Entry into a Material Definitive Agreement.
Effective December 1, 2007, RemoteMDx, Inc., a Utah corporation (the “Company”), entered into and closed a Stock Purchase Agreement (the “Purchase Agreement”) with the shareholders of Midwest Monitoring & Surveillance, Inc., a Minnesota corporation with principal offices in Fairmont, MN (“MM&S”). MM&S is engaged in providing parole and probation monitoring equipment and services. MM&S, a customer of the Company, is owned by Gary Bengtson, Gary Shelton, Larry Sanders and Sue Sanders (the “Sellers”).
Pursuant to the Purchase Agreement, the Company will acquire 51% of the issued and outstanding capital stock of MM&S, together with the option (the “Buyer’s Option”), exercisable at the discretion of the Company after January 1, 2009, and prior to March 31, 2009, to acquire the remaining 49% of MM&S capital stock. The consideration for the initial purchase of 51% of the outstanding MM&S shares, which will give control of MM&S to the Company, is $3.4 million, payable in cash, and 438,000 shares of the common stock of the Company (the “RMDX Shares”). Closing is expected to occur on or before December 31, 2007, but may be extended by the parties under certain conditions through January 20, 2008. The RMDX Shares to be issued as part of the consideration for the MM&S shares will be placed in escrow, and will be released, subject to adjustment under the terms of the Purchase Agreement following completion of an audit of the MM&S financial statements for the year ending December 31, 2007.
The Buyer’s Option is exercisable at the Company’s sole discretion. The Company also granted an option to the Sellers (the “Sellers’ Put Option”) to require the Company to purchase the remaining MM&S shares if the Company fails or elects not to exercise the Buyer’s Option. The option exercise price, if either the Buyer’s Option or the Sellers’ Put Option granted under the Purchase Agreement is exercised, will be based on a multiple of the net revenues of MM&S for the 12 months ending December 31, 2008. The Purchase Agreement provides that if the Sellers exercise the Sellers’ Put Option and the Company fails or refuses to purchase the remaining outstanding common stock of MM&S, the Sellers may require the Company to surrender and reconvey to Sellers part or all of the MM&S shares it obtained initially under the Purchase Agreement.
Under the Purchase Agreement, the Company has the right to appoint a majority of the board of directors of MM&S. The Purchase Agreement also contains affirmative covenants obligating the Sellers with respect to the post-closing operations of MM&S that are common in such agreements, as well as various representations and warranties of the Company, the Sellers and MM&S. Each representation and warranty was made in connection with the Company’s negotiations with the Sellers and MM&S, and is subject to specifically disclosed exceptions, qualifications, and limitations agreed by the parties in connection with the negotiations. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what a shareholder might view as material, or may have been made for purposes of allocating contractual risk among the parties, rather than establishing matters as facts. Accordingly, investors should not view the representations and warranties contained in the Purchase Agreement as disclosures with respect to the actual state of facts concerning the business, operations or condition of any of the parties to the Purchase Agreement, and should not rely on them as such. Investors should read the Purchase Agreement together with the other information concerning the Company contained in reports and statements that the Company files with the Securities and Exchange Commission.
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