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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Items 2, 5, 7
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 22, 1997
QUESTRON TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-13324 23-2257354
(State of incorporation (Commission File Number) (IRS Employer
or organization) Identification No.)
6400 CONGRESS AVENUE, SUITE 200A, BOCA RATON, FLORIDA 33487
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 241-5251
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 22, 1997, Questron Technology, Inc. (the "Company")
completed the acquisition of California Fasteners, Inc. ("Calfast") from the
former shareholders of Calfast. Calfast is a distributor of fasteners and
related items, with branches in Anaheim, San Diego and Phoenix. Calfast had
revenues of $11 million for the eleven months ended July 31, 1997 and an
operating profit of approximately $2 million, after certain adjustments for
non-recurring expenses. Calfast will operate as a wholly-owned subsidiary of
the Company.
The Company paid a total of $10,634,441, consisting of $6,594,441 in
cash, the assumption of $1,058,712 in net debt and the issuance of 475,106
shares (the "Shares") of common stock of the Company, valued at $2,981,288.
Subject to the terms of the Stock Purchase Agreement (the "Agreement"), a copy
of which is being filed with this Current Report on Form 8-K as Exhibit 2.0,
and the related Put Agreement, being filed with this Report as Exhibit 2.1,
the former Shareholders of Calfast were granted the option to sell 125,896 of
such Shares back to the Company on a monthly basis in the following manner:
(i) for each of the seven months during the period October 1997 through April
1998, an aggregate of 8,879 Shares per month (valued at $6.275 per Share), and
(ii) for each of the fifty-three months during the period May 1998 through
September 2002, an aggregate of 1,203 Shares per month (valued at $6.275 per
Share).
In addition, the consideration is subject to adjustment based upon
certain operating performance targets for the years ending December 31, 1997
and 1998. The Company will pay as additional purchase price an amount equal to
the aggregate earnings before interest, income taxes, amortization of
goodwill, and the allocation of corporate expenses associated with the three
branches of Calfast (hereinafter "EBIT") in excess of $1,000,000 for the four
month period from September through December 1997. Such additional payment may
not exceed $795,559. For the year ended December 31, 1998, the Company will
pay as additional purchase price an amount equal to the 1998 EBIT up to a
maximum of $3,500,000 (the "1998 Deferred Purchase Price") by delivery of (i)
an aggregate amount equal to 50% of the 1998 Deferred Purchase Price up to
$1,750,000 in cash; and (ii) shares of the Company's Common Stock, the value
of which shall equal 50% of the 1998 Deferred Purchase Price, up to $1,750,000
(based on the then market price of the shares).
In connection with the acquisition, the Company has also entered
into five year employment agreements with Calfast's two former shareholders,
Doug Zadow and Terry Bastian.
The Shares issued have not been registered under the Securities Act
of 1933 (the "Act") and may not be resold absent such registration or unless
an exception from registration is available. The Company is obligated to file
a registration statement under the Act relating to the resale of 125,896 of
the Shares.
In connection with the closing of the Calfast transaction, the
Company entered into a new credit facility with the Silicon Valley Bank of
Santa Clara, California. The facility consists of a $10,000,000 six-year term
loan and a $4,000,000 revolving credit facility. A portion of the funds from
the credit facility was used to finance the acquisition of Calfast.
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ITEM 5. OTHER EVENTS
When used in reports filed with the Securities and Exchange
Commission and in other communications by the Company, the words "believes,"
"anticipates," "expects" and similar expressions are intended to identify in
certain circumstances forward looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. 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 discussed in the
"Risk Factors" set forth below. Given these uncertainties, prospective
investors are cautioned not to place undue reliance on such forward looking
statements. The Company also undertakes no obligation to update any forward
looking statements.
RISK FACTORS
NO ASSURANCES THAT RECENT OR POSSIBLE FUTURE ACQUISITIONS WILL BE PROFITABLE
Prior to March 1997, the Company derived its revenues primarily
through its wholly-owned subsidiary, Quest Electronic Hardware, Inc.
("Quest"). Subsequent to March 1997, the Company has acquired a number of
companies engaged in the distribution of fasteners, electronic hardware and
related items. The Company can make no assurances that this combination of
businesses will be as successful as each business was independently. In
addition, the Company may enter into additional agreements for future
acquisitions. The Company can make no assurances that any such acquisitions
can be successfully completed or that future acquisitions will be profitable.
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.
ECONOMIC FACTORS
The Company's business may be adversely affected by a downturn in
the economy as a whole or in the electronics industry in particular. The
Company's business would also be adversely affected in the event of a
significant increase in interest rates which would result in an increase in
the Company's borrowing costs.
DEPENDENCE UPON MAJOR CUSTOMERS
The Company has developed a customer base consisting of over 3,000
active customers. Over 95% of the Company's sales are recurring sales to
existing customers. For the fiscal year ended December 31, 1996 (on a pro
forma basis), the Company's 20 largest customers accounted for approximately
50% of its sales, with no one customer contributing more than 14%.
These sales arrangements are terminable upon short notice and none
of these customers is obligated to continue to use the services of the Company
at all or at existing prices. The dependence on major customers subjects the
Company to significant financial risk in the operation
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of its business should a major customer terminate, for any reason, its
business relationship with the Company. The continuing ability of the Company
to maintain these customer relationships and to build new relationships is
dependent, among other things, upon its ability to maintain the high quality
standards demanded by its customers.
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company intends to fund its operations and other capital needs
substantially from operations and available borrowings under the Company's
credit agreement with a bank; however there can be no assurance that such
funds will be sufficient for these purposes. In the event that the Company
needs additional financing to fund its operations and capital needs or to
finance future acquisitions, there can be no assurance that such financing
will be available, or that it will be available on acceptable terms.
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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) and (b). The financial statements and pro-forma financial
information, required as part of this Form 8-K Report, will be filed not later
than 60 days from the date of this Report as an amendment to this Report.
(c). Exhibits required by Item 601 of Regulation S-B.
Exhibit No. Exhibit
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2.0 Stock Purchase Agreement between Questron Technology, Inc. and
the Shareholders of California Fasteners, Inc. dated August 29,
1997.
2.1 Serial Put Agreement between Questron Technology, Inc. and Doug
Zadow and Terry Bastian, dated September 22, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
QUESTRON TECHNOLOGY, INC.
Date: October 7, 1997 By: /s/ Dominic A. Polimeni
------------------------
Dominic A. Polimeni
Chairman, President and Chief
Executive Officer
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EXHIBIT INDEX
Exhibit No. Exhibit
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2.0 Stock Purchase Agreement between Questron Technology, Inc. and
the Shareholders of California Fasteners, Inc. dated August 29,
1997.
2.1 Serial Put Agreement between Questron Technology, Inc. and Doug
Zadow and Terry Bastian, dated September 22, 1997.
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STOCK PURCHASE AGREEMENT
By and Among
QUESTRON TECHNOLOGY, INC.
and
THE SHAREHOLDERS OF CALIFORNIA FASTENERS, INC.
LISTED ON SCHEDULE 1.1 HERETO
Dated as of August 29, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE 1 SALE AND PURCHASE OF SHARES..............................1
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Sec. 1.1. Sale of Shares...........................................1
Sec. 1.2. Purchase Consideration and Payment for Shares............1
Sec. 1.3. Transactions on the Closing Date.........................2
Sec. 1.4. Payment of 1997 Deferred Purchase Price..................3
Sec. 1.5. Payment of 1998 Deferred Purchase Price..................3
Sec. 1.6. Restricted Securities....................................3
ARTICLE 2 CLOSING AND TERMINATION..................................4
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Sec. 2.1. Closing..................................................4
Sec. 2.2. Termination..............................................4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS................4
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Sec. 3.1. Due Execution............................................4
Sec. 3.2. Corporate Organization and Authority of Company..........5
Sec. 3.3. Certificate of Incorporation; By-laws....................5
Sec. 3.4. Subsidiaries and Equity Investments......................5
Sec. 3.5. Ownership of Shares......................................5
Sec. 3.6. Capitalization...........................................5
Sec. 3.7. No Violation.............................................6
Sec. 3.8. Litigation...............................................6
Sec. 3.9. Personal Property........................................7
Sec. 3.10. Real Property............................................7
Sec. 3.11. Financial Statements.....................................7
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Sec. 3.12. Books and Records........................................8
Sec. 3.13. Tax Matters..............................................8
Sec. 3.14. Employee Matters........................................10
Sec. 3.15. Intellectual Property...................................13
Sec. 3.16. Accounts Receivable.....................................13
Sec. 3.17. Inventory...............................................13
Sec. 3.18. No Material Change......................................13
Sec. 3.19. Absence of Change or Event..............................14
Sec. 3.20. Compliance with Law.....................................15
Sec. 3.21. Contracts and Commitments...............................15
Sec. 3.22. Insurance...............................................16
Sec. 3.23. Affiliate Interests.....................................16
Sec. 3.24. Customers, Suppliers, Distributors, Etc.................17
Sec. 3.25. Absence of Questionable Payments........................17
Sec. 3.26. Investment Intent.......................................17
Sec. 3.27. Disclosure..............................................18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF QUESTRON .............18
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Sec. 4.1. Organization............................................18
Sec. 4.2. Corporate Authority.....................................18
Sec. 4.3. No Violation............................................18
Sec. 4.4. Investment Intent.......................................19
Sec. 4.5. Due Execution...........................................19
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ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS OF SELLERS AND
- --------- -----------------------------------------------
QUESTRON................................................19
Sec. 5.1. Conduct of Business Prior to the Closing Date...........19
Sec. 5.2. Tax Covenants...........................................20
Sec. 5.3. Expenses and Finder's Fees..............................22
Sec. 5.4. Access to Information and Confidentiality...............22
Sec. 5.5. No Solicitation.........................................23
Sec. 5.6. Press Releases..........................................23
Sec. 5.7. Transitional Assistance.................................23
Sec. 5.8. Conditions..............................................23
ARTICLE 6 CONDITIONS PRECEDENT OF QUESTRON........................24
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Sec. 6.1. Representations and Warranties..........................24
Sec. 6.2. Due Diligence...........................................24
Sec. 6.3. Opinion of Counsel......................................24
Sec. 6.4. No Actions..............................................24
Sec. 6.5. Consents................................................24
Sec. 6.6. Employment Agreements...................................24
Sec. 6.7. Outstanding Shareholder Loans...........................25
Sec. 6.8. Financing...............................................25
Sec. 6.9. Z Group.................................................25
Sec. 6.10. Financial Statements....................................25
Sec. 6.11. Minimum Net Worth.......................................25
Sec. 6.12. Material Adverse Change.................................25
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Sec. 6.13. Cancellation of Agreements..............................25
ARTICLE 7 CONDITIONS PRECEDENT OF SELLERS.........................25
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Sec. 7.1. Representations and Warranties..........................25
Sec. 7.2. No Actions..............................................26
Sec. 7.3. Consents................................................26
Sec. 7.4. Employment Agreements...................................26
Sec. 7.5. Opinion of Counsel......................................26
ARTICLE 8 INDEMNIFICATION.........................................26
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Sec. 8.1. Indemnification by Sellers..............................26
Sec. 8.2. Indemnification by Questron.............................27
Sec. 8.3. Limitation on Liability.................................28
Sec. 8.4. Adjustment to 1998 Deferred Purchase Price..............28
ARTICLE 9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
- --------- -------------------------------------------
COVENANTS...............................................30
Sec. 9.1. Representations, Warranties and Covenants...............30
ARTICLE 10 NON-COMPETITION BY SELLERS AND NO SOLICITATION..........30
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Sec. 10.1. Non-Compete; Non-Solicitation...........................30
Sec. 10.2. Remedies................................................30
ARTICLE 11 MISCELLANEOUS...........................................30
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Sec. 11.1. Cooperation.............................................30
Sec. 11.2. Waiver..................................................30
Sec. 11.3. Notices.................................................31
Sec. 11.4. Governing Law and Consent to Jurisdiction; Dispute
Resolution..............................................32
Sec. 11.5. Counterparts............................................32
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Sec. 11.6. Headings; Schedules.....................................32
Sec. 11.7. Entire Agreement........................................32
Sec. 11.8. Amendment and Modification..............................32
Sec. 11.9. Binding Effect; Benefits................................32
Sec. 11.10. Assignability...........................................33
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SCHEDULES
1.1 Sellers' % Ownership of the Company......................1
3.4 Subsidiaries and Equity Investments......................5
3.6 Capitalization of Subsidiaries...........................5
3.8 Litigation...............................................6
3.9 Personal Property........................................7
3.10 Real Property............................................7
3.14 Employee Matters........................................10
3.15 Intellectual Property...................................13
3.17 Inventory...............................................13
3.19 Change or Event.........................................14
3.20 Non-Compliance with Law.................................15
3.21 Contracts and Commitments...............................15
3.22 Insurance...............................................16
3.23 Affiliate Interests.....................................17
3.24 10 Largest Customers of the Company, by Dollar Volume...17
3.25 Questionable Payments...................................17
EXHIBITS
A - 1 Employment Agreement of Doug Zadow......................25
A - 2 Employment Agreement of Terry Bastian...................25
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STOCK PURCHASE AGREEMENT dated as of August 29, 1997 (herein,together
with the Schedules and Exhibits attached hereto, referred to as the
"Agreement") by and among Questron Technology, Inc., a Delaware corporation
("Questron"), and the shareholders of California Fasteners, Inc., a California
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 Questron 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 Questron (or in Questron's sole discretion, any
subsidiary of Questron) the Shares beneficially owned by such Seller as set
forth in Schedule 1.1, and Questron shall purchase such Shares for the
aggregate purchase consideration specified in Section 1.2.
1.2 Purchase Consideration and Payment for Shares. Questron shall
acquire 100% of the issued and outstanding stock of the Company for a total
purchase price up to $14,930,000, which will consist of the Initial Purchase
Price, the 1997 Deferred Purchase Price, and the 1998 Deferred Purchase Price,
as defined below.
(a) Initial Purchase Price. The "Initial Purchase Price" will equal
$11,430,000 payable as follows: (i) wire transfers (or certified checks) in an
aggregate amount equal to $5,810,000, subject to a dollar for dollar reduction
to the extent net worth as of the Effective Date is less than $2,300,000 (the
"Initial Cash Consideration"); (ii) assumption of the net debt (stated debt
excluding any payables or debts owed by the Company to the Sellers or any
affiliate of the Sellers net of cash and cash equivalents) of the Company
("Net Debt"); (iii) payment to Don E. Bastian the amount of $1,580,000 (the
"Bastian Payment") in exchange for a non-compete agreement and satisfaction of
all other obligations of the Company to Don E. Bastian, including obligations
outstanding pursuant to the Consulting Agreement dated May 1, 1995, a copy of
which has been previously furnished as a part of Schedule 3.14; and (iv)
delivery of shares of
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Questron's common stock ("Initial Questron Common Stock"), the value of which
shall amount to the Initial Purchase Price less: (x) the Initial Cash
Consideration; (y) the Net Debt; and (z) the Bastian Payment. A portion of the
Initial Questron Common Stock issued to Sellers pursuant to this Section
1.2(a) having an aggregate value of $790,000 will include an option to sell
such Initial Questron Common Stock to Questron on a monthly basis in the
following manner ("Serial Puts"): (x) for the period October 1, 1997 through
March 31, 1998, $55,714.29 per month, and (y) for the period May 1, 1998
through August 31, 2002, $7,547.17 per month. The number of shares of Initial
Questron Common Stock to be delivered at the Closing and/or at the time any
Serial Put is exercised will be based on a market price of the Questron common
stock equal to $6.275.
(b) 1997 Deferred Purchase Price. The "1997 Deferred Purchase Price"
will be an amount equal to EBIT (as defined below) for the three Company
branches located in Anaheim, Phoenix and San Diego (the "Branches") in excess
of $1,000,000 (up to a maximum of any reduction in the Initial Cash
Consideration pursuant to Section 1.2(a)(i) above) for the four month period
from September through December of 1997. The 1997 Deferred Purchase Price
shall be payable by wire transfers or certified checks ("1997 Deferred Cash
Consideration").
(c) 1998 Deferred Purchase Price. The "1998 Deferred
Purchase Price" will be an amount equal to EBIT (as defined below) for the
Branches (up to a maximum of $3,500,000) for the year ended December 31, 1998.
The 1998 Deferred Purchase Price shall be payable as follows: (i) delivery by
wire transfers (or certified checks) of an aggregate amount equal to 50% of
the 1998 Deferred Purchase Price up to $1,750,000 (the "1998 Deferred Cash
Consideration"); and (ii) delivery of shares of Questron common stock
("Deferred Questron Common Stock"), the value of which shall equal 50% of the
1998 Deferred Purchase Price up to $1,750,000. The number of shares to be
delivered will be based on the market price of the Deferred Questron Common
Stock, which will be determined based on the average closing market price for
the Questron common stock for the five (5) trading days ending on the third
(3rd) trading day immediately prior to the date of payment of the 1998
Deferred Purchase Price.
(d) Definition of EBIT. For purposes of this Section 1.2, "EBIT" shall
mean the aggregate earnings before interest, income taxes, amortization of
goodwill, and the allocation of corporate expenses associated with the
Branches. EBIT shall be calculated in accordance with generally accepted
accounting principles, consistently applied. EBIT shall be determined by
Questron and reviewed by Questron's independent public accountants.
(e) Adjustment to 1998 Deferred Purchase Price. The 1998 Deferred
Purchase Price shall be subject to the adjustments set forth in Section 8.4.
1.3 Transactions on the Closing Date.
(a) At the Closing, Sellers will deliver to Questron 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;
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(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;
(iv) duly executed signature cards for all bank accounts of the
Company which are necessary to establish Questron's designees as the
authorized signatories for such accounts; and
(v) each of the certificates and documents contemplated by Article 6.
(b) At the Closing, Questron will deliver to Sellers the following:
(i) the Initial Cash Consideration;
(ii) the shares representing the Initial Questron Common Stock
including the Serial Puts; and
(iii) each of the certificates and documents contemplated by
Article 7.
1.4 Payment of 1997 Deferred Purchase Price. Subject to the terms of
Section 1.2(b) above, on or before April 1, 1998, Questron will deliver to
Sellers the following:
(i) the 1997 Deferred Cash Consideration; and
(ii) a certificate of Questron setting forth its calculation of EBIT
accompanied by a report thereon by Questron's independent public
accountants covering their review of such calculation.
1.5 Payment of 1998 Deferred Purchase Price. Subject to the terms of
Section 1.2(c) above, on or before April 15, 1999, Questron will deliver to
Sellers the following:
(i) the 1998 Deferred Cash Consideration;
(ii) the shares representing the Deferred Questron Common Stock; and
(iii) a certificate of Questron setting forth its calculation of
EBIT accompanied by a report thereon by Questron's independent public
accountants covering their review of such calculation.
1.6 Restricted Securities. The shares representing the Initial
Questron Common Stock and the Deferred Questron Common Stock shall be
restricted securities under Rule 144 of the Securities Act of 1933, will not
have been registered under said act and may not be resold absent such
registration or unless an exception from registration is available and the
Certificates evidencing such shares shall bear an appropriate legend
restricting transfers under said act.
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ARTICLE 2
CLOSING AND TERMINATION
2.1 Closing. The closing of the transactions provided for in Section
1.3 above (the "Closing") will take place at the offices of Gould & Wilkie,
One Chase Manhattan Plaza, New York, N.Y. 10005, at 10:00 A.M. (local time) on
or about September 8, 1997 (the "Closing Date"), or at such other place, time
and date as may be agreed upon by Questron and the Sellers. The effective date
of the Closing shall be August 31, 1997 (the "Effective Date").
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:
(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 Questron and the Sellers;
(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 Questron
or Sellers, if the Closing shall not have occurred on or before October
31, 1997 (or such later date as may be agreed upon in writing by the
parties hereto);
(c) by Questron, 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 Sellers, if Questron shall breach any of its
representations, warranties or obligations hereunder and such breach
shall not have been cured or waived or Questron 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 jointly and severally represents and warrants to Questron
that:
3.1 Due Execution. This Agreement has been, and the Employment
Agreements (as hereinafter defined) will be as of the Closing Date, duly
executed and delivered by the Company and each Seller, and (assuming due
execution and delivery by Questron) this Agreement and the Employment
Agreements will constitute valid and binding obligations of the Company and
the Sellers, enforceable in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, moratorium,
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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 California 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.
3.3 Certificate of Incorporation; By-laws. Sellers have heretofore
delivered to Questron complete and correct copies of the articles of
incorporation and by-laws of the Company as currently in effect.
3.4 Subsidiaries and Equity Investments. Except as set forth on
Schedule 3.4, 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 a
partner in any partnership or a 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
(50%) 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 (50%) of the economic interest therein. Each subsidiary is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction set forth on Schedule 3.4 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 qualified, except when the failure to be so licensed or
so qualified would not have a Material Adverse Effect on such subsidiary.
3.5 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 which represent all of the issued and outstanding shares of the
Company's capital stock. 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. Upon the delivery of the
Shares in the manner contemplated under Section 1.3, Sellers will transfer to
Questron 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. The Company is the lawful record and
beneficial owner of all of the issued and outstanding capital stock of each
subsidiary listed on Schedule 3.4.
3.6 Capitalization. The authorized capital of the Company consists of
7,500 shares of common stock, par value $10.00 per share (the "Common Stock"),
of which 1,932 shares are issued and outstanding and the authorized, issued
and outstanding capital of each subsidiary is as set forth on Schedule 3.6. No
other class of capital stock or other ownership
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interests of the Company or any subsidiary is authorized, issued, reserved for
issuance or outstanding. All such issued and outstanding shares have been duly
authorized and are validly issued, fully paid and nonassessable. No shares
(including, without limitation, the Shares), and no options, warrants or other
rights, agreements, commitments or arrangements of any kind to acquire shares,
were issued in violation of (x) any preemptive or other rights, or (y) any
provision of any contract, agreement or arrangement of any kind. Except as set
forth on Schedule 3.6 , 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 subsidiary or any security of any kind
convertible into or exchangeable for any such capital stock. Except as set
forth on Schedule 3.6, 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 or any
subsidiary may vote.
3.7 No Violation. 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. 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 any Seller of the Agreements to which
such Seller is a party and the consummation of the transactions contemplated
thereby.
3.8 Litigation. Except as set forth on Schedule 3.8, 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 (including its subsidiaries), any of its
officers or directors as such or any Seller in its capacity as a shareholder
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of the Company, (ii) no action, suit, dispute or governmental, administrative,
arbitration or regulatory proceeding pending or, to Sellers' knowledge,
threatened against the Company (including its subsidiaries) 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
(including its subsidiaries), any of its officers or directors as such or any
Seller in its capacity as a shareholder (collectively, "Proceedings").
3.9 Personal Property. (a) Schedule 3.9 sets forth (i) the tangible
physical assets of the Company and its subsidiaries 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 or any subsidiary to any Person in excess of
$20,000.
(b) Except as set forth on Schedule 3.9, each of the Company and its
subsidiaries has good and valid title to all of its material properties and
assets that do not constitute real property, free and clear of all
Encumbrances. Except as set forth on Schedule 3.9, each of the Company and its
subsidiaries owns, has valid leasehold interests (pursuant to leases disclosed
in such Schedule) in or valid contractual rights pursuant to contracts
disclosed in such Schedule (or not required to be disclosed therein due to the
dollar threshold set forth in Section 3.21(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.
3.10 Real Property. (a) Schedule 3.10 sets forth each and every parcel
of real property or interest in real estate held under a lease or used by the
Company and its subsidiaries (the "Real Property"). The Company and its
subsidiaries do not own any real property or interest (other than the
leasehold interests referenced on such Schedule) in real estate. Sellers have
heretofore delivered to Questron 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 Schedule 3.10, with respect to the Real
Property designated as "leased property" in Schedule 3.10, each of the Company
and its subsidiaries 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 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.
3.11 Financial Statements. (a) Sellers have heretofore furnished
Questron with copies of the following consolidated financial statements of the
Company and its subsidiaries: (i) unaudited balance sheets as at August 31 for
each of 1994, 1995 and 1996, respectively; (ii) unaudited statements of
operations and retained earnings and unaudited statements of cash flows for
each of the years then ended; (iii) an unaudited balance sheet (the "Reference
Balance Sheet") as at June 30, 1997 (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 then ended. Except as noted therein and except for
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normal year-end adjustments with respect to the partial year 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 or any of its subsidiaries 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 Questron 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.
3.12 Books and Records. (a) Sellers have made and will make available
for inspection by Questron all the books of account relating to business of
the Company and its subsidiaries. Such books 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 and its subsidiaries that have
been made available to Questron 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 its subsidiaries,
and of their shareholders 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 Questron for its inspection are true and
complete in all material respects.
3.13 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 and its subsidiaries or the ownership thereof
(by Sellers);
(ii) "Pre-Closing Periods" shall mean all Tax periods 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
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Period required to be filed by any Person and relating to the Company and
its subsidiaries;
(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,
(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;
(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 prior to
August 31, 1994 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
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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;
(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) 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.
3.14 Employee Matters. (a) Schedule 3.14 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 its subsidiaries; 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 and its subsidiaries, 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,
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agreements or funding arrangements (collectively, the "Benefit Plans"),
whether sponsored, maintained or contributed to by the Company or its
subsidiaries.
(b) For each Benefit Plan, except as set forth on Schedule 3.14, 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, 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 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) none of Sellers, the Company, its subsidiaries, 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 Questron 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 its subsidiaries; and
(viii) Sellers have delivered to Questron 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
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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 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 on Schedule 3.14,
each of the following is true in all material respects:
(i) each of the Company and its subsidiaries 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 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 or any subsidiary 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 or any subsidiary;
(iii) none of the employees of the Company or any subsidiary 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 or any subsidiary
and no certification or decertification petition is being or was
circulated among the employees of the Company within the past twelve
months;
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(v) no agreement (including any collective bargaining agreement),
arbitration or court decision, decree or order or governmental order
which is binding on the Company or any subsidiary in any material way
limits or restricts the Company or any subsidiary from relocating or
closing any of its operations;
(vi) neither the Company nor any subsidiary has 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. There have been no audits of the
equal employment opportunity practices or affirmative action practices of
the Company or any subsidiary and, to Sellers' knowledge, no reasonable
basis for any claim regarding such practices exists.
3.15 Intellectual Property. Schedule 3.15 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 any subsidiary or for which the Company or any
subsidiary is licensed. Neither Sellers, the Company nor any subsidiary 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.
3.16 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 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.
3.17 Inventory. Except as set forth on Schedule 3.17, 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 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.
3.18 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 and its subsidiaries.
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3.19 Absence of Change or Event. Except as set forth on Schedule 3.19,
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
$25,000 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;
(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 $50,000;
(i) materially changed any of its business or accounting accrual
practices, including, without limitation, the amount of promotional or
advertising expenditures,
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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.
3.20 Compliance With Law. Except as set forth on Schedule 3.20, the
operations and activities of the Company and its subsidiaries 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 a Material Adverse Effect on the Company.
3.21 Contracts and Commitments. (a) Schedule 3.21 sets forth each written
contract or agreement involving a liability or obligation of the Company or
any subsidiary 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 on Schedule 3.21:
(i) Each of the agreements set forth on such Schedule (the
"Contracts") was entered into in a bona fide transaction in the
ordinary course of business, is valid and binding on the Company
(assuming due authorization, execution and delivery thereof by the
other parties thereto) and is in full force and effect and, upon
consummation of the
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transactions contemplated hereby, will continue in full force and
effect without penalty. Sellers have heretofore delivered to
Questron 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) Neither the Company nor any subsidiary is 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.
3.22 Insurance. (a) Schedule 3.22 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 Questron complete and correct copies of the policies and
agreements set forth on Schedule 3.22.
(b) The insurance policies set forth on Schedule 3.22 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. 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 on Schedule 3.22; and will not in any
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. 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.
3.23 Affiliate Interests. (a) No payments other than compensation
payments during calendar years 1994, 1995 and 1996, or during 1997 to date,
have been made by the Company to any officer, director or shareholder of the
Company.
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(b) Except as set forth on Schedule 3.23, no shareholder, officer or
director of the Company or any subsidiary 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 or any subsidiary, (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 any
subsidiary, or (iii) has any cause of action or other claim whatsoever
against, or owes any amount to, the Company or any subsidiary, except for
claims arising in the ordinary course of business arising from such Person's
employment with the Company and indebtedness described in Section 6.7 hereof.
3.24 Customers, Suppliers, Distributors, Etc. (a) Except as set forth on
Schedule 3.24 and except for the loss of such other customers that will not
have a Material Adverse Effect on the Company, 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 on Schedule 3.24 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 3.24 sets forth by dollar volume for the 1997 year to date
the 10 largest customers of the Company.
3.25 Absence of Questionable Payments. Except as set forth on Schedule
3.25, 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.
3.26 Investment Intent. Each of the Sellers is: (a) acquiring the shares
of Questron common stock for his own account for investment and not with a
view to any distribution thereof; and (b) an "accredited investor" as that
term is defined in Regulation D under the Securities Act of 1933. Each of the
Sellers has heretofore been: (a) furnished with a copy of Questron's Annual
Report on Form 10-KSB for the year ended December 31, 1996, any subsequently
filed Quarterly Reports on Form 10-QSB and its Proxy Statement relating to its
1997 Annual Meeting; and (b) afforded the opportunity to meet with officers of
Questron and ask questions concerning such company.
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3.27 Disclosure. (a) No representations or warranties by Sellers in this
Agreement, including the Exhibits and the Schedules, 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 Questron 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 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 Sellers which has a Material Adverse Effect on
the Company which has not been set forth in this Agreement, including any
Exhibit or Schedule, the financial statements referred to in Section 3.11
(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 Questron complete
and correct copies of all agreements, instruments and documents set forth in
the Schedules. Each of the Schedules is complete and correct.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF QUESTRON
Questron represents and warrants to Sellers that:
4.1 Organization. Questron is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware.
4.2 Corporate Authority. Questron 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 Questron 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 Questron, 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 Questron, 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.
4.3 No Violation. Questron is not subject to or bound by any provision
of:
(a) any law, statute, rule, regulation or judicial or administrative
decision,
(b) any certificate of incorporation or by-laws,
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(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 Questron of this
Agreement and the consummation of the transactions contemplated hereby. No
consent, approval or authorization of or declaration or filing with any Person
is required for the valid execution, delivery and performance by Questron of
this Agreement and the consummation of the transactions contemplated hereby.
4.4 Investment Intent. Questron is acquiring the Shares for its own
account for investment and not with a view to any distribution thereof.
4.5 Due Execution. This Agreement has been duly executed and delivered by
Questron and (assuming due execution and delivery by the Sellers) the
Agreement, including for this purpose the Serial Puts, constitutes a valid and
binding obligation of Questron, 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.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS OF SELLERS AND QUESTRON
5.1 Conduct of Business Prior to the Closing Date. Sellers agree that,
between the date hereof and the Closing Date:
(a) Except as contemplated by this Agreement or permitted by written
consent of Questron, Sellers shall cause the Company to operate its business
only in the ordinary course consistent with prior practice and not to:
(i) declare or pay any dividends, make any distributions to
shareholders or undertake any similar transactions affecting the capital
of the Company;
(ii) sell or dispose of any assets of the Company other than the
sale of inventory in the ordinary course of business and dispositions of
immaterial assets;
(iii) take any action of the nature referred to in Section 3.19,
except as permitted therein;
(iv) change the Company's banking or safe deposit arrangements;
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(v) cause or permit indebtedness (which for purposes of this clause
(v) shall be deemed to exclude trade payables consisting of accounts
payable, deferred taxes and accrued expenses) of the Company to exceed
$1,250,000 in the aggregate; or
(vi) 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 conduct the business of the
Company in a manner consistent with past business practices; to preserve the
business organization of the Company intact; to keep available to Questron the
services of the present officers and employees of the Company; to preserve for
Questron the good will of the Company's suppliers, customers, distributors,
sales representatives and others having business relations with the Company;
and to inform Questron of, and consult with Questron on, any key decisions
involving any capital expenditure in excess of $50,000.
(c) Sellers shall cause the Company to maintain in force the insurance
policies referred to on Schedule 3.22 or insurance policies providing the same
or substantially similar coverage; provided, however, that the Sellers will
notify Questron prior to the expiration of any of such insurance policies.
(d) Except as contemplated by this Agreement or permitted by written
consent of Questron, no plan, fund, or arrangement disclosed or required to be
disclosed has been or will be:
(i) terminated by the Company other than for expiration of its
terms;
(ii) except as required by law, amended 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 Questron of maintaining such plan, fund
or arrangement.
(e) Sellers shall give Questron 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 Sellers have 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.
5.2 Tax Covenants. (a) Sellers shall timely cause to be prepared and
filed by the Company all Returns of the Company relating to Pre-Closing
Periods and shall timely pay, or cause to be paid by the Company, when due all
Taxes relating to such Returns. 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
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law or regulation or otherwise agreed to by Questron prior to the filing
thereof, subject to the proviso of the preceding sentence.
(b) Questron and Sellers 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 Questron (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 Questron, 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) Questron shall promptly notify the Sellers upon receipt by Questron,
any affiliate of Questron 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
Questron to comply with this Section 5.2(c) shall not affect Questron's right
to indemnification relating to Taxes if such failure does not prejudice the
rights of Sellers. Sellers shall promptly notify Questron 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.
(d) Neither Sellers nor any affiliate of any Seller shall, without the
prior written consent of Questron, 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 Questron,
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, Questron and Sellers shall provide each
other, and Questron 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
Questron 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
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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 Questron, 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
Questron, 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) Questron 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,
Questron shall not have received such affidavit from any Seller, Questron may
withhold from the Initial Cash Consideration payable at the 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 Questron or the Company is held liable. Other than in
the case of Returns and other documentation that are required to be filed by
the Company, which relate to Tax periods commencing on or after the Closing
Date, Sellers shall, at their own expense, file all necessary Tax returns and
other documentation with respect to all such Taxes.
5.3 Expenses and Finder's Fees. Questron and Sellers will bear their own
expenses in connection with this Agreement and its performance. Sellers, on
the one hand, and Questron, 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, Questron 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 Questron to evaluate the transactions contemplated by
this Agreement. Until the Closing, Sellers shall afford Questron 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 Questron 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 3.11(a). Unless and
until the transactions contemplated herein have been consummated, each of
Questron and the Sellers shall maintain all confidential information received
from the other in connection with its evaluation of the transactions
contemplated by this
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Agreement (the "Confidential Information") in strict confidence, and shall
take all precautions necessary to prevent disclosure, access to, or
transmission of the Confidential Information, or any part thereof, to any
third party. Each of Questron and the Sellers may make limited disclosure of
Confidential Information to its representatives and to such other persons as
need to know for the purpose of preparing for and negotiating this Agreement
and in connection with the consummation of the purchase and sale contemplated
hereby, including arranging Questron's financing in connection with the
purchase, provided such persons are informed of and bound by Questron's
confidentiality obligations hereunder. In the event the Closing does not occur
for any reason, each of Questron and the Sellers shall, promptly upon the
other's request, return all copies and recordings of the Confidential
Information in its possession or under its control and delete all records
thereof in any data storage system maintained by it. For the purposes of this
Section 5.4, Confidential Information shall not include information which (a)
the holder can reasonably demonstrate was already in the holder's possession,
provided that such information is not known by the holder to be subject to
another confidentiality agreement with, or other obligation of secrecy to
another party, (b) becomes generally available to the public other than as a
result of a disclosure by the holder or the holder's directors, officers,
employees, agents or advisors, (c) becomes available to the holder on a
non-confidential basis from a source other than Seller or its advisors,
provided that such source is not known by the holder to be bound by a
confidentiality agreement with, or other obligation of secrecy to another
party or (d) relates to the Company and is acquired pursuant to and in
accordance with this Agreement. Nothing contained in this Section 5.4 or
otherwise shall prohibit the holder from making disclosure of Confidential
Information to the extent required by law, rule or regulation, provided that
the holder shall give the other prior notice as to the nature of the required
disclosure so as to provide the other the opportunity to challenge the need
for such disclosure.
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 Questron
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 by the Company or the Sellers regarding
the transactions contemplated hereby shall be made only with the consent of
Questron.
5.7 Transitional Assistance. Sellers shall reasonably cooperate with and
assist Questron 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. Questron shall use
its best efforts to fulfill or cause the fulfillment of the conditions set
forth in Article 7.
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ARTICLE 6
CONDITIONS PRECEDENT OF QUESTRON
Questron 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
Questron 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 Questron shall have been furnished with certificates of the
Sellers, dated the Closing Date, certifying to the effect of clauses (a) and
(b) of this Section 6.1.
6.2 Due Diligence. Questron shall have satisfactorily completed its due
diligence investigation of the Company.
6.3 Opinion of Counsel. Questron shall have been furnished with an
opinion dated the Closing Date of Abernathy, Roeder, Robertson, Boyd & Joplin,
counsel for Sellers and the Company, in form and substance reasonably
acceptable to Questron.
6.4 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 Questron, 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.
6.5 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 Questron, Sellers or the Company
necessary on the part of Questron, 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 Questron 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.
6.6 Employment Agreements. Each of Doug Zadow and Terry Bastian shall
have executed and delivered an Employment Agreement substantially in the forms
attached hereto
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as Exhibits A-1 and A-2, respectively (together with the "Restrictive Letter"
and any other exhibits attached thereto, the "Employment Agreements").
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 Questron satisfactory evidence
thereof.
6.8 Financing. Questron shall have obtained bank financing on terms
reasonably satisfactory to it.
6.9 Z Group. Any outstanding agreement or arrangement between the Company
or any of its subsidiaries and the Z Group shall have been terminated and the
Company shall have delivered to Questron satisfactory evidence thereof.
6.10 Financial Statements. Questron shall have received audited balance
sheets of the Company as of July 31, 1997 and August 31, 1996 and audited
statements of income for the 11 months ended July 31, 1997 and the 12 months
ended August 31, 1996.
6.11 Minimum Net Worth. Questron shall have received Seller's certificate
certifying the Company's net worth as of the Closing Date. The Company shall
have a minimum net worth, as of the Closing Date, of not less than $1,500,000.
6.12 Material Adverse Change. There shall have been no material adverse
change in the financial conditions, assets, liabilities (contingent or
otherwise), results of operations or business of the Company.
6.13 Cancellation of Agreements. The Consulting Agreement referred to in
Section 1.2(a)(iii) and the existing employment agreement with Terry Bastian
shall have been cancelled.
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
Questron 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) Questron 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 Sellers shall
have been furnished a certificate of an appropriate officer of
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Questron, dated the Closing Date, certifying to the effect of clauses (a) and
(b) of this Section 7.1.
7.2 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.
7.3 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.
7.4 Employment Agreements. Questron shall have caused the Employment
Agreements to be duly executed and delivered by the Company.
7.5 Opinion of Counsel. The Seller shall have been furnished with an
opinion, dated the Closing Date, of Gould & Wilkie, counsel to Questron, in
form and substance reasonably satisfactory to the Sellers.
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
Sellers hereby agrees to jointly and severally defend, indemnify and hold
harmless Questron and the Company and their respective successors, assigns and
affiliates (collectively, the "Questron 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, "Questron 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 Sellers 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, all Pre-Closing
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Periods 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
(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 Questron Indemnitee
proposes to demand indemnification ("Questron Indemnified Claims"), Questron
or such other Questron Indemnitee shall promptly notify the Sellers thereof,
provided further, however, that the failure to so notify the Sellers 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
Sellers shall have the right promptly upon receipt of such notice (after
acknowledging responsibility for such Questron Indemnified Claim) to assume
the control of the defense, compromise or settlement of any such Questron
Indemnified Claims (provided that any compromise or settlement must be
reasonably approved by Questron), including, at its own expense, employment of
counsel reasonably satisfactory to Questron; provided, however, that if the
Sellers shall have exercised their right to assume such control, Questron may,
in its sole discretion and at its expense, employ counsel to represent it (in
addition to counsel employed by the Sellers) in any such matter. So long as
the Sellers are contesting any such Questron Indemnified Claim in good faith,
Questron and each other Questron Indemnitee shall not pay or settle any such
Questron Indemnified Claim. Notwithstanding the foregoing, Questron shall have
the right to offset any Questron Indemnified Claims and/or Questron Losses
against the 1997 Deferred Purchase Price and 1998 Deferred Purchase Price.
8.2 Indemnification by Questron. Questron 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 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)
(collectively, "Seller Losses"), resulting from or arising out of:
(a) (i) breaches of representation and warranty hereunder on the
part of Questron and (ii) failures by Questron 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 Questron thereof, provided further,
however, that the failure to so notify Questron shall not reduce or affect
Questron's obligations with respect thereto except to the extent that Questron
is materially prejudiced thereby. Subject to rights of or duties to any
insurer or other third Person having liability therefor, Questron shall have
the right promptly upon receipt of such notice to assume
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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 Questron
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 Questron) in any such matter. So long as Questron 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. (a) The aggregate liability of the Sellers
under this Article 8 shall not exceed the aggregate amount of consideration
received by the Sellers as Initial Purchase Price, 1997 Deferred Purchase
Price, and 1998 Deferred Purchase Price.
(b) Any Loss, (as defined in Section 8.4), shall not be subject to the
provisions of this Section 8.3 but shall be governed by Section 8.4.
8.4 Adjustment to 1998 Deferred Purchase Price. The 1998 Deferred
Purchase Price shall be subject to the following adjustments:
(a) Definitions. For the purposes hereof,
(i) The term "Action" shall mean Unit Instruments, Inc. v. California
Fasteners, Inc. et al. (CA Superior Ct. No. 781801 1997) and any related
actions, proceedings, claims or controversies.
(ii) The term "Adjusted Loss" shall mean the amount of the Loss as
reduced by the excess of EBIT for the Branches over $3,000,000 for fiscal
years 1999-2002 on an annual and cumulative basis.
(iii) The term "Date of Final Determination" shall mean the date upon
which the Loss has been Finally Determined.
(iv) The term "Fair Market Value" shall mean the average closing market
price for the Questron common stock listed in the Wall Street Journal for the
five (5) trading days ending immediately prior to the Date of Final
Determination.
(v) The term "Finally Determined" shall mean that: (A) the Action has
been settled and mutual releases have been exchanged by the Company and Unit
Instruments, Inc. or a final judgment in the Action has been rendered by a
court of competent jurisdiction, all applicable appeal periods have expired
and no appeal has been taken; and (B) the Loss resulting from or arising out
of the Action has been finally determined.
(vi) The term "Loss" shall mean the aggregate amount paid or agreed to be
paid by Questron or any Person affiliated with Questron in respect of a
judgment, arbitration award, settlement or other payment to resolve the
Action, including all related costs and expenses which shall include without
limitation attorneys' fees.
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(b) Loss Finally Determined Prior to Payment of 1998 Deferred Purchase
Price. In the event that the Loss is Finally Determined prior to the payment
of the 1998 Deferred Purchase Price, the calculated amount of 1998 EBIT shall
be reduced on a dollar for dollar basis by the amount of any Loss. In the
event that the foregoing adjustment results in the 1998 Deferred Purchase
Price being less than the maximum amount of $3,500,000, then the Sellers shall
have the opportunity to earn back the amount of any such shortfall to the
extent that the EBIT for the Branches in any of fiscal years 1999 through 2002
is in excess of $3,000,000 on both an annual and a cumulative basis until such
time as the Sellers have earned back the amount of such shortfall. The amount
of any such earn backs shall be payable to the Sellers within 30 days
following the determination of EBIT for the Branches for the years in
question.
(c) Loss Finally Determined After Payment of 1998 Deferred Purchase
Price. In the event that the Loss has not been Finally Determined prior to the
payment of the 1998 Deferred Purchase Price, then all of the shares of
Deferred Questron Common Stock deliverable as a part of the 1998 Deferred
Purchase Price shall be delivered to counsel for Questron, as escrow agent, to
be held in accordance with the provisions of a mutually satisfactory escrow
agreement. As soon as practicable following the Date of Final Determination,
Questron shall notify the escrow agent as to: (i) the amount of the Loss; (ii)
the EBIT for the Branches for such of the fiscal years 1999 through 2002 as
have elapsed prior to the Date of Final Determination; and (iii) the amount of
the Adjusted Loss based on (ii).
(d) Release from Escrow. As soon as practicable following its receipt of
the notice contemplated by (c), the escrow agent shall retain that number of
shares of Deferred Questron Common Stock which have a Fair Market Value equal
to the Adjusted Loss and shall deliver the remaining shares of Questron
Deferred Stock to the Sellers. In the event that any shares have been retained
by the escrow agent pursuant to the foregoing, then the Sellers shall have the
opportunity to earn back such shares to the extent that EBIT for the Branches
for any of fiscal years 1999 through 2002 which were not taken into account in
determining Adjusted Loss is in excess of $3,000,000 on both an annual and a
cumulative basis until such time as the Sellers have earned back the retained
shares.
(e) Cancellation of Shares. In the event that any shares of Deferred
Questron Common Stock have not been earned back by the Sellers in accordance
with (d) above following the determination of EBIT for the Branches for fiscal
year 2002, then the escrow agent shall issue instructions to Questron's
transfer agent to cancel any shares of Deferred Questron Common Stock retained
by the escrow agent.
(f) Grant of Options. In the event that any shares of Deferred Questron
Common Stock have been canceled in accordance with (e), then Questron shall
grant to the Sellers options to purchase that number of shares which were
canceled at a price per share equal to Fair Market Value.
(g) Amount of Loss. Questron may incur any amount which would be included
in the calculation of the Loss as it may determine advisable in its sole
discretion as long as the aggregate Loss does not exceed the amount to be
agreed upon by the Sellers and Questron. In the event that Questron determines
it advisable to incur a Loss in excess of such amount, it shall
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notify the Sellers in writing of same and shall not voluntarily incur any such
excess Loss without the consent of the Sellers which shall not be unreasonably
withheld or delayed.
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 three (3) years, except that any representation or warranty of
Sellers contained in Sections 3.1, 3.5 and 3.6 shall survive the Closing Date
without limitation, and any representation or warranty of Sellers contained in
Section 3.13 (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; Non-Solicitation. In consideration of the purchase by
Questron of the Shares under this Agreement, the Sellers will at the Closing
execute and deliver non-compete agreements in the form attached to the
Employment Agreements.
10.2 Remedies. Each Seller recognizes that a breach or threatened breach
by him of his obligations under this Article 10 and the Employment Agreements
would cause irreparable injury to the Company, and the Company shall be
entitled to seek preliminary and permanent injunctions enjoining him from
violating the non-compete agreements contemplated by this Article 10, in
addition to any other remedies which may be available.
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 Questron. Any failure of Questron to comply with any of its
obligations or agreements herein contained may be waived only in writing by
the Sellers.
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<PAGE>
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:
California Fasteners, Inc.
5310 E. Hunter Avenue
Anaheim, CA 92817-8328
Telecopier: (714) 970-8185
Telephone: (714) 970-9090
Attention: Doug Zadow
(with a copy to)
Abernathy, Roeder, Robertson,
Bond & Joplin
101 East Davis Street
McKinney, TX 75069-1210
Telecopier: (972) 542-2661
Telephone: (972) 562-0202
Attention: Robert H. Roeder, Esq.
(ii) If to Questron, to
Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, Florida 33487
Telecopier: (561) 241-2866
Telephone: (561) 241-5251
Attention: Dominic A. Polimeni
(with a copy to)
Gould & Wilkie
One Chase Manhattan Plaza
58th Floor
New York, New York 10005
Telecopier: (212) 809-6890
Telephone: (212) 344-5680
Attention: Frederick W. London, Esq.
Such names and addresses may be changed by written notice to each person
listed above.
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<PAGE>
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
New York.
(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.
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; Schedules. 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. All references to "Schedules"
shall mean the disclosure schedules heretofore delivered by the Sellers to
Questron.
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
Questron Indemnitees and Seller Indemnitees) any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
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<PAGE>
11.10 Assignability. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties provided that
Questron may assign its rights under the Agreement to any affiliate of
Questron.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
QUESTRON TECHNOLOGY, INC.
/s/ Douglas D. Zadow By /s/ Dominic A. Polimeni
- ------------------------ --------------------------------
Doug Zadow Name: Dominic A. Polimeni
Title: Chairman, President and
Chief Executive Officer
/s/ Terry Bastian
- ------------------------
Terry Bastian
CALIFORNIA FASTENERS, INC.
By /s/ Douglas D. Zadow
---------------------------------
Name: Doug Zadow
Title: President
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<PAGE>
EXHIBIT A-1
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 22, 1997 between Questron Technology,
Inc., a Delaware corporation ("Employer"), and Doug Zadow ("Executive").
W I T N E S S E T H:
WHEREAS, Employer desires to retain the services of Executive and
Executive desires to be employed by Employer upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
undertakings and agreements contained herein, Employer and Executive agree as
follows:
1. EMPLOYMENT. Employer hereby employs Executive, and Executive hereby
agrees to serve as President of California Fasteners, Inc., a subsidiary of
the Employer, or in such other senior executive position as shall be assigned
to Executive by Employer's Board of Directors with Executive's consent during
the Term of Employment (as hereinafter defined). Executive further agrees to
use his best efforts to promote the interests of Employer and to devote all of
his business time and energies during normal business hours to the business
and affairs of Employer during the Term of Employment.
2. TERM OF EMPLOYMENT. Unless earlier terminated pursuant to Paragraph
7 hereof, the employment hereunder shall commence as of the date hereof and
shall end on the fifth anniversary of such date (the "Term of Employment").
<PAGE>
3. COMPENSATION. As compensation for services hereunder and in
consideration of the covenants set forth in Paragraph 4 hereof, during the
Term of Employment Executive shall be compensated as follows:
(a) Base Salary. Employer shall pay Executive a salary at the rate of
$120,000 per year. Such salary shall be payable in appropriate installments to
conform with the regular payroll dates for salaried personnel of Employer.
(b) Bonuses. Prior to the first business day of each fiscal quarter
during the Term of Employment, the Board of Directors of Employer, with the
advice and consultation of Executive, shall establish incentive targets for
the immediately succeeding quarter. Based upon the percentages of the
aforementioned incentive targets achieved by Employer in each fiscal quarter
during the Term of Employment, as calculated from the Employer's financial
statements, prepared in accordance with generally accepted accounting
principles ("GAAP"), Employer shall pay Executive a bonus of up to $15,000 per
quarter.
(c) Expenses. Employer shall provide Executive with a car allowance in
the amount of $1,500 per month. Employer shall also reimburse Executive for
all business-related gasoline and oil expenses for such automobile. Employer
shall also reimburse Executive for all reasonable out-of-pocket expenses
incurred in connection with rendering services hereunder in accordance with
Employer's customary policies.
(d) Fringe Benefits. Executive shall be eligible to participate in and
to receive benefits under any pension plan, profit-sharing plan, savings plan,
stock option/savings plan, ESOP, life insurance, health and accident plan or
arrangement made available by Employer or by Employer's parent corporation(s)
to its or their senior executives and key management employees generally,
subject to and on a basis consistent with the terms, conditions and overall
administration of each such plan or arrangement; provided, however, that with
respect to any plan or arrangement under which participation is at the
discretion of a committee or other body administering such plan or
arrangement, nothing contained herein shall entitle Executive to
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<PAGE>
participate in such plan or arrangement to be paid for by the Employer.
Nothing paid to Executive under any plan or arrangement presently in effect or
made available in the future shall be deemed to be in lieu of compensation to
Executive hereunder, and nothing paid to Executive hereunder shall be deemed
to be in lieu of any payment to which Executive may be entitled under any such
plan or arrangement.
(e) Vacation. Executive shall be entitled to four (4) weeks of paid
vacation days in each calendar year during the Term of Employment. In the
event that Executive is employed hereunder during a calendar year for less
than all of that year, he shall be entitled in that year to a number of paid
vacation days which shall be prorated in accordance with the number of days on
which he is so employed in that year. Executive shall also be entitled to all
paid holidays given by Employer to its senior executive officers during the
Term of Employment.
(f) Stock Awards. Executive shall be entitled to be granted stock
option awards in accordance with Schedule A annexed hereto.
4. COVENANT NOT TO COMPETE; INTELLECTUAL PROPERTY; CONFIDENTIALITY.
(a) Covenant Not to Compete. Executive acknowledges that in
consideration of the Employer entering into this Agreement and in
consideration of Questron Technology, Inc. or its designee acquiring all of
the issued and outstanding stock of the Employer, Executive is simultaneously
executing and delivering to Employer the attached letter (the "Restrictive
Letter") containing certain covenants relating to his conduct during and after
the Term of Employment. Notwithstanding the provisions of the Restrictive
Letter, during the Term of Employment Executive will not manage, operate,
control, be employed by or participate in the ownership, management, operation
or control of, or be connected in any manner with, any business of the type
and character engaged in and competitive with that to be conducted by
Employer. The decision of Employer's Board of Directors as to what constitutes
a competing business shall be final and binding upon Executive. For these
purposes, Executive's ownership
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<PAGE>
of 1% or less of any class of securities of a public company shall not be
considered to be competition with Employer.
(b) 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 relate 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.
(c) 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.
5. BREACH BY EXECUTIVE. Both parties hereto recognize that the
services to be rendered under this Agreement by Executive are special, unique
and extraordinary in character, and that in the event of the breach by
Executive of the terms and conditions of this Agreement or the Restrictive
Letter to be performed by him, then Employer shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to obtain damages for any breach of
this Agreement or of the Restrictive Letter, or to enforce the specific
performance thereof by Executive, or to enjoin Executive from performing
services for another person, firm or corporation in violation of this
Agreement or the Restrictive Letter. If any of the restrictive covenants set
forth in this Agreement or in the Restrictive Letter are held to be
unenforceable because of the duration or scope of any such covenant, the
parties hereto agree that the duration or scope of such provision shall be
reduced to the maximum scope permitted by law, and, in its reduced form, shall
be enforceable.
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<PAGE>
6. INDEMNIFICATION. The Employer agrees to indemnify the Executive for
any and all liabilities to which he may be subject as a result of his
employment hereunder (and as a result of his services as an officer or
director of the Employer, or as an officer or director of any of its
subsidiaries or affiliates), as well as the costs of any legal action brought
or threatened against him as a result of such employment, to the fullest
extent permitted by law.
7. TERMINATION.
(a) General. The employment of Executive hereunder shall terminate as
provided in Paragraph 2 hereof and may be sooner terminated in accordance with
the provisions of this Paragraph 7.
(b) Death or Disability of Executive. 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).
(c) Termination for Cause. In the event of any malfeasance, 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, the Term of Employment shall terminate and the Employer shall have no
further obligation to the Executive hereunder other than as provided by
subparagraph (d) of this
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<PAGE>
Paragraph 7 but the restrictions on the Executive's activities contained in
Paragraph 4 and the obligations of the Executive contained in the Restrictive
Letter shall continue in effect as provided therein.
(d) Effect of Termination on Salary and Benefits. In the event of
termination for cause as set forth in this Paragraph 7, whether before or
after termination of employment, Executive's entitlement to salary and
benefits shall cease as of the effective date of termination and Executive
shall be entitled to all salary and benefits (excluding any unpaid bonuses for
this purpose) accrued but unpaid as of the date of termination.
8. ASSIGNMENT. This Agreement is a personal contract, and except as
specifically set forth herein, the rights and interests of Employer and
Executive herein may not be sold, transferred, assigned, pledged or
hypothecated. The rights and obligations of Employer hereunder shall be
binding upon and run in favor of the successors of Employer.
9. PLACE OF EMPLOYMENT. The Executive shall not be required to render
services in any location which would require him to change his residence;
provided, however, Executive agrees to incur reasonable travel in connection
with his services hereunder.
10. GOVERNING LAW; CAPTIONS. This Agreement and the Restrictive Letter
contain the entire agreement between the parties hereto and shall be governed
by the laws of the State of California. It may not be changed orally, but only
by agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought. Section headings are for
convenience of reference only and shall not be considered a part of this
Agreement.
11. NOTICES. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to be duly given if
personally delivered, or, if mailed (by certified or registered mail, return
receipt requested) or if delivered by a nationally recognized-overnight mail
or courier service, to the party at its address set forth below:
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<PAGE>
If to Executive:
Doug Zadow
29 Trailridge Drive
Melissa, TX 75454
If to Employer:
Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, FL 33487
Attn.: Chief Executive Officer
12. RIGHT TO WITHHOLD/REPORT. Employer shall have the right to
withhold from Executive's salary and other compensation hereunder and to
report to appropriate federal, state and local taxing authorities all amounts
required to be withheld or reported, including such amounts in respect of any
compensation deemed paid to Executive under federal, state and local tax laws.
IN WITNESS WHEREOF, Employer has by its duly authorized officer signed
this Agreement and Executive has signed this Agreement, as of the day and year
first above written.
EXECUTIVE QUESTRON TECHNOLOGY, INC.
/s/ Doug Zadow By: /s/ Dominic A. Polimeni
- ------------------- ---------------------------------
Doug Zadow Dominic A. Polimeni
Chairman, President and
Chief Executive Officer
-7-
<PAGE>
RESTRICTIVE COVENANT
September 22, 1997
Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, FL 33487
Gentlemen:
This will confirm my agreement with Questron Technology, Inc.
("Questron", which term, for purposes of this letter, shall include all of
Questron's successor, subsidiary and affiliated companies).
1. In consideration of my employment as President of California
Fasteners, Inc. (the "Company", which term, for purposes of this letter, shall
include all of the Company's successor, subsidiary and affiliated companies)
and the acquisition of all of the issued and outstanding stock of the Company
by Questron Technology, Inc., I agree that for the longer of five years from
the date hereof or five years from the termination of my employment by
Questron, I will not, directly or indirectly:
(a) Persuade or attempt to persuade any customer of the Company to
cease doing business with the Company, or to reduce the amount of business it
does with the Company.
(b) Persuade or attempt to persuade any potential customer to which
the Company has made a sales presentation, not to purchase the Company's
products.
(c) Solicit for myself or any person other than the Company the
business of any company which is a customer of the Company, or was its
customer within two years prior to the termination of my employment.
(d) Persuade or attempt to persuade any employee of the Company, or
any individual who was its employee during the two years prior to my
termination of employment, to leave the Company's employ, or to become
employed by any person other than the Company.
(e) Manage, operate, control or be connected in any manner with any
business of the type and character engaged in and competitive with that
conducted by the Company.
<PAGE>
2. I also agree that during my employment by Questron, or at any time
thereafter, I will not disclose or use any confidential or secret information
relating to Questron or any of its products, designs, processes or operations.
3. If I violate any of the terms outlined above, I agree that
Questron, in addition to any other rights it may have, shall be entitled to
injunctive relief.
4. Notwithstanding the foregoing, in the event that Questron defaults
on its obligation to pay either the 1997 Deferred Purchase Price or the 1998
Deferred Purchase Price (collectively, the "Deferred Purchase Price") under
that Stock Purchase Agreement dated August 29, 1997 (the "Agreement"), the
restrictions contained in this letter shall terminate; provided, however, that
any dispute as to the calculation of the Deferred Purchase Price shall be
resolved in accordance with the terms of the Agreement, and neither such
dispute nor the resolution thereof shall constitute a default. Very truly
yours,
/s/ Doug Zadow
Doug Zadow
<PAGE>
SCHEDULE A
TO
ZADOW AGREEMENT
Executive shall be entitled to be awarded as incentive compensation
options to purchase shares of Questron Technology, Inc. ("Questron") in
accordance with the following provisions. Defined terms shall have the
meanings assigned to them below:
options to purchase 100,000 shares of Questron Common Stock
in respect of the initial fiscal year up to and including
fiscal year 2001 where the Pre-Tax Earnings of Questron
shall equal or exceed the following targets:
Questron Stock
Pre-Tax Income Options
$4,500,000 100,000
Any award made hereunder shall be made within 90 days after
the end of the fiscal year in respect of which the target
has been met with an exercise price equal to the "market
price" for Questron Common Stock at the date of grant.
Executive's entitlement to any awards hereunder shall cease
in the event Executive ceases for any reason to be an
employee of Questron or any of its subsidiaries. In no event
shall the total number of options awarded hereunder exceed
100,000. Said options will: (i) be immediately exercisable
upon the granting of same; (ii) be issued pursuant to a
stock option agreement, and (iii) subject to the terms of
the stock option agreement be exercisable for a period of
ten years.
For the purposes hereof:
"Market price" shall mean the average closing price listed
in the Wall Street Journal for Questron's Common Stock for the five trading
days ending on the third trading day immediately prior to the date of grant.
"Pre-Tax Income" for any fiscal year shall mean the earnings before
taxes of Questron calculated in accordance with generally accepted accounting
principles consistently
<PAGE>
applied from year to year and determined by Questron's independent
accountants, which determination shall be final and binding on the parties.
<PAGE>
EXHIBIT A-2
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of September 22, 1997 between California Fasteners,
Inc., a California corporation ("Employer"), and Terry Bastian ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is currently employed by Employer; and
WHEREAS, Employer desires to retain the services of Executive and
Executive desires to be employed by Employer upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
undertakings and agreements contained herein, Employer and Executive agree as
follows:
1. EMPLOYMENT. Employer hereby employs Executive, and Executive hereby
agrees to serve as General Manager of the San Diego Branch and Purchasing
Manager of Employer or in such other senior executive position as shall be
assigned to Executive by Employer's Board of Directors with Executive's
consent during the Term of Employment (as hereinafter defined). Executive
further agrees to use his best efforts to promote the interests of Employer
and to devote all of his business time and energies during normal business
hours to the business and affairs of Employer during the Term of Employment.
2. TERM OF EMPLOYMENT. Unless earlier terminated pursuant to Paragraph 7
hereof, the employment hereunder shall commence as of the date hereof and
shall end on the fifth anniversary of such date (the "Term of Employment").
<PAGE>
3. COMPENSATION. As compensation for services hereunder and in
consideration of the covenants set forth in Paragraph 4 hereof, during the
Term of Employment Executive shall be compensated as follows:
(a) Base Salary. Employer shall pay Executive a salary at the rate of
$120,000 per year. Such salary shall be payable in appropriate installments to
conform with the regular payroll dates for salaried personnel of Employer.
(b) Bonuses. Prior to the first business day of each fiscal quarter
during the Term of Employment, the Board of Directors of Employer, with the
advice and consultation of Executive, shall establish incentive targets for
the immediately succeeding quarter. Based upon the percentages of the
aforementioned incentive targets achieved by Employer in each fiscal quarter
during the Term of Employment, as calculated from the Employer's financial
statements, prepared in accordance with generally accepted accounting
principles ("GAAP"), Employer shall pay Executive a bonus of up to $15,000 per
quarter. Employee may elect to receive $2,000 per month as an advance against
said quarterly bonus.
(c) Expenses. Employer shall provide Executive with an Employer paid
car for business use only. Employer shall also reimburse Executive for all
business-related gasoline and oil expenses for such automobile. Employer shall
also reimburse Executive for all reasonable out-of-pocket expenses incurred in
connection with rendering services hereunder in accordance with Employer's
customary policies.
(d) Fringe Benefits. Executive shall be eligible to participate in and
to receive benefits under any pension plan, profit-sharing plan, savings plan,
stock option/savings plan, ESOP, life insurance, health and accident plan or
arrangement made available by Employer or by Employer's parent corporation(s)
to its or their senior executives and key management employees generally,
subject to and on a basis consistent with the terms, conditions and overall
administration of each such plan or arrangement; provided, however, that with
respect to any plan or arrangement under which participation is at the
discretion of a committee or other body
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<PAGE>
administering such plan or arrangement, nothing contained herein shall entitle
Executive to participate in such plan or arrangement to be paid for by the
Employer. Nothing paid to Executive under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of
compensation to Executive hereunder, and nothing paid to Executive hereunder
shall be deemed to be in lieu of any payment to which Executive may be
entitled under any such plan or arrangement.
(e) Vacation. Executive shall be entitled to four (4) weeks of paid
vacation days in each calendar year during the Term of Employment. In the
event that Executive is employed hereunder during a calendar year for less
than all of that year, he shall be entitled in that year to a number of paid
vacation days which shall be prorated in accordance with the number of days on
which he is so employed in that year. Executive shall also be entitled to all
paid holidays given by Employer to its senior executive officers during the
Term of Employment.
(f) Stock Awards. Executive shall be entitled to be granted stock
option awards in accordance with Schedule A annexed hereto.
4. COVENANT NOT TO COMPETE; INTELLECTUAL PROPERTY; CONFIDENTIALITY.
(a) Covenant Not to Compete. Executive acknowledges that in
consideration of the Employer entering into this Agreement and in
consideration of Questron Technology Corporation or its designee acquiring all
of the issued and outstanding stock of the Employer, Executive is
simultaneously executing and delivering to Employer the attached letter (the
"Restrictive Letter") containing certain covenants relating to his conduct
during and after the Term of Employment. Notwithstanding the provisions of the
Restrictive Letter, during the Term of Employment Executive will not manage,
operate, control, be employed by or participate in the ownership, management,
operation or control of, or be connected in any manner with, any business of
the type and character engaged in and competitive with that to be conducted by
Employer. The decision of Employer's Board of Directors as to what constitutes
a competing business shall be final and binding upon Executive. For these
purposes, Executive's ownership
-3-
<PAGE>
of 1% or less of any class of securities of a public company shall not be
considered to be competition with Employer.
(b) 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 relate 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.
(c) 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.
5. BREACH BY EXECUTIVE. Both parties hereto recognize that the services
to be rendered under this Agreement by Executive are special, unique and
extraordinary in character, and that in the event of the breach by Executive
of the terms and conditions of this Agreement or the Restrictive Letter to be
performed by him, then Employer shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to obtain damages for any breach of this Agreement
or of the Restrictive Letter, or to enforce the specific performance thereof
by Executive, or to enjoin Executive from performing services for another
person, firm or corporation in violation of this Agreement or the Restrictive
Letter. If any of the restrictive covenants set forth in this Agreement or in
the Restrictive Letter are held to be unenforceable because of the duration or
scope of any such covenant, the parties hereto agree that the duration or
scope of such provision shall be reduced to the maximum scope permitted by
law, and, in its reduced form, shall be enforceable.
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<PAGE>
6. INDEMNIFICATION. The Employer agrees to indemnify the Executive for
any and all liabilities to which he may be subject as a result of his
employment hereunder (and as a result of his services as an officer or
director of the Employer, or as an officer or director of any of its
subsidiaries or affiliates), as well as the costs of any legal action brought
or threatened against him as a result of such employment, to the fullest
extent permitted by law.
7. TERMINATION.
(a) General. The employment of Executive hereunder shall terminate as
provided in Paragraph 2 hereof and may be sooner terminated in accordance with
the provisions of this Paragraph 7.
(b) Death or Disability of Executive. 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).
(c) Termination for Cause. In the event of any malfeasance, 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, the Term of Employment shall terminate and the Employer shall have no
further obligation to the Executive hereunder other than as provided by
subparagraph (d) of this
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<PAGE>
Paragraph 7 but the restrictions on the Executive's activities contained in
Paragraph 4 and the obligations of the Executive contained in the Restrictive
Letter shall continue in effect as provided therein.
(d) Effect of Termination on Salary and Benefits. In the event of
termination for cause as set forth in this Paragraph 7, whether before or
after termination of employment, Executive's entitlement to salary and
benefits shall cease as of the effective date of termination and Executive
shall be entitled to all salary and benefits (excluding any unpaid bonuses for
this purpose) accrued but unpaid as of the date of termination.
8. ASSIGNMENT. This Agreement is a personal contract, and except as
specifically set forth herein, the rights and interests of Employer and
Executive herein may not be sold, transferred, assigned, pledged or
hypothecated. The rights and obligations of Employer hereunder shall be
binding upon and run in favor of the successors of Employer.
9. PLACE OF EMPLOYMENT. The Executive shall not be required to render
services in any location which would require him to change his residence;
provided, however, Executive agrees to incur reasonable travel in connection
with his services hereunder.
10. GOVERNING LAW; CAPTIONS. This Agreement and the Restrictive Letter
contain the entire agreement between the parties hereto, supersedes any prior
agreement relating to the employment of the Executive and shall be governed by
the laws of the State of California. It may not be changed orally, but only by
agreement in writing signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought. Section headings are for
convenience of reference only and shall not be considered a part of this
Agreement.
11. NOTICES. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed to be duly given if
personally delivered, or, if mailed (by certified or registered mail, return
receipt requested) or if delivered by a nationally recognized-overnight mail
or courier service, to the party at its address set forth below:
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<PAGE>
If to Executive:
Terry Bastian
California Fasteners, Inc.
5310 E. Hunter Avenue
Anaheim, CA 92817
If to Employer:
California Fasteners, Inc.
5310 E. Hunter Ave.
Anaheim, CA 92817
Attn: Chief Executive Officer
with a copy to:
Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, FL 33487
Attn.: Chief Executive Officer
12. RIGHT TO WITHHOLD/REPORT. Employer shall have the right to
withhold from Executive's salary and other compensation hereunder and to
report to appropriate federal, state and local taxing authorities all amounts
required to be withheld or reported, including such amounts in respect of any
compensation deemed paid to Executive under federal, state and local tax laws.
IN WITNESS WHEREOF, Employer has by its duly authorized officer signed
this Agreement and Executive has signed this Agreement, as of the day and year
first above written.
EXECUTIVE CALIFORNIA FASTENERS, INC.
/s/ Terry Bastian By:/s/ Douglas D. Zadow
- --------------------- -------------------------
Terry Bastian Douglas D. Zadow
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<PAGE>
RESTRICTIVE COVENANT
September 22, 1997
California Fasteners, Inc.
5310 E. Hunter Avenue
Anaheim, CA 92817
Gentlemen:
This will confirm my agreement with California Fasteners, Inc. (the
"Company", which term, for purposes of this letter, shall include all of the
Company's successor, subsidiary and affiliated companies).
1. In consideration of my employment and the acquisition of all of the
issued and outstanding stock of the Company by Questron Technology, Inc., I
agree that for the longer of five years from the date hereof or five years
from the termination of my employment by the Company, I will not, directly or
indirectly:
(a) Persuade or attempt to persuade any customer of the Company to
cease doing business with the Company, or to reduce the amount of business it
does with the Company.
(b) Persuade or attempt to persuade any potential customer to which
the Company has made a sales presentation, not to purchase the Company's
products.
(c) Solicit for myself or any person other than the Company the
business of any company which is a customer of the Company, or was its
customer within two years prior to the termination of my employment.
(d) Persuade or attempt to persuade any employee of the Company, or
any individual who was its employee during the two years prior to my
termination of employment, to leave the Company's employ, or to become
employed by any person other than the Company.
(e) Manage, operate, control or be connected in any manner with any
business of the type and character engaged in and competitive with that
conducted by the Company.
<PAGE>
2. I also agree that during my employment by the Company, or at any
time thereafter, I will not disclose or use any confidential or secret
information relating to the Company or any of its products, designs, processes
or operations.
3. If I violate any of the terms outlined above, I agree that the
Company, in addition to any other rights it may have, shall be entitled to
injunctive relief.
4. Notwithstanding the foregoing, in the event that Questron defaults
on its obligation to pay the 1997 Deferred Purchase Price or the 1998 Deferred
Purchase Price (collectively, the "Deferred Purchase Price"), under that Stock
Purchase Agreement dated August 29, 1997 (the "Agreement") the restrictions
contained in this letter shall terminate; provided, however, that any dispute
as to the calculation of the Deferred Purchase Price shall be resolved in
accordance with the terms of Agreement, and neither such dispute nor the
resolution thereof shall constitute a default. Very truly yours,
/s/ Terry Bastian
Terry Bastian
<PAGE>
SCHEDULE A
TO
BASTIAN AGREEMENT
Executive shall be entitled to be awarded as incentive compensation
options to purchase shares of Questron Technology, Inc. ("Questron") in
accordance with the following provisions. Defined terms shall have the
meanings assigned to them below:
options to purchase 25,000 shares of Questron Common Stock
in respect of the initial fiscal year up to and including
fiscal year 2001 where the Pre-Tax Earnings of Questron
shall equal or exceed the following targets:
Questron Stock
Pre-Tax Income Options
$4,500,000 25,000
Any awards made hereunder shall be made within 90 days after
the end of the fiscal year in respect of which the target
has been met with an exercise price equal to the "market
price" for Questron Common Stock at the date of grant.
Executive's entitlement to any awards hereunder shall cease
in the event Executive ceases for any reason to be an
employee of Questron or any of its subsidiaries. In no event
shall the total number of options awarded hereunder exceed
25,000. Said options will: (i) be immediately exercisable
upon the granting of same; (ii) be issued pursuant to a
stock option agreement, and (iii) subject to the terms of
the stock option agreement be exercisable for a period of
ten years.
For the purposes hereof:
"Market price" shall mean the average closing price listed
in the Wall Street Journal for Questron's Common Stock for the five trading
days ending on the third trading day immediately prior to the date of grant.
"Pre-Tax Income" for any fiscal year shall mean the earnings before
taxes of Questron calculated in accordance with generally accepted accounting
principles consistently
<PAGE>
applied from year to year and determined by Questron's independent
accountants, which determination shall be final and binding on the parties.
<PAGE>
EXHIBIT A-2
SERIAL PUT AGREEMENT
THIS SERIAL PUT AGREEMENT ("Agreement") is entered into as of September
22, 1997 between Questron Technology, Inc., a Delaware corporation (the
"Company"), and Doug Zadow, an individual, and Terry Bastian, an individual
(collectively, the "Sellers").
WHEREAS, the Company and the Sellers have entered into the Stock Purchase
Agreement dated as of August 29, 1997 (the "Purchase Agreement") which
provides for the issuance and sale to the Sellers of 475,106 shares of the
Company's Common Stock.
WHEREAS, the Company is granting Sellers the rights set forth in this
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
provisions hereof, the parties agree as follows:
1. Defined Terms. All terms that are not otherwise defined herein shall
have the meaning assigned to such terms in the Purchase Agreement.
2. Serial Put Option.
2.1. Grant of Serial Put. The Company hereby grants to the Sellers an
option to sell 125,912 shares (the "Shares") of the Company's Common Stock
issued to Sellers pursuant to the Purchase Agreement on a monthly basis in the
following manner (the "Put Option"). Each of the Sellers hereby, in the
absence of written notice to the Company given in accordance with Section 2.2,
exercises his option to sell to the Company that number of Shares set forth
opposite his name on Schedule A-1 for each of the seven months during the
period October 1997 through April 1998 and that number of Shares set forth
opposite his name on Schedule A-2 for each of the 53 months during the period
May 1998 through September 2002. The 15th day of each of the foregoing months
shall constitute a "Put Date." Each such sale shall be at a "Deemed Value" of
$6.275 per share. Shares sold or to be sold pursuant to this Section 2.1 shall
be referred to hereinafter as "Put Securities."
2.2. Cancellation of Exercise of Put Option. Either Seller may, at his
option, by written notice given to the Company at any time on or before the
first day of the month in which a Put Date relating to any Put Securities is
scheduled to occur, cancel his exercise with respect to all or a portion of
the Shares to be sold on that month's Put Date or on any subsequent Put Date.
Such notice shall specify the number of Shares and the Put Date(s) with
respect to which the exercise of the Put Option is being cancelled. Once a
notice of cancellation has been given to the Company with respect to any
Shares or once any Shares have been sold to any person or entity other than
the Company, the Seller's Put Option with respect to such Shares shall
terminate and be of no further force or effect.
2.3. Binding Obligation; Delivery of Share Certificates. In the absence
of notice by Sellers pursuant to Section 2.2, each Seller shall be obligated
to sell to the Company the Put Securities in accordance with this Agreement.
On or before the first day of each month in which a Put Date is scheduled to
occur, each Seller shall deliver to the Company a certificate evidencing a
number of shares equal to or greater than the number of Put Securities for
that Put Date together with a duly executed stock power relating thereto. The
Company shall be obligated
<PAGE>
to purchase the Put Securities and to pay for such Put Securities in
accordance with Section 2.4.
2.4. Payment. In the absence of a notice pursuant to Section 2.2, on or
before each Put Date, the Company shall purchase the Put Securities at the
purchase price set forth in Section 2.1 by payment in Federal or other
immediately available funds by bank check or, if requested by Sellers, by wire
transfer to an account of Sellers at any bank or trust company in the United
States of America.
2.5. Legal Restrictions. If the Company is not permitted by law on the
Put Date to purchase all of the Put Securities pursuant to this Section 2, the
amount of Put Securities to be purchased by the Company from Sellers shall be
the maximum amount that can be legally purchased by the Company.
2.6. Corrective Action. The Company shall take whatever reasonable
actions are within its power to prevent (or to remedy, as the case may be) any
condition or circumstance that may limit the amount of Put Securities that may
be purchased by it.
2.7. Registration of Put Securities. The Company shall file a
registration statement under the Securities Act of 1933 on an appropriate form
relating to the resale of the Shares within 60 days following the date hereof
and shall use its best efforts to cause such registration statement to be
declared effective under said Act.
In the absence of a default within the meaning of Section 2.8, a Seller
may not resell any Shares under the foregoing registration statement or
otherwise prior to the Put Date relating to such Shares in the absence of the
written consent of the Company.
2.8. Default in Company's Obligations. In the event that the Company
fails to make full payment for any Put Securities within five (5) business
days of its receipt of written notice of such default from either Seller
(including without limitation, a failure by reason of applicable legal
restrictions):
(a) the Company's obligations to purchase from such Seller any
remaining Shares shall immediately accelerate; and
(b) such Seller shall be entitled to resell (subject to compliance
with applicable securities laws) any Shares, including without
limitation, any Shares covered by future Put Dates.
3. Notices. Unless otherwise expressly specified or permitted by the
terms hereof, all notices, requests, demands, consents and other
communications hereunder shall be in writing and shall be delivered to any
party in the names and at the addresses as set forth in the Purchase
Agreement, or at such other address as may have been furnished to the other
party in writing. Whenever any notice is required to be given hereunder, such
notice shall be deemed given and such requirement satisfied only when such
notice is delivered or, if sent by facsimile, when received, unless otherwise
expressly specified or permitted by the terms hereof.
4. Changes in Common Stock. If, and as often as, there are any changes in
the Company's Common Stock by way of stock split, stock dividend, combination
or reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made
in the provisions hereof, as may be required,
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<PAGE>
so that the rights and privileges granted hereby shall continue with respect
to the Common Stock as so changed.
5. Miscellaneous.
5.1. Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with relation to the subject matter hereof, and no party
shall be liable or bound to the other in any manner with respect to the
subject matter hereof except as specifically set forth herein.
5.2. Headings. The headings and captions in the agreement are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof.
5.3. Binding Effect. The terms of this agreement shall be binding upon,
and inure to the benefit of, the parties and their respective successors and
permitted assigns whether so expressed or not. Neither party may assign any of
its obligations, duties or rights under this agreement, except with the other
party's written consent; provided, however, that the Company may designate a
third party to purchase the Put Securities the Company is obligated to
purchase hereunder, and provided further that such designation shall not act
as a novation or relieve the Company of its obligations hereunder, except only
to the extent that such designee actually purchases the Put Securities.
5.4. Amendment. No amendment, modification or waiver of this Agreement
shall be effective unless in writing and signed by the parties hereto.
5.5. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first set forth above.
QUESTRON TECHNOLOGY, INC.
By: /s/ Dominic A. Polimeni /s/ Doug Zadow
----------------------------- ----------------------
Name: Dominic A. Polimeni Doug Zadow
Title: Chairman, President and
Chief Executive Office
/s/ Terry Bastian
-----------------------
Terry Bastian
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<PAGE>
SCHEDULE A-1
Sellers Shares
------- ------
Doug Zadow 6,748
Terry Bastian 2,131
-----
8,879
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<PAGE>
SCHEDULE A-2
Sellers Shares
------- ------
Doug Zadow 914
Terry Bastian 289
-----
1,203
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