Item 1.01 Entry into a Material Definitive Agreement.
Notes Subscription Agreements, Indenture & Security Agreement
On August 12, 2022, UpHealth, Inc. (“UpHealth” or the “Company”) entered into convertible note subscription agreements (the “Subscription Agreements”), each dated August 12, 2022, with certain institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell, in a private placement (the “2025 Notes Offering”) expected to close on August 18, 2022 (the “Closing Date”), $67,500,000 in aggregate principal amount of a new series of variable rate convertible senior secured notes due 2025 (the “2025 Notes”). The 2025 Notes are to be issued under an indenture to be entered into between the Company and Wilmington Trust, National Association, a national banking association (“Wilmington Trust”), in its capacity as trustee thereunder (the “Indenture”).
The 2025 Notes will be fully and unconditionally guaranteed on a senior secured basis (the “Guarantees”) by each of the Company’s subsidiaries, except for any foreign subsidiary, any foreign subsidiary holding company, any subsidiaries of any foreign subsidiary, and any subsidiary that is prohibited or restricted from providing a Guarantee or granting security by applicable law or any contractual obligation with non-affiliated third-parties existing on the issue date or at the time such subsidiary becomes a subsidiary and that was not implemented in contemplation of such subsidiary becoming a subsidiary in order to avoid granting a Guarantee or security (such subsidiaries providing Guarantees, the “Guarantors”); provided, however, that a Guarantor will include any domestic subsidiary that Guarantees any indebtedness of the Company. The 2025 Notes will be secured by a first-priority lien, subject only to certain permitted liens, in substantially all assets of the Company and the Guarantors, subject to customary exclusions, pursuant to a security and pledge agreement (the “Security Agreement”) to be entered into concurrently with the Indenture by and among the Company, the Guarantors, and Wilmington Trust as collateral agent on behalf of the holders of the Notes.
The 2025 Notes will (i) bear interest at a rate equal to the daily secured overnight financing rate (“SOFR”) plus 9.0% per annum, with a minimum rate of 10.5% per annum, payable quarterly in arrears, (ii) be convertible into shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), at a conversion price of $1.75 per share of Common Stock in accordance with the terms of the Indenture, and (iii) mature on December 15, 2025 (the “Maturity Date”).
Following certain corporate events that occur prior to the Maturity Date, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its 2025 Notes in connection with such a corporate event. In addition, in connection with such corporate events, the holders of the 2025 Notes may instead require the Company to repurchase for cash all or part of their 2025 Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price that will be equal to 105% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest thereon, if any.
At any time when the aggregate Net Proceeds (as defined in the Indenture) to the Company and its subsidiaries from Asset Sales (as defined in the Indenture) exceed $15.0 million, the Company will make an offer (an “Asset Sale Offer”) to all holders of 2025 Notes to repurchase 2025 Notes for an aggregate amount of cash equal to 20.0% of such Net Proceeds (excluding, for the avoidance of doubt, any Net Proceeds previously applied to the repurchase of any 2025 Notes pursuant to any preceding Asset Sale Offer), at a repurchase price per 2025 Note equal to 100.0% of the principal amount thereof, plus accrued and unpaid interest, if any.
On or after June 16, 2024, the Company may redeem (an “Optional Redemption”) for cash all or any portion of the 2025 Notes at a redemption price equal to the Applicable Percentage (as defined in the Indenture) of the principal amount of such 2025 Notes, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date; provided, however, that if the Company elects to redeem fewer than all of the outstanding 2025 Notes, the Company must, in the case of each Optional Redemption, elect to redeem a minimum of $5.0 million in aggregate principal amount of 2025 Notes. The Company is not required to redeem or retire the 2025 Notes periodically.
The Indenture contains covenants that, among other things, limit the ability of the Company and its subsidiaries to, subject to customary and negotiated carveouts set forth therein: (i) incur additional indebtedness unless expressly subordinate to, and with a maturity date at least one year after, the 2025 Notes, guarantee indebtedness or issue redeemable equity; (ii) create certain senior or pari passu liens; (iii) pay dividends on, repurchase or make distributions on account of capital stock or make other restricted payments; (iv) make certain unpermitted investments; and (v) sell, transfer or otherwise convey certain assets.
The Company will be obligated to list the shares issuable upon conversion of the 2025 Notes by filing a Supplemental Listing Application with the New York Stock Exchange (the “NYSE”) as soon as practicable from the date hereof.
The obligations of each Investor to consummate the subscriptions provided for in the Subscription Agreements are conditioned upon, among other things, the Company not having entered into any subscription agreements with any other investors with a lower purchase price per $1,000 in principal amount of the 2025 Notes or other terms (economic or otherwise) more favorable to such other investors than as set forth in the Subscription Agreement, and the closing under the Subscription Agreements occurring concurrently with the closing under the Note Purchase Agreements (as defined below).
