THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR
UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR AN
EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
THIS
PROMISSORY NOTE IS SUBORDINATED TO CERTAIN SENIOR INDEBTEDNESS OF
BORROWER (AS HEREIN DEFINED) IN THE MANNER SET FORTH IN THE SENIOR
SUBORDINATION AGREEMENT (AS HEREIN DEFINED) AND ALL RIGHTS,
REMEDIES AND OBLIGATIONS UNDER THIS PROMISSORY NOTE AND THE OTHER
BRIDGE LOAN DOCUMENTS (AS HEREIN DEFINED) ARE SUBJECT TO THE TERMS
OF THE SENIOR SUBORDINATION AGREEMENT.
10% SECURED CONVERTIBLE
SUBORDINATED PROMISSORY NOTE
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$3,000,000.00
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April 30, 2009
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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,
L.L.C., a Florida limited liability company (“
National ” and together with the Company, USPG,
Holdings and Diabetes, “ Borrower ”), for value
received, promises to pay to COMVEST NATIONSHEALTH HOLDINGS, LLC, a
Delaware limited liability company (“ Holder ”),
the principal sum of Three Million Dollars ($3,000,000), together
with interest as provided herein, which shall be due and payable
upon the terms and conditions contained in this 10% Secured
Convertible Subordinated Promissory Note (this “ Note
”). This Note is being issued in connection with (a) the
Agreement and Plan of Merger of even date herewith (the “
Merger Agreement ”) by and among the Company, Holder
and NationsHealth Acquisition Corp., a Delaware corporation and a
wholly owned Subsidiary of Holder (“ Merger Sub
”), which provides for the merger of Merger Sub with and into
the Company (the “ Merger ”), and (b) the
Bridge Loan and Security Agreement between Holder and Borrower of
even date herewith (the “ Bridge Loan Agreement
”). Capitalized terms not otherwise defined in this Note
shall have the meaning set forth in the Merger Agreement and the
Bridge Loan Agreement, as applicable.
(a) Subject
to paragraph (b) below, the outstanding principal balance of
this Note shall bear interest at a rate equal to ten percent (10%)
per annum, simple interest.
(b) In
the event that the Merger Agreement is terminated other than
pursuant to Section 7.1(c)(i) or Section 7.1(d)(i) of the
Merger Agreement, on the last day of each ninety (90) day
period from the date of such termination, the interest rate set
forth in Section 1(a) shall be increased by two percent
(2%), per annum, but in no event shall the interest rate exceed
eighteen percent (18%) per annum, simple interest.
(c) The
interest on the Bridge Loan shall be calculated on the basis of the
actual number of days elapsed and a year of
365 days.
2.
Payment Terms . Subject to Sections 4, 5 and 6 ,
the Note shall be paid as follows:
(a) Commencing
on the first day of the first calendar month following the Closing
Date (as defined in the Bridge Loan Agreement) and continuing until
such time as the principal amount hereunder, together with all
accrued interest, premiums and penalties, if any, have been paid to
Holder, interest on the outstanding principal balance of the Bridge
Loan shall be paid monthly in arrears on the first day of each
calendar month. Whenever any payment hereunder shall be stated to
be due or shall become due and payable on a day other than a
Business Day, the due date thereof shall be extended to, and such
payment shall be made on, the next succeeding Business Day, and
such extension of time in such case shall be included in the
computation of payment of any interest (at the interest rate then
in effect during such extension) and/or fees, as the case may
be.
(b) Subject
to paragraphs (c) and (d) below, the outstanding
principal balance of this Note, together with the balance of any
unpaid and accrued interest, shall be due and payable on the
earlier to occur of (i) the date that is six (6) months
from the date hereof (the “ Maturity Date ”) or
(ii) in the event that the Merger Agreement is terminated
pursuant to Section 7.1(d)(iii) thereof, the date of such
termination.
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(c) In
the event that the Merger Agreement is terminated pursuant to
Section 7.1(a), Section 7.1(b)(i), Section 7.1(b)(ii),
Section 7.1(b)(iv), Section 7.1(c)(i) (and such breach
triggering such termination shall not have been willful),
Section 7.1(c)(iii) (and such breach triggering such
termination shall not have been willful), Section 7.1(c)(iv),
Section 7.1(d)(i) (and such breach triggering such termination
shall not have been willful) or Section 7.1(d)(ii) thereof
(and such breach triggering such termination shall not have been
willful), the outstanding obligations under this Note shall be paid
on or before the Maturity Date in accordance with the terms hereof.
During the thirty (30) day period after the Maturity Date and
in the event all of the outstanding obligations owed by Borrower to
Holder under this Note and any of the other Bridge Loan Documents
have not been paid in full (the “ Thirty Day Post-Maturity
Period ”), Borrower and/or any of MHR Capital Partners
Master Account, LP, MHR Capital Partners (100) LP, OTQ, LLC,
and Mark H. Rachesky M.D., or their respective affiliates,
successors and transferees (collectively, “ MHR
”) (pursuant to an agreement between Borrower and MHR) shall
have the right to pay or purchase all, but not less than all, of
such obligations in accordance with the terms and conditions of
this Note and the other Bridge Loan Documents. In the event that
all of the outstanding obligations owed by Borrower to Holder under
this Note and the other Bridge Loan Documents have not been paid or
purchased in full before the expiration of the Thirty Day
Post-Maturity Period, then, for the one hundred eighty
(180) day period thereafter (the “ Holder’s
Post-Maturity Election Period ”), Holder shall have the
option, in its sole and absolute discretion, to either
(i) consummate the Senior Indebtedness Purchase (as defined in
the Merger Agreement) or (ii) convert the outstanding
obligations under this Note (the “ Voluntary Conversion
Amount ”) into shares of the Company’s
Series A-1 Convertible Preferred Stock, par value $.01 per
share, with the rights, preferences and privileges set forth in the
Certificate of Designation attached as Exhibit C of the Bridge
Loan Agreement (the “ Series A-1 Preferred Stock
”) at a conversion price equal to $0.05 per share (the
“ Voluntary Conversion Price ”), which
conversion price shall be subject to the full anti-dilution rights
of the Series A-1 Preferred Stock set forth in Section 4(h) of the
Certificate of Designation attached as Exhibit C to the Bridge Loan
Agreement, such that the conversion ratio of such Series A-1
Preferred Stock will adjust so that the shares of common stock, par
value $0.0001 per share, of the Company (the “ Common
Stock ”) issued upon conversion of such Series A-1
Preferred Stock will be equal to 60.2% of the Fully Diluted Common
Stock on the Date of Conversion (the “ Voluntary Bridge
Loan Conversion ”); provided , however ,
that in the event the Merger Agreement is terminated pursuant to
Section 7.1(c)(iv), or Section 7.1(d)(i) (and such breach
triggering such termination shall not have been willful), or
Section 7.1(d)(ii) thereof (and such breach triggering such
termination shall not have been willful), Holder’s option and
ability to exercise the Voluntary Bridge Loan Conversion shall be
immediately terminated pursuant to the Preferred Stock Investment
Documents. The term “ Fully Diluted Common Stock on the
Date of Conversion ” shall mean the number of issued and
outstanding shares of Common Stock on the date of the Voluntary
Bridge Loan Conversion, plus the number of shares of Common Stock
issuable upon conversion of all shares of preferred stock of the
Company that are outstanding on the date of the Voluntary Bridge
Loan Conversion, plus the number of shares of Common Stock that can
be purchased upon exercise of stock options that are outstanding on
the date of the Voluntary Bridge Loan Conversion, plus the number
of shares of Common Stock that can be purchased upon exercise of
all warrants that are outstanding on the date of the Voluntary
Bridge Loan Conversion (including the MHR Warrants, as defined in
the Merger Agreement), but excluding all shares of Common Stock
that may be issued upon conversion of any debt or promissory notes
of the Company that is or are outstanding on the date of the
Voluntary Bridge Loan Conversion. For clarification purposes only,
Holder shall have the right to elect only one of the Senior
Indebtedness Purchase or the Voluntary Bridge Loan Conversion, but
in no event both the Senior Indebtedness Purchase and the Voluntary
Bridge Loan Conversion. In the event that Holder does not
consummate the Senior Indebtedness Purchase or exercise the
Voluntary Bridge Loan Conversion during the Holder’s
Post-Maturity Election Period, all of Holder’s rights with
respect to the Senior Indebtedness Purchase and the Voluntary
Bridge Loan Conversion shall immediately terminate and Holder shall
have the right to exercise any and all of its rights and remedies
under this Note and the other Bridge Loan Documents (subject to
terms and conditions set forth in the Merger Agreement and/or any
agreement, document or instrument between the Senior Lender,
Holder, and/or MHR, as the case may be). In the event Holder
(i) breaches Section 5.16(a) or
Section 5.16(b) of the Merger Agreement, or
(ii) consummates a Bridge Loan Indebtedness Transfer (as
defined below) (other than to MHR) following the Thirty Day
Post-Maturity Period, the right to exercise the Voluntary Bridge
Loan Conversion shall be immediately terminated pursuant to the
Preferred Stock Investment Documents. Holder shall have the right
to enforce, if applicable, any agreements, documents or instruments
between the Company and the Senior Lender that were acquired in
connection with the Senior Lender Indebtedness Purchase at any time
(subject to terms and conditions set forth in the Merger Agreement
and/or any agreements, documents or instrument between the Senior
Lender, Holder, and/or MHR, as the case may be).
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(d) In
the event that the Merger Agreement is terminated pursuant to
(i) Section 7.1(c)(i) or Section 7.1(c)(iii)
thereof, and the Company’s breach triggering such termination
shall have been willful or (ii) Section 7.1(b)(iii), or
Section 7.1(c)(ii) thereof, the outstanding obligations under
this Note shall be paid on or before the Maturity Date in
accordance with the terms hereof. During the thirty (30) day
period after such termination and in the event all of the
outstanding obligations owed by Borrower to Holder under this Note
and any of the other Bridge Loan Documents have not been paid in
full (the “ Thirty Day Post-Termination Period
”), Borrower and/or MHR (pursuant to an agreement between
Borrower and MHR) shall have the right to pay or purchase all, but
not less than all, of such obligations in accordance with the terms
and conditions of this Note and the other Bridge Loan Documents. In
the event that all of the outstanding obligations owed by Borrower
to Holder under this Note and the other Bridge Loan Documents have
not been paid or purchased in full prior to expiration of the
Thirty Day Post-Termination Period, then, for the one hundred
eighty (180) day period thereafter (the “
Holder’s Post-Termination Election Period ”),
Holder shall have the option, in its sole and absolute discretion,
to either (i) consummate the Senior Indebtedness Purchase or
(ii) exercise the Voluntary Bridge Loan Conversion. For
clarification purposes only, Holder shall have the right to elect
only one of the Senior Indebtedness Purchase or the Voluntary
Bridge Loan Conversion, but in no event both the Senior
Indebtedness Purchase and the Voluntary Bridge Loan Conversion. In
the event that Holder does not consummate the Senior Indebtedness
Purchase or exercise the Voluntary Bridge Loan Conversion during
the Holder’s Post-Termination Election Period, all of
Holder’s rights with respect to the Senior Indebtedness
Purchase and the Voluntary Bridge Loan Conversion shall immediately
terminate and Holder shall have the right to exercise
any
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