UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): APRIL 5, 2006
FAMILY HOME HEALTH SERVICES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA
(STATE OR OTHER JURISDICTION OF INCORPORATION)
000-32887 02-0718322
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
801 WEST ANN ARBOR TRAIL
SUITE 200
PLYMOUTH, MICHIGAN
48170
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(734) 414-9990
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
Purchase Agreement
On April 5, 2006, Family Home Health Services Inc. (the "Company") entered
into and closed on a Purchase and Sale Agreement ("Purchase Agreement") between
the Company, New PTRS, LLC, a Florida limited liability company ("New PTRS"),
Coastal Health Care Solutions, LLC, a Florida limited liability company
("CHCS"), Professional Therapy & Rehabilitation Services, LLC, a Florida limited
liability company ("PTRS LLC"), Professional Therapy & Rehab Services, Inc., a
Florida corporation ("PTRS Inc."), Nursing Solutions International, Inc., a
Florida corporation ("NSI"), Marc Domb ("Domb"), and David Kyle ("Kyle").
New PTRS is a wholly-owned subsidiary of the Company. PTRS Inc. and NSI
each owned 50% of the membership interests of CHCS and PTRS LLC. Domb owned 100%
of the issued and outstanding shares of capital stock of PTRS Inc., and is an
executive officer of PTRS Inc., PTRS LLC and CHCS. Kyle owned 100% of the issued
and outstanding shares of capital stock of NSI Inc. and is an executive officer
of NSI, PTRS LLC and CHCS.
Pursuant to the Purchase Agreement, New PTRS ("Buyer") purchased
substantially all of the assets of CHCS, PTRS LLC and PTRS Inc. (collectively,
"Sellers"). Under the terms of the Purchase Agreement, Buyer agreed to pay to
Sellers an aggregate purchase price of:
(a) $4,224,578, payable in cash at closing, which equals the difference
between: (i) 65% of the Sellers' combined earnings before interest,
taxes, depreciation and amortization ("EBITDA") for the period
beginning July 1, 2004 and ending June 30, 2005, multiplied by five
("Down Payment"); and (ii) one-half of the purchase price adjustment
("Adjustment Amount");
(b) an amount (to be determined), payable in cash on the first anniversary
of the closing, equal to the sum of: (i) the difference between
(A) the Sellers' combined EBITDA for the period beginning January 1,
2005 and ending December 31, 2005, multiplied by five, and (B) the sum
of the Down Payment and the Adjustment Amount; and (ii) interest in an
amount equal to 8% of the amount paid pursuant to this paragraph
(b)(i).
(c) an amount (to be determined), payable on the first anniversary of the
closing in shares of common stock, par value $0.001, of the Company as
valued based on the average daily closing price during the period
beginning June 1, 2006 and ending June 30, 2006, equal to the
difference between: (i) the Seller's combined EBITDA for the period
beginning July 1, 2005 and ending at the closing, and the Buyer's
EBITDA for the period beginning at the closing and ending June 30,
2006; multiplied by five; and (ii) the Sellers' combined EBITDA for
the period beginning January 1, 2005 and ending December 31, 2005,
multiplied by five.
(d) an amount (to be determined), payable on the second anniversary of the
closing in shares of common stock as valued based on the average daily
closing price during the period beginning June 1, 2007 and ending June
30, 2007, equal to the difference between: (i) the Buyer's EBITDA for
the period beginning July 1, 2006 and ending June 30, 2007, multiplied
by five; and (ii) the sum of the cash and the value of the shares of
common stock transferred to Sellers pursuant to paragraphs (a) through
(c) above.
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The cash portions of the purchase price shall be paid by Buyer to Sellers
by wire transfer of immediately available funds to bank accounts directed by the
Sellers.
The total number of shares of common stock to be issued by the Company to
Sellers shall not exceed one million shares.
In connection with the Purchase Agreement, Messrs. Kevin Ruark and James
Pilkington, directors, executive officers and principal shareholders of the
Company, entered into an agreement with Sellers pursuant to which Messrs. Ruark
and Pilkington will assign and deliver to Sellers, for no further consideration,
any additional shares of common stock to which Sellers would be entitled, but
for the one million share limitation contained in the Purchase Agreement, based
upon the earnings of Sellers' businesses for the periods specified in paragraphs
(c) and (d) above.
PTRS Inc., NSI, Domb and Kyle (collectively, "Seller Equityholders") joined
the Purchase Agreement to make the representations, warranties, covenants and
indemnifications set forth in the Purchase Agreement. Also, Domb and Kyle agreed
to be employed by and not to compete with Buyer, and Sellers and NSI agreed not
to compete with Buyer or the Company, as more fully described in the respective
Employment Agreements and Noncompetition Agreement attached as exhibits hereto
and incorporated herein by reference.
The foregoing is a summary of certain material terms and conditions of the
Purchase Agreement, and not a complete discussion of that agreement.
Accordingly, the foregoing is qualified in its entirety by reference to the full
text of the Purchase Agreement attached as an exhibit hereto and incorporated
herein by reference.
Amended Loan Agreement
On April 5, 2006 ("Effective Date"), the Company entered into an Amended
and Restated Loan Agreement ("Amended Loan Agreement") with Comerica Bank as
"Lender." The Amended Loan Agreement replaces the Loan Agreement ("Loan
Agreement") between the Company and Lender with Master Revolving Note and
Security Agreement all dated November 10, 2005, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2005 (File No. 000-32887). In addition to the $1,300,000 revolving line of
credit ("Line of Credit") previously extended to the Company by Lender pursuant
to the Loan Agreement and the line of credit note ("Master Revolving Note"), the
Amended Loan Agreement provides for a term loan of up to $3,750,000 to finance a
portion of the consideration to be paid by Buyer to Sellers under the Purchase
Agreement ("Term Loan").
The Term Loan is evidenced by a term note dated the Effective Date in the
principal amount of $3,750,000 ("Term Note"). The principal of the Term Note is
payable in equal monthly installments. All outstanding principal and accrued but
unpaid interest is due and payable on April 5, 2008 (unless sooner accelerated
pursuant to the Amended Loan Agreement). The outstanding principal balance of
the Master Revolving Note and the Term Note shall bear interest at a rate equal
to the greater of (a) the prime rate or (b) the overnight rate plus 1%; plus or
minus 0.50% in the case of advances under the Line of Credit, or 1.50% in the
case of the Term Loan.
As a fee for the Term Loan, the Company (a) delivered to Lender, on the
Effective Date, a warrant for the purchase of 250,000 shares of common stock at
a price of $1.20 per share, exercisable for five years following the Effective
Date; and (b) shall, on July 5, 2006, either (i) pay to Lender the entire
outstanding balance of the Term Loan plus accrued interest, or (ii) pay to
Lender a commitment fee of
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$28,125, and deliver a warrant for the purchase of 50,000 shares of common stock
at a price of $1.20 per share, exercisable for five years following the
Effective Date.
The Line of Credit and Term Loan are collateralized by a security interest
in substantially all assets of the Company pursuant to a Security Agreement
dated April 5, 2006, and certain property of Mr. Ruark pursuant to Aircraft
Security Agreements and Continuing Collateral Mortgages, each dated April 5,
2006. The Line of Credit and Term Loan are also secured by the corporate
guarantees of Buyer, Family Home Health Services, LLC, a Delaware limited
liability company and a wholly-owned subsidiary of the Company, FHHS, LLC, a
Michigan limited liability company and a wholly-owned subsidiary of the Company,
and Illinois Family Home Health Services, LLC, an Illinois limited liability
company and a majority-owned subsidiary of the Company (collectively, "Corporate
Guarantors"), and the personal guarantees of Messrs. Ruark and Pilkington.
The Amended Loan Agreement contains customary affirmative covenants for
this type of financing arrangement including maintenance of books and records,
notice of adverse events, maintenance of insurance, payment of taxes, and no
payments on any subordinated indebtedness. There are also negative covenants
against the issuance of shares of the Company's capital stock, borrowing money,
acting as a guarantor, subordinating any obligations, creating liens,
transferring assets outside the ordinary course of business, making
organizational changes and extending credit other than trade credit.
The Company is also required to meet the following financial covenants:
(a) maintain a tangible net worth of not less than $4,856,000 from March 31,
2006 until December 30, 2006, $1,850,000 from December 31, 2006 until
December 30, 2007, and $2,282,000 from December 31, 2007 and at all times t
hereafter; and (b) maintain a fixed charge coverage ratio of not less than 1.25
to 1.00. The Amended Loan Agreement provides for customary events of default,
including failure to pay principal, interest or fees when due, breach of
covenants, termination of any guarantees of the indebtedness, commencement of
certain insolvency or receivership events, adverse changes in the business of
the Company and change of the Company's management or ownership. Upon the
occurrence of an event of default, all outstanding obligations may be
accelerated and declared immediately due and payable.
The foregoing is a summary of certain material terms and conditions of the
Amended Loan Agreement, and not a complete discussion of that agreement.
Accordingly, the foregoing is qualified in its entirety by reference to the full
text of the Loan Agreement attached as an exhibit hereto and incorporated herein
by reference.
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
Please see the description in "Item 1.01. Entry into a Material Definitive
Agreement" of this Current Report on Form 8-K of the terms of the Purchase
Agreement. That description is incorporated herein by reference.
ITEM 2.03. CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
Please see the description in "Item 1.01. Entry into a Material Definitive
Agreement" of this Current Report on Form 8-K of the terms of the Amended Loan
Agreement. That description is incorporated herein by reference.
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ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES.
Please see the description in "Item 1.01. Entry into a Material Definitive
Agreement" of this Current Report on Form 8-K of the future issuances or sale to
Sellers or Lender, as applicable, of shares of common stock. That description is
incorporated herein by reference.
Those shares will be issued in reliance upon the exemption from
registration for non-public offerings under Section 4(2) of the Securities Act
of 1933, as amended, based on the facts that the transaction was privately
negotiated, there was no general solicitation and the Sellers and Lenders are
accredited and sophisticated investors.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
The following exhibits are included with this Current Report on Form 8-K:
10.1 Purchase and Sale Agreement, made on April 5, 2006, between Company,
Buyer, Sellers and Seller Equityholders.
10.2 Agreement, dated April 5, 2006, by and among Mr. Ruark, Mr. Pilkington
and Sellers.
10.3 Non-Competition Agreement, made as of April 5, 2006, by Company,
Buyer, Sellers and NSI.
10.4 Amended and Restated Loan Agreement, including Term Note, dated April
5, 2006, between Company and Lender.
10.5 Warrant to Purchase Common Stock issued by Company to Lender on April
5, 2006.
10.6 Security Agreement (All Assets), dated as of April 5, 2006, made by
Corporate Guarantors in favor of Lender.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FAMILY HOME HEALTH SERVICES INC.
Date: April 11, 2006 /s/ Kevin R. Ruark
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By: Kevin R. Ruark
Its: Chief Executive Officer and
President
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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10.1 Purchase and Sale Agreement, made on April 5, 2006, between
Company, Buyer, Sellers and Seller Equityholders.
10.2 Agreement, dated April 5, 2006, by and among Mr. Ruark,
Mr. Pilkington and Sellers.
10.3 Non-Competition Agreement, made as of April 5, 2006, by Company,
Buyer, Sellers and NSI.
10.4 Amended and Restated Loan Agreement, including Term Note, dated
April 5, 2006, between Company and Lender.
10.5 Warrant to Purchase Common Stock issued by Company to Lender on
April 5, 2006.
10.6 Security Agreement (All Assets), dated as of April 5, 2006, made
by Corporate Guarantors in favor of Lender.
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