Exhibit 10.1

 

BAD TOYS HOLDINGS, INC.

2344 Woodridge Avenue

Kingsport, TN 37664

December 1, 2004

 

Mr. Joseph Cerone

      

Southland Health Services, Inc.

      

1209 West Shipley Ferry Road

      

Suite 200

      

Kingsport, Tennessee 37663

      

Mr. Joseph Donavan

     Mr. Glenn Crawford

Southland Health Services, Inc.

     Southland Health Services, Inc.

1209 West Shipley Ferry Road

     1209 West Shipley Ferry Road

Suite 200

     Suite 200

Kingsport, Tennessee 37663

     Kingsport, Tennessee 37663

 

Re:

   Letter of Intent Concerning Acquisition of      Stock of Southland Health
Services, Inc.

 

Gentlemen:

 

This letter, when countersigned by you, will confirm our agreement in principle
that Bad Toys Holdings, Inc. (“Buyer”) is interested in acquiring one hundred
percent of the issued and outstanding common stock of Southland Health Services,
Inc. (the “Company”) from Messers. Cerone, Donavan and Crawford (the
“Shareholders”), on terms that are mutually agreeable to the parties (the
“Transaction”).

 

It is the parties intention that this letter of intent will constitute a binding
obligation of both the Buyer and the Shareholders and will be governed by and
construed under the laws of the State of Tennessee without regard to
conflicts-of-laws principles. Moreover, any action or proceeding seeking to
enforce any provision of, or based on any right arising out of this letter of
intent may be brought against any of the parties in the courts of the State of
Tennessee, County of Sullivan or, if it has or can acquire jurisdiction, in the
United States District Court for the Eastern District of Tennessee, and each of
the parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Notwithstanding the foregoing, the parties agree to proceed
in good-faith to negotiate, execute and deliver a definitive stock purchase
agreement and any related documents and instruments which together will set
forth all of the terms and conditions of our agreement and understanding
relating to the Transaction (the “Agreement”). To confirm the current status of
our discussions, and in view of our mutual intention to reach a complete
agreement based upon our intended further discussions and negotiations, we are
hereinafter memorializing our shared basic assumptions and understandings:

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1. Fundamental Terms.

 

a. Transaction. The Shareholders will sell all of the shares of the Company’s
common stock set forth opposite each of their names in Exhibit A attached hereto
(the “Shares”), to Buyer at the price (the “Purchase Price”) set forth in
Paragraph 1(b) below. The Shares constitute all of the issued and outstanding
shares of the Company’s common stock and have been duly authorized and validly
issued and are fully paid and non-assessable. There are no other outstanding
rights, options, warrants, conversion privileges or agreements of any kind for
the purchase or acquisition from, or the sale or issuance by, the Company of any
shares of its capital stock. The common stock of the Company is the Company’s
only class of capital stock.

 

b. Purchase Price. The Purchase Price shall be paid in the following manner:

 

(i) Buyer will deliver the sum of One Million Five Hundred Thousand and
No/Dollars ($1,500,000) to the Shareholders in the form of a cashier’s check (or
otherwise immediately available funds) within thirty days (30) days of the
Closing (defined herein);

 

(ii) Buyer will deliver an Interest Bearing Installment Promissory Note (the
“Note”) in the principal amount of Four Million One Hundred Forty Thousand and
No/Dollars ($4,140,000), bearing an annual interest rate equal to one point over
the prime rate (determined as of the end of each calendar quarter) charged from
time to time by Bank of America to commercial borrowers, within thirty days (30)
days of the Closing (defined herein). The parties agree the monthly payment of
principal and interest under the Note shall equal Thirty Nine Thousand and
No/Dollars ($39,000). The Note also will contain an acceleration clause based on
the Company’s performance, which shall be further negotiated by the parties;

 

(iii) Buyer will issue Three Million (3,000,000) shares of its restricted common
stock to the Shareholders on a pro-rata basis pursuant to the exemption from
registration found in Section 4(2) of Regulation D as promulgated by the
Securities and Exchange Commission under the Securities Act of 1933. Buyer will
guarantee the Shareholders will receive $1.00 per share for the restricted
shares of common stock described in this Paragraph 1(b)(iii);

 

(iv) Buyer will issue Two Million Five Hundred Thousand (2,500,000) stock
warrants (the “Warrants”) to the Shareholders on a pro-rata basis. The purchase
price per Warrant will be $0.50 cents per share. Buyer will guarantee the
Shareholders will receive $1.50 per share for One Million (1,000,000) of the
shares of Buyer’s common stock purchased pursuant to the Warrants described in
this Paragraph 1(b)(iv).

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c. Board of Directors. The Board of Directors of Buyer currently consists of
three (3) members. Buyer will cause its Board of Directors to be expanded to
five (5) seats. Mr. Crawford shall serve on Buyer’s Board of Directors and will
assist in the appointment of one additional member to Buyer’s Board of
Directors.

 

d. Conditions Precedent to Buyer’s Obligation to Close.

 

(i) The Shareholders shall cause the Company to satisfy the following
outstanding liabilities on the following dates:

 

(A) That certain liability owed to GE Health Care, Inc. in the amount of
[$2,300,000] on or before December 31, 2004;

 

(B) that certain liability owed to the United States Internal Revenue Service in
the amount of [$1,800,000] within forty-five (45) days of Closing; and

 

(C) that certain liability owed to Pacific Capital in the amount of [$750,000]
on or before December 31, 2004.

 

(ii) Buyer shall have obtained financing on terms and conditions satisfactory to
it for all of the financing it needs in order to consummate the Transaction
contemplated hereby, including the Purchase Price.

 

2. Definitive Agreement. The parties mutually agree to proceed in good faith
toward negotiation and execution of the Agreement, to which Buyer and the
Shareholders shall each be a party, and which shall provide for the Transaction
and shall contain mutually satisfactory terms, representations, conditions,
warranties, covenants, indemnities and other provisions as are appropriate and
consistent with the provisions herein described.

 

The parties also agree that if a definitive agreement has not been executed by
5:00 p.m. Eastern Standard Time on December 15, 2004, this letter of intent
shall automatically be terminated and of no further force or effect, unless
otherwise agreed to in writing by the parties. Without limiting the generality
of the foregoing, it is agreed that the Agreement shall provide for the closing
of the Transaction to occur on or before December 31, 2004 (the “Closing”).

 

3. Covenants. Pending execution of the Agreement (or termination of this letter
of intent, as herein provided), the Shareholders of the Company will not harm
the business of the Company in any way and will cooperatively cause the Company
to conduct its business only in the ordinary course, and will not cause the
Company to engage in any extraordinary transactions, including, but not limited
to, disposing of any assets of the Company other than in the ordinary course of
business, borrowing funds under existing lines of credit or otherwise except as
reasonably necessary for the ordinary operation of the Company, or issuing any
equity securities or rights to acquire such equity securities of the Company,
without the written agreement of each party hereto.

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4. Expenses. Each party will pay its own expenses associated with any
solicitation, negotiation, preparation and execution of this letter agreement or
any Agreement and with the consummation of the Transaction.

 

5. Termination. This letter of intent may be terminated by Buyer if it is not
accepted and agreed to by the Shareholders on or before 5:00 p.m., Eastern
Standard Time, December 2, 2004.

 

If the foregoing is acceptable to you, please indicate such acceptance by
executing this letter where indicated.

 

   

Very truly yours,

   

/s/ Larry N. Lunan

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Bad Toys Holdings, Inc.

   

Larry N. Lunan, President

Accepted and Agreed:

   

/s/ Joseph Cerone

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Joseph Cerone

   

/s/ Joseph Donavan

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Joseph Donavan

   

/s/ Glenn Crawford

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Glenn Crawford