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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
--------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 0-13324
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QUESTRON TECHNOLOGY, INC.
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 23-2257354
- ------------------------------------------------ ----------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
6400 Congress Avenue, Suite 200A, Boca Raton, FL 33487
- ------------------------------------------------ ----------------------------
(Address of principal executive offices) (Zip Code)
(561) 241 - 5251
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 11, 1997, there were 2,110,590 shares of the issuer's
Common Stock and 1,150,000 shares of the issuer's Series B Convertible
Preferred Stock outstanding.
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QUESTRON TECHNOLOGY, INC.
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheet -
At September 30, 1997 and December 31, 1996 3
Consolidated Statement of Operations -
For the Three Month and Nine Month Periods
Ended September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows -
For the Nine Month Periods Ended September 30,
1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis or Plan of 9 - 11
Operation
PART II. Other Information 12 - 13
Signature Page 14
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
Current assets:
Cash and cash equivalents $ 1,080,857 $ 74,400
Accounts receivable, less allowance for
doubtful accounts of $121,193 and $53,773,
respectively 4,367,496 1,228,803
Other receivables 6,851 14,638
Inventories 7,262,456 3,168,767
Other current assets 191,657 83,417
------------ ------------
Total current assets 12,909,317 4,570,025
Property and equipment - net 857,164 373,367
Cost in excess of net assets of businesses acquired,
less accumulated amortization of $506,675 and
$303,356, respectively 20,093,096 6,694,153
Other assets 388,244 394,249
============ ============
Total assets $34,247,821 $12,031,794
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,774,402 $ 977,263
Current portion of long-term debt 1,741,667 550,000
------------ ------------
Total current liabilities 5,516,069 1,527,263
Long-term debt 9,006,180 1,785,000
------------ ------------
Total liabilities 14,522,249 3,312,263
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value; authorized
10,000,000 shares; 1,150,000 issued and
outstanding 11,500 --
Common stock, $.001 par value; authorized 20,000,000
shares; issued 2,122,439 shares in 1997 and
1,547,333 shares in 1996 2,122 1,547
Additional paid-in capital 33,508,244 23,880,069
Accumulated deficit (13,440,816) (14,806,607)
------------ ------------
20,081,050 9,075,009
Less: Treasury stock, 11,849 shares, at cost (355,478) (355,478)
------------ ------------
Total shareholders' equity 19,725,572 8,719,531
------------ ------------
Total liabilities and shareholders' equity $34,247,821 $12,031,794
============ ============
See notes to consolidated financial statements.
3
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues .................... $ 6,645,650 $ 2,557,804 $15,738,987 $ 8,264,940
----------- ----------- ----------- -----------
Operating costs and expenses:
Cost of products sold .... 4,048,925 1,487,566 9,508,193 4,854,502
Selling, general &
administrative expenses. 1,692,182 773,742 4,212,025 2,543,394
Depreciation and
amortization.............. 127,325 64,580 308,752 193,529
----------- ----------- ----------- -----------
5,868,432 2,325,888 14,028,970 7,591,425
----------- ----------- ----------- -----------
Operating income ............ 777,218 231,916 1,710,017 673,515
Interest expense ............ 79,433 75,378 206,532 234,631
----------- ----------- ----------- -----------
Income before income taxes .. 697,785 156,538 1,503,485 438,884
Provision for income taxes .. 64,426 9,733 137,700 49,383
----------- ----------- ----------- -----------
Net income .................. $ 633,359 $ 146,805 1,365,785 389,501
=========== =========== =========== ===========
Net income used in per common
share calculation
(reflecting deduction of
preferred ................. $ 600,296 $ 146,805 $ 1,299,659 $ 389,501
=========== =========== =========== ===========
Net income per common share . $ .18 $ .10 $ .45 $ .25
=========== =========== =========== ===========
Average number of common
shares and common share
equivalents outstanding ... 3,364,478 1,538,214 2,869,330 1,539,985
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................. $ 1,365,785 $ 389,501
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .......... 308,752 193,529
Provision for doubtful accounts ........ 62,093 6,975
Loss on sale of fixed assets ........... -- 2,184
Change in assets and liabilities:
(Increase) decrease in accounts
receivable ............................ (838,531) 73,250
Decrease in other receivables ........... 337,506 36,955
(Increase) decrease in inventories ...... (303,490) 210,190
Decrease (increase) in prepaid expenses
and other assets ...................... 194,065 (236,138)
Increase (decrease) in accounts payable
and accrued expenses .................. 142,235 (332,957)
------------ ------------
Net cash provided by operating activities 1,268,415 343,459
------------ ------------
Cash flows from investing activities:
Consideration paid for acquired businesses . (17,088,823) --
Proceeds from sale of fixed assets ......... -- 280
Acquisition of property and equipment ...... (78,759) (47,862)
------------ ------------
Net cash used for investing activities .. (17,167,582) (47,582)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings under revolving
facility ................................. -- 437,500
Notes issued for acquired businesses ....... 1,000,000 --
Proceeds from long-term debt ............... 10,000,000
Satisfaction of note issued for acquired
business ................................. (375,000) --
Proceeds from issuance of stock ............ 3,630,338 --
Proceeds from issuance of warrants ......... 375,000 --
Proceeds from Convertible Preferred Stock
Unit Offering ............................ 6,900,000 --
Costs associated with Convertible
Preferred Stock Unit Offering ............ (1,260,447) --
Repayment of long-term debt ................ (1,375,000) (412,500)
Repayment of note issued for acquired
business ................................. (29,668)
Repayment of revolving facilities .......... (2,143,747) --
------------ ------------
Net cash provided by financing activities 16,721,476 25,000
------------ ------------
Increase in cash and cash equivalents ........ 822,309 320,877
Cash and cash equivalents at beginning of
period ..................................... 258,548 39,358
============ ============
Cash and cash equivalents at end of period ... $ 1,080,857 $ 360,235
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
NOTE 1. BASIS OF PRESENTATION.
The accompanying unaudited consolidated financial statements include
the accounts of the Company and its subsidiaries. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with the
instructions for Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. The consolidated balance sheet at December 31, 1996
reflects the audited balance sheet at that date. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1996.
NOTE 2. ACQUISITION OF WEBB DISTRIBUTION.
In March 1997, the Company acquired 100% of the issued and outstanding
capital stock of Comp Ware, Inc. d/b/a Webb Distribution ("Webb"), a privately
owned company. The business of Webb is substantially similar to the fastener,
electronic hardware, and related products value-added distribution business of
the Company, serving customers in the high-technology equipment manufacturing
industry. The purchase price of Webb consisted of:
(i) $3,250,000 in cash;
(ii) Note A in the amount of $375,000. Principal and interest at the
rate of 10% are due and payable 18 months from the effective
date of the closing;
(iii) Note B in the amount of $375,000. Principal and interest at the
rate of 10% are payable monthly over five years from the
effective date of the closing; and
(iv) 1,500,000 Series IV Warrants (the "Webb Warrants") issued to
the majority shareholder of Webb as a down payment under the
Stock Purchase Agreement.
6
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
Such acquisition was effected pursuant to a Stock Purchase Agreement
dated as of December 16, 1996. The Company has accounted for such acquisition
using the purchase method of accounting. In connection with this acquisition,
the Company recorded $3,723,277 of cost in excess of net assets of the business
acquired.
In connection with the sale of the Webb warrants by the majority
shareholder of Webb, Note A (as described in (ii) above) was satisfied pursuant
to the terms of the acquisition agreement, effectively resulting in a $375,000
reduction in the cost of the acquisition.
NOTE 3. CONVERTIBLE PREFERRED STOCK UNIT OFFERING
In March 1997, the Company completed an Offering of 1,150,000 Units of
its securities. Each Unit consisted of one share of Series B Convertible
Preferred Stock and one Series IV Common Stock Purchase Warrant. The net
proceeds to the Company, after deducting underwriting discounts and other
expenses of the Offering, were $5,639,553. These proceeds were used in part to
finance the cash portion of the purchase price of Webb. The remaining cash
($2,389,553) was used to repay the outstanding balance on the Company's
revolving credit facility ($750,000) and to repay the outstanding balance on
Webb's revolving credit facility ($1,000,000), with the remaining balance
($639,553) retained by the Company for working capital.
NOTE 4. ACQUISITION OF INTEGRATED MATERIAL SYSTEMS, INC.
In June 1997, the Company acquired 100% of the issued and outstanding
capital stock of Integrated Material Systems, Inc. ("IMS"), a privately owned
company. The purchase price of IMS consisted of 50,000 shares of the Company's
common stock and an additional 75,000 shares of the Company's common stock to
be earned by if IMS attains certain earnings targets. In addition, the
acquisition agreement calls for deferred purchase payments of up to $1,500,000
in cash based on the future earnings of IMS.
NOTE 5. ACQUISITION OF POWER COMPONENTS, INC.
In September 1997, the Company purchased the net operating assets of
Power Components, Inc. ("PCI"), a privately owned Philadelphia distributor of
lithium batteries and customized battery packs and assemblies, through a
simultaneously acquired wholly-owned subsidiary. The purchase price of PCI
consisted of:
(i) $900,000 in cash;
(ii) 50,000 shares of the Company's common stock;
(iii) a note payable in the amount of $250,000; and
(iv) 100,000 shares of the Company's common stock to be earned if
PCI attains certain earnings targets.
7
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
Such transactions were effected pursuant to an Asset Purchase
Agreement and a Stock Purchase Agreement dated September 4, 1997. The Company
has accounted for such transactions using the purchase method of accounting. In
connection with these transactions, the Company recorded $1,231,062 of cost in
excess of net assets of the business acquired.
NOTE 6. ACQUISITION OF CALIFORNIA FASTENERS, INC.
In September 1997, the Company acquired 100% of the issued and
outstanding capital stock of California Fasteners, Inc. ("Calfast"), a
privately owned company. The purchase price of Calfast consisted of:
(i) $6,594,441 in cash;
(ii) the assumption of $1,058,712 in debt net of cash on hand;
(iii) 475,106, shares of the Company's common stock, including
125,896 shares of the Company's common stock which sellers
of Calfast may put to the Company, valued at $2,981,288;
(iv) up to $795,559 in cash to be paid if Calfast attains certain
earnings targets for the four month period ending December 31,
1997; and
(v) up to $3,500,000 (50% in cash and 50% in shares of the
Company's common stock) if Calfast attains certain earnings
targets for the year ending December 31, 1998.
The acquisition of Calfast was effected pursuant to a Stock Purchase
Agreement dated as of August 29, 1997. The Company has accounted for such
acquisition using the purchase method of accounting. In connection with this
acquisition, the Company recorded $8,355,314 of cost in excess of net assets of
the business acquired.
NOTE 7. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
In connection with the acquisitions of PCI and Calfast, the Company
entered into a loan agreement with a bank. The agreement provides for a
$14,000,000 credit facility consisting of a six-year term loan for $10,000,000
and a $4,000,000 revolving credit facility. The loan agreement contains a
provision for the calculation of a borrowing base, which determines the amount
of borrowings available under the revolving facility. At September 30, 1997,
the entire $4,000,000 revolving credit facility was available to the Company,
of which no amount was borrowed and outstanding. Interest on the revolving
facility is due monthly at the prime rate plus 1%. Interest on the six-year
term loan is due monthly at the prime rate plus 1.5%.
NOTE 8. DISPOSITION OF THE ADR BUSINESS
As of June 30, 1997, the Company sold its ADR business.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
For the three month and nine month periods ended September 30, 1997.
The results of operations through September 30, 1997 include the
operating results of the Company's distribution business. The Company's
alternative dispute resolution ("ADR") business was sold as of June 30, 1997.
The distribution business includes the operating results of Quest Electronic
Hardware, Inc. ("Quest") for the nine months ended September 30, 1997, the
operating results of Webb Distribution ("Webb") for the seven months ended
September 30, 1997, the operating results of Integrated Material Systems, Inc.
("IMS") for the four months ended September 30, 1997, and the operating results
of California Fasteners, Inc. ("Calfast") and Power Components, Inc. ("PCI")
for the month ended September 30, 1997. Webb, which was acquired by the Company
in March 1997, is a fastener and electronic hardware distribution business
serving the New England market. IMS, which was acquired by the Company in June
1997, is a master distributor of fasteners based in Scottsdale, AZ. PCI, which
was acquired by the Company in September 1997, is a distributor of lithium
batteries and customized battery packs and assemblies, located outside of
Philadelphia, PA. Calfast, which was acquired by the Company in September of
1997, is a fasteners and related products distribution business with locations
in Anaheim, CA, San Diego, CA and Phoenix, AZ.
The Company's revenues for the three and nine month periods ended
September 30, 1997 amounted to $6,645,650 and $15,738,987, respectively, which
represent a record level of revenues for the Company, compared with $2,557,804
and $8,264,940 for the comparable prior year periods. The significant growth in
the Company's revenues for the three and nine month periods is due to the
acquisition of Webb in March of 1997, the acquisition of IMS in June of 1997
and the acquisitions of Calfast and PCI in September of 1997, along with the
continued internal growth of Quest.
The Company's operating income was $777,218 and $1,710,017,
respectively, for the three month and nine month periods ended September 30,
1997, which represent a record level of operating income for the Company,
compared with operating income of $231,916 and $673,515 for the comparable
prior year periods. The increase in operating income for the three month and
nine month periods is due to the acquisitions discussed above and internal
growth. The operating income for the three month and nine month periods ended
September 30, 1997 represent approximately 12% of revenues, a relationship
which is consistent with the historical performance of the business.
Interest expense for the three and nine month periods ended September
30, 1997 amounted to $79,433 and $206,532, respectively. For the comparable
periods of the prior year, the Company's results include interest expense of
$75,378 and $234,631, respectively. The increase in interest expense for the
three month period ended September 30, 1997 over the comparable prior year
period reflects the cost of additional borrowings obtained during the month of
September 1997 for the acquisition of Calfast and PCI. The decrease in interest
expense for the nine month period ended September 30, 1997 over the comparable
prior year period principally reflects the pay down of revolving credit
facilities with a portion of the net proceeds received by the Company from the
Preferred Stock Unit Offering in March 1997, offset in part by the cost of the
additional borrowings related to the acquisitions of Calfast and PCI.
The provision for income taxes for the three month and nine month periods
ended September 30, 1997 principally reflects state income tax provisions for
states in which the
9
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Company conducts business. The provision for income taxes also includes a
minimal provision for federal income taxes for the federal alternative minimum
tax. The Company is expected to have a minimal regular federal income tax
liability for 1997, as a result of the availability of net operating loss
income tax carryforwards of approximately $13 million as of December 31, 1996,
expiring in the years 2000 through 2009.
Net income for the three month and nine month periods ended September
30, 1997 amounted to $633,359 and $1,365,785, respectively, compared with net
income of $146,805 and $389,501 for the comparable prior year periods. This
improvement reflects the increased operating income of the Company as a result
of the acquisitions of Webb, IMS, PCI and Calfast, as well as the growth in the
business of Quest, partially reduced by income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had $1,080,857 in cash and
short-term investments, compared to $74,400 as of December 31, 1996. As of
September 30, 1997, the Company had working capital of $7,393,248, compared
with working capital of $3,042,762 as of December 31, 1996.
For the nine months ended September 30, 1997, the net cash provided by
the Company's operating activities amounted to $1,268,415, principally
reflecting the profits of the Company's business, as well as decreases in
prepaid expenses, other assets and other receivables, and increases in accounts
payable and accrued expenses, offset in part by increases in accounts
receivable and inventories.
For the nine months ended September 30, 1997, the net cash used in the
Company's investing activities amounted to $17,167,582, including $17,088,823
of consideration paid for acquired businesses. In addition, the Company had
capital expenditures of $78,759 for the acquisition of fixed assets, primarily
computer and warehouse equipment to support the continued growth of the
Company's business. The Company does not have significant commitments for
capital expenditures as of September 30, 1997, other than a $375,000 commitment
for a new on-line, real-time computer system. No other significant commitments
are anticipated for the remainder of 1997.
For the nine months ended September 30, 1997, the net cash provided by
the Company's financing activities amounted to $16,721,476, which consists of
$5,639,553 in net proceeds derived from an Offering of Units of the Company's
securities, $750,000 in notes payable to a seller of Webb, $375,000 in warrants
issued to a seller of Webb as a down payment on the purchase price of Webb,
$299,050 of stock issued to the sellers of IMS, $250,000 in notes payable to
the sellers of PCI, $10,000,000 of bank financing for the acquisitions of PCI
and Calfast, $2,981,288 of common stock issued to the sellers of Calfast,
$350,000 of common stock issued to the sellers of PCI, reduced by repayments of
revolving facilities of $2,143,747, term debt principal payments of $1,375,000,
principal payments of $29,668 on Note B due to a seller of Webb and the
satisfaction of the $375,000 Note A due to a seller of Webb in accordance with
the terms of the agreement as a result of the sale by such majority shareholder
of Webb of the warrants received as a part of the consideration.
10
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In connection with the acquisitions of Calfast and PCI, the Company
increased its revolving facility to $4,000,000, under terms and conditions
generally consistent with those of its original facility. At September 30,
1997, no amounts were borrowed or outstanding under the revolving facility. The
entire amount of the $4,000,000 revolving credit facility was available at
September 30, 1997 for future working capital needs. Amounts outstanding under
the revolving facility bear interest at a rate equal to 1.0% above the lender's
prime rate. As of November 11, 1997, the interest rate under the revolving
facility was 9.5%. In order to secure the obligations of the Company and its
subsidiaries under the revolving facility and the related term loan facility
under the loan and security agreement with the lender, the Company entered into
a stock pledge agreement with the lender whereby the Company pledged to the
lender the shares of capital stock of each of the subsidiaries which the
Company held at the date of such agreement and any shares of the subsidiaries
in which the Company may thereafter acquire an interest. In addition, the
Company and its subsidiaries granted a security interest in substantially all
of their assets to the lender.
The Company intends to continue to identify and evaluate potential
merger and acquisition candidates engaged in businesses complementary to its
business. While certain of such potential acquisition opportunities are at
various stages of consideration and evaluation, none is at any definitive stage
at this time. Management believes that its working capital, funds available
under its credit agreement, and funds generated from operations will be
sufficient to meets its obligations through 1998, exclusive of any cash
requirements which may come about as a result of other business acquisitions.
Certain information contained in this report on Form 10-QSB includes
"Forward-Looking Statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and is subject to certain risks and
uncertainties, including those "Risk Factors" set forth in the Company's
current report on Form 8-K filed with the SEC on October 7, 1997. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect unanticipated
events or developments.
11
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On July 16, 1997, Unit Instruments, Inc., a California corporation
("Unit"), filed a complaint against California Fasteners, Inc. ("Calfast") and
others, including the manufacturer of the products involved, in the Superior
Court of the State of California for Orange County (the "Complaint"). The
Complaint alleges breach of contract, breach of various warranties and
negligence. The action relates to certain screws allegedly purchased from
Calfast as a distributor, which Unit alleges malfunctioned thereby causing Unit
to suffer damages. Unit has claimed damages in an amount to be proved at trial,
but alleged damages of no less than $1,000,000. Calfast has filed an answer
to this complaint on September 22, 1997 which denies the allegations made
therein and which raises a number of affirmative defenses to the complaint.
In addition, Calfast has filed a cross-complaint against certain of the other
defendants in the action. Calfast has referred this litigation to its insurance
carrier, which has assumed the defense of this case without acknowledging
liability under the policy. The former stockholders of Calfast have provided
the Company with certain indemnities in connection with liabilities arising
out of this litigation. Management of the Company believes that this
litigation will not have a material adverse effect on its business or
financial condition.
Item 2. CHANGES IN SECURITIES
The following shares of the Company's common stock were issued on May
30, 1997 as partial consideration for the acquisition of Integrated Material
Systems, Inc.: 112,500 shares to James Taylor and 12,500 shares to Toshio
Isogai. The following shares were issued on September 4, 1997 as partial
consideration for the acquisition of Power Components, Inc.: 75,000 shares to
Anthony R. Cucchi; 25,000 shares to Anthony R. Cucchi, Jr.; 25,000 shares to
Robert Meo and 25,000 shares to Maria M. Hutchinson. The following shares were
issued on September 22, 1997 as partial consideration for the acquisition of
California Fasteners, Inc.: 361,065 shares to Douglas D. Zadow and 114,041
shares to Terry Bastian.
The foregoing securities were issued in connection with the described
acquisitions pursuant to the exemption from registration afforded by Section
4(2) of the Securities Act of 1933 for transactions not involving any public
offering.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 annual meeting of the Company's stockholders was held on
August 26, 1997. The following individuals were reelected as directors of the
Company and received the votes indicated following their names: Milton M. Adler
(For --1,954,660; Withheld --18,121); Robert V. Gubitosi (For --1,954,714;
Withheld -- 18,067); Mitchell Hymowitz (For -- 1,954,755; Withheld -- 18,026);
William J. McSherry, Jr. (For -- 1,954,715; Withheld --18,066) and Dominic A.
Polimeni (For -- 1,954,722; Withheld -- 18,059). The appointment of Moore
Stephens, P.C. as the Company's auditors for fiscal year 1997 was ratified and
received the following votes: For -- 1,966,690; Against -- 3,991; Abstain --
2,100.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are being filed with this report:
10.0 Stock Purchase Agreement dated as of August 29, 1997 relating to
the acquisition of all of the outstanding stock of California Fasteners, Inc.,
incorporated by reference from the Company's Current Report on Form 8-K filed
October 7, 1997.
10.1 Asset Purchase Agreement dated September 4, 1997 relating to the
acquisition of substantially all of the assets of Power Components, Inc. with
the related Stock Purchase Agreement dated September 4, 1997 relating to the
acquisition of all of the stock of AR Acquisition Company.
27 Financial Data Schedule (electronic filing only)
(b) A Current Report on Form 8-K was filed on October 7, 1997 relating to Items
2, 5 and 7.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
QUESTRON TECHNOLOGY, INC.
Principal Executive Officer:
Date: November 13, 1997 /s/ Dominic A. Polimeni
----------------- -----------------------
Dominic A. Polimeni
Chief Executive Officer
and Principal Accounting Officer
13
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Exhibit 10.0
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STOCK PURCHASE AGREEMENT
By and Among
QUESTRON TECHNOLOGY, INC.
and
THE SHAREHOLDERS OF AR ACQUISITION COMPANY
LISTED ON SCHEDULE 1.1 HERETO
Dated September 4, 1997
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TABLE OF CONTENTS
PAGE
ARTICLE 1 SALE AND PURCHASE OF SHARES...................................1
Sec. 1.1. Sale of Shares................................................1
Sec. 1.2. Purchase Consideration and Payment for Shares.................1
Sec. 1.3. Restricted Securities.........................................3
ARTICLE 2 CLOSING.......................................................3
Sec. 2.1. Closing.......................................................3
Sec. 2.2. Transactions on the Closing Date..............................3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS.....................4
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. Litigation....................................................6
Sec. 3.8. Agreements, Contracts, Liabilities............................6
Sec. 3.9. Expenses and Finder's Fees....................................6
Sec. 3.10. Compliance With Law...........................................6
Sec. 3.11. Investment Intent.............................................7
Sec. 3.12. Disclosure....................................................7
Sec. 3.13. Balance Sheet.................................................7
Sec. 3.14. PCI Agreement.................................................7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF QUESTRON ...................7
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Sec. 4.1. Organization..................................................7
Sec. 4.2. Corporate Authority...........................................8
Sec. 4.3. No Violation..................................................8
Sec. 4.4. Investment Intent.............................................8
ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS OF SELLERS AND
QUESTRON......................................................8
Sec. 5.1. Tax Covenants.................................................8
Sec. 5.2. No Solicitation...............................................9
Sec. 5.3. Press Releases...............................................10
Sec. 5.4. Transitional Assistance......................................10
Sec. 5.5 PCI Transaction..............................................10
ARTICLE 6 INDEMNIFICATION..............................................10
Sec. 6.1. Indemnification by Sellers...................................10
Sec. 6.2. Indemnification by Questron..................................11
Sec. 6.3. Limitation on Liability......................................12
ARTICLE 7 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND
COVENANTS....................................................12
Sec. 7.1. Representations, Warranties and Covenants....................12
ARTICLE 8 NON-COMPETITION BY SELLERS AND NO SOLICITATION...............12
Sec. 8.1. Non-Compete; Non-Solicitation................................12
Sec. 8.2. Remedies.....................................................12
ARTICLE 9 MISCELLANEOUS................................................12
Sec. 9.1. Cooperation..................................................12
Sec. 9.2. Waiver.......................................................12
Sec. 9.3. Notices......................................................13
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Sec. 9.4. Governing Law and Consent to Jurisdiction; Dispute
Resolution...................................................13
Sec. 9.5. Counterparts.................................................14
Sec. 9.6. Headings.....................................................14
Sec. 9.7. Entire Agreement.............................................14
Sec. 9.8. Amendment and Modification...................................14
Sec. 9.9. Binding Effect; Benefits.....................................14
Sec. 9.10. Assignability................................................14
SCHEDULES
1.1 Sellers' % Ownership of the Company............................
EXHIBITS
A - 1 Employment Agreement of Anthony R. Cucchi......................
A - 2 Employment Agreement of Anthony R. Cucchi, Jr..................
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STOCK PURCHASE AGREEMENT dated September 4, 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 AR Acquisition Company, a Pennsylvania
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, which will
consist of the Initial Purchase Price and the Deferred Purchase Price, as
defined below.
(a) Initial Purchase Price. The "Initial Purchase Price" will be
payable by delivery of an aggregate of 100,000 shares of Questron's common
stock ("Questron Common Stock") to the Sellers in the proportions set forth in
Schedule 1.1. Each of the Seller's ownership rights in the Questron Common
Stock shall vest during the three (3) full calendar years immediately following
the Closing as follows: 20,000 of said shares upon the attainment by the
Company of $350,000 of pre-tax earnings in any of calendar years 1998, 1999 or
2000 up to the maximum of 100,000 shares upon the attainment of $750,000 of
pre-tax earnings in any of such years. In the event that pre-tax earnings are
more than $350,000 but less than $750,000 in any of such years, then the number
of shares which shall vest shall be adjusted on a linear basis. For example, if
1998 pre-tax earnings are $500,000, then the number of shares which shall vest
for 1998 is 50,000. While the opportunity for shares to vest shall continue
during the three year period specified, once shares have vested in respect of
the attainment of a given level of annual pre-tax earnings, no additional
vesting shall occur by reason of the attainment of such level of annual pre-tax
earnings during a subsequent year. The maximum aggregate number of shares of
Questron Common Stock issuable under this Section 1.2(a) in respect of all
three years is 100,000. In the event that any shares of Questron Common Stock
do not vest in accordance with the foregoing provisions, then the Sellers shall
return their certificates, evidencing the Questron Common Stock to Questron's
transfer agent for cancellation of the appropriate number of shares.
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(b) Deferred Purchase Price. The "Deferred Purchase Price" will be
payable in each of the three (3) full calendar years immediately following the
Closing (and pro rata for the partial year from the Closing Date to the end of
1997) as set forth below:
Company Pre-tax Earnings % of Pre-tax Amount
------------------------ ------------ ------
$ 0 to $ 500,000 15% $75,000
500,001 to 1,000,000 20% 100,000
1,000,001 to 1,500,000 25% 125,000
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Totals 20% $300,000
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The Deferred Purchase Price shall be payable as follows: (1) in respect of the
balance of 1997 and 1998: (A) payment to the Sellers in the proportions set
forth in Schedule 1.1 of an aggregate amount equal to $11,250 payable within
forty-five (45) days after the end of each calendar quarter (a "Quarterly
Payment"); and (B) payment to the Sellers in such proportions on April 15, 1998
and 1999 of the remainder of the Deferred Purchase Price payable in respect of
the preceding years (partial year in the case of 1997); and (2) in respect of
1999 and 2000: (A) payment to the Sellers in the proportions set forth in
Schedule 1.1 of an aggregate amount equal to 60% of the total Deferred Purchase
Price payable in respect of the preceding year divided by four (4) payable
within forty-five (45) days after the end of each calendar quarter (a
"Quarterly Payment"); and (B) payment to the Sellers in such proportions on
April 15, 2000 and 2001 of the remainder of the Deferred Purchase Price payable
in respect of the preceding year. The maximum Deferred Purchase Price payable
in respect of any calendar year is $300,000. In the event that the aggregate
Quarterly Payments made in respect of any year exceed the Deferred Purchase
Price payable in respect of such year, then the Sellers shall repay in the
proportions set forth on Schedule 1.2 such excess on or before April 30 of each
year.
(c) Calculation of Pre-Tax Earnings. For purposes of this Section 1.2,
pre-tax earnings shall be calculated by Questron on a pro forma basis as
follows: (i) pre-tax earnings of the Company, as reflected on the Company's
income statement, prepared in accordance with generally accepted accounting
principles; plus (ii) an interest charge (equal to Questron's bank borrowing
rate) for the cost of additional capital required by the Company in excess of
its tangible net book value on the Closing Date. On or before April 15 of each
year, Questron shall deliver to the Sellers a statement of pre-tax earnings
together with a review report by Questron's independent public accountants.
1.3 Restricted Securities. The shares representing the 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 and evidencing the vesting requirements of
Section 1.2.
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ARTICLE 2
CLOSING
2.1 Closing. The closing of the sales of the Shares contemplated by
Section 1.1 (the "Closing") shall occur simultaneously with the execution and
delivery of this Agreement (such date of execution, delivery and closing being
hereinafter referred to as the "Closing Date"). The effective date of the
Closing shall be August 31, 1997. The Closing contemplated hereunder shall
occur simultaneously with the closing contemplated under the Asset Purchase
Agreement dated as of September 4, 1997 by and between Power Components, Inc.
("PCI") and the Company (the "PCI Agreement").
2.2 Transactions on the Closing Date. 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;
(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;
(v) an employment agreement dated the Closing Date duly executed
by Anthony R. Cucchi together with the "Restrictive Letter" and any other
exhibits attached thereto, substantially in the form attached hereto as
Exhibit A-1;
(vi) an employment agreement dated the Closing Date duly executed
by Anthony R. Cucchi, Jr., together with the "Restrictive Letter" and any
other exhibits attached thereto, substantially in the form attached hereto
as Exhibit A-2;
(vii) (a) a Certificate of the Secretary of the Company attaching
and certifying as true and correct copies of the Company's Articles of
Incorporation, By-laws and resolutions authorizing the execution and
delivery of and the transactions contemplated by this Agreement, all as
amended to the date of and in effect at the Closing; and (b) a recently
dated Certificate of the Secretary of State of the State of Pennsylvania
evidencing the good standing of the Company under the laws of such
jurisdiction and recently dated Certificates of the Secretary of State of
such other jurisdictions in which the Company is doing business, if any,
evidencing the good standing of the Company under the laws of such
jurisdictions; and
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(viii) an unaudited balance sheet of the Company as at August 31,
1997 (the "Balance Sheet"), together with a written statement describing
any significant changes since that date; and
(ix) such other certificates and documents as may be reasonably
requested by Questron or its counsel.
The employment agreements referred to in items (v) and (vi) above
shall be referred to hereinafter as the "Employment Agreement(s)".
(b) At the Closing, Questron will deliver to Sellers the following:
(i) the shares representing the Questron Common Stock;
(ii) the Employment Agreement duly executed on behalf of Questron
in favor of Anthony R. Cucchi;
(iii) the Employment Agreement duly executed on behalf of
Questron by Anthony R. Cucchi, Jr.; and
(iv) such other certificates and documents as may be reasonably
requested by the Sellers or their counsel.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller jointly and severally represents and warrants to Questron
that:
3.1 Due Execution. This Agreement and the Employment Agreements
(collectively, the "Agreements"), have been, and will be as of the Closing
Date, duly executed and delivered by such Seller, and (assuming due execution
and delivery by Questron) the Agreements constitute valid and binding
obligations of such Sellers, enforceable in accordance with their terms, except
as such enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, moratorium, reorganization or similar laws affecting creditors'
rights generally or by general equitable principles.
3.2 Corporate Organization and Authority of Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Pennsylvania 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.
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3.4 Subsidiaries and Equity Investments. The Company has no
subsidiaries and does not own, directly or indirectly, any investments, capital
stock or other equity or ownership interests in any other corporations or
business enterprises and is not partner in any partnership or co-venturer in
any joint venture or other business enterprise. The term "subsidiary" means any
corporation or other entity of which the Company, directly or indirectly, owns
or controls capital stock or ownership interests representing either (i) more
than fifty percent (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 in the Disclosure Letter
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 represents 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 2.3, 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 in the Disclosure Letter.
3.6 Capitalization. The authorized capital of the Company consists of
1,000 shares of common stock, par value $1.00 per share (the "Common Stock"),
all of which are issued and outstanding. No other class of capital stock or
other ownership 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. 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. 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 Litigation. There is (i) no outstanding consent, order, judgment,
injunction, award or decree of any court, governmental or regulatory body,
administrative agency or arbitrator
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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 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").
3.8 Agreements, Contracts, Liabilities. Except for the PCI Agreement
and except as contemplated by this Agreement, the Company has conducted no
operations and has not entered into any material agreements, contracts or
commitments or incurred any material liabilities.
3.9 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.
3.10 Compliance With Law. 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.
3.11 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) has such knowledge and experience
in financial and business affairs that he is capable of evaluating the merits
and risks of acquiring the Questron Common Stock. 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.
3.12 Disclosure. No representations or warranties by Sellers in this
Agreement, including the Exhibits, 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, the Balance Sheet, any
schedule, exhibit, or certificate delivered in accordance with the
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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.
3.13 Balance Sheet. The Balance Sheet is complete and correct, was
prepared in accordance with generally accepted accounting principles
consistently applied and fairly presents the financial position of the Company
at such date.
3.14 PCI Agreement. The representations and warranties of the Company
in the PCI Agreement remain true and correct in all material respects.
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. The Agreements have been duly
executed and delivered by Questron, and (assuming due execution and delivery by
Sellers) the Agreements constitute valid and binding obligations of Questron,
enforceable in accordance with their 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,
(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.
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4.4 Investment Intent. Questron is acquiring the Shares for its own
account for investment and not with a view to any distribution thereof.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS OF SELLERS AND QUESTRON
5.1 Tax Covenants. (a) for purposes of this Agreement, "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).
(b) 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 (at Seller's expense), 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 law or regulation or otherwise agreed to by Questron
prior to the filing thereof, subject to the proviso of the preceding sentence.
(c) 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 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 5.1 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 5.1(b).
(d) 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
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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.
5.2 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.
5.3 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.
5.4 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.
5.5 PCI Transaction. The transactions contemplated by the PCI
Agreement shall have been consummated simultaneously with the Closing and none
of the conditions under the PCI Agreement shall have been waived by the Sellers
or the Company.
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification by Sellers. Effective only from and upon the
occurrence of the Closing, and subject to Section 6.3 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) 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 Periods to the extent the
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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 Deferred
Purchase Price.
6.2 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 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
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<PAGE>
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.
6.3 Limitation on Liability. The aggregate liability of the Sellers
under this Article 6 shall not exceed the aggregate amount of consideration
received by the Sellers as Initial Purchase Price and Deferred Purchase Price.
ARTICLE 7
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 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.
ARTICLE 8
NON-COMPETITION BY SELLERS AND NO SOLICITATION
8.1 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.
8.2 Remedies. Each Seller recognizes that a breach or threatened
breach by him of his obligations under this Article 8 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 8, in
addition to any other remedies which may be available.
ARTICLE 9
MISCELLANEOUS
9.1 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.
9.2 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
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to comply with any of its obligations or agreements herein contained may be
waived only in writing by the Sellers.
9.3 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:
AR Acquisition Company
12 Horseshoe Lane
Newtown Square, PA 19073
Attention: Anthony R. Cucchi, Sr.
(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.
9.4 Governing Law and Consent to Jurisdiction; Dispute Resolution 9.4
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 9.4. Judgment upon the
award of the arbitrators may be entered in any court having jurisdiction
thereof or such court
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<PAGE>
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 (3) 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.
9.5 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.
9.6 Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 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.
9.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of the parties hereto.
9.9 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 6.1
and 6.2, the other Questron Indemnitees and Seller Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
9.10 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.
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<PAGE>
QUESTRON TECHNOLOGY, INC.
By
- ---------------------------- ------------------------------------
Anthony R. Cucchi Name: Dominic A. Polimeni
Title: Chairman, President and
Chief Executive Officer
- -----------------------------
Anthony R. Cucchi, Jr.
AR ACQUISITION COMPANY
By
------------------------------------
Name: Anthony R. Cucchi
Title: President
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<PAGE>
SCHEDULE 1.1
% Ownership of
Sellers the Company Shares Sold
------- ----------- -----------
Anthony R. Cucchi 75% 750
Anthony R. Cucchi, Jr. 25% 250
<PAGE>
Exhibit 10.1
===============================================================================
ASSET PURCHASE AGREEMENT
By and Among
AR ACQUISITION COMPANY
POWER COMPONENTS, INC.
and
THE SHAREHOLDERS OF POWER COMPONENTS, INC.
LISTED ON SCHEDULE 2.2 HERETO
Dated September 4, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 CERTAIN DEFINITIONS.............................................1
Sec. 1.1. Assumed Liabilities.............................................1
Sec. 1.2. Business........................................................1
Sec. 1.3. Exchange Act....................................................1
Sec. 1.4. Excluded Assets.................................................1
Sec. 1.5. GAAP............................................................1
Sec. 1.6. Liabilities.....................................................1
Sec. 1.7. Net Operating Assets............................................2
Sec. 1.8. Non-Assumed Liabilities.........................................2
Sec. 1.9. Purchased Assets................................................2
ARTICLE 2 SALE AND PURCHASE OF ASSETS.....................................3
Sec. 2.1. Sale of Assets..................................................3
Sec. 2.2. Purchase Consideration and Payment for Purchased Assets.........3
Sec. 2.3. Restricted Securities...........................................3
ARTICLE 3 CLOSING.........................................................4
Sec. 3.1. Closing.........................................................4
Sec. 3.2. Transactions on the Closing Date................................4
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS................................................5
Sec. 4.1. Due Execution...................................................5
Sec. 4.2. Corporate Organization and Authority of Company.................5
Sec. 4.3. Certificate of Incorporation; By-laws...........................6
<PAGE>
Sec. 4.4 Subsidiaries and Equity Investments.............................6
Sec. 4.5 Ownership of Shares.............................................6
Sec. 4.6. Capitalization..................................................6
Sec. 4.7. No Violation....................................................6
Sec. 4.8. Litigation......................................................7
Sec. 4.9. Personal Property...............................................7
Sec. 4.10 Real Property...................................................7
Sec. 4.11 Financial Statements............................................7
Sec. 4.12 Books and Records...............................................8
Sec. 4.13 Tax Matters.....................................................8
Sec. 4.14 Employee Matters................................................9
Sec. 4.15 Intellectual Property..........................................11
Sec. 4.16 Accounts Receivable............................................11
Sec. 4.17 Inventory......................................................11
Sec. 4.18 No Material Change.............................................11
Sec. 4.19 Compliance With Law............................................13
Sec. 4.20 Contracts and Commitments......................................13
Sec. 4.21 Insurance......................................................13
Sec. 4.22 Affiliate Interests............................................14
Sec. 4.23 Customers, Suppliers, Distributors, Etc........................14
Sec. 4.24 Absence of Certain Payments....................................14
Sec. 4.25 Investment Intent..............................................14
Sec. 4.26 Disclosure.....................................................15
<PAGE>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ARAC ........................15
Sec. 5.1. Organization...................................................15
Sec. 5.2. Corporate Authority............................................15
Sec. 5.3. No Violation...................................................15
Sec. 5.4. Questron Shares................................................16
ARTICLE 6 CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY
AND ARAC.......................................................16
Sec. 6.1. Tax Covenants..................................................16
Sec. 6.2. Expenses and Finder's Fees.....................................17
Sec. 6.3. Press Releases.................................................17
Sec. 6.4. Transitional Assistance........................................17
Sec. 6.5. Non-Assumed Liabilities........................................17
Sec. 6.6. Assumed Liabilities............................................17
Sec. 6.7. Change of Name.................................................17
Sec. 6.8. Relocation of Business.........................................17
Sec. 6.9. Sale of Stock..................................................17
ARTICLE 7 INDEMNIFICATION................................................18
Sec. 7.1. Indemnification by the Company and the Shareholders............18
Sec. 7.2. Indemnification by ARAC........................................19
Sec. 7.3. Limitations on Liability.......................................19
ARTICLE 8 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND
COVENANTS......................................................20
Sec. 8.1. Representations, Warranties and Covenants......................20
<PAGE>
ARTICLE 9 NON-COMPETITION BY THE COMPANY AND NO SOLICITATION.............20
Sec. 9.1. Non-Compete; Non-Solicitation..................................20
Sec. 9.2. Remedies.......................................................20
ARTICLE 10 MISCELLANEOUS..................................................20
Sec. 10.1 Cooperation....................................................20
Sec. 10.2 Waiver.........................................................20
Sec. 10.3 Notices........................................................21
Sec. 10.4 Governing Law and Consent to Jurisdiction; Dispute
Resolution...................................................22
Sec. 10.5 Counterparts...................................................23
Sec. 10.6 Headings.......................................................23
Sec. 10.7 Entire Agreement...............................................23
Sec. 10.8 Amendment and Modification.....................................23
Sec. 10.9 Binding Effect; Benefits.......................................23
Sec. 10.10 Assignability..................................................23
Sec. 10.11 Disclosure Letter; Schedules...................................23
<PAGE>
SCHEDULES
1.1 Assumed Liabilities
1.4 Excluded Assets
1.7 Net Operating Assets
1.8 Non-Assumed Liabilities
2.2 Shareholders' % Ownership of the Company
4.9 Personal Property
4.14 Employee Matters
4.23 25 Largest Customers of the Company, by Dollar Volume
6.1 Allocation of Purchase Price among Purchased Assets
EXHIBITS
A. Promissory Note
B. General Indenture of Conveyance
C. Employment Agreement of Frank E. Hutchinson
D. Non-Compete Agreement of Robert C. Meo
E. Instrument of Assumption
<PAGE>
ASSET PURCHASE AGREEMENT dated September 4, 1997 (herein, together
with the Schedules and Exhibits attached hereto, referred to as the
"Agreement") by and among AR Acquisition Company, a Pennsylvania corporation
("ARAC"), Power Components, Inc., a Pennsylvania corporation (the "Company"),
and the individuals listed on Schedule 2.2 ("Shareholders").
W I T N E S S E T H :
WHEREAS, the Shareholders are the beneficial and record holders of all
of the shares of capital stock of the Company; and
WHEREAS, the Company wishes to sell and ARAC wishes to purchase the
business and the Purchased Assets (as hereinafter defined) of the Company 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
CERTAIN DEFINITIONS
1.1 Assumed Liabilities. As used in this Agreement, the term "Assumed
Liabilities" shall mean only those Liabilities (as hereinafter defined) of the
Company which were incurred in the ordinary course of the Business and which
are identified on Schedule 1.1 attached hereto. Assumed Liabilities shall not
include any Liabilities other than those expressly set forth on Schedule 1.1.
1.2 Business. As used in this Agreement, the business conducted by the
Company is hereinafter referred to as the "Business."
1.3 Exchange Act. As used in this Agreement, the term "Exchange Act"
shall mean the Securities Exchange Act of 1934, as amended.
1.4 Excluded Assets. As used in this Agreement, the term "Excluded
Assets" shall mean the assets specifically identified on Schedule 1.4.
1.5 GAAP. As used in this Agreement, the term "GAAP" shall mean United
States generally accepted accounting principles which are applicable to a
company filing reports under Section 13(a) of the Exchange Act.
1.6 Liabilities. As used in this Agreement, the term "Liabilities"
means all costs, expenses, charges, debts, liabilities and obligations,
contingent or otherwise, primary or secondary, direct or indirect, accrued or
unaccrued, including, without limitation, those arising under any
<PAGE>
legislation, regulation or rule of any governmental authority, commission,
board, agency or instrumentality, domestic or foreign, any award of any
arbitrator or court, any act or omission, and any contract, agreement, lease,
commitment or undertaking.
1.7 Net Operating Assets. As used in this Agreement, the term "Net
Operating Assets" shall mean: (a) the Company's accounts receivable, inventory,
fixed assets and those other assets identified on and valued at the agreed upon
values set forth on Schedule 1.7 determined in accordance with GAAP less (b)
any Assumed Liabilities. Net Operating Assets shall not include any cash held
by the Company nor shall it include any assets of the Business other than the
Purchased Assets.
1.8 Non-Assumed Liabilities. As used in this Agreement, the term
"Non-Assumed Liabilities" shall mean any Liabilities of the Company arising
before or after the Closing Date, except for those Liabilities which are
expressly included among the Assumed Liabilities. Non-Assumed Liabilities
shall include, without limitation, those Liabilities identified on Schedule 1.8
attached hereto.
1.9 Purchased Assets. As used in this Agreement, the term "Purchased
Assets" shall mean all of the right, title, and interest of the Company in, to
and under certain of the tangible and intangible assets (other than cash and
other Excluded Assets), rights and privileges of the Company as of the Closing
Date (as defined in Section 3.1 hereof), wherever located, relating to and/or
used or held for use in connection with the Business. The term Purchased Assets
shall include, without limitation:
(a) All office equipment, computer hardware, office furnishings and
other fixed assets and similar property currently used in the Business and
necessary in order to operate the Business in a manner consistent with the
Company's past practice;
(b) All inventories of batteries, work in progress, finished products
and other supplies;
(c) All billed and unbilled accounts receivable and all rights, if
any, to receive payments from any person held by the Company;
(d) All prepaid expenses and similar assets;
(e) All of the rights of the Company under all contracts relating to
the Business including, without limitation, the Company's rights under customer
contracts, supplier agreements and all other arrangements, license agreements,
leases, service and maintenance contracts, software support contracts and
agreements whether written or oral, necessary in order to service the Business
in a manner consistent with the Company's past practice, including, without
limitation, all unfilled orders from customers or relating to or under the
assigned contracts and all forward commitments relating to or under the
assigned contracts including, without limitation, the Company's right to
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receive payment for products sold or services rendered pursuant to, and to
receive goods and services pursuant to, the assigned contracts and to assert
claims and take other rightful actions in respect of breaches, defaults, and
other violations of such contracts;
(f) All trade secrets, processes, procedures, proprietary information,
technology and formulae now used in or necessary for the conduct of the
Business or developed, licensed or acquired in connection with the Business,
including any licensed rights relating thereto; and
(g) All books, records (other than minute books and other corporate
records of the corporate proceedings of the Company), manuals, software,
software codes, advertising matter, catalogs, price lists, correspondence,
mailing lists, lists of customers and other customer files, competitor and
competition information, market and industry information, product supply
information, systems information, distribution lists, sales and promotional
materials and records, purchasing material and records, media materials, sales
order files, backup disks and data files, drawings, job files, open proposals
and open quotations.
ARTICLE 2
SALE AND PURCHASE OF ASSETS
2.1 Sale of Assets. The Company shall sell to ARAC the Purchased
Assets and ARAC shall purchase such Purchased Assets for the aggregate purchase
consideration specified in Section 2.2 (the "Purchase Price").
2.2 Purchase Consideration and Payment for Purchased Assets. ARAC
shall acquire the Purchased Assets for a total purchase price as set forth
below, plus the assumption of the Assumed Liabilities. The cash portion of the
purchase price shall be payable by wire transfer of immediately available funds
to an account designated by the Company and the stock portion of the purchase
price shall be payable by means mutually agreed to by the parties. The purchase
price shall be as follows:
(a) cash delivered to the Company in the amount of $900,000.00 (the
"Cash Consideration");
(b) 50,000 non-assessable shares of common stock of Questron
Technology, Inc., a Delaware corporation ("Questron") (the "Questron Shares"),
which shares shall be subject to no liens or restrictions other than
restrictions under applicable securities laws. At the written request of the
Company and upon being furnished with an appropriate instrument of assignment
duly executed by the Company, ARAC shall cause the Questron Shares to be issued
in accordance with the Company's instructions in the names of and delivered to
the Shareholders and in the proportions set forth on Schedule 2.2;
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<PAGE>
(c) a promissory note delivered to the Company substantially in the
form of Exhibit A annexed hereto (the "Note") in the principal amount of
$250,000; and
(d) the Instrument of Assumption contemplated by Section 3.2(b)(iv).
2.3 Restricted Securities. The shares representing the Questron Shares
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.
ARTICLE 3
CLOSING
3.1 Closing. The closing of the sale of the Assets contemplated by
Section 2.1 (the "Closing") shall occur simultaneously with the execution and
delivery of this Agreement and shall take place at 10:00 A.M. local time on
September 4, 1997 at the offices of the Company's counsel located at 401 City
Avenue, Bala Cynwyd, Pennsylvania or on such other date and at such other time
as the parties may mutually agree (such date of execution, delivery and closing
being hereinafter referred to as the "Closing Date"). The effective date of the
Closing shall be August 31, 1997.
3.2 Transactions on the Closing Date.
(a) At the Closing, the Company will deliver to ARAC the following:
(i) a General Indenture of Conveyance, Assignment and Transfer
substantially in the form of Exhibit B attached hereto duly executed by the
Company in favor of ARAC and all such other deeds, bills of sale,
assignments, or other instruments of transfer and conveyance as shall be
necessary or appropriate, in the reasonable judgment of ARAC, to transfer
title to and possession of all of the Purchased Assets to ARAC, and the
Company shall take all other steps as may be necessary to put ARAC in
actual control of all of the Purchased Assets. The Company shall make
available to ARAC all documents (or copies thereof) and other data,
technical or otherwise, which are owned by the Company which relate to the
Purchased Assets or to the Business and which will be necessary for the
conduct of the Business after the Closing Date, including, without
limitation, such books of accounts and financial records as ARAC may
reasonably request;
(ii) an employment agreement dated the Closing Date duly executed
on behalf of ARAC in favor of Frank E. Hutchinson, substantially in the
form attached hereto as Exhibit C (together with the "Restrictive Letter"
and any other exhibits attached thereto,
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<PAGE>
the "Employment Agreement");
(iii) restrictive letters dated the Closing Date duly executed by
Robert C. Meo and Maria M. Hutchinson substantially in the form of Exhibit
D attached hereto (the "Non-Compete Agreements");
(iv) an opinion of counsel to the Company and the Shareholders in
form and substance satisfactory to ARAC;
(v) an unaudited balance sheet of the Company as of August 31,
1997 (the "Reference Balance Sheet Date"), together with a written
statement describing any significant changes in financial condition since
the Balance Sheet Date; and
(vi) such other certificates and documents as may be reasonably
requested by ARAC or their counsel.
(b) At the Closing, ARAC will deliver to the Company the following:
(i) the Cash Consideration;
(ii) the Questron Shares;
(iii) the Note; and
(iv) an Instrument of Assumption relating to the Assumed
Liabilities in the form of Exhibit E annexed hereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS
Each of the Company and the Shareholders jointly and severally
represents and warrants to ARAC that:
4.1 Due Execution. This Agreement, the Employment Agreement and the
Non-Compete Agreement (collectively, the "Agreements"), have been, and will be
as of the Closing Date, duly executed and delivered by each of the Company and
the Shareholders, and (assuming due execution and delivery by ARAC) the
Agreements constitute valid and binding obligations of each of the Company and
the Shareholders, enforceable in accordance with their terms, except as such
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<PAGE>
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization or similar laws affecting creditors' rights
generally or by general equitable principles.
4.2 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 Pennsylvania and has all requisite corporate power and
authority to carry on its business as now being conducted and to own its
properties . The Company is not licensed or qualified as a foreign corporation
in any other jurisdiction and the failure to be so licensed or so qualified
will not have a material adverse effect on the Purchased Assets, or Assumed
Liabilities (a "Material Adverse Effect") of the Company. The execution and
delivery of the Agreements by the Company have been duly authorized by all
necessary action of the Company.
4.3 Certificate of Incorporation; By-laws. The Company has heretofore
delivered to ARAC complete and correct copies of the articles of incorporation
and by-laws of the Company as currently in effect.
4.4 Subsidiaries and Equity Investments. The Company has no
subsidiaries and does not own, directly or indirectly, any investments, capital
stock or other equity or ownership interests in any other corporations or
business enterprises and is not partner in any partnership or co-venturer in
any joint venture or other business enterprise. The term "subsidiary" means any
corporation or other entity of which the Company, directly or indirectly, owns
or controls capital stock or ownership interests representing either (i) more
than fifty percent (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.
4.5 Ownership of Shares. Each Shareholder is the lawful record and
beneficial owner of that number of shares set forth opposite his or her name on
Schedule 2.2 which represents all of the issued and outstanding shares of the
Company's capital stock.
4.6 Capitalization. The authorized capital of the Company consists of
1,000 shares of common stock, without par value (the "Common Stock"), of which
1,000 shares are issued and outstanding. No other class of capital stock or
other ownership interests of the Company is authorized, issued, reserved for
issuance or outstanding. All such issued and outstanding shares have been duly
authorized and are validly issued, fully paid and nonassessable. No 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. There are no outstanding options, warrants, subscriptions,
unsatisfied preemptive rights, calls or other rights, agreements, commitments
or arrangements of any kind to acquire any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the capital stock of the Company
or any security of any kind convertible into or exchangeable for any such
capital stock. 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.
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<PAGE>
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.
4.7 No Violation. Neither any Shareholder nor the Company is 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, lien, charge or restriction of any kind or
character ("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 the Company or a Shareholder of the Agreements to which such
person 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 the Company or a
Shareholder of the Agreements to which such person is a party and the
consummation of the transactions contemplated thereby.
4.8 Litigation. Except as set forth in the Disclosure Letter, there is
(i) no outstanding consent, order, judgment, injunction, award or decree of any
court, governmental or regulatory body, administrative agency or arbitrator
against or involving the Company, any of its officers or directors as such or
any Shareholder in his capacity as a shareholder of the Company, (ii) no
action, suit, dispute or governmental, administrative, arbitration or
regulatory proceeding pending or, to the Company's knowledge, threatened
against the Company or any Shareholder in his capacity as a shareholder of the
Company, and (iii) to the Company's knowledge, no investigation pending or
threatened against or relating to the Company, any of its officers or directors
as such or any Shareholder in his capacity as a shareholder of the Company
(collectively, "Proceedings").
4.9 Personal Property. (a) Schedule 4.9 sets forth (i) the tangible
physical assets of the Company included in the Purchased Assets all of which
assets are located at 700-710 East Johnson Highway, Norristown, PA; (ii)
individual refundable deposits in excess of $2,000 or
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$5,000 in the aggregate; and (iii) all outstanding loans or advances made by
the Company to any Person in excess of $5,000.
(b) Except as set forth in the Disclosure Letter, the Company has good
and valid title to all of the Purchased Assets free and clear of all
Encumbrances and such Purchased Assets constitute all of the assets of the
Business necessary in order to operate the Business in a manner consistent with
its past practice.
4.10 Real Property. The Company does not own any real property or
interest in real estate (other than the office lease included in the Purchased
Assets).
4.11 Financial Statements. (a) The Company has heretofore furnished
ARAC with copies of the following consolidated financial statements of the
Company: (i) unaudited balance sheets as at December 31, for each of 1994, 1995
and 1996, respectively; (ii) unaudited statements of operations and retained
earnings for each of the years then ended; (iii) an unaudited balance sheet
(the "Reference Balance Sheet") as at August 31, 1997 (the "Reference Balance
Sheet Date"); and (iv) an unaudited statement of operations and retained
earnings (the "Reference Income Statement") for the eight month period then
ended. Except as noted therein and except for 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 GAAP and present
fairly the financial position of the Company at such dates and the results of
its operations for the periods then ended, subject to such inaccuracies, if
any, which are not material in nature or amount.
(b) There are no liabilities, debts, obligations or claims against the
Company of any nature (accrued, absolute or contingent, or, to the best
knowledge, information and belief of the Company, 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 ARAC 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.
4.12 Books and Records. (a) The Company has made and will make
available for inspection by ARAC all the books of account relating to business
of the Company. 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 that have been made available to
ARAC for its inspection contain true and complete records of all meetings and
consents in lieu of meetings of the Board of Directors (and any committees
thereof) of the Company, and of its 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 ARAC for its
inspection are true and complete in all material respects.
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4.13 Tax Matters. (a) For purposes of this Agreement, "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, 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;
(i) 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;
(ii) there is no action, suit, proceeding, investigation, audit
or claim currently pending or, to the Company's knowledge, threatened,
regarding any Taxes.
(b) The Company and its Shareholders have each filed or caused to be
filed, within the times and in the manner prescribed by law, Tax returns and
Tax reports which are required to be filed by the Company or with respect to
the Company by the Shareholders. Such returns and reports are true, correct and
complete. Taxes payable by, or due from the Company and/or the Shareholders
have been fully paid or adequately disclosed and, in the case of taxes payable
by the Company, fully provided for in the books and consolidated financial
statements of the Company. Except as set forth in the Disclosure Letter, no
examination of any Tax return of the Company or any Shareholder is currently in
progress and there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any such Tax return.
4.14 Employee Matters. (a) Schedule 4.14 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. The Company has no employment, managerial, advisory,
consulting or severance agreements; employee confidentiality or other
agreements protecting proprietary processes, formulae or information; employee
handbook(s); reports and/or plans prepared or adopted pursuant to the Equal
Employment Opportunity Act of 1972, as amended; or affirmative action plans.
Schedule 4.14 sets forth each employee benefit or compensation plan, agreement
or arrangement covering present employees of the Company, including "employee
benefit plans" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), stock purchase, stock option, fringe
benefit, change in control, bonus and deferred compensation plans, agreements
or funding arrangements (collectively, the "Benefit Plans"), whether sponsored,
maintained or contributed to by the Company.
(b) For each Benefit Plan, each of the following is true:
(i) none of the Company or any other party has, with respect to
any such Benefit
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Plan, engaged in a prohibited transaction, as such term is defined in Code
Section 4975 or ERISA Section 406, which would subject ARAC to any Taxes,
penalties or other material liabilities resulting from prohibited
transactions under Code Section 4975 or under ERISA Sections 409 or 502(i);
(ii) the execution and delivery of this Agreement by the Company
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
(iii) the Company has delivered to ARAC current, accurate and
complete copies of the simplified adoption agreements for the Company's
Vanguard Profit Sharing Plan and for its Vanguard Money Purchase Pension
Plan.
(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, each of the following is true in all
material respects:
(i) the Company is in compliance with all applicable laws and
agreements respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and
health and 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 the Company's knowledge, threatened, or, to the Company's
knowledge, any investigation pending or threatened against the Company
relating to any thereof, and, to the Company's 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 any Shareholder's knowledge, threatened against the
Company;
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<PAGE>
(iii) none of the employees of the Company is a member of or
represented by any labor union and there are no attempts of whatever kind
and nature being made to organize any of such employees;
(iv) without limiting the generality of paragraph (iii) above, no
certification or decertification is pending or was filed within the past
twelve months respecting the employees of the Company and no certification
or decertification petition is being or was circulated among the employees
of the Company within the past twelve (12) months;
(v) no agreement (including any collective bargaining agreement),
arbitration or court decision, decree or order or governmental order which
is binding on the Company in any material way limits or restricts the
Company from relocating or closing any of its operations;
(vi) the Company has not experienced any organized work stoppage
in the last five (5) 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 any Shareholder's knowledge, threatened, or
to any Shareholder's 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 and,
to the Company's knowledge, no reasonable basis for any claim regarding
such practices exists.
4.15 Intellectual Property. The Company has no trademarks, trademark
registrations or applications therefor, trade or brand names (other than Power
Components), service marks, service mark registrations or applications
therefor, trade dress rights, registrations and applications therefor, patents
and patent applications, material registered copyrights, or applications
therefor. The Company has all rights or licenses that are necessary in order
for the Company to conduct its business consistent with past practice. No claim
of infringement relating to any intellectual property has been made against the
Company and, to the Company's knowledge, it is not infringing or
misappropriating any intellectual property owned by a third party.
4.16 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.
4.17 Inventory. The inventories of batteries, work-in-process and
finished
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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. The values of such inventories are carried in accordance with
GAAP consistently applied.
4.18 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. Except for the relocation of its business and the related entering
into a new lease, 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 $5,000
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), except for
inventory sold to customers or returned to vendors and payments 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 $5,000;
(e) made or committed to make any capital expenditures or capital
additions or betterments in excess of an aggregate of $5,000;
(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 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
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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 $20,000;
(i) materially changed any of its business or accounting accrual
practices, including, without limitation, the amount of promotional or
advertising expenditures, investments, marketing, pricing, purchasing,
production, personnel, sales, returns or budgets, accounts receivable or
inventory reserves, or otherwise changed its policies with respect thereto;
(j) made or changed any election concerning Taxes or Tax returns,
changed any 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) materially amended or terminated or received any threat (not
subsequently withdrawn) to terminate, any Contract (as hereinafter
defined);
(l) 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
(m) engaged in any other material transaction other than in the
ordinary course of business.
4.19 Compliance With Law. Except as set forth in the Disclosure
Letter, the operations and activities of the Company have complied and are in
compliance in all respects with all applicable federal, state, local and
foreign laws, statutes, rules, regulations, judicial and administrative
decisions and consents, judgments, orders, awards, writs and decrees of any
court, governmental or regulatory body, administrative agency or arbitrator,
including, without limitation, health and safety statutes and regulations and
all environmental laws, including, without limitation, all restrictions,
conditions, standards, limitations, prohibitions, requirements, obligations,
schedules and timetables contained in the environmental laws or contained in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, the failure
of which could have a Material Adverse Effect on the Purchased Assets or the
Assumed Liabilities.
4.20 Contracts and Commitments. (a) The Company has no written
contract or agreement involving a liability or obligation of the Company or any
subsidiary equal to or in excess of $5,000 and outstanding as of the date
hereof to which the Company is a party, other than ordinary
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<PAGE>
course of business purchase orders and the office lease included in the
Purchased Assets.
(b) No purchase contracts (other than inventory purchase and sale
commitments) of the Company continue for a period of more than 12 months.
(c) The Company is not under any material liability or material
obligation with respect to the return of inventory or merchandise in the
possession of distributors, customers or other Persons.
4.21 Insurance. (a) Schedule 4.21 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 the Company believes 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. The Company has delivered to
ARAC complete and correct copies of the policies and agreements
contemporaneously herewith.
(b) The insurance policies set forth in Schedule 4.21 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. Except as set forth in the Disclosure Letter, such policies are
sufficient for compliance with all requirements of law and all agreements to
which the Company is a party; are valid, outstanding and enforceable policies;
will remain in full force and effect through the respective dates set forth in
the Disclosure Letter; and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. 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.
4.22 Affiliate Interests. (a) No payments other than compensation
payments or S Corporation distributions 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.
(b) No shareholder, officer or director of the Company or any
affiliate of any
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Shareholder (in each case, or any family member thereof) (i) has any interest,
directly or indirectly, in any Purchased Assets, (ii) owns, directly or
indirectly, any interest in (excepting less than 5% stock holdings for
investment purposes in securities of companies which are publicly held and
traded), or is an officer, director, employee or consultant of, any Person
which is, or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, sales agent or customer of the Company, or (iii) has any cause of
action or other claim whatsoever against, or owes any amount to, the Company,
except for claims arising in the ordinary course of business arising from such
Person's employment with the Company.
4.23 Customers, Suppliers, Distributors, Etc. (a) 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 its affiliates to cancel or otherwise terminate, for any
reason, including the consummation of the transactions contemplated hereby, its
relationship with the Company. Except for the loss of such relationship that
will not have a Material Adverse Effect on the Company, to any Shareholder's
knowledge no such supplier, customer, distributor or sales representative
intends to cancel or otherwise terminate its relationship with the Company.
(b) Schedule 4.23 sets forth by dollar volume for the 1997 year
through July 31, 1997 the customers of the Company.
4.24 Absence of Certain Payments. Neither the Company nor, to the
Company's 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 Exchange Act. Neither the Company nor, to the Company's
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.
4.25 Investment Intent. The Company and/or the Shareholders: (a) are
acquiring the Questron Shares for their own account for investment and not with
a view to any distribution thereof; and (b) are "accredited investors" as that
term is defined in Regulation D under the Securities Act of 1933. The Company
and the Shareholders have 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.
4.26 Disclosure. (a) No representations or warranties by the Company
or any Shareholder in this Agreement, including the Exhibits, Schedules and the
Disclosure Letter, and no statement contained in any document (including,
without limitation, the financial statements, certificates and other writings
furnished or to be furnished by the Company or any Shareholder to
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ARAC 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 Company or any Shareholder which has a Material Adverse
Effect on the Purchased Assets or Assumed Liabilities which has not been set
forth in this Agreement, including any Exhibit or Schedule or the Disclosure
Letter, the financial statements referred to in Section 4.11 (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 the Company or any Shareholder in
connection with the transactions contemplated by this Agreement.
(b) The Company has furnished or caused to be furnished to ARAC
complete and correct copies of all agreements, instruments and documents set
forth in the Schedules. Each of the Schedules is complete and correct.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ARAC
ARAC represents and warrants to the Company that:
5.1 Organization. ARAC is a corporation duly organized and validly
existing and in good standing under the laws of the State of Pennsylvania.
5.2 Corporate Authority. ARAC has full corporate power and authority
to enter into the Agreements to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance by ARAC of the Agreements, the Instrument of Assumption and the
Note to which it is a party have been duly authorized by all requisite
corporate action. The Agreements, the Instrument of Assumption and the Note
have been duly executed and delivered by ARAC, and (assuming due execution and
delivery by the Company) the Agreements, the Instrument of Assumption and the
Note constitute valid and binding obligations of ARAC, 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.
5.3 No Violation. ARAC 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,
(c) any mortgage, deed of trust, lease, note, shareholders' agreement,
bond, indenture, other instrument or agreement, license, permit, trust,
custodianship or other
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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 ARAC 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 ARAC of this
Agreement and the consummation of the transactions contemplated hereby.
5.4 Questron Shares. The Questron Shares delivered at the Closing
shall be duly and validly issued, fully paid and non-assessable shares of
Questron subject to no liens or restrictions other than restrictions under
applicable securities laws.
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS OF THE COMPANY AND ARAC
6.1 Tax Covenants. (a) After the Closing Date, ARAC, the Company and
the Shareholders shall provide each other with such cooperation and information
as any 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 all returns, schedules and work papers, and all material records
and other documents relating thereto, until the expiration of the statute of
limitation (and, to the extent notified by any party, any extensions thereof)
of the taxable years to which such returns and other documents relate and,
unless such returns and other documents are offered and delivered to the
Company, the Shareholders or ARAC, as applicable, until the final determination
of any Tax in respect of such years. Any information obtained under this
Section 6.1 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, none of the Company, ARAC or the Shareholders, 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 6.1.
(b) The Company 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 Assets
hereunder, and (ii) other Taxes imposed on the Company or any Shareholder or
former shareholder of the Company for which ARAC is held liable. The Company
and the
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Shareholders shall, at their own expense, file all necessary Tax returns and
other documentation with respect to all such Taxes.
(c) The Purchase Price shall be allocated among the Purchased Assets
in the manner set forth on Schedule 6.1 and the parties agree to timely file
IRS Form 8594 consistent with such Schedule.
6.2 Expenses and Finder's Fees. ARAC and the Company will bear their
own expenses in connection with this Agreement and its performance. The Company
and each of the Shareholders, on the one hand, and ARAC, on the other hand,
each represents and warrants 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.
6.3 Press Releases. Except as required by law or stock exchange
regulation, any public announcements by the Company or the Shareholders
regarding the transactions contemplated hereby shall be made only with the
consent of ARAC.
6.4 Transitional Assistance. The Shareholders shall reasonably
cooperate with and assist ARAC 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.
6.5 Non-Assumed Liabilities. The Company agrees, at its expense, to
satisfy all Non-Assumed Liabilities in good faith in the ordinary course of its
business and in a manner not adverse to the interests of ARAC.
6.6 Assumed Liabilities. ARAC agrees, at its expense, to satisfy all
Assumed Liabilities in good faith in the ordinary course of its business and in
a manner not adverse to the interests of the Company.
6.7 Change of Name. Simultaneously with or as soon as practical
following the Closing, ARAC shall change its name to Power Components, Inc.,
and the Company shall change its name to REM Business Consulting Co.
6.8 Relocation of Business. The Company has caused at its expense the
operations of the Business to be relocated prior to the Closing. On or before
September 15, 1997, ARAC shall reimburse the Company for the cost of such
relocation (not to exceed $800) and for $360 of the initial month's rent
payment under its new lease.
6.9 Sale of Stock. The transactions contemplated by the Stock Purchase
Agreement between Questron and the Shareholders of ARAC shall be consummated
simultaneously with the Closing.
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<PAGE>
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by the Company and the Shareholders. Effective
only from and upon the occurrence of the Closing, and subject to Section 7.3
below, each of the Company and the Shareholders hereby agrees to jointly and
severally defend, indemnify and hold harmless ARAC and their respective
successors, assigns and affiliates (collectively, the "ARAC 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, "ARAC Losses"), caused by, resulting from or arising out
of:
(a) (i) breaches of representation or warranty under this Agreement on
the part of the Company; and (ii) failures by the Company or any
Shareholder to perform or otherwise fulfill any undertaking or other
agreement or obligation under this Agreement;
(b) any and all Taxes imposed on the Company (including, without
limitation, Taxes relating to the Tax liability of the Company to the
extent any governmental authority seeks to impose such Taxes on the
Company) or the Shareholders of the Company arising out of the ownership of
the Common Stock;
(c) the failure to collect in full any accounts receivable which are
included in the Purchased Assets within six months following the Closing.
Upon payment by the Company to ARAC for any such uncollected receivables
(the "Shortfall") on a dollar for dollar basis, ARAC shall assign such
receivables to the Company. Such payment by the Company shall be effected
by payment of 50% of the Shortfall in cash and 50% of the Shortfall by a
reduction in the principal amount of the Note;
(d) the maintenance, amendment or termination of any Benefit Plan of
the Company or out of any obligations under any such plan; and
(e) 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 an ARAC Indemnitee
proposes to demand indemnification ("ARAC Indemnified Claims"), ARAC or such
other ARAC Indemnitee shall promptly notify the Company and the Shareholders
thereof, provided further, however, that the failure to so notify the Company
and the Shareholders shall not reduce or affect the Company's and the
Shareholders' obligations with respect thereto, except to the extent that the
Company and the Shareholders are materially prejudiced
-19-
<PAGE>
thereby. Subject to rights of or duties to any insurer or other third Person
having liability therefor, the Company and the Shareholders shall have the
right promptly upon receipt of such notice (after acknowledging responsibility
for such ARAC Indemnified Claim) to assume the control of the defense,
compromise or settlement of any such ARAC Indemnified Claims (provided that any
compromise or settlement must be reasonably approved by ARAC), including, at
its own expense, employment of counsel reasonably satisfactory to ARAC;
provided, however, that if the Company and the Shareholders shall have
exercised their right to assume such control, ARAC may, in its sole discretion
and at its expense, employ counsel to represent it (in addition to counsel
employed by the Company and the Shareholders) in any such matter. So long as
the Company and the Shareholders are contesting any such ARAC Indemnified Claim
in good faith, ARAC and each other ARAC Indemnitee shall not pay or settle any
such ARAC Indemnified Claim. Notwithstanding the foregoing, ARAC shall have the
right to offset any ARAC Indemnified Claims and/or ARAC Losses against
obligations under the Note.
7.2 Indemnification by ARAC. ARAC hereby agrees to defend, indemnify
and hold harmless the Company and the Shareholders and their respective
successors, assigns and affiliates (collectively, "Company 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, "Company Losses"), resulting from or arising out
of:
(a) (i) breaches of representation and warranty hereunder on the part
of ARAC, and (ii) failures by ARAC 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 Company Indemnitee
proposes to demand indemnification ("Company Indemnified Claims"), such Company
Indemnitee shall notify ARAC thereof, provided further, however, that the
failure to so notify ARAC shall not reduce or affect ARAC's obligations with
respect thereto except to the extent that ARAC is materially prejudiced
thereby. Subject to rights of or duties to any insurer or other third Person
having liability therefor, ARAC shall have the right promptly upon receipt of
such notice to assume the control of the defense, compromise or settlement of
any such Company Indemnified Claims (provided that any compromise or settlement
must be reasonably approved by the Company) including, at its own expense,
employment of counsel reasonably satisfactory to the Company; provided,
however, that if ARAC shall have exercised its right to assume such control,
Company may, in its sole discretion and at its expense, employ counsel to
represent it (in addition to counsel employed by ARAC) in any such matter. So
long as ARAC is contesting any such Company Indemnified Claim in good faith,
the Company Indemnitees shall not pay or settle any such Company Indemnified
Claim.
-20-
<PAGE>
7.3 Limitations on Liability. The aggregate liability of the Company
and the Shareholders under Section 7.1(a) shall be $750,000 except that such
limitation shall not apply to the obligation to satisfy any Non-Assumed
Liabilities. Neither ARAC in respect of Company Losses arising under Section
7.2(a)(i) nor the Company and the Shareholders in respect of ARAC Losses
arising under Section 7.1(a)(i) shall be liable in respect of same unless and
until the aggregate amount of such Company Losses or ARAC Losses, as the case
may be, exceeds $5,000 in which event the relevant party shall be liable in
respect all such losses without deduction.
ARTICLE 8
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 Representations, Warranties and Covenants. The covenants contained
in this Agreement shall survive the Closing Date subject only to applicable
statutes of limitation. The representations and warranties contained herein
shall survive the Closing Date for a period of the lesser of three (3) years or
the applicable statute of limitations, except that any representation or
warranty contained in Sections 4.1, 4.5, 4.6, 5.2 and 5.4 shall survive the
Closing Date without limitation, and any representation or warranty of the
Company contained in Section 4.13 (Tax Matters) shall survive until the
expiration of the applicable statute of limitations.
ARTICLE 9
NON-COMPETITION BY THE COMPANY AND NO SOLICITATION
9.1 Non-Compete; Non-Solicitation. In consideration of the purchase by
ARAC of the Shares under this Agreement, the Shareholders will at the Closing
execute and deliver the Non-Compete Agreements.
9.2 Remedies. Each Shareholder recognizes that a breach or threatened
breach of his or her obligations under this Article 9 and/or under the
agreements contemplated by Section 9.1 would cause irreparable injury to ARAC,
and ARAC shall be entitled to seek preliminary and permanent injunctions
enjoining him from violating the non-compete agreements contemplated by this
Article 9, in addition to any other remedies which may be available.
ARTICLE 10
MISCELLANEOUS
10.1 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.
-21-
<PAGE>
10.2 Waiver. Any failure of the Company or the Shareholders to comply
with any of their respective obligations or agreements herein contained may be
waived only in writing by ARAC. Any failure of ARAC to comply with any of its
obligations or agreements herein contained may be waived only in writing by the
Company and the Shareholders.
10.3 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 the Company or the Shareholders, to:
Power Components, Inc.
7 Willowgreene Drive
Churchville, PA 18966
Telecopier:
Telephone: 215-322-8575
Attention: Frank E. Hutchinson
with a copy to:
Joseph A. Meo, Esq.
Meo & Associates
401 City Avenue, Suite 701
Bala Cynwyd, PA 19004
Telecopier: 610-668-5341
Telephone: 610-668-5301
-22-
<PAGE>
(ii) If to ARAC, to
A.R. Acquisition Company
12 Horseshoe Lane
Newton Square, PA 19073
Telephone: 610-325-7111
Attention: Anthony R. Cucchi, Sr.
with copies to:
Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, FL 33487
Telecopier: 561-241-2866
Telephone: 561-241-5251
Gould & Wilkie
One Chase Manhattan Plaza
58th Floor
New York, NY 10005
Attention: Frederick W. London, Esq.
Telecopier: 212-809-6890
Telephone: 212-344-5680
Such names and addresses may be changed by written notice to each person listed
above.
10.4 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
Pennsylvania.
(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 10.4. 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.
-23-
<PAGE>
(c) The arbitration panel shall consist of three (3) 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 Philadelphia, Pennsylvania.
10.5 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.
10.6 Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 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.
10.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of the parties hereto.
10.9 Binding Effect; Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns; and except as specifically provided herein, 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 7.1 and 7.2, the other ARAC Indemnitees and
Company Indemnitees) any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
10.10 Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties.
10.11 Disclosure Letter; Schedules. As used herein, the terms
"Disclosure Letter" and "Schedules" shall refer to the Disclosure Letter dated
September 4, 1997 and the Schedules previously delivered by the Company to
ARAC.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
AR ACQUISITION COMPANY
____________________________ By________________________________
Maria M. Hutchinson Name: Anthony R. Cucchi
Title: President
____________________________
Robert C. Meo
POWER COMPONENTS, INC.
By________________________________
Name: Frank E. Hutchinson
Title: President
By its signature below, the undersigned agrees to take all steps necessary to
enable ARAC to make the delivery contemplated by Section 2.2(b) and guarantees
solely for the benefit of the Company and the Shareholders the obligations of
ARAC under the Note, the Instrument of Assumption, and Sections 2.2, 3.2(b),
6.6, 6.8, 7.2(a)(ii) and 7.2(b) insofar as the same relates to Section
7.2(a)(ii).
QUESTRON TECHNOLOGY, INC.
By:_______________________________
Dominic A. Polimeni
Chairman, President and
Chief Executive Officer
-25-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE 3 MONTHS ENDED SEPTEMBER 30, 1997 AND
THE CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,080,857
<SECURITIES> 0
<RECEIVABLES> 4,488,689
<ALLOWANCES> 121,193
<INVENTORY> 7,262,456
<CURRENT-ASSETS> 12,909,317
<PP&E> 857,164
<DEPRECIATION> 221,898
<TOTAL-ASSETS> 34,247,821
<CURRENT-LIABILITIES> 5,516,069
<BONDS> 0
0
11,500
<COMMON> 2,122
<OTHER-SE> 19,711,950
<TOTAL-LIABILITY-AND-EQUITY> 34,247,821
<SALES> 15,738,987
<TOTAL-REVENUES> 15,738,987
<CGS> 9,508,193
<TOTAL-COSTS> 13,720,218
<OTHER-EXPENSES> 308,752
<LOSS-PROVISION> 62,093
<INTEREST-EXPENSE> 206,532
<INCOME-PRETAX> 1,503,485
<INCOME-TAX> 137,700
<INCOME-CONTINUING> 1,365,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 1,365,785
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