Item 1.01. Entry into a Material Definitive Agreement.
Asset Purchase Agreement
On June 11, 2016, BioScrip, Inc. (the “Company”)
entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) by and among the Company, HomeChoice Partners,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company (the “Buyer”), HS Infusion Holdings, Inc.,
a Delaware corporation (“Home Solutions”) and each of the subsidiaries of Home Solutions set forth on the signature
pages to the Asset Purchase Agreement (collectively, the “Home Solutions Subsidiaries” and together with Home Solutions,
the “Sellers”). Pursuant to the Asset Purchase Agreement, the Company has agreed to acquire substantially all of the
assets and assume certain liabilities of the Sellers (the “Transaction”) for the Transaction Consideration (as defined
below).
Subject to certain net working capital adjustments,
the consideration for the Transaction (the “Transaction Consideration”) consists of: (i) $80.0 million in cash (the
“Cash Consideration”), less the amount of any accounts receivable associated with governmental payors (the “Government
Receivables”); (ii) $5.0 million in shares of the Company’s common stock (“Common Stock”), at a price per
share identical to the price per share of the Company’s equity offering commenced on June 13, 2016 (the “Equity Offering,”
as further described in Item 8.01 below) (the “Closing Equity Consideration”); and (iii) $24.75 million in contingent
equity securities of the Company, in the form of restricted shares of Common Stock (“RSUs”), issued in Tranche A and
Tranche B with different vesting conditions as described below (collectively, the “Contingent Shares”). The aggregate
number of RSUs in Tranche A will be equal to the quotient of $12.375 million, divided by $4.00, or 3,093,750 RSUs. The aggregate
number of RSUs in Tranche B will be equal to the quotient of $12.375 million, divided by $5.00, or 2,475,000 RSUs.
The Cash Consideration and the Closing Equity
Consideration will be paid at closing, subject to customary closing adjustments. In addition, the Cash Consideration at closing
will be reduced by the projected value of the Government Receivables which Home Solutions will be responsible for collecting, which
the Company currently estimates to be approximately $3 million. If within one year from the closing date of the Transaction,
Home Solutions is not able to collect the full amount of the Government Receivables, the Company will pay Home Solutions the difference
between the amount deducted at closing and the amount actually collected by Home Solutions.
The Company will issue the shares of Common
Stock issuable to Home Solutions pursuant to the RSUs in Tranche A promptly, and in any event within five business days, following
the earlier of (a) the closing price of the Common Stock, as reported by NASDAQ, averaging $4.00 per share or above over 20 consecutive
trading days during the period beginning on the closing date of the Transaction and ending December 31, 2019 or (b) a change of
control that occurs on or prior to December 31, 2017 or a change of control thereafter but on or prior to December 31, 2019 pursuant
to which the consideration payable per share equals or exceeds $4.00 per share. The Company will issue the shares of Common Stock
issuable to Home Solutions pursuant to the RSUs in Tranche B promptly, and in any event within five business days, following the
earlier of (a) the closing price of the Common Stock, as reported by NASDAQ, averaging $5.00 per share or above over 20 consecutive
trading days during the period beginning on the closing date of the Transaction and ending December 31, 2019 or (b) a change of
control that occurs on or prior to December 31, 2017 or a change of control thereafter but on or prior to December 31, 2019 pursuant
to which the consideration payable per share equals or exceeds $5.00 per share.
The Asset Purchase Agreement contains representations,
warranties and covenants customary for a transaction of this nature. Subject to certain limitations, the Sellers, on the one hand,
and the Company and Buyer, on the other hand, have agreed to indemnify each other for breaches of representations, warranties and
covenants and other specified matters, and the Sellers’ indemnification obligations are secured, in part, by an escrow of
a portion of the Transaction Consideration.
The consummation of the Transaction is subject
to customary closing conditions, including, but not limited to, the Company’s closing of the Equity Offering with gross proceeds
of at least $100.0 million, the Company obtaining stockholder approval to increase the number of shares of Common Stock that the
Company is authorized to issue pursuant to its certificate of incorporation, the absence of legal orders prohibiting the consummation
of the Transaction, the absence of conditions or circumstances constituting a business material adverse effect with respect to
Home Solutions, receipt of approval, or termination of the waiting period, under the Hart-Scott Rodino Antitrust Improvements Act
of 1976, as amended, the accuracy of the representations and warranties of the parties, the parties’ performance and compliance
in all material respects with the agreements and covenants contained in the Asset Purchase Agreement and the parties’ attainment
of certain third-party consents under material agreements.
The Asset Purchase Agreement may be
terminated by the Company or Home Solutions under certain circumstances specified therein (including the right of the Company
or Home Solutions, as the case may be, to terminate the Asset Purchase Agreement if the transactions contemplated therein
have not been consummated prior to September 9, 2016) for reasons other than the breach of the Asset Purchase Agreement by
the party seeking to terminate. In addition, under the terms of the Asset Purchase Agreement, Home Solutions has the right to
terminate the Asset Purchase Agreement if the Equity Offering is not completed with gross proceeds of at least $100 million
with the 17 days following the date of the Asset Purchase Agreement. The Company intends to fund the Cash Consideration and
pay fees and expenses in connection with the Transaction with a portion of the net proceeds from the Equity Offering.
Pursuant to the Asset Purchase Agreement, upon
consummation of the Transaction, the Company has agreed that (1) for so long as Daniel Greenleaf remains the Chief Executive Officer
of the Company, Mr. Greenleaf will be a member of the Company’s board of directors (the “Board”) and (2) Home
Solutions will be entitled to designate one member to the Board for a period of three years; provided that this designation right
will terminate if Home Solutions owns less than 50% of the equity interests of the Company (including the Contingent Shares) issued
to Home Solutions pursuant to the Asset Purchase Agreement. The Asset Purchase Agreement also provides Home Solutions with certain
customary registration rights that require the Company to register the resale of the Closing Equity Consideration and the Contingent
Shares pursuant to the Securities Act of 1933, as amended.
The Asset Purchase
Agreement has been included to provide our stockholders with information regarding its terms. It is not intended to provide any
other factual information about the Sellers, Home Solutions, the business being acquired, or the Company. The representations,
warranties and covenants contained in the Asset Purchase Agreement (1) are made only for the purposes of the Asset Purchase Agreement
and are made as of specific dates and are solely for the benefit of the parties to the Asset Purchase Agreement, (2) may be subject
to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between
the parties in connection with the execution of the Asset Purchase Agreement (such disclosures include information that has been
included in public disclosures, as well as additional non-public information) and (3) may have been made for the purposes of allocating
contractual risk between the parties to the Asset Purchase Agreement instead of establishing these matters as facts. Moreover,
information concerning the subject matter of such representations and warranties may change after the date of the
Asset
Purchase Agreement, which subsequent information may or may not be reflected in the Company’s public disclosures.
A copy of the Asset Purchase Agreement is filed
as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference. We encourage you to read the Asset Purchase
Agreement for a more complete understanding of the Transaction. The foregoing description of the Asset Purchase Agreement does
not purport to be complete and is qualified in its entirety by reference to the full text of the Asset Purchase Agreement. A copy
of the press release announcing the Transaction is furnished as Exhibit 99.1 to this report.
Exchange Agreement
The Company has announced the proposed
Equity Offering. A significant number of shares of the Company’s common stock were reserved for issuance to certain
holders (the “PIPE Investors”) of the Company’s Series A Convertible Preferred Stock, par value $0.0001 per share
(the “Series A Preferred Stock”) and Class A and Class B warrants (the “Warrants”), upon conversion
of the Series A Preferred Stock and exercise of the Warrants. The Company determined that if such shares of common stock
would be available for issuance, the Company would have the flexibility to consider increasing the size of the Equity
Offering. Based on the instructions of the Board, the Company contacted the PIPE Investors to determine upon what terms the PIPE Investors
would be willing to enter into a series of transactions to allow the Company to utilize the common stock reserved for
issuance upon conversion of the Series A Preferred Stock and the exercise of the Warrants in the Equity Offering and the
PIPE Investors agreed to enter into the Exchange Agreement in order to facilitate such transactions.
On June 10, 2016, the Company entered into
an Exchange Agreement (the “Exchange Agreement”) with the PIPE Investors, whereby the Company exchanged its Series A Preferred
Stock for a new series of convertible preferred stock of the Company, designated “Series B Convertible Preferred Stock,”
having the terms set forth in the form of Certificate of Designations of Series B Convertible Preferred Stock, par value $0.0001
per share, which is attached to this Report as Exhibit 3.1. Pursuant to the Exchange Agreement, the PIPE Investors agreed:
(i) to exchange 614,177 shares of
the existing Series A Preferred Stock for an identical number of shares of Series B Convertible Preferred Stock (the “Series
B Preferred Stock,” and together with the Series A Preferred Stock, the “Preferred Stock”), which have the same
terms as the Series A Preferred Stock, except that the terms of the Series B Preferred Stock include the authority of the holders
of the Series B Preferred Stock to waive the requirement that the Company reserve a sufficient number of shares of common stock
to allow for the conversion of the Series B Preferred Stock; and
(ii) to waive the requirement under
the Warrant Agreement governing the Warrants to reserve 3,600,000 shares of our common stock for the exercise of the Warrants.
In the Exchange Agreement, we agreed that within
four months of the date of the Exchange Agreement, we will call a special meeting of our stockholders to seek approval to an amendment
of our Certificate of Incorporation to increase the number of authorized shares of common stock so as to allow us to reserve sufficient
shares for, among other things, the conversion of the Series B Preferred Stock and the exercise of the Warrants (the “Authorization
Proposal”). If approval of the Authorization Proposal is not obtained at such meeting, we agreed to resubmit the Authorization
Proposal at the annual or a special meeting of our stockholders on an annual basis beginning in 2017 until stockholder approval
is obtained. Until stockholder approval is obtained, we agreed that we will not issue any additional shares of common stock or
equity awards to employees without the consent of the investors holding a majority of the voting power of the Series B Preferred
Stock, provided that we may grant awards with respect to the 1.93 million shares of common stock currently authorized for issuance
under our 2008 Equity Incentive Plan. If stockholder approval of the Authorization Proposal is not obtained prior to the earlier
of May 17, 2021 and the date all of the Company’s obligations under indenture governing the Company’s 8.875% Senior
Notes due 2021 have been satisfied, then each holder of the Series B Preferred Stock may elect to require the Company to redeem
for cash all shares of Series B Preferred Stock held by such holder for which there are not sufficient authorized shares of common
stock reserved to allow conversion of such shares of Series B Preferred Stock. The redemption price would be calculated as the
greater of the liquidation preference of each redeemed share of Series B Preferred Stock and the product of the volume-weighted
average share price of our common stock on the NASDAQ for a ten trading day period ending two trading days prior to the date that
the Company receives the redemption notice and the number of shares of common stock into which each share of Series B Preferred
Stock is convertible.
The foregoing description of the Exchange Agreement
does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Exchange
Agreement, a copy of which is filed herewith as Exhibits 10.1 and is incorporated by reference herein.
In addition, the Company and the PIPE Investors intend
to enter into a new exchange agreement, subject to any required regulatory or stockholder approvals, to promptly effect a second
exchange involving an issuance of a new series of Preferred Stock in return for the shares of Series B Preferred Stock. The new
series of Preferred Stock will be identical to the Series B Preferred Stock except that it will provide that the 11.5% per annum
rate of non-cash dividends payable on the shares of the new Series of Preferred Stock will be reduced based on the achievement
by the Company of specified earnings before interest, taxes, depreciation and amortization (referred to as “Consolidated
EBITDA” in the Company’s Credit Agreement, dated as of July 31, 2013, as such Credit Agreement has been amended through
the date of the Exchange Agreement). Specifically, if the Company achieves on a trailing twelve month basis at the end of any fiscal
quarter, (1) at least $75 million in Consolidated EBITDA, but less than $85 million in Consolidated EBITDA, the non-cash dividend
rate for the quarter following such 12 month period will be 10.5% per annum; (2) at least $85 million in Consolidated EBITDA,
but less than $95 million in Consolidated EBITDA, the non-cash dividend rate for the quarter following such 12 month period will
be 9.5% per annum; and (3) at least $95 million in Consolidated EBITDA, the non-cash dividend rate for the quarter following such
12 month period will be8.5% per annum. While the Company believes it will be able to complete the exchange of the Series B Preferred
Stock for the new series of Preferred Stock with the foregoing modifications to the non-cash dividend rate, within the next several
weeks, it can make no assurances regarding the receipt of any applicable regulatory or stockholder approvals, if determined to
be necessary.
Rights and Preferences of the Series B Preferred Stock
The description below provides a summary of
certain material terms of the Series B Preferred Stock issued pursuant to the Exchange Agreement.
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Dividends
. Dividends of the Series B Preferred Stock are noncumulative and accrue from the date of original issuance at a rate of 8.5% per annum on the liquidation preference (defined below) then in effect (a “Cash Dividend”). If the Company does not declare and pay a Cash Dividend, the liquidation preference on the Series B Preferred Stock will be increased to an amount equal to the liquidation preference in effect at the start of the applicable dividend period, plus an amount equal to such then applicable liquidation preference multiplied by 11.5% per annum (an “Accrued Dividend”). Cash Dividends, if declared, are payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year, and, if declared, will begin to accrue on the first day of the applicable dividend period. If applicable, the Accrued Dividend will begin to accrue and be cumulative on the same schedule as set forth above for Cash Dividends and will also be compounded on each applicable subsequent dividend date.
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Liquidation Preference
. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company (each, a “Liquidation Event”), after satisfaction of all liabilities and obligations to creditors of the Company and distribution of any assets of the Company to the holders of any stock or debt that is senior to the Series B Preferred Stock, and before any distribution or payment is made to holders of any junior stock, each holder of Series B Preferred Stock will be entitled to either convert the Series B Preferred Stock into common stock and share in any distribution made to the holders of common stock or receive, out of the assets of the Company or proceeds thereof (whether capital or surplus) legally available therefor, an amount per share of Series B Preferred Stock equal to the liquidation preference. The initial liquidation preference is equal to $115.34 per share, which may be adjusted from time to time in the amount of any Accrued Dividends. The holders of the Series B Preferred Stock are also entitled, at their election, to either convert their shares of Series B Preferred Stock into common stock and on a pro rata basis share in any distribution made to the common stock holders or be paid the liquidation preference upon the occurrence of events that are “Deemed Liquidation Events”, such as certain merger transactions where the Company is not the survivor or a sale of all or substantially all of the Company’s assets.
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Rank
. The Series B Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding up or dissolution, rank senior to the Company’s common stock and each other class or series of shares that the Company may issue in the future that do not expressly provide that such class or series ranks equally with, or senior to, the Series B Preferred Stock, with respect to dividend rights and/or rights upon liquidation, winding up or dissolution. The Series B Preferred Stock will also rank junior to the Company’s existing and future indebtedness.
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Conversion Rate and Conversion Price
. The conversion rate in effect at any applicable time for conversion of each share of Series B Preferred Stock into common stock will be the quotient obtained by dividing the liquidation preference then in effect (which will include any cash dividends that the Company has notified holders that it intends to pay but has not yet declared and any cash dividends that have been declared but remain unpaid, calculated at the Accrued Dividend rate) by the conversion price then in effect, plus cash in lieu of fractional shares. The conversion price for the Series B Preferred Stock will initially be $5.17 and is subject to adjustment from time to time upon the occurrence of certain events, including a stock split, a reverse stock split, or a dividend of common stock to the Company’s common stockholders.
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Optional Conversion
. The Series B Preferred Stock may, at the option of the holder, be converted into Company common stock. The holders of the Series B Preferred Stock have agreed in the Exchange Agreement that the Company need not keep reserved for issuance shares of common stock in amounts sufficient to allow such conversion until the Authorization Proposal is obtained.
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Mandatory Conversion
. If, at any time following the third anniversary date of the issuance of the Series B Preferred Stock, the volume weighted average price of the Company’s common stock equals or exceeds three (3) times the conversion price of the Series B Preferred Stock for a period of 30 consecutive trading days, the Company may, at its option, require that any or all of the then outstanding shares of Series B Preferred Stock be automatically converted into Company common stock at the conversion rate. The Company may not elect to exercise the foregoing option if at any time during the period commencing on the date that the Company has made a public announcement that it has entered into a definitive agreement with respect to a transaction constituting a “Deemed Liquidation Event” (as defined in the Certificate of Designations) and ending on the date that is the first to occur of (i) the consummation of the transaction and (ii) the date that the Company has made a public announcement that any such definitive agreement has been terminated.
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Optional Special Dividend and Conversion on Certain Change of Control
. Upon the occurrence of a change of control effected by a third party tender offer and that results in any person (other than the holders of Series B Preferred Stock or any of their respective affiliates, acting either individually or through a group) beneficially owning, directly or indirectly shares of the Company’s capital stock entitling such person to exercise 50% or more of the total voting power of all classes of voting stock of the Company, at the written request of a majority of the voting power of the outstanding shares of Series B Preferred Stock: (i) the Board will, subject to applicable law, declare and the Company will pay a special cash dividend on each share of Series B Preferred Stock, out of any legally available funds in the amount of the liquidation preference per share then in effect with respect to the Series B Preferred Stock to the extent the legally available funds are sufficient to pay the special dividend in full; and (ii) as of the payment date of the special dividend, all outstanding shares of Series B Preferred Stock automatically will be converted (without further action) into a number of shares of common stock at the conversion rate then in effect.
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Voting
. Holders of shares of Series B Preferred Stock will be entitled to vote with the holders of shares of common stock (and any other class or series similarly entitled to vote with the holders of common stock) and not as a separate class, at any annual or special meeting of stockholders of the Company, and may act by written consent in the same manner as the holders of common stock, on an as-converted basis. In addition, a majority of the voting power of the Series B Preferred Stock must approve certain actions that adversely affect their rights, such as the creation or issuance of a series of stock with equal or greater rights than the Series B Preferred Stock and issuance of equity securities, or securities convertible into equity, at a price that is 25% below fair market value at the time of issuance, voluntary liquidation, dissolution or winding-up of the Company if the Series B Preferred Stock would not have the option to receive the then liquidation preference on the liquidation, dissolution, or winding-up of the Company, or subject to certain exceptions, a merger transaction that will effectively represent the sale of the Company to a successor, a sale of substantially all Company assets, and any recapitalization transaction, but only if the results of any such transaction is that holders of the Series B Preferred Stock would not have the option to receive the full liquidation preference as a result of that transaction.
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Redemption at the Option of the Holder.
From and after the tenth anniversary of the original issuance of the Series B Preferred Stock, each holder of shares of Series B Preferred Stock will have the right to request that the Company redeem, in full, out of funds legally available, by irrevocable written notice to the Company, all of such holder’s shares of Series B Preferred Stock at a redemption price per share equal to the liquidation preference then in effect per share of Series B Preferred Stock. If the Company elects not to redeem a holder’s shares of Series B Preferred Stock pursuant to such notice, the conversion price then in effect with respect to the shares of Series B Preferred Stock will be decreased to the lesser of (A) the conversion price then in effect and (B) 80% of the volume weighted average price of the Company’s common stock for the 10 consecutive trading days prior to the date of the redemption request. In addition, upon a change of control event that is neither a liquidation event nor the result of a person (other than the holders of Series B Preferred Stock and their affiliates) acquiring 50% or more of the total voting power of all classes of voting stock of the Company as a result of a tender offer, subject to the Company’s prior satisfaction of certain debt obligations, each holder of Preferred Stock that remains outstanding may require the Company to redeem shares of Series B Preferred Stock at a price equal to the liquidation preference then in effect.
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Redemption at the Option of the Company
. From and after the tenth anniversary of the original issuance of the Series B Preferred Stock, the Company may redeem the outstanding Series B Preferred Stock, in whole or in part, at a price per share equal to the liquidation preference then in effect per share of Series B Preferred Stock.
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Board Representation
. So long as shares of the Series B Preferred Stock represent at least five percent (5%) of the outstanding voting stock of the Company, a majority of the voting power of the Series B Preferred Stock shall have the right to designate one (1) member to the Company’s board of directors who shall be appointed to a minimum of two (2) committees of the board.
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Anti-dilution
. The conversion price of the Series B Preferred Stock is subject to anti-dilution protections if the Company effects a stock split, stock dividend, subdivision, reclassification or combination of its common stock.
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Maturity Date
. The Series B Preferred Stock is perpetual, and therefore does not have a maturity date.
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Registration Rights Agreement
The Company entered into an amendment dated
June 10, 2016, to the Registration Rights Agreement, dated March 9, 2015, by and among the Company and the PIPE Investors (the “Amendment
to the Registration Rights Agreement”) that, among other things, and subject to certain exceptions, requires the Company,
upon the request of the holders of the Series B Preferred Stock to register the shares of common stock of the Company issuable
upon conversion of the Series B Preferred Stock. Pursuant to the terms of the Amendment to the Registration Rights Agreement, the
costs incurred in connection with such registrations will be borne by the Company. If the parties enter into a new exchange agreement
as described above under Item 1.01, the parties intend to further amend the Registration Rights Agreement to provide the shares
of common stock underlying the new series of Preferred Stock with the same registration rights as the holders of Series B Preferred
Stock have currently.
This summary of the Amendment to the Registration
Rights Agreement is qualified in its entirety by reference to the Amendment to the Registration Rights Agreement, which is attached
hereto as Exhibit 4.1 and is incorporated herein by reference.