Verity Health System – Court Approves Bidding Procedures, Bid Protections and APA for $610mn Bid of Stalking Horse Strategic Global Management

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February 19, 2019 – The Court hearing the Verity Health System case issued an order [Docket No. 1572] approving (i) proposed bidding procedures for a sale of substantially all of the Debtors’ assets (the "Sale") and (ii) a form of asset purchase agreement (the "Stalking Horse APA") to serve as a base for an agreement with stalking horse bidder Strategic Global Management, Inc. (“the “Stalking Horse Purchaser”) or prospective overbidders in respect of the Sale [Docket No. 1279]. As noted below, the proposed break-up fee has been reduced from 3.5% to 3.25% to $19.825mn.

Key Terms of the Stalking Horse APA:

  • APA Parties: Verity Health System of California, Verity Holdings, LLC, St. Francis Medical Center, St. Vincent Medical Center, St. Vincent Dialysis Center and Seton Medical Center (“Sellers”). Strategic Global Management, Inc. (“Purchaser”).
  • Consideration: $610mn which shall be allocated as follows: $420mn to St. Francis Medical Center, $120mn to St. Vincent Medical Center and $70mn to Seton Medical Center for Seton Medical Center and Seton Coastside, plus assumption of the Assumed Liabilities, provided, that if the California Attorney General’s approval does not include a requirement that Seton Hospital remain open as an acute care hospital or that Seton Coastside Hospital remain open as a skilled nursing facility, then an amount to be determined by Purchaser, in its sole discretion, of such Cash Consideration shall be reallocated from St. Francis to Seton; plus payment of Cure Costs associated with any Assumed Leases and/or Assumed Contracts.
  • Good Faith Deposit: Purchaser has made a good faith deposit in the amount of $30mn (the “Deposit”) by wire transfers to an account designated by Sellers. The Deposit shall be non-refundable in all events, except in the event Purchaser is not the winning bidder at the Auction, in the event Purchaser terminates the Stalking Horse APA if a stay of the sale order has not been vacated on or before 180 days following issuance of such stay, or in the event Purchaser has terminated the Stalking Horse APA pursuant to Section 9.1 (other than Section 9.1(b)). Upon Closing, the Deposit will be credited against the Purchase Price.
  • Break-Up Fee and Minimum Bid: Any full overbids must be in a minimum amount of $610mn, plus Cure Costs and the Break-Up Fee, and accompanied by a deposit in the form of cash or a cashier’s check in the amount of $30mn. The “Break-Up Fee” shall mean a breakup fee in the amount totaling three and a quarter percent (3.25%) of the Cash Consideration (or $19.825mn) plus reimbursement of reasonably documented reasonable costs and expenses incurred by Purchaser related to its due diligence, and pursuing, negotiating, and documenting the transactions contemplated by this Agreement in an amount not to exceed $2mn; provided, however, that in the event that the Purchaser is successful in acquiring some but not all of the Assets, the Break-Up Fee shall be reduced pro rata to the percentage of Assets actually purchased by the Purchaser, based on the allocation of the Purchase Price as described in Section 1.1(a)(i) of the Stalking Horse APA. Any further qualifying bids must (for bids relating to those assets subject to the Stalking Horse APA) have a value to the Debtors that is greater than or equal to the sum of the value offered under the Stalking Horse APA, plus (i) the amount of the Break-Up Fee ($19,825mn); (ii) the amount of the expense reimbursement ($2mn) and (iii) $7mn (the “Initial Bidding Increment,” and, together with the Break-Up Fee, the “Minimum Qualified Bid”).

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