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.
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 Preferred Stock or Company
options at the closing of the Acquisition is prohibited from transferring such consideration, or any Company securities issued
on conversion or exercise of such consideration, (i) for a period of six months following the Closing Date and, (ii) solely with
respect to two-thirds of such consideration, for a period of one year following the Closing Date.
The Company intends to fund the cash portion
of the consideration for the Acquisition and associated costs through cash on hand and incremental debt and has entered into
a debt commitment letter with Jefferies Finance LLC, as further described below.
The foregoing summary
of the Merger Agreement is qualified in its entirety by the full text thereof, which is filed as Exhibit 10.1 hereto and incorporated
by reference herein.
Amendment to Amended and Restated Registration Rights
Agreement
In
connection with the entry into the Merger Agreement, the Company entered into an amendment (the “Registration Rights Agreement
Amendment”) 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, pursuant to which,
among other things, the stockholders of AeroCare receiving Class A Common Stock and Series C Preferred Stock pursuant to
the Merger Agreement and that deliver a joinder to the Registration Rights Agreement to the Company, effective as of the closing
of the Acquisition, will be provided 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 to be issued pursuant to the Merger Agreement.
The foregoing summary of the Registration
Rights Agreement Amendment is qualified in its entirety by the full text thereof, which is filed as Exhibit 4.1 hereto and incorporated
herein by reference.
Debt Commitment Letter
In connection with the entry into the Merger
Agreement, AdaptHealth LLC, a Delaware limited liability company and indirect subsidiary of the Company, entered into a debt commitment
letter (the “Commitment Letter”), dated as of December 1, 2020, with Jefferies Finance LLC (“Jefferies Finance”),
pursuant to which Jefferies Finance (together with any additional commitment parties party thereto) committed to provide to AdaptHealth
LLC (i) a senior secured term loan B facility in an aggregate principal amount of up to $900,000,000 (the “Term B Facility”)
and (ii) a senior unsecured bridge facility in an aggregate principal amount of up to $450,000,000 (the “Bridge Facility”);
however, with respect to the Bridge Facility, AdaptHealth LLC expects to obtain long-term financing to fund the Acquisition in
the debt capital markets on or before the consummation of the Acquisition contemplated by the Merger Agreement in lieu of drawing
under the Bridge Facility. On or prior to the consummation of the Acquisition contemplated by the Merger Agreement, the commitments
in respect of the Term B Facility will be automatically reduced by certain debt incurrences and equity issuances by AdaptHealth
LLC, its parent entities or any of their respective subsidiaries.
The Term B Facility and the Bridge Facility
are available to (i) to finance the Acquisition in part, (ii) to refinance certain indebtedness of AdaptHealth LLC and AeroCare
and (iii) to pay fees and expenses incurred in connection therewith. The funding of the Term B Facility and the Bridge Facility
provided for in the Commitment Letter is contingent on the satisfaction of customary conditions, including, among other things,
(i) the execution and delivery of definitive documentation in accordance with the terms sets forth in the Commitment Letter and
(ii) the consummation of the Acquisition in accordance with the terms of the Merger Agreement. The definitive documentation governing
such debt financing has not been finalized, and, accordingly, the actual terms may differ from the description of such terms in
the Commitment Letter.