STOCK PURCHASE AGREEMENT between QSGI - CCSI, INC. (“Buyer”), QSGI INC. (“QSGI”) and JOHN R. RICONDA (“Seller”) May____, 2008
Exhibit 99.2
between
QSGI -
CCSI, INC.
(“Buyer”),
(“QSGI”)
and
XXXX
X. XXXXXXX
(“Seller”)
May____,
2008
TABLE OF
CONTENTS
ARTICLE
1 DEFINITIONS
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1.1
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DEFINITIONS
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1.2
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ACCOUNTING
TERMS
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ARTICLE
2 PURCHASE AND SALE OF SHARES
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2.1
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PURCHASE
AND SALE
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2.2
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PURCHASE
PRICE
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2.3
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CLOSING
PAYMENTS
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2.4
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CERTAIN
DEFINITIONS
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2.5
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WORKING
CAPITAL ESTIMATE
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2.6
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POST-CLOSING
ADJUSTMENT
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2.7
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EARNOUT
CONSIDERATION
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2.8
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CERTAIN
TAX MATTERS
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2.9
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ALLOCATION
OF PURCHASE PRICE TO ASSETS
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2.10
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LOCKUP
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ARTICLE
3 SELLER’S REPRESENTATIONS AND WARRANTIES CONCERNING THE
TRANSACTION
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3.1
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AUTHORITY
AND CAPACITY
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3.2
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OWNERSHIP
OF SHARES
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3.3
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EXECUTION
AND DELIVERY; ENFORCEABILITY
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3.4
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NONCONTRAVENTION
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3.5
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LITIGATION
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ARTICLE
4 SELLER’S REPRESENTATIONS AND WARRANTIES CONCERNING THE
COMPANY
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4.1
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ORGANIZATION,
GOOD STANDING, GOVERNING DOCUMENTS
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4.2
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CAPITAL
STOCK
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4.3
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OTHER
VENTURES; SUBSIDIARIES
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4.4
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NONCONTRAVENTION
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4.5
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FINANCIAL
STATEMENTS
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4.6
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ABSENCE
OF UNDISCLOSED LIABILITIES
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4.7
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ABSENCE
OF CERTAIN CHANGES OR EVENTS
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4.8
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TAXES
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4.9
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EMPLOYEES
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4.10
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EMPLOYEE
BENEFIT PLANS
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4.11
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ENVIRONMENTAL
MATTERS
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4.12
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COMPLIANCE
WITH LAWS; PERMITS
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4.13
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REAL
PROPERTY
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4.14
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TITLE,
CONDITION AND SUFFICIENCY OF ASSETS
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4.15
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INTELLECTUAL
PROPERTY
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4.16
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CONTRACTS
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4.17
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LITIGATION
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4.18
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WARRANTY
CLAIMS
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4.19
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INSURANCE
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4.20
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ACCOUNTS
RECEIVABLE
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4.21
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INVENTORY
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4.22
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CUSTOMERS
AND SUPPLIERS
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4.23
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INDEBTEDNESS
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4.24
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BROKERAGE
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4.25
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CONFLICTS
OF INTEREST
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4.26
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RELATED
PARTY TRANSACTIONS
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4.27
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ABSENCE
OF CERTAIN PAYMENTS
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4.28
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DISCLOSURE
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ARTICLE
5 REPRESENTATIONS AND WARRANTIES OF BUYER
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5.1
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ORGANIZATION;
AUTHORIZATION
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5.2
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EXECUTION
AND DELIVERY; ENFORCEABILITY
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5.3
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NONCONTRAVENTION
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5.4
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BROKERAGE
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ARTICLE
6 CONDITIONS PRECEDENT
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6.1
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BUYER’S
CONDITIONS PRECEDENT
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6.2
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SELLER’S
CONDITIONS PRECEDENT
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ARTICLE
7 PRE-CLOSING COVENANTS
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7.1
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CONDUCT
OF BUSINESS
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7.2
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OTHER
TRANSACTIONS
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7.3
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ACCESS
TO INFORMATION
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7.4
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EFFORTS
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7.5
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ESCHOOL
BUSINESS
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7.6
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NOTICE
OF DEVELOPMENTS
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7.7
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BUYER’S
COOPERATION
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ARTICLE
8 THE CLOSING
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ARTICLE
9 CLOSING DELIVERIES
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9.1
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SELLER’S
CLOSING DELIVERIES
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9.2
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BUYER’S
CLOSING DELIVERIES
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ARTICLE
10 ADDITIONAL COVENANTS AND AGREEMENTS
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10.1
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PUBLICITY
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10.2
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EXPENSES
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10.3
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NO
ASSIGNMENTS
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10.4
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TAX
MATTERS
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10.5
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GENERAL
RELEASE OF CLAIMS
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10.6
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CONFIDENTIALITY
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10.7
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SELLER’S
NON-COMPETITION AGREEMENT
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10.8
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SEPARATE
CONSIDERATION
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10.9
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INDEMNIFICATION
FOR AND APPORTIONMENT OF TAXES
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ARTICLE
11 TERMINATION
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11.1
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TERMINATION
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11.2
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EFFECT
OF TERMINATION
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ARTICLE
12 INDEMNIFICATION
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12.1
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SURVIVAL
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12.2
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HOLD
HARMLESS AND INDEMNIFICATION OF BUYER
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12.3
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HOLD
HARMLESS AND INDEMNIFICATION OF SELLER
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12.4
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PROCEDURES
RELATING TO INDEMNIFICATION; THIRD-PARTY CLAIMS
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12.5
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OTHER
CLAIMS
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12.6
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LIMITATIONS
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12.7
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USE
AND DISBURSEMENT OF ESCROW FUNDS
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12.8
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ARBITRATION
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12.9
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EXCLUSIVE
REMEDY; RIGHT TO SETOFF
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12.10
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NO
CIRCULAR RECOVERY
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12.11
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ADJUSTMENT
TO PURCHASE PRICE
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ARTICLE
13 CERTAIN DEFINITIONS
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ARTICLE
14 MISCELLANEOUS PROVISIONS
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14.1
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NOTICES
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14.2
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ENTIRE
AGREEMENT
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14.3
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MODIFICATION
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14.4
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BINDING
EFFECT
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14.5
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INTERPRETATION
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14.6
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JURISDICTION
AND VENUE
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14.7
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COUNTERPARTS
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14.8
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THIRD
PARTIES
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14.9
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TIME
PERIODS
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14.10
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GOVERNING
LAW
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14.11
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WAIVER
OF JURY TRIAL
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Disclosure
Schedules
Schedule
3.2
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Other
Shares of Stock
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Schedule
3.4
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Seller
Noncontravention
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Schedule
4.1
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Organization
|
Schedule
4.3
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Company
Noncontravention
|
Schedule
4.4
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Financial
Statements
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Schedule
4.5
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Undisclosed
Liabilities
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Schedule
4.6
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Dividends
and Distributions
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Schedule
4.8
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Employee
List
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Schedule
4.9
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Employee
Benefit Plans
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Schedule
4.12
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Real
Property
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Schedule
4.13
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Condition
of Assets
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Schedule
4.14
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Intellectual
Property
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Schedule
4.15
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Contracts
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Schedule
4.16
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Litigation
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Schedule
4.18
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Insurance
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Schedule
4.21
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Material
Customers and Material Suppliers
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Schedule
4.22
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Indebtedness
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Schedule
4.24
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Conflicts
of Interest
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Schedule
4.25
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Related
Party Transaction
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Schedule
5.3
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Buyer
Noncontravention
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Schedule
7.5
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eSchool
Business Assets
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Schedule
9.1(d)
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Resignations
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Exhibits
Exhibit
A
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Omitted
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Exhibit
B
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Omitted
|
Exhibit
C
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Convertible
Note
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Exhibit
D
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Lockup
Agreement
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Exhibit
E-1
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New
NJ Lease
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Exhibit
E-2
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New
NY Lease
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Exhibit
F
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[Deleted]
|
Exhibit
G
|
Pledge
Agreement
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Exhibit
H
|
Registration
Rights Agreement
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Exhibit
I
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Riconda
Employment Agreement
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Exhibit
J
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Security
Agreement
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Exhibit
K
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[Deleted]
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Exhibit
L
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Warrant
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Exhibit
M
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[Deleted]
|
Exhibit
N
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Opinion
of Counsel for Seller
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Exhibit
O
|
Opinion
of Counsel for Buyer
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Exhibit
P
|
Form
of Confidentiality and Non-Solicitation Agreement
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Exhibit
Q
|
Escrow
Agreement
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THIS
STOCK PURCHASE AGREEMENT (“Agreement”) is
entered into as of this ____ day of May, 2008, between QSGI-CCSI, INC., a
Delaware corporation, or its permitted assigns (individually, each “Buyer”), QSGI Inc., a
Delaware corporation (“QSGI”), and XXXX X.
XXXXXXX (“Seller”).
RECITALS:
1. Seller
owns all of the issued and outstanding shares of capital stock (as more
particularly described in Section 3.2, collectively the “Shares”) of
Contemporary Computer Services, Inc., a New York corporation (the “Company”).
2. Buyer
wishes to buy, and Seller wishes to sell, the Shares on the terms and conditions
set forth herein.
3. QSGI,
in exchange for the mutuality of obligations in this Agreement, has agreed to be
jointly and severally liable, with Buyer, for the payment and performance of all
of Buyer’s obligations, covenants and agreements contained herein.
In
consideration of the foregoing recitals, the mutual representations, warranties
and covenants set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller, on the one hand, and Buyer and QSGI, jointly and severally, on the other
hand, agree as follows:
ARTICLE
1
DEFINITIONS
1.1 Definitions.
Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Article 13.
1.2 Accounting
Terms.
Accounting
terms not otherwise defined in this Agreement shall have the meanings attributed
to them under GAAP.
ARTICLE
2
PURCHASE
AND SALE OF SHARES
2.1 Purchase and
Sale.
At the Closing, Seller shall sell to
Buyer, free and clear of all Liens, and Buyer shall purchase from Seller, all of
the Shares (the “Transaction”).
2.2 Purchase
Price.
The
aggregate purchase price for all of the Shares (the “Purchase Price”)
shall be an amount equal to:
|
(a)
|
$10,000,000,
to be evidenced by the Convertible Note in the principal amount of
$10,000,000, due at maturity on December 31, 2011 (the “Base Purchase
Price”);
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1
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(b)
|
plus
3,500,000 shares of common stock (“Common Stock”)
of QSGI (the “Purchase Price
Stock”);
|
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(c)
|
plus
the Warrant;
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(d)
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plus
the Earnout, pursuant to Section
2.7;
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(e)
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minus
an amount equal to any Selling Expenses that are unpaid at Closing;
and
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(f)
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minus
an amount equal to any Indebtedness that is unpaid at Closing (“Unpaid
Indebtedness”);
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2.3 Closing
Payments.
At the Closing, Buyer deliver the Note,
duly executed by Buyer and QSGI, to Seller and shall pay or cause to be paid, by
wire transfers of immediately available funds:
|
(a)
|
all
of the Selling Expenses that are unpaid at Closing to the Persons entitled
thereto in accordance with the certificate contemplated by Section
9.1(g);
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(b)
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all
of the Software Repayment Amount (unless included in the Unpaid
Indebtedness) to Cisco Systems Capital pursuant a Payoff Letter;
and
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(c)
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if
and to the extent permitted by the Senior Lender, all of the Funded Debt
outstanding immediately prior to the Closing to be repaid in full to the
Persons entitled thereto pursuant to the payoff letters to be obtained by
Seller prior to the Closing in form and substance reasonably acceptable to
Buyer and the Senior Lender (the “Payoff
Letters”), which Payoff Letters will state, among other things,
that upon satisfaction of the terms and conditions contained in such
Payoff Letters the Indebtedness described therein shall be paid in full
and all Liens relating to such Indebtedness shall be released without any
further action on the part of the Senior
Lender.
|
2.4 Intentionally
Omitted
2.5 Intentionally
Omitted
2.6 Intentionally
Omitted
2.7 Earnout
Consideration.
As
additional consideration for the purchase of the Shares, Buyer will pay to
Seller the Earnout, if any.
2.7.1. Earnout
Statement.
(a) On
or before March 31 following each of the calendar years 2008 and, unless the
Earnout has been previously earned in respect of the previous full year, 2009,
Buyer shall deliver to Seller a statement specifying the 2008 EBITDA and 2009
EBITDA, respectively, the EBITDA Excess Amount and, based thereon, Buyer’s
calculation of the Earnout, if any.
2
(b) If
the Earnout has not been previously earned for the full year 2008 or 2009, then
on or before March 31, 2011, Buyer shall deliver to Seller a statement
specifying the 2009 EBITDA, 2010 EBITDA, Average EBITDA, the EBITDA Excess
Amount and, based thereon, Buyer’s calculation of the Earnout, if any (each
statement specified herein and in Section 2.7.1(a) above an “Earnout
Statement”).
2.7.2. Earnout Dispute
Resolution. If Seller reasonably believes that any Earnout
Statement contains mathematical errors or has not been prepared in accordance
with this Agreement or is otherwise incorrect, Seller may deliver to Buyer a
written notice of such objection no later than 30 days after the date on which
Buyer delivered the Earnout Statement to Seller, which notice shall specify the
nature of each dispute and the basis therefor (an “Earnout
Objection”). Failure by Seller to deliver an Earnout Objection
within such 30-day period shall be deemed to be Seller’s acceptance of the
Earnout Statement as the Final Earnout Statement. The Parties shall
negotiate in good faith to reach agreement resolving all disputes in the Earnout
Objection within 30 days after its delivery. If the Parties are
unable to resolve any or all such disputes within such 30-day period, then the
Parties, promptly after the expiration of such period, shall mutually engage and
submit such dispute to, and the same shall be finally resolved in accordance
with the provisions of this Agreement by Xxxxxx LLP, 000 Xxxx 00xx Xxxxxx,
Xxx Xxxx, Xxx Xxxx 00000, or such other firm of independent accountants having
no prior relationship with Seller or Buyer or the respective officers,
directors, employees of Buyer or the Company, or the professional advisors of
Seller, Buyer or the Company as Seller and Buyer shall mutually agree upon (the
“Independent
Accountants”). The Independent Accountants shall determine and
report in writing to Buyer and Seller as to the resolution of all disputed
matters and the effect of such determinations on the Preliminary Adjustment
Statement within 20 days after such submission or such longer period as the
Independent Accountants may reasonably require. The Independent
Accountants’ determination shall be final, binding and conclusive, and judgment
on such determination may be entered in any court of competent jurisdiction
located in Palm Beach County, Florida, or Suffolk County, New
York. Buyer shall cause the books and records of the Company to be
made readily available, upon not less than 24 hours written notice, during
normal business hours, to Seller and its representatives, shall permit access to
its facilities and, without undue disruption of Buyer’s business operations,
Buyer shall, and shall cause the personnel of the Company to, cooperate fully
with Seller and its representatives, in their review of the Earnout Statement
and the resolution of any disputes with respect thereto. Buyer and
Seller shall share equally the payment of all reasonable fees and expenses of
the Independent Accountants, payable pursuant to this Section or any other
Section of this Agreement.
2.7.3. Final Earnout
Statement. Each Earnout Statement shall become a “Final Earnout
Statement,” and as such shall become final, binding and conclusive for
all purposes of this Agreement, upon the earliest to occur of the
following:
3
|
(a)
|
the
mutual acceptance by Buyer and Seller of the Earnout Statement, with such
changes as may be agreed upon by the
parties;
|
|
(b)
|
the
expiration of 30 days after Seller’s receipt of the Earnout Statement,
without a timely Earnout Objection by Seller in accordance with Section
2.7.2; or
|
|
(c)
|
the
delivery to Buyer and Seller by the Independent Accountants of the report
of their determination of all disputed matters submitted to them pursuant
to Section 2.7.2.
|
2.7.4. Payment of the
Earnout. In the event the Earnout is payable under this
Section 2.7, in whole or in part, it shall be paid in the form of the number of
restricted shares of Common Stock subject to the restrictions set forth in SEC
Rule 145(d) of the 1933 Act (“Earnout Stock”)
determined as provided in Section 2.7.5 below. Buyer shall pay the
Earnout, if any, to Seller by instructing the Escrow Agent, within five business
days after the date on which the Earnout Statement which demonstrates Seller’s
entitlement to the Earnout becomes the Final Earnout Statement (the “Earnout Payment
Date”), to deliver forthwith to Seller the stock certificates comprising
the Earnout Stock. Buyer shall have a right to set off the amount of
any unpaid or unresolved claims for indemnification under Article 12 against the
payment of the Earnout, in the manner and to the extent set forth in Article 12,
and to instruct the Escrow Agent to withhold from Seller that number of shares
of Earnout Stock against which a claim has been made as provided in Section
12.8(b) and (c) below.
2.7.5. Determination of Shares of
Earnout Stock.
|
(a)
|
In
the event the EBITDA Excess Amount in any calendar year, inclusive of the
year in which the Closing shall occur, and ending December 2010, is equal
to or exceeds One Million Four Hundred Thousand Dollars ($1,400,000),
Seller shall receive 10,000,000 shares of Earnout
Stock.
|
|
(b)
|
In
the event the event described in Section 2.7.5(a) above shall not occur,
Seller shall receive that number of shares of Earnout Stock determined by
multiplying (i) 10,000,000 shares by a fraction, the numerator of which is
the EBITDA Excess Amount and the denominator of which is One Million Four
Hundred Thousand Dollars
($1,400,000).
|
2.7.6.
Escrow of Earnout
Stock. On the Closing Date, Buyer shall deliver to Meltzer,
Lippe, Xxxxxxxxx & Breitstone, LLP, as Escrow Agent (the “Escrow Agent”),
pursuant to the Escrow Agreement, certificates for 10,000,000 shares of Earnout
Stock, duly authorized and issued in the name of Seller, to be held in escrow
until the determination of Seller’s entitlement thereto, if any, as provided
above in this Section 2.7, and thereafter such number of shares, if any, to
which Seller is entitled shall be delivered to Seller, subject to Section 12.8,
and the balance, if any, shall be returned forthwith to Buyer, duly assigned or
with blank stock powers attached. If QSGI, at any time prior to
payment in full of the Earnout, (a) pays a stock dividend on the Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (b) subdivides outstanding shares of Common Stock into a
larger number of shares, or (c) combines outstanding shares of Common Stock into
a smaller number of shares, then in each case the number of shares of Earnout
Stock subject to the Earnout shall be adjusted to the number obtained by
multiplying the prior number by a fraction, the numerator of which shall be the
number of shares of Outstanding Common Stock (as such term is defined in the
Notes) immediately after such event and the denominator of which shall be the
number of shares of Outstanding Common Stock immediately before such
event. Buyer will deliver to the Escrow Agent forthwith certificates
for any additional shares of Earnout Stock resulting from the foregoing, duly
authorized and issued in the name of Seller.
4
2.8 Certain Tax
Matters.
2.8.1. Tax
Election. At the option of Buyer, Seller and the Company shall
join Buyer to make a timely, effective and irrevocable election under
Section 338(h)(10) of the Code and under any comparable statutes in any
other jurisdiction with respect to the Company as designated by Buyer (the
“Tax
Election”), and file such Tax Election in accordance with applicable
regulations, thereby enabling Buyer to treat the Transaction as an asset
purchase for certain Tax and accounting purposes. Seller shall
include any income, gain, loss, deduction or other Tax item resulting from the
Tax Election on Seller’s Tax Return to the extent required by applicable Law,
provided that Buyer shall be responsible for the payment of any Taxes (including
any interest or penalties that may become payable with respect thereof) imposed
on the Company or Seller and attributable to the making of the Tax
Election. Buyer shall also pay any Tax imposed under Section 1374 of
the Code, (b) any Tax imposed under Treas. Reg. § 1.338(h)(10)-1(e)(5) and
(c) any state, local or foreign Tax imposed on any gain
realized. Buyer shall pay or cause to be paid any such Taxes five
days prior to the date on which Seller is required to pay such Tax
liability. Any such payment by Buyer shall be treated as an assumed
liability of the Company but shall not reduce the Purchase Price. It
is the intention of the parties that Buyer is responsible only for payment of
those incremental increases in Taxes which are payable by Seller as a result of
the Tax Election. Buyer also shall be responsible for and shall pay
all sales, use, transfer and similar taxes levied or assessed with respect to
the transfer or deemed transfer of assets resulting from the Tax
Election. Buyer shall provide Seller with copies of IRS Form 8023 and
any comparable state and local forms for Seller’s review and signature at least
two business days prior to the Closing. At the Closing, Seller shall
deliver a duly executed IRS Form 8023 and any comparable state and local forms,
as provided by Buyer. Buyer shall be responsible for the preparation
of all IRS forms or tax returns required to be filed by the Company with any
Federal, state, local or foreign taxing authority in connection with the Tax
Election. Seller shall reasonably cooperate for the purpose of
effectuating a timely and effective Tax Election and the execution and filing of
any forms or returns, including IRS Form 8023 and all schedules thereto in
accordance with the instructions to such form.
2.8.2. (a) Buyer
shall indemnify and hold harmless Seller, his Affiliates, their respective
officers, directors, employees, agents, heirs, legal representatives, successors
and assigns, from and against all Losses based upon, arising out of, or
resulting from any breach of Buyer’s obligation to pay the Taxes attributable to
the Tax Election as provided in Section 2.8.1.
(b) Buyer
shall make an indemnification payment in cash to Seller of an additional amount
equal to the Gross Tax Effect imposed in respect of the payment by Buyer of the
Taxes attributable to the Tax Election as provided and as limited in Section
2.8.1 or the indemnification payment described in Section
2.8.2(a). The “Gross Tax Effect”
shall be the amount necessary to be paid so that Seller will yield net after-tax
proceeds equivalent to the net after-tax proceeds that Seller would have
received if no Tax Election had been made in connection with the sale of the
Shares. It is the intention of the parties that Buyer is responsible
only for payment of those incremental increases in taxes which are payable by
Seller as a result of the Tax Election. In determining the net
after-tax proceeds of Seller, the following assumptions shall be made: (i) the
only items of income, gain, loss, deductions and credits taken into account
shall be amounts payable from Buyer as described in this Agreement during the
taxable year in which the sale of Shares occurs, and (ii) Seller is subject to
tax at the maximum marginal income tax rate applicable to such items for Federal
and State income tax purposes to an individual resident of the jurisdiction in
which Seller resides, provided that the payment of the indemnity shall be
treated as additional consideration for the sale of the Shares and any itemized
deductions (including the deduction for state and local taxes) shall be subject
to any limitations provided for taxpayers taxable upon the items of income set
forth in (ii) above.
5
(c) Within
30 days following the determination of the final Allocation Statement pursuant
to Section 2.8.3, Seller shall deliver to Buyer a statement setting forth the
amount of indemnification payments required under subparagraph (b) above and the
computation thereof. Unless Buyer, within 30 days after delivery of
such statement, notifies Seller in writing that it objects to such computation,
such computation shall be binding upon the parties. If Seller and
Buyer are unable to agree upon the computation of such indemnification payment
within 15 days after any notice of objection has been given, the matter shall be
submitted to the Independent Accountants in accordance with the procedures in
Section 2.6.3 to determine the amount of the indemnification payment based on
its resolution of the disputed items within 30 days after its acceptance of its
appointment. Any determination shall be binding upon the
parties. Notwithstanding the foregoing, if it is determined,
following a “determination” (as defined in Section 1313 of the Code) of the IRS
or state or local tax authorities as to Seller’s liability for additional income
taxes attributable to the Tax Election, that the amount of the indemnification
payment paid or payable to Seller pursuant to this Section 2.8.2 is greater or
less than the amount properly due, Buyer will pay to Seller any deficiency, or
Seller will pay to Buyer any excess, as the case by be, within (10) days after
such final determination is made.
(d) Any
payment to Seller required under subparagraph (c) of this Section shall be made
by wire transfer in immediately available funds to the bank account or accounts
designated in writing by Seller within ten business days after the date of
determination of the indemnification payment pursuant to subparagraph (c) of
this Section.
2.8.3. Allocation
Statement. Immediately following the determination of the
Final Adjustment Statement, Buyer shall deliver to Seller a statement (the
“Allocation
Statement”) calculating and allocating the ADSP (as such term is used in
Treas. Reg. § 1.338(h)(10)-1) among the assets of the Company in accordance
with Treasury Regulations promulgated under Section 338(h)(10) of the
Code. If Seller believes that the allocation of one or more items
reflected in the Allocation Statement is unreasonable, Seller shall so notify
Buyer no later than 30 days after Seller’s receipt thereof. In the
event of such notification of a dispute, Buyer and Seller shall negotiate in
good faith to resolve such dispute, which shall include each side exchanging in
writing their positions concerning the matter or matters in dispute and a
meeting to discuss their respective positions. If Buyer and Seller
fail to resolve such dispute within 30 days or such longer period as the Seller
and Buyer shall mutually agree, the matter shall be submitted to the Independent
Accountants in accordance with the procedures set forth in Section 2.6.3 to
determine whether the allocation of the ADSP was reasonable and, if not
reasonable, shall appropriately revise the Allocation Statement.
6
2.8.4. Final Price
Allocation. The allocation reflected on the Allocation
Statement shall be the “Final Price
Allocation” and, as such, shall become final, binding and conclusive for
all purposes of this Agreement, upon the earliest to occur of the
following:
|
(a)
|
the
mutual acceptance by Buyer and Seller of the Allocation Statement, with
such changes as may be agreed upon by the
parties;
|
|
(b)
|
the
expiration of 30 days after Seller’s receipt of the Allocation Statement,
without timely written objection by Seller in accordance with
Section 2.8.2; or
|
|
(c)
|
the
delivery to Buyer and Seller by the Independent Accountants of the report
of their determination of the revised Allocation Statement pursuant to
Section 2.8.2.
|
2.9 Allocation of Purchase Price
to Assets.
Buyer
and Seller agree to allocate the Purchase Price among the assets of the Company
for all purposes (including financial accounting and Tax purposes) in accordance
with the Final Price Allocation.
2.10 Lockup
Provision. Earnout Stock if any, will have a two (2) year
lockup provision. The lockup period will lapse, as to any share of Lockup Stock,
over two years from the Earnout Payment Date (regardless of the date of issuance
of the share certificate), 50% on the first anniversary of such Date and 50% on the second
anniversary of such Date. The lockup period will lapse in the event
of a change of control as defined in the Lockup Agreement to be executed at
Closing. The transfer agent will be instructed about the lockup and will not
transfer any shares of Lockup Stock while subject to the Lockup Agreement,
except as otherwise set forth therein. A restrictive legend will be
on all certificates for shares of Lockup Stock. Shares released from
the lockup may be subject to the trading provisions of Rule 144 of the 1933 Act
and any other applicable securities Law restriction. Notwithstanding
the foregoing, during the lockup period Seller shall have the right, subject to
the trading provisions of Rule 144 of the 1933 Act and any other applicable
securities Law restriction, to sell such number of shares of Lockup Stock as
shall be necessary to provide Seller with all funds necessary to pay any Taxes
which may become due upon, and only those Taxes directly attributable to, the
receipt of the Earnout Stock. Further terms and conditions concerning the lockup
are set forth in the form of Lockup Agreement attached as Exhibit
D.
7
ARTICLE
3
SELLER’S
REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION
Seller
represents and warrants to Buyer and QSGI that, except as otherwise set forth on
the Disclosure Schedules, the following statements contained in this Article 3
are true and correct and will survive the Closing for the time periods set forth
in Section 12.1.
3.1 Authority and
Capacity.
Seller
has all requisite capacity, power and authority to execute, deliver and perform
this Agreement and each Related Agreement to be executed and delivered by
Seller, and to consummate the Transaction.
3.2 Ownership of
Shares.
Seller
is the beneficial and record owner and has good and marketable title to all of
the Shares, free and clear of all Liens and does not own any other shares of any
class of capital stock of the Company, except as set forth in Schedule
3.2. Seller is not a party to any outstanding subscription,
option, call, warrant, purchase right or other contract that could require
Seller to sell, transfer or otherwise dispose of the Shares. Seller
is not a party to any voting trust, proxy or other contract with respect to the
voting of the Shares. At the Closing, Buyer will acquire from Seller
good and valid title to the Shares, free and clear of all Liens, except as set
forth in Schedule
3.2.
3.3 Execution and Delivery;
Enforceability.
This
Agreement and the Related Agreements have been duly and validly executed and
delivered by Seller and constitute the legal, valid and binding obligations of
Seller, enforceable against Seller in accordance with their respective terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors’ rights or by principles of equity (such exceptions
collectively the “Enforceability
Exceptions”), and are effective to transfer the Shares to
Buyer.
3.4 Noncontravention.
Except
as set forth in Schedule 3.4, neither
the execution and delivery by Seller of this Agreement or any Related Agreement,
nor the consummation of the Transaction by Seller on the terms and conditions
provided for herein or therein, nor the compliance with or performance by Seller
of the terms and conditions hereof or thereof will, directly or indirectly: (a)
be a violation or breach of, a default under or otherwise contravene or conflict
with, result in a termination or acceleration of, create in any party the right
to accelerate, amend, suspend, renegotiate, terminate, modify, cancel or require
any notice under (i) any material agreement or instrument to which Seller is a
party, or (ii) any Law applicable to Seller or by which Seller’s property is
bound; (b) permit or result in the creation of imposition of any Lien upon any
of the Seller’s assets; (c) require a filing with or a Permit from any
Governmental Authority; (d) require the consent, approval, authorization,
exemption or other action of any Governmental Authority or any other Person; or
(e) cause Buyer to become subject to, or to become liable for the payment of any
Tax or any other liability.
3.5 Litigation.
There
are no Actions pending or to the knowledge of Seller threatened against or
affecting Seller or his assets in or before any court, arbitrator, mediator or
other Governmental Authority. Seller is not subject to any order,
writ, judgment, injunction, decree, determination or award which could have an
adverse effect on his ability to sell the Shares or otherwise carry out the
terms and provisions of this Agreement or any Related Agreement.
8
ARTICLE
4
SELLER’S
REPRESENTATIONS AND WARRANTIES
CONCERNING
THE COMPANY
Seller
represents and warrants to Buyer and QSGI that, except as set forth on the
Disclosure Schedules, the following statements contained in this Article 4
are true and correct and will survive Closing for the time periods set forth in
Section 12.1.
4.1 Organization, Good
Standing.
|
(a)
|
The
Company is a corporation duly organized, validly existing and in good
standing under the laws of New York. The Company has all
requisite corporate power and authority to own and lease its assets and to
operate its business as the same are now being owned, leased and
operated. The Company is duly qualified or licensed to do
business as a foreign corporation in, and is in good standing in, each
jurisdiction in which the nature of its business or its ownership of its
properties requires it to be so qualified or
licensed.
|
|
(b)
|
Schedule 4.1
sets forth a true and complete list of (i) all jurisdictions in which the
Company is qualified or licensed to do business as a foreign corporation,
(ii) all directors and officers of the Company, (iii) all bank, payroll
and securities brokerage accounts of the Company and all authorized
signers for each such account and (iv) all powers of attorney granted by
the Company to any third party that are currently in
effect. The Company has delivered or made available to Buyer a
true, correct, complete and up-to-date copy of its articles of
incorporation and bylaws, each of which is in full force and effect, and
the Company is not in violation of any provision thereof. The
Company has also delivered to Buyer true, correct, complete and up-to-date
copies of the Company’s minute books and stock
ledgers.
|
|
(c)
|
Capital
Stock. Seller owns 100% of
the Shares. All of the Shares have been duly authorized and
validly issued, are fully paid and are nonassessable, and were issued in
compliance with all applicable federal and state securities Laws and any
preemptive rights or rights of first refusal of any
Person. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of any shares of
capital stock of the Company. There does not exist nor is there
outstanding any right or security granted or issued to any Person to cause
the Company to issue, acquire or sell any shares of capital stock to any
Person (including any warrant, stock option, convertible debt obligation,
subscription for stock or securities convertible into stock of the
Company, or any other similar right, security, instrument, commitment or
agreement). There is no obligation, contingent or otherwise, of
the Company to (a) repurchase, redeem or otherwise acquire any shares of
the capital stock of the Company or (b) loan to, invest in, or provide any
guarantee with respect to the obligations of, any Person. As of
the Closing, the Company will not be obligated to pay any dividend,
distribution or payment to any current or former holder of its capital
stock, other than as expressly provided in this
Agreement. There are no preemptive rights or rights of first
refusal with respect to the issuance of any of the Company’s capital
stock.
|
9
4.2 Other
Ventures; Subsidiaries. The Company does
not own or control, directly or indirectly, any equity ownership interest in any
other Person. The Company is not a partner or member of any
partnership, limited liability company or joint venture. The Company
does not have any obligation to purchase or acquire any such stock or other
equity ownership interest. The Company does not have any
subsidiaries.
4.3 Noncontravention. Except
as set forth in Schedule 4.3, neither
the execution and delivery of this Agreement or any Related Agreement by the
Company, nor consummation of the Transaction by the Company upon the terms and
conditions provided for herein or therein, nor the compliance with or
performance by the Company of the terms and provisions hereof will (a) be a
violation or breach of, a default under, or otherwise contravene or conflict
with the Company’s articles of incorporation or bylaws, (b) contravene, conflict
with or be a breach or violation of, constitute a default under, result in a
loss of any benefit under, or give rise to a right of any party to accelerate,
amend, suspend, renegotiate, modify, terminate, cancel or rescind any agreement
or instrument to which the Company is a party, (c) be a violation in any
material respect of any Law applicable to the Company or the business, assets,
properties or operations of the Company, (d) require a filing with or a Permit
from any Governmental Authority, (e) permit or result in the creation or
imposition of any Lien upon any of the Company’s assets or properties, (f)
require the consent, approval, exemption or authorization or other action of any
Governmental Authority or any other Person, or (g) cause Buyer to become subject
to, or to become liable for the payment of any Tax or any other
liability.
4.4 Financial
Statements. Schedule 4.4
sets forth true and complete copies of the audited financial statements (balance
sheets, income statements and statements of cash flow) of the Company as of and
for the fiscal years ended December 31, 2005,
December 31, 2006 and December 31, 2007 (collectively, the “Audited Financial
Statements”). The Audited Financial Statements were prepared
from the Company’s books of account, present fairly, in all material respects,
the financial position of the Company as of the dates indicated and the results
of operations and cash flows for the periods then ended and were prepared in
accordance with GAAP, consistently applied. The balance sheet as of
December 31, 2007, which is included in the Audited Financial
Statements, is referred to as the “Acquisition Balance
Sheet.”
4.5 Absence of Undisclosed
Liabilities.
The
Company has no Liabilities of any nature, except for (a) Liabilities reflected
or reserved against on the Acquisition Balance Sheet, (b) Liabilities incurred
in the Ordinary Course of Business since the date of the Acquisition Balance
Sheet, none of which, either individually or in the aggregate, are material in
amount, (c) Liabilities listed on Schedule 4.5, and (d)
Liabilities under Contracts described on Schedule 4.15 (none
of which results from any breach or violation by the Company or arises out of
any claim, charge or demand against the Company).
10
4.6 Absence of Certain Changes
or Events.
Since
December 31, 2007, the Company has been operated only in the Ordinary Course of
Business, and:
|
(a)
|
there
has not occurred any event or circumstance that constitutes, or is
reasonably likely to result in, a material adverse change in the Company’s
business, assets, liabilities, financial condition, operating results,
employees or customer or supplier
relationships;
|
|
(b)
|
there
has not been any change in the Company’s tax reporting or accounting
policies, practices, methodologies or underlying assumptions and the
Company has not settled or compromised any Tax liability or made any Tax
election;
|
|
(c)
|
except
as reflected on the Acquisition Balance Sheet, the Company has not
incurred any Indebtedness or assumed, guaranteed, or endorsed the
Indebtedness of any other Person, nor canceled any debt or compromised or
released any right or claim other than in connection with the performance
of this Transaction, nor prepaid any Indebtedness for borrowed
money;
|
|
(d)
|
the
Company has not suffered any extraordinary loss, theft, damage,
destruction or loss of or to any tangible asset, nor waived any rights of
material value;
|
|
(e)
|
the
Company has not made, granted, or committed to make or grant any bonus or
any wage, salary or compensation increase to any director, officer,
employee or consultant, other than salary increases and bonuses in the
Ordinary Course of Business, or any increase of any benefit provided under
any employee benefit plan or arrangement, and the Company has not amended
or terminated any existing employee benefit plan or arrangement or adopted
any new employee benefit plan or
arrangement;
|
|
(f)
|
the
Company has not declared or paid any dividend or made any other
distribution to its stockholders on or in respect of, or has repurchased,
redeemed, retired or otherwise acquired any shares of its capital stock or
any options, warrants or other rights to purchase such stock or adjusted
or reclassified its capital stock, except as set forth in Schedule
4.6;
|
|
(g)
|
except
for the eSchool Business, the Company has not sold, assigned, licensed,
transferred or subjected to any Lien, except for Permitted Liens, or
committed to sell, assign, license, transfer or subject to any Lien,
except for Permitted Liens, any tangible or intangible
assets;
|
11
|
(h)
|
the
Company has not discharged or satisfied any material Lien or paid any
material obligation or Liability, other than current Liabilities paid in
the Ordinary Course of Business;
|
|
(i)
|
the
Company has not purchased or leased, or committed to purchase or lease,
any asset, other than in the Ordinary Course of
Business;
|
|
(j)
|
the
Company has not made or authorized any capital expenditure or commitment
for any capital expenditure in excess of $25,000 as to any one item or
$50,000 in the aggregate for all
items;
|
|
(k)
|
there
has been no material change in existing credit terms with any customer or
vendor of the Company, other than in the Ordinary Course of
Business; and
|
|
(l)
|
the
Company has not changed in any material respect how it conducts its cash
management practices (including the collection of receivables, payment of
payables, maintenance of inventory controls and pricing
practices).
|
4.7 Taxes.
All
Tax Returns required to be filed by the Company have been duly and timely filed
and are true, accurate and complete. The Company has paid all Taxes
(whether or not shown as due and owing on such Tax Returns) due and owing as of
Closing. There are no Tax claims, audits or proceedings pending or,
to the knowledge of Seller or the Company, threatened against the Company. There
are not currently in force any waivers or agreements binding upon the Company
for the extension of time for the assessment or payment of any
Tax. The Company has properly withheld and/or paid all Taxes required
to have been withheld and/or paid in connection with amounts paid or owing to
any stockholder, employee, creditor, independent contractor, or other third
party. The Company is not a party to or bound by any Tax allocation or Tax
sharing agreement with any other Person and has no contractual obligation to
indemnify any other Person with respect to Taxes. The Company has not
been a member of an affiliated group filing a consolidated federal income Tax
Return nor has it incurred any liability for the Taxes of any Person under
Treas. Reg. § 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise. The
Company is not a party to any joint venture, partnership or other arrangement or
contract that could be treated as a partnership for federal income tax
purposes. No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Liens for
Taxes upon any of the assets of the Company. The Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return. The Company will not be required to include any item of
income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date as a result of any
(i) change in method of accounting for a taxable period ending on or prior
to the Closing Date, or (ii) “closing agreement” as described in
Section 7121 of the Code (or any corresponding or similar provision of
state, local or foreign Law) executed prior to the Closing Date. The
Company has been a validly electing S Corporation since December 1,
1996. There are no outstanding rulings of, or requests for rulings
from, any Tax authority addressed to the Company that are, or if issued would
be, binding on the Company.
12
4.8 Employees.
There
are no Actions by any employee or former employee pending or to the knowledge of
Seller threatened against the Company. The Company is not a party to
any collective bargaining agreement nor is there pending any union
organizational activities or proceedings with respect to the Company. There is
no labor strike, slowdown or stoppage pending or threatened against the
Company. Schedule 4.8
sets forth a complete and accurate list of the following information for each
employee, director or officer of the Company as of the date of this Agreement,
including employees on leave of absence or layoff status: (a) name; (b) job
title; (c) current compensation paid or payable; (d) any changes in compensation
since January 1, 2006; (e) vacation accrued; (f) entitlement to severance
pay; (g) length of service with the Company; and (h) service credited for
purposes of the Company’s employee benefit plans. The Company, in all
material respects, has complied with and is in compliance with all (and the
Company has not received notice from any Person alleging any noncompliance with
any) applicable Laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, employment of aliens, employment of
individuals with disabilities, and nondiscrimination in employment, and are not
engaged in (nor has the Company received any notice alleging that it is engaged
in) any illegal or unfair labor or employment practice. The Company
is in compliance in all material respects with the requirements of the Americans
with Disabilities Act and the requirements of the Workers Adjustment and
Retraining Notification Act (the “WARN Act”) and has no
liabilities pursuant to the WARN Act. Each employee of the Company
listed on Schedule
4.8 has executed with the Company a Confidentiality and Non-Solicitation
Agreement substantially in the form of either of the agreements attached as
Exhibit P.
4.9 Employee Benefit
Plans.
Set
forth on Schedule 4.9 is
a list of all Plans.
|
(a)
|
Seller
has provided to Buyer:
|
|
(i)
|
all
documents that set forth the terms of each Plan and of any related trust,
including all summary plan descriptions and other notices which the
Company is required to distribute, or has distributed, regarding any
Plan;
|
|
(ii)
|
all
personnel and payroll records, and all employment manuals and
policies of the Company;
|
|
(iii)
|
a
written description of any Plan which is not otherwise in
writing;
|
|
(iv)
|
all
insurance policies purchased by, or to provide benefits under, any
Plan;
|
|
(v)
|
all
contracts with third party administrators, actuaries, investment managers,
consultants, and other independent contractors that relate to any
Plan;
|
|
(vi)
|
the
Form 5500 filed with respect to each Plan in each of the most recent three
years, including all related schedules and opinions of independent
accountants;
|
13
|
(vii)
|
all
notices that were given by any Plan or the Company to the Internal Revenue
Service, the Pension Benefit Guaranty Corporation, or the Department of
Labor, regarding any Plan within the three years preceding the date of
this Agreement; and
|
|
(viii)
|
all
notices that were given by the Internal Revenue Service, the Pension
Benefit Guaranty Corporation, or the Department of Labor to any Plan or
the Company (or any other person who, together with the Company, would be
treated as a single employer under Section 414 of the Code) regarding
any Plan within the three years preceding the date of this
Agreement.
|
|
(b)
|
the
Company has no leased employees within the meaning of Section 414(n)
of the Code;
|
|
(c)
|
each
of the Plans has been operated in material compliance with its terms and
all Laws, all contributions required under the terms of the Plan or
applicable Law have been timely made, all filings required by the Code or
ERISA under each Plan have been timely filed and all notices or
disclosures required to be given to participants have been timely
provided; and
|
|
(d)
|
there
are no pending or to the knowledge of Seller threatened claims by or
against of any of the Plans, by any employee or other person with respect
to any Plan, or otherwise involving any Plan (other than routine claims
for benefits).
|
4.10 Environmental
Matters.
There
has been no generation, use, handling, treatment or storage of any Hazardous
Material at, on, under or from or transported to or from any of the Real Property in
violation of Environmental Laws in connection with the operations of the
Company. There has been no release or threatened release of any
Hazardous Material at, on, under, from or, affecting, any of the Real Property
in violation of Environmental Laws in connection with the operations of the
Company. There has been no disposal of any Hazardous Materials at, on
or under any of the Real Property in connection with the operations of the
Company in violation of Environmental Laws or which requires investigation,
remediation or other response action by the Company under Environmental Laws.
The Company has not been named in any Action, nor to the knowledge of the
Company and Seller, has any Action been threatened against the Company nor has
any written demand or request for information from any third party been received
by the Company, concerning or with respect to, the presence, release or
threatened release of any Hazardous Material. To the knowledge of the
Company and Seller, there are no underground storage tanks or related piping
located on, under or at any of the Real Property. The Company has not removed
any such tank or piping from the Real Property. The Company is and
has been in compliance in all material respects with all applicable
Environmental Laws and possesses all environmental Permits which are required
with respect to the operation of its business, and there are no Actions pending
nor to the knowledge of the Company and Seller threatened against the Company
that seek the revocation, cancellation, suspension or any modification of any
such environmental Permits. No Hazardous Material managed by the
Company has come to be located in any site which is listed or proposed for
listing under CERCLA, on the Comprehensive Environmental Response, Compensation
and Liability Information System list, as established under CERCLA, or in any
similar state list, or which is the subject of foreign, federal, state or local
enforcement actions or other investigations which may lead to claims against the
Company for response actions, damages to natural resources or for personal
injury claims, including, but not limited to, claims under
CERCLA. There have been no non-routine environmental inspections,
investigations, studies, audits, tests, reviews or other analyses documented in
relation to any Real Property, or any property formerly owned, operated or
leased by the Company or, with respect to the Company’s business, which are in
the possession or control of the Company.
14
4.11 Compliance with Laws;
Permits.
The
Company has been and is in compliance in all material respects with all Laws
applicable to it and its business, assets, properties and
operations. The Company owns or possesses all right, title and
interest in and to all Permits that are necessary to own and operate its
business, properties and assets as intended by Buyer. The Company has
not received written notice from any Person alleging any noncompliance with any
Law or Permit. None of the Company’s Permits will lapse, terminate or
expire as a result of the consummation of the Transaction. All such
Permits have been legally obtained, renewed and maintained by the Company and
are valid and in full force and effect. No proceeding is pending or
to the knowledge of the Company and Seller threatened against the Company to
revoke or limit any of the Permits or otherwise impose any conditions or
obligations on the possession or transfer of any of them and there is no state
of facts or event of which the Company or Seller has knowledge which could
reasonably be expected to form the basis for any revocation or limitation of the
Permits or other imposition of conditions or obligations on the possession or
transfer of any of them.
4.12 Real
Property.
The
Company does not own any real property in fee simple. The Company
currently leases the real property described on Schedule 4.12 (the
“Real
Property”). The leases relating to the Real Property are
hereinafter referred to as the “Leases.” The
Company is the lessee under each of the Leases. Except at set forth
on Schedule
4.12, the Company does not lease or sublease any Real Property as
lessor. The Company has delivered a current, accurate and complete
copy of the Leases to Buyer. The Leases are valid and in full force
and effect. Neither the Company, nor any other party to any of the
Leases is or has reason to believe a default, breach, termination or
modification of any of the Leases will occur. The Seller is the owner
of the real property under the New York Lease and the New Jersey
Lease. Seller has good and marketable title to the real property
under the New York Lease and the New Jersey Lease, free and clear of all Liens,
except Permitted Liens. The Company holds a valid, binding and
existing leasehold interest under each of the Leases, free and clear of all
Liens, except Permitted Liens. The Company enjoys peaceful and
undisturbed possession under each of the Leases. Except as set forth
on Schedule
4.12, there are no leases, subleases, licenses or other agreements for
the use or occupancy of any portion of the Real Property by any Person other
than the Company. There are no delinquent Taxes relating to the Real
Property. There are no defaults under any Permitted Lien affecting
the Real Property. The Real Property abuts and has direct access to
public streets. No improvements on the Real Property encroach upon
any adjoining land, and no improvements from adjoining land encroach upon the
Real Property. There are no outstanding purchase options or rights of
first refusal/offer for the Real Property in favor of any third party other than
the Company. Neither Seller nor the Company has received notice of
any pending or proposed condemnation or eminent domain proceedings affecting the
Real Property. General office, warehouse, distribution center and service center
are legally permissible uses of the Real Property without non-conforming status,
and no conditional use permits or variances affect the Real
Property. The Real Property complies in all material respects with
all applicable Laws. The Real Property, including the building and
other improvements and facilities located thereon, and all structural and
non-structural components thereof, and all related heating, cooling,
ventilation, plumbing, sprinkler, electrical and other building systems, are in
good working condition and repair, reasonable wear and tear excepted, and served
by telephone, cable, electric, gas, water, storm and sanitary sewer lines and
facilities.
15
4.13 Title, Condition and
Sufficiency of Assets.
The
Company owns and has good and marketable title, free and clear of all Liens,
other than Permitted Liens, in and to all of the tangible and intangible
property and assets reflected on the Acquisition Balance
Sheet. Except as set forth on Schedule 4.13, all of
the Company’s tangible personal property is and on the Closing Date will be in
working order, subject to ordinary wear and tear, fire or other
casualty. All of the tangible personal property of the Company is
located at the Real Property. No Person other than the Company owns
or utilizes any personal property of the Company.
4.14 Intellectual
Property.
|
(a)
|
Schedule 4.14
sets forth a complete and correct list of all Company Intellectual
Property.
|
|
(b)
|
The
Company owns and possesses all, right, title and interest in and to, or
has a valid and enforceable right or license to use the Company
Intellectual Property owned or used by it as currently being
used.
|
|
(c)
|
The
Company Intellectual Property is not subject to any Liens and is not
subject to any restrictions or limitations regarding use or disclosure
other than pursuant to written license agreements applicable
thereto.
|
|
(d)
|
The
Company Intellectual Property owned or used by the Company is valid,
subsisting, in full force and effect, and has not been cancelled, expired
or abandoned.
|
|
(e)
|
To
the Company’s and Seller’s knowledge, the Company has not infringed,
misappropriated or otherwise conflicted with, any Intellectual Property of
any third party. To the Company’s and Seller’s knowledge, the
conduct of the business as currently conducted by the Company does not
infringe upon any Intellectual Property owned or controlled by any third
party. The Company has not received any written notice
regarding any of the foregoing (including any demands or offers to license
any Intellectual Property from any third
party).
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|
(f)
|
The
Company has received no written notice that a third party has infringed,
misappropriated or otherwise conflicted with any of the Company
Intellectual Property. The Company has not brought or
threatened any such claims against any third
party.
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16
|
(g)
|
(i)
all licenses listed on Schedule 4.14
are in full force and effect and, to the knowledge of the Company, are
enforceable by the Company in accordance with their respective terms,
subject to the Enforceability Exceptions, (ii) the Company has performed
all material obligations required to be performed by it pursuant to the
licenses and agreements listed on Schedule 4.15
and (iii) there is no existing, or to the Company’s and Seller’s
knowledge, threatened default under or violation of any of the licenses or
agreements listed on Schedule 4.15
by any other party thereto.
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4.15 Contracts.
Schedule 4.15
lists all written or oral agreements to which the Company is a party and which
are currently in effect. The Company has delivered to Buyer correct, complete
and up-to-date copies of each written contract required to be or otherwise
identified on Schedule 4.15
(collectively, the “Contracts”). To
the Company’s and Seller’s knowledge, all of the Contracts are in full force and
effect and are enforceable in accordance with their respective terms, subject to
the Enforceability Exceptions. The Company has performed all
obligations required to be performed by it pursuant to the
Contracts. To the knowledge of the Company and Seller, there is no
existing or threatened default under or violation or breach of any of the
Contracts by any other party thereto, nor any event or circumstance which, with
the passage of time or the giving of notice, or both, would result in a breach,
default or violation of any Contract.
4.16 Litigation.
Except
as set forth on Schedule 4.16 there
are no Actions pending or to the knowledge of the Company and Seller threatened
against the Company or its assets, which involve the Company, any of its assets
or any stockholders, officers, directors or employees (in their capacity as
such), or which in any manner challenges or seeks the rescission of, or seeks to
prevent, enjoin, alter or materially delay the consummation of, or otherwise
relates to, this Agreement, the Related Agreements or the Transaction, or which
may result in any change in the current equity ownership of the Company, nor is
the Company aware of any basis for any of the foregoing. The Company
is not subject to any order, writ, judgment, injunction, decree, determination
or award.
4.17 Warranty
Claims.
There
is no pending or to the knowledge of the Company and Seller threatened claim
against Company alleging any breach of any warranty relating to any products or
services sold or provided by the Company. The Company has not made
any express warranties to third parties with respect to any products created,
manufactured, sold, distributed or licensed, or any services rendered, by the
Company, except the express warranties which are set forth in written agreements
between the Company and a customer, and such warranties as are imposed by
applicable law. A correct, complete and up-to-date copy of each
standard warranty of the Company as set forth in such written agreements has
been provided to Buyer. To the knowledge of the Company and Seller,
no third party has advised the Company concerning, or threatened the Company,
with liability arising out of, injury to person, business or property as a
result of any product sold or service rendered by the Company.
17
4.18 Insurance.
Schedule 4.18
contains an accurate and complete list of all current insurance policies or
binder of insurance and fidelity or surety bonds applicable to, owned by or
maintained for the benefit of, the Company and indicates for each such insurance
policy any pending claims thereunder. Such list specifies with
respect to each such policy the policy number, insurer, policy limits and
deductibles and renewal date. All premiums that are due and payable
with respect to such policies and binders have been paid, and no written notice
of denial of coverage, cancellation or termination has been received with
respect to such policies and binders and, to the Company’s knowledge, there is
no existing material default, or event which with the giving of notice or lapse
of time or both, would constitute a material default, by any insured
thereunder. The applicable limits under such policies or binders have
not been partially or totally exhausted. Neither the Company nor any
other Person has received (i) any written notice of reservation of rights with
respect to any pending or threatened claims against any such policy or binder,
(ii) any written notice that any issuer of such policy or binder has filed for
protection under applicable bankruptcy or insolvency laws or is otherwise in the
process of liquidating or has been liquidated, or (iii) any other verifiable
indication that any such policy or binder may no longer be in full force or
effect or that the issuer of any such policy or binder may be unwilling or
unable to perform its obligations thereunder. The Company has not
been refused any insurance nor has its coverage been limited. All
litigation covered by any of the policies has been properly reported to and
accepted by the applicable insurer. There have been no gaps in
coverage on any pre-closing insurance policies. The Company’s rights
under current and historical policies will not be affected by change of
ownership.
4.19 Accounts
Receivable.
The
accounts receivable reflected on the books and records of the Company represent
valid obligations arising from sales actually made in the Ordinary Course of
Business. The Company has not received written notice of any material
contest, claim or right of setoff with respect to its accounts
receivable. All accounts receivable reflected on the Acquisition
Balance Sheet, as well as those accounts receivable arising after the date of
the Acquisition Balance Sheet and reflected on the books and records of the
Company as of the Closing Date, will be collected in full without any set-off
within 90 days of the Closing Date, except to the extent provided for in the
Company’s reserve for bad debts as set forth on the Acquisition Balance Sheet
and any additions thereto made in the Ordinary Course of Business since that
date. There have not been any write-offs as uncollectible of any
customer accounts receivable of the Company in excess of the Company’s reserve
for bad debts since December 31, 2007.
4.20 Inventory.
The
inventories of the Company are fairly reflected on the Acquisition Balance Sheet
in accordance with the prudent past practices and policies of the Company,
subject to adequate reserves. The inventories of the Company
reflected on the Acquisition Balance Sheet are in good and marketable condition
and are useable and saleable, subject to the Company’s normal
reserves. All such inventories are owned by the Company free and
clear of any Liens, other than Permitted Liens.
4.21 Customers and
Suppliers.
Schedule 4.21
sets forth a list of the Company’s top seven (7) customers during last fiscal
year (“Material
Customers”) and a list of the Company’s top supplier during the last
fiscal year (“Material
Supplier”). To the knowledge of Seller and the Company, no
Material Customer or Material Supplier has notified the Company that (a) it is
materially modifying or terminating its relationship, agreements or arrangements
with the Company or (b) its intention is to do so. The Company is not
required to provide any bonding or any other financial security arrangements in
connection with any transaction with any Material Customer.
18
4.22 Indebtedness.
Schedule 4.22 sets
forth a true and complete list of all Indebtedness of the Company which is
outstanding on the date hereof, including the amount of principal and unpaid
interest outstanding under each instrument evidencing such Indebtedness as of
the date hereof and a description of the collateral securing such
Indebtedness. Except as set forth on Schedule 4.22, there
are no prepayment penalties or other fees associated with the repayment of such
Indebtedness.
4.23 Brokerage.
No
broker, finder or similar agent has been employed by or on behalf of Seller or
the Company, and no Person with which Seller or the Company has had any dealings
or communications of any kind is entitled to any brokerage commission, finder’s
fee or any similar compensation, in connection with this Agreement or the
Transaction.
4.24 Conflicts of
Interest.
Except
as set forth on Schedule 4.24,
neither Seller, nor any of his respective Affiliates, members of his immediate
family or any employee of the Company, possesses any direct or indirect
financial interest in, or is a stockholder, director, officer or employee of,
any Person which is a supplier, customer, lessor, lessee, licensee or competitor
of the Company, except with respect to the New York Lease, the New Jersey Lease,
the New NY Lease and the New NJ Lease, and the property leased or to be leased
thereunder. Neither Seller nor any of his respective Affiliates or
members of his immediate family has any rights or interests, whether as an
owner, lessor, licensor, licensee or otherwise, in or to any tangible or
intangible assets, properties or rights that are owned by, licensed or leased
to, or used by the Company, except with respect to the New York Lease, the New
Jersey Lease, the New NY Lease and the New NJ Lease, and the property leased or
to be leased thereunder.
4.25 Related Party
Transactions.
Except
as set forth on Schedule 4.25, no
member, officer or director of the Company (each a “Related Party”) owes
any amount to the Company nor does the Company owe any amount to, or has the
Company committed to make any loan or extend or guarantee credit to or for the
benefit of any Related Party, other than for (i) the payment of salary for
services rendered, (ii) reimbursement for reasonable expenses incurred on behalf
of the Company, and (iii) other standard employee benefits made generally
available to all employees.
4.26 Absence of Certain
Payments.
Neither
the Company, nor any of its representatives or its Affiliates acting on the
Company’s behalf has, directly or indirectly, in connection with, or otherwise
relating to, the operation of the Company’s business or the business of any of
its Affiliates:
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(a)
|
made
any bribe, payoff, influence payment, kickback, unlawful material gift or
other unlawful payment to (i) obtain favorable treatment in securing
business or (ii) to any Person in violation of any applicable
Laws;
|
|
(b)
|
used
any corporate or other funds for unlawful contributions, payments, gifts
or entertainment, or made any unlawful expenditures relating to political
activity to, or on behalf of, governmental officials or other Persons;
or
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19
|
(c)
|
accepted
or received any unlawful contributions, payments, gifts or
expenditures.
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4.27 Omnetica. Omnetica
has released the Company from any rights and claims under any Omnetica
Partnership Agreement for acts arising prior to the Closing Date.
4.28 No
Knowledge. Seller has no knowledge of any fact which has not
been disclosed to Buyer which materially adversely affects the business of the
Company.
ARTICLE
5
REPRESENTATIONS
AND WARRANTIES OF BUYER AND QSGI
Buyer and
QSGI jointly and severally represent and warrant to Seller that the following
statements contained in this Article 5 are true and correct.
5.1 Organization;
Authorization.
Buyer
and QSGI each is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer and QSGI each
has all requisite power and authority to execute, deliver and perform this
Agreement and each Related Agreement to be executed and delivered by Buyer and
QSGI, and to consummate the Transaction. Buyer and QSGI each is duly
qualified or licensed to do business as a foreign corporation in, and is in good
standing in, each jurisdiction in which the nature of its business or its
ownership of its properties requires it to be so qualified or
licensed.
5.2 Execution and Delivery;
Enforceability.
This
Agreement has been, and each Related Agreement to be executed and delivered by
Buyer and QSGI will upon such delivery be, duly executed and delivered by Buyer
and QSGI and constitutes, or will upon such delivery constitute, the legal,
valid and binding obligation of Buyer and QSGI, enforceable in accordance with
its terms, subject to the Enforceability Exceptions.
5.3 Noncontravention.
Except
as set forth in Schedule 5.3, neither
the execution and delivery by Buyer or QSGI of this Agreement or any Related
Agreement to be executed and delivered by Buyer and QSGI nor the consummation of
the Transaction by Buyer and QSGI on the terms and conditions provided for
herein and therein, nor compliance and performance by Buyer and QSGI with the
terms hereof and thereof will (a) be a violation or breach of, a default under,
or otherwise contravene or conflict with Buyer’s or QSGI’s articles of
incorporation or bylaws, (b) contravene, conflict with or be a breach or
violation of, constitute a default under, result in a loss of any benefit under,
or give rise to a right of any party to accelerate, amend, suspend, renegotiate,
modify, terminate, cancel or rescind any agreement or instrument to which Buyer
or QSGI is a party, (c) be a violation in any material respect of any Law
applicable to Buyer or QSGI or the business, assets, properties or operations of
Buyer or QSGI, (d) require a filing with or a Permit from any Governmental
Authority, (e) permit or result in the creation or imposition of any Lien upon
any of Buyer’s or QSGI’s assets or properties, (f) require the consent,
approval, exemption or authorization or other action of any Governmental
Authority or any other Person or (g) cause Seller to become subject to, or to
become liable for the payment of any Tax or any other liability.
20
5.4 Reservation and Valid
Issuance of Shares.
QSGI has
duly reserved for issuance all shares of its Common Stock that may be issued
pursuant to this Agreement, the Transaction and the Riconda Purchase Agreement,
including without limitation the Purchase Price Stock, the Earnout Stock, the
Warrant Stock and the Conversion Stock. All shares of Common Stock to
be issued as aforesaid have been duly authorized and, upon issuance in
accordance with this Agreement or the Riconda Employment Agreement or upon
conversion of the Convertible Note or exercise of the Warrants will have been
duly issued and outstanding, fully paid and nonassessable.
5.5 SEC
Documents.
(a) QSGI
has made available to Seller prior to the date hereof copies of its Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2006, its quarterly
report on Form 10-Q for the fiscal quarter ended September 30, 2007, its Current
Reports on Form 8-K filed since such report on Form 10-Q and its Proxy Statement
on Schedule 14A for its 2007 Annual Meeting of Stockholders filed by QSGI with
the SEC (the Form 10-KSB, Form 10-Q, Form 8-Ks and Schedule 14A are collectively
referred to herein as the “SEC
Documents”). Each of the SEC Documents, as of the respective
dates thereof (or if amended or superseded by a filing prior to the Closing
Date, then on the date of such filing), did not contain any untrue statement of
a 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.
(b) The
financial statements of QSGI in the SEC Documents present fairly, in accordance
with GAAP, the financial position of QSGI as of the dates indicated, and the
results of its operations and cash flows for the period therein specified,
subject, in the case of unaudited financial statements for interim periods, to
usual year-end audit adjustments and the absence of footnotes.
5.6 Brokerage.
Except
for Agile Equities and any advisor retained by Buyer or QSGI, whose fees and
expenses shall be paid by Buyer or QSGI at Closing, no Person is or will become
entitled, by reason of any agreement entered into by or on behalf of Buyer or
QSGI, to receive any commission or other similar compensation in connection with
the consummation of the Transaction.
ARTICLE
6
CONDITIONS
PRECEDENT
6.1 Buyer’s Conditions
Precedent.
Unless
waived by Buyer in writing, the obligations of Buyer hereunder are subject to
the fulfillment, prior to or at Closing, of each of the following
conditions:
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(a)
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The
representations and warranties of Seller contained in this Agreement or in
any Disclosure Schedule, exhibit, list, certificate or document delivered
pursuant to the provisions hereof shall be true and correct in all
material respects (except for such representations and warranties that are
qualified by their terms as to materiality, which representations and
warranties shall be true in all respects) at and as of the Closing Date as
though such representations and warranties were made at and as of such
date, except and to the extent they relate solely to an earlier
date.
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21
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(b)
|
Seller
shall have performed or complied in all material respects with each of its
agreements and covenants required by this Agreement to be performed or
complied with by it prior to or at the
Closing.
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(c)
|
All
the necessary consents, approvals and authorizations of any Person or
Governmental Authority prescribed by any Law or Contract to the
consummation by Seller of the Transaction shall have been
obtained.
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(d)
|
All
the necessary consents, approvals and authorizations of the Board of
Directors, stockholders, preferred stockholders and the Senior Lender to
the consummation by Buyer and QSGI of the Transaction shall have been
obtained, subject to Section 6.1(e)
below.
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(e)
|
If
the consents, approvals and authorizations set forth in Section 6.1(d)
above shall not have been obtained by Buyer or QSGI, or both, on or before
the ninetieth (90th)
day from the Effective Date (the “Early Termination
Date”), and if Buyer shall not have terminated this Agreement as
provided in Section 11.1 by written notice to Seller delivered not later
than 10 days thereafter, or the Closing Date, whichever occurs earlier,
then this condition or the conditions set forth in Section 6.1(d), as the
case may be, shall be deemed to have been waived by
Buyer.
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|
(f)
|
There
shall be no Action pending or threatened (i) seeking to restrain, delay,
prohibit, invalidate, set aside, enjoin or impose any conditions or
restrictions upon the Closing of the Transaction or (ii) which could
reasonably be expected to have a Material Adverse Effect on the Company,
and no injunction, judgment, order, decree or ruling with respect thereto
shall exist or be in effect.
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(g)
|
Since
the date of this Agreement no change or event has occurred with respect to
the business, operations or financial condition of the Company which has
had a Material Adverse Effect on the
Company.
|
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(h)
|
The
Company’s certificate of incorporation and by-laws shall have been
amended, as and to the extent reasonably determined by Buyer, to include
the ability of the Company to conduct any lawful business or
activity.
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(i)
|
Seller
shall have removed from the Company all of the real property, personal
property and intangible personal property belonging to the eSchool
Business and allocated any previously shared administrative expenses
between the eSchool Business and the Company on the Company’s books of
account.
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(j)
|
Seller
shall have obtained a release of all Liens on the Shares and any other
Liens on the business, properties or other assets of the Company, other
than Permitted Liens and Liens securing Indebtedness being assumed or paid
by Buyer.
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22
|
(k)
|
Seller
shall have delivered to Buyer each of the closing items listed in
Section 9.1.
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6.2 Seller’s Conditions
Precedent.
Unless
waived by Seller, the obligations of Seller hereunder are subject to the
fulfillment, prior to or at Closing, of each of the following
conditions:
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(a)
|
The
representations and warranties of Buyer and QSGI contained in this
Agreement or in any exhibit, list, certificate or document delivered
pursuant to the provisions hereof shall be true and correct in all
material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such
date.
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(b)
|
The
Buyer and QSGI each shall have performed or complied in all material
respects with each of its agreements and covenants required by this
Agreement to be performed or complied with by it prior to or at the
Closing.
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|
(c)
|
All
the necessary consents, approvals and authorizations of any Person or
Governmental Authority prescribed by any Law or Contract to the
consummation by Buyer and QSGI of the Transaction shall have been
obtained.
|
|
(d)
|
All
the necessary consents, approvals and authorizations of any Person or
Governmental Authority prescribed by any Law or Contract to the
consummation by Seller of the Transaction shall have been
obtained.
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(e)
|
The
Senior Lender shall have entered into the Subordination Agreement, and/or
an intercreditor agreement (the “Intercreditor Agreement”), with Seller
and Seller’s lender (if required by Seller’s lender), on terms and
conditions satisfactory in all respects, in their sole discretion, to
Seller and Seller’s lender.
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|
(g)
|
Since
the date of QSGI’s most recent Report on Form 10-Q included in the SEC
Documents, no change or event which has not been subsequently reported to
the SEC on Form 8-K or other publicly-available filing has occurred with
respect to the business, operations or financial condition of QSGI which
has had a Material Adverse Effect on
QSGI.
|
|
(h)
|
Buyer
and QSGI shall have delivered to Seller each of the closing items listed
in Section 9.2.
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23
ARTICLE
7
PRE-CLOSING
COVENANTS.
7.1 Conduct of
Business. At all times prior to the Closing, Seller shall, and
shall cause the Company to:
(a) operate
the business of the Company, including maintaining levels of Working Capital, in
the Ordinary Course of Business and consistent with prudent past
practice;
(b) use
commercially reasonable efforts to preserve the business of the Company and to
preserve for Buyer the goodwill of customers, suppliers and others having
business relations with the Company;
(c) maintain
in full force and effect all insurance policies of the Company which it deems
necessary for the operation of its business (or insurance policies providing
comparable coverage);
(d) not
terminate, cause the termination of, amend, renew or extend any material
Contract unless in each case such action is believed to be in the best interest
of the Company;
(e) not
sell, assign, license, transfer or otherwise dispose of any of the material
assets or personal property of the Company or interest therein or agree to do
any of the foregoing, except in the Ordinary Course of Business;
(f) continue
to make all payment on accounts payable and loans in favor of the Company when
due and payable and collect accounts receivable in accordance with the prudent
past practices of the Company;
(g) not
waive or release any of its rights related to the business of the Company or
permit any of such rights to lapse, if such waiver or lapse would adversely
effect the Company in an amount greater than $50,000, except in the Ordinary
Course of Business.
(h) not
take any of the actions described in Section 4.6 without the prior written
consent of Buyer;
(i) not
make or enter into any contract, written or oral, pursuant to which the amount
payable to any party thereunder is greater than $50,000; and
(j) comply
with applicable Laws in all material respects.
7.2 Other
Transactions.
Until
the Early Termination Date, Seller shall, and shall cause the Company and the
stockholders, directors and officers of the Company to, deal exclusively and in
good faith with Buyer or QSGI, or both, with regard to the sale of the Shares to
Buyer and use his and their commercially reasonable efforts to consummate the
Closing and will, and will direct his and their respective Affiliates, financial
advisors, accountants, agents, and counsel (i) not to solicit, encourage,
negotiate or enter into any other agreements, arrangements or understandings,
whether or not binding, with respect to any acquisition proposal, (ii) to
immediately cease and cause to be terminated any activities, discussions or
negotiations with any Persons conducted prior hereto with respect to any of the
foregoing, and (iii) not to enter into any agreement or understanding,
whether in writing or, if legally binding, oral, that would have the effect of
preventing the consummation of the Transaction. If, notwithstanding
the foregoing, Seller, the Company or any of his or its Affiliates,
representatives or agents should receive any proposal for an acquisition or any
inquiry regarding any such proposal from a Person, Seller and the Company shall,
or direct such Person to, promptly inform Buyer and its counsel in writing of
the terms thereof.
24
7.3 Access to
Information.
At
all times prior to the Closing, Seller shall furnish QSGI and Buyer and their
respective employees, agents and contractors reasonable access during normal
business hours, and on reasonable prior notice, to information that directly
relates to or concerns the business, properties or assets of the Company which
is contained in the properties, books and records of the Company or known by the
personnel of the Company and all such other information that relates to or
concerns the business, properties, operations or assets of the Company as any of
them may reasonably request. If, in its sole discretion, Buyer or
QSGI is not satisfied with the results of its due diligence investigation, Buyer
may terminate this Agreement by written notice to Seller delivered not later
than the earlier of (a) the 10th day
next following the Early Termination Date, or (b) the Closing Date.
7.4 Efforts.
The
parties shall use their commercially reasonable efforts to take or cause to be
taken and to do or cause to be done all such actions and things as are
reasonably necessary or advisable, or as are reasonably requested by another
party, in order to consummate the Transaction in a timely
manner. Without limiting the generality of the foregoing, Seller
shall have the responsibility for obtaining all consents required under Section
6.1(c).
7.5 eSchool
Business.
Prior
to Closing, Seller shall cause the Company to transfer to Seller or any Person
designated by Seller all of the assets of the Company related to the eSchool
Business as set forth on Schedule 7.5. In
connection therewith, Seller or such Person may offer employment to and hire all
of the employees of Seller who are engaged in the conduct of the eSchool
Business. Seller shall assume and indemnify and hold the Company,
Buyer and QSGI harmless from and against (a) any tax liabilities resulting from
such transfer of assets and (b) any Losses relating to or arising out of the
eSchool Business subsequent to the Closing Date.
7.6 Notice of
Developments.
Seller
shall give immediate written notice to Buyer of any event or condition of which
he has knowledge that he reasonably believes causes Seller to be unable to
consummate the Transaction. Without
limiting the generality of the foregoing, Seller shall notify Buyer promptly in
writing of any amendments to the representations and warranties set forth in
Article 3 or 4, or in the related Disclosure Schedules, which become necessary
to cause such representations and warranties to be true and correct as of the
Closing Date, whereupon such representations and warranties, as so amended,
shall be deemed the representations and warranties of Seller for all purposes of
this Agreement. In the event any such amendment, in the reasonable
discretion of Buyer or QSGI, would materially adversely affect the business of
the Company or the ability of Seller to consummate the Transaction, then Buyer
or QSGI shall have the right to terminate this Agreement by written notice to
Seller delivered not later than the sooner of (a) the 10th day
next following its receipt of such amendment, or (b) the Closing
Date.
25
7.7 Buyer’s
Cooperation.
Buyer and
QSGI each will use all commercially reasonable efforts to cause the Senior
Lender to enter into a Subordination Agreement and an Intercreditor Agreement,
if required, in form and substance satisfactory to Seller, its lender (if
required) and the Senior Lender.
ARTICLE
8
THE
CLOSING
The consummation of the Transaction
(the “Closing”)
shall take place at the office of Meltzer, Lippe, Xxxxxxxxx & Breitstone,
LLP, on the 90th day
next following the Effective Date, or at such other place and time as Buyer and
Seller shall agree; provided that (i) if all of the conditions set forth in
Article 6 have not been satisfied or waived on such date, on such mutually
agreeable later date as is practicable but in no event later than three business
days after satisfaction or waiver of such conditions and (ii) Buyer shall have
the right in its sole discretion to extend such date by up to 30 days upon
written notice and payment to Seller of the sum of $50,000; provided further
that in no event shall such date be extended beyond the 150th day
next following the Effective Date (as such date may be extended, the “Closing
Date”).
ARTICLE
9
CLOSING
DELIVERIES
9.1 Seller’s Closing
Deliveries.
At
Closing, Seller shall deliver to Buyer the following:
|
(a)
|
A
certificate executed by an officer of the Company certifying that the
conditions set forth in Section 6.1(a), (b) and (c) have been
satisfied;
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|
(b)
|
Copies
of the resolutions duly adopted by the Board of Directors and sole
stockholder of the Company authorizing and approving the
Transaction;
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|
(c)
|
All
certificates for the Shares, duly endorsed for transfer or accompanied by
a duly executed stock power or other appropriate instrument of assignment
and transfer;
|
|
(d)
|
The
written resignation, effective as of the Closing, of each director and
officer of the Company listed on Schedule 9.1(d);
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|
(e)
|
The
Payoff Letters;
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|
(f)
|
A
certificate of good standing with respect to the Company as of the most
recent date practicable from Secretary of State of New
York;
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|
(g)
|
A
certificate of an officer of the Company setting forth in sufficient
detail the Selling Expenses to the extent unpaid at the Closing
Date;
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|
(h)
|
The
Riconda Employment Agreement executed by Seller and
Buyer;
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26
|
(i)
|
The
New NJ Lease and the New NY Lease, each signed and acknowledged by Seller
or his designee, as Landlord, the Company as Tenant, and Buyer and QSGI as
joint and several Guarantors;
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(j)
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Any
and all consents and approvals of any Person or Governmental Authority,
lender, lessor, third-party, or other party required in connection with
the consummation of the
Transaction;
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(k)
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[Intentionally
Omitted];
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(l)
|
The
Lockup Agreement;
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(m)
|
The
Registration Rights Agreement;
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(n)
|
The
Pledge Agreement;
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(o)
|
The
Security Agreement;
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|
(p)
|
The
Subordination Agreement and the Intercreditor
Agreement;
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|
(q)
|
The
Escrow Agreement;
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|
(r)
|
Opinion
of counsel for Seller in substantially the form of Exhibit
N;
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(s)
|
The
original corporate record books for the Company;
and
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|
(t)
|
Each
other document required to be delivered to Buyer pursuant to this
Agreement.
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Any document to be delivered to Buyer
pursuant to this Section 9.1, the form of which is not attached to this
Agreement as an exhibit, shall be reasonably satisfactory to Buyer.
9.2 Buyer’s Closing
Deliveries.
At
Closing, Buyer shall deliver the Earnout Stock to the Escrow Agent and shall
deliver to Seller the following:
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(a)
|
A
certificate executed by an officer of Buyer certifying that the conditions
set forth in Section 6.2(a), (b), (c) and (d) have been
satisfied;
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|
(b)
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Copies
of the resolutions duly adopted by the Boards of Directors of (i) Buyer
and QSGI authorizing and approving the Transaction, including their
guaranty of the New NY Lease and the New NJ Lease, and (ii) the Company
approving the New NJ Lease and the NY
Lease;
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|
(c)
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A
certificate of good standing with respect to each of Buyer and QSGI as of
the most recent date practicable from the Secretary of State of
Delaware;
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(d)
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The
New NJ Lease and the New NY Lease, signed and acknowledged as provided in
Section 9.1(i);
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27
|
(e)
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The
Pledge Agreement;
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|
(f)
|
The
Security Agreement;
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|
(g)
|
The
Riconda Employment Agreement;
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(h)
|
[Intentionally
Omitted];
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(i)
|
The
Escrow Agreement;
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(j)
|
A
certificate or certificates for the duly authorized and issued Purchase
Price Stock;
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|
(k)
|
The
Convertible Note;
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|
(l)
|
The
Warrant;
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|
(m)
|
The
Lockup Agreement;
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|
(n)
|
The
Subordination Agreement and the Intercreditor
Agreement;
|
|
(o)
|
Opinion
of counsel for Buyer and QSGI in substantially the form of Exhibit
O;
|
|
(p)
|
The
Registration Rights Agreement; and
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|
(q)
|
Each
other document required to be delivered to Seller pursuant to this
Agreement.
|
Any
document to be delivered to Seller pursuant to this Section 9.2, the form of
which is not attached to this Agreement as an exhibit, shall be reasonably
satisfactory to Seller.
ARTICLE
10
ADDITIONAL
COVENANTS AND AGREEMENTS
10.1 Publicity.
Any
disclosures or announcements relating to this Agreement or the Transaction shall
be made by Buyer or QSGI, on the one hand, or Seller, on the other hand, only
(a) with the written consent of the other party, or (b) upon either party’s
determination, in its sole discretion, that such disclosure or announcement is
required by Law or by any Governmental Authority or legal process, and upon five
days prior notice to the other party.
10.2 Expenses.
Except
as otherwise set forth in this Agreement:
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(a)
|
Buyer
and QSGI shall pay all fees and expenses incident to the Transaction which
are incurred by Buyer and QSGI or their respective representatives,
attorneys, agents and advisors;
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|
(b)
|
All
fees and expenses incident to the Transaction and incurred by the Company,
Seller or their respective representatives, attorneys, agents and advisors
shall be paid by the Company at the Closing, provided that $50,000 of such
fees and expenses shall be paid by Buyer or QSGI;
and
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28
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(c)
|
All
fees and expenses of the Independent Accountants shall be shared equally
by (i) Buyer and QSGI and (ii) and
Seller.
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10.3 No
Assignments.
No
assignment of any part of this Agreement or any right or obligation hereunder
may be made by Seller without the prior written consent of Buyer, and any
attempted assignment without such consent of Buyer shall be void and of no force
or effect. Buyer and QSGI each may assign any of its rights or
delegate any of its duties under this Agreement, other then the obligation to
deliver shares of Common Stock to Seller, to any Affiliate of Buyer or QSGI or
any of its financing sources, provided that no such assignment shall relieve
Buyer or QSGI of its obligations hereunder.
10.4 Tax
Matters.
The
following provisions of this Section shall govern the allocation between Buyer
and QSGI (in this Section 10.4, collectively “Buyer”), the Company and Seller of
responsibility for certain Tax matters following the Closing Date. In
the event of any conflict between the provisions of this Section and any other
provision of this Agreement, the provisions of this Section shall
control.
10.4.1. Allocation
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(a)
|
Seller
shall prepare or cause to be prepared for filing by the Company all Tax
Returns for the Company for all Tax periods ending on or before the
Closing Date (the “Pre-Closing
Periods”) that are due after the Closing Date, including the final
S-Corporation Tax Return for the Company. Such Tax Returns
shall be prepared in a manner consistent with the terms of this Agreement
and the Company’s prudent past practices, except to the extent required by
applicable law. Such Tax Returns (including any related
workpapers or other information reasonably requested by Buyer), together
with a statement setting forth the amount of Tax allocated to Seller
pursuant to this Section 10.4 (the “Tax Statement”)
with respect to such Tax Return, shall be provided to Buyer for its review
not later than 45 days before the due date for filing such Tax Returns
(including extensions). If Buyer does not provide Seller with a
written description of the items in the Tax Returns or the Tax Statement
that Buyer intends to dispute within 15 days following the delivery to
Buyer of such documents, Buyer shall be deemed to have accepted and agreed
to such documents in the form provided. Buyer and Seller agree
to consult with each other and to negotiate in good faith any
timely-raised issue arising as a result of the review of such Tax Returns
or the Tax Statement to permit the filing of such Tax Returns as promptly
as possible, which good faith negotiations shall include each side
exchanging in writing their positions concerning the matter or matters in
dispute and a meeting to discuss their respective positions. In
the event the parties are unable to resolve any dispute within ten days
following the delivery of written notice by Buyer of such dispute, Seller
and Buyer shall jointly request the Independent Accountants to resolve any
issue in dispute at least five business days before the due date of such
Tax Return, in order that such Tax Return may be timely
filed. If the Independent Accountants are unable to make a
determination with respect to any disputed issue within five business days
before the due date (including extensions) for the filing of the Tax
Return in question, then Seller may require that the Company file such Tax
Return on the due date (including extensions) therefor without such
determination having been made and without the consent of Buyer; provided,
however, that such Tax Return shall incorporate such changes as have at
the time of such filing been agreed to by the parties pursuant to this
Section 10.4. Notwithstanding the filing of such Tax
Return, the Independent Accountants shall make a determination with
respect to any disputed issue submitted to the Independent Accountants
hereunder, and the amount of Taxes that are allocated to Seller pursuant
to this Section 10.4 shall be determined utilizing the determination
of the Independent Accountants. The determination of the
Independent Accountants shall be binding on all parties; provided that any
such determination shall be limited to the resolution of issues in
dispute.
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29
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(b)
|
Buyer
and the Company shall prepare or cause to be prepared, and file or cause
to be filed, all Tax Returns for the Company for all Tax periods that
begin before the Closing Date and end after the Closing Date (the “Straddle
Periods”). Such Tax Returns shall be prepared in a
manner consistent with the Company’s past practices, except to the extent
required by applicable law. Such Tax Returns (including any
related workpapers or other information reasonably requested by Seller),
together with a Tax Statement with respect to such Tax Return, shall be
provided to Seller, acting for Seller, for his review not later than 45
days before the due date for filing such Tax Returns (including
extensions). If Seller does not provide Buyer with a written
description of the items in the Tax Returns or the Tax Statement that
Seller intends to dispute within 15 days following the delivery to Seller
of such documents, Seller shall be deemed to have accepted and agreed to
such documents in the form provided. Buyer and Seller agree to
consult with each other and to negotiate in good faith any timely-raised
issue arising as a result of the review of such Tax Returns or the Tax
Statement to permit the filing of such Tax Returns as promptly as
possible, which good faith negotiations shall include each side exchanging
in writing their positions concerning the matter or matters in dispute and
a meeting to discuss their respective positions. In the event
the parties are unable to resolve any dispute within ten days following
the delivery of written notice by Seller of such dispute, Seller and Buyer
shall jointly request the Independent Accountants to resolve any issue in
dispute at least five business days before the due date of such Tax
Return, in order that such Tax Return may be timely filed. If
the Independent Accountants are unable to make a determination with
respect to any disputed issue within five business days before the due
date (including extensions) for the filing of the Tax Return in question,
then Buyer and the Company may file such Tax Return on the due date
(including extensions) therefor without such determination having been
made and without the consent of Seller; provided, however, that such Tax
Return shall incorporate such changes as have at the time of such filing
been agreed to by the parties pursuant to this
Section 10.4. Notwithstanding the filing of such Tax
Return, the Independent Accountants shall make a determination with
respect to any disputed issue submitted to the Independent Accountants
hereunder, and the amount of Taxes that are allocated to Seller pursuant
to this Section 10.4 shall be determined utilizing the determination
of the Independent Accountants. The determination of the
Independent Accountants shall be binding on all parties; provided that any
such determination shall be limited to the resolution of issues in
dispute.
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30
|
(c)
|
Seller
shall reimburse Buyer and the Company in accordance with this
Section 10.4 for all Taxes of the Company with respect to any
Pre-Closing Period and Pre-Closing Straddle Period (“Pre-Closing
Taxes”), except to the extent such Taxes were included as
liabilities in the calculation of the Closing Working Capital; provided,
however, that Seller shall have no responsibility, and Buyer shall
indemnify and hold harmless Seller for, any interest and penalties imposed
with respect to Taxes for any Pre-Closing Period and Pre-Closing Straddle
Period, if and to the extent such Taxes (i) first become payable after the
Closing, and (ii) are not paid on a timely basis by
Buyer. Seller shall pay such reimbursement (A) within 15 days
after Seller has received written confirmation of payment by Buyer or the
Company of such Taxes that are shown as due and owing on the Tax Returns
(or, if applicable, allocated to Seller) with respect to any Pre-Closing
Period and Pre-Closing Straddle Period, (B) if later, within 15 days after
Seller has received written confirmation of the determination of the
Independent Accountants (as described in Section 10.4.1(a) or (b)),
or (C) in the case of an audit or Action for Taxes, within 15 days after
Seller has received written confirmation of the settlement or other final
resolution of such audit or Action. For purposes of this
Agreement, the portion of Tax with respect to the income, property or
operations of the Company that is attributable to any Straddle Period will
be apportioned between the period of the Straddle Period that extends
before the Closing Date through the Closing Date (the “Pre-Closing Straddle
Period”) and the period of the Straddle Period that extends from
the day after the Closing Date to the end of the Straddle Period (the
“Post-Closing
Straddle Period”) in accordance with this
Section 10.4.1(c). The portion of such Tax attributable to
the Pre-Closing Straddle Period shall (1) in the case of any Taxes, other
than sales or use taxes, value-added taxes, employment taxes, withholding
taxes, and any Tax based on or measured by income, receipts or profits
earned during a Straddle Period, be deemed equal to the amount of such Tax
for the entire taxable period multiplied by a fraction, the numerator of
which is the number of days in the Pre-Closing Straddle Period, and the
denominator of which is the number of days in the Straddle Period, and (2)
in the case of any sales or use taxes, value-added taxes, employment
taxes, withholding taxes, and any Tax based on or measured by income,
receipts or profits earned during a Straddle Period, be deemed equal to
the amount that would be payable if the Straddle Period ended on and
included the Closing Date. For purposes of this
Section 10.4.1(c) any exemption, deduction, credit or other item that
is calculated on an annual basis will be allocated to the Pre-Closing
Straddle Period on a pro rata basis by multiplying the total amount of
such items for the Straddle Period by a fraction, the numerator of which
is the number of calendar days in the Pre-Closing Straddle Period, and the
denominator of which is the number of calendar days in the Straddle
Period. The portion of Tax attributable to a Post-Closing
Straddle Period shall be calculated in a corresponding
manner.
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31
|
(d)
|
Seller,
Buyer and the Company shall cooperate fully in connection with the filing
of Tax Returns pursuant to this Section 10.4.1 and any audit,
litigation or other proceeding with respect to Taxes of the
Company. Such cooperation shall include the reasonable
furnishing or making available during normal business hours of personnel,
powers of attorney, and the retention and (upon a party’s request) the
provision of records and information that are reasonably relevant to the
preparation of any such Tax Return or to any such audit, litigation or
other proceeding. Each of Seller, Buyer and the Company shall
(i) retain all books and records that are in his, her or its possession
with respect to Tax matters pertinent to the Company relating to any
Pre-Closing Period or Straddle Period until the expiration of the
applicable statute of limitations (and, to the extent notified by Buyer or
Seller, any extension thereof) of the applicable taxable periods, and
abide by all record retention agreements entered into with any taxing
authority, and (ii) give the other parties hereto reasonable written
notice before transferring, destroying or discarding any such books and
records and, if the other party so requests, Seller or Buyer, as the case
may be, shall allow the other party to take possession of such books and
records.
|
|
(e)
|
Buyer
and Seller shall, upon request, use their commercially reasonable efforts
to obtain any certificate or other document from any Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including with respect to the
Transaction).
|
10.4.2. Tax
Refunds. Seller shall be entitled to any Tax refunds or
credits, including interest paid therewith, in respect of Taxes paid by the
Company with respect to any Pre-Closing Period or Pre-Closing Straddle
Period. Buyer shall forward to Seller, on behalf of Seller, any such
Tax refunds received or credits utilized to reduce a Tax within 15 days after
receipt or actual use thereof to reduce cash Taxes paid for any Tax period
ending after the Closing Date (determined by computing Tax liability on a “with
and without” basis). At the request and expense of Seller, Buyer
shall cause the Company to use commercially reasonable efforts to prepare and
file any reasonable claims for Tax refunds in respect of Taxes paid by the
Company for any Pre-Closing Period or Pre-Closing Straddle Period, provided (a)
such claim for Tax refunds could not reasonably be expected to materially and
adversely affect the Tax liability of Buyer or the Company for any Post-Closing
Straddle Period or Tax period following the Closing, unless the Seller agree to
reimburse Buyer for such Tax liability, and (b) the Seller shall bear all costs
associated with such Tax refunds. Seller shall have the opportunity
to review such claims for Tax refunds (and any relevant information reasonably
requested by Seller) prior to their filing, and Buyer shall consider any changes
to such claims for Tax refunds reasonably requested by Seller.
32
10.4.3. Amendment of Tax
Returns. No party shall, and no party shall cause the Company
to, amend, re-file, revoke or otherwise modify any Tax Return or Tax election of
the Company with respect to any Pre-Closing Period or Pre-Closing Straddle
Period without the prior written consent of Buyer and Seller, which consent
shall not be unreasonably withheld or delayed.
10.4.4. Tax
Claims. In the event a claim is made or a deficiency alleged
following the Closing relating to the Company by the Internal Revenue Service or
any other taxing authority, which, if successful, would result in a loss or
liability in respect of which indemnity properly may be sought against Seller
pursuant to this Agreement, then the following exclusively shall
apply:
|
(a)
|
After
the Company receives actual notice of such claim or alleged deficiency,
Buyer shall, or Buyer shall cause the Company to, promptly notify Seller
in writing of such claim or alleged deficiency and shall not make payment
of any Tax claimed for at least 30 days after the giving of such notice;
provided that the failure to give such notice shall not affect the
Seller’s indemnity obligations hereof, except to the extent Seller is
materially prejudiced by such
failure;
|
|
(b)
|
Buyer
shall, and Buyer shall cause the Company to, take commercially reasonable
steps to make available to Seller any relevant information relating to
such claim or alleged deficiency that is within the knowledge of Buyer or
the Company;
|
|
(c)
|
If
Seller desires that the Company contest such claim or alleged deficiency,
or if Seller desires to assume the contest of such claim or alleged
deficiency, Seller shall, within 30 days after receipt of notice by Seller
from Buyer or the Company of such claim or alleged deficiency: (i) request
by written notice to Buyer and the Company that such claim or alleged
deficiency be contested by Buyer or Seller, as Seller may elect; (ii) if
requested by Buyer or the Company, furnish Buyer and the Company with an
opinion of independent tax counsel selected by Seller and approved by
Buyer (the “Approved
Counsel”), at Seller’s expense, to the effect that a meritorious
defense exists with respect to such claim or alleged deficiency; and (iii)
indemnify Buyer and the Company in a manner satisfactory to Buyer and the
Company and pay to Buyer or the Company on demand all liabilities and
expenses which may reasonably be entailed in such
defense;
|
33
|
(d)
|
Following
Seller furnishing Buyer and the Company with such items as are set forth
in Section 10.4.4(c), either (i) Buyer shall take all actions and
execute all documents, powers of attorney, instruments or certificates,
reasonably requested by Seller or the Approved Counsel to enable Seller to
assume the contest of such claim or alleged deficiency, or (ii) Buyer
shall cause the Company to take such all legal or other action reasonably
requested by the Approved Counsel in contesting such claim or alleged
deficiency (provided that in no event shall it be deemed reasonable for
the Company to take any action that would cause it to incur any liability
for which it is not indemnified pursuant hereto), which may include, at
the discretion of the Approved Counsel, the agreement to a reasonable
settlement or the Company forgoing any and all administrative appeals,
proceedings, hearings and conferences with the Internal Revenue Service or
other appropriate taxing authority in respect of such claim or alleged
deficiency, in which event Buyer shall cause the Company to either pay the
Tax claimed (in which event Seller shall promptly pay, on written request
from Buyer or the Company, the amount of any such deficiency to Buyer or
the Company) and xxx for a refund in the appropriate United States
District Court and/or the United States Court of Claims and/or other
appropriate courts or forums, as determined in the discretion of the
Approved Counsel, or contest such claim or alleged deficiency in the
United States Tax Court and/or other appropriate courts or
forums;
|
|
(e)
|
In
no event shall Buyer settle or compromise any such claim or alleged
deficiency, resulting in the liability of Seller to pay or reimburse Buyer
or the taxing authority, without the prior written consent of Seller;
and
|
|
(f)
|
If
Seller has paid additional amounts to Buyer or the Company pursuant to
Section 10.4.4(d) with respect to a Tax claim, action or proceeding
and such Tax claim shall be ultimately recovered in whole or in part by
Buyer or the Company or a subsidiary of Buyer or the Company, by reason of
agreement with the Internal Revenue Service, the United States or other
appropriate taxing authority, or any court decision (including a decision
of the United States Tax Court or other comparable court or forum) which
is not appealed, then Buyer or the Company or the applicable subsidiary,
as the case may be, shall pay Seller the additional amounts previously
paid by Seller to Buyer or the Company with respect to the Tax claimed
which was ultimately recovered plus any interest thereon received by Buyer
or the Company, within 15 days after receipt thereof by Buyer or the
Company.
|
10.4.5. Transfer
Taxes. Seller and Buyer equally shall be liable for and each
shall pay one-half of any and all transfer Taxes arising in connection with the
transfer of the Shares hereunder.
34
10.5 General Release of
Claims.
Effective
from and after the Closing, Seller, for and on behalf of himself and his heirs,
executors, administrators, assigns, hereby releases and forever discharges the
Company and its officers, directors, employees and stockholders (and each of
their respective heirs, executors, administrators and assigns acting in such
capacities), of and from any and all manner of action or actions, cause or
causes of action, in law or in equity, suits, notes payable, loans, debts,
liens, contracts, agreements, promises, liabilities, claims, accounts, sums of
money, bonds, bills, demands, damages, losses, costs or expenses, whether direct
or derivative, of any nature whatsoever, known or unknown, fixed or contingent,
including, without limitation, any claim for indemnification or contribution,
which Seller either now has or may hereafter have against the Company or its
officers, directors, employees and stockholders (and each of their respective
heirs, executors, administrators and assigns acting in such capacities), based
on any actions, omissions, facts or circumstances as existed or exist on or at
any time prior to the Closing, from the beginning of time to the date and time
of the Closing (collectively, the “Released Claims”),
save and except only claims, if any, arising under this
Agreement. Seller covenants that there has been no assignment or
other transfer or conveyance of any interest in any Released Claim that Seller
may have against the Company.
10.6 Confidentiality.
Seller
agrees not to disclose or use, directly or indirectly, any Confidential
Information, at any time during the period of two years after the Closing,
except in connection with Seller’s employment with Buyer or in the preparation
of any Tax Returns. If any disclosure of Confidential Information is
required by Law, Governmental Authority or legal process, Seller agrees to use
commercially reasonable efforts to provide Buyer and QSGI an opportunity to
object to the disclosure, at its sole cost and expense, and as much prior
written notice as is reasonably possible under the
circumstances. Seller acknowledges that following the Closing all of
the Confidential Information will be the exclusive proprietary property of Buyer
or QSGI. The provisions of this Section 10.6 shall not supersede any
other non-disclosure agreement between the parties or between Buyer or QSGI and
the Company.
35
10.7 Seller’s Non-Competition
Agreement.
|
(a)
|
Non-Competition. For
the period of three years from the Closing Date, Seller shall not,
directly or indirectly through or in association with any non-party Person
or otherwise, in any country, state, territory, jurisdiction, venue, city
or town (collectively a “Jurisdiction”)
where Buyer, QSGI or any of its Affiliates conducts, engages in or
solicits business directly from customers or potential customers
(collectively “Conducts
Business”), (i) engage in, sell or provide any services which are
the same or similar to services sold or provided by the Company in any
Jurisdiction where the Company, QSGI, or any of its Affiliates Conducts
Business; (ii) own or acquire any interest in any Person which is engaged
in the same business as the Company, Buyer, QSGI or any of its Affiliates,
or any business competitive with the business as the Company, Buyer, QSGI
or any of its Affiliates, in any Jurisdiction where the Company, Buyer,
QSGI or any of its Affiliates Conducts Business; (iii) attempt to solicit
any customers of the Company, Buyer or QSGI, or any customers of a
business described in clause (ii) engaged in by its Affiliates; (iv) act
as a consultant or advisor, or loan or otherwise provide funds or
assistance of any sort, to any non-party Person who is or is attempting to
engage in any of the activities listed in (i) through (iii) hereof in any
Jurisdiction where the Company, Buyer, QSGI or any of its Affiliate
Conducts Business; (v) take any action which may reasonably be expected to
impair the relationship between the Company, Buyer, QSGI or any of its
Affiliates and its customers or vendors, or other non-party Persons having
relationships with, the Company with respect to any of the activities
listed in (i) through (iii) above; (vi) prepare to engage in any business
or activity proscribed in (i) through (v) above; or (vii) engage, employ,
recruit or solicit any employee of the Company, Buyer, QSGI or any of its
Affiliates during the period such person is an employee of the Company,
Buyer, QSGI or any of its Affiliates plus one year after the date on which
such person ends his or her employment by the Company, Buyer or any of its
Affiliates. It is the intent of the parties that Seller shall
not directly or indirectly compete with Buyer or QSGI, inclusive of its
Affiliates, in any country, state, territory, jurisdiction, venue, city or
town to which, in which or form which, Buyer or QSGI, inclusive of its
Affiliates, conducts business or solicits business directly from customers
or potential customers. If this clause is determined to be
overbroad by a court of competent jurisdiction, the parties agree that
said court shall interpret the restrictions imposed herein in the broadest
sense and application to allow for enforceability. Nothing in this Section
shall limit Seller’s separate obligations with respect to non-competition
contained in the Riconda Employment Agreement or any employment agreement
in substitution or replacement therefor, provided that a breach by Seller
of his covenants in the Riconda Employment Agreement or such other
employment agreement shall not in and of itself constitute a breach of
this Agreement. Notwithstanding the foregoing, (A) the
following activities of Seller shall not constitute a breach or violation
of any covenant of Seller contained in this Section 10.7 or the Riconda
Employment Agreement: (1) the conduct by Seller of the eSchool
Business, and the hiring of Company employees, as provided in Section 7.5,
(2) the ownership and operation by Seller of the Company and its business
following the occurrence of a default under, and as permitted by, the
Pledge Agreement or the Security Agreement, and the exercise of Seller’s
rights with respect to the collateral thereunder, (3) investments in real
estate or other assets that are not owned or used by, or passive
investments in, other businesses which do not compete with the Company or
QSGI, inclusive of their Affiliates, as prohibited above in this Section
10.7, and (4) investments in companies whose securities are publicly
quoted, listed or traded, provided Employee’s ownership does not exceed
five (5%) percent of the outstanding capital stock or other equity
interests of such company; and (B) the restrictions imposed in this
Section 10.7 shall cease to be in force immediately upon the occurrence of
both of the following events and at all times thereafter: (1) termination
of employment under the Riconda Employment Agreement by Employee with or
without Good Reason or by the Employer with or without Cause (as such
capitalized terms are defined therein), and (2) either or both of (a) the
occurrence of an Event of Default (subject to any period of notice and the
expiration of any applicable cure period) under and as set forth in the
Convertible Note, and (b) failure by Buyer, QSGI or any QSGI Entity (as
defined in the Riconda Employment Agreement) to make any payment (whether
in cash or Common Stock) to Seller when due under or pursuant to this
Agreement or any other Related Agreement, which failure shall continue
unremedied for thirty (30) days after written notice to Buyer or QSGI from
Seller.
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36
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(b)
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Inducement and
Consideration to Buyer. Seller acknowledges and agrees
that the value to Buyer and QSGI of the transactions provided for in this
Agreement would be substantially and materially diminished if Seller,
directly or indirectly, through or in association with any third Person or
otherwise, were hereafter to breach any of the provisions of
Subsection 10.7(a) and Seller has therefore offered and agreed to the
provisions of Subsection 10.7(a) as a material inducement to Buyer and
QSGI to enter into this Agreement, and in consideration of the promises,
representations and covenants made by Buyer and QSGI under this
Agreement. Seller specifically acknowledges and agrees that the
provisions of Subsection 10.7(a) are commercially reasonable restraints on
Seller, ancillary to the investment, effort and risk to acquire and
thereafter operate the Business, and are reasonably necessary to protect
the interests Buyer and QSGI are acquiring. Seller further
acknowledges and agrees that Buyer and QSGI would be irreparably damaged
by a breach of Subsection 10.7(a) and would not be adequately
compensated by monetary damages for any such breach. Therefore,
in addition to all other remedies, Buyer and QSGI shall be entitled to
injunctive relief without posting a bond from any court having
jurisdiction to restrain any violation (actual or threatened) of
Subsection 10.7(a).
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(c)
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Enforceability. If
any court, in any proceeding, shall refuse to enforce
Subsections 10.7(a) or 10.7(b) in whole or in part because the time
limit, geographical scope or any other element thereof is deemed
unreasonable in the jurisdiction of that court, it is expressly understood
and agreed that Subsections 10.7(a) and 10.7(b) shall not be void
but, for the purpose of such proceeding, such time limit, geographical
scope or other element shall be deemed to be reduced to the extent
necessary to permit the enforcement of Subsections 10.7(a) and
10.7(b) to the maximum extent allowable in that particular jurisdiction.
The foregoing, however, is not intended to and shall not in any way
affect, invalidate or limit the remaining provisions of
Subsections 10.7(a) and 10.7(b) or affect, invalidate or limit the
validity or enforceability of Subsections 10.7(a) and 10.7(b) as
written in any other jurisdiction at any
time.
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10.8 Separate
Consideration.
Seller
acknowledges and agrees that separate and independent consideration has been
paid for any and all of the restrictive covenants contained in this
Agreement.
37
10.9 Indemnification for and
Apportionment of Taxes.
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(a)
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Seller
shall indemnify and hold harmless each of the Company, Buyer, QSGI and
their respective Affiliates from and against, and shall pay to the
Company, Buyer, QSGI or their respective Affiliates the amount of, any and
all Losses for: (i) all Taxes (or the nonpayment thereof) of the Company
for any Pre-Closing Tax Period and any Pre-Closing Straddle Period, as
provided in Section 10.4.1; (ii) any and all Taxes of any Person (other
than the Company) imposed on the Company as a transferee or successor, by
contract or pursuant to any Law, which Taxes relate to an event or
transaction occurring on or before the Closing Date; (iii) any Tax
incurred or suffered by the Company, Buyer, QSGI or any of their
respective Affiliates arising out of any inaccuracy in or
misrepresentation by Seller of any representation or warranty contained in
Section 4.7 or the breach by Seller of any covenant contained in
Section 10.4.
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(b)
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Buyer
and QSGI, jointly and severally, shall indemnify and hold harmless Seller
and the Seller Parties from and against, and shall pay to Seller or the
Seller Parties the amount of, any and all Losses for: (i) all Taxes (or
the nonpayment thereof) of the Company for any Post-Closing Tax Period and
any Post-Closing Straddle Period; (ii) any and all Taxes of any Person
(other than Seller) imposed on the Seller, by contract or pursuant to any
Law, which Taxes relate to an event or transaction occurring after the
Closing Date; (iii) any Tax incurred or suffered by the Seller or any of
its Affiliates arising out of the breach by Buyer or QSGI of any covenant
contained in Section 10.4.
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(c)
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Any
amount paid to the Company, Buyer or QSGI pursuant to
Section 10.9(a), or to Seller pursuant to Section 10.9(b), shall be
paid by wire transfer of immediately available funds to an account
designated in writing by Buyer or Seller to the other party no later than
10 days after the receiving party makes written demand upon the other
party therefor.
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(d)
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The
indemnification obligations of Seller, Buyer and QSGI under this
Section 10.9 shall survive until the expiration of the applicable
statute of limitations.
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10.10 Change in Company
Business. In order to ensure that the Seller is
afforded the opportunity to receive the Earnout to the fullest practicable
extent, during the period following the Closing and ending not sooner than
December 31, 2009 (the “Earnout Period”),
Buyer and QSGI shall (i) cause the Company to be operated in the Ordinary Course
of Business; (ii) account for the Company as a stand-alone business for purposes
of preparing the Company’s financial statements to be used for calculating
revenues and EBITDA of the Company in connection with the determination of the
Earnout, and at all times in accordance with GAAP; and (iii) not sell or
otherwise dispose of any rights in any assets of the Company (other than in the
Ordinary Course of Business). In the event that Buyer or QSGI shall
determine during the Earnout Period to sell or otherwise dispose of control of
the Company, whether by way of a merger or consolidation, sale of stock or
assets, change the fundamental nature of the business of the Company, take any
action that has the effect of shifting revenues or expenses into or out of any
periods in which such revenues or expenses would otherwise be recognized or
artificially deferring or accelerating sales, expenses, income or other items,
or take any other action (other than in the Ordinary Course of Business) which
would be likely to result in a frustration of Seller’s opportunity to receive
the Earnout, it will advise the Seller in advance and negotiate with Seller in
good faith in order to provide Seller with economic benefits which
would reasonably compensate Seller for the loss or diminution of the Earnout
resulting from such actions. If Buyer or QSGI and Seller fail to
agree upon the requirement or amount of such reasonable compensation, within 30
days or such longer period as Seller and Buyer or QSGI shall mutually agree, the
matter shall be submitted to the Independent Accountants in accordance with the
procedures set in Section 2.7.2.
38
10.11 QSGI Common Stock
.. Seller understands that the offering and sale to Seller
of shares of Common Stock of QSGI pursuant to this Agreement and certain of the
Related Agreements is intended to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”). Seller
understands that such Common Stock has not been and will not be registered under
the Securities Act or any state securities laws and cannot be resold,
transferred, assigned, pledged or otherwise disposed of except in accordance
with applicable federal and state securities laws. In addition,
Seller understands that a legend or legends will be placed on the certificate(s)
representing such Common Stock, evidencing such transfer
restrictions. Seller represents that he is an “Accredited Investor”
as defined in Regulation D under the Securities Act.
ARTICLE
11
TERMINATION
11.1 Termination.
Notwithstanding
anything herein to the contrary, this Agreement may be terminated, and the
Transaction abandoned, upon written notice of the terminating party to the other
parties:
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(a)
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at
any time before Closing, by mutual written consent of Buyer and
Seller;
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(b)
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at
any time before the Closing, by Buyer on the one hand or Seller on the
other hand, in the event of a material breach of this Agreement by the
non-terminating party or parties that is not corrected on or before the
earlier to occur of (i) the Closing Date, or (ii) within ten calendar days
following written notice of such breach from the non-breaching
party;
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(c)
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by
Seller, if the satisfaction of any condition to the obligations of the
Seller under this Agreement becomes impossible or impracticable with the
use of commercially reasonable efforts and the failure of such condition
to be satisfied is not caused by any breach by the Seller of its
obligations hereunder;
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(d)
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by
Buyer, if the satisfaction of any condition to the obligations of the
Buyer under this Agreement becomes impossible or impracticable with the
use of commercially reasonable efforts and the failure of such condition
to be satisfied is not caused by any breach by Buyer or QSGI of its
obligations hereunder;
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39
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(e)
|
by
Seller, if the Closing has not occurred by the Closing Date, and such
failure to close is not attributable to any material breach by
Seller;
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(f)
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by
Seller, if the conditions set forth in Section 6.2(c), (d) or (e) have not
been satisfied on or before the Early Termination Date;
or
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(g)
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by
Buyer pursuant to Section 6.1(d) or 6.1(e), Section 7.3 or Section
7.6.
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11.2 Effect of
Termination.
If
this Agreement is terminated as provided in Section 11.1, all obligations
of the parties under this Agreement shall terminate without further liability of
any party hereto, except the obligations under Sections 10.2 and 10.6
hereof.
ARTICLE
12
INDEMNIFICATION
12.1 Survival.
The representations and warranties made
in this Agreement, except as provided below, shall survive the Closing for a
period of 21 months, except for Fundamental Representations which shall survive
for the period of the applicable statute of limitations; each covenant made by
Seller, Buyer or QSGI in this Agreement shall survive for the period stated in
such covenant, and if no such period is specified, then such covenant shall
survive for a period of 21 months after the Closing; and any claim or suit based
on fraud or a breach of the representations and warranties contained in Sections
3.1, 3.2, 3.3 and 4.1(a), shall survive the Closing indefinitely (the “Survival
Period”). For purposes of this Article 12, the “Fundamental
Representations” shall mean those representations and warranties
contained in Sections 4.7 and 4.10 of this Agreement.
12.2 Hold Harmless and
Indemnification of Buyer.
Seller
shall hold harmless and shall indemnify Buyer, QSGI and their Affiliates,
officers, directors, employees and agents (collectively, the “Buyer Parties”),
against and from:
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(a)
|
any
Losses based upon, arising out of or caused by any breach of any
representation or warranty contained in Article 3 and
Article 4;
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(b)
|
any
Losses arising out of (i) the Selling Expenses or the Indebtedness, (ii)
the failure of Seller to have filed a certificate of assumed name for its
use of the name "CCSI" in the State of New York as required by Law, prior
to its filing on March 27, 2008, and (iii) the failure of Seller to have
qualified to do business as a foreign corporation in the State of New
Jersey;
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(c) the
Tax indemnity pursuant to Section 10.9(a);
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(d)
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any
Losses based upon any fraud of
Seller;
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40
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(e)
|
any
Losses relating to or arising out of the eSchool Business occurring after
the Closing; and
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(f)
|
any
Losses based upon, arising out of or caused by any breach or
nonperformance of any covenant or agreement to be performed by Seller
herein or in any Related Agreement.
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Notwithstanding
anything contained in this Section 12.2 or in any other Section providing for
indemnification, in no event shall any Buyer Party be entitled to
indemnification for any matter to the extent the claim was previously satisfied
as a result of a reduction in the Purchase Price pursuant to Section 2.7
relating to the Earnout.
12.3 Hold Harmless and
Indemnification of Seller.
Buyer
and QSGI, jointly and severally, shall hold harmless and shall also indemnify
Seller and its Affiliates, officers, directors, employees and agents
(collectively, the “Seller Parties”),
against and from:
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(a)
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any
Losses based upon, arising out of or caused by any breach of any
representation or warranty contained in Article
5;
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(b)
|
any
Losses relating to or arising out of the conduct of the business of the
Company after the Closing Date, except as otherwise expressly provided
herein;
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(c)
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the
Software Repayment Amount;
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(d)
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the
Tax matters as set forth in Section
2.8.2;
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(e)
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the
Tax indemnity pursuant to Section
10.9(b);
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(f)
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any
Losses based upon any fraud of Buyer or QSGI;
and
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(g)
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any
Losses based upon, arising out of or caused by any breach or
nonperformance of any covenant or agreement to be performed by Buyer or
QSGI herein or in any Related
Agreement.
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12.4 Procedures Relating to
Indemnification; Third-Party
Claims.
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(a)
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In
order for a party (the “Indemnitee”) to
be entitled to any hold harmless and/or indemnification provided for under
this Agreement in respect of a right or a claim or any losses or demand
made by any Person against the Indemnitee (“Third-Party
Claim”), such Indemnitee must give written notice of such right or
Third-Party Claim (i) to Buyer or QSGI, if indemnity is sought from Buyer
or QSGI, (ii) to Seller, if such right or indemnity is sought from Seller
(the party to whom notice hereunder is given, in either case, the “Indemnitor”). Such
notice shall be given as promptly as is reasonably practicable after such
right, loss or claim or demand is first asserted. Such notice
shall state the amount or estimated amount of such claim and shall
identify the specific basis for such claim. The rights of the
Indemnitee to be indemnified hereunder shall not be adversely affected by
its failure to give, or its failure to timely give, such notice with
respect thereto unless, and if so, only to the extent that, the delay
results in the forfeiture by the Indemnitor of material rights and
defenses otherwise available to the Indemnitor with respect to such
claim.
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41
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(b)
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If
a Third-Party Claim is made against an Indemnitee, the Indemnitor shall be
entitled to participate, at its expense, in the defense thereof and the
Indemnitor may elect to assume and control the defense thereof with
counsel selected by the Indemnitor; provided, that (i) the Indemnitor
provides the Indemnitee with evidence reasonably acceptable to the
Indemnitee that the Indemnitor will have adequate financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (ii) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief against
the Indemnitee, (iii) the Indemnitee has not been advised by counsel that
an actual or potential conflict exists between the Indemnitee and the
Indemnitor in connection with the defense of the Third Party Claim, (iv)
the Third Party Claim does not relate to or otherwise arise in connection
with Taxes or any criminal or regulatory enforcement Action, (v)
settlement of, an adverse judgment with respect to or the Indemnitor
conduct of the defense of the Third Party Claim is not, in the good faith
judgment of the Indemnitee, likely to be adverse to the Indemnitee’s
reputation or continuing business interests (including its relationships
with current or potential customers, suppliers or other parties material
to the conduct of its business) and (vi) the Indemnitor conducts the
defense of the Third Party Claim actively and diligently. If
the Indemnitor assumes such defense, the Indemnitee shall have the right
to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnitor, it being
understood that the Indemnitor shall control such defense. The
Indemnitor shall not be entitled to assume control of such defense (unless
otherwise agreed to in writing by the Indemnitee), and the Indemnitor
shall pay the reasonable fees and expenses of counsel retained by the
Indemnitee, if the Third Party Claim seeks injunctive or equitable relief
against the Indemnitee; provided, that no settlement of any damage claims
which are also asserted in connection with such Third Party Claim shall be
made without the consent of the Indemnitor, which consent shall not be
unreasonably withheld or delayed. If a reasonable likelihood
exists that counsel chosen by Indemnitor has, or could reasonably be
anticipated to have, a conflict of interest with respect to a defense of
an Indemnitee, Indemnitor shall be required to retain additional counsel
who is not so conflicted.
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(c)
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If
the Indemnitor assumes the defense of any Third-Party Claim, all of the
indemnified parties shall cooperate with the Indemnitor in such
defense. Such cooperation shall include, at the expense of the
Indemnitor, the retention and (upon the Indemnitor request) the provision
to the Indemnitor of records and information which are reasonably relevant
to such Third-Party Claim, and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. If the Indemnitor has assumed the
defense of a Third-Party Claim, (i) the Indemnitee may not settle,
compromise or discharge such Third-Party Claim without the written consent
of the Indemnitor, (ii) the Indemnitee shall agree to any settlement,
compromise or discharge of a Third-Party Claim which the Indemnitor may
request and which by its terms unconditionally releases the Indemnitee
from any liability in connection with such Third-Party Claim, and
(iii) the Indemnitor shall not, without the written consent of the
Indemnitee, enter into any settlement, compromise or discharge or consent
to the entry of any judgment which imposes any obligation or restriction
upon the Indemnitee.
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42
12.5 Other
Claims.
In
the event any Indemnitee should have a loss or claim against any Indemnitor
under this Article 12 that does not involve a Third-Party Claim, the
Indemnitee shall deliver notice of such claim to the Indemnitor promptly
following discovery of any indemnifiable Loss or of facts or circumstances
reasonably likely to result in any such indemnifiable Loss. Such
notice shall state the amount or an estimated amount of such claim, and shall
specify the facts and circumstances which form the basis (or bases) for such
claim, and shall further specify the representations, warranties or covenants
alleged to have been breached. Upon receipt of any such notice, the
Indemnitor shall notify the Indemnitee as to whether the Indemnitor accepts
liability for any such Loss. If the Indemnitor disputes the
Indemnitor’s liability with respect to such claim, as provided above, the
Indemnitor and the Indemnitee shall attempt to resolve such dispute in good
faith. If, notwithstanding such good faith efforts to settle the
dispute, such dispute has not been resolved within 30 days after notice of the
Indemnitor’s dispute of the claim, then the parties will comply with the
procedures set forth in Section 12.8.
12.6 Limitations.
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(a)
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The
Seller’s maximum indemnification liability with respect to breach of
representations and warranties pursuant to Section 12.2(a) shall not
exceed $1,500,000; provided that,
with respect to the representations and warranties contained in Section
3.1, 3.2, 3.3 and 4.1(a), and/or any claim or suit based on fraud, there
shall be no limitation on Seller’s indemnification liability, subject to
Section 12.6(c) below.
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(b)
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The
amount of any Losses that are subject to indemnification under Section
12.2 shall be calculated net of the amount of all insurance proceeds
received by the Buyer Parties in connection with such Losses or any of the
events or circumstances giving rise or otherwise related to such Losses,
net of all deductibles and co-payments attributable thereto and all costs
of collection of any such proceeds. If any
such insurance proceeds are received by a Buyer Party after receiving, by
offset or otherwise, payment or reimbursement for any Losses hereunder,
such Buyer Party shall cause to be paid to Seller an amount equal to the
lesser of such insurance proceeds or the amount of such Losses previously
offset, paid or reimbursed.
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43
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(c)
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Except
with respect to any suit or claim based on fraud, in no event shall any
party have the right to recover consequential, punitive, exemplary or
incidental damages (including without limitation any claims for lost
profits or lost business opportunity) in connection with any
indemnification by the other party under this Agreement, whether or not
the indemnifying party was aware of the likelihood of such
damages.
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12.7 Deductible.
The Seller shall not be obligated to
indemnify the Buyer Parties for any Losses arising out of or with respect to any
breach of its representations and warranties pursuant to Section 12.2(a) unless
or until the amount of all such Losses shall exceed $50,000, in which event
Seller shall be obligated to indemnify the Buyer Parties for all such Losses in
excess of that amount, subject, however, to the limitations in Section 12.6
above.
12.8 Exclusive Remedy; Right to
Setoff.
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(a)
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Except
for (i) claims seeking equitable relief (including injunctive relief or
specific performance), (ii) disputes subject to Sections 2.7.2, 2.8.3 and
10.10, and (iii) claims made after Closing based upon fraud on the part of
a party, this Article 12 shall serve as the sole and exclusive remedy with
respect to claims relating to this Agreement or the
Transaction. Subject to Section 12.8(b), neither Buyer nor QSGI
shall have the right at any time to set off (which term as used in this
Agreement shall include any deduction, recoupment, counterclaim or other
action which would result in a reduction of the amount otherwise due from
Buyer or QSGI) any amounts owed to any Seller Party by Buyer or QSGI
unless the nature and amount of such liability of Seller has been (A)
agreed to in writing by Seller or (B) determined by a final judgment in an
Action pursuant to Section 14.6 (collectively or individually, a “Final
Adjudication”). Upon the occurrence of a Final
Adjudication, any offset shall be made first, against the Notes, until the
aggregate amount of the Notes has been offset in full or the Notes have
been converted or paid, then against the Earnout, until the amount of the
Earnout has been offset in full, then against the Lockup Stock, in the
manner hereinafter set forth, until the shares of Lockup Stock have been
offset in full, and thereafter Buyer or QSGI may seek monetary damages or
equitable relief through a court of law or equity, subject in each case to
the limitations in Section 12.6
above.
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|
(b)
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In
the event a bona fide claim for indemnification is made by Buyer or QSGI,
but has not been Finally Adjudicated, prior to the expiration of the
applicable time period for such claim as provided in this Article 12, then
Buyer and QSGI shall have the right (i) to withhold up to an amount equal
to the amount of their claim from payment of the Notes, in which event
such amount withheld shall be delivered in escrow to counsel for Seller
pursuant to an escrow agreement containing customary terms, and deposited
by the escrow agent in an interest-bearing escrow account, until such
Final Adjudication shall have occurred, and (ii) as to any amount of their
claim that exceeds the amount due or to become due under the Notes, to
instruct the Escrow Agent not to release the number of shares of Earnout
Stock, determined pursuant to Section 12.8(c) below, equal to but not in
excess of the remaining amount of such claim. Any balance of the Notes or
Earnout not subject to the offset shall be paid promptly when due or
released from escrow under the Escrow Agreement, as the case may
be.
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44
|
(c)
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In
the event Buyer or QSGI determines to assert its right of offset against
the Convertible Note, the Earnout or shares of Lockup Stock, as permitted
in this Article 12, it shall notify Seller promptly and in writing of the
amount of the claim to be so offset against the Convertible Note, the
Earnout or such shares, as the case may be. The number of
shares of Lockup Stock against which a claim for indemnification may be
offset, as provided above in this Section 12.8, shall be determined by
dividing (i) the amount of such claim by (ii) the average price per share
of the Common Stock, valued based on the average of the last reported
price per share of the common Stock (symbol: “QSGI”) on the national
securities exchange on which the Common Stock is listed over the thirty
(30) trading days immediately preceding the date such claim is first made
or, if the Common Stock is not listed on any such national securities
exchange, then on the automated quotation system on which the Common Stock
is principally quoted (it being acknowledged that such closing prices are
currently reported and published in OTC Bulletin Board’s “Daily Trade and Quote
Summary”), or, if the Common Stock is not then listed on any
exchange or quoted on any automated quotation system, then such value per
share shall be as determined in good faith by the Board of Directors of
QSGI. Upon the occurrence of a Final Adjudication in favor of
Buyer or QSGI, up to the number of shares of Lockup Stock equal (excluding
fractional shares) to the amount of the claim Finally Adjudicated as owing
to Buyer or QSGI, at its election, shall be released from escrow under the
Escrow Agreement and returned to Buyer or
QSGI.
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12.9 No Circular
Recovery.
Each Seller Party and Seller hereby
agrees that he, she or it will not make any claim for indemnification against
Buyer, QSGI or the Company by reason of the fact that such Seller Party or
Seller was a controlling person, director, employee or representative of the
Company or was serving as such for another Person at the request of Seller or
the Company (whether such claim is for Losses of any kind or otherwise and
whether such claim is pursuant to any statute or any organizational document or
contractual obligation of the Company, or otherwise) relating to this Agreement
or the Transaction or that is based on any facts or circumstances that form the
basis for an indemnification claim by a Seller Party or Seller
hereunder. With respect to any such claim brought by a Seller Party
or Seller against the Company or by Seller relating to this Agreement and the
Transaction, Seller expressly waives any right of subrogation, contribution,
advancement, indemnification or other claim against Buyer, QSGI and the Company
with respect to any amounts owed by such Seller pursuant to this Section
12.
45
12.10 Adjustment to Purchase
Price.
Any
payment of an indemnification claim pursuant to this Agreement shall be
accounted for as an adjustment to the Purchase Price.
ARTICLE
13
CERTAIN
DEFINITIONS
When used
in this Agreement, the following terms in all of their tenses, cases and
correlative forms shall have the meanings assigned to them in this Article 13,
or elsewhere in this Agreement as indicated in this Article 13:
“2008 EBITDA” means
EBITDA as reflected on the Company’s financial statements for the year ended
December 31, 2008 (including any portion of such year preceding the Closing
Date).
“2009 EBITDA” means
EBITDA as reflected on the Company’s financial statements for the year ended
December 31, 2009.
“2010 EBITDA” means
EBITDA as reflected on the Company’s financial statements for the year ended
December 31, 2010.
“Action” means any
suit, legal proceeding, claim, action, investigation, indictment, tax audit,
administrative enforcement proceeding or arbitration proceeding (including
product liability Actions) by or before any Governmental Authority.
“Acquisition Balance
Sheet” is defined in Section 4.4.
An “Affiliate” of a
specified Person means any other Person which, directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with such specified Person. For purposes of this definition,
“control” of any Person means possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting capital stock, by contract, or
otherwise.
“Agreement” means this
Stock Purchase Agreement, as may be amended from time to time.
“Allocation Statement”
is defined in Section 2.8.3.
“Approved Counsel” is
defined in Section 10.4.4.
“Audited Financial
Statements” is defined in Section 4.4.
“Average EBITDA” means
an amount equal to the sum of the 2009 EBITDA plus the 2010 EBITDA, divided by
two.
46
“Base Purchase Price”
is defined in Section 2.2.
“Buyer” is defined in
the preamble of this Agreement.
“Buyer Parties” is
defined in Section 12.2.
“Closing” and “Closing Date” are
defined in Article 8.
“Code” means the
United States Internal Revenue Code of 1986, as amended, and the regulations
thereunder.
“Company” is defined
in the Recitals to this Agreement.
“Company Intellectual
Property” means the Intellectual Property the Company owns, or has the
right to use and all Intellectual Property necessary for, or used in, the
operation of the Company’s business as presently conducted.
“Confidential
Information” means (i) all information belonging to, used by, or which is
in the possession of Seller relating to the Company to the extent such
information is not intended to be disseminated to the public or is otherwise not
generally known to competitors of the Company, including, but not limited to,
information relating to products, services, strategies, pricing, customers,
representatives, vendors, distributors, technology, finances, employee
compensation, computer software and hardware, inventions, developments or trade
secrets, and (ii) all information relating to the Transaction, including without
limitation all strategies, negotiations, discussions, terms, conditions and
other information relating to this Agreement and each other document and
agreement delivered in connection herewith.
“Contracts” is defined
in Section 4.15.
“Conversion Stock”
means the shares of Common Stock issued or issuable upon conversion of the
Convertible Note.
“Convertible Note”
means that certain Subordinated Secured Convertible Note made by Buyer in favor
of Seller, in the principal amount of $10,000,000, with the entire principal
balance due at maturity on December 31, 2011, and with cash payments of interest
at 10% interest per annum. The Subordinated Secured Convertible Note will (a) be
subordinated to QSGI’s and the Company’s indebtedness in favor of the Senior
Lender (“Senior
Debt”), such
defined term to include any new financings, replacements, modifications, or
amendments of such obligations, provided that the principal amount of Senior
Debt, for all purposes of this subordination, shall not exceed the principal
amount thereof outstanding, and any additional principal amount available to be
borrowed, on the Effective Date, or such greater amount as Seller thereafter may
approve, such approval not to be unreasonably withheld.; (b) permit prepayment
of principal without premium or penalty; (c) be secured by the Company’s stock
and such other collateral as is described in the Security Agreement; (d) be
convertible at the Seller’s option into shares of Conversion Stock at a
conversion price of $.75 per share; and (e) contain other terms and
conditions in the form of Exhibit
C.
47
“Disclosure Schedules”
means the schedules accompanying this Agreement prepared by Seller pursuant to
Article 4, which schedules include the information specified in
Article 4 and exceptions to the representations and warranties of Seller
set forth in Article 4 hereof, as the same may be revised pursuant to
Section 7.6. The Disclosure Schedules will be arranged in sections
corresponding to the numbered sections contained in Article 4.
“Earnout” means the
number of shares of Earnout Stock, if any, to which Seller becomes entitled,
determined as provided in Section 2.7.5.
“Earnout Minimum
EBITDA” is an amount equal to $2,200,000.
“Earnout Objection” is
defined in Section 2.7.2.
“Earnout Payment Date”
is defined in Section 2.7.4.
“Earnout Statement” is
defined in Section 2.7.1.
“Earnout Stock” is
defined in Section 2.7.4.
“EBITDA” means the
earnings of the Company before provision for interest expense and interest
income, all federal, state and local income taxes for such period, depreciation
and amortization, determined in accordance with GAAP; provided that, in making
such determinations:
(i) fees
and expenses (including prepayment penalties) in connection with financings
shall be included as an expense;
(ii) the
proceeds from and any dividends or refunds with respect to, and any increases in
the cash surrender value of, any life insurance policy covering employees of the
Company under which the Company is the named beneficiary or otherwise entitled
to recovery, shall be included as income;
(iii) the
premium expense related to any life insurance policy referred to in clause (ii)
above shall be treated as an expense;
(iv) any
change to contingent items such as bad-debt reserves (subject to clause (ix)
below), contingent reserves or inventory write offs or write downs, except for
any initial write-down of inventory prior to the Closing Date, shall be
included;
(v) for
any service reasonably rendered or provided to the Company by Buyer, QSGI or any
of its Affiliates, the Company shall be charged for such services at Buyer’s or
QSGI’s out-of-pocket cost, and such charges shall be treated as an
expense;
(vi) for
any service rendered or provided to Buyer, QSGI or any of its Affiliates by the
Company, Buyer or QSGI shall be charged for such services at the Company’s
out-of-pocket cost, and such charges shall be treated as income;
48
(vii) the
fees and expenses of the Independent Accountants in preparing any final
determination under this Agreement shall be excluded as an expense;
(viii) any
of the Buyer’s or QSGI’s costs of integration directly or indirectly
attributable to this Transaction shall be excluded as an expense;
(ix) any
extraordinary or unusual gains or losses, and/or gains or losses from the sale
of real property, investments, securities or other capital assets used by the
Company in its operations after Closing shall be excluded, including any
write-off of bad debt that is deemed to be an extraordinary loss;
(x) any
other expense of the Company incurred in connection with this Transaction or the
Tax Election shall be excluded as an expense;
(xi) any
expenses arising from the granting by QSGI of stock options or other similar
arrangements to Seller or key employees of the Company shall be excluded as an
expense;
(xii) in
the event that Buyer or QSGI makes any acquisition of another entity during the
period commencing on the Closing Date through the Earnout Period which entity’s
financial results are consolidated with the Company for operational purposes,
the income and expenses relating to such acquired entity shall be excluded,
unless Seller consents to such acquisition in advance;
(xiii) in
the event that the employment of Seller is terminated and the Company hires a
replacement for Seller, the amount of the annual salary, bonus payments and
fringe benefits payable to such replacement, in excess of the salary, bonus and
benefits which would have been payable to Seller in the absence of such
termination, shall be included as an expense;
(xiv) the
fees and expenses of the Company referred to in Section 10.2(b) (excluding the
amount to be paid by Buyer or QSGI as provided therein) shall be included as an
expense; and
(xv) any
charge for impairment or amortization of goodwill relating to the purchase of
the Shares as contemplated by this Agreement shall not be included as an
expense.
“EBITDA Excess Amount”
means the amount, if any, by which Average EBITDA exceeds the Earnout Minimum
EBITDA.
“Effective Date” means
the date upon or as of which this Agreement is executed by the parties, as shown
in the Preamble hereto.
“Employee Benefit
Plan” means any employee benefit plan (as defined in Section 3(3) of
ERISA), any specified fringe benefit plans as defined in Section 6039D of
the Code, and any other bonus, incentive-compensation, deferred-compensation,
profit-sharing, stock-option, stock-appreciation-right, stock-bonus,
stock-purchase, restricted stock, employee-stock-ownership, savings, severance,
change-in-control, supplemental-unemployment, layoff, salary-continuation,
retirement, pension, health, life-insurance, disability, accident,
group-insurance, vacation, holiday, sick-leave, fringe-benefit or welfare plan,
employment contract, employee loan, noncompetition or consulting agreement, or
any other employee compensation or benefit plan, agreement, policy, practice,
commitment, contract or understanding (whether qualified or nonqualified,
currently effective or terminated, written or unwritten) and any trust, escrow
or other agreement related thereto.
49
“Environmental Law”
means any Law or other legal requirement pertaining to the environment or the
health or safety of the public or employees and the release or threatened
release of hazardous materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, transport or handling of
hazardous materials, including, without limitation: the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601 et
seq. (“CERCLA”); the Solid
Waste Disposal Act, 42 U.S.C. §§ 6901 et seq.; the Emergency Planning
and Community Xxxxx-xx-Xxxx Xxx, 00 X.X.X. § 00000 et seq.; the Hazardous
Materials Transportation Act, 49 U.S.C. §§ 5101 et seq.; the Clean Air Act, 42
U.S.C. §§ 7401 et seq. (“CAA”); the Clean
Water Act, 33 U.S.C. §§ 1251 et seq.; the Occupational Safety and Health Act, 29
U.S.C. §§ 651 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§ 2601
and 2602 et seq.; the Rivers and Harbors Act of 1899, 33 U.S.C. § 401, et seq.;
the Oil Pollution Act of 1990, 33 U.S.C. § 2701, et seq.; each as amended; any
state or local Law similar to the foregoing; all regulations issued pursuant to
the foregoing; and all permits issued to the Company pursuant to the
foregoing.
“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereunder.
“eSchool” means the
Person conducting the eSchool Business after the Closing Date.
“eSchool Business”
means all of the real property, personal property and intangible personal
property comprising and used exclusively in the business division of the Company
supporting the Software-as-a-Service market with a system referred to as
“eSchoolData,” a peerless student management system created by the Company in
2001.
“Escrow Agent” is
defined in Section 2.7.6.
“Escrow Agreement”
means that certain Escrow Agreement among the Escrow Agent, Seller and Buyer in
the form of Exhibit Q.
“Final Adjudication”
is as defined in Section 12.8.
“Final Earnout
Statement” is defined in Section 2.7.3.
“Final Price
Allocation” is defined in Section 2.8.4.
“Fundamental
Representations” is defined in Section 12.1.
“Funded Debt” means
(without duplication): (a) all obligations the Company for borrowed
money or funded indebtedness or issued in substitution for or exchange for
borrowed money or funded indebtedness (including obligations in respect of
principal, accrued interest); (b) any indebtedness evidenced by any note, bond,
debenture or other debt security; and (c) any prepayment premiums or penalties
or penalties or other costs or expenses related to any of the
foregoing.
50
“GAAP” means generally
accepted accounting principles, as in effect in the United States either from
time to time as applied to pre-Closing periods or as applied on the Closing
Date, as applicable, and in either case, applied on a basis consistent with the
prudent and past practices of the Company, Buyer or QSGI, as the case
maybe.
“Governmental
Authority” means any government or political subdivision, whether
federal, state or local, or any agency or instrumentality of any such government
or political subdivision, or any federal, state or local court or
arbitrator.
“Hazardous Materials”
means hazardous materials as generally defined under applicable Environmental
Laws.
“Indebtedness” means
as of the Closing Date (without duplication): (i) all Funded Debt;
(ii) all capital lease obligations of the Company reflected on Schedule 4.22;
(iii) any indebtedness guaranteed by the Company; and (iv) any indebtedness of
the Company assumed by Buyer; but “Indebtedness” shall exclude (a) any
obligations or the Company under or with respect to any outstanding checks, (b)
any obligations reflected in the Final Adjustment Statement; (c) real property
leases and operating leases guaranteed by the Company; and (d) any indebtedness
of the Company in favor of Suffolk County National Bank (“SCNB”) that is
transferred by novation to eSchool or otherwise released by SCNB on or prior to
the Closing Date.
“Indemnitee” and
“Indemnitor”
are defined in Section 12.4.
“Independent
Accountants” is defined in Section 2.7.2.
“Intellectual
Property” means any of the following in any jurisdiction throughout the
world (i) patents, patent applications, patent disclosures and inventions,
including any continuations, divisionals, continuations-in-part, renewals and
reissues for any of the foregoing; (ii) Internet domain names, trademarks,
service marks, trade dress, trade names, logos and corporate names and
registrations and applications for registration thereof together with all of the
goodwill associated therewith; (iii) copyrights (registered or unregistered) and
copyrightable works and registrations and applications for registration thereof;
(iv) mask words and registrations and applications for registration thereof; (v)
material computer software, data, data bases and documentation thereof; and (vi)
trade secrets and other confidential information (including ideas, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, research and development information, plans, proposals, technical
data, copyrightable works, financial and marketing plans and customer and vendor
lists and information) (collectively, “Trade Secrets”).
“Intercreditor
Agreement” is defined in Section 6.2(f).
“Law” means any common
law decision and any federal, state, regional, local or foreign law, statute,
ordinance, code, rule, regulation or order, including, without limitation,
environmental law, and tax law.
51
“Liability” and “Liabilities” means
(i) any and all liabilities and obligations of any kind or nature that qualify
as liabilities under GAAP and (ii) any other liabilities and obligations of any
kind or nature under common law statute or other law, contract or otherwise,
whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due.
“Lien” means any Tax,
liability, levy, claim, charge, equity, trust, assessment, mortgage, mortgage
deed, deed of trust, security interest, lien, mechanics or materialmen lien,
judgment lien, personal property lien, other tax lien, lien capable of
satisfaction by payment of a liquidated sum, pledge, hypothecation, tenancy by
the entirety, matrimonial or community interest, conditional sales agreement,
title retention contract, lease, license, sublease and other agreement for use
or occupancy, right of first refusal or offer, option to purchase, restriction,
easement, right of way, condition, covenant, other encumbrance, recorded and
unrecorded title matter or defect of any kind and real estate tax or assessment,
both general and special, and any agreement or commitment to create or suffer
any of the foregoing.
“Lockup Agreement”
means the Lockup Agreement in the form of Exhibit D.
“Lockup Stock” means
all shares of Earnout Stock, issuable pursuant to Section 2.7.4, if and so long
as they remain subject to the Lockup Agreement.
“Loss” or “Losses” means any and
all direct or indirect Actions, payments, obligations, liabilities, recoveries,
deficiencies, fines, assessments, losses, damage, damages, punitive, exemplary
or consequential damages and diminution in value (including, but not limited to,
lost income, and profits and interruptions of business), costs, expenses
(including (a) interest, penalties and attorneys’ fees and expenses, (b)
attorneys’ fees and expenses necessary to enforce rights to indemnification
hereunder (including those incurred on appeal), and (c) consultant’s fees and
other costs of defense or investigation), and interest, and notices of liability
and any claims in respect thereof (including amounts paid in settlement and
reasonable costs of investigation and legal expenses) and interest on any amount
payable to a third party as a result of the foregoing, whether accrued,
absolute, contingent, known, unknown, involving a third party claim or otherwise
as of the Closing Date or thereafter.
“Material Adverse
Effect” with respect to any Person means a material adverse effect on the
business, condition, financial or otherwise, or results of operations of the
Person.
“Material Customers”
is defined in Section 4.21.
“Material Supplier” is
defined in Section 4.21.
“New Jersey Lease”
means that certain Lease between Seller and the Company for the real property
located at 000 Xxxxxxxxxx Xxxxxx, Xxxxxxxxx, Xxx Xxxxxx, dated May 1,
2005.
“New NJ Lease” means a
new Lease with respect to the portion of the Real Property covered by the New
Jersey Lease between Seller and the Company in the form of Exhibit
E-1.
“New NY Lease” means a
new Lease with respect to a portion of the Real Property covered by the New York
Lease between Seller and the Company in the form of Exhibit
E-2.
52
“New York Lease” means
that certain Lease between Seller and the Company for the real property located
at 000 Xxxxxxxxxxxxx Xxxxxx, Xxxxxxx, Xxx Xxxx, 00000, dated March 21,
2006.
“1933 Act” means the
Securities Act of 1933, as amended.
“Omnetica Partnership
Agreement” means any contract or agreement entered into on or before the
Closing Date between Omnetica Limited (now known as Affiniti) (“Omnetica”) and
the Company relating to the Company’s Network Operations Center and maintenance
services.
“Ordinary Course of
Business” an action taken by a Person will be deemed to have been taken
in the Ordinary Course of Business only if that action is consistent in nature,
scope and magnitude with the prudent past practices of such Person and is taken
in the ordinary course of the normal, day-to-day operations of such
Person.
“Payoff Letters” is
defined in Section 2.3(d).
“Permit” or “Permits” means any
(a) permit, license, certificate, franchise, concession, approval, consent,
ratification, permission, clearance, confirmation, endorsement, waiver,
certification, designation, rating, registration, qualification or authorization
issued, granted, given or otherwise made available by or under the authority of
any Governmental Authority or pursuant to any law; or (b) right under any
contract with any Governmental Authority.
“Permitted Liens”
means (i) Liens for Taxes, utilities and other charges or assessments by any
Governmental Authority not yet due and payable or payment of which is being
contested in good faith; (ii) leases, subleases or similar agreements described
in Section 4.12 or 4.13, (iii) zoning, building and other similar restrictions
imposed by applicable Laws; (iv) easements, covenants, rights-of-way, zoning
restrictions, building and land use Laws and other similar restrictions which
would be shown by a current accurate survey of the Real Property; none of which,
individually or in the aggregate, materially impairs or effects the value or
continued use or operation of the Real Property as intended by Buyer; (v)
deposits or pledges made in connection with, or to secure payment of, workers
’compensation, unemployment insurance, pension programs mandated under
applicable Laws or other social security regulations; (vi) statutory or common
law liens in favor of carriers, warehousemen, mechanics and materialmen,
statutory or common law liens to secure claims for labor, materials or supplies
and other like liens; (vii) liens under applicable securities laws;
and (viii) any other liens which would not be reasonably expected to result in a
Material Adverse Effect.
“Person” means an
individual, a corporation, a limited liability company, a partnership, a
proprietorship, a trust, an unincorporated association, a joint venture, a
Governmental Authority or any other entity or organization.
“Plan” means any
Employee Benefit Plan with respect to which the Company currently is, or at any
time during the past six year period preceding the date hereof has been, the
sponsor, a party, obligated to make contributions, or subject to liability but
not including any Employee Benefit Plan entered into at or after the
Closing.
53
“Pledge Agreement”
means that certain Pledge Agreement between Seller and the Company providing
security under the terms of the Convertible Note in the form of Exhibit
G.
“Post-Closing Straddle
Period” is defined in Section 10.4.1.
“Pre-Closing Period”
is defined in Section 10.4.1.
“Pre-Closing Straddle
Period” is defined in Section 10.4.1.
“Pre-Closing Taxes” is
defined in Section 10.4.1.
“Purchase Price” is
defined in Section 2.2.
“Purchase Price Stock”
is defined in Section 2.2(b).
“Real Property” is
defined in Section 4.12.
“Related Agreement”
means any agreement or document required to be executed and delivered pursuant
to this Agreement.
“Related Party” is
defined in Section 4.25.
“Released Claims” is
defined in Section 10.5.
“Registration Rights
Agreement” means that certain Registration Rights Agreement between
Seller and the Company in the form of Exhibit
H.
“Riconda Employment
Agreement” means the Employment Agreement between Xxxx X. Xxxxxxx
and the Company in the form of Exhibit
I.
“SEC” means the
Securities and Exchange Commission.
“Security Agreement”
means that certain Security Agreement, in the form of Exhibit J, between
Buyer and Seller, providing for a security interest in the property and assets
of Buyer (other than the Shares), to further secure the payment of the
Convertible Note, subject to the prior lien of the Senior Lender.
“Seller” is defined in
the preamble of this Agreement.
“Seller Parties” is
defined in Section 12.3.
“Selling Expenses”
means all of the fees and expenses incurred by or on behalf of the Company or
its subsidiaries in connection with the process of selling the Company pursuant
to this Agreement or otherwise relating to the negotiation, preparation or
execution of this Agreement or any documents or agreements contemplated hereby
or the performance or consummation of the Transaction, including (i) any fees
and expenses associated with obtaining necessary or appropriate waivers,
consents or approvals of any Governmental Authority or third parties on behalf
of the Company or any subsidiary, (ii) any fees or expenses associated with
obtaining the release and termination of any Lien, (iii) all brokers’ or
finders’ fees, and (iv) fees and expenses of counsel, (excluding the amount to
be paid by QSGI or Buyer as provided in Section 10.2(b)), advisors, consultants,
investment bankers, accountants (excluding the Independent Accountants), and
auditors and experts.
54
“Senior Debt” is
defined in the definition of the Convertible Note.
“Senior Lender” means
Xxxxx Fargo, N.A. and any Person that refinances the Senior Debt or otherwise
replaces the previous Senior Lender with respect to the Senior Debt, and their
respective successors and assigns.
“Shares” is defined in
the Recitals to this Agreement.
“Software Repayment
Amount” means any amount due or owed as of the Closing Date by the
Company to Cisco Systems Capital pursuant to [Paragraph 4] of that certain
Software Services Repayment Agreement dated August 20, 2004.
“Straddle Period” is
defined in Section 10.4.1.
“Subordination
Agreement” means the certain Subordination Agreement between Seller and
the Senior Lender, to be executed at Closing in form and substance acceptable to
Seller and the Senior Lender.
“Survival Period” is
defined in Section 12.1.
“Tax” or “Taxes” means any
federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
customs duties, capital stock, franchise, profits, social security (or similar),
unemployment, disability, real property, leasehold, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not and including any obligations to
indemnify or otherwise assume or succeed to the Tax liability of any other
Person.
“Tax Election” is
defined in Section 2.8.1.
“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.
“Tax Statement” is
defined in Section 10.4.1.
“Third-Party Claim” is
defined in Section 12.4.
“Transaction” is
defined in Section 2.1.
“Unpaid Indebtedness”
is defined in Section 2.2.
“WARN Act” is defined
in Section 4.8.
55
“Warrant” means that
certain Warrant granted by QSGI in favor of the Seller, for 12,000,000 shares of
Common Stock (“Warrant
Stock”), at an exercise price of $.30 per share, and containing
additional terms and conditions as set forth in Exhibit
L.
ARTICLE
14
MISCELLANEOUS
PROVISIONS
14.1 Notices.
Any
notice to be given pursuant to this Agreement shall be given in writing and
delivered as follows:
|
(a)
|
If
to Buyer or QSGI, to:
|
QSGI-CCSI,
Inc. or QSGI Inc.
000 Xxxxx
Xxxx Xxx
Xxxx
Xxxxx, XX 00000
Attention: Xxxx
Xxxxxxx, Chairman
Facsimile
Number: (000) 000-0000
Email:
Xxxx.Xxxxxxx@xxxx.xxx
With a
copy to:
XxXxxxxx
Xxxxxxx LLC
000 Xxxxx
Xxxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxx
Xxxxx, XX 00000
Attention: Xxxx
Xxxxxx, Esq.
Facsimile
Number: (000) 000-0000
Email: xxxxxxx@xxxxxxxxxxxxxxx.xxx
|
(b)
|
If
to Seller:
|
Xxxx X.
Xxxxxxx
000
Xxxxxxxxxxxxx Xxxxxx
Xxxxxxx,
Xxx Xxxx, 00000
Facsimile
Number: (000) 000-0000
Email: xxxx.xxxxxxx@xxxxxxx.xxx
With a
copy to:
Meltzer,
Lippe, Xxxxxxxxx & Breitstone, LLP
000
Xxxxxx Xxxxxx
Xxxxxxx,
Xxx Xxxx 00000
Facsimile
Number: 000-000-0000
Attention:
Xxx Xxxxxxxx, Esq.
Email: xxxxxxxxx@xxxxxxxxxxxx.xxx
or in any
case, to such other address for a party as to which notice shall have been given
to Buyer and Seller in accordance with this Section. Notices so
addressed shall be deemed to have been duly given (i) on the third business day
after the day of registration, if sent by registered or certified mail, postage
prepaid, (ii) on the next business day following the documented acceptance
thereof for next-day delivery if sent by a national overnight air courier
service, or (iii) on the date sent by facsimile transmission or electronic
mail. Otherwise, notices shall be deemed to have been given when
actually received at such address.
56
14.2 Entire Agreement; Arms
Length Negotiation.
This
Agreement, the Disclosure Schedules, the Related Agreements and exhibits hereto
and thereto, and the confidentiality/non-disclosure agreement between QSGI and
Seller constitute the exclusive statement of the agreements between Buyer, QSGI
and Seller concerning the subject matter hereof, and supersede all other prior
agreements, oral or written concerning such subject matter. The
parties further agree that this Agreement reflects a fully-negotiated arms
length Transaction, with Seller being under no compulsion to sell and Buyer
being under no compulsion to buy.
14.3 Modification.
No
modification or waiver of this Agreement shall be enforceable unless made in a
written instrument signed by all parties to this Agreement.
14.4 Binding
Effect.
This
Agreement shall be binding upon and shall inure to the benefit of Buyer, Seller
and their respective successors and permitted assigns.
14.5 Interpretation.
As
used in this Agreement and required by the context, the singular and plural
shall be deemed to include all genders; words importing persons shall include
partnerships, corporations and other entities; when reference is made in this
Agreement to an Article, Section, Schedule or Exhibit, such reference shall be
to an Article, Section, Schedule or Exhibit of this Agreement unless otherwise
indicated; and the terms “herein,” “hereof” and “hereunder” or other similar
terms, refer to this Agreement as a whole and not only to the particular
sentence, subsection or section in which any such term may be
employed. Whenever in this Agreement the word “including” is used, it
shall be deemed to be for purposes of identifying only one or more of the
possible alternatives, and the entire provision in which such word appears shall
be read as if the phrase “including without limitation” were actually used in
the text. The section headings herein are for convenience only and
shall not affect the construction hereof. In case any provision in
this Agreement shall be invalid, illegal or unenforceable, such invalid, illegal
or unenforceable provision shall be deemed enforceable to the fullest extent
permitted by law, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected thereby. No remedy
conferred by any of the specific provisions of this Agreement, is intended to be
exclusive of any other remedy, except as expressly provided
herein. If any ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
hereto, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
14.6 Jurisdiction and
Venue.
Subject
to the provisions of Sections 2.6.3, 2.7.2, 2.8.3 and 10.10, any Action which
relates to this Agreement or the Transaction, including without limitation in
connection with Article 12, shall be brought solely in a state or federal court
of competent jurisdiction located in New York County, New York, and all
objections to personal jurisdiction and venue in any such Action are hereby
waived. The parties waive personal service of any and all process and
consent that all such service of process shall be made in the manner set forth
in Section 14.1, and service so made shall be complete.
57
14.7 Counterparts.
This
Agreement may be executed and delivered in multiple counterparts, each of which
shall be deemed an original, and all of which together shall constitute one and
the same instrument. A facsimile, electronic copy or other copy of a
signature shall be deemed an original.
14.8 Third
Parties.
Except
as otherwise expressly stated herein, no provision of this Agreement is intended
or shall confer on any Person, other than the parties hereto, any rights under
this Agreement.
14.9 Time
Periods.
Any
action required hereunder to be taken within a certain number of days shall,
unless otherwise provided herein, be taken within that number of calendar days;
provided, however, that if the last day for taking such action falls on a
Saturday, a Sunday, or a legal holiday, the period during which such action may
be taken shall be extended to the next business day.
14.10 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without regard to the choice-of-laws or conflicts-of-laws
provisions thereof.
14.11 Waiver of Jury
Trial
IN
ANY CIVIL ACTION, COUNTERCLAIM, OR PROCEEDING, WHETHER AT LAW OR IN EQUITY,
WHICH ARISES OUT OF, CONCERNS OR RELATES TO THIS AGREEMENT, THE RELATED
AGREEMENTS, THE TRANSACTION OR ANY TRANSACTIONS CONTEMPLATED HEREUNDER, THE
PERFORMANCE HEREOF OR THE RELATIONSHIP CREATED HEREBY, WHETHER SOUNDING IN
CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE, TRIAL SHALL BE TO A COURT OF
COMPETENT JURISDICTION AND NOT TO A JURY. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT (STATUTORY, CONSTITUTIONAL, COMMON LAW OR
OTHERWISE) IT MAY HAVE TO A TRIAL BY JURY. ANY PARTY MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE OTHER PARTIES' RIGHT TO TRIAL BY
JURY. NO PARTY HAS MADE OR RELIED UPON ANY ORAL REPRESENTATIONS BY
ANY OTHER PARTY REGARDING THE ENFORCEABILITY OF THIS PROVISION. EACH
PARTY HAS READ UNDERSTANDS THE EFFECT OF THIS JURY WAIVER
PROVISION.
[Remainder of page is intentionally
left blank]
[Counterpart signature pages
follow.]
58
IN WITNESS WHEREOF, the parties have
executed this Stock Purchase Agreement as of the date set forth
above.
BUYER:
QSGI-CCSI,
INC.
By:
Name:
Its:
QSGI:
By:
Name:
Its:
SELLER:
XXXX
X. XXXXXXX
59
EXHIBIT A
OMITTED
60
EXHIBIT B
OMITTED
61
EXHIBIT C
CONVERTIBLE
NOTE
62
EXHIBIT D
LOCKUP
AGREEMENT
63
EXHIBIT E-1
NEW NJ
LEASE AGREEMENT
64
EXHIBIT E-2
NEW NY
LEASE AGREEMENT
65
EXHIBIT F
[DELETED]
66
EXHIBIT G
PLEDGE
AGREEMENT
67
EXHIBIT H
REGISTRATION
RIGHTS AGREEMENT
68
EXHIBIT I
RICONDA
EMPLOYMENT AGREEMENT
69
EXHIBIT J
SECURITY
AGREEMENT
70
EXHIBIT K
[DELETED]
71
EXHIBIT L
WARRANT
72
EXHIBIT
M
[DELETED]
73
EXHIBIT
N
OPINION
OF COUNSEL FOR SELLER
74
EXHIBIT
O
OPINION
OF COUNSEL FOR BUYER
75
EXHIBIT
P
FORM OF
CONFIDENTIALITY AND NON-SOLICITATION AGREEMENT
76
EXHIBIT
Q
ESCROW
AGREEMENT
77