Exhibit 1
1/11/2000
SETTLEMENT AGREEMENT
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AGREEMENT made as of the 11th day of January, 2000, by and among
Jeffrey Queen, Andrew Queen, Jeffrey Queen and Andrew Queen Irrevocable Trust
U/A January 2, 1998 (the "Trust", and together with Andrew Queen and Jeffrey
Queen, collectively, the "Queens") and Response USA, Inc. (the "Company").
RECITALS
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WHEREAS, the Queens and the Company are parties to a Stock Purchase
Agreement dated as of September 16, 1998 (the "Purchase Agreement") (Capitalized
terms used herein and not defined herein shall have the respective meanings set
forth in the Purchase Agreement);
WHEREAS, on September 30, 1999, the Company sold its security
businesses (the Sale"), pursuant to an agreement with respect to the sale of
stock of the Company's security businesses, which Sale is a Termination Event
pursuant to the Purchase Agreement;
WHEREAS, a dispute among the parties to the Purchase Agreement exists
as to whether the Queens are entitled to receive stock or cash pursuant to the
Deferred Purchase Price provision of the Purchase Agreement;
WHEREAS, the parties hereto desire to set forth certain agreements to
settle such dispute and to amend certain agreements set forth in the Purchase
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
1. DEFERRED PURCHASE PRICE. The Company hereby agrees to pay or deliver
to the Queens the following: (i) on January 11, 2000, or, if later, two business
days following the execution of this Agreement, 1,227,969 shares of Common Stock
of the Company, which number of shares is equal to approximately 19.9% of the
currently outstanding shares of Common Stock of the Company (the "Earn-out
Stock") and (ii) on January 12, 2000 $2,522,031 (the "Earn-out Cash"). The
delivery of the Earn-out Stock and Earn-out Cash by the Company to the Queens
pursuant to this Section 1 shall constitute payment in full of the Deferred
Purchase Price (as defined in the Purchase Agreement) pursuant to Section 2.4 of
the Purchase Agreement, provided that the Earn Out Stock and any Make-Up Stock
which may be issued in the future as a result of sales of Earn Out Stock at less
than its original value shall be considered Response Stock paid at Closing under
the Purchase Agreement including, without limitation, Section 2.6(a) thereof.
One-third of the Earn-out Stock and one-third of the Earn-out Cash shall be
delivered to each of the Queens. Notwithstanding anything to the contrary
contained in the Purchase Agreement, the sale of the Earn-out Stock shall not be
registered with the Securities and Exchange Commission and the Company shall
have no obligation to file a registration statement with respect to the sale of
the Earn-out Stock, except as provided in Section 2(b) below.
2. MAKE-UP STOCK; STANDSTILL PERIOD; BOARD OF DIRECTORS.
a. Notwithstanding anything to the contrary contained in the
Purchase Agreement, Section 2.6 of the Purchase Agreement is hereby amended such
that July 10, 2000 in lieu of March 31, 2000 shall be the next date for delivery
of Make-Up Stock or payment of cash, at the option of the Company, to the Queens
pursuant to Section 2.6 of the Purchase Agreement from the sale of Response
Stock (excluding any sale of the Earn-out Stock, which shall be restricted from
sale for the Standstill Period pursuant to (b) below) during the period ending
June 30, 2000 (the applicable "Make-Up Date" being changed from March 31, 2000
to June 30, 2000). In addition, on July 10, 2000, the Company shall pay the
Queens, either as Make-Up Stock or in cash, an amount equal in value to the
product of (x) the difference between $4.15 and the average closing bid price
per share of the Common Stock of the Company on the NASDAQ Stock Market during
the fifteen (15) trading days immediately preceding the date the Company
delivers such Make-Up Stock to the Queens, times (y) the number of shares of
Response Stock owned by the Queens prior to the date hereof and still owned by
the Queens as of June 30, 2000. In the event the Common Stock of the Company is
not listed on NASDAQ during any portion of the 15 trading day period prior to
delivery of any Make-Up Stock, the value of such stock shall be determined by
agreement between the Board of Directors of the Company and the Queens, or if
such agreement is not reached within ten days following any Make-Up Date, by a
nationally recognized appraisal firm, without deduction for lack of
marketability or minority interest. In the event that the Company elects to
deliver Make-Up Stock to the Queens on such date, notwithstanding anything to
the contrary contained in the Purchase Agreement, the sale of such Make-Up Stock
shall not be registered with the Securities and Exchange Commission and the
Company shall have no obligation to file a registration statement with respect
to the sale of the Make-Up Stock, except as provided in Section 2(b) below.
b. The Queens agree that for the period (the "Standstill
Period") commencing on the date hereof and ending upon the earlier of January
11, 2002 or the occurrence of a Standstill Termination Event, as defined in
EXHIBIT A, the Queens shall not offer, pledge, sell, transfer, assign, contract
to sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, either pursuant to Rule 144 of the regulations under the Securities
Act of 1933, or otherwise, (i) any shares of the Earn-out Stock or (ii) any
shares of Make-Up Stock which may be delivered to the Queens pursuant to Section
2(a) above. The foregoing shall include a restriction on sales "against the box"
or other short sales of the Earn-out Stock or any shares of Make-Up Stock. In
addition, notwithstanding the fact that a Termination Event has occurred, the
Queens agree that until July 10, 2000 or, in the event the Company pays the
entire Make-Up payment due July 10, 2000 in cash, until the termination of the
Standstill Period, the shares of Common Stock of the Company owned by them prior
to the date hereof shall be subject to the restriction set forth in the first
two sentences of this Section 2(b). If the Company pays any of such Make-Up
payment by delivery of Make-Up Stock, the limitation set forth in Section 5.11
of the Purchase Agreement, modified to permit the sale by the Queens of not more
than an aggregate of 10,000 shares of Common Stock per day in open market
transactions shall be in effect until the termination of the Standstill Period.
Upon termination of the Standstill Period, the common stock of the Company
issued as Earn-Out Stock and Make-Up Stock, if any, shall be registered
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pursuant to Section 5.10(k) of the Purchase Agreement as if such shares were
issued on the date of such termination.
c. Pursuant to Section 2.6 (b) of the Purchase Agreement, the
Queens are currently entitled to designate one member of the Board of Directors
of the Company, which right has not currently been exercised by the Queens but
is available for exercise. The Company agrees that in the event the Company
elects to deliver any shares of Make-Up Stock in lieu of cash to the Queens on
July 10, 1999 pursuant to Section 2.6 of the Purchase Agreement as amended
hereby, the Queens shall be entitled to designate an additional two members of
the Board of Directors of the Company (constituting a then total of three
designees); provided, however, that the number of members of the Board following
such designation by the Queens shall then consist of not more than seven (7)
members (one of whom shall be Richard M. Brooks) until the termination of the
Standstill Period, and provided, further, that the number of directors of the
Company from the date hereof until receipt of the Make-Up Payment due July 10,
2000, shall not exceed five (5) (one of whom shall be Richard M. Brooks).
3. NON-COMPETITION AND NONDISCLOSURE AGREEMENT. The Queens
acknowledge that no event pursuant to Section 11 of (i) that certain
Non-Competition and Disclosure Agreement between the Company and Jeffrey Queen
dated as of October 1, 1998 or (ii) that certain Non-Competition and Disclosure
Agreement between the Company and Andrew Queen dated as of October 1, 1998 has
occurred and such agreements remain in full force and effect.
4. COMPANY'S REPRESENTATIONS, WARRANTIES AND COVENANTS. The
Company represents, warrants and covenants to the Queens as follows:
a. The execution, delivery and performance of this Agreement
by the Company and the transactions contemplated hereby, (i) have been
authorized by all necessary actions on the part of the Company, (ii) will not
violate any provision of the Articles of Incorporation or Bylaws of the Company,
(iii) 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, change or encumbrance
upon any of the Company's or its affiliates' 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 (iv) will not violate or be in
conflict with any law, rule or regulation, or any judgment, decree, injunction
or order applicable to the Company or its affiliates. This Agreement constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally.
b. 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 Company or the performance by the Company of its obligations hereunder. In
the event that the Company shall desire to issue Make-Up Stock
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with respect to the June 30, 2000 Make-Up Date and outside counsel for the
Company shall advise that the Company's common stock would be delisted from
NASDAQ unless shareholder approval of such issuance or a waiver of any
requirement for such shareholder approval is obtained from NASDAQ, the Company
shall either obtain such approval or waiver prior to July 10, 2000 or the
Make-Up Payment due on such date will be paid entirely in cash.
c. The capitalization of the Company is set forth in EXHIBIT
B. All shares of common stock of the Company included in the Earn-Out Stock and
any Make-Up Stock upon receipt by each of the Queens will be duly issued and
outstanding and fully paid and nonassessable, issued in the name of the
applicable Queen.
d. All financial statements and other information the Company
has filed with the SEC in the 24-month period preceding the date hereof 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.
e. During the period commencing on the date hereof and ending
on the date the Company shall make payment in full of the Make-Up Payment due
July 10, 2000 (the "Interim Period"), the Company shall not without the prior
written approval of the Queens (i) issue or agree to issue any common stock or
options or warrants or similar rights to acquire common stock, or any other
capital stock of the Company other than (w) the issuance of common stock
pursuant to the exercise of stock options presently issued and outstanding, (x)
the issuance of up to 20,000 options per year to each outside director of the
Company as previously approved by the Company's stockholders, (y) the issuance
at not less than market value of either common stock options or common stock to
Richard M. Brooks with respect to not more than 350,000 shares of common stock
of the Company, in the aggregate since December 15, 1999, or (z) the issuance of
common stock of the Company pursuant to the existing terms of binding
contractual obligations previously entered into by the Company which are
described in footnote 7 of the quarterly financial statements included in the
Company's Form 10QSB for the quarter ending September 30, 1999, or, (ii) reprice
or enter into any agreement to reprice or amend any material provisions of any
stock option or other employee benefit plan of the Company.
f. During the Interim Period, neither the Company nor its
affiliates shall, directly or indirectly, (i) purchase or agree to purchase any
Company common stock, preferred stock or any other securities, or, (ii) during
the thirty (30) day period preceding the delivery of any Make-Up Stock,
encourage or solicit other persons to purchase common stock of the Company,
provided that customary press releases, SEC filings and investor relation
activities shall be permitted during such thirty (30) day period.
g. During the Interim Period the Company shall not cause,
suffer or permit a Standstill Event to occur.
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5. MISCELLANEOUS.
a. Neither this Agreement nor any of parties' rights hereunder
may be assigned by any party hereto without the prior written consent of all
parties hereto. This Agreement shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and permitted assigns.
b. Any notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered, made and received upon delivery by hand or in person, three days
after being mailed postage prepaid by certified or registered mail, return
receipt requested, one business day after delivery to a recognized national
overnight courier service or one business day after facsimile transmission (with
automatic confirmation of receipt by the facsimile transmitting equipment)
addressed to the party at their respective addresses set forth below:
if to the Company: with a copy to:
Response USA, Inc. Burns & Levinson, LLP.
3 Executive Campus 125 Summer Street
2nd Floor South Boston, Ma. 02110
Cherry Hill, New Jersey 08002 Attn: Josef B. Volman, Esq.
Attn: Richard Brooks Tel: 617-345-3895
Tel: 856-661-0700 Fax: 617-345-3299
Fax: 856-661-9050
If to the Queens: With a copy to:
c/o Jeffrey Queen Edwards & Angell, LLP
777 Yamato Road 2800 BankBoston Plaza
Suite 350 Providence, RI. 02903
Boca Raton, Florida 33431 Attn: Richard M. C. Glenn, III, Esq.
Tel: 800-326-1122 Tel: 401-276-6435
Fax: 561-994-3882 Fax: 401-276-6488
c. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
d. 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.
e. This Agreement may be executed in one or more counterparts,
all of which will be considered one and the same agreement.
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f. 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.
g. 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-judging 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.
h. At any time and from time to time after the date hereof, at
the request of any party hereto and without further consideration, the requested
party(ies) shall do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered all such further acts, conveyances,
transfers, assignments, deeds, documents and assurances as reasonably may be
requested by the requesting party(ies) to more effectively consummate the terms
of this Agreement.
i. A waiver of any of the terms, conditions or covenants of
this Agreement by any party(ies) hereto on any one occasion shall not be deemed
to be a continuing waiver; nor shall such a waiver on any one occasion be deemed
to be a waiver on any subsequent occasions.
j. This Agreement, together with the Purchase Agreement,
constitutes the entire agreement among the parties with respect to the subject
matter hereof, and supersedes any and all previous agreements or understanding
among the parties with respect to the subject matter hereof, including the
relevant provisions of the Purchase Agreement and the Forbearance and Standstill
Agreement among the parties dated December 15, 1999. Except as amended or
modified by this Agreement, the Purchase Agreement shall remain in full force
and effect. This Agreement may not be amended, modified, superseded, or canceled
except by a written instrument executed by the Company and the Queens.
k. The parties shall each pay their respective expenses in
connection with the negotiation and execution of this Agreement, except that the
Company shall promptly reimburse the Queens for the amount of any such expenses
incurred after December 21, 1999 for reasonable legal fees.
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l. The parties agree that the existence and terms of this
Agreement shall be kept confidential by the parties and shall not be disclosed
except as required by law or to the extent reasonably necessary to enforce any
provisions hereof.
m. This Agreement shall inure to the benefit of and be binding
upon the successors, assigns, heirs, personal representatives and administrators
of each of the parties hereto.
IN WITNESS WHEREOF, the undersigned have executed this document as of
the date first set forth above.
RESPONSE USA, INC.
By:
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Richard M. Brooks, President
Jeffrey Queen and Andrew Queen
Irrevocable Trust U/A January 2, 1998
By:
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Lorence Queen, Trustee
---------------------------------
Jeffrey Queen
---------------------------------
Andrew Queen
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EXHIBIT A
STANDSTILL TERMINATION EVENT
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The occurrence of any of the following events shall constitute a
"Standstill Termination Event" for the purposes of this Agreement, unless the
prior written waiver thereof has been obtained by the Company from Jeffrey Queen
and Andrew Queen:
1. Richard M. Brooks shall cease to be and act as Chairman of the Board
of Directors of the Company.
2. The Company shall enter into any merger, consolidation or other
similar agreement or shall transfer, dispose of all or any substantial portion
of its assets or enter into any agreement with respect to any of the foregoing,
it being understood that this restriction shall not apply to transfers of
receivables and contract rights to an affiliate of the Company as contemplated
by the Company's existing financing agreements.
3. The Company shall make any material acquisition which shall require
incurring additional material indebtedness of the Company, or amend its
Certificate of Incorporation, although the filing of a certificate of
designation with respect to its preferred stock shall be permitted subject to
the restrictions on issuance of capital stock set forth in paragraph 5 below.
4. The Company shall cease to maintain in good standing its status as
an issuer of securities registered under Section 12 of Securities and Exchange
Act of 1934 and being current in its filings under said Act.
5. The Company shall issue or agree to issue any common stock or
options or warrants or similar rights to acquire common stock, or any other
capital stock of the Company other than (w) the issuance of common stock
pursuant to the exercise of stock options presently issued and outstanding, (x)
the issuance of up to 20,000 options per year to each outside director of the
Company as previously approved by the Company's stockholders, (y) the issuance
at not less than market value of either common stock options or common stock to
Richard M. Brooks with respect to not more than 350,000 shares of common stock
of the Company, in the aggregate since December 15, 1999, or (z) the issuance of
common stock of the Company pursuant to the existing terms of binding
contractual obligations previously entered into by the Company which are
described in footnote 7 of the quarterly financial statements included in the
Company's Form 10QSB for the quarter ending September 30, 1999, provided,
however, that the restriction on the issuance of capital stock to non-employee,
non-affiliate third parties shall not apply after the payment of the amount due
with respect to the June 30, 2000 Make-Up Date if the Company does not deliver
any Make-Up Stock as part of such payment.
6. The Company shall reprice or enter into any agreement to reprice or
amend any material provisions of any stock option or other employee benefit plan
of the Company.
7. The Company or any of its affiliates shall, directly or indirectly
(i) purchase or agree to purchase any Company common stock, preferred stock or
any other securities, or, (ii) during the thirty (30) day period preceding the
delivery of any Make-Up Stock, encourage or solicit other persons to purchase
common stock of the Company, provided that customary press releases, SEC filings
and investor relation activities shall be permitted during such thirty (30) day
period.
8. There shall occur any breach or default on the part of the Company
under any material representation, warranty or agreement made by the Company in
this Agreement, provided, however, that if such breach or default can be cured,
the same shall continue uncured for thirty (30) days following receipt of
written notice of such breach or default.
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EXHIBIT B
CAPITALIZATION OF RESPONSE USA, INC.
AS OF JANUARY 10, 2000
BEFORE ISSUANCE OF EARN-OUT STOCK
Number of Shares Subject
to Outstanding Options,
Number of Shares Number of Shares Issued and Warrants or Conversion
Authorized Outstanding Rights
Common Stock 37,500,000 6,170,701 1,591,109
Preferred Stock 250,000 0 0