Stock Purchase Agreement

Exhibit 10.1


CAPITAL STOCK PURCHASE AGREEMENT


This CAPITAL STOCK PURCHASE AGREEMENT (the " Agreement" ), dated December 26, 2004, by and among Glenn Crawford, an individual maintaining a mailing address at P.O. Box 1016, Vernon, Alabama 35592 (" Crawford" ); Joseph Cerone, an individual at P.O. Box 5428, Kingsport, Tennessee 37663 (" Cerone" ); and Joseph Donavan, an individual residing at 104 Caburn Court, Brandon, Mississippi 39047 (" Donavan" ) (collectively, the " Sellers" ); Southland Health Services, Inc., a Delaware corporation maintaining administrative offices at 126 Emergystat Loop, Vernon, Alabama 35592 (the " Company" ); and Bad Toys Holdings, Inc., a Nevada corporation with a business address of 2344 Woodridge Avenue, Kingsport, Tennessee 37644 (the " Purchaser" ).


BACKGROUND INFORMATION

A. The Sellers own the number of shares of common stock of the Company set forth opposite their names in Schedule A (the " Shares" ). This Agreement sets forth the terms and conditions upon which the Purchaser is acquiring from the Sellers and the Sellers are selling and delivering to the Purchaser, free and clear of all liabilities, obligations, claims, liens and encumbrances, the Shares, representing an aggregate of One Thousand (1,000) issued and outstanding shares of the common capital stock, $0.01 par value per share, of the Company.


B. The Sellers and the Company are in the process of completing the following transactions (the " Roll-up Transactions" ) on or before the date of closing: (1) the Company is acquiring all of the issued and outstanding ownership interests of Southland Health Services, LLC, a Mississippi limited liability company (" Southland LLC" ); (2) Southland LLC is acquiring substantially all of the assets of Quality Care Ambulance Services, Inc., a Tennessee corporation (" Quality Care" ), (3) the Company is acquiring (i) ninety percent (90%) of the issued and outstanding capital stock of Emergystat, Inc., a Mississippi corporation (" Emergystat" ), and (ii) ninety percent (90%) of the issued and outstanding capital stock of Emergystat of Sulligent, Inc., an Alabama corporation (" Emergystat of Sulligent" ).


C. The representations set forth below by the Sellers assume completion of the Roll-up Transactions on or before the date of Closing (as defined below).


D. Tom McGregor, as trustee of the bankruptcy estate of George Hutchinson (" McGregor" ), owns the remaining ten percent (10%) of the issued and outstanding capital stock of Emergystat and Emergystat of Sulligent (the " McGregor Emergystat Stock" ). If McGregor transfers the McGregor Emergystat Stock to the Company in connection with the Roll-up Transactions, then the Company intends on issuing 86.95 shares (the " McGregor Southland Stock" ) to McGregor, representative of an eight percent (8%) ownership interest in the Company (the " McGregor Emergystat Transaction" ). If, upon completion of the McGregor Emegrystat Transaction, McGregor (or McGregor' s transferee) elects to transfer to the Purchaser the McGregor Southland Stock, then, subject to the terms and conditions set forth herein, the Purchase Price will be increased as set forth in Section 1.3 below. If the Purchaser acquires the McGregor Southland Stock on the Closing Date (as defined below), then all references to the " Shares" shall include the McGregor Southland Stock.

In consideration of the mutual agreements contained herein, the parties agree as follows:

OPERATIVE PROVISIONS

ARTICLE 1


PURCHASE AND SALE OF SHARES


1.1 Shares to be Sold : Subject to the terms and conditions of this Agreement, at the Closing referred to in Section 1.4 hereof, the Sellers shall sell and deliver to the Purchaser good, valid and marketable title to the Shares, free and clear of all liabilities, obligations, claims, liens and encumbrances, by delivering to the Purchaser one or more stock certificates representing the Shares, duly endorsed in blank or accompanied by one or more stock powers duly endorsed in blank, in form for transfer satisfactory to counsel for the Purchaser.


1.2 Purchase Price of the Shares : The gross purchase price to be paid by the Purchaser to the Sellers for the Shares shall be $8,868,000 (the " Purchase Price" ).


1.3 Payment of Purchase Price : Subject to the terms and conditions of this Agreement, in reliance on the representations, warranties and agreements of the Sellers contained herein, and in consideration of the sale and delivery of the Shares, the Purchaser shall pay the Purchase Price to the Sellers, in the following manner:

(a) Purchaser will deliver the sum of One Million Three Hundred and Eighty Thousand and No/Dollars ($1,380,000) to the Sellers, in the aggregate, in the form of a cashier' s check (or otherwise immediately available funds) within thirty (30) days after the Closing.

(b) Purchaser will deliver three interest bearing promissory notes, with an aggregate original principal amount of Three Million Eight Hundred Eight Thousand and No/Dollars ($3,808,000), each in the form attached hereto as Exhibit A , within thirty (30) days of Closing (individually, a " Note, or collectively, the " Notes" ).

(c) Purchaser will issue Two Million Seven Hundred Sixty Thousand (2,760,000) shares of its restricted common stock to the Sellers, in the aggregate (the " Bad Toys Shares" ). Purchaser hereby guarantees the Sellers will be able to sell the Bad Toys Shares received pursuant to this Section 1.3(c), for no less than $1.00 per share in a Qualified Sale (as defined herein). A " Qualified Sale" means a sale of the Bad Toys Shares meeting each of the following requirements: (i) the shares must be sold pursuant to Rule 144 of the Securities Act of 1933 or an effective registration statement, (ii) the shares must be sold by a licensed broker or dealer, and (iii) the shares must be sold in an arms length transaction to a person or entity that is not an affiliate of the Seller and not an affiliate of the then current owner of the shares. Notwithstanding the foregoing, if at anytime after the date one (1) year from the date of issuance of the Bad Toys Shares, but before the Seller has sold the Bad Toys Shares, the Closing Bid Price (as defined herein) for common stock of the Purchaser exceeds $1.00 for sixty (60) consecutive days, then the Purchaser' s guarantee under this paragraph shall be deemed to have been satisfied. " Closing Bid Price" means the price of the Common Stock of the Purchaser as listed on a


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Principal Market (as defined herein). As used herein, " Principal Market" shall mean The National Association of Securities Dealers Inc.' s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or American Stock Exchange. If the Common Stock is not traded on a Principal Market, the Closing Bid Price shall mean, the reported Closing Bid Price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc., for the applicable periods.

(d) Purchaser will issue to the Sellers warrants (the " Warrants" ) to acquire Two Million Three Hundred Thousand (2,300,000) shares, in the aggregate, of common stock of the Purchaser (the " Warrant Shares" ). Each Warrant will (i) have an exercise price of $0.50 cents per share, (ii) a price guarantee that the Seller will receive no less $1.50 per share as to forty (40%) percent of the Warrant Shares pursuant to a Qualified Sale, and (iii) otherwise be in the form mutually agreed to by the parties prior to the Closing.


Notwithstanding the foregoing, in the event McGregor (or McGregor' s transferee) completes the McGregor Emergystat Transaction and sells the McGregor Southland Stock to the Purchaser, the Purchase Price shall be increased as follows: (w) the aggregate cash payment referenced in subparagraph (a) above shall be increased from $1,380,000 to $1,500,000, (x) the aggregate principal on the Notes shall be increased from $3,808,000 to $4,140,000, (y) the aggregate number of Bad Toys Shares shall be increased from 2,760,000 to 3,000,000, and (z) the aggregate number of Warrants issued shall be increased from 2,300,000 to 2,500,000; provided, however, McGregor (or the bankruptcy estate or McGregor' s transferee, as applicable) shall become a party to this Agreement, all references to the " Sellers" shall include McGregor (or the bankruptcy estate or McGregor' s transferee, as applicable), and McGregor (or the bankruptcy estate or McGregor' s transferee, as applicable) shall otherwise meet the representations in Section 3.23 and 3.24 below.

No less than five (5) days prior to the date of Closing, the Sellers shall provide joint written instructions to the Purchaser as to how each portion of the Purchase Price (the cash, Notes, Bad Toys Stock, and Warrants) shall be divided among the Sellers.


1.4 Closing : The closing of the sale and purchase of the Shares shall take place at the offices of the Purchaser at 2 p.m., Eastern Standard Time, January 31, 2005, or at such sooner time and location as may be agreed to by the parties (the " Closing" ). At the Closing, the Sellers shall deliver to the Purchaser one or more certificates for the Shares, in negotiable form, with all requisite stock transfer stamps or the funds therefore attached, together with a copy of the Company' s Articles of Incorporation, certified by the Delaware Department of State, and the Company' s by-laws, certified by its secretary; and shall make available for review by the Purchaser and its representatives the Company' s minute book, stock transfer book or ledger, and any other Company records as the Purchaser may reasonably request. Following such delivery and review, the Purchaser shall deliver to the Sellers that portion of the Purchase Price then due; and the parties shall thereupon cause the Company' s secretary to cancel each certificate delivered to the Purchaser and to issue in the name of the Purchaser one or more substitute certificates evidencing its ownership of the Shares and register such issuance and ownership in its stock transfer records. Each party shall be responsible for all other fees and costs incurred by him/it or on his/its behalf in connection with the negotiation of this Agreement and the Closing.


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Upon completion of the Closing, the effective date of the transfer of the Shares shall be 8:00 a.m., December 1, 2004 (the " Effective Date" ). Between the Effective Date and the Closing Date, the Sellers and the Company hereby agree to operate the Company in the ordinary and usual course and only in that manner.

If at the Closing the Sellers shall fail to tender the Shares, or if any of the conditions specified hereunder shall not have been fulfilled, the Purchaser shall, at its option, be relieved of its obligations under this Agreement without thereby waiving any rights it may have by reason of such failure or non-fulfillment. Conversely, if the Purchaser fails to close the transactions herein contemplated for any reason other than a default or breach occasioned by the Sellers under the terms hereof, the Sellers shall, at their option, be relieved of their obligations under this Agreement without thereby waiving any rights it may have by reason of such failure or non-fulfillment.


ARTICLE 2


RELATED TRANSACTIONS AND ADDITIONAL AGREEMENTS


2.1 Board of Directors of the Purchaser : The Board of Directors of the Purchaser (the " Board" ) currently consists of three (3) members. Purchaser will cause its Board of Directors to be expanded to five (5) seats. Due to the expansion, there will be two (2) vacancies on the Board. Mr. Glenn Crawford shall fill one vacancy, and Mr. Crawford' s approved nominee (as defined herein) shall fill the other vacancy, and each shall serve on the Board of Directors for the 2005 term. Mr. Glenn Crawford' s nominee must be approved by each member of the Board, provided approval may be withheld in each member' s sole discretion.


ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLERS

The Sellers, jointly and severally, represent, warrant and agree as follows:


3.1 Organization and Standing of Southland Health Services, Inc. : The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted. The Sellers have furnished to the Purchaser complete and correct copies of its Articles of Incorporation and By-Laws as presently in effect.

3.2 Capitalization : The authorized capital stock of the Company consists of One Thousand (1,000) shares of common stock, $.01 par value. On the date hereof, 1,000 shares are issued and outstanding, all of which are registered in the name of the Sellers and are free and clear of any liabilities, obligations, claims, liens or encumbrances. The Company holds no shares of its capital stock in its treasury and all outstanding shares of capital stock have been duly authorized and validly issued and are fully paid and non-assessable. On the date hereof, there are no 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 and no authorization therefor has been given.


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3.3 Authorization : When executed and delivered by the Sellers, this Agreement will constitute the valid and binding obligations of the Sellers, enforceable in accordance with its respective terms.

3.4 Subsidiaries : Except as set forth in Schedule 3.4 attached hereto (the " Subsidiaries" ), the Company does not control (as such term is defined in a7368(c) of the Internal Revenue Code of l954, as amended), directly or indirectly, any other corporation, association or other business entity, nor does it have any direct or indirect interest therein. Neither the Sellers nor any affiliate of the Sellers has any direct or indirect interest in any other business entity which is involved or competes with or conducts any business similar to any business conducted by the Company or any Subsidiary. The Sellers have no interest, direct or indirect, in any property used by, or relating to the business of, the Company or any Subsidiary, except through the ownership of the Company' s capital stock. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State designated on Schedule 3.4 , and each Subsidiary has all requisite corporate power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted. The Sellers have furnished to the Purchaser complete and correct copies of each Subsidiaries Articles of Incorporation and By-Laws as presently in effect. The authorized and issued capital stock of each Subsidiary is set forth on Schedule 3.4 . On the date hereof, Schedule 3.4 accurately states all shares of each Subsidiary issued and outstanding, all of which are registered in the name of the Company and are free and clear of any liabilities, obligations, claims, liens or encumbrances; provided, however, McGregor owns ten percent (10%) of the issued and outstanding capital stock of Emergystat and Emergystat of Sulligent. The Subsidiaries holds no shares of its capital stock in its treasury and all outstanding shares of capital stock have been duly authorized and validly issued and are fully paid and non-assessable. On the date hereof, there are no outstanding rights, options, warrants, conversion privileges or agreements of any kind for the purchase or acquisition from, or the sale or issuance by, any of the Subsidiaries of any shares of its capital stock and no authorization therefor has been given.

3.5 Consent : No consent, approval or authorization of or registration, qualification, designation, declaration or filing with any governmental authority or private person or entity on the part of the Sellers, the Company, or any Subsidiary is required in connection with the execution and delivery of this Agreement or the consummation of any other transaction contemplated hereby, except as shall have been duly taken or effected prior to the Closing.

3.6 Title to Shares : The Sellers have good and marketable title to the Shares, free and clear of all liens, claims, encumbrances and restrictions, legal or equitable, of every kind, except for certain restrictions on transfer imposed by federal and state securities laws. The Sellers have full and unrestricted legal right, power and authority to sell, assign and transfer their shares (including shares acquired pursuant to the options) to Purchaser without obtaining the consent or approval of any other person or governmental authority, and the delivery of such shares to Purchaser pursuant to this Agreement will transfer valid title thereto, free and clear of all liens, encumbrances, claims and restrictions of every kind, except for certain restrictions on transferability imposed by federal and state securities laws. The execution of this Agreement


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and the consummation of the transactions contemplated hereby will not constitute a default under any provision of any agreement or law by which any of the Sellers, the Company, or any Subsidiary is bound.


3.7 Financial Statements : The Sellers have furnished the Purchaser with (a) Emergystat, Inc.' s audited financial statements consisting of balance sheets as of December 31, 2003 and related statements of income or loss for its fiscal years then ended, (b) unaudited financial statements, prepared on a consolidated basis, for the Company, Quality Care, Inc., Emergystat, Inc., Emergystat of Sulligent, Inc., and each of their respective subsidiaries, consisting of balance sheets as of September 30, 2004 and related statements of income or loss for its nine month period then ended, and (c) other financial statements delivered to the Purchaer (collectively, the " Financial Statements" ). No later than five (5) days prior to the Closing, the Sellers shall deliver interim consolidated unaudited financial statements, prepared on a monthly or quarterly basis, as applicable, relating to periods after September 30, 2004 (the " Additional Financial Statements" ), for the Company, Quality Care, Inc., Emergystat, Inc., Emergystat of Sulligent, Inc., and each of their respective subsidiaries. All Financial Statements and Additional Financial Statements reflect all known liabilities, include all contingent liabilities as of the respective dates thereof, are correct and fairly present the financial position of the Company and the Subsidiaries (on a consolidated basis) as of the dates indicated and the result of operations for the periods indicated, and have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved.

3.8 Undisclosed Liabilities : Except as and to the extent reflected or reserved against in the Company' s Financial Statements, or otherwise fully disclosed in Schedule 3.8 attached hereto, and except for liabilities occurring in the ordinary course of business and in compliance with this Agreement subsequent to September 30, 2004, the Company (or any Subsidiary) has no liabilities or obligations of any nature, exceeding Ten Thousand Dollars ($10,000) in the aggregate, whether absolute, accrued, unaccrued, contingent or otherwise and whether due or to become due, including, without limitation, any liabilities for federal or state taxes in respect of or measured by the income of the Company or any Subsidiary. The Sellers do not know or have any reasonable grounds to know of any basis for the assertion against the Company or any Subsidiary of any liability, obligation or claim not fully reflected or reserved against in the Company' s Financial Statements or fully disclosed in Schedule 3.8 .

3.9 Changes : Since September 30, 2004, except as disclosed in Schedule 3.9 attached hereto:

(a) there have been no changes in the assets, liabilities, financial condition, business, operations, affairs or prospects of the Company or any Subsidiary, except changes occurring in the ordinary course of business which have not been, either in any case or in the aggregate, materially adverse;


(b) neither the business, operations, affairs or prospects of the Company or a Subsidiary, nor any of its properties or assets, has been materially adversely affected by any occurrence or development, whether or not insured against;


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(c) there have been no declarations or payments of any dividends or other distributions in respect of, or any direct or indirect retirement, redemption, purchase or other acquisition of, any shares of capital stock of the Company; and

(d) neither the Company nor any Subsidiary has obligated itself in any way with respect to the payment of employee bonuses or increased compensation or the providing of any other compensatory arrangement, whether current or deferred, and whether payable in cash or other consideration; nor obligated itself to make further additions to its business properties or further purchases of additional equipment, except in the ordinary course of business or under existing contractual commitments the terms of which have been disclosed to the Purchaser in a schedule appended hereto; nor made any loans or other advances, not in exchange for consideration having an equivalent value, to any of its officers, directors or shareholders; nor incurred or cancelle ...