ITEM 8.01 OTHER EVENTS.
Litigation Related to the Arrangement
As previously announced, on February 6, 2021, CRH Medical Corporation ("CRH" or
the "Company") entered into a definitive Arrangement Agreement (as amended on
March 18, 2021, the "Arrangement Agreement") with WELL Health Technologies Corp.
("WELL"), WELL Health Acquisition Corp., a wholly owned subsidiary of WELL (the
"Purchaser"), and 1286392 B.C. Ltd., a wholly owned subsidiary of WELL, with
respect to the proposed acquisition by WELL (through its subsidiaries) of all
the issued and outstanding shares of CRH at a price of US$4.00 per share, by way
of a plan of arrangement under the Business Corporations Act (British Columbia)
(the "Arrangement"). In connection with the Arrangement, on March 19, 2021, CRH
filed with the U.S. Securities and Exchange Commission (the "SEC") a definitive
proxy statement and management information circular (the "Proxy Statement").
Since the Proxy Statement was filed by CRH, three complaints have been filed by
purported stockholders of CRH in the United States District Court for the
Southern District of New York and the United States District Court for the
Eastern District of New York, seeking to enjoin the Arrangement and other
relief. On March 25, 2021, a complaint was filed against CRH and the members of
the CRH Board of Directors under the caption Harris v. CRH Medical Corporation,
et al., Case No. 1:21-cv-02597 (S.D.N.Y.), and a second complaint was filed
against CRH and the members of the CRH Board of Directors under the caption
Giesbrecht v. CRH Medical Corporation, et al., Case No. 1:21-cv-02600
(S.D.N.Y.). On April 1, 2021, a third complaint was filed against CRH and the
members of the CRH Board of Directors under the caption Hoang v. CRH Medical
Corporation, et al., Case No. 1:21-cv-01773 (E.D.N.Y.). All three complaints
allege violations of Sections 14(a) and 20(a) of the U.S. Securities Exchange
Act of 1934, as amended, asserting that the Proxy Statement is materially
incomplete and misleading. Among other remedies, such complaints seek an order
enjoining the consummation of the Arrangement or a vote on the Arrangement until
additional disclosures are made, directing the defendants to pay damages,
awarding costs, including attorneys' fees, and/or granting such other and
further relief as the applicable court may deem just and proper.
The defendants believe that all of the complaints are without merit and that no
further disclosure is required to supplement the Proxy Statement under
applicable laws. However, in order to moot the plaintiffs' unmeritorious
disclosure claims, to avoid the risk that the foregoing actions may delay or
otherwise adversely affect the consummation of the Arrangement and to minimize
the expense of defending such actions, CRH is voluntarily making the disclosures
set forth below to supplement the disclosures contained in the Proxy Statement.
Nothing in this Current Report on Form 8-K shall be deemed an admission of the
legal necessity or materiality under applicable laws of any of the supplemental
disclosures set forth herein.
This Current Report on Form 8-K will not affect the consideration to be received
by CRH shareholders in connection with the Arrangement, or the timing of the
special meeting of the Company's securityholders scheduled for April 16, 2021,
at 9:00 a.m., Vancouver time, which is being held in a virtual format conducted
via live audio webcast at https://web.lumiagm.com/281719465. At the CRH meeting,
CRH securityholders will be asked to vote on a special resolution to approve the
Arrangement (the "Arrangement Resolution"), and CRH shareholders will be asked
to vote on a proposal to approve, on an advisory (non-binding) basis, the
compensation that may be paid or become payable to CRH's named executive
officers in connection with the Arrangement (the "Compensation Proposal"). The
CRH Board of Directors continues to unanimously recommend that CRH
securityholders vote FOR the approval of the Arrangement Resolution and that CRH
shareholders vote FOR the Compensation Proposal.
Supplemental Disclosures
The following disclosures should be read in conjunction with the disclosures
contained in the Proxy Statement, which should be carefully read in its
entirety. To the extent that information set forth herein differs from or
updates information contained in the Proxy Statement, the information contained
herein supersedes the information contained in the Proxy Statement. All
capitalized terms used but not defined below shall have the meanings set forth
in the Proxy Statement. All page references are to pages in the Proxy Statement,
and any paragraph references used herein refer to the Proxy Statement before any
additions or deletions resulting from these supplemental disclosures. The
information contained herein speaks only as of April 6, 2021, unless the
information indicates another date applies.
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1. The disclosure under the heading "The Arrangement-Background to the
Arrangement" is amended and supplemented by adding the following sentences to
the end of the last paragraph beginning on page 28 of the Proxy Statement (which
continues on page 29 of the Proxy Statement):
The CRH Board selected Citi as its financial advisor because it is an
internationally recognized investment banking firm that has substantial
experience in strategic transactions. During the two years prior to the
execution of the Arrangement Agreement, other than services provided to CRH in
connection with the Company's renewed M&A Program and the Arrangement pursuant
to its May 2020 engagement (described above), Citi has not provided any
investment banking or financial advisory services to or received any
compensation from the Company, WELL or their respective affiliates, although
Citi may provide such services to the Company, WELL and their respective
affiliates in the future for which Citi would expect to receive customary
compensation.
2. The disclosure under the heading "The Arrangement-Background to the
Arrangement" is further amended and supplemented by replacing the last paragraph
beginning on page 30 of the Proxy Statement (which continues on page 31 of the
Proxy Statement) with the following (with new text in underline and stricken
language removed):
Also at the CRH Board meeting on December 28, 2020, the independent directors,
including Mr. Patrick, met without the presence of management, and with Citi and
Blakes present, to discuss the recent developments and to discuss WELL's
proposal. The directors determined to form a special committee to evaluate the
transactionreview, assess and examine, and to advise the CRH Board on, proposals
or offers to acquire control of the Company (each, a "Potential Transaction"),
including the proposal from WELL, which committee would exclude Mr. Patrick, in
light of his role in leading the M&A Program and the potential payments he could
receive as compensation therefor, and directed legal counsel to prepare a formal
resolution confirming the formation of the Special Committee and setting its
mandate. The Special Committee had the power and authority to, among other
things, (i) manage the process for any Potential Transaction, (ii) examine and
review, from the point of view of the best interests of the Company, the merits
and fairness of any Potential Transaction, (iii) assess, examine and advise the
CRH Board regarding any and all alternatives to any Potential Transaction which
may be available to the Company to enhance shareholder value, including, without
limitation, soliciting competing bids from third parties and maintaining the
status quo, (iv) consider and advise the CRH Board as to whether any Potential
Transaction and and/or any alternative transaction is in the best interests of
the Company and whether any Potential Transaction and/or any alternative
transaction should be pursued by the Company and, if necessary or appropriate,
recommended to its shareholders, (v) negotiate or supervise the negotiation of
the terms of any Potential Transaction and any agreements necessary to give
effect thereto, and consider and address the key issues relating to any
Protential Transaction, and (vi) report to the CRH Board on its activities and
recommendations from time to time, and provide such advice as requested by the
CRH Board in respect of any value enhancement initiative which may be proposed.
In connection with the foregoing and in furtherance of its responsibilities, the
Special Committee was specifically empowered to, among other things, (i) engage,
at the expense of the Company, its own independent legal and financial advisors,
technical consultants and other professional advisors on such terms as the
Special Committee considered appropriate, without any involvement of, or
interference from, interested parties or their representatives, and (ii) request
management to assist the Special Committee and its professional advisors and
provide them with information. The Special Committee did not have the power to
bind the Company in respect of any transaction or other value enhancement
initiative, any such matters being subject to the approval of the CRH Board.
The Special Committee, consisting of Mr. Ian Webb, Mr. Brian Griffin and
Dr. David Johnson, then met without Mr. Patrick and engaged in a discussion
regarding WELL's proposal and other strategic alternatives available to CRH in
light of recent developments in CRH's business and discussed in detail the
alternatives available, including deferring entering into exclusive negotiations
with WELL until such time as a comprehensive market check of all potential
acquirors was completed. The Special Committee discussed the risks of such a
process, including the risk of losing WELL's offer, prolonged management
distraction, the risk that information regarding such a process leaks and the
possibility that competitors could use their knowledge of a sales process to
harm CRH's business. At the conclusion of the meeting, the Special Committee
confirmed that the Company should provide due diligence access to WELL and
authorized Mr. Patrick to negotiate and sign, on behalf of the Company, the
letter of intent proposed by WELL, including granting exclusivity to WELL, but
instructed Citi to, in the meantime, reach out to a limited number of potential
acquirors for the Company identified in its sale process preparations during the
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fall and provide them with materials necessary to evaluate the Company on an
expedited basis before WELL's exclusivity period began.
3. The disclosure under the heading "The Arrangement-Background to the
Arrangement" is further amended and supplemented by adding the following
sentence to the end of the fifth full paragraph on page 32 of the Proxy
Statement:
The revised draft also proposed that all the outstanding equity awards of CRH,
whether vested or unvested, would be exchanged for equity awards of WELL (rather
than being accelerated (where applicable) and exchanged for cash in the
Arrangement, as had been contemplated by the Company's initial draft of the
Arrangement Agreement).
4. The disclosure under the heading "The Arrangement-Background to the
Arrangement" is further amended and supplemented by adding the following
sentences to the end of the sixth full paragraph on page 32 of the Proxy
Statement:
With respect to the treatment of employee equity awards, Blakes and Torys
discussed the current terms of the Company's equity plans and outstanding
awards, including the fact that such terms contemplated that certain awards
would be accelerated (if applicable) and paid out in connection with a change of
control transaction such as the Arrangement, and permitted other awards to be
exchanged for acquiror awards in connection with such a transaction. In light of
the foregoing, the parties agreed that in the Arrangement, certain equity awards
would be accelerated (if applicable) and exchanged for cash consideration, and
certain equity awards would be exchanged for WELL equity awards, as described
under "The Arrangement Agreement-Treatment of CRH Equity Awards" beginning on
page 74 of this proxy statement.
5. The disclosure under the heading "The Arrangement-Background to the
Arrangement" is further amended and supplemented by adding the following as a
new paragraph following the second full paragraph on page 32 of the Proxy
Statement:
On January 13, 2021, Mr. James Kreger, President, CRH Anesthesia, met with a
representative of United Digestive ("UD") to discuss transition plans for UD in
light of the upcoming October 31 expiration of its existing services agreements
with CRH (pursuant to which CRH is currently the exclusive provider of
anesthesia services to twelve of UD's surgery centers). At the meeting,
Mr. Kreger and the representative of UD had preliminary discussions regarding
whether CRH would be able to provide certain management services for the
anesthesia practice(s) at UD's surgery centers following the expiration of the
existing agreements. During the following two weeks, CRH and UD had additional
preliminary discussions and correspondence concerning the potential scope of
management services and potential economic terms of such an arrangement, but
could not then come to an agreement on key terms and ceased discussions.
Thereafter, CRH and UD did not have further discussions concerning potential
management services until following the execution of, and CRH's announcement of
its entry into, the Arrangement Agreement.
6. The disclosure under the heading "The Arrangement-Background to the
Arrangement" is further amended and supplemented by replacing the first full
paragraph on page 33 of the Proxy Statement with the following (with new text in
underline and stricken language removed):
On February 4, 2021, the full CRH Board met by videoconference to discuss and
consider WELL's proposal, including the current drafts of the Arrangement
Agreement and the other transaction agreements, with representatives of CRH
management, Citi, Canaccord Genuity, Blakes and Skadden in attendance. At the
meeting, a representative of Blakes summarized the principal terms of the
proposed Arrangement Agreement and the other transaction agreements.
Representatives of Citi reviewed with the CRH Board a presentation prepared by
Citi, which summarized, among other things, WELL's proposal and Citi's financial
analyses of WELL's proposal. discussed with the CRH Board materials prepared by
Citi, based on certain information provided to Citi by the Company or obtained
from public sources, including certain financial forecasts provided to it by the
Company. Although Citi was not requested to, and did not, provide or express any
opinion to the CRH Special Committee or the CRH Board as to the fairness, from a
financial or any other viewpoint, of the consideration payable to CRH
shareholders in the Arrangement, it discussed certain illustrative financial
analyses with the CRH Board in connection with the CRH
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Board's review of WELL's proposal. These illustrative financial analyses
included a selected public companies analysis, which reflected a per CRH share
price of $2.15 to $3.10, a selected transactions analysis, which reflected a per
CRH share price of $3.45 to $4.40, and, using the CRH Normalized Case (as
described below), a five-year discounted cash flow analysis, which reflected a
per CRH share price of $2.50 to $3.65, compared with the $4.00 per share price
payable in the Arrangement. In addition, solely for reference purposes, Citi
discussed with the CRH Board an illustrative selected precedent premiums paid
analysis, which, based on a per share CRH trading price of $2.17 per share,
reflected a per CRH share price of between $2.71 and $3.14. These financial
analyses were based solely on information provided to Citi by the Company or
obtained from public sources, which information was not independently verified
by Citi, and were based on information available and financial, stock market,
and other conditions as of February 4, 2021. Citi did not make, and its
discussions with the CRH Board did not constitute, a recommendation to the CRH
Board with respect to the Arrangement or any other matter, nor to any CRH
shareholder as to how to vote its shares with respect to the Arrangement or any
other matter, and, in addition to not expressing any view as to the fairness of
the consideration payable to CRH shareholders in the Arrangement, Citi did not
express any view as to the fairness of the consideration or the amount or form
of compensation payable to any of CRH's directors, officers or employees. The
CRH Board determined not to request any opinion (oral or written) from Citi as
to the fairness, from a financial or other viewpoint, to CRH shareholders of the
consideration to be received by CRH shareholders in the Arrangement, and instead
to rely solely on the opinion of Canaccord Genuity (as described below) as to
the fairness, from a financial point of view, of the consideration to be
received by CRH shareholders pursuant to the Arrangement.
Also at the CRH Board meeting on February 4, 2021,
representativesRepresentatives of Canaccord Genuity reviewed with the CRH Board
a presentation prepared by Canaccord Genuity, which summarized, among other
things, WELL's proposal and Canaccord Genuity's financial analyses of WELL's
proposal. At the conclusion of its presentation, Canaccord Genuity rendered an
oral opinion to the CRH Board and the Special Committee to the effect that, as
of that date and based upon and subject to the various assumptions made,
procedures followed and limitations on the scope of the review undertaken in its
opinion, the consideration of $4.00 per CRH share to be received by CRH
shareholders pursuant to the Arrangement Agreement was fair, from a financial
point of view, to such shareholders. For more information on the opinion
rendered by Canaccord Genuity and the material financial analyses performed by
Canaccord Genuity in connection with rendering its opinion, see "-Opinion of the
Company's Financial Advisor" beginning on page 44.
7. The disclosure under the heading "The Arrangement-Background to the
Arrangement" is further amended and supplemented by adding the following as a
new paragraph following the third full paragraph on page 34 of the Proxy
Statement:
Following the announcement of CRH's entry into the Arrangement Agreement on
February 8, 2021, a representative of UD contacted Mr. Kreger, and the parties
re-commenced discussions concerning the potential for CRH to provide certain
management services to UD following the expiration of UD's existing agreements
with CRH. After additional negotiations, on February 22, 2021, the Company
signed a five-year exclusive management services agreement with UD, under which
CRH will no longer be the exclusive provider of anesthesia services at UD's
surgery centers (as under its existing agreements), but will manage UD's
anesthesia services at its surgery centers in exchange for a fee. The new
agreement will be effective as of November 1, 2021. For purposes of clarity, CRH
notes that the new agreement with UD does not consitutute a renewal of the
Company's existing agreements with UD; rather the new agreement is different
than the Company's existing agreements with UD in both its nature and its
economic terms. Although the new agreement is expected to allow the Company to
retain a material portion of the EBITDA earned under the existing agreements,
the new agreement should not be assumed to have the same or a substantially
similar economic impact on the Company as the existing agreements, which are
still expected to expire on October 31, 2021.
8. The disclosure under the heading "The Arrangement-Reasons for the
Arrangement; Recommendation of the CRH Board" is amended and supplemented by
replacing the ninth first-level bullet on page 36 of the Proxy Statement with
the following (with new text in underline and stricken language removed):
• the financial analysis of Citi presented to illustrative financial
analyses discussed by Citi with the CRH Board and the Special Committee
(although such analyses were not prepared by Citi in connection with
rendering any opinion regarding, or any assessment by Citi as to, the
fairness from a financial point of view of the consideration payable to
CRH shareholders pursuant to the Arrangement, neither of which Citi did
or was requested to do);
9. The disclosure under the heading "The Arrangement-Certain Unaudited
Prospective Financial Information-General Note Regarding Certain Unaudited
Prospective Financial Information" is amended by replacing the reference to
"February 23, 2021" in the last full paragraph on page 40 of the Proxy Statement
with "February 22, 2021".
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10. The disclosure under the heading "The Arrangement-Certain Unaudited
Prospective Financial Information-CRH High-Growth Case" is amended and
supplemented by replacing the third full paragraph on page 41 of the Proxy
Statement with the following (with new text in underline and stricken language
removed):
CRH management prepared certain forecasts in the fall ofsecond half of September
2020 for distribution to potential acquirers in connection with CRH's planned
sale process (which forecasts took into account the Company's recently completed
acquisitions of a 66% interest in Orange County Anesthesia Associates, LLC
announced on August 4, 2020 and a 51% in Coastal Carolina Sedation Associates,
LLC announced on September 1, 2020, as well as certain then-anticipated
transactions, including the Company's anticipated joint venture with Western
Carolina Anesthesia Associates announced on October 6, 2020 and anticipated
acquisition of an interest in FDHS Anesthesia, LLC announced on December 14,
2020). In addition to the assumptions described under " -General Note Regarding
Certain Unaudited Prospective Financial Information," beginning on page 39, such
forecasts were based on various assumptions concerning, among other things,
CRH's ability to deploy capital at an increased rate to drive additional growth
through acquisitions and CRH's achievement of accelerated organic growth,
primarily through growth in its anesthesia services business resulting from the
potential heightened demand for such services in light of certain shifting
healthcare norms and the possibility of certain rate increases in future years.
In light of the subsequent notice received by CRH that CRH's largest customer,
United Digestive, did not intend to renew its services agreements with CRH, such
forecasts were updated in the last week of December 2020 solely to remove any
revenue or EBITDA contribution from United Digestive following the expiration of
such service agreements in the fourth quarter of 2021. At the same time, CRH
also implemented other minor updates to such forecasts based on the Company's
actual third quarter 2020 results, which had been announced in November 2020,
and actual transactions completed through December 2020. In this proxy
statement, we refer to such forecasts, including the December revisions to
reflect the removal of United Digestive revenue and EBITDA contributions, as the
"CRH High-Growth Case." For purposes of clarity, CRH notes that such forecasts,
prior to the December revisions, were not relied upon by any party in connection
with the evaluation of the Arrangement and were superseded by the CRH
High-Growth Case, which included the December revisions. The CRH High-Growth
Case was provided to WELL and to four other potential acquirers of CRH who
entered into confidentiality agreements with CRH as a result of Citi's outreach
to potential acquirers between December 28, 2020 and January 5, 2021, as well as
to Citi and Canaccord Genuity.
11. The disclosure under the heading "The Arrangement-Certain Unaudited
Prospective Financial Information-CRH Normalized Case" is amended and
supplemented by replacing first sentence of the last paragraph on page 42 of the
Proxy Statement with the following (with new text in underline):
CRH management prepared certain additional forecasts in the second half of
January 2021.
Cautionary Note Regarding Forward-Looking Statements
Certain statements and information included or incorporated by reference in this
document may constitute "forward-looking statements" within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995 and "forward-looking
information" within the meaning of Canadian securities laws (collectively,
"forward-looking statements"). Forward looking statements include statements
regarding the acquisition of the Company by WELL, as well as all other
statements that are not statements of historical fact. Forward-looking
statements are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "plan," "intend" or
"project" or the negative of these words or other variations on these words or
comparable terminology.
Forward-looking statements reflect current expectations of management regarding
future events and performance as of the date of this document and involve known
and unknown risks, uncertainties and other factors which may cause our actual
results to be materially different those expressed or implied by any
forward-looking statements. These forward-looking statements should not be read
as guarantees of future results, and there can be no assurance that the results
expressed or implied by any forward-looking statements will be achieved.
Important factors that could cause actual results to differ materially from the
results discussed in forward-looking statements include: (i) the risk that the
Company's securityholders do not approve the proposed transaction; (ii) the risk
that regulatory or other approvals required for the transaction may be delayed
or not obtained, or are obtained subject to conditions that are not anticipated;
(iii) the possibility that certain other conditions to the consummation of the
proposed transaction
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will not be satisfied or completed on a timely basis, or at all; (iv) the risk
that the financing necessary for the consummation of the proposed transaction is
unavailable at the closing; (v) the risk of disruption from the announcement,
pendency and/or completion of the potential transaction, including potential
adverse reactions or changes to business relationships with customers,
employees, suppliers or regulators, making it more difficult to maintain
business and operational relationships; (vi) uncertainties related to
developments in the COVID-19 pandemic and its impact on the Company's operations
and the completion of the proposed transaction; and (vii) uncertainties related
to general economic, financial, regulatory and political conditions, as well as
potential changes in law and regulatory interpretations.
Additional factors that could cause actual results to differ materially from
expectations include, without limitation, the risks identified by the Company in
its most recent Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q
and its Current Reports on Form 8-K, which are available on EDGAR at
www.sec.gov/edgar.shtml or on the Company's website at www.crhmedcorp.com. The
Company disclaims any intent or obligations to update or revise publicly any
forward-looking statements whether as a result of new information, estimates or
options, future events or results or otherwise, unless required to do so by law.
Additional Information and Where to Find It
The proposed transaction between the Company and WELL will be submitted to the
Company's securityholders for their consideration. In connection therewith, on
March 19, 2021, the Company filed the Proxy Statement with the SEC. The Company
commenced mailing of the Proxy Statement to its securityholders on or about
March 19, 2021, and may file other documents regarding the proposed transaction
with the SEC. INVESTORS AND SECURITYHOLDERS ARE URGED TO CAREFULLY READ ALL
RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE DEFINITIVE PROXY STATEMENT,
AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, WHEN THEY BECOME
AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION. The definitive Proxy Statement and other relevant materials filed
with the SEC (when they become available) may be obtained free of charge at the
SEC's web site, http://www.sec.gov. Copies will also be available at no charge
in the "Investors" section of the Company's website,
https://investors.crhsystem.com.
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