BRIDGE LOAN AND SECURITY
AGREEMENT
This Bridge Loan
and Security Agreement dated as of April 30, 2009 (this
“ Agreement ”), is entered into among COMVEST
NATIONSHEALTH HOLDINGS, LLC, a Delaware limited liability company
(“ Parent ”), NATIONSHEALTH, INC., a Delaware
corporation (the “ Company ”), UNITED STATES
PHARMACEUTICAL GROUP, L.L.C. d/b/a NATIONSHEALTH, a Delaware
limited liability company (“ USPG ”),
NATIONSHEALTH HOLDINGS, L.L.C., a Florida limited liability company
(“ Holdings ”), DIABETES CARE & EDUCATION,
INC., a South Carolina corporation (“ Diabetes
”), and NATIONAL PHARMACEUTICALS AND MEDICAL PRODUCTS (USA),
L.L.C., a Florida limited liability company (“
National ” and together with the Company, USPG,
Holdings and Diabetes, “ Borrower ”).
WHEREAS ,
on the date hereof, Parent, NationsHealth Acquisition Corp., a
Delaware corporation and a wholly owned Subsidiary of Parent
(“ Merger Sub ”), and the Company have entered
into that certain Agreement and Plan of Merger (the “
Merger Agreement ”), pursuant to which the Merger Sub
will merge with and into the Company (the “ Merger
”) and the separate corporate existence of Merger Sub shall
thereupon cease, and the Company shall be the surviving corporation
in the Merger;
WHEREAS ,
in connection with the execution of the Merger Agreement, Borrower
and Parent have entered into this Agreement;
WHEREAS ,
in connection with the execution of this Agreement, (a) Parent
and the Senior Lender have entered into the Senior Subordination
Agreement dated the date hereof (the “ Senior
Subordination Agreement ”), (b) Parent and MHR have
entered into the Bridge Loan Subordination Agreement dated the date
hereof (the “ Bridge Loan Subordination Agreement
” and collectively with the Senior Subordination Agreement,
the “ Subordination Agreements ”),
(c) Borrower has issued to Parent that certain 10% Secured
Convertible Subordinated Promissory Note, dated the date hereof, in
the form attached hereto as Exhibit A (the “
Note ”), and (d) Borrower has issued to Parent
that certain warrant to purchase 1,000,000 shares of Company Common
Stock at an exercise price of $.01 per share of Company Common
Stock, dated the date hereof, in the form attached hereto as
Exhibit B (the “ Bridge Loan Warrant
” and together with this Agreement, the Note, and the
Subordination Agreements, the “ Bridge Loan Documents
”);
WHEREAS ,
the Senior Lender and Borrower are parties to a Third Amended and
Restated Revolving Credit, Term Loan and Security Agreement dated
as of April 11, 2007 (as amended, modified, restated or
replaced, the “ Senior Loan Agreement ”) under
which Senior Lender has made or may make loans and other financial
accommodations to Borrower;
WHEREAS,
on the date hereof, the Senior Lender has, among other things,
consented to the execution and delivery by Borrower of the Merger
Agreement, this Agreement, and the Note pursuant to a certain
Consent, Waiver, Joinder and Eighth Amendment to Third Amended and
Restated Revolving Credit, Term Loan and Security Agreement dated
April 30, 2009 (the “ Eighth Amendment
”);
WHEREAS,
pursuant to the Senior Loan Agreement, Borrower has granted in
favor of Senior Lender a first priority lien on and security
interest in substantially all of the assets and property of
Borrower as security for their obligations to Senior Lender under
the Senior Loan Agreement;
WHEREAS,
pursuant to this Agreement, Borrower has granted in favor of Parent
a second priority lien on and security interest in substantially
all of Borrower’s assets and property as security for the
Obligations (as defined below);
NOW,
THEREFORE , in consideration of the foregoing and the
representations, warranties, covenants and agreements contained in
this Agreement, and intending to be legally bound hereby, Parent
and Borrower hereby agree as follows:
1. Bridge
Loan and Bridge Loan Warrant.
(a)
Bridge Loan . In reliance upon the representations,
warranties, covenants and agreements of the parties set forth
herein and in the Merger Agreement, on the Closing Date (as defined
below), Parent shall lend to Borrower and Borrower shall borrow
from Parent an aggregate principal amount equal to $3,000,000 (the
“ Bridge Loan ”) in immediately available funds,
which Bridge Loan shall be evidenced by the Note.
(b)
Terms of the Note . The terms and conditions of the Note are
set forth in the Note.
(c)
Promise to Pay; Manner of Payment . Borrower absolutely and
unconditionally promises to pay principal, interest and all other
amounts payable hereunder, or under any other Bridge Loan Document,
without any right of rescission and without any deduction
whatsoever, including any deduction for any setoff, counterclaim or
recoupment, and notwithstanding any damage to, defects in or
destruction of the Collateral (as defined herein) or any other
event, including obsolescence of any property or improvements. All
payments made by Borrower shall be made, without offset or
counterclaim, in U.S. Dollars, when due in accordance with the
terms of Section 2 of the Note.
(d)
Interest Rate . Borrower shall pay interest to Parent on the
unpaid principal balance of the Bridge Loan in accordance with the
terms of Section 1 of the Note.
(e)
Maturity Date . Borrower shall pay the outstanding principal
balance of the Bridge Loan, together with the balance of any unpaid
and accrued interest, in accordance with the terms of Section 2(b)
of the Note.
(f)
Interest Savings Clause . If any interest payment (or other
payment which is deemed by law to be interest) due hereunder or due
under the other Bridge Loan Documents is determined to be in excess
of the then legal maximum rate, then the portion of each interest
payment representing an amount in excess of the such legal maximum
rate shall be deemed a payment of principal and applied against the
principal amount of the Note.
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(g)
Interest Payments on Bridge Loan . Payments of interest on
the outstanding principal balance of the Bridge Loan shall be made
in accordance with Section 2(a) of the Note.
(h)
Use of Proceeds . Subject to the restrictions and
limitations set forth in Section 5 , Borrower shall use
the proceeds of the Note to pay a portion of the Transaction Fees
pursuant to Section 5.10 of the Merger Agreement, to
fund Borrower’s general business purposes, capital
expenditures, growth capital, the Bridge Loan Liquidity Amount (as
defined in the Eighth Amendment), and working capital.
(i)
Forgiveness of Principal and other Obligations . Under the
circumstances described in, and subject to the terms and conditions
set forth in, Section 4 of the Note, the outstanding
Obligations under the Note and the other Bridge Loan Documents owed
by Borrower shall immediately be forgiven, and any lien or security
interest granted by Borrower to the Parent shall be deemed released
(without any further action of the Parent), and Borrower shall have
no further obligations under this Agreement, the Note and the other
Bridge Loan Documents.
(j)
Subordination to Senior Lender . Any and all of the
Obligations and the payment and enforcement thereof under the
Bridge Loan Documents shall be subordinated to (i) any and all
of the security interests the Senior Lender has or has a right to
pursue with respect to any of Borrowers’ assets,
(ii) any and all obligations owed by Borrower to Senior Lender
and (iii) the contractual rights and remedies granted to the
Senior Lender under the Senior Subordination Agreement.
(k)
Subordination; Rank . Any and all of Borrower’s
liabilities and obligations to MHR shall be subordinated to any and
all of the security interests Parent has or has a right to pursue
with respect to any of Borrowers’ assets upon the terms and
conditions set forth in the Bridge Loan Subordination Agreement.
All Obligations (including the Note) shall be senior to all
Indebtedness of Borrower owed to MHR upon the terms and conditions
set forth in the Bridge Loan Subordination Agreement.
(l)
Consistency . If any provision of this Agreement is
inconsistent with the terms of the Note, the terms of the Note
shall control.
(m)
Bridge Loan Warrant . On the Closing Date, the Company shall
issue to Parent the Bridge Loan Warrant.
2. Grant
of Security Interest; Collateral; Collateral Administration
.
(a) To
secure the payment and performance in full of the Obligations, each
Borrower hereby grants to Parent a continuing security interest in
and Lien upon, and pledges to Parent, all of its right, title and
interest in and to the following (collectively and each
individually, the “ Collateral ”), which
security interest is intended to be a second priority security
interest and subject to the terms of the Senior Subordination
Agreement:
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(i) all
of such Borrower’s tangible personal property, including
without limitation all present and future Inventory and Equipment
(including items of equipment which are or become Fixtures), now
owned or hereafter acquired or arising;
(ii) all
of such Borrower’s intangible personal property, including
without limitation all present and future Accounts, contract
rights, Permits, General Intangibles, Chattel Paper, Documents,
Instruments, Deposit Accounts, Investment Property,
Letter-of-Credit Rights, Supporting Obligations, rights to the
payment of money or other forms of consideration of any kind, tax
refunds, insurance proceeds, now owned or hereafter acquired, and
all intangible and tangible personal property relating to or
arising out of any of the foregoing;
(iii) all
of such Borrower’s present and future Government Contracts
and rights thereunder and the related Government Accounts and
proceeds thereof, now or hereafter owned or acquired by such
Borrower; provided , however , that Parent shall not
have a security interest in any rights under any Government
Contract of such Borrower or in the related Government Account
where the taking of such security interest is a violation of an
express prohibition contained in the Government Contract (for
purposes of this limitation, the fact that a Government Contract is
subject to, or otherwise refers to, Title 31, § 203 or Title
41, § 15 of the United States Code shall not be deemed an
express prohibition against assignment thereof) or is prohibited by
applicable law, unless in any case consent is otherwise validly
obtained; and
(iv) any
and all additions and accessions to any of the foregoing, and any
and all replacements, products and proceeds (including insurance
proceeds) of any of the foregoing.
(b) Notwithstanding
the foregoing provisions of this Section 2 , such grant
of a security interest shall not extend to, and the term
“Collateral” shall not include, any General
Intangibles, now or hereafter held or owned by Borrower to the
extent that (i) such General Intangibles are not assignable or
capable of being encumbered as a matter of law or under the terms
of any license or other agreement applicable thereto (but solely to
the extent that any such restriction shall be enforceable under
applicable law) without the consent of the licensor thereof or
other applicable party thereto, and (ii) such consent has not
been obtained; provided , however , that the
foregoing grant of a security interest shall extend to, and the
term “Collateral” shall include, each of the following:
(a) any General Intangible which is in the nature of an
Account or a right to the payment of money or a proceed of, or
otherwise related to the enforcement or collection of, any Account
or right to the payment of money, or goods which are the subject of
any Account or right to the payment of money, (b) any and all
proceeds of any General Intangible that is otherwise excluded to
the extent that the assignment, pledge or encumbrance of such
proceeds is not so restricted, and (c) upon obtaining the
consent of any such licensor or other applicable party with respect
to any such otherwise excluded General Intangible, such General
Intangible as well as any and all proceeds thereof that might
theretofore have been excluded from such grant of a security
interest and from the term “Collateral.”
(c) Upon
the execution and delivery of this Agreement, and upon the proper
filing of the necessary financing statements, recordation of the
Collateral Patent, Trademark and Copyright Assignment in the United
States Patent and Trademark Office and/or the United States
Copyright Office without any further action, Parent will have a
good, valid and perfected second priority Lien and security
interest in the Collateral, subject to no transfer or other
restrictions or Liens of any kind in favor of any other Person
except Permitted Indebtedness secured by Permitted Liens or
otherwise approved by Parent. No financing statement relating to
any of the Collateral is on file in any public office except those
(i) on behalf of Parent, (ii) in connection with
Permitted Liens and/or (iii) those being
terminated.
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(d) All
Collateral (except Deposit Accounts) will at all times be kept by
Borrower at the locations set forth on Schedule 5.18B
to the Senior Loan Agreement and shall not, without thirty
(30) calendar days prior written notice to Parent, be moved
therefrom unless Parent has entered into the necessary documents to
perfect and enforce its security interest therein at such new
location, and in any case shall not be moved outside the
continental United States.
(e) Subject
to the terms of the Senior Subordination Agreement, following an
occurrence and during the continuance of an Event of Default, any
of Parent’s officers, employees, representatives or agents
shall have the right, at any time during normal business hours, in
the name of Parent, any designee of Parent or Borrower, to verify
the validity, amount or any other matter relating to any Accounts
or Inventory of Borrower. Borrower shall cooperate fully with
Parent in an effort to facilitate and promptly conclude such
verification process.
(f) To
expedite collection, subject to the terms of the Senior
Subordination Agreement, Borrower shall endeavor in the first
instance to make collection of its Accounts for Parent. Parent
shall have the right at all times after the occurrence and during
the continuance of an Event of Default to notify (i) Account
Debtors owing Accounts to Borrower other than Medicaid/Medicare
Account Debtors that their Accounts have been assigned to Parent
and to collect such Accounts directly in its own name and to charge
collection costs and expenses, including reasonable
attorney’s fees, to Borrower, and (ii) Medicaid/Medicare
Account Debtors that Borrower has waived any and all defenses and
counterclaims it may have or could interpose in any such action or
procedure brought by Parent to obtain a court order recognizing the
collateral assignment or security interest and lien of Parent in
and to any Account or other Collateral and that Parent is seeking
or may seek to obtain a court order recognizing the collateral
assignment or security interest and lien of Parent in and to all
Accounts and other Collateral payable by Medicaid/Medicare Account
Debtors.
(g) As
and when determined by Parent in its sole discretion but not more
often than two (2) times per year prior to the occurrence and
continuance of an Event of Default, Parent will perform the
searches described in clauses (i) and (ii) below against
Borrower (the results of which are to be consistent with
Borrower’s representations and warranties under this
Agreement), all at Borrower’s expense: (i) UCC searches
with the Secretary of State of the jurisdiction of organization of
each Borrower and Guarantor and the Secretary of State and local
filing offices of each jurisdiction where each Borrower and/or any
Guarantors maintain their respective executive offices, a place of
business or assets; (ii) lien searches with the United States
Patent and Trademark Office and the United States Copyright Office;
and (iii) judgment, federal tax lien and corporate and
partnership tax lien searches, in each jurisdiction searched under
clause (i) above.
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(h) Subject
to the terms of the Senior Subordination Agreement, Borrower shall
following the occurrence and continuance of an Event of Default
(i) provide prompt written notice to its current bank to
transfer all items, collections and remittances to the
Concentration Account, (ii) provide prompt written notice to
each Account Debtor (other than Medicaid/Medicare Account Debtors)
that Parent has been granted a lien and security interest in, upon
and to all Accounts applicable to such Account Debtor, and Borrower
hereby authorizes Parent, upon any failure to send such notices and
directions within ten (10) calendar days after the date of
this Agreement (or ten (10) calendar days after the Person
becomes an Account Debtor), to send any and all similar notices and
directions to such Account Debtors, and (iii) do anything
further that may be lawfully required by Parent to create and
perfect Parent’s lien on any collateral and effectuate the
intentions of the Loan Documents. At Parent’s request,
subject to the terms of the Senior Subordination Agreement,
Borrower shall immediately deliver or make arrangements to deliver
to Parent all items for which Parent must receive possession to
obtain a perfected security interest and all notes, certificates,
and documents of title, Chattel Paper, warehouse receipts,
Instruments, and any other similar instruments constituting
Collateral.
(i) Subject
to the terms of the Senior Subordination Agreement, Parent is
hereby irrevocably made, constituted and appointed the true and
lawful attorney for Borrower (without requiring Parent to act as
such) with full power of substitution to do the following after the
occurrence and continuance of an Event of Default: (i) endorse
the name of any such Person upon any and all checks, drafts, money
orders, and other instruments for the payment of money that are
payable to such Person and constitute collections on its or their
Accounts; (ii) execute in the name of such Person any
financing statements, schedules, assignments, instruments,
documents, and statements that it is or they or are obligated to
give Parent under any of the Loan Documents; and (iii) do such
other and further acts and deeds in the name of such Person that
Parent may deem necessary or desirable to enforce any Account or
other Collateral or to perfect Parent’s security interest or
lien in any Collateral.
3.
Closing; Conditions to Closing; and Deliveries.
(a)
Closing . The closing of the Bridge Loan (the “
Closing ”) shall take place simultaneously with the
execution of the Merger Agreement on the date hereof subject to the
satisfaction or waiver of the conditions set forth in
Section 3(b) , other than those conditions that by
their nature are to be satisfied at the Closing at such time at the
offices of McDermott, Will & Emery, 201 South Biscayne
Boulevard, Suite 2200, Miami, Florida 33131, unless another
time, date or place is agreed to in writing by the parties hereto
(the “ Closing Date ”).
(b)
Conditions to Closing . The obligations of Parent to make
the Bridge Loan is subject to satisfaction (or wavier, if
permissible under applicable Law) on or prior to the Closing Date
of the following conditions:
(i) Each
of the representations and warranties made by Borrower in
Section 4 shall be true and correct in all material
respects on and as of the Closing Date (or, if given as of a
specific date, at and as of such date);
(ii) Borrower
shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to
the Closing Date;
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(iii) Borrower
shall have obtained all applicable approvals and consents required
to consummate the transactions contemplated by this Agreement, the
Note, the Bridge Loan Warrant, and the other Bridge Loan Documents,
and shall have provided Parent with a true and correct copy of such
approvals and consents;
(iv) Each
Borrower shall have executed and delivered the Bridge Loan
Documents (including the Note and the Bridge Loan Warrant) to which
it is a party;
(v) The
Company shall have executed and delivered the Merger
Agreement;
(vi) No
temporary restraining order, preliminary or permanent injunction or
other judgment or order issued by any Governmental Authority or
other Law, rule, legal restraint or prohibition shall be in effect
preventing or rendering illegal the consummation of the Bridge
Loan;
(vii) Parent
shall have received (i) the Charter and Good Standing
Documents, all in form and substance acceptable to Parent and
(ii) a certificate of the corporate secretary or assistant
secretary of each Borrower dated the Closing Date, as to the
incumbency and signature of the Persons executing this Agreement,
in form and substance acceptable to Parent; and
(viii) The
Company shall file with the Secretary of State of the State of
Delaware a Certificate of Designation in the form attached hereto
as Exhibit C (the “ Certificate of
Designation ”), pursuant to which the Company shall
create the Series A-1 Convertible Preferred Stock (the “
Series A-1 Preferred Stock ”).
(c)
Delivery of Bridge Loan Documents and Bridge Loan Proceeds .
Subject to the terms and conditions of this Agreement, on the
Closing Date, (i) Borrower shall deliver to Parent each of the
Bridge Loan Documents to which it is a party, (ii) Parent
shall deliver to Borrower each of the Bridge Loan Documents to
which it is a party, (iii) Borrower and Parent shall execute a
funds flow and closing statement with respect to funding the Bridge
Loan and to paying the fees, costs and expenses related thereto,
including, but not limited to, Parent’s management fee (not
to exceed three percent (3%) of the principal amount of the loan
made hereunder), and the reasonable fees and expenses of
Borrowers’ and Parent’s attorneys, accountants,
consultants, financial advisors, and investment bankers (the
“ Funds Flow and Closing Statement ”),
(iv) the Company shall file the Certificate of Designation
with the Secretary of State of the State of Delaware, and
(v) Parent shall loan and deliver to Borrower an amount equal
to $3,000,000 less the fees, costs and expenses set forth in the
Funds Flow and Closing Statement by wire transfer of immediately
available funds to an account or accounts designated in writing by
Borrower.
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4.
Representations and Warranties of Borrower . Each Borrower,
jointly and severally, hereby represents and warrants to Parent as
follows:
(a)
Authority . The execution, delivery and performance by each
Borrower of the Bridge Loan Documents to which such Borrower is a
party have been duly authorized and approved by its Board of
Directors (or similar governing body), and no other corporate or
limited liability company action on the part of any Borrower is
necessary to authorize the execution, delivery and performance by
such Borrower of the Bridge Loan Documents to which it is a party
which has not been taken. Each of the Bridge Loan Documents to
which a Borrower is a party has been duly executed and delivered by
such Borrower and, assuming due authorization, execution and
delivery hereof by the other parties hereto, constitutes a legal,
valid and binding obligation of Borrower, enforceable against
Borrower in accordance with its terms, except for the Bankruptcy
and Equity Exception.
(b)
Consent . Except as set forth in the Company Disclosure
Schedule, the execution, delivery and performance of the Bridge
Loan Documents by each Borrower to which such Borrower is a party
and the consummation by each Borrower of the transactions
contemplated by this Agreement and the other Bridge Loan Documents
to which such Borrower is a party do not and will not require any
consent, approval, or other authorization of, or filing with, or
notification to any Governmental Authority by any Borrower which
has not been obtained or made.
(c)
Representations and Warranties in Merger Agreement . The
representations and warranties of the Company contained in
Article 3 of the Merger Agreement (including the exceptions to
such representations and warranties set forth therein) are true and
correct and are hereby incorporated herein and made a part
hereof.
5.
Affirmative Covenants of Borrower . Each Borrower, jointly
and severally, covenants and agrees that, following the termination
of the Merger Agreement, until full performance and satisfaction,
and indefeasible payment in full in cash, of all the Obligations,
or forgiveness of any and all outstanding Obligations pursuant to
Section 1(i) following the termination of the Merger
Agreement:(a) Financial Statements, Financial Reports and Other
Information .
(i)
Financial Reports . Borrower shall furnish to Parent
(i) as soon as available and in any event within ninety
(90) calendar days after the end of each fiscal year of
Borrower (or such earlier date required by the laws, regulations
and rules of the Securities and Exchange Commission), audited
annual consolidated financial statements of Borrower, including the
notes thereto, consisting of a consolidated balance sheet at the
end of such completed fiscal year and the related consolidated
statements of income, retained earnings, cash flows and
owners’ equity for such completed fiscal year, which
financial statements shall be prepared and certified without
qualification by an independent certified public accounting firm
satisfactory to Parent and accompanied by related management
letters, if available, and (ii) as soon as available and in
any event within thirty (30) calendar days after the end of
each calendar month, unaudited consolidated financial statements of
Borrower consisting of a balance sheet and statements of income,
retained earnings, cash flows and owners’ equity as of the
end of the immediately preceding calendar month. All such financial
statements shall be prepared in accordance with GAAP consistently
applied with prior periods.
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(ii)
Other Materials . Borrower shall furnish to Parent as soon
as available, and in any event within ten (10) calendar days
after the preparation or issuance thereof or at such other time as
set forth below (1) copies of such financial statements (other
than those required to be delivered pursuant to
Section 5(a)(i) ) prepared by, for or on behalf of
Borrower and any other notes, reports and other materials related
thereto, including, without limitation, any pro forma financial
statements, (2) any reports, returns, information, notices and
other materials that Borrower shall send to its stockholders,
members, partners or other equity owners at any time, (3) all
Medicare and Medicaid cost reports and other documents and
materials filed by Borrower and any other reports, materials or
other information regarding or otherwise relating to Medicaid or
Medicare prepared by, for or on behalf of Borrower, including,
without limitation, (A) copies of licenses and permits
required by any applicable Law or Governmental Authority for the
operation of its business, (B) Medicare and Medicaid provider
numbers and agreements, (C) state surveys pertaining to any
healthcare facility operated, owned or leased by Borrower, and
(D) participating agreements relating to medical plans, (4)
(A) within thirty (30) calendar days following the request of
Parent, a summary report of the status of all payments, denials and
appeals of all Medicare and/or Medicaid Accounts and accounts
receivable and account payable aging schedule, and (B), within
thirty (30) calendar days following the request of Parent, a
sales and collection report for the most recent calendar month,
including a report of sales, credits issued and collections
received, all such reports showing a reconciliation to the amounts
reported in the monthly financial statements, (5) promptly
upon receipt thereof, copies of any reports submitted to Borrower
by its independent accountants in connection with any interim audit
of the
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