AGREEMENT
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Acquisition of Minority Interest in
Q Comm International, Inc.,
a Utah corporation ("QComm")
by
American Payment Systems, Inc.,
a Connecticut corporation ("APS")
RECITALS
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A. QComm is a telecommunications service provider specializing in the sale
and distribution of prepaid telecommunications products and services, including
(i) delivering electronic, personal identification numbers which enables
consumers to activate and replenish their prepaid wireless phones on demand; and
(ii) providing distributors with terminals and transaction services through its
QXpress electronic platform for prepaid wireless replenishment at retail
locations worldwide.
B. APS is continually developing its national foot print in the prepaid
telecommunications space and desires to invest in QComm and to leverage for
QComm's benefit its market presence and investment strategies, upon the terms
and conditions hereinafter provided.
CLAUSES
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NOW THEREFORE, the parties agree as follows:
1. Stock Purchases. At the Closing (defined below), APS will purchase from QComm
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("Transaction"), at $.50 per share, 11,400,000 shares of QComm issued and
outstanding common stock. ("QComm Stock"). The total cost of the QComm Stock
will be $5.7 million. The terms and conditions of the Transaction will be
amplified in more particularity in a more detailed agreement containing
representations and warranties customary for this type of transaction ("Detailed
Agreement").
2. Warrant. At the Closing, APS will be granted by QComm a 10-year warrant to
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purchase additional QComm common stock at an exercise price of $1.25 per share
("Warrant"). The Warrant will provide APS the right to purchase shares of QComm
stock equal to that number which when combined with the shares of QComm common
stock owned by APS immediately following the closing, will equal 55% of the
outstanding fully diluted shares of common stock of QComm immediately following
such exercise; provided however, in no event may the Warrant shares exceed 19.9%
of the issued and outstanding shares of capital stock of QComm on the date of
such exercise. The Warrant will not be exercisable until the earlier of: (i) two
(2) years from Closing; or (ii) the termination of Xxxxxxx X. Xxxxxxxx'x
("Xxxxx") employment other than for "cause"; except, however, the Warrant shall
be immediately exercisable in the event any third party accumulates over fifteen
percent (15%) of the total outstanding equity of QComm, or in the event of a
"change of control" of QComm. For purposes of this Section 2, "change of
control" will mean the acquisition of greater than fifty percent (50%) of the
outstanding capital stock of QComm by a single shareholder or "group," as such
term is defined in Regulation 13D-G
under the Securities Exchange Act of 1934, as amended. The number of Warrant
shares and the exercise price per share will be subject to appropriate
adjustment for stock splits, stock dividends, mergers and recapitalizations,
etc. The warrant will expire ten (10) years following the date of grant.
Notwithstanding anything herein to the contrary, the Warrant, to the extent it
is not exercised, will terminate prior to expiration upon the closing of any
merger involving QComm in which QComm is not the surviving entity. The terms and
conditions of the Warrant will be amplified in more particularity in a more
detailed Warrant Agreement customary for this type of transaction.
3. Limited License. Beginning on October 29, 2001, unless APS shall have
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breached its obligation in Section 13 herein with respect to funding on October
29, 2001, APS is hereby granted a perpetual license to the QComm QXpress II
point of sale activation system technology (and improvement versions thereof),
to be utilized for APS and its affiliates only after any of the following
events: (i) the Closing, provided QComm is not fulfilling its ongoing material
obligations to APS or its affiliates, which obligations will be amplified in
more particularity in the more Detailed Agreement; or (ii) the filing by or
against QComm of a petition in bankruptcy, or QComm becoming insolvent after
Closing, reorganizing or any like event); or (iii) QComm terminating without
cause its services to APS or its affiliates or breaches its contracts with APS
or its affiliates and fails to cure such breach within a reasonable time after
written notice; all of (i), (ii) and (iii) will be amplified in more
particularity in the more Detailed Agreement and a License Agreement.
4. Board of Director Seats. APS will be granted two (2) board of director seats
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of QComm ("Board"), which Board is assumed to consist of a total of five (5)
members after closing the Transaction. If the QComm Board increases in size, APS
would be granted one (1) seat for each two (2) additional seats.
5. Voting Agreement. APS will enter into a customary voting trust agreement with
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Xxxx Xxxxxx ("Xxxx"), whereby Xxxx and APS agree to vote for the election of
each party's selections for the Board with a term ending on the first to occur
of: (i) seven (7) years; or (ii) the exercise of one-half (1/2) or more of the
warrants. In addition, QComm agrees to support by its proxy process the
reasonably qualified nominees for the Board recommended by APS.
6. Use of Proceeds. The proceeds shall be used for general corporate purposes,
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including the payment of operating expenses and the retirement of debt.
7. Continued Employment of Xxxxx. The Transaction is subject to Xxxxx entering
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into an employment agreement to serve as president of QComm for at least twelve
(12) months following Closing. Thereafter, either party may terminate Steve's
employment upon six months prior written notice provided that upon APS' request
Xxxxx shall thereafter assist for up to 6 months (the length to be determined at
APS election) in transition of an adequate replacement for president of QComm.
These obligations will be codified in an amended employment agreement
("Employment Agreement") which will contain, among other provisions: (i) a
salary increase to $150,000 per year; (ii) a bonus payment of $100,000 upon
Xxxxx completing his obligations under the Employment Agreement or upon his
earlier termination from QComm for any reason other than cause; and (iii) a
non-competition and non-solicitation covenant for two (2) years following
Steve's termination. Additionally, Xxxxx will be issued 380,000 new options at
QComm's market price at the date of the execution of the Employment Agreement.
The options shall vest at the earlier of (i) the full completion of Steve's
service pursuant to the Employment Agreement; or (ii) Steve's earlier
termination by QComm other than for cause.
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8. SEC and Stock Transfer Rights. The Transaction documents will contain three
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(3) demand registration rights covering the QComm shares owned by APS and the
Warrant shares (collectively the "Registrable Shares"). The demand rights will
be exercisable beginning twelve (12) months after the Closing and not more that
once per twelve (12) month period thereafter. A demand right may only be
exercised for a minimum of twenty percent (20%) of the QComm shares then owned
by APS. Piggy back registration rights will be subject to customary underwriter
cutback provisions. QComm will pay the expenses of such registrations (except
APS' counsel fees and underwriter discounts and commissions). QComm may defer
any requested registration for up to ninety (90) days in any twelve (12) month
period if it is in a sensitive disclosure period. The Transaction documents will
also contain customary provisions such as anti-dilution rights (including
"ratchet protection"); "tag along" and like rights with respect to the sale or
transfer of QComm Stock; rights of first refusal on transfers by insiders;
preemptive rights, etc., all of which will be amplified in more particularity in
the Detailed Agreement. There will be customary carve outs for estate planning
and charitable contributions by Xxxx. All of the provisions of this paragraph
will be amplified in more particularity in the Detailed Agreement.
9. Conditions Precedent. This agreement is subject to, and shall have no legal
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effect and is not enforceable until, the board of director approval by both APS
and QComm. The officers of both parties agree to recommend and use their best
efforts to obtain promptly by October 22, 2001 the approval by their respective
boards. The Detailed Agreement will be executed promptly thereafter.
10. Loan. APS shall promptly loan to QComm upon completion of customary loan
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documents, $600,000 to be used for working capital for QComm (the "Loan"). The
Loan will be made in stages of $200,000 on each October 29, 2001, December 1,
2001 and January 11, 2001; provided however, each installment by APS will be
conditioned upon QComm being in material compliance with (i) its governmental
reporting requirements (ii) its contractual requirements with Cellcards of
Illinois, LLC; and (ii) QComm being in compliance and not in breach of this
Agreement. Such Loan shall be secured by: (i) a first security interest in
QComm's technology, including patented and patentable technology; and (ii) all
accounts receivable to QComm. If the Closing does not occur when indicated
herein and this Agreement is terminated, then the principal and accrued but
unpaid interest of such Loan shall be payable the earlier of Closing or June 1,
2002. The Loan described in this Section 10 shall bear an interest rate equal to
three hundred (300) basis points above the Prime Rate of interest as published
by the Wall Street Journal from time to time.
11. Leasing. QComm agrees to engage APS as its non-exclusive leasing agent;
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provided, APS shall have a right of first refusal on all QComm customer leasing
or rental opportunities. APS agrees to lease to or through QComm equipment for
retail customers of QComm subject to commercially reasonable credit terms and
conditions acceptable to APS in APS's reasonable discretion. Subject to APS'
right to first refusal, QComm will be permitted to sublease to any of its retail
customers equipment leased by QComm from APS on commercially reasonable terms
provided such QComm customers meet credit approval scoring and hurdles
reasonably established by the parties. All leases and rentals shall be at a rate
which is commercially acceptable to APS in accordance to APS's reasonable
business standards. APS agrees to so lease equipment to QComm or its customers
with a cost of up to $1.0 million prior to closing ("First Lease"). Following
Closing, as a separate commitment, APS agrees to so lease equipment on the terms
and conditions above with a total cost of up to an additional $9.0 million.
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12. Closing. "Closing" will occur as soon as reasonably possible after the
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completion of the conditions precedent of paragraph 9 above and any required
regulatory approvals, but in no event later than January 31, 2002.
13. QComm Activities. APS and Qcomm will use their best efforts and act in good
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faith (i) to close the Loan as described in Section 10 above by October 29,
2001; and (ii) to close the First Lease prior to December 15, 2001. Without the
written prior consent of APS, QComm will not: (a) issue any QComm stock or
equity rights to any other party (other than pursuant to presently outstanding
stock options); (b) sell any material portion of its assets; or (c) solicit,
initiate or encourage inquiries, proposals or offers from any person, entity or
group relating to the acquisition or purchase of any QComm assets or equity,
interest; or (d) borrow any additional funds other than for ongoing QComm
operational needs, including developing QXpress II and its distribution
channels. Notwithstanding the foregoing, QComm's Board shall be permitted to
meet their fiduciary obligations with respect to unsolicited offers from third
parties. In the event the Transaction does not close because of either (a), (b),
(c), or QComm enters into a transaction with a third party of the nature
described in (a), (b) or (c) above, QComm shall immediately pay APS $2,000,000
as liquidated damages.
14. Confidentiality. Additionally, the terms of this agreement are confidential
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and shall not be disclosed to any other party except to APS' and QComm's
officers, boards and their counsel and selected representatives. Each of APS and
QComm agree to keep confidential and not disclose to third parties any
confidential or proprietary information of the other learned or obtained prior
to or during the term of this Agreement. Confidential or proprietary information
of a party hereto shall include all information in whatever form that is not
publicly disclosed by that party. This confidentiality covenant constitutes a
confidentiality agreement for purposes of Regulation FD. APS will not trade in
QComm's securities while in possession of material, non-public information of
QComm.
15. Termination. This Agreement may by written notice be terminated: (i) by
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either party if a material breach of any provision of this Agreement has been
committed by the other party and such breach has not been waived by the
non-breaching party and such breach is not cured within ten (10) days after
receipt of written notice specifying in detail such breach (ii) by APS if (a)
any of the agreed material conditions to closing have not been satisfied by the
Closing or have become impossible to satisfy (other that through the failure of
APS to comply with its obligations under this Agreement) and APS has not waived
such condition on or before Closing, or (b) APS notifies QComm in writing before
November 16, 2001 that APS is terminating this Agreement because of its due
diligence investigation of QComm; or by QComm if any of the agreed material
conditions to Closing have not been satisfied by the Closing or have become
impossible to satisfy (other than through the failure of QComm to comply with
its obligations under this Agreement) and QComm has not waived such condition on
or before the Closing; (iii) by mutual written consent of APS and QComm hereto;
or (iv) by either APS or QComm if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
with its obligations under this Agreement) on or before January 31, 2002, or
such later date as the parties may agree upon in writing. Each party's right of
termination under this Section 15 is in addition to any other rights it may have
under this Agreement, and the exercise of a right of termination will not be an
election of remedies. In all instances, the obligations in Section 14 and
Section 16 will survive. If this Agreement is terminated pursuant to (i) and
(ii), the terminating party's right to pursue all legal remedies will survive
such termination unimpaired.
16. Enforcement. In the event either APS or QComm seeks to enforce or interpret
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this Agreement through a legal proceeding, such proceeding must be brought in
the federal district
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court resident in the State of New York which shall have exclusive jurisdiction
and be the exclusive venue for any such proceeding. If a party prevails
completely in any such proceeding such prevailing party shall be entitled to
receive its reasonable attorneys and paralegal fees and other costs of such
proceeding.
IN WITNESS WHEREOF, the parties being duly authorized and empowered, have
executed this agreement on the day and year written below.
AMERICAN PAYMENT SYSTEMS, INC. Q COMM INTERNATIONAL, INC.
a Connecticut corporation a Utah corporation
By: /s/ By: /s/
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Xxxx Xxxxxx
Its: Its: Chief Executive Officer
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Dated: October 18, 2001 Dated: October 18, 2001
By: /s/
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Xxxxxxx X. Xxxxxxxx
Its: President
Dated: October 18, 2001
Not as a party but with respect to Paragraph 7 only
/s/
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Xxxxxxx X. Xxxxxxxx, personally
Dated: October 18, 2001
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