NEXTHEALTH, INC.
17,109 Shares of Series A Preferred Stock
28,956 Shares of Series B Preferred Stock
Warrant to Purchase 500,000 Shares of Common Stock
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PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
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November 14, 1996
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TABLE OF CONTENTS
Page
SECTION 1. TERMS OF PURCHASE.......................................... 1
1.1 Sale of Preferred Stock and Warrant........................ 1
1.2 Purchase Price............................................. 1
1.3 Closing.................................................... 1
1.4 Reserved Shares............................................ 2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.......... 2
2.1 Corporate Status........................................... 2
2.2 Corporate Power and Authority.............................. 2
2.3 Capitalization............................................. 2
2.4 Title to Properties........................................ 3
2.5 Effect of Transactions..................................... 3
2.6 Litigation................................................. 3
2.7 Offerees................................................... 3
2.8 Subsidiaries............................................... 3
2.9 Employees.................................................. 4
2.10 Contracts.................................................. 4
2.11 Permits, Licenses, Technology, Trademarks, Patents
and Other Rights.......................................... 4
2.12 Absence of Certain Changes................................. 4
2.13 Tax Returns and Payments................................... 5
2.14 Publicly Filed Documents and Financial Statements.......... 5
2.15 Use of Proceeds............................................ 6
2.16 No Brokers................................................. 6
2.17 Material Misstatements or Omissions........................ 6
SECTION 3. CONDITIONS OF PURCHASE..................................... 6
3.1 Certificate of Corporation................................. 6
3.2 Authorization.............................................. 6
3.3 Credit Agreement........................................... 7
3.4 Collateral Documents....................................... 7
3.5 Registration and Pre-Emptive Rights Agreement.............. 7
3.6 Irrevocable Proxy.......................................... 7
3.7 Opinion of Counsel......................................... 7
3.8 Compliance................................................. 7
3.9 Tender of Aggregate Purchase Price......................... 7
3.10 Representations and Warranties............................. 7
3.11 Credit Agreement........................................... 7
3.12 Amendment of Earlier Warrant............................... 7
3.13 Registration and Pre-Emptive Rights Agreement.............. 8
SECTION 4. COVENANTS OF THE CORPORATION............................... 8
4.1 Financial Statements....................................... 8
4.2 Budget and Operating Forecast.............................. 8
4.3 Stockholder Approval....................................... 9
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4.4 Payment of Taxes, Compliance with Laws, Etc................ 9
4.5 Adverse Changes............................................ 9
4.6 Insurance.................................................. 9
4.7 Maintenance of Properties.................................. 9
4.8 Affiliated Transactions.................................... 9
4.9 Management and Compensation................................ 10
4.10 Inspection................................................. 10
4.11 Board of Directors......................................... 10
4.12 Distributions or Redemption of Capital Stock............... 10
4.13 Maintenance of Corporate Existence, Etc.................... 10
SECTION 5. REPRESENTATIONS AND COVENANTS OF PURCHASER................. 11
SECTION 6. GENERAL.................................................... 12
6.1 Indemnification............................................ 12
6.2 Amendments, Waivers and Consents........................... 12
6.3 Survival of Representations, Warranties and Covenants;
Assignability of Rights.................................... 12
6.4 Section Headings........................................... 13
6.5 Counterparts............................................... 13
6.6 Notices and Demands........................................ 13
6.7 Waiver of Jury Trial....................................... 14
6.8 Specific Performance....................................... 14
6.9 Severability............................................... 15
6.10 Expenses................................................... 15
6.11 Governing Law. ............................................ 15
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Schedule of Exceptions
Schedule 2.3 - Capitalization
Schedule 2.5 - Effect of Transactions
Schedule 2.8 - Subsidiaries
Schedule 2.9 - Employee Agreements
Schedule 2.10 - Contracts
Schedule 2.12 - Absence of Certain Changes
Schedule 2.15 - Use of Proceeds
Exhibit A - Form of Certificate of Designation of Preferred Stock
Terms and Preferences
Exhibit B - Form of Warrant
Exhibit C - Form of Irrevocable Proxy
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PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
AGREEMENT dated as of November 14, 1996 by and between
NextHealth, Inc., a Delaware corporation (the "Corporation"), and AP NH LLC, a
Delaware limited liability company (the "Purchaser").
WHEREAS, the Corporation desires to sell, and the Purchaser
desires to purchase, at the Closing (as defined below), subject to the terms
and conditions set forth herein, (i) 17,109 shares of the Corporation's Series
A Preferred Stock (as defined below), (ii) 28,956 shares of the Corporation's
Series B Preferred Stock (as defined below) and (iii) a warrant to purchase up
to 500,000 shares of the Corporation's Common Stock (as defined below); and
WHEREAS, the Corporation has authorized and reserved for
issuance and sale (i) 17,109 shares of Series A Preferred Stock, (ii) 28,956
shares of Series B Preferred Stock and (iii) a warrant to purchase up to
500,000 shares of Common Stock;
NOW, THEREFORE, in consideration of the mutual promises set
forth herein, the Corporation agrees with the Purchasers as follows:
SECTION 1. TERMS OF PURCHASE
1.1 Sale of Preferred Stock and Warrant. Subject to the terms
and conditions set forth herein, at the Closing the Corporation shall issue and
sell to the Purchaser, and the Purchaser shall purchase from the Corporation,
for the consideration specified in Section 1.2 (i) 17,109 shares of the
Corporation's authorized but unissued Convertible Preferred Stock, Series A,
par value $0.01 per share (the "Series A Preferred Stock"), (ii) 28,956 shares
of the Corporation's authorized but unissued Cumulative Preferred Stock, Series
B, par value $0.01 per share (the "Series B Preferred Stock" and together with
the Series A Preferred Stock, the "Preferred Stock"), and (iii) a warrant (the
"Warrant") representing the right to purchase up to 500,000 shares of the
Corporation's common stock, par value $0.01 per share (the "Common Stock"). The
Preferred Stock shall have the terms and preferences set forth in Exhibit A
hereto, and the Warrant shall be subject to the terms and conditions set forth
in the Warrant Certificate evidencing the Warrant, which Certificate shall be
in the form of Exhibit B hereto.
1.2 Purchase Price. The aggregate purchase price for (i) the
Series A Preferred Stock shall be $1,578,476.34 (or $92.26 per share), (ii) the
Series B Preferred Stock shall be $2,671,480.56 (or $92.26 per share and (iii)
the Warrant shall be $43.10.
1.3 Closing. The closing (the "Closing") of the sale and
purchase of the Preferred Stock and the Warrant shall take place at 10:00 a.m.
New York time on November 14, 1996 at the offices of Battle Xxxxxx LLP, located
at 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at such other time, date
or place as shall be mutually agreed upon by the Corporation and the Purchaser.
The date on which the Closing occurs shall be referred to herein as the
"Closing Date". At the Closing, the Corporation will deliver to the Purchaser
certificates representing the number of shares of Series A Preferred Stock and
Series B
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Preferred Stock, as the case may be, and the Warrant to be purchased by the
Purchaser against payment of the purchase price therefor. Payment of the
purchase price for the shares of Preferred Stock and the Warrant shall be by
wire transfer or by certified or bank cashier's check.
1.4 Reserved Shares. The Corporation will authorize and reserve,
and covenants to continue to reserve, for issuance a sufficient number of
shares of Common Stock to satisfy the (x) rights of conversion of the holders
of the Preferred Stock and (y) right to exercise the Warrant.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
In order to induce the Purchaser to enter into this Agreement,
the Corporation represents and warrants to the Purchaser as follows:
2.1 Corporate Status. The Corporation (i) is a duly organized
and validly existing corporation in good standing under the laws of the State
of Delaware, (ii) has the corporate power and authority to own its property and
assets and to transact the business in which it is presently engaged and (iii)
is duly qualified and authorized to do business and is in good standing in all
jurisdictions where it is required to be so qualified and where the failure to
be so qualified could have a material adverse effect on the business,
properties, liabilities, operations or condition (financial or otherwise) of
the Corporation.
2.2 Corporate Power and Authority. The Corporation has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of this Agreement and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Agreement. The
Corporation has duly executed and delivered this Agreement and this Agreement
constitutes the legal, valid and binding obligation of the Corporation
enforceable in accordance with its terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).
2.3 Capitalization. As of the Closing Date and after taking into
account the transactions contemplated by this Agreement, the Corporation's
total authorized capital shares will consist of (i) 4,000,000 shares of
Preferred Stock, comprised of (x) 46,065 shares of Series A Preferred Stock, of
which 17,109 shares of Series A Preferred Stock shall be issued and outstanding
as of the Closing Date, (y) 28,956 shares of Series B Preferred Stock, all of
which will be issued and outstanding as of the Closing Date, and (z) 3,924,979
of authorized but undesignated preferred stock, none of which will be issued
and outstanding as of the Closing Date, (ii) 16,000,000 shares of Common Stock,
of which 8,554,938 shares of Common Stock will be issued and outstanding and
5,106,500 shares of Common Stock will be reserved for issuance upon (x) the
conversion of all of the authorized shares of Series A Preferred Stock and (y)
the exercise of the Warrant. As of the Closing Date and after giving effect to
the transactions contemplated by this Agreement, all of the issued and
outstanding shares of capital stock of the Corporation (including the shares of
Preferred Stock being issued under this Agreement) shall be duly and validly
authorized and issued and are fully paid and non-assessable. The relative
rights, preferences, restrictions and other provisions relating to
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the Preferred Stock are as set forth in Exhibit A. Except as provided for in
this Agreement or disclosed in the Company Publicly Filed Documents or in
Schedule 2.3 to this Agreement: (a) there are no outstanding warrants, options
or other rights to purchase or acquire any shares of the Corporation's capital
stock, nor any outstanding securities convertible into such shares or
outstanding warrants, options or other rights to acquire any such convertible
securities; (b) there are no preemptive rights with respect to the issuance or
sale of the Corporation's capital stock; and (c) as of the Closing Date there
will be no restrictions on the transfer of the Corporation's capital stock
other than those arising from federal and state securities laws.
2.4 Title to Properties. The Corporation has good and marketable
title to its assets used in conducting its business, free and clear of all
liens, restrictions or encumbrances after application of the proceeds of the
financing contemplated hereby and under the Credit Agreement.
2.5 Effect of Transactions. Except as set forth in Schedule 2.5
to this Agreement, the execution, delivery and performance by the Corporation
of this Agreement and the agreements and transactions contemplated hereby will
not conflict with or result in any default under any material contract,
obligation or commitment of the Corporation, or any charter provision, by-law
or corporate restriction of the Corporation, or the creation of any lien,
charge, restriction or encumbrance of any nature upon any of the properties or
assets of the Corporation, except pursuant to this Agreement and the Collateral
Documents (as defined in the Credit Agreement referred to below). Except as set
forth in Schedule 2.5 to this Agreement, the Corporation's execution and
delivery of this Agreement and its performance of the transactions contemplated
hereby will not violate any material instrument, agreement, judgment, decree,
order, statute, rule or regulation of any federal, state or local government or
agency applicable to the Corporation.
2.6 Litigation. There is no litigation or governmental
proceeding or investigation pending or, to the best knowledge of the
Corporation, threatened against the Corporation affecting any of its properties
or assets, or which has a reasonable possibility of calling into question the
validity, or materially hindering the enforceability or performance, of this
Agreement, or any action taken or to be taken pursuant hereto; nor, to the best
knowledge of the Corporation, has there occurred any event or does there exist
any condition on the basis of which any litigation, proceeding or investigation
might properly be instituted with any substantial chance of a recovery which
could be materially adverse to the Corporation.
2.7 Offerees. Neither the Corporation nor any other party
authorized to act on behalf of the Corporation has in the past or will
hereafter sell, offer for sale or solicit offers to buy any securities of the
Corporation so as to bring the offer, issuance or sale of the Preferred Stock,
as contemplated by this Agreement, within the provisions of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"), unless such offer,
issuance or sale was or shall be within the exemptions of Section 4 thereof.
2.8 Subsidiaries. Except as set forth in Schedule 2.8, the
Corporation has no subsidiaries and does not own of record or beneficially any
capital stock or equity interest or investment in any corporation, association,
partnership, joint venture or business entity.
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2.9 Employees. To the best of the Corporation's knowledge and
belief after due inquiry, no employee of the Corporation is, or is now expected
to be, in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any other contract or agreement or any
restrictive covenant or any other common law obligation to a former employer
relating to the right of any such employee to be employed by the Corporation
because of the nature of the business conducted or to be conducted by the
Corporation or to the use of trade secrets or proprietary information of
others, and to the best of the Corporation's knowledge and belief, the
employment of the Corporation's employees does not subject the Corporation or
the Purchaser to any liability. There is neither pending nor, to the
Corporation's knowledge and belief, threatened any actions, suits, proceedings
or claims, or to its knowledge any basis therefor or threat thereof with
respect to any contract, agreement, covenant or obligation referred to in the
preceding sentence. All employment, non-disclosure, confidentiality or
non-competition agreements with any employees of the Corporation or its
subsidiaries and any collective bargaining agreement covering any Corporation
or subsidiary employees are set forth on schedule 2.9.
2.10 Contracts. Except as set forth in Schedule 2.10 or as an
exhibit to the Company Filed Documents, the Corporation does not have any
currently existing contract, obligation, agreement, plan, arrangement,
commitment or the like (written or oral) which is material to the Corporation
and its business. The Corporation has complied in all material respects with
the provisions of all said contracts, obligations, agreements, plans,
arrangements and commitments and is not in default thereunder.
2.11 Permits, Licenses, Technology, Trademarks, Patents and
Other Rights. The Corporation has all franchises, permits, licenses and other
similar authority necessary for the conduct of its business as now being
conducted by it and as planned to be conducted, the lack of which could
materially and adversely affect the prospects, operations or condition,
financial or otherwise, of the Corporation, and it is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority. The Corporation possesses all technology, technology rights,
patents, patent rights, trademarks, trademark rights, trade names, trade name
rights, copyrights, trade secrets, proprietary rights and processes known by
the Corporation to be necessary to conduct its business as now being conducted
and as planned to be conducted, without, to the knowledge of the Corporation
after due inquiry, conflict with or infringement upon any valid rights of
others and the lack of which could materially and adversely affect the
operations or condition, financial or otherwise, of the Corporation, and has
not received any notice of infringement upon or conflict with the asserted
rights of others.
2.12 Absence of Certain Changes. Since September 30, 1996,
except to the extent described in Schedule 2.12 or as described in or
contemplated by the Company Publicly Filed Documents or the Financial
Statements, there has not been any event or condition of any character which
has adversely affected the Corporation's business or prospects, including but
not limited to:
(a) Any material adverse change in the condition, assets,
liabilities or business of the Corporation from that shown on the Corporation's
balance sheet dated September 30, 1996;
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(b) Any damage, destruction or loss of any of the properties or
assets of the Corporation (whether or not covered by insurance) materially
adversely affecting the business or plans of the Corporation;
(c) Any declaration, setting aside or payment or other
distribution in respect of any of the Corporation's capital stock, or any
direct or indirect redemption, purchase or other acquisition of any of such
shares by the Corporation; or
(d) Any labor trouble, or any event or condition of any
character, materially adversely affecting the business or plans of the
Corporation.
2.13 Tax Returns and Payments. Each of the Corporation and its
subsidiaries has filed all Federal income tax returns, domestic and foreign,
required to be filed by it and has paid all Federal taxes and assessments shown
to be due on such returns and all other material taxes and assessments,
domestic and foreign, in each case payable by it which have become due, other
than those not yet delinquent and except those contested in good faith and for
which adequate reserves have been provided in accordance with generally
accepted accounting principles ("GAAP").
2.14 Publicly Filed Documents and Financial Statements.
(a) The Corporation has previously furnished or made available
to the Purchaser true and complete copies of (i) its Annual Reports on Form
10-K for each of the three fiscal years ended December 31, 1995, 1994 and 1993,
as each such Annual Report has been amended through the date hereof, and as
each was filed with the United States Securities and Exchange Commission (the
"SEC"); (ii) its Quarterly Reports on Form 10-Q for each of the quarterly
periods ended June 30, 1996, and March 31, 1996, as each such quarterly report
has been amended through the date hereof, and as each was filed with the SEC;
(iii) its proxy statements relating to all meetings of its stockholders
(whether annual or special) since January 1, 1995; and (iv) all other reports
or registration statements filed by the Corporation with the SEC since January
1, 1996, as each has been amended through the date hereof (collectively, the
"Company Publicly Filed Documents"). None of the Company Publicly Filed
Documents, and including, without limitation, any financial statements or
schedules included in any Company Publicly Filed Documents, at the time filed
contained any untrue statement of material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of any circumstances under which they were made, not misleading, which
untrue statements or omissions have not been corrected or updated in a document
subsequently filed with the SEC. The financial statements contained in the
Company Publicly Filed Documents (the "Financial Statements") comply as to form
in all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applicable to year-end financial statements
(except, in the case of unaudited interim financial statements, for the absence
of footnotes and normal year-end adjustments) consistently applied during the
periods involved, and present fairly the consolidated financial condition and
results of operations and cash flow of the Corporation and its subsidiaries as
of such dates and for such periods. There is no material liability or
obligation of any kind, whether accrued, absolute, fixed or contingent, of the
Corporation or any subsidiary of the Corporation that is required to be
disclosed under GAAP and that is not reflected or reserved against in the
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unaudited consolidated balance sheet of the Corporation as of June 30, 1996
contained in the Corporation's quarterly report on Form 10-Q for the quarterly
period ended June 30, 1996 or reflected in the notes thereto, other than
liabilities incurred in the ordinary course of business, consistent with past
practice, since June 30, 1996, none of which has had or could reasonably be
expected to have a material adverse effect on the financial condition or
results of operations of the Corporation.
2.15 Use of Proceeds. The Corporation shall use the proceeds of
the sale of the Preferred Stock and Warrant as set forth in Schedule 2.13.
2.16 No Brokers. The Corporation does not have nor will have any
obligation to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby which has not been
satisfied in full and disclosed to the Purchaser.
2.17 Material Misstatements or Omissions. No representations or
warranties by the Corporation in this Agreement, nor any document, exhibit,
statement, certificate or schedule furnished or to be furnished to Purchaser
pursuant hereto (including, without limitation, the Schedules hereto), or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact necessary to make the statements or facts contained therein not
misleading. The Corporation has disclosed all events, conditions and facts
materially affecting (i) the business or the condition (financial or
otherwise), properties, liabilities, reserves, working capital, earnings,
prospects or relations with customers, suppliers, distributors or employees of
the Corporation and (ii) the right or ability of the Corporation to consummate
the transactions contemplated hereby.
SECTION 3. CONDITIONS OF PURCHASE
The Purchaser's obligation to purchase and pay for the Preferred
Stock and the Warrant and to take the other actions required to be taken by the
Purchaser at the Closing shall be subject to compliance by the Corporation with
its agreements herein contained and to the fulfillment to the Purchaser's
satisfaction on or before the Closing Date of the following conditions:
3.1 Certificate of Corporation. The representations and
warranties of the Corporation contained in this Agreement, including but not
limited to the representations and warranties made in Section 2, shall be true
and correct in all material respects; each of the conditions hereafter
specified in this Section 3 shall have been satisfied in all material respects;
and on the Closing Date a certificate to such effect executed by the President
or a Vice President of the Corporation shall be delivered to the Purchaser.
3.2 Authorization. The Board of Directors of the Corporation
shall have duly adopted resolutions in form and substance reasonably
satisfactory to the Purchaser authorizing the Corporation to consummate the
transactions contemplated hereby in accordance with the terms hereof, and the
Purchaser shall have received a duly executed certificate of the
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Secretary or an Assistant Secretary of the Corporation setting forth such
resolutions and such other matters as may be requested by the Purchaser.
3.3 Credit Agreement. On or prior to the Closing Date, the
Corporation shall have executed and delivered to the Purchaser a counterpart to
the Credit Agreement, dated as of the date hereof (the "Credit Agreement"),
between the Corporation and the Purchaser.
3.4 Collateral Documents. On or prior to the Closing Date, the
Corporation and its subsidiaries shall have executed and delivered to the
Purchaser each of the Collateral Documents (as defined in the Credit Agreement)
as required by the Credit Agreement.
3.5 Registration and Pre-Emptive Rights Agreement. The
Corporation shall have executed and delivered to the Purchaser a counterpart to
the Registration and PreEmptive Rights Agreement, dated as of the date hereof
(the "Registration Rights Agreement") between the Purchaser and the
Corporation.
3.6 Irrevocable Proxy. The Purchaser shall have received the
executed irrevocable proxy of Messers. X'Xxxxxxx and Schnitz in the form
attached hereto as Exhibit C.
3.7 Opinion of Counsel. The Purchaser shall have received the
opinion of Xxxx, Gerber & Xxxxxxxxx, counsel to the Corporation, dated the
Closing Date, which opinion shall be in form and substance satisfactory to the
Purchaser.
3.8 Compliance. The issuance and sale of the Preferred Stock and
the Warrant to the Purchaser shall be made in conformity with all applicable
state and federal securities laws.
The Corporation's obligation to sell the Preferred Stock and the
Warrant to the Purchaser shall be subject to the fulfillment on or before the
Closing Date of the following conditions:
3.9 Tender of Aggregate Purchase Price. The Purchaser shall have
tendered to the Corporation at Closing the aggregate consideration set forth in
Section 1.2
3.10 Representations and Warranties. The representations and
warranties of the Purchaser contained in Section 5 hereof shall be true and
correct in all material respects as of the Closing Date.
3.11 Credit Agreement. On the Closing Date, the Purchaser shall
have executed and delivered to the Corporation a counterpart to the Credit
Agreement and advanced all amounts so required thereunder.
3.12 Amendment of Earlier Warrant. On or prior to the Closing
Date, Purchaser shall have obtained the agreement of the holder of Warrant No.
W-1 for 100,000 shares of Common Stock to the amendment of such warrant to
defer exercisability thereof until March 15, 1997.
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3.13 Registration and Pre-Emptive Rights Agreement. On or prior
to the Closing Date, the Purchaser shall have executed and delivered to the
Corporation a counterpart to the Registration Rights Agreement.
SECTION 4. COVENANTS OF THE CORPORATION
The Corporation shall comply, and the Corporation shall cause
any direct or indirect subsidiaries of the Corporation to comply, with the
following covenants until the first to occur of (i) January 1, 2001, or (ii)
the Purchaser, its transferees and assigns shall cease to hold shares of
capital stock or securities convertible into or exercisable for shares of
capital stock of the Corporation representing 5% or more of all outstanding
shares of capital stock of the Corporation (all references to "the Corporation"
in this Section 4 shall be deemed to refer to the Corporation and its direct
and indirect subsidiaries, if applicable, on a consolidated basis):
4.1 Financial Statements. The Corporation will maintain a system
of accounts in accordance with GAAP, keep full and complete financial records
and furnish to the Purchaser the following reports: (i) as soon as practicable
and, in any event, within 30 calendar days after the close of each calendar
month, consolidated and consolidating (x) statements of income and of cash
flows of the Corporation and its subsidiaries for such monthly period and (y)
balance sheets of the Corporation and its subsidiaries as of the end of such
monthly period, all in reasonable detail and including year to date
information, and certified by the chief financial officer of the Corporation to
have been prepared in accordance with GAAP (other than any requirement for
footnote disclosure and the recording of non-cash items), subject to year-end
audit adjustments; (ii) as soon as practicable and, in any event, within 90
calendar days after the close of each fiscal year of the Corporation, a copy of
the annual audited report for such year for the Corporation, including
consolidated (x) statements of income and of cash flows of the Corporation and
its subsidiaries for such fiscal year, and (y) balance sheets of the
Corporation and its subsidiaries as of the end of such fiscal year, each
setting forth in comparative form, if applicable, the corresponding figures for
the previous year, all in reasonable detail; the statements of income and of
cash flows and balance sheet to be audited by independent, nationally
recognized, certified public accountants, and certified (without a "going
concern" qualification or other qualification or exception of similar gravity
or any qualification arising out of the scope of the audit (but not arising out
of changes in financial accounting standards)) by such accountants to have been
prepared in accordance with GAAP, consistently applied (except to the extent
any inconsistency is disclosed in the notes to such financial statements and
approved by such accountants); and (iii) promptly, and in any event within one
calendar day after the filing thereof, a copy of any annual, quarterly or
interim report, proxy statement, information statement, Schedule 13D or 13G or
any other filing made by or with respect to the Corporation with the SEC or
Nasdaq.
4.2 Budget and Operating Forecast. The Corporation will prepare
and submit to the Board of Directors of the Corporation and the Purchaser a
budget for each fiscal year of the Corporation at least 30 days prior to the
beginning of such fiscal year, together with management's written discussion
and analysis of such budget. The budget shall be accepted as the budget for
such fiscal year when it has been approved by a majority of the entire Board of
Directors of the Corporation (including a majority of Preferred Directors (as
defined in
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Exhibit A hereto)). The Corporation shall review the budget periodically and
shall advise the Board of Directors and the Purchaser of all material changes
therein and all material deviations therefrom.
4.3 Stockholder Approval. The Corporation will take all steps
necessary in accordance with applicable law and its Certificate of
Incorporation and By-Laws duly to call, give notice of, convene and hold (a) a
special meeting of stockholders as soon as practicable after the date hereof
for the purpose of approving the issuance to the Purchaser of common stock upon
conversion of the Series B Preferred Stock, and (b) a regular meeting of
stockholders no later than June 15, 1997 for the purpose of approving the
elimination of Article 9 of the Corporation's Certificate of Incorporation. The
Board of Directors of the Corporation will (i) recommend to the stockholders of
the Company the approval and adoption of the two foregoing proposals, and (ii)
use all reasonable efforts to obtain the approval by the stockholders of the
Company of the two foregoing proposals.
4.4 Payment of Taxes, Compliance with Laws, Etc. The Corporation
will pay and discharge all lawful taxes, assessments and governmental charges
or levies imposed upon it or upon its income or property before the same shall
become in default, as well as all lawful claims for labor, materials and
supplies which, if not paid when due, might become a lien or charge upon its
property or any part thereof; provided, however, that the Corporation shall not
be required to pay and discharge any such tax, assessment, charge, levy, or
claim so long as the validity thereof is being contested by the Corporation in
good faith by appropriate proceedings and an adequate reserve therefor has been
established on its books. The Corporation will comply in all material respects
with all applicable laws and regulations in the conduct of its business.
4.5 Adverse Changes. The Corporation will promptly advise the
Purchaser of any event which represents a material adverse change in the
business, properties, liabilities, operations or condition (financial or
otherwise) of the Corporation. The Corporation will also promptly notify the
Purchaser of any facts which, if such facts had existed at the Closing, would
have constituted a material breach of the representations and warranties
contained herein.
4.6 Insurance. The Corporation will keep its insurable
properties insured by financially sound and reputable insurers against the
perils of liability, casualty, fire and extended coverage in amounts of
coverage not less than those currently maintained by the Corporation. The
Corporation will also maintain with such insurers insurance against other
hazards and risks and liability to persons and property to the extent and in
the manner currently maintained.
4.7 Maintenance of Properties. The Corporation will maintain all
properties used or useful in the conduct of its business in good repair,
working order and condition as necessary to permit such business to be properly
and advantageously conducted.
4.8 Affiliated Transactions. All transactions by and between the
Corporation and any officer, key employee or shareholder of the Corporation, or
persons controlled by or affiliated with such officer, key employee or
shareholder, shall be conducted on an arm's-length basis, shall be on terms and
conditions no less favorable to the Corporation than could
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C/M: 11926.0033 420377.6
be obtained from non-related persons and shall be approved in advance by the
Board of Directors, including approval by a majority of the Preferred
Directors, after full disclosure of the terms thereof; provided, however, that
the foregoing shall not apply to any transaction or series of transactions
involving in the aggregate an expenditure or transfer of not more than $5,000
in money or money's worth.
4.9 Management and Compensation.
(a) The Corporation will not employ any person in any position
deemed to be suitable only for "key management personnel" unless approved by a
majority of the Board of Directors.
(b) Compensation paid by the Corporation to its management will
be reasonably comparable to compensation paid to management in companies in
similar industries of similar size and of similar maturity.
4.10 Inspection. The Corporation will permit the Purchaser and
its authorized representatives to visit and inspect any of the properties of
the Corporation, including its books of account (and to make copies thereof and
take extracts therefrom), and to discuss its affairs, finances and accounts
with its officers, administrative employees and independent accountants, all at
such reasonable times and as often as may be reasonably requested.
4.11 Board of Directors. The Purchaser will have the right to
approve all future nominations to the Board of Directors othe than those
individuals serving as directors immediately prior to the Closing. The
Corporation shall ensure that meetings of its Board of Directors are held at
least four (4) times each year and at intervals of not more than four (4)
months and will reimburse Directors for their reasonable travel expenses,
including the cost of airfare and any necessary meals and lodging, incurred in
connection with attending meetings of the Board of Directors. Officers of the
Corporation who also serve as directors of the Corporation shall not be paid
any fee for such service (other than reimbursements for expenses).
4.12 Distributions or Redemption of Capital Stock. Except as
otherwise provided in this Agreement or Exhibit A hereto, the Corporation will
not declare or pay any dividends (other than a dividend payable in shares of
its Common Stock) or make any distributions of cash, property or securities of
the Corporation with respect to any shares of its Common Stock or Preferred
Stock or any other class of its capital stock, or directly or indirectly
redeem, purchase, or otherwise acquire for consideration any shares of its
Common Stock or Preferred Stock or any other class of its capital stock (other
than repurchases of shares from its employees, directors and consultants, at
the same price as paid by such employees, or any other price with the approval
of the Board of Directors, under stock restriction agreements).
4.13 Maintenance of Corporate Existence, Etc. The Corporation
shall maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights in or to use patents, processes,
licenses, trademarks, trade names or copyrights owned or possessed by it or any
subsidiary and deemed by the Corporation to be necessary to the conduct of its
or such subsidiary's business without, to the Corporation's best knowledge, any
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C/M: 11926.0033 420377.6
conflict with any rights of others to use such patents, processes, licenses,
trademarks, trade names or copyrights.
SECTION 5. REPRESENTATIONS AND COVENANTS OF PURCHASER
The Purchaser hereby represents and warrants to the Corporation
as follows:
(a) The execution of this Agreement has been duly authorized by
all necessary action on the part of the Purchaser; this Agreement has been duly
executed and delivered by the Purchaser; and this Agreement constitutes a
valid, binding and enforceable agreement of the Purchaser.
(b) Purchaser is acquiring the Preferred Stock (and the shares
of Common Stock issuable upon conversion of shares of Series A Preferred Stock)
and the Warrant (and the shares of Common Stock issuable upon the exercise of
the Warrant (the "Warrant Stock")) for its own account, for investment, and not
with a view to any "distribution" thereof within the meaning of the Securities
Act.
(c) Purchaser understands that because the Preferred Stock, the
Warrant and the Warrant Stock have not been registered under the Securities
Act, it cannot dispose of any or all of the Preferred Stock or the Common Stock
issuable upon conversion of shares of Series A Preferred Stock or the Warrant
or the Warrant Stock unless such securities are subsequently registered under
the Securities Act or exemptions from such registration are available. The
Purchaser acknowledges and understands that, except as provided in the
Registration Rights and Pre-emptive Rights Agreement, dated as of the date
hereof, between Purchaser and the Corporation, it has no independent right to
require the Corporation to register the Preferred Stock, the Common Stock
issuable upon conversion of shares of Series A Preferred Stock, the Warrant or
the Warrant Stock. The Purchaser further understands that the Corporation may,
as a condition to the transfer of any of the Preferred Stock, the Common Stock
issuable upon conversion of shares of Series A Preferred Stock, the Warrant or
the Warrant Stock, require that a written request for transfer be delivered to
the Corporation accompanied by an opinion of counsel, in form and substance
satisfactory to the Corporation, to the effect that the proposed transfer does
not result in a violation of the Securities Act or that such transfer is
covered by an effective registration statement under the Securities Act. The
Purchaser understands that each certificate representing the Preferred Stock
and the Warrant will bear the following legend or one substantially similar
thereto:
"THIS SECURITY AND SHARES ISSUABLE ON CONVERSION OR EXERCISE OF THIS
SECURITY MAY NOT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS BY
REASON OF EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
SUCH STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
EXEMPTION THEREFROM UNDER SUCH ACT OR LAWS."
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(d) The Purchaser is knowledgeable and experienced in the making
of equity investments, and is able to bear the economic risk of loss of its
investment in the Corporation.
(e) The Purchaser has been advised that the shares of Preferred
Stock and the Warrant issued hereunder have not been and are not being
registered under the Securities Act or under the "blue sky" laws of any
jurisdiction (except in the case of certain state filings) and that the
Corporation in issuing the Preferred Stock and the Warrant is relying upon,
among other things, the representations and warranties of Purchaser contained
in this Section 5 in concluding that each such issuance is a "private offering"
and does not require compliance with the registration provisions of the
Securities Act.
(f) The Purchaser has adequate means of providing for its
current needs and possible contingencies, has no need for liquidity of its
investment in the Preferred Stock or the Warrant and can bear the economic risk
of losing its entire investment therein.
(g) The Purchaser is controlled by or under common control with
Apollo Real Estate Advisors II, L.P.
The Purchaser covenants and agrees to vote the Series A Preferred Stock
in favor of the stockholder proposals referred to in Section 4.3.
SECTION 6. GENERAL
6.1 Indemnification. The Corporation hereby agrees to indemnify
and hold harmless the Purchaser and its affiliates and their respective
officers, directors, employees and agents from and against any and all losses,
liabilities, claims, damages, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) incurred by any of
them in excess of an aggregate of $100,000 and up to a maximum of $10 million
in the aggregate in connection with (i) any breach of any representation or
warranty made by the Corporation in this Agreement, (ii) any breach of any
covenant, agreement or obligation of the Corporation in this Agreement and
(iii) any investigation, litigation or other proceeding related to the entering
into and/or performance of this Agreement or the consummation of the
transactions contemplated hereby.
6.2 Amendments, Waivers and Consents. For the purposes of this
Agreement and all agreements, documents and instruments executed pursuant
hereto, except as otherwise specifically set forth herein or therein, no course
of dealing between the Corporation and the Purchaser and no delay on the part
of any party hereto in exercising any rights hereunder or thereunder shall
operate as a waiver of the rights hereof and thereof. No covenant or other
provision hereof or thereof may be waived otherwise than by a written
instrument signed by the party so waiving such covenant or other provision. Any
amendment or waiver effected in accordance with this Section 6.2 shall be
binding upon each holder of Preferred Stock purchased under this Agreement at
the time outstanding, each future holder of all such Preferred Stock and the
Corporation.
6.3 Survival of Representations, Warranties and Covenants;
Assignability of Rights.
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C/M: 11926.0033 420377.6
(a) All representations and warranties of the Corporation made
herein and in the certificates, lists, exhibits, schedules or other written
information delivered or furnished to Purchaser in connection herewith shall be
deemed material and to have been relied upon by Purchaser, shall survive the
delivery of the Preferred Stock and the Warrant until December 31, 1998 (except
for Section 2.2, which shall survive indefinitely, and Section 2.13, which
shall survive until termination of any applicable statute of limitations), and
shall bind the Corporation's successors and assigns, whether so expressed or
not, and, except as provided otherwise in this Agreement, all such
representations and warranties shall inure to the benefit of the Purchaser, its
successors and assigns and to transferees of the Preferred Stock and the
Warrant, whether so expressed or not.
(b) All covenants of the Corporation made herein shall survive
the delivery of the Preferred Stock and the Warrant until the later of (i)
December 31, 2000 or (ii) the term specified herein for such covenant, and
shall bind the Corporation's successors and assigns, whether so expressed or
not, and, except as provided otherwise in this Agreement, all such covenants
shall inure to the benefit of the Purchaser, its successors and assigns and to
transferees of the Preferred Stock and the Warrant, whether so expressed or
not.
6.4 Section Headings. Article and Section headings used in this
Agreement are for convenience of reference only and shall not constitute a part
of this Agreement for any purpose or affect the construction of this Agreement
6.5 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one
and the same Agreement. This Agreement shall become effective upon the
execution of a counterpart hereof by each of the parties hereto.
6.6 Notices and Demands. All notices, demands, instructions and
other communications required or permitted to be given to or made upon any
party hereto shall be in writing delivered to the parties at the addresses set
forth below (or such other address as may be provided by one party in a notice
to the other):
If to Apollo:
c/o Apollo Real Estate Advisors, L.P.
1301 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxxxxx
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C/M: 11926.0033 420377.6
with a copy to:
Apollo Real Estate Advisors, L.P.
1999 Avenue of the Stars
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
and a copy to:
Battle Xxxxxx LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxx Xxxxxxx, Esq.
If to the Corporation:
NextHealth, Inc.
00000 X. Xxxx Xxx Xxx Xxxxxxx
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx
with a copy to:
Xxxx, Xxxxxx & Xxxxxxxxx
0 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx, Esq.
Notice delivered in accordance with the foregoing shall be effective (i) when
delivered, if delivered personally or by facsimile transmission, (ii) two days
after being delivered in the United States (properly addressed and all fees
paid) for overnight delivery service to a courier (such as Federal Express)
which regularly provides such service and regularly obtains executed receipts
evidencing delivery or (iii) five days after being deposited (properly
addressed and stamped for first-class delivery) in a daily serviced United
States mail box.
6.7 Waiver of Jury Trial. The Corporation hereby waives all
right to trial by jury in any action, proceeding or counterclaim arising out of
or relating to this Agreement, or any other agreement or instrument
contemplated hereby.
6.8 Specific Performance. The Purchaser and each transferee or
assignee of the Purchaser shall have the right to specific performance by the
Corporation of Sections 1, 4.2, 4.3, 4.8, 4.9, 4.10 and 4.11 of this Agreement.
The Corporation hereby irrevocably waives, to the extent that it may do so
under applicable law, any defense based on the adequacy of a remedy at law
which may be asserted as a bar to the remedy of specific performance in any
action brought against the Corporation for specific performance of this
Agreement by Purchaser or its transferees and assignees.
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C/M: 11926.0033 420377.6
6.9 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions or this Agreement.
6.10 Expenses. The Corporation shall pay all costs and expenses
incurred by it or the Purchaser with respect to the negotiation, execution,
delivery and performance of this Agreement and any modifications hereof.
6.11 Governing Law. This Agreement shall be deemed to have been
made in the State of Delaware and the validity of this Agreement, the
construction, interpretation, and enforcement thereof, and the rights of the
parties thereto shall be determined under, governed by, and construed in
accordance with the internal laws of the State of Delaware, without regard to
principles of conflicts of law.
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C/M: 11926.0033 420377.6
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first above written.
NEXTHEALTH, INC.
By
Name:
Title:
AP NH LLC
By AP GP NH LLC, its Managing Member
By KRONUS PROPERTY, INC.,
its Managing Member
By:
Name: Xxxxxx Xxxxxxxxx
Title: Vice President
NEXTHEALTH, INC.
SCHEDULE OF EXCEPTIONS
TO
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
November 14, 1996
C/M: 11926.0033 420377.6
SCHEDULE 2.3
C/M: 11926.0033 420377.6
SCHEDULE 2.5
No representation is made as to whether the transactions contemplated
by this Agreement and/or the Credit Agreement constitute an issuance which will
result in a change of control of the Corporation under Rule 4460(i)(1)(B) of
the Nasdaq NMS Qualification Requirements.
C/M: 11926.0033 420377.6
SCHEDULE 2.8
C/M: 11926.0033 420377.6
SCHEDULE 2.10
Contracts
C/M: 11926.0033 420377.6
SCHEDULE 2.12
The Corporation's revenues have not been sufficient to satisfy
its obligations since September 30, 1996, and, as a result thereof, the
Corporation's financial condition is distressed and constantly deteriorating.
The representation contained in Section 2.12 shall be inapplicable to the
extent of the foregoing sentence.
C/M: 11926.0033 420377.6
EXHIBIT A
[Certificate of Designation of Preferred Stock]
C/M: 11926.0033 420377.6
EXHIBIT B
[Form of Warrant]
C/M: 11926.0033 420377.6
EXHIBIT C
[Form of Irrevocable Proxy]
C/M: 11926.0033 420377.6
