, NMM’s repurchase of dissenting shareholder
interests shall not be subject to an indemnification claim from the Holdback Shares.
Immediately following
the Effective Time, the stockholders of the Company prior to the Merger continued to hold an aggregate of 6,037,580 shares of common
stock, or 17% of the outstanding common stock of the Company, and the Former NMM Shareholders own 27,504,531 shares, or 83% of
the issued and outstanding common stock of the Company, (A) excluding (i) 520,081 shares of common stock issuable upon the conversion
of the Alliance Note, and (ii) shares of common stock issuable upon the exercise of the Warrant Consideration, and (B) without
giving effect to any shares of common stock of the Company issuable upon payment of any indemnification obligations under the Merger
Agreement (the “Indemnification Shares”).
In the event all of
the Warrant Consideration were to be exercised in full and without giving effect to the issuance of any Indemnification Shares
or shares issuable upon conversion of the Alliance Note, then immediately following the Effective Time, stockholders of the Company
prior to the Merger would own 16% of the outstanding common stock of the Company and the Former NMM Shareholders would own 84%
of the outstanding common stock of the Company.
The issuance of the
shares of the Company’s common stock, the Warrant Consideration and the shares of common stock issuable upon exercise of
the Warrant Consideration was registered with the SEC on a Registration Statement on Form S-4 (Reg. No. 333-219898) (the “Registration
Statement”).
The Company’s
shares of common stock, which were previously quoted on the OTC Pink through the close of business on December 7, 2017 commenced
trading on December 8, 2017 on The Nasdaq Capital Market under the same ticker symbol “AMEH”.
The descriptions of
the Merger Agreement, as amended, included herein are not complete and are subject to and qualified in their entirety by reference
to the Merger Agreement, a copy of which was attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with
the SEC on December 22, 2016, April 5, 2017 and October 20, 2017 and incorporated herein by reference.