AdaptHealth Derivative Settlement Frequently Asked Questions
Frequently Asked Questions
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This website is designed to inform you about the above-captioned shareholder derivative action brought on behalf and for the benefit of AdaptHealth styled, Hessler v. McGee et al., Civ. No. 2:21-cv-053335-GJP (E.D. Pa.) (the “Derivative Action”), the terms of the proposed settlement of the Derivative Action, and how the proposed Settlement affects the legal rights of AdaptHealth stockholders. The terms of the proposed Settlement are set forth in a written Stipulation of Settlement, dated April 23, 2024 which you may view here.
In a stockholder derivative suit, one or more persons or entities who are current stockholders of a corporation sue on behalf of and for the benefit of the corporation, seeking to enforce the corporation’s legal rights. In the Derivative Action, Plaintiff has filed suit against Defendants on behalf of and for the benefit of AdaptHealth.
Please read the Notice carefully and in its entirety, as it provides additional information on the history of the case, the terms of the settlement, and the options available to you.
AdaptHealth is a Delaware corporation with its principal place of business located in Plymouth Meeting, Pennsylvania. AdaptHealth describes itself as a national leader in providing patient-centric technology-enabled chronic disease management solutions, including home health-care equipment, medical supplies to the home and related services in the United States. AdaptHealth was privately held until November 11, 2019, when it began trading on the NASDAQ under symbol “AHCO,” pursuant to a business combination between DFB Healthcare Acquisitions Corp., a special purpose acquisition company, and AdaptHealth Holdings LLC.
Plaintiff alleges that the Individual Defendants caused the Company to issue materially false and misleading statements and/or omissions concerning the methodology used to calculate the Company’s organic revenue growth and Defendant McGee’s involvement in an alleged foreign tax fraud arising from certain past private activity. Plaintiff alleges that the Individual Defendants breached their fiduciary duties by failing to correct these allegedly false and misleading statements, and that they failed to maintain an adequate system of oversight, disclosure controls and procedures, and internal controls over financial reporting and due diligence into its management team. Finally, Plaintiff alleges that the alleged false and misleading statements exposed the Company to significant reputational harm and financial damages. Defendants vigorously dispute Plaintiff’s allegations and deny that the claims have merit.
In addition, the Company (together with a number of its current and former officers and directors, all of which are defendants in the Derivative Action) was sued in this Court for violations of the federal securities laws in connection with the issuance of alleged materially false and misleading statements and/or omissions concerning the methodology used to calculate the Company’s organic revenue growth and Defendant McGee’s involvement in an alleged foreign tax fraud arising from certain past private activity by a putative shareholder on behalf of a purported class of investors in an action entitled Delaware County Employees Retirement Systems et al. v. AdaptHealth Corp. et al., Civ. No. 2:21-cv-03382-HB (E.D.P.A.).
Plaintiff commenced the Derivative Action in good faith and continues to believe that her derivative claims have legal merit, and the entry by the Plaintiff into the Stipulation is not an admission as to lack of any merit of any derivative claims asserted or that could be asserted in the Derivative Action. Plaintiff and Plaintiff’s Counsel believe that the claims raised in the Derivative Action have merit and that their investigations support the claims. Without conceding the merit of any of the Defendants’ defenses, and in light of the benefits of the Settlement as well as to avoid the potentially protracted time, expense, and uncertainty associated with continued litigation, including potential trial(s) and appeal(s), Plaintiff and Plaintiff’s Counsel have concluded that it is desirable that the Derivative Action be fully and finally settled in the manner and upon the terms and conditions set forth in the Stipulation.
Plaintiff and Plaintiff’s Counsel have also taken into account the uncertain outcome and the risk of any litigation, especially complex litigation such as would be entailed by the Derivative Action, the difficulties and delays inherent in such litigation, the cost to the Company – on behalf of which Plaintiff filed the Derivative Action – and distraction to the management of AdaptHealth that would result from extended litigation. Based on their evaluation, and in light of what they believe to be the significant benefits conferred upon the Company as a result of the Settlement, Plaintiff and Plaintiff’s Counsel have determined that the Settlement is in the best interests of Plaintiff and the Company, and have agreed to settle the Derivative Action upon the terms and subject to the conditions set forth in the Stipulation.
The principal terms, conditions, and other matters that are part of the Settlement, which is subject to approval by the Court, are summarized below. This summary should be read in conjunction with, and is qualified in its entirety by reference to, the text of the Stipulation and its accompanying Exhibits, which have been filed with the Court and are available at www.adapthealthderivativesettlement.com.
As a result of the negotiations between and among the Parties, in consideration for the full settlement and release of the Released Claims, and upon Final Approval, AdaptHealth will implement the Corporate Governance Reforms described below and reflected in Exhibit A to the Stipulation. Defendants acknowledge that Plaintiff was a substantial cause of AdaptHealth’s adoption and maintenance of the Corporate Governance Reforms. The Corporate Governance Reforms shall remain in effect for a period of at least six (6) years. Defendants acknowledge and agree that the Corporate Governance Reforms are significant and confer substantial benefits upon AdaptHealth and its shareholders.
A. Review of Disclosures Giving Rise to the Litigation: AdaptHealth’s Audit Committee will retain outside counsel to conduct a postmortem review of the disclosures that gave rise to the Derivative Action as part of a concerted effort to improve the Company’s governance practices. All work performed by retained outside counsel, including the results of its review and related reports to the Audit Committee, shall remain confidential and privileged.
B. Board Self-Evaluation: AdaptHealth will be required to conduct mandatory evaluations that test the effectiveness of the Board of Director’s governance and oversight procedures through the use of director questionnaires prepared by the Nominating and Governance Committee with the assistance of outside counsel, which shall consider industry guidance and best practices. Such questionnaires shall be distributed and completed once every three years. The Nominating and Governance Committee will review the results and report to the Board regarding the results and any recommendations for improvements.
C. Board Composition and Practices:
1. AdaptHealth shall nominate and appoint, at its sole discretion, one (1) additional outside director to the Company’s Board of Directors who meets the independence standards promulgated by NASDAQ.
2. The Nominating and Governance Committee shall annually evaluate the composition of the Board to: (a) assess the skills and expertise that are currently represented on the Board as a whole, and in individual directors, as well as the skills and experience that the Board may find valuable in the future; and (b) assess the effectiveness of the efforts to seek a diversity of occupational and personal backgrounds on the Board in order to obtain a range of viewpoints and perspectives and to enhance the diversity of the Board.
D. Enhanced Board Reporting: The General Counsel, Chief Compliance Officer, Chief Accounting Officer or any independent member of the Board will be authorized to convene a meeting of the Audit Committee of the Board to review (1) any concerns, including whistleblower issues, reports of management wrongdoing, pending or threatened litigation, and such other matters that the General Counsel, Chief Compliance Officer, Chief Accounting Officer, or independent Board members identify and/or (2) any concerns, including any material compliance issues raised by the U.S. Securities and Exchange Commission (“SEC”), U.S. Department of Justice, or other regulatory agencies, and the effectiveness of AdaptHealth’s policies, procedures, systems, and controls designed to ensure regulatory compliance.
E. Enhanced Responsibilities of the Audit Committee:
1. The Audit Committee will be required to consult the General Counsel, Chief Compliance Officer, and/or any other senior-level management representative, as it deems necessary, to review the accuracy of public disclosures with respect to material investigations involving AdaptHealth’s officers and directors that are required to be disclosed under state and/or federal laws and regulations.
F. Enhanced Responsibilities of the Compliance Committee:
1. The Compliance Committee will be required to consult the General Counsel, Chief Compliance Officer, and/or any other senior-level management representative, as it deems necessary, to review the accuracy of public disclosures with respect to (a) healthcare regulatory compliance matters that may have a material impact on AdaptHealth’s operational performance or financial health and (b) material healthcare regulatory investigations involving AdaptHealth’s officers and directors that are required to be disclosed under state and/or federal laws and regulations.
2. The Compliance Committee will be required to meet with the Chief Compliance Officer at least twice a year.
G. Enhanced Responsibilities of Management-Level Disclosure Committee:
1. The Management-Level Disclosure Committee will report quarterly to the Audit Committee regarding the Disclosure Committee’s meetings and activities.
2. The Management-Level Disclosure Committee will be required to obtain approval from the CEO or CFO to implement any changes to its Charter.
Any current AdaptHealth stockholder may, but is not required to, appear in person at the Settlement Hearing. If you want to be heard at the Settlement Hearing, then you must first comply with the procedures for objecting, which are set forth below in Question #8.
The Court has the right to change the hearing date or time without further notice or to hold it telephonically or via another remote process. Thus, if you are planning to attend the Settlement Hearing, you should confirm the date and time before going to the Court. Current shareholders who have no objection to the Settlement do not need to appear at the Settlement Hearing or take any other action.
A. You Must Make Detailed Objections in Writing
Any objections must be presented in writing and must contain the following information:
1. Your name, legal address, e-mail address, and telephone number;
2. The case name and number;
3. Proof of current ownership of AdaptHealth common stock, including the number of shares and documentary evidence of when such stock ownership was acquired, with such ownership having existed on or before June 25, 2024;
4. The date(s) you acquired your AdaptHealth shares;
5. A written detailed statement of each objection being made that states with specificity the grounds for the objection, including any legal and evidentiary support you wish to bring to the Court's attention;
6. Notice of whether you intend to appear at the Settlement Hearing (you are not required to appear); and
7. Copies of any papers you intend to submit to the Court, along with the names of any witness(es) you intend to call to testify at the Settlement Hearing and the subject(s) of their testimony.
B. You Must Timely Deliver Written Objections to the Court
All written objections and supporting papers must be submitted to the Court either by mailing them to:
Clerk of the Court
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
James A. Byrne U.S. Courthouse
601 Market Street
Philadelphia, PA 19106
OR by filing them in person at any location of the United States District Court for the Eastern District of Pennsylvania.
YOUR WRITTEN OBJECTIONS AND ANY NOTICES OF APPEARANCE BY COUNSEL MUST BE ON FILE WITH THE CLERK OF THE COURT NO LATER THAN OCTOBER 23, 2024.
Unless the Court orders otherwise, your objection will not be considered unless it is timely filed with the Court.
Your written objection must also be mailed and e-mailed to:
Plaintiff's Counsel:
Gregory M. Nespole
LEVI & KORSINSKY, LLP
33 Whitehall Street, 17th FLoor
New York, New York 10004
Telephone: (212) 363-7500
Joseph C. Kohn
KOHN, SWIFT & GRAF, P.C.
1600 Market Street, Suite 2500
Philadelphia, Pennsylvania 19103
Telephone: (215) 238-1700
Defendants' Counsel:
Todd G. Cosenza
WILLKIE FARR & GALLAGHER LLP
787 Seventh Avenue
New York, New York 10019
Telephone: (212) 728-8000
Dani R. James
KRAMER LEVIN NAFTALIS & FRANKEL LLP
1177 Avenue of the Americas
New York, New York 10036
Telephone: (212) 715-9100
[email protected]
Unless the Court orders otherwise, any person or entity who fails to object or otherwise request to be heard in the manner prescribed above will be deemed to have waived the right to object to any aspect of the Settlement as incorporated in the Stipulation or otherwise to be heard (including the right to appeal) and will be forever barred from raising such objection or request to be heard in this or any other action or proceeding, and shall be bound by the Final Judgment to be entered and the releases to be given.
