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14% Senior Secured Note And Warrant Purchase Agreement

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ACCUHEALTH, INC.
and Subsidiary Borrowers


14% SENIOR SECURED NOTE AND WARRANT PURCHASE AGREEMENT


February 22, 2001


TABLE OF CONTENTS


SECTION 1


CLOSING DATE; DELIVERY


1.1...............................................AUTHORIZATION 2
1.2......................................SALE OF THE SECURITIES 2
1.3.........................................SEVERAL OBLIGATIONS 2


SECTION 2


CLOSING DATE; DELIVERY


2.1.....................................................CLOSING 2
2.2....................................................DELIVERY 2


SECTION 3


REPRESENTATIONS AND WARRANTIES OF THE BORROWERS


3.1.............................................CORPORATE POWER 3
3.2................................................SUBSIDIARIES 3
3.3..............................................CAPITALIZATION 3
3.4...............................................AUTHORIZATION 3
3.5.................................................LIABILITIES 4
3.6..........................................MATERIAL CONTRACTS 4
3.7...........................COMPLIANCE WITH OTHER INSTRUMENTS 4
3.8..........................................BROKERS OR FINDERS 5
3.9..................................................DISCLOSURE 5
3.10.............................................SECURITIES ACT 5
3.11.............................................ISSUANCE TAXES 5
3.12.....................................SMALL BUSINESS MATTERS 5
3.13.........................................SECURITIES REPORTS 6
3.14....................................CHIEF EXECUTIVE OFFICES 6


SECTION 4


REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS


4.1..................................................EXPERIENCE 6
4.2..................................................INVESTMENT 6
4.3....................................................RULE 144 6
4.4..............................................ACCESS TO DATA 6
4.5...............................................AUTHORIZATION 6
4.6................................STATE SECURITIES LAW MATTERS 7
4.7..........................................BROKERS OR FINDERS 7


SECTION 5


CONDITIONS TO OBLIGATIONS OF THE PURCHASERS


5.1..............................REPRESENTATIONS AND WARRANTIES 7
5.2...................................................COVENANTS 7
5.3......................................COMPLIANCE CERTIFICATE 7
5.4................................................BLUE SKY LAW 7
5.5...................................PROCEEDINGS AND DOCUMENTS 7
5.6.....................................STOCKHOLDERS' AGREEMENT 7
5.7...............................REGISTRATION RIGHTS AGREEMENT 7
5.8................................LEGAL AND INVESTIGATIVE FEES 7
5.9...........................................NO ADVERSE CHANGE 8
5.10.....................................CONSENTS AND APPROVALS 8
5.11...........................SMALL BUSINESS CONCERN DOCUMENTS 8
5.12......................................RELIANCE CERTIFICATES 8
5.13..........................................CLOSING DOCUMENTS 8


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SECTION 5.A


CONDITIONS FOR SUBSEQUENT ADVANCE(S)


5.A.1.........................SUBSEQUENT ADVANCE(S); CONDITIONS 8


SECTION 6


CONDITIONS TO OBLIGATIONS OF THE COMPANY


6.1..............................REPRESENTATIONS AND WARRANTIES 9
6.2................................................BLUE SKY LAW 9
6.3..........................................MINIMUM INVESTMENT 9
6.4...................................................COVENANTS 9
6.5........................................ANCILLARY AGREEMENTS 9
6.6.....................................STOCKHOLDERS' AGREEMENT 9


SECTION 7


COVENANTS OF THE COMPANY


7.1.....................................PROMPT PAYMENT OF TAXES 9
7.2........................MAINTENANCE OF PROPERTIES AND LEASES 10
7.3...................................................INSURANCE 10
7.4........................................ACCOUNTS AND RECORDS 10
7.5....COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES 10
7.6.....................MAINTENANCE OF CORPORATE EXISTENCE, ETC 10
7.7..................................CERTAIN NEGATIVE COVENANTS 10
7.8.......................................FINANCIAL INFORMATION 11
7.9.....................STOCK FULLY PAID; RESERVATION OF SHARES 12
7.10.................................SBIC REGULATORY PROVISIONS 12
7.11...COMMITTEES OF THE BOARD OF DIRECTORS; OBSERVATION RIGHTS 14
7.12................................................SETTLEMENTS 14


SECTION 8


EVENTS OF DEFAULT; SURVIVAL OF REPRESENTATIONS AND WARRANTIES


8.1...........................................EVENTS OF DEFAULT 14
8.2....................................................REMEDIES 16
8.3..................SURVIVAL OF REPRESENTATIONS AND WARRANTIES 16
8.4............................INDEMNIFICATION BY THE BORROWERS 16


SECTION 9


GENERAL PROVISIONS


9.1...............................................GOVERNING LAW 17
9.2..................................SUBMISSION TO JURISDICTION 17
9.3...........SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES 17
9.4......................ENTIRE AGREEMENT; AMENDMENT AND WAIVER 17
9.5................................................NOTICES, ETC 17
9.6.........................................DELAYS OR OMISSIONS 17
9.7..................................................REFERENCES 18
9.8................................................SEVERABILITY 18
9.9...........................................FEES AND EXPENSES 18


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9.10...................................................PRONOUNS 18
9.11...............................................COUNTERPARTS 18
9.12...................................................REMEDIES 18
9.13........................................CERTAIN DEFINITIONS 18
9.14.................................................DAVIS NOTE 21


EXHIBIT A - Form of Senior Secured Note EXHIBIT B - Form of Warrant EXHIBIT C - Disclosure Schedule EXHIBIT D - Form of Registration Rights Agreement EXHIBIT E - Form of Stockholders' Agreement EXHIBIT F - Form of Compliance Certificate EXHIBIT G - Form of Reliance Certificate EXHIBIT H - Closing Checklist


iii


ACCUHEALTH, INC.
and Subsidiary Borrowers


14% SENIOR SECURED NOTE AND WARRANT PURCHASE AGREEMENT


This 14% Senior Note and Warrant Purchase Agreement (this "Agreement") is made effective as of February 22, 2001, among ACCUHEALTH, INC., a New York corporation (the "Company") MIDVIEW DRUG, INC. a corporation organized under the laws of the State of New York ("Midview"), ACCUHEALTH HOME CARE, INC., a corporation organized under the laws of the State of Delaware ("AHC"), CITIVIEW DRUG CO., INC., a corporation organized under the laws of the State of New York ("Citiview"), PROHEALTHCARE INFUSION SERVICES, INC., a corporation organized under the laws of the State of New Jersey ("PHCIS"), HEALIX HEALTHCARE, INC., a corporation organized under the laws of the State of Delaware ("HHI"), PRN HOMECARE AGENCY, INC., a corporation organized under the laws of the State of New Jersey ("PRN"), AMERIX NURSING HOLDINGS, INC., a corporation organized under the laws of the State of Delaware ("AMERIX"), HEALIX HEALTHCARE, INC., a corporation organized under the laws of the State of New York ("Healthcare"), HEALIX HEALTHCARE OF NEW YORK, INC., a corporation organized under the laws of the State of New York ("Healix NY"), RYE BEACH HEALTHCARE, INC., a corporation organized under the laws of the State of New York ("Rye Beach"), HEALIX HEALTHCARE OF NEW JERSEY, INC., a corporation organized under the laws of the State of New York ("Healix NJ") and AMERICARE HOME NURSING SERVICES, INC., a corporation organized under the laws of the State of New Jersey ("Americare"), (the Company, Midview, AHC, Citiview, PHCIS, HHI, PRN, Amerix, Healthcare, Healix NY, Rye Beach, Healix NJ and Americare, each a "Borrower" and, jointly and severally, the "Borrowers"), and RFE INVESTMENT PARTNERS V, L.P., a Delaware limited partnership ("RFE"), and the additional purchasers identified on SCHEDULE 1 attached hereto (the "Purchasers" and each, a "Purchaser").


The Borrowers desire to raise up to $925,000 (subject to increase pursuant to Section 9.14 below) in debt financing through the sale of 14% Senior Secured Notes due February 23, 2004 (the "Senior Notes" or "Senior Secured Notes") and Common Stock Purchase Warrants to purchase an aggregate of 1,364,378 shares of Common Stock, representing 20% of the fully-diluted Common Stock of the Company, and each of the Purchasers is willing to purchase such Senior Secured Notes in such principal amounts, and the Common Stock Warrants in such denominations, as are set forth on SCHEDULE 1 hereto in connection therewith, all on the terms and subject to the conditions set forth herein. The Senior Secured Notes and the Warrants are referred to herein as the "Securities."


In connection with the issuance of the Senior Secured Notes, an Intercreditor Agreement (as in effect from time to time, the "Intercreditor Agreement) is to be executed by the initial holders of the Senior Second Notes, Rosenthal & Rosenthal, Inc. as lender, the Subordinated Creditors (as defined therein), the Collateral Agent (as defined therein), and the Subordinated Creditor Collateral Agent (as defined therein).


Accordingly, in consideration of the foregoing and the covenants, agreements, representations and warranties contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereto hereby agree as follows:


SECTION 1


CLOSING DATE; DELIVERY


1.1 AUTHORIZATION. The Borrowers will have authorized before the Closing (as defined below) the sale and issuance to the Purchasers of the Securities. The Senior Secured Notes and Common Stock Warrants shall be dated the Closing Date and shall be in the forms attached hereto as EXHIBITS A and B, respectively.


1.2 SALE OF THE SECURITIES. Subject to the terms and conditions hereof, on the Closing Date, the Borrowers shall sell and issue to the Purchasers, and the Purchasers shall purchase from the Company, the Securities for the purchase price of up to a maximum amount of $925,000 (subject to increase pursuant to Section 9.14 below), in the amounts set forth opposite their respective names on Schedule 1. As set forth in more detail in Section 5.A below, a portion of the maximum purchase price equal to the Specified Vendor Amount is not to be paid by the Purchasers at the Closing and will, if certain conditions are met, be paid at a subsequent date(s). To the extent that the maximum purchase price of $925,000 (subject to said increase) is not eventually paid, the obligation of the Borrowers under the Senior Secured Notes, with respect to the repayment of principal thereunder, shall be to repay that amount which is actually loaned (i.e., $925,000 (subject to said increase) less that portion of the purchase price not paid) and the fact that the maximum purchase price is not paid shall not impair the obligations of the Borrowers to repay the amount actually loaned or otherwise impair the Borrowers' obligations hereunder, the Senior Notes or under any other applicable document and the Senior Secured Notes shall be considered fully paid for. All of the Common Stock Warrants that are part of the Securities shall be fully effective and considered fully issued and paid for whether or not the maximum purchase price is paid.


1.3 SEVERAL OBLIGATIONS. Each of the Purchasers' obligations hereunder are several and not joint. The Borrower's agreement with each of the Purchasers is a separate agreement, and the sale of the Securities to each of the Purchasers is a separate sale.


SECTION 2


CLOSING DATE; DELIVERY


2.1 CLOSING. The closing of the purchase and sale of the Securities hereunder (the "Closing") shall take place at the offices of Finn Dixon & Herling LLP, Stamford, Connecticut on February 22, 2001, or at such other place and time upon which the Company and all Purchasers shall agree, as evidenced by the completion of the transactions contemplated hereby (provided, it is understood that subsequent advances can occur pursuant to Section 5.A below). The date of the Closing is referred to as the "Closing Date."


2.2 DELIVERY. At the Closing the Borrowers shall deliver to each Purchaser the Securities which such Purchaser is purchasing, which shall be delivered against payment of the applicable portion of the maximum purchase price therefor by wire transfer.


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SECTION 3


REPRESENTATIONS AND WARRANTIES OF THE BORROWERS


The Borrowers, jointly and severally, represent and warrant (and for purposes of this Section, each reference to the "Company" shall include each Subsidiary of the Company) to each Purchaser that, except as set forth on the Disclosure Schedule attached hereto as EXHIBIT C, specifically identifying the relevant subparagraph(s) hereof, which Disclosure Schedule shall be deemed to be part of the representations and warranties as if made hereunder:


3.1 CORPORATE POWER. The Company has all requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements (as defined in Section 3.4 below) to which it is a party, and the Company has all requisite corporate power and authority to sell and issue the Securities hereunder, to make the borrowings evidenced by the Senior Secured Notes, and to carry out and perform its obligations under the terms of this Agreement, the Securities and each of the Ancillary Agreements to which it is a party.


3.2 SUBSIDIARIES. The Company has no direct or indirect Subsidiaries other than the Borrowers.


3.3 CAPITALIZATION. The authorized capital stock of the Company consists of 15,000,000 shares of common stock, par value $.01 per share, of which 5,297,513 shares are issued and outstanding, 1,364,378 shares are reserved for issuance upon exercise of the Common Stock Warrants and 2,173,913 shares are reserved for issuance pursuant to the Subordinated Notes and any warrants issued in connection therewith, and 5,000,000 shares of preferred stock, par value $.01 per share, of which 1,485,000 shares are designated as the 6% Cumulative Convertible Preferred Stock, of which 1,350,000 shares are issued and outstanding.


3.4 AUTHORIZATION. All corporate action on the part of each of the Borrowers and their respective officers, directors, and stockholders necessary for the authorization, execution, delivery, and performance of this Agreement, the Security Documents, the Common Stock Warrants, the Senior Secured Notes, the Amended and Restated Registration Rights Agreement, to be dated as of the Closing Date, by and among the Company, the Purchasers, and the other parties thereto and substantially in the form of EXHIBIT D hereto (the "Registration Rights Agreement"), the Amended and Restated Stockholders' Agreement, to be dated as of the Closing Date, among the Company, the Purchasers and certain other parties thereto, substantially in the form of EXHIBIT E hereto (the "Stockholders' Agreement") and all other agreements executed by the Company in connection with the transactions contemplated hereby (the Security Documents, the Registration Rights Agreement, the Common Stock Warrants, the Senior Secured Notes, the Stockholders' Agreement, the Intercreditor Agreement, and such other agreements contemplated hereby to which the Company is a party being sometimes hereinafter referred to individually as an "Ancillary Agreement" and collectively as the "Ancillary Agreements"), the authorization, sale, issuance and delivery of the Senior Secured Notes at the Closing, the authorization of the borrowings evidenced by the Securities, and the performance of all of the Company's obligations hereunder and thereunder have been taken or will be taken prior to the Closing. This Agreement constitutes, and each of the Ancillary Agreements, when executed and delivered by the Borrowers will constitute, a valid and binding obligation of the Borrowers enforceable against the Borrowers in accordance with its terms,. The Common Stock Warrants and the Warrant Stock, when issued, will be duly authorized, validly issued, fully paid, and nonassessable, will have the rights, preferences, privileges, and restrictions


3


as set forth in the Certificate of Incorporation, and will be free of any liens, claims, encumbrances or restrictions on transfer (collectively, "Liens"), except as set forth in the Stockholders' Agreement.


3.5 LIABILITIES. As of the Closing Date and except for Liabilities not, individually or in the aggregate, Material to the Business, none of the Company or any of its Subsidiaries has any direct or indirect Liability which, pursuant to GAAP, is required to be reflected or reserved against on a balance sheet and was not fully and adequately reflected or reserved against on the consolidated balance sheet of the Company as of December 31, 1999, as included in the SEC Reports (the "Balance Sheet") (excluding Liabilities that have been discharged in the Ordinary Course of Business since December 31, 1999 (the "Balance Sheet Date") or that are not otherwise specifically disclosed in this Agreement or in Section 3.5 of the Disclosure Schedule. Except as set forth in Section 3.5 of the Disclosure Schedule, the Company has no knowledge of any circumstances, conditions, events or arrangements which would be reasonably expected to hereafter give rise to any Liabilities, individually or in the aggregate, Material to the Business of the Company other than those arising under contracts, commitments or obligations entered into in the Ordinary Course of Business (and not as a result of any breach or default by the Company thereunder). Except as set forth is Section 3.5 of the Disclosure Schedule, neither the Company nor any Subsidiary is liable with respect to any indebtedness for borrowed money.


3.6 MATERIAL CONTRACTS. Section 3.6 of the Disclosure Schedule hereto sets forth all of the following contracts and other agreements to which the Company or any of its Subsidiaries is a party or by or to which any of their respective assets, properties or businesses are bound or subject:


(i) contracts and other agreements with any current or former officer, director, employee, consultant, agent or stockholder who owns 5% or more of the issued and outstanding Common Stock;


(ii) contracts and other agreements under which the Company has guaranteed the obligations of any person;


(iii) contracts or other agreements (other than as endorser of checks in the Ordinary Course of Business) relating to any indebtedness or deferred purchase obligation of the Company, involving more than $25,000 in any one case or $100,000 in the aggregate; and


(iv) contracts and other agreements under which the Company agrees to indemnify any person or to share Tax Liability with any person.


3.7 COMPLIANCE WITH OTHER INSTRUMENTS. Except as set forth in Section 3.7 of the Disclosure Schedule, and after giving effect to Amendment No. 5 to the Rosenthal Loan Agreement, the execution, delivery, and performance of, and compliance with, this Agreement and the Ancillary Agreements, the issuance of the Securities, the borrowings evidenced by the Senior Secured Notes and the consummation of the transactions contemplated hereby and thereby, do not and will not (i) violate, or result in a breach of any provision of or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a creation of any Security Interest upon any of the assets, properties or business of the Company or any Subsidiary under any of the terms, conditions or provisions of (x) the certificate of incorporation or the by-laws of the Company or any Subsidiary or (y) any Contract identified in Section 3.6 of the Disclosure Schedule or any other Contract to which any of the Borrowers is a party; or (ii) violate any judgment, ruling, order, writ, injunction, award, decree, or law of any court or foreign, federal, state, county or local government or any other governmental, regulatory or administrative agency or authority which is applicable to the Company or any Subsidiary or any of their respective assets, properties or businesses; or (iii) result in the suspension, revocation, impairment, forfeiture, or non-renewal of


4 any Permit material to the Company or any Subsidiary, except, with respect to clause (ii) above, violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Except as set forth in Section 3.6 of the Disclosure Schedule, neither the Company nor any Subsidiary needs to give any notice to, make any filing with, or obtain any permit, authorization, consent or approval of any government or governmental agency in order for the Company to consummate the transactions contemplated by this Agreement and the Ancillary Agreements or to continue the effectiveness of any Permit or similar grant of authority relating to the Business following the Closing (except for the filing of financing statements and except for those required under applicable "Blue Sky" laws which are permitted to be made following the Closing and which will be timely made following the Closing and those relating to Permits in the Ordinary Course of Business which would be required regardless of the transactions contemplated hereby).


3.8 BROKERS OR FINDERS. Except as set forth in Section 3.8 of the Disclosure Schedule, the Company has not incurred, nor will it incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.


3.9 DISCLOSURE. No representation or warranty of the Company contained in this Agreement, the Ancillary Agreements, in the Disclosure Schedule, in the exhibits attached hereto or in any written statement or certificate furnished to the Purchasers pursuant hereto or thereto, when read together, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. As of the date hereof, each of the representations and warranties given by the Company and its Subsidiaries to Rosenthal in the Rosenthal Agreements is true and correct in all respects and is incorporated herein by reference.


3.10 SECURITIES ACT. Subject to the accuracy of the Purchasers' representations in Section 4, the offer, sale, and issuance of the Securities in conformity with the terms of this Agreement constitute transactions exempt from the registration requirements of Section 5 of the Securities Act.


3.11 ISSUANCE TAXES. All taxes, if any, imposed by law in connection with the issuance, sale and delivery of the Securities shall have been fully paid by the Company, and all laws imposing such taxes shall have been fully complied with, prior to the Closing Date.


3.12 SMALL BUSINESS MATTERS. The Company, together with its "affiliates" (as that term is defined in Title 13, Code of Federal Regulations, ss.121.103) is a "small business concern" within the meaning of the Small Business Investment Act of 1958 and the regulations thereunder, including Title 13, Code of Federal Regulations, ss.121.103. The information set forth in the Small Business Administration Forms 480, 652 and Parts A and B of Form 1031 regarding the Company is accurate and complete. Copies of such forms shall have been completed and executed by the Company and delivered to Purchasers at the Closing. Neither the Company nor any Subsidiary presently engages in any business, and it shall not hereafter use directly or indirectly the proceeds from the sale of the Securities for any purpose, for which a Small Business Investment Company is prohibited from providing funds by the Small Business Investment Act of 1958 and the regulations thereunder, including Title 13, Code of Federal Regulations, ss.107.720. The use of proceeds from the Company's sale of Securities to the Purchasers will be only for those purposes described in Section 7.10.1 hereof. If the Company breaches this representation in any material respect, then in addition to all other remedies available to Purchasers, any Purchaser may demand that the Company repurchase all Securities acquired by such Purchaser at the aggregate purchase price paid, plus declared but unpaid dividends and accrued and unpaid interest, as applicable. Upon the request of any Purchaser, the Company will furnish to Purchasers promptly (and in any event within 20 days of such request) all information necessary in order for such Purchaser to prepare and file SBA Form 468 and any other information requested or required by any governmental authority asserting jurisdiction over such Purchaser. Compliance with this Section 3.12 cannot be waived, nor can this Section be amended, without the written consent of RFE.


5 3.13 SECURITIES REPORTS. Since July 14,1998, the Company has filed all forms, reports, statements and other documents required to be filed with (a) the Securities and Exchange Commission (the "SEC") including, without limitation, (i) all annual reports on Form 10-K, (ii) all quarterly reports on Form 10-Q, (iii) all proxy statements relating to meetings of shareholders (whether annual or special), (iv) all reports on Form 8-K, (v) all other reports or registration statements and (vi) all amendments and supplements to all such reports and registration statements (collectively, the "SEC Reports") and (b) any other applicable state securities authorities. The SEC Reports, (a) were or will be prepared in all material respects in accordance with the requirements of all applicable laws and the rules and regulations promulgated thereunder and (b) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.


3.14 CHIEF EXECUTIVE OFFICES. The chief executive offices and principal place of business of each of the Borrowers is located at Ridge Hill, Yonkers, New York 10710. Borrowers shall give the Purchasers prior written notice of any change in any chief executive office of any Borrower.


SECTION 4


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