STOCK PURCHASE AGREEMENT
This Agreement is made as of September 16, 1998, by and among Response
USA, Inc., a Delaware corporation ("Buyer"), and the following persons:
Xxxxxxx Xxxxx, Xxxxxx Xxxxx (with Xxxxxxx Xxxxx, the " Queens"),
Xxxxxxx Xxxxx and Xxxxxx Xxxxx Irrevocable Trust U/A January 2, 1998
(the "Queens Trust") (the Queens and the Queen Trust, each referred to
individually a "Stockholder" and collectively the "Stockholders").
BACKGROUND
A. WHEREAS, the Stockholders own all the issued and outstanding
common stock, par value $.01 per share (the "Stock"), of
Health Watch, Inc., a Florida corporation ("Health Watch");
and
B. WHEREAS, the Buyer desires to purchase the Stock from the
Stockholders, and the Stockholders desire to sell the Stock to
the Buyer; and
C. WHEREAS, the Buyer may designate an affiliated entity,
Response Acquisition Corp., to purchase all the Stock, who
agrees to assume and be bound, jointly and severally liable
for, all of Buyer's obligations hereunder, and provided Buyer
remains liable for Buyer's obligations ; and
D. WHEREAS, Health Watch is in the business (the "Business") of
marketing and monitoring personal emergency response systems
("PERS") which are designed to summon help in a medical
emergency when activated by the subscriber.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to
be legally bound hereby, agree as follows:
ARTICLE 1.
Sale and Purchase of Stock
1.1. On the Closing Date (defined below), subject to the terms and
conditions contained herein, the Stockholders will sell to Buyer, and
Buyer will purchase from the Stockholders, all right, title and
interest in and to the Stock.
ARTICLE 2.
Closing and Purchase Price
2.1. Closing Date and Place. Subject to Article 5 herein, the closing of the
transaction contemplated hereunder (the "Closing") shall take place on
or before October 2, 1998 (the "Closing Date"), at the offices of
counsel to Health Watch, located at 0000 Xxxx Xxxxxx Xxxx, Xxxxx 000,
Xxxx Xxxxx, XX 00000 (unless another place is mutually agreed upon).
2.2. Purchase Price. The purchase price for the Stock (the "Purchase Price")
is equal to the Monthly Recurring Revenue (as defined below) as of the
Closing Date from actively monitored PERS
customer accounts of Health Watch, times 45, less an amount equal to
the Excluded Liabilities (as defined below). Excluded Liabilities will
be measured as of the Closing Date. For illustration purposes, if MRR
is $250,000, and the Excluded Liabilities are $5,500,000, the Purchase
Price is $5,750,000 (i.e., $11,250,000 - $5,500,000). The Buyer will
pay the Purchase Price to each stockholder of the Company on a pro rata
basis, based on the respective number of shares of Stock each
stockholder of the Company sells to the Buyer at Closing. As of the
date of this Agreement, the parties estimate that the Monthly Recurring
Revenue at Closing will be approximately $250,000 (the estimated amount
of $250,000 is the "Agreed Value") and that the Excluded Liabilities
will be approximately $5,500,000. Based on such estimates, and subject
to any adjustments this Agreement requires, the Purchase Price shall be
paid as follows:
a. $250,000 to be paid in cash as a deposit break-up fee on the
date of this Agreement to be held in escrow with counsel for
Health Watch pursuant to the terms of Exhibit 2.2(a) and to be
considered part of the Purchase Price;
b. $3,000,000 to be paid in cash at Closing;
c. $2,000,000 to be paid in Response USA, Inc. common stock, par
value $.008 per share (the "Common Stock"), at Closing, which
shall be registered pursuant to the provisions of Section
5.10(k) herein (the "Registered Stock"); and
d. $500,000 (constituting the remainder of the Purchase Price) to
be paid in Common Stock at Closing which stock shall not be
registered stock (the "Unregistered Stock" and together with
the Registered Stock, the "Response Stock"), $250,000 of which
shall be held in escrow with counsel for Health Watch pursuant
to the terms of Exhibit 2.2(a) for a period equal to the
lesser of (x) the completion of the audit of the financial
statements of Health Watch by Buyer's independent auditors or
(y) 120 days after the date of this Agreement.
The term "Monthly Recurring Revenue" or "MRR" shall mean the amount
entitled to be charged for actively monitored PERS accounts for a one
(1) month period, arising from customer leases, monitoring,
maintenance, service (including average monthly activation fees for the
six-month period immediately preceding the Closing Date) and other
on-going service fees. MRR excludes receivables more than sixty (60)
days past due, and also excludes charges for any accounts canceled
before the Closing Date. Further, MRR excludes amounts due for time and
materials, improvements, additions, replacements and other nonrecurring
or non-contract amounts, permit, license and other third-party fees,
sales, use or other taxes, and all other amounts billed on behalf of
and payable to independent third party providers. The parties
acknowledge that a receivable is not considered past due until 30 days
after the end of the month for which the monitoring services were
rendered giving rise to such receivable. Notwithstanding anything to
the contrary herein, MRR includes past due
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receivables for accounts with a history of late payment, such as
Medicaid and third party payers. Immediately prior to the Closing, the
Stockholders shall collectively deliver to Buyer a written statement
(the "Closing Statement") of (i) the Monthly Recurring Revenue, (ii)
the Excluded Liabilities, and (iii) the resulting Purchase Price, all
as determined in accordance with the terms and conditions set forth in
this Agreement. The Closing Statement shall be accompanied by a
certificate of the Stockholders which shall certify that such Closing
Statement accurately sets forth the information required to be stated
therein.
2.3. Adjustment of Purchase Price. The amount payable under Section 2.2(b)
is subject to adjustment as follows:
a. If the MRR on the Closing Date is greater than the Agreed
Value, the excess, times 45, shall be added to the Purchase
Price payable at Closing by increasing the amount of
Registered Stock to be delivered to the Stockholders pursuant
to Section 2.2(c). If the MRR on the Closing Date is less than
the Agreed Value, the difference, times 45, shall be
subtracted from the Purchase Price payable at Closing by
decreasing the amount of cash to be paid to the Stockholders
pursuant to Section 2.2(b).
b. If the Excluded Liabilities on the Closing Date differ from
the estimate in Section 2.2, the difference shall be added or
subtracted, as applicable, to the cash portion of the Purchase
Price payable at Closing. "Excluded Liabilities" mean all
notes and loans payable as reflected on the balance sheet of
Health Watch, dated May 31, 1998 (the "Last Balance Sheet"),
and all other fees, charges, expenses, penalties and interest
thereon with respect to such notes and loans payable,
including additional principal borrowed, and interest that
accrues on all notes and loans payable on and after the date
of the Last Balance Sheet through Closing.
c. The positive or negative net book value (determined in
accordance with GAAP, except that the book value shall not
include any adjustments or value for the FSS Warrants (as
hereinafter defined) although, the FSS Warrants exercise price
FSS pays to Health Watch, if any, shall be included in
calculating net assets) of Health Watch on the Closing Date
shall be added or subtracted, as applicable, to the Purchase
Price payable at Closing by either increasing or decreasing,
as the case may be, the amount of cash to be delivered to the
Stockholders pursuant to Section 2.2(b). Notwithstanding the
foregoing, in the event that the Purchase Price is increased
or decreased as a result of this Section 2.2(c), $300,000 of
such increase or decrease shall be added to or, subtracted
from, as applicable, the cash portion of the Purchase Price
and any remaining increase or decrease shall be payable in
Registered Stock pursuant to Section 2.2(c). Net book value
means the difference between the current assets of Health
Watch (defined as cash and accounts receivable, inventory
(which includes unmonitored Health
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Watch units regardless of any GAAP definition of inventory) and
prepaid assets on the Closing Date) and the current liabilities
of Health Watch on the Closing Date (subject to adjustment based
on the final audit by Buyer's auditors of the Last Balance Sheet
which shall be rolled forward to the Closing Date) (defined as
accounts payable, deferred revenue, accrued liabilities, and all
other liabilities except the Excluded Liabilities, as described
on the Last Balance Sheet). Buyer acknowledges that, although the
Last Balance Sheet inadvertently omits an office lease deposit of
$7,000 for Health Watch's Florida office, such sum will be added
to the amount of net assets at Closing.
2.4. Deferred Purchase Price.
a. Amount of Deferred Purchase Price. Subject to the terms and
conditions below, Buyer must pay an additional purchase price
to the Stockholders (the "Deferred Purchase Price"). Buyer
will pay the Deferred Purchase Price to the Stockholders on a
pro rata basis, based on the respective number of shares of
Stock they each sold to Buyer at Closing. The Deferred
Purchase Price is equal to an aggregate of $3,750,000. Buyer
must pay the First Part of the Deferred Purchase Price (as
defined below) if, at any time within 30 months after the
Closing Date, the Internally Generated MRR (as defined below)
exceeds the MRR specified in the Closing Statement (the
"Closing MRR") by the amount of at least $75,000 (the "First
Target Increase"). If the First Target Increase is achieved
only in part within the 30 month period, the First Part of the
Deferred Purchase Price will be pro-rated, by multiplying the
First Part of the Deferred Purchase Price by a fraction, the
numerator of which is the increase in the Internally Generated
MRR above the Closing MRR and the denominator of which is
$75,000. Buyer must pay the Second Part of the Deferred
Purchase Price (as defined below) if, at any time within the
30 months after the Closing Date, the Internally Generated MRR
exceeds the First Target Increase by at least $37,500 (such
additional increase, the "Second Target Increase"). If the
Second Target Increase is achieved only in part within the
30-month period, the Second Part of Deferred Purchase Price
will be prorated by multiplying the Second Part of the
Deferred Purchase Price by a fraction, the numerator of which
is the incremental increase in the Internally Generated MRR
above the First Target Increase and the denominator of which
is $37,500. The First Part of the Deferred Purchase Price
means an amount equal to the First Target Increase times 40.
The Second Part of the Deferred Purchase Price means an amount
equal to the Second Target Increase times 20. The Deferred
Purchase Price shall be paid in Common Stock within 10 days
after the Internally Generated MRR increases by at least the
First Target Increase, and within 10 days after the Internally
Generated MRR increases by at least the Second Target
Increase. If any such level is achieved in part only, the
applicable portion shall be paid no later than 10 days after
each of the first two annual anniversaries of Closing, as
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earned, and the balance, if any, within 10 days after the end
of the 30-month period from Closing. The Common Stock to be
issued in payment of the Deferred Purchase Price by Buyer, if
any, shall be registered pursuant to Section 5.10(k) herein.
When Buyer pays any or all of the Deferred Purchase Price by
Common Stock, such stock must be valued in accordance with
Section 2.5 at the time of payment and is considered "Make-Up
Stock" which is subject to the same terms as any other Make-Up
Stock a Stockholder receives under Section 2.6 of this
Agreement. Internally Generated MRR shall be equal to (a) the
MRR from medical monitored accounts (and not burglar alarm
monitored accounts), of Health Watch and the Health Watch
division of Buyer, if any, derived from any source as of the
month then ended, plus (b) MRR from medical monitored accounts
(and not burglar alarm monitored accounts) as of the month
then ended, of Buyer (including Response USA, Inc. and
Response Acquisition Corp.), and its affiliates derived from
any source in excess of such MRR of Buyer as of the Closing
Date (not including accounts calculated pursuant to (a)), plus
(c) the amount, if any, of MRR lost as a result of a provider
terminating (whether by nonrenewal or earlier termination) an
institution agreement following the date which is 18 months
after the Closing, less (d) the amount of MRR derived after
Closing from accounts acquired in a stock or asset purchase
from a third-party medical monitoring company that is not at
that time an existing provider of Health Watch, Buyer or any
of its affiliates.
b. Deferred Purchase Price Adjustments. Notwithstanding anything
to the contrary in this Agreement, the Deferred Purchase Price
is deemed fully earned and immediately due and payable if any
Termination Event (as defined below) occurs. The following
events that may occur after the date of this Agreement are
considered "Termination Events": Buyer fails to timely pay any
amount owed to any of the Stockholders under this Agreement,
provided that such Stockholder has notified Buyer in writing
of the amount owed and such amount remains unpaid by Buyer for
a period of 10 days after the Stockholder delivers such
notice; Buyer or its affiliate, as the case may be, terminates
without cause any of the Employment Agreements (as defined
herein), or materially breaches (and fails to cure any such
material breach within 30 days after the employee delivers
written notice requesting cure of such material breach) any of
the Employment Agreements; any of Buyer's representations or
warranties in Article 4 are not true and correct in any
material respect; Buyer or its affiliate transfers accounts to
an unaffiliated third party accounting for at least 1% of its
MRR from its medical monitored MRR or for at least 20% of its
MRR from its burglar monitored MRR (measured the same as for
medical monitored MRR without reference to "PERS"), in a
single or series of related or unrelated transfers excluding
transfer by Buyer, or an affiliate of Buyer, to a wholly-owned
subsidiary of Buyer; any person (whether an individual or
entity, and whether or not an existing stockholder of Buyer as
of the date hereof) shall directly or indirectly own forty
percent (40%)
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or more of the outstanding stock of Response USA, Inc. or of
Response Acquisition Corp. (except that the ownership of
Response Acquisition Corp. by Response USA, Inc. will not
cause a Termination Event); Xxxxxxx Xxxxxx is no longer the
Chief Executive Officer of Buyer; Buyer or any affiliate
operating a PERS business (a "PERS affiliate") makes a general
assignment for the benefit of creditors; a petition in
bankruptcy is filed by the Buyer or PERS affiliate or such a
petition is filed against or consented to by the Buyer or such
PERS affiliate and such petition is not dismissed within 60
days; the Buyer or PERS affiliate is adjudicated as bankrupt;
a xxxx in equity or other proceeding for the appointment of a
receiver of the Buyer or PERS affiliate or other custodian for
all of the Buyer's or PERS affiliate's business or assets is
filed and consented to by the Buyer or PERS affiliate; a
receiver or other custodian (permanent or temporary) of all of
the Buyer's business or assets is accepted by the Buyer or
PERS affiliate or is appointed by any court of competent
jurisdiction; proceedings for a composition with creditors
under Federal or any state law is instituted by the Buyer or
PERS affiliate; a final, non-appealable judgment in excess of
$100,000 remains unsatisfied against Buyer or PERS affiliate,
or of record for 30 days or longer (unless a supersedeas bond
is filed); execution is levied against Buyer's or PERS
affiliate's operation or property, or suit to foreclose any
lien or mortgage against the assets of Buyer or PERS affiliate
is instituted against the Buyer or PERS affiliate and not
dismissed within 45 days; substantially all of Buyer's or PERS
affiliate's business or assets is sold after levy thereupon by
any sheriff, marshal or constable; or Buyer or any affiliate
purchaser of the Stock defaults (and fails to cure any such
default within 30 days of written notice by any Stockholder of
such default, provided that with respect to such default no
cure period is permitted after at least 2 defaults by either
Buyer or its affiliate, or both, regardless of any cure
thereof, have already occurred within the 12-month period
before such default ) in the performance of any of its
covenants in Section 5.10. Further, if the Buyer or any of its
affiliates is at Fault (as defined below) for preventing
Health Watch from increasing Internally Generated MRR by any
amount, then such amount will nevertheless be credited toward
the Target Increase. The Buyer and/or its affiliates will be
deemed at Fault if any of their conduct results in actual or
prospective customer losses or losses of marketing
opportunities, from any failure for any reason to (i) meet on
a timely basis the demand for monitoring units, (ii) reinvest
reasonable amounts for Health Watch to operate efficiently and
market itself effectively, with competitive pricing programs
consistent with the past practices of Health Watch, or (iii)
otherwise operate the business of Health Watch consistent with
the past standards of customer service and support of Health
Watch. Additionally, if any existing provider/customer of
Health Watch (i.e., a customer who provides Health Watch
services to end-users), does not renew any or all of its
Health Watch subscriptions because it indicates that it does
not elect to do business with the Buyer or any of its
affiliates, then any such loss of MRR as a result will not
6
be considered in determining whether the Stockholders earned
any or all of the Deferred Purchase Price.
2.5. Response Stock Valuation. For purposes of determining the number of
shares of Registered Stock, Unregistered Stock or Common Stock due at
Closing or any other time under this Agreement, the value of each share
(its "Original Value") will be computed as the lower of:
a. the average closing bid price per share of Response Stock on
the NASDAQ Stock Market during the fifteen (15) trading days
immediately preceding the date Buyer delivers such shares to
the applicable Stockholder; or
b. $7.50;
provided that Subsection 2.5 (b) shall not be considered in determining
the value of any Registered Stock, Unregistered Stock or Common Stock
paid at Closing or paid as Make-Up Stock, but shall be considered in
determining the value of any Common Stock delivered as part of the
Deferred Purchase Price pursuant to Section 2.4.
2.6. Response Stock Make-Up.
a. Sale of Initial Response Stock. If, on the date (the "Make-up
Date") which is the earlier of (a) 9 months from the Closing
Date or (b) the date on which the Stockholders have sold at
least seventy-five percent (75%) of the Registered Stock owned
by them in the aggregate, the Stockholders have sold such
shares of Registered Stock and have received net proceeds
(i.e. after deducting reasonable sales expenses (including but
not limited to commissions and the cost of any legal opinions
in connection with the transfer)),of less than the Original
Value of the shares sold (as determined under Section 2.5 when
the Stockholder received such shares), Buyer must pay the
Stockholder the difference. Buyer may elect to pay the
difference either by delivering cash or Registered Stock
(sometimes referred to as "Make-Up Stock") to the Stockholder.
If Buyer pays with Make-Up Stock, such stock must be valued in
accordance with Section 2.5 herein, for determining how many
shares Buyer must pay to the Stockholder. Buyer must make the
payment of cash or Make-Up Stock, as applicable, within 10
days of the applicable Make-Up Date for such sale. Buyer's
obligation to make up the difference is effective for only
sales a Stockholder makes within 5 years of receiving the
Response Stock subject to such sale provided however, that,
notwithstanding anything to the contrary contained in this
Agreement, if during the period between the last Make-Up Date
prior to the end of such 5 year period and the end of such 5
year period, any Stockholder has sold any Response Stock and
has received less than the Original Value for such shares,
Buyer must pay the difference to such Stockholder in cash and
not in Make-Up Stock. If, on the date which is 9 months
following the Make-Up Date and on each date which is 9 months
following such date (each such date
7
also referred to as the "Make-Up Date"), any Stockholder has
sold Response Stock during such 9 month period and has
received net proceeds (i.e. after deducting reasonable sales
expenses (including but not limited to commissions and the
cost of any legal opinions in connection with transfer)) of
less than the Original Value of the shares sold (as determined
under Section 2.5 when the Stockholder received such shares),
during such 9-month period Buyer must pay the Stockholder the
difference. Buyer may elect to pay the difference either by
delivering cash or Make-Up Stock. Buyer must make such payment
within 10 days of the applicable Make-Up Date for such sale.
Buyer's obligation to make up the difference is effective only
for any sales a Stockholder makes within 5 years of receiving
the Response Stock subject to such sale, provided however,
that, notwithstanding anything to the contrary contained in
this Agreement, if during the period between the last Make-Up
Date prior to the end of such 5 year period and the end of
such 5 year period, any Stockholder has sold any Response
Stock and has received less than the Original Value for such
shares, Buyer must pay the difference to such Stockholder in
cash and not in Make-Up Stock. For any Make-Up Date occurring
after the date the Stockholders have sold at least 90% of the
shares of Response Stock that they received at Closing, in the
aggregate, notwithstanding anything to the contrary, Buyer
must pay the difference then owed to the Stockholder from the
sale of any remaining shares of Response Stock paid at Closing
or received as Make-Up Stock (excluding shares of stock
received as payment for the Deferred Purchase Price) from such
sales, in the form of cash and not Make-Up Stock.
b. Board of Directors. As long as either of the Queens is
employed by the Buyer or any of its affiliates they shall be
entitled to a single seat, as they may request, on the Board
of Directors of Response (or if Health Watch is then being
operated as an independent subsidiary, on the Board of
Directors of Health Watch, and at the Queens' request, on the
Board of Directors of Response). Such right is subject to the
approval of any shareholders, if necessary, which Response
must use its commercially reasonable efforts to secure
promptly upon request.
2.7. Payment. All references to cash payments due under this
Agreement, mean that the payer must make such payment by bank
or certified check or wire transfer of immediately available
funds.
ARTICLE 3
Stockholder Representations and Warranties
The Stockholders hereby jointly and severally represent and warrant to Buyer
that:
3.1. Corporate; Authorization of Agreement; Trusts. Health Watch is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Florida. Health Watch is duly
8
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of its business or
the assets owned or leased and operated by Health Watch require
qualification, except where the failure to so qualify or maintain good
standing would have no material adverse affect on Health Watch. The
copy of the certificate of incorporation of Health Watch, as amended to
date and certified by the Secretary of State of Florida, and of the
By-laws of Health Watch, as amended to date, certified by its
Secretary, are complete and correct, and no amendments thereto are
pending, and Health Watch is not in violation thereof in any material
respect. Health Watch has no subsidiaries and does not own any
securities issued by any other business organization or governmental
authority or have any direct or indirect interest in or control of any
corporation, partnership, joint venture or entity of any kind. Health
Watch has the corporate power and authority to own its assets, and to
conduct the Business as and where such business is presently conducted.
Xxxxxxx Xxxxx and Xxxxx Xxxxx are the currently acting trustees of the
Queen Trust. The Trust is a trust duly organized under, and validly
existing and governed by, the laws of the State of Florida. The Trust
has the power and authority to enter into this Agreement.
3.2. Effect of Agreement. Except as provided in Section 3.3, the execution,
delivery and performance of this Agreement by the Stockholders, and the
transactions contemplated thereby, (a) have been authorized by all
necessary actions on the part of the Stockholders, (b) will not violate
any provision of the Articles of Incorporation or By-laws of Health
Watch or the Trust Agreement of the Trust, (c) will not violate or
conflict with or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, nor result
in the termination of, or accelerate the performance required by, nor
result in the creation of any lien, security interest, charge or
encumbrance upon any of Health Watch's assets under, any term or
provision of any contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which Health Watch
or the Trust is a party or by which any of them or any of their
respective assets are bound or affected, and (d) will not violate or be
in conflict with any law, rule or regulation, or any judgment, decree,
injunction or order binding the Stockholders or Health Watch. This
Agreement is, and each of the other agreements, documents and
instruments to be executed and delivered in connection with the
transactions contemplated hereby will be, the legal, valid and binding
obligations of the Stockholders, enforceable against them in accordance
with their respective terms.
3.3. Consents. Except as set forth in Exhibit 3.3 or elsewhere in this
Agreement, no authorization, consent, approval, order of or filing with
or notice to any governmental agency, instrumentality or authority or
any other person is necessary for the execution and delivery of this
Agreement by the Stockholders, or the consummation by them of the
transactions contemplated hereby.
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3.4. Capitalization of Health Watch.
a. The authorized capital stock of Health Watch consists of
5,000,000 shares of common stock par value $.01 per share (the
"Health Watch Common Stock") and 1,000,000 shares of preferred
stock par value $.01 per share (the "Preferred Stock"). The
Stockholders collectively own 840,000 shares of Health Watch
Common Stock and no other shares of Health Watch Common Stock
are issued and outstanding. No shares of Preferred Stock are
issued and outstanding.
b. The issued and outstanding shares of Health Watch Common Stock
are all duly issued and outstanding and are fully paid and
nonassessable and have been issued to, and registered in the
name of, the Stockholders as set forth in Exhibit 3.4(b).
c. Except as set forth in Exhibit 3.4 (c), and Section 3.6, there
are no options, warrants, or rights outstanding for the
purchase or acquisition of any shares of the capital stock of
Health Watch or any securities or rights outstanding
exercisable for, convertible or exchangeable into any shares
of such capital stock, nor are there any preemptive rights,
conversion rights, redemption provisions or sinking fund
provisions relating to the Stock or inuring to the holders
thereof.
3.5. Title to Stock. Upon transfer by the Stockholders of their respective
Stock to Buyer as provided herein, Buyer will acquire such Stock, free
and clear of any lien, encumbrance, security interest, claim, pledge,
option, restriction, charge or equity of any nature whatsoever (a
"Lien"), except restrictions on transfer imposed under Rule 144 of the
Securities Act of 1933, as amended (the "Securities Act"), and similar
laws imposed by various states.
3.6. Convertible Subordinated Notes. Health Watch has issued $865,000 of 14%
convertible subordinated notes due December 1, 1997 (the "Notes"). Each
Note is convertible at any time until paid in full into fully paid and
nonassessable shares of Health Watch Common Stock at a predetermined
conversion price.
3.7. Stock Option Plan. Health Watch reserved shares of Stock for a stock
option plan, but does not have a formally adopted stock option plan and
has not issued any options under any stock option plan.
3.8. Assets, Title to Assets. Except as specified in Exhibit 3.8, Health
Watch has good and marketable title or leasehold rights to all of its
assets necessary to operate the Business (all of which being
hereinafter collectively referred to as the "Assets"), free and clear
of all Liens.
3.9. Compliance with Laws.
a. To the best knowledge of the Stockholders, Health Watch has
all franchises, authorizations, approvals, orders, consents,
licenses, certificates, permits, registrations, qualifications
or other
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rights and privileges (collectively "Permits") necessary to
permit the ownership of the properties involved therein and
the conduct of the Business as the same is presently
conducted, a listing of such Permits is set forth in Exhibit
3.9(a). All such Permits are valid and in full force and
effect, except to the extent the absence of any such Permit
would not have a material adverse effect on Health Watch, and
except as set forth in Exhibit 3.9(a), no Permit is subject to
termination as a result of the performance of this Agreement
or consummation of the transactions contemplated hereby.
b. To the best knowledge of the Stockholders, except as set forth
in Exhibit 3.9(b), Health Watch is presently in compliance in
all material respects, and during the past four years have
been in compliance in all material respects, with all
applicable statutes, ordinances, orders, rules and regulations
promulgated by any federal, state, municipal or other
governmental authority which apply to the conduct of its
business, and neither Health Watch nor any Stockholder (with
respect to the Business) has received a written notice of a
violation or alleged violation of any such statute, ordinance,
order, rule or regulation. To the best knowledge of the
Stockholders, the Business and Assets have been operated and
maintained in compliance with all applicable federal, state,
and local environmental protection laws and regulations.
Neither Health Watch nor any Stockholder (with respect to the
Business) has entered into or been subject to any judgment,
consent decree, compliance order or administrative order with
respect to any environmental or health and safety law or
received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or
claim with respect to any environmental or health and safety
matter or the enforcement of any such law.
3.10. Financial Statements.
a. Buyer has previously been furnished with true and complete
copies of the following financial statements (the "Financial
Statements") of Health Watch:
(i) unaudited balance sheets as of May 31, 1998, 1997 and
1996, all prepared in accordance with sound
accounting principles, consistently applied; and
(ii) unaudited statements of operations for the fiscal
years ended May 31, 1998 and 1997, all prepared in
accordance with sound accounting principles,
consistently applied in all material respects.
b. The Last Balance Sheet is in accordance with the books and
records of Health Watch as of the date of the Last Balance
Sheet, in all material respects. Together with the other
Exhibits and disclosures contained in this Agreement, each of
the Last Balance Sheet and the statement of operations for the
fiscal year ended May 31, 1998, respectively, fairly present
in all material
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respects the financial position of Health Watch as of the date
thereof and the results of operations of Health Watch for the
period then ended, respectively.
c. Except as set forth on Exhibit 3.10(c), the prepaid insurance,
expenses and taxes as set forth on the Last Balance Sheet, or
arising since the date thereof, represent amounts of a benefit
to future periods.
d. Except as set forth in Exhibit 3.10(d) or the Last Balance
Sheet, any additional borrowing from Financial Security
Services Inc. ("FSS") pursuant to agreements between it and
Health Watch, and any offer or commitment Health Watch may
make before Closing to purchase blocks of not more than 500
PERS accounts from any unrelated third parties (the "New
Accounts"), there has not been any obligation or liability of
any nature, whether accrued, absolute, contingent or
otherwise, asserted or, to the Stockholders' best knowledge,
unasserted, incurred in connection with the Business other
than obligations and liabilities incurred in the ordinary
course of business in a manner consistent with past practices.
3.11. Condition of Assets. Except as set forth on Exhibit 3.11, and except
for the existing phone system which has reached capacity, all material
equipment and property used in connection with the Business is in good
working order, reasonable wear and tear excepted.
3.12. Accounts and Agreements. Health Watch will provide the Buyer with a
current list of Health Watch's monitored accounts, which is accurate in
all material respects. Other than agreements for monitored accounts of
which Health Watch is presently monitoring approximately 10,000, and
except as listed in Exhibit 3.14 or elsewhere in this Agreement,
Exhibit 3.12 sets forth a complete and accurate list of all material
agreements, including insurance policies, debentures, loans, and
leases, to which Health Watch is a party (such documents listed in
Exhibit 3.12 are described as the "Contracts"). Substantially all of
the Monthly Recurring Revenue of Health Watch derived from providers
are derived from written agreements executed by such providers. A
majority of the Monthly Recurring Revenue of Health Watch derived from
customers are derived from written agreements executed by such
customers.
a. Health Watch is in compliance in all material respects with
the Contracts except for defaults under the Notes and except
for defaults which do not have any material adverse effect on
Health Watch, and, except as provided on Exhibit 3.12(a), the
Contracts are in full force and effect and have not been
modified or amended in any material respect, nor pledged or
assigned except to FSS.
b. Except as disclosed under Section 3.12(a) or Exhibit 3.17, the
Stockholders have no knowledge of and have not received any
notice of a default, breach, counterclaim or offset under any
of the Contracts, and no event or condition exists which
constitutes a default or breach of Health
12
Watch or, after notice or lapse of time or both, would
constitute a breach of Health Watch under any of the Contracts
except where such breach would have no material adverse effect
on Health Watch.
c. Copies of all Contracts have been, or by Closing will be, upon
request, delivered by Health Watch to Buyer.
3.13. Broker's Fees. Except as set forth in Exhibit 3.13, no broker, agent or
other intermediary acted for the Stockholders in connection with the
transactions contemplated herein. The Stockholders agree to indemnify
and save harmless the Buyer from and against any claims whatsoever for
any commission or other remuneration payable or alleged to be payable
to any broker, agent or other intermediary who purports to act or have
acted for the Stockholders.
3.14. Status of Property.
a. Real Property. Health Watch does not own any real property.
b. Leased Real Property. All of the real property leased or used
in connection with the Business is set forth in Exhibit
3.14(ii) (collectively referred to herein as the "Leased Real
Property").
c. Leases. All of the leases or licenses of any of the Leased
Real Property (collectively, the "Leases") are in writing and
are attached as Exhibit 3.14(iii). The copies of the written
Leases heretofore delivered or furnished by Health Watch to
Buyer are complete, accurate, true and correct copies of each
of the written Leases as in effect at the date hereof. With
respect to each of the Leases:
(i) each of the Leases is in full force and effect on the
terms set forth therein and has not been modified,
amended or altered, in writing or otherwise, unless
such modification, amendment or alteration, if any,
is attached as part of Exhibit 3.14(iii) or is not
material;
(ii) all material obligations of the landlord or lessor
under the Leases which have accrued have been
performed, and to the knowledge of Health Watch
and/or the Stockholders, no landlord or lessor is in
default under or in arrears in the payment of any sum
or in the performance of any material obligation
required of it under any Lease, and to the knowledge
of Health Watch and/or the Stockholders, no
circumstance presently exists which, with notice or
the passage of time, or both, would give rise to a
default by the landlord or lessor under any Lease,
except for any default which would not have a
material adverse effect on Health Watch;
(iii) all obligations of the tenant or lessee under the
Leases which have accrued have been performed in all
material respects, and Health Watch is not in default
under or
13
in arrears in the payment of any sum or in the
performance of any obligation required of it under
any Lease, and, to the knowledge of Health Watch
and/or the Stockholders, no circumstance presently
exists which, with notice or the passage of time, or
both, would give rise to a default by Health Watch,
which, in any of the above cases, would have a
material adverse effect on Health Watch; and
(iv) Health Watch holds a valid and enforceable leasehold
interest in the Leased Real Property leased by it
pursuant to the Leases.
(v) Neither Health Watch nor any of the Stockholders has
received a written notice of any pending or
threatened reassessment of all or any portion of any
of the Leased Real Property.
3.15. Taxes.
a. Definitions.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute.
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Sec. 59A), customs duties, capital
stock, franchise, profits, withholding, social security (or
similar employment or payroll related taxes), unemployment,
disability, real property, personal property, sales, use,
transfer, registration, value added, alternative, or add-on
minimum, estimated or other tax of any kind whatsoever,
however denominated, including any fine, interest, penalty, or
addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for
refund or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including
any amendment thereof.
b. Health Watch has in accordance with applicable law filed all
Tax Returns required to be filed through the date hereof, and
has paid or caused to be paid all Taxes shown thereon, except
where the failure to file such Tax Returns or pay such Taxes
would not have a material adverse effect on Health Watch and
except for any lawfully granted filing extension.
c. Health Watch has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
stockholder, or other third party and complied with all
information reporting and backup withholding requirements.
14
d. Complete and correct copies of all federal, state, local and
foreign income Tax Returns filed with respect to Health Watch
for taxable periods ended on May 31, 1996, and May 31, 1995,
have been previously provided to Buyer, together with any
examination reports and statements of deficiencies assessed
against or agreed to with respect to said returns.
e. Neither the Internal Revenue Service nor any other
governmental authority is now asserting or, to the knowledge
of Health Watch and/or the Stockholders, threatening to assert
against Health Watch any deficiency or claim for additional
Taxes. No claim has ever been made by an authority in a
jurisdiction where Health Watch does not file reports and
returns that Health Watch is or may be subject to taxation by
that jurisdiction. There are no security interests on any of
the Assets that arose in connection with any failure (or
alleged failure) to pay any Tax. Health Watch has not entered
into a closing agreement pursuant to Section 7121 of the Code.
f. Except as set forth in Exhibit 3.15(vi), there has not been
any audit of any Tax Return filed by Health Watch, no audit of
any Tax Return of Health Watch is in progress, and Health
Watch has not been notified by any tax authority that any such
audit is contemplated or pending. Except as set forth in
Exhibit 3.15(vi), no extension of time with respect to any
date on which a Tax Return was or is to be filed by Health
Watch is in force, and no waiver or agreement by Health Watch
is in force for the extension of time for the assessment or
payment of any Taxes.
g. Health Watch has not been (and has not had any liability for
unpaid Taxes because it once was) a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Health
Watch has not has filed, or has ever been required to file, a
consolidated, combined or unitary tax return with any other
entity. Health Watch does not own or has ever owned a direct
or indirect interest in any trust, partnership, corporation or
other entity. Health Watch is not a party to any tax sharing
agreement.
h. Health Watch has not agreed and is not required to make any
adjustments under Section 481(a) of the Code by reason of a
change in accounting method or otherwise. Health Watch does
not have any "tax exempt use" property within the meaning of
Section 168(h) of the Code. Health Watch has not been a United
States real property holding corporation within the meaning of
Code Sec. 897(c)(2) during the applicable period specified in
Code Sec. 897(c)(1)(A)(ii).
i. The unpaid Taxes of Health Watch (A) did not exceed the
reserve for Taxes (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax
income) set forth in the Last Balance Sheet (rather than in
any notes thereto) and (B) do not exceed that reserve as
adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of Health Watch
in filing its Tax Returns.
15
j. For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such
Sections and any similar provisions of federal, state, local
or foreign law.
3.16. Absence of Certain Changes. Except as listed in Exhibit 3.16, since May
31, 1998, there has not been:
a. Any change in the properties, assets, liabilities, business,
operations or financial condition (except for additional
borrowings from FSS, if any) of the Business, which change by
itself or in conjunction with all other such changes, whether
or not arising in the ordinary course of business in a manner
consistent with past practices and otherwise consistent with
the representations, warranties and terms of this Agreement,
would have a material adverse effect on Health Watch;
b. Any contingent liability or obligation relating to the
Business with respect to the obligations of others (or any
modification thereof) or any cancellation of any material debt
or claim owing to, or waiver of any material right of the
Business, or any amendment or termination of any contract
except in the ordinary course of business in a manner
consistent with past practices, and otherwise consistent with
the representations, warranties and terms of this Agreement;
c. Any mortgage, encumbrance or lien placed on any of the
properties used in the Business which remains in existence on
the date hereof (except regarding additional borrowings from
FSS, if any);
d. Any obligation or liability of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted,
incurred in connection with the Business other than
obligations and liabilities incurred in the ordinary course of
business in a manner consistent with past practices, and
otherwise consistent with the representations, warranties and
terms of this Agreement;
e. Any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition,
of any of the properties or assets relating to the Business,
except as may involve the New Accounts, involving the payment
or receipt of more than $10,000 or which has not occurred in
the ordinary course of business in a manner consistent with
past practices, and otherwise consistent with the
representations, warranties and terms of this Agreement;
f. Any damage, destruction or loss, whether or not covered by
insurance, which would have a material adverse effect on
Health Watch;
g. Any declaration, setting aside or payment of any dividend by
Health Watch, or the making of any other distribution in
respect of the capital stock or other equity interest of
Health Watch or
16
any direct or indirect redemption, purchase or other
acquisition by Health Watch of its own capital stock or other
equity interest.
h. Any strikes, labor disputes or unfair labor practice charges
involving the Business;
i. Any material change in the compensation (in the form of
salaries, wages, incentive arrangements or otherwise) payable
or to become payable by Health Watch to any officers,
employees, agents or independent contractors of Health Watch,
other than normal merit increases in accordance with its usual
practices, or any bonus payment or arrangement made to or with
any such person or entity; any entering into or amendment of
any employment, deferred compensation or severance agreement
or any other agreement with any officer, director or employee
that earned $50,000 or more in the year ended May 31, 1998 (a
"Highly Compensated Employee") of Health Watch other than
normal merit increases, or any establishment, adoption or
entering into or material amendment of any collective
bargaining, bonus, incentive, deferred compensation, profit
sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
j. Any change, or the obtaining of information concerning a
prospective change, in the identity of officers or management
employees involved in the Business, any grant of any severance
or termination pay to any officer, employee, agent or
independent contractor involved in the Business or any
increase in benefits payable under any existing severance or
termination pay policies;
k. Except as otherwise provided in this Agreement, any payment or
discharge of a material lien or liability relating to the
Business which was not shown on the Last Balance Sheet or
incurred in the ordinary course of business in a manner
consistent with past practices, and otherwise consistent with
the representations, warranties and terms of this Agreement;
l. Except as otherwise provided in this Agreement, any payment
made or obligation or liability incurred by Health Watch to,
or any other transaction by Health Watch with, any of its
officers, managers, directors, stockholders, members, Highly
Compensated Employees or independent contractors, or any loans
or advances made by Health Watch to any of its officers,
directors, managers, stockholders, members, Highly Compensated
Employees or independent contractors, except normal
compensation and expense allowances consistent with past
practice, or any prepayment of any loans from stockholders,
members, officers, directors or managers (if any);
m. Any change in accounting methods or practices, return
policies, credit practices, collection policies or payment
policies used in the operation of the Business including
without limitation any change in the recognition of income,
the collection of accounts receivable or the discharge
17
or recording of payables relative to past practices, or any
failure to pay accounts payable in the ordinary course of
business, and in any event within 60 days unless they are
being disputed in good faith;
n. Any cancellation or loss of any material right or asset, or
waiver of any right, of the Business or any making of any tax
election or settling or compromising of any federal, state,
local or foreign income tax liability;
o. Any factoring of receivables;
p. Except as otherwise provided in this Agreement, any other
transaction relating to the Business other than transactions
in the ordinary course of business in a manner consistent with
past practices, and otherwise consistent with the
representations, warranties and terms of this Agreement;
q. Any amendment to the organizational documents of Health Watch
or the authorized or issued capital stock or equity interests
of Health Watch, or any acquisition of any securities issued
by any other business organization other than short-term
investments in the ordinary course of business in a manner
consistent with past practices, and otherwise consistent with
the representations, warranties and terms of this Agreement;
or
r. Any agreement or understanding, whether in writing or
otherwise, that would result in any of the transactions or
events, or require Health Watch to take any of the actions,
specified in paragraphs (a) through (q) above.
3.17. Litigation. Exhibit 3.17 lists all currently pending litigation and
governmental or administrative proceedings to which Health Watch is a
party or affecting the Business which may have any material adverse
effect on Health Watch or which could prevent or hinder the
consummation of the transactions contemplated by this Agreement. Except
for matters described in Exhibit 3.17, to the knowledge of the
Stockholders, there is no litigation or governmental or administrative
proceeding threatened relating to the Business, which threatened
litigation or proceeding would have any material adverse on Health
Watch or which could prevent or hinder the consummation of the
transactions contemplated by this Agreement.
3.18. Ordinary Course. Since the date of the Last Balance Sheet, except as
disclosed in this Agreement, Health Watch has conducted the Business
only in the ordinary course and in a manner consistent with past
practices and otherwise consistent with the representations, warranties
and terms of this Agreement.
3.19. Employees. Exhibit 3.19 hereto contains a list of the names, office
locations, compensation and years of credited service for severance,
vacation and pension plan purposes of all full- and part-time
18
employees of Health Watch as at August 31, 1998; a list of all pension,
retirement, profit-sharing, deferred compensation, option, bonus,
medical, insurance and other benefit or incentive plans covering such
employees; a description of all material employee "perks" or other
benefit practices and a description of Health Watch's severance pay
policy. Except as disclosed on Exhibit 3.19 neither Health Watch nor
any of the Stockholders knows of any efforts within the last three
years to attempt to organize Health Watch's employees, and no strike or
labor dispute involving Health Watch has occurred during the last three
years or, to the best knowledge of each Health Watch and/or any of the
Stockholders, is threatened. To the knowledge of Health Watch and the
Stockholders, no key employee of Health Watch has indicated that he is
considering terminating his employment. Except as set forth in Exhibit
3.19, neither Health Watch nor any member of any affiliated group of
which Health Watch was at any time a member, has ever maintained or
currently maintains any "employee benefit plan" subject to ERISA.
Neither Health Watch nor its predecessors has ever contributed to or
otherwise participated in or has been required to contribute to or
otherwise participate in any "multiemployer plan", as defined in
Section 4001(a)(3) of ERISA. Health Watch has not withdrawn from any
such employee benefit plan or multiemployer plan prior to the date
hereof.
3.20. Insurance. The physical properties and assets relating to the Business
are insured to the extent disclosed in Exhibit 3.20. Such insurance
policies and arrangements are in full force and effect, all premiums
with respect thereto are currently paid, and Health Watch is in
compliance in all material respects with the terms thereof. To the
knowledge of Health Watch and/or the Stockholders, such insurance is
adequate and customary for the Business and is sufficient for
compliance with all requirements of law.
3.21. Warranty and Related Matters. There are no existing or, to the
knowledge of Health Watch and/or the Stockholders, threatened product
liability, warranty or other similar claims, against Health Watch for
products or services which are defective or fail to meet any product or
service warranties which may have any material adverse effect on Health
Watch, except as disclosed in Exhibit 3.21. To the knowledge of Health
Watch, there are no statements, citations or decisions by any
government or political subdivision thereof, whether federal, state,
local or foreign, or any agency or instrumentality of any such
government or political subdivision, or any court or arbitrator
(collectively, "Governmental Bodies") stating that any product
manufactured, marketed or distributed at any time by Health Watch
("Products") is defective or unsafe or fails to meet any product
warranty or any standards promulgated by any such Governmental Body. No
claim has been asserted against Health Watch for renegotiation or price
redetermination of any business transaction, and, to the knowledge of
Health Watch and/or the Stockholders there are no facts upon which any
such claim could be based; which in any such case would have a material
adverse effect on Health Watch. Except for the Health Watch standard
warranty, a copy of which is in Exhibit 3.21, neither Health Watch nor
the Stockholders makes or has
19
made any warranties, other than those, if any, arising by operation of
law with respect to the Products or which will not have any material
adverse affect on Health Watch.
3.22. Employee Benefit Programs. Health Watch has no employee benefit plans
except as may be described in Exhibit 3.19.
3.23. Patents, Trademarks and Copyrights. A list and brief description of all
trademarks, service marks, trade names, brands, copyrights and patents
which are presently being used or have been used in the Business, all
applications for registration and registrations for such trademarks,
copyrights and patents, and all licenses, contracts, rights and
arrangements with respect to the foregoing, are set forth in Exhibit
3.23. Health Watch has furnished to Buyer true and complete copies of
each of the foregoing. Health Watch owns the entire, unencumbered
right, title and interest to all such properties free and clear of all
claims, conflicts with or infringements of the rights of others except
those rights of FSS under its agreements with Health Watch, and the
rights of third parties, if any, which are not material to the
Business. Except for use of "Health Watch" by providers in the ordinary
course of a business, no rights or licenses to others have been granted
with respect to any of such properties. Except as set forth in Exhibit
3.23, all filings and other action necessary to perfect the full legal
right of Health Watch in the United States to the foregoing have been
effected to the extent that Health Watch deemed necessary for the
conduct of the Business. Neither Health Watch nor any of the
Stockholders has any knowledge of any default or alleged default or
state of facts which with notice or lapse of time or both would
constitute a default on the part of any party in the performance of any
obligation to be performed or paid by any party under any licenses,
contracts, agreements or arrangements referred to in or submitted as a
part of Exhibit 3.23.
3.24. Acquisition for Investment. Stockholders, each individually and on
their own behalf, represent and warrant that each has such knowledge
and experience in financial and business matters that they are capable
of evaluating the merits and risks of the investment in the Response
Stock and each is able to bear the economic risks of such investment.
Stockholders acknowledge that:
a. They have been given the opportunity to ask questions of
Buyer's management.
b. Buyer has heretofore furnished such Stockholders with copies
of Buyer's Annual Report on Form 10-K for the fiscal year
ended June 30, 1997, and the Quarterly Reports on Form 10-Q as
filed with the Securities and Exchange Commission (the "SEC")
for the quarters ended September 30, 1997, December 31, 1997
and March 31, 1998.
c. The offering of the Response Stock has not been registered
under the Securities Act; except as set forth in Section
5.10(k) there is no commitment to register the Response Stock
under the Securities Act and Buyer is relying on the exemption
from such registration provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving a
public offering.
20
d. The Response Stock will bear legends as set forth in Section
8.17.
3.25. No Omissions, Other Information. There is no fact or circumstance
relevant to the assets, liabilities, business or future business
prospects of Health Watch, which has not been set forth or described in
this Agreement or the Exhibits hereto, which would have a material
adverse affect on the Stockholders' obligations to perform hereunder.
None of the information included in this Agreement and Exhibits or
other documents furnished or to be furnished by the Stockholders if
required under this Agreement contains any untrue statement of a
material nature or is misleading in any material respect or omits to
state any fact necessary in order to make any of the statements herein
or therein not materially misleading. True and correct copies of all
documents referred to in any Exhibit hereto have been delivered or made
available to the Buyer.
ARTICLE 4.
Buyer's Representations and Warranties
The Buyer represents and warrants to the Stockholders, as follows:
4.1. Corporate; Authorization of Agreement. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware. Buyer is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the
character of its business or the assets owned or leased and operated
requires qualification, except where the failure to so qualify or
maintain good standing would have no material adverse affect. Buyer has
the corporate power and authority to own its assets, and to conduct its
business as and where such business is presently conducted. Buyer has
the power and authority to enter into and perform its obligations under
this Agreement without the consent, approval or authorization of, or
obligation to notify, any person, entity or governmental agency.
4.2. Effect of Agreement. The execution, delivery and performance of this
Agreement by Buyer of the transactions contemplated hereby, (a) have
been authorized by all necessary actions on the part of Buyer, (b) will
not violate any provision of the Articles of Incorporation or Bylaws of
Buyer, (c) will not violate or conflict with or constitute a default
(or an event which, with notice or lapse of time or both, would
constitute a default) under, nor result in the termination of, or
accelerate the performance required by, nor result in the creation of
any lien, security interest, charge or encumbrance upon any of Buyer's
or its affiliate's assets under, any term or provision of any contract,
commitment, understanding, arrangement, agreement or restriction of any
kind or character to which it is a party or by which it or any of its
assets are bound or affected, and (d) will not violate or be in
conflict with any law, rule or regulation, or any judgment, decree,
injunction or order applicable to Buyer or its affiliates. This
Agreement is, and each of the other agreements, documents and
instruments to be
21
executed and delivered in connection with the transactions contemplated
hereby will be, the legal, valid and binding obligations of the Buyer,
enforceable against Buyer in accordance with their respective terms.
4.3. Consents. Except as required by the Securities Act solely with respect
to registering the Response Stock as required under Section 5.10(k), or
as set forth in Exhibit 4.3, no authorization, consent, approval, order
of or filing with or notice to any governmental agency, instrumentality
or authority or any other person is necessary for the execution and
delivery of this Agreement by Buyer or the consummation by Buyer of the
transactions contemplated hereby.
4.4. Capitalization of Buyer. The capitalization of Buyer is set forth in
Exhibit 4.4. So long as the Stockholders hold any Response Stock
acquired under this Agreement, such stock shall be entitled to the most
favorable rights and preferences of any class of common stock of Buyer.
All shares of Response Stock issued pursuant to this Agreement, upon
receipt by the applicable Stockholders, will be duly issued and
outstanding and fully paid and nonassessable, issued to, and registered
in the name of, the applicable Stockholder.
4.5. Title to Stock and Assets. Upon issuance of Response Stock to each
Stockholder pursuant to this Agreement, each such Stockholder will
acquire such stock, free and clear of any lien, encumbrance, security
interest, claim, pledge, option, restriction, charge or equity of any
nature whatsoever, except restrictions on transfer imposed under Rule
144 of the Securities Act and similar laws imposed by various states.
4.6. Compliance with Laws.
a. To the best knowledge of Buyer, it has all franchises,
authorizations, approvals, orders, consents, licenses,
certificates, permits, registrations, qualifications or other
rights and privileges (collectively "Permits") necessary to
permit the ownership of the properties involved therein and
the conduct of its business as the same is presently
conducted, except to the extent that the absence of any such
Permit would not have a material adverse effect on Buyer. All
such Permits are valid and in full force and effect, except to
the extent the absence of any such Permit would not have a
material adverse effect on Buyer and no Permit is subject to
termination as a result of the performance of this Agreement
or consummation of the transactions contemplated hereby.
b. To the best knowledge of Buyer, Buyer is presently in
compliance in all material respects, and during the past four
years have been in compliance in all material respects, with
all applicable statutes, ordinances, orders, rules and
regulations promulgated by any federal, state, municipal or
other governmental authority which apply to the conduct of its
business, except where the
22
failure to so comply would not have a material adverse
effect on Buyer and Buyer has not received a written notice
of a violation or alleged violation of any such statute,
ordinance, order, rule or regulation. To the best knowledge
of Buyer, its business and assets have been operated and
maintained in compliance with all applicable federal,
state, and local environmental protection laws and
regulations except to the extent that any noncompliance
would not have a material adverse affect on Buyer. Buyer
has not entered into nor been subject to any judgment,
consent decree, compliance order or administrative order
with respect to any environmental or health and safety law
or received any request for information, notice, demand
letter, administrative inquiry or formal or informal
compliant or claim with respect to any environmental or
health and safety matter or the enforcement of any such law.
4.7. Financial Statements and Public Information. All financial statements
and other information Buyer has filed with the SEC, in the 24-month
period preceding the Closing Date, were at the time of filing true and
complete in all material respects and did not contain any untrue
statements of material fact or omit to state a material fact necessary
in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
4.8. Accounts and Agreements. Except as disclosed in Exhibit 4.8, Buyer is
in compliance in all material respects with all of the agreements which
have been publicly filed by Buyer with the Securities and Exchange
Commission, and Buyer has no knowledge of and has not received any
notice of a default, breach, counterclaim or offset under any of such
agreements, and no event or condition exists which constitutes a
default or breach of Buyer or, after notice or lapse of time or both,
would constitute a breach of Buyer under any of the agreements except
where such breach would have no material adverse effect on Buyer. Buyer
has publicly filed with the Securities and Exchange Commission all the
material agreements to which Buyer is a party which are required to be
filed by Buyer as of the date hereof, and all of such agreements,
except as disclosed in Exhibit 4.8, are in full force and effect.
4.9. Broker's Fees. Except as set forth in Exhibit 4.9, no broker, agent or
other intermediary acted for the Buyer in connection with the
transactions contemplated herein. The Buyer agrees to indemnify and
save harmless the Stockholders and Health Watch from and against any
claims whatsoever for any commission or other remuneration payable or
alleged to be payable to any broker, agent or other intermediary who
purports to act or have acted for the Buyer.
4.10. Financial Ability. Buyer has the financial ability to consummate the
transactions contemplated by this Agreement.
4.11. Taxes.
23
a. Buyer has in accordance with applicable law filed all Tax
Returns required to be filed through the date hereof, and has
paid or caused to be paid all Taxes shown thereon, except
where the failure to file such Tax Returns or pay such Taxes
would not have a material adverse effect on Buyer and except
for any lawfully granted filing extension. Buyer has timely
paid all Taxes to the appropriate authorities, except to the
extent such nonpayment is due to a validly filed extension,
the amount of the nonpayment is being contested in good faith,
or the nonpayment will not have any material adverse effect on
Buyer.
b. Except as set forth on Schedule 4.11(b), neither the Internal
Revenue Service nor any other governmental authority is now
asserting or, to the knowledge of Buyer, threatening to assert
against Buyer any deficiency or claim for additional Taxes. No
claim exists by an authority in a jurisdiction where Buyer
does not file reports and returns that Buyer may be subject to
taxation by that jurisdiction. There are no security interests
on any of the assets of Buyer that arose in connection with
any failure (or alleged failure) to pay any Tax.
c. There has not been any audit of any Tax Return filed by Buyer,
no audit of any Tax Return of Buyer is in progress, and Buyer
has not been notified by any tax authority that any such audit
is contemplated or pending. Except as set forth in Exhibit
4.11(c), no extension of time with respect to any date on
which a Tax Return was or is to be filed by Buyer is in force,
and no waiver or agreement by Buyer is in force for the
extension of time for the assessment or payment of any Taxes.
d. All references in this Section to Buyer include all
subsidiaries of Buyer and any entity owning at least a
majority of any class of common stock of Buyer.
4.12. Absence of Certain Changes. Except as set forth in Exhibit 4.12 or
except as listed in any Quarterly Reports on Form 10-Q as filed with
the SEC for the quarters ended September 30, 1997, December 31, 1997
and March 31, 1998, since June 30, 1997, there has not been:
a. Any change in the properties, assets, liabilities, business,
operations or financial condition of Buyer's business, which
change by itself or in conjunction with all other such
changes, whether or not arising in the ordinary course of
business in a manner consistent with past practices and
otherwise consistent with the representations, warranties and
terms of this Agreement, would have a material adverse effect
on Buyer or materially adversely effect Buyer's ability to
consummate the transaction contemplated by this Agreement;
b. Any damage, destruction or loss, whether or not covered by
insurance, which would have a material adverse effect on
Buyer;
24
c. Any agreement or understanding, whether in writing or
otherwise, that would result in any of the transactions or
events, specified in paragraphs (a) and (b) above.
4.13. Litigation. Exhibit 4.13 lists all currently pending litigation and
governmental or administrative proceedings to which Buyer is a party or
affecting Buyer's business which may have any material adverse effect
on Buyer or which could prevent or hinder the consummation of the
transactions contemplated by this Agreement. Except for matters
described in Exhibit 4.13, to the knowledge of the Buyer, there is no
litigation or governmental or administrative proceeding threatened
relating to Buyer, which threatened litigation or proceeding would have
any material adverse on Buyer or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
4.14. Warranty and Related Matters. There are no existing or, to the
knowledge of Buyer, threatened product liability, warranty or other
similar claims, against Buyer for products or services which are
defective or fail to meet any product or service warranties which may
have a material adverse effect on Buyer. To the knowledge of Buyer,
there are no statements, citations or decisions by any government or
political subdivision thereof, whether federal, state, local or
foreign, or any agency or instrumentality of any such government or
political subdivision, or any court or arbitrator (collectively,
"Governmental Bodies") stating that any product manufactured, marketed
or distributed at any time by Buyer ("Products") is defective or unsafe
or fails to meet any product warranty or any standards promulgated by
any such Governmental Body. No claim has been asserted against Buyer
for renegotiation or price redetermination of any business transaction,
and, to the knowledge of Buyer, there are no facts upon which any such
claim could be based which would have a material adverse effect on
Buyer.
4.15. Acquisition for Investment. Buyer represents and warrants that it has
such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of the investment in the
Stock, and is able to bear the economic risks of such investment. Buyer
acknowledges that:
a. It has been given the opportunity to ask questions of Health
Watch's management.
b. The offering of the Stock has not been registered under the
Securities Act; there is no commitment to register the Stock
under the Securities Act and Buyer is relying on the exemption
from such registration provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving
a public offering.
ARTICLE 5.
Pre Closing; Closing; Post Closing
5.1. Conduct Pending Closing.
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a. For a period of 30 days from the date of this Agreement, the
Queens shall ensure that Health Watch permits Buyer and its
authorized representatives to have reasonable access to Health
Watch's facilities during normal business hours. Buyer may
observe Health Watch's operations, and examine the files,
books and records of Health Watch. During such period, Buyer
may also observe the status of Health Watch's monitoring
accounts, assets, liabilities, agency and hospital contracts
and referral network, billing and collection procedures,
accounting procedures, manufacturing processes, financial
status, and certified financial statements (prepared at the
expense of Buyer), if any. During such 30-day period, Buyer is
entitled to cooperation from the Queens to verify the accuracy
of the representations and warranties in Article 3.
b. Neither the Stockholders nor Health Watch will close any
transaction or enter a binding agreement with any third party
relative to the disposition of the Business, Stock or Assets
or any substantial part thereof, unless mutually agreed by the
parties hereto.
c. The Stockholders shall use their good faith efforts to ensure
that the conditions to Closing will be met.
5.2. Prohibited Actions Pending Closing. Unless otherwise provided for
herein or approved by the Queens in writing, which approval will not be
unreasonably withheld or delayed, from the date hereof until the
Closing Date, the Stockholders must not take any action prior to the
Closing Date which would breach any of the representations and
warranties contained in this Agreement . Further, unless otherwise
provided for herein or approved by Buyer in writing, which approval
will not be unreasonably withheld or delayed, from the date hereof
until the Closing Date, the Stockholders shall cause Health Watch not
to:
a. amend or otherwise change its Certificates of Incorporation or
Bylaws;
b. issue or sell or authorize for issuance or sale, or grant or
sell any options or convertible, exercisable or exchangeable
instruments, or make other agreements with respect to, any
shares of its capital stock, or any other of its securities or
equity interests, except as may be required under any existing
agreements;
c. authorize or incur any additional debt for money borrowed
other than in the ordinary course of business or as the
Queen's deem necessary to preserve the reputation or effective
function of the Business;
d. mortgage, pledge or subject to lien or other encumbrance any
of Health Watch's material properties or agree to do so,
except for liens set forth in the Exhibits hereto or in the
course of borrowing from FSS;
26
e. enter into or agree to enter into any material agreement,
contract or commitment other than in the ordinary course of
business except for the purchase of New Accounts or as the
Queens deem necessary to preserve the reputation or effective
function of the Business;
f. increase or agree to increase, the compensation of any of
their officers, directors or Highly Compensated Employees
(other than scheduled increases in salary), by means of salary
increase, bonus or otherwise;
g. sell or otherwise dispose of, or agree to sell or dispose of,
any of the material assets or properties (other than the sale
of inventory in the ordinary course of business) of Health
Watch;
h. amend, in any material respect, or terminate, any material
lease, contract, undertaking or other commitment listed in any
Exhibit to which Health Watch is a party, or to take action or
fail to take any action, constituting any event of material
default thereunder except due to events beyond the reasonable
control of the Queens or Health Watch;
i. assume, guarantee or otherwise become responsible for the
obligations of any other party or agree to so do except in the
ordinary course of business or in connection with the purchase
of New Accounts; or
j. take any action prior to the Closing Date which would breach
any of the representations and warranties contained in this
Agreement.
5.3. Notices of Certain Events.
a. Stockholder's Notice. The Stockholders or Health Watch shall
promptly notify Buyer of:
(i) any notice or other communication of which such
Stockholder or Health Watch has knowledge from any
person (other than as set forth in the Exhibits
hereto) alleging that the consent of such person is
or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication of which such
Stockholder or Health Watch has knowledge from any
governmental or regulatory agency or authority;
(iii) any actions, suits, charges, complaints, claims,
investigations or proceedings commenced or, to such
Stockholder's or Health Watch's knowledge, threatened
against, relating to, involving or otherwise
affecting, the Business which, if pending on the date
of this Agreement, would have been required to be
disclosed pursuant to the Exhibits hereto or which
relate to the consummation of the transactions
contemplated by this Agreement; or
27
(iv) any material adverse event known by such Stockholder
or Health Watch which would impair any Stockholder's
or Health Watch's ability to perform its obligations
under this Agreement (other than as set forth in this
Agreement).
b. Buyer's Notice. Buyer shall promptly notify Health Watch or
the Queens of:
(i) any notice or other communication of which Buyer has
knowledge from any person alleging that the consent
of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication of which Buyer has
knowledge from any governmental or regulatory agency
or authority in connection with the transactions
contemplated by this Agreement;
(iii) any actions, suits, charges, complaints, claims,
investigations or proceedings commenced or, to
Buyer's knowledge, threatened against, relating to,
involving or otherwise affecting, Buyer which, if
pending on the date of this Agreement would have been
required to be disclosed pursuant to the Exhibits
hereto or which relate to the consummation of the
transactions contemplated by this Agreement; or
(iv) any materially adverse event which would impair the
ability of Buyer to consummate the transactions
contemplated by this Agreement (other than as set
forth in this Agreement).
5.4. Conditions Precedent to Buyer Closing. The obligations of the Buyer to
be performed on the Closing Date shall be subject to the satisfaction
of each of the conditions stated in this Section, except to the extent
that such satisfaction is waived by the Buyer in writing.
a. Seller Representations. The representations and warranties
made by Health Watch and the Stockholders (in Article 3 of
this Agreement) shall be deemed restated on and as of the
Closing Date and shall not have been false or misleading in
any material respect.
b. Seller Performance. All of the terms and conditions of this
Agreement to be satisfied or performed by the Stockholders on
or before the Closing Date shall have been satisfied or
performed in all material respects (including making all
deliveries required by Section 5.7).
c. Litigation. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory
body, or instituted or threatened by any governmental or
regulatory body, to restrain, modify or prevent the carrying
out of the transactions contemplated hereby, or to seek
damages or a discovery order in connection with such
transactions.
28
d. Consents. Each of the Stockholders or Health Watch shall have
received each consent or approval required to be given by any
third party in connection with the consummation of the
transactions contemplated hereby, where the failure to receive
such consent or approval would have a material adverse effect
on Health Watch.
e. No holder of the Notes shall have converted any of the Notes
unless such holders agree to join in this Agreement and to be
bound to the same extent as the other Stockholders.
f. MRR as of September 10, 1998 shall not be less than $230,000
and Earnings Before Interest Depreciation Taxes and
Amortization (excluding in such calculation any expenditures
for legal and accounting services provided in connection with
this transaction or not incurred in the ordinary course of
business) as at July 31, 1998 of Health Watch shall not be
less than $50,000.
5.5. Conditions Precedent to Stockholders Closing. The obligations of the
Stockholders to the Buyer to be performed on the Closing Date shall be
subject to the satisfaction of each of the conditions stated in this
Section, except to the extent that such satisfaction is waived by the
Stockholders (waiver by the Stockholders is effective only when
provided by the Queens) in writing.
a. Buyer Representations. The representations and warranties made
by the Buyer (in Article 4 of this Agreement) shall be deemed
restated on and as of the Closing Date and shall not have been
false or misleading in any material respect.
b. Buyer Performance. All of the terms and conditions of this
Agreement to be satisfied or performed by Buyer on or before
the Closing Date shall have been satisfied or performed in all
material respects (including making all deliveries required by
Section 5.8).
c. Litigation. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory
body, or instituted or threatened by any governmental or
regulatory body, to restrain, modify or prevent the carrying
out of the transactions contemplated hereby, or to seek
damages or a discovery order in connection with such
transactions.
d. Consents. Buyer shall have received each consent or approval
required to be given by any third party in connection with the
consummation of the transactions contemplated hereby, where
the failure to receive such consent or approval would have a
material adverse effect on Buyer or the performance of its
obligations hereunder.
5.6. Closing. If any conditions and deliveries set forth in this Article 5
are not substantially satisfied on or before Closing, the party
entitled to the benefit of such condition (the "First Party") may
terminate the Agreement by notice in writing to the other party, but
only after first giving written notice of the failure of the specific
condition and a 10-day right to cure such failure. If the failure still
exists at the end of such cure period, then in such event the First
Party may elect to bring an action for specific
29
performance or terminate this Agreement by written notice and bring an
action for damages from the default of the other party, in addition to
all other remedies available at law and in equity. Without limiting the
foregoing, in addition to any other remedies the Stockholders may have
as a result of Buyer's default, the Stockholders will be entitled to
retain the deposit Buyer paid in accordance with the terms of the
Escrow Agreement. In such event, the deposit must be allocated in
accordance with their respective ownership interests in Health Watch.
Without limiting the foregoing, in addition to the other remedies Buyer
may have as a result of a Stockholder's default, Buyer is entitled to
an immediate refund of the deposit paid under Section 2.2(a).
5.7. Stockholders' Deliveries. At the Closing, the Stockholders shall
deliver to the Buyer:
a. A certificate or certificates representing the Stock signed by
the applicable Stockholders, in proper form, free and clear of
all liens, claims, encumbrances and restrictions, fully paid
and non-assessable to the Buyer except as may be imposed under
restrictions on transfer imposed under Rule 144 of the
Securities Act and similar laws imposed by various states.
b. The Employment Agreements, executed by the Queens, in the
forms attached as Exhibit 5.7(b) (the "Employment
Agreements").
c. The Non-Competition and Non-Solicitation Agreements, executed
by the Stockholders, in the forms attached as Exhibit 5.7(c)
(the "Non-Competition Agreements").
d. A certificate, dated the Closing Date and signed by each of
the Stockholders, certifying that the conditions specified in
Sections 5.4 (a) and (b) above have been fulfilled.
e. The Last Balance Sheet and Financial Statements plus a list of
additional known liabilities, excluding those incurred in the
ordinary course of business, for goods or services to benefit
Buyer or Health Watch after Closing.
f. At Buyer's written request at least 10 days before the Closing
Date, and at the sole cost of the Stockholders payable upon
request, the opinion of Xxxxxx X. Xxxxxxxxx, P.A., counsel to
the Trust, dated the Closing Date, addressed to Buyer,
substantially in the form of Exhibit 5.7 (e) hereto.
g. A pay-off letter from FSS and such other documents from FSS
reasonably requested by Buyer stating the amount of money
necessary to make payment in full of all amounts owing to FSS
by Health Watch as of Closing and to cause the release of any
liens, pledges or other encumbrances on the Assets, the
Business or any other properties of Health Watch securing the
payment of funds due to FSS.
5.8. Buyer's Deliveries. At the Closing, the Buyer shall deliver to the
Stockholders (except as otherwise specified in subsection g., below):
30
a. Resolutions of the Buyer authorizing the execution and
delivery of this Agreement and the consummation of the
transaction contemplated hereby, certified as of the Closing
Date by the President or Secretary of the Buyer as having been
duly adopted and being in full force and effect and unmodified
on the Closing Date.
b. The cash portion of the Purchase Price due at Closing, as set
forth in Section 2.2(b), and a certificate or certificates for
each Stockholder for the Response Stock portion of the
Purchase Price due at Closing, as set forth in Sections 2.2(c)
and 2.2(d), in proper form, free and clear of all liens,
claims, encumbrances and restrictions, fully paid and
non-assessable to the Stockholders, except as may be imposed
under restrictions on transfer imposed under Rule 144 of the
Securities Act and similar laws imposed by various states.
Unless otherwise requested, certificates for spouses will be
issued to them as tenants by the entireties.
c. The Employment Agreements, executed by Buyer.
d. The Non-Competition Agreements, executed by Buyer.
e. A certificate, dated the Closing Date and signed by an
executive officer of Buyer, certifying that the conditions
specified in Sections 5.5(a) and (b) above have been
fulfilled.
f. An Assumption Agreement and any related agreements reasonably
requested by the Queens, in a form reasonably satisfactory to
them, signed by the affiliate of Buyer, if any, who acquires
the Stock.
g. Buyer shall pay or cause to be paid the full amount of the
Excluded Liabilities existing as of the Closing Date.
5.9. Post Closing Deliveries. After the Closing, each party to this
Agreement shall, at the request of the other, furnish, execute and
deliver such documents, instruments, certificates, notices or other
further assurances as the requesting party shall reasonably request as
necessary or desirable to effect complete consummation of this
Agreement and the transaction contemplated hereby.
5.10. Post Closing Covenants of Buyer. After the Closing Date, and for no
less than 30 months thereafter, Buyer must ensure, unless the Queens
consent otherwise in writing, that Health Watch will observe each of
the following:
a. Maintenance of Corporate Existence. Health Watch will either
(i) maintain its corporate existence, or (ii) be accounted for
as a separate division of Response, or a subsidiary of
Response. In each case Buyer must maintain all rights,
licenses, permits, registrations, certificates, contracts,
equipment, intellectual property, premises, agreements,
accounts, properties and other assets useful or necessary for
Health Watch to operate and conduct the Business, and Health
Watch will engage only in the type of business described in
this
31
Agreement. In the event of (ii), above, the subsidiary, if
any, shall sign and deliver the form of assumption agreement
and related agreements the Stockholders reasonably require,
including that such subsidiary agrees to be liable as the
"Buyer" under this Agreement and all other agreements entered
in connection with this Agreement, for all of Buyer's
obligations and conditions hereunder, without relieving
Response USA Inc. for any of its obligations. References to
Health Watch in this Section include any division of Buyer and
any subsidiary of Buyer, in either case, which operates any
PERS business, and includes, without limitation, Response
Acquisition Corp.
b. Payment of Obligations. Health Watch shall duly and timely pay
all principal and interest on any and all debts and other
obligations when due except as may be contested in good faith.
c. Legal Compliance. Health Watch will comply with all material
laws and regulations in the conduct of its Business.
d. Repair and Maintenance. Health Watch will keep all necessary
equipment and property in good repair and condition, as
necessary to permit the Business to be properly conducted.
e. Insurance. Health Watch will maintain insurance against
hazards and risks and liability to persons and property in
appropriate amounts and with reputable carriers as is
customary for companies in the same or similar business to the
Health Watch for at least the 30-month period following the
Closing Date, and shall maintain such insurance for the two
year period prior to the Closing Date, the expense of such
insurance for such two year period to be borne equally by
Buyer and the Stockholders. At a minimum, such tail and future
coverage must include at least the coverage described in
Exhibit 5.10(e).
f. Accounting and Financial Statements.
(i) Health Watch shall at all times keep true and
complete accounting and financial records in
accordance with GAAP consistently applied and,
without limiting the generality of the foregoing
provide the Stockholders upon 3-days' prior written
request no more often than monthly with all
information reasonably requested to determine whether
they earned all or any part of the Deferred Purchase
Price.
(ii) Health Watch will provide the Stockholders
concurrently with each delivery of financial
information pursuant to Section 5.10 f.(i), a
certificate by Buyer's chief financial officer
certifying that to the best of the officer's
knowledge and belief, such information is true and
correct.
g. Access to Business. Health Watch shall permit the Stockholders
and their authorized representatives to have reasonable
access, upon reasonable notice to Buyer not more than four
32
times per year (provided that such limitation does not apply
if Buyer provides materially inaccurate information to any of
the Stockholders or fails to provide timely access as
otherwise required herein), to the Health Watch's facilities,
books and records during normal business hours, to observe
operations, and to examine and copy the files, books and
records of Health Watch. Any Stockholder may, within 48 months
after Closing, conduct an audit of the books and records at
his own expense. If such audit discloses any underpayment of
at least five percent (5%) of the amount due to the
Stockholder of the Deferred Purchase Price, Buyer must pay the
amount of such underpayment immediately with interest from the
date due, at a rate of six percent (6%) per annum, together
with reimbursing the Stockholder for the reasonable costs of
the audit, including travel and lodging expenses, if any. Such
payment, if any, must be by cash to the Stockholder.
h. Nature of Business. Health Watch must not change the nature of
the Business from that described in this Agreement.
i. Sale or Purchase of Assets, Mergers, Consolidations, etc.
Health Watch shall not sell, lease or dispose of substantially
all of its assets (except to a wholly-owned subsidiary of
Buyer, as permitted under this Agreement, in connection with
Buyer's financing arrangement with XxXxxx, Xxxxx Capital
Holdings Corp.) unless Buyer has paid the Stockholders the
Deferred Purchase Price in full, issue additional capital
stock, redeem any Stock, merge (except to an entity which is
wholly-owned by Buyer), consolidate, reorganize, liquidate,
dissolve, nor suffer any of the foregoing. Any sale by Buyer
of the Stock, or any merger or reorganization of Buyer to an
unaffiliated third-party, for purposes of this subsection, is
deemed to be the same as a sale of substantially all of the
assets of Health Watch. Nor may Health Watch or Buyer take any
action which would have a material adverse effect on Health
Watch's ability to operate and expand the Business in the
ordinary present course.
j. Payment of Excluded and Other Liabilities. Buyer shall ensure
that all liabilities of Health Watch are timely paid as due,
except for any period during which Buyer is in good faith
contesting the obligation.
k. Registration Rights. Subject to the provisions of this Section
5.10(k), following each date that it issues any Registered
Stock to any Stockholder under this Agreement Buyer must (i)
within 30 days of such issuance file a registration statement
with the SEC, to register all shares of such stock, (ii) have
such registration statement declared effective within 60 days
of such issuance (or such longer period as necessary if needed
despite Buyer's continuing best efforts to secure such
registration), and (iii) keep such registrations effective
until the earlier of 2 years from receipt by the Stockholder
of the applicable Registered Stock or the date the Stockholder
33
sells all such shares. Buyer shall also promptly register the
Registered Stock, or obtain an exemption from registration, in
any state for which a Stockholder demands such registration or
exemption as reasonably necessary to sell his Registered
Stock. Buyer must use its best efforts to obtain such
registration or exemption by no later than the time required
to obtain an effective registration with the SEC. The
registration rights of the Stockholders for the Registered
Stock they receive at Closing shall be prorated based on their
relative number of shares of Registered Stock they receive at
Closing. Notwithstanding Section 5.10(k)(i), with respect to
Registered Stock delivered at Closing, Buyer must within 10
days following the date which Buyer files its Annual Report on
Form 10-K for the fiscal year end June 30, 1998, but in no
event later than October 26, 1998, file a registration
statement with the SEC, to register all shares of such stock.
Further, notwithstanding anything to the contrary in this
Section 5.10(k), Buyer may postpone the filing of, or may
postpone the effectiveness of, a registration statement filed
or to be filed pursuant to this Section 5.10(k) for a period
not to exceed ninety (90) days in connection with a written
request by an underwriter in connection with an underwritten
public offering provided that Buyer has given written notice
to the Stockholders to that effect.
5.11. Post Closing Covenants of the Stockholders. After the Closing Date, so
long as no Termination Event has occurred, the Stockholders agree not
to sell through the NASDAQ Stock Market, collectively, more than 3,500
shares of Response Stock per day (as adjusted for stock splits, stock
dividends and similar events) unless Buyer otherwise consents. Such
restriction shall not apply to Response Stock acquired in payment of
the Deferred Purchase Price which shall instead be restricted to the
sale of no more than 5,000 shares of Response Stock per day, nor to
block sales arranged by Buyer or by Buyer and the Queens through any
mutually agreeable broker-dealer or to shares sold pursuant to a
secondary public offering of Buyer pursuant to which the underwriter of
such offering has agreed to allow the Stockholders to participate as
selling stockholders.
5.12. Appointment of the Queens as representative for the Stockholders. Each
of the Stockholders hereby appoints each of the Queens or either of
them acting alone as the exclusive representative (the
"Representative") to act on each Stockholder's behalf with respect to
any and all issues arising under this Agreement or the Escrow
Agreement. The Representative is authorized to negotiate, communicate
and receive notices required to be delivered to the Stockholders under
this Agreement or the Escrow Agreement, make and receive deliveries of
the funds and other items required to be delivered or received by the
Stockholders under this Agreement (including at the Closing and
following the Closing pursuant to the Escrow Agreement), assert all
indemnification claims under Article 7, conduct negotiations with Buyer
and its representatives regarding such claims, perform obligations
under this Agreement on behalf of the Stockholders, and take any and
all other actions of any Stockholder specified in or contemplated by
this Agreement. Buyer shall have the right
34
to rely upon all actions taken or omitted to be taken by the
Representative in respect of this Agreement and the Escrow Agreement or
the transactions contemplated hereby or thereby, all of which actions
or omissions shall be legally binding upon, and are hereby irrevocably
ratified and approved by, the Stockholders.
ARTICLE 6.
Confidential Information
6.1. All information and documents furnished by Stockholders or Health Watch
to Buyer pursuant hereto or otherwise shall be treated as the sole
property of Health Watch until the Closing Date and, if the transaction
contemplated under this Agreement shall not be consummated, such
information and documents shall be returned to Health Watch. Buyer will
preserve and maintain the confidential nature of all nonpublic and
confidential information relating to the Stockholders and Health Watch
whether or not furnished to it by Stockholders or Health Watch;
provided, however, Buyer may disclose nonpublic and confidential
information of the Stockholders or Health Watch to its authorized
representatives if such persons, prior to any such disclosure, agree
not to use the information other than to evaluate the proposed
transaction, and to keep confidential such information except as
necessary to operate the Business after Closing, if any. The
obligations in this Section with respect to confidential information
relating to only Health Watch (but not to the Stockholders) expires
after the Closing.
ARTICLE 7.
Indemnification
7.1. Indemnification by Stockholders.
a. The Stockholders shall jointly and severally indemnify, defend
and hold harmless Buyer, promptly upon demand at any time and
from time to time, against any and all losses, liabilities,
claims, actions, damages and expenses, including without
limitation reasonable attorneys' fees and disbursements
(collectively, "Losses"), arising out of or in connection with
any of the following: (a) any misrepresentation or breach of
any warranty contained herein made by Health Watch and/or any
Stockholder; (b) any breach or nonfulfillment of any covenant
or agreement contained herein made by Health Watch and/or any
Stockholder; (c) the claims of any broker or finder engaged by
Health Watch and/or any Stockholder; and (d) without in any
manner limiting the foregoing, any liabilities or obligations
(other than the Excluded Liabilities as disclosed to Buyer on
the Closing Date) of, or claims or causes of action against
Health Watch which arise with respect to or relate to any
period or periods on or prior to the Closing Date (excluding
obligations and liabilities incurred in the ordinary course of
business in a
35
manner consistent with past practices, and otherwise
consistent with the representations, warranties and terms of
this Agreement) if such liabilities, obligations, claims or
causes of action were not disclosed to Buyer as required under
this Agreement on the Schedules or Exhibits hereto. Nothing in
this section requires indemnification for consequential,
special or incidental damages, even if advised of the
possibility of the same.
b. Notwithstanding the foregoing, no indemnification shall be
payable to Buyer if such claims arise solely from a failure by
Health Watch to pay sales taxes for periods prior to the
Closing Date unless the liability arising out of such claims
shall exceed $100,000 (the "Basket") in the aggregate,
whereupon the amount of such claims in excess of the Basket
shall be recoverable in accordance with the terms hereof. The
Basket shall not be applicable to any other amounts
recoverable under Section 7.1.
7.2. Indemnification by Buyer.
a. Buyer shall indemnify, defend and hold harmless
Stockholders, promptly upon demand at any time and from time
to time, against any and all Losses arising out of or in
connection with any of the following: (a) any
misrepresentation or breach of any warranty contained herein
made by Buyer; (b) any breach or nonfulfillment of any
covenant or agreement contained herein made by Buyer; and (c)
the claims of any broker or finder engaged by Buyer ; and (d)
without in any manner limiting the foregoing, any liabilities
or obligations of, or claims or causes of action against the
Stockholders which arise with respect to or relate to any
period or periods on or after the Closing Date. Nothing in
this section requires indemnification for consequential,
special or incidental damages, even if advised of the
possibility of the same.
b. Notwithstanding the foregoing, no indemnification shall be
payable to the Stockholders pursuant to this Section 7.2 for
any loss of value of any shares of Response Stock to the
extent that Buyer has timely delivered cash or Make-Up Stock
as a result of the stock price guarantees pursuant to section
2.6 of this Agreement.
7.3. Notice; Defense of Claims Promptly after receipt by an indemnified
party of notice of any Loss to which the indemnification obligations
hereunder would apply, the indemnified party shall promptly give notice
thereof in writing to the indemnifying party (Buyer with respect to
claims by the Stockholders and the Stockholders with respect to claims
by Buyer), but the omission to so notify the indemnifying party
promptly will not relieve the indemnifying party from any liability
except to the extent that the indemnifying party shall have been
prejudiced as a result of the failure or delay in giving such notice.
Such notice shall state the information then available regarding the
amount and nature of the Loss and shall specify the provision or
provisions of this Agreement under which the Loss is asserted. If
within 20 days after receiving such notice the indemnifying party gives
written notice to the
36
indemnified party stating that it intends to defend against such Loss
at its own cost and expense and confirms that it will be responsible
for the Loss under Article 7 if such defense is not successful, then
counsel for the defense shall be selected by the indemnifying party,
which counsel shall be reasonably satisfactory to the indemnified
party, and the indemnifying party shall not be required to make any
payment with respect to such Loss prior to resolution of such Loss as
long as the indemnifying party, to the extent reasonably practicable,
is conducting a good faith and diligent defense at its own expense;
provided, however, that the assumption of defense of any such matters
by the indemnifying party shall relate solely to the Loss that is
subject or potentially subject to indemnification. The indemnified
party shall cooperate in all reasonable respects, at the indemnifying
party's request and cost, risk and expense, with the indemnifying party
and its attorneys in the investigation, trial and defense of such Loss
and any resulting suit, proceeding or enforcement action and any appeal
therefrom. The indemnifying party shall have the right, with the
consent of the indemnified party, which consent shall not be
unreasonably withheld, to settle all indemnifiable matters related to
claims by third parties which are susceptible to being settled. The
indemnifying party shall keep the indemnified party apprised of the
status of the Loss and any resulting suit, proceeding or enforcement
action, and shall furnish the indemnified party with all documents and
information that the indemnified party shall reasonably request and
shall consult with the indemnified party prior to any settlement.
Notwithstanding anything herein stated, the indemnified party shall at
all times have the right to fully participate in such defense at its
own expense; provided, however, If the named parties to the action
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate under applicable standards of professional conduct, the
expense of separate counsel for the indemnified party shall be paid by
the indemnifying party. If no such notice of intent to dispute and
defend is given by the indemnifying party, or if such diligent good
faith defense is not being or ceases to be conducted, the indemnified
party shall, at the expense of the indemnifying party, undertake the
defense of (with counsel selected by the indemnified party), and shall
have the right to compromise or settle such Loss on reasonable terms.
If such Loss is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably
request and shall cooperate with the indemnifying party in such
defense.
ARTICLE 8.
Miscellaneous
8.1. Notices. All notices, requests, demands, consents and other
communications required or permitted under this Agreement shall be in
writing (including telex and telegraphic communication) and shall be
(as elected by the person giving such notice) hand delivered by
messenger or courier service,
37
telecommunicated, or mailed (airmail if international) by registered or
certified mail (postage prepaid), return receipt requested, as follows:
If to any Stockholders or Health Watch:
Health Watch, Inc.
000 Xxxxxx Xxxx
Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Attn: Xxxxxxx Xxxxx
With a copy to:
Xxxxxx X. Xxxxxxxxxxx, Esq.
Xxxxxxxx, Xxxxxxxxxxx & Xxxxxxxx
Xxx Xxxxx, Xxxxx 000
0000 Xxxx Xxxxxx Xxxx
Xxxx Xxxxx, XX 00000
If to Buyer:
Response USA, Inc.
00-X Xxxxxxxx Xxxx
Xxxxxxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, President
With a copy to:
Squadron, Ellenoff, Plesent & Xxxxxxxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx X. Xxxxxx, Esq.
or to such other address as any party may designate by notice complying
with the terms of this Section. Each such notice shall be deemed
delivered: (a) on the date delivered if by personal delivery; (b) on
the date of transmission with confirmed answer back if by telefax or
other telegraphic method; or (c) on the date upon which the return
receipt is signed or delivery is refused or the notice is designated by
the postal authorities or courier service as not deliverable, as the
case may be, if mailed or couriered.
38
8.2. Amendments. The provisions of this Agreement may not be amended,
supplemented, waived or changed orally, but only by a written document
signed by the party as to whom enforcement of any such amendment,
supplement, waiver or modification is sought and making specific
reference to this Agreement.
8.3. Governing Law. This Agreement is made under, and shall be construed and
enforced in accordance with the laws of the State of New York, without
regard to any choice of law principles, applicable to agreements made
and to be performed solely therein.
8.4. Assignment. This Agreement shall inure to the benefit of and be binding
on the successors and legal representatives of each of the parties, but
may not be assigned by either party without the prior written consent
of the others except, as long as Buyer remains jointly and severally
liable for the obligation herein, and the assignee assumes all of
Buyer's obligations, the right to purchase the Stock made by Buyer to
an affiliate.
8.5. Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same
agreement.
8.6. Exclusiveness. This Agreement, the Escrow Agreement, the
Non-Competition Agreements and the Employment Agreements embody, all of
the representations, warranties, and agreements of the parties hereto
with respect to the subject matter hereof, and all prior
understandings, representations, and warranties (whether oral or
written) with respect to such matters are superseded and may not be
amended, modified, waived, discharged, or orally terminated except by
an instrument in writing signed by the party or an executive officer of
a corporate party against whom enforcement of the change, waiver,
discharge, or termination is sought.
8.7. Survival. All covenants, agreements, representations and warranties
made in this Agreement by any party shall continue in full force and
effect subsequent to and notwithstanding the Agreement's expiration or
termination and until they are satisfied or by their nature expire.
Notwithstanding the foregoing, the representations and warranties in
Article 3 expire upon any sale of substantially all of the assets of
Response Acquisition Corp. or Response USA, Inc., or the acquisition by
any third party (whether or not an existing stockholder) of at least a
40% interest in the ownership or voting rights of either company, or
the merger of either company, or any of their affiliates, with or into
any third party, or if Xxxxxxx Xxxxxx fails to be the Chief Executive
Officer of Buyer.
8.8. Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provisions were omitted. Furthermore, in
lieu of such illegal, invalid, or unenforceable provision there shall
be added automatically as a part of this Agreement a provision
39
similar in terms to such illegal, invalid, or unenforceable provision
as may be possible and be legal, valid and enforceable.
8.9. Interpretation, No Presumption. It is acknowledged by the parties that
this Agreement has been prepared by all the parties and contains
negotiated suggestions of both Stockholders and Buyer, and therefore,
no presumptions shall arise favoring either party by virtue of the
authorship of any of its provisions. When any party makes a
representation or warranty to the "best of his knowledge" the parties
acknowledge that no independent investigation or inquiry is required as
a condition thereof.
8.10. Time of the Essence. All times for performance of the parties hereunder
are material and of the essence of this Agreement.
8.11. Exhibits. The Exhibits attached hereto are hereby incorporated into
this Agreement to the same extent as if they were set out in full
herein.
8.12. Expenses. The parties each shall bear their own legal, accounting or
other expenses incurred in connection with the preparation, execution
and performance of this Agreement.
8.13. Publicity. Neither Stockholders nor Buyer will issue any press release
or other public announcement or disclosure with respect to this
Agreement (or the transactions contemplated hereby or the terms,
conditions or other facts with respect thereto, including the status
thereof), without the prior written consent of the other, except as may
be required by law provided that to rely on such exception Buyer must
first provide the Queens with reasonable notice to discuss such
disclosure in advance with Buyer, and Buyer must make the disclosure,
if at all, only to the minimum extent legally required.
8.14. Consent to Jurisdiction. Any controversy or claim arising out of or
relating to this Agreement, or breach of the terms and conditions
hereof, shall be brought in the state or federal district court for the
Palm Beach County, Florida or any court of competent jurisdiction
nearest thereto. Each party hereto irrevocably consents and submits to
the jurisdiction of any of said courts in any suit, action or
proceeding brought under or with respect to this Agreement, and hereby
waives any claim or defense of inconvenient forum.
8.15. Waivers. The failure or delay of any party at any time to require
performance by another party of any provision of this Agreement, even
if known, shall not affect the right of such party to require
performance of that provision or to exercise any right, power or remedy
hereunder. A waiver by any party of any breach of any provision of this
Agreement should not be construed as a waiver of any continuing or
succeeding breach of such provision, a waiver of the provision itself,
or a waiver of any right, power or remedy under this Agreement. No
notice to or demand on any party in any case shall, of itself, entitle
such party to any other or further notice or demand in similar or other
circumstances.
40
8.16. Binding Effect. All of the terms and provisions of this Agreement,
whether so expressed or not, shall be binding upon, inure to the
benefit of, and be enforceable by the parties and their respective
personal representatives, legal representatives, heirs, successors and
permitted assigns. Without limiting the foregoing, any transferee of
shares of Response Stock is entitled to all of the benefits of the
Make-Up Stock and Deferred Purchase Price rights that the original
holder of such shares was entitled under this Agreement provided that
any such transferee agrees in writing to be bound by the restrictions
in Section 5.11 hereof.
8.17. Stock Legend. The parties hereto acknowledge that the certificates
representing the Response Stock and all other Common Stock issued
hereunder shall be stamped or otherwise imprinted with legends
substantially in the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER UNITED STATES FEDERAL OR STATE SECURITIES LAWS AND MAY
NOT BE OFFERED FOR SALE, SOLD, OR OTHERWISE TRANSFERRED OR
ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE
SECURITIES BE TRANSFERRED ON THE BOOKS OF THE CORPORATION,
WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE
UNITED STATES FEDERAL SECURITIES LAWS OR COMPLIANCE WITH AN
APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE OPTION
OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF
STOCKHOLDER'S COUNSEL, IN FORM ACCEPTABLE TO THE CORPORATION,
THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS WOULD RESULT
FROM ANY PROPOSED TRANSFER OR ASSIGNMENT."
"THE TRANSFER AGENT UPON PRESENTATION OF THE SECURITIES
REPRESENTED HEREBY FOR TRANSFER, IS REQUESTED TO NOTIFY THE
CORPORATION OF SUCH TRANSFER."
8.18 Enforcement Costs. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any
provision of this Agreement, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees, court
costs and all expenses even if not taxable as court costs (including,
without limitation, all such fees, costs and expenses incident to
arbitration, appellate, bankruptcy and post-judgment proceedings),
incurred in that action or proceeding, in addition to any other relief
to which such party or parties may be entitled. Attorneys' fees include
paralegal fees, administrative costs, investigative costs, costs for
expert witnesses, court reporter fees, sales and use taxes, if any, and
all other charges billed by the attorneys to the prevailing party.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
RESPONSE USA, INC. STOCKHOLDERS
By: /s/ Xxxxxxx X. Xxxxxx /s/ Xxxxxxx Xxxxx
----------------------- -------------------------------------
Title: Xxxxxxx Xxxxx
/s/ Xxxxxx Xxxxx
-------------------------------------
Xxxxxx Xxxxx
Xxxxxxx Xxxxx and Xxxxxx Xxxxx
Irrevocable Trust U/A January 2, 1998
By: /s/ Xxxxxxx Xxxxx
----------------------------------
Xxxxxxx Xxxxx, Trustee
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