UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
NextHealth, Inc.
(Name of Issuer)
Common Stock
(Title of Class of Securities)
65333G105
(CUSIP Number)
John F. Hartigan, Esq.
Morgan, Lewis & Bockius
801 South Grand Avenue
Los Angeles, California 90017
(213) 612-2500
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
November 15, 1996
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act.
429025.1
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CUSIP No. 65333G105 SCHEDULE 13D Page 2 of 13 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Apollo Real Estate Investment Fund II, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK B X IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
1,710,900
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
-----------------------------------------------------
8 SHARED VOTING POWER
0
-----------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,710,900
-----------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,710,900
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.7%
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14 TYPE OF REPORTING PERSON*
PN
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* SEE INSTRUCTIONS BEFORE FILLING OUT!
C/M: 11926.0033 429025.1
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CUSIP No. 65333G105 SCHEDULE 13D Page 3 of 13 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Apollo Real Estate Advisors II, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
1,710,900
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
---------------------------------------------------------
8 SHARED VOTING POWER
0
---------------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,710,900
---------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,710,900 shares
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.7%
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14 TYPE OF REPORTING PERSON*
PN
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* SEE INSTRUCTIONS BEFORE FILLING OUT!
C/M: 11926.0033 429025.1
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CUSIP No. 65333G105 SCHEDULE 13D Page 4 of 13 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
AP NH LLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X /
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
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7 SOLE VOTING POWER
1,710,900
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY EACH
REPORTING
PERSON WITH
-----------------------------------------------------------
8 SHARED VOTING POWER
-0-
-----------------------------------------------------------
9 SOLE DISPOSITIVE POWER
1,710,900
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,710,900 Shares
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.7%
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14 TYPE OF REPORTING PERSON*
00
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
* SEE INSTRUCTIONS BEFORE FILLING OUT!
C/M: 11926.0033 429025.1
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CUSIP No. 65333G105 SCHEDULE 13D Page 5 of 13 Pages
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Item 1. Security and Issuer.
This Statement relates to shares of Common Stock, par value $.01 (the
"Common Stock") of NextHealth, Inc. (the "Issuer"), whose principal office is
16600 N. Lago del Oro Parkway, Tucson, Arizona 85739.
Item 2. Identity and Background.
(a)-(c) and (f). This statement is filed jointly by AP NH LLC, a
Delaware limited liability company ("AP NH"), Apollo Real Estate Investment
Fund II, L.P., a Delaware limited partnership ("AREIF II") and Apollo Real
Estate Advisors II, L.P., a Delaware limited partnership ("AREA II"). Each of
the foregoing is sometimes referred to as a "Reporting Person" and,
collectively, as the "Reporting Group."
The managing member of AP NH is AP-GP NH LLC, a Delaware limited
liability company; the managing member of AP-GP NH LLC is Kronus Property,
Inc., a Delaware corporation; the sole stockholder of Kronus Property, Inc. is
AREIF II; the managing general partner of AREIF II is AREA II; and the sole
general partner of AREA II is Apollo Real Estate Capital Advisors II, Inc., a
Delaware corporation ("Capital Advisors II"). The foregoing are hereinafter
referred to as the "Reporting Group Related Persons."
1. (a) Name: AP NH LLC
(b) Principal Business: Investment in securities of the Issuer
(c) Address of Principal Business
and Office: c/o Apollo Real Estate Advisors, L.P.
1301 Avenue of the Americas
New York, NY 10019
2. (a) Name: AP-GP NH LLC
(b) Principal Business: Serving as managing member of AP NH LLC
(c) Address of Principal Business
and Office: c/o Apollo Real Estate Advisors, L.P.
1301 Avenue of the Americas
New York, NY 10019
* SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP No. 65333G105 SCHEDULE 13D Page 6 of 13 Pages
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3. (a) Name: Kronus Property, Inc.
(b) Principal Business: Serving as managing member of AP-GP NH LLC
(c) Address of Principal Business
and Office: c/o Apollo Real Estate Advisors, L.P.
1301 Avenue of the Americas
New York, NY 10019
4. (a) Name: Apollo Real Estate Investment Fund II, L.P.
(b) Principal Business: Investment in real estate and real
estate-related interests, and
serving as the sole stockholder
of Kronus Property, Inc.
(c) Address of Principal Business
and Office: c/o Apollo Real Estate Advisors II, L.P.
Two Manhattanville Road
Purchase, NY 10577
5. (a) Name: Apollo Real Estate Advisors II, L.P.
(b) Principal Business: Serving as managing general partner
of AREIF II.
(c) Address of Principal Business
and Office: Two Manhattanville Road
Purchase, NY 10577
Attached as Appendix A to Item 2 is information concerning
the directors, executive officers of Capital Advisors II and certain other
entities as to which such information is required to be disclosed in respect to
Item 2 and General Instruction C to Schedule 13D. All such persons identified
on Appendix A disclaim beneficial ownership of and any pecuniary interest in
the shares of Common Stock beneficially owned by the Reporting Group.
(d) and (e). None of the Reporting Persons nor, to their
knowledge, any of the Reporting Group Related Persons or any of the individuals
listed in Appendix A to Item 2, has during the last five years (i) been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
Item 3. Source and Amount of Funds or Other Consideration.
The Reporting Group used available working capital, including
capital contributions from its members, in the amount of $4,250,000 to pay (a)
the $1,578,476.34 aggregate purchase price for 17,109 shares of Convertible
Preferred Stock, Series A, par value $.01 per share (the "Series A Preferred
Stock"), (b) the $2,671,480.56 aggregate purchase price for 28,956 shares of
Cumulative Preferred Stock, Series B, par value $.01 per share (the "Series B
Preferred Stock" and
* SEE INSTRUCTIONS BEFORE FILLING OUT!
C/M: 11926.0033 429025.1
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CUSIP No. 65333G105 SCHEDULE 13D Page 7 of 13 Pages
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together with the Series A Preferred Stock, the "Preferred Stock") and (c) the
$43.10 aggregate purchase price for a warrant (the "Warrant") representing the
right to purchase up to 500,000 shares of common stock, par value $.01 per
share (the "Common Stock").
Item 4. Purpose of Transaction.
This Statement is being filed as a result of the acquisition by AP NH
of securities of the Issuer which as of November 15, 1996 are convertible into
shares of Common Stock constituting more than 5% of the issued and outstanding
shares of the Issuer's Common Stock.
The Reporting Persons or the Reporting Group Related Persons may
consider various alternatives with respect to their investment in the Issuer,
including, but not limited to, (i) increasing their ownership in the Issuer
through the acquisition of additional shares of Common Stock in the open
market, privately negotiated transactions or otherwise, (ii) attempting to
communicate with, and influence, the Board of Directors of the Issuer, (iii)
making a proposal to the Issuer for a merger, business combination, liquidation
or other extraordinary transaction, (iv) communicating with other stockholders
regarding their investment in the Issuer, and in that connection requesting a
list of stockholders in accordance with applicable Delaware law, and (v)
entering into arrangements with third parties who may be interested in joining
with the Reporting Persons or the Reporting Group Related Persons to acquire
control of the Issuer, which arrangements may contemplate the sale or
disposition of portions of the Issuer's assets to such third parties after
control is obtained. The Reporting Persons may also dispose of all or a portion
of the Reporting Persons' investment in the Issuer in the open market or
otherwise.
The Reporting Persons' determination with respect to the foregoing
possibilities will depend upon various factors, including, but not limited to,
market activity in the shares of Common Stock, the Reporting Persons'
evaluation of the Issuer and its prospects, general market and economic
conditions (including conditions affecting the Issuer's industry in general),
other opportunities available to the Reporting Persons and other factors the
Reporting Persons may deem relevant to its investment decision.
On November 15, 1996, following the closing of the purchase of the
Preferred Stock and Warrants, the Board of Directors of the Issuer elected the
following persons as directors of the Issuer: Lee S. Neibert, W. Edward
Scheetz, Bruce Spector and Alfred C. Trivilino.
Item 5. Interest in Securities of the Issuer.
(a) The aggregate percentage of shares of Common Stock reported
beneficially owned by each Reporting Person is based upon 8,554,938 shares of
Common Stock outstanding as reported in the Issuer's Quarterly Report on Form
10-Q, for the fiscal quarter ending September 30, 1996. As of the close of
business on November 15, 1996, each Reporting Person beneficially owned 17,109
shares of the Series A Preferred Stock, which may be immediately converted into
1,710,900 shares of Common Stock, which constitutes approximately 16.7% of the
outstanding Common Stock (calculated in accordance with SEC Rule 13d-3). Of
that amount, AP NH directly owns 17,109 shares of Series A Preferred Stock, and
AREIF II and AREA II indirectly own the shares beneficially owned by AP NH.
* SEE INSTRUCTIONS BEFORE FILLING OUT!
C/M: 11926.0033 429025.1
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CUSIP No. 65333G105 SCHEDULE 13D Page 8 of 13 Pages
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(b) Each Reporting Person has the sole power to vote and dispose of
the shares of Common Stock beneficially owned by it.
(c) On November 15, 1996, AP NH purchased directly from the Issuer
(a) 17,109 shares of Series A Preferred Stock, (b) 28,956 shares of Series B
Preferred Stock and (c) the Warrant, for an aggregate purchase price of
$4,250,000 pursuant to a Preferred Stock and Warrant Purchase Agreement, dated
as of November 14, 1996.
In addition to the foregoing, AREIF II acquired for nominal
consideration on October 15, 1996 a warrant to purchase up to 100,000 shares
of Common Stock.
(d) and (e). Not Applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
respect to Securities of the Issuer.
Preferred Stock. The following is a summary of the respective
designations, preferences and rights of the Series A and Series B Preferred
Stock as set forth in the Certificate of Designation, Preference and Rights
filed with the State of Delaware, Office of the Secretary of State ("Series
Designation").
1. Dividends. The holders of Series A Preferred Stock are not entitled to
receive dividends unless there is a default (as discussed below) in which event
the default rate on the Series A Preferred Stock will be 18%. The holders of
Series B Preferred Stock are entitled to receive cumulative, preferred
dividends at the rate of 12% per annum from January 1, 1997 to January 31, 1997
and at the rate of 18% per annum from February 1, 1997 and thereafter and upon
a default of the provisions of the Series Designation.
So long as any shares of Preferred Stock remain outstanding, the Issuer may not
declare or pay any cash dividends or make any other distributions with respect
to the Common Stock.
2. Liquidation Preferences. In the event of any liquidation, dissolution or
winding-up of the Issuer, the holders of Preferred Stock shall be entitled to a
liquidation preference over the holders of Common Stock in the amount of any
accrued but unpaid dividends. There are no other liquidation preferences.
3. Voting Rights. The holders of Series B Preferred Stock do not possess any
voting rights. The holders of Series A Preferred Stock are entitled to vote on
all matters presented to the Issuer's stockholders for a vote and, except with
respect to the election of Directors, each share of Series A Preferred Stock
shall entitle the holder thereof to such number of votes per share as shall
equal the number of shares of the Issuer's common stock into which such share
of Series A Preferred Stock is then convertible. Initially, each share of
Series A Preferred Stock is convertible into 100 shares of Common Stock.
In addition, the holders of Series A Preferred Stock, as a class, are entitled
to elect four directors to the Issuer's Board of Directors ("Preferred
Directors").
Upon the occurrence of an event of default as defined in the Series
Designation, the holders of Series A Preferred Stock will become entitled to
elect a majority of the Issuer's Board of Directors.
* SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP No. 65333G105 SCHEDULE 13D Page 9 of 13 Pages
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A majority vote of the holders of the outstanding Series A Preferred Stock is
required in order to approve certain transactions including: (i) the amendment
of the Issuer's Certificate of Incorporation so as to adversely affect the
rights of the holders of Series A Preferred Stock or any of the provisions of
the Certificate of Designation; (ii) authorize, create or issue any class of
capital stock that is senior to or pari passu with the Series A Preferred Stock
or (iii) enter into a transaction having a total value in excess of $250,000
per transaction except under certain conditions.
4. Conversion of Preferred Stock into Common Stock. As of November 15, 1996
(the "Closing Date"), each share of Series A Preferred Stock is convertible
into 100 shares of Common Stock or 1,710,900 shares in the aggregate. Shares of
Series B Preferred Stock are not convertible into Common Stock. The number of
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
is subject to adjustment to reflect certain transactions affecting the Common
Stock such as issuance of Common Stock at less than $0.9226 per share, stock
dividends, splits, reverse splits, etc. Upon Stockholder Approval (as defined
below) the additional 28,956 shares of Series A Preferred Stock issuable upon
conversion of the Series B Preferred Stock will be convertible into 2,895,600
shares of Common Stock.
5. Conversion of Series B Preferred Stock into Series A Preferred Stock. Each
share of Series B Preferred Stock is automatically converted into Series A
Preferred Stock, on a one for one basis, upon the approval by a majority of
the total votes cast by the stockholders of Issuer of the issuance of additional
shares of Series A Preferred Stock in excess of 17,109 shares ("Stockholder
Approval").
Each share of Series B Preferred Stock shall be convertible, at the option of
the holder, into one share of Series A Preferred Stock after March 15, 1997
unless Stockholder Approval has been obtained and after June 15, 1997 unless
the Issuer's Certificate of Incorporation has been amended to delete Article 9
thereof. Article 9 imposes a 66 2/3% affirmative stockholder voting requirement
in connection with certain change of control transactions such as a merger,
consolidation, sale of assets, etc.
The Issuer anticipates that a meeting of the stockholders will be held prior to
March 15, 1997 in order to consider whether or not (i) the shares of Series B
Preferred Stock should be converted into Series A Preferred Stock and (ii)
Article 9 should be deleted.
Two stockholders holding an aggregate 2,686,762 shares of Issuer Common Stock
representing approximately 31.4% of the outstanding shares of Issuer Common
Stock have granted an irrevocable proxy to AP NH to vote all their shares in
favor of the foregoing items and for the election of the Preferred Directors.
6. Redemption. Commencing on January 1, 2001, the Issuer may, at its option,
redeem shares of Preferred Stock at a price per share equal to the redemption
price of $92.26 per share ("Redemption Price") plus all accrued but unpaid
dividends.
If Stockholder Approval has not been obtained before March 15, 1997, unless and
until Stockholder Approval is obtained, the holders of Preferred Stock shall
have the option to require the Issuer to redeem all or any portion of their
Preferred Stock at a price equal to the Redemption Price plus all accrued and
unpaid dividends.
Unless and until Stockholder Approval is obtained, upon a "change in control"
as defined in the Series Designation, the holders of Preferred Stock shall have
the option to require the Issuer to redeem all but not less than all of their
shares of Preferred Stock at a price equal to the greater of
* SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP No. 65333G105 SCHEDULE 13D Page 10 of 13 Pages
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200% of the Redemption Price or the fair market value of the aggregate number
of shares of Common Stock into which such shares are convertible on the
effective date of such change in control. A change of control includes the
acquisition of 20% or more of the outstanding voting stock of the Issuer; the
merger or consolidation or sale of substantially all of the assets of the
Issuer or if the Preferred Directors cease to constitute at least forty percent
(40%) of the Board of Directors.
Unless and until Stockholder Approval is obtained, upon the occurrence of any
default, the holders of Preferred Stock shall have the option to require the
Issuer to redeem all but not less than all of the shares of Preferred Stock
held by such person at a price equal to the redemption price plus all accrued
but unpaid dividends. Events of default include the failure to pay dividends
for any of two quarterly periods, a default under the Stock Purchase Agreement
and the passage of fifteen days thereafter or a default under the Credit
Agreement, dated as of November 14, 1996, between the Issuer, as borrower, and
AP LOM LLC (an affiliate of the Reporting Person), as lender.
Warrant
The Warrant entitles AP NH to purchase up to 500,000 shares of Common Stock at
an exercise price of $1.50 per share. The Warrant is exercisable only on or
after March 15, 1997 and before November 14, 2006. The exercise price and
number of shares purchasable are subject to adjustment to reflect certain
transactions affecting the Common Stock such as the issuance of Common Stock at
less than $0.9226 per share, stock dividends, splits, reverse splits, etc.
Registration and Pre-Emptive Rights
Pursuant to the terms and provisions of the Registration and Pre-Emptive Rights
Agreement, dated as of November 14, 1996, between the Issuer and AP NH, the
Issuer granted AP NH (i) with respect to certain issuances of capital stock of
the Issuer, certain pre-emptive rights to purchase such number of shares of
capital stock of the Issuer as will allow AP NH to maintain its proportionate
interest in the Issuer's outstanding capital stock and (ii) certain piggy-back
and demand registration rights with respect to the capital stock of the Issuer
held by AP NH.
Reference is made to Exhibits 1-5 hereto for a complete description of the
terms of the agreements among the Reporting Group and the Issuer.
Item 7. Material to be Filed as Exhibits.
1. Preferred Stock and Warrant Purchase Agreement, dated as of
November 14, 1996, between AP NH and the Issuer, including certain
Exhibits thereto.
2. Warrant, dated November 14, 1996, between AP NH and the Issuer.
3. Warrant, dated October 15, 1996, between AREIF II and the Issuer.
4. Certificate of Designation, Preferences and Rights of the Preferred
Stock, dated November 14, 1996.
5. Registration and Pre-Emptive Rights Agreement, dated as of November
14, 1996, between AP NH and the Issuer.
* SEE INSTRUCTIONS BEFORE FILLING OUT!
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CUSIP No. 65333G105 SCHEDULE 13D 11 Page of 13 Pages
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5. Registration and Pre-Emptive Rights Agreement, dated as of
November 14, 1996, between AP NH and the Issuer.
* SEE INSTRUCTIONS BEFORE FILLING OUT!
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and
belief, each of the undersigned certifies that the information set forth in
this statement is true, complete and correct and agrees that this statement may
be filed jointly with the other undersigned party.
Dated: November 25, 1996
APOLLO REAL ESTATE INVESTMENT FUND II, L.P.
By: Apollo Real Estate Advisors II, L.P.,
General Partner
By: Apollo Real Estate Capital Advisors II, Inc.,
its General Partner
By: /s/Michael D. Weiner
---------------------------------------
Name: Michael D. Weiner
Title: Vice President
APOLLO REAL ESTATE ADVISORS II, L.P.
By: Apollo Real Estate Capital Advisors II, Inc.,
General Partner
By: /s/Michael D. Weiner
---------------------------------------------
Name: Michael D. Weiner
Title: Vice President
AP NH LLC
By: AP GP NH LLC,
its Managing Member
By: KRONUS PROPERTY, INC., its Managing
Member
By: /s/Michael D. Weiner
---------------------------------------
Name: Michael D. Weiner
Title: Vice President
Page 11 of 13 Pages
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APPENDIX A TO ITEM 2
The following sets forth information with respect to the executive
officers and directors of Capital Advisors II, which is the sole general
partner of AREA II.
Messrs. Leon D. Black, John J. Hannan and William L. Mack are
executive officers and directors of Capital Advisors II. The principal
occupation of each of Messrs. Black and Hannan, each of whom is a citizen of
the United States, is to act as an executive officer and director of Apollo
Capital Management, Inc., a Delaware corporation ("Apollo Capital"), and of
Lion Capital Management, Inc., a Delaware corporation ("Lion Capital"). Messrs.
Black and Hannan are founding principals of Apollo Advisors, L.P. ("Apollo
Advisors"), Lion Advisors, L.P. ("Lion Advisors") and together with Mr. Mack of
Apollo Real Estate Advisors II, L.P. The principal occupation of Mr. Mack, who
is a citizen of the United States, is to act as a consultant to Apollo Advisors
and as a principal of Apollo Real Estate Advisors, L.P. and to act as President
and Managing Partner of the Mack Organization, an owner and developer of and
investor in office and industrial buildings and other commercial properties.
The principal business of Apollo Advisors and of Lion Advisors is to provide
advice regarding investments in securities and the principal business of Apollo
Real Estate Advisors, L.P. is to provide advice regarding investments in real
estate and real estate-related investments. The business address of each of
Messrs. Black, Hannan and Mack is c/o Apollo Real Estate Management II, L.P.,
1301 Avenue of the Americas, New York, New York 10019.
Page 12 of 13 Pages
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EXHIBIT INDEX
Exhibit No. Description Page No.
1. Preferred Stock and Warrant Purchase Agreement, dated as of November
14, 1996, between AP NH and the Issuer, including certain Exhibits
thereto.
2. Warrant, dated November 14, 1996, between AP NH and the Issuer.
3. Warrant, dated October 15, 1996, between AREIF II, L.P. and the Issuer.
4. Certificate of Designation, Preferences and Rights of the Preferred
Stock, dated November 14, 1996.
5. Registration and Pre-Emptive Rights Agreement, dated as of November
14, 1996, between AP NH and the Issuer.
Page 13 of 13 Pages
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C/M: 11926.0033 429025.1
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
C/M: 11926.0033 420377.6
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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 Fowler LLP, located
at 75 East 55th Street, New York, New York 10022, 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. O'Donnell and Schnitz in the form
attached hereto as Exhibit C.
3.7 Opinion of Counsel. The Purchaser shall have received the
opinion of Neal, Gerber & Eisenberg, 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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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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<PAGE>
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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<PAGE>
(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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<PAGE>
(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 Americas
38th Floor
New York, New York 10019
Attention: Alfred Trivilino
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<PAGE>
with a copy to:
Apollo Real Estate Advisors, L.P.
1999 Avenue of the Stars
Suite 1900
Los Angeles, CA 90067
Attention: Michael D. Weiner, Esq.
and a copy to:
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attention: Les Loffman, Esq.
If to the Corporation:
NextHealth, Inc.
16600 N. Lago Del Oro Parkway
Tucson, AZ 85739
Attention: John H. Schmitz
with a copy to:
Neal, Gerber & Eisenberg
2 North LaSalle Street
Chicago, IL 60602
Attention: Steve Berger, 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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<PAGE>
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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<PAGE>
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: Alfred Trivilino
Title: Vice President
<PAGE>
NEXTHEALTH, INC.
SCHEDULE OF EXCEPTIONS
TO
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
November 14, 1996
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<PAGE>
SCHEDULE 2.3
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<PAGE>
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.
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<PAGE>
SCHEDULE 2.8
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<PAGE>
SCHEDULE 2.10
Contracts
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<PAGE>
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
<PAGE>
EXHIBIT A
[Certificate of Designation of Preferred Stock]
C/M: 11926.0033 420377.6
<PAGE>
EXHIBIT B
[Form of Warrant]
C/M: 11926.0033 420377.6
<PAGE>
EXHIBIT C
[Form of Irrevocable Proxy]
C/M: 11926.0033 420377.6
THIS WARRANT AND SHARES ISSUABLE ON EXERCISE OF THIS WARRANT 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.
WARRANT
No. W-2 Exercisable Only On or
after March 15, 1997 and
Before November 14, 2006
NEXTHEALTH, INC.
This certifies that, for value received, AP NH LLC, a
Delaware limited liability company, or its registered assigns, is entitled to
subscribe for and purchase, at any time and from time to time during the
Effective Period, a number of shares of duly authorized, validly issued, fully
paid and non-assessable Common Stock, including fractional shares, equal to the
Initial Number of Shares at an initial exercise price of $1.50 per share,
subject to adjustment as hereinafter provided, upon the terms and subject to
the conditions hereinafter set forth.
1. Definitions. For the purposes of this Warrant, the following terms have
the following meanings:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation after the date hereof other than (i)
Common Stock issued to AP NH LLC or any Person controlling, controlled by or
under common control with it, (iii) Common Stock issued upon conversion of the
Corporation's Series A Preferred Stock or Series B Preferred Stock initially
issued on or about the date hereof, and (ii) Common Stock issued upon exercise
of options granted prior to the date hereof pursuant to the Corporation's
Employee Stock Option Plan and Non-Employee Director Stock Option Plan.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in New York, New York are
required by law to close.
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<PAGE>
"Common Stock" shall mean the Corporation's Common Stock, par
value $0.01 per share, and, in the case of a reclassification, recapitalization
or other similar change in such Common Stock or in the case of a consolidation
or merger of the Corporation with or into another Person, such consideration to
which a holder of a share of Common Stock would have been entitled upon the
occurrence of such event.
"Common Stock Equivalent" shall mean any Convertible Security
or warrant, option or other right to subscribe for or purchase any shares of
Common Stock or any Convertible Security.
"Convertible Securities" shall mean evidences of
indebtedness, shares of Stock or other securities which are or may be at any
time convertible into or exchangeable for shares of Common Stock, including
without limitation any shares of the Corporation's preferred stock which are
convertible into or exchangeable for shares of Common Stock. The term
"Convertible Security" shall mean one of the Convertible Securities.
"Corporation" shall mean NextHealth, Inc., a Delaware
corporation, and its successors and assigns.
"Effective Period" shall mean the period beginning on March
15, 1997 at 9:00 a.m. Pacific/Mountain Standard Time and ending on November 12,
2006 at 5:00 p.m.
Pacific/Mountain Standard Time.
"Exercise Date" shall mean the date on which an exercising
Holder has submitted to the Corporation this Warrant and the subscription form
attached hereto as Exhibit A and, if applicable, has paid the exercise price as
required by Section 3.3.1 hereof.
"Fair Market Value" of a share of Common Stock as of any date
shall mean, as of any date, the average of the closing prices of Common Stock
for the twenty (20) consecutive Trading Days next preceding the date five (5)
days prior to the date in question.
The closing price for each day shall be:
(i) the average of the closing sale price or, in the
absence of a closing sale price, the highest bid and
lowest asked prices of one share of Common Stock
quoted in the NASDAQ National Market System or any
similar system of automated dissemination of
quotations of securities prices then in common use,
if so quoted; or
(ii) if not quoted as described in clause (i), the
average of the highest bid and lowest offered
quotations for one share of Common Stock as reported
by the National Quotation Bureau Incorporated if at
least two securities dealers have inserted both bid
and offered quotations for Common Stock on at least
five (5) of the twenty (20) consecutive
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<PAGE>
Trading Days next preceding the date five (5) days
prior to the date in question; or
(iii) if the Common Stock is listed or admitted for
trading on any national securities exchange, the
last sale price, or the closing bid price if no sale
occurred, of one share of Common Stock on the
principal securities exchange on which the Common
Stock is listed or admitted for trading.
If none of the conditions set forth above is met, the closing price of one
share of Common Stock on any day or the average of such closing prices for any
period shall be the Fair Market Value of Common Stock for such day or period as
determined by a member firm of the New York Stock Exchange selected by the
Corporation and approved by the Holder. If the Corporation and the Holder are
unable to agree on the selection of a member firm, then the issue of selection
of a member firm shall be submitted to the American Arbitration Association.
"Holder" shall mean AP NH LLC, as the original registered
holder of this Warrant, and any registered transferee of a Holder.
"Initial Number of Shares" shall initially mean Five Hundred
Thousand (500,000) shares of Common Stock and thereafter such number of shares
of Common Stock as shall result from the adjustments specified in Section 5
hereof.
"Person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization, limited liability
company, limited liability partnership, government organization or agency or
political subdivision thereof, association, sole proprietorship or any other
form of entity not specifically listed herein.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute then in effect.
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participations in, the capital stock of
the Corporation of any class.
"Subsidiary" shall mean any corporation at least 50% of whose
outstanding capital stock shall at the time be owned directly or indirectly by
the Corporation or by one or more Subsidiaries or by the Corporation and one or
more Subsidiaries.
"Trading Day" shall mean, with respect to the Common Stock:
(i) if the Common Stock is quoted on the NASDAQ National Market System, any
similar system of automated dissemination or quotations of securities prices,
or the National Quotation Bureau Incorporated, each day on which quotations may
be made on such system; or (ii) if the
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<PAGE>
Common Stock is listed or admitted for trading on any national securities
exchange, days on which such national securities exchange is open for business;
or (iii) if shares of the Common Stock are not quoted on any system or listed
or admitted for trading on any securities exchange, a Business Day.
"Warrant" shall mean this Warrant.
"Warrant Price" shall initially mean $1.50 per share of
Common Stock and thereafter such other prices as shall result from the
adjustments specified in Section 5 hereof.
"Warrant Spread" as of any date shall mean the difference
between (i) the Fair Market Value of a share of Common Stock as of that date
and (ii) the Warrant Price.
2. Duration. The right to exercise this Warrant to subscribe for and
purchase shares of Common Stock represented hereby shall commence on date
hereof and shall expire at the end of the Effective Period.
3. Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange.
3.1 The purchase right represented by this Warrant may be exercised at
any time during the Effective Period.
3.2 The Holder hereof may exercise this Warrant, in whole or
in part, by delivery to the Corporation at its office at 1660 North Lago del
Oro Parkway, Tucson, Arizona 85739, Attention: Chief Executive Officer (or such
other address as the Corporation may specify to Holder from time to time), of
(i) a written notice of Holder's election to exercise this Warrant, which
notice shall specify the number of shares of Common Stock to be purchased, (ii)
payment of the Warrant Price in the manner provided in Section 3.3 and (iii)
this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney. In the event of any exercise of
the rights represented by this Warrant, (i) certificates for the shares of
Common Stock so purchased shall be dated the date of such exercise and
delivered to the Holder hereof within a reasonable time, not exceeding 15 days
after such exercise, and the Holder hereof shall be deemed for all purposes to
be the Holder of the shares of Common Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
Any such warrant shall be dated the date hereof and shall be identical with
this Warrant except as to the number of shares of Common Stock issuable
pursuant thereto.
3.3 Subject to the provisions of this Warrant, this Warrant
may be exercised in the manner set forth in either Section 3.3.1 or Section
3.3.2 below:
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<PAGE>
3.3.1 Upon presentation to the Corporation at the
office specified in Section 3.2 of this Warrant with the subscription form
appearing at the end of this Warrant as Exhibit A duly completed, indicating a
cash exercise and signed by the Holder, and upon payment of an amount equal to
the product of the Warrant Price and the number of shares of Common Stock to be
purchased, by, at the option of Holder, (i) wire transfer to an account in a
bank located in the United States designated for such purpose by the
Corporation or (ii) certified or official bank check, the Corporation shall
issue and cause to be delivered to or upon the written order of the Holder and
in such name or names as Holder may designate, a certificate for the shares of
Common Stock issued upon such exercise.
3.3.2 Upon presentation to the Corporation at the
office specified in Section 3.2 of this Warrant with the subscription form
appearing at the end of this Warrant as Exhibit A duly completed, indicating a
non-cash exercise and signed by the Holder, the Corporation shall issue and
cause to be delivered to or upon the written order of the Holder and in such
name or names as Holder may designate, a certificate for a number of shares of
Common Stock equal to the result of dividing (i) the product of (A) the number
of shares of Common Stock for which this Warrant may be exercised and (B) the
Warrant Spread on the Exercise Date, by (ii) the Fair Market Value of a share
of Common Stock on the Exercise Date.
3.4 Subject to compliance with Section 7 hereof, this Warrant
may be transferred on the books of the Corporation by the Holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant at the
principal office of the Corporation, properly endorsed and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Subject to compliance with Section 7 hereof, this Warrant is exchangeable at
the aforesaid principal office of the Corporation for warrants for the purchase
of the same aggregate number of shares of Common Stock, each new warrant to
represent the right to purchase such number of shares of Common Stock as the
Holder hereof shall designate at the time of such exchange. All warrants issued
on transfers or exchanges shall be dated the date hereof and shall be identical
with this Warrant except as to the number of shares of Common Stock issuable
pursuant hereto.
3.5 The Corporation will, at its own expense, from time to
time take all action which may be necessary to obtain and keep effective any
and all permits, consents, orders and approvals of governmental agencies and
authorities which are or become required or necessary so that any Common Stock,
immediately upon its issuance upon the exercise of this Warrant, will be listed
on each securities exchange or listing or quotation services, if any, on which
Common Stock of the Corporation is then listed.
4. Stock Fully Paid; Reservation of Shares.
4.1 The Corporation covenants and agrees that all shares of
Common Stock which may be issued upon the exercise of the rights represented by
this Warrant will, upon issuance, be fully paid and non-assessable and free
from all taxes, liens and charges with
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<PAGE>
respect to issuance. The Corporation further covenants and agrees that during
the Exercise Period, the Corporation will at all times have authorized and
reserved for the purpose of the issue upon exercise of this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant. If the Warrant Price is at any time less
than the par value of the Common Stock, the Corporation also covenants and
agrees to cause to be taken such action (whether by decreasing the par value of
the Common Stock, the conversion of the Common Stock from par value to no par
value, or otherwise) as will permit the exercise of this Warrant and the
issuance of the Common Stock without any additional payment by the Holder
hereof (other than payment of the Warrant Price and applicable transfer taxes,
if any), which Common Stock, upon such issuance, will be fully paid and
non-assessable.
4.2 The Corporation shall not by any action, including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder hereof against impairment. Without limiting the generality
of the foregoing, the Corporation will (a) not increase the par value of any
shares of Common Stock above the amount payable therefor upon the exercise of
this Warrant immediately prior to such increase in par value and (b) take all
such action as may be necessary or appropriate in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock, free and clear of any liens, claims, encumbrances and restrictions
(other than as provided herein) upon the exercise of this Warrant.
5. Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the amount
of the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as follows:
5.1 Recapitalization, Reorganization, Reclassification,
Consolidation or Merger. In case of any recapitalization or reorganization of
the Corporation or any reclassification or change of outstanding Stock issuable
upon exercise of this Warrant (other than a change in par value, or from par
value to no par value, or from no par value to par value or as a result of a
subdivision of combination), or in case of any consolidation or merger of the
Corporation with or into another corporation (other than a merger with another
corporation in which the Corporation is the surviving corporation and which
does not result in any reclassification or change (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination) of outstanding Stock issuable upon
exercise of this Warrant), the Holder of this Warrant shall be entitled to
receive, upon exercise of this Warrant, the kind and the highest amount of
shares of Stock, other securities, money and property receivable upon such
recapitalization, reorganization, reclassification, change, consolidation or
merger by a Holder of one share of
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Common Stock as if this Warrant had been exercised immediately prior to such
recapitalization, reorganization, reclassification, change, consolidation or
merger. The provisions of this Section 5.1 shall similarly apply to successive
recapitalizations, reorganizations, reclassifications, changes, consolidations
and mergers.
5.2 Subdivision or Combination of Shares. If the Corporation,
at any time while this Warrant is outstanding, shall subdivide or combine any
class or classes of its Common Stock, the Warrant Price shall be
proportionately reduced, in case of subdivision of shares, to reflect the
increase in the total number of shares of Common Stock outstanding as a result
of such subdivision, as at the effective date of such subdivision, or if the
Corporation shall take a record of holders of any class or classes of its
Common Stock for the purpose of so subdividing, as at the applicable record
date, whichever is earlier, or shall be proportionately increased, in the case
of combination of shares, to reflect the reduction in the total number of
shares of Common Stock outstanding as a result of such combination, as at the
effective date of such combination or, if the Corporation shall take a record
of holders of any class or classes of its Common Stock for the purpose of so
combining, as at the applicable record date, whichever is earlier.
5.3 Stock Dividends. If the Corporation, at any time while
this Warrant is outstanding, shall pay a dividend in, or make any other
distribution of, Common Stock, the Warrant Price shall be adjusted, as at the
date the Corporation shall take a record of the holders of such class or
classes of Common Stock, for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such payment on
other distribution), to that price determined by multiplying the Warrant Price
in effect immediately prior to the record date (or if no such record is taken,
then immediately prior to such payment or other distribution), by a fraction
(i) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution (plus in the event
that the Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued fractional
shares in connection with said dividends).
5.4 Issuance of Additional Shares of Common Stock. If the
Corporation, at any time while this Warrant is outstanding, shall issue any
Additional Shares of Common Stock (otherwise than as provided in the foregoing
Sections 5.1 through 5.3), at a price per share less than the Warrant Price or
without consideration, then the Warrant Price upon each such issuance shall be
adjusted to that issuance price. The provisions of this Section 5.4 shall not
apply under any of the circumstances for which an adjustment is provided in
Sections 5.1, 5.2 or 5.3. No adjustment of the Warrant Price shall be made
under this Section 5.4 upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to any Common Stock Equivalent if upon the
issuance of such Common Stock Equivalent (a) any adjustment shall have been
made pursuant to Section 5.5 or (b) no adjustment was required pursuant to
Section 5.5.
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5.5 Issuance of Common Stock Equivalents. If the Corporation
shall, at any time while this Warrant is outstanding, issue any Common Stock
Equivalent, and the price per share for which Additional Shares of Common Stock
may be issuable thereafter pursuant to such Common Stock Equivalent shall be
less than the current Warrant Price then in effect, or if, after any such
issuance of Common Stock Equivalents, the price per share for which Additional
Shares of Common Stock may be issuable thereafter is amended, and such price as
so amended shall be less than the current Warrant Price in effect at the time
of such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of Section 5.4 on the basis
that Additional Shares of Common Stock issuable pursuant to such Common Stock
Equivalents shall be deemed to have been issued (whether or not such Common
Stock Equivalents are actually then exercisable, convertible or exchangeable in
whole or in part) as of the earlier of (a) the date on which the Corporation
shall enter into a firm contract for the issuance of such Common Stock
Equivalent, or (b) the date of actual issuance of such Common Stock Equivalent.
No adjustment of the Warrant Price shall be made under this Section 5.5 upon
the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any adjustment shall previously have been made in the Warrant Price then in
effect upon the issuance of such warrants or other rights pursuant to this
Section 5.5.
5.6 Other Provisions Applicable to Adjustments Under this
Section 5. The following provisions shall be applicable to the making of
adjustments in the Warrant Price hereinbefore provided in this Section 5:
5.6.1 Computation of Consideration. The
consideration received by the Corporation shall be deemed to be the following:
to the extent that any Additional Shares of Common Stock or any Common Stock
Equivalents shall be issued for a cash consideration, the consideration
received by the Corporation therefor; or, if such Additional Shares of Common
Stock or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price; or, if such Additional Shares of Common
Stock or Common Stock Equivalents are sold to underwriters or dealers for
public offering without a subscription offering, the initial public offering
price, in any such case excluding any amounts paid or receivable for accrued
interest or accrued dividends and without deduction of any compensation,
discounts, commissions, or expenses paid or incurred by the Corporation for or
in connection with the underwriting thereof or otherwise in connection with the
issue thereof. The consideration for any Additional Shares of Common Stock
issuable pursuant to any Common Stock Equivalents shall be the consideration
received by the Corporation for issuing such Common Stock Equivalents, plus the
additional consideration payable to the Corporation upon the exercise,
conversion or exchange of such Common Stock Equivalents. In case of the
issuance at any time of any Additional Shares of Common Stock or Common Stock
Equivalents in payment or satisfaction of any dividend upon any class of Stock
other than Common Stock, the Corporation shall be deemed to have received for
such Additional Shares of Common Stock or Common Stock Equivalents a
consideration equal to the amount of such dividend so paid or satisfied. In any
case in which
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the consideration to be received or paid shall be other than cash, the Board of
Directors of the Corporation shall determine in good faith the fair market
value of such consideration and promptly notify the Holder of its determination
of the fair market value of such consideration prior to payment or accepting
receipt thereof. If, within thirty (30) days after receipt of said notice, the
Holder shall notify the Board of Directors of the Corporation in writing of its
objection to such determination, a determination of fair market value of such
consideration shall be made by an appraiser selected by the Corporation and
approved by the Holder. If the Corporation and the Holder are unable to agree
on the selection of an appraiser, the issue of selection of an appraiser shall
be submitted to the American Arbitration Association.
5.6.2 Readjustment of Warrant Price. Upon the expiration of
the right to convert, exchange or exercise any Common Stock Equivalent the
issuance of which effected an adjustment in the Warrant Price, if such Common
Stock Equivalent shall not have been converted, exercised or exchanged, the
number of shares of Common Stock deemed to be issued and outstanding by reason
of the fact that they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set forth
above, and the Warrant Price shall forthwith be readjusted and thereafter be
the price which it would have been (but reflecting any other adjustments in the
Warrant Price made pursuant to the provisions of this Section 5 after the
issuance of such Common Stock Equivalent) had the adjustment of the Warrant
Price been made in accordance with the issuance or sale of the number of
Additional Shares of Common Stock actually issued upon conversion, exchange or
issuance of such Common Stock Equivalent and thereupon only the number of
Additional Shares of Common Stock actually so issued shall be deemed to have
been issued and only the consideration actually received by the Corporation
(computed as in Section 5.6.1) shall be deemed to have been received by the
Corporation.
5.7 Treasury Shares. In making any adjustments in the Warrant Price
hereinbefore provided in this Section 5, the number of shares of Common Stock
at any time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or any of its
Subsidiaries.
5.8 Other Action Affecting Common Stock. In case after the date hereof
the Corporation shall take any action affecting its Common Stock, other than an
action described in any of the foregoing Sections 5.1 through 5.6, inclusive,
and the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principals of this Section 5, then the Warrant Price shall be adjusted in such
manner as the Board of Directors of the Corporation shall in good faith
determine to be equitable in the circumstances.
5.9 Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to any provision of this Section 5, the number of shares
of Common Stock purchasable hereunder shall be adjusted, to the nearest whole
share, to the product obtained by multiplying the number of such shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price
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<PAGE>
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter. If the Corporation shall be in default
under any provision contained in the last sentence of Section 4.2 of this
Warrant so that such shares, upon issuance, would not be validly issued under
applicable law at the Warrant Price adjusted in accordance with this Section 5,
the adjustment of shares provided in the foregoing sentence shall nonetheless
be made and the Holder of this Warrant shall be entitled to purchase such
greater number of shares at the lowest price at which such shares may be
validly issued under applicable law. Such exercise shall not constitute a
waiver of any claim arising against the Corporation by reason of its default
under Section 4.2 of this Warrant.
6. Notice of Adjustments. Whenever the Warrant Price or number of
shares of Common Stock purchasable upon exercise of this Warrant shall be
adjusted pursuant to Section 5 hereof, the Corporation shall cause the
independent accounting firm then regularly engaged by it to report on its
financial statements to prepare and execute a certificate setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Corporation
made any determination hereunder), and the Warrant Price and number of shares
of Common Stock purchasable hereunder after giving effect to such adjustment,
and shall cause copies of such certificate to be mailed (by first class mail
postage prepaid) to the Holder of this Warrant promptly after each adjustment.
7. Restrictions on Transferability. The Warrant and the Common Stock
issued upon exercise of the Warrant shall not be transferred, hypothecated or
assigned before satisfaction of the conditions specified in this Section 7
(unless transferred or assigned pursuant to Section 8), which conditions are
intended to ensure compliance with the provisions of the Securities Act and
state securities or "blue sky" laws with respect to the transfer, hypothecation
or assignment of any Warrant or Common Stock issued upon exercise of any
Warrant. Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 7.
Prior to any transfer, hypothecation or assignment or
attempted transfer, hypothecation or assignment of the Warrant or any Common
Stock issued upon exercise of the Warrant, the Holder of such Warrant or Common
Stock shall give ten (10) days prior written notice (a "Transfer Notice") to
the Corporation of such Holder's intention to effect such transfer,
hypothecation or assignment, describing the manner and circumstances of the
proposed transfer, hypothecation or assignment, and provide the Corporation
with a written opinion of counsel addressed to the Corporation that the
proposed transfer, hypothecation or assignment of the Warrant or such Common
Stock may be effected without registration under the Securities Act and
applicable state securities or "blue sky" laws. After receipt of the Transfer
Notice and written opinion, the Corporation shall, within five (5) days
thereof, so notify the Holder of the Warrant or such Common Stock in writing
and such Holder shall thereupon be entitled to transfer, hypothecate or assign
the Warrant or Common Stock, in accordance with the terms of the Transfer
Notice. The Holder of the Warrant or such Common Stock, as the case may be,
giving the Transfer Notice shall not be entitled to
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<PAGE>
transfer the Warrant or such Common Stock until receipt of notice from the
Corporation under this Section 7.2.
8. Registration Rights. The Holder of this Warrant shall be entitled
to the rights, privileges and benefits set forth in the Registration and
Pre-Emptive Rights Agreement dated as of the date hereof between the initial
Holder of this Warrant and the Corporation.
9. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Corporation and the Holder.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PRINCIPLES OF SUCH STATE).
11. Replacement. On receipt of evidence reasonably satisfactory to the
Corporation of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement or bond reasonably satisfactory in form and amount to the Corporation
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Corporation, at its expense, will execute and deliver in lieu of this
Warrant, a new warrant of like tenor.
12. Specific Performance. The Holder shall have the right to specific
performance by the Corporation of the provisions of this Warrant. 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 Warrant by the
Holder.
Dated: November __, 1996 NEXTHEALTH, INC.
Attest: By:________________________
Name:
Title:
- -------------------------
Secretary
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<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
Cash Exercise Method
The undersigned registered owner of the attached Warrant
irrevocably exercises, by the Cash Exercise Method in accordance with Section
3.3.1 of the Warrant, the attached Warrant for the purchase of ________ shares
of Common Stock, $0.01 par value, of NextHealth, Inc. and herewith makes
payment therefor, to the order of the Corporation in the amount of
$_________________ as payment of the Exercise Price in accordance with the
terms set forth in Section 3.3.1.
Non-cash Exercise Method
The undersigned registered owner of the attached Warrant
irrevocably exercises, by the Non-cash Exercise Method in accordance with
Section 3.3.2 of the Warrant, the attached Warrant for the purchase of _______
shares of Common Stock, $0.01 par value, of NextHealth, Inc., calculated as
follows:
(a) Number of shares of Common Stock for which the Warrant may be
exercised: _____________________
(b) The Warrant Spread on the Exercise Date: __________________
(c) The Fair Market Value of a share of Common Stock on the Exercise
Date: _____________________________
(d) Number of shares of Common Stock to be purchased (line (a) times
line (b) divided by line (c)): _________________________________
Issuance Instructions
The undersigned requests that a certificate for such Common
Stock be registered in the name of
_______________________________________________ whose address is
___________________________________________________________________ and that
such certificate be delivered to ____________________________________ whose
address is ___________________________________________________________________.
If such number of shares of Common Stock is less than all of the shares of
Common Stock
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<PAGE>
which may be purchased upon the exercise of the Warrant, the undersigned hereby
requests that a new Warrant representing the remaining balance of this Warrant
be registered in the name of __________________________________________________
whose address is ___________________________________________________________ and
that such Warrant be delivered to _______________________________________ whose
address is ________________________________________________________.
--------------------------------
Name of Registered Owner
--------------------------------
Signature of Registered Owner
--------------------------------
--------------------------------
Address
--------------------------------
Federal ID Number
C/M: 11926.0033 420384.3
THIS WARRANT AND SHARES ISSUABLE ON EXERCISE OF THIS WARRANT 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.
WARRANT
No. W-1 Exercisable Only On or
Before October 15, 2006
NEXTHEALTH, INC.
This certifies that, for value received, APOLLO REAL ESTATE
INVESTMENT FUND II, L.P., a Delaware limited partnership, or its registered
assigns, is entitled to subscribe for and purchase, at any time and from time
to time during the Effective Period, a number of shares of duly authorized,
validly issued, fully paid and non-assessable Common Stock, including
fractional shares, equal to the Initial Number of Shares at an initial exercise
price of $1.50 per share, subject to adjustment as hereinafter provided, upon
the terms and subject to the conditions hereinafter set forth.
1 Definitions. For the purposes of this Warrant, the following
terms have the following meanings:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation after the date hereof other than (i)
Common Stock issued to Apollo Real Estate Investment Fund II, L.P. or any
Person controlling, controlled by or under common control with it, and (ii)
Common Stock issued upon exercise of options granted prior to the date hereof
pursuant to the Corporation's Employee Stock Option Plan and Non-Employee
Director Stock Option Plan.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in New York, New York are
required by law to close.
"Common Stock" shall mean the Corporation's Common Stock, par
value $0.01 per share, and, in the case of a reclassification, recapitalization
or other similar change
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<PAGE>
in such Common Stock or in the case of a consolidation or merger of the
Corporation with or into another Person, such consideration to which a holder
of a share of Common Stock would have been entitled upon the occurrence of such
event.
"Common Stock Equivalent" shall mean any Convertible Security
or warrant, option or other right to subscribe for or purchase any shares of
Common Stock or any Convertible Security.
"Convertible Securities" shall mean evidences of
indebtedness, shares of Stock or other securities which are or may be at any
time convertible into or exchangeable for shares of Common Stock, including
without limitation any shares of the Corporation's preferred stock which are
convertible into or exchangeable for shares of Common Stock. The term
"Convertible Security" shall mean one of the Convertible Securities.
"Corporation" shall mean NextHealth, Inc., a Delaware
corporation, and its successors and assigns.
"Effective Period" shall mean the period beginning on the
date hereof and ending on October 15, 2006 at 5:00 p.m. Pacific/Mountain
Standard Time.
"Exercise Date" shall mean the date on which an exercising
Holder has submitted to the Corporation this Warrant and the subscription form
attached hereto as Exhibit A and, if applicable, has paid the exercise price as
required by Section 3.3.1 hereof.
"Fair Market Value" of a share of Common Stock as of any date
shall mean, as of any date, the average of the closing prices of Common Stock
for the twenty (20) consecutive Trading Days next preceding the date five (5)
days prior to the date in question.
The closing price for each day shall be:
(i) the average of the closing sale price or, in the
absence of a closing sale price, the highest bid and
lowest asked prices of one share of Common Stock
quoted in the NASDAQ National Market System or any
similar system of automated dissemination of
quotations of securities prices then in common use,
if so quoted; or
(ii) if not quoted as described in clause (i), the
average of the highest bid and lowest offered
quotations for one share of Common Stock as reported
by the National Quotation Bureau Incorporated if at
least two securities dealers have inserted both bid
and offered quotations for Common Stock on at least
five (5) of the twenty (20) consecutive Trading Days
next preceding the date five (5) days prior to the
date in question; or
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(iii) if the Common Stock is listed or admitted for
trading on any national securities exchange, the
last sale price, or the closing bid price if no sale
occurred, of one share of Common Stock on the
principal securities exchange on which the Common
Stock is listed or admitted for trading.
If none of the conditions set forth above is met, the closing price of one
share of Common Stock on any day or the average of such closing prices for any
period shall be the Fair Market Value of Common Stock for such day or period as
determined by a member firm of the New York Stock Exchange selected by the
Corporation and approved by the Holder. If the Corporation and the Holder are
unable to agree on the selection of a member firm, then the issue of selection
of a member firm shall be submitted to the American Arbitration Association.
"Holder" shall mean Apollo Real Estate Investment Fund II,
L.P., as the original registered holder of this Warrant, and any registered
transferee of a Holder.
"Initial Number of Shares" shall initially mean One Hundred
Thousand (100,000) shares of Common Stock and thereafter such number of shares
of Common Stock as shall result from the adjustments specified in Section 5
hereof.
"Person" shall mean an individual, a corporation, a
partnership, a trust, an unincorporated organization, limited liability
company, limited liability partnership, government organization or agency or
political subdivision thereof, association, sole proprietorship or any other
form of entity not specifically listed herein.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute then in effect.
"Stock" shall include any and all shares, interests or other
equivalents (however designated) of, or participations in, the capital stock of
the Corporation of any class.
"Subsidiary" shall mean any corporation at least 50% of whose
outstanding capital stock shall at the time be owned directly or indirectly by
the Corporation or by one or more Subsidiaries or by the Corporation and one or
more Subsidiaries.
"Trading Day" shall mean, with respect to the Common Stock:
(i) if the Common Stock is quoted on the NASDAQ National Market System, any
similar system of automated dissemination or quotations of securities prices,
or the National Quotation Bureau Incorporated, each day on which quotations may
be made on such system; or (ii) if the Common Stock is listed or admitted for
trading on any national securities exchange, days on which such national
securities exchange is open for business; or (iii) if shares of the
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<PAGE>
Common Stock are not quoted on any system or listed or admitted for trading on
any securities exchange, a Business Day.
"Warrant" shall mean this Warrant.
"Warrant Price" shall initially mean $1.50 per share of
Common Stock and thereafter such other prices as shall result from the
adjustments specified in Section 5 hereof.
"Warrant Spread" as of any date shall mean the difference
between (i) the Fair Market Value of a share of Common Stock as of that date
and (ii) the Warrant Price.
2 Duration. The right to exercise this Warrant to subscribe for and
purchase shares of Common Stock represented hereby shall commence on date
hereof and shall expire at the end of the Effective Period.
3 Method of Exercise; Payment; Issuance of New Warrant; Transfer and
Exchange.
3.1 The purchase right represented by this Warrant may be
exercised at any time during the Effective Period.
3.2 The Holder hereof may exercise this Warrant, in whole or
in part, by delivery to the Corporation at its office at 1660 North Lago del
Oro Parkway, Tucson, Arizona 85739, Attention John Schmitz (or such other
address as the Corporation may specify to Holder from time to time), of (i) a
written notice of Holder's election to exercise this Warrant, which notice
shall specify the number of shares of Common Stock to be purchased, (ii)
payment of the Warrant Price in the manner provided in Section 3.3 and (iii)
this Warrant. Such notice shall be substantially in the form of the
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney. In the event of any exercise of
the rights represented by this Warrant, (i) certificates for the shares of
Common Stock so purchased shall be dated the date of such exercise and
delivered to the Holder hereof within a reasonable time, not exceeding 15 days
after such exercise, and the Holder hereof shall be deemed for all purposes to
be the Holder of the shares of Common Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such time.
Any such warrant shall be dated the date hereof and shall be identical with
this Warrant except as to the number of shares of Common Stock issuable
pursuant thereto.
3.3 Subject to the provisions of this Warrant, this Warrant
may be exercised in the manner set forth in either Section 3.3.1 or Section
3.3.2 below:
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<PAGE>
3.3.1 Upon presentation to the Corporation at the
office specified in Section 3.2 of this Warrant with the subscription form
appearing at the end of this Warrant as Exhibit A duly completed, indicating a
cash exercise and signed by the Holder, and upon payment of an amount equal to
the product of the Warrant Price and the number of shares of Common Stock to be
purchased, by, at the option of Holder, (i) wire transfer to an account in a
bank located in the United States designated for such purpose by the
Corporation or (ii) certified or official bank check, the Corporation shall
issue and cause to be delivered to or upon the written order of the Holder and
in such name or names as Holder may designate, a certificate for the shares of
Common Stock issued upon such exercise.
3.3.2 Upon presentation to the Corporation at the
office specified in Section 3.2 of this Warrant with the subscription form
appearing at the end of this Warrant as Exhibit A duly completed, indicating a
non-cash exercise and signed by the Holder, the Corporation shall issue and
cause to be delivered to or upon the written order of the Holder and in such
name or names as Holder may designate, a certificate for a number of shares of
Common Stock equal to the result of dividing (i) the product of (A) the number
of shares of Common Stock for which this Warrant may be exercised and (B) the
Warrant Spread on the Exercise Date, by (ii) the Fair Market Value of a share
of Common Stock on the Exercise Date.
3.4 Subject to compliance with Section 7 hereof, this Warrant
may be transferred on the books of the Corporation by the Holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant at the
principal office of the Corporation, properly endorsed and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Subject to compliance with Section 7 hereof, this Warrant is exchangeable at
the aforesaid principal office of the Corporation for warrants for the purchase
of the same aggregate number of shares of Common Stock, each new warrant to
represent the right to purchase such number of shares of Common Stock as the
Holder hereof shall designate at the time of such exchange. All warrants issued
on transfers or exchanges shall be dated the date hereof and shall be identical
with this Warrant except as to the number of shares of Common Stock issuable
pursuant hereto.
3.5 The Corporation will, at its own expense, from time to
time take all action which may be necessary to obtain and keep effective any
and all permits, consents, orders and approvals of governmental agencies and
authorities which are or become required or necessary so that any Common Stock,
immediately upon its issuance upon the exercise of this Warrant, will be listed
on each securities exchange or listing or quotation services, if any, on which
Common Stock of the Corporation is then listed.
4 Stock Fully Paid; Reservation of Shares.
4.1 The Corporation covenants and agrees that all shares of
Common Stock which may be issued upon the exercise of the rights represented by
this Warrant will, upon issuance, be fully paid and non-assessable and free
from all taxes, liens and charges with
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<PAGE>
respect to issuance. The Corporation further covenants and agrees that during
the Exercise Period, the Corporation will at all times have authorized and
reserved for the purpose of the issue upon exercise of this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant. If the Warrant Price is at any time less
than the par value of the Common Stock, the Corporation also covenants and
agrees to cause to be taken such action (whether by decreasing the par value of
the Common Stock, the conversion of the Common Stock from par value to no par
value, or otherwise) as will permit the exercise of this Warrant and the
issuance of the Common Stock without any additional payment by the Holder
hereof (other than payment of the Warrant Price and applicable transfer taxes,
if any), which Common Stock, upon such issuance, will be fully paid and
non-assessable.
4.2 The Corporation shall not by any action, including,
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holder hereof against impairment. Without limiting the generality
of the foregoing, the Corporation will (a) not increase the par value of any
shares of Common Stock above the amount payable therefor upon the exercise of
this Warrant immediately prior to such increase in par value and (b) take all
such action as may be necessary or appropriate in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock, free and clear of any liens, claims, encumbrances and restrictions
(other than as provided herein) upon the exercise of this Warrant.
5 Adjustment of Purchase Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the amount
of the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as follows:
5.1 Recapitalization, Reorganization, Reclassification,
Consolidation or Merger. In case of any recapitalization or reorganization of
the Corporation or any reclassification or change of outstanding Stock issuable
upon exercise of this Warrant (other than a change in par value, or from par
value to no par value, or from no par value to par value or as a result of a
subdivision of combination), or in case of any consolidation or merger of the
Corporation with or into another corporation (other than a merger with another
corporation in which the Corporation is the surviving corporation and which
does not result in any reclassification or change (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination) of outstanding Stock issuable upon
exercise of this Warrant), the Holder of this Warrant shall be entitled to
receive, upon exercise of this Warrant, the kind and the highest amount of
shares of Stock, other securities, money and property receivable upon such
recapitalization, reorganization, reclassification, change, consolidation or
merger by a Holder of one share of
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Common Stock as if this Warrant had been exercised immediately prior to such
recapitalization, reorganization, reclassification, change, consolidation or
merger. The provisions of this Section 5.1 shall similarly apply to successive
recapitalizations, reorganizations, reclassifications, changes, consolidations
and mergers.
5.2 Subdivision or Combination of Shares. If the Corporation,
at any time while this Warrant is outstanding, shall subdivide or combine any
class or classes of its Common Stock, the Warrant Price shall be
proportionately reduced, in case of subdivision of shares, to reflect the
increase in the total number of shares of Common Stock outstanding as a result
of such subdivision, as at the effective date of such subdivision, or if the
Corporation shall take a record of holders of any class or classes of its
Common Stock for the purpose of so subdividing, as at the applicable record
date, whichever is earlier, or shall be proportionately increased, in the case
of combination of shares, to reflect the reduction in the total number of
shares of Common Stock outstanding as a result of such combination, as at the
effective date of such combination or, if the Corporation shall take a record
of holders of any class or classes of its Common Stock for the purpose of so
combining, as at the applicable record date, whichever is earlier.
5.3 Stock Dividends. If the Corporation, at any time while
this Warrant is outstanding, shall pay a dividend in, or make any other
distribution of, Common Stock, the Warrant Price shall be adjusted, as at the
date the Corporation shall take a record of the holders of such class or
classes of Common Stock, for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as at the date of such payment on
other distribution), to that price determined by multiplying the Warrant Price
in effect immediately prior to the record date (or if no such record is taken,
then immediately prior to such payment or other distribution), by a fraction
(i) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution (plus in the event
that the Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued fractional
shares in connection with said dividends).
5.4 Issuance of Additional Shares of Common Stock. If the
Corporation, at any time while this Warrant is outstanding, shall issue any
Additional Shares of Common Stock (otherwise than as provided in the foregoing
Sections 5.1 through 5.3), at a price per share less than the Warrant Price or
without consideration, then the Warrant Price upon each such issuance shall be
adjusted to that issuance price. The provisions of this Section 5.4 shall not
apply under any of the circumstances for which an adjustment is provided in
Sections 5.1, 5.2 or 5.3. No adjustment of the Warrant Price shall be made
under this Section 5.4 upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to any Common Stock Equivalent if upon the
issuance of such Common Stock Equivalent (a) any adjustment shall have been
made pursuant to Section 5.5 or (b) no adjustment was required pursuant to
Section 5.5.
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5.5 Issuance of Common Stock Equivalents. If the Corporation
shall, at any time while this Warrant is outstanding, issue any Common Stock
Equivalent, and the price per share for which Additional Shares of Common Stock
may be issuable thereafter pursuant to such Common Stock Equivalent shall be
less than the current Warrant Price then in effect, or if, after any such
issuance of Common Stock Equivalents, the price per share for which Additional
Shares of Common Stock may be issuable thereafter is amended, and such price as
so amended shall be less than the current Warrant Price in effect at the time
of such amendment, then the Warrant Price upon each such issuance or amendment
shall be adjusted as provided in the first sentence of Section 5.4 on the basis
that Additional Shares of Common Stock issuable pursuant to such Common Stock
Equivalents shall be deemed to have been issued (whether or not such Common
Stock Equivalents are actually then exercisable, convertible or exchangeable in
whole or in part) as of the earlier of (a) the date on which the Corporation
shall enter into a firm contract for the issuance of such Common Stock
Equivalent, or (b) the date of actual issuance of such Common Stock Equivalent.
No adjustment of the Warrant Price shall be made under this Section 5.5 upon
the issuance of any Convertible Security which is issued pursuant to the
exercise of any warrants or other subscription or purchase rights therefor, if
any adjustment shall previously have been made in the Warrant Price then in
effect upon the issuance of such warrants or other rights pursuant to this
Section 5.5.
5.6 Other Provisions Applicable to Adjustments Under this
Section 5. The following provisions shall be applicable to the making of
adjustments in the Warrant Price hereinbefore provided in this Section 5:
5.6.1 Computation of Consideration. The
consideration received by the Corporation shall be deemed to be the following:
to the extent that any Additional Shares of Common Stock or any Common Stock
Equivalents shall be issued for a cash consideration, the consideration
received by the Corporation therefor; or, if such Additional Shares of Common
Stock or Common Stock Equivalents are offered by the Corporation for
subscription, the subscription price; or, if such Additional Shares of Common
Stock or Common Stock Equivalents are sold to underwriters or dealers for
public offering without a subscription offering, the initial public offering
price, in any such case excluding any amounts paid or receivable for accrued
interest or accrued dividends and without deduction of any compensation,
discounts, commissions, or expenses paid or incurred by the Corporation for or
in connection with the underwriting thereof or otherwise in connection with the
issue thereof. The consideration for any Additional Shares of Common Stock
issuable pursuant to any Common Stock Equivalents shall be the consideration
received by the Corporation for issuing such Common Stock Equivalents, plus the
additional consideration payable to the Corporation upon the exercise,
conversion or exchange of such Common Stock Equivalents. In case of the
issuance at any time of any Additional Shares of Common Stock or Common Stock
Equivalents in payment or satisfaction of any dividend upon any class of Stock
other than Common Stock, the Corporation shall be deemed to have received for
such Additional Shares of Common Stock or Common Stock Equivalents a
consideration equal to the amount of such dividend so paid or satisfied. In any
case in which
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the consideration to be received or paid shall be other than cash, the Board of
Directors of the Corporation shall determine in good faith the fair market
value of such consideration and promptly notify the Holder of its determination
of the fair market value of such consideration prior to payment or accepting
receipt thereof. If, within thirty (30) days after receipt of said notice, the
Holder shall notify the Board of Directors of the Corporation in writing of its
objection to such determination, a determination of fair market value of such
consideration shall be made by an appraiser selected by the Corporation and
approved by the Holder. If the Corporation and the Holder are unable to agree
on the selection of an appraiser, the issue of selection of an appraiser shall
be submitted to the American Arbitration Association.
5.6.2 Readjustment of Warrant Price. Upon the expiration of
the right to convert, exchange or exercise any Common Stock Equivalent the
issuance of which effected an adjustment in the Warrant Price, if such Common
Stock Equivalent shall not have been converted, exercised or exchanged, the
number of shares of Common Stock deemed to be issued and outstanding by reason
of the fact that they were issuable upon conversion, exchange or exercise of
any such Common Stock Equivalent shall no longer be computed as set forth
above, and the Warrant Price shall forthwith be readjusted and thereafter be
the price which it would have been (but reflecting any other adjustments in the
Warrant Price made pursuant to the provisions of this Section 5 after the
issuance of such Common Stock Equivalent) had the adjustment of the Warrant
Price been made in accordance with the issuance or sale of the number of
Additional Shares of Common Stock actually issued upon conversion, exchange or
issuance of such Common Stock Equivalent and thereupon only the number of
Additional Shares of Common Stock actually so issued shall be deemed to have
been issued and only the consideration actually received by the Corporation
(computed as in Section 5.6.1) shall be deemed to have been received by the
Corporation.
5.7 Treasury Shares. In making any adjustments in the Warrant Price
hereinbefore provided in this Section 5, the number of shares of Common Stock
at any time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or any of its
Subsidiaries.
5.8 Other Action Affecting Common Stock. In case after the date hereof
the Corporation shall take any action affecting its Common Stock, other than an
action described in any of the foregoing Sections 5.1 through 5.6, inclusive,
and the failure to make any adjustment would not fairly protect the purchase
rights represented by this Warrant in accordance with the essential intent and
principals of this Section 5, then the Warrant Price shall be adjusted in such
manner as the Board of Directors of the Corporation shall in good faith
determine to be equitable in the circumstances.
5.9 Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price pursuant to any provision of this Section 5, the number of shares
of Common Stock purchasable hereunder shall be adjusted, to the nearest whole
share, to the product obtained by multiplying the number of such shares
purchasable immediately prior to such adjustment in the Warrant Price by a
fraction, the numerator of which shall be the Warrant Price
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immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter. If the Corporation shall be in default
under any provision contained in the last sentence of Section 4.2 of this
Warrant so that such shares, upon issuance, would not be validly issued under
applicable law at the Warrant Price adjusted in accordance with this Section 5,
the adjustment of shares provided in the foregoing sentence shall nonetheless
be made and the Holder of this Warrant shall be entitled to purchase such
greater number of shares at the lowest price at which such shares may be
validly issued under applicable law. Such exercise shall not constitute a
waiver of any claim arising against the Corporation by reason of its default
under Section 4.2 of this Warrant.
6 Notice of Adjustments. Whenever the Warrant Price or number of
shares of Common Stock purchasable upon exercise of this Warrant shall be
adjusted pursuant to Section 5 hereof, the Corporation shall cause the
independent accounting firm then regularly engaged by it to report on its
financial statements to prepare and execute a certificate setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Board of Directors of the Corporation
made any determination hereunder), and the Warrant Price and number of shares
of Common Stock purchasable hereunder after giving effect to such adjustment,
and shall cause copies of such certificate to be mailed (by first class mail
postage prepaid) to the Holder of this Warrant promptly after each adjustment.
7 Restrictions on Transferability. The Warrant and the Common Stock
issued upon exercise of the Warrant shall not be transferred, hypothecated or
assigned before satisfaction of the conditions specified in this Section 7
(unless transferred or assigned pursuant to Section 8), which conditions are
intended to ensure compliance with the provisions of the Securities Act and
state securities or "blue sky" laws with respect to the transfer, hypothecation
or assignment of any Warrant or Common Stock issued upon exercise of any
Warrant. Holder, by acceptance of this Warrant, agrees to be bound by the
provisions of this Section 7.
Prior to any transfer, hypothecation or assignment or
attempted transfer, hypothecation or assignment of the Warrant or any Common
Stock issued upon exercise of the Warrant, the Holder of such Warrant or Common
Stock shall give ten (10) days prior written notice (a "Transfer Notice") to
the Corporation of such Holder's intention to effect such transfer,
hypothecation or assignment, describing the manner and circumstances of the
proposed transfer, hypothecation or assignment, and provide the Corporation
with a written opinion of counsel addressed to the Corporation that the
proposed transfer, hypothecation or assignment of the Warrant or such Common
Stock may be effected without registration under the Securities Act and
applicable state securities or "blue sky" laws. After receipt of the Transfer
Notice and written opinion, the Corporation shall, within five (5) days
thereof, so notify the Holder of the Warrant or such Common Stock in writing
and such Holder shall thereupon be entitled to transfer, hypothecate or assign
the Warrant or Common Stock, in accordance with the terms of the Transfer
Notice. The Holder of the Warrant or such Common Stock, as the case may be,
giving the Transfer Notice shall not be entitled to
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transfer the Warrant or such Common Stock until receipt of notice from the
Corporation under this Section 7.2.
8 REGISTRATION RIGHTS
8.1 Optional Registrations. If at any time or times after the
date hereof, the Company shall determine to register any of its Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock
under the Securities Act (whether in connection with a public offering of
securities by the Company (a "primary offering"), a public offering thereof by
shareholders (a "secondary offering"), or both, but not in connection with a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Securities and
Exchange Commission (the "Commission") under the Securities Act is applicable),
it agrees to do the following:
8.1.1 The Company shall promptly give written notice of
registration under this Section 8.1 to the holders of Registrable Securities
(as hereinafter defined) then outstanding (the "Holders"), and will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities for which the Holders may request registration in a
writing delivered to the Company within fifteen (15) days after such notice
given by the Company; provided, however, that in the case of the registration
of Common Stock by the Company in connection with an underwritten public
offering, the Company shall not be required to register Registrable Securities
of the Holders in excess of the amount, if any, of Common Stock which the
principal underwriter of an underwritten offering shall reasonably and in good
faith agree in writing to include in such offering.
8.1.2 If any Registrable Securities are not to be registered
pursuant to this Section 8.1 because the number of Registrable Securities for
which registration has been requested by the Holders pursuant to paragraph (a)
above exceeds the amount of Common Stock which the principal underwriter of an
underwritten offering shall reasonably and in good faith agree in writing to
include in such offering, the Holders who have requested participation shall be
entitled to participate in such registration and offering proportionately in
accordance with the number of shares of Common Stock owned or obtainable by
them upon exercise of rights (including conversion rights) with respect to
other securities (including Preferred Stock) owned by them.
8.1.3 If the Company includes in a registration under this
Section 8.1 any securities to be offered by it, all expenses of the
registration and offering and the reasonable fees and expenses of not more than
one independent counsel for the Holders shall be borne by the Company, except
that the Holders shall bear underwriting commissions attributable to their
Registrable Securities being registered and transfer taxes on shares being sold
by such Holders. If the registration under this Section 8.1 is exclusively a
secondary offering, as defined in this Section 8.1, the Holders shall bear
their proportionate share of the expenses of the registration and offering
(provided all shareholders registering shares thereunder bear
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their proportionate share of expenses), except expenses which the Company would
have incurred whether or not registration was attempted, including, without
limitation, the expense of preparing normal audited or unaudited financial
statements or summaries consistent with this Agreement or applicable Commission
filings.
8.1.4 Without in any way limiting the types of registrations
to which this Section 8.1 shall apply, in the event that the Company shall
effect a "shelf registration", under Rule 415 promulgated under the Securities
Act, or any other similar rule or regulation ("Rule 415"), the Company shall
take all necessary action, including, without limitation, the filing of
post-effective amendments, to permit the Holders to include their shares in
such registration in accordance with the terms of this Section 8.1.
8.2 Required Registrations. If on any two (2) occasions at
least one year apart, after June 30, 1997, one or more of the Holders of an
aggregate of a majority of the Registrable Securities then outstanding and held
by the Holders, including any shares of Common Stock issued or issuable upon
conversion of the Warrants then outstanding, shall notify the Company in
writing that he or they intend to offer or cause to be offered for public sale
all or any portion of their Registrable Securities having an offering price of
not less than $500,000, the Company will notify all of the Holders who would be
entitled to notice of a proposed registration under Section 8.1 of its receipt
of such notification from such Holder or Holders. Upon the written request of
any such Holder delivered to the Company within fifteen (15) days after receipt
from the Company of such notification, the Company will either (i) elect to
make a primary offering in which case the rights of the Holders shall be as set
forth in Section 8.1, except that the Company shall not be permitted to limit
the number of shares which may be registered by any Holder, or (ii) use its
best efforts to cause such of the Registrable Securities as may be requested by
any Holders (including the Holders giving the initial notice of intent to
register hereunder) to be registered under the Securities Act in accordance
with the terms of this Section 8.2. All expenses of such registrations and
offerings and the reasonable fees and expenses of not more than one independent
counsel for the Holders shall be borne by the Company, except that the Holders
shall bear underwriting commissions attributable to their Registrable
Securities being registered, transfer taxes on shares being sold by such
Holders and the expense of any special audit of the Company's financial
statements if the notice requesting registration does not reasonably permit the
use of existing or contemplated audited statements. The Company shall not be
required to cause a registration statement requested pursuant to this Section
8.2 to become effective prior to sixty (60) days following the effective date
of a registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Holders of
Registrable Securities to the effect that the Company is commencing to prepare
a Company-initiated registration statement (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act is
applicable); provided, however, that the Company shall use its best efforts to
achieve such effectiveness promptly following such sixty (60) day period if the
request pursuant to this Section 8.2 has been made prior to the
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expiration of such ninety (90) day period. The Company may postpone the filing
of any registration statement required hereunder for a reasonable period of
time, not to exceed thirty (30) days, if the Company has been advised by legal
counsel that such filing would require the disclosure of a material transaction
or other factor and the Company determines reasonably and in good faith that
such disclosure would have a material adverse effect on the Company.
8.3 Selection of Underwriter. In the case of any registration
effectuated pursuant to Section 8.1, the Company shall have the right to
designate the managing underwriter subject to the approval of a majority of the
Holders who have requested registration.
8.4 Stand Off Agreement. Each Holder of more than 5% of the
Common Stock on a fully-converted basis, if requested by the Company and an
underwriter of Common Stock or other securities of the Company, shall agree not
to sell or otherwise transfer or dispose of any Registrable Shares or other
securities of the Company held by such Holder for a specified period of time
(not to exceed 90 days) following the effective date of a Registration
Statement, provided all persons holding not less than the number of shares of
Common Stock held by such Holder (including shares of Common Stock issuable
upon the conversion of Shares, or other convertible securities, or upon the
exercise of options, warrants or rights) enter into similar agreements.
Such agreements shall be in writing in a form satisfactory to
the Company and such underwriter. The Company may impose stop-transfer
instructions with respect to the Registrable Shares or other securities subject
to the foregoing restriction until the end of the standoff period.
8.5 Registrable Securities. For the purposes of this Section
8, the term "Registrable Securities" shall mean any shares of Common Stock
owned by a Holder or issuable upon exercise of this Warrant or upon conversion
of preferred stock of the Company, including without limitation any Common
Stock issued or issuable with respect thereto by way of a share dividend or
share split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganizations.
8.6 Further Obligations of the Company. Whenever under the
preceding sections of this Section 8 the Company is required to register Common
Stock, it agrees that it shall also do the following:
8.6.1 Use its best efforts diligently to prepare for filing
with the Commission a registration statement and such amendments and
supplements to said registration statement and the prospectus used in
connection therewith as may be necessary to keep said registration statement
effective and to comply with the provisions of the Securities Act with respect
to the sale of securities covered by said registration statement for the period
necessary to complete the proposed public offering;
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8.6.2 Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder may
reasonably request to facilitate the public offering of his or its Common
Stock;
8.6.3 In the case of Section 8.1, enter into an underwriting
agreement with provisions reasonably required by the proposed underwriter for
the selling Holders, if any; and
8.6.4 Use its best efforts to register or qualify the Common
Stock covered by said registration statement under the securities or "blue-sky"
laws of such jurisdictions as any selling Holder may reasonably request,
provided that the Company shall not be required to register in any states which
require it to qualify to do business or subject itself to general service of
process.
8.7 Form S-3. If the Company becomes eligible to use Form S-3
under the Securities Act or a comparable successor form, the Company shall use
its best efforts to continue to qualify at all times for registration on Form
S-3 or such successor form. At any time and from time to time after the Company
becomes eligible to use Form S-3 or such successor form, the Holders of an
aggregate of not less than ten percent (10%) of Registrable Securities then
outstanding and held by the Holders shall have the right to request and have
effected a registration of shares of Registrable Securities on Form S-3 or such
successor form for a public offering of shares of Registrable Securities having
an aggregate proposed offering price of not less than $100,000.00 (such
requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended method of disposition
of such shares by such Holder or Holders). The Company shall not be required to
cause a registration statement requested pursuant to this Section 8.7 to become
effective prior to ninety (90) days following the effective date of a
registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Holders of
Registrable Securities to the effect that the Company is commencing to prepare
a Company-initiated registration statement (other than a registration effected
solely to implement an employee benefit plan or a transaction to which Rule 145
or any other similar rule of the Commission under the Securities Act is
applicable); provided, however, that the Company shall use its best efforts to
achieve such effectiveness promptly following such ninety (90) day period if
the request pursuant to this Section 8.7 has been made prior to the expiration
of such ninety (90) day period. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed sixty (60) days, if the Company has been advised by legal counsel
that such filing would require the disclosure of a material transaction or
other factor and the Company determines reasonably and in good faith that such
disclosure would have a material adverse effect on the Company. The Company
shall give notice to all Holders of the receipt of a request for registration
pursuant to this Section 8.7 and shall provide a reasonable opportunity for
such Holders to participate in the registration. Subject to the foregoing, the
Company will use its best efforts to effect promptly the registration of all
shares of Common Stock on Form S-3 or such
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successor form to the extent requested by the Holder or Holders thereof for
purposes of disposition. If so requested by any Holder in connection with a
registration under this Section 8.7, the Company shall take such steps as are
required to register such Holder's Registrable Securities for sale on a delayed
or continuous basis under Rule 415, and to keep such registration effective
until all of such Holder's Registrable Securities registered thereunder are
sold. All expenses incurred in connection with a registration requested
pursuant to this Section 8.7, including, without limitation, all registration,
qualification, printing, and accounting and counsel fees, shall be paid by the
Holders participating in such registration on a pro-rata basis in proportion to
such participation. Notwithstanding the foregoing, the Company shall not be
required to effect a registration under this Section 8.7 if, in the opinion of
counsel for the Company, which counsel and opinion shall be acceptable to the
Holders, such Holders may then sell all Registrable Securities proposed to be
sold in the manner proposed without registration under the Securities Act.
8.8 Indemnification. Incident to any registration statement
referred to in this Section 8, and subject to applicable law, the Company will
indemnify each underwriter, each Holder of Registrable Securities so
registered, and each person controlling any of them, against all claims,
losses, damages and liabilities, including legal and other expenses reasonably
incurred in investigating or defending against the same, arising out of any
untrue statement of a material fact contained therein, or any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of any violation by the
Company of the Securities Act, any state securities or "blue-sky" laws or any
rule or regulation thereunder in connection with such registration, except
insofar as the same may have been caused by an untrue statement or omission
based upon information furnished in writing to the Company by such underwriter,
Holder, or controlling person, respectively, expressly for use therein, and
with respect to such untrue statement or omission in the information furnished
in writing to the Company by such Holder, such Holder will indemnify the
underwriters, the Company, its directors and officers, the other Holders and
each person controlling any of them against any losses, claims, damages,
expenses (including legal or other expenses) or liabilities to which any of
them may become subject to the same extent.
8.9 Rule 144 Requirements. The Company will use its best
efforts to file with the Commission such information as the Commission may
require under the reporting requirements of either Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended, and in such event, the
Company shall use its best efforts to take all action as may be required as a
condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereafter in effect). The Company shall furnish to any
Holder of Registrable Securities upon request a written statement executed by
the Company as to the steps it has taken to comply with the current public
information requirement of Rule 144 or such successor rule.
8.10 Transfer of Registration Rights. The registration rights
of the Holders under this Section 8 may be transferred to any transferee of
Registrable Securities who is (a)
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a Holder, (b) who is an affiliate, as that term is defined in the Securities
Act, of a Holder (including a partner of such Holder), or (c) who is a
shareholder or partner of a Holder who receives Registrable Securities as a
distribution from such Holder. Each such transferee shall be deemed to be a
"Holder" for purposes of this Section 8.
8.11 Amendment or Waiver of Registration Rights. The
registration rights provided for in this Section 8 may not be waived otherwise
than by a written instrument signed by the party so waiving such rights;
provided, however, that changes in or additions to, and any consents required
by this Section 8 may be made, and compliance with any term, covenant,
condition or provision set forth in this Section 8 may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively) by a consent or consents in writing signed by Purchaser Holders
holding a majority in interest of the Registrable Securities held by the
Purchaser Holders and (in the case of any such change or addition) the Company.
Any amendment or waiver effected in accordance with this Section 8.9 shall be
binding upon each Holder of Registrable Securities, each transferee of a Holder
under Section 8.8 and the Company.
9 Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Corporation and the Holder.
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10 Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE
(WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES OF SUCH
STATE).
11 Replacement. On receipt of evidence reasonably satisfactory to the
Corporation of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement or bond reasonably satisfactory in form and amount to the Corporation
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Corporation, at its expense, will execute and deliver in lieu of this
Warrant, a new warrant of like tenor.
12 Specific Performance. The Holder shall have the right to specific
performance by the Corporation of the provisions of this Warrant. 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 Warrant by the
Holder.
Dated: October 15, 1996 NEXTHEALTH, INC.
Attest: By:________________________
Name:
Title:
- -------------------------
Secretary
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EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
Cash Exercise Method
The undersigned registered owner of the attached Warrant
irrevocably exercises, by the Cash Exercise Method in accordance with Section
3.3.1 of the Warrant, the attached Warrant for the purchase of ________ shares
of Common Stock, $0.01 par value, of NextHealth, Inc. and herewith makes
payment therefor, to the order of the Corporation in the amount of
$_________________ as payment of the Exercise Price in accordance with the
terms set forth in Section 3.3.1.
Non-cash Exercise Method
The undersigned registered owner of the attached Warrant
irrevocably exercises, by the Non-cash Exercise Method in accordance with
Section 3.3.2 of the Warrant, the attached Warrant for the purchase of _______
shares of Common Stock, $0.01 par value, of NextHealth, Inc., calculated as
follows:
(a) Number of shares of Common Stock for which the Warrant may be
exercised: _____________________
(b) The Warrant Spread on the Exercise Date: __________________
(c) The Fair Market Value of a share of Common Stock on the Exercise
Date: _____________________________
(d) Number of shares of Common Stock to be purchased (line (a) times
line (b) divided by line (c)): _________________________________
Issuance Instructions
The undersigned requests that a certificate for such Common
Stock be registered in the name of
_______________________________________________ whose address is
___________________________________________________________________ and that
such certificate be delivered to ____________________________________ whose
address is ___________________________________________________________________.
If such number of shares of Common Stock is less than all of the shares of
Common Stock
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which may be purchased upon the exercise of the Warrant, the undersigned hereby
requests that a new Warrant representing the remaining balance of this Warrant
be registered in the name of _______________________________________________
whose address is ___________________________________________________________
and that such Warrant be delivered to _______________________________________
whose address is ________________________________________________________.
--------------------------------
Name of Registered Owner
--------------------------------
Signature of Registered Owner
--------------------------------
--------------------------------
Address
--------------------------------
Federal ID Number
C/M: 11926.0033 414869.5
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF THE
CONVERTIBLE PREFERRED STOCK, SERIES A
and
CUMULATIVE PREFERRED STOCK, SERIES B
(Par Value $0.01 Per Share)
of
NEXTHEALTH, INC.
------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------
NextHealth, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), does hereby certify that, pursuant to authority conferred on
its Board of Directors by the Certificate of Incorporation, as amended, of the
Corporation, and pursuant to the provisions of Section 151 of Title 8 of the
Delaware Code of 1953, as amended, the Board of Directors, at a meeting held on
November 11, 1996, adopted the following resolution providing for the issuance
of two (2) series of the Corporation's Preferred Stock, par value $0.01 per
share, consisting of (i) forty-six thousand sixty-five (46,065) shares of
Convertible Preferred Stock, Series A, and twenty-eight thousand nine hundred
fifty-six (28,956) shares of Cumulative Preferred Stock, Series B:
"RESOLVED, that pursuant to the authority vested in this Board of
Directors in accordance with the provisions of ARTICLE FOURTH of the
Certificate of Incorporation, as amended, of the Corporation, two (2) series of
Preferred Stock of the Corporation known as (i) Convertible Preferred Stock,
Series A, and (ii) Cumulative Preferred Stock, Series B, respectively, be, and
each hereby is, created, classified, authorized and the issuance thereof
provided for, and that the
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<PAGE>
designation and number of shares, and relative rights, preferences and
limitations thereof, shall be as set forth in the form appended hereto."
Section 1. Designation and Amount. The shares of the first series of
Preferred Stock shall be designated as "Convertible Preferred Stock, Series A"
and the number of shares constituting such series shall be 46,065, with a par
value of $0.01 per share. The shares of the second series of Preferred Stock
shall be designated as "Cumulative Preferred Stock, Series B" and the number of
shares constituting such series shall be 28,956, with a par value of $0.01 per
share. The relative rights, preferences, restrictions and other matters
relating to the Preferred Stock are contained in this Certificate of
Designation.
Section 2. Definitions. As used in this Certificate of Designation, the
following terms shall have the following meanings:
"Affiliate" means, with respect to any Person, any Person (other than
Persons affiliated with Apollo), that directly or indirectly, controls, is
controlled by or under common control with such Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Annual Dividend Rate" has the meaning set forth in Sections 3(a) and
6(b)(i) hereof.
"Apollo" means AP NH LLC, a Delaware limited liability company, and its
successors and assigns.
"Board of Directors" means the board of directors of the Corporation.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the City of New York, New York are authorized
or obligated by law or executive order to close.
"Capital Stock" means any and all shares, rights to purchase, warrants,
options, convertible securities, participation or other equivalents of or
interests (other than security interests) in (however designated and whether
voting or nonvoting) corporate stock.
"Certificate of Designation" means this Certificate of Designation,
Preferences and Rights establishing the Preferred Stock pursuant to Section 151
of the General Corporation Law of the State of Delaware, as the same may be
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<PAGE>
amended, supplemented or modified from time to time in accordance with the
terms hereof and pursuant to applicable law.
"Change in Control" means the occurrence of any of the following events:
(i) any Person or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act) acquires beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the number of shares of Common Stock or the combined voting
power of Voting Stock of the Corporation outstanding immediately prior
to such acquisition.
(ii) Preferred Directors cease for any reason to constitute at
least forty percent (40%) of the Board of Directors.
(iii) the Corporation enters into any agreement or arrangement
providing for the merger or consolidation of the Corporation with or
into any other entity (other than a transaction which results in the
ownership by the Corporation of not less than 51% of the voting power
of such other entity), the sale of all or substantially all of the
assets of the Corporation, the reorganization, liquidation or
dissolution of the Corporation, or any similar transaction or event.
"Closing Date" means the date on which the shares of Preferred Stock
are initially issued pursuant to the Stock Purchase Agreement.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Corporation and all shares hereafter authorized of any class of common stock of
the Corporation, and, in the case of a reclassification, recapitalization or
other similar change in such Common Stock or in the case of a consolidation or
merger of the Corporation with or into another Person, such consideration to
which a holder of a share of Common Stock would have been entitled upon the
occurrence of such event.
"Consolidated Net Income" means, for any period, the aggregate net
income of the Corporation and its Subsidiaries for such period on a
consolidated basis, determined in accordance with generally accepted accounting
principles consistently applied, provided that there shall be excluded
therefrom (i) the proceeds of sales of assets outside of the ordinary course of
business of the Corporation and its Subsidiaries, and (ii) income attributed to
any items classified as extraordinary or nonrecurring.
"Conversion Date" has the meaning set forth in Section 9(b) hereof.
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"Conversion Notice" has the meaning set forth in Section 9(b) hereof.
"Conversion Price" has the meaning set forth in Section 9(a) hereof.
"Credit Agreement" means the Credit Agreement, dated as of November 14,
1996, by and between AP LOM LLC, a Delaware limited liability company, and the
Corporation, as amended, modified and/or supplemented from time to time.
"Credit Agreement Default" means an Event of Default under, and as
defined in, the Credit Agreement, without giving effect to any amendment or
waiver to the Credit Agreement that is not agreed to by the Lender (as defined
in the Credit Agreement).
"Default" has the meaning set forth in Section 6(a) hereof.
"Default Price" has the meaning set forth in Section 5(e) hereof.
"Default Right" has the meaning set forth in Section 5(e) hereof.
"Dividend Payment Date" has the meaning set forth in Section 3(a)
hereof.
"Dividend Period" has the meaning set forth in Section 3(a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" of Common Stock means, as of any date, the average
of the closing prices of Common Stock for the 20 consecutive Trading Days next
preceding the date 5 days prior to the date in question. The closing price for
each day shall be: (i) the closing sales price of one share of Common Stock
quoted in the NASDAQ National Market System or any similar system of automated
dissemination of quotations of securities prices then in common use, if so
quoted; or (ii) if not quoted as described in clause (i), the average of the
highest bid and lowest offered quotations for Common Stock as reported by the
National Quotation Bureau Incorporated if at least two securities dealers have
inserted both bid and offered quotations for Common Stock on at least 5 of the
20 consecutive Trading Days next preceding the date 5 days prior to the date in
question; or (iii) if the Common Stock is listed or admitted for trading on any
national securities exchange, the last sale price, or the closing bid price if
no sale occurred, of Common Stock on the principal securities exchange on which
the Common Stock is listed or admitted for trading. If none of the conditions
set forth above is met, the closing price of Common Stock on any day or the
average of such closing prices for any period shall be the fair market value of
Common Stock for such day or period as determined by a member firm of the New
York Stock Exchange
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<PAGE>
selected by the Corporation and approved by the Holders of a majority of the
outstanding Preferred Stock. If the Corporation and such Holders are unable to
agree on the selection of a member firm, then the matter shall be submitted for
arbitration to be held in New York City in accordance with the rules of the
American Arbitration Association then in effect.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board or by the
Financial Accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after the
date hereof so as to properly reflect the financial condition, results of
operations and changes in financial position of any Person, except that any
accounting principle or practice required to be changed by such Accounting
Principles Board or Financial Accounting Standards Board (or other appropriate
board or committee of such Boards) in order to continue as a generally accepted
accounting principle or practice may be so changed.
"Holder" of a share of Preferred Stock means the person in whose name
shares of Preferred Stock are registered on the books of the Corporation.
"Holder's Notice" has the meaning set forth in Section 5(f) hereof.
"Indebtedness" means, with respect to any Person, all indebtedness,
obligations and liabilities of such Person, including without limitation (i)
all "liabilities" which would be reflected on a balance sheet of such Person,
prepared in accordance with GAAP, (ii) all obligations of such Person in
respect of any Guaranty, (iii) all obligations of such Person in respect of any
lease of property, real or personal, which would be capitalized on a balance
sheet of the lessee prepared in accordance with GAAP (but excluding, in any
event, office leases and equipment leases to the extent capitalized), and (iv)
all obligations, indebtedness and liabilities secured by any lien or security
interest on any property or assets of such Person; except that "Indebtedness"
shall not include any trade payables and other liabilities incurred in the
ordinary course of the Person's business up to a maximum of $250,000 in the
aggregate or otherwise approved by a majority of the Preferred Directors.
"Guaranty" means, with respect to any Person, any contract, lease, loan
agreement, indenture, mortgage, security agreement or other agreement or
obligation, whether written or oral, or any understanding of such Person,
pursuant to which such Person guarantees any Indebtedness of any other Person
(the "Primary Obligor") in any manner, whether directly or indirectly,
including without limitation agreements (i) to purchase such Indebtedness or
any property constituting security therefor, (ii) to advance or supply funds
for the purchase or payment of such Indebtedness or to maintain net worth or
working capital or other balance sheet conditions, or otherwise to advance or
make available funds for the
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<PAGE>
purchase or payment of such Indebtedness, (iii) to purchase property,
securities or services primarily for the purpose of assuring the holder of such
Indebtedness of the ability of the Primary Obligor to make payment of the
Indebtedness, or (iv) otherwise to assure the holder of the Indebtedness of the
Primary Obligor against loss in respect thereof; except that "Guaranty" shall
not include the endorsement by the Corporation or by a Subsidiary in the
ordinary course of business of negotiable instruments or documents for deposit
or collection.
"Junior Stock" means Common Stock and any other class or series of
Capital Stock of the Corporation now or hereafter issued and outstanding that
ranks junior as to dividends and/or liquidation to the Preferred Stock.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"Person" means an individual, a corporation, a partnership, a joint
venture, an association, a joint-stock company, a trust, a business trust, a
government or any agency or any political subdivision, any unincorporated
organization, or any other entity.
"Preferred Directors" means the four members of the Board of Directors
elected by the Holders of Preferred Stock pursuant to Section 8(b).
"Preferred Stock" means the Series A Preferred Stock and the Series B
Preferred Stock.
"Put" has the meaning set forth in Section 5(d) hereof.
"Put Price" has the meaning set forth in Section 5(d) hereof.
"Redemption Date" means any date on which shares of Preferred Stock are
to be redeemed pursuant to Section 5 hereof.
"Redemption Price" means, with respect to each share of Preferred
Stock, an amount equal to $92.26.
"Restricted Payment" has the meaning set forth in Section 3(c) hereof.
"Series A Preferred Stock" means the Convertible Preferred Stock of the
Corporation, $0.01 par value per share, established pursuant to this
Certificate of Designation.
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"Series B Preferred Stock" means the Cumulative Preferred Stock of the
Corporation, $0.01 par value per share, established pursuant to this
Certificate of Designation.
"Stock Purchase Agreement" means the Stock and Warrant Purchase
Agreement dated as of November 14, 1996, between the Corporation and Apollo, as
the same may be amended, supplemented or modified from time to time in
accordance with the terms thereof.
"Stock Purchase Agreement Default" means any material breach or
violation of the Corporation's representations and warranties (as of the
closing thereunder) or covenants set forth in Section 4 or 6.1 of the Stock
Purchase Agreement.
"Subsidiary" means (i) any corporation fifty percent (50%) or more of
the Voting Stock of which is owned, directly or indirectly, by the Corporation,
or (ii) any Person (other than a corporation) under the control of the
Corporation.
"Trading Day" means, with respect to the Common Stock: (i) if any
series of Common Stock is quoted on the NASDAQ National Market System, any
similar system of automated dissemination of quotations of securities prices,
or the National Quotation Bureau Incorporated, each day on which quotations may
be made on such system; or (ii) if any series of Common Stock is listed or
admitted for trading on any national securities exchange, days on which such
national securities exchange is open for business; or (iii) if shares of the
Corporation's Common Stock are not quoted on any system or listed or admitted
for trading on any securities exchange, a Business Day.
"Voting Stock" means, with respect to any Person, all classes of
Capital Stock of such Person then outstanding and normally entitled to vote for
the election of directors of such Person. Any reference to a percentage of
Voting Stock shall refer to the percentage of votes eligible to be cast for the
election of directors which are attributable to the applicable shares of Voting
Stock.
Section 2. Rank. All shares of Preferred Stock shall rank prior, both
as to payment of dividends and as to distributions of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
to all of the Corporation's now or hereafter-issued Junior Stock.
Section 3. Dividends.
(a) Payment of Dividends on Preferred Stock. The Holders of
Preferred Stock shall be entitled to receive, when and as declared by the Board
of Directors, out of funds legally available therefor, cash dividends at the
rate per
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<PAGE>
annum (the "Annual Dividend Rate") set forth below during the time periods
indicated, on the Redemption Price:
Annual
Period Dividend Rate
Series A Preferred Stock
January 1, 1997 and thereafter 00.0%
Series B Preferred Stock
January 1, 1997 to January 31, 1997 12.0%
February 1, 1997 and thereafter 18.0%.
Such dividends shall accrue (whether or not declared) from and including the
first day of the initial Dividend Period to and including the date on which the
Redemption Price is paid on such shares or on which such shares are converted
or redeemed and, to the extent not paid for any Dividend Period, will be
cumulative. Dividends on the Preferred Stock shall be payable quarterly, in
arrears, on March 31, June 30, September 30, and December 31 of each year
commencing March 31, 1997 (each such date, a "Dividend Payment Date"), except
that if any such date is not a Business Day, then such dividend shall be paid
on the next succeeding Business Day. Each such dividend shall be payable to
Holders of Preferred Stock at the close of business on the record date
established by the Board of Directors, which record date shall be not more than
60 days prior to the date fixed for payment thereof. Quarterly dividend periods
(each a "Dividend Period") shall commence on and include the first day of
January, April, July and October of each year and shall end on and include the
next Dividend Payment Date; provided, however, that the initial Dividend Period
shall commence on January 1, 1997. The amount of dividends payable per share of
Preferred Stock for each full Dividend Period shall be computed by applying the
applicable Annual Dividend Rate to the Redemption Price and dividing such
amount by four (4). The amount of dividends payable for the initial Dividend
Period and any period shorter than a full Dividend Period shall be computed on
the basis of actual days elapsed and a 360-day year consisting of twelve 30-day
months. Dividends on the Preferred Stock shall accrue on a daily basis whether
or not the Corporation shall have earnings or surplus at the time.
(b) Distribution of Partial Dividend Payments. Except as
otherwise provided in this Certificate of Designation, if on any Dividend
Payment Date the Corporation pays less than the total amount of dividends then
accrued with respect to a Series of Preferred Stock, the amount so paid shall
be distributed ratably among the Holders of that Series of Preferred Stock
based upon the number of shares of that Series of Preferred Stock held by each
such Holder.
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(c) Limitations on Certain Payments. So long as any Preferred
Stock shall be outstanding, the Corporation shall not declare or pay or set
apart for payment any dividends or make any other distributions on, or make any
payment on account of the purchase, redemption, exchange or other retirement
of, any Junior Stock (each, a "Restricted Payment"); provided, however, that a
"Restricted Payment" shall not include (i) any dividend or distribution payable
solely in shares of Junior Stock, (ii) the acquisition of any shares of Capital
Stock in exchange solely for shares of Junior Stock, or (iii) the acquisition
of any shares of Capital Stock from employees of the Corporation upon
termination of their services pursuant to binding written agreements entered
into prior to the issuance of the Preferred Stock or otherwise approved by a
majority of Preferred Directors.
Section 4. Liquidation Preference as to Accrued and Unpaid Dividends.
In the event of any liquidation, dissolution, or winding up of the Corporation,
either voluntary or involuntary, the Holders of Preferred Stock shall be
entitled to receive out of assets of the Corporation available for distribution
to shareholders, an amount equal to the accrued and unpaid dividends on such
shares through the date of final distribution to shareholders, whether or not
declared, before any payment shall be made or any assets distributed to the
holders of Junior Stock. If the assets and funds thus distributed among the
Holders of the Preferred Stock shall be insufficient to permit the payment to
such Holders of the full preferential amount described above, then the entire
assets and funds of the Corporation legally available for distribution shall be
distributed among the Holders of the Preferred Stock in proportion to the
shares of Preferred Stock then held by them.
Section 5. Redemption.
(a) Optional Redemption by the Company. Except as provided in
Sections 5(c), 5(d) and 5(e) of this Certificate of Designation, the
Corporation may not redeem the Preferred Stock at any time before January 1,
2001. Commencing on January 1, 2001, the Corporation may, at its option on any
date thereafter set by the Board of Directors, redeem for cash, out of funds
legally available therefor, all but not less than all of the outstanding shares
of Preferred Stock at a price per share equal to the Redemption Price plus all
accrued but unpaid dividends on such share.
(b) Procedures for Optional Redemption by the Company.
(i) At least 30 days but not more than 60 days before the
applicable Redemption Date, the Corporation or its transfer agent shall
mail a notice of redemption by first-class mail postage prepaid to each
Holder, addressed to such Holders at their last addresses shown on the
stock transfer books of the Corporation. Such notice shall indicate
that the shares of Preferred Stock are to be redeemed and shall, among
other things, state:
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(A) the Redemption Date;
(B) the Redemption Price and the amount of all
accrued but unpaid dividends on such shares;
(C) the Conversion Price then in effect;
(D) that the shares of Preferred Stock called for
redemption must be surrendered to the Corporation to collect the
Redemption Price and all accrued and unpaid dividends on such
shares;
(E) that shares of Preferred Stock called for
redemption may be converted at any time before the close of
business on the first Business Day preceding the Redemption
Date;
(F) the section of this Certificate of Designation
pursuant to which the shares of Preferred Stock called for
redemption are being redeemed.
Failure to give notice or any defect in the notice to any Holder shall
not affect the validity of the notice given to any other Holder.
(iii) As long as the Corporation has complied with the
requirements set forth in this Section 5(b), from and after the
applicable Redemption Date, dividends on the shares of Preferred Stock
so called for redemption shall cease to accrue, such shares shall be
canceled and shall no longer be deemed to be outstanding, and all
rights of the Holders thereof as stockholders of the Corporation
(except the right to receive from the Corporation the Redemption Price
and accrued and unpaid dividends) shall cease.
(c) Optional Redemption by the Holder Upon Certain Conditions.
Subject to Section 9(j), from and after March 15, 1997, provided shares of
Series B Preferred Stock are then outstanding, each Holder of Preferred Stock
shall have the option to require the Corporation to redeem, out of funds
legally available therefor, all or any portion of the shares of Preferred Stock
held by such Holder (the "Conditional Redemption Right") at a price per share
equal to the Redemption Price plus all accrued but unpaid dividends on such
shares.
(d) Optional Redemption by the Holder upon a Change in Control.
In the event of a Change in Control and provided shares of Series B Preferred
Stock are then outstanding, each Holder of Preferred Stock shall have the
option to require the Corporation to redeem, out of funds legally available
therefor, all but
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not less than all of the shares of Preferred Stock held by such Holder (the
"Put"), at a price per share of Preferred Stock equal to (A) all accrued but
unpaid dividends on such share, plus (B) the higher of (i) 200% of the
Redemption Price of such share or (ii) the Fair Market Value of the aggregate
number of shares of Common Stock into which such share is convertible on the
effective date of such Change in Control (the "Put Price").
(e) Optional Redemption by the Holder upon a Default. In the
event of the occurrence of any Default and provided shares of Series B
Preferred Stock are then outstanding, and for so long as any such Default shall
continue to exist unwaived or uncured, each Holder of Preferred Stock shall
have the right to require the Corporation to redeem, out of funds legally
available therefor, all but not less than all of the shares of Preferred Stock
held by such Holder (the "Default Right"), at a price per share equal to the
Redemption Price plus all accrued but unpaid dividends on such share (the
"Default Price").
(f) Procedures for Redemption upon Conditional Redemption,
Change in Control or Default. If any Holder elects to exercise its Conditional
Redemption Right, the Put or its Default Right, then such Holder shall notify
the Corporation in writing of its election (the "Holder's Notice"), and shall
surrender stock certificates evidencing the shares of Preferred Stock to be
redeemed by the Corporation pursuant to the Conditional Redemption Right, the
Put or the Default Right. Not later than twenty (20) Business Days following
the Corporation's receipt of the Holder's Notice and such surrendered stock
certificates (the "Redemption Date"), the Corporation shall pay the Redemption
Price, Put Price or the Default Price, as applicable, in cash for each share of
Preferred Stock so redeemed. As long as the Corporation has complied with the
requirements set forth in this Section 5(f), from and after the date the
Holder's Notice is given, dividends on the shares of Preferred Stock redeemed
pursuant to the Conditional Redemption Right, the Put or the Default Right
shall cease to accrue, such shares shall be canceled and shall no longer be
deemed to be outstanding, and all rights of the Holders thereof as stockholders
of the Corporation (except the right to receive from the Corporation the
Redemption Price, the Put Price or the Default Price) shall cease.
Section 6. Default.
(a) Each of the following events shall constitute a "Default"
under this Certificate of Designation:
(i) the Corporation shall fail to pay dividends payable
at the applicable Annual Dividend Rate on the Preferred Stock on
any two consecutive or non-consecutive Dividend Payment Dates or
on the date of final distribution of dividends to Holders of
Preferred Stock pursuant to Section 4.
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(ii) the Corporation shall make any Restricted Payment in
violation of Section 3(c) above.
(iii) the Corporation shall fail to pay the liquidation
preference with respect to accrued and unpaid dividends pursuant
to Section 4.
(iv) the Corporation shall fail to redeem any shares of
Preferred Stock required to be redeemed pursuant to Section 5.
(v) the Corporation shall merge or consolidate with, or
transfer all or substantially all of its assets to, another
Person in violation of Section 7.
(vi) the Corporation shall take any action in violation
of, or shall fail to take any action required in order to give
effect to, the voting rights granted to Holders of Preferred
Stock contained in Section 8.
(vii) the Corporation shall authorize, create or issue
any class or series of Capital Stock of the Corporation that is
senior to or pari passu with the Preferred Stock with respect to
dividends or the distribution of assets upon dissolution,
liquidation or winding up of the Corporation.
(viii) without the written consent or affirmative vote of
the Preferred Directors, the Corporation shall amend, alter or
repeal any of the provisions of its by-laws, as amended to date,
so as to directly or indirectly adversely affect any right,
preference or voting power of the Holders of Preferred Stock.
(ix) without the written consent or affirmative vote of
the Preferred Directors, the Corporation shall, or shall permit
any Subsidiary to: (A) incur any additional Indebtedness not
outstanding on the date of such Default; or (B) enter into any
acquisition, financing or other transaction or series of related
transactions having a total value in excess of $250,000.
(x) a Stock Purchase Agreement Default and the passage of
15 days thereafter.
(xi) a Credit Agreement Default.
(b) In the event of the occurrence of any Default, and provided
(i) written notice thereof shall have been given to the Corporation, and (ii)
such
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Default has not been cured or waived (within 15 days after such notice is
given), to the extent any agreement governing such Default permits such cure or
waiver:
(i) provided any shares of Series B Preferred Stock are
then outstanding, the Annual Dividend Rate applicable to the
Preferred Stock shall be increased to 18% commencing on the date
of such Default, and shall be calculated thereafter on a
quarterly compounded basis.
(ii) each Holder of Preferred Stock shall have the right,
provided any shares of Series B Preferred Stock are then
outstanding, to require the Corporation to redeem shares of
Preferred Stock pursuant to the Default Right described above in
Section 5(e).
(iii) notwithstanding anything to the contrary contained
in Section 9(a), each share of Series A Preferred Stock and each
share of Series B Preferred Stock shall be convertible at the
option of the Holder thereof into fully paid and nonassessable
shares of Common Stock in accordance with the provisions of
Section 9.
(iv) Shares of Preferred Stock shall entitle the Holders
thereof, voting as a separate class, to elect by plurality vote
of the Holders of shares of Preferred Stock a majority of the
Board of Directors at any special meeting of the Holders of
Preferred Stock, at any annual or special meeting of
stockholders held for the purpose of electing directors, or by
written consent in accordance with the General Corporation Law
of the State of Delaware. Each Holder of Preferred Stock shall
have one vote for each share of stock so held. At any time that
such additional voting rights have vested, the Corporation
shall, and any Holder of Preferred Stock may, call a special
meeting of the Holders of shares of Preferred Stock for the
election of the directors to be elected by them. Any vacancy in
the office of the directors so elected may be filled by the
remaining directors elected by the Holders of shares of
Preferred Stock or, if none, by the Holders of shares of
Preferred Stock as described above.
Section 7. Consolidation, Merger and Sale of Assets, etc. The
Corporation shall not consolidate with or merge into, or transfer all or
substantially all of its assets to, another Person unless (i) in the case of a
merger or consolidation, the Corporation is the surviving entity, the rights
and preferences of the Preferred Stock are not modified and the Corporation, as
the surviving entity, does not have outstanding any Capital Stock that ranks
senior to or pari passu with the Preferred Stock, or (ii) (A) the surviving,
resulting or acquiring Person is a Person organized
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under the laws of the United States, any state thereof or the District of
Columbia, or a Person organized under the laws of a foreign jurisdiction whose
equity securities are listed on a national securities exchange in the United
States or authorized for quotation on the NASDAQ National Market System, (B)
the Corporation shall make effective provision such that, upon consummation of
such transaction, the Holders of Preferred Stock shall receive preferred stock
of the surviving entity having substantially identical terms as the Preferred
Stock, and the surviving, resulting or acquiring Person does not have
outstanding any Capital Stock that ranks senior to or pari passu with the
Preferred Stock, and (C) the merger, consolidation or transfer is approved by
the written consent or affirmative vote of the Preferred Directors.
Section 8. Voting Rights of Preferred Stock.
(a) Except as set forth in this Certificate of Designation or as
otherwise required by law, Holders of shares of Series A Preferred Stock shall
be entitled to vote together as a single class with the holders of shares of
Common Stock on all matters submitted for a vote of stockholders, shall be
entitled to vote separately as a separate class on all matters other than the
election of directors, and shall be entitled to notice of all stockholders'
meetings and to act by written consent in the same manner as the holders of
Common Stock. Each share of Series A Preferred Stock shall entitle the Holder
thereof to such number of votes per share as shall equal the number of shares
of Common Stock into which such share of Series A Preferred Stock is then
convertible. Any shares of Series A Preferred Stock owned, directly or
indirectly, by the Corporation or any of its Subsidiaries shall not have voting
rights hereunder and shall not be counted in determining the presence of a
quorum.
(b) Shares of Series A Preferred Stock shall entitle the Holders
thereof, voting as a separate class, to increase by four (4) the
then-authorized number of directors comprising the whole Board of Directors and
to elect by plurality vote of the Holders of shares of Series A Preferred Stock
four (4) directors (the "Preferred Directors") at any special meeting of the
Holders of Series A Preferred Stock, at any annual or special meeting of
stockholders held for the purpose of electing directors, or by written consent
in accordance with the General Corporation Law of the State of Delaware. Each
Holder of Series A Preferred Stock shall have one vote for each share of stock
so held. At any time that such voting rights have vested, the Corporation
shall, and any Holder of Series A Preferred Stock may, call a special meeting
of the Holders of shares of Series A Preferred Stock for the election of the
Preferred Directors to be elected by them. Any vacancy in the office of the
Preferred Directors may be filled by the remaining Preferred Director or, if
none, by the Holders of shares of Series A Preferred Stock as described above.
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(c) So long as any shares of Series A Preferred Stock remain
outstanding, the affirmative vote of the Holders of a majority of the
outstanding shares of Series A Preferred Stock, voting as a separate class,
shall be required in order to:
(i) amend, alter or repeal any of the provisions of the Certificate of
Incorporation of the Corporation, as amended to date, so as to
adversely affect any right, preference or voting power of the Holders
of Series A Preferred Stock, or any of the provisions of this
Certificate of Designation.
(ii) authorize, create or issue any class or series of Capital Stock of
the Corporation that is senior to or pari passu with the Series A
Preferred Stock with respect to dividends or the distribution of assets
upon dissolution, liquidation or winding up of the Corporation.
(iii) enter into, or permit any Subsidiary to enter into, any
transaction or series of transactions having a total value in excess of
$250,000 per transaction or series of related transactions, or grant or
consent to, or otherwise permit, any amendment to, supplement of, or
waiver under, any agreement or contract with any Affiliate, unless the
Board of Directors has determined in good faith, and has certified in
writing to Apollo, that such transaction is (i) in the best interests
of the Corporation or such Subsidiary, as applicable, based on full
disclosure of all relevant facts and circumstances, and (ii) is on fair
and reasonable terms, no less favorable to the Corporation or such
Subsidiary than terms that the Corporation or such Subsidiary and a
non-affiliated Person in a similar situation would agree to in an arm's
length transaction, the terms of which have been negotiated in good
faith.
(d) The foregoing voting provisions shall not apply if, at or
prior to the time when the action with respect to which such vote would
otherwise be required to be effected, all outstanding shares of Series A
Preferred Stock shall have been redeemed.
(e) The Series B Preferred Stock shall not have any voting
rights.
Section 9. Conversion of Preferred Stock.
(a) Right of Conversion of Series A Preferred Stock.
(i) Subject to Section 6(b)(iii), each share of Series A
Preferred Stock shall be convertible at the option of the Holder thereof, at
any time and from time to time after the date of issuance of such share, into a
number of fully paid and nonassessable shares of Common Stock equal to (x) the
Redemption
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Price of such share of Preferred Stock as of the Conversion Date, divided by
(y) the Conversion Price in effect on the Conversion Date, or into such
additional or other securities, cash or property and at such other rates as
required in accordance with the provisions of this Section 9. For purposes of
this Certificate of Designation, the "Conversion Price" shall initially be
$0.9226 and shall be adjusted from time to time in accordance with the
provisions of this Section 9.
(ii) The Series B Preferred Stock shall not be
convertible into shares of Common Stock except as provided for in Section
6(b)(iii).
(b) Conversion Procedures. In order to exercise the conversion
privilege, the Holder of any shares of Preferred Stock to be converted in whole
or in part shall surrender the certificate or certificates evidencing such
shares to the Corporation and shall give written notice to the Corporation
("Conversion Notice") that the Holder elects to convert such shares or the
portion thereof specified in said notice into shares of Common Stock. The
Conversion Notice shall also state the name or names (with address) in which
the certificates for shares of Common Stock which shall be issuable upon such
conversion shall be issued. Each certificate evidencing Preferred Stock
surrendered for conversion shall, unless the shares issuable on conversion are
to be issued in the same name as the registration of such shares of Preferred
Stock, be duly endorsed by, or be accompanied by instruments of transfer in
form satisfactory to the Corporation duly executed by, the Holder or its duly
authorized attorney.
Within three (3) Business Days after receipt of a Conversion Notice and
surrender of the certificate or certificates evidencing the Preferred Stock
relating thereto, the Corporation shall issue and deliver to such Holder (or
upon the written order of such Holder) a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of such
shares of Preferred Stock or portion thereof in accordance with the provisions
of this Section 9, and a check or cash in respect of any fractional shares of
Common Stock issuable upon such conversion, as provided in Section 9(e). In the
event that less than all the shares of Preferred Stock represented by a
certificate are to be converted, the Corporation shall issue and deliver or
cause to be issued and delivered to (or upon the written order of) the Holder
of the shares of Preferred Stock so surrendered, without charge to such Holder,
a new certificate or certificates representing a number of shares of Preferred
Stock equal to the unconverted portion of the surrendered certificate.
Each conversion shall be deemed to have been effected on the date (the
"Conversion Date") on which the certificate or certificates evidencing shares
of Preferred Stock shall have been surrendered to the Corporation or its
transfer agent and a Conversion Notice with respect to such shares shall have
been received by the Corporation, as described above. Any Person in whose name
any certificate or
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certificates for shares of Common Stock shall be issuable upon conversion shall
be deemed to have become the holder of record of the shares represented thereby
on the Conversion Date; provided, however, that surrender of the certificate or
certificates evidencing shares of Preferred Stock on any date when the stock
transfer books of the Corporation shall be closed shall constitute the Person
in whose name the certificates are to be issued as the record holder thereof
for all purposes on the next succeeding day on which such stock transfer books
are open, but such conversion shall be at the Conversion Rate in effect on the
date on which such certificate or certificates shall have been surrendered.
Except as otherwise provided in this Section 9, no payment or
adjustment will be made for dividends or other distributions with respect to
any shares of Common Stock issuable upon conversion of shares of Preferred
Stock as provided herein. Full payment shall be made by the Corporation to any
Holder of shares of Preferred Stock surrendered for conversion in respect of
dividends accrued since the last preceding Dividend Payment Date on the shares
of Preferred Stock surrendered for conversion; provided, however, that if
shares of Preferred Stock shall be converted subsequent to any record date with
respect to any Dividend Payment Date and prior to the next succeeding Dividend
Payment Date, the dividend due on such Dividend Payment Date shall be payable
with respect to such shares of Preferred Stock notwithstanding such conversion,
and such dividend (whether or not punctually paid or duly provided for) shall
be paid to the Holder of such shares as of the close of business on such record
date, and the converting Holder need not include payment in the amount of such
dividend upon surrender of shares of Preferred Stock for conversion. Upon
conversion of any shares of Preferred Stock, the Fair Market Value of the
shares of Common Stock issued in respect thereof (together with any cash
payment in lieu of any fractional share) shall be treated as issued in exchange
for the Redemption Price of such shares of Preferred Stock.
(c) Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon conversion of shares of Preferred Stock. If any fractional share of Common
Stock would, but for this Section 9(c), be issuable upon the conversion of any
shares of Preferred Stock, the Corporation shall make a payment therefor in
cash on the first Business Day immediately preceding the Conversion Date equal
to the Fair Market Value of such fractional share.
(d) Adjustment of Conversion Price. The Conversion Price shall
be adjusted from time to time by the Corporation as follows:
(i) In case the Corporation shall (A) declare a dividend,
or make a distribution, in shares of any series of its Common Stock, on
any series of its Common Stock, (B) subdivide or reclassify any series
of its
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<PAGE>
outstanding Common Stock into a greater number of shares, (C) combine
any series of its outstanding Common Stock into a smaller number of
shares, (D) pay a dividend or make a distribution on any series of its
Common Stock in shares of any series of its Capital Stock other than
Common Stock, or (E) issue by reclassification of any series of its
Common Stock shares of any series of its Capital Stock, the conversion
privilege and the Conversion Price in effect immediately prior thereto
shall be adjusted so that the Holder of any shares of Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock or other Capital Stock of the
Corporation which such Holder would have owned or have been entitled to
receive after the happening of any of the events described above had
such Preferred Stock been converted immediately prior to the happening
of such event. An adjustment made pursuant to this Section 9(d)(i)
shall become effective immediately after the record date in the case of
a dividend or distribution and shall become effective immediately after
the effective date in the case of subdivision, combination or
reclassification. Such adjustment shall be made successively whenever
any event referred to above shall occur. In the event such dividend,
distribution, subdivision, reclassification or combination is not so
made, the conversion privilege and the Conversion Price then in effect
shall be readjusted to the conversion privilege and the Conversion
Price which would then be in effect if such dividend, distribution,
subdivision, reclassification or combination had not been declared or
made, but such readjustment shall not affect the number of shares of
Common Stock or other shares of Capital Stock delivered upon any
conversion prior to the date such readjustment is made.
(ii) In case the Corporation shall issue any shares of
Common Stock (or any rights, warrants, options or convertible
securities entitling the holders thereof to subscribe for or purchase
any shares of Common Stock or any stock appreciation rights entitling
the holders thereof to any interest in an increase in value of shares
of Common Stock) at a price per share less than the Conversion Price in
effect on the date of such issuance, then the Conversion Price shall be
adjusted to equal such lesser price. An adjustment made pursuant to
this Section (ii) shall become effective immediately upon the effective
date of such issuance. Such adjustment shall be made successively
whenever any shares, rights, warrants, options, convertible securities
are issued at an effective price per share of Common Stock that is less
than the Conversion Price in effect on the date of such issuance. To
the extent that any such rights, warrants, options or convertible
securities expire unexercised, the Conversion Price then in effect
shall be readjusted to the Conversion Price which then would be in
effect if such rights, options, warrants or convertible securities had
not been issued, but such readjustment shall not affect the number of
shares of
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<PAGE>
Common Stock or other shares of Capital Stock delivered upon any
conversion prior to the date such readjustment is made.
(iii) In case the Corporation shall distribute to all
holders of any series of its Common Stock any of its assets or debt
securities, or rights, options, warrants or convertible or exchangeable
securities of the Corporation (including securities for cash, but
excluding (A) distributions of Capital Stock referred to in Section
9(d)(i) above, (B) distributions of rights, warrants or options
referred to in Section 9(d)(ii) above, if the adjustment to the
Conversion Price under that Section would be greater than an adjustment
under this Section, (C) cash dividends or other cash distributions that
are paid out of Consolidated Net Income for any current Dividend
Period, earned surplus or retained earnings, unless the amount of such
cash dividends or other cash distributions exceeds 5% of the aggregate
Fair Market Value of all shares of Common Stock outstanding on the date
such dividends or distributions are declared), then in each such case,
the Conversion Price shall be adjusted to equal the Conversion Price in
effect immediately prior to such distribution less an amount equal to
the then fair market value (as reasonably determined by the Board of
Directors, in good faith and as described in a resolution of the Board
of Directors) of the portion of the assets or debt Securities of the
Corporation so distributed or of such rights, options, warrants or
convertible or exchangeable securities applicable to one share of
Common Stock. Such adjustment shall become effective immediately after
the record date for the determination of shares entitled to receive
such distribution. Notwithstanding the foregoing, no adjustment of the
Conversion Price shall be made upon the distribution to holders of any
series of Common Stock of such rights, options, warrants, convertible
securities, assets or debt securities if the plan or arrangement under
which such rights, options, warrants, convertible securities, assets or
debt securities are issued provides for their issuance to Holders of
shares of Preferred Stock in the same pro rata amounts upon conversion
thereof. Such adjustment shall be made successively whenever any event
listed above shall occur.
(iv) Anything in this Section 9(d) to the contrary
notwithstanding, the Corporation shall be entitled to make such
reductions in the Conversion Price, in addition to those required by
this Section 9(d), as it in its reasonable discretion shall determine
to be advisable in order that any stock dividends, subdivision of
shares, distribution of rights to purchase stock or securities, or
distribution of securities convertible into or exchangeable for stock
hereafter made by the Corporation to its stockholders, shall not be
taxable.
(v) Whenever the Conversion Price is adjusted as provided
in this Section 9(d), or the Preferred Stock becomes convertible into
shares of
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<PAGE>
stock, securities, property or assets pursuant to Section 9(e) below,
or the Corporation reduces the Conversion Price pursuant to Section
9(f) below, the Corporation shall prepare a notice of such adjustment
of the Conversion Price setting forth the adjusted Conversion Price and
the date on which such adjustment becomes effective, and setting forth
in reasonable detail the facts requiring such adjustment and the
calculation of such adjustment, and shall mail such notice of
adjustment to all Holders of Preferred Stock at their last addresses
appearing on the stock transfer books of the Corporation.
(vi) In any case in which this Section 9(d) provides that
an adjustment shall become effective immediately after a record date
for an event, the Corporation may defer until the occurrence of such
event (i) issuing to the Holder of any shares of Preferred Stock
converted after such record date and before the occurrence of such
event the additional shares of Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before giving
effect to such adjustment, and (ii) paying to such Holder any amount in
cash in lieu of any fractional share of Common Stock pursuant to
Section 9(c).
(vii) For purposes of any computations pursuant to this
Section 9(d), respecting consideration received, the following shall
apply:
(1) in the case of the issuance of shares of
Capital Stock for cash, the consideration shall be the amount of
such cash, provided that in no case shall any deduction be made
for any commissions, discounts or other expenses incurred by the
Corporation for any underwriting of the issue or otherwise in
connection therewith;
(2) in the case of the issuance of shares of
Capital Stock for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed to be
the fair market value thereof as reasonably determined in good
faith by the Board of Directors or a duly authorized committee
thereof (irrespective of the accounting treatment thereof), and
described in a resolution of the Board of Directors or such
committee; and
(3) in the case of the issuance of securities
convertible into or exchangeable or exercisable for shares of
Capital Stock, the aggregate consideration received therefor
shall be deemed to be the consideration received by the
Corporation for the issuance of such securities plus the
additional minimum consideration, if any, to be received by the
Corporation upon the conversion or exchange thereof
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<PAGE>
(the consideration in each case to be determined in the same
manner as provided in clauses (1) and (2) of this Section).
(viii) If after an adjustment a Holder of shares of
Preferred Stock may, upon conversion of such Security, receive shares
of two or more classes of Capital Stock of the Corporation, the
Corporation shall determine on a fair basis the allocation of the
adjusted Conversion Price between the classes of Capital Stock. After
such allocation, the conversion privilege and the Conversion Price of
each class of Capital Stock shall thereafter be subject to adjustment
on terms comparable to those applicable to Common Stock in this Section
9.
(ix) In no event shall an adjustment pursuant to this
Section 9(d) reduce the Conversion Price below the then par value, if
any, of the shares of Common Stock issuable upon conversion of shares
of Preferred Stock.
(e) Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (i) any reclassification or change
of outstanding shares of Common Stock issuable upon conversion of shares of
Preferred Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), (ii) any consolidation or merger of the Corporation with another
Person shall be effected as a result of which holders of Common Stock issuable
upon conversion of shares of Preferred Stock shall be entitled to receive
stock, securities or other property or assets (including cash) with respect to
or in exchange for such Common Stock, or (iii) any sale or conveyance of the
properties and assets of the Corporation as, or substantially as, an entirety
to any other Person, then the Corporation or such successor or purchasing
Person, as the case may be, shall make provisions in its certificate or
articles of incorporation or other constituent documents to establish that each
share of Preferred Stock then outstanding shall be convertible into the kind
and amount of shares of stock and other securities or property or assets
(including cash) receivable upon such reclassification, change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
issuable upon conversion of such shares of Preferred Stock immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance. Such
provisions shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 9.
If this Section 9(e) applies with respect to a transaction, Section
9(d) shall not apply with respect to that transaction. The above provisions of
this Section 9(e) shall similarly apply to successive reclassifications,
consolidations, mergers and sales.
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(f) Voluntary Adjustment. The Corporation at any time may reduce
the Conversion Price by any amount and for any period of time, provided that
such period is not less than twenty (20) Business Days. Whenever the Conversion
Price is reduced pursuant to this Section 9(f), the Corporation shall mail to
the Holders, a notice of the reduction at least 15 days before the date the
reduced Conversion Price takes effect and such notice shall state the reduced
Conversion Price and the period it will be in effect.
(g) Taxes on Shares Issued. The issuance of stock certificates
upon conversion or transfer of shares of Preferred Stock shall be made without
charge to the converting Holder for any tax in respect of the issuance thereof.
(h) Reservation of Shares; Shares to be Fully Paid; Compliance
with Governmental Requirements. The Corporation shall reserve, free from
preemptive rights, out of its authorized but unissued shares, or out of shares
held in its treasury, sufficient shares of Common Stock to provide for the
conversion of all shares of Preferred Stock from time to time outstanding. The
Corporation covenants that all shares of Common Stock which may be issued upon
conversion of shares of Preferred Stock will upon issuance be fully paid and
nonassessable by the Corporation and free from all taxes, liens and charges
with respect to the issuance thereof.
(i) Notice to Holders Prior to Certain Actions. In the event:
(A) that the Corporation shall take any action that would
require an adjustment in the Conversion Price pursuant to clauses (i),
(ii) or (iii) of Section 9(d) above; or
(B) that any event described in Section 9(e) above shall
occur; or
(C) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation;
the Corporation shall cause notice of such proposed action or event to be
mailed to each Holder of record of Preferred Stock at its address appearing on
the stock transfer books of the Corporation, as promptly as possible but in any
event at least thirty (30) days prior to the record date for such proposed
action or the effective date of such event; provided, however, that in the
event that the Corporation provides public notice of such proposed action or
event specifying the information set forth below at least ten (10) days prior
to the proposed record date or effective date, the Corporation shall be deemed
to have satisfied its obligation to provide notice pursuant to this Section
9(i). In any event, such notice shall specify (A) the date on which a record is
to be taken for the purpose of such action, or, if a record
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<PAGE>
is not to be taken, the date as of which the holders of record of Common Stock
are to be determined, or (B) the date on which such proposed event is expected
to become effective, and the date as of which it is expected that holders of
record of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such event. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of
such action or event.
(j) Mandatory Conversion of Series B Preferred Stock. Each share
of Series B Preferred Stock shall be automatically converted into one share of
Series A Preferred Stock and shall not be deemed outstanding upon the
occurrence of the approval, by vote or written consent of a majority of total
votes cast in person or by proxy, by stockholders of the Corporation in
accordance with applicable Delaware and federal law, of the issuance of
additional shares of Series A Preferred Stock in excess of 17,109 shares.
(k) Optional Conversion of Series B Preferred Stock by the
Holder. Each share of Series B Preferred Stock shall be convertible at the
option of the Holder thereof into one share of Series A Preferred Stock, at any
time or from time to time (A) after March 15, 1997 unless the approval, by vote
or written consent of a majority of total votes cast in person or by proxy, by
stockholders of the Corporation in accordance with applicable Delaware and
federal law, of the issuance of additional shares of Series A Preferred Stock
in excess of 17,109 shares has been obtained by that date, and (B) after June
15, 1997 unless an amendment of the Corporation's Certificate of Incorporation
deleting Article 9 thereof has been (i) approved, by vote or written consent of
holders of at least two-thirds of the voting power of the outstanding stock of
the corporation entitled to vote thereon, by stockholders of the Corporation in
accordance with applicable Delaware and federal law, and (ii) filed and
recorded with the Secretary of State of the State of Delaware by that date.
Section 10. Transfers; Replacement of Certificates.
(a) Transfers. Subject to any restrictions on transfer under
applicable securities or other laws, shares of Preferred Stock may be
transferred on the books of the Corporation by the surrender to the Corporation
of the certificate therefor properly endorsed or accompanied by a written
assignment and power of attorney properly executed, with transfer stamps (if
necessary) affixed, and such proof of the authenticity of signature as the
Corporation or its transfer agent may reasonably require.
(b) Replacement of Certificates. If any mutilated certificate
representing shares of Preferred Stock is surrendered to the Corporation, or if
a Holder claims the certificate representing shares of Preferred Stock has been
lost, destroyed or willfully taken, the Corporation shall issue a replacement
certificate of
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like tenor and date if (i) the Holder provides an indemnity bond or other
security sufficient, in the reasonable judgment of the Corporation, to protect
the Corporation and any authenticating agent and any of their officers,
directors, employees or representatives from any loss which any of them may
suffer if a certificate representing shares of Preferred Stock is replaced, and
(ii) the Holder satisfies any other reasonable requirements of the Corporation.
Section 11. Reacquired Shares. Any shares of Preferred Stock which are
converted, purchased, redeemed or otherwise acquired by the Corporation, shall
be retired and canceled by the Corporation promptly thereafter. No such shares
shall upon their cancellation be reissued.
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IN WITNESS WHEREOF, NextHealth, Inc. has caused this Certificate of
Designation to be duly signed by _______________, its ________________________,
and attested by ______________________, its Secretary, this ____ day of
November, 1996.
NEXTHEALTH, INC.
By: _______________________
Name:
Title:
Attest:
By: _____________________
Name:
Title:
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REGISTRATION AND PRE-EMPTIVE RIGHTS 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 ("Apollo").
PRELIMINARY STATEMENT
Apollo and the Corporation have entered into a Preferred Stock and
Warrant Purchase Agreement dated as of the date hereof (the "Stock Purchase
Agreement") pursuant to which the Corporation issued to Apollo (i) convertible
preferred stock (the "Preferred Stock") convertible under stated conditions
into a number of shares of the Corporation's Common Stock, par value $0.01 per
share (the "Common Stock") and (ii) a stock purchase warrant (the "Warrant")
evidencing Apollo's right to purchase a number of shares of Common Stock, (such
shares of Common Stock, together with any additional shares of Common Stock
issued or issuable to Apollo under a stock purchase warrant dated October 15,
1996, the anti-dilution provisions of the Warrant, Article 3 hereof or the
terms of the Preferred Stock, being referred to hereinafter as the "Shares").
In consideration of Apollo's execution and delivery of the Loan
Agreement and the premises and mutual covenants and agreements hereinafter
contained, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.1 Definitions. For purposes of this Agreement, capitalized
terms used herein and not defined elsewhere herein shall have the following
meanings:
"Act" means the Securities Act of 1933, as amended, or any similar
Federal statute, and the rules and regulations of the Commission issued under
the Act, as they each may, from time to time, be in effect.
"Commission" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Act.
"Common Stock" means the shares of common stock, $0.01 par value, of
the Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
issued under the Exchange Act, as they each may, from time to time, be in
effect.
"Holder" shall mean Apollo, any original registered holder of
Registrable Securities, and any registered transferee of a Holder.
"Stock Purchase Agreement" shall mean the Preferred Stock and Warrant
Purchase Agreement dated as of the date hereof between Apollo and the
Corporation.
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"New Securities" means any capital stock of the Corporation whether now
authorized or not, and rights, options or warrants to purchase capital stock,
and securities of any type whatsoever which are, or may become, convertible
into capital stock; provided, however, that the term "New Securities" does not
include (i) the Shares or any additional shares of Common Stock issuable upon
conversion of the Shares; (ii) the issued shares of capital stock and the other
securities exchangeable for or convertible into shares of capital stock of the
Corporation described in Section 2.1 hereof; (iii) securities issued for the
acquisition of another corporation by the Corporation by merger, purchase of
substantially all the assets of such corporation or other reorganization
resulting in the ownership by the Corporation of not less than 51% of the
voting power of such corporation; (vi) shares of Common Stock (or options to
purchase Common Stock) issued or issuable to employees or consultants of the
Corporation pursuant to the Corporation's existing stock option plans; (v)
securities issued as a result of any stock split, stock dividend or
reclassification of Common Stock, distributable on a pro rata basis to all
holders of Common Stock; or (vii) securities issued to third parties in payment
for services rendered or goods provided to the Corporation.
"Preferred Stock" means, collectively, the Series A Preferred Stock and
the Series B Preferred Stock.
"Registrable Securities" means (i) the Shares, and (ii) any other
shares of Common Stock of the Corporation issued in respect of the Shares
(because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events).
"Series A Preferred Stock" means the shares of series A preferred
stock, $0.01 par value, of the Corporation.
"Series B Preferred Stock" means the shares of series B preferred
stock, $0.01 par value, of the Corporation.
ARTICLE 2.
CAPITALIZATION
Section 2.1 Capitalization. The Corporation represents and warrants to
Apollo that, on the date hereof, the authorized capitalization and the issued
and outstanding shares of capital stock and securities of the Corporation are
as set forth on Schedule I hereto.
ARTICLE 3.
PRE-EMPTIVE RIGHTS
Section 3.1 Pre-Emptive Right.
(a) In the event of future issuances of New Securities by the
Corporation, the Corporation hereby grants to Apollo a right to purchase
additional shares of capital stock sufficient (the "Sufficient Number") to
maintain Apollo's percentage ownership interest in the Corporation, at a price
equal to the offering price of such additional shares of capital stock.
Apollo's percentage ownership interest, for purposes of this Section 3.1(a),
shall equal a fraction, the numerator of which is the number of
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shares of Common Stock then held by Apollo or issuable upon conversion or
exercise of any Shares, convertible securities, options, rights or warrants
then held by Apollo, and the denominator of which is the total number of shares
of Common Stock then outstanding plus the number of shares of Common Stock
issuable upon conversion or exercise of then outstanding Preferred Stock,
convertible securities, options, rights or warrants. The rights granted to
Apollo pursuant to this Article 3 shall expire on December 31, 2006.
(b) In the event the Corporation intends to issue New Securities, it
shall give Apollo written notice of such intention, describing the type of New
Securities to be issued, the price thereof and the general terms upon which the
Corporation proposes to effect such issuance. Apollo shall have 20 days from
the date of any such notice to agree to purchase up to the Sufficient Number of
shares of additional New Securities for the price and upon the general terms
and conditions specified in the Corporation's notice by giving written notice
to the Corporation stating the quantity of such New Securities to be so
purchased. Apollo shall have a right of overallotment such that if any other
person or entity entitled to pre-emptive rights fails to exercise his or its
right to purchase his or its total number of shares of additional New
Securities to which he or it is entitled, Apollo may purchase the portion not
purchased by such other person or entity on a pro rata basis (based upon the
relative percentage ownership interests of Apollo and those other investors
exercising their overallotment right), by giving written notice to the
Corporation within five days from the date that the Corporation provides
written notice to the other investors of the amount of New Securities with
respect to which such nonpurchasing investor has failed to exercise its or his
right hereunder.
ARTICLE 4.
REGISTRATION RIGHTS
4.1 Optional Registrations. If at any time or times after the
date hereof, the Corporation shall determine to register any of its Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock under the Securities Act (whether in connection with a public offering of
securities by the Corporation (a "primary offering"), a public offering thereof
by shareholders (a "secondary offering"), or both, but not in connection with a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable), it agrees to do the following:
(a) The Corporation shall promptly give written notice of
registration under this Section 4.1 to the holders of Registrable Securities
then outstanding (the "Holders"), and will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities for which
the Holders may request registration in a writing delivered to the Corporation
within fifteen (15) days after such notice given by the Corporation; provided,
however, that in the case of the registration of Common Stock by the
Corporation in connection with an underwritten public offering, the Corporation
shall not be required to register Registrable Securities of the Holders in
excess of the amount, if any, of Common Stock which the principal underwriter
of an underwritten offering shall reasonably and in good faith agree in writing
to include in such offering.
(b) If any Registrable Securities are not to be registered
pursuant to this Section 4.1 because the number of Registrable Securities for
which registration has been requested by the Holders pursuant to paragraph (a)
above exceeds the amount of Common Stock which the principal
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underwriter of an underwritten offering shall reasonably and in good faith
agree in writing to include in such offering, the Holders who have requested
participation shall be entitled to participate in such registration and
offering proportionately in accordance with the number of shares of Common
Stock owned or obtainable by them upon exercise of rights (including conversion
rights) with respect to other securities (including Preferred Stock) owned by
them.
(c) If the Corporation includes in a registration under this
Section 4.1 any securities to be offered by it, all expenses of the
registration and offering and the reasonable fees and expenses of not more than
one independent counsel for the Holders shall be borne by the Corporation,
except that the Holders shall bear underwriting commissions attributable to
their Registrable Securities being registered and transfer taxes on shares
being sold by such Holders. If the registration under this Section 4.1 is
exclusively a secondary offering, as defined in this Section 4.1, the Holders
shall bear their proportionate share of the expenses of the registration and
offering (provided all shareholders registering shares thereunder bear their
proportionate share of expenses), except expenses which the Corporation would
have incurred whether or not registration was attempted, including, without
limitation, the expense of preparing normal audited or unaudited financial
statements or summaries consistent with this Agreement or applicable Commission
filings.
(d) Without in any way limiting the types of registrations to
which this Section 4.1 shall apply, in the event that the Corporation shall
effect a "shelf registration", under Rule 415 promulgated under the Securities
Act, or any other similar rule or regulation ("Rule 415"), the Corporation
shall take all necessary action, including, without limitation, the filing of
post-effective amendments, to permit the Holders to include their shares in
such registration in accordance with all of the terms of this Section 4.1.
4.2 Required Registrations. If on any two (2) occasions at least
one year apart, after September 30, 1997, one or more of the Holders of an
aggregate of 10% or more of the Registrable Securities then outstanding and
held by all Holders, shall notify the Corporation in writing that he or they
intend to offer or cause to be offered for public sale all or any portion of
their Registrable Securities having an offering price of not less than
$2,000,000, the Corporation will notify all of the Holders who would be
entitled to notice of a proposed registration under Section 4.1 of its receipt
of such notification from such Holder or Holders. Upon the written request of
any such Holder delivered to the Corporation within fifteen (15) days after
receipt from the Corporation of such notification, the Corporation will either
(i) elect to make a primary offering in which case the rights of the Holders
shall be as set forth in Section 4.1, except that the Corporation shall not be
permitted to limit the number of shares which may be registered by any Holder,
or (ii) use its best efforts to cause such of the Registrable Securities as may
be requested by any Holders (including the Holders giving the initial notice of
intent to register hereunder) to be registered under the Securities Act in
accordance with the terms of this Section 4.2. All expenses of such
registrations and offerings and the reasonable fees and expenses of not more
than one independent counsel for the Holders shall be borne by the Corporation,
except that the Holders shall bear underwriting commissions attributable to
their Registrable Securities being registered, transfer taxes on shares being
sold by such Holders and the expense of any special audit of the Corporation's
financial statements if the notice requesting registration does not reasonably
permit the use of existing or contemplated audited statements. The Corporation
shall not be required to cause a registration statement requested pursuant to
this Section 4.2 to become effective prior to sixty (60) days following the
effective date of a registration statement initiated by the Corporation, if the
request for registration has been received by the Corporation subsequent to the
giving of written notice by the Corporation, made in good faith, to the
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Holders of Registrable Securities to the effect that the Corporation is
commencing to prepare a Corporation-initiated registration statement (other
than a registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable); provided, however, that the Corporation
shall use its best efforts to achieve such effectiveness promptly following
such sixty (60) day period if the request pursuant to this Section 4.2 has been
made prior to the expiration of such sixty (60) day period. The Corporation may
postpone the filing of any registration statement required hereunder for a
reasonable period of time, not to exceed thirty (30) days, if the Corporation
has been advised by legal counsel that such filing would require the disclosure
of a material transaction or other factor and the Corporation determines
reasonably and in good faith that such disclosure would have a material adverse
effect on the Corporation.
4.3 Selection of Underwriter. In the case of any registration
effectuated pursuant to Section 4.1, the Corporation shall have the right to
designate the managing underwriter subject to the approval of a majority of the
Holders who have requested registration, and each Holder whose shares are
registered for sale through such underwriter shall enter into an underwriting
agreement in form and on terms customary for such transactions.
4.4 Stand Off Agreement. Each Holder of Registrable Securities,
if requested by the Corporation and an underwriter of Common Stock or other
securities of the Corporation, shall agree not to sell or otherwise transfer or
dispose of any Registrable Securities or other securities of the Corporation
held by such Holder for a specified period of time (not to exceed 180 days)
following the effective date of a Registration Statement, provided all persons
holding not less than the number of shares of Common Stock held by such Holder
(including shares of Common Stock issuable upon the conversion of Shares, or
other convertible securities, or upon the exercise of options, warrants or
rights) enter into similar agreements. Such agreements shall be in writing in a
form satisfactory to the Corporation and such underwriter. The Corporation may
impose stop-transfer instructions with respect to the Registrable Securities or
other securities subject to the foregoing restriction until the end of the
standoff period.
4.5 Further Obligations of the Corporation. Whenever under the
preceding sections of this Article 4 the Corporation is required to register
Common Stock, it agrees that it shall also do the following:
(a) Use its best efforts diligently to prepare for filing with
the Commission a registration statement and such amendments and supplements to
said registration statement and the prospectus used in connection therewith as
may be necessary to keep said registration statement effective and to comply
with the provisions of the Securities Act with respect to the sale of
securities covered by said registration statement for the period necessary to
complete the proposed public offering (but not in excess of 180 days);
(b) Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder may
reasonably request to facilitate the public offering of his or its Common
Stock;
(c) In the case of Section 4.1, enter into an underwriting
agreement with provisions reasonably required by the proposed underwriter for
the selling Holders, if any; and
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(d) Use its best efforts to register or qualify the Common Stock
covered by said registration statement under the securities or "blue-sky" laws
of such jurisdictions as any selling Holder may reasonably request, provided
that the Corporation shall not be required to register in any states which
require it to qualify to do business or subject itself to general service of
process.
4.6 Form S-3. If the Corporation becomes eligible to use Form
S-3 under the Securities Act or a comparable successor form, the Corporation
shall use its best efforts to continue to qualify at all times for registration
on Form S-3 or such successor form. At any time and from time to time after the
Corporation becomes eligible to use Form S-3 or such successor form, the
Holders of an aggregate of not less than ten percent (10%) of Registrable
Securities then outstanding and held by the Holders shall have the right to
request and have effected a registration of shares of Registrable Securities on
Form S-3 or such successor form for a public offering of shares of Registrable
Securities having an aggregate proposed offering price of not less than
$2,000,000 (such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders). The Corporation shall
not be required to cause a registration statement requested pursuant to this
Section 4.6 to become effective prior to ninety (90) days following the
effective date of a registration statement initiated by the Corporation, if the
request for registration has been received by the Corporation subsequent to the
giving of written notice by the Corporation, made in good faith, to the Holders
of Registrable Securities to the effect that the Corporation is commencing to
prepare a Corporation-initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Commission under
the Securities Act is applicable); provided, however, that the Corporation
shall use its best efforts to achieve such effectiveness promptly following
such ninety (90) day period if the request pursuant to this Section 4.6 has
been made prior to the expiration of such ninety (90) day period. The
Corporation may postpone the filing of any registration statement required
hereunder for a reasonable period of time, not to exceed sixty (60) days, if
the Corporation has been advised by legal counsel that such filing would
require the disclosure of a material transaction or other factor and the
Corporation determines reasonably and in good faith that such disclosure would
have a material adverse effect on the Corporation. The Corporation shall give
notice to all Holders of the receipt of a request for registration pursuant to
this Section 4.6 and shall provide a reasonable opportunity for such Holders to
participate in the registration. Subject to the foregoing, the Corporation will
use its best efforts to effect promptly the registration of all shares of
Common Stock on Form S-3 or such successor form to the extent requested by the
Holder or Holders thereof for purposes of disposition. If so requested by any
Holder in connection with a registration under this Section 4.6, the
Corporation shall take such steps as are required to register such Holder's
Registrable Securities for sale on a delayed or continuous basis under Rule
415, and to keep such registration effective until all of such Holder's
Registrable Securities registered thereunder are sold (but not in excess of 365
days). All expenses incurred in connection with a registration requested
pursuant to this Section 4.6, including, without limitation, all registration,
qualification, printing, and accounting and counsel fees, shall be paid by the
Holders participating in such registration on a pro-rata basis in proportion to
such participation. Notwithstanding the foregoing, the Corporation shall not be
required to effect a registration under this Section 4.6 if, in the opinion of
counsel for the Corporation, which counsel and opinion shall be acceptable to
the Holders, such Holders may then sell all Registrable Securities proposed to
be sold in the manner proposed without registration under the Securities Act.
4.7 Indemnification. Incident to any registration statement
referred to in this Article 4, and subject to applicable law, (a) the
Corporation will indemnify each underwriter, each Holder of
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Registrable Securities so registered, and each person controlling any of them,
against all claims, losses, damages and liabilities, including legal and other
expenses reasonably incurred in investigating or defending against the same,
arising out of any untrue statement of a material fact contained therein, or
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of any
violation by the Corporation of the Securities Act, any state securities or
"blue-sky" laws or any rule or regulation thereunder in connection with such
registration, except insofar as the same may have been caused by an untrue
statement or omission based upon information furnished in writing to the
Corporation by such underwriter, Holder, or controlling person, respectively,
expressly for use therein, and (b) with respect to such untrue statement or
omission in the information furnished in writing to the Corporation by such
Holder, such Holder will indemnify the underwriters, the Corporation, its
directors and officers, the other Holders and each person controlling any of
them against any losses, claims, damages, expenses (including legal or other
expenses) or liabilities to which any of them may become subject to the same
extent.
4.8 Rule 144 Requirements. The Corporation will use its best
efforts to file with the Commission such information as the Commission may
require under the reporting requirements of either Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended, and in such event, the
Corporation shall use its best efforts to take all action as may be required as
a condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereafter in effect). The Corporation shall furnish to
any Holder of Registrable Securities upon request a written statement executed
by the Corporation as to the steps it has taken to comply with the current
public information requirement of Rule 144 or such successor rule.
4.9 Amendment or Waiver of Registration Rights. The registration
rights provided for in this Article 4 may not be waived otherwise than by a
written instrument signed by the party so waiving such rights; provided,
however, that changes in or additions to, and any consents required by this
Article 4 may be made, and compliance with any term, covenant, condition or
provision set forth in this Article 4 may be omitted or waived (either
generally or in a particular instance and either retroactively or
prospectively) by a consent or consents in writing signed by Holders holding a
majority in interest of the Registrable Securities held by the Holders and (in
the case of any such change or addition) the Corporation. Any amendment or
waiver effected in accordance with this Section 4.9 shall be binding upon each
Holder of Registrable Securities, each transferee of a Holder under Section
4.10 and the Corporation.
4.10 Transfer of Rights.
(a) The rights granted to Apollo under this Agreement may be
transferred by a Holder (a) to another person or entity that is then a
stockholder of the Corporation, (b) to any affiliate of a Holder or to any
person or entity acquiring Registrable Securities representing ownership of, or
the right to acquire at least 500,000 shares of Common Stock (as adjusted for
stock splits, stock dividends, recapitalization or similar events), or (c) to a
shareholder or partner of a Holder who receives Registrable Securities as a
distribution from such Holder. Each such transferee shall be deemed to be a
"Holder" for purposes of this Article 4.
(b) Any transferee (other than a stockholder who is already a party to
an agreement in form and substance similar to this Agreement) to whom rights
under this Agreement are transferred shall, as a condition to such transfer,
deliver to the Corporation a written instrument by which such
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transferee identifies itself, give the Corporation notice of the transfer of
such rights, indication the Registrable Securities owned by it and agrees to be
bound by the obligations imposed upon Apollo under this Agreement.
(c) A transferee to whom rights are transferred pursuant to this
Section 4.10 may not again transfer such rights to any other person or entity,
other than as provided in this Section 4.10.
ARTICLE 5.
MISCELLANEOUS
Section 5.1 Succeeding Securities. In the event the Common Stock
of the Corporation covered by this Agreement is converted into any other
security of the Corporation or any other corporation, the terms of this
Agreement shall apply with full force and effect to any such other security and
the obligations of the Corporation to effect registration and offer pre-emptive
rights shall include such other filings, qualifications, notices and similar
acts as may be necessary to enable Apollo to realize the benefits of
registration and pre-emptive rights provided by this Agreement.
Section 5.2 Consent. Wherever reference is made in this
Agreement to a request or consent of holders of a certain percentage of
Registrable Securities, the determination of such percentage shall include
shares of Common Stock issuable upon conversion or exercise of the Registrable
Securities held by a holder even if such conversion or exercise has not yet
been effected.
Section 5.3 Waivers; Modifications in Writing. No failure or
delay on the part of Apollo, or any holder of rights under this Agreement, in
exercising any right, power, or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. No amendment, modification, supplement,
termination, consent or waiver of or to any provision of this Agreement, nor
consent to any departure therefrom, shall in any event be effective unless the
same shall be in writing and signed by Apollo and the Corporation. Any waiver
of any provision of this Agreement, and any consent to any departure by the
Corporation from the terms of any provisions of this Agreement, shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on the Corporation in any case shall entitle the
Corporation to any other or further notice or demand in similar or other
circumstances.
Section 5.4 Notices, etc. 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 Americas
38th Floor
New York, New York 10019
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Attention: Alfred Trivilino
with a copy to:
Apollo Real Estate Advisors, L.P.
1999 Avenue of the Stars
Suite 1900
Los Angeles, CA 90067
Attention: Michael D. Weiner, Esq.
and a copy to:
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attention: Les Loffman, Esq.
If to the Corporation:
NextHealth, Inc.
16600 N. Lago Del Oro Parkway
Tucson, AZ 85739
Attention: President
with a copy to:
Neal, Gerber & Eisenberg
2 North LaSalle Street
Chicago, IL 60602
Attention: Steve Berger, 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.
Section 5.5 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
Section 5.6 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.
Section 5.7 Execution in 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,
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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.
Section 5.8 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.
Section 5.9 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.
Section 5.10 Specific Performance. Apollo and each other Holder
shall have the right to specific performance by the Corporation of the
provisions 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 Apollo or any other Holder.
Section 5.11 Severability of Provisions. Whenever possible this
Agreement and each provision hereof shall be interpreted in such manner as to
be effective, valid and enforceable under applicable law. If and to the extent
that any such provision shall be held invalid and unenforceable by any court of
competent jurisdiction, such holding shall not invalidate or render
unenforceable any other provisions hereof or thereof, and any determination
that the application of any provision hereof or thereof to any person or under
any circumstance is illegal and unenforceable shall not affect the legality,
validity and enforceability of such provision as it may be applied to any other
person or in any other circumstance.
Section 5.12 Survival of Agreements, Representations and
Warranties. All agreements, representations and warranties made herein shall
survive the execution and delivery of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first hereinabove set
forth.
Borrower
NEXTHEALTH, INC.
By:
Name:
Title:
Apollo
AP NH LLC
By AP GP NH LLC, its Managing Member
By KRONUS PROPERTY, INC.,
its Managing Member
By:
Name: Alfred Trivilino
Title: Vice President
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SCHEDULE I
