<PAGE>
As filed with the Securities and Exchange Commission on December 19, 1996
Registration No. ______
FORM SB-2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
QUESTRON TECHNOLOGY, INC.
(Name of small business issuer in its charter)
6400 CONGRESS AVENUE
SUITE 200
BOCA RATON, FLORIDA 33487
(407) 241-5251
(Address and telephone number of principal executive offices)
6400 CONGRESS AVENUE
SUITE 200
BOCA RATON, FLORIDA 33487
(407) 241-5251
(Address of principal place of business or intended principal place of business)
DOMINIC A. POLIMENI
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
6400 CONGRESS AVENUE
SUITE 200
BOCA RATON, FLORIDA 33487
(407) 241-5251
(Name, address and telephone number of agent for service)
WITH COPIES TO:
FREDERICK W. LONDON, ESQ. STEVEN F. WASSERMAN, ESQ.
GOULD & WILKIE BERNSTEIN & WASSERMAN, LLP
ONE CHASE MANHATTAN PLAZA 950 THIRD AVENUE
NEW YORK, NEW YORK 10005-1401 NEW YORK, NEW YORK 10022-2705
(212) 344-5680 (212) 826-0730
(212) 809-6890 (FAX) (212) 371-4730 (FAX)
Approximate Date of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering |_|.
(facing page continues)
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Proposed Proposed
Title of Each Maximum Maximum
Class of Securities Amount to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Security Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one
share of Series B Convertible
Preferred Stock, par value $.01
per share ("Preferred Stock"),
and one Series IV Warrant to
purchase one share of Common Stock
("Series IV Warrant") 1,150,000 $6.00(1) $6,900,000 $2,091
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock included in
the Units 1,150,000 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Series IV Warrants included
in the Units 1,150,000 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of the Series IV
Warrants included in the
Units 1,150,000(2) $4.31(1)(3) $4,956,500 $1,502
- ----------------------------------------------------------------------------------------------------------------------------------
Underwriter's Unit Purchase
Option 100,000(2) $7.20(1) $720,000 $219
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock included in
Unit Purchase Option 100,000 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Series IV Warrants included
in Unit Purchase Option 100,000 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Series IV
Warrants in Unit Purchase
Option 100,000(2) $4.31(1)(3) $431,000 $131
- ----------------------------------------------------------------------------------------------------------------------------------
Series IV Warrants offered
by Selling Securityholders 2,750,000 $0.25(1) $687,500 $209
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock issuable upon
exercise of Series IV
Warrants offered by Selling
Securityholders 2,750,000(2) $4.31(1)(3) $11,852,500 $3,592
- ----------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee $7,744
==================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(a).
(2) Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may be issuable pursuant to the
anti-dilution provisions of the Preferred Stock and the Series IV
Warrants.
(3) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) based upon 115% of the closing price for
shares of Common Stock on December 16, 1996 (as adjusted for the
proposed one-for-ten reverse split of the outstanding Common Stock).
(facing page continues)
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This registration statement covers the primary offering of Units by
Questron Technology, Inc. (the "Company") and the offering of securities by
certain selling securityholders (the "Selling Securityholders"). The Company
is registering, under the primary prospectus ("Primary Prospectus"), certain
securities including 1,000,000 Units (excluding Units issuable upon exercise
of the Underwriter's over-allotment option and Units issuable upon exercise of
the Underwriter's Unit Purchase Option), each Unit consisting of one share of
Series B Convertible Preferred Stock ("Series B Preferred Stock") and one
Series IV Common Stock Purchase Warrant ("Series IV Warrant") and the shares
of Common Stock of the Company issuable upon conversion of the Series B
Preferred Stock and exercise of the Series IV Warrants included in the Units.
The Company is registering, on behalf of the Selling Securityholders, under an
alternate prospectus ("Alternate Prospectus"), 2,750,000 Series IV Warrants
and the shares of Common Stock of the Company issuable upon exercise of such
Series IV Warrants. The Alternate Prospectus pages, which follow the Primary
Prospectus, contain certain sections which are to be combined with all of the
sections contained in the Primary Prospectus, with the following exceptions:
the front and back cover pages, and the sections entitled "The Offering" and
"Selling Securityholders." In addition, the sections entitled "Concurrent
Sales" and "Plan of Distribution" will be added to the Alternate Prospectus.
Furthermore, all references contained in the Alternate Prospectus to the
"offering" shall refer to the Company's offering under the Primary Prospectus.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
Subject to Completion, dated December 19, 1996
PROSPECTUS
1,000,000 UNITS
QUESTRON TECHNOLOGY, INC.
Questron Technology, Inc., a Delaware corporation ("the Company"), is
offering 1,000,000 units ("Units") at a price of $6.00 per Unit. Each Unit
consists of one share of the Company's Series B Convertible Preferred Stock,
par value $.01 per share ("Series B Preferred Stock"), and one redeemable
Series IV Common Stock Purchase Warrant of the Company ("Series IV Warrant").
The Units, the Series B Preferred Stock and the Series IV Warrants are
sometimes referred to as the "Securities." The Series B Preferred Stock and
Series IV Warrants are detachable and may trade separately immediately upon
issuance. See "Risk Factors" and "Description of Securities."
Each share of Series B Preferred Stock shall automatically convert,
without any action on the part of the holder thereof or the Company, into
___________ shares of Common Stock, par value $.001 per share, of the Company
("Common Stock") on the second anniversary of the date of this Prospectus
("Effective Date"). This conversion ratio is equal to 80% of the closing price
per share as reported by the Nasdaq SmallCap Market for the Common Stock on
the day immediately preceding the Effective Date compared with an offering
price of $5.75 per share of Series B Preferred Stock (based upon a valuation
of $0.25 for a Series IV Warrant included in a Unit). Holders of the Series B
Preferred Stock will be entitled to receive, in respect of the two years
before the Series B Preferred Stock converts, an annual dividend per share
equal to 2% of the $5.75 offering price of the Series B Preferred Stock or
$0.115 per share. Such dividends will be payable on each of the two
anniversaries following the Effective Date, in cash or shares of Common Stock
at the option of the Company. The Series IV Warrants shall be exercisable
commencing one year after the Effective Date. Each Series IV Warrant entitles
the holder to purchase one share of Common Stock at an exercise price of $____
per share (which is 115% of the closing market price per share of the Common
Stock on the day preceding the Effective Date) during the four year period
commencing one year from the Effective Date. The Series IV Warrants are
redeemable by the Company for $.05 per Warrant, at any time after one year
from the Effective Date, upon 30 days' prior written notice, if the closing
bid price of the Common Stock, as reported by the Nasdaq SmallCap Market,
exceeds $ ____ per share for any 20 consecutive trading days ending within ten
days prior to the date of the notice of redemption. Upon 30 days' written
notice to all holders of the Series IV Warrants, the Company shall have the
right to reduce the exercise price and/or extend the term of the Series IV
Warrants in compliance with the requirements of Rule 13e-4 to the extent
applicable. See "Description of Securities."
The registration statement of which this Prospectus is a part also
relates to the offering of 2,750,000 Series IV Warrants which may be sold by
the holders of such securities (the "Selling Securityholders"). Of these
Series IV Warrants, 1,500,000 were issued to a Selling Securityholder by the
Company in connection with the proposed acquisition by the Company of all of
the issued and outstanding shares of Comp Ware, Inc., a Delaware corporation
which does business as Webb Distribution ("Webb"). Such warrants are being
held in escrow subject to the completion of the acquisition of Webb. The
remaining 1,250,000 Series IV Warrants were issued to certain Selling
Securityholders pursuant to an exchange agreement upon cancellation of rights
under prior agreements. The securities held by the Selling Securityholders may
be sold commencing 18 months from the Effective Date of this Prospectus
subject to earlier release at the sole discretion of the Underwriter.
Certificates evidencing these securities will bear a legend reflecting such
restrictions. The Underwriter may release the securities held by the Selling
Securityholders at any time after all securities subject to the Underwriter's
Over-Allotment Option (as hereinafter defined) have been sold or such option
has expired. The Underwriter's Over-Allotment Option period will expire 30
days following the Effective Date. In other offerings where Biltmore
Securities, Inc. has acted as the managing underwriter, it has released
similar restrictions applicable to selling securityholders prior to the
expiration of the lock-up period and in some cases immediately after the
exercise of the Over- Allotment Option or the expiration of the Over-Allotment
Option period. The resale of the securities held by the Selling
Securityholders is subject to prospectus delivery and other requirements of
the Securities Act of 1933, as amended. Sales of such securities or the
potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Selling Securityholders."
The closing of this offering is conditioned upon and is to occur
simultaneously with the closing of the Company's acquisition of Webb. See
"Business--Proposed Acquisition of Webb" and "Underwriting."
It is anticipated that the Units will be sold at a price of $6.00 per
Unit. Prior to this offering, there has been no public market for the Units,
Series B Preferred Stock or Series IV Warrants. The Company is applying for
inclusion of the Units, Series B Preferred Stock and Series IV Warrants on the
Nasdaq SmallCap Market, under the symbols [QUSTU], [QUSTP] and [QUSTW],
respectively, although there can be no assurances that such securities will be
accepted for quotation or, if accepted, that an active trading market will
develop. In addition, if the Company's securities are accepted for quotation
and active trading develops, the Company is required to maintain certain
minimum criteria established by Nasdaq and there can be no assurance that the
Company will be able to continue to fulfill such criteria. See "Risk Factors."
The Common Stock of the Company is listed on the Nasdaq SmallCap Market under
the symbol "QUST". On December 18, 1996, the closing price per share of the
Common Stock as reported by the Nasdaq SmallCap Market was $3.125, after giving
effect to the proposed one-for-ten reverse split of the issued and outstanding
Common Stock. See "Price Range for Common Stock and Dividends." For additional
information regarding the factors considered in determining the initial public
offering price of the Units and the exercise price of the Series IV Warrants,
see "Description of Securities" and "Underwriting."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS," WHICH BEGINS ON PAGE [ ].
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
==============================================================================
UNDERWRITING DISCOUNTS PROCEEDS TO THE
PRICE TO PUBLIC AND COMMISSIONS (1) COMPANY (2)
- ------------------------------------------------------------------------------
Per Unit....... $6.00 $0.60 $5.40
- ------------------------------------------------------------------------------
Total (3)...... $6,000,000 $600,000 $5,400,000
==============================================================================
(See Notes, next page)
The securities are offered by the Underwriter subject to prior sale
when, as and if delivered to and accepted by the Underwriter, and subject to
the Underwriter's right to reject orders in whole or in part and to certain
other conditions. It is expected that delivery of certificates representing
the Units, Series B Preferred Stock and Series IV Warrants will be made on or
about [ ], 1997.
------------------------------------
BILTMORE SECURITIES, INC.
The date of this Prospectus is [ ], 1997.
<PAGE>
NOTES
(1) Does not include additional compensation to be received by the
Underwriter in the form of (i) a nonaccountable expense allowance of
$180,000 (or $207,000 if the Underwriter's Over-Allotment Option (as
defined below) is fully exercised); (ii) an option to purchase Units
equal to 10% of those being offered to the public (excluding the
Underwriter's Over-Allotment Option Units, if any) at an exercise price
of $7.20 per Unit ("Underwriter's Unit Purchase Option"); (iii) a
payment of $100,000 in respect of advisory services to be provided by
the Underwriter over a two year period; and (iv) a fee payable (subject
to certain exclusions) upon the exercise of Series IV Warrants equal to
4% of the exercise price. In addition, the Company and the Underwriter
have agreed to indemnity and contribution provisions regarding certain
civil liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company,
estimated at $580,000 (or $607,000 if the Underwriter's Over-Allotment
Option, as defined below, is fully exercised), including the
Underwriter's nonaccountable expense allowance. See "Underwriting."
(3) The Company has granted the Underwriter a 30 day option to purchase an
additional 15% of the total Units offered to the public upon the same
terms and conditions as set forth above solely to cover
over-allotments, if any ("Underwriter's Over-Allotment Option"). If the
Underwriter's Over-Allotment Option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions, and
Proceeds to the Company will be $6,900,000, $690,000 and $6,210,000,
respectively. See "Underwriting."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS,
SERIES B PREFERRED STOCK, AND SERIES IV WARRANTS AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
ALTHOUGH OTHER BROKER-DEALERS HAVE EXPRESSED AN INTENTION TO
PARTICIPATE IN THE OFFERING, ALL OR A SIGNIFICANT NUMBER OF THE UNITS TO BE
SOLD IN THIS OFFERING MAY BE SOLD, IN THE ORDINARY COURSE OF BUSINESS, TO
CUSTOMERS OF THE UNDERWRITER, WHICH MAY AFFECT THE MARKET FOR AND LIQUIDITY OF
THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL BROKER-DEALERS DO NOT
MAKE A MARKET IN THE COMPANY'S SECURITIES. ALTHOUGH OTHER BROKER-DEALERS HAVE
EXPRESSED AN INTENTION TO MAKE A MARKET IN THE COMPANY'S SECURITIES FOLLOWING
THE OFFERING, THERE CAN BE NO ASSURANCE THAT ANY OF SUCH BROKER-DEALERS WILL
ACTUALLY COMMENCE SUCH MARKET-MAKING ACTIVITIES OR, IF COMMENCED, THAT SUCH
ACTIVITIES WILL BE MAINTAINED. BASED UPON THE UNDERWRITER'S EXPERIENCE IN PAST
OFFERINGS, IT IS EXPECTED THAT SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN
TRANSACTIONS FOR THE SALE OR PURCHASE OF THE UNITS, SERIES B PREFERRED STOCK
AND SERIES IV WARRANTS CONTAINED THEREIN THROUGH AND/OR WITH THE UNDERWRITER.
NO AGREEMENTS OR UNDERSTANDINGS, WRITTEN OR ORAL, EXIST WITH RESPECT TO THE
PURCHASE OR RESALE OF THE SECURITIES TO BE SOLD IN THIS OFFERING THROUGH OR
WITH THE UNDERWRITER AND/OR ITS AFFILIATES.
ALTHOUGH IT HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY FROM TIME
TO TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS IN THE
COMPANY'S SECURITIES. THE UNDERWRITER, IF IT PARTICIPATES IN THE MARKET, MAY
BECOME A DOMINATING INFLUENCE IN THE MARKET FOR THE UNITS, SERIES B PREFERRED
STOCK AND SERIES IV WARRANTS. HOWEVER, THERE IS NO ASSURANCE THAT THE
UNDERWRITER WILL OR WILL NOT CONTINUE TO BE A DOMINATING INFLUENCE. THE PRICES
AND LIQUIDITY OF THE SECURITIES OFFERED HEREUNDER MAY BE SIGNIFICANTLY
AFFECTED BY THE DEGREE OF THE UNDERWRITER'S PARTICIPATION IN SUCH MARKET. THE
UNDERWRITER MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR FROM TIME TO TIME.
SEE "RISK FACTORS--LACK OF PRIOR MARKET FOR UNITS, SERIES B PREFERRED STOCK
AND SERIES IV WARRANTS" AND "UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE
ADVERSE CONSEQUENCES."
-2-
<PAGE>
NOTE ON FORWARD-LOOKING STATEMENTS
Certain information set forth in this Prospectus includes
"Forward-Looking Statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and is subject to certain risks and
uncertainties, including those identified under the caption "Risk Factors."
Readers are cautioned not to place undue reliance on these statements, which
speak only as of the date hereof. The Company undertakes no obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect unanticipated
events or developments.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). The reports and other information filed by the
Company can be inspected and copied without charge at the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following regional offices of the Commission: Seven World Trade Center,
13th Floor, New York, New York 10048, and Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can be obtained from the Public Reference Section of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Registration statements and other documents and reports that
are filed electronically through the Electronic Data Gathering, Analysis and
Retrieval System (including the Registration Statement) are publicly available
through the Commission's web site on the Internet (http://www.sec.gov).
This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document referred
to are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement for a more complete description of the matter involved,
each such statement being qualified in its entirety by such reference. The
Company will provide without charge to each person who receives this
Prospectus, upon written or oral request of such person, a copy of any of the
information that is incorporated by reference herein (excluding exhibits to
the information that is incorporated by reference unless the exhibits are
themselves specifically incorporated by reference) by contacting the Company
at Questron Technology, Inc., 6400 Congress Avenue, Suite 200, Boca Raton,
Florida 33487, telephone (407) 241-5251, attention: Treasurer.
-3-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information, including information contained under the caption "Risk
Factors," and financial statements, including notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of the Underwriter's
Over-Allotment Option described under "Underwriting." UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO THE PROPOSED
ONE-FOR-TEN REVERSE SPLIT OF THE ISSUED AND OUTSTANDING COMMON STOCK, THE
PROPOSED REDUCTION IN THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK FROM
50,000,000 SHARES TO 20,000,000 SHARES AND THE PROPOSED REDUCTION IN THE
AUTHORIZED NUMBER OF SHARES OF PREFERRED STOCK, PAR VALUE $.01 PER SHARE
("PREFERRED STOCK"), FROM 10,000,000 TO 6,000,000. All of the foregoing
proposals have been submitted by the Board of Directors of the Company for the
approval of the Company's stockholders at the annual meeting of stockholders
scheduled for December 27, 1996 and, if so approved, an amendment to the
Company's Certificate of Incorporation effecting such proposals will be filed
as soon as practicable following such meeting. Each prospective investor is
urged to read this Prospectus in its entirety.
THE COMPANY
Questron Technology, Inc. (the "Company") is a publicly owned company
which, through its wholly-owned subsidiary Quest Electronic Hardware, Inc.
("Quest"), is a specialized distributor of fasteners and electronic hardware
sold to electronic equipment manufacturers. The Company also conducts an
alternative dispute resolution service through its wholly-owned subsidiary
Judicate of Philadelphia, Inc. The Company proposes to acquire the business of
Comp Ware, Inc., a Delaware corporation which does business as Webb
Distribution ("Webb"), and the closing of the offering made hereby (the
"Offering") is conditioned upon and is to occur simultaneously with the
closing of the Company's acquisition of Webb. Webb is a privately owned
specialized distributor of electronic hardware, fasteners and components. The
Company has entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") dated as of December 16, 1996 with the stockholders of Webb to
acquire all of the issued and outstanding stock of Webb. Under the Stock
Purchase Agreement, the stockholders of Webb have agreed to exchange their
shares of Webb for $3,250,000 in cash, 1,500,000 Series IV Warrants and two
notes (the "Notes") in the aggregate amount of $750,000 (each for $375,000).
Note A shall mature eighteen months from the Effective Date, bear interest at
10% per annum and is payable at maturity as to both principal and interest.
Note B shall mature five years from the Effective Date, is payable in equal
monthly installments over such five year period from the Effective Date and
shall bear interest at 10% per annum. The Company delivered to the majority
stockholder of Webb the 1,500,000 Series IV Warrants as a deposit on account
of the purchase price under said agreement at the time of the signing of the
Stock Purchase Agreement. Such warrants are being held in escrow subject to
the completion of the acquisition of Webb. These Series IV Warrants will be
cancelled if the Webb acquisition does not close. Proceeds received by the
majority stockholder of Webb from a sale of the Series IV Warrants may, in
some cases, reduce the Company's obligations under the Notes. See
"Business--Proposed Acquisition of Webb."
It is intended that the business of Webb will operate as a
wholly-owned subsidiary of the Company. The Company may elect to merge Webb
into Quest at a future date. The Company intends
-4-
<PAGE>
to use the net proceeds from this Offering to pay the $3,250,000 cash portion
of the consideration for the acquisition of Webb, to repay $1,180,000 of Webb
indebtedness and to repay $390,000 of the Company's indebtedness.
Webb and Quest each act as specialized distributors of fasteners and
electronic hardware sold to electronic equipment manufacturers. The
businesses, with operating locations in Austin, Boston, Colorado Springs,
Dallas, Reno, and San Jose, serve more than 1,000 customers in the high
technology electronic equipment manufacturing industry, including leading
computer, telecommunications and medical instrumentation companies.
The Company was incorporated as Judicate, Inc. in the State of
Delaware on August 1, 1983. The Company subsequently changed its name to
Questron Technology, Inc. on April 2, 1996. The principal executive offices of
the Company are located at 6400 Congress Avenue, Suite 200, Boca Raton,
Florida 33487 and its telephone number is (407) 241-5251.
QUEST ELECTRONIC HARDWARE, INC.
Questron, through its wholly-owned subsidiary Quest, acts as a
specialized distributor of fasteners and electronic hardware sold to
electronic equipment manufacturers. Prior to Quest's acquisition from Arrow
Electronics, Inc. in March 1995, the fasteners business had operated as a
distributor of fasteners and electronic hardware for more than twenty years.
Management's goal is to expand the business though a combination of continued
penetration of existing markets and expansion into new markets, including
geographic expansion.
Approximately 50% of Quest's sales are of industrial fasteners, 10%
are of "spacers" and "standoffs" (products used in conjunction with
fasteners), and the remaining sales are divided among a variety of products,
including plastic components, cable ties and accessories, drawer slides,
connectors, and design/prototype components. The demand for products offered
by Quest is relatively stable, with minimal technological change.
Quest has developed a customer base consisting of over 250 active
customers. These customers demand quality service and in many cases are
willing to pay premium prices. Over 95% of Quest's sales are recurring sales
to existing customers. Currently, the business is concentrated in California,
Texas, Colorado and Nevada; however, Quest is seeking to expand its business
geographically, particularly into the eastern U.S through the Webb
acquisition.
Quest's sales have increased at a compound annual growth rate of 17%
over the past four years. This sales growth was achieved principally from
word-of-mouth referrals without the benefit of a comprehensive marketing
program or geographic expansion. Management believes that Quest's future
growth will be enhanced by implementing a comprehensive marketing plan,
including the present strategy of adding marketing programs responsive to
customers' specific requirements (e.g., bin replenishment programs), further
penetration of existing accounts and identification of new accounts and
geographic expansion.
The U.S. market for the distribution of fasteners and related
products is divided into two major segments: large manufacturers of fasteners,
who supply large industrial users directly; and distributors,
-5-
<PAGE>
who service smaller industrial users. Such distributors, however, are
increasingly supplying larger accounts that can no longer be serviced
effectively by the manufacturers. The distribution side consists of
distributors who provide a rapid response capability to service customer needs
and assist in selecting appropriate fasteners.
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
Webb Distribution, Inc. was incorporated in the State of Connecticut
in May 1989 as a distributor of electronic hardware, fasteners and components.
In February 1995, Webb Distribution, Inc. was merged into Comp Ware, Inc., a
newly created Delaware corporation, in a migratory merger and currently
conducts business under the name Webb Distribution. The business is
concentrated in the New England area. The Company's principal executive
offices are located at 2 Lowell Avenue, Winchester, MA 08190.
The business of Webb is substantially similar to the business of
Quest, serving customers in the high technology equipment manufacturing
industry. Webb serves a variety of different markets on both a direct order
basis and in providing services such as bin stock replenishment. Along with
serving the original equipment manufacturers ("OEM's") markets, Webb also
serves industrial, military, sheet metal and metal fabrication industries.
With over 300 suppliers and many product categories and types, Webb
does not regard any one supplier of products as essential to its operations.
Webb, through its suppliers, is able to serve many market segments, as
evidenced by its more than 800 active industrial, commercial and military
customers.
Webb's annual sales amounted to $7.8 million for the year ended
December 31, 1995 and $6.1 million for the nine months ended September 30,
1996.
SEE "RISK FACTORS," "MANAGEMENT," "BUSINESS" AND "CERTAIN
TRANSACTIONS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED
IN EVALUATING THE COMPANY AND ITS BUSINESS.
<TABLE>
<CAPTION>
THE OFFERING*
<S> <C>
Units Offered by the Company (1)........................ 1,000,000 Units
Terms of Conversion of Series B Preferred
Stock................................................... Each share of Series B Preferred Stock will be
automatically converted on the second anniversary
of the Effective Date into ____ shares of Common
Stock. See "Description of Securities."
Series B Preferred Stock Dividend....................... 2% per annum until converted, payable in cash or
Common Stock at the Company's option.
Series IV Warrants Offered by the Selling
Securityholders......................................... 2,750,000 Warrants
-6-
<PAGE>
Use of Net Proceeds..................................... To fund the acquisition of Webb and to repay
certain indebtedness. See "Use of Proceeds."
OUTSTANDING EQUITY SECURITIES IMMEDIATELY
PRIOR TO THE OFFERING:
Shares of Common Stock (2).............................. 1,535,484
OUTSTANDING EQUITY SECURITIES IMMEDIATELY
SUBSEQUENT TO THE OFFERING:
Shares of Common Stock (3).............................. 1,535,484
Shares of Series B Preferred Stock(4)................... 1,000,000
Comparative Share Ownership After Offering:
Present Stockholders........................... 1,535,484
New Investors(5)............................... [_____]
NASDAQ SYMBOLS:
Common Stock............................................ QUST
Units (Proposed)........................................ QUSTU
Series B Preferred Stock (Proposed)..................... QUSTP
Series IV Warrants (Proposed)........................... QUSTW
</TABLE>
- ----------
* ALL FIGURES CONTAINED HEREIN REFLECT THE PROPOSED AMENDMENTS TO THE
COMPANY'S CERTIFICATE OF INCORPORATION IN CONJUNCTION WITH THE 1996
ANNUAL MEETING WHEREBY THE BOARD OF DIRECTORS HAS PROPOSED A ONE-FOR-TEN
REVERSE SPLIT OF THE ISSUED AND OUTSTANDING COMMON STOCK AS WELL AS A
REDUCTION IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND SERIES
B PREFERRED STOCK.
(1) The Company is offering 1,000,000 Units at a price of $6.00 per Unit.
Each Unit consists of one share of Series B Preferred Stock and one
Series IV Warrant. Each share of Series B Preferred Stock will
automatically convert, without any action on the part of the holder
thereof or the Company, into ______ shares of Common Stock on the second
anniversary of the Effective Date. Each Series IV Warrant entitles the
holder to purchase one share of Common Stock at an exercise price of
115% of the closing market price per share of the Common Stock on the
day preceding the Effective Date during the four year period commencing
one year from the Effective Date. The Series IV Warrants are redeemable
upon certain conditions. Should the Series IV Warrants be exercised, of
which there is no assurance, the Company will receive the proceeds
therefrom aggregating up to an additional $[ ]. See "Description of
Securities."
(2) Does not include shares of Common Stock issuable upon the exercise of
the Series IV Warrants offered by the Selling Securityholders.
(3) Does not include shares of Common Stock issuable (i) upon conversion of
the Series B Preferred Stock; (ii) upon the exercise of the Series IV
Warrants included in the Units or offered by the Selling
Securityholders; (iii) upon the exercise of the Underwriter's
Over-Allotment Option to purchase up to 150,000 Units, or (iv) upon
exercise of the Underwriter's Unit Purchase Option.
(4) These shares of Series B Preferred Stock are convertible into_______
shares of Common Stock.
(5) Assumes conversion of the Series B Preferred Stock into ________ shares
of Common Stock.
-7-
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
The statement of operations data for the years ended December 31, 1995
and 1994 and the balance sheet data as of December 31, 1995 are derived from,
and should be read in conjunction with, the Company's financial statements and
notes thereto audited by Moore Stephens, P.C., independent auditors, included
elsewhere in this Prospectus.
The selected financial data as of and for the nine months ended
September 30, 1996 and 1995 have been derived from unaudited financial
statements also appearing herein which, in the opinion of management, include
all adjustments (consisting of only normal, recurring adjustments) necessary
for a proper statement of the results of operations for such unaudited
periods. The results of operations for the nine months ended September 30,
1996 and 1995 are not necessarily indicative of the results to be expected for
the entire year or for any other period.
The pro forma balance sheet data have been prepared assuming that the
acquisition of Webb and other events described in the footnotes below had
occurred as of September 30, 1996. The pro forma statement of operations data
has been prepared as if the events described in the footnotes below had
occurred at the beginning of the earliest fiscal year presented and were
carried forward through the latest interim period presented.
BALANCE SHEET DATA:
December 31, 1995 September 30, 1996 (unaudited)
-------------------------------
Actual Actual Pro Forma (1)
---------- ---------- -------------
Current assets $5,053,762 $5,052,502 $8,000,529
Total assets 12,432,998 12,514,539 19,243,787
Current liabilities 2,070,094 1,737,134 2,992,427
Total liabilities 4,255,094 3,947,134 5,506,382
Working capital 2,983,668 3,315,368 5,008,102
Stockholders' equity 8,177,904 8,567,405 13,762,405
- ------------
(1) Gives effect to the following transactions:
(i) the acquisition of Webb; and
(ii) the sale of 1,000,000 Units by the Company and the net proceeds
therefrom and the uses thereof.
-8-
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
Nine months ended September 30,
------------------------------------------------------
1995 1996 1996
Actual Actual Pro Forma (1)
------ ------ -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Total revenues $4,908,757 $8,264,940 $14,353,886
Operating income 404,134 673,515 1,246,839
Net income 229,117 389,501 929,038
Net income per common share $0.02 $0.03 $0.27
Weighted average number of
common shares and common
share equivalents outstanding 13,707,612 15,399,846 3,456,652(2)
Ratio of earnings to fixed charges 3.1 to 1.0 2.9 to 1.0 5.5 to 1.0
For the Years Ended December 31,
---------------------------------------------------------
1994 1995 1995
Actual Actual Pro Forma (1)
------ ------ -------------
(unaudited)
Total revenues $844,025 $7,259,155 $15,052,334
Operating income (641,081) 584,906 1,173,155
Net income (641,033) 352,187 902,926
Net income per common share $(0.23) $0.03 $.27
Weighted average number of
common shares and common
share equivalents outstanding 2,793,402 13,795,632 3,296,230(2)
Ratio of earnings to fixed charges (3) 2.9 to 1.0 5.6 to 1
</TABLE>
- ---------------
(1) Adjusted to reflect: (i) the reductions of interest expense associated
with the repayment of certain debt; (ii) the reduction of salaries
resulting from the retirement of the majority selling stockholder; (iii)
the additional charges related to the amortization of the cost of the
Webb acquisition in excess of the net assets acquired; and (iv) the
reduction in income tax expense through the use of available tax loss
carryforwards.
(2) Reflects the effect of the proposed one-for-ten reverse stock split
and the common share equivalents related to the convertible preferred
stock to be issued pursuant to the Offering.
(3) Earnings are inadequate to cover fixed charges. The coverage
deficiency is $606,811.
-9-
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. ONLY THOSE PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT SHOULD PURCHASE THESE SECURITIES. PROSPECTIVE INVESTORS, PRIOR TO
MAKING AN INVESTMENT DECISION, SHOULD CAREFULLY READ THIS PROSPECTUS AND
CONSIDER, ALONG WITH OTHER MATTERS REFERRED TO HEREIN, THE FOLLOWING RISK
FACTORS:
FORWARD LOOKING STATEMENTS
When used in this Prospectus and the documents incorporated herein by
reference, the words "believes", "anticipates", "expects" and similar
expressions are intended to identify in certain circumstances, forward-looking
statements. Such statements are subject to a number of risks and uncertainties
that could cause actual results to differ materially from those projected,
including the risks described in the "Risk Factors" section. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such statements. The Company also undertakes no obligation to update these
forward-looking statements.
COMBINED OPERATIONS SUBSEQUENT TO THE ACQUISITION
The Company has entered into the Stock Purchase Agreement, pursuant
to which the Company has agreed to purchase all issued and outstanding stock
of Webb. The consummation of the Offering is conditioned upon and is to occur
simultaneously with the acquisition of Webb. If the acquisition of Webb is not
so completed, the closing of this Offering will not occur and all proceeds of
this Offering will be returned to investors. If the acquisition does occur,
upon consummation of the transactions contemplated hereby, the Company's
revenues will be derived from the businesses of both its existing business and
Webb. Management of the Company, after the acquisition, will be composed of
the current management of the Company. The Company can make no assurances that
this combination of businesses will prove as successful as each business was
independently. See "Dependence on Management and Limitations on Certain
Experience."
NO ASSURANCE OF FUTURE PROFITABILITY OR PAYMENT OF DIVIDENDS
No assurance can be given that the future operations of the Company
or its subsidiaries will be profitable. Should the operations of the Company
or its subsidiaries remain profitable, it is likely that the Company or its
subsidiaries would retain much or all of the earnings in order to finance
future growth and expansion. Therefore, the Company does not presently intend
to pay dividends on its Common Stock, but may consider the payment of
dividends at some time in the future. See "Dividend Policy." The Company will
be obligated to pay dividends at the rate of $0.115 or 2% per share of Series
B Preferred Stock in respect of the two year period prior to its conversion.
Such dividends may be paid in cash or shares of Common Stock, at the Company's
option, and, if paid in shares, there can be no assurance that the holder will
be able to sell the shares so received for the value of such dividend.
10
<PAGE>
DEPENDENCE UPON MAJOR CUSTOMERS
Quest serves more than 250 industrial and commercial customers. The
ten largest customers account for approximately 50% of Quest's sales, with one
customer accounting for 14% of those sales. Webb serves more than 800
customers. The 10 largest customers of Webb account for approximately 38% of
Webb's sales, with one customer accounting for 8% of sales. Sales to these
twenty customers account for approximately 45% of the combined revenues of
Quest and Webb. See "Business."
These sales arrangements are terminable upon short notice and none of
these customers is obligated to continue to use the services of Quest or Webb
at all or at existing prices. In addition, these customers could demand price
concessions by Quest and/or Webb which could adversely affect profits and
profit margins. The termination by these customers of their relationship with
the Company and/or Webb or a substantial decrease in prices paid by these
customers would have a material adverse affect upon the business, properties,
financial condition, results of operations and prospects of the Company.
The dependence on major customers subjects Quest and Webb to
significant financial risk in the operation of their businesses should a major
customer terminate, for any reason, its business relationship with Quest or
Webb. In such an event, the financial condition of the Company may be
adversely affected and the Company may be required to obtain additional
financing, the availability of which there can be no assurance.
The continuing ability of Quest and Webb to maintain these customer
relationships and to build new relationships is dependent, among other things,
upon their ability to maintain the high quality standards demanded by their
customers.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company intends to fund its operations and other capital needs
for the next twelve months substantially from operations, available borrowings
under the Company's credit agreement with a bank, and the proceeds of this
Offering, however there can be no assurance that such funds will be sufficient
for these purposes. The Company will use the proceeds of this Offering as
partial consideration for the acquisition of Webb and the repayment of certain
indebtedness as described in "Use of Proceeds." In addition, a portion of the
Webb purchase price has been deferred by means of the delivery of two notes
(the "Notes") in the aggregate amount of $750,000 (each for $375,000). Note A
shall mature eighteen months from the Effective Date, bear interest at 10% per
annum and is payable at maturity as to both principal and interest. Note B
shall mature five years from the Effective Date, is payable in equal monthly
installments over such five year period from the Effective Date and shall bear
interest at 10% per annum. In the event that the Company needs additional
financing to fund its operations and capital needs, there can be no assurance
that such financing will be available, or that it will be available on
acceptable terms. See "Use of Proceeds."
DEPENDENCE ON MANAGEMENT AND LIMITATIONS ON CERTAIN EXPERIENCE
The Company's business is principally dependent on certain key
management personnel for the operation of its business. In particular, Dominic
A. Polimeni has played the primary role in the promotion, development and
management of the Company. A subsidiary of the Company has entered into an
employment agreement with Mr. Polimeni, which expires on March 21, 2000. The
agreement requires Mr. Polimeni to devote such portion of his business time
and energies to the business and affairs
11
<PAGE>
of the Company as is needed to perform his duties under the agreement. If the
employment of Mr. Polimeni terminates, or he is unable to perform his duties,
the Company may be adversely affected. See "Business" and "Management."
SUBSTANTIAL COMPETITION
The market for the Company's products is highly competitive, and the
Company encounters substantial competition from domestic businesses. Some of
the Company's competitors have substantially greater financial resources and
technical expertise than the Company and may offer lower prices on competing
products. In addition, such competitors may have substantially greater
managerial capabilities than the Company and, consequently, the Company may be
at a substantial competitive disadvantage in the conduct of its business.
Increased competition could result in product price reductions, reduced
margins and loss of market share, all of which could have a material adverse
effect on the Company's results of operations and financial condition. See
"Business."
BROAD DISCRETION IN APPLICATION OF PROCEEDS
The management of the Company has broad discretion to adjust the
application and allocation of the net proceeds of this Offering, including
funds received upon exercise of the Series IV Warrants. As a result of the
foregoing, the success of the Company will be substantially dependent upon the
discretion and judgment of the management of the Company with respect to the
application and allocation of the net proceeds hereof. Of the net proceeds of
the Offering, $3,250,000 will be immediately used to pay a portion of the
purchase price for the Webb acquisition and $1,570,000 will be used to reduce
certain outstanding debt. Pending the application of the net proceeds, the
funds will be invested by the Company in temporary, short-term
interest-bearing obligations. See "Use of Proceeds," "Business" and
"Management."
VOTING CONTROL; POTENTIAL ANTI-TAKEOVER EFFECT
After giving effect to this Offering and to the acquisition of Webb
(without giving effect to the sales of any securities by the Selling
Securityholders but assuming conversion of the Series B Preferred Stock), the
officers, directors and principal stockholders of the Company will
beneficially own approximately [ ]% of the Company's Common Stock and will
have the right to acquire up to an additional [ ]% of the Common Stock
pursuant to outstanding options and warrants. See "Securities Ownership."
Accordingly, such persons may, with the votes of the holders of an additional
[ ]% of the Company's Common Stock, be able to approve major corporate
transactions including those involving amendments to the Certificate of
Incorporation of the Company or the sale of substantially all of the Company's
assets and may be able to elect all of the directors of the Company and to
control the Company's affairs. This voting control may have the effect of
delaying or preventing a change in control of the Company and may adversely
affect the rights of the holders of the shares of Common Stock of the Company.
In addition, the Company is subject to a State of Delaware statute regulating
business combinations which may also hinder or delay a change of control.
LIMITATION ON DIRECTOR LIABILITY
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the liability of directors to the Company
or its stockholders for monetary damages for breach of a director's fiduciary
duty, except for liability in four specific instances. These four areas
12
<PAGE>
are: (i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock purchases or redemptions as provided in Section
174 of the Delaware General Corporation Law, or (iv) any transaction from
which the director derived an improper personal benefit. As a result of these
limitations on a Director's liability, stockholders may have more limited
rights to recover against directors for breach of fiduciary duty than they
would have otherwise.
REQUIREMENTS OF CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IN
CONNECTION WITH THE EXERCISE OF THE SERIES IV WARRANTS WHICH MAY NOT BE
EXERCISABLE AND MAY THEREFORE BE VALUELESS
The Company will be able to issue the securities offered hereby and
shares of its Common Stock upon the exercise of the Series IV Warrants only if
(i) there is a current prospectus relating to the securities offered hereby
under an effective registration statement filed with the Commission and (ii)
such Common Stock is, to the extent required, then qualified for sale or
exempt therefrom under applicable state securities laws of the jurisdictions
in which the various holders of Series IV Warrants reside. There can be no
assurance, however, that the Company will be successful in maintaining a
current registration statement. After a registration statement becomes
effective, it may require updating by the filing of a post-effective
amendment. A post-effective amendment is required under the Securities Act (i)
anytime after nine months subsequent to the effective date thereof when any
information contained in the prospectus is over 16 months old; (ii) when facts
or events have occurred which represent a fundamental change in the
information contained in the registration statement; or (iii) when any
material change occurs in the information relating to the plan or distribution
of the securities registered by such registration statement. The Prospectus
forming a part of this Registration Statement will remain current within the
meaning of the Securities Act for not more than nine months following the date
of this Prospectus, or until [ ], 1997, assuming a post-effective amendment is
not filed by the Company. The Company intends to qualify the sale of the Units
in a limited number of states, although certain exemptions under certain state
securities ("Blue Sky") laws may permit the Series IV Warrants to be
transferred to purchasers in states other than those in which the Series IV
Warrants were initially qualified. The Company will be prevented, however,
from issuing Common Stock upon exercise of the Series IV Warrants in those
states where exemptions are unavailable and the Company has failed to qualify
the Common Stock issuable upon exercise of the Series IV Warrants. The Company
may decide not to seek, or may not be able to obtain qualification of the
issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Series IV Warrants reside. In such a case, the Series IV
Warrants of those purchasers will expire and have no value if such warrants
cannot be exercised or sold. Accordingly, the market for the Series IV
Warrants may be limited because of the Company's obligation to fulfill both of
the foregoing requirements. See "Description of Securities."
ADDITIONAL AUTHORIZED SHARES AVAILABLE FOR ISSUANCE MAY ADVERSELY AFFECT THE
MARKET
After giving effect to the proposed one-for-ten reverse stock split
and the proposed reduction in authorized Common Stock and Preferred Stock, the
Company is authorized to issue 20,000,000 of its shares of its Common Stock
and 6,000,000 shares of Preferred Stock. There are currently 1,535,484 shares
of Common Stock issued and outstanding and upon completion of the proposed
offering, there will be a total of 1,000,000 shares of Series B Preferred
Stock outstanding. Of the remaining 5,000,000 authorized shares of Preferred
Stock, 900,000 shares were previously issued under terms which provided that
they could not be reissued at a later date. All 900,000 of such shares were
previously converted into Common Stock. In addition, the following securities
have been reserved for issuance: _________ shares of Common Stock issuable,
commencing two years from the Effective Date, upon conversion of the Series B
Preferred Stock: 1,000,000 shares of Common Stock issuable upon exercise of
the Series IV
13
<PAGE>
Warrants offered to investors in this Offering; 150,000 Units issuable
pursuant to the Underwriter's Over- Allotment Option; 150,000 shares of Series
B Preferred Stock included in the Underwriter's Over- Allotment Option which
are convertible into _________ shares of Common Stock; 150,000 shares of
Common Stock issuable upon exercise of the Series IV Warrants included in the
Underwriter's Over- Allotment Option; 100,000 Units issuable upon exercise of
the Underwriter's Unit Purchase Option; 100,000 shares of Series B Preferred
Stock included in the Underwriter's Unit Purchase Option which are convertible
into ____ shares of Common Stock; 100,000 shares of Common Stock which are
issuable upon exercise of the Series IV Warrants included in the Underwriter's
Unit Purchase Option; 2,750,000 shares of Common Stock issuable upon exercise
of the Series IV Warrants of the Selling Securityholders and 1,679,767 shares
of Common Stock issuable upon the exercise of certain other outstanding
options and warrants. The foregoing does not give effect to Common Stock
issuable for the payment of Series B Preferred Stock dividends. The Selling
Securityholders have agreed not to sell, transfer or assign any of the
2,750,000 Series IV Warrants offered under the Alternate Prospectus for a
period of 18 months following the Effective Date without the consent of the
Underwriter. In other offerings where the Underwriter has acted as the
managing underwriter, it has released similar restrictions applicable to
selling securityholders prior to the expiration of the lock-up period and in
some cases immediately after the exercise of the Over-Allotment Option or the
expiration of the Over-Allotment Option period. After the exercise of all such
warrants and options the Company will have [ ] shares of Common Stock
outstanding and [ ] shares of authorized but unissued Common Stock available
for issuance without further stockholder approval. As a result, any issuance
of additional shares of Common Stock may cause current stockholders of the
Company to suffer significant dilution which may adversely affect the market.
See "Description of Securities" and "Underwriting."
LACK OF PRIOR PUBLIC MARKET FOR THE UNITS, SERIES B PREFERRED STOCK AND SERIES
IV WARRANTS BEING OFFERED
No prior public market has existed for the Units, Series B Preferred
Stock and Series IV Warrants offered hereby and no assurance can be given that
one will develop subsequent to this Offering. The Company is applying for
inclusion of the Units, Series B Preferred Stock and Warrants on the Nasdaq
SmallCap Market, although there can be no assurance that an active trading
market will develop, even if the securities are accepted for quotation.
Additionally, if the Company's securities are accepted for quotation and
active trading develops, the Company is required to maintain certain minimum
criteria established by Nasdaq, of which there can be no assurance that the
Company will be able to continue to fulfill such criteria. The Company's
Common Stock is currently listed on the Nasdaq SmallCap Market under the
symbol "QUST." The Underwriter may make a market in the securities of the
Company upon the closing of this Offering, but there is no assurance that it
will be successful in its efforts. The loss or failure of market makers for
the Company's securities will have a material adverse effect on the market for
the Company's securities. See "Description of Securities."
PROPOSED CHANGES TO NASDAQ LISTING REQUIREMENTS
On November 6, 1996, the Board of Directors of Nasdaq approved
proposed changes to the entry standards and maintenance standards necessary to
qualify for listing on both the Nasdaq National Market (the "National Market")
and the Nasdaq SmallCap Market (the "SmallCap Market"). After a 30-day comment
period, the Nasdaq Board of Directors will consider any comments, make
modifications of the proposed changes, if warranted, and file the rule changes
with the Securities and Exchange Commission for final approval. Among the
proposed changes to the Nasdaq SmallCap Market listing and maintenance
criteria are the following: eliminating the alternative test to the $1 minimum
bid price; extending the corporate governance standards currently required by
the National Market to the SmallCap issuers; increasing the quantitative
standards; and implementing a requirement that auditors of Nasdaq-listed
14
<PAGE>
companies be subject to peer review. If the proposed or other changes to the
listing and maintenance criteria are approved by the Securities and Exchange
Commission, there can be no assurance that the Company will be able to fulfill
such criteria.
WARRANTS SUBJECT TO REDEMPTION
The Series IV Warrants shall be exercisable for one share of Common
Stock at an exercise price of 115% of the closing market price per share of
the Common Stock on the day immediately preceding Effective Date for a four
year period commencing one year from the Effective Date. The Series IV
Warrants are redeemable by the Company for $.05 per Series IV Warrant, at any
time after one year from the Effective Date, upon 30 days' prior notice, if
the closing bid price of the Common Stock, as reported by the Nasdaq SmallCap
Market exceeds $ _____ per share, for any 20 consecutive trading days ending
within ten days of the notice of redemption. In the event that the Series IV
Warrants are called for redemption, the Series IV Warrant holders may not be
able to exercise their Series IV Warrants if the Company has not updated this
Prospectus in accordance with the requirements of the Securities Act or these
securities have not been qualified for sale under the laws of the state where
the Series IV Warrant holder resides. See "Requirements of Current Prospectus
and State Blue Sky Registration in Connection with the Exercise of the Series
IV Warrants Which May Not Be Exercisable and May Therefore Be Valueless." In
addition, in the event that the Series IV Warrants have been called for
redemption, such call for redemption could force the warrant holder to either
(i) assume the necessary updating to the prospectus and state blue sky
qualifications has been effected, exercise the Series IV Warrants and pay the
exercise price at a time when, in the event of a decrease in market price from
the period preceding the issuance of the call for redemption, it may be less
than advantageous economically to do so, or (ii) accept the redemption price,
which, in the event of an increase in the price of the stock, could be
substantially less than the market value thereof at the time of redemption.
Upon 30 days' written notice to all holders of the Series IV Warrants, the
Company shall have the right to reduce the exercise price and/or extend the
term of the Series IV Warrants in compliance with the requirements of Rule
13e-4 to the extent applicable. See "Certain Transactions," "Description of
Securities," "Selling Securityholders" and "Underwriting."
LITIGATION INVOLVING UNDERWRITER MAY AFFECT SECURITIES
The Company has been advised by the Underwriter that on or about May
22, 1995, the Underwriter and Elliot Loewenstern and Richard Bronson,
principals of the Underwriter, and the Commission agreed to an offer of
settlement (the "Offer of Settlement") in connection with a complaint filed by
the Commission in the United States District Court for the Southern District
of Florida alleging violations of the federal securities laws, Section 17(a)
of the Securities Act of 1933, Section 10(b) and 15(c) of the Securities
Exchange Act of 1934, as amended, and Rules 10b-5, 10b-6 and 15c1-2
promulgated thereunder. The complaint also alleged that in connection with the
sale of securities in three (3) initial public offerings in 1992 and 1993, the
Underwriter engaged in fraudulent sales practices. The proposed Offer of
Settlement was consented to by the Underwriter and Messrs. Loewenstern and
Bronson without admitting or denying the allegations of the complaint. The
Offer of Settlement was approved by Judge Gonzales on June 6, 1995. Pursuant
to the final judgment (the "Final Judgment"), the Underwriter:
o was required to disgorge $1,000,000 to the Commission, which
amount was paid in four (4) equal installments on or before
June 22, 1995; and
o agreed to the appointment of an independent consultant
("Consultant").
15
<PAGE>
Such Consultant was obligated, on or about November 1, 1996 (or at such later
date as may be extended by the Consultant without court approval):
o to review the Underwriter's policies, practices and procedures in
six (6) areas relating to compliance and sales practices;
o to formulate policies, practices and procedures for the
Underwriter that the Consultant deems necessary with respect to
the Underwriter's compliance and sales practices;
o to prepare a report devoted to and which details the
aforementioned policies, practices and procedures (the "Report");
o to deliver the Report to the President of the Underwriter and to
the staff of the Southeast Regional office of the Commission;
o to prepare, if necessary, a supervisory procedures and compliance
manual for the Underwriter, or to amend the Underwriter's
existing manual; and
o to formulate policies, practices and procedures designed to
provide mandatory ongoing training to all existing and newly
hired employees of the Underwriter. The Final Judgment further
provides that, within thirty (30) days of the Underwriter's
receipt of the Report, unless such time is extended, the
Underwriter shall adopt, implement and maintain any and all
policies, practices and procedures set forth in the Report.
As of the date of this Prospectus the Consultant had not delivered
the Report to the Underwriter.
The Final Judgment also provides that an independent auditor
("Auditor") shall conduct four special reviews of the Underwriter's policies,
practices and procedures, the first such review to take place six (6) months
after the Report has been delivered to the Underwriter and thereafter at
six-month intervals. The Auditor is also authorized to conduct a review, on a
random basis and without notice to the Underwriter, to certify that any
persons associated with the Underwriter who have been suspended or barred by
any Commission order are complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and
Bronson was dismissed with prejudice. Mr. Bronson has agreed to a suspension
from associating in any supervisory capacity with any broker, dealer,
municipal securities dealer, investment advisor or investment company for a
period of twelve (12) months, dating from the beginning of such suspension.
Mr. Loewenstern agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing
upon the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment
adversely affect the Underwriter's ability to act as a market maker for the
Company's stock, and additional brokers do not make a market in the Company's
securities, the market for and liquidity of the Company's securities may be
adversely affected. In the event that other broker-dealers fail to make a
market in the Company's securities, the possibility exists that the market for
and the liquidity of the Company's securities may be adversely affected to
such an extent that public security holders may not have anyone to purchase
their securities when offered for sale at any price. In such event, the market
for, liquidity and prices of the Company's securities may not exist. See
"Underwriting." FOR ADDITIONAL INFORMATION REGARDING THE UNDERWRITER,
INVESTORS MAY CALL THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. AT
(800) 289-9999.
16
<PAGE>
Recent State Action Involving the Underwriter -- Possible Loss of
Liquidity
The State of Indiana has commenced an action seeking, among other
things, to revoke the Underwriter's license to do business in such state. The
hearing in this matter was scheduled for October 7, 1996 and has been
adjourned pending settlement discussions. Such proceeding, if ultimately
successful, may adversely affect the market for and liquidity of the Company's
securities if additional broker-dealers do not make a market in the Company's
securities. Moreover, should Indiana investors purchase any of the securities
sold in this Offering from the Underwriter prior to the possible revocation of
the Underwriter's license in Indiana, such investors will not be able to
resell such securities in such state through the Underwriter but will be
required to retain a new broker-dealer firm for such purpose. The Company
cannot ensure that other broker-dealers will make a market in the Company's
securities. In the event that other broker-dealers fail to make a market in
the Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to an extent
that public security holders may not have anyone to purchase their securities
when offered for sale at any price. In such event, the market for, liquidity
and prices of the Company's securities may not exist. The Company does not
intend to seek qualification for the sale of the Securities in the State of
Indiana. It should be noted that although the Underwriter may not be the sole
market maker in the Company's securities, it will most likely be the dominant
market maker in the Company's securities. See "Underwriting."
UNDERWRITER'S INFLUENCE ON THE MARKET MAY HAVE ADVERSE CONSEQUENCES
A significant number of securities may be sold, in the ordinary
course of business, to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriter. Although it has no legal
obligation to do so, the Underwriter from time to time in the future may make
a market in and otherwise effect transactions in the Company's securities. To
the extent the Underwriter acts as market maker in the securities, it may be a
dominating influence in that market. The price and liquidity of such
securities may be affected by the degree, if any, of the Underwriter's
participation in the market, inasmuch as a significant amount of such
securities may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriter. Such market making activities, if
commenced, may be discontinued at any time or from time to time by the
Underwriter without obligation or prior notice. If a dominating influence at
such time, the Underwriter's discontinuance may adversely affect the price and
liquidity of the securities.
Further, unless granted an exemption by the Securities and Exchange
Commission to Rule 10b-6, the Underwriter may be prohibited from engaging in
any market making activities with regard to the Company's securities for the
period from two or nine business days prior to any solicitation of the
exercise of Series IV Warrants until the later of the termination of such
solicitation activity or the termination, by waiver or otherwise, of any right
that the Underwriter may have to receive a fee for the exercise of Series IV
Warrants following the solicitation. As a result, the Underwriter may be
unable to continue to provide a market for the Company's securities during
certain periods while the Series IV Warrants are exercisable which may
adversely affect the price and liquidity of the securities.
EXERCISE OF SERIES IV WARRANTS MAY HAVE DILUTIVE EFFECT ON MARKET
The Series IV Warrants will provide, during their term, an
opportunity for the holder to exercise the Warrants and profit from a rise in
the market price of the Common Stock, of which there is no assurance, with
resulting dilution in the ownership interest in the Company held by the then
present
17
<PAGE>
stockholders. Holders of the Series IV Warrants most likely would exercise the
Series IV Warrants and purchase the underlying Common Stock at a time when the
Company may be able to obtain capital on terms more favorable than those
provided by such Warrants, in which event the terms on which the Company may
be able to obtain additional capital would be affected adversely. See
"Underwriting."
"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF
SECURITIES
The Commission has adopted regulations which generally define "penny
stock" to be any equity security that has a market price (as defined) less
than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. In the event of authorization of the Units,
Series B Preferred Stock and Series IV Warrants for quotation on the Nasdaq
SmallCap Market, such securities will initially be exempt from the definition
of "penny stock." If such securities or the Common Stock are removed from
listing on Nasdaq at any time following the Effective Date, the Company's
securities may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally, those persons with
assets in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 together with their spouse). For transactions covered by these rules,
the broker-dealer must make a special suitability determination for the
purchase of such securities and have received the purchaser's written consent
to the transaction prior to the purchase. In addition, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior
to the transaction, of a risk disclosure document mandated by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered
representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally,
monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks. Consequently, the "penny stock" rules may restrict the ability of
broker-dealers to sell the Company's securities and may affect the ability of
purchasers in this Offering to sell the Company's securities in the secondary
market.
In the event that the Company were not able to qualify its securities
for listing on the Nasdaq SmallCap Market, the Company would attempt to have
its securities traded in the over-the-counter market via the Electronic
Bulletin Board or the "pink sheets." In such event, holders of the Company's
securities may encounter substantially greater difficulty in disposing of
their securities and/or in obtaining accurate quotations as to the prices of
the Company's securities.
UNDERWRITER AND SELLING SECURITYHOLDERS TO RECEIVE SUBSTANTIAL BENEFITS IN
CONNECTION WITH THE OFFERING
The Underwriter will receive substantial benefits from the Company in
connection with this Offering. These benefits include underwriting
discounts/commissions, a non-accountable expense allowance, an Underwriter's
Unit Purchase Option, warrant exercise fees and an advisory fee in connection
with certain services to be provided in the future. In addition, the
Underwriter has been granted certain rights under the Unit Purchase Option,
which rights include the ability to require the Company to include the
Underwriter's securities in a registration statement under the Securities Act.
The exercise of these rights will result in the Company incurring substantial
expenses and may cause the Company to register an offering of its securities
at a time which is detrimental to the Company's plans. See "Underwriting." The
Selling Securityholders will receive substantial benefits in connection with
this Offering. These benefits include having the Series IV Warrants owned by
them included in the
18
<PAGE>
Registration Statement of which this Prospectus is a part at the Company's
expense. Certain of the Selling Securityholders are affiliated with the
Company. See "Selling Securityholders."
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET
There are currently 384,409 shares of the Company's outstanding
Common Stock that are "restricted securities" which were acquired on March 31,
1995 and which, in the future, may be sold upon compliance with Rule 144
adopted under the Securities Act. Rule 144 provides, in essence, that a person
holding "restricted securities" for a period of two years may sell every three
months a number of shares equal to the greater of (a) one percent of the
Company's issued and outstanding shares, or (b) the average weekly volume of
sales during the four calendar weeks preceding the sale. The amount of
"restricted securities" which a person who is not an affiliate of the Company
may sell is not so limited, since non-affiliates may sell without volume
limitation their shares held for three years. Therefore, during each three
month period, beginning March 31, 1997, a holder of restricted securities who
has held them for at least the two year period may sell under Rule 144 up to
15,354 shares. Nonaffiliated persons who hold for the three year period
described above may sell unlimited shares once their holding period is met. A
proposed rule which may be adopted by the Commission would reduce these two
and three year periods to one and two years, respectively. The Company has
also agreed not to issue any additional securities other than as contemplated
by this Prospectus for a period of twenty-four (24) months following the
Effective Date without the consent of the Underwriter.
The registration statement of which this Prospectus is a part also
covers the offering of 2,750,000 Series IV Warrants, which are being offered
by the Selling Securityholders. The securities held by the Selling
Securityholders may be sold commencing eighteen months from the date of this
Prospectus subject to earlier release at the sole discretion of the
Underwriter. In other offerings where the Underwriter has acted as the
managing underwriter, it has released similar restrictions applicable to
selling securityholders prior to the expiration of the lock-up period and in
some cases immediately after the exercise of the Over- Allotment Option or the
expiration of the Over-Allotment Option period. Certificates evidencing these
securities will bear a legend reflecting such restrictions. The Underwriter
may release the securities held by the Selling Securityholders at any time
after all securities subject to the Over-Allotment Option (as hereinafter
defined) have been sold or such option has expired. The resale of the
securities held by the Selling Securityholders is subject to prospectus
delivery and other requirements of the Securities Act. Sales of such
securities or the potential of such sales at any time may have an adverse
effect on the market prices of the securities offered hereby. See "Selling
Securityholders."
Prospective investors should be aware that the possibility of sales
may, in the future, have a depressive effect on the price of the Series B
Preferred Stock, Common Stock or Series IV Warrants in any market which exists
or may develop and, therefore, the ability of any investor to market his
shares may be dependent directly upon the number of shares that are offered
and sold. Affiliates of the Company may sell their shares during a favorable
movement in the market price of the Company's securities which may have a
depressive effect on its price per share. See "Description of Securities."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,000,000 Units
offered hereby, assuming an offering price of $6.00 per Unit, are estimated to
be $4,820,000 (after deducting approximately $600,000 in underwriting
discounts and other expenses of this Offering estimated to be $580,000 which
includes the Representative's nonaccountable expense allowance, but giving no
effect to the exercise of the Over-Allotment Option or the Unit Purchase
Option).
The Company expects such proceeds to be utilized approximately as
follows:
APPROXIMATE AMOUNT
OF NET PROCEEDS PERCENT
--------------- -------
Webb acquisition(1)...................... $3,250,000 67.43%
Webb debt retirement(2).................. 1,088,000 22.57%
Quest debt retirement(3) ............... 482,000 10.00%
----------- -------
TOTAL.................. $ 4,820,000 100.00%
=========== =======
- ---------------
(1) In addition to the cash consideration to be paid at the Closing in
connection with the Webb acquisition, the Company is delivering to
the former majority stockholder of Webb two notes (the "Notes") in
the aggregate amount of $750,000 (each for $375,000). Note A shall
mature eighteen months from the Effective Date, bear interest at 10%
per annum and is payable at maturity as to both principal and
interest. Note B shall mature five years from the Effective Date, is
payable in equal monthly installments over such five year period from
the Effective Date and shall bear interest at 10% per annum. The
Company's obligations under the Notes may be reduced on a dollar for
dollar basis in the event and to the extent that the former majority
stockholder of Webb receives net proceeds greater than $375,000 from
a sale of the Series IV Warrants issued as part of the purchase
price.
(2) Represents the payment of all of Webb's indebtedness to a financial
institution under a loan agreement, consisting of a $500,000 loan,
with interest at 10%, due January 1, 1997 and a $588,000 demand Note
with interest at 10%.
(3) Reflects a partial repayment of Quest's Revolving Facility under its
Loan and Security Agreement with a financial institution, which is
due March 31, 1998 with interest at 9.25%.
Although it is uncertain whether or not the Company's shares of
Common Stock will rise to a level at which the Series IV Warrants would be
exercised, if subscribers in this Offering elect to exercise all of the Series
IV Warrants included in the Units, the Company will realize gross proceeds of
approximately $[ ]. Management anticipates that the proceeds from the exercise
of the Series IV Warrants would be contributed to working capital of the
Company. Nevertheless, the Company may at the time of exercise allocate a
portion of the proceeds to any other corporate purposes. Accordingly,
investors who exercise their Series IV Warrants will entrust their funds to
management, whose specific intentions regarding the use of such funds are not
currently known.
The amounts set forth above are estimates. Should a reapportionment
or redirection of funds be determined to be in the best interests of the
Company, the actual amount expended to finance any category of expenses may be
increased or decreased by the Company's Board of Directors, at its discretion.
20
<PAGE>
The Company believes that the net proceeds of this Offering, together
with funds generated from operations, will be sufficient to conduct its
operations for at least 18 months. The terms of the underwriting agreement
with the Representative does restrict the Company from obtaining additional
capital financing.
To the extent that the Company's expenditures are less than projected
or the proceeds of this Offering increase as a result of the exercise by the
Underwriters of the Over-Allotment Option, the resulting balances will be used
to pay off additional indebtedness. Conversely, to the extent that such
expenditures require the utilization of funds in excess of the amounts
anticipated, additional financing may be sought from other sources, although
there can be no assurance that such additional financing, if available, will
be on terms acceptable to the Company. The net proceeds of this Offering that
are not expended immediately may be deposited in interest bearing accounts, or
invested in government obligations, certificates of deposit or similar
short-term, low risk investments.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i)
as of September 30, 1996, (ii) pro forma combined to give effect to the
transactions described in the footnote to the table, (iii) as adjusted to
reflect the sale of the Units offered hereby and (iv) as adjusted for the
proposed one-for-ten reverse split of the Company's Common Stock and the
proposed reduction in the number of authorized shares of Preferred Stock and
Common Stock. The table should be read in conjunction with the Financial
Statements, the notes thereto and the pro forma financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUESTRON PROFORMA
SEPTEMBER 30, 1996 COMBINED (1)
------------------ ------------
<S> <C> <C>
Short-term debt $ 550,000 $ 709,352
Long-term debt 2,210,000 2,513,955
--------------- ---------------
2,760,000 3,223,307
--------------- ---------------
Stockholders' Equity
Preferred stock, $.01 par -- 10,000
value
Common stock, $.001 1,547 1,547
par value, 20,000,000
shares authorized,
1,535,484 outstanding
September 30, 1996;
proforma combined; [ ]
shares outstanding, as
adjusted
Additional paid-in capital 23,887,894 29,072,894
Retained earnings (deficit) (14,966,558) (14,966,558)
Less: treasury stock (355,478) (355,478)
--------------- ---------------
Total stockholders' equity 8,567,405 13,762,405
--------------- ---------------
Total capitalization $ 11,327,405 $ 16,985,712
=============== ===============
</TABLE>
- -------------------
(1) Gives effect to the following transactions: (i) the acquisition of
Webb for $3,250,000 in cash, 1,500,000 Series IV Warrants and two
notes in the aggregate amount of $750,000 (each for $375,000). Note A
shall mature eighteen months from the Effective Date, bear interest
at 10% per annum and is payable at maturity as to both principal and
interest. Note B shall mature five years from the Effective Date, is
payable in equal monthly installments over such five year period from
the Effective Date and shall bear interest at 10% per annum; and (ii)
the sale of 1,000,000 Units by the Company and the net proceeds
therefrom, at a price of $6.00 per Unit. Each Unit consists of one
share of the Company's Series B Convertible Preferred Stock and one
redeemable Series IV Warrant to purchase one share of Common Stock.
22
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the NASDAQ SmallCap Market
under the symbol "QUST."
The following table sets forth the reported high and low bid
quotations (AS ADJUSTED FOR THE PROPOSED ONE-FOR-TEN REVERSE SPLIT OF THE
COMPANY'S COMMON STOCK) of the Common Stock for the periods indicated. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Common Stock
------------
High Low
---- ---
1994:
-----
First Quarter $14.06 $11.25
Second Quarter $11.88 $11.25
Third Quarter $11.88 $10.00
Fourth Quarter $30.63 $ 8.75
1995:
-----
First Quarter $27.50 $18.13
Second Quarter $33.75 $20.00
Third Quarter $25.00 $16.25
Fourth Quarter $39.38 $13.75
1996:
-----
First Quarter $31.25 $15.00
Second Quarter $18.75 $ 7.50
Third Quarter $10.63 $ 6.88
Fourth Quarter $ 4.38 $ 2.50
(through December 18, 1996)
On December 18, 1996, the closing price for the Company's Common
Stock as reported on the NASDAQ SmallCap Market system was $3.125. On that date
there were approximately 1,000 holders or record of Common Stock (including
entities which hold stock in street name on behalf of other beneficial
owners).
The Company has not paid any cash dividends on its Common Stock to
date. The Company anticipates that for the foreseeable future it will follow a
policy of retaining earnings, if any, in order to finance the expansion and
development of its business. Payment of dividends is within the discretion of
the Company's Board of Directors and will depend upon the earnings, capital
requirements and operating and financial condition of the Company, among other
factors.
The Series B Preferred Stock will be entitled, as and when declared
by the Board of Directors, to receive, in respect of the two years before the
Series B Preferred Stock is converted, an annual
23
<PAGE>
dividend per share payable either in cash or shares of Common Stock, at the
option of the Company, equal to $0.115 or 2% of the $5.75 value of the Series
B Preferred Stock included in the Units.
Other than the foregoing, the Company does not anticipate the
declaration or payment of any dividends in the foreseeable future. There can
be no assurance that cash dividends of any kind will ever be paid.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
GENERAL
The Company has entered into a Stock Purchase Agreement with the
stockholders of Comp Ware, Inc., a Delaware corporation doing business as Webb
Distribution ("Webb"). Pursuant to the agreement, the Company will acquire all
of the issued and outstanding stock of Webb. The stockholders of Webb will
receive at closing $3,250,000 in cash, 1,500,000 Series IV Warrants and two
notes (the "Notes") in the aggregate amount of $750,000 (each for $375,000).
Note A shall mature eighteen months from the Effective Date, bear interest at
10% per annum and is payable at maturity as to both principal and interest.
Note B shall mature five years from the Effective Date, is payable in equal
monthly installments over such five year period from the Effective Date and
shall bear interest at 10% per annum. The majority stockholder of Webb
received as a down payment at the signing of the Stock Purchase Agreement
1,500,000 Series IV Warrants which will be cancelled in the event that the
Webb acquisition does not close. The Company's obligations under the Notes may
be reduced on a dollar-for-dollar basis in the event and to the extent that
the former majority stockholder receives net proceeds greater than $375,000
from a sale of the Series IV Warrants issued as part of the purchase price.
Webb is a specialized distributor of electronic hardware, fasteners
and components which serves customers in the high technology electronic
equipment manufacturing industry. Webb operates primarily in the New England
region. By acquiring the operations of Webb, the Company hopes to expand its
market in the U.S. for fasteners and related products. By consolidating its
administrative activities and accessing Webb's customer base, the Company
anticipates that it will be able to use its combined resources in order to
develop new services based upon the demand of its existing customers or upon
requests from potential new customers.
PLAN OF OPERATIONS
The Company, upon completion of the Offering, will market and sell
its electronic hardware, fasteners, and components products and services
through Quest and Webb.
The Company will use a portion of the net proceeds from the Offering
which are expected to be approximately $4,820,000 (assuming that the
Underwriter's overallotment option is not exercised) to pay the $3,250,000
cash consideration in connection with the acquisition of Webb and to retire
the following outstanding indebtedness of Quest and Webb:
Webb debt retirement................................... $1,088,000
Quest debt retirement.................................. 482,000
----------
Total debt retired............................ $1,570,000
==========
25
<PAGE>
RESULTS OF OPERATIONS - QUESTRON
For the three and nine months ended September 30, 1996 compared with
1995
The results of operations through September 30, 1996 include the
operating results of Quest Electronic Hardware, Inc. ("Quest"), the Company's
fasteners and electronic hardware distribution business, and the operating
results of the Company's alternative dispute resolution ("ADR") business.
The following summarizes the results of operations for each of the
Company's businesses and corporate for the three month and nine month periods
ended September 30, 1996:
<TABLE>
<CAPTION>
Three months ended September 30, 1996
-------------------------------------
QUEST ADR Corporate Total
----- --- -------- -----
<S> <C> <C> <C> <C>
Revenue $2,525,884 $ 31,920 $ -- $2,557,804
Costs and expenses 2,201,645 57,212 67,031 2,325,888
---------- ---------- --------- ---------
Operating income (loss) 324,239 (25,292) (67,031) 231,916
Interest expense 75,095 -- 283 75,378
----------- ------------- ----------- ----------
Income (loss) before taxes 249,144 (25,292) (67,314) 156,538
Tax provision 9,733 -- -- 9,733
----------- ------------- ------------ ----------
Net income (loss) $ 239,411 $ (25,292) $(67,314) $ 146,805
========== =========== ========= =========
<CAPTION>
Nine months ended September 30, 1996
------------------------------------
QUEST ADR CORPORATE TOTAL
----- --- -------- -----
<S> <C> <C> <C> <C>
Revenue $8,141,107 $123,833 $ -- $8,264,940
Costs and expenses 7,167,900 196,103 227,422 7,591,425
----------- ------- ------- ----------
Operating income (loss) 973,207 (72,270) (227,422) 673,515
Interest expense 233,385 -- 1,246 234,631
-------- ---------- --------- -----------
Income (loss) before taxes 739,822 (72,270) (228,668) 438,884
Tax provision 49,383 -- -- 49,383
--------- ---------- ----------- -----------
Net income (loss) $ 690,439 $(72,270) $(228,668) $ 389,501
========== ========= ========== ===========
</TABLE>
The significant growth in the Company's revenues for the nine months
ended September 30, 1996 over the nine months ended September 30, 1995 is due
to the acquisition of Quest on March 31, 1995. Revenues for Quest were
$2,525,884 and $8,141,107 for the three month and nine month periods ended
September 30, 1996, respectively. The nine month sales level of more then $8
million represents a record level of revenues for the business. The growth in
revenues of Quest is attributable to its expansion into the Austin, Texas
market as well as growth in the other markets that it serves. The opening of a
new branch in Austin is primarily directed at servicing Applied Materials,
which signed a three-year Master Purchase Order and Sales Agreement with Quest
on November 13, 1995. Revenues of the ADR business for the three month and
nine month periods ended September 30, 1996 declined 31% and 45%,
respectively, compared with the comparable periods in the prior year. This
decline reflects the Company's downsizing and restructuring of the ADR
business in response to increased competition and historical losses. The
Company is continuing to evaluate its alternatives with respect to the future
operation of its ADR business, including the possible sale, disposition or
discontinuance of the business.
26
<PAGE>
The Company's operating income was $231,916 for the three months
ended September 30, 1996 compared with operating income of $319,519 for the
comparable period of the prior year. The decline in operating income for the
three month period ended September 30, 1996 compared with the comparable prior
year period is primarily due to increased operating costs associated with
Quest's expansion into the Austin market coupled with an 11% decline in sales
from the immediately preceding quarter as a result of the recent pause in the
semiconductor industry, which management believes to be temporary. In August
1996, Quest reduced its costs of operations to a level more consistent with
this reduced level of sales. Management believes that once the semiconductor
industry rebounds, which recent months suggest is beginning to occur, Quest
will be able to restore an increased level of sales. For the nine month period
ended September 30, 1996, operating income was $673,515 compared with
operating income of $404,134 for the comparable prior year period. The
improvements over the nine month period ended September 30, 1996 compared to
the comparable prior year period are primarily due to the operating income
achieved by Quest of $973,207 compared with operating income from Quest of
$692,003 for the comparable prior year period. Quest's operating income of
$324,239 and $973,207 for the three month and nine month periods ended
September 30, 1996 represent approximately 12% of its revenues, a relationship
which is slightly less than the historical performance of the business
primarily due to increased operating costs relative to sales, which costs are
principally associated with the opening of the Austin branch.
Interest expense for the three month and nine month periods ended
September 30, 1996 amounted to $75,378 and $234,631, respectively, which
principally reflects the cost of borrowings associated with the acquisition
and operation of the fasteners and electronic hardware distribution business.
For the comparable periods of the prior year, the Company's results include
interest expense of $72,526 and $130,502, respectively.
The provision for income taxes for the three month and nine month
periods ended September 30, 1996 principally reflects state income tax
provisions for states in which Quest does business. The provision for income
taxes also includes a minimal provision for federal income taxes for the
federal alternative minimum tax. The Company is not expected to have a regular
federal income tax liability for 1996, as a result of the availability of net
operating loss income tax carryforwards of approximately $13.1 million as of
December 31, 1995, expiring in the years 2000 through 2009.
Net income for the three months ended September 30, 1996 amounted to
$146,805 compared with net income of $228,918 for the comparable period of the
prior year. This decline reflects the start-up costs and investment associated
with Quest's expansion into Austin, Texas. Due to the recent pause in the
semiconductor industry, the investment in the Austin market has yet to provide
the anticipated results of such an expansion. Net income for the nine months
ended September 30, 1996 amounted to $389,501 compared with net income of
$229,117 for the comparable period of the prior year. This improvement
reflects the operating income of Quest (partially reduced by interest expense
and income taxes) and the reduction in operating losses of the ADR business.
For the year ended December 31, 1995 compared with 1994
The results of operations for the year ended December 31, 1995
include the operating results for the nine months ended December 31, 1995, of
Quest, the fasteners and electronic hardware distribution business acquired by
the Company on March 31, 1995 (see Note 2 of Notes to Consolidated Financial
Statements) and the operating results of the Company's ADR business for year
ended December 31, 1995.
27
<PAGE>
The following summarizes the results of operations for each of
Questron's businesses for the year ended December 31, 1995:
<TABLE>
<CAPTION>
QUEST(1) ADR CORPORATE(2) TOTAL
-------- --- ------------ -----
<S> <C> <C> <C> <C>
Revenue $6,982,902 $276,253 $ -- $7,259,155
Costs and expenses 6,020,800 301,508 351,941 6,674,249
---------- -------- --------- ----------
Operating Income 962,102 (25,255) (351,941) 584,906
Interest expense 201,096 -- 4,459 205,555
--------- ----------- --------- ----------
Income (loss) before taxes 761,006 (25,255) (356,400) 379,351
Tax provision 27,164 -- -- 27,164
---------- ----------- ----------- ----------
Net income (loss) $ 733,842 $ (25,255) $(356,400) $ 352,187
========== ========== ========= ==========
</TABLE>
- ----------------------
(1) The operating results for Quest are for the nine months ended
December 31, 1995.
(2) Corporate expenses include non-recurring charges of $146,867,
principally associated with the downsizing and restructuring of
Questron's ADR business.
The significant growth in Questron's revenues for the year ended
December 31, 1995 over the year ended December 31, 1994 is due to the
acquisition of Quest. Revenues for Quest for the period April 1, 1995 through
December 31, 1995 were $6,982,902. Revenues of the ADR business declined by
$567,772 and $1,732,573 for the years ended December 31, 1995 and 1994,
respectively, compared with the comparable periods in the prior year. This
decline reflects Questron's continuing program of downsizing and restructuring
its ADR business in response to increased competition and historical losses.
Such restructuring has resulted in bringing the ADR business, excluding
corporate expenses and non-recurring charges, to a modest operating loss for
the year ended December 31, 1995 of $25,255. Questron is continuing to
evaluate its alternatives with respect to the future operation of its ADR
business, including the possible sale, disposition or discontinuance of the
business.
Questron's operating income was $584,906 for the year ended December
31, 1995 compared with an operating loss of $641,081 for the prior year. These
improvements are due to the operating income achieved by Quest of $962,102
since its acquisition on March 31, 1995, as well as the significant reductions
in costs and expenses of the ADR business. Such expenses were $301,508 for the
year ended December 31, 1995 compared with $1,485,106 in the prior year.
Expenses for 1995 include non-recurring charges of $146,867, principally
associated with the downsizing and restructuring of Questron's ADR business.
Such charges include the write-off of fixed assets and idle equipment
associated with the downsizing of the ADR business, as well as lease
termination costs, the relocation to more suitable office space, forfeiture of
security deposits and other costs associated with the downsizing and
restructuring of the ADR business. Quest's operating income of $962,102 for
the nine months ended December 31, 1995 represents 14% of its revenues, a
relationship which is consistent with the historical performance of the
business.
Interest expense for the years ended December 31, 1995 and 1994
amounted to $205,555 and $34,222, respectively. The increase in interest
expense principally reflects the cost of borrowings associated with the
acquisition of the fasteners and electronic hardware distribution business
(see Note 3
28
<PAGE>
of Notes to the Company's Consolidated Financial Statements for the year ended
December 31, 1995). For the comparable prior year period, the Company's
results include $34,270 of interest income resulting from the investment of
excess cash.
The provision for income taxes for the year ended December 31, 1995
principally reflects state income tax provisions for states in which Quest
does business. No provision for federal income taxes is required, as Questron
has no federal tax liability for 1995 as a result of the availability of net
operating loss income tax carryforwards; of approximately $13.1 million as of
December 31, 1995, expiring in the years 2000 through 2009.
Net income for the year ended December 31, 1995 amounted to $352,187
compared with a net loss of $641,033 in the prior year. These improvements
reflect the operating income of Quest, partially reduced by interest expense
and income taxes, and the reduction in operating expenses of the ADR business.
LIQUIDITY AND CAPITAL RESOURCES - QUESTRON
As of September 30, 1996, the Company had $360,235 in cash and
short-term investments, compared to $39,358 as of December 31, 1995. As of
September 30, 1996, the Company had working capital of $3,315,365, compared
with working capital of $2,983,668 as of December 31, 1995.
For the nine months ended September 30, 1996, the net cash provided
by the Company's operating activities amounted to $343,459 principally
reflecting the profits of Quest and a decrease in inventory and other
receivables, offset in part by the decrease in accounts payable and accrued
expenses and the increase in other assets. Corporate expenses and the
operations of the Company's ADR business continued to use cash, although at a
reduced rate compared with prior years. As previously discussed, the Company
is continuing to evaluate its alternatives with respect to the future
operations of the ADR business and there can be no assurance that the Company
will continue its ADR operations.
For the nine months ended September 30, 1996, the net cash used in
the Company's investing activities amounted to $47,582 for the acquisition of
fixed assets, primarily computer and warehouse equipment to support the
continued growth of Quest's fastener distribution business. The Company did
not have significant commitments for capital expenditures as of September 30,
1996 and no significant commitments are anticipated for the remainder of 1996
and the first half of 1997.
For the nine months ended September 30, 1996, the net cash provided
by the Company's financing activities amounted to $25,000 which consists of
advances drawn on its revolving credit facility of $437,500 less $412,500 of
principal repaid on the term debt.
For the year ended December 31, 1995, the net cash used in Questron's
operating activities amounted to $843,105, principally reflecting cash
requirements associated with increased accounts receivable and inventories
associated with the business of Quest. Such cash requirements were partially
offset by an increase in accounts payable and profits generated by Quest.
Corporate expenses and the operations of Questron's ADR business continued to
use cash, although at a much reduced rate compared with prior years.
29
<PAGE>
For the year ended December 31, 1995, the net cash used in Questron's
investing activities amounted to $5,682,034, including $5,262,268 net cash
consideration paid for the acquisition of the fasteners and electronic
hardware distribution business. In addition, Questron had capital expenditures
of $419,766, primarily related to the acquisition of computer system equipment
for Quest. Questron does not have significant commitments for capital
expenditures as of December 31, 1995 and no significant commitments are
anticipated for 1996.
For the year ended December 31, 1995, the net cash provided by
Questron's financing activities amounted to $5,043,767, including $2,200,000
of long-term bank borrowings under a term loan facility and $1,468,902 in net
proceeds derived from the private placement of Questron's Common Stock. In
addition, Questron received net proceeds of $851,593 from the exercise of
warrants and $343,750 from the exercise of stock options. Questron also repaid
borrowings obtained earlier in 1995 under short-term notes payable and made
$412,500 in principal payments under the term loan facility. In December 1995,
in connection with certain obligations amounting to $355,478 owed to Questron
by two of its former officers and directors, the Company received 118,493
shares of its Common Stock in full satisfaction of such amounts owed.
In conjunction with the acquisition of the fasteners and electronic
hardware distribution business, Quest initially obtained an $800,000 revolving
facility as a part of its loan agreement with a bank to provide working
capital financing for its business. In November 1995, Quest signed a
three-year Master Purchase Order and Sales Agreement with a major customer in
Austin, Texas. Management believes that this agreement, together with other
sales opportunities in the Austin market, could result in a material increase
in Quest's annual sales. In view of this increased level of sales and other
potential growth opportunities, Quest increased its revolving facility to
$1,500,000, under terms and conditions generally consistent with those already
in effect for the original facility. At September 30, 1996, $1,385,000 was
borrowed and outstanding under the revolving facility. The remaining amount of
the $1,500,000 revolving facility, or $115,000, was fully available at
September 30, 1996 for future working capital needs. At December 31, 1995,
$947,500 was borrowed and outstanding under the revolving facility. Of the
remaining $552,500 revolving facility amount, $527,500 was fully available at
December 31, 1995 for future working capital needs. Amounts outstanding under
the revolving facility bear interest at a rate equal to: (i) 1.5% above the
lender's prime rate should Quest's tangible net worth be less than or equal to
$1,750,000; or (ii) 1.0% above the lender's prime rate should Quest's tangible
net worth be in excess of $1,750,000. As of October 27, 1996, the interest
rate on the amount outstanding under the revolving facility was 9.25%. As of
March 29, 1996, the interest rate on the amount outstanding under the
revolving facility was 9.75%. In order to secure the obligations of Quest
under the revolving facility and the related term loan facility under the loan
and security agreement with the lender, the Company entered into guarantee and
stock pledge agreements with the lender whereby the Company guaranteed the
obligations of Quest under the loan agreement and pledged to the lender the
shares of capital stock of Quest which the Company held at the date of such
agreement and any shares of Quest in which the Company may thereafter acquire
an interest. In addition, Quest granted a security interest in substantially
all of its assets to the lender and a major stockholder of Questron guaranteed
the obligations of Quest under the loan agreement.
In order to fund the cash portion of the purchase price for Webb and
to repay certain indebtedness of both Quest and Webb, Questron entered into a
letter of intent with an underwriter to sell 1,000,000 Units at a price of
$6.00 per Unit, each Unit consisting of one share of the Company's Series B
Convertible Preferred Stock and one redeemable Series IV Common Stock Purchase
Warrant of the Company. Of the estimated $4,820,000 net proceeds from the sale
of the Units, $3,250,000 will be paid to the Selling Securityholders of Webb
at the Closing of such sale and $1,570,000 will be used to repay certain
indebtedness of Quest and Webb. See "Use of Proceeds." Questron intends to
continue
30
<PAGE>
identifying and evaluating potential merger and acquisition candidates engaged
in lines of business complementary to the fasteners and electronic hardware
distribution business conducted by both Quest and by the Webb business. While
certain of such potential acquisition opportunities are at various stages of
consideration and evaluation, none is at any definitive stage at this time.
Management believes that its working capital, funds available under its credit
agreement, and funds generated from operations will be sufficient to meets its
obligations through 1997, exclusive of any cash requirements which may come
about as a result of other business acquisitions.
31
<PAGE>
RESULTS OF OPERATIONS - WEBB
For the nine months ended September 30, 1996 compared with 1995
The following summarizes the results of operations of Webb for the
nine months ended September 30, 1996 compared with the nine months ended
September 30, 1995:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
Revenue $ 6,088,946 $ 5,673,320
Costs and expenses 5,598,862 5,295,182
---------------- ----------------
Operating income 490,084 378,138
Interest expense 109,536 122,545
---------------- ----------------
Income before taxes 380,548 255,593
Tax provision 171,300 115,040
---------------- ----------------
Net income $ 209,248 $ 140,553
================ ================
</TABLE>
Revenues for Webb for the nine months ended September 30, 1996 were
$6,088,946, an increase of 7.3% compared with the nine months ended September
30, 1995. This growth in revenues reflects Webb's increased market penetration
and continuing growth of Webb's bin replenishment programs.
Operating income for Webb for the nine months ended September 30,
1996 amounted to $490,084, or 8.0% of sales, compared with $378,138, or 6.7%
of sales, for the comparable prior year period. The improvement in operating
income as a percentage of sales principally reflects higher gross margins as a
result of a shift in the mix of the business to higher gross margin accounts,
while expenses as a percentage of sales remained relatively constant.
Webb's interest expense for the nine months ended September 30, 1996
amounted to $109,536, representing a reduction of $13,009 compared with
interest expense for the nine months ended September 30, 1995. The reduction
in interest expense for the period principally reflects reduced borrowings
necessary to fund the working capital requirements of Webb.
The provision for income taxes for Webb for the nine months ended
September 30, 1996 amounted to $171,300 compared with $115,040 for the nine
months ended September 30, 1995. The provision for income taxes for both
periods reflects federal and state income taxes.
Net income for Webb for the nine months ended September 30, 1996
amounted to $209,248 compared with $140,553 for the comparable prior year
period. The increase in net income principally reflects increased revenues and
gross margin for the period, offset in part by operating expenses which held
relatively constant as a percentage of sales.
32
<PAGE>
For the year ended December 31, 1995 compared with 1994
The following summarizes the results of operations of Webb for the
year ended December 31, 1995 compared with the year ended December 31, 1994:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Revenue $ 7,793,179 $ 8,880,742
Costs and expenses 7,315,920 8,525,325
--------------- ---------------
Operating income 477,259 355,417
Interest expense 161,545 117,732
---------------- ----------------
Income before taxes 315,714 237,685
Tax provision 113,681 63,129
----------------- ----------------
Net income $ 202,033 $ 174,556
================= =================
</TABLE>
Revenues for Webb for the year ended December 31, 1995 were
$7,793,179, a decrease of 12.2% compared with the year ended December 31,
1994. The decline in revenues reflects the termination of a sales agreement
which Webb had with IBM (which termination was the result of a change in
status for Webb from a small disadvantaged business to a small business),
partially offset by new business with other accounts.
Operating income for Webb for the year ended December 31, 1995
amounted to $477,259, or 6.1% of sales, compared with the $355,417, or 4.0% of
sales for the year ended December 31, 1994. The improvement in operating
income as a percentage of sales principally reflects the replacement of low
gross margin business from IBM with new customers and new bin replenishment
programs at higher gross margins, partially offset by an increase in operating
expenses as a percentage of sales as a result of a change in operating cost
structure following the termination of the IBM agreement.
Webb's interest expense for the year ended December 31, 1995 amounted
to $161,545, representing an increase of $43,813 compared with interest
expense for the year ended December 31, 1994. The increase in interest expense
for the year principally reflects increased borrowings necessary to fund the
working capital requirements of Webb.
The provision for income taxes for Webb for the year ended December
31, 1995 amounted to $113,681 compared with $63,129 for the year ended
December 31, 1994. The provision for income taxes in 1995 and 1994 reflects
federal and state income taxes. In addition, in 1994 Webb's tax status changed
from an S Corporation to a C Corporation, which resulted in a change in
accounting for income taxes.
Net income for Webb for the year ended December 31, 1995 amounted to
$202,044 compared with $174,556 for the year ended December 31, 1994. The
increase in net income principally reflects increased gross margin, offset in
part by increased operating expenses as well as increases in interest expense
and the provision for income taxes.
33
<PAGE>
BUSINESS
OVERVIEW
Questron Technology, Inc. (the "Company") consists of two
wholly-owned subsidiaries, Quest Electronic Hardware, Inc. ("Quest") and
Judicate of Philadelphia, Inc. ("Judicate"). Judicate provides alternative
dispute resolution services. Quest is a distributor of fasteners and
electronic hardware. The Company has signed an agreement to acquire Comp Ware,
Inc. d/b/a Webb Distribution ("Webb"), a distributor of electronic hardware,
fasteners and components. Webb serves customers in the high technology
electronic equipment manufacturing industry, primarily in the New England
region. It is intended that, upon consummation of the acquisition of Webb by
Questron, that the businesses of Quest and Webb will operate as wholly-owned
subsidiaries of the Company. The Company may determine to merge these two
subsidiaries at a future date.
By acquiring Webb's business, the Company hopes to expand its market
in the U.S. for fasteners and related products. By consolidating its
administrative activities and accessing Webb's customer basis, the Company
anticipates that it will be able to use its combined resources in order to
develop new services based upon the demand of its existing customers or upon
requests from potential new customers.
BUSINESS OF THE COMPANY
CHANGE OF NAME
At a Special Meeting of Stockholders held on April 2, 1996, the
stockholders of Judicate, Inc. approved the change of the Company's name to
Questron Technology, Inc. The Board of Directors of the Company believes that
the change of name from Judicate, Inc. to Questron Technology, Inc. more
accurately reflects the change in focus and strategic direction of Questron's
business of supplying low technology products to high technology industries
through its wholly-owned subsidiary Quest Electronic Hardware, Inc. ("Quest").
The Company, through its wholly-owned subsidiary Judicate of Philadelphia,
Inc. ("Judicate") continues to provide alternative dispute resolution ("ADR")
services to its clients.
BACKGROUND
The Company was incorporated in Delaware in 1983 to provide a broad
range of ADR services, including non-binding mediations and binding
arbitrations to assist private parties in settling civil disputes. The
increasing awareness of ADR by the legal community and the resulting publicity
fostered a substantial number of competitors in Questron's ADR marketing
areas. These competitive pressures adversely affected the profitability of the
business and the Company experienced substantial cash flow deficits and
operating losses. In September 1993, the Company instituted a vigorous cost
reduction program with a goal of establishing appropriate cost relationships
with revenues. This led to substantial downsizing of its activities, and by
December 31, 1994, all of the Company's ADR services and operations were
handled by Judicate of Philadelphia, Inc. (a wholly-owned subsidiary) and the
ADR business was operating with a substantially reduced staff of
administrative and sales personnel.
The foregoing caused the Company to explore acquisition
opportunities, and in November 1994, the Company announced that it had agreed
to acquire a fasteners and electronic hardware distribution business.
34
<PAGE>
On March 31, 1995 the Company acquired 100% of the stock of Quest, a
fasteners and electronic hardware distribution business, in exchange for a 25%
interest in the Company on a fully diluted basis. The acquisition was
completed pursuant to a Share Acquisition Agreement (the "Share Agreement")
dated November 29, 1994, by and among Gulfstream Financial Group, Inc., a
Florida corporation ("Gulfstream"), Phillip D. Schwiebert, an individual
("Schwiebert"), Quest and the Company. Pursuant to the Share Agreement, the
Company issued to Gulfstream and Schwiebert (the sole stockholders of Quest)
384,409 newly issued, fully-paid and non-assessable shares of common stock of
the Company, in exchange for all of the issued and outstanding shares of
common stock of Quest owned by such stockholders. As required by the Share
Agreement, these shares represented 25% of the outstanding common stock of the
Company on a fully diluted basis. The Company has accounted for the
acquisition of Quest using the purchase method of accounting.
Simultaneously with the foregoing events, Quest acquired the
fasteners distribution business (the "Business") of Arrow Electronics, Inc., a
New York corporation ("Arrow"). Such acquisition was effected pursuant to a
Purchase of Assets Agreement, dated November 29, 1994, by and between Quest
and Arrow (the "Purchase Agreement"). Under the Purchase Agreement, Quest
acquired the assets of Arrow used exclusively in connection with Arrow's
operation of the Business. Such assets included, but were not limited to,
machinery, equipment, furniture, motor vehicles and other personal property,
inventories, rights under contracts (including accounts receivable),
agreements, leases, permits and licenses (to the extent assignable), expensed
items, price lists and other documents.
The purchase price for the acquisition of the Business was a
negotiated fixed price. The price consisted of a cash payment of $4,850,000
plus the assumption of certain liabilities of the Business. As more fully
described below, the purchase price was funded through a combination of
proceeds from borrowings under the Loan and Security Agreement (as defined
below), proceeds from the sale of the Company's securities under a private
placement, and available cash.
Under the Loan and Security Agreement, dated March 31, 1995, by and
between Quest and Silicon Valley Bank (the "Loan Agreement"), Quest borrowed
$2.2 million to partially fund the acquisition of the Business. In order to
secure the obligations of Quest under the Loan Agreement, the Company entered
into a Stock Pledge Agreement, dated March 31, 1995, with Silicon Valley Bank
(the "Bank"). Under the terms of said agreement, the Company pledged to the
Bank the shares of capital stock of Quest which the Company held at such date
and in which the Company may thereafter acquire an interest. In connection
with a subsequent increase in the amount which may be borrowed by Quest under
the Revolving Facility of the Loan Agreement, the Company entered into a
guarantee agreement whereby the Company guaranteed the obligation of Quest
under the Loan Agreement. In addition, Quest granted a security interest in
substantially all of its assets to the Bank. In addition, Quest's obligations
under the Loan Agreement have been guaranteed by Gulfstream.
Approximately $1.5 million of the funds used for the purchase of the
Business were provided from the proceeds of the sale by the Company of 116,000
shares of Common Stock at a purchase price of $15.00 per share to a group of
subscribers in a private placement. The balance of the cash portion of the
purchase price for the Business was provided by available cash.
QUEST ELECTRONIC HARDWARE, INC. ("QUEST")
Quest is a specialized distributor of fasteners and electronic
hardware sold to electronic equipment manufacturers. The business serves
customers in the high technology electronic equipment manufacturing industry,
including leading computer, telecommunications, and medical instrumentation
companies. Prior
35
<PAGE>
to Quest's acquisition from Arrow, the fasteners business had operated as a
distributor of fasteners and electronic hardware for more than twenty years.
Management believes that Quest has the opportunity to become a
significant participant in a very fragmented industry dominated by so-called
"mom and pop" type operations. Management's goal is to expand the business
through a combination of continued penetration of existing markets, expansion
into new markets (including geographic expansion), and acquisitions.
Approximately 50% of Quest's sales are of industrial fasteners, 10%
are of "spacers" and "standoffs" (products used in conjunction with
fasteners), and the remaining sales are divided among a variety of products,
including plastic components, cable ties and accessories, drawer slides,
connectors, and design/prototype components. The demand for products offered
by Quest is relatively stable, with minimal technological change.
Quest has developed a customer base consisting of over 250 active
customers. These customers demand quality service and in many cases are
willing to pay premium prices. Over 95% of Quest's sales are recurring sales
to existing customers. Currently, the business is concentrated in California,
Texas, Colorado and Nevada; however, Quest is seeking to expand its business
geographically, particularly into the eastern U.S. through the Webb
acquisition.
MARKETS
Quest's sales have increased at a compound annual growth rate of 17%
over the past four years. This sales growth was achieved from word-of-mouth
referrals without the benefit of a comprehensive marketing program or
geographic expansion. Management believes that Quest's future growth will be
achieved by implementing a comprehensive marketing plan, including the present
strategy of adding marketing programs responsive to customer's specific
requirements (e.g., bin replenishment programs), further penetration of
existing accounts, identification of new accounts and geographic expansion.
The U.S. market for the distribution of fasteners and related
products is divided into two major segments: large manufacturers of fasteners,
who supply large industrial users directly; and distributors, who service
smaller industrial users. Such distributors, however, are increasingly
supplying larger accounts that can no longer be serviced effectively by the
manufacturers. The distribution side consists of distributors who provide a
rapid response capability to service customer needs and assist in selecting
appropriate fasteners. As a distributor, Quest's business falls into this
latter category, providing such services as bin stock replenishment programs.
COMPETITION
Quest principally competes with a number of small distributors
located within the markets it serves and, to a lesser extent, its own
suppliers. There are a small number of larger companies serving regional
geographic markets, that also compete directly with Quest. Fasteners
distribution is very fragmented in terms of customers served, as well as the
products carried. Such fragmentation allows Quest to conduct its business with
service and support being more important to its customers than product price.
This fragmented market also provides an opportunity for industry consolidation
through acquisitions where meaningful economies of scale can be achieved,
thereby increasing the profits of any consolidating survivors.
36
<PAGE>
SUPPLIERS
Quest carries approximately 20 basic product categories and multiple
line items within each of these categories. Additional and/or new products or
suppliers are added only after they have been accepted in the marketplace, are
required by new or existing customers, and have the potential for making a
contribution to profits.
Of the approximately 100 suppliers whose products are sold by Quest,
the ten largest account for approximately 30% of Quest's purchases, with the
largest supplier accounting for approximately 5%. Management does not regard
any one supplier of products to be essential to its operations and believes
that most of the products presently sold are available from other sources at
competitive prices.
The Company believes that Quest's products are not subject to
significant technological obsolescence and generally represent standard parts
manufactured by multiple suppliers.
CUSTOMERS
Most of Quest's customers require delivery of products on schedules
which are generally not available on direct purchases from the manufacturer or
involve orders of insufficient size to be placed directly with the
manufacturer. The ten largest customers account for approximately 50% of
Quest's sales, with no one customer contributing more than 14%.
ORGANIZATION, MANAGEMENT AND EMPLOYEES
Quest has a total of 44 employees, which include sales, purchasing,
marketing, accounting, operations and warehouse personnel. Quest's employees
are not covered by any collective bargaining agreement. Management believes
that its relationship with its employees is satisfactory.
Quest uses its computer systems for accounting, inventory management
and order processing. All of Quest's transactions, which include order
processing, invoicing, and inventory receiving and shipping, are processed
locally by employees through their local computer system. The local system
permits each of the locations to process all of their transactions as if each
location were an independent company. All order entry and shipping is handled
from the respective locations. Periodically, the transactions from each local
system are consolidated into a central computer system where all billing,
credit and collection functions are centralized and controlled by Quest from
its headquarters location in Boca Raton, Florida. In addition, general
accounting, payable and receivable functions, and related accounting reports
are produced in Boca Raton, Florida, from data generated by Quest's computer
system which reflect the transactions processed by each of the locations.
Similarly, Quest's payroll is processed centrally through a payroll service.
Quest is covered by its own blanket insurance policies.
FACILITIES
The Company is headquartered at 6400 Congress Avenue, Suite 200, Boca
Raton, Florida 33487.
37
<PAGE>
Quest Electronic Hardware, Inc. operates from six well equipped
modern facilities, all of which are leased, as follows:
(i) San Jose, California - includes 3,300 square feet of office
space and 10,000 square feet of warehouse space under a
lease expiring December 31, 1997 and is Quest's principal
warehouse, which space is 90% utilized;
(ii) Dallas, Texas - occupies 250 square feet of office space and
1,750 square feet of warehouse space under a lease expiring
March 31, 1998, which space is 90% utilized;
(iii) Austin, Texas - occupies 900 square feet of office space and
8,100 square feet of warehouse space under a lease expiring
September 15, 2000, which space is approximately 40%
utilized;
(iv) Colorado Springs, Colorado - occupies 1,000 square feet of
office space and 4,000 square feet of warehouse space under
a lease expiring November 30, 1998, which space is
approximately 80% utilized;
(v) Sparks, Nevada - occupies 200 square feet of office space
and 800 square feet of warehouse space under a lease
expiring April 30, 1998, which space is approximately 60%
utilized; and
(vi) Boca Raton, Florida - occupies 2,000 square feet of office
space sublet under a lease expiring May 31, 2000, which
space is approximately 80% utilized.
Total rent expense for Quest amounted to $112,249 in 1995. The
aggregate minimum rental commitments under all non-cancelable operating leases
for the year ending December 31, 1996 is $184,712.
JUDICATE OF PHILADELPHIA, INC. ("JUDICATE")
The Company also provides alternative dispute resolution ("ADR")
services through its wholly owned subsidiary Judicate of Philadelphia, Inc.
("Judicate"). Judicate's ADR services afford an alternative to the often
overburdened public courts and to existing lay arbitration forums. Judicate's
arbitrations and mediations are heard by the judges currently on Judicate's
judicial panel ("Company Judges"). Company Judges are independent contractors
who make their services available to Judicate on a case-by-case basis.
Compensation to the Company Judges is based on the number of proceedings
conducted and the length of time of such proceedings. The Company Judges can
discontinue service on the judicial panel at any time and may provide services
to competing ADR providers. In addition, Judicate maintains a panel of
non-judicial arbitrators and mediators (almost exclusively practicing
attorneys) to hear its disputes.
As of April 3, 1996, Judicate employed four full-time persons; one in
an executive position and three in sales, marketing, administrative, and
clerical activities. As of that date, Judicate had approximately 600 Company
Judges listed on its National Panel of Judges, enabling Judicate to offer
dispute resolution services in all 50 states, the District of Columbia, Puerto
Rico and the United States Virgin Islands. In addition, Judicate has compiled
a panel of 90 Company Neutrals (almost exclusively
38
<PAGE>
practicing attorneys), to preside over its commercial mediations and
arbitrations. The Company Judges and Company Neutrals are independent
contractors and are not employees of the Company. Judicate's employees are not
covered by any collective bargaining agreement. Management believes that its
relationship with its employees is satisfactory.
Judicate of Philadelphia, Inc. entered into a lease agreement
commencing February 1, 1994 and ending February 1, 1996 for its Philadelphia
facility consisting of 6,940 square feet which included two court rooms and
three mediation rooms for a base rental of $48,000 annually. Judicate of
Philadelphia, Inc. negotiated a settlement of this lease and entered into a
monthly renewable lease agreement commencing on August 1, 1995 for a more
suitable facility consisting of 500 square feet for a base rental of $6,000
annually. Its premises are located in a modern office building in downtown
Philadelphia.
BUSINESS OF WEBB
Webb Distribution, Inc. was incorporated in the State of Connecticut
in May 1989 as a distributor of electronic hardware fasteners and components.
In February 1995, Webb Distribution, Inc. was merged into Comp Ware, Inc., a
newly created Delaware corporation, in a migratory merger and currently
conducts business under the name Webb Distribution. The business is
concentrated in the New England area. The Company's principal executive
offices are located at 2 Lowell Avenue, Winchester, MA 08190.
The business of Webb is substantially similar to the business of
Quest, serving customers in the high technology equipment manufacturing
industry. Webb serves a variety of different markets on both a direct order
basis and in providing services such as bin stock replenishment. Along with
serving the original equipment manufacturers markets, Webb also serves
industrial, military, sheet metal and metal fabrication industries.
With over 300 suppliers and many product categories and types, Webb
does not regard any one supplier of products as essential to its operations.
Webb, through its suppliers, is able to serve many market segments, as
evidenced by its more than 800 active industrial, commercial and military
customers.
Webb's annual sales amounted to $7.8 million for the year ended
December 31, 1995 and $6.1 million for the nine months ended September 30,
1996.
PROPOSED ACQUISITION OF WEBB
The Company has entered into a Stock Purchase Agreement dated as of
December 16, 1996 (the "Webb Agreement") whereby it has agreed to acquire all
of the outstanding stock of Comp Ware, Inc. d/b/a Webb Distribution, a
Delaware corporation ("Webb"), from the current stockholders of Webb (the
"Webb Stockholders"). The purchase price for the acquisition will consist of:
(i) 1,500,000 Series IV Warrants (the "Webb Warrants")
issued to the majority shareholder of Webb as a
down payment under the Webb Agreement, which
warrants are to be cancelled in the event that the
Webb acquisition does not close. Such warrants are
being held in escrow subject to the completion of
the acquisition of Webb;
39
<PAGE>
(ii) $3,250,000 in cash;
(iii) Note A in the amount of $375,000. Principal and
interest at the rate of 10% are due and payable 18
months from the Effective Date; and
(iv) Note B in the amount $375,000. Principal and
interest at the rate of 10% are payable monthly
over five years from the Effective Date.
The Webb Warrants are being registered by the Company for resale by
the majority stockholder of Webb pursuant to the Registration Statement of
which this Prospectus is a part and are the subject of an alternative
prospectus. The Company's obligations under the Notes may be reduced on a
dollar for dollar basis in the event and to the extent that the former
majority stockholder receives net proceeds greater than $375,000 from a sale
of the Webb Warrants. In addition, the Notes will be cancelled in the event
that the Underwriter releases the lock-up in connection with a proposed
transaction to sell the Webb Warrants and the majority stockholder of Webb
declines to sell such warrants following such release.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
It is anticipated that, upon consummation of the acquisition, the
current management of Questron will continue to operate the Company. The Board
of Directors is currently comprised of the following:
Name Age Position
- ---- --- --------
Dominic A. Polimeni 50 Chairman, President, and Chief
Executive Officer
Milton M. Adler 69 Secretary, Treasurer, Controller
and Director
Robert V. Gubitosi 49 Director
Mitchell Hymowitz 34 Director
William J. McSherry, Jr. 49 Director
Each of the directors of the Company holds office until the next
annual meeting of stockholders, or until their successors are elected and
qualified. The Company's by-laws currently provide for not less than three
directors nor more than nine directors. Currently, there are five directors in
the Company. The by-laws permit the Board of Directors to fill any vacancy and
such director may serve until the next annual meeting of stockholders or until
his successor is elected and qualified. Officers serve at the discretion of
the Board of Directors. There are no family relationships among any of the
officers or directors of the Company except that Dominic A. Polimeni is the
brother-in-law of Robert V. Gubitosi.
The principal occupation and business experience for each officer and
director of the Company for the last five years as follows:
DOMINIC A. POLIMENI has been President, Chief Operating Officer and a
Director of the Company since March 1995, and Chairman and Chief Executive
Officer since February 1996. He has also been Chairman, Chief Executive
Officer and Chief Financial Officer of Quest Electronic Hardware, Inc. since
October 1994. Since May 1996, Mr. Polimeni has been a director of Healthcare
Imaging Services, Inc., a publicly held company based in Middletown, New
Jersey which provides healthcare management and services. Since March 1996 Mr.
Polimeni has also been a director of TMCI Electronics, Inc., a publicly held
company based in San Jose, California which provides custom manufacturing and
value-added services to the information technology industry. Mr. Polimeni has
been a Managing Director of Gulfstream Financial Group, Inc., a privately held
financial consulting and investment banking firm, since August 1990. Prior to
that he held the position of Chief Financial Officer of Arrow Electronics,
Inc. ("Arrow") for four (4) years. He also held several other positions,
including general management positions, with Arrow over an eight-year period.
Prior to that he practiced as a Certified Public Accountant for more than 12
years and was a Partner in the New York office of Arthur Young &
41
<PAGE>
Company. He has also held the position of Chief Operating Officer of Fugazy
Express, Inc., a New York based transportation company in its start-up phase.
He holds a bachelor of business administration degree from Hofstra University.
Mr. Polimeni is the brother-in-law of Mr. Gubitosi.
MILTON M. ADLER has been a Director of the Company since February
1996, Controller of the Company since January 1992, Treasurer of the Company
since February 1992 and Secretary since October 1993. Prior thereto, Mr. Adler
was employed by Travelco, a travel consulting firm, for more than 18 years in
various capacities, the most recent of which was Vice President of
Administration. Mr. Adler is a Certified Public Accountant.
ROBERT V. GUBITOSI has been a Director of the Company since February
1996 and Director of Operations of Quest Electronic Hardware, Inc., a
subsidiary of the Company, since March 1995. Mr. Gubitosi has been a Managing
Director of Gulfstream Financial Group, Inc., a privately held financial
consulting and investment banking firm, since August 1990. Prior to that he
held the position of General Partner and Chief Financial Officer of the
Securities Groups, a New York investment banking firm and primary dealer of
U.S. government securities, with responsibility for the investment banking
activities of the firm. In addition, he has held managerial positions at
Goldman Sachs & Company and Oppenheimer & Company and specialized in brokerage
accounting and auditing at Haskins & Sells and Touche Ross & Co. He holds a
bachelor of business administration degree from Hofstra University.
Mr. Gubitosi is the brother-in-law of Mr. Polimeni.
MITCHELL HYMOWITZ has been a Director of the Company since December
1993. Mr. Hymowitz has also been Principal/Chief Financial Officer of H&W
Hardware Co., Inc. and Vice President of Two Twenty First Avenue Realty Corp.
since September 1990. Prior to that he was Senior Accountant with Paritz and
Company, P.A., in New Jersey. Mr. Hymowitz earned a Bachelor of Science in
Business Administration with a degree in Accounting from State University of
New York at Buffalo in 1984.
WILLIAM J. MCSHERRY, JR. has been a Director of the Company since
February 1996. Mr. McSherry has been a partner of Battle Fowler LLP, a law
firm with offices in New York City and Los Angeles, since July 1991. Prior to
July 1991, Mr. McSherry was a partner in the law firm of Bryan Cave. Mr.
McSherry is also the President and a director of Playtex Marketing
Corporation, a privately- owned corporation, and serves as a trustee and as
Deputy Mayor of the Village of Larchmont, State of New York.
42
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the named
executives for the periods indicated. No executive officer had total annual
salary and bonus during any such period equal to or greater than $100,000.
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------- ---------------------------- ------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Securities
Name and Other Annual Stock Underlying LTIP All other
Principal Position Year Salary Bonus Compensation Awards ($) Options/SARs(#) Payouts Compensation
- ------------------ ---- ------ ----- ------------ ---------- --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dominic A. Polimeni 1995(1) $75,000 -- -- -- -- -- --
Chairman, President and 1994 -- -- -- -- -- -- --
Chief Executive Officer 1993 -- -- -- -- -- -- --
Stephen J. Drescher 1995(1) $52,000 -- -- -- -- -- --
Former Chairman and Chief 1994 $52,000 -- -- -- 25,000(2) -- --
Executive Officer 1993 $19,000 -- -- -- -- -- --
</TABLE>
- ---------------
(1) Mr. Polimeni served as President and Chief Operating Officer of the
Company during the period March-December 1995. Mr. Drescher acted as
Chairman and Chief Executive Officer until January 1996. In February
1996, Mr. Polimeni was elected to the additional capacities of Chairman
and Chief Executive Officer. Prior to March 1995, Mr. Polimeni was not
associated with the Company.
(2) Options to acquire 25,000 shares at $6.25 per share were granted to
Mr. Drescher in 1994 pursuant to the 1992 Amended and Restated
Management Incentive Option Plan.
EMPLOYMENT AGREEMENTS
Dominic A. Polimeni, Chairman, Chief Executive Officer and President
of the Company, is party to an employment agreement with Quest Electronic
Hardware, Inc., a subsidiary of the Company. This agreement expires on March
31, 2000, provides for a base salary of $100,000 per annum and requires Mr.
Polimeni to devote such portion of his business time and energies to the
business and affairs of the Company as is needed to perform his duties under
the agreement. See also "Certain Transactions" with respect to a Management
Advisory and Consulting Agreement between the Company and Gulfstream Financial
Group, Inc., a company owned by Mr. Polimeni and Joan R. Gubitosi.
OPTION/SAR GRANTS
There were no grants during 1995 of stock options or stock
appreciation rights to any person named in the Summary Compensation Table. For
information relating to warrants and rights granted to Gulfstream, a company
owned by Dominic A. Polimeni and Joan R. Gubitosi, and to Phillip D.
Schwiebert. See "Securities Ownership--Exchange Agreements."
43
<PAGE>
OPTION/SAR EXERCISES
Set forth below is information concerning exercises of options during
1995 and the year-end value of unexercised options for the persons named in
the Summary Compensation Table:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised-In-
Shares Options/SAR's at Fiscal the-Money Options/SARs
Acquired Value Year End (#) at Fiscal Year End ($)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dominic A.Polimeni -- -- -- --
Chief Executive Officer,
Chairman and President
Stephen J. Drescher 25,000 $656,250 -- --
Former Chief Executive
Officer and Chairman
</TABLE>
The value realized is based on the difference between the exercise
price of $6.25 per share and the average of the high and low bid prices for
the Common Stock on April 28, 1995, the date of exercise.
COMPENSATION OF DIRECTORS
Other than the 1994 Director Non-Qualified Stock Option Plan
described below, the Company does not have a standard policy regarding
compensation of members of the Board of Directors. Other than as reported
below, the members of the Board of Directors did not receive compensation for
their services as such during the year ended December 31, 1995.
THE 1994 DIRECTOR NON-QUALIFIED STOCK OPTION PLAN
On January 26, 1994, the Board of Directors (the "Board") adopted,
subject to stockholder approval, the above captioned plan and in February 1996
amended the plan so as to change the annual date of the grant to the first
Wednesday of February. On April 2, 1996, the Director Non-Qualified Stock
Option Plan was approved by the Company's stockholders at a special meeting.
The plan, as amended and approved, is hereinafter referred to as the "1994
Plan." Pursuant to the terms of the 1994 Plan, options for an aggregate of
30,000 shares of the Company's Common Stock may be granted.
All non-employee directors shall receive an option to purchase 1,500
shares of the Common Stock of the Company on the first Wednesday of February
in each calendar year at an exercise price equal to the fair market value per
share of the Common Stock on that date. Such options shall be exercisable
immediately for a period of 10 years from date of grant unless terminated
earlier pursuant to the terms of the plan. Under the 1994 Plan, 12,000 options
have been granted to date at exercise prices of $11.25 per share, $19.06 per
share and $24.06 per share.
44
<PAGE>
1992 STOCK OPTION PLAN
In June 1992, the Board unanimously approved the adoption of the
"1992 Plan" which was approved by the stockholders of the Company on January
8, 1993. Under the 1992 Plan, both incentive stock options ("ISOs") and
non-qualified stock options ("Non-Qualified Options") may have been granted
(together, the "Options"). Each option was to be specifically designated at
the time of its grant as an ISO (within the meaning of Section 422 of the
Internal Revenue Code of 1986) (the "Code"), or a Non- Qualified Option. All
non-management employees were eligible to receive ISOs under the 1992 Plan.
All non-management employees and non-employee consultants and Company Judges
were eligible to receive Non-Qualified Options under the 1992 Plan.
No options were granted under the 1992 Plan during 1995. The Board of
Directors has terminated the 1992 Plan and no additional options will be
granted thereunder.
THE 1992 AMENDED AND RESTATED MANAGEMENT INCENTIVE OPTION PLAN
In December 1991, the Board approved the Company's 1992 Management
Incentive Option Plan (the "Incentive Plan"). In September and October 1992,
effective as of the date of the original plan, the Board approved certain
amendments to the original plan which were ratified by the stockholders of the
Company on January 8, 1993. Pursuant to the terms of the Incentive Plan
non-qualified options to purchase up to 53,333 shares of the Company's Common
Stock may have been granted to officers, directors, key employees and
consultants of the Company.
No options were granted under the Incentive Plan during 1995. The
Board of Directors has terminated the Incentive Plan and no additional options
will be granted thereunder.
1996 STOCK OPTION PLAN
The Board of Directors of the Company has submitted for the approval
of the Company's stockholders at the annual meeting of stockholders scheduled
for December 27, 1996, a 1996 Stock Option Plan (the "1996 Plan"). Under the
1996 Plan, either Incentive Stock Options or Non-Qualified Stock Options may
be granted; however, the former may be granted only to employees of the
Company and its subsidiaries. Pursuant to the terms of the 1996 Plan, a total
of 250,000 shares of the Company's Common Stock (as adjusted to reflect the
proposed one-for-ten reverse split) will be reserved and available for
distribution as awards under the 1996 Plan.
CERTAIN TRANSACTIONS
As of the close of business on March 31, 1995, the Company acquired
from Gulfstream Financial Group, Inc., a Florida corporation owned by Dominic
A. Polimeni and Joan R. Gubitosi, and from Phillip D. Schwiebert all of the
outstanding capital stock of Quest Electronic Hardware, Inc. This transaction
is described under "Securities Ownership--Security Ownership of Management and
Principal Stockholders." Pursuant to the Management Advisory and Consulting
Agreement therein described, the Company has also agreed to compensate
Gulfstream for advisory and consulting services at the rate of $150,000 per
year. This agreement expires on March 31, 2000 and can be terminated by either
party
45
<PAGE>
on 90 days notice. See also "Securities Ownership--Exchange Agreement" for the
terms of a related exchange agreement.
In April 1995, the Company loaned Stephen J. Drescher, then Chairman
and Chief Executive Officer of the Company, $156,250 in connection with the
exercise by Mr. Drescher of options to purchase Common Stock. The obligation
to repay this loan was satisfied by Gulfstream and Mr. Schwiebert by the
contribution of shares of Common Stock to the Company in connection with Mr.
Drescher's resignation in January 1996 as an officer and director of the
Company.
In April 1995, the Company loaned Paul L. Burton, then Executive Vice
President and a Director of the Company, $125,000 in connection with the
exercise by Mr. Burton of options to purchase Common Stock. The obligation to
repay this loan and to repay $69,228 of expenses paid by the Company on Mr.
Burton's behalf was satisfied by Gulfstream and Mr. Schwiebert by the
contribution of shares of Common Stock to the Company in connection with Mr.
Burton's resignation in January 1996 as an officer and director of the
Company.
46
<PAGE>
SECURITIES OWNERSHIP
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of December 1,
1996, known to the Company regarding beneficial ownership of the Company's
Common Stock by (i) any person who is known by the Company to own beneficially
more than five percent of the outstanding shares of the Company's Common
Stock; (ii) the Company's directors; and (iii) all executive officers and
directors as a group. The following calculations were based upon 1,535,484
shares of the Company's Common Stock issued and outstanding as of the above
date. ALL AMOUNTS SHOWN HAVE BEEN ADJUSTED TO REFLECT THE PROPOSED ONE-FOR-TEN
REVERSE SPLIT OF THE OUTSTANDING COMMON STOCK.
<TABLE>
<CAPTION>
Percentage of Shares
--------------------
Position with Number Before After
Name & Address the Company of Shares Offering Offering
- -------------- ----------- --------- -------- --------
<S> <C> <C> <C> <C>
Dominic A. Polimeni(1) Chairman, President 380,273(2) 22.97%
and Chief Executive
Officer
Milton M. Adler (1) Director, Secretary, 767(3) *
Treasurer and
Controller
Robert V. Gubitosi(1) Director __(4) __
Mitchell Hymowitz(1) Director 4,500(5) *
William J. McSherry, Jr.(1) Director 3,500(6) *
Joan R. Gubitosi 380,273(2) 22.97%
c/o Gulfstream Financial
Group, Inc.
6400 Congress Ave., Suite 200
Boca Raton, FL 33487
Phillip D. Schwiebert President and Chief 166,136(7) 10.61%
c/o Quest Electronic Operating Officer of
Hardware, Inc. Quest Electronic
1180 Murphy Avenue Hardware, Inc., a
San Jose, CA 95131 subsidiary of the
Company
47
<PAGE>
Percentage of Shares
--------------------
Position with Number Before After
Name & Address the Company of Shares Offering Offering
- -------------- ----------- --------- -------- --------
The Miami Project to Cure Paralysis 100,000 6.51%
The University of Miami
School of Medicine
1600 NW Tenth Avenue
Miami, FL 33136
All officers and directors as a group 389,040 23.00%
(five persons)
</TABLE>
- ------------
* Less than 1%
(1) c/o Questron Technology, Inc., 6400 Congress Avenue, Suite 200,
Boca Raton, FL 33487.
(2) These shares are owned by Gulfstream Financial Group, Inc.
("Gulfstream"). Joan R. Gubitosi and Mr. Polimeni are executive
officers and the stockholders of Gulfstream and share voting and
investment power with respect to shares owned by Gulfstream. The
380,273 shares reported above consist of 260,273 shares owned by
Gulfstream and options to purchase 120,000 shares at $3.75 per share.
This number does not include warrants to purchase 1,000,000 shares of
Common Stock granted pursuant to the November 8, 1996 Exchange
Agreement, as defined below. Pursuant to a Management Advisory and
Consulting Agreement, dated as of November 29, 1994, between the
Company and Gulfstream, Gulfstream was previously entitled to be
awarded as incentive compensation warrants to purchase up to 10.0% of
the Company's Common Stock outstanding at March 31, 1995 (for
purposes of such calculation, the common stock outstanding at March
31, 1995 assumes the conversion of all outstanding warrants, options
and preferred stock), at a price of $1.00 per share, upon the
attainment of certain earnings targets. These rights have been
modified. See "Securities Ownership--Exchange Agreement."
(3) Includes options to purchase 667 shares of Common Stock at $127.50
per share granted pursuant to the 1992 Stock Option Plan.
(4) Mr. Gubitosi's wife, Joan R. Gubitosi, has shared beneficial ownership
of 380,273 shares of Common Stock (see Footnote 2). Mr. Gubitosi
disclaims beneficial ownership of such shares.
(5) Consists of options to purchase 1,500 shares of Common Stock at
$11.25 per share, options to purchase 1,500 shares of Common Stock at
$24.06 per share and options to purchase 1,500 shares of Common Stock
at $19.06 per share granted pursuant to the 1994 Director
Non-Qualified Stock Option Plan.
(6) Includes options to purchase 1,500 shares of Common Stock at $19.06
per share granted pursuant to the 1994 Director Non-Qualified Stock
Option Plan.
(7) The 166,136 shares reported above consist of 136,136 shares owned
by Schwiebert and options to purchase 30,000 shares at $3.75 per
share. This number does not include warrants to purchase 250,000
shares of Common Stock granted pursuant to the November 8, 1996
Exchange Agreement, as defined below. Pursuant to an Employment
Agreement, dated as of November 29, 1994, between Quest and Phillip
D. Schwiebert, Mr. Schwiebert was previously entitled to be awarded
as incentive compensation warrants to purchase up to 5.0% of the
Company's Common Stock outstanding at March 31, 1995 (for purposes of
such calculation, the common stock outstanding at March 31, 1995
assumes the conversion of all outstanding warrants, options and
preferred stock), at a price of $1.00 per share, upon the attainment
of certain earnings targets. These rights have been modified. See
"Securities Ownership--Exchange Agreement."
48
<PAGE>
As of the close of business on March 31, 1995, the Company acquired
from Gulfstream Financial Group, Inc. ("Gulfstream"), a Florida corporation
owned by Dominic A. Polimeni and Joan R. Gubitosi, and from Phillip D.
Schwiebert all of the outstanding capital stock of Quest Electronic Hardware,
Inc. ("Quest"). Quest, in turn, simultaneously acquired the fasteners
distribution business of Arrow Electronics, Inc. These events resulted in
changes in ownership of the capital stock of the Company which may have
affected the control of the Company. These changes included the following:
(a) Gulfstream became the direct beneficial owner of 22.1% of the
shares of Common Stock of the Company outstanding at March 31, 1995;
(b) Gulfstream, in consideration of its services to the Company under
a Management Advisory and Consulting Agreement, dated as of November 29, 1994,
was to be entitled to be awarded as incentive compensation, subject to certain
conditions and restrictions, warrants to purchase up to 10.0% of the Common
Stock outstanding at March 31, 1995 (for purposes of such calculation, the
Common Stock outstanding at March 31, 1995 assumes the conversion of all
outstanding warrants, options and preferred stock), at a price of $1.00 per
share, upon the attainment of certain earnings targets. See "Securities
Ownership -- Exchange Agreement";
(c) Dominic A. Polimeni ("Polimeni"), a Director, Executive Officer
and principal stockholder of Gulfstream, and the Chairman, Chief Executive
Officer and Chief Financial Officer of Quest, which became a subsidiary of the
Company, was named President and Chief Operating Officer of the Company (Mr.
Polimeni was subsequently named Chairman, President and Chief Executive
Officer of the Company); and
(d) Phillip D. Schwiebert ("Schwiebert"), the President and Chief
Operating Officer of Quest, became the beneficial owner of 11.6% of the shares
of Common Stock of the Company outstanding at March 31, 1995, and, pursuant to
an Employment Agreement, dated as of November 29, 1994, by and between Quest
and Schwiebert, was to be entitled to be awarded as incentive compensation,
subject to certain conditions and restrictions, warrants to purchase up to
5.0% of the Company's Common Stock outstanding at March 31, 1995 (for purposes
of such calculation, the Common Stock outstanding at March 31, 1995 assumes
the conversion of all outstanding warrants, options and preferred stock), at a
price of $1.00 per share, upon the attainment of certain earnings targets. See
"Securities Ownership -- Exchange Agreement."
Subsequent to the foregoing events, certain principal stockholders of
the Company (Jordan R. Belfort, Richard Bronson, Elliot Loewenstern and Daniel
Porush) who, in the aggregate, beneficially owned approximately 45% of the
Company's outstanding stock disposed of the bulk of these shares. Messrs.
Bronson and Loewenstern are principals of the Underwriter. In addition, the
Board of Directors of the Company underwent a restructuring by reason of the
resignation of four (4) former directors and the election of Messrs. Adler,
Gubitosi and McSherry to the Board.
EXCHANGE AGREEMENT
In connection with the Offering and the Webb acquisition, Gulfstream
and Philip Schwiebert, shareholders of the Company, have entered into an
Exchange Agreement dated as of November 8, 1996 (the "Exchange Agreement")
pursuant to which Gulfstream and Schwiebert have agreed to exchange their
rights to receive warrants to purchase up to 10% and 5%, respectively, of the
Common Stock outstanding as of March 31, 1995. The Exchange Agreement is
conditioned upon the effectiveness of the reverse
49
<PAGE>
split. Based upon the number of shares of Common Stock outstanding on such
date (after giving effect to the exercise of all the outstanding options and
warrants), the foregoing represented the right of Gulfstream and Schwiebert to
acquire up to 2,641,720 and 1,320,860 shares of Common Stock, respectively, at
$.10 per share. After giving effect to the proposed one-for-ten reverse split,
the foregoing would represent the right to acquire 264,172 and 132,086 shares
of post-split Common Stock, respectively, at $1.00 per share.
The Board of Directors deemed it desirable to enter into the Exchange
Agreement by reason of the fact that the rights previously granted to
Gulfstream and Schwiebert would have resulted in substantial charges to the
Company's earnings by reason of accounting rules now in effect and would have
resulted in substantial dilution to the other stockholders. Under the options,
warrants and rights granted under the Exchange Agreement, no charge to
earnings should result as a result of their being exercisable at the fair
market value at the date of grant in lieu of $.10 per share ($1.00 per share
after giving effect to the proposed one-for-ten reverse split). In addition,
pursuant to the Exchange Agreement the Company has substantially increased the
pre-tax income targets needed to earn certain of the awards from $1.4 million,
$1.8 million, $2.2 million and $2.6 million to $2.5 million, $3.5 million and
$4.5 million. Under the prior arrangements, one half of the awards would have
been earned upon completion of the proposed acquisition of Webb, thereby
resulting in a substantial charge to earnings and substantial dilution to
stockholders. Under the Exchange Agreement, no awards which are conditioned on
meeting the pre-tax income targets set forth below will be earned until the
$2.5 million pre-tax income target is met or exceeded. Finally, although
Gulfstream and Schwiebert have the opportunity to earn a substantially greater
number of shares, the amount of consideration which will have to be paid for
such shares has substantially increased as well. Based upon current market
prices and giving effect to the proposed reverse split, the price to be paid
per share acquired will have increased under the Exchange Agreement from $1.00
to at least $3.75.
Pursuant to the Exchange Agreement, Gulfstream and Schwiebert
received the following in exchange for the rights previously granted under
their agreements. ALL AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE PROPOSED
ONE-FOR-TEN REVERSE SPLIT.
Gulfstream: 1) Options to acquire 120,000 shares of Common
Stock for a per share exercise price equal to
$3.75; and
2) Series IV Warrants to acquire 1,000,000 shares
of Common Stock. If the proposed offering is
not consummated, the exercise price shall be
$4.3125 per share.
Schwiebert: 1) Options to acquire 30,000 shares of Common Stock
for a per share exercise price equal to $3.75;
and
2) Series IV Warrants to acquire 250,000 shares of
Common Stock. If the proposed offering is not
consummated, the exercise price shall be
$4.3125 per share.
In addition, Gulfstream and Schwiebert will be entitled to receive
options to acquire additional shares of Common Stock at an exercise price
equal to the fair market value of the Common Stock at the
50
<PAGE>
date of grant if the pre-tax income targets set forth below are met or
exceeded in any fiscal year up to and including fiscal year 2001:
No. of Additional No. of Additional
Gulfstream Shares Schwiebert Shares Pre-tax Income at Least
----------------- ----------------- -----------------------
333,333 166,667 $2,500,000
333,333 166,667 $3,500,000
333,334 166,666 $4,500,000
The following table summarizes the effect of the Exchange Agreement.
ALL AMOUNTS HAVE BEEN ADJUSTED TO REFLECT THE PROPOSED ONE-FOR-TEN REVERSE
SPLIT.
<TABLE>
<CAPTION>
Before Exchange Agreement After Exchange Agreement
--------------------------------------------------- --------------------------------------------------
Maximum No. Aggregate Maximum No. Aggregate
of Shares to be Exercise Price Percentage of Shares to be Exercise Price Percentage
Purchased to be Paid of Stock Purchased to be Paid* of Stock**
--------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gulfstream 264,172 $264,172 13.68% 2,120,000 $8,512,500 47.80%
Schwiebert 132,086 $132,086 6.84% 780,000 $3,065,625 17.59%
</TABLE>
* In the case of the options, an exercise price of $3.75 per share of the
Common Stock was used for the purpose of determining the aggregate
exercise price to be paid. In the case of the Warrants, an exercise price
of $4.3125 per share of the Common Stock was used for the purpose of
determining the aggregate exercise price to be paid.
** These amounts do not give effect to any issuances of shares as a result of
the Offering or the Webb acquisition.
51
<PAGE>
DESCRIPTION OF SECURITIES
UNITS
Each of the Units offered hereby at $6.00 per Unit consists of one
share of Series B Preferred Stock and one Series IV Warrant. The Series B
Preferred Stock and Series IV Warrants are detachable and may trade separately
immediately upon issuance. Should the Series IV Warrants be exercised, of
which there is no assurance, the Company will receive the proceeds therefrom,
aggregating up to an additional $[ ].
COMMON STOCK
The authorized Common Stock of the Company consists of 20,000,000
shares of Common Stock, $.001 par value per share (adjusted to reflect the
proposed reduction in authorized common stock). There are presently 1,535,484
issued and outstanding shares of Common Stock (ADJUSTED TO REFLECT THE
PROPOSED ONE-FOR-TEN REVERSE SPLIT). Immediately prior to the date of this
Prospectus, there were approximately 1,000 stockholders of record of the
Company. Holders of the Common Stock do not have preemptive rights to purchase
additional shares of Common Stock or other subscription rights. The Common
Stock carries no conversion rights and is not subject to redemption or to any
sinking fund provisions. All shares of Common Stock are entitled to share
equally in dividends from sources legally available therefor when, as and if
declared by the Board of Directors and, upon liquidation or dissolution of the
Company, whether voluntary or involuntary, to share equally in the assets of
the Company available for distribution to stockholders. All outstanding shares
of Common Stock are validly authorized and issued, fully paid and
nonassessable, and all shares to be sold and issued as contemplated hereby,
will be validly authorized and issued, fully paid and nonassessable. The Board
of Directors is authorized to issue additional shares of Common Stock, not to
exceed the amount authorized by the Company's Certificate of Incorporation,
and to issue options and warrants for the purchase of such shares, on such
terms and conditions and for such consideration as the Board may deem
appropriate without further stockholder action. The above description
concerning the Common Stock of the Company does not purport to be complete.
Reference is made to the Company's Certificate of Incorporation and By-laws
which are available for inspection upon proper notice at the Company's
offices, as well as to the applicable statutes of the State of Delaware for a
more complete description concerning the rights and liabilities of
stockholders.
Each holder of Common Stock is entitled to one vote per share on all
matters on which such stockholders are entitled to vote. Since the shares of
Common Stock do not have cumulative voting rights, the holders of more than
fifty percent (50%) of the shares voting for the election of directors can
elect all the directors if they choose to do so and, in such event, the
holders of the remaining shares will not be able to elect any person to the
Board of Directors.
PREFERRED STOCK
The authorized Preferred Stock of the Company consists of 6,000,000
shares of Preferred Stock, $.01 par value per share (adjusted to reflect the
proposed reduction in authorized preferred stock). Immediately prior to the
date of this Prospectus, there were no shares of Preferred Stock outstanding.
Previously, 900,000 shares of Preferred Stock had been issued under terms
which prohibited their reissuance.
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<PAGE>
The terms and conditions of the 1,000,000 shares of Series B
Preferred Stock included in the Units are set forth in a Certificate of
Designations and Preferences which is being filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Each share of
Series B Preferred Stock shall be automatically converted without any action
on the part of the Company or the holder thereof into ____ shares of Common
Stock on the second anniversary of the Effective Date. This conversion ratio
is equal to 80% of the closing price per share as represented on the Nasdaq
SmallCap Market for the Common stock on the day immediately preceding the
Effective Date compared with an offering price of $5.75 per share of Series B
Preferred Stock. Annual dividends on the Series B Preferred Stock in respect
of the two year period prior to conversion at the rate of $0.115 per share.
Holders of Series B Preferred Stock will be entitled to one vote for each
share of Common Stock into which such Preferred Stock is convertible. Each
share of Series B Preferred Stock will be entitled to a liquidation preference
equal to $0.01 per share.
Up to 4,100,000 additional shares of Preferred Stock may be issued
from time to time in one or more series and the Board of Directors, without
further approval of the stockholders, is authorized to fix the dividend rights
and terms, conversion rights, voting rights, redemption rights, liquidation
preferences and other rights and restrictions relating to any such series. The
issuances of additional shares of Preferred Stock, while providing flexibility
in connection with possible financings, acquisitions and other corporate
purposes, could, among other things adversely affect the voting power of the
holders of other securities of the Company and may, under certain
circumstances, have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company.
SERIES IV WARRANTS
The Series IV Warrants shall be exercisable commencing one year after
the date of this Prospectus ("Effective Date"). Each Series IV Warrant
entitles the holder to purchase during the four year period commencing one
year from the Effective Date one share of Common Stock at an exercise price of
115% of the closing market price per share of Common Stock on the day
immediately preceding the Effective Date. The Common Stock underlying the
Warrants will, upon exercise of the Warrants, be validly issued, fully paid
and nonassessable. The Series IV Warrants will be subject to redemption by the
Company for $.05, upon 30 days' prior written notice, if the closing bid price
of the Common Stock, as reported by the Nasdaq SmallCap Market, exceeds $
_____ per share for any 20 consecutive trading days ending within ten days
prior to the date of the notice of redemption.
The Series IV Warrants can only be exercised when there is a current
effective registration statement covering the shares of Common Stock
underlying the Series IV Warrants. If the Company does not or is unable to
maintain a current effective registration statement the Series IV Warrant
holders will be unable to exercise the Series IV Warrants and the Series IV
Warrants may become valueless. Moreover, if the shares of Common Stock
underlying the Series IV Warrants are not registered or qualified for sale in
the state in which a Series IV Warrant holder resides, such holder might not
be permitted to exercise the Series IV Warrants. See "Risk
Factors--Requirements of Current Prospectus and State Blue Sky Registration in
Connection with the Exercise of the Series IV Warrants Which May Not Be
Exercisable and May Therefore Be Valueless."
The Company will deliver Series IV Warrant certificates to the
purchasers of Units representing one Series IV Warrant for each Unit
purchased. Thereafter, Series IV Warrant certificates may be exchanged for new
certificates of different denominations, and may be exercised or transferred
by presenting them at the offices of the Transfer Agent. Holders of the Series
IV Warrants may sell the Series IV Warrants if a market exists rather than
exercise them. However, there can be no assurance that
53
<PAGE>
a market will develop or continue as to such Series IV Warrants. If the
Company is unable to qualify its Common Stock underlying such Series IV
Warrants for sale in certain states, holders of the Company's Series IV
Warrants in those states will have no choice but to either sell such Series IV
Warrants or allow them to expire.
Each Series IV Warrant may be exercised by surrendering the Series IV
Warrant certificate, with the form of election to purchase on the reverse side
of the Series IV Warrant certificate properly completed and executed, together
with payment of the exercise price to the Series IV Warrant Agent. The Series
IV Warrants may be exercised in whole or from time to time in part. If less
than all of the Series IV Warrants evidenced by a Series IV Warrant
certificate are exercised, a new Series IV Warrant certificate will be issued
for the remaining number of Series IV Warrants.
Holders of the Series IV Warrants are protected against dilution of
the equity interest represented by the underlying shares of Common Stock upon
the occurrence of certain events, including, but not limited to, issuance of
stock dividends other than dividends paid in respect of the Series B Preferred
Stock. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Series IV Warrants, the Series IV Warrants may be exercised
immediately prior to such action. In the event of liquidation, dissolution or
winding up of the Company, holders of the Series IV Warrants are not entitled
to participate in the Company's assets.
For the life of the Series IV Warrants, the holders thereof are given
the opportunity to profit from a rise in the market price of the Common Stock
of the Company. The exercise of the Series IV Warrants will result in the
dilution of the then book value of the Common Stock of the Company held by the
public investors and would result in a dilution of their percentage ownership
of the Company. The terms upon which the Company may obtain additional capital
may be adversely affected through the period that the Series IV Warrants
remain exercisable. The holders of these Series IV Warrants may be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain equity capital on terms more favorable than those provided for by the
Series IV Warrants.
Because the Series IV Warrants included in the Units being offered
hereby may be transferred, it is possible that the Series IV Warrants may be
acquired by persons residing in states where the Company has not registered,
or is not exempt from registration such that the shares of common stock
underlying the Series IV Warrants may not be sold or transferred upon exercise
of the Series IV Warrants. Series IV Warrant holders residing in those states
would have no choice but to attempt to sell their Series IV Warrants or to let
them expire unexercised. Also, it is possible that the Company may be unable,
for unforeseen reasons, to cause a registration statement covering the shares
underlying the Series IV Warrants to be in effect when the Series IV Warrants
are exercisable. In that event, the Series IV Warrants may expire unless
extended by the Company as permitted by the Series IV Warrant because a
registration statement must be in effect in order for warrant holders to
exercise their Series IV Warrants.
In the event that the Series IV Warrants are called for redemption,
the Series IV Warrant holders may not be able to exercise their Series IV
Warrants if the Company has not updated this Prospectus in accordance with the
requirements of the Act or these securities have not been qualified for sale
under the laws of the state where the Series IV Warrant holder resides. See
"Requirements of Current Prospectus and State Blue Sky Registration in
Connection with the Exercise of the Series IV Warrants Which May Not Be
Exercisable and May Therefore Be Valueless." In addition, in the event that
the Series IV Warrants have been called for redemption, such call for
redemption could force the Series IV Warrant holder to either (i) assuming the
necessary updating to the Prospectus and state blue sky qualifications
54
<PAGE>
have been effected, exercise the Series IV Warrants and pay the exercise price
at a time when, in the event of a decrease in market price from the period
preceding the issuance of the call for redemption, it may be less than
advantageous economically to do so, or (ii) accept the redemption price,
which, in the event of an increase in the price of the stock, could be
substantially less than the market value thereof at the time of redemption.
RESTRICTED SHARES ELIGIBLE FOR FUTURE SALE
There are currently 384,409 shares of the Company's outstanding
Common Stock that are "restricted securities" which were acquired on March 31,
1995 which in the future, may be sold upon compliance with Rule 144 adopted
under the Securities Act. Rule 144 provides, in essence, that a person holding
"restricted securities" for a period of two years may sell every three months
a number of shares equal to the greater of (a) one percent of the Company's
issued and outstanding shares, or (b) the average weekly volume of sales
during the four calendar weeks preceding the sale. The amount of "restricted
securities" which a person who is not an affiliate of the Company may sell is
not so limited, since non-affiliates may sell without volume limitation their
shares held for three years. Therefore, during each three month period,
beginning March 31, 1996, a holder of restricted securities who has held them
for at least the two year period may sell under Rule 144 up to 15,354 shares.
Non-affiliated persons who hold for the three-year period described above may
sell unlimited shares once their holding period is met. A proposed rule which
may be adopted by the Commission would reduce these two and three year periods
to one and two years, respectively. The Company has also agreed not to issue
any additional securities other than as contemplated by this Prospectus for a
period of twenty-four (24) months following the Effective Date without the
consent of the Underwriter.
The registration statement of which this Prospectus is a part also
covers the offering of 2,750,000 Series IV Warrants which are being offered by
the Selling Securityholders. The securities held by the Selling
Securityholders may be sold commencing eighteen (18) months from the date of
this Prospectus subject to earlier release at the sole discretion of the
Underwriter. In other offerings where the Underwriter has released similar
restrictions applicable to selling securityholders prior to the expiration of
the lock-up period and in some cases immediately after the exercise of the
over-allotment option or the expiration of the over-allotment option.
Certificates evidencing these securities will bear a legend reflecting such
restrictions. The Underwriter may release the securities held by the Selling
Securityholders at any time after all securities subject to the Over-Allotment
Option (as hereinafter defined) have been sold or such option has expired. The
resale of the securities held by the Selling Securityholders is subject to
prospectus delivery and other requirements of the Securities Act. Sales of
such securities or the potential of such sales at any time any have an adverse
effect on the market prices of the securities offered hereby. See "Selling
Securityholders."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the securities of the Company is
American Stock Transfer & Trust, 40 Wall Street, New York, New York 10005,
telephone number (212) 936-5100.
REPORTS TO SECURITYHOLDERS
The Company will furnish to holders of its Units, Series B Preferred
Stock, Common Stock and Series IV Warrants annual reports containing audited
financial statements. The Company may issue other unaudited interim reports to
its securityholders as it deems appropriate.
55
<PAGE>
SELLING SECURITYHOLDERS
The registration statement, of which this Prospectus forms a part,
also relates to the registration of 2,750,000 Series IV Warrants offered under
the Alternate Prospectus by the selling securityholders identified in the
table below (the "Selling Securityholders"). The securities held by the
Selling Securityholders may be sold commencing 18 months from the date of this
Prospectus, subject to earlier release at the sole discretion of the
Underwriter. The certificates evidencing the foregoing securities will bear a
legend with such restrictions. The Underwriter may release the securities held
by the Selling Securityholders at any time after all securities subject to the
Over-Allotment Option have been sold or such option has expired. The
Over-Allotment Option will expire 30 days from the date of this Prospectus. In
other offerings where the Underwriter has acted as the managing underwriter,
it has released similar restrictions applicable to selling stockholders prior
to the expiration of the lock-up period and in some cases immediately after
the exercise of the Over-Allotment Option or the expiration of the
Over-Allotment Option period. The resale of the securities of the Selling
Securityholders is subject to prospectus delivery and other requirements of
the Securities Act. Sales of such securities or the potential of such sales at
any time may have an adverse effect on the market prices of the securities
offered hereby.
The following table sets forth certain information with respect to
the Selling Securityholders. The Securities to which this Prospectus relates
may be sold from time to time in whole or in part by the Selling
Securityholders as described herein.
<TABLE>
<CAPTION>
Shares of Shares that may Series IV Warrants Shares of Percent of
Common Stock be offered that may be Common Class
owned prior to pursuant to this offered pursuant to Stock owned owned after
Selling Securityholders this offering Prospectus this Prospectus after offering offering
----------------------- ------------- ---------- --------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Gulfstream Financial Group, Inc. 380,273 -- 1,000,000 380,273 22.97%
6400 Congress Ave.
Suite 200
Boca Raton, FL 33487
Phillip D. Schwiebert 166,136 -- 250,000 166,136 10.61%
c/o Quest Electronic Hardware,
Inc.
1180 Murphy Ave.
San Jose, CA 95131
A.J. Dinicola -- -- 1,500,000 -- --
c/o Webb Distribution
Two Lowell Ave.
Winchester, MA 08190
</TABLE>
The Series IV Warrants are being offered by the Selling
Securityholders, in the corresponding amounts above, under this alternate
Prospectus. Gulfstream owns in excess of 5% of the Company's Common Stock and
Mr. Polimeni, the Chairman, Chief Executive Officer and President of the
Company, is an officer, director and 50% stockholder of Gulfstream. Mr.
Schwiebert also owns in excess of 5%
56
<PAGE>
of the Common Stock and is an employee of a subsidiary of the Company. See
"Securities Ownership" and "Certain Transactions." Mr. Dinicola is the
majority stockholder of Webb. All costs incurred by the Company in connection
with the registration of the Securities of the Selling Securityholders are
being borne by the Company.
The securities offered hereby may be sold from time to time directly
by the Selling Securityholders. The Company will not receive any of the
proceeds from such sale. However, the Company's obligations under the Notes to
be delivered in connection with the Webb acquisition may be reduced by the
proceeds from the sale of Series IV Warrants by Mr. Dinicola. Alternatively,
the Selling Securityholders may from time to time offer such securities
through underwriters, dealers or agents. The Selling Securityholders are not
required to effect sales through the Underwriter. The distribution of
securities by the Selling Securityholders may be effected in one or more
transactions that may take place on the over-the-counter market, including
ordinary broker's transactions, privately-negotiated transactions or through
sales to one or more broker-dealers for resale of such shares as principals,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the
Selling Securityholders in connection with such sales of securities. The
securities offered by the Selling Securityholders may be sold by one or more
of the following methods, without limitations: (a) a block trade in which a
broker or dealer so engaged will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Securityholders may arrange for other brokers or dealers to
participate. The Selling Securityholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the Act
with respect to the securities offered, and any profits realized or
commissions received may be deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf
of a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the numbers of securities being offered and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for
shares purchased from the Selling Securityholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
Under the Exchange Act, and the regulations thereto, any person
engaged in a distribution of the securities of the Company offered by this
Prospectus may not simultaneously engage in market-making activities with
respect to such Securities of the Company during the applicable "cooling off"
period (nine days) prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Securityholders will
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Rule 10b-6 and 10b-7, in
connection with the transactions in such securities, which provisions may
limit the timing of purchases and sales of such securities by the Selling
Securityholders.
57
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part, the Underwriter has agreed to purchase from the
Company 1,000,000 Units offered hereby from the Company on a "firm commitment"
basis, if any are purchased. The Underwriter has advised the Company that it
proposes to offer the Units to the public at $6.00 per Unit as set forth on
the cover page of this Prospectus and that it may allow to certain dealers who
are NASD members, and such dealers may reallow, concessions not to exceed $[ ]
per Unit. After the initial public offering, the public offering price,
concession and reallowance may be changed by the Underwriter.
The Company has granted an option to the Underwriter, exercisable
during the 30-day period from the date of this Prospectus, to purchase an
additional 15% of the total Units offered to the public at the offering price,
less the underwriting discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the Registration Statement, including liabilities under the
Securities Act. Insofar as indemnification for liabilities arising under the
Securities Act may be provided to officers, directors or persons controlling
the Company, the Company has been informed that in the opinion of the
Commission, such indemnification is against public policy and is therefore
unenforceable.
The registration statement, of which this Prospectus forms a part,
also relates to the registration of 2,750,000 Series IV Warrants offered under
the Alternate Prospectus by the Selling Securityholders. The securities held
by the Selling Securityholders may be sold commencing 18 months from the
Effective Date of this Prospectus subject to earlier release at the sole
discretion of the Underwriter. Certificates evidencing these securities will
bear a legend reflecting such restrictions. The Underwriter may release the
securities held by the Selling Securityholders at any time after all
securities subject to the Underwriter's Over-Allotment Option have been sold
or such option has expired. The Underwriter's Over-Allotment Option period
will expire 30 days following the Effective Date. In other offerings where
Biltmore Securities, Inc. has acted as the managing underwriter, it has
released similar restrictions applicable to selling securityholders prior to
the expiration of the lock-up period and in some cases immediately after the
exercise of the Over-Allotment Option or the expiration of the Over-Allotment
Option period. See "Selling Securityholders."
The Company has agreed to pay to the Underwriter a non-accountable
expense allowance of three percent (3%) of the aggregate offering price of the
Units offered hereby, including any Units purchased pursuant to the
Over-Allotment Option. The Underwriter's Expenses in excess of the stated
expense allowance will be borne by the Underwriter. To the extent that the
expenses of the Underwriter are less than the stated expense allowance, the
difference may be deemed compensation to the Underwriter in addition to the
sales commission payable to the Underwriter. The Company has agreed to pay to
the Underwriter, upon the closing of this Offering, a fee in the amount of
$100,000 in respect of advisory services to be provided by the Underwriter to
the Company over a two-year period.
The Company has agreed to grant to the Underwriter, or its designees
an option ("Underwriter's Purchase Option") to purchase up to an aggregate of
100,000 Units. The Underwriter's Purchase Option shall be exercisable during
the four-year period commencing one (1) year after the Effective Date and will
provide for a demand registration right in favor of the Underwriter. The
Underwriter's Purchase Option may not be assigned, transferred, sold or
hypothecated by the Underwriter after the Effective Date
58
<PAGE>
of this Prospectus, except to officers or partners of the Underwriter or of
selling group members in this offering. Any profits realized by the
Underwriter upon the sale of the Securities issuable upon exercise of the
Underwriter's Unit Purchase Option may be deemed to be additional underwriting
compensation. The exercise price of the Units issuable upon exercise of the
Underwriter's Unit Purchase Option during the period of excercisability shall
be not less than 120% of the initial public offering prices of such Units. The
exercise price of the Underwriter's Purchase Option and the number of Units
covered thereby are subject to adjustment in certain events to prevent
dilution. For the life of the Underwriter's Purchase Option, the holders
thereof are given, at a nominal cost, the opportunity to profit from a rise in
the market price of the Company's shares and warrants with a resulting
dilution in the interest of other shareholders. The Company may find it more
difficult to raise capital for its business if the need should arise while the
Underwriter's Unit Purchase Option is outstanding. At any time when the
holders of the Underwriter's Purchase Option might be expected to exercise it,
the Company would probably be able to obtain additional capital on more
favorable terms.
The Company will also pay a warrant solicitation fee to the
Underwriter equal to four percent (4%) of the exercise price of the Series IV
Warrants on all Warrants exercised (excluding Warrants exercised by the
Underwriter or certain affiliates of the Company), subject to the
Underwriter's compliance with the rules and regulations of the National
Association of Securities Dealers ("NASD"). In accordance with NASD Notice to
Members 81-38, no warrant solicitation fee shall be paid (i) upon exercise
where the market price of the underlying Common Stock is lower than the
exercise price; (ii) for the exercise of warrants held in any discretionary
account; (iii) upon the exercise of warrants where disclosure of compensation
arrangements has not been made in documents provided to customers both as part
of the original offering and at the time of exercise; and (iv) upon the
exercise of warrants in unsolicited transactions. The broker-dealer to receive
the warrant solicitation fee must be designated, in writing, as the soliciting
broker. See "Risk Factors -- Exercise of Series IV Warrants May Have Dilutive
Effect on Market and Underwriter's Influence on the Market May Have Adverse
Consequences."
If the Company enters into a merger, acquisition, joint venture
and/or other capital business transaction for the Company with another party
introduced to the Company by the Underwriter within a five year period
following the Effective Date, the Company has agreed to pay the Underwriter a
fee equal to five percent of the first $3 million of consideration involved in
the transaction, four percent of the next $3 million, three percent of the
next $2 million, two percent of the next $2 million and one percent of the
excess, if any, over $10 million.
The Underwriter has historically made a market in the Company's
securities and has acted as a placement agent in connection with a number of
private placements by the Company. The Underwriter also acted as placement
agent for the Company in a November 1994 private placement of 200,000 units
consisting of Common Stock and Warrants to purchase Common Stock. As
compensation, the Underwriter received 20,000 shares of the Company's Common
Stock and Warrants to purchase 20,000 shares of Common Stock of the Company at
$3.50 per share. These Warrants were exercised in December 1995. A company
affiliated with the Underwriter also participated in such private placement as
an investor. The Underwriter also acted as placement agent in connection with
a 1994 exchange offer by the Company in consideration of which the Underwriter
was issued 6,183 shares. On March 31, 1995, the Underwriter, in consideration
of its serving as Placement Agent, was granted options to purchase 11,600
shares of the Common Stock of the Company at $35.00 per share. Such options
expire March 31, 2000. The Company also agreed to pay the Underwriter a cash
payment of $217,500 which represents a 10% placement fee and a 2.5%
non-accountable expense allowance based on total proceeds of $1,740,000.
59
<PAGE>
The Underwriter received 25,000 shares of Common Stock of the Company
as compensation under a consulting agreement dated as of January 1, 1994, and
options which, after the application of anti-dilution provisions, represented
the right to purchase 62,696 shares of Common Stock at an exercise price of
$2.49 per share. These options were exercised in December 1995.
LITIGATION INVOLVING UNDERWRITER MAY AFFECT SECURITIES
The Company has been advised by the Underwriter that on or about May
22, 1995, the Underwriter and Elliot Loewenstern and Richard Bronson,
principals of the Underwriter, and the Commission agreed to an offer of
settlement (the "Offer of Settlement") in connection with a complaint filed by
the Commission in the United States District Court for the Southern District
of Florida alleging violations of the federal securities laws, Section 17(a)
of the Securities Act of 1933, Sections 10(b) and 15(c) of the Securities
Exchange Act of 1934, and Rules 10b-5, 10b-6 and 15c1-2 promulgated
thereunder. The complaint also alleged that in connection with the sale of
securities in three (3) IPOs in 1992 and 1993, the Underwriter engaged in
fraudulent sales practices. The proposed Offer of Settlement was consented to
by the Underwriter and Messrs. Loewenstern and Bronson without admitting or
denying the allegations of the complaint. The Offer of Settlement was approved
by Judge Gonzales on June 6, 1995. Pursuant to the final judgment (the "Final
Judgment"), the Underwriter:
o was required to disgorge $1,000,000 to the Commission, which amount
was paid in four (4) equal installments on or before June 22, 1995;
and
o agreed to the appointment of an independent consultant ("Consultant").
Such Consultant was obligated, on or before November 1, 1996 (or at such later
date as may be extended by the Consultant without approval):
o to review the Underwriter's policies, practices and procedures in six
(6) areas relating to compliance and sales practices;
o to formulate policies, practices and procedures for the Underwriter
that the Consultant deems necessary with respect to the Underwriter's
compliance and sales practices;
o to prepare a report devoted to and which details the aforementioned
policies, practices and procedures (the "Report");
o to deliver the Report to the President of the Underwriter and to the
staff of the Southeast Regional office of the Commission;
o to prepare, if necessary, a supervisory procedures and compliance
manual for the Underwriter, or to amend the Underwriter's existing
manual; and
o to formulate policies, practices and procedures designed to provide
mandatory on-going training to all existing and newly hired employees
of the Underwriter. The Final Judgment further provides that, within
thirty (30) days of the Underwriter's receipt of the Report, unless
such time
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<PAGE>
is extended, the Underwriter shall adopt, implement and maintain any
and all policies, practices and procedures set forth in the Report.
As of the date of this Prospectus the Consultant had not delivered
the Report to the Underwriter.
The Final Judgment also provides that an independent auditor
("Auditor") shall conduct four (4) special reviews of the Underwriter's
policies, practices and procedures, the first such review to take place six
(6) months after the Report has been delivered to the Underwriter and
thereafter at six-month intervals. The Auditor is also authorized to conduct a
review, on a random basis and without notice to the Underwriter, to certify
that any persons associated with the Underwriter who have been suspended or
barred by any Commission order are complying with the terms of such orders.
On July 10, 1995, the action as against Messrs. Loewenstern and
Bronson was dismissed with prejudice. Mr. Bronson agreed to a suspension from
associating in any supervisory capacity with any broker, dealer, municipal
securities dealer, investment advisor or investment company for a period of
twelve (12) months, dating from the beginning of such suspension. Mr.
Loewenstern agreed to a suspension from associating in any supervisory
capacity with any broker, dealer, municipal securities dealer, investment
advisor or investment company for a period of twelve (12) months commencing
upon the expiration of Mr. Bronson's suspension.
In the event that the requirements of the foregoing judgment
adversely affect the Underwriter's ability to act as a market maker for the
Company's stock, and additional brokers do not make a market in the Company's
securities, the market for and liquidity of the Company's securities may be
adversely affected. In the event that other broker-dealers fail to make a
market in the Company's securities, the possibility exists that the market for
and the liquidity of the Company's securities may be adversely affected to
such an extent that public securityholders may not have anyone to purchase
their securities when offered for sale at any price. In such event, the market
for, liquidity and prices of the Company's securities may not exist. FOR
ADDITIONAL INFORMATION REGARDING THE UNDERWRITER, INVESTORS MAY CALL THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. AT (800) 289-9999.
Recent State Action Involving the Underwriter--Possible Loss of
Liquidity
The State of Indiana has commenced an action seeking among other
things to revoke the Underwriter's license to do business in such state. The
hearing in this matter was scheduled for October 7, 1996 and has been
adjourned pending settlement discussions. Such proceeding if ultimately
successful may adversely affect the market for and liquidity of the Company's
securities if additional broker-dealers do not make a market in the Company's
securities. Moreover, should Indiana investors purchase any of the securities
sold in this Offering from the Underwriter prior to the possible revocation of
the Underwriter's license in Indiana, such investors will not be able to
resell such securities in such state through the Underwriter but will be
required to retain a new broker-dealer firm for such purpose. The Company
cannot ensure that other broker-dealers will make a market in the Company's
securities. In the event that other broker-dealers fail to make a market in
the Company's securities, the possibility exists that the market for and the
liquidity of the Company's securities may be adversely affected to an extent
that public securityholders may not have anyone to purchase their securities
when offered for a sale at any price. In such event, the market for, liquidity
and prices of the Company's securities may not exist. The Company does not
intend to seek qualification for the sale of the securities in the State of
Indiana.
61
<PAGE>
It should be noted that although the Underwriter may not be the sole market
maker in the Company's securities, it will most likely be the dominant market
maker in the Company's securities.
DETERMINATION OF PUBLIC OFFERING PRICE
Prior to this offering, there has been no public market for the
Units, Series B Preferred Stock and Series IV Warrants. The Common Stock is
listed on the Nasdaq SmallCap Market. The rate at which the Series B Preferred
Stock is convertible into Common Stock is based upon 80% of the closing market
price per share of the Common Stock on the date preceding the Effective Date
("Closing Price"). The exercise price of the Series IV Warrants equals 115% of
the Closing Price. The method for setting both the conversion rate of the
Series B Preferred Stock and the exercise price of the Series IV Warrants was
the product of negotiations between the Company and the Underwriter. Among the
factors considered in the negotiations were the market price of the Company's
Common Stock, an analysis of the areas of activity in which the Company is
engaged, the present state of the Company's business, the Company's financial
condition, the Company's prospects, an assessment of management, the general
condition of the securities market at the time of this offering and the demand
for similar securities of comparable companies.
LEGAL PROCEEDINGS
Neither the Company nor Webb is a party to any material legal
proceedings and to the best of the Company's belief, none is contemplated or
has been threatened.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed
upon for the Company by Gould & Wilkie, One Chase Manhattan Plaza, New York,
New York 10005. Certain legal matters will be passed upon for the Underwriter
by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, New York 10022.
EXPERTS
The financial statements of the Company, both as of and for the
periods ended December 31, 1995 and 1994, included in the Registration
Statement and this Prospectus have been included herein in reliance on the
report of Moore Stephens, P.C., independent certified public accountants, and
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Webb, both as of and for the periods
ended December 31, 1995 and 1994, included in the Registration Statement and
this Prospectus have been included herein in reliance on the report of
Estabrook & Co., Inc., P.C., independent certified public accountants, and
upon the authority of such firm as experts in accounting and auditing.
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED):
Introduction.................................................................................................P-1
Pro Forma Combined Balance Sheet as of September 30, 1996
(unaudited)..........................................................................................P-2 - P-3
Pro Forma Combined Statement of Operations for the nine months
ended September 30, 1996 (unaudited).......................................................................P-4
Pro Forma Combined Statement of Operations for the year ended
December 31, 1995 (unaudited)..............................................................................P-5
Notes to Pro Forma Combined Financial Statements (unaudited)...........................................P-6 - P-7
HISTORICAL FINANCIAL STATEMENTS OF QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES:
Report of Independent Auditors...............................................................................F-1
Consolidated Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995................................................................................F-2 - F-3
Consolidated Statement of Operations for the nine months ended September
30, 1996 and 1995 (unaudited) and for the years ended
December 31, 1995 and 1994.................................................................................F-4
Consolidated Statement of Stockholders' Equity for the nine months ended
September 30, 1996 and 1995 (unaudited) and for the years ended
December 31, 1995 and 1994...........................................................................F-5 - F-6
Consolidated Statements of Cash Flows for the nine months ended September
30, 1996 and 1995 (unaudited) and for the years ended
December 31, 1995 and 1994..........................................................................F-7 - F-10
63
<PAGE>
Notes to Consolidated Financial Statement............................................................F-11 - F-24
HISTORICAL FINANCIAL STATEMENTS OF COMP WARE, INC., D/B/A WEBB DISTRIBUTION, INC.:
Report of Independent Auditors..............................................................................F-25
Balance Sheets as of September 30, 1996 (unaudited) and
December 31, 1995..................................................................................F-26 - F-27
Statement of Operations and Retained Earnings for the nine months ended
September 30, 1996 and 1995 (unaudited) and for the years ended
December 31, 1995 and 1994................................................................................F-28
Statement of Stockholders' Equity...........................................................................F-29
Statement of Cash Flows for the nine months ended September 30, 1996 and 1995
(unaudited) and for the years ended December 31, 1995 and 1994.....................................F-30 - F-33
Notes to Financial Statements........................................................................F-34 - F-41
</TABLE>
64
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma combined balance sheet as of September 30,
1996 and the combined statement of operations for the nine months then ended
and the year ended December 31, 1995 give effect to the following: (i) the
Unit offering, the proceeds therefrom and the uses thereof and (ii) the
acquisition of Webb, as described in the following paragraphs.
The Company is offering 1,000,000 units at a price of $6.00 per Unit
in a proposed public offering. Each Unit consists of one share of the
Company's Series B Convertible Preferred Stock, par value $.01 per share, and
one redeemable Series IV Common Stock Purchase Warrant. The Company
anticipates net proceeds of $4,820,000 from the offering. The Company intends
to use the net proceeds of the Offering to pay the $3,250,000 cash portion of
the consideration for the acquisition of Webb and to repay certain
indebtedness of the Company and Webb in the aggregate amount of $1,570,000.
The Company has entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of December 9, 1996 with the stockholders of
Webb to acquire all of the issued and outstanding stock of Webb, in a business
combination accounted for as a purchase. Under the Stock Purchase Agreement,
the stockholders of Webb have agreed to exchange their shares of Webb for
$3,250,000 in cash, 1,500,000 Series IV Common Stock Purchase Warrants and two
notes (the "Notes") in the aggregate amount of $750,000 (each for $375,000).
Note A shall mature eighteen months from the Effective Date of the proposed
public offering and bear interest at 10% per annum. Note B shall mature in
equal monthly installments over a five year period from the same date and bear
interest at 10% per annum. At the time of the signing of the Stock Purchase
Agreement, the Company delivered to the majority stockholder of Webb the
1,500,000 Series IV Warrants as a deposit on account of the purchase price
under said agreement. The Company has valued these Series IV Warrants at $.25
per Warrant. These Series IV Warrants will be cancelled if the Webb
acquisition does not close. Any proceeds received by the majority stockholder
of Webb from a sale of the Series IV Warrants in excess of $375,000 shall
reduce the Company's obligations under the Notes. The amount of the purchase
price ($4,375,000) in excess of the estimated fair value of the net assets
acquired will be recorded as "cost in excess of net assets acquired" and
amortized over forty years.
The pro forma information is based on the historical financial
statements of the Company and Webb, giving effect to the transactions under
the purchase method of accounting and the assumptions and adjustments in the
accompanying notes to the pro forma financial statements. The pro forma
balance sheet assumes that the transactions occurred as of the balance sheet
date.
The pro forma statements of operations give effect to these
transactions as if they had occurred at the beginning of the fiscal year
presented (i.e., January 1, 1995) and were carried forward through the interim
period presented. The historical statement of operations will reflect the
effects of these transactions from the date on which they occurred.
The pro forma combined statements have been prepared by the Company's
management based upon the historical financial statements of the Company and
Webb. These pro forma statements may not be indicative of the results that
actually would have occurred if the combination had been in effect on the date
indicated or which may be obtained in the future. The pro forma financial
statements should be read in conjunction with the financial statements and
notes of the Company and Webb appearing elsewhere herein.
P-1
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
H I S T O R I C A L S
---------------------- PROFORMA PRO FORMA
QUESTRON WEBB ADJUSTMENTS COMBINED
-------- ---- ----------- --------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 360,235 $ 1,716 (1) $ 4,820,000 $ 361,951
(2) (3,250,000)
(3) (1,570,000)
Accounts receivable - net 1,266,903 1,094,890 2,361,793
Other receivables 15,853 -- -- 15,853
Inventories 3,344,073 1,715,137 -- 5,059,210
Deferred income taxes -- 115,839 -- 115,839
Other current assets 65,438 20,445 -- 85,883
------------ ------------ ------------ ------------
Total current assets 5,052,502 2,948,027 -- 8,000,529
Property & equipment-net 399,505 109,931 -- 509,436
Cost in excess of net assets of
Business acquired - net 6,737,646 -- (2) 3,560,435 10,298,081
Other assets 324,886 135,855 -- 460,741
------------ ------------ ------------ ------------
Total assets $ 12,514,539 $ 3,193,813 $ 3,560,435 $ 19,268,787
============ ============ ============ ============
</TABLE>
P-2
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
H I S T O R I C A L S
---------------------- PROFORMA PRO FORMA
QUESTRON WEBB ADJUSTMENTS COMBINED
-------- ---- ----------- --------
<S> <C> <C> <C> <C>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ -- $ 588,218 (3) $(588,218) $ --
Accounts payable and
Accrued expenses 1,187,134 1,095,941 -- 2,283,075
Current portion of long
-term debt 550,000 22,448 -- 572,448
Current portion of notes
payable shareholders -- 61,904 (2) 75,000 136,904
------------ ------------ ------------- ------------
Total current liabilities 1,737,134 1,768,511 (2) (513,218) 2,992,427
------------ ------------ ------------ ------------
Long-term debt:
Notes payable-
shareholders-net of
current portion -- 30,954 (2) 675,000 705,954
Notes payable-net of
current portion 2,210,000 579,783 (3) (981,782) 1,808,001
------------ ------------ ------------ ------------
Total long-term debt 2,210,000 610,737 (306,782) 2,513,955
------------ ------------ ------------ ------------
Commitments and contingencies -- -- -- --
Shareholders' equity:
Preferred stock -- -- (1) 10,000 10,000
Common stock 1,547 6,512 (2) (6,512) 1,547
Additional paid-in capital 23,887,894 340,857 (1) 4,810,000 29,072,894
(2) 375,000
(2) (340,857)
Retained earnings (deficit) (14,966,558) 467,196 (2) (467,196) (14,966,558)
Less: treasury stock (355,478) -- -- (355,478)
------------ ------------ ------------ ------------
Total shareholders' equity 8,567,405 814,565 4,380,435 13,762,405
------------ ------------ ------------ ------------
Total liabilities and shareholders'
equity: $ 12,514,539 $ 3,193,813 $ 3,560,435 $ 19,268,787
============ ============ ============ ============
</TABLE>
P-3
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
H I S T O R I C A L S
--------------------------- PRO FORMA PRO FORMA
QUESTRON WEBB ADJUSTMENTS COMBINED
-------- ---- ----------- --------
<S> <C> <C> <C> <C>
Total revenue $ 8,264,940 $ 6,088,946 $ -- $14,353,886
Total operating costs and (A) 66,760
expenses 7,591,425 5,598,862 (B) (150,000) 13,107,047
--------- --------- ------------- ----------
Operating income (loss) 673,515 490,084 83,240 1,246,839
Total other income (expense) (234,631) (109,537) (C) 117,750 (226,418)
--------- -------- ----------- ---------
Income before income taxes 438,884 380,547 200,990 1,020,421
Provision for income taxes 49,383 171,300 (D) (129,300) 91,383
------------- ------------ ------------ ------------
Net income $ 389,501 $ 209,247 $ 330,290 $ 929,038
============= ============ ============ ===========
Net income per common share $ 0.03 $ .27
============= ============
Average number of common
shares and common share
equivalents outstanding 15,399,846 3,456,652
============= ===========
</TABLE>
P-4
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
H I S T O R I C A L S
---------------------- PRO FORMA PRO FORMA
QUESTRON WEBB ADJUSTMENTS COMBINED
-------- ---- ----------- --------
<S> <C> <C> <C> <C>
Total revenue $ 7,259,155 $ 7,793,179 $ -- $ 15,052,334
Total operating costs and (A) 89,010
expenses 6,674,249 7,315,920 (B) (200,000) 13,879,179
------------ ------------ ------------ ------------
Operating income (loss) 584,906 477,259 110,990 1,173,155
Total other income (expense) (205,555) (161,545) (C) 157,000 (210,100)
------------ ------------ ------------ ------------
Income before income taxes 379,351 315,714 267,990 963,055
Provision for income taxes 27,164 113,681 (D) (80,716) 60,129
------------ ------------ ------------ ------------
Net income $ 352,187 $ 202,033 $ 348,706 $ 902,926
============ ============ ============ ============
Net income per common share $ 0.03 $ .27
============ ============
Average number of common
shares and common share
equivalents outstanding 13,795,632 3,296,230
============ ============
</TABLE>
P-5
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
The Company is pursuing a public offering of units, consisting of one
share of Series B Preferred Stock and one Series IV Warrant. The Company
anticipates selling 1,000,000 units at an initial offering price of $6.00 per
unit. Simultaneously with the closing of the proposed public offering, the
Company intends to acquire all outstanding shares of the capital stock of Comp
Ware, Inc. d/b/a Webb Distribution for $3,250,000 in cash, Notes in the
aggregate amount of $750,000 and 1,500,000 Series IV Warrants. The Company
also intends to repay certain indebtedness in the amount of approximately
$1,570,000 from the proceeds of the Offering.
ADJUSTMENTS TO BALANCE SHEETS:
1. To reflect the net proceeds from the public offering:
1,000,000 units x $6.00 per unit $6,000,000
Less: Expenses of Offering 1,180,000
----------
Net Proceeds $4,820,000
==========
2. To reflect the acquisition of Webb:
Cash $3,250,000
Notes payable (current portion) $ 75,000
Notes payable (long-term portion) $675,000 750,000
--------
Issuance of 1,500,000 Series IV Warrants 375,000
----------
Total purchase price 4,375,000
Less: Net assets acquired (814,565)
----------
Cost in excess of net assets acquired $3,560,435
==========
3. To reflect the repayment of certain indebtedness from
the use of proceeds:
Notes payable--financial institution (Webb) $1,088,218
Notes payable--financial institution (Questron) 481,782
Total (current portion - $588,218;
long-term portion $981,782) $1,570,000
=========
P-6
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS TO STATEMENTS OF OPERATIONS:
Nine
Months Annual
------ ------
<S> <C> <C>
(A) To reflect additional charges for the amortization of
the cost in excess of net assets acquired over the
estimated useful life of forty years on a straight line basis $ 66,760 $ 89,010
======= =========
(B) To reflect the reduction of salaries resulting from the
retirement of the majority selling stockholder $150,000 $ 200,000
======= =========
(C) To reflect the reduction of interest expense due to payoff of certain
indebtedness, using an effective interest
rate of 10% $117,750 $ 157,000
========= =========
(D) To reflect the reduction in income tax expense through the
use of Questron Technology, Inc.'s tax loss carryforwards $129,300 $ 80,716
========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURES TO THE PRO FORMA COMBINED STATEMENT OF OPERATIONS:
To the extent that the underwriter exercises the Over-Allotment Option to
purchase 150,000 Units, the Company will realize additional net proceeds of
$783,000. The Company intends to utilize such additional net proceeds to
reduce outstanding indebtedness. Accordingly, interest expense for the nine
month period ended September 30, 1996 and for the year ended December 31, 1995
would be reduced by an additional $58,725 and $78,300, respectively. In
addition, net income for the nine months ended September 30, 1996 and the year
ended December 31, 1995 would be $982,504 and $976,337, respectively. Earnings
per share for these periods would be $.28 for the nine months ended September
30, 1996 and $.30 for the year ended December 31, 1995.
P-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Questron Technology, Inc.
We have audited the accompanying consolidated balance sheet of Questron
Technology, Inc. and its subsidiaries as of December 31, 1995, and the related
consolidated statements of operations, changes in shareholders' equity, and
cash flows for each of the two years in the period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Questron Technology, Inc. and its subsidiaries as of December 31, 1995, and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
April 2, 1996
F-1
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1 9 9 6 1 9 9 5
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 360,235 $ 39,358
Accounts receivable, less allowance for
doubtful accounts of $50,773 and $43,798, respectively 1,266,903 1,347,128
Other receivables 15,853 52,808
Inventories 3,344,073 3,554,263
Other current assets 65,438 60,205
------------ ------------
Total current assets 5,052,502 5,053,762
Property and equipment - net 399,505 418,980
Cost in excess of net assets of business acquired,
less accumulated amortization of $257,772 and
$131,203, respectively 6,737,646 6,866,305
Other assets 324,886 93,951
------------ ------------
Total assets $ 12,514,539 $ 12,432,998
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1 9 9 6 1 9 9 5
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses $ 1,187,134 $ 1,520,094
Current portion of long-term debt 550,000 550,000
------------- -------------
Total current liabilities 1,737,134 2,070,094
Long-term debt 2,210,000 2,185,000
------------- -------------
Total Liabilities 3,947,134 4,255,094
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000
shares; none issued and outstanding -- --
Common stock, $.0001 par value; authorized 50,000,000
shares; issued and outstanding 15,473,335 shares in 1996 and 1995 1,547 1,547
Additional paid-in capital 23,887,894 23,887,894
Accumulated deficit (14,966,558) (15,356,059)
------------- ------------
8,922,883 8,533,382
Less: treasury stock, 118,493 shares, at cost (355,478) (355,478)
------------- -------------
Total shareholders' equity 8,567,405 8,177,904
------------- -------------
Total liabilities and shareholders' equity $ 12,514,539 $ 12,432,998
============= ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- ----------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Sales $ 8,141,107 $ 4,682,402 $ 6,982,902 $ --
Fee income 123,833 226,355 276,253 844,025
-------------- ------------- ------------- -------------
8,264,940 4,908,757 7,259,155 844,025
-------------- ------------- ------------- -------------
Operating costs and expenses:
Cost of products and services sold 4,854,502 2,817,002 4,146,564 272,660
Selling, general and administration
expenses 2,543,394 1,442,705 2,180,886 1,154,034
Non-recurring charges -- 125,000 146,867 --
Depreciation and amortization 193,529 119,916 199,932 58,412
-------------- ------------- ------------- -------------
7,591,425 4,504,623 6,674,249 1,485,106
-------------- ------------- ------------- -------------
Operating Income (loss) 673,515 404,134 584,906 (641,081)
-------------- ------------- ------------- ------------
Interest income (expense):
Interest expense (234,631) (130,502) (205,555) (34,222)
Interest income -- -- -- 34,270
-------------- ------------- ------------- -------------
(234,631) (130,502) (205,555) 48
-------------- ------------- ------------- ------------
Income (loss) before income
taxes 438,884 273,632 379,351 (641,033)
Provision for income taxes 49,383 44,515 27,164 --
-------------- ------------- ------------- -------------
Net income (loss) $ 389,501 $ 229,117 $ 352,187 $ (641,033)
============= ============= ============= =============
Net income (loss) per common
share $ .03 $ .02 $ .03 $ (.23)
============= ============= ============= =============
Average number of common
shares and common share
equivalents outstanding 15,399,846 13,707,612 13,795,632 2,793,402
============= ============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNTS SHARES AMOUNTS CAPITAL
------ ----------- ------ ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1994 880,000 $ 8,800 1,758,077 $ 177 $ 15,882,537
Issuance of shares:
Conversion of preferred stock into
common stock (740,000) (7,400) 1,480,000 148 7,252
Exercise of warrants -- -- 718,704 71 413,411
To placement agent in lieu of fees in
connection with exercise of warrants -- -- 61,824 6 --
Private placement -- -- 2,515,200 251 957,349
To Placement Agent in Lieu of Fees in
connection with Private Placement -- -- 200,000 20 --
Net Loss for the Year -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - DECEMBER 31, 1994 - FORWARD 140,000 $ 1,400 6,733,805 $ 673 $ 17,260,549
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE).
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED TREASURY SHAREHOLDERS'
DEFICIT STOCK EQUITY
----------- --------- ----------
<S> <C> <C> <C>
BALANCE - JANUARY 1, 1994 $(15,067,213) $ -- $ 824,301
Issuance of shares:
Conversion of preferred stock into
common stock -- -- --
Exercise of warrants -- -- 413,482
To placement agent in lieu of fees in
connection with exercise of warrants -- -- 6
Private placement -- -- 957,600
To Placement Agent in Lieu of Fees in
connection with Private Placement -- -- 20
Net Loss for the Year (641,033) -- (641,033)
------------ ------------ ------------
BALANCE - DECEMBER 31, 1994 - FORWARD $(15,708,246) $ -- $ 1,554,376
</TABLE>
F-5
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES AMOUNTS SHARES AMOUNTS CAPITAL
-------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 140,000 $ 1,400 6,733,805 $ 673 $ 17,260,549
- FORWARDED
Issuance of Shares:
Conversion of Preferred Stock
into Common Stock (140,000) (1,400) 280,000 28 1,372
Private Placement -- -- 1,160,000 116 1,468,786
Exercise of Warrants -- -- 2,786,956 279 851,314
Exercise of Options -- -- 550,000 55 343,695
In connection with the acquisition of
Quest Electronic Hardware, Inc. -- -- 3,962,574 396 3,962,178
Shares received by the Company in
satisfaction of certain obligations of
former officers and directors -- -- -- -- --
Net Income for the Year -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - DECEMBER 31, 1995 -- -- 15,473,335 1,547 23,887,894
Net Income for the nine months ended -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE - SEPTEMBER 30, 1996
(UNAUDITED) -- $ -- 15,473,335 $ 1,547 $ 23,887,894
============ ============ ============ ============ ============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED TREASURY SHAREHOLDERS'
DEFICIT STOCK EQUITY
---------- --------- ----------
<S> <C> <C> <C>
BALANCE - DECEMBER 31, 1994 $(15,708,246) $ -- $ 1,554,376
- FORWARDED
Issuance of Shares:
Conversion of Preferred Stock
into Common Stock -- -- --
Private Placement -- -- 1,468,902
Exercise of Warrants -- -- 851,593
Exercise of Options -- -- 343,750
In connection with the acquisition of
Quest Electronic Hardware, Inc. -- -- 3,962,574
Shares received by the Company in
satisfaction of certain obligations of
former officers and directors -- (355,478) (355,478)
Net Income for the Year 352,187 -- 352,187
------------ ------------ ------------
BALANCE - DECEMBER 31, 1995 (15,356,059) (355,478) 8,177,904
Net Income for the nine months ended 389,501 -- 389,501
------------ ------------ ------------
BALANCE - SEPTEMBER 30, 1996
(UNAUDITED) $(14,966,558) $ (355,478) $ 8,567,405
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------- ------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
----------- ----------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 389,501 $ 229,117 $ 352,187 $ (641,033)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 193,529 119,916 199,932 58,412
Write-down of assets -- -- 40,553 136,335
Provision for doubtful accounts 6,975 -- 25,162 50,918
Loss on sale of fixed assets 2,184 -- -- --
Change in assets and liabilities:
Decrease (increase) in:
Accounts receivable 73,250 (722,907) (467,176) (19,091)
Other receivables 36,955 -- 56,672 (109,480)
Inventories 210,190 (154,861) (1,583,507) --
Prepaid expenses and other assets (236,168) 24,170 (33,509) 44,334
Increase (decrease) in accounts
payable and accrued expenses (332,957) 147,538 566,581 (13,776)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES - FORWARD 343,459 (357,027) (843,105) (493,381)
----------- ----------- ----------- -----------
</TABLE>
F-7
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------------- -------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
----------- ----------- ----------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET CASH - OPERATING ACTIVITIES -
FORWARDED $ 343,459 $ (357,027) $ (843,105) $ (493,381)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash consideration paid for
acquired business -- (5,229,847) (5,262,268) --
Proceeds from sale of fixed assets 280 -- -- --
Acquisition of property and
equipment (47,862) (138,692) (419,766) --
----------- ----------- ----------- -----------
NET CASH USED FOR INVESTING
ACTIVITIES (47,582) (5,368,539) (5,682,034) --
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings -- 300,000 300,000 --
Proceeds from borrowings under
revolving facility 437,500 216,000 947,500 --
Proceeds from borrowings under
term loan facility -- 2,200,000 2,200,000 --
Proceeds from private placement -- 1,740,000 1,740,000 957,600
Costs associated with private
placement -- (238,039) (271,098) --
Proceeds from exercise of stock
options -- 281,250 343,750 --
Proceeds from exercise of warrants -- -- 911,578 413,482
Costs associated with exercise of
warrants -- -- (59,985) --
Treasury shares received in
satisfaction of obligations -- -- (355,478) --
Repayment of short-term debt -- -- (300,000) --
Repayment of long-term debt (412,500) (275,000) (412,500) --
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 25,000 4,224,211 5,043,767 1,371,082
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS - FORWARD 320,877 (1,501,355) (1,481,372) 877,701
----------- ----------- ----------- -----------
</TABLE>
F-8
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------------- ----------------------------
1 9 9 6 1 9 9 5 1 9 9 5 1 9 9 4
----------- ----------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS - FORWARDED $320,877 $(1,501,355) $(1,481,372) $ 877,701
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIODS 39,358 1,520,730 1,520,730 643,029
--------- ------------ ------------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIODS $360,235 $ 19,375 $ 39,358 $1,520,730
======== ============ ============= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $ 234,631 $ 130,502 $ 182,970 $ 34,222
Income taxes $ 45,000 $ -- $ -- $ --
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In 1995 and 1994, the Company adjusted property and equipment to
estimated fair value as follows:
1 9 9 5 1 9 9 4
------- -------
Cost of Property Written Down $ 668,176 $ 340,153
Accumulated Depreciation (627,623) (178,818)
--------- ---------
Net Book Value 40,553 161,335
Estimated Fair Value -- 25,000
--------- ---------
Adjustment for Write-Down $ 40,553 $ 136,335
========= =========
During 1995, the Company issued 3,962,574 shares of common stock in
connection the acquisition of a subsidiary and issued 280,000 shares of common
stock upon the conversion of 140,000 preferred shares.
During 1994, 200,000 shares of common stock were issued to a placement
agent in lieu of fees in connection with a private placement. Additionally,
250,000 shares of common stock for consulting services and 61,824 shares of
common stock in lieu of fees in connection with the exercise of warrants were
issued to the same placement agent. The Company also issued 1,480,000 shares
of common stock upon conversion of 740,000 preferred shares during 1994.
See Notes to Consolidated Financial Statements.
F-10
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
On April 2, 1996, the shareholders of the Company voted to change the
name of the Company from Judicate, Inc. to Questron Technology, Inc.
("Questron" or the "Company"). Questron, through its subsidiary Quest
Electronic Hardware, Inc. ("Quest"), is a specialized distributor of fasteners
and electronic hardware sold to electronic equipment manufacturers and,
through its subsidiary Judicate of Philadelphia, Inc. ("Judicate"), a supplier
of alternate dispute resolution ("ADR") services. Quest was formed on October
13, 1994. On March 31, 1995, Quest purchased the fasteners distribution
business from Arrow Electronics, Inc. ("Arrow"). Prior to this business
acquisition, Quest had no operating activities of its own, accordingly, the
consolidated results of operations for the year ended December 31, 1995
include only 9 months of operating activities for Quest. Simultaneously with
this business acquisition, the then shareholders of Quest completed a common
stock exchange with Questron, in which Quest became a 100% owned subsidiary of
Questron (see Note 2 of Notes to Consolidated Financial Statements).
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company
and all its majority owned subsidiaries. All significant intercompany
transactions are eliminated.
Cash and Cash Equivalents
The Company considers certain highly liquid investments with original
maturities of three months or less to be cash equivalents.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
Concentration of Credit Risk
The Company extends credit to its customers which results in accounts
receivable arising from its normal business activities. The Company does not
require collateral from its customers, but routinely assesses the financial
strength of its customers and, based upon factors surrounding the credit risk
of its customers, believes that its receivable credit risk exposure is
limited. Such estimate of the financial strength of such customers may be
subject to change in the near term.
During the year ended December 31, 1995, sales to one customer of Quest
amounted to approximately $1,000,000 or approximately 14% of revenue. Accounts
receivable from this customer amounted to approximately $273,000.
Inventories
Inventories, which consist solely of finished products, are stated at the
lower of cost or market. Cost is determined on the first-in, first-out (FIFO)
method.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for normal
repairs and maintenance are charged to earnings as incurred. When assets are
retired or otherwise disposed, their costs and related accumulated
depreciation are removed from the accounts and the resulting gains or losses
are included in operations. Depreciation and amortization are recorded using
the straight-line method over the shorter of the estimated lives of the
related asset or the remaining lease term. Estimated useful lives are as
follows:
Office Equipment 5 Years
Computer Equipment 5 Years
Furniture and Fixtures 7 Years
Leasehold Improvements 5 Years
F-12
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
Cost in Excess of Net Assets of Business Acquired
The cost in excess of net assets of business acquired is being amortized
on a straight line basis over 40 years. The Company has concluded that the
cost in excess of net assets of business acquired has an indeterminable life
based on historic, current and projected operating results of the business
acquired (see Note 2 of notes to consolidated financial statements). The
Company's policy is to record an impairment loss against the balance of the
net unamortized cost in excess of net assets of business acquired in the
period when it is determined that the carrying amount of the asset may not be
recoverable. At each balance sheet date, the Company evaluates the
realizability of the asset for each business acquired having a material
change. This determination is based on an evaluation of such factors as the
occurrence of a significant event, a significant change in the environment in
which the business operates, or if the expected future non-discounted cash
flow of the business would become less than the carrying value of the asset.
The Company's historic recurring losses and negative cash flows from
operations have been abated and, accordingly, management believes these
factors will not negatively impact the profits and cash flows of the business
acquired.
Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average
number of common shares and common share equivalents outstanding. Common share
equivalents amounted to 45,004 for the nine months ended September 30, 1996
and 2,262,565 for the year ended December 31, 1995. The weighted average
number of common shares outstanding for 1994 does not include common share
equivalents since the inclusion of such share equivalents would be
anti-dilutive. Net income per common share on a fully diluted basis does not
result in material dilution and, accordingly, is not presented.
F-13
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
2. ACQUISITION OF ELECTRONIC HARDWARE DISTRIBUTION BUSINESS
As of the close of business on March 31, 1995, the Company acquired 100%
of the stock of Quest, a privately owned company, in exchange for a 25%
interest in the Company on a fully diluted basis. Such acquisition was
effected pursuant to a share acquisition agreement, under which the Company
issued 3,962,574 newly issued, fully-paid and non-assessable shares of common
stock of the Company, in exchange for all of the issued and outstanding shares
of common stock of Quest. Simultaneously with the foregoing events, Quest
purchased the fasteners distribution business of Arrow for $4,850,000 in cash,
pursuant to a Purchase of Assets Agreement, dated as of November 29, 1994, by
and between Quest and Arrow (the "Purchase Agreement"). The purchase was
funded by a capital contribution from Questron of $2,850,000 (see Note 5 of
Notes to Consolidated Financial Statements) and borrowings by Quest under a
loan and security agreement with a bank (see Note 3 of Notes to Consolidated
Financial Statements). Under the Purchase Agreement, Quest acquired the net
assets of Arrow used exclusively in connection with Arrow's operations of the
fasteners distribution business and assumed all stated liabilities associated
with the business. Such assets included all accounts receivable of the
business, inventories, and certain furniture and equipment. The stated
liabilities assumed were principally trade payables to suppliers of the
business. The acquisition has been accounted for as a purchase, effective
March 31, 1995. The following summarizes the fair value of the net assets
acquired and the related cost thereof:
Cash $ 4,500
Accounts receivable 832,913
Inventories 1,970,756
Property and equipment 57,427
----------
Total assets 2,865,596
Accounts payable 634,762
Net assets acquired 2,230,834
Cost:
Purchase price paid to Arrow 4,850,000
Net value of shares issued 3,961,574
Acquisition and integration expenses 416,768
----------
Total cost 9,228,342
Cost in excess of net assets acquired $6,997,508
==========
The acquisition and integration expenses noted above are principally
professional fees associated with the transactions, consulting fees and other
expenses associated with the conversion of the business to a new operating
system, and other expenses associated with completing the transaction and
integrating the business with Quest.
F-14
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
3. LONG-TERM DEBT
Long-term debt at September 30, 1996 and December 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(unaudited)
-----------
<S> <C> <C>
Term loan, due in equal quarterly installments through March 31, 1999, with
interest payable monthly at the prime rate plus 2.0% for 1995 and
the prime rate plus 1.5% for 1996 $1,375,500 $1,787,500
Revolving facility, due on March 31, 1998, with interest payable monthly at
the prime rate plus 1.5% for 1995 and the prime rate plus 1.0% for
1996 1,385,000 947,500
---------- ----------
2,760,000 2,735,000
Less installments due within one year 550,000 550,000
---------- ----------
$2,210,000 $2,185,000
========== ==========
</TABLE>
Pursuant to a Loan and Security Agreement, as amended (the "Loan
Agreement"), dated March 31, 1995, with a bank, Quest borrowed $2.2 million
under a term loan facility to partially fund the acquisition of the fasteners
distribution business. The Loan Agreement also provides for Quest to be able
to borrow for working capital purposes under an annually renewable two-year
revolving facility, which provides for loans of up to $1,500,000. The Loan
Agreement contains a provision for the calculation of a borrowing base, which
determines the amount of borrowings available under the revolving facility. At
September 30, 1996 and December 31, 1995, Quest had unused borrowing capacity
of $115,000 and $527,500, respectively under the Loan Agreement.
F-15
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
In order to secure the obligations of Quest under the Loan
Agreement, Questron entered into a Stock Pledge Agreement, dated as of March
31, 1995, with the bank, under which the Company pledged to the bank the
shares of capital stock of Quest which the Company held at such date and in
which the Company may thereafter acquire an interest. In addition, Quest
granted a security interest in substantially all of its assets to the bank and
a major shareholder of Questron (see Note 11 of Notes to Consolidated
Financial Statements) guaranteed the obligations of Quest under the Loan
agreement. The Loan Agreement restricts the payment of cash dividends by Quest
to the Company and certain other payments, limits long-term and short-term
borrowings of Quest, and requires that debt service coverage, net worth,
tangible net worth, the ratio of debt to net worth, and the ratio of quick
assets (cash and accounts receivable) to current liabilities be maintained at
certain designated levels by Quest. Quest is in compliance with all such
requirements of the Loan Agreement.
The aggregate annual maturities of long-term debt under the Loan
Agreement for each of the five years in the period ending December 31, 2000
are : 1996-$550,000; 1997-$1,497,500; 1998-$550,000; 1999- $137,500; and
2000-$-0-.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 consisted of the
following:
1 9 9 5
--------
Office equipment $ 55,933
Computer equipment 389,730
Furniture and fixtures 12,583
Leasehold improvements 19,947
--------
478,193
Less accumulated depreciation and amortization 59,213
--------
$418,980
========
Depreciation and amortization expense related to property and
equipment for the years ended December 31, 1995 and 1994 was $68,729 and
$58,412, respectively. At December 31, 1995, all property and equipment
represent assets used in the business of Quest. All property and equipment of
the ADR business have been written off in connection with the downsizing and
restructuring of that business.
F-16
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
5. SHAREHOLDERS' EQUITY
As of December 31, 1995, the Company was authorized to issue
20,000,000 shares of common stock and 1,000,000 of preferred stock. On April
2, 1996, the shareholders of the Company approved an increase in the number of
authorized shares of common stock to 50,000,000 shares and an increase in the
number of authorized shares of preferred stock to 10,000,000 shares. The
outstanding shares of common stock are fully paid and non-assessable. In 1994,
there were outstanding 140,000 shares of Series A Preferred Stock. Each share
of Series A Preferred Stock, which was convertible, without further
consideration, into two (2) shares of common stock, has been converted.
In November 1994, the Company issued 2,515,200 shares of its common
stock in a private offering conducted through a placement agent. Net proceeds
from the offering amounted to $957,600. As additional consideration for common
shares issued, one of the purchasers tendered 103,040 Series I Warrants to the
Company for cancellation. Additionally, 200,000 shares of Company common stock
were issued to the placement agent in lieu of fees in connection with this
transaction.
In March and April 1995, the Company, through a placement agent,
consummated the sale of fifty-eight units of its securities at a gross sales
price of $30,000 per unit. Each unit consisted of 20,000 shares of Company
common stock. The net proceeds to the Company, after expenses associated with
the placement of $271,098, were $1,468,902. Such net proceeds, together with
available cash, were used to make a capital contribution to Quest at March 31,
1995, in order to provide Quest with the balance of the funds necessary to
complete the acquisition of the fasteners distribution business from Arrow. In
connection with this sale of securities, the placement agent also received a
portion of its fee in the form of 116,000 options to purchase Company common
stock at an exercise price of $3.50 per share. These options expire March 31,
2000.
The Company has issued various series of warrants to purchase shares
of its common stock. Each Series I Warrant entities the registered holder to
purchase 1.629 shares of common stock at a price of $1.80 per share on or
before June 30, 1996. Any warrant not exercised by that date will be null and
void. At December 31, 1995, there were 64,657 Series I Warrants outstanding.
In March 1994, as an inducement to raise capital, the Company
offered holders of the Series I Warrants the right to exchange each warrant
for three Series II Warrants which were exercisable at $ .625 per share. The
exchange offer expired on April 30, 1994. Pursuant to the exchange offer, the
Company received net proceeds of $413,482 upon the issuance of 718,704 shares
of its common stock. Additionally, the Company issued 61,824 shares of its
common stock to a placement agent in lieu of fees in connection with this
transaction. At December 31, 1994, all Series II Warrants had been exercised.
In connection with the November 1994 private placement, 2,200,000
Series III Warrants were issued. Each Series III Warrant entitles the
registered holder to purchase one share of common stock at an exercise price
of $.35 per share. The warrants expire November 14, 2004, and any warrant not
exercised by that date will be null and void. At December 31, 1995, there were
40,000 Series III Warrants outstanding.
In December 1995, in connection with certain obligations amounting
to $355,478 owed to the Company by two of its former officers and directors,
the Company received 118,493 shares of its common stock in full satisfaction
of such amounts owed.
F-17
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
6. STOCK OPTIONS
Under the terms of various stock option plans, the Company may grant
options to purchase shares of the Company's common stock to key executives and
management of the Company. Transactions under the various stock option and
incentive plans during the years ended December 31, 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
1 9 9 5 1 9 9 4
-------------------------- --------------------------
Incentive Non-Incentive Incentive Non-Incentive
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Outstanding - beginning of year 554,469 513,593 17,829 46,835
Options granted 46,835 229,363 550,000 466,758
Options exercised (550,000) (626,956) -- --
Options canceled and terminated -- -- (13,360) --
-------- -------- -------- --------
Outstanding - end of year (1) 51,304 116,000 554,469 513,593
======== ======== ======== ========
</TABLE>
(1) With exercise prices ranging from $7.95 to $33.75 per share, giving effect
to the one-for-fifteen reverse stock split, which occurred on December 22,
1993.
In addition to the above, on April 2, 1996, the shareholders
approved the adoption of the 1994 Director Non-qualified Stock Option Plan
(the "Plan"), under which options to purchase shares of the Company's common
stock may be granted to non-executive directors of the Company. Under the Plan
options are to be granted to each eligible director at the rate of 15,000 per
year. Awards under the Plan had been made previously, subject to shareholder
approval. Transactions under the Plan during the years ended December 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1 9 9 5 1 9 9 4
------- -------
<S> <C> <C>
Outstanding - beginning of year 60,000 --
Options granted 45,000 60,000
Options exercised -- --
Options canceled and terminated -- --
------- -------
Outstanding - end of year 105,000 60,000
======= =======
</TABLE>
In February 1996, in accordance with the provisions of the Plan,
30,000 options to purchase shares of the Company's common stock were granted
to qualified directors.
F-18
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
7. RETIREMENT PLAN
Quest has a defined contribution plan for eligible employees, which
qualifies under Section 401(k) of the Internal Revenue Code. Quest's
contribution to the plan, which is based on a specified percentage of employee
contributions, amounted to $24,820 in 1995.
8. LEASE COMMITMENTS
The Company leases certain office and warehouse space under
non-cancelable operating leases expiring at various dates through 2000. Rental
expenses of all non-cancelable operating leases amounting to $112,249 and
$65,070 was charged to operations for the years ended December 31, 1995 and
1994, respectively. Aggregate minimum rental commitments under all
non-cancelable operating leases approximate $535,000 as of December 31, 1995.
Such commitments on annual basis are as follows:
Years ending
December 31,
1996 $ 184,712
1997 184,812
1998 83,198
1999 42,120
2000 40,365
-------------
$ 535,207
=============
9. INCOME TAXES
The provision for income taxes included in the consolidated
statement of income is for state income taxes to which the Company and its
subsidiaries are subject. No provision for federal income taxes is required,
as the Company has no federal tax liability for 1995 as a result of the
availability of net operating loss income tax carryforwards of approximately
$13.1 million as of December 31, 1995, expiring in the years 2000 through
2009.
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes," which was adopted by the Company on January 1,
1993, requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because the generation
of future taxable income is not assured, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards would
correspondingly require a valuation allowance of the same amount pursuant to
SFAS No. 109. Accordingly, no deferred tax asset is reflected in the
consolidated financial statements.
F-19
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
As of December 31, 1995, the approximate amount of the net operating
loss income tax carryforwards and their expiration dates are as follows:
Expiring in Years Ending Net Operating Loss
December 31, Carryforwards
------------------
2000 $ 460,000
2001 1,243,000
2002 1,414,000
2003 1,574,000
2004 1,100,000
2005 579,000
2006 782,000
2007 2,945,000
2008 2,336,000
2009 670,000
------------
$ 13,103,000
============
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective December 31, 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value
of Financial Instruments," which requires disclosing fair value, to the extent
practicable, for financial instruments which are recognized or unrecognized in
the balance sheet. Fair value of the financial instruments disclosed in the
balance sheet is not necessarily representative of the amount that could be
realized or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. The following table summarizes
financial instruments by individual balance sheet accounts as of December 31,
1995:
Carrying Amount Fair Value
--------------- ----------
Cash and cash equivalents $ 39,358 $ 39,358
Accounts receivable 1,399,936 1,399,936
Accounts payable and accrued expenses 1,520,094 1,520,094
Current portion of long-term debt 550,000 550,000
Long-term debt 2,185,000 2,185,000
F-20
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
For certain financial instruments, including cash and cash
equivalents, trade receivables and payables, and short-term debt, it was
assumed that the carrying amount approximated fair value because of the near
term maturities of such obligations. The fair value of long-term debt was
determined based on current rates at which the Company could borrow funds with
similar remaining maturities, which amount approximates its carrying value.
11. RELATED PARTY TRANSACTIONS
The Company has entered into a five-year management advisory and
consulting agreement with Gulfstream Financial Group, Inc. ("Gulfstream"), a
company in which the Chairman, President and Chief Executive Officer of
Questron, who is also the Chairman and Chief Executive Officer of Quest, is a
50% owner. Under the terms of such agreement, Gulfstream acts as an advisor
and consultant to the Company and Quest, and also provides certain
administrative services to the companies. Such advisory and consulting
services are directed principally at the expansion of Quest's business through
the identification of new marketing opportunities and potential acquisitions,
the procurement of financing as needed by the Company and Quest, and
maximizing the Company's and Quest's profitability. For such services
Gulfstream is paid a fee of $150,000 per year. In addition, upon the
attainment of certain earnings targets for Quest, Gulfstream may be entitled
to be awarded as incentive compensation, warrants, subject to certain
conditions and restrictions, to purchase at a price of $.10 per share, a
number of shares of common stock of the Company, such that the number of
shares so purchased represents up to 10% of the outstanding common stock of
the Company at March 31, 1995. For these purposes, the calculation of the
shares of the common stock of the Company outstanding at March 31, 1995
assumes that all warrants, options and preferred stock are converted to common
stock of the Company. Gulfstream presently owns 16.9% of the Company's common
stock outstanding and has guaranteed the obligations of Quest under its Loan
Agreement.
12. LONG-TERM EMPLOYMENT AGREEMENTS WITH EXECUTIVES
Quest has entered into a five-year employment agreement with its
Chairman and Chief Executive Officer. Under the terms of such employment
agreement, Quest has agreed to compensate this individual with regular salary
at the rate of $100,000 per year. There are no other bonus compensation
arrangements currently in effect for this individual.
Quest has also entered into a five-year employment agreement with
its President and Chief Operating Officer. Under the terms of such employment
agreement, Quest has agreed to compensate this individual with regular salary
at the rate of $100,000 per year, plus bonus compensation based on the
attainment of certain operating goals at the rate of $15,000 per quarter. In
addition, upon the attainment of certain earnings targets for Quest, this
individual may be entitled to be awarded as incentive compensation, warrants,
subject to certain conditions and restrictions, to purchase at a price of $.10
per share, a number of shares of common stock of the Company, such that the
number of shares so purchased represents up to 5% of the outstanding common
stock of the Company at March 31, 1995. For these purposes, the calculation of
the shares of the common stock of the Company outstanding at March 31, 1995
assumes that all warrants, options and preferred stock are converted to common
stock of the Company. This individual presently owns 8.8% of the Company's
common stock outstanding and has agreed with Gulfstream to participate in its
guarantee of the obligations of Quest under its Loan Agreement, however, only
to the extent of his stock holdings in the Company.
F-21
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
13. NEW AUTHORITATIVE ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of," in March of 1995. SFAS No.
121 established accounting standards for the impairment of long-lived assets
and certain identifiable intangibles to be disposed of. SFAS No. 121 is
effective for financial statements issued for fiscal years beginning after
December 15, 1995. Adoption of SFAS No. 121 is not expected to have a material
impact on the Company's financial statements.
The FASB has also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October 1995. SFAS No. 123 uses a fair value based method of
accounting for stock options and similar equity instruments as contrasted to
the intrinsic value based method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has not decided if it will adopt SFAS No. 123 or
continue to apply APB Opinion No. 25 for financial reporting purposes. SFAS
No. 123 will have to be adopted for financial note disclosure purposes in any
event. The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years beginning after December 15, 1995;
the disclosure requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning after December 31, 1995.
14. LITIGATION
In July 1994, the Company was served with a complaint that charges
the Company with breach of contract by exceeding its ADR authority in granting
an arbitration award and seeks compensatory, consequential and punitive
damages of an amount in excess of $100,000. The Company answered the
complaint, denying the plaintiff's allegations. The Company believes that
there is no basis for such action and that any consequences of such complaint
will not have a material adverse effect on the Company's consolidated
financial statements.
F-22
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
15. SEGMENT INFORMATION
As of March 31, 1995, the Company is engaged in two business
segments. Through its subsidiary, Quest, it is a specialized distributor of
fasteners and electronic hardware sold to electronic equipment manufacturers
and, through its subsidiary, Judicate, it is a supplier of alternate dispute
resolution ("ADR") services. The operating results and identifiable assets of
each of these business segments, and corporate, at December 31, 1995 and for
the year then ended is as follows:
<TABLE>
<CAPTION>
Quest (1) Judicate Corporate (2) Consolidated
---------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue $6,982,902 $276,253 $ -- $ 7,259,155
---------- ---------- ----------- -----------
Operating income (loss) 962,102 (25,255) (351,941) 584,906
Interest expense 201,096 -- 4,459 205,555
Provision for income taxes 27,164 -- -- 27,164
----------- ---------- ----------- -----------
Net income (loss) $ 733,842 $(25,255) $(356,400) $ 352,187
========== ========== =========== ===========
Depreciation and amortization $ 112,871 $ 9,516 $ 77,545 $ 199,932
========== ========== =========== ===========
Capital expenditures $ 420,766 $ (1,000) $ -- $ 419,766
========== ========== =========== ===========
Identifiable Assets $8,306,721 $ 79,034 $4,047,243 $12,432,998
========== ========== =========== ===========
</TABLE>
(1) The operating results for Quest are for the nine months ended
December 31, 1995.
(2) Corporate expenses include non-recurring charges $146,867, principally
associated with the downsizing and restructuring of the Company's
ADR business.
16. EVENTS SUBSEQUENT TO THE DATE OF THE REPORT OF THE INDEPENDENT
AUDITORS (UNAUDITED)
PROPOSED PUBLIC OFFERING
The Company is pursuing a public offering of 1,000,000 Units of its
securities at a price of $6.00 per unit ("Unit"). Each Unit will consist of
one share of the Company's Series B Convertible Preferred Stock, par value
$.01 per share, and one redeemable Series IV Common Stock Purchase Warrant.
The Company anticipates net proceeds of $4,820,000 from the Offering.
F-23
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
16. EVENTS SUBSEQUENT TO THE DATE OF THE REPORT OF THE INDEPENDENT
AUDITORS (UNAUDITED) (CONTINUED)
BUSINESS COMBINATION
The Company has entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of December 16, 1996 with the stockholders of
Webb to acquire all of the issued and outstanding stock of Webb, in a business
combination to be accounted for as a purchase. Under the Stock Purchase
Agreement, the stockholders of Webb have agreed to exchange their shares of
Webb for $3,250,000 in cash, 1,500,000 Series IV Common Stock Purchase
Warrants and two notes (the "Notes") in the aggregate amount of $750,000 (each
for $375,000). Note A shall mature eighteen months from the effective date of
the proposed public offering and bear interest at 10% per annum. Note B shall
mature in equal monthly installments over a five year period from the same
date and bear interest at 10% per annum. At the time of the signing of the
Stock Purchase Agreement, the Company delivered to the Webb stockholders the
1,500,000 Series IV Warrants as a deposit on account of the purchase price
under said agreement. The Company has valued these Series IV Warrants at $.25
per Warrant. These Series IV Warrants will be cancelled if the Webb
acquisition does not close. Any proceeds received by the Webb stockholders
from a sale of their Series IV Warrants in excess of 375,000 shall reduce the
Company's obligations under the Notes. The amount of the purchase price
($4,375,000) in excess of the estimated fair value of the net assets acquired
will be recorded as "cost in excess of net assets acquired" and amortized over
forty years.
PROPOSED STOCK SPLIT
The Board of Directors has proposed a one-for-ten reverse split of
the issued and outstanding Common Stock of the Company. The proposal is
subject to the approval of the Company's stockholders at the annual meeting of
stockholders scheduled for December 27, 1996.
17. UNAUDITED INTERIM STATEMENTS
The financial statements for the nine months ended September 30,
1996 and 1995 are unaudited; however, in the opinion of management all
adjustments which are necessary in order to make the interim financial
statements not misleading have been made. The results for interim periods are
not necessarily indicative of the results to be obtained for a full fiscal
year.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Comp Ware, Inc. d/b/a Webb Distribution
We have audited the accompanying balance sheets of Comp Ware, Inc.
d/b/a Webb Distribution as of December 31, 1995 and 1994, and the related
statements of operations and retained earnings, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Comp Ware, Inc.
d/b/a Webb Distribution as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ESTABROOK & CO., INC.
Certified Public Accountants
Winchester, Massachusetts
February 5, 1996
F-25
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash $ 1,716 $ 500
Accounts receivable - trade, less allowance for doubtful
accounts of $70,000 and $67,000, respectively 1,094,890 1,048,278
Inventory 1,715,137 1,726,497
Deferred income taxes 115,839 115,839
Other current assets 20,445 36,493
---------- ----------
Total current assets 2,948,027 2,927,607
Property and equipment, at cost, less accumulated
depreciation and amortization (Note 3) 109,931 126,898
Other assets 135,855 204,011
---------- ----------
Total assets $3,193,813 $3,258,516
========== ==========
</TABLE>
See Notes to Financial Statements.
F-26
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Cash overdraft $ -- $ 37,848
Notes payable 588,218 796,685
Current maturities of obligations under capital leases (Note 11) 22,448 22,157
Current maturities of long-term debt (Note 7) -- 150,000
Current maturities of note payable-stockholder 61,904 --
Accounts payable and accrued expenses 1,095,941 1,051,210
----------- -----------
Total current liabilities 1,768,511 2,057,900
----------- -----------
Long-term liabilities:
Obligations under capital leases, less current maturities
(Note 11) 57,567 73,082
Long-term debt, less current maturities (Note 7) 500,000 500,000
Notes payable-stockholder-net of current portion 30,954 --
Deferred income taxes (Note 9) 22,216 22,216
----------- -----------
Total long-term liabilities: 610,737 595,298
---------- ----------
Stockholders' equity (Note 8):
Common stock, $.01 par value authorized 1,000,000
issued and outstanding 651,162 shares 6,512 6,512
Additional paid-in capital 340,857 340,857
Retained earnings 467,196 257,949
----------- -----------
Total stockholders' equity 814,565 605,318
----------- -----------
Total liabilities and stockholders' equity $ 3,193,813 $ 3,258,516
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-27
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------------- ---------------------------------
1996 1995 1995 1994
------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 6,088,946 $ 5,673,325 $ 7,793,179 $ 8,880,742
------------ ------------ ------------ ------------
Operating expenses:
Cost of sales 4,122,619 3,907,641 5,557,984 6,980,213
Selling expenses 1,003,091 927,439 1,085,445 952,645
General and administrative
expenses 473,152 460,106 672,491 592,467
------------ ------------- ------------- -------------
Total operating costs and
expenses 5,598,862 5,295,186 7,315,920 8,525,325
------------ ------------- ------------- ---------
Operating income 490,084 378,139 477,259 355,417
------------ ------------- ------------- -------------
Other income (expenses):
Interest income -- -- 2,601 1,875
Interest expense (109,537) (122,544) (164,146) (127,113)
Other (Note 10) -- -- -- 7,506
--------------- --------------- ---------------- --------------
Total other income (expense) (109,537) (122,544) (161,545) (117,732)
------------ ------------ ------------ ------------
Income before provision for
income taxes 380,547 255,595 315,714 237,685
Provision for income taxes (Note 9) 171,300 115,040 113,681 63,129
------------ ------------ ------------ ------------
Net income $ 209,247 $ 140,555 $ 202,033 $ 174,556
============ ============ ============ =============
</TABLE>
See Notes to Financial Statements.
F-28
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNTS CAPITAL EARNINGS EQUITY
------ ------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1993 -- $ -- $289,026 $(118,640) $170,386
Net income for the year -- -- -- 174,556 174,556
---------- ------- -------- --------- --------
BALANCE - DECEMBER 31, 1994 -- -- 289,026 55,916 344,942
Exchange of stock 560,000 5,600 (5,600) -- --
Issuance of stock 91,162 912 57,431 -- 58,343
Net income for the year -- -- -- 202,033 202,033
---------- ------- -------- --------- --------
BALANCE - DECEMBER 31, 1995 651,162 6,512 340,857 257,949 605,318
Net income for the nine months -- -- -- 209,247 209,247
---------- ------- -------- --------- --------
BALANCE - SEPTEMBER 30, 1996
(UNAUDITED) 651,162 $ 6,512 $340,857 $ 467,196 $814,565
======= ======= ======== ========= ========
</TABLE>
See Notes to Financial Statements.
F-29
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ -------------------------
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $209,247 $140,555 $202,033 $174,556
-------- -------- -------- --------
Adjustments to reconcile net income
to net cash provided by (used in)
Operating activities:
Depreciation and amortization 38,989 36,716 50,424 44,184
Deferred income taxes -- (25,914) (41,672) (51,951)
Stock issued for services -- -- 58,343 --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable - trade 46,592 (172,869) (242,284) (124,993)
Inventory 11,360 (123,119) (78,704) 47,372
Other current assets 6,780 (6,381) 17,539 (15,176)
Increase (decrease) in accounts
payable and accrued expenses 44,781 4,457 (90,985) (59,882)
-------- --------- -------- --------
Total adjustments 148,502 (287,110) (327,339) (160,446)
-------- --------- -------- --------
NET CASH - OPERATING ACTIVITIES -
FORWARD 357,749 (146,555) (125,306) 14,110
-------- --------- -------- --------
</TABLE>
F-30
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ -------------------------
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES:
Interest earned on certificate of
deposit $ -- $ -- $ -- $ (338)
Certificate of deposit returned -- 9,225 9,225 --
Deposits (27) -- (654) 2,219
Capital expenditures (15,345) (25,109) (30,189) (13,293)
Loans to stockholders -- (11,407) (14,047) (8,140)
Collections on stockholder loans -- -- 2,640 --
Loans to employees (31,452) (11,558) (11,558) --
Collections on loans to employees 8,972 3,650 4,600 --
Proceeds on sale of investments -- -- -- 70,000
-------- -------- -------- --------
NET CASH - INVESTING ACTIVITIES -
FORWARD (37,852) (35,199) (39,983) 50,448
-------- -------- -------- --------
</TABLE>
F-31
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------------ -------------------------
1996 1995 1995 1994
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET CASH - OPERATING ACTIVITIES -
FORWARDED $357,749 $(146,555) $(125,306) $ 14,110
--------- ---------- --------- --------
NET CASH - INVESTING ACTIVITIES -
FORWARDED (37,852) (35,199) (39,983) 50,448
---------- ---------- --------- --------
FINANCING ACTIVITIES:
Cash overdraft (37,848) -- 37,848 (4,167)
Net borrowings (repayments) under
loan agreement with bank (207,261) 253,609 199,461 8,335
Repayments of long-term debt (57,142) (50,000) (50,000) (50,000)
Repayments of obligations under
capital leases (16,430) (19,359) (23,638) (17,108)
---------- --------- --------- --------
NET CASH - FINANCING ACTIVITIES (318,681) 184,250 163,671 (62,940)
---------- --------- --------- --------
NET (DECREASE) INCREASE IN CASH 1,216 2,496 (1,618) 1,618
CASH - BEGINNING OF PERIODS 500 2,118 2,118 500
--------- --------- ---------- --------
CASH - END OF PERIODS $ 1,716 $ 4,614 $ 500 $ 2,118
========= ========= ========== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest $109,536 $122,545 $165,291 $127,113
Income taxes $162,954 $123,536 $126,736 $103,550
</TABLE>
F-32
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
STATEMENT OF CASH FLOWS
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
1995
The Company incurred debt obligations of $28,015 in connection with the
acquisition of certain equipment.
The Company issued 91,162 shares of common stock for services. The shares were
valued at $58,343.
1994
The Company incurred debt obligations of $63,469 in connection with the
acquisition of certain equipment ($50,378) and the amendment of a certain
lease agreement ($13,091).
See Notes to Financial Statements.
F-33
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Comp Ware, Inc. d/b/a Webb Distribution (the "Company") is a distributor
of electronic hardware, fasteners and components.
SIGNIFICANT ACCOUNTING POLICIES
Inventory
Inventories consist of electronic hardware, fasteners and components
purchased for resale and are stated at the lower of FIFO cost or market.
Market is defined as replacement cost.
Property and Equipment
Depreciation and amortization is provided on a straight-line basis over
the estimated useful lives of the assets as follows:
Furniture, Fixtures and Computer Equipment 3-5 Years
Machinery and Equipment 5 Years
Leasehold Improvements Lease Term
Goodwill
The excess of the purchase price over the original valuation of the net
assets acquired is being amortized on a straight-line basis over 10 years.
Customer Lists
Customer lists are being amortized on a straight-line basis over 7 years.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of accounts
receivable, inventory, property and equipment, and goodwill for financial and
income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of these differences, which will be either
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that are
available to offset future taxable income and tax credits that are available
to offset future income taxes.
F-34
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
Statement of Cash Flows
For purposes of this statement the Company does not consider any of its
assets to meet the definition of cash equivalent.
Reclassification
Certain reclassifications have been made to the 1994 financial statements
to conform to the 1995 presentation.
2. INVESTMENTS
Investments consist of 46,832 shares of common stock of Alliance
Electronics, Inc. at cost. The fair value of these securities is not readily
determinable as there is no public market for these securities. During 1996,
the Company expects to convert the investment in Alliance Electronics, Inc.
$(70,248) together with commissions receivable from this same company
$(61,506) into a note receivable with repayment terms of twenty-four to
thirty-six months.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995:
1995
----
Furniture, Fixtures and Computer Equipment $ 303,912
Machinery and Equipment 23,470
Leasehold Improvements 14,523
-----------
341,905
Less: Accumulated Depreciation and Amortization 215,007
-----------
$ 126,898
===========
Depreciation and amortization expense charged to operations was $41,522 and
$32,102 in 1995 and 1994, respectively.
4. CERTIFICATE OF DEPOSIT
Under the terms of a lease agreement with IBM Credit Corporation, the
Company was required to purchase a Certificate of Deposit for $7,977 as a
security deposit. The deposit will be returned, together with interest earned
thereon, if certain criteria are met (principally satisfactory payments under
the lease). The deposit $(9,225) was returned during 1995.
F-35
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
5. GOODWILL
Goodwill of $50,000 is included in the accompanying balance sheet net of
accumulated amortization of $30,000 in 1995. Amortization expense charged to
operations was $5,000 in 1995 and 1994.
6. CUSTOMER LISTS
Customer lists costs of $27,314 are included in the accompanying balance
sheet net of accumulated amortization of $23,737 in 1995. Amortization expense
charged to operations was $3,902 in 1995 and 1994.
7. INDEBTEDNESS
At September 30 1996 and December 31, 1995, indebtedness consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Note Payable - Borrowings under a loan agreement with US Trust that provides
for a maximum loan limit of $900,000, payable on demand, secured by all
accounts receivable, inventory and equipment with interest at the
bank's base lending rate plus 1.50% (10.00% at December 31, 1995 and
September 30, 1996). $588,218 $796,685
======== ========
Long-Term Debt - $500,000 commercial installment note payable to US Trust;
interest only at the bank's base lending rate plus 1.50% (10.00% at
December 31, 1995 and September 30, 1996), through January 1, 1997 at which
time the entire principal balance is due, secured by accounts
receivable, inventory and equipment. The majority stockholder of the $500,000 $500,000
Company has executed a limited guaranty of $500,000.
Notes payable to certain former stockholders of the Company in connection with
the repurchase of their stock. Payable in semi-annual installments of
$50,000 together with interest at US Trust's base lending rate (8.50% at
December 31, 1995) commencing on July 1, 1994. These notes are subordinate
to existing borrowings from US Trust. Further, the Company is only
permitted to make payments of principal and interest if they comply with
certain financial covenants that involve minimum cash flow and the ratio of
senior debt to capital base. Certain stockholders of the Company have
guaranteed the payments under the note and a life insurance policy (face
amount of $250,000) on the life of one stockholder has been assigned to the
former stockholders. -- 150,000
-------- -------
Total 500,000 650,000
Less current maturities of long-term debt -- 150,000
-------- -------
Long-term debt, less current maturities $500,000 $500,000
======== ========
</TABLE>
F-36
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
Long-Term debt matures as follows:
1996 $150,000
1997 500,000
---------
$650,000
The loan agreement and commercial installment note with the bank require
conformance to certain covenants, restrict the payment of dividends and the
merging or consolidating with any other corporation, and limit the amount of
expenditures for property and equipment, annual increases to certain officers'
salaries and the making of certain loans and investments.
8. STOCKHOLDERS' EQUITY
On February 15, 1995 the Company was merged into Comp Ware, Inc., a
newly-created Delaware corporation, in a so-called migratory merger. As part
of the merger, each share of common stock of Webb Distribution outstanding
prior to the merger was exchanged for 35,000 shares of Comp Ware, Inc. Comp
Ware, Inc. has the authority to issue up to 1,000,000 shares of common stock,
par value $.01 per share.
On February 15, 1995 the Company issued 91,162 shares of common stock to
certain employees of the Company. After giving effect to the exchange referred
to above and the issuance of the 91,162 shares, the total number of shares
issued and outstanding is 651,162. The 91,162 shares were issued pursuant to a
certain stockholders' agreement that provides for restrictions on transfer,
put rights and purchase options. Shares held by certain other stockholders are
not subject to the stockholders' agreement referred to above. Those certain
employees whose shares are subject to the stockholders' agreement will
hereinafter be referred to as the "covered employees."
The covered employees may not transfer their stock without first offering
it to the Company for a price per share equal to, for offers prior to December
9, 2000, the per share book value, and for offers after December 9, 2000, the
greater of the per share book value and $1.91 per share. The purchase price is
payable 25% in cash and 75% in accordance with a subordinated note providing
for monthly payments of interest only at an annual rate of 8%, and three equal
annual payments of principal commencing one year after the closing.
The Company's purchase option, whose items are stated above, could be
exercised if a covered employee ceases for any reason to be employed by the
Company.
If the Company does not exercise the Company purchase option, a covered
employee may seek third party offers for this stock, and the employee must
provide notice of any third party offer to all remaining Company stockholders
who shall have a right of first refusal to purchase such covered employee's
stock on the same terms and conditions as the third party offer.
F-37
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The stockholders' agreement further provides for a put right for the
benefit of the covered employees whereby the covered employee (1) after April
1, 1997, (2) upon the employee ceasing for any reason to be employed by the
Company and (3) the Company not exercising the Company purchase option
triggered by the end of employment, may require that the Company purchase the
stock at the price and upon the identical terms set forth in the Company
purchase option.
The Company is required to grant to the covered employees, if they remain
employed by the Company on April 1, 1997, non-qualified stock options to
acquire stock then representing 14% of the outstanding stock of the Company,
at an exercise price of $1.00 per share, but subject to vesting over 5 years
at the annual rate of 20% per year.
9. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Federal:
Current $ 114,643 $ 83,126
Deferred (33,927) (10,738)
Adjustment due to change in tax status -- (29,867)
-------- ----------
Totals 80,716 42,521
-------- ----------
State:
Current 40,710 31,954
Deferred (7,745) (3,001)
Adjustment due to change in tax status -- (8,345)
-------- ----------
Totals 32,965 20,608
-------- ----------
$113,681 $ 63,129
======== ==========
</TABLE>
The provision for income taxes in 1995 and 1994 differs from the amounts
computed by applying the U.S. statutory federal income tax rate of 35%
principally because of state income taxes, the surtax exemption and
amortization of goodwill.
F-38
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
9. PROVISION FOR INCOME TAXES (CONTINUED)
During 1994, the Company's tax status changed from an S Corporation to a
C Corporation; accordingly, the Company adopted Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109") which requires a
change from an income statement to a balance sheet approach for accounting for
income taxes. Under SFAS No. 109, deferred tax assets and liabilities are
recognized based upon temporary differences between financial statement and
tax basis of assets and liabilities using current statutory rates. SFAS No.
109 also requires a valuation reserve against net deferred tax assets if,
based upon weighted available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
The following table shows the December 31, 1995 amounts of deferred tax
assets and liabilities:
<TABLE>
<CAPTION>
1995
-----------------------------------
Long-Term
Current Assets Liabilities
---------------- ---------------
<S> <C> <C>
Inventory $ 68,752 $ --
Accounts receivable 29,145 --
Charitable contributions 17,942 --
Goodwill -- 6,800
Property and equipment -- 15,416
------------- -----------
$ 115,839 $ 22,216
============= ===========
</TABLE>
10. RELATED PARTY TRANSACTIONS
<TABLE>
<S> <C>
Notes Receivable
Amounts receivable from majority stockholder. This
note bears interest at the rate of 6%. $ 40,476
=============
</TABLE>
Cost Reimbursement and Commission
The Company entered into an agreement with Alliance Electronics, Inc.
("Alliance") whereby Alliance would open and operate an office on the premises
currently leased by the Company. Employees of Alliance operate the office but
are included on the payroll of the Company. Alliance reimburses the Company
for personnel and other operating costs. In addition, the Company receives
25%-50% of the gross profit on certain sales generated for Alliance in the
form of commissions. This agreement was terminated in September 1994.
F-39
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company received $64,000 in the form of commissions during 1994.
These amounts are included in other income, net of related expenses $(58,944),
in the accompanying statements of operations and retained earnings (deficit).
Related expenses consist principally of salaries, commissions and fringe
benefits. Also included in other income is $2,450 received in connection with
an insurance claim.
11. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under a noncancelable operating lease
and certain equipment under capital leases. Future minimum payments are as
follows:
<TABLE>
<CAPTION>
Operating Leases Capital Leases
---------------- --------------
<S> <C> <C>
1996 $ 91,875 $ 34,242
1997 94,375 34,242
1998 96,875 27,263
1999 99,375 19,218
2000 25,000 6,847
-------- ---------
$407,500 121,812
========
Amount representing interest 26,573
--------
Present value of net minimum lease payments 95,239
Current maturities of obligations under capital lease 22,157
--------
Obligations under capital leases, less current maturities $ 73,082
========
</TABLE>
Rental expense charged to operations under operating leases was $86,200
and $91,200 in 1995 and 1994, respectively. These amounts are net of sublease
rentals of $6,300 in 1995 and 1994.
The capital leases are included in furniture, fixtures and computer
equipment as follows:
<TABLE>
<S> <C>
Cost $131,369
Accumulated depreciation 53,847
--------
$ 77,522
========
</TABLE>
F-40
<PAGE>
COMP WARE, INC. D/B/A WEBB DISTRIBUTION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 1996 AND 1995 AND FOR THE NINE MONTH PERIODS
THEN ENDED IS UNAUDITED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Insurance
The Company maintains $1,520,000 of insurance on inventories whose value at
December 31, 1995 is $1,726,497. The possible loss, which has not been
provided for in the accompanying financial statements, is $206,497.
12. MAJOR CUSTOMERS
During 1995 and 1994, the Company had a major customer each year whose
purchases exceeded 10% of net sales. Sales to this major customer were as
follows:
1995 $ 825,000
1994 $2,718,750
13. BENEFIT PLAN
The Company maintains an employee savings plan under section 401(k) of
the Internal Revenue Code in which substantially all employees are eligible to
participate. Employees may make contributions to the plan subject to
limitations as provided in current federal income tax law. The Company may
make matching contributions in whole or in part, subject to certain
limitations, at the Company's discretion. Company contribution expense charged
to operations was $10,953 and $8,063 in 1995 and 1994, respectively.
14. FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATION OF GROUP CREDIT RISK
Financial instruments that potentially subject the Company to
concentration of credit risk consists principally of trade receivables. Trade
receivables are derived from sales to various customers spread across various
industries, principally in Massachusetts. Management believes that any risk of
accounting loss is significantly reduced due to the diversity of its end
customers. The Company performs credit evaluations of its customers' financial
condition prior to extending credit whenever deemed necessary, but does not
require collateral.
15. UNAUDITED INTERIM STATEMENTS
The financial statements for the nine months ended September 30, 1996 and
1995 are unaudited; however, in the opinion of management all adjustments
which are necessary in order to make the interim financial statements not
misleading have been made. The results for interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year.
F-41
<PAGE>
=============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER WOULD BE UNLAWFUL. ANY MATERIAL
MODIFICATION OF THE OFFERING WILL BE ACCOMPLISHED BY MEANS OF AN AMENDMENT TO
THE REGISTRATION STATEMENT. IN ADDITION, THE RIGHT IS RESERVED BY THE COMPANY
TO CANCEL ANY CONFIRMATION OF SALE PRIOR TO THE RELEASE OF FUNDS, IF, IN THE
OPINION OF THE COMPANY, COMPLETION OF SUCH SALE WOULD VIOLATE FEDERAL OR STATE
SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC., WASHINGTON, D.C. 20006.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Note on Forward-Looking Statements........................... 3
Available Information........................................ 3
Prospectus Summary........................................... 4
Risk Factors................................................. 10
Use of Proceeds.............................................. 20
Capitalization.............................................. 22
Price Range of Common Stock and
Dividend Policy............................................ 23
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations................................................. 25
Business..................................................... 34
Management................................................... 41
Certain Transactions......................................... 45
Securities Ownership......................................... 47
Description of Securities.................................... 52
Selling Securityholders...................................... 56
Underwriting................................................. 58
Legal Proceedings............................................ 62
Legal Matters................................................ 62
Experts...................................................... 62
Index to Financial Statements................................ 63
Pro Forma Combined Financial Statements ..................... P-1
Report of Independent Auditors............................... F-1
</TABLE>
---------------------------
1,000,000 UNITS
QUESTRON TECHNOLOGY,
INC.
----------
PROSPECTUS
----------
BILTMORE SECURITIES, INC.
( ), 1997
==============================================================================
<PAGE>
PROSPECTUS (ALTERNATE) Subject to Completion, dated December 19, 1996
2,750,000 SERIES IV WARRANTS
2,750,000 SHARES OF COMMON STOCK UNDERLYING SERIES IV WARRANTS
QUESTRON TECHNOLOGY, INC.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
This Prospectus relates to the offering of 2,750,000 Series IV Common
Stock Purchase Warrants ("Series IV Warrants") of Questron Technology, Inc., a
Delaware corporation (the "Company"), and 2,750,000 shares of Common Stock,
par value $.001 per share ("Common Stock") underlying the Series IV Warrants
(collectively, the "Securities"). The Securities are being offered by the
security holders identified in this Prospectus (the "Selling
Securityholders"). The Securities offered hereby may not be transferred for
eighteen (18) months from the date hereof, subject to earlier release at the
sole discretion of Biltmore Securities, Inc. (the "Underwriter"). The
certificates evidencing such securities include a legend with such
restrictions. The Underwriter may release the securities held by the Selling
Securityholders at any time after all securities subject to the Over-Allotment
Option have been sold or such option has expired. In other offerings where the
Underwriter has acted as the managing underwriter, it has released similar
restrictions applicable to selling securityholders prior to the expiration of
the lock-up period and in some cases immediately after the exercise of the
Over-Allotment Option or the expiration of the Over-Allotment period. Each
Series IV Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $____ per share for a period of four years commencing one
year from the date hereof at which time the Series IV Warrants will expire.
The Series IV Warrants are redeemable by the Company for $.05 per Warrant, at
any time after , 1998, upon thirty (30) days' prior written notice, if the
average closing price of the Common Stock, as reported by the Nasdaq SmallCap
Market ("Nasdaq") equals or exceeds $_______ per share, for any twenty (20)
trading days within a period of thirty (30) days ending within ten (10) days
of the notice of redemption. Upon thirty (30) days' written notice to all
holders of the Series IV Warrants, the Company shall have the right to reduce
the exercise price and/or extend the term of the Series IV Warrants in
compliance with the requirements of Rule 13e-4 to the extent applicable. See
"Description of Securities" and "Selling Securityholders."
The distribution of the Shares offered hereby by the Selling
Securityholders may be effected on one or more transactions that may take
place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or
more dealers for resale of such securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Securityholders. See
"Plan of Distribution."
The Selling Securityholders and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered, and any profits
realized or commissions received may be deemed underwriting compensation. The
Company has agreed to indemnify the Selling Securityholders against certain
liabilities, including liabilities under the Securities Act.
On the date of this Prospectus, a registration statement, filed under
the Securities Act with respect to an underwritten public offering by the
Company of 1,000,000 Units, each Unit consisting of one share of Common Stock
and one Series IV Warrant and up to 150,000 additional Units to cover
over-allotments, if any, was declared effective by the Securities and Exchange
Commission (the "Commission"). The Company will receive net proceeds of
approximately $4,820,000 from the sale of the Units in the underwritten public
offering, and will receive approximately $783,000 in additional net proceeds
if the over-allotment option is exercised in full after payment of
underwriting discounts and commissions and estimated expenses of the
underwritten public offering. Sales of securities by the Selling
Securityholders or even the potential of such sales, would likely have an
adverse affect on the market price of the Securities.
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders. All costs incurred in the
registration of the securities of the Selling Securityholders are being borne
by the Company. See "Selling Securityholders."
Prior to this offering, there has been no public market for the
Units, Series B Preferred Stock or Series IV Warrants. The Company is applying
for inclusion of the Units, Series B Preferred Stock and Series IV Warrants on
the Nasdaq SmallCap Market, under the symbols [QUSTU], [QUSTP] and [QUSTW],
respectively, although there can be no assurances that such securities will be
accepted for quotation or, if accepted, that an active trading market will
develop. In addition, if the Company's securities are accepted for quotation
and active trading develops, the Company is required to maintain certain
minimum criteria established by Nasdaq and there can be no assurance that the
Company will be able to continue to fulfill such criteria. See "Risk Factors."
The Common Stock of the Company is listed on the Nasdaq SmallCap Market under
the symbol "QUST". On December 16, 1996, the closing price per share of the
Common Stock as reported by the Nasdaq SmallCap Market was $3.75, after giving
effect to the proposed one-for-ten reverse split of the issued and outstanding
Common Stock. See "Price Range for Common Stock and Dividends." For additional
information regarding the factors considered in determining the initial public
offering price of the Units and the exercise price of the Series IV Warrants,
see "Description of Securities" and "Underwriting."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS,"
WHICH BEGINS ON PAGE .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
The date of this Prospectus is _______, 1997.
<PAGE>
THE OFFERING*
<TABLE>
<S> <C>
Securities Offered by the Selling
Securityholders (1)..................................... 2,750,000 Warrants
Use of Net Proceeds..................................... None of the proceeds from the sale of the Series
IV Warrants hereunder will go to the Company (2).
OUTSTANDING EQUITY SECURITIES IMMEDIATELY
PRIOR TO THE OFFERING
Shares of Common Stock (2).............................. 1,535,484
OUTSTANDING EQUITY SECURITIES IMMEDIATELY
SUBSEQUENT TO THE OFFERING (3)
Shares of Common Stock (4).............................. 1,535,484
Shares of Series B Preferred Stock (5).................. 1,000,000
Comparative Shares Ownership After Offering:
Present Stockholders........................... 1,535,484 Shares
New Investors (4).............................. ((__) Shares)
NASDAQ SYMBOLS
Common Stock............................................ QUST
Units (Proposed)........................................ QUSTU
Series B Preferred Stock (Proposed)..................... QUSTP
Series IV Warrants (Proposed)........................... QUSTW
</TABLE>
- ----------
* ALL FIGURES CONTAINED HEREIN REFLECT THE PROPOSED AMENDMENTS TO THE
COMPANY'S CERTIFICATE OF INCORPORATION IN CONJUNCTION WITH THE 1996
ANNUAL MEETING WHEREBY THE BOARD OF DIRECTORS HAS PROPOSED A ONE-FOR-TEN
REVERSE SPLIT OF THE ISSUED AND OUTSTANDING COMMON STOCK AS WELL AS A
REDUCTION IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND SERIES
B PREFERRED STOCK.
(1) The Company is concurrently offering 1,000,000 Units at a price of $6.00
per Unit (the "Concurrent Offering"). Each Unit consists of one share of
Series B Preferred Stock and one Series IV Warrant. Each share of Series
B Preferred Stock will automatically convert, without any action on the
part of the holder thereof or the Company, into ______ shares of Common
Stock on the second anniversary of the Effective Date. Each Series IV
Warrant entitles the holder to purchase one share of Common Stock at an
exercise price of 115% of the closing market price per share of the
Common Stock on the day preceding the Effective Date during the four
year period commencing one year from the Effective Date. The Series IV
Warrants are redeemable upon certain conditions. Should the Series IV
Warrants be exercised, of which there is no assurance, the Company will
receive the proceeds therefrom aggregating up to an additional $( ). See
"Description of Securities."
(2) The proceeds from the sale of Series IV Warrants held by the majority
stockholder of Comp Ware, Inc. d/b/a Webb Distribution ("Webb") may
reduce the obligations under promissory notes to be issued by the
Company in connection with the acquisition of Webb.
(3) Assumes securities offered under the Concurrent Offering have been sold.
(4) Does not include shares of Common Stock issuable (i) upon conversion of
the Series B Preferred Stock; (ii) upon the exercise of the Series IV
Warrants included in the Units or offered by the Selling
Securityholders; (iii) upon the exercise of the Underwriter's
Over-Allotment Option to purchase up to 150,000 Units, or (iv) upon
exercise of the Underwriter's Unit Purchase Option.
(5) These shares of Series B Preferred Stock are convertible into
________ shares of Common Stock.
-2-
<PAGE>
CONCURRENT SALES
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering ("Offering") of
1,000,000 Units ("Units") by the Company was declared effective by the
Securities and Exchange Commission ("Commission"), Washington, D.C. 20549, and
the Company commenced the sale of Units offered thereby. The Units are
comprised of one share of Series B Preferred Stock and one Series IV Warrant
to purchase a share of Common Stock. Sales of securities under this Prospectus
by the Selling Securityholders or even the potential of such sales may have an
adverse effect on the market price of the Company's securities.
PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time directly
by the Selling Securityholders. Alternatively, the Selling Securityholders may
from time to time offer such securities through underwriters, dealers or
agents. The distribution of Securities by the Selling Securityholders may be
effected in one or more transactions that may take place on the
over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such Securities as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Securityholders in
connection with such sales of Securities. The Securities offered by the
Selling Securityholders may be sold by one or more of the following methods,
without limitations: (a) a block trade in which a broker or dealer so engaged
will attempt to sell the Securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction; and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, and (d) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the Selling Securityholders may
arrange for other brokers or dealers to participate. The Selling
Securityholders and intermediaries through whom such Securities are sold may
be deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act") with respect to the securities offered, and any
profits realized or commissions received may be deemed underwriting
compensation.
In order to comply with the securities laws of certain states, if
applicable, the Securities will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with by the Company and
the Selling Securityholders.
The Selling Securityholders and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the shares may be deemed to the "underwriters" within the
meaning of the Section 2(11) of the Securities Act and any securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, as amended ("the Exchange Act"), any person engaged in the
distribution of the securities may not simultaneously engage in
market-making-activities with respect to the securities for a period of two to
nine business days prior to the commencement of such distribution. In addition
and without limiting the foregoing, each Selling Securityholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Rules 10b-6, 10b-6A and
10b-7, which provisions may limit the timing of the purchases and sales of
securities by the Selling Securityholders.
-3-
<PAGE>
The Company has agreed to pay all fees and expenses incident to the
registration of the Shares, except selling commissions and fees and expenses
of counsel or any other professionals or other advisors, if any, to the
Selling Securityholders.
-4-
<PAGE>
==============================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER WOULD BE UNLAWFUL. ANY MATERIAL
MODIFICATION OF THE OFFERING WILL BE ACCOMPLISHED BY MEANS OF AN AMENDMENT TO
THE REGISTRATION STATEMENT. IN ADDITION, THE RIGHT IS RESERVED BY THE COMPANY
TO CANCEL ANY CONFIRMATION OF SALE PRIOR TO THE RELEASE OF FUNDS, IF, IN THE
OPINION OF THE COMPANY, COMPLETION OF SUCH SALE WOULD VIOLATE FEDERAL OR STATE
SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC., WASHINGTON, D.C. 20006.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Note on Forward-Looking Statements...............
Available Information............................
Prospectus Summary...............................
Risk Factors.....................................
Use of Proceeds..................................
Capitalization..................................
Price Range of Common Stock
and Dividend Policy............................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.....................................
Business.........................................
Management.......................................
Certain Transactions.............................
Securities Ownership.............................
Description of Securities........................
Concurrent Sales.................................
Selling Securityholders..........................
Plan of Distribution.............................
Legal Proceedings................................
Legal Matters....................................
Experts..........................................
Index to Financial Statements....................
Pro Forma Combined Financial
Statements..................................... P-1
Report of Independent Auditors................... F-1
</TABLE>
2,750,000 SERIES IV WARRANTS
2,750,000 SHARES UNDERLYING SERIES IV
WARRANTS
QUESTRON
TECHNOLOGY, INC.
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PROSPECTUS
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________, 1997
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PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and By-laws
contain provisions which reduce the potential personal liability of directors
for certain monetary damages and provide for indemnity of directors and other
persons. The Company is unaware of any pending or threatened litigation
against the Company or its directors that would result in any liability for
which such director would seek indemnification or similar protection.
The provisions affecting personal liability do not abrogate
a director's fiduciary duty to the Company and its shareholders, but eliminate
personal liability for monetary damages for breach of that duty. The
provisions do not, however, eliminate or limit the liability of a director for
failing to act in good faith, for engaging in intentional misconduct or
knowingly violating a law, for authorizing the illegal payment of a dividend
or repurchase of stock, for obtaining an improper personal benefit, for
breaching a director's duty of loyalty (which is generally described as the
duty not to engage in any transaction which involves a conflict between the
interests of the Company and those of the director) or for violations of the
federal securities laws. The provisions also limit liability resulting from
grossly negligent decisions including grossly negligent business decisions
relating to attempts to change control of the Company.
The provisions regarding indemnification provide, in
essence, that the Company will indemnify its directors against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any action, suit or
proceeding arising out of the director's status as a director of the Company,
including actions brought by or on behalf of the Company (shareholder
derivative actions). In the opinion of the Securities and Exchange Commission,
indemnification for liabilities arising under the Securities Act of 1933 is
contrary to public policy and, therefore, is unenforceable.
The Company also maintains directors and officers liability
insurance for the benefit of its officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemization of fees and expenses,
payable from the net proceeds of the offering, incurred by the Company in
connection with the issuance and distribution of the securities of the Company
being offered hereby. All fees and expenses are estimated except the SEC, NASD
and Nasdaq Registration and Filing Fees.
<TABLE>
<S> <C>
SEC Registration and Filing Fee..................................$7,744
NASD Registration and Filing Fee..................................1,685
Nasdaq Listing and Filing Fee....................................17,000
Financial Printing...............................................60,000
Transfer Agent Fees...............................................3,500
Accounting Fees and Expenses.....................................15,000
Legal Fees and Expenses..........................................60,000
Blue Sky Fees and Expenses.......................................70,000
Underwriter's Nonaccountable Expense Allowance..................180,000
Underwriter's Consulting Fee ...................................100,000
Miscellaneous................................................. 65,071
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TOTAL..................................................$580,000
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</TABLE>
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None of the foregoing expenses are being paid by the Selling
Securityholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth all securities of the
Company sold by it within the past three (3) years (as adjusted for the
proposed one-for-ten reverse split), which securities were not registered
under the Securities Act of 1933, as amended:
On March 31, 1995, the Company issued 384,409 shares of its
Common Stock as consideration for the acquisition of Quest Electronic
Hardware, Inc. ("Quest"). The securities were issued to the shareholders of
Quest.
On March 31, 1995, the Company issued 116,000 shares of its
Common Stock pursuant to a private placement financing ("1995 Private
Placement"), the proceeds of which were used to partially fund the acquisition
of Quest. The securities were issued to: Phillip D. Schwiebert, Lyons
Community Property Trust, James F. Kenefick, Ronald Messinger, Dr. Irving
Kraut, Irving Kraut Pension, Martin Rothstein, Graco Holdings, Inc., Matthew
T. Halton, Steven & Carol Reiss, Shih-Hsiang Lee, Achyut Sahasra, William J.
McSherry, Jr., Melvin E. Liston, Gulfstream Financial Group and Robert P.
Schmick.
On March 31, 1995, the Underwriter, Biltmore Securities,
Inc., in partial consideration of its serving as placement agent in connection
with the 1995 Private Placement, was granted options to purchase 11,600 shares
of Common Stock at $35.00 per share.
In November 1994, the Company issued 200,000 units in a
private placement financing ("1994 Private Placement"). Each unit consisted of
a share of common stock and a Series III common stock purchase warrant
("Series III Warrant") to purchase one share of common stock at $3.50 per
share. The securities were issued to: Phillip Barretti, David Beall, James
Beckner, Andrew Berg, Harvey Bibicoff, Marc Burg, Robert Denton, Jim Dritz,
Howard Goldrich, Jean Goldrich, Steve Goldrich, Bill Holmquist, Neil Kiperman,
Ken Koock, Steve Krause, Jon Kraut, Dr. Irving Kraut, Irving Kraut, Jeff
Leach, Susan and Howard Lowenstern, Jeffrey Morrison, Alex Moscowicz, Stelio
Motti, Sergio Motti, Allen Notowitz, Martin Rinehart, Martin Rothstein, Lee
Rough, Matthew Schilowitz, Harvey Schilowitz, Marc Siden and Ken Tripoli. The
Underwriter also was issued 20,000 units as compensation for acting as
placement agent for the company in connection with the 1994 Private
Placements.
In February 1994, the Company issued 34,261 Series II
Warrants in exchange for previously issued Series I Warrants pursuant to an
exchange offer ("1994 Exchange Offer") conducted on a private placement basis.
The securities were issued to: J2 Holdings, Inc., Irving Stitsky, Dave Beall,
Howard Gelfand, Robert Koch, Richard Miller, Daniel Porush, Steve Sanders,
Jordan Shamah, Matt Bloom, Eric Blumen, Ira Boshnack, Neil Kipperman and Joe
Teseo. The Underwriter also was issued 6,182 shares as compensation for acting
as placement agent for the Company in connection with the 1994 Exchange Offer.
Pursuant to a Consulting Agreement dated as of January 1,
1994, the Company issued to the Underwriter 25,000 shares of Common Stock and
options which, after the application of anti-dilution provisions, represented
the right to purchase 62,696 shares at $2.49 per share.
During 1995 and 1996, a total of 25,870 shares of Common
Stock were issued upon the exercise of certain of the above warrants and
options. These shares were registered for resale by the selling
securityholders under Registration Statements on Form S-3 (Nos. 33-63555 and
33-84222).
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Except as otherwise noted, the Company has relied on Section
4(2) of the Securities Act of 1933, as amended, for its private placement
exemption, such that the sales of the securities were transactions by an
issuer not involving any public offering.
Reference is also made hereby to "Securities Ownership,"
"Certain Transactions," "Selling Securityholders" and "Description of
Securities" in the Prospectus for more information with respect to the
previous issuance and sale of the Company's securities.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of Exhibits marked with an asterisk
(*) filed herewith by the Company as part of the SB-2 Registration Statement
and related Prospectus:
1.0 Form of Underwriting Agreement.
1.1 Form of Selected Dealers Agreement.
2.0 Stock Purchase Agreement dated as of December 16, 1996 relating to Webb
Distribution, Inc.
3.0 Certificate of Incorporation of the Registrant, incorporated by
reference to Exhibit 3(i) to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1987 (File No. 0-13324).
3.1 Certificate of Amendment, dated March 20, 1985, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit 4.1
to Amendment No. 1 to the Registrant's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on March 9, 1995
(File No. 33-44331).
3.2 Certificate of Amendment, dated June 9, 1989, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit 4.1
to the Registrant's Amendment No. 1 to Registration Statement on Form S-3
filed with the Securities and Exchange Commission dated March 9, 1995
(File No. 33-44331).
3.3 Certificate of Correction, dated May 17, 1991, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit 4.1
to the Registrant's Amendment No. 1 to Registration Statement on Form S-3
filed with the Securities and Exchange Commission dated March 9, 1995
(File No. 33-44331).
3.4 Certificate of Amendment dated December 20, 1993, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit
3(i) to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1993 (File No.
0-13324).
3.5 Certificate of Amendment, dated December 22, 1993, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit
3.3 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1993 (File
No. 0-13324).
3.6 Certificate of Correction, dated July 19, 1994, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit 4.1
to the Registrant's Amendment No. 1 to Registration Statement on Form S-3
filed with the Securities and Exchange Commission dated March 9, 1995
(File No. 33-44331).
3.7 Certificate of Amendment, dated April 2, 1996, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit
3.5 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1995 (File
No. 0-13324).
3.8 By-Laws of the Registrant, incorporated by reference to Exhibit 3b(ii)
to the Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1987 (File No.
0-13324).
3.9 Amendment to By-Laws of the Registrant, incorporated by reference to
Exhibit 3.4 of the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1992 (File No.
0-13324).
4.0 Specimen Common Stock Certificate (a).
4.1 Specimen Preferred Stock Certificate (a).
4.2 Certificate of Designations, Preferences and Rights of the Registrant's
Series B Convertible Preferred Stock (a).
4.3 Form of Series IV Warrant Agreement.
4.4 Form of Series III Warrant Agreement, dated as of November 7, 1994,
incorporated by reference to Exhibit 10.22 to the Registrant's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1994 (File No. 0-13324).
4.5 Form of Underwriters' Purchase Option.
4.6 Stock Purchase Warrant Certificate for Purchase of Common Stock of
Questron Technology, Inc.
4.7 Certificate of Designation, Preferences and Rights of the Registrant's
Series A Cumulative Convertible Preferred Stock, dated August 20, 1990,
incorporated by reference to Exhibit 4(c) to the Registrant's Report on
Form 10-KSB filed with the Securities and Exchange Commission for the
fiscal year ended December 31, 1989 (File No. 0-13324).
4.8 Certificate of Increase relating to Series A Cumulative Convertible
Preferred Stock, dated February 20, 1991, incorporated by reference to
Exhibit 4(d) to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1990 (File
No. 0-13324).
4.9 Certificate of Designation establishing a series of shares of preferred
stock, dated December 22, 1993, incorporated by reference to Exhibit 3.2
to the Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1993 (File No.
0-13324).
5.0 Form of Opinion of Gould & Wilkie.
10.0 Judicate, Inc. 1994 Director Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 10.28 of the Registrant's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1993 (File No. 0-13324).
10.1 Consulting Agreement, dated as of January 1, 1994, by and between
Biltmore Securities, Inc. and the Registrant, incorporated by reference
to Exhibit 10.23 of the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1993 (File No. 0-13324) and related stock option certificate and
agreement by and between the Registrant and Biltmore Securities, Inc.,
dated January 1, 1994, incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-KSB filed
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with the Securities and Exchange Commission for the fiscal year ended
December 31, 1994 (File No. 0-13324).
10.2 Employment Agreement, dated November 29, 1994, between Quest Electronic
Hardware, Inc. and Dominic A. Polimeni, incorporated by reference to
Exhibit 10.24 to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994
(File No. 0-13324).
10.3 Employment Agreement, dated November 29, 1994, between Quest Electronic
Hardware, Inc. and Phillip D. Schwiebert, incorporated by reference to
Exhibit 10.25 to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994
(File No. 0-13324).
10.4 Management Advisory and Consulting Agreement, dated as of November 29,
1994, between Gulfstream Financial Group, Inc. and the Registrant,
incorporated by reference to Exhibit 10.26 to the Registrant's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1994 (File No. 0-13324).
10.5 Waiver, dated as of March 31, 1995, by Gulfstream Financial Group, Inc.
and Philip D. Schwiebert, incorporated by reference to Exhibit 10.27 to
the Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1994 (File No.
0-13324).
10.6 Share Acquisition Agreement, dated as of November 29, 1994, by and among
Gulfstream Financial Group, Inc., Philip D. Schwiebert, Quest Electronic
Hardware, Inc. and the Registrant, incorporated by reference to Exhibit
10.28 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1994 (File
No. 0-13324).
10.7 Purchase of Assets Agreement, dated as of November 29, 1994, between
Quest Electronic Hardware, Inc. and Arrow Electronics, Inc.,
incorporated by reference to Exhibit 10.29 to the Registrant's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1994 (File No. 0-13324).
10.8 Loan and Security Agreement, dated as of March 31, 1995, between Silicon
Valley Bank and Quest Electronics Hardware, Inc., incorporated by
reference to Exhibit 10.30 to the Registrant's Form 10-KSB filed with
the Securities and Exchange Commission for the fiscal year ended
December 31, 1994 (File No. 0-13324).
10.9 Sublease Agreement, dated as of March 31, 1995, between Arrow
Electronics, Inc. and Quest Electronic Hardware, Inc. with respect to
Dallas, Texas property, incorporated by reference to Exhibit 10.31 to
the Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1994 (File No.
0-13324).
10.10 Sublease Agreement, dated as of March 31, 1995, between Arrow
Electronics, Inc. and Quest Electronic Hardware, Inc. with respect to
Colorado Springs, Colorado property, incorporated by reference to
Exhibit 10.32 to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994
(File No. 0-13324).
10.11 Sublease Agreement, dated as of March 31, 1995, between Arrow
Electronics, Inc. and Quest Electronic Hardware, Inc. with respect to
San Jose, California property, incorporated by reference to Exhibit
10.33 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1994 (File
No. 0-13324).
10.12 Third Party Stock Pledge Agreement, dated as of March 31, 1995, between
Silicon Valley Bank and the Registrant, incorporated by reference to
Exhibit 10.34 to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994
(File No. 0-13324).
10.13 Common Stock Purchase Option, dated as of March 31, 1995, for Biltmore
Securities, Inc. incorporated by reference to Exhibit 10.35 to the
Registrant's Form 10-KSB filed
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with the Securities and Exchange Commission for the fiscal year ended
December 31, 1994 (File No. 0-13324).
10.14 Amendment No. 1, dated as of May 31, 1995, to the Loan and Security
Agreement, dated as of March 31, 1995, between Silicon Valley Bank and
Quest Electronics Hardware, Inc. incorporated by reference to Exhibit
10.25 to the Registrant's Form 10- KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1995 (File
No. 0-13324).
10.15 Amendment No. 2, dated as of November 16, 1995, to the Loan and Security
Agreement, dated as of March 31, 1995 between Silicon Valley Bank and
Quest Electronics Hardware, Inc. incorporated by reference to Exhibit
10.26 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1995 (File
No. 0-13324).
10.16 Amendment No. 3, dated as of February 23, 1995, to the Loan and Security
Agreement, dated as of March 31, 1995, Between Silicon Valley Bank and
Quest Electronics Hardware, Inc. incorporated by reference to Exhibit
10.27 to the Registrant's Form 10- KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1995 (File
No. 0-13324).
10.17 Letter agreement, dated December 29, 1995, between the Registrant and
Stephen J. Drescher incorporated by reference to Exhibit 10.28 to the
Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1995 (File No.
0-13324).
10.18 Letter agreement, dated December 29, 1995, between the Registrant and
Paul L. Burton incorporated by reference to Exhibit 10.29 to the
Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1995 (File No.
0-13324).
10.19 1996 Stock Option Plan.
10.20 Form of Warrant Exercise Fee Agreement, by and among Biltmore
Securities, Inc., the Registrant and American Stock Transfer & Trust
Company (a).
10.21 Exchange Agreement, dated November 8, 1996 by and among the Registrant,
Gulfstream Financial Group, Inc. and Phillip D. Schwiebert.
11.0 Statement Re: Computation of per share earnings for years ended December
31, 1995 and 1994.
22.0 Subsidiaries of the Registrant.
24.0 Consent of Gould & Wilkie (See Exhibit 5.0).
24.1 Consent of Estabrook & Co., Inc., P.C.
24.2 Consent of Moore Stephens, P.C.
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(a) To be filed by amendment.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to
participating broker-dealers, at the closing, certificates in such
denominations and registered in such names as required by the participating
broker-dealers, to permit prompt delivery to each purchaser.
The undersigned Registrant also undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which,
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individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement
is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
preceding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Boca Raton, Florida, on December 17, 1996.
QUESTRON TECHNOLOGY, INC.
By: /s/ DOMINIC A. POLIMENI
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Dominic A. Polimeni
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
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<S> <C> <C>
/s/ DOMINIC A. POLIMENI Chairman, President, Chief December 17, 1996
- --------------------------- Executive Officer and Director
Dominic A. Polimeni (Principal Executive Officer)
/s/ MILTON M. ADLER Treasurer, Secretary, Controller and December 17, 1996
- ---------------------------- Director (Principal Financial and
Milton M. Adler Accounting Officer)
/s/ ROBERT V. GUBITOSI Director December 17, 1996
- ----------------------------
Robert V. Gubitosi
/s/ MITCHELL HYMOWITZ Director December 17, 1996
- ----------------------------
Mitchell Hymowitz
/s/ WILLIAM J. MCSHERRY, JR. Director December 17, 1996
- ----------------------------
William J. McSherry, Jr.
</TABLE>
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INDEX TO EXHIBITS
1.0 Form of Underwriting Agreement.
1.1 Form of Selected Dealers Agreement.
2.0 Stock Purchase Agreement dated as of December 16, 1996 relating to Webb
Distribution, Inc.
3.0 Certificate of Incorporation of the Registrant, incorporated by
reference to Exhibit 3(i) to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1987 (File No. 0-13324).
3.1 Certificate of Amendment, dated March 20, 1985, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit 4.1
to Amendment No. 1 to the Registrant's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on March 9, 1995
(File No. 33-44331).
3.2 Certificate of Amendment, dated June 9, 1989, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit 4.1
to the Registrant's Amendment No. 1 to Registration Statement on Form S-3
filed with the Securities and Exchange Commission dated March 9, 1995
(File No. 33-44331).
3.3 Certificate of Correction, dated May 17, 1991, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit 4.1
to the Registrant's Amendment No. 1 to Registration Statement on Form S-3
filed with the Securities and Exchange Commission dated March 9, 1995
(File No. 33-44331).
3.4 Certificate of Amendment dated December 20, 1993, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit
3(i) to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1993 (File No.
0-13324).
3.5 Certificate of Amendment, dated December 22, 1993, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit
3.3 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1993 (File
No. 0-13324).
3.6 Certificate of Correction, dated July 19, 1994, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit 4.1
to the Registrant's Amendment No. 1 to Registration Statement on Form S-3
filed with the Securities and Exchange Commission dated March 9, 1995
(File No. 33-44331).
3.7 Certificate of Amendment, dated April 2, 1996, to Certificate of
Incorporation of the Registrant, incorporated by reference to Exhibit
3.5 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1995 (File
No. 0-13324).
3.8 By-Laws of the Registrant, incorporated by reference to Exhibit 3b(ii)
to the Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1987 (File No.
0-13324).
3.9 Amendment to By-Laws of the Registrant, incorporated by reference to
Exhibit 3.4 of the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1992 (File No.
0-13324).
4.0 Specimen Common Stock Certificate (a).
4.1 Specimen Preferred Stock Certificate (a).
4.2 Certificate of Designations, Preferences and Rights of the Registrant's
Series B Convertible Preferred Stock (a).
4.3 Form of Series IV Warrant Agreement.
4.4 Form of Series III Warrant Agreement, dated as of November 7, 1994,
incorporated by reference to Exhibit 10.22 to the Registrant's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1994 (File No. 0-13324).
4.5 Form of Underwriters' Purchase Option.
4.6 Stock Purchase Warrant Certificate for Purchase of Common Stock of
Questron Technology, Inc.
4.7 Certificate of Designation, Preferences and Rights of the Registrant's
Series A Cumulative Convertible Preferred Stock, dated August 20, 1990,
incorporated by reference to Exhibit 4(c) to the Registrant's Report on
Form 10-KSB filed with the Securities and Exchange Commission for the
fiscal year ended December 31, 1989 (File No. 0-13324).
4.8 Certificate of Increase relating to Series A Cumulative Convertible
Preferred Stock, dated February 20, 1991, incorporated by reference to
Exhibit 4(d) to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1990 (File
No. 0-13324).
4.9 Certificate of Designation establishing a series of shares of preferred
stock, dated December 22, 1993, incorporated by reference to Exhibit 3.2
to the Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1993 (File No.
0-13324).
5.0 Form of Opinion of Gould & Wilkie.
10.0 Judicate, Inc. 1994 Director Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 10.28 of the Registrant's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1993 (File No. 0-13324).
10.1 Consulting Agreement, dated as of January 1, 1994, by and between
Biltmore Securities, Inc. and the Registrant, incorporated by reference
to Exhibit 10.23 of the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended December 31,
1993 (File No. 0-13324) and related stock option certificate and
agreement by and between the Registrant and Biltmore Securities, Inc.,
dated January 1, 1994, incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1994 (File No.
0-13324).
10.2 Employment Agreement, dated November 29, 1994, between Quest Electronic
Hardware, Inc. and Dominic A. Polimeni, incorporated by reference to
Exhibit 10.24 to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994
(File No. 0-13324).
10.3 Employment Agreement, dated November 29, 1994, between Quest Electronic
Hardware, Inc. and Phillip D. Schwiebert, incorporated by reference to
Exhibit 10.25 to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994
(File No. 0-13324).
10.4 Management Advisory and Consulting Agreement, dated as of November 29,
1994, between Gulfstream Financial Group, Inc. and the Registrant,
incorporated by reference to Exhibit 10.26 to the Registrant's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1994 (File No. 0-13324).
10.5 Waiver, dated as of March 31, 1995, by Gulfstream Financial Group, Inc.
and Philip D. Schwiebert, incorporated by reference to Exhibit 10.27 to
the Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1994 (File No.
0-13324).
10.6 Share Acquisition Agreement, dated as of November 29, 1994, by and among
Gulfstream Financial Group, Inc., Philip D. Schwiebert, Quest Electronic
Hardware, Inc. and the Registrant, incorporated by reference to Exhibit
10.28 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1994 (File
No. 0-13324).
10.7 Purchase of Assets Agreement, dated as of November 29, 1994, between
Quest Electronic Hardware, Inc. and Arrow Electronics, Inc.,
incorporated by reference to Exhibit 10.29 to the Registrant's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1994 (File No. 0-13324).
10.8 Loan and Security Agreement, dated as of March 31, 1995, between Silicon
Valley Bank and Quest Electronics Hardware, Inc., incorporated by
reference to Exhibit 10.30 to the Registrant's Form 10-KSB filed with
the Securities and Exchange Commission for the fiscal year ended
December 31, 1994 (File No. 0-13324).
10.9 Sublease Agreement, dated as of March 31, 1995, between Arrow
Electronics, Inc. and Quest Electronic Hardware, Inc. with respect to
Dallas, Texas property, incorporated by reference to Exhibit 10.31 to
the Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1994 (File No.
0-13324).
10.10 Sublease Agreement, dated as of March 31, 1995, between Arrow
Electronics, Inc. and Quest Electronic Hardware, Inc. with respect to
Colorado Springs, Colorado property, incorporated by reference to
Exhibit 10.32 to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994
(File No. 0-13324).
10.11 Sublease Agreement, dated as of March 31, 1995, between Arrow
Electronics, Inc. and Quest Electronic Hardware, Inc. with respect to
San Jose, California property, incorporated by reference to Exhibit
10.33 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1994 (File
No. 0-13324).
10.12 Third Party Stock Pledge Agreement, dated as of March 31, 1995, between
Silicon Valley Bank and the Registrant, incorporated by reference to
Exhibit 10.34 to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1994
(File No. 0-13324).
10.13 Common Stock Purchase Option, dated as of March 31, 1995, for Biltmore
Securities, Inc. incorporated by reference to Exhibit 10.35 to the
Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1994 (File No.
0-13324).
10.14 Amendment No. 1, dated as of May 31, 1995, to the Loan and Security
Agreement, dated as of March 31, 1995, between Silicon Valley Bank and
Quest Electronics Hardware, Inc. incorporated by reference to Exhibit
10.25 to the Registrant's Form 10- KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1995 (File
No. 0-13324).
10.15 Amendment No. 2, dated as of November 16, 1995, to the Loan and Security
Agreement, dated as of March 31, 1995 between Silicon Valley Bank and
Quest Electronics Hardware, Inc. incorporated by reference to Exhibit
10.26 to the Registrant's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1995 (File
No. 0-13324).
10.16 Amendment No. 3, dated as of February 23, 1995, to the Loan and Security
Agreement, dated as of March 31, 1995, Between Silicon Valley Bank and
Quest Electronics Hardware, Inc. incorporated by reference to Exhibit
10.27 to the Registrant's Form 10- KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1995 (File
No. 0-13324).
10.17 Letter agreement, dated December 29, 1995, between the Registrant and
Stephen J. Drescher incorporated by reference to Exhibit 10.28 to the
Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1995 (File No.
0-13324).
10.18 Letter agreement, dated December 29, 1995, between the Registrant and
Paul L. Burton incorporated by reference to Exhibit 10.29 to the
Registrant's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1995 (File No.
0-13324).
10.19 1996 Stock Option Plan.
10.20 Form of Warrant Exercise Fee Agreement, by and among Biltmore
Securities, Inc., the Registrant and American Stock Transfer & Trust
Company (a).
10.21 Exchange Agreement, dated November 8, 1996 by and among the Registrant,
Gulfstream Financial Group, Inc. and Phillip D. Schwiebert.
11.0 Statement Re: Computation of per share earnings for years ended December
31, 1995 and 1994.
22.0 Subsidiaries of the Registrant.
24.0 Consent of Gould & Wilkie (See Exhibit 5.0).
24.1 Consent of Estabrook & Co., Inc., P.C.
24.2 Consent of Moore Stephens, P.C.
- ------------
(a) To be filed by amendment.
<PAGE>
EXHIBIT 1.0
1,000,000 Units, each Unit consisting of
one (1) Share of Series B Convertible Preferred Stock, par value $.01 per share
and
one (1) Series IV Redeemable Common Stock Purchase Warrant
Questron Technology, Inc.
UNDERWRITING AGREEMENT
----------------------
New York, New York
___________, 1997
Biltmore Securities, Inc.
6700 North Andrews Avenue
Suite 500
Fort Lauderdale, FL 33309
Questron Technology, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to you (the "Underwriter"), an aggregate of
1,000,000 Units, each consisting of one (1) share of Series B Convertible
Preferred Stock, par value $.01 per share ("Preferred Stock") and one (1)
Series IV Redeemable Common Stock Purchase Warrant ("Warrant"). The Units may
be referred to hereinafter as the "Securities". Each Warrant entitles the
registered holder thereof to purchase one (1) share of Common Stock, par value
$.001 per share ("Common Stock") at an exercise price of 115% of the closing
market price per share of the Common Stock on the day immediately preceding the
proposed offering of the Preferred Stock for a period of four (4) years,
commencing ______________ 1998, one (1) year from the effective date of the
public offering ("Effective Date") through ______________, 2002. The Warrants
are subject to redemption by the Company at any time commencing ______________,
1998 (twelve (12) months from the Effective Date) at $.05 per warrant, if the
closing bid price per share of Common Stock has equaled or exceeded 170% of the
closing bid price of the Common Stock on the Effective Date for any 20
consecutive trading days ending within 10 days of the written notice of
redemption. In addition, the Company proposes to grant to the Underwriter the
option referred to in Section 2(b) to purchase all or any part of an aggregate
of 150,000 additional Units.
<PAGE>
You have advised the Company that you desire to purchase the
Securities. The Company confirms the agreements made by it with respect to the
purchase of the Securities by the Underwriter as follows:
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with you that:
(a) A registration statement (File No. _____) on Form SB-2
relating to the public offering of the Securities, including a form of
prospectus subject to completion, copies of which have heretofore been
delivered to you, has been prepared in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed in such
registration statement), with such changes or insertions as are required by
Rule 430A under the Act or permitted by Rule 424(b) under the Act and as have
been provided to and approved by you prior to the execution of this Agreement,
or (ii) if such registration statement, as it may have been amended, has not
been declared by the Commission to be effective under the Act, an amendment to
such registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by you prior to the execution of
this Agreement. As used in this Agreement, the term "Company" means Questron
Technology, Inc. and/or each of its subsidiaries ("Subsidiaries"); the term
"Registration Statement" means such registration statement, as amended at the
time when it was or is declared effective, including all financial schedules
and exhibits thereto and including any information omitted therefrom pursuant
to Rule 430A under the Act and included in the Prospectus (as hereinafter
defined); the term "Preliminary Prospectus" means each prospectus subject to
completion filed with such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus
is required to be filed pursuant to said Rule 424(b), such term means the
prospectus included in the Registration Statement; except that if such
registration statement or prospectus is amended or such prospectus is
supplemented, after the effective date of such registration statement and prior
to the Option Closing Date (as hereinafter defined), the terms "Registration
Statement" and "Prospectus" shall include such registration statement and
prospectus as so amended, and the term "Prospectus" shall include the
prospectus as so supplemented, or both, as the case may be.
2
<PAGE>
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. At the time the Registration
Statement becomes effective and at all times subsequent thereto up to and on
the First Closing Date (as hereinafter defined) or the Option Closing Date, as
the case may be, (i) the Registration Statement and Prospectus will in all
respects conform to the requirements of the Act and the Rules and Regulations;
and (ii) neither the Registration Statement nor the Prospectus will include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make statements therein not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, under the
heading "Underwriting", the Risk Factor entitled "Litigation Involving
Underwriter May Affect Securities" and the identity of counsel to the
Underwriter under the heading "Legal Matters" constitute for purposes of this
Section and Section 6(b) the only information furnished in writing by or on
behalf of the Underwriter for inclusion in the Registration Statement and
Prospectus, as the case may be.
(c) The Company and its Subsidiaries have been duly incorporated
and are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation with full corporate power and
authority to own their properties and conduct their business as described in
the Prospectus and are duly qualified or licensed to do business as foreign
corporations and are in good standing in each other jurisdiction in which the
nature of their business or the character or location of their properties
require such qualification, except where the failure to so qualify will not
materially adversely affect the Company's or Subsidiaries' business, properties
or financial condition.
(d) The authorized, issued and outstanding capital stock of the
Company and its Subsidiaries, including the predecessors of the Company, is as
set forth in the Company's financial statements contained in the Registration
Statement; the shares of issued and outstanding capital stock of the Company
and its Subsidiaries set forth therein have been duly authorized, validly
issued and are fully paid and nonassessable; except as set forth in the
Prospectus, no options, warrants, or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company or its Subsidiaries
have been granted or entered into by the Company or its Subsidiaries; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The shares of Preferred Stock underlying the Units, when paid
for, issued and delivered pursuant to this Agreement, will have been duly
authorized, issued and delivered and will constitute valid and legally binding
obligations of the Company enforceable in
3
<PAGE>
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the rights and preferences
provided by the Certificate of Incorporation, which will be in the form filed
as an exhibit to the Registration Statement. The terms of the Preferred Stock
conform to the description thereof in the Registration Statement and
Prospectus.
The Warrants when paid for, issued and delivered pursuant to this
Agreement, will have been duly authorized, issued and delivered and will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or other laws affecting the right of creditors generally
or by general equitable principles, and entitled to the benefits provided by
the warrant agreement pursuant to which such Warrants are to be issued (the
"Warrant Agreement"), which will be substantially in the form filed as an
exhibit to the Registration Statement. The shares of Common Stock issuable upon
exercise of the Warrants have been reserved for issuance upon the exercise of
the Warrants and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized validly issued, fully
paid and non-assessable and free of preemptive rights. The Warrant Agreement
has been duly authorized and, when executed and delivered pursuant to this
Agreement, assuming due authorization, execution and delivery by the transfer
agent, will have been duly executed and delivered and will constitute the valid
and legally binding obligation of the Company enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting the rights of creditors generally or by general equitable
principles. The Warrants and Warrant Agreement conform to the respective
descriptions thereof in the Registration Statement and Prospectus.
The Purchase Option (as defined in the Registration Statement),
when paid for, issued and delivered pursuant to this Agreement will constitute
valid and legally binding obligations of the Company enforceable in accordance
with its terms and entitled to the benefits provided by the Purchase Option,
except as enforceability may be limited by bankruptcy, insolvency or other laws
affecting the rights of creditors generally or by general equitable principles.
The Securities issuable upon exercise of the Purchase Option (and the shares of
Common Stock issuable upon exercise of the Warrants) when issued and paid for
in accordance with this Agreement, the Purchase Option and the Warrant
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights.
(f) This Agreement has been duly and validly authorized, executed
and delivered by the Company. The Company has full power and authority to
authorize, issue and sell the Securities to be sold by it hereunder on the
terms and conditions set forth herein, and no consent, approval, authorization
or other order of any governmental authority is required in connection with
such authorization, execution and delivery or in connection with the
4
<PAGE>
authorization, issuance and sale of the Securities or the Purchase Option,
except such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, or which would not
have a material adverse effect on the condition (financial or otherwise),
business prospects, net worth or properties of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"), the Company and its
Subsidiaries are not in violation, breach or default of or under, and
consummation of the transactions herein contemplated and the fulfillment of the
terms of this Agreement will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Company or its Subsidiaries pursuant to
the terms of any material indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company or its Subsidiaries is a
party or by which the Company or its Subsidiaries may be bound or to which any
of the property or assets of the Company or its Subsidiaries is subject, nor
will such action result in any violation of the provisions of the certificate
of incorporation or the by-laws of the Company or its Subsidiaries, as amended,
or any statute or any order, rule or regulation applicable to the Company or
its Subsidiaries of any court or of any regulatory authority or other
governmental body having jurisdiction over the Company or its Subsidiaries.
(h) Subject to the qualifications stated in the Prospectus, the
Company and its Subsidiaries have good and marketable title to all properties
and assets described in the Prospectus as owned by them, free and clear of all
liens, charges, encumbrances or restrictions, except such as are not materially
significant or important in relation to their business; all of the material
leases and subleases under which the Company or its Subsidiaries is the lessor
or sublessor of properties or assets or under which the Company and its
Subsidiaries holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company and its Subsidiaries are not in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and, to the best knowledge of the Company, no claim has been
asserted by anyone adverse to rights of the Company or its Subsidiaries as
lessor, sublessor, lessee or sublessee under any of the leases or subleases
mentioned above, or affecting or questioning the right of the Company or its
Subsidiaries to continued possession of the leased or subleased premises or
assets under any such lease or sublease except as described or referred to in
the Prospectus; and the Company and its Subsidiaries own or lease all such
properties described in the Prospectus as are necessary to their operations as
now conducted and, except as otherwise stated in the Prospectus, as proposed to
be conducted as set forth in the Prospectus.
(i) Moore Stephens, P.C., which has given its report on certain
financial statements filed with the Commission as a part of the Registration
Statement, is with respect to
5
<PAGE>
the Company, independent public accountants as required by the Act and the
Rules and Regulations.
(j) The financial statements, and schedules together with related
notes, set forth in the Prospectus or the Registration Statement present fairly
the financial position and results of operations and changes in cash flow
position of the Company and its Subsidiaries on the basis stated in the
Registration Statement, at the respective dates and for the respective periods
to which they apply. Said statements and schedules and related notes have been
prepared in accordance with generally accepted accounting principles applied on
a basis which is consistent during the periods involved except as disclosed in
the Prospectus and Registration Statement.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and except as otherwise
disclosed or contemplated therein, the Company and its Subsidiaries have not
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, or entered into any transaction not in the
ordinary course of business, which would have a Material Adverse Effect, and
there has not been any change in the capital stock of, or any incurrence of
short-term or long-term debt by, the Company or its Subsidiaries or any
issuance of options, warrants or other rights to purchase the capital stock of
the Company or its Subsidiaries or any material adverse change or any
development involving, so far as the Company or its Subsidiaries can now
reasonably foresee a prospective adverse change in the condition (financial or
otherwise), net worth, results of operations, business, key personnel or
properties of it which would have a Material Adverse Effect.
(l) Except as set forth in the Prospectus, there is not now
pending or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or its Subsidiaries is a party before or by any
court or governmental agency or body, which might result in any material
adverse change in the financial condition, business prospects, net worth, or
properties of the Company or its Subsidiaries, nor are there any actions, suits
or proceedings related to environmental matters or related to discrimination on
the basis of age, sex, religion or race; and no labor disputes involving the
employees of the Company or its Subsidiaries exist or to the knowledge of the
Company, are threatened which might be expected to have a Material Adverse
Effect.
(m) Except as disclosed in the Prospectus, the Company and its
Subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns required to be filed as of the date hereof and have paid
all taxes shown as due thereon; and there is no tax deficiency which has been,
or to the knowledge of the party, may be asserted against the Company or its
Subsidiaries.
6
<PAGE>
(n) Except as disclosed in the Registration Statement or
Prospectus, the Company and its Subsidiaries have sufficient licenses, permits
and other governmental authorizations currently necessary for the conduct of
their business or the ownership of their properties as described in the
Prospectus and is in all material respects complying therewith and owns or
possesses adequate rights to use all material patents, patent applications,
trademarks, service marks, trade-names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of such
businesses and have not received any notice of conflict with the asserted
rights of others in respect thereof. To the best knowledge of the Company, none
of the activities or business of the Company and its Subsidiaries are in
violation of, or cause the Company or its Subsidiaries to violate, any law,
rule, regulation or order of the United States, any state, county or locality,
or of any agency or body of the United States or of any state, county or
locality, the violation of which would have a Material Adverse Effect.
(o) The Company and its Subsidiaries have not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments or contributions required or
allowed by applicable law. The Company's and Subsidiaries' internal accounting
controls and procedures are sufficient to cause the Company and its
Subsidiaries to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or
other taxes, (including franchise, capital stock or other tax, other than
income taxes, imposed by any jurisdiction) if any, which are required to be
paid in connection with the sale and transfer of the Securities to the
Underwriter hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been complied with in all material
respects.
(q) All contracts and other documents of the Company which are,
under the Rules and Regulations, required to be filed as exhibits to the
Registration Statement have been so filed.
(r) Except as disclosed in the Registration Statement, the
Company has no Subsidiaries.
(s) Except as disclosed in the Registration Statement, the
Company has not entered into any agreement pursuant to which any person is
entitled either directly or indirectly to compensation from the Company for
services as a finder in connection with the proposed public offering.
7
<PAGE>
(t) Except as previously disclosed in writing by the Company to
the Underwriter or as disclosed in the Registration Statement, no officer,
director or stockholder of the Company has any National Association of
Securities Dealers, Inc. (the "NASD") affiliation.
(u) No other firm, corporation or person has any rights to
underwrite an offering of any of the Company's securities.
2. Purchase, Delivery and Sale of the Securities.
(a) Subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties, and agreements herein
contained, the Company agrees to issue and sell to the Underwriter and the
Underwriter agrees to buy from the Company at $5.40 per Unit, at the place and
time hereinafter specified, 1,000,000 Units (the "First Securities").
Delivery of the First Securities against payment therefor shall
take place at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue, New
York, New York (or at such other place as may be designated by agreement
between the Underwriter and the Company) at 10:00 a.m., New York time, on ,
1997, such time and date of payment and delivery for the First Securities being
herein called the "First Closing Date."
(b) In addition, subject to the terms and conditions of this
Agreement, and upon the basis of the representations, warranties and agreements
herein contained, the Company hereby grants an option to the Underwriter (the
"Over-Allotment Option") to purchase all or any part of an aggregate of an
additional 150,000 Units to cover over allotments at the same price per Unit as
the Underwriter shall pay for the First Securities being sold pursuant to the
provisions of subsection (a) of this Section 2 (such additional Securities
being referred to herein as the "Option Securities"). This option may be
exercised within 30 days after the effective date of the Registration Statement
upon written notice by the Underwriter to the Company advising as to the amount
of Option Securities as to which the option is being exercised, the names and
denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Underwriter but shall not be
earlier than four nor later than ten full business days after the exercise of
said option (but in no event more than 40 days after the First Closing Date),
nor in any event prior to the First Closing Date, and such time and date is
referred to herein as the "Option Closing Date." Delivery of the Option
Securities against payment therefor shall take place at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022 (or at such
other place as may be designated by agreement between the Underwriter and the
Company). The option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriter of First Securities referred to
in subsection (a) above. No Option Securities shall be delivered unless all
First Securities shall have been delivered to the Underwriter as provided
herein.
8
<PAGE>
(c) The Company will make the certificates for the Securities to
be purchased by the Underwriter hereunder available to you for checking at
least two full business days prior to the First Closing Date or the Option
Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as you may
request, at least three full business days prior to the Closing Dates. Delivery
of the certificates at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form for the Securities to
be purchased by the Underwriter hereunder will be delivered by the Company to
you for the account of the Underwriter against payment of the respective
purchase prices by the Underwriter, by wire transfer or certified or bank
cashier's checks in New York Clearing House funds, payable to the order of the
Company.
In addition, in the event the Underwriter exercises the option to
purchase from the Company all or any portion of the Option Securities pursuant
to the provisions of subsection (b) above, payment for such Securities shall be
made to or upon the order of the Company by wire transfer or certified or bank
cashier's checks payable in New York Clearing House funds at the offices of
Bernstein & Wasserman, LLP, 950 Third Avenue, New York, N.Y., at the time and
date of delivery of such Securities as required by the provisions of subsection
(b) above, against receipt of the certificates for such Securities by you for
your account registered in such names and in such denominations as you may
reasonably request.
It is understood that the Underwriter proposes to offer the
Securities to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. Covenants of the Company. The Company covenants and agrees with
the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective. If required, the Company will file
the Prospectus and any amendment or supplement thereto with the Commission in
the manner and within the time period required by Rule 424(b) under the Act.
Upon notification from the Commission that the Registration Statement has
become effective, the Company will so advise you and will not at any time,
whether before or after the effective date, file any amendment to the
Registration Statement or supplement to the Prospectus of which you shall not
previously have been advised and furnished with a copy or to which you or your
counsel shall have reasonably objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later of
(A) the completion by the Underwriter of the distribution of the Securities
contemplated hereby (but in no event more than nine months after the date on
which the Registration
9
<PAGE>
Statement shall have become or been declared effective) and (B) 25 days after
the date on which the Registration Statement shall have become or been declared
effective, the Company will prepare and file with the Commission, promptly upon
your request, any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel to the Company and the Underwriter,
may be reasonably necessary or advisable in connection with the distribution of
the Securities.
As soon as the Company is advised thereof, the Company will
advise you, and provide you copies of any written advice, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any supplement to the
Prospectus or any amended Prospectus, of any request made by the Commission for
an amendment of the Registration Statement or for supplementing of the
Prospectus or for additional information with respect thereto, of the issuance
by the Commission or any state or regulatory body of any stop order or other
order or threat thereof suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering in any jurisdiction, or of the institution of any proceedings for any
of such purposes, and will use its best efforts to prevent the issuance of any
such order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby consents to
the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Securities for such period as in the opinion of counsel to the
Underwriter and the Company the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by the Underwriter or dealer of
any event of which the Company has knowledge and which materially affects the
Company or the securities of the Company, or which in the opinion of counsel
for the Company and counsel for the Underwriter should be set forth in an
amendment of the Registration Statement or a supplement to the Prospectus in
order to make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be delivered
to a purchaser of the Securities or in case it shall be necessary to amend or
supplement the Prospectus to comply with law or with the Rules and Regulations,
the Company will notify you promptly and forthwith prepare and furnish to you
copies of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, will not contain any untrue
statement of a material fact or omit to state any material facts necessary in
order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
furnishing of any such amendment or supplement to the Registration Statement or
amended Prospectus or
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supplement to be attached to the Prospectus shall be without expense to the
Underwriter, except that in case the Representative is required, in connection
with the sale of the Securities to deliver a Prospectus nine months or more
after the effective date of the Registration Statement, the Company will upon
request of and at the expense of the Underwriter, amend or supplement the
Registration Statement and Prospectus and furnish the Underwriter with
reasonable quantities of prospectuses complying with Section 10(a)(3) of the
Act.
The Company will comply with the Act, the Rules and Regulations
and the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder in connection with the offering and issuance of the
Securities.
(b) The Company will furnish such information as may be required
and to otherwise cooperate and use its best efforts to qualify or register the
Securities for sale under the securities or "blue sky" laws of such
jurisdictions as you may designate and will make such applications and furnish
such information as may be required for that purpose and to comply with such
laws, provided the Company shall not be required to qualify as a foreign
corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Securities. The Company will, from time to time,
prepare and file such statements and reports as are or may be required to
continue such qualification in effect for so long a period as the counsel to
the Company and the Underwriter deem reasonably necessary.
(c) If the sale of the Securities provided for herein is not
consummated as a result of the Company not performing its obligations hereunder
in all material respects, the Company shall pay all costs and expenses incurred
by it which are incident to the performance of the Company's obligations
hereunder, including but not limited to, all of the expenses itemized in
Section 8, including the accountable expenses of the Underwriter, up to
$100,000 (including the reasonable fees and expenses of counsel to the
Underwriter).
(d) The Company will use its best efforts to (i) cause a
registration statement under the Exchange Act to be declared effective
concurrently with the completion of this offering and will notify you in
writing immediately upon the effectiveness of such registration statement, and
(ii) to obtain and keep current a listing in the Standard & Poors or Moody's
OTC Industrial Manual.
(e) For so long as the Company is a reporting company under
either Section 12(g) or 15(d) of the Exchange Act, the Company, at its expense,
will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years
from the date hereof, (i) as soon as practicable after the end of each fiscal
year, but no earlier than the filing of such information with the Commission a
balance sheet of the Company and any
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of its Subsidiaries as at the end of such fiscal year, together with statements
of income, surplus and cash flow of the Company and any Subsidiaries for such
fiscal year, all in reasonable detail and accompanied by a copy of the
certificate or report thereon of independent accountants; (ii) as soon as
practicable after the end of each of the first three fiscal quarters of each
fiscal year, but no earlier than the filing of such information with the
Commission, consolidated summary financial information of the Company for such
quarter in reasonable detail; (iii) as soon as they are publicly available, a
copy of all reports (financial or other) mailed to security holders; (iv) as
soon as they are available, a copy of all non-confidential reports and
financial statements furnished to or filed with the Commission or any
securities exchange or automated quotation system on which any class of
securities of the Company is listed; and (v) such other information as you may
from time to time reasonably request.
(f) In the event the Company has an active subsidiary or
Subsidiaries, such financial statements referred to in subsection (e) above
will be on a consolidated basis to the extent the accounts of the Company and
its subsidiary or Subsidiaries are consolidated in reports furnished to its
stockholders generally.
(g) The Company will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of conformed copies of
the Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Underwriter may reasonably
request. The Company will deliver to or upon your order, from time to time
until the effective date of the Registration Statement, as many copies of any
Preliminary Prospectus filed with the Commission prior to the effective date of
the Registration Statement as you may reasonably request. The Company will
deliver to the Underwriter on the effective date of the Registration Statement
and thereafter for so long as a Prospectus is required to be delivered under
the Act, from time to time, as many copies of the Prospectus, in final form, or
as thereafter amended or supplemented, as the Underwriter may from time to time
reasonably request.
(h) The Company will make generally available to its security
holders and to the registered holders of its Warrants and deliver to you as
soon as it is practicable to do so but in no event later than 90 days after the
end of twelve months after its current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement, which
shall satisfy the requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the
Securities substantially for the purposes set forth under "Use of Proceeds" in
the Prospectus.
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(j) The Company will promptly prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
opinion of counsel to the Underwriter and counsel to the Company, may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and will use its best efforts to cause the same to become effective
as promptly as possible.
(k) The Company will reserve and keep available the maximum
number of its authorized but unissued securities which are issuable upon
exercise of the Purchase Option outstanding from time to time.
(l) Upon completion of this offering, the Company will make all
filings required, including registration under the Exchange Act, to obtain the
listing of the Units, Preferred Stock and the Warrants in the NASDAQ SmallCap
Market system, and will use its best efforts to effect and maintain such
listing for at least five years from the date of this Agreement.
(m) Except for the transactions contemplated by this Agreement
and as disclosed in the Prospectus, the Company represents that it has not
taken and agrees that it will not take, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result in the stabilization or manipulation of the price of any of the
Securities.
(n) On the First Closing Date and simultaneously with the
delivery of the Securities, the Company shall execute and deliver to you the
Purchase Option. The Purchase Option will be substantially in the form filed as
an Exhibit to the Registration Statement.
(o) On the First Closing Date, the Company will complete the
acquisition of Comp Ware Inc. d/b/a Webb Distribution, Inc."Webb"), a Delaware
corporation, the principals of Webb receiving $3,250,000 and 1,500,000 Series
IV Warrants. Such Warrants, which will be included in the Registration
Statement, are subject to an eighteen (18) month
(p) So long as any Warrants are outstanding and the exercise
price of the Warrants is less than the market price of the Common Stock, the
Company shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such post-effective
amendments and cause a copy of each Prospectus, as then amended, to be
delivered to each holder of record of a Warrant and to furnish to the
Underwriter as many copies of each such Prospectus as such Underwriter or
dealer may reasonably request. The Company shall not call for redemption of any
of the Warrants unless a registration statement covering the
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securities underlying the Warrants has been declared effective by the
Commission and remains current at least until the date fixed for redemption.
(q) For a period of five (5) years from the Effective Date, the
Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
Securityholders, provided that the Company shall not be required to file a
report of such accountants relating to such review with the Commission.
(r) The Company agrees to pay the Underwriter a warrant
solicitation fee of 4.0% of the exercise price of any of the Warrants exercised
beginning one (1) year after the Effective Date (not including warrants
exercised by the Underwriter) if (a) the market price of the Company's Common
Stock on the date the Warrant is exercised is greater than the exercise price
of the Warrant, (b) the exercise of the Warrant was solicited by the
Underwriter and the holder of the warrant designates the Underwriter in writing
as having solicited such Warrant, (c) the Warrant is not held in a
discretionary account, (d) disclosure of the compensation arrangement is made
upon the sale and exercise of the Warrants, (e) soliciting the exercise is not
in violation of Rule 10b-6 under the Securities Exchange Act of 1934, and (f)
solicitation of the exercise is in compliance with the NASD Notice to Members
81-38 (September 22, 1981).
(s) For a period of three years from the Effective Date, at the
request of the Underwriter, the Company shall provide promptly, at the expense
of the Company, copies of the Company's daily transfer sheets furnished to it
by its transfer agent and copies of the securities position listings provided
to it by the Depository Trust Company.
(t) The Company hereby agrees that:
(i) The Company will pay a finder's fee to the Underwriter,
equal to five percent (5%) of the first $3,000,000 of the consideration
involved in any transaction, 4% of the next $3,000,000 of consideration
involved in the transaction, 3% of the next $2,000,000, 2% of the next
$2,000,000 and 1% of the excess, if any, over $10,000,000, for future
consummated transactions, if any, introduced by the Underwriter (including
mergers, acquisitions, joint ventures, and any other business for the Company
introduced by the Underwriter) consummated by the Company (an "Introduced
Consummated Transaction"), in which the Underwriter introduced the other party
to the Company during a period ending five years following the First Closing
Date; and
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(ii) That any such finder's fee due hereunder will be paid
in cash or other consideration that is acceptable to the Underwriter, at the
closing of the particular Introduced Consummated Transaction for which the
finder's fee is due.
(v) Intentionally omitted.
(w) For a period of five (5) years following the Effective Date
the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-Q quarterly report and the mailing of quarterly financial information to
stockholders, provided that the Company shall not be required to file a report
of such accountants relating to such review with the Commission. The Company
will retain its present legal counsel and independent certified public
accountants for at least one year from the Closing Date.
(x) For the three (3) year period commencing on the First Closing
Date, the Underwriter shall have the right to nominate a member of the
Company's Board of Directors. If the Underwriter does not exercise this right,
it may appoint an advisor who will be able to attend all meetings of the Board
of Directors. However, if the Board of Directors determines that confidential
information is to be discussed during any part of any meeting attended by such
advisor, it shall have the right to exclude the advisor from the meeting during
such discussion. The Underwriter shall also have the right to obtain copies of
the minutes, if requested, from all Board of Directors meetings for three (3)
years following the Effective Date of the Registration Statement, whether or
not a nominee of the Underwriter attends or participates in any such Board
meeting. The Company agrees to reimburse the Underwriter immediately upon the
Underwriter's request therefor of any reasonable travel and lodging expenses
directly incurred by the Underwriter in connection with its representative
attending Company Board meetings on the same basis for other Board members.
4. Conditions of Underwriter's Obligation. The obligations of the
Underwriter to purchase and pay for the Securities which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and as
of the Closing Dates) of and compliance with the representations and warranties
of the Company herein, to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New York
time, on the day following the date of this Agreement, or at such later time or
on such later date as to which you may agree in writing; on or prior to the
Closing Dates no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to your knowledge or
to the knowledge of the
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<PAGE>
Company, shall be contemplated by the Commission; any request on the part of
the Commission for additional information shall have been complied with to the
satisfaction of the Commission; and no stop order shall be in effect denying or
suspending effectiveness of such qualification nor shall any stop order
proceedings with respect thereto be instituted or pending or threatened. If
required, the Prospectus shall have been filed with the Commission in the
manner and within the time period required by Rule 424(b) under the Act.
(b) At the First Closing Date, you shall have received the
opinion, dated as of the First Closing Date, of Gould & Wilkie, LLP, counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the effect that:
(i) the Company and its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of organization, with all requisite
corporate power and authority to own their properties and conduct their
business as described in the Registration Statement and Prospectus and are duly
qualified or licensed to do business as foreign corporations and are in good
standing in each other jurisdiction in which the ownership or leasing of their
properties or conduct of their business requires such qualification except
where the failure to qualify or be licensed will not have a Material Adverse
Effect;
(ii) the authorized capitalization of the Company as of May
31, 1996 is as set forth in the Registration Statement; the Securities as set
forth in the Registration Statement have been duly authorized and upon payment
of consideration therefor, will be validly issued, fully paid and
non-assessable and conform in all material respects to the description thereof
contained in the Prospectus; to such counsel's knowledge the outstanding shares
of capital stock of the Company and its Subsidiaries have not been issued in
violation of the preemptive rights of any shareholder and to such counsel's
knowledge the shareholders of the Company do not have any preemptive rights or
other rights to subscribe for or to purchase, nor are there any restrictions
upon the voting or transfer of any of the capital stock except as provided in
the Prospectus or as required by law. The Securities, the Purchase Option and
the Warrant Agreement conform in all material respects to the respective
descriptions thereof contained in the Prospectus; the shares of Common Stock
underlying the Units, and the shares of Common Stock issuable upon exercise of
Warrants, the Purchase Option, and the Warrant Agreement will have been duly
authorized and, when issued and delivered in accordance with their respective
terms, will be duly and validly issued, fully paid, non-assessable, free of
preemptive rights to the best of their knowledge; to the best of their
knowledge, all prior sales by the Company of the Company's securities, have
been made in compliance with or under an exemption from registration under the
Act and applicable state securities laws; a sufficient number of shares of
Common Stock has been reserved for issuance upon exercise of the Warrants and
Common Stock has been reserved for issuance upon exercise of the Warrants
contained in the Purchase Option and to the best of such counsel's knowledge,
neither the filing of the Registration Statement nor
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<PAGE>
the offering or sale of the Securities as contemplated by this Agreement gives
rise to any registration rights other than those which have been waived or
satisfied for or relating to the registration of any shares of Common Stock;
(iii) this Agreement, the Purchase Option, and the Warrant
Agreement have been duly and validly authorized, executed and delivered by the
Company;
(iv) the certificates evidencing the Securities as described
in the Registration Statement comply in all material respects with the
descriptions set forth therein, and comply with the Delaware General
Corporation Law, as in effect on the date hereof; each Warrant will be
exercisable for one share of the Common Stock of the Company, respectively, and
at the prices provided for in the Warrant Agreement;
(v) except as otherwise disclosed in the Registration
Statement, such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company or its Subsidiaries are a party which would
materially adversely affect the business, property, financial condition or
operations of the Company or its Subsidiaries; or which question the validity
of the Securities, this Agreement, the Warrant Agreement or the Purchase
Option, or of any action taken or to be taken by the Company pursuant to this
Agreement, the Warrant Agreement or the Purchase Option; to such counsel's
knowledge there are no governmental proceedings or regulations required to be
described or referred to in the Registration Statement which are not so
described or referred to;
(vi) the execution and delivery of this Agreement, the
Purchase Option or the Warrant Agreement and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions herein or
therein contemplated, will not result in a breach or violation of, or
constitute a default under the certificate of incorporation or by-laws of the
Company or its Subsidiaries, or to the best knowledge of counsel after due
inquiry, in the performance or observance of any material obligations,
agreement, covenant or condition contained in any bond, debenture, note or
other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture or other agreement or instrument
to which the Company or its Subsidiaries is a party or by which they or any of
their properties is bound or in violation of any order, rule, regulation, writ,
injunction, or decree of any government, governmental instrumentality or court,
domestic or foreign the result of which would have a Material Adverse Effect;
(vii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no stop order suspending
the effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data contained
therein, or
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<PAGE>
omitted therefrom, as to which such counsel need express no opinion) as of the
Effective Date comply as to form in all material respects with the applicable
requirements of the Act and the Rules and Regulations;
(viii) in the course of preparation of the Registration
Statement and the Prospectus such counsel has participated in conferences with
the President of the Company with respect to the Registration Statement and
Prospectus and such discussions did not disclose to such counsel any
information which gives such counsel reason to believe that the Registration
Statement or any amendment thereto at the time it became effective contained
any untrue statement of a material fact required to be stated therein or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus or any
supplement thereto contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make statements therein, in light
of the circumstances under which they were made, not misleading (except, in the
case of both the Registration Statement and any amendment thereto and the
Prospectus and any supplement thereto, for the financial statements, notes
thereto and other financial information (including without limitation, the pro
forma financial information) and schedules contained therein, as to which such
counsel need express no opinion);
(ix) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and other
agreements to which the Company or its Subsidiaries is a party are accurate and
fairly present in all material respects the information required to be shown,
and such counsel is familiar with all contracts and other agreements referred
to in the Registration Statement and the Prospectus and any such amendment or
supplement or filed as exhibits to the Registration Statement, and such counsel
does not know of any contracts or agreements to which the Company or its
Subsidiaries is a party of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so summarized,
described or filed;
(x) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary in connection with
the authorization, issuance, transfer, sale or delivery of the Securities by
the Company, in connection with the execution, delivery and performance of this
Agreement by the Company or in connection with the taking of any action
contemplated herein, or the issuance of the Purchase Option or the Securities
underlying the Purchase Option, other than registrations or qualifications of
the Securities under applicable state or foreign securities or Blue Sky laws
and registration under the Act; and
(xi) the Units, shares of Common Stock and the Warrants have
been duly authorized for quotation on the NASDAQ SmallCap Market System
("NASDAQ").
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Such opinion shall also cover such matters incident to the
transactions contemplated hereby as the Underwriter or counsel for the
Underwriter shall reasonably request. In rendering such opinion, such counsel
may rely upon certificates of any officer of the Company or public officials as
to matters of fact; and may rely as to all matters of law other than the law of
the United States or of the State of New York or Delaware upon opinions of
counsel satisfactory to you, in which case the opinion shall state that they
have no reason to believe that you and they are not entitled to so rely.
(c) Intentionally Omitted.
(d) All corporate proceedings and other legal matters relating to
this Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by Bernstein & Wasserman, LLP,
counsel to the Underwriter.
(e) You shall have received a letter prior to the Effective Date
and again on and as of the First Closing Date from Moore Stephens, PC
independent public accountants for the Company, substantially in the form
reasonably acceptable to you, providing you with such "cold comfort" as you may
reasonably require.
(f) At the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects with the same effect as if made on and as of the Closing
Dates taking into account for the Option Closing Dates the effect of the
transactions contemplated hereby and the Company or its Subsidiaries shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all
material respects conform to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; (iii) there shall have been, since the
respective dates as of which information is given, no material adverse change,
or to the Company or its Subsidiaries's knowledge, any development involving a
prospective material adverse change, in the business, properties, condition
(financial or otherwise), results of operations, capital stock, long-term or
short-term debt or general affairs of the Company or its Subsidiaries from that
set forth in the Registration Statement and the Prospectus, except changes
which the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company or its
Subsidiaries shall not have incurred any material liabilities or entered into
any material agreement not in the ordinary course of business other than as
referred to in the Registration Statement and Prospectus; (iv) except as set
forth in the Prospectus, no action, suit or proceeding at law or in equity
shall be pending or threatened against the Company or its
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Subsidiaries which would be required to be set forth in the Registration
Statement, and no proceedings shall be pending or threatened against the
Company or its Subsidiaries before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company or its Subsidiaries, and (v) you shall have received, at
the First Closing Date, a certificate signed by each of the President and the
principal operating officer of the Company or its Subsidiaries, dated as of the
First Closing Date, evidencing compliance with the provisions of this
subsection (f).
(g) Upon exercise of the Over-Allotment Option provided for in
Section 2(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Securities referred to therein will be subject (as of the date
hereof and as of the Option Closing Date) to the following additional
conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending, or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any reasonable request on
the part of the Commission for additional information shall have been complied
with to the satisfaction of the Commission.
(ii) At the Option Closing Date there shall have been
delivered to you the signed opinion of Gould & Wilkie, LLP, counsel to the
Company, dated as of the Option Closing Date, in form and substance reasonably
satisfactory to Bernstein & Wasserman, LLP, counsel to the Underwriter, which
opinion shall be substantially the same in scope and substance as the opinion
furnished to you at the First Closing Date pursuant to Sections 4(b) hereof,
except that such opinion, where appropriate, shall cover the Option Securities.
(iii) At the Option Closing Date there shall have be
delivered to you a certificate of the President and the principal operating
officer of the Company, dated the Option Closing Date, in form and substance
reasonably satisfactory to Bernstein & Wasserman, LLP, counsel to the
Underwriter, substantially the same in scope and substance as the certificate
furnished to you at the First Closing Date pursuant to Section 4(f) hereof.
(iv) At the Option Closing Date there shall have been
delivered to you a letter in form and substance satisfactory to you from Moore
Stephens, dated the Option Closing Date and addressed to the Underwriter
confirming the information in their letter referred to in Section 4(e) hereof
and stating that nothing has come to their attention during the period from the
ending date of their review referred to in said letter to a date not more than
five business days
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prior to the Option Closing Date, which would require any change in said letter
if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and issuance of the Option Securities shall be
reasonably satisfactory in form and substance to you, and you and Bernstein &
Wasserman, LLP, counsel to the Underwriter, shall have been furnished with all
such documents, certificates, and opinions as you may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or its compliance with any of the covenants or conditions contained
herein.
(h) No action shall have been taken by the Commission or the NASD
the effect of which would make it improper, at any time prior to the Closing
Date, for members of the NASD to execute transactions (as principal or agent)
in the Securities and no proceedings for the taking of such action shall have
been instituted or shall be pending, or, to the knowledge of the Underwriter or
the Company, shall be contemplated by the Commission or the NASD. The Company
and the Underwriter represent that at the date hereof each has no knowledge
that any such action is in fact contemplated against it by the Commission or
the NASD.
(i) If any of the conditions herein provided for in this Section
shall not have been fulfilled in all material respects as of the date
indicated, this Agreement and all obligations of the Underwriter under this
Agreement may be canceled at, or at any time prior to, each Closing Date by the
Underwriter notifying the Company of such cancellation in writing or by
telegram at or prior to the applicable Closing Date. Any such cancellation
shall be without liability of the Underwriter to the Company.
5. Conditions of the Obligations of the Company, The obligation of
the Company to sell and deliver the Securities is subject to the following
conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 A.M. New York time, on the day following the date of this
Agreement, or on such later date as the Company and the Underwriter may agree
in writing.
(b) At the Closing Dates, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided
for in this Section have been fulfilled on the First Closing Date but are not
fulfilled after the First Closing Date and prior to the Option Closing Date,
then only the obligation of the Company to sell and deliver the
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Securities on exercise of the Over-Allotment Option provided for in Section
2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees (i) to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees), to
which such Underwriter or such controlling person may become subject, under the
Act or otherwise, and (ii) to reimburse, as incurred, the Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities; insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
relating to (i) and (ii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, (B) any blue sky application or other document executed by
the Company specifically for that purpose containing written information
specifically furnished by the Company and filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or arise out of or are based upon
the omission or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, Prospectus, or any amendment or supplement thereto, or
in any Blue Sky Application, a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that the Company will not be required to indemnify the Underwriter and any
controlling person or be liable in any such case to the extent, but only to the
extent, that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto, provided, further that the indemnity with respect to any
Preliminary Prospectus shall not be applicable on account of any losses,
claims, damages, liabilities or litigation arising from the sale of Securities
to any person if a copy of the Prospectus was not delivered to such person at
or prior to the written confirmation of the sale to such person. This indemnity
will be in addition to any liability which the Company may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Company,
each of its directors, each nominee (if any) for director named in the
Prospectus, each of its officers who have signed the Registration Statement and
each person, if any, who controls the Company within
22
<PAGE>
the meaning of the Act, against any losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and reasonable attorneys' fees) to
which the Company or any such director, nominee, officer or controlling person
may become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or any Blue Sky Application
in reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof and
for any violation by the Underwriter in the sale of such Securities of any
applicable state or federal law or any rule, regulation or instruction
thereunder relating to violations based on unauthorized statements by
Underwriter or its representative; provided that such violation is not based
upon any violation of such law, rule or regulation or instruction by the party
claiming indemnification or inaccurate or misleading information furnished by
the Company or its representatives, including information furnished to the
Underwriter as contemplated herein. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, subject to the
provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the reasonable fees and expenses of such counsel shall be at the expense
of the indemnifying party if (i) the employment of such counsel has been
23
<PAGE>
specifically authorized in writing by the indemnifying party or (ii) the named
parties to any such action (including any impleaded parties) include both the
indemnified party and the indemnifying party and in the reasonable judgment of
the counsel to the indemnified party, it is advisable for the indemnified party
to be represented by separate counsel (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the indemnified party,
which firm shall be designated in writing by the indemnified party). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party. If it is
ultimately determined that indemnification is not permitted, then an
indemnified party will return all monies advanced to the indemnifying party.
7. Contribution.
In order to provide for just and equitable contribution under the
Act in any case in which the indemnification provided in Section 6 hereof is
requested but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case, notwithstanding the fact that the express
provisions of Section 6 provide for indemnification in such case, then the
Company and each person who controls the Company, in the aggregate, and the
Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) (after contribution from
others) in such proportions that the Underwriter is responsible in the
aggregate for that portion of such losses, claims, damages or liabilities
represented by the percentage that the underwriting discount for each of the
Securities appearing on the cover page of the Prospectus bears to the public
offering price appearing thereon and the Company shall be responsible for the
remaining portion; provided, however, that if such allocation is not permitted
by applicable law then allocated in such proportion as is appropriate to
reflect relative benefits but also the relative fault of the Company and the
Underwriter and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company or
the Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriter to
contribute pursuant
24
<PAGE>
to this Section 7 were to be determined by pro rata or per capita allocation of
the aggregate damages or by any other method of allocation that does not take
account of the equitable considerations referred to in this Section 7. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. As used in this paragraph, the
word "Company" includes any officer, director, or person who controls the
Company within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company, its officers, directors and controlling persons,
and the Company, its officers, directors and controlling persons shall be
entitled to contribution from the Underwriter to the full extent permitted by
law. The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of
the Act other than the Company and the Underwriter. No contribution shall be
requested with regard to the settlement of any matter from any party who did
not consent to the settlement; provided, however, that such consent shall not
be unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale
of the Securities to the Underwriter is consummated, the Company will pay all
costs and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the Prospectus, as
amended or supplemented, the fee of the NASD in connection with the filing
required by the NASD relating to the offering of the Securities contemplated
hereby; all expenses, including reasonable fees and disbursements of counsel to
the Underwriter, in connection with the qualification of the Securities under
the state securities or blue sky laws which the Underwriter shall designate;
the cost of printing and furnishing to the Underwriter copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, and the Blue Sky Memorandum, any fees relating to the listing of the
Common Stock and Warrants on NASDAQ or any other securities exchange, the cost
of printing the certificates representing the Securities; fees for bound
volumes and prospectus memorabilia and the fees of the transfer agent and
warrant agent. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriter hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
25
<PAGE>
(b) In addition to the foregoing expenses, the Company shall at
the First Closing Date pay to the Underwriter a non-accountable expense
allowance of $180,000. In the event the overallotment option is exercised, the
Company shall pay to the Underwriter at the Option Closing Date an additional
amount in the aggregate equal to 3% of the gross proceeds received upon
exercise of the overallotment option. In the event the transactions
contemplated hereby are not consummated by reason of any action by the
Underwriter (except if such prevention is based upon a breach by the Company of
any covenant, representation or warranty contained herein or because any other
condition to the Underwriter's obligations hereunder required to be fulfilled
by the Company is not fulfilled) the Company shall not be liable for any
expenses of the Underwriter, including the Underwriter's legal fees. In the
event the transactions contemplated hereby are not consummated by reason of the
Company being unable to perform its obligations hereunder in all material
respects, the Company shall be liable for the actual accountable out-of-pocket
expenses of the Underwriter, including reasonable legal fees, not to exceed in
the aggregate $100,000.
(c) Except as disclosed in the Registration Statement, no person
is entitled either directly or indirectly to compensation from the Company,
from the Underwriter or from any other person for services as a finder in
connection with the proposed offering, and the Company agrees to indemnify and
hold harmless the Underwriter, against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorneys' fees), to which the Underwriter or person may become
subject insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the proposed offering by reason
of such person's or entity's influence or prior contact with the indemnifying
party.
9. Effective Date.
The Agreement shall become effective upon its execution except
that you may, at your option, delay its effectiveness until 11:00 A.M., New
York time on the first full business day following the effective date of the
Registration Statement, or at such earlier time on such business day after the
effective date of the Registration Statement as you in your discretion shall
first commence the public offering of the Securities. The time of the initial
public offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Securities, or the time when the Securities
are first generally offered by you to dealers by letter or telegram, whichever
shall first occur. This Agreement may be terminated by you at any time before
it becomes effective as provided above, except that Sections 3(c), 6, 7, 8, 12,
13, 14 and 15 shall remain in effect notwithstanding such termination.
10. Termination.
26
<PAGE>
(a) After this Agreement becomes effective, this Agreement,
except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15 hereof, may be terminated
at any time prior to the First Closing Date, by you if in your judgment (i) the
Company has sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any labor dispute
or court or government action, order or decree, (ii) trading in securities on
the New York Stock Exchange or the American Stock Exchange having been
suspended or limited, (iii) material governmental restrictions have been
imposed on trading in securities generally (not in force and effect on the date
hereof), (iv) a banking moratorium has been declared by federal or New York
state authorities, (v) an outbreak of major international hostilities involving
the United States or other substantial national or international calamity has
occurred, (vi) a pending or threatened legal or governmental proceeding or
action relating generally to the Company's business, or a notification has been
received by the Company of the threat of any such proceeding or action, which
would materially adversely affect the Company; (vii) except as contemplated by
the Prospectus, the Company is merged or consolidated into or acquired by
another company or group or there exists a binding legal commitment for the
foregoing or any other material change of ownership or control occurs; (viii)
the passage by the Congress of the United States or by any state legislative
body of similar impact, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably believed
likely by the Underwriter to have a material adverse impact on the business,
financial condition or financial statements of the Company; (ix) any material
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement, or (x) any
material adverse change having occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
earnings, business prospects or general condition of the Company, financial or
otherwise, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. Purchase Option.
At or before the First Closing Date, the Company will sell the
Underwriter or its designees for a consideration of $100, and upon the terms
and conditions set forth in the form of Purchase Option annexed as an exhibit
to the Registration Statement, a Purchase Option to purchase an aggregate of
100,000 Units, each Unit consisting of one (1) share of Series B Convertible
Preferred Stock, par value $.01 per share and one (1) Series IV Redeemable
Common Stock Purchase Warrant. In the event of conflict in the terms of this
Agreement and the Purchase Option with respect to language relating to the
Purchase Option, the language of the Purchase Option shall control.
27
<PAGE>
12. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that it is
registered as a broker-dealer in all jurisdictions in which it is offering the
Securities and that it will comply with all applicable state or federal laws
relating to the sale of the Securities, including but not limited to,
violations based on unauthorized statements by the Underwriter or its
representatives.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations,
warranties and other statements of the Company and the Underwriter and the
undertakings set forth in or made pursuant to this Agreement will remain in
full force and effect until three years from the date of this Agreement,
regardless of any investigation made by or on behalf of the Underwriter, the
Company or any of its officers or directors or any controlling person and will
survive delivery of and payment of the Securities and the termination of this
Agreement.
14. Notice.
Any communications specifically required hereunder to be in
writing, if sent to the Representative, will be mailed, delivered or telecopied
and confirmed to them at Biltmore Securities, Inc., 6700 North Andrews Avenue,
Suite 500, Fort Lauderdale, FL 33309, with a copy sent to Bernstein &
Wasserman, LLP, 950 Third Avenue, New York, New York 10022, Attention: Steven
F. Wasserman, or if sent to the Company, will be mailed, delivered or
telecopied and confirmed to it at 6400 Congress Avenue, Suite 200, Boca Raton,
Florida 33487, with a copy sent to Frederick W. London, Gould & Wilkie, One
Chase Manhattan Plaza, New York, NY 10005-1401. Notice shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication.
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of
the Underwriter, the Company, any person controlling the Company or the
Underwriter, and directors of the Company, nominees for directors (if any)
named in the Prospectus, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors, assigns
and no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser,
as such purchaser, from the Underwriter of the Securities.
16. Applicable Law.
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<PAGE>
This Agreement will be governed by, and construed in accordance
with, of the laws of the State of New York applicable to agreements made and to
be entirely performed within New York.
17. Counterparts.
This agreement may be executed in one or more counterparts each
of which shall be deemed to constitute an original and shall become effective
when one or more counterparts have been signed by each of the parties hereto
and delivered to the other parties (including by fax, followed by original
copies by overnight mail).
18. Entire Agreement; Amendments.
This Agreement constitutes the entire agreement of the parties
hereto and supersedes all prior written or oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may not
be amended except in writing, signed by the Underwriter and the Company.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement between the Company and the Underwriter in accordance with
its terms.
Very truly yours,
QUESTRON TECHNOLOGY, INC.
By:
---------------------------
Name: Dominic A. Polimeni
Title: President
29
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
BILTMORE SECURITIES, INC.
By:
-----------------------------
Name:
Title:
The undersigned agree to be bound by the provisions of Section 3
(1) hereof:
--------------------------------
Dominic A. Polimeni
--------------------------------
Milton M. Adler
--------------------------------
Robert V. Gubitosi
--------------------------------
Mitchell Hymowitz
--------------------------------
William J. McSherry, Jr.
Gould & Wilkie
By:
-----------------------------
Name:
Title:
30
<PAGE>
EXHIBIT 1.1
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE
PRICE CAN BE RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE,
AND ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR
COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN
AFTER THE EFFECTIVE DATE.
QUESTRON TECHNOLOGY, INC.
1,000,000 UNITS CONSISTING OF
1,000,000 SHARES OF SERIES B CONVERTIBLE
PREFERRED STOCK, $.01 PAR VALUE
AND
1,000,000 SERIES IV REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
_______ __, 1997
Dear Sirs:
1. Biltmore Securities, Inc. (the "Underwriter"), has agreed to offer
on a firm commitment basis, subject to the terms and conditions and execution
of the Underwriting Agreement, 1,000,000 Units, each consisting of one (1)
share of Series B Convertible Preferred Stock, $.01 par value per share
("Preferred Stock") of Questron Technology, Inc. (the "Company") and one (1)
Series IV Redeemable Common Stock Purchase Warrant ("Warrants"), (hereinafter,
referred to as the "Securities"; including any Units offered pursuant to an
over-allotment option, the "Firm Securities"). Each Warrant is exercisable to
purchase one (1) share of Common Stock of the Company, $.001 par value per
share. The Firm Securities are more particularly described in the enclosed
Preliminary Prospectus, additional copies of which, as well as the Prospectus
(after effective date), will be supplied in reasonable quantities upon request.
2. The Underwriter is soliciting offers to buy Securities, upon the
terms and conditions hereof, from Selected Dealers, who are to act as
principals, including you, who
<PAGE>
are (i) registered with the Securities and Exchange Commission ("the
Commission") as broker-dealers under the Securities Exchange Act of 1934, as
amended ("the 1934 Act"), and members in good standing with the National
Association of Securities Dealers, Inc. ("the NASD"), or (ii) dealers of
institutions with their principal place of business located outside the United
States, its territories and possessions and not registered under the 1934 Act
who agree to make no sales within the United States, its territories and
possessions or to persons who are nationals thereof or residents therein and,
in making sales, to comply with the NASD's interpretation with respect to
free-riding and withholding. The Securities are to be offered to the public at
a price of $6.00 per Unit. Selected Dealers will be allowed a concession of not
less than __% of the aggregate offering price. You will be notified of the
precise amount of such concession prior to the effective date of the
Registration Statement. The offer is solicited subject to the issuance and
delivery of the Securities and their acceptance by the Underwriter, to the
approval of legal matters by counsel and to the terms and conditions as herein
set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you any time prior to acceptance and no
offer may be accepted by us and no sale can be made until after the
registration statement covering the Securities has become effective with the
Commission. Subject to the foregoing, upon execution by you of the Offer to
Purchase below and the return of same to us, you shall be deemed to have
offered to purchase the number of Securities set forth in your offer on the
basis set forth in paragraph 2 above. Any oral notice by us of acceptance of
your offer shall be immediately followed by written or telegraphic confirmation
preceded or accompanied by a copy of the Prospectus. If a contractual
commitment arises hereunder, all the terms of this Selected Dealers Agreement
shall be applicable. We may also make available to you an allotment to purchase
Securities, but such allotment shall be subject to modification or termination
upon notice from us any time prior to an exchange of confirmations reflecting
completed transactions. All references hereafter in this Agreement to the
purchase and sale of the Securities assume and are applicable only if
contractual commitments to purchase are completed in accordance with the
foregoing.
4. You agree that in re-offering the Securities, if your offer is
accepted after the Effective Date, you will make a bona fide public
distribution of same. You will advise us upon request of the Securities
purchased by you remaining unsold, and we shall have the right to repurchase
such Securities upon demand at the public offering price less the concession as
set forth in paragraph 2 above. Any of the Securities purchased by you pursuant
to this Agreement are to be re-offered by you to the public at the public
offering price, subject to the terms hereof and shall not be offered or sold by
you below the public offering price before the termination of this Agreement.
5. Payment for Securities which you purchase hereunder shall be made
by you on such date as we may determine by certified or bank cashier's check
payable in New York Clearinghouse funds to Biltmore Securities, Inc.
Certificates for the Securities shall be delivered as soon as practicable at
the offices of Biltmore Securities, Inc., 6700 North
2
<PAGE>
Andrews Avenue, Suite 500, Fort Lauderdale, FL 33309. Unless specifically
authorized by us, payment by you may not be deferred until delivery of
certificates to you.
6. A registration statement covering the offering has been filed with
the Commission in respect to the Securities. You will be promptly advised when
the registration statement becomes effective. Each Selected Dealer in selling
the Securities pursuant hereto agrees (which agreement shall also be for the
benefit of the Company) that it will comply with the applicable requirements of
the Securities Act of 1933 and of the 1934 Act and any applicable rules and
regulations issued under said Acts. No person is authorized by the Company or
by the Underwriter to give any information or to make any representations other
than those contained in the Prospectus in connection with the sale of the
Securities. Nothing contained herein shall render the Selected Dealers a member
of the underwriting group or partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have
not assumed and will not assume any obligation or responsibility as to the
right of any Selected Dealer to sell Securities in any state.
8. The Underwriter shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part
shall be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set
forth until this Agreement is terminated. This Agreement will terminate when
the offering is completed. Nothing herein contained shall be deemed a
commitment on our part to sell you any Securities; such contractual commitment
can only be made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the
National Association of Securities Dealers, Inc. ("Association") and registered
as a broker-dealer or are not eligible for membership under Section I of the
By-Laws of the Association who agree to make no sales within the United States,
its territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to comply with the NASD's
interpretation with respect to free-riding and withholding. Your attention is
called to the following: (a) Article III, Sections 1, 8, 24, 25, 26 and 36 of
the Rules of Fair Practice of the Association and the interpretations of said
Section promulgated by the Board of Governors of such Association including the
interpretation with respect to "Free-Riding and Withholding"; (b) Section 10(b)
of the 1934 Act and Rules 10b-6 and 10b-10 of the general rules and regulations
promulgated under said Act; (c) Securities Act Release #3907; (d)
3
<PAGE>
Securities Act Release #4150; and (e) Securities Act Release #4968 requiring
the distribution of a Preliminary Prospectus to all persons reasonably expected
to be purchasers of Securities from you at least 48 hours prior to the time you
expect to mail confirmations. You, if a member of the Association, by signing
this Agreement, acknowledge that you are familiar with the cited law, rules and
releases, and agree that you will not directly and/or indirectly violate any
provisions of applicable law in connection with your participation in the
distribution of the Securities.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the entire
offering has been distributed and closed, bid for or purchase Securities or its
component securities in the open market or otherwise make a market in such
securities or otherwise attempt to induce others to purchase such securities in
the open market. Nothing contained in this paragraph 11 shall, however,
preclude you from acting as agent in the execution of unsolicited orders of
customers in transactions effectuated for them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for
or purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased, and you agree to pay such amount to us on
demand.
13. By submitting an Offer to Purchase you confirm that your net
capital is such that you may, in accordance with Rule 15c3-1 adopted under the
1934 Act, agree to purchase the number of Securities you may become obligated
to purchase under the provisions of this Agreement.
14. You agree that (i) you shall not recommend to a customer the
purchase of Firm Securities unless you shall have reasonable grounds to believe
that the recommendation is suitable for such customer on the basis of
information furnished by such customer concerning the customer's investment
objectives, financial situation and needs, and any other information known to
you, (ii) in connection with all such determinations, you shall maintain in
your files the basis for such determination, and (iii) you shall not execute
any transaction in Firm Securities in a discretionary account without the prior
specific written approval of the customer.
4
<PAGE>
15. You represent that neither you nor any of your affiliates or
associates owns any Common Stock of the Company.
16. All communications from you should be directed to us at the office
of Biltmore Securities, Inc., 6700 North Andrews Avenue, Suite 500, Fort
Lauderdale, FL 33309. All communications from us to you shall be directed to
the address to which this letter is mailed.
Very truly yours,
BILTMORE SECURITIES, INC.
By:
----------------------------
Name:
Title:
ACCEPTED AND AGREED TO AS OF THE ______
DAY OF ____________, 1997
[Name of Dealer]
By:
------------------------------
Its
5
<PAGE>
TO: Biltmore Securities, Inc.
6700 North Andrews Avenue
Suite 500
Fort Lauderdale, FL 33309
We hereby subscribe for_________Units, each consisting of one (1)
share of Series B Convertible Preferred Stock, $.01 par value per share, and
one (1) Series IV Redeemable Common Stock Purchase Warrant of Questron
Technology, Inc. in accordance with the terms and conditions stated in the
foregoing letter. We hereby acknowledge receipt of the Prospectus referred to
in the first paragraph thereof relating to said Securities. We further state
that in purchasing said Securities we have relied upon said Prospectus and upon
no other statement whatsoever, whether written or oral. We confirm that we are
a dealer actually engaged in the investment banking or securities business and
that we are either (i) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD") or (ii) a dealer with its principal place
of business located outside the United States, its territories and its
possessions and not registered as a broker or dealer under the Securities
Exchange Act of 1934, as amended, who hereby agrees not to make any sales
within the United States, its territories or its possessions or to persons who
are nationals thereof or residents therein. We hereby agree to comply with the
provisions of Section 24 of Article III of the Rules of Fair Practice of the
NASD, and if we are a foreign dealer and not a member of the NASD, we also
agree to comply with the NASD's interpretation with respect to free-riding and
withholding, to comply, as though we were a member of the NASD, with the
provisions of Sections 8 and 36 of Article III thereof as that Section applies
to non-member foreign dealers.
Name of
Dealer:
-------------------------------
By:
-----------------------
Address:
-----------------------
-----------------------
Dated: , 1997
--------------
<PAGE>
EXHIBIT 2.0
===============================================================================
STOCK PURCHASE AGREEMENT
By and Among
QUESTRON TECHNOLOGY, INC.
and
THE SHAREHOLDERS OF COMP WARE, INC. D/B/A WEBB DISTRIBUTION
LISTED ON SCHEDULE 1.1 HERETO
Dated as of December 16, 1996
===============================================================================
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<PAGE>
STOCK PURCHASE AGREEMENT dated as of December 16, 1996 (herein,
together with the Schedules and Exhibits attached hereto, referred to as the
"Agreement") by and among Questron Technology, Inc. a Delaware corporation
("Buyer"), and the shareholders of Comp Ware, Inc. d/b/a Webb Distribution, a
Delaware corporation (the "Company"), listed on Schedule 1.1 ("Sellers").
W I T N E S S E T H :
WHEREAS, Sellers are the beneficial and record holders of all of the
shares of capital stock of the Company (the "Shares"); and
WHEREAS, Sellers wish to sell and Buyer wishes to purchase the Shares
upon the terms and subject to the conditions contained in this Agreement.
NOW, THEREFORE, in reliance upon the representations and warranties
made herein and in consideration of the mutual agreements herein contained, the
parties agree as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES
---------------------------
1.1 Sale of Shares. At the Closing provided for in Section 2.1, each
Seller shall sell to Buyer (or in Buyer's sole discretion, any subsidiary of
Buyer) all of the Shares beneficially owned by such Seller as set forth in
Schedule 1.1, and Buyer shall purchase the Shares for the aggregate purchase
consideration specified in Section 1.2.
1.2 Purchase Consideration and Payment for Shares. At the Closing,
Buyer shall (a) deliver to Sellers by wire transfers (or certified checks) for
an aggregate amount equal to $3,250,000 (the "Cash Consideration") and (b)
deliver to Albert J. Dinicola ("Majority Stockholder") Series IV Warrants (the
"Warrants") to purchase 1,500,000 shares of Buyer's common stock, par value
$.0001 per share ("Buyer Common Stock") and two notes (the "Notes") from Buyer
each for $375,000 in the form of Exhibits A-1 and A-2 hereto. The Cash
Consideration shall be allocated among and delivered to Sellers in accordance
with Schedule 1.1. One of the Notes shall be payable in eighteen months and
bear interest at 10% per annum (in the form of Exhibit A-1) and the second of
the Notes shall be payable in equal monthly installments over a five year
period and bear interest at 10% per annum (in the form of Exhibit A-2). The
Notes shall provide that in the event Majority Shareholder receives net
proceeds from the sale of the Warrants in excess of $375,000 (plus any previous
principal payments on the Notes), the amount of such excess shall reduce the
outstanding amount of the Notes, as more particularly set forth in the Notes.
In the event that, during the period of the Lock-up Agreement (as hereinafter
defined), Buyer's underwriter releases the Majority Stockholder from the
Lock-up Agreement and the Majority Stockholder declines to sell the Warrants
within seven business days of Majority Stockholder receiving written notice of
such release, then, as more particularly set forth in the
<PAGE>
Notes, the Notes shall be canceled. In the event of any inconsistency between
the provisions of the Notes and the preceding provisions hereof, the provisions
of the Notes shall control.
1.3 Transactions on the Closing Date. (a) At the Closing, Sellers will
deliver to Buyer the following:
(i) stock certificates, in form suitable for transfer, registered
in the name of each Seller, evidencing the number of Shares set forth
opposite such Seller's name on Schedule 1.1, endorsed in blank or with an
executed blank stock transfer power attached, and with any necessary stock
transfer tax stamps attached thereto;
(ii) all stock certificates, stock books, stock transfer ledgers,
minute books and the corporate seals of the Company;
(iii) resignations of all of the directors and officers of the
Company; and
(iv) each of the certificates and documents contemplated by
Article 6.
(b) At the Closing, Buyer will deliver to Sellers the following:
(i) the Cash Consideration and the Notes; and
(ii) each of the certificates and documents contemplated by
Article 7.
1.4 Deposit. Concurrently with the execution and delivery of this
Agreement, Buyer shall deliver to Ricklefs & Company, P.C., counsel to Majority
Stockholder certificates representing the Warrants as a deposit. Such Warrants
shall, upon the Closing, be subject to no restrictions on transfer, except as
contained in the Lock-Up Agreement and security law restrictions. Buyer and
Majority Stockholder agree that the Warrants shall be canceled and returned to
Buyer in the event this Agreement is terminated.
ARTICLE 2
CLOSING AND TERMINATION
-----------------------
2.1 Closing. The closing of the transactions provided for herein (the
"Closing") will take place at the offices of Bernstein & Wasserman, counsel to
Buyer's underwriters, 950 Third Avenue, New York, N.Y. 10022, at 10:00 A.M.
(local time) on or about January 27, 1997 (the "Closing Date") or at such other
place, time and date as may be agreed upon by Buyer and the Majority
Stockholder.
2.2 Termination. Anything contained in this Agreement other than in
this Section 2.2 to the contrary notwithstanding, this Agreement may be
terminated in writing at any time on or prior to the Closing:
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<PAGE>
(a) without liability on the part of any party hereto (unless
occasioned by reason of a breach by any party hereto of any of its
representations, warranties or obligations hereunder) by mutual written
consent of Buyer and the Majority Stockholder;
(b) without liability on the part of any party hereto (unless
occasioned by reason of a breach by any party hereto of any of its
representations, warranties or obligations hereunder) by either Buyer or
Majority Stockholder, if the Closing shall not have occurred on or before
March 31, 1997 (or such later date as may be agreed upon in writing by the
parties hereto);
(c) by Buyer, if any Seller shall breach any of its representations,
warranties or obligations hereunder and such breach shall not have been
cured or waived or Sellers shall not have provided reasonable assurance
that such breach will be cured on or before the Closing Date; or
(d) by the Majority Stockholder, if Buyer shall breach any of its
representations, warranties or obligations hereunder and such breach shall
not have been cured or waived or Buyer shall not have provided reasonable
assurance that such breach will be cured on or before the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
-----------------------------------------
Each Seller severally represents and warrants to Buyer, in the case of
Sections 3.1, 3.4 and 3.6, and each of Albert J. Dinicola and Douglas J.
Dinicola (the "Dinicolas") in the case of the other paragraphs of this Article
3, jointly and severally represents and warrants to Buyer, that:
3.1 Due Execution. This Agreement and the Employment Agreements (as
hereinafter defined) (collectively, the "Agreements"), have been, and will be
as of the Closing Date, duly executed and delivered by such Seller, and
(assuming due execution and delivery by Buyer) this Agreement constitutes, and
each of the other Agreements to which such Sellers are a party when executed
and delivered will constitute, a valid and binding obligation of such Sellers,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, moratorium,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.
3.2 Corporate Organization and Authority of Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now being conducted and to own its
properties and is duly licensed or qualified and in good standing as a foreign
corporation in each jurisdiction in which it is required to be so licensed or
so qualified, except where the failure to be so licensed or so qualified would
not have a material adverse effect on the financial condition, assets,
liabilities (contingent or otherwise), results of operations or business (a
"Material Adverse Effect") of the Company. The disclosure letter dated
-4-
<PAGE>
the date hereof and delivered by the Dinicolas to Buyer and incorporated herein
and made a part hereof (the "Disclosure Letter") sets forth the jurisdictions
in which the Company is qualified to do business. Sellers have heretofore
delivered to Buyer complete and correct copies of the articles of incorporation
and by-laws of the Company as currently in effect.
3.3 Subsidiaries and Equity Investments. Except as set forth in the
Disclosure Letter, the Company has no subsidiaries and does not own, directly
or indirectly, any investments, capital stock or other equity or ownership
interests in any other corporations or business enterprises and is not partner
in any partnership or co-venturer in any joint venture or other business
enterprise. The term "subsidiary" means any corporation or other entity of
which the Company, directly or indirectly, owns or controls capital stock or
ownership interests representing either (i) more than fifty percent of the
general voting power under ordinary circumstances of such corporation or
entity, or (ii) if an entity other than a corporation, more than fifty percent
of the economic interest therein.
3.4 Ownership of Shares. Each Seller is the lawful record and
beneficial owner of that number of Shares set forth opposite his name on
Schedule 1.1. Each Seller owns the Shares set forth opposite his name on
Schedule 1.1 free and clear of all pledges, liens, charges, encumbrances,
easements, security interests, claims, options and restrictions of every kind
("Encumbrances") except for restrictions on transfer generally applicable under
federal and state securities laws and for restrictions set forth in the
Shareholders' Agreement dated as of December 9, 1994 by and among the Company
and the shareholders named therein (the "Shareholders' Agreement"). Upon the
delivery of the Shares in the manner contemplated under Section 1.3, Sellers
will transfer to Buyer valid record and beneficial title to such Shares, free
and clear of all Encumbrances except for restrictions on transfer generally
applicable under federal and state securities laws.
3.5 Capitalization. The authorized capital of the Company consists of
1,000,000 shares of common stock, par value $.01 per share (the "Common
Stock"), of which 651,162 shares are issued and outstanding. No other class of
capital stock or other ownership interests of the Company is authorized,
issued, reserved for issuance or outstanding. All such issued and outstanding
shares of Common Stock have been duly authorized and are validly issued, fully
paid and nonassessable. No shares of Common Stock (including, without
limitation, the Shares), and no options, warrants or other rights, agreements,
commitments or arrangements of any kind to acquire Common Stock, were issued in
violation of (x) any preemptive or other rights or (y) any provision of any
contract, agreement or arrangement of any kind (including, without limitation,
the Shareholders' Agreement). Except as set forth on the Disclosure Letter,
there are no outstanding options, warrants, subscriptions, unsatisfied
preemptive rights, calls or other rights, agreements, commitments or
arrangements of any kind to acquire any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the capital stock of the Company
or any security of any kind convertible into or exchangeable for any such
capital stock. Except as set forth in the Disclosure Letter, there are no
voting trusts, shareholder agreements, proxies or other agreements relating to
the voting, purchase or sale of capital stock (i) between or among the Company
and any of its shareholders and (ii) between or among any of the Company's
shareholders. There is no outstanding bond, debenture, note or other
indebtedness of the Company having the right to vote (or convertible into or
exchangeable for securities having the right to vote) on any matter on which
shareholders of the Company may vote.
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<PAGE>
3.6 No Violation. Except as set forth in the Disclosure Letter,
neither Sellers nor the Company are subject to or bound by any provision of:
(a) any law, statute, rule, regulation or judicial or administrative
decision,
(b) (in the case of the Company) its articles of incorporation or
by-laws,
(c) any contract, mortgage, deed of trust, lease, note, shareholders'
agreement, proxy, bond, indenture, other instrument or agreement, license,
permit, trust, custodianship or other restriction, or
(d) any consent, judgment, order, writ, award, injunction or decree of
any court, governmental or regulatory body, administrative agency or
arbitrator,
that would conflict with, prevent or be violated by or that would result in the
creation of any Encumbrance as a result of, or under which there would be a
default or right of termination, amendment, acceleration, revocation,
cancellation or suspension as a result of, the execution, delivery and
performance by Seller of the Agreements to which such Seller is a party and the
consummation of the transactions contemplated thereby. Except as set forth in
the Disclosure Letter, no consent, order, license, permit, approval or
authorization of or declaration, notice or filing with any individual,
corporation, partnership, limited liability company, trust or unincorporated
organization or any government or any agency or political subdivision thereof
(a "Person") is required for the valid execution, delivery and performance by
Seller of the Agreements to which such Seller is a party and the consummation
of the transactions contemplated thereby.
3.7 Litigation. Except as set forth in the Disclosure Letter, there is
(i) no outstanding consent, order, judgment, injunction, award or decree of any
court, governmental or regulatory body, administrative agency or arbitrator
against or involving the Company, any of its officers or directors as such or
any Seller in its capacity as a shareholder of the Company, (ii) no action,
suit, dispute or governmental, administrative, arbitration or regulatory
proceeding pending or, to Sellers' knowledge, threatened against the Company or
any Seller in its capacity as a shareholder of the Company and (iii) to
Sellers' knowledge, no investigation pending or threatened against or relating
to the Company, any of its officers or directors as such or any Seller in its
capacity as a shareholder (collectively, "Proceedings").
3.8 Personal Property. (a) The Disclosure Letter sets forth (i) the
tangible physical assets of the Company as of the date of this Agreement that
do not constitute real property (including machinery, equipment, tools, dies,
furniture, furnishings, leasehold improvements, software, vehicles, buildings
and fixtures) and that have a book value or replacement value in excess of
$50,000 per item or per category of items and the location by address of such
items; (ii) individual refundable deposits in excess of $10,000 or $25,000 in
the aggregate; and (iii) all outstanding loans or advances made by the Company
to any Person in excess of $20,000.
(b) Except as set forth in the Disclosure Letter, the Company has good
and valid title to all of its material properties and assets that do not
constitute real property, free and
-6-
<PAGE>
clear of all Encumbrances. Except as set forth in the Disclosure Letter, the
Company owns, has valid leasehold interests (pursuant to leases disclosed in
the Disclosure Letter) in or valid contractual rights pursuant to contracts
disclosed in the Disclosure Letter (or not required to be disclosed therein due
to the dollar thresholds set forth in Section 3.20(a)(i)) to use, all of the
material assets, tangible and intangible, currently used by, or necessary for
the present conduct of the business of, the Company.
3.9 Real Property. (a) The Disclosure Letter sets forth each and every
parcel of real property or interest in real estate held under a lease or used
by the Company (the "Real Property"). The Company does not own any real
property or interest (other than the leasehold interests referenced in the
Disclosure Letter) in real estate. Sellers have heretofore delivered to Buyer
complete and correct copies of each and every lease and all documents relating
thereto, including any amendments thereto and any assignment thereof.
(b) Except as set forth in the Disclosure Letter, with respect to the
Real Property designated as "leased property" in the Disclosure Letter, the
Company is in peaceful and undisturbed possession of the space and/or estate
under each lease under which it is a tenant, and there are no defaults by it as
tenant thereunder; and to Seller's knowledge, the Company has good and valid
rights of ingress and egress to and from all the Real Property from and to the
public street systems.
3.10 Financial Statements. (a) Sellers have heretofore furnished Buyer
with copies of the following financial statements of the Company: (i) audited
balance sheets as at December 31 for each of the years ended December 31, 1994
and 1995, respectively; (ii) audited statements of operations and retained
earnings and audited statements of cash flows for each of the years ended
December 31, 1994 and 1995; (iii) an unaudited balance sheet (the "Reference
Balance Sheet") as at October 31, 1996 (the "Reference Balance Sheet Date");
and (iv) an unaudited statement of operations and retained earnings (the
"Reference Income Statement") and an unaudited statement of cash flows for the
ten-month period ended October 31, 1996. Except as noted therein and except for
normal year-end adjustments with respect to the unaudited financial statements,
all such financial statements are complete and correct, were prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied throughout the periods indicated and present fairly the financial
position of the Company at such dates and the results of its operations and
cash flows for the periods then ended, subject to such inaccuracies, if any,
which are not material in nature or amount.
(b) There are no liabilities, debts, obligations or claims against the
Company of any nature (accrued, absolute or contingent, unasserted or
otherwise), except (i) as and to the extent reflected or reserved against on
the Reference Balance Sheet; (ii) specifically described and identified as an
exception to this paragraph in any of the Schedules delivered to Buyer pursuant
to this Agreement; (iii) incurred since the Reference Balance Sheet Date in the
ordinary course of business consistent with prior practice; or (iv) open
purchase or sales orders or agreements for delivery of goods and services in
the ordinary course of business consistent with prior practice.
3.11 Books and Records. (a) Sellers have made and will make available
for inspection by Buyer all the books of account relating to businesses of the
Company. Such books
-7-
<PAGE>
of account of the Company reflect all the material transactions and other
material matters required to be set forth under GAAP applied on a consistent
basis.
(b) The minute books of the Company that have been made
available to Buyer for its inspection contain true and complete records of all
meetings and consents in lieu of meetings of the Board of Directors (and any
committees thereof) of the Company, and of the Company's shareholders, since
January 1, 1994 and accurately reflect all material transactions referred to in
such minutes and consents in lieu of meetings. The stock books that have been
made available to Buyer for its inspection are, since January 1, 1994, true and
complete in all material respects..
3.12 Tax Matters. (a) For purposes of this Agreement,
(i) "Tax" or "Taxes" shall mean any federal, state, local,
foreign or other taxes (including, without limitation, income (net or
gross), gross receipts, profits, alternative or add-on minimum, franchise,
license, capital, capital stock, intangible, services, premium, mining,
transfer, sales, use, ad valorem, payroll, wage, severance, employment,
occupation, property (real or personal), windfall profits, import, excise,
custom, stamp, withholding or estimated taxes), fees, duties, assessments,
withholdings or governmental charges of any kind whatsoever (including
interest, penalties, additions to tax or additional amounts with respect to
such items) relating to the income, operations or properties of the Company
or the ownership thereof (by Sellers);
(ii) "Pre-Closing Periods" shall mean all Tax periods commencing
on or after January 1, 1994 and ending on or before the Closing Date and,
with respect to any Tax period that includes but does not end on the
Closing Date, the portion of such period that ends on and includes the
Closing Date;
(iii) "Returns" shall mean all returns, declarations, reports,
estimates, information returns and statements of any nature regarding Taxes
for any Pre-Closing Period required to be filed by any Person and relating
to the Company;
(iv) "Code" shall mean the Internal Revenue Code of 1986, as
amended; and
(v) the term "Tax deficiency" shall include a reduction in any
net operating losses.
(b) In respect of the Pre-Closing Periods only, except as set forth in
the Disclosure Letter,
(i) all Returns have been or will be timely filed when due in
accordance with all applicable laws;
(ii) all Taxes shown on the Returns have been or will be timely
paid when due;
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<PAGE>
(iii) the Returns completely, accurately, and correctly in all
material respects reflected the facts regarding the income, properties,
operations and status of any entity required to be shown thereon;
(iv) the charges, accruals, and reserves for Taxes due, or
accrued but not yet due, relating to the income, properties or operations
of the Company for any Pre- Closing Period as reflected on the books of the
Company are adequate in all material respects to cover such Taxes;
(v) there are no agreements or consents currently in effect for
the extension or waiver of the time (A) to file any Return or (B) for
assessment or collection of any Taxes relating to the Company for any
Pre-Closing Period, and no Person has been requested to enter into any such
agreement or consent;
(vi) all Returns with respect to taxable years ending on or after
December 31, 1993 and on or prior to December 31, 1996 have been examined
by the relevant taxing authorities and closed, or are Returns with respect
to which the applicable statute of limitations, after giving effect to any
extensions and waivers, has expired;
(vii) all Taxes which the Company is required by law to withhold
or collect have been in all material respects duly withheld or collected,
and have been timely paid over to the appropriate governmental authorities
to the extent due and payable;
(viii) there is no action, suit, proceeding, investigation, audit
or claim currently pending, or to Sellers' knowledge, threatened, regarding
any Taxes relating to the Company for any Pre-Closing Period;
(ix) all Tax deficiencies which have been claimed, proposed or
asserted against Sellers or, to Sellers' knowledge, any prior shareholder
of the Company relating to ownership of stock in the Company or against the
Company or any group of which the Company is now or was formerly a member
have been fully paid or finally settled;
(x) no Person has executed or entered into a closing agreement
pursuant to Code Section 7121 (or any comparable provision of state, local
or foreign law) that is currently in force and determines the Tax
liabilities of the Company;
(xi) there is no, and will not be any, agreement or consent made
under Code Section 341(f) (or any comparable provision of state, local or
foreign law) affecting the Company;
(xii) there are no liens for any Tax on the assets of the Company
except liens which arise as a matter of law;
(xiii) there are no tax sharing agreements to which the Company
is now or, to Seller's knowledge, ever has been a party;
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<PAGE>
(xiv) the Company is not a party to any agreement, contract,
arrangement or plan that would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Code
Section 280G (or any comparable provision of state, local or foreign law);
(xv) the Company has not received any written notice of any
reassessment and, to Sellers' knowledge, there are no proposed
reassessments of any property owned or leased by the Company or any other
proposals that would increase the amount of any Tax for which the Company
could be liable;
(xvi) the Company has not agreed, and is not required, to make
any adjustment under Code Section 481(a) (or any comparable provision of
state, local or foreign law) by reason of a change in accounting method or
otherwise;
(xvii) Seller has received no notice that prior to January 1,
1994, (A) any valid election pursuant to Section 1362 of the Code was not
in effect with respect to the Company, (B) valid elections, to the extent
required by local and state laws to qualify the Company as an "S
corporation", were not in effect with respect to the Company and (C) the
Company did not maintain its status as an "S corporation" within the
meaning of Section 1361(a) of the Code. Seller has received no notice that
the Company's elections to be taxed under the provisions of Subchapter S of
the Code for tax years prior to January 1, 1994 and the Company's election
to be taxed as a "C corporation" within the meaning of Section 1361(b) of
the Code for tax years subsequent to December 31, 1993 were not duly made,
proper and effective and in compliance with the applicable requirements of
the Code, the Treasury regulations promulgated thereunder, and state and
local laws. The Company has not been, and will not be, subject to any Tax
under Section 1374 or 1375 of the Code for any taxable year ending on or
after January 1, 1994 and on or prior to the Closing Date; and
(xviii) no power of attorney is currently in effect, and no Tax
ruling has been requested of any governmental authority, with respect to
any Tax matter relating to the Company.
3.13 Employee Matters. (a) The Disclosure Letter attached hereto sets
forth as of the date hereof the name, current annual compensation rate
(including bonus and commissions), title, current base salary rate and accrued
bonus of each present employee of the Company; and a list of any employment,
managerial, advisory, consulting and severance agreements; employee
confidentiality or other agreements protecting proprietary processes, formulae
or information; any employee handbook(s); any reports and/or plans prepared or
adopted pursuant to the Equal Employment Opportunity Act of 1972, as amended;
any affirmative action plans; and each employee benefit or compensation plan,
agreement or arrangement covering present employees of the Company, including
"employee benefit plans" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), stock purchase, stock option,
fringe benefit, change in control, bonus and deferred compensation plans,
agreements or funding arrangements (collectively, the "Benefit Plans"), whether
sponsored, maintained or contributed to by the Company.
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<PAGE>
(b) For each Benefit Plan, except as set forth on the Disclosure
Letter, each of the following is true:
(i) if such Benefit Plan is an employee pension benefit plan (as
such term is defined in ERISA Section 3(2)) intended to qualify under the
Code, since 1992 the Plan has received at least one favorable determination
letter as to its qualification under the Code (or such a letter has been or
will be applied for prior to expiration of the applicable remedial
amendment period), and to Seller's knowledge nothing has occurred, whether
by action or failure to act, which would cause the loss of such
qualification or which would result in material costs to the Company under
the Internal Revenue Service's Closing Agreement Program, Voluntary
Compliance Resolution Program or Administrative Policy Regarding Sanctions;
(ii) the financial statements of the Company reflect in all
material respects all employee liabilities arising under such Benefit Plan
in a manner satisfying the applicable requirements (if any) of Statement of
Financial Accounting Standards ("SFAS") Nos. 87, 88, 106 and 112;
(iii) there are no actions, suits or claims (other than routine
claims for benefits in the ordinary course) pending, or to Sellers'
knowledge, threatened, and to Sellers' knowledge, there are no facts which
could give rise to any such material actions, suits or claims (other than
routine claims for benefits in the ordinary course);
(iv) neither Sellers, the Company, nor any other party has, with
respect to any such Benefit Plan, engaged in a prohibited transaction, as
such term is defined in Code Section 4975 or ERISA Section 406, which would
subject the Company or Buyer to any Taxes, penalties or other material
liabilities resulting from prohibited transactions under Code Section 4975
or under ERISA Sections 409 or 502(i);
(v) the reporting and disclosure requirements of ERISA have been
complied with in all material respects;
(vi) all contributions and insurance premiums required as of the
Closing Date have been paid in all material respects;
(vii) the execution and delivery of this Agreement by Sellers and
the consummation of the transactions contemplated hereunder, will not
(pursuant to any "change-of-control provision" or otherwise) result in any
additional (or otherwise modify or accelerate any existing or contingent)
obligation or liability (with respect to accrued benefits or otherwise) to
any such Benefit Plan, to any employee or former employee of the Company;
and
(viii) Sellers have delivered to Buyer current, accurate and
complete copies of such Benefit Plan (including the plan document, trust
agreement and other funding or insurance instruments relating thereto) and,
to the extent applicable, copies of the most recent: (A) determination
letter and any outstanding request for a determination letter; (B) Form
5500 with respect to the plan years ending in calendar years 1994, 1995 or
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1996; (C) collective bargaining agreements or other such contracts; and (D)
the general notification to employees of their "COBRA" rights under Code
Section 4980B and ERISA Sections 601-609 and the form of letter(s)
distributed upon the occurrence of a COBRA qualifying event for each
Benefit Plan that is a "group health plan" as defined in Code Section
5000(b)(1) and ERISA Section 607(1).
(c) The Company does not sponsor or maintain (and has not sponsored or
maintained in the calendar years ending 1994, 1995 and 1996) an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) that is
subject to Title IV of ERISA or to the minimum funding requirements of Section
412 of the Code or Part 3 of Title I of ERISA.
(d) The Company does not contribute and is not obligated to contribute
(and has not been obligated to contribute in the calendar years ending 1994,
1995 and 1996) to a "multiemployer plan" (within the meaning of Section
4001(a)(3) of ERISA).
(e) The Company has no employee welfare benefit plans (within the
meaning of ERISA Section 3(1)).
(f) With respect to the Company, except as set forth in the Disclosure
Letter, each of the following is true in all material respects:
(i) the Company is in compliance with all applicable laws and
agreements respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and
health and, to Sellers' knowledge, is not engaged in any unfair labor
practice within the meaning of Section 8 of the National Labor Relations
Act, and there is no action, suit or legal, administrative, arbitration,
grievance or other proceeding pending or, to Sellers' knowledge,
threatened, or, to Sellers' knowledge, any investigation pending or
threatened against the Company relating to any thereof, and, to Sellers'
knowledge, no basis exists for any such action, suit or legal,
administrative, arbitration, grievance or other proceeding or governmental
investigation;
(ii) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to Sellers' knowledge, threatened against the Company;
(iii) to Sellers' knowledge, none of the employees of the Company
is a member of or represented by any labor union and, there are no attempts
of whatever kind and nature being made to organize any of such employees;
(iv) without limiting the generality of paragraph (iii) above, no
certification or decertification is pending or was filed within the past
twelve months respecting the employees of the Company and, to Sellers'
knowledge, no certification or decertification petition is being or was
circulated among the employees of the Company within the past twelve
months;
(v) no agreement (including any collective bargaining agreement),
arbitration or court decision, decree or order or governmental order which
is binding on
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the Company in any material way limits or restricts the Company from
relocating or closing any of its operations;
(vi) the Company has not experienced any organized work stoppage
in the last five years; and
(vii) there are no administrative proceedings or complaints of
discrimination (including but not limited to discrimination based upon sex,
age, marital status, race, national origin, sexual preference, handicap or
veteran status) pending or, to Sellers' knowledge, threatened, or to
Sellers' knowledge, any investigation pending or threatened before the
Equal Employment Opportunity Commission or any federal, state or local
agency or court. Since January 1, 1994 or prior thereto, there have been no
audits of the equal employment opportunity practices or affirmative action
practices of the Company and, to Sellers' knowledge, no reasonable basis
for any claim regarding such practices exists.
3.14 Intellectual Property. The Disclosure Letter sets forth a list of
all registered trademarks, trademark registrations and applications therefor,
trade names, brand names, all service marks, service mark registrations and
applications therefor, all registered trade dress rights, registrations and
applications therefor, patents and patent applications, material registered
copyrights, and applications therefor (including information as to expiration
dates of all the foregoing where applicable) presently owned or used, in whole
or in part, by the Company or for which the Company is licensed. Neither
Sellers nor the Company are licensors in respect of any patents, trade secrets,
inventions, shop rights, copyrights or applications therefor which are used in
the business of the Company.
3.15 Accounts Receivable. The accounts receivable appearing on the
Reference Balance Sheet and all accounts receivable created since that date
through the Closing Date represent in all material respects and will in all
material respects represent valid obligations owing to the Company, have arisen
from bona fide transactions in the ordinary course of business and, to Seller's
knowledge, are fully collectible by the Company in the ordinary course of
business, subject to the reserve for doubtful accounts appearing on the
Reference Balance Sheet.
3.16 Inventory. Except as set forth in the Disclosure Letter, to
Seller's knowledge and in all material respects, the inventories of raw
materials, in-process and finished products of the Company are in good
condition, conform in all material respects with the Company's applicable
specifications and warranties, are not obsolete, and are to Seller's knowledge
saleable as of the date hereof at values not less than the book value amounts
thereof. Adequate reserves have been provided for inventory obsolescence and
the values at which such inventories are carried are in accordance with GAAP
consistently applied.
3.17 No Material Change. Since the Reference Balance Sheet Date, there
has been no material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), results of operations or business of the
Company.
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3.18 Absence of Change or Event. Except as set forth in the Disclosure
Letter, since the Reference Balance Sheet Date, the Company has conducted its
business only in the ordinary course consistent with past practice and has not:
(a) incurred any obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, in excess of $20,000
in the aggregate, except liabilities or obligations incurred in the
ordinary course of business and consistent with prior practice;
(b) mortgaged, pledged or subjected to lien, restriction or any
other Encumbrance any of the property, businesses or assets, tangible or
intangible, of the Company, except for purchase money liens;
(c) sold, transferred, leased to others or otherwise disposed of
any of its assets (or committed to do any of the foregoing), including the
payment of any loans owed, or the making of any loans, to any officer,
director, shareholder or other affiliate of the Company, except for
inventory sold to customers or returned to vendors and payments to any
non-affiliates on account of accounts payable or scheduled payments in
respect of indebtedness for money borrowed disclosed on the Reference
Balance Sheet or in the Schedules, or canceled, waived, released or
otherwise compromised any debt or claim other than in the ordinary course
of business, or any material right;
(d) suffered any damage, destruction or loss (whether or not
covered by insurance) in an amount greater than $25,000, excluding losses,
damage or destruction arising from the flood of Company's principal place
of business on or about October, 1996 (the "Flood Event") which uninsured
loss amount is not in excess of $150,000;
(e) made or committed to make any capital expenditures or capital
additions or betterments in excess of an aggregate of $25,000;
(f) instituted or threatened any litigation, action or proceeding
before any court, governmental or regulatory body, administrative agency or
arbitrator relating to it or its property;
(g) issued, authorized for issuance or sold any capital stock,
notes, bonds or other securities, or any option, warrant or other right to
acquire the same, of the Company, or declared or paid any dividend or made
any other payment or distribution in respect of its capital stock, or
directly or indirectly redeemed, purchased or otherwise acquired any of its
capital stock or any option, warrant or other right to acquire such capital
stock;
(h) increased the compensation of any officer, director, employee
or agent of the Company, directly or indirectly, including by means of any
bonus, pension plan, profit sharing, deferred compensation, savings,
insurance, retirement, or any other employee benefit plan, except in the
case of any employee whose annual base compensation is less than $100,000;
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<PAGE>
(i) materially changed any of its business or accounting accrual
practices, including, without limitation, the amount of promotional or
advertising expenditures, investments, marketing, pricing, purchasing,
production, personnel, sales, returns or budgets, accounts receivable or
inventory reserves, or otherwise changed its policies with respect thereto;
(j) made or changed any election concerning Taxes or Tax Returns,
changed an annual accounting period, adopted or changed any accounting
method, filed any amended Return, entered into any closing agreement with
respect to Taxes, settled any Tax claim or assessment or surrendered any
right to claim a refund of Taxes or obtained or entered into any Tax
ruling, agreement, contract, understanding, arrangement or plan;
(k) allowed any Permit (as hereinafter defined) relating to the
business of the Company to lapse or terminate;
(m) materially amended or terminated or received any threat (not
subsequently withdrawn) to terminate, any Contract (as hereinafter
defined);
(n) amended its articles of incorporation or bylaws or merged with or
into or consolidated with any Person, subdivided, combined or in any way
reclassified any shares of its capital stock, or changed or agreed to
change the rights of its capital stock or the character thereof; or
(o) engaged in any other material transaction other than in the
ordinary course of business.
3.19 Compliance With Law. Except as set forth in the Disclosure
Letter, the operations and activities of the Company have complied and are in
compliance in all respects with all applicable federal, state, local and
foreign laws, statutes, rules, regulations, judicial and administrative
decisions and consents, judgments, orders, awards, writs and decrees of any
court, governmental or regulatory body, administrative agency or arbitrator,
including, without limitation, health and safety statutes and regulations and
all environmental laws, including, without limitation, all restrictions,
conditions, standards, limitations, prohibitions, requirements, obligations,
schedules and timetables contained in the environmental laws or contained in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, the failure
of which could have Material Adverse Effect on the Company.
3.20 Contracts and Commitments. (a) The Disclosure Letter sets forth
each written contract or agreement involving a liability or obligation of the
Company equal to or in excess of $10,000 and outstanding as of the date hereof
to which the Company is a party, other than ordinary course of business
purchase orders.
(b) Except as set forth in the Disclosure Letter:
(i) Each of the agreements set forth in the Disclosure Letter
(the "Contracts") was entered into in a bona fide transaction in the
ordinary course of business,
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<PAGE>
is valid and binding on the Company (assuming due authorization, execution
and delivery thereof by the other parties thereto) and to Seller's
knowledge is in full force and effect and, upon consummation of the
transactions contemplated hereby, to Seller's knowledge will continue in
full force and effect without penalty. Sellers have heretofore delivered to
Buyer complete and correct copies of the Contracts. There is not under any
Contract: (A) any existing material default by the Company or, to Sellers'
knowledge, by any other party thereto, or (B) any event which, after notice
or lapse of time or both, would constitute a material default by the
Company or, to Sellers' knowledge, by any other party, or result in a right
to accelerate, suspend or terminate or result in a loss of rights of the
Company;
(ii) No purchase contracts (other than inventory purchase
commitments) of the Company continue for a period of more than 12 months;
and
(iii) To Seller's knowledge, the Company is not under any
material liability or material obligation with respect to the return of
inventory or merchandise in the possession of distributors, customers or
other Persons.
3.21 Insurance. (a) The Disclosure Letter sets forth (i) the policies
of insurance presently in force and, without restricting the generality of the
foregoing, those covering the Company's public and product liability and its
personnel, properties, buildings, machinery, equipment, furniture, fixtures and
operations, specifying with respect to each such policy the name of the
insurer, type of coverage, term of policy, limits of liability and annual
premium; (ii) the Company's premiums, deductibles and losses in excess of
$25,000, by year, by type of coverage, for the calendar years 1994, 1995 and
1996 based on information received from the Company's insurance carrier(s);
(iii) all outstanding insurance claims in excess of $10,000 by the Company for
damage to or loss of property or income which have been referred to insurers or
which Sellers believe to be covered by commercial insurance; (iv) general
comprehensive liability policies carried by the Company for the calendar years
1994, 1995 and 1996, including excess liability policies; and (v) any
agreements, arrangements or commitments by or relating to the Company under
which the Company indemnifies any other Person or is required to carry
insurance for the benefit of any other Person. Sellers have heretofore
delivered to Buyer complete and correct copies of the policies and agreements
set forth in the Disclosure Letter.
(b) The insurance policies set forth in the Disclosure Letter are in
full force and effect, all premiums which are due with respect thereto covering
all periods up to and including the date of the Closing have been paid, and no
notice of cancellation or termination has been received with respect to any
such policy. To Seller's knowledge, such policies are sufficient for compliance
with all requirements of law and all agreements to which the Company is a
party; are valid, outstanding and enforceable policies; will remain in full
force and effect through the respective dates set forth in the Disclosure
Letter; and will not in any way be affected by, or terminate or lapse by reason
of, the transactions contemplated by this Agreement. To Seller's knowledge the
Company has not been refused any insurance with respect to the respective
assets or operations of the Company, nor has any such coverage been limited, by
any insurance carrier to which the Company has applied for any such insurance
or with which the Company has carried insurance during the calendar years 1994,
1995 and 1996.
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<PAGE>
3.22 Affiliate Interests. (a) No payments other than compensation
payments during calendar years 1994, 1995 and 1996 have been made by the
Company to any officer, director or shareholder of the Company.
(b) Except as set forth in the Disclosure Letter, no shareholder,
officer or director of the Company or any affiliate of any Seller (in each
case, or any family member thereof) (i) has any interest, directly or
indirectly, in any property, real or personal, tangible or intangible,
including without limitation, inventions, patents, trademarks or trade names,
used in or pertaining to the business of the Company, (ii) owns, directly or
indirectly, any interest in (excepting less than 5% stock holdings for
investment purposes in securities of companies which are publicly held and
traded), or is an officer, director, employee or consultant of, any Person
which is, or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent or customer of the Company or (iii) has any cause of
action or other claim whatsoever against, or owes any amount to, the Company,
except for claims arising in the ordinary course of business arising from such
Person's employment with the Company and indebtedness described in paragraph
6.7 hereof.
3.23 Customers, Suppliers, Distributors, Etc. (a) Except as set forth
in the Disclosure Letter and except for the loss of such other customers that
will not have a Material Adverse Effect on the Company, since December 31,
1995, no supplier, customer, distributor or sales representative of the Company
has canceled or otherwise terminated, or made any written threat to the Company
or to any of their affiliates to cancel or otherwise terminate, for any reason,
including the consummation of the transactions contemplated hereby, its
relationship with the Company. Except as set forth in the Disclosure Letter and
except for the loss of such relationship that will not have a Material Adverse
Effect on the Company, to Sellers' knowledge no such supplier, customer,
distributor or sales representative intends to cancel or otherwise terminate
its relationship with the Company.
(b) Schedule 3.23 sets forth by dollar volume for the 1996 year to
date the 25 largest customers of the Company.
3.24 Absence of Questionable Payments. Neither the Company nor, to
Sellers' knowledge, any director, officer, agent, employee or other Person
acting on behalf of the Company has used any corporate or other funds for
unlawful contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others
or established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Neither the Company nor, to Sellers' knowledge, any current director,
officer, agent, employee or other Person acting on behalf of the Company has
accepted or received any unlawful contributions, payments, gifts or
expenditures.
3.25 Disclosure. (a) No representations or warranties by Sellers in
this Agreement, including the Exhibits, Schedules and the Disclosure Letter,
and no statement contained in any document (including, without limitation, the
financial statements, certificates and other writings furnished or to be
furnished by Sellers to Buyer or any of its representatives pursuant to the
provisions hereof or in connection with the transactions contemplated hereby),
contains or will contain any untrue statement of material fact or omits or will
omit to state any
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material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading. There is no
fact known to the Dinicolas which has a Material Adverse Effect on the Company
which has not been set forth in this Agreement, including any Exhibit or
Schedule or the Disclosure Letter, the financial statements referred to in
Section 3.10 (including the footnotes thereto), any schedule, exhibit, or
certificate delivered in accordance with the terms hereof or any document or
statement in writing which has been supplied by or on behalf of Sellers or the
Company in connection with the transactions contemplated by this Agreement.
(b) Sellers have furnished or caused to be furnished to Buyer complete
and correct copies of all agreements, instruments and documents set forth on
the Disclosure Letter. Each of the Schedules and the Disclosure Letter is
complete and correct.
3.26 Information in Registration Statement. None of the information
supplied or to be supplied by Majority Stockholder for the express purpose of
inclusion or incorporation by reference in (a) the Registration Statement and
(b) any other documents to be filed with the Securities and Exchange Commission
(the "SEC") in connection with the transactions contemplated hereby will, at
the respective times such documents are filed, and, in the case of the
Registration Statement, when it becomes effective, cause the Registration
Statement to contain any untrue statement of a material fact, or omit to state
any material fact necessary in order to make the statements therein in light of
the circumstances under which they were made not misleading.
3.27 Sellers' Knowledge. The term "Sellers' knowledge" shall mean the
actual knowledge of any of the Dinicolas.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to Sellers that:
4.1 Organization. Buyer is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware.
4.2 Corporate Authority. Buyer has full corporate power and authority
to enter into the Agreements to which it is party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by Buyer of the Agreements to which it is party have been duly
authorized by all requisite corporate action. This Agreement has been, and each
of the other Agreements to which it is party will be as of the Closing Date,
duly executed and delivered by Buyer, and (assuming due execution and delivery
by Sellers) this Agreement constitutes, and each of the other Agreements when
executed and delivered will constitute, a valid and binding obligation of
Buyer, enforceable in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.
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4.3 No Violation. Buyer is not subject to or bound by any provision
of:
(a) any law, statute, rule, regulation or judicial or administrative
decision,
(b) any articles or certificate of incorporation or by-laws,
(c) any mortgage, deed of trust, lease, note, shareholders' agreement,
bond, indenture, other instrument or agreement, license, permit, trust,
custodianship or other restriction, or
(d) any judgment, order, writ, injunction or decree of any court,
governmental body, administrative agency or arbitrator,
that would prevent or be violated by, or under which there would be a default
as a result of, the execution, delivery and performance by Buyer of this
Agreement and the consummation of the transactions contemplated hereby. Except
in connection with the Offering (as hereinafter defined), no consent, approval
or authorization of or declaration or filing with any Person is required for
the valid execution, delivery and performance by Buyer of this Agreement and
the consummation of the transactions contemplated hereby.
4.4 Investment Intent. Buyer is acquiring the Shares for its own
account for investment and not with a view to any distribution thereof.
4.5 Capitalization. The shares of Buyer Common Stock issuable upon
exercise of the Warrants, have been adequately reserved and such reservation
will be maintained by Buyer so long as the Warrants remain outstanding.
4.6 Registration Statement and Offering. Buyer represents that it
intends to file with the SEC as soon as possible after the execution of this
Agreement a registration statement for review in connection with an offering of
its Convertible Preferred Stock (the "Offering"), intending to comply with the
provisions of the Securities Act of 1933 (the "Registration Statement"). Buyer,
as of the date hereof, has received no notice from either the SEC or its
underwriter that said Registration Statement will not comply with the
provisions of applicable securities laws. Buyer, as of the date hereof, has
received no notice (verbal or written) from its underwriter that such
underwriter is either not willing to proceed with such Offering or that it
recommends a delay in such Offering because of (i) market conditions, (ii) the
financial or business results or prospects of the Buyer, or (iii) any other
reason, and to Buyer's knowledge, its knows of no basis for any such
underwriter decision based on the foregoing clause (ii).
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS OF SELLERS AND BUYER
-----------------------------------------------------
5.1 Conduct of Business Prior to the Closing Date. Sellers agree that,
between the date hereof and the Closing Date:
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(a) Except as contemplated by this Agreement or permitted by written
consent of Buyer, Sellers shall cause the Company to operate its business only
in the ordinary course consistent with prior practice and not to:
(i) take any action of the nature referred to in Section 3.18,
except as permitted therein;
(ii) change the Company's banking or safe deposit arrangements;
(iii) cause or permit indebtedness (which for purposes of this
clause (iii) shall be deemed to exclude trade payables consisting of
accounts payable, deferred taxes and accrued expenses) of the Company to
exceed $25,000 in the aggregate; or
(iv) except as my be required by law, take any action to amend or
terminate any Employee Benefit Plan or adopt any other plan, program,
arrangement or practice providing new benefits or compensation to its
employees.
(b) Sellers shall use their best efforts to preserve the business
organization of the Company intact, to keep available to Buyer the services of
the present officers and employees of the Company and to preserve for Buyer the
good will of the Company's suppliers, customers, distributors, sales
representatives and others having business relations with the Company.
(c) Sellers shall cause the Company to maintain in force the insurance
policies referred to in Schedule 3.21 or insurance policies providing the same
or substantially similar coverage; provided, however, that the Majority
Stockholder will notify Buyer prior to the expiration of any of such insurance
policies.
(d) Except as contemplated by this Agreement or permitted by written
consent of Buyer, no plan, fund, or arrangement disclosed or required to be
disclosed in Schedule 3.13(a) has been or will be:
(i) terminated by the Company other than for expiration of its
terms;
(ii) except as required by law, amended (except as expressly
required by law) in any manner which would directly or indirectly increase
the benefits accrued in a material amount, by any participant thereunder;
or
(iii) except as required by law, amended in any manner which
would materially increase the cost to Buyer of maintaining such plan, fund
or arrangement.
(e) Majority Stockholder shall give Buyer prompt notice of any event,
condition or circumstance occurring from the date hereof through the Closing
Date that would constitute a violation or breach of any representation or
warranty of Sellers of which Majority Stockholder has knowledge, whether made
as of the date hereof or as of the Closing Date, or that would constitute a
violation or breach of any covenant of Sellers contained in this Agreement.
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5.2 Tax Covenants. (a) Sellers shall timely cause to be prepared and
filed by the Company all Returns of the Company due prior to the Closing Date
(taking into account timely filed extensions) and timely pay, or cause to be
paid by the Company, when due all Taxes relating to such Returns except to the
extent that the liability for such Taxes is being contested in good faith by
the Company and proper reserves for any such liability are established on the
books and records of the Company. Prior to the filing of any Return described
in the preceding sentence, Sellers shall provide Buyer with a substantially
final draft of such Return at least fifteen (15) business days prior to the due
date for filing such Return, and Buyer shall have the right to review such
Return prior to the filing of such Return. Buyer shall notify the Majority
Stockholder of any reasonable objections Buyer may have to any items set forth
in such draft Returns, and Buyer and Sellers (acting through the Majority
Stockholder) agree to consult and resolve in good faith any such objection and
to mutually consent to the filing of such Return provided, however, if Seller
and Buyer are unable to agree on any of the items set forth in such draft
Return, and the Company would become subject to late fees and penalties if such
Return is not filed, then Sellers may file such Return and upon resolution of
such disputed items, such Return shall be amended, if necessary. Such Returns
shall be prepared or completed in a manner consistent with prior practice of
Sellers and the Company with respect to Returns concerning the income,
properties or operations of the Company (including elections and accounting
methods and conventions), except as otherwise required by law or regulation or
otherwise agreed to by Buyer prior to the filing thereof, subject to the
proviso of the preceding sentence.
(b) Buyer and Majority Stockholder shall cooperate with each other in
responding to any audit or proceeding relating to any Returns (including any
proceeding relating to the Company for Pre-Closing Periods). Notwithstanding
anything to the contrary contained or implied in this Agreement, (i) without
the prior written approval of Buyer (which shall not be unreasonably withheld
or delayed), neither Sellers nor any affiliate thereof shall agree or consent
to compromise or settle, either administratively or after the commencement of
litigation, any issue or claim arising in any such audit or proceeding, or
otherwise agree or consent to any Tax liability, to the extent that any such
compromise, settlement, consent or agreement shall materially affect the Tax
liability of Buyer, any of its affiliates or the Company (including, but not
limited to, the imposition of Tax deficiencies, the material reduction of asset
basis or cost adjustments, the lengthening of any amortization or depreciation
periods, the denial of material amortization or depreciation deductions, or the
material reduction of loss or credit carry-forwards).
(c) Buyer shall promptly notify the Majority Stockholder upon receipt
by Buyer, any affiliate of Buyer or the Company of notice of any pending or
threatened Tax audits or assessments relating to the income, properties or
operations of the Company, in each case for Pre-Closing Periods only, so long
as Pre-Closing Periods remain open; provided, however, that failure by Buyer to
comply with this Section 5.2(c) shall not affect Buyer's right to
indemnification relating to Taxes if such failure does not prejudice the rights
of Sellers. Sellers shall promptly notify Buyer upon receipt by any Seller or
any affiliate thereof of notice of any pending or threatened Tax audits or
assessments relating to the income, properties or operations of the Company, in
each case for Pre-Closing Periods only; provided, however, that the failure by
Sellers to comply with this Section 5.2(c) shall not affect Sellers' right to
indemnification if such failure does not prejudice the rights of Buyer.
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(d) Neither Sellers nor any affiliate of any Seller shall, without the
prior written consent of Buyer, file, or cause to be filed, any amended Tax
return or claim for Tax refund, with respect to the Company, to the extent that
any such filing shall materially affect the Tax liability of Buyer, any of its
affiliates or the Company (including, but not limited to, the imposition of Tax
deficiencies, the material reduction of asset basis or cost adjustments, the
lengthening of any amortization or depreciation periods, the denial of material
amortization or depreciation deductions, or the material reduction of loss or
credit carry-forwards).
(e) Any and all powers of attorney relating to Tax matters concerning
the Company shall be terminated as to the Company on or prior to the Closing
Date and shall have no further force or effect.
(f) After the Closing Date, Buyer and Sellers shall provide each
other, and Buyer shall cause the Company to provide Sellers, with such
cooperation and information relating to the Company as either party reasonably
may request in (A) filing any Tax return, amended return or claim for refund,
(B) determining any Tax liability or a right to refund of Taxes, (C) conducting
or defending any audit or other proceeding in respect of Taxes or (D)
effectuating the terms of this Agreement. The parties shall retain, and Buyer
shall cause the Company to retain, all returns, schedules and work papers, and
all material records and other documents relating thereto, until the expiration
of the statute of limitation (and, to the extent notified by any party, any
extensions thereof) of the taxable years to which such returns and other
documents relate and, unless such returns and other documents are offered and
delivered to Sellers or Buyer, as applicable, until the final determination of
any Tax in respect of such years. Any information obtained under this Section
5.2 shall be kept confidential, except as may be otherwise necessary in
connection with filing any Tax return, amended return, or claim for refund,
determining any Tax liability or right to refund of Taxes, or in conducting or
defending any audit or other proceeding in respect of Taxes. Notwithstanding
the foregoing, neither Sellers nor Buyer, nor any of their affiliates, shall be
required unreasonably to prepare any document, or determine any information not
then in its possession, in response to a request under this Section 5.2(f).
(g) Buyer shall have received from each Seller, on or before the
Closing Date, an affidavit to the effect that Seller is not a "foreign person"
within the meaning of Code Section 1445. If, on or before the Closing Date,
Buyer shall not have received such affidavit from any Seller, Buyer may
withhold from the Purchase Consideration payable at Closing to such Seller
pursuant hereto such sums as are required to be withheld therefrom under
Section 1445 of the Code.
(h) Sellers shall be liable for, and shall pay when due, (i) any
transfer, gains, documentary, sales, use, registration, stamp, value added or
other similar Taxes payable by reason of the transactions contemplated by this
Agreement or attributable to the sale, transfer or delivery of the Shares
hereunder and (ii) other Taxes imposed on Sellers or any former shareholder of
the Company for which Buyer or the Company is held liable. Other than in the
case of Returns and other documentation that is required to be filed by the
Company after the Closing Date, Sellers shall, at their own expense, file all
necessary Tax returns and other documentation with respect to all such Taxes.
-22-
<PAGE>
5.3 Expenses and Finder's Fees. Buyer and Sellers will bear their own
expenses in connection with this Agreement and its performance. Sellers, on the
one hand, and Buyer, on the other hand, each represent and warrant to the other
that the negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on in such a manner as not to give rise
to any valid claims against the other party or the Company for a brokerage
commission, finder's fee or other like payment.
5.4 Access to Information and Confidentiality. Sellers agree that
until the Closing, Buyer may conduct such reasonable investigation with respect
to the business, business prospects, assets, liabilities (contingent or
otherwise), results of operations, employees and financial condition of the
Company as will permit Buyer to evaluate the transactions contemplated by this
Agreement. Until the Closing, Sellers shall afford Buyer reasonable access to
the premises, books, records and business affairs of the Company (and, to the
extent directly relating thereto, of Sellers) for purposes of conducting such
investigation and, promptly after the end of each month (without demand or
notice), shall furnish Buyer with copies of an unaudited balance sheet as of
the end of such month and unaudited statements of income and cash flows for
such month, in each case prepared consistent with the standards set forth in
the second sentence of Section 3.10(a). Each of Sellers and Buyer will hold and
will cause their respective representatives to hold in strict confidence,
unless compelled to disclose by judicial or administrative process, or, in the
opinion of its counsel, by other requirements of law, all documents and
information concerning the Company furnished to Buyer and all documents and
information concerning Buyer furnished to Sellers in connection with the
transactions contemplated by this Agreement, on the terms and subject to the
conditions contained in the Confidentiality Agreement dated September 9, 1996
between Buyer and the Company, which shall survive delivery of this Agreement
but shall be deemed to be of no further force and effect following the Closing.
5.5 No Solicitation. Sellers shall not, and shall direct the Company
and its affiliates, officers, employees, representatives or agents not to,
directly or indirectly, encourage, solicit, initiate or engage in discussions
or negotiations with, or provide any non-public information to, any Person
concerning any merger, sales of substantial assets, sales of shares of capital
stock or similar transactions involving the Company or enter into any agreement
with respect thereto. Sellers will promptly communicate to Buyer the terms of
any proposal which it may receive in respect of all such transactions
prohibited by the foregoing.
5.6 Press Releases. Except as required by law or stock exchange
regulation, any public announcements regarding the transactions contemplated
hereby shall be made only with the mutual consent of the Majority Stockholder
and Buyer.
5.7 Transitional Assistance. Sellers shall reasonably cooperate with
and assist Buyer in the orderly transfer of the business of the Company after
the Closing Date. Such cooperation and assistance shall include but not be
limited to the physical transfer of any books, records and computer software of
the Company.
5.8 Conditions. Sellers shall use their best efforts to fulfill or
cause the fulfillment of the conditions set forth in Article 6. Buyer shall use
its best efforts to fulfill or cause the fulfillment of the conditions set
forth in Article 7, and Buyer covenants and agrees that,
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<PAGE>
subject to its underwriters requirements, it shall use its reasonable best
efforts to cause the Registration Statement to be declared effective by the
Closing Date and to complete the Offering by the Closing Date.
5.9 Lock-Up. Majority Stockholder shall execute and deliver to Buyer
and Buyer's underwriters a lock-up agreement in the form of Exhibit B hereto
(the "Lock-up Agreement").
5.10 Notice as to Offering. Buyer agrees to provide the Majority
Stockholder, between the date hereof and the Closing Date, with immediate
notice of any indication of Buyer's underwriter, with respect to the Offering,
to Buyer (verbal or written) during such time period, that such underwriter is
either not willing to proceed with such Offering or that it recommends a delay
in such Offering because of (i) market conditions, (ii) the financial or
business results of prospects of the Buyer, or (iii) any other reason.
ARTICLE 6
CONDITIONS PRECEDENT OF BUYER
Buyer need not consummate the transactions contemplated by this
Agreement unless the following conditions shall be fulfilled or waived:
6.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of
Sellers contained in this Agreement and in any certificate or document
delivered to Buyer pursuant hereto shall be deemed to have been made again at
and as of the Closing Date and shall then be true in all material respects,
except to the extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall have been
true in all material respects as of such date and (b) Sellers shall have
performed and complied with all material agreements and conditions required by
this Agreement to be performed or complied with by Sellers prior to or on the
Closing Date, and Buyer shall have been furnished with a certificate of the
Majority Stockholder, dated the Closing Date, certifying to the effect of
clauses (a) and (b) of this Section 6.1.
6.2 Opinion of Counsel. Buyer shall have been furnished with an
opinion dated the Closing Date of Ricklefs & Company, P.C., counsel for Sellers
and the Company, in form and substance reasonably acceptable to Buyer.
6.3 No Actions. No action, suit, or proceeding before any court or
governmental or regulatory authority shall be pending, no investigation by any
governmental or regulatory authority shall have been commenced, and no action,
suit or proceeding by any governmental or regulatory authority shall have been
threatened, against Buyer, Sellers, the Company or any of the principals,
officers or directors of any of them, seeking to restrain, prevent or change
the transactions contemplated hereby or questioning the legality or validity of
any such transactions or seeking damages in connection with any such
transactions.
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<PAGE>
6.4 Consents. All consents of third parties, including, without
limitation, governmental authorities and non-governmental self-regulatory
agencies, and all filings with and notifications of governmental authorities,
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of Buyer, Sellers or the Company
necessary on the part of Buyer, Sellers or the Company, to the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby and to permit the continued operation of the respective
businesses of Buyer and the Company in substantially the same manner
immediately after the Closing Date as theretofore conducted, other than routine
post-closing notifications or filings, shall have been obtained or effected.
6.5 Employment Agreements. Each of Douglas J. Dinicola, Edward G.
O'Brien, Diane O'Brien and Robert Kennedy shall have executed and delivered an
Employment Agreement substantially in the form attached hereto as Exhibits C-1
through C-3, respectively (together with the exhibits attached thereto, the
"Employment Agreements").
6.6 Termination of Rights under Shareholder Agreements. Buyer shall
have received satisfactory evidence that all rights, claims and other interests
of any nature of all present shareholders of the Company arising under the
Shareholders' Agreement shall have been satisfied and discharged or shall
otherwise have terminated or been canceled.
6.7 Outstanding Shareholder Loans. Any outstanding loans from or
guarantees by the Company to or for the benefit of any Seller shall have been
satisfied and discharged or otherwise have terminated or been canceled, and
Sellers and the Company shall have delivered to Buyer satisfactory evidence
thereof; provided that, as of the date hereof, the Majority Stockholder is
indebted to the Company in the amount of $41,076.25 and the company is indebted
to the Majority Stockholder in the amount of approximately $96,000, which such
amounts shall be offset at the Closing, and the net balance due the Majority
Stockholder by the Company shall be paid on demand of Majority Stockholder
following the Closing.
6.8 Effectiveness of Registration Statement. The Registration
Statement with respect to the Share Consideration shall be effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such purpose
shall be pending before or threatened by the SEC.
6.9 Consummation of the Offering. Buyer shall have consummated its
public offering of its Convertible Preferred Stock resulting in gross proceeds
to Buyer of not less than $5,000,000.
6.10 Termination of Rights to Acquire Options. The Company's
obligation to grant non-qualified stock options to employees (as described in
Footnote 8 to the Company's Financial Statements) shall be terminated.
6.11 Minimum Net Worth. The Company shall have a minimum net worth, as
of the last day of the month preceding the Closing, of not less than $825,000.
6.12 Lock-Up Agreement. Buyer shall have received the Lock-up
Agreement duly executed by the Majority Stockholder.
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<PAGE>
ARTICLE 7
CONDITIONS PRECEDENT OF SELLERS
-------------------------------
Sellers need not consummate the transactions contemplated hereby
unless the following conditions shall be fulfilled:
7.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of Buyer
contained in this Agreement or in any certificate or document delivered to
Sellers pursuant hereto shall be deemed to have been made again at and as of
the Closing Date and shall then be true in all material respects and (b) Buyer
shall have performed and complied with all material agreements and conditions
required by this Agreement to be performed or complied with by it prior to or
on the Closing Date, and the Majority Stockholder shall have been furnished a
certificate of an appropriate officer of Buyer, dated the Closing Date,
certifying to the effect of clauses (a) and (b) of this Section 7.1.
7.2 Opinion of Buyer's Counsel. The Majority Stockholder shall have
been furnished with an opinion dated the Closing Date of counsel for Buyer, in
form and substance reasonably acceptable to Majority Stockholder.
7.3 No Actions. No action, suit, or proceeding before any court,
governmental or regulatory authority, administrative agency or arbitrator shall
be pending, no investigation by any governmental or regulatory authority shall
have been commenced, and no action, suit or proceeding by any Person shall have
been threatened, against Sellers seeking to restrain, prevent, or change the
transactions contemplated hereby or questioning the legality or validity of any
such transactions or seeking damages in connection with any such transactions.
7.4 Consents. All consents of third parties including, without
limitation, governmental authorities, and non-governmental self-regulatory
agencies, and all filings with and notifications of governmental authorities,
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of Sellers, necessary on the part of
Sellers, to the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, other than routine post-closing
notifications or filings, shall have been obtained or effected.
7.5 Employment Agreements. Buyer shall have caused the Employment
Agreements to be duly executed and delivered by the Company.
7.6 Effectiveness of Registration Statement. The Registration
Statement with respect to the Share Consideration shall be effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such purpose
shall be pending before or threatened by the SEC.
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<PAGE>
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Sellers. Effective only from and upon the
occurrence of the Closing, and subject to Section 8.3 below, each of the
Dinicolas hereby agrees to jointly and severally defend, indemnify and hold
harmless Buyer and the Company and their respective successors, assigns and
affiliates (collectively, the "Buyer Indemnitees") from and against any and all
losses, deficiencies, liabilities, damages, assessments, judgments, costs and
expenses, including reasonable attorneys' fees (both those incurred in
connection with the defense or prosecution of the indemnifiable claim and those
incurred in connection with the enforcement of this provision), including,
without limitation, Environmental Liabilities and Costs (collectively, "Buyer
Losses"), caused by, resulting from or arising out of:
(a) (i) breaches of representation or warranty under this Agreement on
the part of any Seller; and (ii) failures by any of the Dinicolas (whether
as Sellers or Majority Shareholder) to perform or otherwise fulfill any
undertaking or other agreement or obligation under this Agreement;
(b) (i) any and all Taxes imposed on the Company (including, without
limitation, Taxes relating to the Tax liability of Sellers to the extent
any governmental authority seeks to impose such Taxes on the Company) for,
or relating to, periods commencing with January 1, 1994 and subsequent
thereto, and prior to the date of the the Closing to the extent the
charges, accruals and reserves therefor as reflected on the books of the
Company as of the date of the Closing are inadequate to cover such Taxes
and (ii) any Tax liability of the Company resulting from the Company's
election as of January 1, 1994 to be taxed as a "C corporation" (including,
without limitation, any Tax liability resulting from such change in
status); and
(c) any and all actions, suits, proceedings, claims, demands, incident
to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Buyer Indemnitee
proposes to demand indemnification ("Buyer Indemnified Claims"), Buyer or such
other Buyer Indemnitee shall promptly notify the Majority Stockholder thereof,
provided further, however, that, subject to Section 8.3 below, the failure to
so notify the Majority Stockholder shall not reduce or affect Sellers'
obligations with respect thereto except to the extent that Sellers are
materially prejudiced thereby. Subject to rights of or duties to any insurer or
other third Person having liability therefor, the Majority Stockholder shall
have the right promptly upon receipt of such notice (after acknowledging
responsibility for such Buyer Indemnified Claim) to assume the control of the
defense, compromise or settlement of any such Buyer Indemnified Claims
(provided that any compromise or settlement must be reasonably approved by
Buyer), including, at its own expense, employment of counsel reasonably
satisfactory to Buyer; provided, however, that if the Majority Stockholder
shall have exercised its right to assume such control, Buyer may, in its sole
discretion and at its expense, employ counsel to represent it (in addition to
counsel employed by the Majority Stockholder) in any such matter. So long as
the Majority Stockholder is contesting any such
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<PAGE>
Buyer Indemnified Claim in good faith, Buyer and each other Buyer Indemnitee
shall not pay or settle any such Buyer Indemnified Claim.
8.2 Indemnification by Buyer. Buyer hereby agrees to defend, indemnify
and hold harmless Sellers and their respective successors, assigns and
affiliates (collectively, "Seller Indemnitees") from and against any and all
losses, deficiencies, liabilities, damages, assessments, judgments, costs and
expenses, including attorneys' fees (both those incurred in connection with the
defense or prosecution of the indemnifiable claim and those incurred in
connection with the enforcement of this provision) (collectively, "Seller
Losses"), resulting from or arising out of:
(a) (i) breaches of representation and warranty hereunder on the part
of Buyer and (ii) failures by Buyer to perform or otherwise fulfill any
undertaking or agreement or obligation hereunder; and
(b) any and all actions, suits, proceedings, claims and demands
incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Seller Indemnitee
proposes to demand indemnification ("Seller Indemnified Claims"), Seller or
such other Seller Indemnitee shall notify Buyer thereof, provided further,
however, that the failure to so notify Buyer shall not reduce or affect Buyer's
obligations with respect thereto except to the extent that Buyer is materially
prejudiced thereby. Subject to rights of or duties to any insurer or other
third Person having liability therefor, Buyer shall have the right promptly
upon receipt of such notice to assume the control of the defense, compromise or
settlement of any such Seller Indemnified Claims (provided that any compromise
or settlement must be reasonably approved by Seller) including, at its own
expense, employment of counsel reasonably satisfactory to Seller; provided,
however, that if Buyer shall have exercised its right to assume such control,
Seller may, in its sole discretion and at its expense, employ counsel to
represent it (in addition to counsel employed by Buyer) in any such matter. So
long as Buyer is contesting any such Seller Indemnified Claim in good faith,
Seller or such other Seller Indemnitees shall not pay or settle any such Seller
Indemnified Claim.
8.3 Limitation on Liability. The aggregate liability of the Dinicolas
under this Article 8 shall be limited as follows:
(a) There shall be no liability whatsoever under Section 8.1(a)(i) or
under Section 8.1(c) (in respect of matters arising under Section
8.1(a)(i)) on the part of the Dinicolas until the Buyer Losses from the
occurrence of Buyer Indemnified Claims arising under Section 8.1(a)(i) or
under Section 8.1(c) (in respect of matters arising under Section
8.1(a)(i)) exceed in the aggregate $50,000, in which event the Dinicolas
shall be liable for all such amounts exceeding said $50,000, but such
liability will be limited in the aggregate (including, without limitation,
for costs of defense of Buyer Indemnitees) to $500,000;
(b) There shall be no liability whatsoever under Section 8.1(b) or
under Section 8.1(c) (in respect of matters arising under Section 8.1(b))
until the Buyer Losses from the occurrence of Buyer Indemnified Claims
arising thereunder exceed in the
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<PAGE>
aggregate $115,000, in which event the Dinicolas shall be liable for all
such amounts exceeding said $115,000; and
(c) No claim for indemnification under Section 8.1(a)(i) for a breach
of any representation or warranty or under Section 8.1(c) in respect of
such breach shall be made after the date, if any, on which the survival
period for such representation or warranty expires in accordance with
Section 9.1 hereof, and the liability of the Dinicolas with respect thereto
shall then cease, except with respect to claims made on or prior to the
applicable date of expiration as set forth in Section 9.1, which claims
shall survive such expiration. No claim for indemnification under Section
8.1(b) or under Section 8.1(c) in respect to a claim arising under Section
8.1(b) shall be made after the date one year after the expiration of the
applicable statute of limitations for claims of the nature described in
Section 8.1(b).
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------------------
9.1 Representations, Warranties and Covenants. The covenants contained
in this Agreement shall survive the Closing Date without limitation. The
representations and warranties contained herein shall survive the Closing Date
for a period of one year, except that any representation or warranty of Sellers
contained in Sections 3.1, 3.4 and 3.5 shall survive the Closing Date without
limitation, and any representation or warranty of Sellers contained in Section
3.12 (Tax Matters) shall survive until the expiration of one year after the
expiration of the applicable statute of limitations.
ARTICLE 10
NON-COMPETITION BY SELLERS AND NO SOLICITATION
----------------------------------------------
10.1 Non-Compete. Majority Stockholder shall not, and shall not permit
any of their respective affiliates to, for a period of three years from the
Closing, compete, directly or indirectly, with the Company.
10.2 Non-Solicitation. Majority Stockholder agrees that he shall not,
for a period of three years after the Closing Date, employ any person who was
employed by the Company or any of its affiliates or induce such person to
accept employment other than with the Company and its affiliates.
10.3 Remedies. Each Seller recognizes that a breach or threatened
breach by him of his obligations under this Article 10 would cause irreparable
injury to the Company, and the Company shall be entitled to seek preliminary
and permanent injunctions enjoining him from violating this Article 10, in
addition to any other remedies which may be available.
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<PAGE>
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Cooperation. Each of the parties hereto shall use its reasonable
efforts to take or cause to be taken all actions, to cooperate with the other
party hereto with respect to all actions, and to do or cause to be done all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
11.2 Waiver. Any failure of Sellers to comply with any of their
respective obligations or agreements herein contained may be waived only in
writing by Buyer. Any failure of Buyer to comply with any of its obligations or
agreements herein contained may be waived only in writing by the Majority
Stockholder.
11.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given upon receipt of: hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
(i) If to Sellers, to:
Comp Ware, Inc.
d/b/a Webb Distribution
Two Lowel Avenue
Winchester, MA 01890
Telecopier: (617) 729-6839
Telephone: (617) 729-5800
Attention: A.J. Dinicola
(with a copy to)
Ricklefs & Company, P.C.
One Washington Mall
Boston, MA 02108
Telecopier: (617) 722-0223
Telephone: (617) 722-0222
Attention: Donald P. Ricklefs, Esq.
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<PAGE>
(ii) If to Buyer, to
Questron Technology, Inc.
6400 Congress Avenue
Suite 200
Boca Raton, Florida 33487
Telecopier: (407) 241-2866
Telephone: (407) 989-0888
Attention: Dominic A. Polimeni
(with a copy to)
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
Telecopier: (212) 858-1500
Telephone: (212) 858-1000
Attention: Howard S. Kelberg, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
11.4 Governing Law and Consent to Jurisdiction; Dispute Resolution.
(a) This Agreement shall be governed by and construed in accordance with the
internal substantive laws and not the choice of law rules of the State of
Delaware.
(b) Any dispute, claim or controversy arising out of or relating to
this Agreement, or the interpretation or breach thereof, shall be referred to
arbitration under the rules of the American Arbitration Association, to the
extent such rules are not inconsistent with this Section 11.4. Judgment upon
the award of the arbitrators may be entered in any court having jurisdiction
thereof or such court may be asked to judicially confirm the award and order
its enforcement, as the case may be. The demand for arbitration shall be made
within a reasonable time after the claim, dispute or other matter in question
has arisen, and in any event shall not be made after the date when institution
of legal or equitable proceedings, based on such claim, dispute or other matter
in question, would be barred by the applicable statute of limitations.
(c) The arbitration panel shall consist of three arbitrators, one of
whom shall be appointed by each party hereto. The two arbitrators thus
appointed shall choose the third arbitrator; provided, however, that if the two
arbitrators are unable to agree on the appointment of the third arbitrator,
either arbitrator may petition the American Arbitration Association to make the
appointment.
(d) The place of arbitration shall be New York.
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<PAGE>
11.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.6 Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.7 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the documents referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of the parties hereto.
11.9 Binding Effect; Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns; nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto and their
respective successors and assigns (and, to the extent provided in Sections 8.1
and 8.2, the other Buyer Indemnitees and Seller Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
11.10 Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties provided
that Buyer may assign its rights under the Agreement to any affiliate of Buyer,
except in the event of any such assignment to an affiliate of Buyer, Buyer
shall guarantee the obligations hereunder of "Buyer" and shall be a joint maker
on the Notes.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By /s/ DOMINIC A. POLIMENI
---------------------------------
Name: Dominic A. Polimeni
Title: Chairman, President and
Chief Executive Officer
/s/ ALBERT J. DINICOLA
---------------------------------
Albert J. Dinicola
/s/ DOUGLAS J. DINICOLA
---------------------------------
Douglas J. Dinicola
/s/ DONALD PAUL DINICOLA
---------------------------------
Donald Paul Dinicola*
/s/ DIANE DINICOLA MARSH
---------------------------------
Diane Dinicola Marsh*
/s/ DEBORAH DINICOLA MADIGAN
---------------------------------
Deborah Dinicola Madigan
/s/ DIANE O'BRIEN
---------------------------------
Diane O'Brien
/s/ EDWARD B. O'BRIEN
---------------------------------
Edward B. O'Brien
/s/ ROBERT KENNEDY
---------------------------------
Robert Kennedy
* by Power of Attorney
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<PAGE>
Schedule 1.1
COMP WARE, INC.
CAPITALIZATION
December 16, 1996
<TABLE>
<CAPTION>
Stockholder Name No. Common Stock Shares
- ----------------- -----------------------
<S> <C>
Albert J. Dinicola 420,000
Douglas J. Dinicola 80,000
Donald Paul Dinicola 20,000
Diane Dinicola Marsh 20,000
Deborah Dinicola Madigan 20,000
Diane O'Brien 32,557.85
Edward G. O'Brien 32,557.85
Robert Kennedy 26,046.30
Total Outstanding 651,162
Total Authorized 1,000,000
(all $.01 par, common stock)
</TABLE>
<PAGE>
EXHIBIT A-1
FORM OF NOTE A
$375,000 January __, 1997
(a) Principal.
For value received, Questron Technology, Inc., a Delaware corporation
("Maker"), promises to pay to the order of Albert J. Dinicola
("Holder"), at ______________________, or at such other place as
Holder may from time to time designate in writing, the principal sum
of three hundred seventy five thousand dollars ($375,000), or so much
thereof as shall be outstanding hereunder, together with accrued
interest from the date of this Note (this "Note") on the unpaid
principal; provided, however, that in the event Holder receives net
proceeds("Warrant Proceeds") from the sale of Maker's Series IV
Warrants (the "Warrants") received by the Holder pursuant to that
certain Stock Purchase Agreement dated as of December __, 1996 by and
among Maker and the shareholders of Comp Ware, Inc. D/B/A Webb
Distribution (the "Stock Purchase Agreement") that are in excess of
$375,000, then such excess shall be applied to reduce the outstanding
principal amount of this Note, and, to the extent the Warrant
Proceeds, together with any payments of principal received by Holder
under this Note are in excess of $750,000, then such excess shall be
applied to reduce the outstanding principal amount of that certain
Note B of Maker dated the date hereof for $375,000 maturing in 2000.
(b) Payment of Principal.
The outstanding principal balance hereunder and all accrued interest
shall be due and payable on that date eighteen month from the date
hereof ("Maturity Date").
(c) Prepayment.
Maker may, at any time, and from time to time, prepay the outstanding
principal balance under this Note, in whole or in part, so long as
such payment is accompanied by payment of all accrued but unpaid
interest payable hereunder. Any such prepayment shall be applied,
first, to accrued but unpaid interest and, second, to the remaining
outstanding principal balance hereof.
(d) Interest Rate and Payment.
From the date of this Note until payment in full of the principal
hereof, the outstanding principal hereunder shall bear interest at the
rate of 10% per annum based on a year of 360 days.
(e) Lawful Money.
#20161954.3
<PAGE>
Principal and interest are payable in lawful money of the United
States of America.
(f) Event of Default.
If the Maker shall fail to make payment of principal or interest when
due pursuant to the terms hereof; or if the Maker is adjudicated
bankrupt or insolvent by a court of competent jurisdiction or makes an
assignment for the benefit of creditors; or if the Maker shall
petition for any proceedings in bankruptcy or liquidation or for the
reorganization or adjustment of indebtedness of the Maker; or if any
involuntary petition for any proceedings in bankruptcy or liquidation
or for the reorganization or the readjustment of indebtedness of the
Maker shall be filed, or any case or proceeding shall be commenced by
any person other than the Maker under applicable bankruptcy or
insolvency laws now or hereafter existing, against the Maker, and such
petition, case or proceeding shall remain undischarged for more than
thirty (30) days, whether or not consecutive (each an "Event of
Default"); then all principal and accrued interest hereunder will
become payable in full, without the need for any further action by the
Holder hereof. The Maker agrees to pay all costs and expenses,
including all attorneys' fees, for the collection or enforcement of
this Note upon an Event of Default.
(g) Remedies.
Upon the occurrence of an Event of Default, then, at the option of
Holder, the entire balance of principal, together with all accrued
interest thereon, without demand or notice, shall immediately become
due and payable. The Maker hereby absolutely and irrevocably waiver
notice of acceptance, presentment, notice of demand, notice of
non-payment, protest, notice of protest, suit and all other conditions
precedent in connection with the deliver, acceptance, collection
and/or enforcement of the Note or any collateral or security therefor.
The Maker hereby absolutely and irrevocably consents and submits to
the jurisdiction of the courts of the Commonwealth of Massachusetts,
and of any Federal court located in the said Commonwealth, in
connection with any actions or proceedings by the Holder hereof
arising out of or relating of this Note. In any such action or
proceeding, the Maker absolutely and irrevocably waives personal
service of any summons, complaint, declaration or any other process
and hereby absolutely and irrevocably agrees that the service thereof
may be made, in addition to other methods permitted by law, by
certified, registered or first class mail directed to the Maker at
______________________________, or such other address of which the
Maker shall have given notice to the Holder by certified, registered
or first class mail.
(h) Restriction on Transferability.
This Note may not be transferred or assigned in whole or in part
without the prior written consent of Maker.
(i) Severability.
Every provision of this Note is intended to be severable. In the event
any term or provision hereof is declared by a court of competent
jurisdiction to be illegal or invalid
A-2
<PAGE>
for any reason whatsoever, such illegality or invalidity shall not
affect the balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable.
(j) Headings.
Headings at the beginning of each numbered Section of this Note are
intended solely for convenience and are not to be deemed or construed
to be a part of this Note.
(k) Choice of Law.
This Note shall be governed by and construed in accordance with the
laws of the State of Delaware.
(l) Cancellation of this Note.
In the event that, prior to the expiration of the eighteen (18) month
period of the Lock-up Agreement (as defined in the Stock Purchase
Agreement), Maker's underwriter releases Holder from the Lock-up
Agreement in connection with a proposed transaction to sell the
Warrants and Holder declines to sell the Warrants in such transaction
within seven business days of receipt by Holder of written notice of
sail release, then this Note shall be automatically canceled.
QUESTRON TECHNOLOGY, INC.,
a Delaware corporation
By: _______________________
Name:
Title:
A-3
<PAGE>
EXHIBIT A-2
FORM OF NOTE B
$375,000 January __, 1997
(a) Principal.
For value received, Questron Technology, Inc., a Delaware corporation
("Maker"), promises to pay to the order of Albert J. Dinicola
("Holder"), at ______________________, or at such other place as
Holder may from time to time designate in writing, the principal sum
of three hundred seventy five thousand dollars ($375,000), or so much
thereof as shall be outstanding hereunder, together with accrued
interest from the date of this Note (this "Note") on the unpaid
principal; provided, however, that in the event Holder receives net
proceeds ("Warrant Proceeds") from the sale of Maker's Series IV
Warrants (the "Warrants") received by the Holder pursuant to that
certain Stock Purchase Agreement dated as of December __, 1996 by and
among Maker and the shareholders of Comp Ware, Inc. D/B/A Webb
Distribution (the "Stock Purchase Agreement"), that are in excess of
$375,000, then such excess shall be applied to reduce the outstanding
principal amount of that certain Note A of Maker dated the date hereof
for $375,000 maturing in 1998 (the "Eighteen Month Note") and to the
extent the Warrants Proceeds, together with any payments of principal
received by Holder under the Eighteen Month Note are in excess of
$750,000, then such excess shall be applied to reduce the outstanding
principal amount of this Note.
(b) Payment of Principal.
The outstanding principal balance hereunder, together with interest at
the rate of 10% per annum shall be payable as follows: commencing one
month from the date hereof and continuing on the same day of each
successive month thereafter, monthly payments of principal and
interest on amounts of principal remaining unpaid from time to time
shall be due and payable in 60 equal payments of $7,967.64; provided
that all outstanding and unpaid principal and accrued interest shall
be paid in full on the date five years from the date hereof.
(c) Prepayment.
Maker may, at any time, and from time to time, prepay the outstanding
principal balance under this Note, in whole or in part, so long as
such payment is accompanied by payment of all accrued but unpaid
interest payable hereunder. Any such prepayment shall be applied,
first, to accrued but unpaid interest and, second, to the remaining
outstanding principal balance hereof.
(d) Interest Rate and Payment.
<PAGE>
From the date of this Note until payment in full of the principal
hereof, the outstanding principal hereunder shall bear interest at the
rate of 10% per annum.
(e) Lawful Money.
Principal and interest are payable in lawful money of the United
States of America.
(f) Event of Default.
If the Maker shall fail to make payment of principal or interest when
due pursuant to the terms hereof; or if the Maker is adjudicated
bankrupt or insolvent by a court of competent jurisdiction or makes an
assignment for the benefit of creditors; or if the Maker shall
petition for any proceedings in bankruptcy or liquidation or for the
reorganization or adjustment of indebtedness of the Maker; or if any
involuntary petition for any proceedings in bankruptcy or liquidation
or for the reorganization or the readjustment of indebtedness of the
Maker shall be filed, or any case or proceeding shall be commenced by
any person other than the Maker under applicable bankruptcy or
insolvency laws now or hereafter existing, against the Maker, and such
petition, case or proceeding shall remain undischarged for more than
thirty (30) days, whether or not consecutive (each an "Event of
Default"); then all principal and accrued interest hereunder will
become payable in full, without the need for any further action by the
Holder hereof. The Maker agrees to pay all costs and expenses,
including all attorneys' fees, for the collection or enforcement of
this Note upon an Event of Default.
(g) Remedies.
Upon the occurrence of an Event of Default, then, at the option of
Holder, the entire balance of principal, together with all accrued
interest thereon, without demand or notice, shall immediately become
due and payable. The Maker hereby absolutely and irrevocably waiver
notice of acceptance, presentment, notice of demand, notice of
non-payment, protest, notice of protest, suit and all other conditions
precedent in connection with the deliver, acceptance, collection
and/or enforcement of the Note or any collateral or security therefor.
The Maker hereby absolutely and irrevocably consents and submits to
the jurisdiction of the courts of the Commonwealth of Massachusetts,
and of any Federal court located in the said Commonwealth, in
connection with any actions or proceedings by the Holder hereof
arising out of or relating of this Note. In any such action or
proceeding, the Maker absolutely and irrevocably waives personal
service of any summons, complaint, declaration or any other process
and hereby absolutely and irrevocably agrees that the service thereof
may be made, in addition to other methods permitted by law, by
certified, registered or first class mail directed to the Maker at
______________________________, or such other address of which the
Maker shall have given notice to the Holder by certified, registered
or first class mail.
(h) Restriction on Transferability.
This Note may not be transferred or assigned in whole or in part
without the prior written consent of Maker.
A-2
<PAGE>
(i) Severability.
Every provision of this Note is intended to be severable. In the event
any term or provision hereof is declared by a court of competent
jurisdiction to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
(j) Headings.
Headings at the beginning of each numbered Section of this Note are
intended solely for convenience and are not to be deemed or construed
to be a part of this Note.
(k) Choice of Law.
This Note shall be governed by and construed in accordance with the
laws of the State of Delaware.
(l) Cancellation of this Note.
In the event that, prior to the expiration of the eighteen (18) month
period of the Lock-up Agreement (as defined in the Stock Purchase
Agreement), Maker's underwriter releases Holder from the Lock-up
Agreement in connection with a proposed transaction to sell the
Warrants and Holder declines to sell the Warrants in such transaction
within seven business days of receipt by Holder of written notice of
said release, then this Note shall be automatically canceled.
QUESTRON TECHNOLOGY, INC.,
a Delaware corporation
By: ______________________
Name:
Title:
A-3
<PAGE>
EXHIBIT B
Biltmore Securities, Inc.
6700 North Andrews Avenue
Fort Lauderdale, Florida 33309
RE: QUESTRON TECHNOLOGY, INC.
Gentlemen:
The undersigned is the beneficial and record holder of
1,500,000 Series IV Warrants to purchase common stock (the "Warrants") of
Questron Technology, Inc., a Delaware corporation (the "Company"). In
connection with the proposed public offering of securities of the Company (the
"Offering"), the undersigned agrees not to directly or indirectly, for a period
of eighteen (18) months following the effective date of the Offering, offer,
sell (including by effecting any short sale), loan, hypothecate, pledge, grant
any option for the sale of, acquire any option to dispose of, transfer or gift
(except for estate planning or charitable transfer or other private sales,
provided the transferees agree to be bound by the same restrictions on
transfer), or otherwise dispose of any Warrants without obtaining your prior
written consent (which consent may be withheld or granted in your discretion).
The undersigned acknowledges and agrees that in order to enforce the covenants
contained in this letter agreement, the Company will impose stop-transfer
instructions with respect to the Warrants owned by the undersigned until the
end of such eighteen (18) month period for transfers other than those
exceptions described above.
Date:
Signed: ________________________
Albert J. Dinicola
<PAGE>
EXHIBIT C-1
EMPLOYMENT AGREEMENT
Agreement made this day of [1996] between QUESTRON
TECHNOLOGY, INC. (herein referred to as the "Company" or the "Employer"), and
_____________ [insert name of executive] (the "Executive").
WHEREAS, the Company desires to employ the Executive, and the
Executive desires to accept/continue employment with the Company, but only on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and the Executive hereby agree as
follows:
(y) Term. Unless sooner terminated as provided in Section 6
of the Agreement, the term of this Agreement shall be for a three-year period
commencing on the date hereof, provided that the parties may agree in writing
to extend such term for any additional period.
(z) Employment. The Executive shall serve the Company as its
_____________ [insert title]. During the term of this Agreement, the Executive
shall, except during vacation or sick leave, devote the whole of his time,
attention and skill during usual business hours (and outside those hours when
reasonably necessary to his duties hereunder) to his duties hereunder;
faithfully and diligently perform such duties and exercise such powers as may
be from time to time reasonably assigned to or vested in him by the Company's
Board of Directors (the "Board") or by any officer of the Company superior to
the Executive; and use his best efforts to promote the interests of the
Company. The Executive may be required in pursuance of his duties hereunder to
perform similar services in a similar capacity at the same
<PAGE>
location for any company controlling, controlled by or under common control
with the Company (such companies hereinafter collectively called "Affiliates").
The Executive shall obey all policies of the Company and applicable policies of
its Affiliates to which he has received written notice.
(aa) Compensation. During the term of this Agreement, the
Company shall pay the Executive a salary at an annual rate of ___________
[insert amount which shall be not less (as to total amount and as to allocation
between contingent and non-contingent portions) than the amount equal to the
sum of all compensation received by employee from Comp Ware, Inc. for calendar
year 1996], which shall be payable biweekly.
4. Benefits. The Executive shall be entitled to such
retirement benefits, health and other welfare plan coverage, life insurance,
expense accounts, vacation time, sick leave, perquisites of office, fringe
benefits, eligibility to immediately participate (and vest, giving full credit
for employee's tenure with Comp Ware, Inc., in accordance with the provisions
of each of the following plans) in Quest Electronic Hardware, Inc.'s 401(k),
and Questron Technology, Inc.'s ESOP and stock option plan, plus any employment
benefits as the Company provides to any or all its employees.
5. Nonassignment. The performance by the Executive of his
duties under this Agreement is his personal obligation and may not be delegated
by him. However, the Executive may delegate duties and responsibilities to
other employees or agents of the Company incident to normal and customary
management practices. Neither party hereto may assign any rights hereunder. Any
purported delegation or assignment shall be void. The foregoing
notwithstanding, however, the Company may assign this Agreement to any
Affiliate of the Company.
<PAGE>
6. Termination. Unless sooner terminated in accordance with
the following provisions of this paragraph 6, the Company shall continue to
employ the Executive and the Executive shall continue to work for the Company,
during the term of this Agreement.
(I) The employment of Executive hereunder shall terminate
upon (i) the death of Executive; and (ii) at the option of Employer, upon
not less than thirty (30) days' prior written notice to Executive or his
legal representative, in the event that Executive becomes disabled. Executive
shall be deemed to be disabled if by reason of physical or mental incapacity or
disability, he is unable to render the services to be rendered by him pursuant
to this Agreement for a continuous period of ninety (90) successive days or for
shorter periods aggregating one hundred twenty (120) days or more during any
twelve (12) successive months (the advice of a reputable physician mutually
acceptable to Employer and Executive as to the existence of any such incapacity
or disability to be final and binding upon the parties).
(II) In the event of any willful misconduct, active fraud
or gross negligence by the Executive in connection with his employment
hereunder, the Employer shall have the right to terminate the term of
employment by giving the Executive notice in writing of the reason for such
proposed termination. If the Executive shall not have corrected such conduct to
the satisfaction of the Employer within thirty days after such notice, this
Agreement shall terminate and the Employer shall have no further obligation to
the Executive hereunder other than as provided by subsection (d) of this
Section 6, but the restrictions on the Executive's activities contained in
Sections 7 and 8 and the obligations of the Executive contained therein shall
continue in effect as provided therein.
(III) The Company may terminate the Executive's employment
at any time without cause. In the event that the Executive is
terminated without cause, the Company shall continue to pay the Executive
biweekly at a rate equivalent to his compensation, plus
<PAGE>
benefits described in paragraph 4 above until the end of the term of this
Agreement. Such payments to the Executive by the Company will be in full and
complete satisfaction (except as provided in subsection d below) of any and all
obligations owing to the Executive pursuant to this Agreement (excluding any
common law claims, rather than contractual claims under this Agreement, which
may exist in connection with such termination).
(IV) Upon termination pursuant to a, b or c above, the
Company shall pay the Executive or his estate any salary and other
employment benefits earned and unpaid to the date of termination, and any
outstanding funds advanced by the Company to or on behalf of the Executive
shall become immediately due and payable.
7. Intellectual Property; Confidentiality.
(a) Intellectual Property. Executive agrees that
all ideas, sketches, designs, prototypes, samples, patterns, and related work
product developed by him during the term of employment which related directly
or indirectly to the business of Employer or any of its subsidiaries or
affiliates, will be the property of Employer and that he will, at Employer's
request and cost, do whatever is reasonably necessary to secure the rights
thereto to Employer.
(b) Confidentiality. Except as required pursuant
to a court order or applicable law, Executive agrees that he will not
divulge to anyone (other than Employer or any persons employed or designated by
Employer) any knowledge or information of any type whatsoever of a confidential
nature relating to the business of Employer or any of its subsidiaries or
affiliates, including, without limitation, all types of trade secrets.
Executive further agrees not to disclose, publish or make use of any such
knowledge or information of a confidential nature without the prior written
consent of Employer.
<PAGE>
8. Competition.
(a) The Executive agrees that during his
employment at the Company and for a period of six months after termination
of his employment, he will not directly or indirectly, whether or
not for compensation and whether or not as an employee, be engaged in or have
any financial interest in any business competing with the business of the
Company or any of its Affiliates within any state, region or locality in which
the Company or such Affiliate is then doing business. For purposes of this
Agreement, the Executive shall be deemed to be engaged in or to have a
financial interest in such a business if he is an employee, officer, director,
or partner, of any person, partnership, corporation, trust or other entity
which is engaged in such a business, or if he directly or indirectly performs
services for such entity or if he beneficially owns an equity interest, or
interest convertible into equity, in any such entity; provided, however, that
the foregoing shall not prohibit the Executive from owning, for the purpose of
passive investment, less than 5% of any class of securities of a publicly held
corporation.
(b) The Executive agrees that during his
employment at the Company and for a period of six months after the termination
of his employment, he will not knowingly interfere with or disrupt, or attempt
to interfere with or disrupt, the relationship, contractual or otherwise,
between the Company or any of its Affiliates and any customer, supplier or
employee of the Company or such Affiliate.
(c) The Executive agrees that he shall not,
for a period of six months after the termination of his employment, employ
any person who was employed by the Company or any of its Affiliates or induce
such person to accept employment other than with the Company and its Affiliates.
(d) The Executive recognizes that a breach or
threatened breach by him of his obligations under this Section 8 would cause
irreparable injury to the Company, and the
<PAGE>
Company shall be entitled to seek preliminary and permanent injunctions
enjoining him from violating this Section 8 in addition to any other remedies
which may be available. In the event that the Executive is receiving payments
pursuant to subsection (c) of Section 6, the obligations under all provisions
of this Section 8 shall continue so long as Employer continues to make such
payments, but not beyond three years from the date hereof.
9. Addresses. Any notice or other communication required
or permitted under this Agreement shall be effective only if it is in writing
and delivered personally or sent by registered or certified mail, postage
prepaid, addressed as follows:
If to the Company:
Questron Technology, Inc.
6400 Congress Avenue
Suite 200
Boca Raton, FL 33487
Telephone: (407) 989-0888
Facsimile: (407) 241-2866
Attention: Dominic A. Polimeni
If to the Executive:
[insert]
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
10. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Massachusetts.
11. Headings. The headings herein are for convenience of
reference only and shall not be deemed to be part of the substance of this
Agreement.
12. Entire Agreement, Etc. This Agreement constitutes the
entire agreement between the parties hereto with respect to the Executive's
employment by the Company, and
<PAGE>
supersedes and is in full substitution for any and all prior understandings or
agreements with respect to the Executive's employment.
13. Amendments. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision hereof
may be waived only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The failure of
either party hereto at any time to require the performance by the other party
hereto of any provision hereof shall in no way affect the full right to require
such performance at any time thereafter, nor shall the waiver by either party
hereto of a breach of any provision hereof be taken or held to be a waiver of
any succeeding breach of such provision or a waiver of the provision itself or
a waiver of any other provision of this Agreement.
14. Binding Effect. This Agreement is binding on and is for
the benefit of the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives.
15. Severability. If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to be unenforceable,
such provision or portion thereof shall be interpreted to be only so broad as
is enforceable.
16. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
17. Survival. The obligations of the Executive set forth in
Sections 7, 8 and 10 represent independent covenants by which the Executive is
and will remain bound notwithstanding any breach by the Company hereunder,
and shall survive the termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the date first written above.
[insert name of Executive] QUESTRON TECHNOLOGY, INC.
______________________________ By: _____________________________
Name:
Title:
<PAGE>
EXHIBIT 4.3
WARRANT AGREEMENT
AGREEMENT, dated as of this ____ day of _______ 1996, by and between
QUESTRON TECHNOLOGY, INC., a Delaware corporation ("Company"), and American
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with (A) a public offering of up to 1,150,000
units, which includes a certain over-allotment option ("Units"), each unit
consisting of one (1) share of the Company's Series B Convertible Preferred
Stock, $.01 par value ("Preferred Stock") and one (1) Series IV Redeemable
Common Stock Purchase Warrant (the "Series IV Warrants") pursuant to an
underwriting agreement (the "Underwriting Agreement") dated _______ __, 1996
between the Company and certain of its stockholders and Biltmore Securities,
Inc. ("Biltmore"), and (B) the issuance to (i) certain selling securityholders
of an aggregate of 2,750,000 Series IV Warrants (the "Selling Securityholder
Warrants"), and (ii) Biltmore or its designees of a Purchase Option to purchase
100,000 additional Units (the "Purchase Option"), the Company will issue up to
4,000,000 Warrants;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock of the Company of
which at the date hereof consists of 20,000,000 authorized shares, $.001 par
value, and shall also include any
<PAGE>
capital stock of any class of the Company thereafter authorized which shall not
be limited to a fixed sum or percentage in respect to the rights of the holders
thereof to participate in dividends and in the distribution of assets upon the
voluntary liquidation, dissolution or winding up of the Company; provided,
however, that the shares issuable upon exercise of the Warrants shall include
(i) only shares of such class designated in the Company's Certificate of
Incorporation as Common Stock on the date of the original issue of the
Warrants, or (ii) in the case of any reclassification, change, consolidation,
merger, sale or conveyance of the character referred to in Section 9(c) hereof,
the stock, securities or property provided for in such section; or (iii) in the
case of any reclassification or change in the outstanding shares of Common
Stock issuable upon exercise of the Warrants as a result of a subdivision or
combination or a change in par value, or from par value to no par value, or
from no par value to par value, such shares of Common Stock as so reclassified
or changed.
(b) "Corporate Office" shall mean the office of the Warrant Agent
(or its successor) at which at any particular time its principal business shall
be administered, which office is located at the date hereof at 40 Wall Street,
New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean _______ __, 1998.
(e) "Purchase Price" shall mean the purchase price per share to be
paid upon exercise of each Warrant in accordance with the terms hereof, which
price shall be 115% of the closing market price per share of the Common Stock
on the day immediately preceding the proposed offering of the Preferred Stock,
for a four (4) year period commencing one (1) year after the effective date of
the public offering (the "Effective Date"), subject to adjustment from time to
time pursuant to the provisions of Section 9 hereof, and subject to the
Company's right, in its sole discretion, upon thirty (30) days' written notice,
to reduce the Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the Company
may, at its option, redeem the Warrants, in accordance with the terms hereof,
which price shall be $0.05 per Warrant.
<PAGE>
(g) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time)
on _________ __, 2002 or the Redemption Date as defined in Section 8, whichever
is earlier; provided that if such date shall in the State of New York be a
holiday or a day on which banks are authorized or required to close, then 5:00
P.M. (New York time) on the next following day which in the State of New York
is not a holiday or a day on which banks are authorized or required to close.
Upon thirty (30) days' written notice to all warrantholders, the Company shall
have the right to extend the warrant expiration date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of the
Warrant representing such Warrant to purchase one share of Common Stock upon
the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold pursuant to the Underwriting Agreement
shall be executed by the Company and delivered to the Warrant Agent. Upon
written order of the Company signed by its President or a Vice President and by
its Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued, and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 4,000,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise
of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date,
upon the exercise of fewer than all Warrants
3
<PAGE>
represented by any Warrant Certificate, to evidence any unexercised warrants
held by the exercising Registered Holder, (iii) those issued upon any transfer
or exchange pursuant to Section 6; (iv) those issued in replacement of lost,
stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7; (v)
those issued to holders of the Bridge Units; (vi) those issued pursuant to the
Purchase Option; and (vii) those issued at the option of the Company, in such
form as may be approved by the its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares of Common
Stock purchasable upon exercise of the Warrants or the Redemption Price
therefor made pursuant to Section 9 hereof.
(e) Pursuant to the terms of the Purchase Option, Biltmore may
purchase up to 100,000 Units, which include up to 100,000 Series IV Warrants.
The Purchase Option shall not be transferred, sold, assigned or hypothecated
for a period of one (1) year from the Effective Date, except that it may be
transferred to persons who are officers of Biltmore or selling group members in
the offering.
3. Form and Execution of Warrant Certificates.
(a) The Series IV Warrant Certificates shall be substantially in
the forms annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage or to the requirements of
Section 2(b). The Warrant Certificates shall be dated the date of issuance
thereof (whether upon initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates) and issued in
registered form. Series IV Warrant Certificates shall be numbered serially with
the letters WIV.
(b) Warrant Certificates shall be executed on behalf of the Company
by its President, or any Vice President and by its Secretary or an Assistant
Secretary, by manual signatures or by facsimile signatures printed thereon, and
shall have imprinted thereon a facsimile of the Company's seal. Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. In case any officer of the
Company who shall have signed any of the Warrant Certificates shall cease to be
an officer of the Company or to hold the particular office referenced in the
Warrant Certificate before the date of issuance of the Warrant Certificates or
before
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countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates may nevertheless be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the Company
or to hold such office. After countersignature by the Warrant Agent, Warrant
Certificates shall be delivered by the Warrant Agent to the Registered Holder
without further action by the Company, except as otherwise provided by Section
4 hereof.
4. Exercise. Each Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Warrant Exercise Date, but not
after the Warrant Expiration Date, upon the terms and subject to the conditions
set forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the securities deliverable
upon such exercise shall be treated for all purposes as the holder of those
securities upon the exercise of the Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date, the
Warrant Agent shall deposit the proceeds received from the exercise of a
Warrant and shall notify the Company in writing of the exercise of the
Warrants. Promptly following, and in any event within five (5) business days
after the date of such notice from the Warrant Agent, the Warrant Agent, on
behalf of the Company, shall cause to be issued and delivered by the Transfer
Agent, to the person or persons entitled to receive the same, a certificate or
certificates for the securities deliverable upon such exercise (plus a
certificate for any remaining unexercised Warrants of the Registered Holder),
unless prior to the date of issuance of such certificates the Company shall
instruct the Warrant Agent to refrain from causing such issuance of
certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Upon the exercise of any Warrant and clearance
of the funds received, the Warrant Agent shall promptly remit the payment
received for the Warrant (the "Warrant Proceeds") to the Company or as the
Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges with
respect to the issue thereof (other than those which the Company shall promptly
pay or discharge) and that upon
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issuance such shares shall be listed on each national securities exchange or
eligible for inclusion in each automated quotation system, if any, on which the
other shares of outstanding Common Stock of the Company are then listed or
eligible for inclusion.
(b) The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will, to the extent the Purchase Price is less than the Market Price
(as hereinafter defined), in good faith and as expeditiously as reasonably
possible, endeavor to secure such registration or approval and will use its
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws. With respect to any such securities, however,
Warrants may not be exercised by, or shares of Common Stock issued to, any
Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the issuance
of Warrants, or the issuance, or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized for such
time as it is acting as such to requisition the Company's Transfer Agent from
time to time for certificates representing shares of Common Stock issuable upon
exercise of the Warrants, and the Company will authorize the Transfer Agent to
comply with all such proper requisitions. The Company will file with the
Warrant Agent a statement setting forth the name and address of the Transfer
Agent of the Company for shares of Common Stock issuable upon exercise of the
Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and upon satisfaction of the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in exchange
therefor the Warrant Certificate or Certificates which the Registered Holder
making the exchange shall be entitled to receive.
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(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or
his attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates. In addition, the
Company may require payment by such holder of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or disposed of
or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof,
the Company and the Warrant Agent may deem and treat the Registered Holder of
any Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement will be
immediately detachable from the Common Stock and transferable separately
therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss,
theft or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the
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Registered Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Applicants for a substitute
Warrant Certificate shall comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provision of paragraph 2(e) hereof, on not less
than thirty (30) days' notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the closing bid for the Common
Stock exceeds 170% of the market price of the Company's Common Stock on the
Effective Date (the "Series IV Target Price"). No such notice will be given
until there is a current Registration Statement and Prospectus on file with the
Securities and Exchange Commission at the time such notice is given to Warrant
Holders and the notice may not be mailed to Warrant Holders during the
aforesaid one-year period from the Effective Date. Market Price for the purpose
of this Section 8 shall mean (i) the average closing bid price for any twenty
(20) consecutive trading days within a period of thirty (30) consecutive
trading days ending within ten (10) days prior to the date of the notice of
redemption, which notice shall be mailed no later than five (5) days
thereafter, of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automatic Quotation System or (ii) the last reported
sale price, for twenty (20) consecutive trading days within a period of thirty
(30) consecutive trading days ending within ten (10) days of the date of the
notice of redemption, which notice shall be mailed no later than five (5) days
thereafter, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange.
(b) If the conditions set forth in Section 8(a) are met, and the
Company desires to exercise its right to redeem the Warrants, it shall mail a
notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that
the right to exercise the Warrant shall terminate at 5:00 P.M. (New York time)
on the business day immediately preceding the date fixed for redemption.
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The date fixed for the redemption of the Warrant shall be the Redemption Date.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Registered Holders of the Warrants shall have
no further rights except to receive, upon surrender of the Warrant, the
Redemption Price.
(e) From and after the Redemption Date specified for, the Company
shall, at the place specified in the notice of redemption, upon presentation
and surrender to the Company by or on behalf of the Registered Holder thereof
of one or more Warrant Certificates evidencing Warrants to be redeemed, deliver
or cause to be delivered to or upon the written order of such Holder a sum in
cash equal to the redemption price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants
shall expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the redemption price,
shall cease.
(f) If the shares of the Company's Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock, the Series
IV Target Price shall be proportionally adjusted by the ratio which the total
number of shares of Common Stock outstanding immediately prior to such event
bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
9. Adjustment of Exercise Price and Number of Shares of Common Stock
or Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in
the event the Company shall, at any time or from time to time after the date
hereof, sell any shares of Common Stock for a consideration per share less than
the Market Price of the Common Stock (as defined in Section 8) on the date of
the sale or issue any shares of Common Stock as a stock dividend to the holders
of Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale, issuance, subdivision
or combination being herein called a "Change of Shares"), then, and thereafter
upon each further Change
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of Shares, the Purchase Price in effect immediately prior to such Change of
Shares shall be changed to a price (including any applicable fraction of a
cent) determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection 9(f) below) for
the issuance of such additional shares would purchase at such current market
price per share of Common Stock, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares. Such adjustment shall be made successively
whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant to this
Section 9, the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in Section
9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
exercise of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment. Upon each adjustment of the number of
Warrants pursuant to this Section 9, the Company shall, as promptly as
practicable, cause to be distributed to each Registered Holder of Warrant
Certificates on the date of such adjustment Warrant Certificates evidencing,
subject to Section 10 hereof, the number of additional Warrants to which such
Holder shall be entitled as a result of such adjustment or, at the option of
the Company, cause to be distributed to such Holder in substitution and
replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Warrants to which such Holder shall be
entitled after such adjustment.
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(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company
shall not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase
Price or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2(d) hereof, continue to express the Purchase Price per
share, the number of shares purchasable thereunder and the Redemption Price
therefor as the Purchase Price per share, the number of shares purchasable and
the Redemption Price therefor were expressed in the Warrant Certificates when
the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to this
Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer
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or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the
Company setting forth: (i) the Purchase Price as so adjusted, (ii) the number
of shares of Common Stock purchasable upon exercise of each Warrant after such
adjustment, and, if the Company shall have elected to adjust the number of
Warrants, the number of Warrants to which the registered holder of each Warrant
shall then be entitled, and the adjustment in Redemption Price resulting
therefrom, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to Biltmore and to each registered holder of Warrants at his last address as it
shall appear on the registry books of the Warrant Agent. No failure to mail
such notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail
such notice, or except as to the holder whose notice was defective. The
affidavit of an officer of the Warrant Agent or the Secretary or an Assistant
Secretary of the Company that such notice has been mailed shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the following
provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock outstanding at any
given time shall include shares of Common Stock owned or held by or for the
account of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.10 in such
price; provided that any adjustments which by reason of this subsection (ii)
are not required to be made shall be carried forward and shall be made at the
time of and together with the next subsequent adjustment which, together with
any adjustment(s) so carried forward, shall require an increase or decrease of
at least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for cash of any
rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or any securities convertible into or exchangeable
for Common Stock without the payment of any further consideration other than
cash, if any (such convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible
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Securities, in each case, if (and only if) the consideration payable to the
Company upon the exercise of such rights, warrants, or options shall consist of
cash, whether or not such rights, warrants or options, or the right to convert
or exchange such Convertible Securities, are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable
upon the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the fair market value of the Common
Stock on the date of the issuance or sale of such rights, warrants or options,
then the total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (as of the date of the issuance or sale of such
rights, warrants or options) shall be deemed to be outstanding shares of Common
Stock for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have
been sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the total amount of consideration
received by the Company for the sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities) is less than the fair market value
of the Common Stock on the date of the sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities (as of the date of the
sale of such Convertible Securities) shall be deemed to be outstanding shares
of Common Stock for purposes of Sections 9(a) and 9(b) hereof and shall be
deemed to have been sold for cash in an amount equal to such price per share.
(v) In case the Company shall modify the rights
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of conversion, exchange or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than the market price on the date prior to such modification, the Purchase
Price to be in effect after such modification shall be determined by
multiplying the Purchase Price in effect immediately prior to such event by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding multiplied by the market price on the date prior to the
modification plus the number of shares of Common Stock which the aggregate
consideration receivable by the Company for the securities affected by the
modification would purchase at the market price and of which the denominator
shall be the number of shares of Common Stock outstanding on such date plus the
number of shares of Common Stock to be issued upon conversion, exchange, or
exercise of the modified securities at the modified rate. Such adjustment shall
become effective as of the date upon which such modification shall take effect.
(vi) On the expiration of any such right, warrant or option or
the termination of any such right to convert or exchange any such Convertible
Securities, the Purchase Price then in effect hereunder shall forthwith be
readjusted to such Purchase Price as would have obtained (a) had the
adjustments made upon the issuance or sale of such rights, warrants, options or
Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities and
(b) had adjustments been made on the basis of the Purchase Price as adjusted
under clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
(vii) In case of the sale for cash of any shares of Common
Stock, any Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants or to the
number of shares of Common Stock purchasable upon the exercise of each Warrant
will be made, however,
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(i) upon the sale or exercise of the Warrants, including
without limitation, the sale or exercise of any of the Warrants or Common Stock
comprising the Purchase Option; or
(ii) upon the sale of any shares of Common Stock in the
Company's initial public offering, including, without limitation, shares sold
upon the exercise of any over-allotment option granted to the Underwriters in
connection with such offering; or
(iii) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or
sold; or
(iv) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, whether or not any adjustment in the
Purchase Price was made or required to be made upon the issuance or sale of
such Convertible Securities and whether or not such Convertible Securities were
outstanding on the date of the original sale of the Warrants or were thereafter
issued or sold; or
(v) upon the issuance or sale of Common Stock or Convertible
Securities in an exempt transaction unless the issuance or sale price is less
than 85% of the fair market value of the Common Stock on the date of issuance,
in which case the adjustment shall only be for the difference between 85% of
the fair market value and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or Convertible
Securities to shareholders of any corporation which merges and/or consolidates
into or is acquired by the Company or from which the Company acquires assets
and some or all of the consideration consists of equity securities of the
Company, in proportion to their stock holdings of such corporation immediately
prior to the acquisition but only if no adjustment is required pursuant to any
other provision of this Section 9.
(vii) upon the issuance or exercise of options or upon the
issuance or grant of stock awards granted to the Company's directors, employees
or consultants under a plan or plans adopted by the Company's Board of
Directors and approved by its stockholders (but only to the extent that the
aggregate number of shares excluded hereby and issued after the date hereof
shall not exceed ten percent (10%) of the Company's Common Stock at the time of
issuance). For the purposes of determining whether the consideration received
by the Company is less than the Market Price in connection with any issuance of
stock to the Company's
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directors, employees or consultants under plans adopted by the Company's Board
of Directors and approved by its stockholders, the consideration received shall
be deemed to be the amount of compensation to the director, employee or
consultant reported by the Company in connection with such issuances.
(viii) upon the issuance of Common Stock to the Company's
directors, employees or consultants under a plan or plans which are qualified
under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona fide public
offering pursuant to a firm commitment underwriting.
(h) As used in this Section 9, the term "Common Stock" shall mean
and include the Company's Common Stock authorized on the date of the original
issue of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (i) only shares of such
class designated in the Company's Certificate of Incorporation as Common Stock
on the date of the original issue of the Units or (ii) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (iii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 9, or as to the
amount of any such adjustment, if required, shall be binding upon the holders
of the Warrants and the Company if made in good faith by the Board of Directors
of the Company.
(j) If and whenever the Company shall grant to the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each Registered Holder
as of the record date for such transaction of the Warrants then outstanding,
the rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were
16
<PAGE>
the holder of record of the number of whole shares of Common Stock then
issuable upon exercise (assuming, for purposes of this Section 9(j), that
exercise of Warrants is permissible during periods prior to the Initial Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 9.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. In such event, the Company may at its option elect to round
up the number of shares to which the Holder is entitled to the nearest whole
share or to pay cash in respect of fractional shares in accordance with the
following: With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ Quotation System, the current value shall be the last
reported sale price of the Common Stock on such exchange on the last business
day prior to the date of exercise of this Warrant or if no such sale is made on
such day, the average of the closing bid and asked prices for such day on such
exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported
bid and asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of
17
<PAGE>
a stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to
no par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common
Stock in accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for the
purchase of shares of Common Stock in the manner provided in the Warrant
Certificate and this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of
the Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly endorsed
or accompanied by a proper instrument of transfer satisfactory to the Warrant
Agent and the Company in their mutual discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel
Common Stock following exercise of any or all of the Warrants represented
thereby or delivered to it for transfer, split up, combination or exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts
18
<PAGE>
hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby
or of any securities or other property delivered upon exercise of any Warrant
or whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered or omitted by it in reliance
on any warrant Certificate or other document or instrument believed by it in
good faith to be genuine and to have been signed or presented by the proper
party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or
demand of the Company shall be sufficiently evidenced by an instrument signed
by its President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save
it harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
19
<PAGE>
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after
giving thirty (30) days' prior written notice to the Company. At least fifteen
(15) days prior to the date such resignation is to become effective, the
Warrant Agent shall cause a copy of such notice of resignation to be mailed to
the Registered Holder of each Warrant Certificate at the Company's expense.
Upon such resignation, or any inability of the Warrant Agent to act as such
hereunder, the Company shall appoint a new warrant agent in writing. If the
Company shall fail to make such appointment within a period of fifteen (15)
days after it has been notified in writing of such resignation by the resigning
Warrant Agent, then the Registered Holder of any Warrant Certificate may apply
to any court of competent jurisdiction in the State of New York for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company. After acceptance in
writing of such appointment by the new warrant agent is received by the
Company, such new warrant agent shall be vested with the same powers, rights,
duties and responsibilities as if it had been originally named herein as the
Warrant Agent, without any further assurance, conveyance, act or deed; but if
for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further
act, provided that such corporation is eligible for appointment as successor to
the Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holder of each
Warrant Certificate.
The Warrant Agent, its subsidiaries and affiliates, and
20
<PAGE>
any of its or their officers or directors, may buy and hold or sell Warrants or
other securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not the
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company if so authorized by the Company or for any
other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company may
by supplemental agreement make any changes or corrections in this Agreement (i)
that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of
the Registered Holders of Warrant Certificates representing not less than fifty
percent (50%) of the Warrants then outstanding; and provided, further, that no
change in the number or nature of the securities purchasable upon the exercise
of any Warrant, or the Purchase Price therefor, or the acceleration of the
Warrant Expiration Date, shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed by this Agreement as
originally executed or are made in compliance with applicable law.
17. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first class registered or certified mail, postage prepaid
as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, 6400 Congress Avenue, Suite 200, Boca Raton, Florida
33487, or at such other address as may have been furnished to the Warrant Agent
in writing by the Company; and if to the Warrant Agent, 6700 North Andrews
Avenue, Suite 500, Fort Lauderdale, Florida 33309.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Warrant Agent, and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law,
or to impose upon any other person any duty, liability or obligation.
21
<PAGE>
20. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Warrants or such earlier
date upon which all Warrants have been exercised, except that the Warrant Agent
shall account to the Company for cash held by it and the provisions of Section
15 hereof shall survive such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By:
---------------------------------
Its
AMERICAN STOCK TRANSFER & TRUST COMPANY
By:
---------------------------------
Its
Authorized Officer
22
<PAGE>
EXHIBIT A
[Form of Face of Series IV Warrant Certificate]
No. WIV Series IV Warrants
VOID AFTER _______________, 2002
STOCK PURCHASE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
QUESTRON TECHNOLOGY, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Series IV Redeemable Common Stock Purchase Warrants ("Warrants") specified
above. Each Warrant initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $.001 par value ("Common Stock"), of QUESTRON
TECHNOLOGY, INC., a Delaware corporation (the "Company"), at any time between
the Separation Date (as herein defined) and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Stock Transfer and Trust Company, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of 115% of the closing
market price per share of the Common Stock on the day immediately preceding the
proposed offering of the Preferred Stock (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or certified check
made payable to Questron Technology, Inc.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement") dated ,
1997, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and/or the number of shares of Common Stock
subject to purchase upon the exercise of each Warrant represented hereby are
subject to modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant
<PAGE>
Agent shall countersign, for the balance of such Warrants.
The term "Separation Date" shall mean ___________, 1998.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on
___________, 2002, or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Warrants are outstanding and the exercise price of the Warrants is less
than the market price of the Common Stock. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon due presentment with any transfer
fee in addition to any tax or other governmental charge imposed in connection
therewith, for registration of transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant, at any time after one (1) year from the
Effective Date, provided the Market Price (as defined in the Warrant Agreement)
for the Common Stock issuable upon exercise of such Warrant shall equal or
exceed 170% of the closing bid price of the Company's Common Stock on the
Effective Date (as defined in the Warrant Agreement) for twenty (20)
consecutive trading days ending within ten (10) days of the notice of
redemption. Notice of redemption shall be given not later than the thirtieth
day before the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the Registered Holder
2
<PAGE>
shall have no rights with respect to this Warrant except to receive the $.05
per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
QUESTRON TECHNOLOGY, INC.
By:
--------------------------
Its
Date:
---------------------------
[Seal]
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
- ---------------------------------------
as Warrant Agent
By:
-----------------------------
Its
Authorized Officer
4
<PAGE>
[Form of Reverse of Series IV Warrant Certificate]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to
exercise _____ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert taxpayer identification or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns and transfers unto
--------------------------------------------
(please insert taxpayer identification or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
2
<PAGE>
EXHIBIT 4.5
Option to Purchase
100,000 Units
QUESTRON TECHNOLOGY, INC.
PURCHASE OPTION
Dated: ___________, 1997
THIS CERTIFIES that Biltmore Securities, Inc., 6700 North Andrews
Avenue, Suite 500, Fort Lauderdale, FL 33309 (hereinafter sometimes referred to
as the "Holder"), is entitled to purchase from QUESTRON TECHNOLOGY, INC.
(hereinafter referred to as the "Company"), at the prices and during the
periods as hereinafter specified, up to 100,000 Units (the "Units") consisting
of one (1)share of Series B Convertible Preferred Stock, par value $.01 per
share ("Preferred Stock"), and one (1) Series IV Redeemable Common Stock
Purchase Warrant ("Warrants"). Each Warrant entitles the registered holder
thereof to purchase one (1) share of Common Stock, par value $.001 per share
("Common Stock") at an exercise price of 115% of the closing market price per
share of the Common Stock on the day immediately preceding the proposed
offering of the Preferred Stock. The Warrants (hereinafter, the "Warrants") are
exercisable for a four year period, commencing ________________, 1998 (one (1)
year from the Effective Date). Hereinafter, the Units and the securities
underlying the Units, shall be referred to as "Option Securities" or
"Securities."
The Securities have been registered under a Registration Statement on
Form SB-2 (File No. 333-_______) declared effective by the Securities and
Exchange Commission on ___________ (the "Registration Statement"). This Option
(the "Option") to purchase 100,000 Units was originally issued pursuant to an
underwriting agreement between the Company and Biltmore Securities, Inc. as
underwriter (the "Underwriter"), in connection with a public offering of
1,000,000 Units each consisting of one (1) share of Preferred Stock and one(1)
Series IV Warrant (the "Public Securities") through the Underwriter, in
consideration of $100.00 received for the Option.
Except as specifically otherwise provided herein, the Preferred Stock
and the Warrants issued pursuant to this Option shall bear the same terms and
conditions as described under the caption "Description of Securities" in the
Registration Statement, and the Warrants shall be governed by the terms of the
Warrant Agreement dated as of ________________, executed in connection with
<PAGE>
such public offering (the "Warrant Agreement"), except that the holder shall
have registration rights under the Securities Act of 1933, as amended (the
"Act"), for the Option, the Units, the Preferred Stock and the Warrants
included in the Units, and the shares of Common Stock underlying the Warrants,
as more fully described in paragraph 6 of this Option. In the event of any
reduction of the exercise price of the Warrants included in the Public
Securities, the same changes to the Warrants included in the Option and the
components thereof shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the
prices, subject to adjustment in accordance with paragraph 8 of this Option,
and during the periods as follows:
(a) Between ____________, 1998 (one (1) year from the Effective
Date) and ____________, 2002, inclusive, the Holder shall have the option to
purchase Units hereunder at an exercise price not less than 120% of the
offering price per unit (subject to adjustment pursuant to paragraph 8 hereof)
(the "Exercise Price").
(b) After ____________, 2002, the Holder shall have no right to
purchase any Option Securities hereunder.
2. The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the Holder at the
address of the Holder appearing on the books of the Company); (ii) payment to
the Company of the Exercise Price then in effect for the number of Option
Securities specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) delivery to the Company of a
duly executed agreement signed by the person(s) designated in the purchase form
to the effect that such person(s) agree(s) to be bound by the provisions of
paragraph 6 and subparagraphs (b), (c) and (d) of paragraph 7 hereof. This
Option shall be deemed to have been exercised, in whole or in part to the
extent specified, immediately prior to the close of business on the date this
Option is surrendered and payment is made in accordance with the foregoing
provisions of this paragraph 2, and the person or persons in whose name or
names the certificates for shares of Common Stock and Warrants shall be
issuable upon such exercise shall become the holder or holders of record of
such Common Stock and Warrants at that time and date. The Common Stock and
Warrants and the certificates for the Common Stock and Warrants so purchased
shall be delivered to the Holder within a reasonable time, not exceeding ten
(10) days, after the rights represented by this Option shall have been so
exercised.
3. This Option shall not be transferred, sold, assigned, or
hypothecated for a period of one (1) year from the Effective Date,
2
<PAGE>
except that it may be transferred to successors of the Holder, and may be
assigned in whole or in part to any person who is an officer of the Holder or
selling group member of the offering during such period. Any transfer after one
(1) year must be accompanied with an immediate exercise of the Option. Any such
assignment shall be effected by the Holder (i) executing the form of assignment
at the end hereof and (ii) surrendering this Option for cancellation at the
office or agency of the Company referred to in paragraph 2 hereof, accompanied
by a certificate (signed by an officer of the Holder if the Holder is a
corporation), stating that each transferee is a permitted transferee under this
paragraph 3 hereof; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) a new Option or Options of like
tenor and representing in the aggregate rights to purchase the same number of
Option Securities as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Preferred Stock
which may be issued as part of the Option Securities purchased hereunder and
the Common Stock which may be issued upon exercise of the Warrants will, upon
issuance, be duly and validly issued, fully paid and nonassessable. The Company
further covenants and agrees that during the periods within which this Option
may be exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of this Option and that it will have authorized and reserved a sufficient
number of shares of Common Stock for issuance upon exercise of the Warrants
included in the Option Securities.
5. This Option shall not entitle the Holder to any voting, dividend,
or other rights as a stockholder of the Company.
6. (a) During the period set forth in paragraph l(a) hereof, the
Company shall advise the Holder or its transferee, whether the Holder holds the
Option or has exercised the Option and holds Option Securities or any of the
securities underlying the Option Securities, by written notice at least 30 days
prior to the filing of any post-effective amendment to the Registration
Statement or of any new registration statement or post-effective amendment
thereto under the Act covering any securities of the Company, for its own
account or for the account of others (other than a registration statement on
Form S-4 or S-8 or any successor forms thereto), and will for a period of five
years from the effective date of the Registration Statement, upon the request
of the Holder, include in any such post-effective amendment or registration
statement, such information as may be required to permit a public offering of
the Option, all or any of the Preferred Stock, or Warrants included in the
Securities or the Common Stock issuable upon the exercise of the Warrants (the
"Registrable Securities"). The Company shall supply prospectuses and such other
documents as the Holder may request in order to facilitate the public sale or
other disposition of the Registrable Securities, use
3
<PAGE>
its best efforts to register and qualify any of the Registrable Securities for
sale in such states as such Holder designates provided that the Company shall
not be required to qualify as a foreign corporation or a dealer in securities
or execute a general consent to service of process in any jurisdiction in any
action and do any and all other acts and things which may be reasonably
necessary or desirable to enable such Holders to consummate the public sale or
other disposition of the Registrable Securities, and furnish indemnification in
the manner provided in paragraph 7 hereof. The Holder shall furnish information
and indemnification as set forth in paragraph 7 except that the maximum amount
which may be recovered from the Holder shall be limited to the amount of
proceeds received by the Holder from the sale of the Registrable Securities.
The Company shall use its best efforts to cause the managing underwriter or
underwriters of a proposed underwritten offering to permit the holders of
Registrable Securities requested to be included in the registration to include
such securities in such underwritten offering on the same terms and conditions
as any similar securities of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter or underwriters of such offering advises
the holders of Registrable Securities that the total amount of securities which
they intend to include in such offering is such as to materially and adversely
affect the success of such offering, then the amount of securities to be
offered for the accounts of holders of Registrable Securities shall be
eliminated, reduced, or limited to the extent necessary to reduce the total
amount of securities to be included in such offering to the amount, if any,
recommended by such managing underwriter or underwriters (any such reduction or
limitation in the total amount of Registrable Securities to be included in such
offering to be borne by the holders of Registrable Securities proposed to be
included therein pro rata). The Holder will pay its own legal fees and expenses
and any underwriting discounts and commissions on the securities sold by such
Holder and shall not be responsible for any other expenses of such
registration.
(b) If any 50% holder (as defined below) shall give notice to the
Company at any time during the period set forth in paragraph l(a) hereof to the
effect that such holder desires to register under the Act this Option or any of
the underlying securities contained in the Option Securities underlying the
Option under such circumstances that a public distribution (within the meaning
of the Act) of any such securities will be involved then the Company will
promptly, but no later than 60 days after receipt of such notice, file a
post-effective amendment to the current Registration Statement or a new
registration statement pursuant to the Act, to the end that the Option and/or
any of the Securities underlying the Option Securities may be publicly sold
under the Act as promptly as practicable thereafter and the Company will use
its best efforts to cause such registration to become and remain effective for
a period of 120 days (including the taking of such steps as are reasonably
necessary to obtain the removal of any stop
4
<PAGE>
order); provided that such holder shall furnish the Company with appropriate
information in connection therewith as the Company may reasonably request in
writing. The 50% holder (which for purposes hereof shall mean any direct or
indirect transferee of such holder) may, at its option, request the filing of a
post-effective amendment to the current Registration Statement or a new
registration statement under the Act with respect to the Registrable Securities
on only two occasions during the term of this Option. The Holder may at its
option request the registration of the Option and/or any of the securities
underlying the Option in a registration statement made by the Company as
contemplated by Section 6(a) or in connection with a request made pursuant to
this Section 6(b) prior to acquisition of the Securities issuable upon exercise
of the Option and even though the Holder has not given notice of exercise of
the Option. The 50% holder may, at its option, request such post-effective
amendment or new registration statement during the described period with
respect to the Option or separately as to the Units and/or Warrants included in
the Option and/or the Common Stock issuable upon the exercise of the Warrants,
and such registration rights may be exercised by the 50% holder prior to or
subsequent to the exercise of the Option. Within ten business days after
receiving any such notice pursuant to this subsection (b) of paragraph 6, the
Company shall give notice to the other holders of the Options, advising that
the Company is proceeding with such post-effective amendment or registration
statement and offering to include therein the securities underlying the Options
of the other holders. Each holder electing to include its Registrable
Securities in any such offering shall provide written notice to the Company
within twenty (20) days after receipt of notice from the Company. The failure
to provide such notice to the Company shall be deemed conclusive evidence of
such holder's election not to include its Registrable Securities in such
offering. Each holder electing to include its Registrable Securities shall
furnish the Company with such appropriate information (relating to the
intentions of such holders) in connection therewith as the Company shall
reasonably request in writing. All costs and expenses of only one such
post-effective amendment or new registration statement shall be borne by the
Company, except that the holders shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the securities
sold by them.
The Company shall be entitled to postpone the filing of any
registration statement pursuant to this Section 6(b) otherwise required to be
prepared and filed by it if (i) the Company is engaged in a material
acquisition, reorganization, or divestiture, (ii) the Company is currently
engaged in a self-tender or exchange offer and the filing of a registration
statement would cause a violation of Rule 10b-6 under the Securities Exchange
Act of 1934, (iii) the Company is engaged in an underwritten offering and the
managing underwriter has advised the Company in writing that such a
registration statement would have a material adverse
5
<PAGE>
effect on the consummation of such offering or (iv) the Company is subject to
an underwriter's lock-up as a result of an underwritten public offering and
such underwriter has refused in writing, the Company's request to waive such
lock-up. In the event of such postponement, the Company shall be required to
file the registration statement pursuant to this Section 6(b), within 60 days
of the consummation of the event requiring such postponement.
The Company will use its best efforts to maintain such registration
statement or post-effective amendment current under the Act for a period of at
least six months (and for up to an additional three months if requested by the
Holder) from the effective date thereof. The Company shall supply prospectuses,
and such other documents as the Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities,
use its best efforts to register and qualify any of the Registrable Securities
for sale in such states as such holder designates, provided that the Company
shall not be required to qualify as a foreign corporation or a dealer in
securities or execute a general consent to service of process in any
jurisdiction in any action and furnish indemnification in the manner provided
in paragraph 7 hereof.
(c) The term "50% holder" as used in this paragraph 6 shall mean
the holder of at least 50% of the Preferred Stock and the Warrants underlying
the Option (considered in the aggregate) and shall include any owner or
combination of owners of such securities, which ownership shall be calculated
by determining the number of shares of Common Stock held by such owner or
owners as well as the number of shares then issuable upon exercise of the
Warrants.
7. (a) Whenever pursuant to paragraph 6 a registration statement
relating to the Option or any shares or warrants issued or issuable upon the
exercise of any Options, is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the securities covered
by such registration statement, amendment, or supplement (such holder being
hereinafter called the "Distributing Holder"), and each person, if any, who
controls (within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such securities and each person,
if any, who controls (within the meaning of the Act) any such underwriter,
against any losses, claims, damages, or liabilities, joint or several, to which
the Distributing Holder, any such controlling person or any such underwriter
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any such registration statement or any preliminary prospectus
or final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon
6
<PAGE>
the omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse the
Distributing Holder and each such controlling person and underwriter for any
legal or other expenses reasonably incurred by the Distributing Holder or such
controlling person or underwriter in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage, or liability arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder or any other Distributing
Holder, for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, each
person, if any, who controls the Company (within the meaning of the Act)
against any losses, claims, damages, or liabilities, joint and several, to
which the Company or any such director, officer, or controlling person may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages, or liabilities arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said final prospectus, or said amendment or
supplement, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in said registration
statement, said preliminary prospectus, said final prospectus, or said
amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer, or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action.
(c) Promptly after receipt by an indemnified party under this
paragraph 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Paragraph 7.
(d) In case any such action is brought against any
7
<PAGE>
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory
to such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
paragraph 7 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
8. The Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Option shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Preferred Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Preferred Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Preferred Stock into a smaller number of shares, the Exercise Price
in effect at the time of the record date for such dividend or distribution or
of the effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by multiplying
the Exercise Price by a fraction, the denominator of which shall be the number
of shares of Preferred Stock outstanding after giving effect to such action,
and the numerator of which shall be the number of shares of Preferred Stock
outstanding immediately prior to such action. Notwithstanding anything to the
contrary contained in the Warrant Agreement, in the event an adjustment to the
Exercise Price is effected pursuant to this Subsection (a) (and a corresponding
adjustment to the number of Option Securities is made pursuant to Subsection
(d) below), the exercise price of the Warrants shall be adjusted so that it
shall equal the price determined by multiplying the exercise price of the
Warrants by a fraction, the denominator of which shall be the number of shares
of Common Stock outstanding immediately after giving effect to such action and
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. In such event, there shall be no
adjustment to the number of shares of Common Stock or other securities issuable
upon exercise of the Warrants. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible
into Common Stock) at a price (the "Subscription Price") (or having a
conversion price per share) less
8
<PAGE>
than the current market price of the Common Stock (as defined in Subsection (e)
below) on the record date mentioned below, the Exercise Price shall be adjusted
so that the same shall equal the price determined by multiplying the number of
shares then comprising an Option Securities by the product of the Exercise
Price in effect immediately prior to the date of such issuance multiplied by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding on the record date mentioned below and the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of which shall
be the sum of the number of shares of Common Stock outstanding on such record
date and the number of additional shares of Common Stock offered for
subscription or purchase (or into which the convertible securities so offered
are convertible). Such adjustment shall be made successively whenever such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
rights or warrants; and to the extent that shares of Common Stock are not
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants the Exercise Price shall be
readjusted to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon
the basis of delivery of only the number of shares of Common Stock (or
securities convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the holders
of its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and-dividends or distributions referred to in
Subsection (a) above) or subscription rights or warrants (excluding those
referred to in Subsection (b) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the number of shares
then comprising an Option Securities by the product of the Exercise Price in
effect immediately prior thereto multiplied by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding
multiplied by the current market price per share of Common Stock (as defined in
Subsection (e) below), less the fair market value (as determined by the
Company's Board of Directors) of said assets or evidences of indebtedness so
distributed or of such rights or warrants, and the denominator of which shall
be the total number of shares of Common Stock outstanding multiplied by such
current market price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment shall be
made whenever any such distribution is made and shall become effective
immediately after the record date for the determination of shareholders
entitled to receive such distribution.
9
<PAGE>
(d) Whenever the Exercise Price payable upon exercise of this
Option is adjusted pursuant to Subsections (a), (b) or (c) above, the number of
Option Securities purchasable upon exercise of this Option shall simultaneously
be adjusted by multiplying the number of Option Securities initially issuable
upon exercise of this Option by the Exercise Price in effect on the date hereof
and dividing the product so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under Subsections (b) or (c)
above, the current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for 20 consecutive
business days before such date. The closing price for each day shall be the
last sale price regular way or, in case no such reported sale takes place on
such day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on such exchange, the average of the highest reported bid and lowest reported
asked prices as reported by NASDAQ, or other similar organization if NASDAQ is
no longer reporting such information, or if not so available, the fair market
price as determined by the Board of Directors.
(f) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least fifteen cents
($0.15) in such price; provided, however, that any adjustments which by reason
of this Subsection (i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be made hereunder.
All calculations under this Section 8 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 8 to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in addition
to those required by this Section 8, as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in
shares of Common Stock, or any subdivision, reclassification or combination of
Common Stock, hereafter made by the Company shall not result in any Federal
Income tax liability to the holders of Common Stock or securities convertible
into Common Stock (including Warrants issuable upon exercise of this Option).
(g) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly, but no later than 10 days after any request for
such an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Option Securities issuable upon exercise
of this Option and, if requested, information describing the transactions
giving rise to such adjustments, to be mailed to the Holder, at the address set
forth herein, and shall cause a certified copy thereof to be mailed to its
transfer agent, if any. The Company may retain
10
<PAGE>
a firm of independent certified public accountants selected by the Board of
Directors (who may be the regular accountants employed by the Company) to make
any computation required by this Section 8, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (a) above, the Holder thereafter shall become
entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Option shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (a) to (g), inclusive above.
9. This Agreement shall be governed by and in accordance with the laws
of the State of New York.
IN WITNESS WHEREOF, Questron Technology, Inc., has caused this Option
to be signed by its duly authorized officers under its corporate seal, and this
Option to be dated the date first above written.
QUESTRON TECHNOLOGY, INC.
By:
----------------------------
Dominic A. Polimeni
President
(Corporate Seal)
11
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of option)
THE UNDERSIGNED, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder,_________Units of Questron Technology, Inc.,
each Unit consisting of one (1) Share of Series B Convertible Preferred Stock,
$.01 per value per share, and one (1) Series IV Redeemable Common Stock
Purchase Warrant of Questron technology, Inc. herewith makes payment of
$______________ therefor, and requests that the certificates for Units be
issued in the name(s) of, and delivered to _________________________ whose
address(es) is (are) _____________________________________________.
Dated:
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase Units of
Questron Technology, Inc., in the numbers set forth below represented by the
foregoing Option to the extent of _____ Units and appoints
__________________________ attorney to transfer such rights on the books of
Questron Technology, Inc., with full power of substitution in the premises.
Dated:
By:
------------------------------
Address:
------------------------------
------------------------------
------------------------------
In the presence of:
<PAGE>
EXHIBIT 4.6
No. WIV 001 Series IV Warrants
STOCK PURCHASE WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK OF
QUESTRON TECHNOLOGY, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
A.J. Dinicola or registered assigns (the "Registered Holder") is
the owner of 1,500,000 Series IV Redeemable Common Stock Purchase Warrants
("Warrants"). This Warrant Certificate and each Warrant represented hereby
are subject to in all respects the terms and conditions set forth in the
Warrant Agreement (the "Warrant Agreement") to be entered into by the Company
in connection with the public offering (the "Offering") of Units each
consisting of one share of Series B Convertible Preferred Stock and one
Warrant. By his acceptance of this Certificate, the Registered Holder
hereby agrees that he shall accept at the closing of the Offering a certificate
evidencing the Warrants in the form issued to the public investors pursuant to
the Warrant Agreement ("Public Warrants"). In the event that the Offering is not
consummated, the Warrants shall be cancelled and shall be of no further force
or effect.
QUESTRON TECHNOLOGY, INC.
By: /s/ DOMINIC A. POLIMENI
------------------------
Dominic A. Polimeni
Chairman, President and
Chief Executive Officer
Date: December 16, 1996
<PAGE>
EXHIBIT 5.0
__________, 1997
Questron Technology, Inc.
6400 Congress Avenue
Suite 200
Boca Raton, FL 33487
Re: QUESTRON TECHNOLOGY, INC.
REGISTRATION STATEMENT ON FORM SB-2
-----------------------------------
Gentlemen:
Questron Technology, Inc., a Delaware Corporation (the "Company"), has filed
with the United States Securities and Exchange Commission (the "Commission") a
Registration Statement on Form SB-2 (Registration No. ________), with respect
to which this opinion is to be an exhibit, relating to the proposed sale by
the Company of:
1. Up to 1,150,000 previously unissued Units ("Units")
consisting of: (a) up to 1,150,000 previously
unissued shares of its Series B Convertible
Preferred Stock, $.01 par value ("Series B
Preferred Stock"), which are convertible into
_______ shares of Common Stock, par value $.001 per
share ("Common Stock") and (b) up to 1,150,000
previously unissued Series IV Warrants ("Series IV
Warrants");
2. Up to 1,150,000 shares of Common Stock underlying
the aforementioned Series IV Warrants;
3. A previously unissued underwriter's unit purchase
option ("Underwriter's Unit Purchase Option"),
representing the option to purchase 100,000
additional Units ("Underwriter's Units") consisting
of: (a) 100,000 previously unissued shares of
Series B Preferred Stock ("Underwriter's Series B
Preferred Stock") which are convertible into _____
shares of Common Stock and (b) 100,000 previously
unissued Series IV Warrants ("Underwriter's Series
IV Warrants");
4. 100,000 previously unissued shares of Common Stock
underlying the Underwriter's Series IV Warrants; and
5. 2,750,000 previously issued Series IV Warrants
which are to be offered by selling securityholders
("Selling Securityholders' Series IV Warrants") and
<PAGE>
Questron Technology, Inc. - 2 - _________, 1997
2,750,000 previously unissued shares of Common
Stock underlying the Selling Securityholders'
Series IV Warrants.
The Registration Statement, as amended, is herein referred to as the
"Registration Statement".
We have acted as securities counsel for the Company in connection with the
transactions which are the subject matter of the Registration Statement and
are familiar with the various corporate proceedings related thereto. In
connection with the Registration Statement, we have examined such corporate
records of the Company and such other instrument, documents and certificates
as we have deemed necessary as a basis for our opinion. For purposes of this
opinion, we have assumed (i) the accuracy and completeness of all information
supplied by the Company, its officers, directors, or agents, (ii) that the
transactions set forth in the Registration Statement are consummated as set
forth therein, (iii) that the Commission shall have issued an order under the
Securities Act of 1933, as amended, declaring the Registration Statement
effective, and (iv) that all requisite authorizations, approvals, consents or
exemptions under the securities laws of the various states and other
jurisdictions of the United States of America shall have been obtained.
Based on the foregoing, we are of the opinion that the Units, the Series B
Preferred Stock, the Series IV Warrants, the Underwriter's Unit Purchase
Option, the Underwriter's Units, the Underwriter's Series B Preferred Stock,
the Underwriter's Series IV Warrants, the Selling Securityholders' Series IV
Warrants, and the Common Stock issuable upon conversion of the Series B
Preferred Stock and upon exercise of the Series IV Warrants, the Underwriter's
Series IV Warrants and the Selling Securityholder's Series IV Warrants to be
sold in accordance with the Registration Statement, are duly authorized and
upon issuance, delivery and sale thereof, for the consideration specified in
the Registration Statement, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as a part of, or an exhibit to, any document which
may be filed with respect to the proposed transactions under the securities
laws of the various states and other jurisdictions of the United States of
America. We also consent to be named in the Registration Statement and in the
Prospectus which constitutes a legal part thereof as the counsel that will
pass upon certain legal matters for the Company in connection with the sale of
the Company's securities.
Very truly yours,
GOULD & WILKIE
Enclosures
<PAGE>
EXHIBIT 10.19
QUESTRON TECHNOLOGY, INC.
1996 STOCK OPTION PLAN
SECTION 1. Purpose. The purpose of the Questron Technology, Inc. 1996
Stock Option Plan is to advance the interests of Questron Technology, Inc.
(the "Company") by enabling officers, employees and directors of the Company
and its Affiliates to participate in the Company's future and to enable the
Company to attract and retain such persons by offering them proprietary
interests in the Company.
SECTION 2. Definitions. For purposes of the Plan, the following terms
are defined as set forth below:
a. "Affiliate" means a corporation or other entity
controlled directly, or indirectly through one or more intermediaries, by the
Company and designated by the Committee as such.
b. "Award" means an award granted to a Participant in
the form of a Stock Appreciation Right, Stock Option, or Restricted Stock, or
any combination of the foregoing.
c. "Board" means the Board of Directors of the Company.
d. "Cause" shall have the meaning set forth in
Section 8.
e. "Code" means the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
f. "Commission" means the Securities and Exchange
Commission or any successor agency.
g. "Committee" means the Committee referred to in
Section 5.
h. "Common Stock" means common stock, $.001 per share
par value, of the Company.
i. "Company" means Questron Technology, Inc., a
Delaware corporation.
j. "Disability" means permanent and total disability
as determined under procedures established by the Committee for purposes of
the Plan.
k. "Non-Employee Director" shall mean a director who
qualifies as such under Rule 16b-3(b)(3), as promulgated under the Exchange
Act, or as such term is defined under any successor rule adopted by the
Commission.
l. "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, and any successor thereto.
m. "Fair Market Value" means the average, as of any
given date, between the highest and lowest reported closing bid and asked
prices of the Stock on NASDAQ or the closing
<PAGE>
sale price as of any given date if the Stock is listed on a national
securities exchange or the NASDAQ National Market System. If there is no
regular public trading-market for such Stock under circumstances specified
above, the Fair Market Value of the Stock shall be determined by the Committee
in good faith.
n. "Incentive Stock Option" means any Stock Option
intended to be and designated as an "incentive stock option" within the
meaning of Section 422 of the Code.
o. "Non-Qualified Stock Option" means any Stock Option
that is not an Incentive Stock Option.
p. "Normal Retirement" means retirement from active
employment with the Company or an Affiliate at or after age 65 or at such
other age as may be specified by the Committee.
q. "Participant" means an officer, employee or director
of the Company or of an Affiliate to whom an Award has been granted which has
not terminated, expired or been fully exercised.
r. "Plan" means the Questron Technology, Inc. 1996
Stock Option Plan, as set forth herein and as hereinafter amended from time to
time.
s. "Restricted Period" means the period of time, which may
be a single period or multiple periods, during which Restricted Stock awarded
to a Participant remains subject to the restrictions imposed on such Stock, as
determined by the Committee.
t. "Restrictions" means the restrictions and conditions
imposed on Restricted Stock awarded to a Participant, as determined by the
Committee, which must be satisfied in order for the Restricted Stock to vest,
in whole or in part, in the Participant.
u. "Restricted Stock" means an Award of Stock on which are
imposed Restriction Period(s) and Restrictions whereby the Participant's
rights to full enjoyment of the Stock are conditioned upon the future
performance of substantial services by any individual or are otherwise subject
to a "substantial risk of forfeiture" within the meaning of Section 83 of the
Code, as amended.
v. "Restricted Stock Agreement" means a written
agreement between a Participant and the Company evidencing an award of
Restricted Stock.
w. "Restricted Stock Award Date" means the date on
which the Committee awarded Restricted Shares to the Participant.
x. "Retirement" means Normal Retirement or early
retirement if a defined benefit or 401(k) retirement plan of the Company
provides for same.
y. "Rule 16b-3" means Rule 16b-3, as promulgated by
the Commission granted under Section 16(b) of the Exchange Act, as amended
from time to time.
z. "Stock" means the Common Stock.
aa. "Stock Appreciation Right" means a right granted
under Section 9.
-2-
<PAGE>
bb. "Stock Option" or "Option" means an option granted
under Section 8.
cc. "Termination of Employment" means the termination of
the Participant's employment with the Company and any Affiliate. A Participant
employed by an Affiliate shall also be deemed to incur a Termination of
Employment if the Affiliate ceases to be an Affiliate and the Participant does
not immediately thereafter become an employee of the Company or another
Affiliate.
In addition, certain other terms used herein have
definitions given to them in the first place in which they are used.
SECTION 3. Effective Date.
The effective date of the Plan shall be the date
upon which the Plan is approved by the stockholders of the Company.
SECTION 4. Stock Subject to Plan.
The total number of shares of Stock reserved and
available for distribution pursuant to Awards under the Plan shall be 250,000
shares of post one-for-ten reverse split Stock. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
If any shares of Stock that have been Optioned
cease to be subject to a Stock Option, if any shares of Stock that are subject
to any Award are forfeited or if any Award otherwise terminates without a
distribution being made to the Participant in the form of Stock, such shares
shall again be available for distribution in connection with Awards under the
Plan. In addition, any stock purchased by a Participant upon exercise of an
Option under the Plan which is subsequently repurchased by the Company
pursuant to the terms of such Option may again be the subject of an Option
under the Plan.
In the event of any merger, reorganization,
consolidation, recapitalization (including but not limited to the issuance of
Stock or any securities convertible into Stock in exchange for securities of
the Company), stock dividend, stock split or reverse stock split,
extraordinary distribution with respect to the Stock or other similar change
in corporate structure affecting the Stock, such substitution or adjustments
shall be made in the aggregate number of shares reserved for issuance under
the Plan, in the number and Option price of shares subject to outstanding
Stock Options and Stock Appreciation Rights, and in the number of shares
subject to other outstanding Awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion;
provided, however, that the number of shares subject to any Award shall always
be a whole number and further provided that no adjustment shall be made by
reason of the one-for-ten reverse split of the outstanding Stock proposed in
the proxy statement relating to the Company's 1996 Annual Meeting of
Stockholders. Such adjusted Option price shall also be used to determine the
amount payable by the Company upon the exercise of any Stock Appreciation
Right associated with any Stock Option.
SECTION 5. Administration.
The Plan shall be administered by the Stock Award
Committee ("Committee") of the Board or such other committee of the Board,
composed of not less than two directors all of whom shall be Non-Employee
Directors unless otherwise determined by the Board. Each member of the
Committee shall be appointed by and serve at the pleasure of the
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<PAGE>
Board. If at any time no Committee shall be in place, the functions of the
Committee specified in the Plan shall be exercised by the Board.
The Committee shall have plenary authority to grant
Awards to officers, employees and directors of the Company or an Affiliate.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select the officers, employees and directors
to whom Awards may from time to time be granted;
(b) to determine whether and to what extent
Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation
Rights and Restricted Stock, or any combination thereof are to be granted
hereunder;
(c) to determine the number of shares of Stock to
be covered by each Award granted hereunder;
(d) to determine the terms and conditions of any
Award granted hereunder (including, but not limited to, the Option price, any
vesting restrictions or limitation, any repurchase rights in favor of the
Company and any vesting acceleration or forfeiture waiver regarding any Award
and the shares of Stock relating thereto, based on such factors as the
Committee shall determine);
(e) to adjust the terms and conditions, at any time
or from time to time, of any Award, including with respect to performance
goals and measurements applicable to performance-based Awards pursuant to the
terms of the Plan;
(f) to determine under what circumstances an Award
may be settled in cash or Stock;
(g) if appropriate, to determine Fair Market Value;
and
(h) to substitute new Stock Options for previously
granted Stock Options, including previously granted Stock Options having
higher Option prices.
The Committee shall have the authority to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall, from time to time, deem advisable, to interpret the
terms and provisions of the Plan and any Award issued under the Plan (and any
agreement relating thereto) and to otherwise supervise the administration of
the Plan.
The Committee may act only by a majority of its
members then in office, except that the members thereof may authorize any one
or more of their number or any officer of the Company to execute and deliver
documents on behalf of the Committee.
Any determination made by the Committee pursuant to
the provisions of the Plan with respect to any Award shall be made in its sole
discretion at the time of the grant of the Award or, unless in contravention
of any express term of the Plan, at any time thereafter. All decisions made by
the Committee pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and Participants.
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<PAGE>
SECTION 6. Eligibility.
Officers, employees and directors of the Company
and its Affiliates who are responsible for or contribute to the management,
growth and profitability of the business of the Company and its Affiliates are
eligible to be granted Awards under the Plan. Any person who files with the
Committee, in a form satisfactory to the Committee, a written waiver of
eligibility to receive any Award under the Plan shall not be eligible to
receive an Award under the Plan for the duration of the waiver.
SECTION 7. Duration of the Plan.
The Plan shall terminate ten (10) years from the
effective date specified in Section 3 of the Plan, unless terminated earlier
pursuant to Section 11 hereto, and no Awards may be granted thereafter.
SECTION 8. Stock Options.
Stock Options granted under the Plan may be of two
types: Incentive Stock Options and Non-Qualified Stock Options. Any Stock
Option granted under the Plan shall be in such form as the Committee may from
time to time approve.
The Committee shall have the authority to grant any
optionee Incentive Stock Options, Non-Qualified Stock Options or both types of
Stock Options (in each case with or without Stock Appreciation Rights).
Incentive Stock Options may be granted only to employees of the Company and
its subsidiaries (within the meaning of Section 424(f) of the Code). To the
extent that any Stock Option is not designated as an Incentive Stock Option or
even if so designated does not qualify as an Incentive Stock Option, it shall
constitute a Non- Qualified Stock Option.
Stock Options shall be evidenced by Option
agreements, the terms and provisions of which may differ. An Option agreement
shall indicate on its face whether it is an agreement for an Incentive Stock
Option or a Non-Qualified Stock Option. The grant of a Stock Option shall
occur on the date the Committee by resolution selects an individual to be a
participant in any grant of a Stock Option, determines the number of shares of
Stock to be subject to such Stock Option to be granted to such individual and
specifies the terms and provisions of the Option agreement. The Company shall
notify a Participant of any grant of a Stock Option, and a written Option
agreement or agreements shall be duly executed and delivered by the Company to
the Participant, which among other things, will make appropriate arrangements
with respect to the Company's tax withholding obligations. Such agreement or
agreements shall become effective upon execution by the Participant.
Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock Options shall
be interpreted, amended or altered nor shall any discretion or authority
granted under the Plan be exercised so as to disqualify the Plan under Section
422 of the Code or, without the consent of the optionee affected, to
disqualify any Incentive Stock Option under such Section 422.
Options granted under the Plan shall be subject to
the following terms and conditions and shall contain such additional terms and
conditions as the Committee shall deem desirable:
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<PAGE>
(a) Option Price. The Option price per share of
Stock purchasable under an Option shall be determined by the Committee and set
forth in the Option agreement, and shall not be less than the Fair Market
Value of the Stock subject to the Option on the date of grant in the case of
Incentive Stock Options and not less than 50% of the Fair Market Value of the
Stock subject to the Option on the date of grant in the case of Non-Qualified
Stock Options.
(b) Option Term. The term of each Stock Option
shall be fixed by the Committee, but no Incentive Stock Option shall be
exercisable more than 10 years after the date of grant; and no Non-Qualified
Stock Option shall be exercisable more than 10 years and one day after the
date the Stock Option is granted.
(c) Exercisability. Subject to Section 11, Stock
Options shall otherwise be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Committee. If the
Committee provides that any Stock Option is exercisable only in installments,
the Committee may at any time waive such installment exercise provisions, in
whole or in part, based on such factors as the Committee may determine. In
addition, the Committee may at any time accelerate the exercisability of any
Stock Option.
(d) Methods of Exercise. Subject to the provisions
of this Section 8, Stock Options may be exercised, in whole or in part, at any
time during the Option period by giving written notice of exercise to the
Company specifying the number of shares of Stock subject to the Stock Option
to be purchased.
Such notice shall be accompanied by payment in full
of the purchase price by certified or bank check or such other instrument as
the Company may accept. If approved by the Committee, payment in full or in
part may also be made in the form of unrestricted Stock already owned by the
optionee of the same class as the Stock subject to the Stock Option provided,
however, that, in the case of an Incentive Stock Option, the right to make a
payment in the form of already owned shares of Stock of the same class as the
Stock subject to the Stock Option shall be authorized only at the time the
Stock Option is granted.
An optionee shall have all of the rights of a
stockholder of the Company holding the class or series of Stock that is
subject to such Stock Option (including, if applicable, the right to vote the
shares and the right to receive dividends), when the optionee has given
written notice of exercise, and has paid in full for such shares. In the
discretion of the Committee, payment for any Stock subject to an option may
also be made by delivering a properly executed exercise notice to the Company
together with a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the
purchase price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms. The
value of previously owned Stock exchanged in full or partial payment for the
shares purchased upon the exercise of an Option shall be equal to the
aggregate Fair Market Value of such shares on the date of the exercise of such
Option.
(e) Non-transferability of Options. Except as may
otherwise be determined by the Committee, no Stock Option shall be
transferable by the optionee other than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee or by the guardian or legal
representative of the optionee, it being understood that the terms "holder"
and "optionee" include the guardian and legal representative of the optionee
named in the Option agreement and any person to whom an Option is transferred
by will or the laws of descent and distribution.
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<PAGE>
(f) Termination by Death. If an optionee's
employment terminates by reason of death, any Stock Option held by such
optionee may thereafter be exercised, to the extent then exercisable or on
such accelerated basis as the Committee may determine, for a period of one
year and one day (or such other period as the Committee may specify) from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter.
(g) Termination by Reason of Disability. If any
optionee's employment terminates by reason of Disability, any Stock Option
held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of termination or on such accelerated
basis as the Committee may determine, for a period of one year and one day (or
such shorter period as the Committee may specify at grant) from the date of
such termination of employment or until the expiration of the stated term of
such Stock Option, whichever period is the shorter; provided, however, that if
the optionee dies within such one year and one day period (or such shorter
period ending upon the expiration of the stated term of the Stock Option), any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such one year and one day period, continue to be exercisable to
the extent to which it was exercisable at the time of death for a period of
one year and one day from the date of such death or until the expiration of
the stated term of such Stock Option, whichever period is the shorter. In the
event of termination of employment by reason of disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(h) Other Termination. Unless otherwise determined
by the Committee, if an optionee incurs a Termination of Employment for any
reason other than death or Disability, any Stock Option held by such optionee
shall thereupon terminate, except that such Stock Option, to the extent then
exercisable, may be exercised for the lesser of three months and one day from
the date of such Termination of Employment or the balance of such Stock
Option's term if such Termination of Employment of the optionee is involuntary
and without Cause. Unless otherwise determined by the Committee, for the
purposes of the Plan "Cause" shall have the same meaning as that set forth in
any employment or severance agreement in effect between the Company and the
Participant. Otherwise, it shall mean (1) the conviction of the optionee for
committing a felony under Federal law or the law of the state in which such
action occurred, (2) dishonesty in the course of fulfilling the optionee's
employment duties or (3) willful and deliberate failure on the part of the
optionee to perform his or her employment duties in any material respect.
(i) Cashing Out of Option. On receipt of written
notice of exercise, the Committee may, in its sole discretion, elect to cash
out all or part of any Stock Option to be exercised by paying the optionee an
amount, in cash or Stock, equal to the excess of the Fair Market Value of the
Stock that is the subject of the Option over the Option price times the number
of shares of Stock subject to the option on the effective date of such cash
out.
SECTION 9. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights
may be granted in conjunction with all or part of any Stock Option granted
under the Plan. In the case of a Non- Qualified Stock Option, such rights may
be granted either at or after the time of grant of such Stock Option. In the
case of an Incentive Stock Option, such rights may be granted only at the time
of grant of such Stock Option. A Stock Appreciation Right shall terminate and
no longer be exercisable upon the termination or exercise of the related Stock
Option.
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<PAGE>
A Stock Appreciation Right may be exercised by an
optionee in accordance with Section 9(b) by surrendering the applicable
portion of the related Stock Option in accordance with procedures established
by the Committee. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in Section
9(b). Stock Options which have been so surrendered shall no longer be
exercisable to the extent the related Stock Appreciation Rights have been
exercised.
(b) Terms and Conditions. Stock Appreciation Rights
shall be subject to such terms and conditions as shall be determined by the
Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Stock Options to which
they relate are exercisable in accordance with the provisions of Section 8 and
this Section 9 or as may otherwise be determined by the Committee.
(ii) Upon the exercise of a Stock Appreciation
Right, an optionee shall be entitled to receive an amount in cash, shares of
Stock or both equal in value to the excess of the Fair Market Value of one
share of Stock over the option price per share specified in the related Stock
Option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right, in its sole discretion, to determine the form of payment.
(iii) Stock Appreciation Rights shall be
transferable only when and to the extent that the underlying Stock Option
would be transferable under Section 8(e).
(iv) Upon the exercise of a Stock Appreciation
Right, the Stock Option or part thereof to which such Stock Appreciation Right
is related shall be deemed to have been exercised for the purpose of
determining the number of shares of Stock available for issuance under the
Plan in accordance with Section 5 of the Plan, but only to the extent of the
number of shares resulting from dividing the value of the Stock Appreciation
Right at the time of exercise by the Fair Market Value of one share of Stock
determined in accordance with this Section 9.
SECTION 10. Terms of Restricted Stock Awards.
Subject to and consistent with the provisions of
the Plan, with respect to each Award of Restricted Stock to a Participant, the
Committee shall determine:
(a) the terms and conditions of the Restricted
Stock Agreement between the Company and the Participant evidencing the Award;
(b) the Restricted Period for all or a portion of
the Award;
(c) the Restrictions applicable to the Award,
including, but not limited to, continuous employment with the Company for a
specified term or the attainment of specific corporate, divisional or
individual performance standards or goals, which Restricted Period and
Restrictions may differ with respect to each Participant;
(d) whether the Participant shall receive the
dividends and other distributions paid with respect to an award of the
Restricted Stock as declared and paid to the holders of Stock during the
Restricted Period or shall be withheld by the Company for the account of the
Participant until the Restricted Periods have expired or the Restrictions have
been
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<PAGE>
satisfied, and whether interest shall be paid on such dividends and other
distributions withheld, and if so, the rate of interest to be paid;
(e) the percentage of the Award which shall vest in
the Participant in the event of death, Disability or Retirement prior to the
expiration of the Restricted Period or the satisfaction of the Restrictions
applicable to an award of Restricted Stock; and
(f) notwithstanding the Restricted Period and the
Restrictions imposed on the Restricted Shares, as set forth in a Restricted
Stock Agreement, whether to shorten the Restricted Period or waive any
Restrictions, if the Committee concludes that it is in the best interests of
the Company to do so.
Upon an award of Restricted Stock to a Participant,
the stock certificate representing the Restricted Stock shall be issued and
transferred to and in the name of the Participant, whereupon the Participant
shall become a stockholder of the Company with respect to such Restricted
Stock and shall be entitled to vote the Stock. Such stock certificates shall
be held in custody by the Company, together with stock powers executed by the
Participant in favor of the Company, until the Restricted Period expires and
the Restrictions imposed on the Restricted Stock are satisfied.
SECTION 11. Amendments and Termination.
The Board may amend, alter, or discontinue the
Plan, but no amendment, alteration or discontinuation shall be made which
would (i) impair the rights of an Award theretofore granted without the
Participant's consent, except such an amendment made to cause the Plan to
qualify for the exemption provided by Rule 16b-3, or (ii) disqualify the Plan
from the exemption provided by Rule 16b-3. In addition, no such amendment
shall be made without the approval of the Company's stockholders to the extent
such approval is required by law or agreement.
The Committee may amend the terms of any Stock
Option or other Award theretofore granted, prospectively or retroactively, but
no such amendment shall impair the rights of any holder without the holder's
consent except such an amendment made to cause the Plan or Award to qualify
for the exemption provided by Rule 16b-3. The Committee may also substitute
new Stock Options for previously granted Stock Options, including previously
granted Stock Options having higher option prices.
Subject to the above provisions, the Board shall
have authority to amend the Plan to take into account changes in law and tax
and accounting rules, as well as other developments and to grant Awards which
qualify for beneficial treatment under such rules without shareholder
approval.
SECTION 12. General Provisions.
(a) Nothing contained in the Plan shall prevent the
Company or an Affiliate from adopting other or additional compensation
arrangements for its employees.
(b) The Plan shall not confer upon any employee any
right to continued employment nor shall it interfere in any way with the right
of the Company or an Affiliate to terminate the employment of any employee at
any time.
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<PAGE>
(c) No later than the date as of which an amount
first becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award under the Plan, the Participant
shall pay to the Company, or make arrangements satisfactory to the Company
regarding the payment of, any Federal, state, local or foreign taxes of any
kind required by law to be withheld with respect to such amount. Unless
otherwise determined by the Company, withholding obligations may be settled
with Stock, including Stock that is part of the Award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to deduct any
such taxes from any payment otherwise due to the participant.
(d) The Committee shall establish such procedures
as it deems appropriate for a Participant to designate a beneficiary to whom
any amounts payable in the event of the participant's death are to be paid.
(e) Agreements entered into by the Company and
Participants relating to Awards under the Plan, in such form as may be
approved by the Committee from time to time, to the extent consistent with or
permitted by the Plan shall control with respect to the terms and conditions
of the subject Award. If any provisions of the Plan or any agreement entered
into pursuant to the Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provisions of the
Plan or the subject agreement.
(f) The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of
the State of Delaware.
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<PAGE>
EXCHANGE AGREEMENT
Exchange Agreement (this "Agreement") entered into as of the 8th day
of November, 1996 by and among Questron Technology, Inc., a Delaware
corporation (the "Company"), Gulfstream Financial Group, Inc., a Florida
corporation ("Gulfstream"), and Phillip D. Schwiebert, an individual resident
in California ("Schwiebert").
W I T N E S S E T H :
WHEREAS, the Company and Gulfstream are party to a Management Advisory
and Consulting Agreement dated as of November 29, 1994 (the "Management
Agreement") pursuant to which Gulfstream will be entitled to acquire warrants
to purchase shares of the Company's common stock for $0.10 per share upon the
satisfaction of certain performance targets; and
WHEREAS, a wholly owned subsidiary of the Company and Schwiebert are
party to an Employment Agreement dated as of November 29, 1994 (the "Employment
Agreement") pursuant to which Schwiebert will be entitled to acquire warrants
to purchase shares of the Company's common stock for $0.10 per share upon the
satisfaction of certain performance targets; and
WHEREAS, the parties desire to amend the Management Agreement and the
Employment Agreement in the manner hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged by all of the parties hereto, it is
agreed as follows:
1. Amendment of Management Agreement. The Management Agreement is
hereby amended by deleting Schedule A thereto in its entirety and substituting
the annexed Amended Schedule A to Management Agreement in lieu therefor.
2. Amendment of Employment Agreement. The Employment Agreement is
hereby amended by deleting Schedule A thereto in its entirety and substituting
the following annexed Amended Schedule A to Employment Agreement in lieu
therefor.
3. Option and Warrant Agreements. The Company shall enter appropriate
option agreements substantially in the form of Exhibit I annexed hereto with
Gulfstream and Schwiebert to evidence the options granted hereunder. In the
event that any of the performance options referred to on the aforementioned
schedules are earned, the Company shall enter into appropriate option
agreements in substantially the same form. The Company shall also enter into
temporary warrant agreements substantially in the form of Exhibit II annexed
hereto. In the event that the Company consummates the proposed public offering
of units consisting of Series B Convertible Preferred Stock ("Series B
Preferred Stock") and Series IV Common Stock Purchase Warrants
<PAGE>
("Series IV Warrants"), the Company shall substitute Series IV Warrant
certificates in the form issued to the public in connection with such public
offering for the temporary warrant agreements in the form of Exhibit II. In the
event that such public offering is not consummated, the temporary warrant
agreements in the form of Exhibit II shall remain in effect until the
expiration thereof.
4. Full Force and Effect. This Agreement shall be subject to the
consummation of the Company's proposed one-for-ten reverse split of its issued
and outstanding Common Stock as soon as practicable following its 1996 Annual
Meeting of Stockholders. Except as expressly set forth herein, the Management
Agreement and the Employment Agreement shall remain in full force and effect.
5. Entire Agreement. This Agreement, together with the exhibits and
schedules hereto and the Management Agreement and the Employment Agreement,
shall constitute the entire agreement of the parties relating to the subject
matter hereof and thereof and supersedes any prior understandings or agreements
relating to such subject matter. No provision of this Agreement may be amended
or waived except by a writing signed by the party sought to be charged.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
on their behalves this Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC. GULFSTREAM FINANCIAL GROUP, INC.
By /s/ MILTON M. ADLER By /s/ DOMINIC A. POLIMENI
-------------------------- --------------------------
Treasurer President
/s/ PHILLIP D. SCHWIEBERT
--------------------------
Phillip D. Schwiebert
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<PAGE>
AMENDED SCHEDULE A
TO
MANAGEMENT AGREEMENT
Gulfstream is hereby granted the following options and rights:
(a) Options. Options to acquire 120,000 shares of Common Stock for a
per share purchase price equal to the average of the closing bid and asked
prices of the Common Stock as of November 8, 1996.
(b) Warrants. Warrants to acquire 1,000,000 shares of Common Stock.
The exercise price of the Warrants is to be the same as for the Series IV
Warrants expected to be issued in the proposed public offering of the Company's
securities in or about January 1997. If such proposed offering is not
consummated, the exercise price shall be 115% of the average of the closing bid
and asked prices as November 8, 1996.
(c) Performance Options. Options to acquire additional shares of
Common Stock at an exercise price equal to the fair market value of the Common
Stock at the date of grant if the pre-tax income targets set forth below are
met or exceeded in any fiscal year up to and including fiscal year 2001:
No. of Additional
Shares Pre-tax Income at Least
------ -----------------------
333,333 $2,500,000
333,333 $3,500,000
333,334 $4,500,000
All share amounts set forth above have been adjusted to reflect the
proposed one-for-ten reverse split of the Company's issued and outstanding
common stock. No further adjustment to such share amounts will be effected in
the event such reverse split is completed. In the event the reverse split is
consummated, any exercise prices based upon pre-split prices will be multiplied
by a factor of ten. Once a target has been met and the appropriate award has
been made, no further award shall be made until one or more of the higher
targets has been met. If for any given year, more than one previously
unattained target has been met, the award shall be cumulative. The pre-tax
income of any businesses acquired by the Company during the relevant period
shall be included in the pre-tax income of the Company for the purposes of
determining whether the foregoing targets have been equalled or exceeded.
<PAGE>
AMENDED SCHEDULE A
TO
EMPLOYMENT AGREEMENT
Schwiebert is hereby granted the following options and rights:
(a) Options. Options to acquire 30,000 shares of Common Stock for a
per share purchase price equal to the average of the closing bid and asked
price of the Common Stock as of November 8, 1996.
(b) Warrants. Warrants to acquire 250,000 shares of Common Stock. The
exercise price of the Warrants is to be the same as for the Series IV Warrants
expected to be issued in the proposed public offering of the Company's
securities in or about January 1997. If such proposed offering is not
consummated, the exercise price shall be 115% of the average of the closing bid
and asked prices as of November 8, 1996.
(c) Performance Options. Options to acquire additional shares of
Common Stock at an exercise price equal to the fair market value of the Common
Stock at the date of grant if the pre-tax income targets set forth below are
met or exceeded in any fiscal year up to and including fiscal year 2001:
No. of Additional
Shares Pre-tax Income at Least
------ -----------------------
166,667 $2,500,000
166,667 $3,500,000
166,666 $4,500,000
All share amounts set forth above have been adjusted to reflect the
proposed one-for-ten reverse split of the Company's issued and outstanding
common stock. No further adjustment to such share amounts will be effected in
the event such reverse split is completed. In the event the reverse split is
consummated, any exercise prices based upon pre-split prices will be multiplied
by a factor of ten. Once a target has been met and the appropriate award has
been made, no further award shall be made until one or more of the higher
targets has been met. If for any given year, more than one previously
unattained target has been met, the award shall be cumulative. The pre-tax
income of any business acquired by the Company during the relevant period shall
be included in the pre-tax income of the Company for the purposes of
determining whether the foregoing targets have been equalled or exceeded.
<PAGE>
Exhibit I
NO. OF SHARES: _______
QUESTRON TECHNOLOGY, INC.
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of _________________, among QUESTRON
TECHNOLOGY, INC., a Delaware corporation ("Company"), with an address of 6400
Congress Avenue, Suite 200, Boca Raton, Florida 33487 and
________________________ ("Optionee"), with an address of .
1. GRANT OF OPTION
The Company, effective ________________ ("Date of Grant"), hereby
grants to the Optionee the right and the option ("Option") to purchase
all or any part of an aggregate of ______ shares of the Company's
Common Stock ($.001 per share par value) ("Common Stock") on the terms
and conditions herein set forth. Dividends, subscription rights, etc.
declared with respect to Common Stock prior to the exercise of the
Option are not included in the Option. This Option is granted pursuant
to an Exchange Agreement dated as of November 8, 1996 by and among the
Company, the Optionee and the other party named therein.
2. PURCHASE PRICE
The purchase price of the shares of Common Stock subject to the Option
shall be $____ per share subject to the adjustment as provided in
Section 5 below.
3. TERMS OF OPTION
A. EXPIRATION DATE. Notwithstanding anything herein to the
contrary, this option shall be exercisable during the ten
(10) years from the date hereof or such shorter time as
prescribed herein.
B. EXERCISE. This Option shall be exercised, in whole, or, from
time to time, in part, by written notice received by the
Secretary or Treasurer of the Company not later than 5:00
P.M. prevailing local time, on or prior to the day the Option
is to expire, specifying the number of shares of Common Stock
to be purchased, and accompanied by full payment by certified
or bank check or such other instrument as the Company may
accept. Payment in full or in part may also be made in the
form of shares of Common Stock owned by the Optionee, which
shall be free and clear of all liens, encumbrances and
restrictions of any kind whatsoever and Optionee may be
requested to represent and warrant to such effect and to take
such other steps with respect to this form of payment as the
Company shall require. Any such exercise shall also be
subject to receipt by the Company of the representation and
undertaking set forth in Section 4C hereof. Upon such
payment the Company will thereafter deliver or cause to be
delivered to the Optionee, at the office of the Company, a
certificate or certificates for the number of shares with
respect to which
<PAGE>
this Option is being exercised, registered in the name of the
Optionee; provided, however, that if any law or regulation or
order of the Securities and Exchange Commission or other body
having jurisdiction in the premises shall require the Company
or Optionee (or other individual or individuals) to take any
action in connection with the shares then being purchased,
the delivery of the certificate or certificates for such
shares shall be delayed for the period necessary to take and
complete such action.
C. SECURITIES LAW RESTRICTIONS. The Company is under no
obligation to file a registration statement under the
Securities Act of 1933 ("Act") with respect to the shares
of Common Stock subject to the Option. Unless a registration
statement under the Act has been filed and remains effective
with respect to such shares, the Company shall require that
the offer and sale of such shares be exempt from the
registration provisions of the Act. As a condition of such
exemption, the Company shall require a representation and
undertaking, in form and substance satisfactory to counsel
for the Company, that the Optionee is acquiring the shares
for the Optionee's own account for investment and not with
a view to the distribution or resale thereof and shall
otherwise require such representations and impose such
conditions as shall establish to the Company's satisfaction
that the offer and sale of such shares issuable upon the
exercise of the Option will not constitute a violation of
the Act or any similar state act affecting the offer
and sale. If such shares are issued in an exempt
transaction, such shares shall bear the following
restrictive legend:
"The shares represented by this
certificate have not been registered under
the Securities Act of 1933 and may not be
sold, pledged, or otherwise transferred
except pursuant to an effective
registration statement under said Act, Rule
144 or an opinion of counsel acceptable to
the Company that some other exemption from
registration is available."
If said shares were registered under the Act, to the extent that
Optionee is an "affiliate" of the Company, any reoffers or resales of
Common Stock acquired pursuant to the Plan, must be held indefinitely
unless (i) distribution of said Stock has been made registered under
the Act, (ii) a sale of said Stock is made in conformity with the
provisions of Rule 144 issued by the Securities and Exchange
Commission under the Act, or (iii) in the opinion of counsel
acceptable to the Company some other exemption from registration is
available.
4. ADJUSTMENTS
In the event of any merger, reorganization, consolidation,
recapitalization (including but not limited to the issuance of Common
Stock or any securities convertible into Common Stock in exchange for
securities of the Company), stock dividend, stock split or reverse
stock split, extraordinary distribution with respect to the Common
Stock or other similar change in corporate structure affecting the
Common Stock, such substitution or adjustments shall be made in the
aggregate number of shares of Common Stock then subject to the Option
and in the Option price as may be determined to be appropriate by the
Board of Directors of the Company, in its sole discretion; provided,
however, that the number of shares of Common Stock subject to this
Option shall always be a whole number.
5. TAXES
The Company's obligation to deliver shares of Common Stock upon
exercise of this Option in whole or in part, shall be subject to
satisfaction of any applicable federal, state and local tax
obligations.
-2-
<PAGE>
6. ACCEPTANCE OF PROVISIONS
The execution of this Agreement by the Optionee shall constitute the
Optionee's acceptance of and agreement to all of the terms and
conditions of this Agreement.
7. NOTICES
All notices and other communications required or permitted under this
Agreement shall be in writing and shall be given either by (i)
personal delivery or regular mail or, (ii) first class registered or
certified mail, return receipt requested. Except as otherwise provided
in Section 4B hereof on the exercise, in whole or in part, of the
Option, any such communication shall be deemed to have been given on
the date of receipt in the cases referred to in clause (i) of the
preceding sentence and on the second day after the date of mailing in
the cases referred to in clause (ii) of the preceding sentence. All
such communications to the Company shall be addressed to it, to the
attention of its Secretary or Treasurer, at its the principal office
at the address first set forth above, and to the Optionee at its
addresses first set forth above, or, in each case, to such other
person or address as may be designated by like notice hereunder.
8. SHARES RESERVED
The Company shall at all times during the term of this Agreement
reserve and keep available such number of shares of its Common Stock
as will be sufficient to satisfy the requirements of this Agreement,
and shall pay all original issue taxes on the exercise of this Option,
and all other fees and expenses necessarily incurred by the Company in
connection therewith.
9. SUCCESSORS
This Agreement shall be binding upon any successor of the Company.
10. MISCELLANEOUS
This Agreement contains a complete statement of all the arrangements
between the parties with respect to its subject matter, and this
Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to agreements made and to be
performed exclusively in Delaware. The headings in this Agreement are
solely for convenience of reference and shall not affect its meaning
or interpretation.
QUESTRON TECHNOLOGY, INC. OPTIONEE
By:________________________________ ______________________
President
-3-
<PAGE>
Exhibit II
----------
No. WIV Series IV Warrants
STOCK PURCHASE WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK OF
QUESTRON TECHNOLOGY, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
_____________________________ or registered assigns (the "Registered Holder")
is the owner of __________ Series IV Redeemable Common Stock Purchase Warrants
("Warrants"). This Warrant Certificate and each Warrant represented hereby are
subject to in all respects the terms and conditions set forth in the Warrant
Agreement (the "Warrant Agreement") to be entered into by the Company in
connection with the public offering (the "Offering") of Units each consisting
of one share of Series B Convertible Preferred Stock and one Warrant. By his
acceptance of this Certificate, the Registered Holder hereby agrees that he
shall accept at the closing of the Offering a certificate evidencing the
Warrants identical in all respects to the form issued to the public investors
pursuant to the Warrant Agreement ("Public Warrants"). In the event that the
Offering is not consummated and the Public Warrants are not issued, the
Warrants will have an exercise price of $4.3125 per share and the Company
agrees to offer the Registered Holder substantially the same terms and
conditions as would have been in effect under the Warrant Agreement.
QUESTRON TECHNOLOGY, INC.
By:__________________________
Date: _____________________, 1996
<PAGE>
EXHIBIT 11.0
<TABLE>
<CAPTION>
QUESTRON TECHNOLOGY, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the nine months For the years ended
ended September 30, December 31,
------------------------- ----------------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average number of shares of common stock
outstanding during the period 15,354,842 11,138,217 11,533,067 2,793,402
Assumed conversion of the Series A Preferred -- -- -- 280,000
Stock, as of the beginning of the period
Assumed exercise of dilutive stock options and
warrants, based on the treasury
method of accounting using the period-end market price
per share of the Registrant's common stock 19,636 2,097,357 2,309,798 2,774,021
----------- ----------- ----------- ----------
Fully diluted average number of shares of
common stock and common stock equivalents
outstanding during the period 15,374,478 13,235,574 13,842,865 5,847,423
========== ========== ========== ===========
Net income (loss) available to common $ 389,501 $ 229,117 $ 352,187 $ (641,033)
shareholders ========== ========== ========== ===========
Net income (loss) per common share $ .03 $ .02 $ .03 $ (.11)
========== ========== ========== ===========
</TABLE>
The calculation for the nine month periods ended September 30, 1996
and 1995, and for the year ended December 31, 1994 is submitted in accordance
with Securities Exchange Act of 1934 Release No. 9083 although it is contrary
to Paragraph 40 of APB Opinion No. 15 because it produces an antidilutive
result.
<PAGE>
EXHIBIT 22.0
SUBSIDIARIES
------------
Jurisdiction of Percentage of
Name Incorporation Ownership
---- ------------- ---------
Quest Electronic Hardware, Inc. Delaware 100%
Judicate of Philadelphia, Inc. Delaware 100%
Questnet Components, Inc. Delaware 100%
<PAGE>
EXHIBIT 24.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 and
in the Prospectus forming part of such Registration Statement of our report
dated February 5, 1996, on our audits of the financial statements of Comp
Ware, Inc. d/b/a/ Webb Distribution. We also consent to the reference to our
firm under the caption "Experts."
ESTABROOK & CO., INC., P.C.
Certified Public Acountants
Winchester, Massachusetts
December 18, 1996
<PAGE>
EXHIBIT 24.2
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this Registration Statement
on Form SB-2 of our report dated April 2, 1996, on our audits of the financial
statements of Questron Technology, Inc. We also consent to the referenced to
our firm under the caption "Experts."
On July 1, 1996, the firm Mortenson and Associates, P.C.
changed its name to Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
December 18, 1996
