UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 28, 2015
AdCare Health Systems, Inc.
(Exact Name of Registrant as Specified in Charter)
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Georgia | | 001-33135 | | 31-1332119 |
(State or Other Jurisdiction of
Incorporation) | | (Commission File Number) | | (I.R.S. Employer
Identification No.) |
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1145 Hembree Road Roswell, Georgia 30076 | | |
(Address of Principal Executive Offices) |
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(678) 869-5116
(Registrant’s telephone number, including area code)
Not applicable.
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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¨ | | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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¨ | | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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¨ | | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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¨ | | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01 Regulation FD Disclosure
On May 28, 2015, AdCare Health Systems, Inc. (the "Company") issued a press release announcing it commenced a "best efforts" public offering of up to 400,000 shares of its 10.875% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock"). The offering will be made pursuant to the Company’s existing effective shelf registration statement that was previously filed with the Securities and Exchange Commission. The offering of the shares of Series A Preferred Stock will be made only by means of a prospectus and a related prospectus supplement. The press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities nor will there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or other jurisdiction. A copy of the press release is attached to this Current Report as Exhibit 99.1.
Item 8.01 Other Events
On May 15, 2015, a wholly-owned subsidiary of the Company (the “Bentonville Seller”) entered into an asset purchase agreement (the “Bentonville Sale Agreement”) with Bozeman Development, LLC, a Texas limited liability company (the “Bentonville Purchaser”), to sell Bentonville Manor, a 95-bed skilled nursing facility located in Bentonville, Arkansas. The Bentonville Sale Agreement may be terminated by the Bentonville Purchaser for any reason before the 30th day of the due diligence period set forth in the agreement. The sale is subject to the completion of satisfactory due diligence, the receipt of required licenses and other state regulatory approvals, and the satisfaction of other customary closing conditions. Pursuant to the Bentonville Sale Agreement, the sale price of $3.5 million is due to the Bentonville Seller on the closing date after completion of customary closing conditions but no later than July 1, 2015. In connection with entering into the Bentonville Sale Agreement, the Bentonville Seller and Bentonville Purchaser entered into an operations transfer agreement to transfer the operations of Bentonville Manor concurrent with the closing of the asset purchase agreement.
Attached as Exhibit 99.2 is an updated Investor Presentation, dated May 28, 2015, which the Company may use from time to time.
On May 28, 2015, the Company filed with the Securities and Exchange Commission a preliminary prospectus supplement to its effective shelf registration statement on Form S−3 (the “Preliminary Prospectus Supplement”) pursuant to Rule 424 under the Securities Act of 1933, as amended, relating to the aforementioned public offering of shares of the Series A Preferred Stock. The Preliminary Prospectus Supplement contains certain supplemental disclosure regarding the Company’s business in the section entitled “Risk Factors.” The selected section of the Company’s Preliminary Prospectus Supplement entitled “Risk Factors” is attached hereto as Exhibit 99.3 and incorporated herein by reference.
Item 9.01 Financial statements and Exhibits
(d) Exhibits
99.1 Press release issued May 28, 2015.
99.2 Investor presentation, dated May 28, 2015
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99.3 | Selected section of AdCare Health Systems, Inc.’s Preliminary Prospectus Supplement dated May 28, 2015 to its Registration Statement on Form S−3 entitled “Risk Factors.” |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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Date: May 28, 2015 | ADCARE HEALTH SYSTEMS, INC. |
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| | /s/ Allan J. Rimland | |
| | Allan J. Rimland |
| | President & Chief Financial Officer |
EXHIBIT INDEX
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Exhibit No. | | Exhibit Description |
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99.1 | | Press release issued May 28, 2015 |
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99.2 | | Investor presentation, dated May 28, 2015. |
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99.3 | | Selected section of AdCare Health Systems, Inc.’s Preliminary Prospectus Supplement dated May 28, 2015 to its Registration Statement on Form S−3 entitled “Risk Factors.” |
Exhibit 99.1
AdCare Health Systems, Inc. Announces Public Offering of Series A Preferred Stock
ATLANTA, May 28, 2015 /PRNewswire/-- AdCare Health Systems, Inc. (NYSE MKT: ADK) (NYSE MKT: ADK.PRA) (the “Company”) today announced that it has commenced a public offering of up to 400,000 shares of its 10.875% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”). The Company’s current outstanding Series A Preferred Stock is listed on the NYSE MKT under the symbol “ADK.PRA,” and the Company will file an application to list the shares of the Series A Preferred Stock to be sold in the offering on the NYSE MKT under the same symbol. The Company intends to use the net proceeds from the offering for general corporate purposes, which may include the repayment of debt, working capital or the funding of potential acquisitions.
MLV & Co. LLC and Northland Capital Markets are acting as Joint Book-Running Managers to offer and sell the Series A Preferred Stock on a “best efforts” basis. (Northland Capital Markets is the trade name for certain capital markets and investment banking activities of Northland Securities, Inc., member FINRA/SIPC.) GVC Capital LLC is acting as Co-Manager.
The offering will be made pursuant to the Company’s existing effective shelf registration statement that was previously filed with the Securities and Exchange Commission. The offering of the shares of Series A Preferred Stock will be made only by means of a prospectus and a related prospectus supplement. Copies of the prospectus and the prospectus supplement relating to these securities may be obtained by contacting: MLV & Co. LLC, 1301 Avenue of the Americas, 43rd Floor, New York, New York 10019, Attention: Julie Bagley, Email: jbagley@mlvco.com, Telephone: (212) 542-5882 or Northland Capital Markets, 45 South 7th Street, Suite 2000, Minneapolis, Minnesota 55402, Attention: Adam J. Sandvig, Email: asandvig@northlandcapitalmarkets.com, Telephone: (612) 460-4803.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy any securities nor will there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or other jurisdiction.
About AdCare Health Systems, Inc.
AdCare Health Systems, Inc. (NYSE MKT: ADK) (NYSE MKT: ADK.PRA) is a self-managed healthcare real estate investment company that invests primarily in real estate purposed for senior living and long-term healthcare through facility lease and sub-lease transactions. The Company currently owns, leases or manages for third parties 40 facilities, primarily in the Southeast. For more information about the Company, visit www.adcarehealth.com.
Important Cautions Regarding Forward-Looking Statements
This press release includes statements that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including with regard to the Company’s planned offering of the shares of the Series A Preferred Stock and the intended use of proceeds therefrom. Such forward-looking statements are subject to a variety of known and unknown risks, uncertainties, and other factors that are difficult to predict and many of which are beyond management’s control. Factors that can affect future results are discussed in the documents filed by the Company from time to time with the Securities and Exchange Commission. Except where required by law, the Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date of this press release.
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Company Contacts | | | | Investor Relations |
Bill McBride | | Allan Rimland | | Brett Maas |
Chairman and CEO | | President and CFO | | Managing Partner |
AdCare Health Systems, Inc. | | AdCare Health Systems, Inc. | | Hayden IR |
Tel (404) 781-2884 | | Tel (404) 781-2885 | | Tel (646) 536-7331 |
bill.mcbride@adcarehealth.com | | allan.rimland@adcarehealth.com | | brett@haydenir.com |
May 28, 2015 Investor Presentation NYSE MKT: ADK AdCare Health Systems, Inc. ®
NYSE MKT: ADK Forward-Looking Statements 2 Any forward-looking statements made in this presentation are based on management's current expectations, assumptions and beliefs about the Company’s business and the environment in which AdCare operates. These statements are subject to risks and uncertainties that could cause the Company’s actual results to materially differ from those expressed or implied in this presentation. Readers should not place undue reliance on forward-looking statements and are encouraged to review the Company’s SEC filings for more complete discussion of factors that could impact the Company’s results. Except as required by federal securities laws, AdCare does not undertake to publicly update or revise any forward-looking statements, where changes arise as a result of new information, future events, changing circumstances or for any other reason. In addition, any AdCare facility or business the Company may mention today is operated by a separate independent operating subsidiary that has its own management, employees and assets. References to the consolidated company and its assets and activities, as well as the use of terms like “we,” “us,” “our” and similar verbiage are not meant to imply that AdCare Health Systems, Inc. has direct operating assets, employees or revenue or that any of the operations are operated by the same entity. Also, the Company supplements its GAAP reporting with non-GAAP metrics, such as Adjusted EBITDA and EBITDAR. When viewed together with the Company’s GAAP results, these measures can provide a more complete understanding of its business. They should not be relied upon to the exclusion of GAAP financial measures. A reconciliation of these measures to GAAP is available in the Company’s latest earning release. This presentation is copyright 2015 by AdCare Health Systems, Inc.
NYSE MKT: ADK Investor Highlights AdCare Health Systems is a healthcare property holding and leasing company. 40 senior care properties located primarily in the Southeast U.S. with a total of 4,235 beds / units Primarily long-term, triple-net leases generate predictable, recurring streams of rental payments Seasoned management team with prior experience in healthcare real estate and operating companies, capital raising and M&A Substantial completion of strategic transition reduces earnings and cash flow volatility risk, enabling Board to declare a quarterly cash dividend of $0.05 per share, paid on April 30th Upon completion of the strategic transition, the Company will take on the characteristics and general structure of a real estate investment trust 3
NYSE MKT: ADK Substantial Progress in Strategic Transition Transitioning from an owner and operator of skilled nursing facilities to a healthcare property holding & leasing company in order to: Increase shareholder value Reduce operating risk Create predictable revenue and income Improve free cash flow to enable quarterly cash dividends Drive growth and further improve financial performance through acquisition of additional properties to grow portfolio and support ongoing dividends 4 Entered Into Agreements for 37 of 40 Properties Since the Plan Was Announced In July 2014, the Company Announced Its Strategic Transition Plan
NYSE MKT: ADK Positioning for Growth Access to financial capital to fund growth initiatives Cash on hand Recent private placement of $7.7M of convertible subordinated debt in March / April 2015 and public offering of $14.8M of preferred stock in April 2015 Ample growth opportunities available with returns in the low to medium double-digit range Facility expansion within existing portfolio Expand footprint with existing operators New opportunities Expanded management team with deep industry experience Given the Company’s current size, modest investment activity is expected to have a significant effect on cash flow 5
NYSE MKT: ADK Favorable Long-Term Healthcare Trends Continued “graying of America” expected to result in increased demand for long-term care services and properties Population aged 75+ expected to increase by ~89% by 2030 vs. 2012 and increase from 6% of the total U.S. population to ~10% From 2010 to 2020, average annual health care spending growth of 5.8% is anticipated to outpace average annual growth in the overall economy of 4.7% National health care spending is expected to increase ~73% from $2.6 trillion in 2010 to $4.5 trillion by 2020 Limited additions to supply for senior housing and long-term care properties are expected to help bolster long-term occupancy levels 6
NYSE MKT: ADK Typical Lease Structure 7 Lease structure favorable to AdCare “Triple-net basis” terms; Lessee is typically obligated for all liabilities of the property including: Insurance Taxes Facility maintenance Typically 10+ years in duration with multiple renewal options Annual escalation clauses Cross collateral and cross default provisions with security deposits Profile similar to other healthcare REITs in terms of structure, terms and overall economics
NYSE MKT: ADK Recent Key Activity 8 October • Bill McBride named Chief Executive Officer • Signed agreement to lease seven properties in Georgia and Ohio* 2014 2015 January • Leased 10 facilities in Arkansas, two leases subsequently terminated February • Leased two facilities in Georgia • Leased two additional facilities in Georgia March • Board declared cash dividend of $0.05 per share • Leased one facility in North Carolina* and two facilities in South Carolina • Bill McBride named Chairman • Allan Rimland named President and Chief Financial Officer • Leased one additional facility in Georgia September • Leased two properties in Alabama November • Leased one property in Georgia *Operations transfers in connection with leases and sales contracts are subject to licensure and requisite regulatory, financing and other approvals April • Private placement of $7.7M of convertible subordinated notes • Public offering of $14.8M of Series A Cumulative Redeemable Preferred Stock • Leased two facilities and under contract to sell one facility in Oklahoma* and one facility in Arkansas* May
NYSE MKT: ADK Portfolio Composition 9 • AdCare Facility Locations 25 facilities have transferred operations to 3rd party operators or are under a management contract Expect to transition seven facilities in GA and OH to 3rd party operators during 2Q 2015, subject to HUD approval Expect to complete transition one NC facility during 2Q 2015, pending licensure Expect to transition two facilities to 3rd party operators in OK during 3Q 2015, upon HUD financing approval Expect to close the sale, subject to certain conditions, of one OK facility and one AR facility in 3Q 2015 Entered Agreements for 37 of 40 Facilities OK AR MO OH NC SC AL GA TX Remaining three facilities are pending final disposition
NYSE MKT: ADK On May 1, eight of the company’s skilled nursing facilities in Arkansas transferred operations to affiliates of Aria Health Group Initial term of 10 years with a five year renewal option Annual base rent in year one will total $5.3 million in aggregate with 2% annual escalator in the initial term and 3% per year upon renewal Agreements include protective features including cross-defaults, guarantees and security deposits AdCare provided Aria with a $2 million upfront lease inducement Annual special rent of $354,000 over the initial term provides for an attractive return on the lease inducement of ~12.5% per annum Relationship With Aria Health Group 10
NYSE MKT: ADK Income Statement Summary ($ in thousands, except %) LTM ended 3/31/20151 FY 2014 FY 2013 Revenues $193,710 $193,314 $185,750 Gross Profit (excl. facility rent and D&A) 31,631 33,880 33,173 Gross Margin % 16.3% 17.5% 17.9% Adjusted EBITDAR2 18,325 19,494 15,329 Adjusted EBITDAR Margin % 9.5% 10.1% 8.2% Adjusted EBITDA2 10,973 12,414 9,015 Adjusted EBITDA Margin % 5.7% 6.4% 4.8% 11 1 Please refer to the tables in the Appendix of this presentation for summary income statement information 2 Adjusted EBITDAR from continuing operations and Adjusted EBITDA from continuing operations are non-GAAP terms; please refer to the Appendix of this presentation for reconciliation of these terms to GAAP measures.
NYSE MKT: ADK Select Balance Sheet Summary 12 ($ in thousands) As of 3/31/2015 As Adjusted 1 Non-convertible debt 136,086 136,086 Convertible subordinated debt 15,685 15,685 Total Debt $151,771 $151,771 Preferred stock $20,392 $33,892 Total Equity / (Deficit) ($615) ($615) Total Capitalization $171,548 $185,048 1 “As Adjusted” reflects the issuance of 575,000 shares of the Series A Preferred Stock offered in April 2015
NYSE MKT: ADK Total Capitalization (at Market Value) 13 56% 14% 29% Total debt Preferred stock (at liquidation value) Market value of equity Total Capitalization (at Market Value) As Adjusted1 ($ in thousands) As of 3/31/2015 As Adjusted1 Total Debt $151,771 $151,771 Preferred stock (at liquidation value) $23,750 $38,125 Market value of equity2 $79,210 $79,210 Total Market Capitalization $254,731 $269,106 1 “As Adjusted” reflects the issuance of 575,000 shares of the Series A Preferred Stock offered in April 2015 2 Market value of equity as of 4/30/2015: 19,802,454 shares @ $4.00 per share
NYSE MKT: ADK Investor Highlights AdCare Health Systems is a healthcare property holding and leasing company. 40 senior care properties located primarily in the Southeast U.S. with a total of 4,235 beds / units Primarily long-term, triple-net leases generate predictable, recurring streams of lease payments Experienced management team with prior experience in healthcare real estate and operating companies, capital raising and M&A Substantial completion of strategic transition reduces earnings and cash flow volatility risk, enabling Board to declare a quarterly cash dividend of $0.05 per share, paid on April 30th Upon completion of the strategic transition, the Company will take on the characteristics and general structure of a real estate investment trust 14
NYSE MKT: ADK Stock Price (5/15/15) $4.00 Avg. Daily Vol. (3 mo.) 50,719 52 Week Low/High $3.58 – $5.05 Shares Outstanding (4/30/15) 19.8M Public Float, est. 14.2M Dividend Yield 5.0% Valuation Measures Market Capitalization $79.2M Enterprise Value $240.7M Ownership Institutional, est. 20.2% Insider, est. 24.8% Key Stats 15 Income Statement (TTM ended 3/31/15) TTM Revenue $193.7M TTM Adj. EBITDAR - cont. ops.1 $18.3M TTM Adj. EBITDA - cont. ops.1 $11.0M Balance Sheet (at 3/31/15) Unrestricted cash & equivalents $10.7M Total Assets $208.5M Total Debt $151.8M (Sources: AdCare, Bloomberg, Big Charts) 1Adjusted EBITDAR from continuing operations and Adjusted EBITDA from continuing operations are non-GAAP terms; please refer to the Appendix of this presentation for reconciliation of these terms to GAAP measures.
NYSE MKT: ADK Use of Non-GAAP Financial Information 16 Beginning with the reporting of results for the first quarter of 2011, the company began to report the measures of Adjusted EBITDA from continuing operations and Adjusted EBITDAR from continuing operations. These are measures of operating performance that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). The company defines: (i) "Adjusted EBITDA from continuing operations" as net income (loss) from continuing operations before interest expense, income tax expense, depreciation and amortization (including amortization of non-cash stock-based compensation), loss on extinguishment of debt and other non-routine adjustments; and (ii) "Adjusted EBITDAR from continuing operations" as net income (loss) from continuing operations before interest expense, income tax expense, depreciation and amortization (including amortization of non-cash stock-based compensation), loss on extinguishment of debt, rent and other non-routine adjustments. Adjusted EBITDA from continuing operations and Adjusted EBITDAR from continuing operations should not be considered in isolation or as a substitute for net income, income from operations or cash flows provided by, or used in, operations as determined in accordance with GAAP. Adjusted EBITDA from continuing operations and Adjusted EBITDAR from continuing operations are used by management to focus on operating performance and management without mixing in items of income and expense that relate to the financing and capitalization of the business, fixed rent or lease payments of facilities and other non- routine adjustments. The company believes these measures are useful to investors in evaluating the company's performance, results of operations and financial position for the following reasons: They are helpful in identifying trends in the company's day-to-day performance because the items excluded have little or no significance to the company's day-to-day operations; They provide an assessment of controllable expenses and afford management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance; and They provide data that assists management to determine whether or not adjustments to current spending decisions are needed. AdCare believes that the use of these measures provides a meaningful and consistent comparison of the company's underlying business between periods by eliminating certain items required by GAAP which have little or no significance in the company's day-to-day operations.
NYSE MKT: ADK Reconciliation of Net Loss to Non-GAAP Measures 17 Reconciliation of Net Loss to Adjusted EBITDA from Continuing Operations and Adjusted EBITDAR from Continuing Operations ($ in 000's) Twelve Months Ended March 31, (Amounts in 000's) 2015 2014 2014 2013 2015 Condensed Consolidated Statements of Operations Data: Net Loss (5,249)$ (2,523)$ (14,405)$ (13,363)$ (17,130)$ Discontinued Operations 1,407 (75) 1,510 1,255 2,630 Net loss from continuing operations (Per GAAP) (3,842) (2,598) (12,895) (12,108) (14,500) Add back: Interest expense, net 2,537 2,622 10,780 12,351 10,901 Income tax expense 20 8 132 142 141 Amortization of stock based compensation 203 513 1,155 1,097 846 Depreciation and amortization 1,706 1,786 7,300 6,918 7,375 Acquisition costs - - 8 565 8 Derivative (gain) loss - - - (3,006) - Loss o extinguishment of debt 680 583 1,803 109 1,900 L ss n legal settlement - - 600 - - Loss o disposal of assets - - 7 10 - Audit committee investigation expense - - - 2,386 - Reincorporation - Georgia - - - 91 - Other expenses 280 110 888 306 1,674 Salary retirement and continuation costs - - 2,636 154 2,628 Adjusted EBITDA from continuing operations 1,584 3,024 12,414 9,015 10,973 Facility rent expense 1,931 1,659 7,080 6,314 7,352 Adjusted EBITDAR from continuing operations 3,515$ 4,683$ 19,494$ 15,329$ 18,325$ Three Months Ended March 31, For the Year Ended December 31,
Exhibit 99.3
RISK FACTORS
Investing in our securities involves risks. Our business, financial condition, operating results and cash flows can be impacted by a number of factors, any of which could cause our results to vary materially from recent results or from our anticipated future results. See the risks under “Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2014, together with any material changes thereto contained in our subsequently filed Quarterly Reports on Form 10-Q, and those contained in our other filings with the SEC, which are incorporated by reference into this prospectus supplement and the accompanying prospectus. Before making an investment decision, you should carefully consider these risks as well as other information we include or incorporate by reference into this prospectus supplement and the accompanying prospectus. These risks could materially affect our business, results of operations or financial condition and could cause the value of our securities to decline. You could lose all or part of your investment.
We could be prevented from paying dividends on the Series A Preferred Stock.
We are a holding company, and we have no significant operations. We rely primarily on dividends and other distributions from our subsidiaries to us so we may, among other things, pay dividends on the Series A Preferred Stock, if and to the extent declared by our Board of Directors. The ability of our subsidiaries to pay dividends and other distributions to us depends on their earnings and is restricted by the terms of certain agreements governing their indebtedness. If our subsidiaries are in default under such agreements, then they may not pay dividends or other distributions to us.
Although dividends on the Series A Preferred Stock are cumulative and arrearages will accrue until paid, you will only receive cash dividends on the Series A Preferred Stock if we have funds legally available for the payment of dividends and such payment is not restricted or prohibited by law, the terms of any senior shares or any documents governing our indebtedness. Certain of our current mortgage loans prohibit the payment of dividends by us unless certain requirements are met, including obtaining the approval of the lender in certain circumstances. There is no assurance that we will meet all such requirements. As such, we could become unable, on a temporary or permanent basis, to pay dividends on the shares of Series A Preferred Stock. In addition, future debt, contractual covenants or arrangements we or our subsidiaries enter into may restrict or prevent future dividend payments. Accordingly, there is no guarantee that we will be able to pay any cash dividends on the Series A Preferred Stock.
The Series A Preferred Stock has not been rated and will be subordinated to all of our existing and future debt.
The Series A Preferred Stock has not been rated by any nationally recognized statistical rating organization. In addition, with respect to dividend rights and rights upon our liquidation, winding-up or dissolution, the Series A Preferred Stock will be subordinated to all of our existing and future debt, all of our senior shares and all future capital stock designated as senior to the Series A Preferred Stock. As of March 31, 2015, our total indebtedness was approximately $152.0 million. We may also incur additional indebtedness in the future to finance potential acquisitions or other activities, and the terms of the Series A Preferred Stock do not require us to obtain the approval of the holders of the Series A Preferred Stock prior to incurring additional indebtedness. As a result, our existing and future indebtedness may be subject to restrictive covenants or other provisions that may prevent or otherwise limit our ability to make dividend or liquidation payments on the Series A Preferred Stock. Upon our liquidation, our obligations to our creditors would rank senior to the Series A Preferred Stock and would be required to be paid before any payments could be made to holders of the Series A Preferred Stock.
We or our successor may not have sufficient funds available to redeem the Series A Preferred Stock following a Change of Control.
Under the terms of the Series A Preferred Stock, within 120 days after the date on which a Change of Control has occurred we (or the acquiring entity) are required to redeem all of the Series A Preferred Stock for cash at a specified redemption price, plus accrued and unpaid dividends, up to the redemption date. See “Description of the Series A Preferred Stock-Redemption-Special Redemption Upon Change of Control.”
If we do not have sufficient funding for such redemption, or if we or our successor is contractually restricted from redeeming the Series A Preferred Stock, the redemption will not occur, and holders of Series A Preferred Stock will be required to seek legal recourse to obtain such redemption.
Future offerings of preferred stock may adversely affect the value of the Series A Preferred Stock.
Our Charter currently authorizes us to issue up to 5,000,000 shares of preferred stock in one or more series on terms that may be determined at the time of issuance by our Board of Directors, of which 1,550,000 shares have been designated by our Board of Directors as Series A Preferred Stock, of which 1,525,000 are issued and outstanding. In connection with this offering, our Board of Directors will designate, by adopting articles of amendment to our Charter and filing them with the Secretary of State of the State of Georgia, at least such number of additional shares of preferred stock authorized by our Charter as Series A Preferred Stock as is necessary to complete this offering.
We may create and issue additional shares of Series A Preferred Stock and shares of other classes of preferred stock that would rank on parity with, or senior to, the Series A Preferred Stock as to dividend rights or rights upon liquidation, winding up or dissolution. The authorization, creation and subsequent issuance of additional classes of shares of preferred stock on parity with or, with the consent of the holders of the Series A Preferred Stock, senior to the Series A Preferred Stock, would dilute the interests of the holders of Series A Preferred Stock and any issuance of preferred stock that is senior to the Series A Preferred Stock could affect our ability to pay dividends on, redeem or pay the liquidation preference on the Series A Preferred Stock.
The market price of the Series A Preferred Stock could be substantially affected by various factors.
The market price of the Series A Preferred Stock has fluctuated and could fluctuate significantly in the future as a result of various factors and events, many of which are beyond our control. These factors may include:
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• | Prevailing interest rates, increases in which may have an adverse effect on the market price of the Series A Preferred Stock; |
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• | Trading prices of preferred equity securities issued by other companies in the industry; |
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• | The annual yield from distributions on the Series A Preferred Stock as compared to yields on other financial instruments; |
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• | Variations in our operating results; |
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• | Changes in our financial condition, performance and prospects; |
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• | Changes in general economic and market conditions; |
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• | The departure of any of our key executive officers or directors; |
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• | Announcements by us or our competitors of significant acquisitions, strategic partnerships or transactions; |
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• | Press releases or negative publicity relating to us or our competitors or relating to trends in healthcare; |
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• | Government action or regulation, including changes in federal, state and local healthcare regulations to which we are subject; |
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• | The level and quality of securities analysts’ coverage of our stock; |
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• | Changes in financial estimates or recommendations by securities analysts with respect to us or our competitors; and |
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• | Our issuance of additional preferred equity or debt securities. |
Furthermore, the stock market in recent years has experienced sweeping price and volume fluctuations that often have been unrelated to the operating performance of affected companies. These market fluctuations may also cause the price of the Series A Preferred Stock to decline.
In the event of fluctuations in the price of the Series A Preferred Stock, shareholders may be unable to resell shares of the Series A Preferred Stock at or above the price at which they purchased such shares. Additionally, due to fluctuations in the market price of the Series A Preferred Stock, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on past results as an indication of future performance.
Holders of Series A Preferred Stock have extremely limited voting rights.
Except as expressly stated in our Charter, as a holder of Series A Preferred Stock, you will not have any relative, participating, optional or other special voting rights and your approval will not be required for the taking of any corporate action other than as provided in our Charter. For example, your approval would not be required for any merger or consolidation in which we are involved or sale of all or substantially all of our assets except to the extent that such transaction materially adversely changes the express powers, preferences, rights or privileges of the holders of Series A Preferred Stock. See “Description of the Series A Preferred Stock-Voting Rights.”
The Series A Preferred Stock has only a limited trading market, which may negatively affect its value and your ability to transfer and sell your shares.
The Series A Preferred Stock has only a limited trading market. An active trading market on the NYSE MKT for the Series A Preferred Stock may never develop or, even if one develops, may not be maintained and may not provide you with adequate liquidity. The liquidity of any market for the Series A Preferred Stock will depend on a number of factors, including prevailing interest rates, our financial condition and operating results, the number of holders of the Series A Preferred Stock, the market for similar securities and the interest of securities dealers in making a market in the Series A Preferred Stock. As a result, the ability to transfer or sell the Series A Preferred Stock could be adversely affected.
The Series A Preferred Stock is not convertible, and investors will not realize a corresponding upside if the price of our common stock increases.
The Series A Preferred Stock is not convertible into our common stock and earns dividends at a fixed rate. Accordingly, the market value of the Series A Preferred Stock may depend on dividend and interest rates for other preferred stock, commercial paper and other investment alternatives and our actual and perceived ability to pay dividends on, and in the event of dissolution satisfy the liquidation preference with respect to, the Series A Preferred Stock.
Holders of the Series A Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.”
Distributions paid to corporate U.S. holders of the Series A Preferred Stock may be eligible for the dividends-received deduction, and distributions paid to non-corporate U.S. holders of the Series A Preferred Stock may be subject to tax at the preferential tax rates applicable to “qualified dividend income,” if we have current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. We do not currently have accumulated earnings and profits. Additionally, we may not have sufficient current earnings and profits during future fiscal years for the distributions on the Series A Preferred Stock to qualify as dividends for U.S. federal income tax purposes. If the distributions fail to qualify as dividends, U.S. holders would be unable to use the dividends-received deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.” If any distributions on the Series A Preferred Stock with respect to any fiscal year are not eligible for the dividends-received deduction or preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated earnings and profits, it is possible that the market value of the Series A Preferred Stock might decline.
For additional information concerning these matters, see “Material U.S. Federal Income Tax Considerations.”
We will have broad discretion over the use of the net proceeds from this offering, you may not agree with how we use the proceeds and we may not invest the proceeds successfully.
We intend to use the net proceeds from this offering for general corporate purposes, which may include the repayment of debt, working capital or the funding of potential acquisitions. Accordingly, we will have broad discretion as to the use of the net proceeds from this offering. Accordingly, you will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for us. See “Use of Proceeds.”
We are currently in a dispute with the landlord of eight of our Georgia facilities, which, if not resolved to our satisfaction, could have a material adverse effect on our business, results of operations and financial condition.
We lease eight of our skilled nursing facilitates located in Georgia under a master lease with a single landlord which expires in 2020 and have subleased all of these facilities to third-party operators with transfer of operations complete. On May 18, 2015, the landlord delivered to us a notice which, among other things, alleges that we are in default under the master lease for,
among other reasons, subleasing the facilities to third-party operators without the landlord’s written consent and reserves the landlord’s right to terminate the master lease and/or pursue any other remedy available at law or in equity. We do not believe that we are in default under the master lease and are in discussions with the landlord regarding the matter. The master lease provides that, in the event of a default, the landlord may, among other things, terminate the master lease and retain the advance rent and security deposit paid by us thereunder, which totals approximately $2.0 million. Upon notice of default under the master lease, we have the right to terminate the subleases without penalty. If the landlord terminates the master lease or if we are unable to otherwise resolve this matter on terms acceptable to us, then our business, results of operations and financial condition could be materially and adversely affected.
Adcare Health Systems (GA) (delisted) (AMEX:ADK)
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Adcare Health Systems (GA) (delisted) (AMEX:ADK)
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