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): May 24, 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
On May 24, 2006, we entered into and closed a funding agreement with
Barron Partners, LP ("Barron"). Pursuant to a Preferred Stock Purchase Agreement
that was dated effective May 18, 2006, which set forth the terms of the funding,
we agreed to issue 4,375,000 shares of restricted Series A Preferred Stock to
Barron at $0.40 per share for gross proceeds of $1,750,000. The Series A
Preferred Stock is convertible into an equivalent number of shares of our common
stock on a share-for-share basis, and is subject to adjustment in the event of
certain corporate transactions.
We also issued to Barron 4,000,000 A Warrants exercisable at $0.60 per
share, 1,750,000 B Warrants exercisable at $.75 per share, and 5,750,000 C
Warrants exercisable at $2.80 per share. The warrants are exercisable
immediately and expire on May 24, 2011. At any time that the average closing
sale price of our common stock is equal to or in excess of $1.02 for the A
Warrants, $1.30 for the B Warrants and $4.76 for the C Warrants, for a period of
at least seventeen (17) out of twenty (20) consecutive trading days, or in the
case of the C Warrants the Company acquires another company in the home health
care industry at a multiple not to exceed 5.5 times the acquired company's
trailing EBITDA, and in each case there is an effective registration statement
covering the shares underlying the warrants, we have the right, upon twenty days
written notice to the warrant holders, to call the warrant for cancellation at
the exercise price in whole or in part.
Under our agreements with Barron, if we fail to meet certain per share
income targets for 2006, we will decrease the conversion value of the Series A
Preferred Stock and the exercise price of the Warrants to a maximum decrease of
40% if we are below the targets and a maximum of 70% if we have no income or if
we incur a net loss.
The Preferred Stock Purchase Agreement prevents any executive officer
or director of our company from selling any shares for a period of eighteen
months from the closing date. The Preferred Stock Purchase Agreement provides
that we may use the proceeds from the sale of the Series A Preferred Stock to
purchase up to $500,000 worth of common stock from James H. Pilkington, one of
our directors and an executive officer and to reduce our bank debt by up to
$1.0 million.
Concurrently with the entry into and closing upon the Preferred Stock
Purchase Agreement on May 24, 2006, we entered into a Registration Rights
Agreement with Barron pursuant to which we agreed to register the common shares
issuable upon conversion of the outstanding shares of the Series A Preferred
Stock and the common shares issuable upon exercise of the warrants held by
Barron.
Under our agreements with Barron we have also agreed to take the following
actions when indicated:
- Twenty days after filing a Schedule 14C with the Securities and
Exchange Commission, to amend our articles of incorporation to increase
our authorized capitalization to 100,000, 000 shares of common stock,
par value $0.001 per share and 10,000,000 shares of preferred stock,
par value $.001 per share
- To file a Certificate of Designations of Preferences, Rights and
Limitations of Series A Convertible Preferred Stock ("Certificate of
Designations") in the form attached as an exhibit to the Preferred
Stock Purchase Agreement
- Immediately upon the filing of the amended articles of incorporation
and Certificate of Designations and in any event within 35 days
following the closing date, to issue the share certificates for the
Series A Preferred Stock
- Within 45 days after closing, to file a registration statement covering
the resale of such registrable securities as determined by Barron
- Within 60 days after the closing date, to apply for listing on higher
exchange or trading market
- Within 90 days of Closing to cause the appointment of the majority of
the board of directors to be qualified independent directors
- Within 90 days of Closing to cause the appointment of a majority of
outside directors to the audit and compensation committees of the board
of directors
The Preferred Stock Purchase Agreement, the Registration Rights Agreement
and the Warrants all contain liquidated damages provisions requiring us to issue
additional shares or cash to Barron if we breach our covenants.
Maximum potential funding pursuant to our agreement with Barron, including
the purchase of the Series A Preferred Stock and assuming the exercise of all of
the warrants, of which there is no assurance, is approximately $22,000,000. At
closing, we paid a $50,000 due diligence fee to Barron and agreed to issue the
following consideration to the following listed financial advisers for services
rendered by them to us in connection with this transaction:
Westminster Securities Corporation ("Westminster"), which acted as
placement agent for this transaction - $87,500 plus a non-accountable expense
allowance of $52,500, 437,000 shares of Series A Preferred Stock, 400,000 A
Warrants, 175,000 B Warrants and 575,000 C Warrants issuable to Westminster or
its designees, including Park Financial Group, Inc.
Although the amendments to our articles of incorporation and the
Certificate of Designations have been approved by our majority stockholders on
written consent in accordance with Nevada corporation law, we are required to
file a Schedule 14C Information Statement with the Securities and Exchange
Commission, to mail it to our stockholders and to wait 20 days before we may
file the articles of incorporation and Certificate of Designations with the
Nevada Secretary of State. We may not issue the Series A Preferred Stock until
we have amended our articles of incorporation and filed the Certificate of
Designations with the Nevada Secretary of State.
Also in connection with the above transaction, on May 24, 2006, we
entered into a Placement Agent Agreement with Westminster dated effective
January 25, 2006, pursuant to which Westminster would act as the exclusive
placement agent for the Company on a best efforts basis with respect to the
offering of securities to Barron. For acting as Placement Agent, Westminster or
its designees received the consideration consisting of cash and securities as
described above. We also agreed to register the common shares underlying the
warrants and the Series A Preferred Stock issued to Westminster. Further, on May
9, 2006, we issued 50,000 shares of our Common Stock as a retainer pursuant to
the terms of our engagement letter dated effective January 25, 2006 with
Westminster.
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 current and
future issuances of securities to Barron and Westminster and its designees. That
description is incorporated herein by reference.
The issuance of all of the shares of Series A Preferred Stock are to be
made upon the filing of a Certificate of Designations with the Nevada Secretary
of State and, in the case of Barron, in any event within 35 days of the closing
date of May 24, 2006.
The securities were issued and are to be issued without registration
under the Securities Act by reason of the exemption from registration afforded
by the provisions of Section 4(6) and/or Section 4(2) thereof, and Rule 506
promulgated thereunder, as a transaction by an issuer not involving any public
offering. Barron and Westminster were accredited investors as defined in Rule
501 of Regulation D, the transactions were
privately negotiated, resale restrictions on the securities were imposed and
there was no general solicitation.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits.
The following exhibits are included with this Current Report on Form 8-K:
Exhibit No. Description
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4.1 Form of Series A Preferred Stock Certificate (filed herewith)
4.2 Form of A Warrant (filed herewith)
4.3 Form of B Warrant (filed herewith)
4.4 Form of C Warrant (filed herewith)
10.1 Preferred Stock Purchase Agreement dated effective May 18, 2006
with Barron Partners, LP(filed herewith)
10.2 Registration Rights Agreement with Barron Partners, LP dated
effective May 18, 2006 (filed herewith)
10.3 Placement Agent Agreement with Westminster Securities Corporation
dated effective January 25, 2006 (filed herewith)
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: May 31, 2006 /s/ Kevin R. Ruark
----------------------------------------
By: Kevin R. Ruark
Its:Chief Executive Officer and
President
EXHIBIT INDEX
Exhibit No. Description
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4.1 Form of Series A Preferred Stock Certificate
4.2 Form of A Warrant
4.3 Form of B Warrant
4.4 Form of C Warrant
10.1 Preferred Stock Purchase Agreement dated effective May 18, 2006 with
Barron Partners, LP
10.2 Registration Rights Agreement with Barron Partners, LP dated
effective May 18, 2006
10.3 Placement Agent Agreement with Westminster Securities Corporation
dated effective January 25, 2006