FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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 registrant as specified in its charter)
Delaware 23-2257354
- --------------------------------------------------- ------------------------
(State or other jurisdiction of incorporation (I. R. S. Employer
or organization) Identification Number)
6400 Congress Avenue, Suite 2000, Boca Raton, FL 33487
- --------------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(561) 241 - 5251
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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
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As of November 11, 1999, there were 6,993,628 shares of the issuer's common
stock outstanding.
<PAGE>
QUESTRON TECHNOLOGY, INC.
INDEX
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which
involves certain risks and uncertainties. The Company's actual results in future
periods may be materially different from any future performance anticipated
herein. Each forward-looking statement that the Company believes is material is
accompanied by a cautionary statement or statements identifying important
factors that could cause actual results to differ materially from those
described in the forward-looking statement. In the context of forward-looking
information provided in this Quarterly Report on Form 10-Q and in other reports,
please refer to the discussion of risk factors detailed in, as well as the other
information contained in, the Company's filings with the Securities and Exchange
Commission during the past 12 months.
Page No.
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PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - At September 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statement of Income (unaudited) - Three
months and nine months ended September 30, 1999
and 1998 4
Consolidated Statement of Cash Flows (unaudited) -
Nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 13
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 13
PART II. Other Information 14
Signature Page 15
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999 (unaudited) AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------------- --------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,414,177 $ 229,285
Accounts receivable, less allowance for
doubtful accounts of $187,211 and $186,256 16,361,601 11,279,876
Other receivables 274,224 70,412
Inventories 34,474,174 20,972,593
Other current assets 601,590 345,814
--------------------- --------------------
Total current assets 53,125,766 32,897,980
Property and equipment - net 2,542,554 2,042,786
Cost in excess of net assets of businesses acquired,
less accumulated amortization of $2,257,391 and $1,165,977,
respectively 72,273,931 37,575,334
Deferred income taxes 2,676,271 2,848,497
Other assets 4,369,300 2,360,656
===================== ====================
Total assets $ 134,987,822 $77,725,253
===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,798,743 $ 5,328,023
Accrued expenses 1,143,783 1,415,626
Income taxes payable 28,471 1,715,501
Current portion of long-term debt 1,395,965 1,811,802
--------------------- --------------------
Total current liabilities 12,366,962 10,270,952
Deferred income taxes payable 821,616 364,639
Long-term debt 86,607,124 39,285,698
--------------------- --------------------
Total liabilities 99,795,702 49,921,289
--------------------- --------------------
Commitments and contingencies
Common stock subject to put option agreement 271,758 339,697
Shareholders' equity:
Common stock, $.001 par value; authorized 20,000,000
shares; issued 7,005,477 shares in 1999 and 4,795,175 7,005 4,795
in 1998
Additional paid-in capital 46,828,417 39,615,998
Accumulated deficit (11,559,582) (11,801,048)
--------------------- --------------------
35,275,840 27,819,745
Less: treasury stock, 11,849 shares, at cost (355,478) (355,478)
--------------------- --------------------
Total shareholders' equity 34,920,362 27,464,267
---------------------- --------------------
Total liabilities and shareholders' equity $ 134,987,822 $77,725,253
====================== ====================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 1998 (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- -------------- ----------------- -------------
<S> <C> <C> <C> <C>
Sales $ 29,324,117 $ 17,799,542 $78,602,490 $ 38,871,478
Cost of goods sold 17,973,180 10,660,308 48,254,253 23,222,131
-------------- -------------- ----------------- -------------
Gross Profit 11,350,937 7,139,234 30,348,237 15,649,347
Selling, general & administrative expenses 7,591,303 4,053,074 19,843,437 9,116,655
Depreciation and amortization 579,462 322,296 1,511,878 655,455
-------------- -------------- ----------------- -------------
Total operating expenses 8,170,765 4,375,370 21,355,315 9,772,110
-------------- -------------- ----------------- -------------
Operating income 3,180,172 2,763,864 8,992,922 5,877,237
Interest expense 2,545,279 1,008,785 5,587,962 1,621,558
-------------- -------------- ----------------- -------------
Income before income taxes and extraordinary charge 634,893 1,755,079 3,404,960 4,255,679
Provision for income taxes 285,702 719,582 1,484,581 1,744,828
-------------- -------------- ----------------- -------------
Income before extraordinary charge 349,191 1,035,497 1,920,379 2,510,851
Extraordinary charge in connection with the early
extinguishment of debt (less applicable income
taxes of $1,187,604) -- -- 1,451,516 --
-------------- -------------- ----------------- -------------
Net income $ 349,191 $ 1,035,497 $ 468,863 $ 2,510,851
============== ============== ================= =============
Net income $ 349,191 $ 1,035,497 $ 468,863 $ 2,510,851
Deduct: Preferred Stock dividend -- 99,185 -- 165,311
Imputed non-cash Preferred Stock dividend -- 663,510 -- 1,075,988
============= ============== ================= ==============
Net income used in per common share calculation $ 349,191 $ 272,802 $ 468,863 $ 1,269,552
============= =============== ================= ==============
Per common share:
- ----------------
Income per common share before extraordinary charge $ .05 $ .06 $ .33 $ .31
Extraordinary charge -- -- (.25) --
------------ --------------- ----------------- --------------
Net income per common share $ .05 $ .06 $ .08 $ .31
============ =============== ================= ==============
Per diluted common share:
- -------------------------
Income per diluted common share before extraordinary charge $ .05 $ .06 $ .32 $ .31
Extraordinary charge -- -- (.24) --
------------- --------------- ------------------ -------------
Net income per diluted common share $ .05 $ .06 $ .08 $ .31
============= =============== ================== =============
Average number of common shares outstanding 6,672,054 4,738,766 5,864,741 4,099,800
============= =============== ================= =============
Average number of diluted common shares outstanding 6,736,699 4,807,210 5,932,467 4,807,796
============= =============== ================= =============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
September 30, September 30,
1999 1998
------------------------ ------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 468,863 $ 2,510,851
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,511,878 655,455
Provision for doubtful accounts -- 39,085
Extraordinary charge in connection with the early extinguish-
ment of debt (less applicable income taxes of $1,187,604) 1,451,516 --
Change in assets and liabilities:
Increase in accounts receivable (1,281,776) (3,316,642)
(Increase) decrease in other receivables (203,812) 15,867
Increase in inventories (6,329,473) (4,194,867)
Increase in accounts payable 2,117,401 1,217,985
(Decrease) increase in accrued expenses (898,978) 522,967
(Decrease) increase in income taxes payable (1,828,941) 1,007,840
Increase in deferred income taxes 125,477 457,137
Increase in other assets (377,606) (303,768)
------------------------ -----------------------
Net cash used in operating activities (5,245,451) (1,388,090)
------------------------ -----------------------
Cash flows from investing activities:
Net cash consideration paid for acquired business (29,719,345) (17,672,524)
Acquisition of property and equipment (339,310) (568,679)
------------------------ -----------------------
Net cash used in investing activities (30,058,655) (18,241,203)
------------------------ -----------------------
Cash flows from financing activities:
Proceeds from borrowings under revolving facility 4,870,946 5,647,799
Proceeds from long-term debt financing 72,500,000 30,000,000
Repayment of long-term debt (35,000,000) (9,583,334)
Repayment of revolving facilities -- (5,472,340)
Fees and expenses associated with long-term debt financing (4,112,982) (1,976,300)
Extraordinary charge in connection with the early extinguish-
ment of debt (less applicable income taxes of $1,187,604) (1,451,516) --
Proceeds from capital lease for computer system -- 371,228
Payments on capital leases (105,867) (63,943)
Payments in respect of exercise of put options (67,939) --
Payments on notes issued for acquired businesses (143,644) (81,310)
---------------------- -------------------------
Net cash provided by financing activities 36,488,998 18,841,800
---------------------- -------------------------
Increase (decrease) in cash and cash equivalents 1,184,892 (787,493)
Cash and cash equivalents at beginning of period 229,285 875,080
====================== =========================
Cash and cash equivalents at end of period $ 1,414,177 $ 87,587
======================== =======================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Note 1. Basis of presentation.
The accompanying unaudited consolidated financial statements include
the accounts of Questron Technology, Inc., a Delaware corporation (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 Securities and Exchange
Commission's instructions for Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
Management believes that 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, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. The consolidated balance sheet at December 31, 1998
has been derived from 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, 1998.
Note 2. Acquisition of Action Threaded Products, Inc.
Effective April 1, 1999, the Company acquired 100% of the issued and
outstanding capital stock of Action Threaded Products, Inc., an Illinois
corporation ("Action"), a privately owned company.
The purchase price for Action consisted of:
(i) $8,437,280 in cash;
(ii) the assumption of $2,062,720 in debt net of cash on hand;
(iii) 470,588 shares of the Company's common stock valued at
$1,800,000;
(iv) a note payable to the sellers of Action in the amount of
$1,500,000; and
(v) up to $1,800,000 if Action attains certain earnings
targets for the twelve months ending March 31, 2000.
The Company has accounted for such acquisition using the purchase
method of accounting. In connection with this acquisition, the Company recorded
$10,315,928 of cost in excess of net assets of the business acquired.
6
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Note 3. Acquisition of Capital Fasteners, Inc.
Effective April 1, 1999, the Company acquired of 100% of the issued
and outstanding capital stock of Capital Fasteners, Inc., a North Carolina
corporation ("Capital"), a privately owned company.
The purchase price for Capital consisted of:
(i) $7,037,197 in cash;
(ii) the assumption of $1,220,078 in debt net of cash on hand;
(iii) 169,935 shares of the Company's common stock valued at
$650,000;
(iv) a note payable to the sellers of Capital in the amount of
$2,000,000; and
(v) up to $1,500,000 if Capital attains certain earnings
targets for the twelve months ending March 31, 2000.
The Company has accounted for such acquisition using the purchase
method of accounting. In connection with this acquisition, the Company recorded
$9,699,898 of cost in excess of net assets of the business acquired.
Note 4. Acquisition of Olympic Fasteners.
Effective April 1, 1999, the Company acquired the business and
operating assets of Metro Form Corporation, an Ohio corporation d/b/a Olympic
Fasteners ("Olympic").
The purchase price for Olympic consisted of:
(i) $5,550,113 in cash;
(ii) the assumption of $960,481 in debt net of cash on hand;
(iii) 261,438 shares of the Company's common stock valued at
$1,000,000;
(iv) a note payable to the sellers of Olympic
in the amount of $1,500,000; and
(v) up to $1,000,000 if Olympic attains certain earnings
targets for the twelve months ending March 31, 2000.
The Company has accounted for such acquisition using the purchase
method of accounting. In connection with this acquisition, the Company recorded
$8,053,374 of cost in excess of net assets of the business acquired.
7
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Note 5. Acquisitions - Pro forma financial information.
The following unaudited pro forma information for the three and nine
month periods ended September 30, 1999 and 1998 presents the combined operating
results of: the Company; Fas-Tronics, Inc., a Texas corporation ("Fas-Tronics"),
Fortune Industries, Inc., a Texas corporation ("Fortune"), and the operations of
AFCOM, Inc., a Florida corporation ("AFCOM"), which were acquired in the second
half of 1998; and Action, Capital and Olympic, as though each of the
acquisitions had been made on January 1, 1998. The unaudited pro forma combined
summary of operations includes the additional interest expense on debt incurred
in connection with the acquisitions as if the debt had been outstanding since
January 1, 1998. The pro forma net income per common share and diluted common
share assume that all shares of common stock of the Company outstanding as of
September 30, 1999 were outstanding as of January 1, 1998. This pro forma
information does not purport to be indicative of what would have occurred had
the acquisitions been completed as of January 1, 1998 or results which may occur
in the future:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------------------- -------------------------------------
1999 1998 1999 1998
----------------- -------------------- ---------------------- --------------
<S> <C> <C> <C> <C>
Sales $ 29,324,117 $ 28,757,542 $ 87,861,744 $ 83,016,870
----------------- -------------------- ---------------------- --------------
Operating income 3,180,172 4,154,437 10,057,588 11,525,615
----------------- -------------------- ---------------------- --------------
Net income $ 349,191 $ 1,127,052 $ 1,820,566 $ 2,528,596
================ ==================== ==================== ==============
Net income $ 349,191 $ 1,127,052 $ 1,820,566 $ 2,528,596
Less:
Preferred stock dividends -- 99,185 -- 165,311
Imputed non-cash dividend -- 663,510 -- 1,075,988
================ ==================== ==================== ==============
Net income used in per
common share calculation $ 349,191 $ 364,357 $ 1,820,566 $ 1,287,297
================ ================ ==================== ==============
Pro forma net income per common share $ .05 $ $ .10 $ .26 $ .32
================ ================ ==================== ==============
Pro forma net income per diluted common
share $ .05 $ .10 $ .26 $ .32
================ =================== ===================== ==============
Average number of common shares
outstanding 6,672,054 3,692,551 6,919,381 4,047,071
================ ==================== ==================== ==============
Average number of diluted
common shares outstanding 6,736,699 6,293,198 7,020,101 5,864,575
================ ==================== ==================== ===============
</TABLE>
8
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Note 6. Revolving Credit Facility and Long-Term Debt.
In connection with the acquisitions of Action, Capital and Olympic,
the Company entered into a $75,000,000 senior secured credit facility with
Ableco Finance L.L.C. and Congress Financial Corporation (Florida). Also in
connection with the above acquisitions, the Company completed a $20,000,000
senior subordinated debt private placement. The senior subordinated notes were
placed with affiliates of Albion Alliance LLC and Alliance Capital Management
LP, The Equitable Life Assurance Society of the United States and IBJ Whitehall
Financial Group.
The senior secured credit facility consists of a four and one-quarter
year term loan for $52,500,000 and a $22,500,000 revolving credit facility. The
term loan is divided into two notes: Note A for $25,000,000 and Note B for
$27,500,000. The loan agreement includes a provision for the calculation of a
borrowing base, which determines the amount of borrowings available under the
revolving facility. At September 30, 1999, $10,222,458 was borrowed and
outstanding under the revolving facility. Of the remaining amount of the
$22,500,000 revolving facility, $12,277,542 was available at September 30, 1999
for future working capital needs. Interest on the revolving facility is due
monthly at the prime rate plus 1.5%, with a minimum rate of interest of 9.25%
per annum. The Company can elect a LIBOR Rate Election for amounts borrowed and
outstanding under the revolving facility. During all times that a LIBOR Rate
Election is in effect, the interest due on the principal amount of the LIBOR
revolving credit portion outstanding is at an interest rate of LIBOR plus 2.75%.
Interest on term loan Note A is due monthly at the prime rate plus 1.5% with a
minimum rate of interest of 9.5% per annum. Interest on term loan Note B is due
monthly at the prime rate plus 3% with a minimum rate of interest of 11% per
annum.
Interest on the $20,000,000 senior subordinated debt is due quarterly
in arrears at a fixed rate of 12.5% payable in cash and 2.00% payable in kind.
Principal on the senior subordinated debt is payable in full at the end of six
years. In connection with the financing, the Company issued 680,000 shares of
the Company's common stock to the senior subordinated lenders.
Under the terms of both the senior secured credit facility and the
senior subordinated notes, the Company is required to meet certain financial
covenants. At September 30, 1999, the Company was in compliance with such
covenants under the respective agreements, as amended.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
For the three month and nine month periods ended September 30, 1999.
The results of operations through September 30, 1999 include the
operating results of the Company's inventory logistics management business,
Questron Distribution Logistics, Inc., a Delaware corporation ("QDL"), its
master distribution of fasteners business, Integrated Material Systems, Inc., an
Arizona corporation ("IMS") and its lithium battery and battery pack
distribution business, Power Components, Inc., a Pennsylvania corporation
("PCI"). QDL, formerly Quest Electronic Hardware, Inc., also includes the
operating results of Fortune, Fas-Tronics, AFCOM, Action, Capital and Olympic
since their dates of acquisition.
The Company's revenues for the three month and nine month periods
ended September 30, 1999 amounted to $29,324,117 and $78,602,490, respectively,
compared with $17,799,542 and $38,871,478 for the comparable prior year periods.
The significant growth in the Company's revenues for the periods is primarily
attributable to the acquisitions of Fortune, Fas-Tronics, AFCOM, Action, Capital
and Olympic, as well as the internal growth of the other QDL branches and the
opening of a new QDL branch in Grand Rapids, MI during the second quarter of
1998. The revenues associated with the above acquired businesses for the three
and nine month periods ended September 30, 1999 amounted to $15,651,509 and
$38,564,852, respectively.
The Company's operating income for the three month and nine month
periods ended September 30, 1999 was $3,180,172 and $8,992,922, respectively,
compared with operating income of $2,763,864 and $5,877,237 for the comparable
prior year periods. The increase in operating income for the three month and
nine month periods ended September 30, 1999, compared with the comparable prior
year periods, is primarily due to the increased operating income attributable to
the acquired businesses. Operating income as a percentage of sales for the three
month and nine month periods ended September 30, 1999 amounted to 10.8% and
11.4%, respectively, compared with 15.5% and 15.1% for the three month and nine
month periods ended September 30, 1998, respectively. This decline is due
primarily to the higher level of selling, general and administrative expenses
associated with expansion to support growth in Anaheim, CA, Grand Rapids, MI,
San Diego, CA and San Jose, CA and the opening of new branches in Tucson, AZ,
and Nogales, Mexico, as well as the increased amortization of goodwill related
to the acquisitions. In addition, the operating expenses of the acquired
businesses include redundant costs which will be eliminated by the integration
of these businesses.
Interest expense, which reflects the cost of borrowings associated
with the acquisitions of Fortune, Fas-Tronics, AFCOM, Action, Capital and
Olympic, as well as borrowings associated with QDL's working capital needs, for
the three month and nine month periods ended September 30, 1999 amounted to
$2,545,279 and $5,587,962, respectively. For the comparable periods of the prior
year, the Company's results include interest expense of $1,008,785 and
$1,621,558, respectively. The increase in interest
10
<PAGE>
expense principally reflects the costs of increased borrowings to complete the
acquisitions of Fortune, Fas-Tronics, AFCOM, Action, Capital and Olympic and to
support the working capital needs of QDL.
The provision for income taxes for the three month and nine month
periods ended September 30, 1999 reflects a federal income tax provision at
effective rates of 39.6% and 38.0% respectively, and a state income tax
provision at effective rates of 5.4% and 5.6%, respectively, for the states in
which the Company does business. The provision for income taxes for the three
month and nine month periods ended September 30, 1998 reflects a federal income
tax provision at an effective rate of 35% and a state income tax provision at an
effective rate of 6%.
Net income for the three months ended September 30, 1999 amounted to
$349,191, compared with $1,035,497 for the comparable prior year period. During
the second quarter of 1999, the Company refinanced its existing debt and, as a
result, incurred an extraordinary charge to earnings in the second quarter for
the unamortized balance of loan costs related to the previous financing. Income
for the nine months ended September 30, 1999, before the extraordinary charge in
connection with the early extinguishments of debt, amounted to $1,920,379,
compared with net income of $2,510,851 for the comparable prior year period.
After the extraordinary charge, the net income for the nine months September 30,
1999 amounted to $468,863. The decline in income before the extraordinary charge
in the current year periods as compared with the net income in the comparable
prior year periods reflects the increased interest expense associated with the
financing of acquisitions, increased selling, general and administrative
expenses, as well as the redundant expenses associated with the acquired
businesses, partially offset by the growth in operating income attributable to
the acquired businesses.
Liquidity and Capital Resources
As of September 30, 1999, the Company had $1,414,177 in cash and
short-term investments, compared to $229,285 as of December 31, 1998. As of
September 30, 1999, the Company had working capital of $40,758,804, compared
with working capital of $22,627,028 as of December 31, 1998.
For the nine months ended September 30, 1999, the net cash used by
the Company's operating activities amounted to $5,245,451, principally
reflecting the increase in inventories and receivables and decreases in accrued
expenses and income taxes payable, as well as the increases in other assets and
other receivables, offset in part by the profits of the Company and the increase
in accounts payable.
For the nine months ended September 30, 1999, the net cash used in
the Company's investing activities amounted to $30,058,655, including
$26,587,567 net cash consideration paid in connection with the acquisitions of
Action, Capital and Olympic and $3,131,778 net cash consideration paid in
connection with the deferred purchase prices of Calfast, Fortune, Fas-Tronics
and IMS. The Company also had capital expenditures of $339,310 for the
acquisition of fixed assets. The Company does not have
11
<PAGE>
significant commitments for capital expenditures as of September 30, 1999 and no
significant commitments are anticipated for the remainder of 1999.
For the nine months ended September 30, 1999, the net cash provided
by the Company's financing activities amounted to $36,488,998, which consists of
$72,500,000 of borrowings associated with the acquisitions of Action, Capital
and Olympic and the refinancing of existing bank debt, $4,870,946 of bank
borrowings under the Company's revolving credit facility, reduced by long-term
debt principal payments of $35,000,000, fees and expenses associated with the
subordinated debt financing and the new senior secured financing of $4,112,982,
$1,451,516 written off as an extraordinary charge in connection with the early
extinguishments of debt (less applicable income taxes of $1,187,604), principal
payments of $105,867 on various capital leases, principal payments of $143,644
on notes issued for acquired businesses and payments of $67,939 in respect of
the exercise of put options.
In connection with the acquisitions of Action, Capital and Olympic,
the Company entered into a $75,000,000 senior secured credit facility with
Ableco Finance L.L.C. and Congress Financial Corporation (Florida). Also in
connection with the above acquisitions, the Company completed a $20,000,000
senior subordinated debt private placement. The senior subordinated notes were
placed with affiliates of Albion Alliance LLC and Alliance Capital Management
LP, The Equitable Life Assurance Society of the United States and IBJ Whitehall
Financial Group.
The senior secured credit facility consists of a four and one-quarter
year term loan for $52,500,000 and a $22,500,000 revolving credit facility. The
term loan is divided into two notes: Note A for $25,000,000 and Note B for
$27,500,000. The loan agreement includes a provision for the calculation of a
borrowing base, which determines the amount of borrowings available under the
revolving facility. At September 30, 1999, $10,222,458 was borrowed and
outstanding under the revolving facility. Of the remaining amount of the
$22,500,000 revolving facility, $12,277,542 was available at September 30, 1999
for future working capital needs. Interest on the revolving facility is due
monthly at the prime rate plus 1.5%, with a minimum rate of interest of 9.25%
per annum. The Company can elect a LIBOR Rate Election for amounts borrowed and
outstanding under the revolving facility. During all times that a LIBOR Rate
Election is in effect, the interest due on the principal amount of the LIBOR
revolving credit portion outstanding is at an interest rate of LIBOR plus 2.75%.
Interest on term loan Note A is due monthly at the prime rate plus 1.5% with a
minimum rate of interest of 9.5% per annum. Interest on term loan Note B is due
monthly at the prime rate plus 3% with a minimum rate of interest of 11% per
annum.
Interest on the $20,000,000 senior subordinated debt is due quarterly
in arrears at a fixed rate of 12.5% payable in cash and 2.00% payable in kind.
Principal on the senior subordinated debt is payable in full at the end of six
years. In connection with the financing, the Company issued 680,000 shares of
the Company's common stock to the senior subordinated lenders.
Under the terms of both the senior secured credit facility and the
senior subordinated notes, the Company is required to meet certain financial
covenants. At September 30, 1999, the Company was in compliance with such
covenants under the respective agreements, as
12
<PAGE>
amended. The Company believes that it will be in compliance with such covenants
for future periods or that it will be able to obtain appropriate amendments.
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 its subsidiaries at the date of
such agreement and any shares of its 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.
Year 2000 Compliance
The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. It may also include additional business and
competitive differentiation. Aside from the well-known calculation problems with
the use of 2-digit date formats as the year changes from 1999 to 2000, the Year
2000 is a special case leap year and in many organizations using older
technology, dates were used for special programmatic functions.
The Year 2000 issue may affect the Company's internal systems,
including information technology ("IT") and non-IT systems. The Company's IT
system is prepared to handle all dating implications associated with the new
millennium. In addition, the Company's management recently has completed its
assessment of the readiness of all its systems for handling the Year 2000 and
has concluded that all material systems will be compliant by the Year 2000. The
costs to address the Year 2000 issue have not been material.
All organizations dealing with the Year 2000 issue must address the
effect this issue will have on their third-party supply chain. Management has
completed a survey and plan for working with key third-parties to understand
their ability to continue providing services and products through the change to
2000 and has received and evaluated the responses to these surveys. The Company
has concluded that all of its key vendors, distributors, and resellers appear to
be 2000 compliant. However, should any of the Company's key third-parties be
effected by the Year 2000 issue, contingency plans have been developed by the
Company in order to avoid any business interruptions in the Year 2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company's interest expense is sensitive to changes in the general
level of U.S. interest rates. In this regard, changes in the U.S. rates may
effect the interest paid on a portion of its debt. The Company does not enter
into derivative financial instruments.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes In Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits:
The exhibits listed on the Exhibit Index immediately following
the signature page are filed as part of this Quarterly Report on
Form 10-Q.
b) Reports on Form 8-K:
A Current Report on Form 8-K, dated June 30, 1999 was filed July
15, 1999 in connection with the acquisitions of Action, Capital
and Olympic, and an amendment thereto was filed August 13, 1999.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
QUESTRON TECHNOLOGY, INC.
(1) Principal Executive Officer:
Date: November 15, 1999 /s/ Dominic A. Polimeni
------------------ ----------------------------
Dominic A. Polimeni
Chairman and Chief Executive Officer
(2) Principal Financial and Accounting
Officer:
Date: November 15, 1999 /s/ Robert V. Gubitosi
------------------ ---------------------------
Robert V. Gubitosi
President and Chief Financial
Officer
15
EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report
on Form 10-Q:
Exhibit No. Description
2.1 Asset Purchase Agreement, dated as of January 29, 1999, by and
between the Company, Questron Distribution Logistics, Inc. and
AFCOM, Inc., and each of the persons listed on Schedule 1.1
thereto and signatory thereto, incorporated by reference to
Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for
the three month period ended March 31, 1999 (File No. 0-13324).
2.2 Asset Purchase Agreement, dated as of March 11, 1999, by and
between Questron Technology, Inc., Questron Distribution
Logistics, Inc., and Metro Form Corporation, d.b.a. Olympic
Fasteners & Electronic Hardware, and each of the persons listed on
Schedule 1.1 thereto and signatory thereto (the "Olympic Purchase
Agreement"), incorporated by reference to Exhibit 10.20 to the
Company's Quarterly Report on Form 10-Q for the three month period
ended March 31, 1999 (File No. 0-13324).
2.3 Amendment to the Olympic Purchase Agreement, dated June 28, 1999,
incorporated by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
2.4 Stock Purchase Agreement, dated as of April 26, 1999, between
Questron Distribution Logistics, Inc., Questron Technology, Inc.,
James R. Gilchrist and Capital Fasteners, Inc. (the "Capital
Purchase Agreement"), incorporated by reference to Exhibit 2.3 to
the Company's Current Report on Form 8-K, dated June 30, 1999
(File No. 0-13324).
2.5 Amendment to the Capital Purchase Agreement, dated June 25, 1999,
incorporated by reference to Exhibit 2.4 to the Company's Current
Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
2.6 Letter Agreement, dated as of June 29, 1999, amending the Capital
Purchase Agreement, incorporated by reference to Exhibit 2.5 to
the Company's Current Report on Form 8-K, dated June 30, 1999
(File No. 0-13324).
2.7 Stock Purchase Agreement, dated as of May 7, 1999, by and between
Questron Technology, Inc, Questron Distribution Logistics, a
Delaware corporation, Action Threaded Products, Inc. and the
persons signatory thereto (the "Action Purchase Agreement"),
incorporated by reference to Exhibit 2.6 to the Company's Current
Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
2.8 Letter Agreement, dated as of June 29, 1999, amending the Action
Purchase Agreement, incorporated by reference to Exhibit 2.7 to
the Company's Current Report on Form 8-K, dated June 30, 1999
(File No. 0-13324).
<PAGE>
3.0 Certificate of Incorporation, incorporated by reference to Exhibit
3(i) to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1987 (File No. 0-13324).
3.1 Certificate of Amendment, dated March 20, 1985, to Certificate of
Incorporation of the Company, incorporated by reference to Exhibit
4.1 to Amendment No. 1 of the Company's Registration Statement on
Form S-3 dated March 9, 1995 (File No. 33-44331).
3.3 Certificate of Amendment, dated June 9, 1989, to Certificate of
Incorporation of the Company, incorporated by reference to Exhibit
4.1 to Amendment No. 1 of the Company's Registration Statement on
Form S-3 filed dated March 9, 1995 (File No. 33-44331).
3.4 Certificate of Correction, dated May 17, 1991, to Certificate of
Incorporation of the Company, incorporated by reference to Exhibit
4.1 to Amendment No. 1 of the Company's Registration Statement on
Form S-3 dated March 9, 1995 (File No. 33-44331).
3.5 Certificate of Amendment, dated December 20, 1993, to Certificate
of Incorporation of the Company, incorporated by reference to
Exhibit 3(i) to the Company's Annual Report on Form 10-KSB filed
for the fiscal year ended December 31, 1993 (File No. 0-13324).
3.6 Certificate of Correction, dated July 19, 1994, to Certificate of
Incorporation of the Company, incorporated by reference to Exhibit
4.1 to Amendment No. 1 to the Company's Registration Statement on
Form S-3 dated March 9, 1995 (File No. 33-44331).
3.7 Certificate of Amendment, dated April 2, 1996, to Certificate of
Incorporation of the Company, incorporated by reference to Exhibit
3.5 to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995 (File No. 0-13324).
3.8 Certificate of Amendment, filed December 31, 1996, to Certificate
of Incorporation of the Company, incorporated by reference to
Exhibit 3.10 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 dated February 25, 1997 (File No.
333-18243).
3.9 By-Laws of the Company, incorporated by reference to Exhibit
3b(ii) to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1987 (File No. 0-13324).
3.10 Amendment to By-Laws of the Company, incorporated by reference to
Exhibit 3.4 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1992 (File No. 0-13324).
<PAGE>
4.0 Specimen Common Stock Certificate, incorporated by reference to
Exhibit 4.0 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 dated February 25, 1997 (File No.
333-18243).
4.1 Specimen Preferred Stock Certificate, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 dated February 25,1997 (File No.
333-18243).
4.2 Certificate of Designations, Preferences and Rights of the
Company's Series B Convertible Preferred Stock, incorporated by
reference to Exhibit 4.2 to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 dated February 25, 1997 (File
No. 333-18243).
4.3 Form of Series IV Warrant Agreement, incorporated by reference to
Exhibit 4.3 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 dated February 25, 1997 (File No.
333-18243).
4.4 Form of Series III Warrant Agreement, dated as of November 7,
1994, incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1994 (File No. 0-13324).
4.5 Form of Underwriters' Purchase Option, incorporated by reference
to Exhibit 4.5 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 dated on February 25, 1997 (File No.
333-18243).
4.6 Stock Purchase Warrant Certificate for Purchase of Common Stock of
the Company, incorporated by reference to Exhibit 4.6 to Amendment
No. 1 to the Company's Registration Statement on Form SB-2 dated
February 25, 1997 (File No. 333-18243).
4.7 Amended Certificate of Designation Establishing a Series of
Preferred Stock of the Company, incorporated by reference to
Exhibit 4.7 to the Company's Quarterly Report on Form 10-QSB for
the three month period ended June 30, 1998 (File No. 0-13324).
4.8 Registration Rights Agreement, dated as of September 24, 1998, by
and between the Company and the persons listed on Schedule A
thereto, incorporated by reference to the Company's Current Report
on Form 8-K, dated October 8, 1998 (File No. 0-13324).
4.9 Certificate of Designation of Series A Junior Participating
Preferred Stock of Questron Technology, Inc., incorporated by
reference to Exhibit 4.9 to the Company's Quarterly Report on Form
10-QSB for the three month period ended September 30, 1998 (File
No. 0-13324)
4.10 Form of 14.50% Senior Subordinated Note due June 30, 2005
(included as Attachment A to Exhibit 10.22 below), incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated June 30, 1999 (File No. 0-13324).
4.2 Form of Senior A Note (included as Exhibit 2.5(c) to Exhibit 2.3
above and Exhibit A to Exhibits 2.6 and 2.8 above, each as
incorporated by reference herein).
<PAGE>
4.3 Form of Senior B Note (included as Exhibit 2.5(d) to Exhibit 2.3
above and Exhibit B to Exhibits 2.6 and 2.8 above, each as
incorporated by reference herein).
10.1 1996 Stock Option Plan, incorporated by reference to Exhibit 10.19
to Amendment No. 1 to the Company's Registration Statement on Form
SB-2 dated February 25, 1997 (File No. 333-18243).
10.2 Exchange Agreement, dated November 8, 1996 by and among the
Company, Gulfstream Financial Group, Inc. and Phillip D.
Schwiebert, incorporated by reference to Exhibit 10.21 to
Amendment No. 1 to the Company's Registration Statement on Form
SB-2 dated February 25, 1997 (File No. 333-18243).
10.3 Stock Purchase Agreement dated as of December 16, 1996 relating to
Webb Distribution, Inc., incorporated by reference to Exhibit 2.0
to Amendment No. 1 to the Company's Registration Statement on Form
SB-2 dated February 25, 1997 (File No. 333-18243).
10.4 Form of Underwriting Agreement, incorporated by reference to
Exhibit 2.0 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 dated February 25, 1997 (File No.
333-18243).
10.5 Stock Option Grant Agreement between the Company and Gulfstream
Financial Group, Inc. made as of November 8, 1996, incorporated by
reference to Exhibit 10.22 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996 (File No.
0-13324).
10.6 Stock Option Grant Agreement between the Company and Phillip D.
Schwiebert made as of November 8, 1996, incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996 (File No. 0-13324).
10.7 Amendment No. 4, dated as of April 9, 1997, to the Loan and
Security Agreement, dated as of March 31, 1995, between Silicon
Valley Bank and Quest Electronics Hardware, Inc., incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the three month period ended March 31, 1997 (File
No. 0-13324).
10.8 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 to the Company's
Current Report on Form 8-K, filed October 7, 1997 (File No.
0-13324).
10.9 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, incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-QSB for the
three month period ended September 30, 1997 (File No. 0-13324).
<PAGE>
10.10 Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Gregory Fitzgerald, Valerie Fitzgerald and
Fas-Tronics, Inc. (the "Fas-Tronics Stock Purchase Agreement"),
incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-QSB for the three month period ended
June 30, 1998 (File No. 0-13324).
10.11 Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Fortune Industries, Inc. and the Stockholders
listed on Schedule 1.1 thereto (the "Fortune Stock Purchase
Agreement"), incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the three month
period ended June 30, 1998 (File No. 0-13324).
10.12 Letter Agreement, dated July 29, 1998, by and between the Company,
Gregory Fitzgerald, Valerie Fitzgerald and Fas-Tronics, Inc.,
incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the three month period ended
June 30, 1998 (File No. 0-13324).
10.13 Letter Agreement, dated July 29, 1998, by and between the Company,
Fortune Industries, Inc. and the Stockholders listed on Schedule
1.1 to the Fortune Stock Purchase Agreement, incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-QSB for the three month period ended June 30, 1998 (File
No. 0-13324).
10.14 Second Amendment to the Fas-Tronics Stock Purchase Agreement,
incorporated by reference to the Company's Current Report on Form
8-K, filed October 8, 1998 (File No. 0-13324).
10.15 Second Amendment to the Fortune Stock Purchase Agreement,
incorporated by reference to the Company's Current Report on Form
8-K, October 8, 1998 (File No. 0-13324).
10.16 Rights Agreement, dated as of October 23, 1998, between the
Company and American Stock Transfer & Trust Company, as Rights
Agent, incorporated by reference to the Company's Registration
Statement on Form 8-A, filed November 6, 1998 (File No. 0-13324).
10.17 Loan and Security Agreement dated as of September 24, 1998, by and
among the Company, Questron Distribution Logistics, Inc.,
Integrated Material Systems, Inc., Power Components, Inc.,
California Fasteners, Inc., Comp Ware, Inc., Fas-Tronics, Inc.,
Fortune Industries, Inc., each of the signatories which is a
signatory thereto, Congress Financial Corporation (Florida), as
administrative agent and Madeleine L.L.C., as collateral agent,
incorporated by reference to Exhibit 10.17 to the Company's
Quarterly Report on Form 10-QSB for the three month period ended
September 30, 1998 (File No. 0-13324).
10.18 Amendment Number One to the Loan and Security Agreement, dated as
of November 2, 1998, by and among the Company, Questron
Distribution Logistics, Inc., Integrated Material Systems, Inc.,
Power Components, Inc., California Fasteners, Inc., Comp Ware,
Inc., Fas-Tronics, Inc., Fortune Industries, Inc., each of the
Lenders, Congress Financial Corporation (Florida), as
Administrative Agent and Madeleine L.L.C., as
<PAGE>
Collateral Agent, incorporated by reference to Exhibit 10.18 to
the Company's Quarterly Report on Form 10-QSB for the three month
period ended September 30, 1998 (File No. 0-13324).
10.21 Securities Purchase Agreement (identical agreement executed
separately with each of four purchasers), dated as of June 29,
1999, by and between Questron Technology, Inc., Questron Operating
Company, Inc., and, separately, each of Albion Alliance Mezzanine
Fund, L.P., Alliance Investment Opportunities Fund, L.L.C., The
Equitable Life Assurance Society of the United States and IBJ
Whitehall Bank & Trust Company, incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K, dated
June 30, 1999 (File No. 0-13324).
10.22 Note Agreement, dated as of June 29, 1999, among Questron
Operating Company, Inc. and Albion Alliance Mezzanine Fund, L.P.,
Alliance Investment Opportunities Fund, L.L.C., The Equitable Life
Assurance Society of the United States and IBJ Whitehall Bank &
Trust Company, incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K, dated June 30, 1999 (File
No. 0-13324).
10.23 Investors Rights Agreement, dated as of June 29, 1999, among
Questron Technology, Inc. and Albion Alliance Mezzanine Fund,
L.P., Alliance Investment Opportunities Fund, L.L.C., The
Equitable Life Assurance Society of the United States and IBJ
Whitehall Bank & Trust Company, incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K, dated
June 30, 1999 (File No. 0-13324).
10.24 Unconditional Guaranty, dated as of June 30, 1999, by Questron
Technology, Inc., Questron Finance Corp., Questron Distribution
Logistics, Inc., Integrated Material Systems, Inc., Power
Components, Inc., Fortune Industries, Inc., Fas-Tronics, Inc.,
California Fasteners, Inc., Comp Ware, Inc., Action Threaded
Products, Inc., Action Threaded Products of Georgia, Inc., Action
Threaded Products of Minnesota, Inc. and Capital Fasteners, Inc.,
in favor of each of Albion Alliance Mezzanine Fund, L.P., Alliance
Investment Opportunities Fund, L.L.C., The Equitable Life
Assurance Society of the United States and IBJ Whitehall Bank &
Trust Company, incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K, dated June 30, 1999 (File
No. 0-13324).
10.25 Amended and Restated Loan and Security Agreement, dated as of June
29, 1999, by and between Questron Technology, Inc. and its
subsidiaries and Congress Financial Corporation (Florida) and
Ableco Finance LLC, incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K, dated June 30, 1999
(File No. 0-13324).
10.26 Amendment Number One to Amended and Restated Loan and Security
Agreement, dated as of October 1, 1999, by and among Questron
Technology, Inc., certain of its direct and indirect Subsidiaries
identified therein, each of the Lenders signatory thereto,
Congress Financial Corporation and Ableco Finance LLC.
10.27 Amendment to Note Agreement, dated as of September 29, 1999, by
and among Questron Operating Company, Inc. and Albion Alliance
Mezzanine Fund, L.P., Alliance Investment Opportunties Fund, LLC,
The Equitable Life Assurance Society of the United States and IBJ
Whitehall Bank & Trust Company.
27.1 Financial Data Schedule
AMENDMENT NUMBER ONE TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "Amendment") dated as of October 1, 1999, is entered into among
Questron Technology, Inc., a Delaware corporation ("QTI"), certain of the direct
and indirect Subsidiaries of QTI identified therein (individually and
collectively, and jointly and severally, the "Obligors"), each of the Lenders
signatory hereto, CONGRESS FINANCIAL CORPORATION, a Delaware corporation, as
administrative agent for the Lenders ("Administrative Agent"), and ABLECO
FINANCE LLC, a Delaware limited liability company, as collateral agent for the
Lender Group ("Collateral Agent"), in light of the following:
W I T N E S S E T H
WHEREAS, the Obligors, the Lenders, Administrative Agent, and
Collateral Agent are parties to that certain Amended and Restated Loan and
Security Agreement, dated as of June 29, 1999 (as amended, restated,
supplemented, or modified from time to time, the "Loan Agreement");
WHEREAS, the Obligors are in default under the terms of the Loan
Agreement;
WHEREAS, the parties desire to amend the Loan Agreement, in
accordance with the amendment provisions of Section 12.3 thereof, and waive the
events of default, in each case, as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to amend the
Loan Agreement, effective immediately, as follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Loan Agreement, as amended
hereby.
2. AMENDMENT TO LOAN AGREEMENT. Section 9A [Conditions Precedent to all Credits]
of the Loan Agreement hereby is amended by inserting the following new
subsection 9A.5 after subsection 9A.4 appearing in said Section:
9A.5 Revolving Facility Usage. The prior written consent of the
Collateral Agent shall be required for any Revolving Credit Loan or Letter of
Credit Accommodation at anytime that the Revolving Facility Usage is equal to or
greater than $12,500,000, or, after giving effect to a Revolving Credit Loan or
Letter of Credit Accommodation requested by Borrower, the Revolving Facility
Usage would exceed $12,500,000.
<PAGE>
3. WAIVER OF EVENTS OF DEFAULT. Upon the effectiveness of this Amendment, the
Required Lenders hereby waive each of the Events of Default existing as of the
date of this Amendment and identified on Schedule A attached to this Amendment
(each, a "Specified Event of Default"). Such waiver is specific in time and in
intent and does not constitute, nor should it be construed as constituting,
except to the extent expressly set forth herein, a waiver or modification of any
term of, or right, power, or privilege under, the Loan Agreement, the other Loan
Documents, or any agreement, contract, indenture, document, or instrument
mentioned therein. Such waiver does not preclude any exercise of any right,
power, or privilege under any Loan Document, based upon any Event of Default
other than the Specified Events of Default.
4. Representations and Warranties. The Obligors hereby represent and warrant to
the Required Lenders that:
(a) The execution, delivery, and performance of this Amendment
are within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, regulation, or
any order, judgment, decree, writ, injunction, or award of any arbitrator,
court, or governmental authority, or of the terms of its governing documents, or
of any contract or undertaking to which it is a party or by which any of its
properties may be bound or affected if the result thereof is reasonably likely
to result in a Material Adverse Change;
(b) This Amendment constitute the Obligors' legal, valid, and
binding obligation, enforceable against the Obligors in accordance with its
terms;
(c) There is no litigation or proceeding pending or threatened
against or affecting the Obligors, its business, operations, or properties that
reasonably could be expected to have a Material Adverse Change;
(d) No written information, certification, or report submitted
to the Lender Group by the Obligors' pursuant to this Amendment contains any
material misstatement of fact or omits to state a material fact or any fact
necessary to make the information not false or misleading in any material
respect;
(e) The reaffirmation and consent of QTI attached hereto as
Exhibit A constitutes QTI's legal, valid, and binding obligations, enforceable
against QTI in accordance with its terms;
(f) The reaffirmation and consent of QTI attached hereto as
Exhibit A has been duly executed and delivered by QTI;
(g) The reaffirmation and consent of QFC attached hereto as
Exhibit B constitutes QFC's legal, valid, and binding obligations, enforceable
against QFC in accordance with its terms; and
2
<PAGE>
(h) The reaffirmation and consent of QFC attached hereto as
Exhibit B has been duly executed and delivered by QFC.
5. CONDITIONS PRECEDENT TO AMENDMENT. The satisfaction of each of the following
unless waived or deferred by the Required Lenders in their sole discretion,
shall constitute conditions precedent to the effectiveness of this Amendment and
each and every provision hereof:
(a) The representations and warranties in the Loan Agreement
as amended by this Amendment, and the other Loan Documents shall be true and
correct in all respects on and as of the date hereof, as though made on such
date (except to the extent that such representations and warranties relate
solely to an earlier date).
(b) Administrative Agent shall have received a fee of $30,000
in cash or by wire transfer of immediately available funds, such fee to be for
(and upon receipt shall be paid to) the ratable benefit of the Lenders with a
Revolving Credit Commitment.
(c) Administrative Agent shall have received a fee of $131,250
in cash or by wire transfer of immediately available funds, such fee to be for
(and upon receipt shall be paid to) the ratable benefit of the Lenders with a
Term Loan A Commitment or a Term Loan B Commitment.
(d) No injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the consummation of the
transactions contemplated herein shall have been issued and remain in force by
any governmental authority against the Lender Group.
(e) Collateral Agent shall have received the reaffirmation and
consent of QTI attached hereto as Exhibit A, duly executed and delivered by an
authorized official of QTI.
(f) Collateral Agent shall have received the reaffirmation and
consent of QFC attached hereto as Exhibit B, duly executed and delivered by an
authorized official of QFC.
(g) Collateral Agent shall have received a waiver, duly
executed by the Purchasers and the Obligors, of all events of default under the
Subordinated Debt Documents (the form and substance of such waiver to be
satisfactory to Collateral Agent).
6. CONSTRUCTION. This Amendment shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to its
conflicts-of-laws principles (other than any provisions thereof validating the
choice of the laws of the State of New York as the governing law).
3
<PAGE>
7. ENTIRE AMENDMENT. This Amendment, and terms and provisions hereof, constitute
the entire agreement among the parties pertaining to the subject matter hereof
and supersedes any and all prior or contemporaneous amendments relating to the
subject matter hereof. Except as expressly amended hereby, the Loan Agreement
and other Loan Documents shall remain unchanged and in full force and effect. To
the extent any terms or provisions of this Amendment conflict with those of the
Loan Agreement or other Loan Documents, the terms and provisions of this
Amendment shall control. This Amendment is a Loan Document.
8. COUNTERPARTS; TELEFACSIMILE EXECUTION. This Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Amendment by
signing any such counterpart. Delivery of an executed counterpart of this
Amendment by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Amendment. Any party delivering an
executed counterpart of this Amendment by telefacsimile also shall deliver an
original executed counterpart of this Amendment, but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Amendment.
9. AMENDMENTS. This Amendment cannot be altered, amended, changed or modified in
any respect or particular unless each such alteration, amendment, change or
modification shall have been agreed to by each of the parties and reduced to
writing in its entirety and signed and delivered by each party.
10. MISCELLANEOUS. (a) Upon the effectiveness of this Amendment, each reference
in the Loan Agreement to "this Agreement", "hereunder", "herein", "hereof" or
words of like import referring to the Loan Agreement shall mean and refer to the
Loan Agreement as amended by this Amendment.
(b) Upon the effectiveness of this Amendment, each reference
in the Loan Documents to the "Loan Agreement", "thereunder", "therein",
"thereof" or words of like import referring to the Loan Agreement shall mean and
refer to the Loan Agreement as amended by this Amendment.
[Signature page follows.]
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered as of the date first written above.
QUESTRON TECHNOLOGY, INC., a Delaware
corporation
QUESTRON DISTRIBUTION LOGISTICS, INC., a
Delaware corporation
INTEGRATED MATERIAL SYSTEMS, INC., an
Arizona corporation
POWER COMPONENTS, INC., a Pennsylvania
corporation
CALIFORNIA FASTENERS, INC., a California
corporation
COMP WARE, INC., a Delaware corporation
FAS-TRONICS, INC., a Texas corporation
FORTUNE INDUSTRIES, INC., a Texas
corporation
QUESTRON OPERATING COMPANY, INC., a
Delaware corporation
QUESTRON FINANCE CORP., a Delaware
corporation
ACTION THREADED PRODUCTS, INC., an
Illinois corporation
ACTION THREADED PRODUCTS OF GEORGIA,
INC., a Georgia corporation
ACTION THREADED PRODUCTS OF MINNESOTA,
INC., a Minnesota corporation
CAPITAL FASTENERS, INC., a North
Carolina corporation
By /s/ Dominic A. Polimeni
---------------------------------
Name Dominic A. Polimeni
Title Responsible Officer for each
of the above-listed Obligors
Ableco Finance LLC, a Delaware limited
liability company, as Collateral Agent
and a Lender
By: /s/ Kevin Genda
--------------------------------
Title: Senior Vice President
<PAGE>
S - 1
STYX PARTNERS, L.P., a Delaware limited
partnership, as a Lender
By: Styx Associates LLC
Its: General Partner
By: /s/ Mark A. Neporant
----------------------------
Title: Vice President
CONGRESS FINANCIAL CORPORATION
(FLORIDA), a Florida corporation, as
Administrative Agent and a Lender
By: /s/ Gary Dixon
--------------------------------
Title: Vice President
KZH ING-2 LLC, a Delaware limited
liability company, as a Lender
By: /s/ Peter Chin
----------------------------
Title: Authorized Agent
KZH ING-3 LLC, a Delaware limited
liability company, as a Lender
By: /s/ Peter Chin
--------------------------
Title: Authorized Agent
S-2
<PAGE>
ING HIGH INCOME PRINCIPAL PRESERVATION
FUND HOLDINGS, LDC, as a Lender
By: ING Capital Advisors, LLC.,
as Investment Advisor
By Michael Campbell
----------------------------
Its Authorized Signatory
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY, as a Lender
By: /s/ Mark A. Ahmed
---------------------------------
Title: Managing Director
SIMSBURY CLO LIMITED, as a Lender
By: Massachusetts Mutual Life Insurance
Company, as Collateral Agent
By: /s/ Mark A. Ahmed
----------------------------
Title: Managing Director
S - 3
<PAGE>
Exhibit A
REAFFIRMATION AND CONSENT
All capitalized terms used herein but not otherwise defined herein
shall have the meanings ascribed to them in that certain Amendment Number One to
Amended and Restated Loan and Security Agreement, dated as of November __, 1999
(the "Amendment"). The undersigned hereby (a) represents and warrants to the
Lender Group that the execution, delivery, and performance of this Reaffirmation
and Consent are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any material contract or undertaking to which it is a party or by
which any of its properties may be bound or affected; (b) consents to the
amendment of the Loan Agreement by the Amendment; (c) acknowledges and reaffirms
its obligations owing to the Lender Group under the QTI Guaranty and any other
Loan Documents to which it is a party; and (d) agrees that each of the QTI
Guaranty and any other Loan Documents to which it is a party is and shall remain
in full force and effect in accordance with the terms thereof. Although the
undersigned has been informed of the matters set forth herein and has
acknowledged and agreed to same, it understands that the Lender Group has no
obligations to inform it of such matters in the future or to seek its
acknowledgement or agreement to future amendments, and nothing herein shall
create such a duty. Delivery of an executed counterpart of this Reaffirmation
and Consent by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Reaffirmation and Consent. Any party
delivering an executed counterpart of this Reaffirmation and Consent by
telefacsimile also shall deliver an original executed counterpart of this
Reaffirmation and Consent but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Reaffirmation and Consent. This Reaffirmation and Consent shall be governed
by the laws of the State of New York, as more fully set forth in Section 20 of
the QTI Guaranty.
QUESTRON TECHNOLOGY, INC.,
a Delaware corporation
By:________________________
Title:
A-1
<PAGE>
Exhibit B
REAFFIRMATION AND CONSENT
All capitalized terms used herein but not otherwise defined herein
shall have the meanings ascribed to them in that certain Amendment Number One to
Amended and Restated Loan and Security Agreement, dated as of November __, 1999
(the "Amendment"). The undersigned hereby (a) represents and warrants to the
Lender Group that the execution, delivery, and performance of this Reaffirmation
and Consent are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule, or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any material contract or undertaking to which it is a party or by
which any of its properties may be bound or affected; (b) consents to the
amendment of the Loan Agreement by the Amendment; (c) acknowledges and reaffirms
its obligations owing to the Lender Group under the QFC Guaranty and any other
Loan Documents to which it is a party; and (d) agrees that each of the QFC
Guaranty and any other Loan Documents to which it is a party is and shall remain
in full force and effect in accordance with the terms thereof. Although the
undersigned has been informed of the matters set forth herein and has
acknowledged and agreed to same, it understands that the Lender Group has no
obligations to inform it of such matters in the future or to seek its
acknowledgement or agreement to future amendments, and nothing herein shall
create such a duty. Delivery of an executed counterpart of this Reaffirmation
and Consent by telefacsimile shall be equally as effective as delivery of an
original executed counterpart of this Reaffirmation and Consent. Any party
delivering an executed counterpart of this Reaffirmation and Consent by
telefacsimile also shall deliver an original executed counterpart of this
Reaffirmation and Consent but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Reaffirmation and Consent. This Reaffirmation and Consent shall be governed
by the laws of the State of New York, as more fully set forth in Section 20 of
the QFC Guaranty.
QUESTRON FINANCE CORP.,
a Delaware corporation
By:________________________
Title:
B-1
<PAGE>
SCHEDULE A
SPECIFIED EVENTS OF DEFAULT
(1) The Obligors have failed to maintain the minimum
Total Funded Debt Coverage Ratio required by
Section 8.3.1 of the Loan Agreement for the
quarter ending September 30, 1999.
(2) The Obligors have failed to maintain the minimum
EBITDA required by Section 8.3.2 of the Loan
Agreement for the quarter ending September 30,
1999.
(3) The Obligors have failed to maintain the minimum
Senior Debt Coverage Ratio required by Section
8.3.3 of the Loan Agreement for the quarter
ending September 30, 1999.
A-1
<PAGE>
Each of the items identified in paragraphs (1), (2), and (3) above
constitute an Event of Default under Section 10.1 of the Loan Agreement.
AMENDMENT TO NOTE AGREEMENT
This AMENDMENT TO NOTE AGREEMENT, dated as of September 29, 1999
(this "Amendent") among QUESTRON OPERATING COMPANY, INC. and ALBION ALLIANCE
MEZZANINE FUND, L.P., ALLIANCE INVESTMENT OPPORTUNITIES FUND, LLC, THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES and IBJ WHITEHALL BANK & TRUST
COMPANY (collectively, the "Purchasers") modifies that certain Note Agreement,
dated as of June 29, 1999 (the "Existing Note Agreement;" and the Existing Note
Agreement as modified by this Amendment, the "Note Agreement") among the Company
and the Purchasers.
WHEREAS, pursuant to the Existing Note Agreement, the Company issued
to the Purchaser its 14.50% Senior Subordinated Notes due June 30 2005 (the
"Notes") in the aggregate principal amount of Twenty Million Dollars
($20,000,000); and
WHEREAS, the Purchasers are the holders of all the outstanding Notes;
and
WHEREAS, the Company and the Purchasers have agreed to waive, on a
limited basis, certain provisions of the Existing Note Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiently of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINED TERMS
Capitalized terms used and not defined herein shall have the same
meanings given to them in the Note Agreement.
2. CERTAIN AMENDMENTS AND AGREEMENTS.
2.1 Limited Waivers.
Each Purchaser hereby waives any default which might have occurred
pursuant to Section 6.1(b) of the Existing Note Agreement by virtue of the
failure of the Company to comply with:
(a) Section 4.2 of the Existing Note Agreement with respect
to any failure by the Company to maintain the specified ratio of
Consolidated Senior Secured Funded Debt to Pro Forma Combined EBITDA
for the period of four (4) full consecutive fiscal quarters of the
Company ended September 30, 1999;
<PAGE>
(b) Section 4.3 of the Existing Note Agreement with respect
to any failure by the Company to maintain the specified ratio of
Total Funded Debt to Pro Forma Combined EBITDA for the period of four
(4) full consecutive fiscal quarters of the Company ended September
30, 1999; or
(c) Section 4.4 of the Existing Note Agreement with respect
to any failure by the Company to maintain the specified ratio of Pro
Forma Combined EBITDA to Pro Forma Combined Interest Expense for the
period of four (4) full consecutive fiscal quarters of the Company
ended September 30, 1999.
2.2 No Other Amendments.
Except as expressly set forth in Section 2.1, the Purchasers do not
waive the occurrence of any other Event of Default. Specifically, the Purchasers
do not waive any Event of Default arising other than pursuant to Section 6.1(b)
of the Existing Note Agreement, any Event of Default pursuant to Section 6.1(b)
arising out of the failure by the Company to comply with any provision of the
Existing Note Agreement other than Section 4.2, Section 4.3 and Section 4.4, or
any Event of Default pursuant to Section 6.1(b) arising out of the failure by
the Company to comply with Section 4.2, Section 4.3 or Section 4.4 of the
Existing Note Agreement for any fiscal period of the Company other than the
period of four (4) full consecutive fiscal quarters of the Company ended
September 30, 1999.
3. NO OTHER MODIFICATIONS; CONFIRMATION .
All the provisions of the Notes, and, except as expressly waived,
modified and supplemented hereby, all the provisions of the Existing Note
Agreement, are and shall remain in full force and effect. As of the Effective
Date (defined below), all references in the Financing Documents to the "Note
Agreement" shall be references to the Existing Note Agreement, as modified by
this Amendment and as hereafter amended, modified or supplemented in accordance
with its terms.
4. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants as follows to each holder of
Notes as of the date hereof and as of the Effective Date (as defined below). The
Company acknowledges and agrees that the representations and warranties of this
Section 4 comprise representations and warranties in a written modification to
the Note Agreement, as contemplated by Section 6.1(c) of the Note Agreement.
<PAGE>
4.1 No Other Defaults.
No Default or Event of Default (other than Defaults or Events of
Default expressly and specifically waived pursuant to the provisions of Section
2.1 of this Amendment) has occurred and is continuing.
4.2 Senior Credit Agreement.
The Senior Credit Agreement (as amended as described in Section 5.3)
is the only Senior Credit Facility in existence as of the date hereof. After
giving effect to the effectiveness of this Amendment, no unwaived default or
event of default has occurred or is continuing in respect of any Senior Credit
Facility.
4.3 Obligations Remain Enforceable.
The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any person (including any Governmental Authority) in
order to be effective and enforceable. The Note Agreement (as modified by this
Amendment) and the Notes constitute the legal, valid and binding obligation of
the Company, enforceable against Company in accordance with its terms, except
that the enforceability thereof may be limited by applicable bankruptcy,
reorganization, arrangement, insolvency, moratorium, or other similar laws
affecting the enforceability of creditors' rights generally; and subject to the
availability of equitable remedies.
4.4 Securities Purchase Agreement Representations.
All representations and warranties of the Company contained in the
Securities Purchase Agreement (other than representations or warranties
expressly made only on and as of the Closing Date or any earlier date) are true
and correct as of the date hereof, after taking into account Section 2 above.
4.5 Financial Information.
All financial statements delivered to the Purchasers by the Company
pursuant to the provisions of Section 5.1(a), Section 5.1(b) and Section 5.1(c)
of the Note Agreement since the Closing Date were, and all information delivered
to the Purchasers by the Company pursuant to Section 5.1(e) of the Note
Agreement since the Closing Date was, true, complete and correct in all material
respects as of the respective dates of such information.
<PAGE>
5. EFFECTIVENESS
This Amendment shall become effective only upon the date of the
satisfaction in full of the following conditions precedent (which date shall be
the "Effective Date").
5.1 Execution and Delivery of this Amendment.
Each Purchaser shall have received a counterpart hereof, duly
executed and delivered by the Company and each other Purchaser.
5.2 Acknowledgement by Affiliate Guarantors.
Each Affiliate Guarantor shall have duly executed and delivered the
form of acknowledgement attached to this Amendment acknowledging its obligations
in respect of the Affiliate Guaranty.
5.3 Senior Credit Agreement.
The Company and each of its Affiliates and Subsidiaries as are
parties to the Senior Credit Facility shall have entered into an amendment to
the Senior Credit Agreement in the form attached hereto as Exhibit 5.3.
5.4 Representations and Warranties.
The representations and warranties of the Company made in Section 4
of this Amendment shall remain true and correct in all respects as of the
Effective Date.
5.5 No Injunction, Etc.
No injunction, writ, restraining order or other order of any nature
prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein shall have been issued and remain in force by any
Governmental Authority.
5.6 Expenses.
The Company shall have paid all out-of-pocket expenses of the
Purchasers in connection with the execution and delivery of this Amendment,
including, without limitation, the fees and disbursements of Bingham Dana LLP,
as special counsel to the Required Holders.
<PAGE>
6. MISCELLANEOUS
6.1 Section Headings.
The titles of the Sections of this Amendment appear as a matter of
convenience only, do not constitute a part hereof and shall not affect the
construction hereof. The words "herein," "hereof," "hereunder" and "hereto"
refer to this Amendment as a whole and not to any particular Section or other
subdivision. References to Sections are, unless otherwise specified, references
to Sections of this Amendment.
6.2 Governing Law.
THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
6.3 Successors and Assigns.
This Amendment shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of all holders, from time to time, of Notes, and
shall be enforceable by any such holder whether or not an express assignment to
such holder of rights hereunder shall have been made by any Purchaser or its
successor or assign.
6.4 Execution in Counterpart.
This Amendment may be executed in one or more counterparts and shall
be effective when at least one counterpart shall have been executed by each
party hereto, and each set of counterparts that, collectively, show execution by
each party hereto shall constitute one duplicate original.
[The remainder of this page has been left blank intentionally.
The next page is the signature page.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
QUESTRON OPERATING COMPANY, INC.
By: /s/ Dominic A. Polimeni
------------------------------------
Name: Dominic A. Polimeni
Title Chairman and CEO
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC,
its General Partner
By: /s/ U. Peter C. Gummeson
------------------------------------
Name: U. Peter C. Gummeson
Title Senior Vice President
ALLIANCE INVESTMENT
OPPORTUNITIES FUND, LLC
By: Alliance Investment Opportunities
Management L.P., its Managing Member
By: Alliance Capital Management, L.P.,
its Managing Member
By: Alliance Capital Management
Corporation, its General Partner
By: /s/ Nelson Jantgen
------------------------------------
Name: Nelson Jantgen
Title SVP
<PAGE>
THE EQUITABLE LIFE ASSURANCE SOCIETY OF
THE UNITED STATES
By: /s/ U. Peter C. Gummeson
------------------------------------
Name: U. Peter C. Gummeson
Title Investment Officer
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Jean-Louis Pernin
-------------------------------------
Name: Jean-Louis Pernin
Title: Director
<PAGE>
ACKNOWLEDGEMENT AND CONFIRMATION OF
AFFILIATE GUARANTORS
Each of the undersigned, being a party to that Unconditional Guaranty
(the "Guaranty"), dated as of June 29, 1999, re: $20,000,000 14.5% Senior
Subordinated Notes due June 30, 2005 (the "Notes") issued by Questron Operating
Company, Inc. (the "Company") acknowledges that:
(a) it has received and read the attached Amendment to Note
Agreement;
(b) that it will benefit materially and substantially from
the agreements and forbearances made by the Purchasers in the
attached Amendment to Note Agreement; and
(c) that its guaranty of the Guarantied Obligations (as
defined in the Guaranty) and all of its other obligations pursuant to
the Guaranty shall remain in full force and effect notwithstanding
the execution and delivery by the Company and the Purchasers of the
attached Amendment to Note Agreement and the performance by the
Company and the Purchasers of their respective obligations pursuant
to the Notes and the Note Agreement (as defined in the attached
Amendment to Note Agreement).
[The remainder of this page has been left blank intentionally.
The next page is the signature page.]
<PAGE>
IN WITNESS WHEREOF, each of the undersigned parties hereto have
caused this Acknowledgement and Confirmation of Affiliate Guarantors to be duly
executed and delivered by their respective proper and duly authorized officers
as of the day and year first above written.
QUESTRON TECHNOLOGY, INC.
QUESTRON FINANCE CORP.
QUESTRON DISTRIBUTION LOGISTICS, INC.
COMP WARE, INC.
POWER COMPONENTS, INC.
INTEGRATED MATERIAL SYSTEMS, INC.
CALIFORNIA FASTENERS, INC.
FAS-TRONICS, INC.
FORTUNE INDUSTRIES, INC.
CAPITAL FASTENERS, INC.
ACTION THREADED PRODUCTS, INC.
ACTION THREADED PRODUCTS OF
GEORGIA, INC.
ACTION THREADED PRODUCTS OF
MINNESOTA, INC.
By: /s/ Dominic A. Polimeni
------------------------------------------------
Name: Dominic A. Polimeni
Title Chairman and CEO
<PAGE>
EXHIBIT 5.3
AMENDMENT TO SENIOR CREDIT AGREEMENT
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND THE CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDED SEPTEMBER,
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,414,177
<SECURITIES> 0
<RECEIVABLES> 16,361,601
<ALLOWANCES> 187,211
<INVENTORY> 34,474,174
<CURRENT-ASSETS> 53,125,766
<PP&E> 2,542,554
<DEPRECIATION> 1,254,551
<TOTAL-ASSETS> 134,987,822
<CURRENT-LIABILITIES> 12,366,962
<BONDS> 0
0
0
<COMMON> 7,005
<OTHER-SE> 34,913,357
<TOTAL-LIABILITY-AND-EQUITY> 134,987,822
<SALES> 78,602,490
<TOTAL-REVENUES> 78,602,490
<CGS> 48,254,253
<TOTAL-COSTS> 68,097,690
<OTHER-EXPENSES> 1,511,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,587,962
<INCOME-PRETAX> 3,404,960
<INCOME-TAX> 1,484,581
<INCOME-CONTINUING> 1,920,379
<DISCONTINUED> 0
<EXTRAORDINARY> 1,451,516
<CHANGES> 0
<NET-INCOME> 468,863
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
