SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 30, 1999
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Questron Technology, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-13324 23-2257354
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 241-5251
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Item 2. Acquisition or Disposition of Assets.
On June 30, 1999, Questron Technology, Inc. (the "Company") acquired
all of the capital stock of Capital Fasteners, Inc., a North Carolina
corporation ("Capital"), and Action Threaded Products, Inc., an Illinois
corporation ("Action"), and the net operating assets of Metro Form Corporation,
an Ohio corporation d.b.a. Olympic Fasteners & Electronic Hardware ("Olympic").
Capital and Olympic are each providers of inventory logistics management
programs and value-added distributors of fasteners and other related items to
original equipment manufacturers and Action is a value-added distributor of
stainless steel fasteners and related items. The combined 1998 revenues of the
three acquired companies amounted to $35.8 million. Capital and Action will
operate as wholly-owned subsidiaries of Questron Distribution Logistics, Inc., a
Delaware corporation and an indirect wholly-owned subsidiary of the Company
("QDL"), and the net operating assets of Olympic were acquired by QDL.
The purchase price for the capital stock of Capital was $10.65
million, consisting of approximately $8.0 million in cash, 169,935 shares of
common stock, par value $.001 per share, of the Company (the "Common Stock")
valued at approximately $650,000 and a note in favor of the former stockholder
of Capital in the principal amount of $2 million. The purchase price for the
capital stock of Action was $13.8 million, consisting of approximately $10.5
million in cash, 470,588 shares of Common Stock valued at approximately $1.8
million and notes in favor of the former stockholders of Action in the principal
amount of $1.5 million in the aggregate. The purchase price for the net
operating assets of Olympic was $9 million, consisting of approximately $6.5
million in cash, 261,438 shares of Common Stock valued at approximately $1.0
million and notes in favor of the stockholders of Olympic in the principal
amount of $1.5 million in the aggregate. Additional purchase price consideration
may be paid to the sellers of Capital, Action and Olympic based on future
operating results of these businesses.
In connection with the closing of each of the Capital, Action and
Olympic acquisitions, the Company refinanced its existing bank debt and entered
into new loan agreements which (i) paid off the existing bank debt; (ii)
provided the cash portion of the purchase price for each of the acquisitions;
and (iii) provided a revolving credit facility to be used for working capital
purposes. The Company's financing sources are 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,
which, collectively, loaned $20,000,000 as senior subordinated lenders and
Ableco Finance LLC and Congress Financial Corporation (Florida), an affiliate of
First Union National Bank, which, together, provided $75,000,000 in a senior
secured debt facility, of which $58,000,000 was drawn at the closing of the
Capital, Action and Olympic acquisitions.
Item 5. Other Events.
Simultaneous with the closing of the Capital, Action and Olympic
acquisitions, Robert V. Gubitosi, a director of the Company, was named President
and Chief Financial Officer of the Company. Dominic A. Polimeni, who previously
held the title of President of the Company, will remain Chairman of the Board
and Chief Executive Officer of the Company.
853424.3
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Item 7. Financial Statements and Exhibits.
(a). and (b). The financial statements and pro-forma financial
information, required as part of this Current Report on Form 8-K, will be filed
not later than 60 days from the date of this report as an amendment to this
report.
(c). Exhibits.
See Exhibit Index immediately following the signature
page below.
853424.3
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
QUESTRON TECHNOLOGY, INC.
Date: July 14, 1999 By: /s/ Dominic A. Polimeni
-------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief
Executive Officer
853424.3
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EXHIBIT INDEX
Exhibit No. Exhibit
2.1 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 period ended March 31, 1999.
2.2 Amendment to the Olympic Purchase Agreement, dated June 28,
1999.
2.3 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").
2.4 Amendment to the Capital Purchase Agreement, dated June 25,
1999.
2.5 Letter Agreement, dated as of June 29, 1999, amending the
Capital Purchase Agreement.
2.6 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").
2.7 Letter Agreement, dated as of June 29, 1999, amending the
Action Purchase Agreement.
4.1 Form of 14.50% Senior Subordinated Note due June 30, 2005
(included as Attachment A to Exhibit 10.2 below).
4.2 Form of Senior A Note (included as Exhibit 2.5(c) to Exhibit
2.2 above and Exhibit A to Exhibits 2.5 and 2.7 above).
4.3 Form of Senior B Note (included as Exhibit 2.5(d) to Exhibit
2.2 above and Exhibit B to Exhibits 2.5 and 2.7 above).
10.1 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.
10.2 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.
10.3 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
10.4 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.
10.5 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
Exhibit 2.2
AMENDMENT TO ASSET PURCHASE AGREEMENT
AMENDMENT, (this "Amendment") dated as of June 28, 1999, by and between
QUESTRON TECHNOLOGY, INC., a Delaware corporation ("Questron"), QUESTRON
DISTRIBUTION LOGISTICS, INC., a Delaware corporation and wholly-owned subsidiary
of Questron ("QDL"), METRO FORM CORPORATION, a Ohio corporation doing business
as Olympic Fasteners & Electronic Hardware (the "Company"), and each of the
persons listed on Schedule 1.1 hereto (each, a "Principal" and collectively, the
"Principals")
PRELIMINARY STATEMENT
A. Questron, QDL, the Company and the Principals entered into an Asset
Purchase Agreement, dated as of March 11, 1999 (the "Purchase Agreement").
Capitalized terms not otherwise defined herein shall have the meaning set forth
in the Purchase Agreement.
B. The parties hereto desire to amend the Purchase Agreement in certain
respects as set forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing premises, and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree to amend the Purchase Agreement as
follows:
1. The following definitions are added to Section 1.1 of the
Purchase Agreement:
""Closing Notes" is defined in Section 2.4(c)."
""QFC" is defined in Section 2.4(c)."
""Post-Closing Payment Note" is defined in Section 2.4(d)."
2. Section 2.4(a) of the Purchase Agreement is hereby amended and
restated in its entirety to read as follows:
"(a) Initial Cash Consideration. At the Closing, the Company
shall be paid an amount equal to (w) Six Million Five Hundred Thousand Dollars
($6,500,000), (x) less the Stated Net Debt (as defined below), (y) plus or
minus, the increase or decrease, as the case may be, in Net Operating Assets (as
defined below) of the Company from that derived from the December 31, 1998
Audited Balance Sheet (as defined in Section 6.13) to that derived from the
March 31, 1999 Balance Sheet (as defined in Section 6.13), (z) plus (i) interest
on the sum of (A) the amount calculated in accordance with the foregoing, and
(B) One Million Five Hundred Thousand Dollars ($1,500,000), which interest shall
be in an amount equal to 6% per annum calculated from the Effective Date through
the earlier of April 23, 1999 or the Closing Date, and (ii) interest on the
foregoing (including all accrued interest) in an amount equal to 8% per annum
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calculated from April 23, 1999 through the Closing Date (such interest payable
under clauses (i) and (ii) collectively, the "Accrued Interest") (said amount
being herein referred to as the "Initial Cash Consideration"). The Initial Cash
Consideration shall be paid to the Company (or to third parties on behalf of the
Company) by wire transfers of immediately available funds (or certified checks)
from or on behalf of QDL to such account(s) as the Company may designate to QDL
in writing, no later than five (5) business days prior to the Closing Date. As
used herein, (a) "Net Operating Assets" means, at the applicable measurement
date, the net book value of the Acquired Assets (exclusive of cash and cash
equivalents), net of the net book value of the Assumed Liabilities (exclusive of
the Stated Debt), and (b) "Stated Net Debt" means the aggregate amount of the
Stated Debt net of cash and cash equivalents as of March 31, 1999."
3. The following shall be added after Section 2.4(b) of the Purchase
Agreement:
(c) At the Closing, QDL shall deliver to each Principal or their
designees a promissory note, made by Questron Finance Corp., a wholly-owned
subsidiary of Questron ("QFC"), in favor of such Principal in the principal
amount set forth opposite such Principal's name on Schedule 2.4(c),
substantially in the form attached hereto as Exhibit 2.4(c), as may be modified
to reflect such changes to the definition of "Available Amount" contained
therein as may be requested by any lender providing financing to Questron as
contemplated by Section 7.10 (the "Closing Notes"). The aggregate principal
amount of the Closing Notes shall be One Million Five Hundred Thousand Dollars
($1,500,000).
4. Section 2.4(c) of the Purchase Agreement is hereby amended and
restated in its entirety to read as follows:
"(d) Post-Closing Payments. Subject to the terms and conditions
set forth in subsection (e) below, following the Closing, QDL shall pay to the
Company (or its designees) an amount (the "Deferred Purchase Price") equal to
the lesser of (A) an amount equal to (x) the amount, if any, by which the EBIT
for the Business for the twelve (12) month period beginning on the Effective
Date (the "EBIT Period") exceeds One Million Four Hundred Fifty Thousand Dollars
($1,450,000), multiplied by (y) 6, and (B) One Million Dollars ($1,000,000). The
Deferred Purchase Price shall be paid within five (5) calendar days following
the date of final determination pursuant to Section 2.4(e) and shall be payable
as follows: (i) delivery to the Company by wire transfer (or certified checks)
of an aggregate amount equal to fifty percent (50%) of the Deferred Purchase
Price (the "Deferred Cash Consideration"), and (ii) delivery of a promissory
note, made by Questron Finance Corp, in favor of the Company or its designee,
substantially in the form attached hereto as Exhibit 2.4(d) (the "Post-Closing
Payment Note") in the aggregate principal amount equal to fifty percent (50%) of
the Deferred Purchase Price.
5. The first sentence of Section 2.4(d) of the Purchase Agreement is
hereby amended and restated in its entirety to read as follows:
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"(e) Determination of Post-Closing Payment Amounts. The amount of
post-closing payments referred to in subsection (d) above shall be finally
determined, and subject to payment, as follows:"
6. Section 2.4(d)(iii) of the Purchase Agreement is hereby deleted.
7. The following clause is hereby added to section 2.5(b) of the
Purchase Agreement:
"(v) The Closing Notes."
8. Section 5.1 of the Purchase Agreement is hereby amended and
restated in its entirety to read as follows:
"5.1 Organization. Each of QDL, QFC and Questron is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware. Each of QDL, QFC and Questron has all requisite corporate
power and authority to carry on its respective business as now being conducted
and to own its respective 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 such
entity."
9. Section 5.2 of the Purchase Agreement is hereby amended and
restated in its entirety to read as follows:
"5.2 Corporate Authority; Due Execution. (a) Each of QDL and
Questron has full corporate power and authority to enter into this Agreement and
each Other Document to which it is party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by each
of QDL and Questron of this Agreement and each Other Document to which it is
party have been duly authorized by all requisite corporate action. This
Agreement has been, and each of the other agreements contemplated by this
Agreement to which it is party will be as of the Closing Date, duly executed and
delivered by each of QDL and Questron, and (assuming due execution and delivery
by Principals and the Company) this Agreement constitutes, and each of such
other agreements when executed and delivered will constitute, a valid and
binding obligation of each of QDL and Questron, enforceable in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium, fraudulent conveyance, reorganization or similar laws
affecting creditors' rights generally or by general equitable principles."
(b) QFC has full corporate power and authority to execute the
Closing Notes. The execution, delivery and performance by QFC of the Closing
Notes have been duly authorized by all requisite corporate action and the
Closing Notes will be as of the Closing Date, duly executed and delivered by QFC
and will constitute valid and binding obligations of QFC,
834127.3
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enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization or similar laws affecting creditor's rights generally
or by general equitable principles.
10. Section 5.3 of the Purchase Agreement is hereby amended and
restated in its entirety to read as follows:
"5.3 No Violation. Neither QDL, QFC nor Questron is 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 contract, 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
(i) by QDL or Questron of this Agreement, and each Other Document
and the consummation of the transactions contemplated hereby and
thereby, or (ii) by QFC of the Closing Notes. No consent, approval
or authorization of or declaration or filing with any Person is
required for the valid execution, delivery and performance (i) by
QDL and Questron of this Agreement and the consummation of the
transactions contemplated hereby, or (ii) by QFC of the Closing
Notes."
11. Section 8.2 of the Purchase Agreement is hereby amended and
restated in its entirety to read as follows:
"8.2 Closing Certificates. The Company and the Principals shall
have received (A) duly executed certificates from authorized officers of QDL,
QFC and Questron with respect to (i) such entity's certificate of incorporation
and bylaws, (ii) resolutions of the board of directors of QDL and Questron with
respect to the authorizations of this Agreement and the other agreements
contemplated hereby and resolutions of the board of directors of QFC with
respect to authorization of the Closing Notes, and (iii) the incumbency of the
executing officers of such entity, and (B)(i) a copy of the certificate of
incorporation of QDL as certified by the Secretary of State of the State of
Delaware and a certificate of existence and good standing as of a recent date
834127.3
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from the Secretary of State of the State of Delaware, (ii) a copy of the
certificate of incorporation of Questron as certified by the Secretary of State
of the State of Delaware and a certificate of existence and good standing as of
a recent date from the Secretary of State of the State of Delaware and Ohio, and
(iii) a copy of the Certificate of Incorporation of QFC as certified by the
Secretary of State of the State of Delaware and a certificate of existence and
good standing as of a recent date from the Secretary of State of the State of
Delaware."
12. Exhibit F to the Purchase Agreement is hereby amended and
restated in the entirety as set forth in Exhibit F attached hereto.
13. Except as modified and amended by this Amendment, all of the
terms, covenants and conditions of the Purchase Agreement shall remain in full
force and effect.
14. All terms and provisions of this Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
15. This Amendment may not be changed orally, but only by an
agreement in writing and signed by the party against which enforcement of any
waiver, change, modification or discharge is sought.
16. This Amendment may be executed and delivered in any number of
counterparts each of which so executed and delivered shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
17. This Amendment shall be governed by, and construed in accordance
with, the laws of the State of Delaware.
[Signature page follows]
834127.3
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first-above written.
QUESTRON TECHNOLOGY, INC.
By: /s/Dominic A. Polimeni
--------------------------------
Name: Dominic A. Polimeni
Title: Chairman, President and
Chief Executive Officer
QUESTRON DISTRIBUTION LOGISTICS, INC.
By: /s/Dominic A. Polimeni
--------------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief
Executive Officer
METRO FORM CORPORATION d.b.a Olympic
Fasteners & Electronic Hardware
By: /s/Rudolph M. Petric
--------------------------------
Name: Rudolph M. Petric
Title: President
PRINCIPALS:
/s/James Mraz
---------------------------------
James Mraz
/s/Rudolph M. Petric
---------------------------------
Rudolph Petric
834127.3
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Exhibit 2.5(c)
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REVISED DRAFT
FORM OF SENIOR A NOTE
SENIOR A NOTE
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS, AND NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED, UNLESS SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS
AVAILABLE.
QUESTRON FINANCE CORP.
$_________ New York, New York
________ __, 1999
FOR VALUE RECEIVED, the undersigned, QUESTRON FINANCE CORP., a Delaware
corporation ("Maker"), hereby promises to pay to the order of _________
("Payee"), an individual residing at ____________________, at such address or at
such other location as Payee shall have specified (by not less than 3 Business
Days' prior written notice to Maker delivered in accordance with Section 11
hereof), the principal amount of $__________, in accordance with the terms set
forth below, in lawful money of the United States of America, together with
interest on the unpaid principal balance from time to time outstanding, at such
address and in such currency, in the manner provided below.
1. Interest. Subject to Section 4 below, Maker promises to pay interest
(calculated on the basis of a 365-day year) on the unpaid principal balance from
time to time outstanding (including, without limitation, with respect to any and
all principal payment deferrals which may occur, from time to time, while this
Note is outstanding), together with any Interest Deficiency Amount (as defined
in Section 4 below) from time to time outstanding hereunder, to the extent
permitted by law, at the rate of 8.5% per annum, payable on a semi-annual basis
(each, an "Interest Payment Period") in arrears on each April 10 and October 10,
commencing April 10, 2000 (each, an "Interest Payment Date").
2. Principal Amount. Subject to Section 4 below, the principal amount
of this Note shall be due and payable in the following three annual
installments: (i) on June 30, 2000 (the "First Payment Date"), Maker shall pay
Payee $_________ [25% of principal]; (ii) on June 30, 2001 (the "Second Payment
Date"), Maker shall pay Payee $_________ [25% of principal]; and (iii) on June
30, 2002 (the "Third Payment Date" and together with the First Payment Date and
the Second Payment Date, each a "Payment Date" and collectively, the "Payment
Dates"), Maker shall pay Payee the remaining principal balance then outstanding
of this Note.
828410.11
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3. Payments. Any and all payments of principal and interest in
connection with this Note shall be made by certified check to Payee's address
listed in Section 11 (Notice) below or at such other place as Payee or such
other registered holder shall designate to Maker in writing or by wire transfer
of immediately available funds to an account designated by Payee in writing. If
the payment of principal and interest on this Note is due on a day which is not
a Business Day, such payment shall be due on the next succeeding Business Day,
and such extension of time shall be taken into account in calculating the amount
of interest payable under this Note. "Business Day" means any day other than a
Saturday, Sunday or legal holiday in the United States of America.
4. Limitations on Certain Payments; Conversion. (a) To the extent that
accrued and unpaid interest payable on any Interest Payment Date exceeds the
Available Amount (as defined below) as of such date (such difference being
referred to herein as the "Interest Deficiency Amount"), Maker shall defer
payment of that Interest Deficiency Amount to the earlier of (i) the Third
Payment Date or (ii) the next succeeding Interest Payment Date, at which there
exists Available Amount sufficient in amount to make such interest payment, or
any portion thereof.
(b) To the extent that the face amount of any scheduled principal
payment, at the applicable Payment Date, exceeds the difference between (i) the
Available Amount (as defined below) less (ii) the interest paid, or to be paid,
to Payee at any corresponding Interest Payment Date (together with the aggregate
amount of any Interest Deficiency Amounts in respect of any prior Interest
Payment Periods, "Accrued Interest"), then Maker shall pay Payee, in the manner
provided herein, on the applicable Payment Date:
(A) that portion of the required principal payment which is equal to the
difference between the Available Amount less the Accrued Interest (the
"Mandatory Principal Payment");
(B) that portion of the outstanding principal amount of this Note equal to
the difference between the then scheduled principal payment and the
Mandatory Principal Payment (such difference being referred to herein
as a "Conversion Amount") shall be deemed converted on such Payment
Date (each a "Conversion"), in the manner provided in Section 5 below,
into such number of fully paid and non-assessable shares of common
stock, par value $0.001 per share (the "Common Stock"), of Questron
Technology, Inc., a Delaware corporation and the parent corporation of
Maker ("Questron Technology"), as shall be obtained by dividing the
Conversion Amount by the Conversion Price (as defined below) (the
"Conversion Shares"). The "Conversion Price" shall mean the average
closing market price per share of Common Stock for the twenty (20)
trading days ending on the seventh (7th) trading day preceding the
applicable Payment Date, as reported by the Wall Street Journal;
provided, however, with respect to all Payment Dates other than the
Third Payment Date, in no event shall the Conversion Price be less than
$4.00 per share. If, in any such case, the average closing market price
per share of Common Stock for the twenty (20) trading days ending on
the seventh (7th) trading day preceding the applicable Payment Date is
less than $4.00 per share (the "Average Price"), an amount of principal
equal to Conversion Shortfall (as defined below) shall be deferred for
payment on the Third Payment Date; and
828410.11
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(c) on the Third Payment Date, to the extent there remains outstanding
hereunder any Interest Deficiency Amounts and/or any Conversion Shortfall
amounts (collectively, the "Final Payment Amount"), Maker shall, in its sole
discretion, either (i) pay to Payee, in the manner prescribed in Section 3
above, all or a portion of the Final Payment Amount, or (ii) convert such
portion of the Final Payment Amount that remains unpaid pursuant to the
preceding clause (i) into shares of Questron Technology Common Stock, based on
the average closing market price per share of Common Stock for the twenty (20)
trading days ending on the seventh (7th) trading day preceding the applicable
date of such conversion.
As used herein, "Conversion Shortfall" means an amount equal to the applicable
Conversion Amount, minus the product of (x) the number of Conversion Shares to
be issued as provided above, multiplied by (y) the Average Price. The occurrence
of a Conversion shall not constitute a default or Event of Default hereunder.
(d) For purposes of this Note, "Available Amount" shall mean, subject
to the next succeeding sentence, the dollar amount which is equal to fifty
percent (50%) of the reported consolidated net income of Questron Technology and
its subsidiaries (after adjustment to exclude the operating results of Maker)
for the twelve month period ended on the date of the most recent financial
statements of Questron Technology, as reflected in the most recently filed
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
of Questron Technology preceding the applicable payment date, provided, however,
that the Available Amount shall be deemed to be zero in the event that Questron
Operating Company, Inc., a Delaware corporation and a wholly-owned subsidiary of
Maker ("QOC") is prohibited, pursuant to the terms and conditions of its
instruments for borrowed money, from distributing or dividending funds to Maker
on the applicable payment date. By acceptance of this Note, Payee acknowledges
that this Note is one of a series of Senior A Notes of Maker and that Maker is
concurrently issuing to certain holders a series of Senior B Notes, and agrees
that scheduled, required payments of any Available Amounts to holders of Senior
A Notes and/or Senior B Notes, as the case may be, and any payments required
pursuant to Section 6 below, shall be made pro rata to all such holders to the
extent any such payments are concurrently scheduled or required to be made,
based on the original principal amounts of each respective Senior A Note and/or
Senior B Note, as the case may be, and that as used herein, the term Available
Amount refers only to the pro rata portion thereof relating to this Note.
5. Conversion Procedures; Registration. (a) On any Payment Date on
which a Conversion shall occur, Maker shall cause a notice of conversion (each a
"Conversion Notice") to be delivered to Payee at Payee's address appearing in
Section 11 (Notice) below or to such other registered holder at such other place
as such other registered holder shall designate to Maker in writing specifying
the Conversion Amount, Conversion Price and number of Conversion Shares, no
later than five (5) days prior to the Payment Date upon which any such
conversion shall occur. Promptly upon receipt of a Conversion Notice, Payee or
such other registered holder shall (x)(i) if applicable to the First or Second
Payment Date, surrender this Note for cancellation and a new Note shall be
issued by maker and delivered to the holder in the face amount of the principal
outstanding under this Note after giving effect to the applicable Conversion
and, (ii) if on the Third Payment Date, surrender this Note for cancellation,
and, (y) deliver to maker a written statement specifying the name or names (with
address) in which the Conversion Shares which shall be issuable on such
Conversion shall be issued (provided, however, that Conversion Shares will be
issued in the name of Payee unless otherwise specified as provided herein). The
failure by payee to so surrender the Note, or the failure by Payee or such other
registered holder to present the Note to maker, shall not, in either case,
effect the validity of the Conversion and following
828410.11
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delivery of such Conversion Notice the Conversion shall, in all cases, be deemed
to have occurred and be effective on the applicable Payment Date and this Note
shall be deemed to evidence the obligation to pay principal in an amount which
gives effect to such conversion.
(b) When surrendered for Conversion, this Note shall, unless the shares
of Common Stock issuable on Conversion are to be issued in the same name as the
name in which this Note is then registered, be duly endorsed by, or accompanied
by instruments of transfer in form satisfactory to Maker duly executed by Payee
or such other registered holder, or their respective duly authorized attorney.
As promptly as practicable following the applicable Payment Date, Maker shall
deliver, or cause to be delivered, to Payee or to such other registered holder,
or on such party's written order, a certificate or certificates for the number
of full shares issuable upon the conversion of this Note, or a portion hereof,
in accordance with the provisions hereof and, if applicable, a check in lieu of
any fractional shares. Upon Conversion of all or any portion of this Note, the
registered holder may be required to execute and deliver to the issuer an
instrument, in form satisfactory to the issuer, representing that the shares
issuable upon conversion hereof are being acquired for investment and not with a
view to distribution within the meaning of the Act, together with such other
certifications and agreements as Maker shall reasonably request.
(c) Questron Technology covenants and agrees to file a registration
statement covering the resale of any Conversion Shares (the "Shelf
Registration") and to use its best efforts to cause such registration statement
to become effective prior to the issuance of the Conversion Shares. Questron
shall use its best efforts to maintain the effectiveness of the Shelf
Registration until such time as the Seller has sold all of its Conversion Share
or such shares are eligible for resale pursuant Rule 144 of the Act, without
limitation. Prior to such time as the applicable Conversion Shares are so
registered, such shares shall be restricted securities under the Act, will not
have been registered under the Act and may not be sold or transferred 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 the Act. In connection with such registration, Payee or such
other permitted holder of such shares, shall provide to Questron Technology such
information, and execute and deliver such certificates and other agreements, as
it may reasonably request.
6. Mandatory Repayment. (a) To the extent that on any Interest Payment
Date or Payment Date, the Available Amount exceeds the scheduled principal
payment amount and/or interest payment amount (including, without limitation,
accrued Interest Deficiency Amounts) due and owing on such date, such excess
Available Amount shall be used to prepay this Note, in whole, if sufficient, or
otherwise in part, without premium or penalty.
(b) In addition, in the event that (i) Maker, Questron Technology or
QOC consummates (i) a registered public offering of equity securities after the
date hereof (an "Offering"), and (ii) Maker, Questron Technology or QOC
consummates a public or Rule 144A or Regulation D (or their respective
successors) private offering of debt securities after the date hereof for the
purpose of acquiring assets or refinancing indebtedness and "excess proceeds"
are realized therefrom (a "Debt Offering"), Maker shall apply, and Questron
Technology shall cause to be applied, the net proceeds from such Offering or
"excess proceeds" from such Debt Offering, as the case may be, to prepay, in
whole, if sufficient , or otherwise in part, outstanding principal and accrued
and unpaid interest under this Note, without penalty or premium. As used herein
"excess proceeds", means the net proceeds to the applicable company after the
application of proceeds in connection with any acquisition(s) or refinancing,
and the
828410.11
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payment of related transaction costs. Any partial prepayments of principal shall
be applied to installments of principal in the order of their maturity.
7. Prepayment. Maker may, without premium or penalty, at any time and
from time to time, prepay all or any portion of the outstanding principal
balance due under this Note, provided that each such prepayment is accompanied
by accrued interest on the amount of principal prepaid calculated to the date of
such prepayment. Any partial prepayments shall be applied to installments of
principal in the order of their maturity. Any mandatory or voluntary prepayment
on this Note shall be applied first to accrued and unpaid interest on this Note
then to the principal.
8. No Guarantees. Neither Questron Technology, nor any affiliate or
subsidiary thereof, or any other person or entity has guaranteed the performance
by Maker or Questron Technology, as the case may be, of their respective
obligations under this Note or the transactions contemplated hereby.
9. Events of Default. (a) Upon the occurrence of any of the following
events of default ("Events of Default"): (i) a Change of Control (as defined
below) shall have occurred; (ii) a case or proceeding under the bankruptcy laws
of the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Maker or all or any substantial
part of its properties and such petition or application is not dismissed within
ninety (90) days after the date of its filing or Maker shall file any answer
admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner; (iii) a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at law or equity) is filed by Maker or for all or any part of
its property; or (iv) Maker shall fail to pay (whether in cash or pursuant to a
Conversion) as and when due (whether at stated maturity, by mandatory
prepayment, acceleration or otherwise) any principal on this Note when due and
payable, or shall fail to pay interest on this Note within ten (10) Business
Days after the same becomes due and payable or fails to make payment or
otherwise perform on a timely basis any other obligation or covenant called by
this Note for 30 days following the receipt by Maker of written notice thereof
from Payee (unless Maker shall be diligently pursuing a remedy of such breach in
which event the 30 day period referred to in this clause shall extend to 90
days); then, and in each and every such case, the holder hereof may by notice in
writing to Maker declare all amounts owing hereunder to be due and payable, and
they shall forthwith become due and payable without further action; provided,
however, that Payee by written notice to Maker may waive any default or rescind
and annul any such acceleration, but no such waiver or rescission and annulment
shall extend to or affect any subsequent default or impair any right consequent
thereon or any term, provision or covenant herein.
(b) For purposes of this Note, "Change of Control" shall mean the
occurrence of any of the following events: (i) any "person" as such term is used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the applicable entity specified below or any
subsidiary or affiliate thereof or any stockholder (and such stockholder's
affiliates) as of the date hereof and direct transferees thereof, becomes, after
the date hereof, the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of the securities of Maker, QOC, or
Questron Distribution
828410.11
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Logistics, Inc., representing 50.1% or more of the total voting power
represented by such entity's then outstanding securities that vote generally in
the election of directors ("Voting Securities"), (ii) the merger or
consolidation of any such entity with any other corporation (other than an
affiliate or subsidiary), other than a merger or consolidation in which the
Voting Securities of any such entity outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least a majority of the total
voting power of the surviving entity, or (iii) the sale (in one transaction) of
all or substantially all of the assets of any such entity, other than to a
subsidiary or affiliate of any such entity.
10. Jurisdiction and Related Matters. (a) Maker and Payee irrevocably
consent and submit to the non-exclusive jurisdiction of the State of Delaware
and the United States District Court located in the city of Wilmington, Delaware
and waive any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Note or in any way connected
with or related or incidental to this Note whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agrees that any
dispute with respect to any such matters shall be heard only in the courts
described above.
(b) Maker hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth below and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Payee's option, by service upon
Maker in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Maker shall appear in answer to such
process, failing which Maker shall be deemed in default and judgment may be
entered by Payee against Maker for the amount of the claim and other relief
requested.
(c) The validity, interpretation and enforcement of this Note, shall be
governed by the internal laws of the State of Delaware (without giving effect to
principles of conflicts of law).
(d) MAKER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS NOTE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. MAKER
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PAYEE MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE
OF ITS CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
11. Notice. All notices, requests and demands hereunder shall be in
writing and (i) made to a party at the following addresses:
To Borrower:
Questron Finance Corp.
c/o Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
828410.11
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Boca Raton, Florida 33487
Attention: Dominic A. Polimeni
Tel: (561) 241-2866
Fax: (561) 241-5251
with a copy to:
Battle Fowler LLP
Park Avenue Tower 75 East 55th Street
New York, New York 10022
Attention: Luke P. Iovine, III, Esq.
Telephone: (212) 856-7000
Facsimile: (212) 856-7816
To Payee:
[insert name]
[insert address]
Telephone:
Facsimile:
with a copy to:
[to be provided]
Telephone:
Facsimile:
Attention:
or to such other address as either party may designate by written notice to the
other in accordance with this provision, and (i) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
12. Amendments. No provision of the Note may be waived, modified,
amended or discharged orally or otherwise, except by a writing duly executed by
Maker and the holder hereof.
13. Section Headings, Construction. (a) The headings of Sections and
Subsections in this Note are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Note unless otherwise
specified.
(b) All words used in this Note will be construed to be of such gender
or number as
828410.11
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<PAGE>
the circumstances require. Unless otherwise expressly provided, the words
"hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
QUESTRON FINANCE CORP.
By: _________________________
Name:
Title:
AGREED TO AND ACCEPTED (solely with
respect to Sections 4(b)(B) and (C),
5(c) and 6(b) hereof and as of the
date first-above written):
QUESTRON TECHNOLOGY, INC.
By: ________________________
Name:
Title:
828410.11
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<PAGE>
Exhibit 2.5(d)
<PAGE>
REVISED DRAFT
FORM OF SENIOR B NOTE
SENIOR B NOTE
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS, AND NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED, UNLESS SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS
AVAILABLE.
QUESTRON FINANCE CORP.
$______________ New York, New York
_____ __, 2000
FOR VALUE RECEIVED, the undersigned, QUESTRON FINANCE CORP., a Delaware
corporation ("Maker"), hereby promises to pay to the order of
___________________ ("Payee"), an individual residing at __________, __________,
at such address or at such other location as Payee shall have specified (by not
less than three (3) days' prior written notice to Maker), the principal amount
of $___________, in accordance with the terms set forth below, in lawful money
of the United States of America, together with interest on the unpaid principal
balance from time to time outstanding, at such address and in such currency, in
the manner provided below.
1. Interest. Subject to Section 4 below, Maker promises to pay interest
(calculated on the basis of a 365-day year) on the unpaid principal balance from
time to time outstanding, together with any Interest Deficiency Amount (as
defined in Section 4 below) from time to time outstanding hereunder, to the
extent permitted by law, at the annual rate of 8.5% per annum, payable on a
semi-annual basis (each, an "Interest Payment Period") in arrears on each April
10 and October 10, commencing April 10, 2001 (each, an "Interest Payment Date").
2. Principal Amount. Subject to Section 4 below, the outstanding
principal amount of this Note (the "Principal Amount") shall be due and payable
on __________, 2002 (the "Principal Payment Date");
3. Payments. Any and all payments of principal and interest in
connection with this Note shall be made by certified check to Payee's address
listed in Section 11 (Notice) below or at such other place as Payee or such
other registered holder shall designate to Maker in writing or by wire transfer
of immediately available funds to an account designated by Payee in writing. If
the payment of principal
830267.10
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<PAGE>
and interest on this Note is due on a day which is not a Business Day, such
payment shall be due on the next succeeding Business Day, and such extension of
time shall be taken into account in calculating the amount of interest payable
under this Note. "Business Day" means any day other than a Saturday, Sunday or
legal holiday in the United States of America.
4. Limitations on Certain Payments; Conversion. (a) To the extent that
accrued and unpaid interest payable on any Interest Payment Date exceeds the
Available Amount (as defined below) as of such date (such difference being
referred to herein as the "Interest Deficiency Amount"), Maker shall defer
payment of that Interest Deficiency Amount to the earlier of (i) the Principal
Payment Date or (ii) the next succeeding Interest Payment Date, at which there
exists Available Amount sufficient in amount to make such interest payment, or
any portion thereof.
(b) To the extent that the face amount of the scheduled principal
payment, at the Principal Payment Date, exceeds the difference between (i) the
Available Amount (as defined below) less (ii) the interest paid, or to be paid,
to Payee at any corresponding Interest Payment Date (together with the aggregate
amount of any Interest Deficiency Amounts in respect of any prior Interest
Payment Periods, "Accrued Interest"), then:
(A) on the Principal Payment Date, Maker shall pay Payee, in the manner
provided herein, that portion of the required principal payment which
is equal to the difference between the Available Amount less the
Accrued Interest (the "Mandatory Principal Payment"); and
(B) on the Principal Payment Date, that portion of the outstanding
principal amount of this Note equal to the difference between the then
scheduled principal payment and the Mandatory Principal Payment (such
difference being referred to herein as a "Conversion Amount"), together
with any accrued Interest Deficiency Amounts that remain unpaid
pursuant to Section 4(a) above, shall be deemed converted on the
Principal Payment Date (the "Conversion"), in the manner provided in
Section 5 below, into such number of fully paid and non-assessable
shares of common stock, par value $0.001 per share (the "Common
Stock"), of Questron Technology, Inc., a Delaware corporation and the
parent corporation of Maker ("Questron Technology"), as shall be
obtained by dividing the Conversion Amount, plus the amount of any such
accrued and unpaid Interest Deficiency Amounts, by the Conversion Price
(as defined below) (the "Conversion Shares"). The "Conversion Price"
shall mean the average closing market price per share of Common Stock
for the twenty (20) trading days ending on the seventh (7th) trading
day preceding the Principal Payment Date, as reported by the Wall
Street Journal.
(c) For purposes of this Note, "Available Amount" shall mean, subject
to the next succeeding sentence, the dollar amount which is equal to fifty
percent (50%) of the reported consolidated net income of Questron Technology and
its subsidiaries (after adjustment to exclude the operating results of Maker)
for the twelve month period ended on the date of the most recent financial
statements of Questron Technology, as reflected in the most recently filed
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
of Questron Technology preceding the applicable payment date, provided, however,
that the Available Amount shall be deemed to be zero in the event that Questron
Operating Company, Inc., a Delaware corporation and a wholly-owned subsidiary of
Maker ("QOC"), is prohibited, pursuant to the terms and conditions of its
instruments for borrowed money, from
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<PAGE>
distributing or dividending funds to Maker on the applicable payment date. By
acceptance of this Note, Payee acknowledges that this Note is one of a series of
Senior B Notes of Maker and that Maker is concurrently issuing to certain
holders a series of Senior A Notes, and agrees that scheduled, required payments
of any Available Amounts to holders of Senior B Notes and/or Senior A Notes, as
the case may be, and any payments required pursuant to Section 6 below, shall be
made pro rata to all such holders to the extent any such payments are
concurrently scheduled or required to be made, based on the original principal
amounts of each respective Senior B Note and/or Senior A Note, as the case may
be, and that as used herein, the term Available Amount refers only to the pro
rata portion thereof relating to this Note.
5. Conversion Procedures; Registration. (a) If a Conversion is to occur
on the Principal Payment Date, Maker shall cause a notice of conversion (each a
"Conversion Notice") to be delivered to Payee at Payee's address appearing in
Section 11 (Notice) below or to such other registered holder at such other place
as such other registered holder shall designate to Maker in writing specifying
the Principal Amount, Conversion Price and number of Conversion Shares, no later
than five (5) days prior to the Principal Payment Date upon which any such
conversion shall occur. Promptly upon receipt of a Conversion Notice, Payee or
such other registered holder shall (x) surrender this Note for cancellation, and
(y) deliver to Maker a written statement specifying the name or names (with
address) in which the Conversion Shares which shall be issuable on such
Conversion shall be issued (provided, however, that Conversion Shares will be
issued in the name of Payee unless otherwise specified as provided herein). The
failure by Payee to so surrender the Note, or the failure by Payee or such other
registered holder to present the Note to Maker, shall not, in either case,
effect the validity of the Conversion and following delivery of such Conversion
Notice the Conversion shall, in all cases, be deemed to have occurred and be
effective on the Principal Payment Date and this Note shall be deemed to
evidence the obligation to issue the Conversion Shares.
(b) When surrendered for Conversion, this Note shall, unless the shares
of Common Stock issuable on Conversion are to be issued in the same name as the
name in which this Note is then registered, be duly endorsed by, or accompanied
by instruments of transfer in form satisfactory to Maker duly executed by Payee
or such other registered holder, or their respective duly authorized attorney.
As promptly as practicable following the Principal Payment Date, Maker shall
deliver, or cause to be delivered, to Payee or to such other registered holder,
or on such party's written order, a certificate or certificates for the number
of full shares issuable upon the conversion of this Note, or a portion hereof,
in accordance with the provisions hereof and, if applicable, a check in lieu of
any fractional shares. Upon Conversion of all or any portion of this Note, the
registered holder may be required to execute and deliver to the issuer an
instrument, in form satisfactory to the issuer, representing that the shares
issuable upon conversion hereof are being acquired for investment and not with a
view to distribution within the meaning of the Act, together with such other
certifications and agreements as Maker shall reasonably request.
(c) Questron Technology covenants and agrees to file a registration
statement covering the resale of any Conversion Shares (the "Shelf
Registration") and to use its best efforts to cause such registration statement
to become effective prior to the issuance of the Conversion Shares. Questron
shall use its best efforts to maintain the effectiveness of the Shelf
Registration until such time as the Seller has sold all of its Conversion Share
or such shares are eligible for resale pursuant Rule 144 of the Act, without
limitation. Prior to such time as the applicable Conversion Shares are so
registered, such shares shall be restricted securities under the Act, will not
have been registered under the Act and may not be sold or transferred absent
such registration or unless an exception from registration is available and the
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certificates evidencing such shares shall bear an appropriate legend restricting
transfers under the Act. In connection with such registration, Payee or such
other permitted holder of such shares, shall provide to Questron Technology such
information, and execute and deliver such certificates and other agreements, as
it may reasonably request.
6. Mandatory Repayment. (a) To the extent that on any Interest Payment
Date or on the Principal Payment Date, the Available Amount exceeds the
scheduled principal payment amount and/or interest payment amount (including,
without limitation, accrued Interest Deficiency Amounts) due and owing on such
date, such excess Available Amount shall be used to prepay this Note, in whole,
if sufficient, or otherwise in part, without premium or penalty.
(b) In addition, in the event that (i) Maker, Questron Technology or
QOC consummates (i) a registered public offering of equity securities after the
date hereof (an "Offering"), and (ii) Maker, Questron Technology or QOC
consummates a public or Rule 144A or Regulation D (or their respective
successors) private offering of debt securities after the date hereof for the
purpose of acquiring assets or refinancing indebtedness and "excess proceeds"
are realized therefrom (a "Debt Offering"), Maker shall apply, and Questron
Technology shall cause to be applied, the net proceeds from such Offering or
"excess proceeds" from such Debt Offering, as the case may be, to prepay, in
whole, if sufficient , or otherwise in part, outstanding principal and accrued
and unpaid interest under this Note, without penalty or premium. As used herein
"excess proceeds", means the net proceeds to the applicable company after the
application of proceeds in connection with any acquisition(s) or refinancing,
and the payment of related transaction costs. Any partial prepayments of
principal shall be applied to installments of principal in the order of their
maturity.
7. Prepayment. Maker may, without premium or penalty, at any time and
from time to time, prepay all or any portion of the outstanding principal
balance due under this Note, provided that each such prepayment is accompanied
by accrued interest on the amount of principal prepaid calculated to the date of
such prepayment. Any voluntary prepayment on this Note shall be applied first to
accrued and unpaid interest on this Note then to the principal.
8. No Guarantees. Neither Questron Technology, nor any affiliate or
subsidiary thereof, or any other person or entity has guaranteed the performance
by Maker or Questron Technology, as the case may be, of their respective
obligations under this Note or the transactions contemplated hereby.
9. Events of Default. (a) Upon the occurrence of any of the following
events of default ("Events of Default"): (i) a Change of Control (as defined
below) shall have occurred; (ii) a case or proceeding under the bankruptcy laws
of the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Maker or all or any substantial
part of its properties and such petition or application is not dismissed within
ninety (90) days after the date of its filing or Maker shall file any answer
admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner; (iii) a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at law or equity) is filed by Maker or for all or any part of
its property; or (iv) Maker shall fail to pay (whether in cash or pursuant to a
Conversion) as and when due (whether at stated maturity, by
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<PAGE>
mandatory prepayment, acceleration or otherwise) any principal on this Note when
due or interest on this Note within ten (10) Business Days after the same
becomes due and payable or fails to make payment or otherwise perform on a
timely basis any other obligation or covenant called by this Note for thirty
(30) days following the receipt by Maker of written notice thereof from Payee
(unless Maker shall be diligently pursuing a remedy of such breach in which
event the thirty (30) day period referred to in this clause shall extend to
ninety (90) days); then, and in each and every such case, the holder hereof may
by notice in writing to Maker declare all amounts owing hereunder due and
payable, and they shall forthwith become due and payable without further action;
provided, however, that Payee by written notice to Maker may waive any default
or rescind and annul any such acceleration, but no such waiver or rescission and
annulment shall extend to or affect any subsequent default or impair any right
consequent thereon or any term, provision or covenant herein.
(b) For purposes of this Note, "Change of Control" shall mean the
occurrence of any of the following events: (i) any "person" as such term is used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the applicable entity specified below or any
subsidiary or affiliate thereof or any stockholder (and such stockholder's
affiliates) as of the date hereof and direct transferees thereof, becomes, after
the date hereof, the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of the securities of Maker, QOC or
Questron Distribution Logistics, Inc., representing 50.1% or more of the total
voting power represented by such entity's then outstanding securities that vote
generally in the election of directors ("Voting Securities"), (ii) the merger or
consolidation of any such entity with any other corporation (other than an
affiliate or subsidiary), other than a merger or consolidation in which the
Voting Securities of any such entity outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least a majority of the total
voting power of the surviving entity, or (iii) the sale (in one transaction) of
all or substantially all of the assets of any such entity, other than to a
subsidiary or affiliate of any such entity.
10. Jurisdiction and Related Matters. (a) Maker and Payee irrevocably
consent and submit to the non-exclusive jurisdiction of the State of Delaware
and the United States District Court located in the city of Wilmington, Delaware
and waive any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Note or in any way connected
with or related or incidental to this Note whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agrees that any
dispute with respect to any such matters shall be heard only in the courts
described above.
(b) Maker hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth below and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Payee's option, by service upon
Maker in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Maker shall appear in answer to such
process, failing which Maker shall be deemed in default and judgment may be
entered by Payee against Maker for the amount of the claim and other relief
requested.
(c) The validity, interpretation and enforcement of this Note, shall be
governed by the internal laws of the State of Delaware (without giving effect to
principles of conflicts of law).
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(d) MAKER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS NOTE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. MAKER
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PAYEE MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE
OF ITS CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
11. Notice. All notices, requests and demands hereunder shall be in
writing and (i) made to a party at the following addresses:
To Borrower:
Questron Finance Corp.
c/o Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, Florida 33487
Attention: Dominic A. Polimeni
Tel: (561) 241-2866
Fax: (561) 241-5251
with a copy to:
Battle Fowler LLP
Park Avenue Tower 75 East 55th Street
New York, New York 10022
Attention: Luke P. Iovine, III, Esq.
Telephone: (212) 856-7000
Facsimile: (212) 856-7816
To Payee:
[insert name]
[insert address]
Telephone:
Facsimile:
with a copy to:
[to be provided]
Telephone:
Facsimile:
Attention:
830267.10
<PAGE>
or to such other address as either party may designate by written notice to the
other in accordance with this provision, and (i) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
12. Amendments. No provision of the Note may be waived, modified,
amended or discharged orally or otherwise, except by a writing duly executed by
Maker and the holder hereof.
13. Section Headings, Construction. (a) The headings of Sections and
Subsections in this Note are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Note unless otherwise
specified.
(b) All words used in this Note will be construed to be of such gender
or number as the circumstances require. Unless otherwise expressly provided, the
words "hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
QUESTRON FINANCE CORP.
By: _________________________
Name:
Title:
AGREED TO AND ACCEPTED (solely with
respect to Sections 4(b)(B), 5(c)
and 6(b) hereof and as of the date
first-above written):
QUESTRON TECHNOLOGY, INC.
By: __________________________
Name:
Title:
830267.10
Exhibit 2.3
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
By and Between
QUESTRON DISTRIBUTION LOGISTICS, INC.,
and
QUESTRON TECHNOLOGY, INC.
and
JAMES R. GILCHRIST
and
CAPITAL FASTENERS, INC.
Dated as of April 26, 1999
- --------------------------------------------------------------------------------
790690.11
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
SALE AND PURCHASE OF SHARES................................................1
1.1 Sale of Shares.................................................1
1.2 Purchase Consideration and Payment for Shares..................1
1.3 Transactions on the Closing Date...............................2
1.4 Restricted Securities; Registered Securities...................3
ARTICLE 2
CLOSING AND TERMINATION....................................................4
2.1 Closing........................................................4
2.2 Termination............................ .......................4
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY...................4
3.1 Authority; Due Execution.......................................4
3.2 Organization...................................................5
3.3 Certificate of Incorporation; By-laws..........................5
3.4 Subsidiaries and Equity Investments............................5
3.5 Ownership of Shares............................................5
3.6 Capitalization.................................................5
3.7 No Violation...................................................6
3.8 Personal Property..............................................6
3.9 Litigation.....................................................7
3.10 Real Property..................................................7
3.11 Non-Real Estate Leases.........................................8
3.12 Financial Statements...........................................8
3.13 Books and Records..............................................8
3.14 Tax Matters....................................................9
3.15 Employee Matters..............................................11
3.16 Intellectual Property.........................................14
3.17 Accounts Receivable...........................................14
3.18 Inventory.....................................................15
3.19 No Material Change............................................15
3.20 Absence of Change or Event....................................15
3.21 Compliance With Law...........................................17
3.22 Contracts and Commitments.....................................17
3.23 Insurance.....................................................18
3.24 Affiliate Interests...........................................19
3.25 Customers, Suppliers, Distributors, Etc.......................19
3.26 Previous Sales; Warranties; Product Liability.................20
3.27 Additional Information........................................20
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Page
3.28 Claims Under Stock Redemption Agreement.......................21
3.29 Environmental Matters.........................................21
3.30 Absence of Questionable Payments..............................21
3.31 Investment Intent.............................................22
3.32 Disclosure....................................................22
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON........................23
4.1 Organization..................................................23
4.2 Corporate Authority; Due Execution............................23
4.3 No Violation..................................................23
4.4 Investment Intent.............................................24
4.5 SEC Documents.................................................24
4.6 Questron Common Stock.........................................24
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND QUESTRON...................25
5.1 Conduct of Business Prior to the Closing Date.................25
5.2 Tax Covenants.................................................26
5.3 Expenses and Finder's Fees....................................27
5.4 Access to Information and Confidentiality/1998 Audit..........28
5.5 No Solicitation...............................................28
5.6 Press Releases................................................29
5.7 Transitional Assistance.......................................29
5.8 Conditions....................................................29
5.9 Rule 144......................................................29
5.10 SEC Filings...................................................29
5.11 Purchase of Vehicles..........................................29
5.12 Employee Benefits.............................................29
5.13 Personal Items................................................29
5.14 Balance Sheets................................................29
5.15 HSR Act and Other Filings.....................................30
ARTICLE 6
CONDITIONS PRECEDENT OF QDL AND QUESTRON..................................30
6.1 Representations and Warranties................................30
6.2 Due Diligence.................................................31
6.3 Opinion of Counsel............................................31
6.4 No Actions....................................................31
6.5 Consents......................................................31
6.6 Employment Agreement..........................................31
6.7 Outstanding Seller Loans......................................31
6.8 Financing.....................................................31
6.9 Material Adverse Change.......................................31
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Page
6.10 Releases......................................................31
ARTICLE 7
CONDITIONS PRECEDENT OF THE COMPANY AND SELLER............................32
7.1 Representations and Warranties................................32
7.2 No Actions....................................................32
7.3 Consents......................................................32
7.4 Employment Agreements.........................................32
7.5 Opinion of Counsel............................................32
7.6 No Material Adverse Change....................................32
7.7 Board Approval................................................33
7.8 Payoff of Indebtedness........................................33
7.9 Lease Agreements..............................................33
ARTICLE 8
INDEMNIFICATION...........................................................33
8.1 Indemnification by Seller.....................................33
8.2 Indemnification by Questron...................................34
8.3 Limitation on Liability.......................................35
8.4 Right to Indemnification not Affected by Knowledge............35
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.....................35
9.1 Representations, Warranties and Covenants.....................35
ARTICLE 10
NON-COMPETITION BY SELLER AND NO SOLICITATION.............................36
10.1 Non-Compete....................................................36
10.2 Remedies.......................................................36
ARTICLE 11
MISCELLANEOUS.............................................................36
11.1 Cooperation....................................................36
11.2 Waiver.........................................................36
11.3 Notices........................................................36
11.4 Governing Law and Consent to Jurisdiction; Dispute Resolution..37
11.5 Counterparts...................................................38
11.6 Headings; Schedules............................................38
11.7 Entire Agreement...............................................38
11.8 Amendment and Modification.....................................38
11.9 Binding Effect; Benefits.......................................38
11.10 Assignability..................................................38
790690.11
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<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of April 26, 1999
(herein, together with the Schedules and Exhibits attached hereto, referred to
as the "Agreement"), by and between Questron Technology, Inc., a Delaware
corporation ("Questron"), Questron Distribution Logistics, Inc., a Delaware
corporation and a wholly-owned subsidiary of Questron ("QDL"), James R.
Gilchrist ("Seller") and Capital Fasteners, Inc., a North Carolina corporation
(the "Company").
W I T N E S S E T H :
WHEREAS, Seller is the beneficial and record holder of all
of the issued and outstanding shares of capital stock of the Company (the
"Shares"); and
WHEREAS, Seller wishes to sell and QDL wishes to acquire
the Shares upon the terms and subject to the conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
and premises set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby mutually acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1 Sale of Shares. At the Closing provided for in Section 2.1,
Seller shall sell to QDL the Shares beneficially owned by Seller as set forth on
Schedule 1.1, and QDL shall purchase such Shares for the aggregate purchase
consideration specified in Section 1.2.
1.2 Purchase Consideration and Payment for Shares. In consideration
of the sale, conveyance, transfer, assignment and delivery of the Shares by
Seller to QDL on the Closing Date, and in reliance on the representations,
warranties, covenants and agreements made herein by Seller and the Company, QDL
and Questron shall pay to Seller a total purchase price of up to $12,150,000,
subject to adjustment as set forth in this Agreement, which will consist of the
Initial Purchase Price and the Deferred Purchase Price, in each case, as defined
below.
(a) Initial Purchase Price. The "Initial Purchase Price"
will equal $10,650,000, subject to adjustment as set forth below, payable as
follows: (i) a wire transfer (or certified check) in an amount equal to
$8,000,000 (x) less the Stated Net Debt (as defined below) of the Company, (y)
plus or minus, the increase or decrease, as the case may be, in Net Operating
Assets (as defined below) of the Company from that derived from the December 31,
1998 Audited Balance Sheet (as defined in Section 5.14) to that derived from the
March 31, 1999 Balance Sheet (as defined in Section 5.14), (z) plus interest on
the sum of (A) the amount calculated in accordance with the foregoing and (B)
$2,000,000, which interest shall be in the amount equal to 8% per annum
calculated from the Effective Date through the Closing Date (said amount being
hereinafter referred to as the "Initial Cash Consideration"); (ii) delivery of
shares of Questron's common stock, par value $0.001 per share (the "Questron
Common Stock"), having a value equal to $650,000 (the "Initial Stock
Consideration"), calculated on the basis of
790690.11
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the average closing market price reported in the Wall Street Journal for
Questron Common Stock for the five (5) trading days ending on the third trading
day immediately prior to the Closing Date (as defined in Section 2.1); and (iii)
delivery of a promissory note in the principal amount equal to $2,000,000, made
by Questron Finance Corp., a wholly-owned subsidiary of Questron, in favor of
Seller, substantially in the form attached hereto as Exhibit A, as may be
modified to reflect such changes to the definition of "Available Amount"
contained therein as may be requested by any lender providing financing to
Questron as contemplated by Section 6.8 (the "Closing Promissory Note"). As used
herein, (a) "Net Operating Assets" means, at the applicable measurement date,
the total assets of the Company (exclusive of cash and cash equivalents), net of
total liabilities of the Company (exclusive of the aggregate amount of the
indebtedness and tax liability described in Schedule 1.2, at the applicable
measurement date), and (b) "Stated Net Debt" means the aggregate amount, as of
March 31, 1999, of those liabilities of the Company specifically identified and
described on Schedule 1.2 (net of cash and cash equivalents at March 31, 1999).
(b) Deferred Purchase Price. The "Deferred Purchase Price"
will be an amount, subject to the limitations set forth below, equal to six (6)
times the difference between EBITDA (as defined below) for the Company for the
twelve-month period ending March 31, 2000 and $1,600,000, provided that the
maximum amount payable to Seller pursuant to this Section 1.2(b) (as adjusted in
accordance with Section 1.2(c) below) shall in no event exceed $1,500,000 in the
aggregate. The Deferred Purchase Price shall be paid by June 30, 2000 (the
"Second Closing Date") payable as follows: (i) delivery of a promissory note in
the principal amount equal to one-third (1/3) of the Deferred Purchase Price,
made by Questron Finance Corp., in favor of Seller, substantially in the form
attached hereto as Exhibit B (the "Post-Closing Promissory Note"); (ii) delivery
of shares of Questron Common Stock having a value equal to one-third (1/3) of
the Deferred Purchase Price (the "Deferred Stock Consideration"), calculated on
the basis of the average closing market price reported in the Wall Street
Journal for Questron Common Stock for the five (5) trading days ending on the
third trading day immediately prior to the Second Closing Date; and (iii) at the
option of Questron, either (a) a wire transfer (or certified check) in an amount
equal to one-third (1/3) of the Deferred Purchase Price (the "Optional Deferred
Cash Consideration") or (b) delivery of shares of Questron Common Stock having a
value equal to one-third (1/3) of the Deferred Purchase Price (the "Optional
Deferred Stock Consideration"), calculated on the basis of the average closing
market price reported in the Wall Street Journal for Questron Common Stock for
the five (5) trading days ending on the third trading day immediately prior to
the Second Closing Date.
(c) Definition of EBITDA. For purposes of this Section 1.2,
"EBITDA" shall mean the aggregate earnings of the Company before interest,
income taxes, depreciation, amortization of goodwill, and the allocation of
corporate expenses associated with the Company and without regard to
extraordinary or non-recurring items that are paid or incurred after Closing,
including any extraordinary bonus or severance payments made to employees.
EBITDA shall be calculated in accordance with generally accepted accounting
principles, consistently applied ("GAAP"). EBITDA shall be determined by
Questron and reviewed by Seller's and Questron's respective independent public
accountants.
1.3 Transactions on the Closing Date.
(a) At the Closing, Seller will deliver, or cause to be
delivered, to Questron the following:
(i) stock certificate(s) representing the Shares
in form suitable for transfer, registered in the name of
Seller, evidencing the number of Shares set forth opposite
Seller's name
790690.11
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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 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, effective as of the Closing;
(iv) duly executed signature cards for all bank
accounts of the Company which are necessary to establish
Questron's designees, and only Questron's designees, as the
authorized signatories for such accounts;
(v) each of the certificates and documents
contemplated by Article 6; and
(vi) such other certificates, documents,
instruments and agreements as Questron shall deem necessary in
its reasonable discretion in order to effectuate the
transactions contemplated herein, in form and substance
reasonably satisfactory to Questron.
(b) At the Closing, Questron will deliver to Seller the
following:
(i) the Initial Cash Consideration;
(ii) the Initial Stock Consideration;
(iii) the Closing Promissory Note;
(iv) each of the certificates and documents
contemplated by Article 7; and
(v) such other certificates, documents,
instruments and agreements as Seller shall deem necessary in
its reasonable discretion in order to effectuate the
transactions contemplated herein, in form and substance
reasonably satisfactory to Seller.
1.4 Restricted Securities; Registered Securities. The shares
representing the Initial Stock Consideration and the Deferred Stock
Consideration shall be restricted securities under the Securities Act of 1933,
as amended (the "Act"), will not have been registered under the Act and may not
be sold or transferred 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 the Act. In the event that the
shares representing the Optional Deferred Stock Consideration are not registered
pursuant to an effective registration statement filed under the Act at the time
of the payment of the Deferred Purchase Price, Questron undertakes to file a
registration statement covering the resale of such shares (the "Shelf
Registration") and to use its best efforts to cause such registration statement
to become effective within ninety (90) days of the Second Closing Date. Questron
shall maintain the effectiveness of the Shelf Registration until such time as
the Seller has sold all of its shares representing the Optional Deferred Stock
Consideration or the shares representing the Optional Deferred Stock
Consideration are eligible for sale under Rule 144 of the Securities Act without
limitation. In connection with any such registration, the holder of such shares
shall provide Questron such information, and shall execute and deliver such
certificates and other agreements, as Questron shall reasonably request.
790690.11
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<PAGE>
ARTICLE 2
CLOSING AND TERMINATION
2.1 Closing. The closing of the transactions provided for in Section
1.3 above (the "Closing") will take place at the offices of Battle Fowler LLP,
Park Avenue Tower, 75 East 55th Street, New York, N.Y. 10022, at 10:00 A.M.
(local time) on or about June 2, 1999 (the "Closing Date"), or at such other
place, time and date as may be agreed upon by Questron and Seller. The effective
date of the Closing shall be April 1, 1999 (the "Effective Date").
2.2 Termination. Anything contained in this Agreement other than in
this Section 2.2 to the contrary notwithstanding, this Agreement may be
terminated in writing at any time on or prior to the Closing:
(a) without liability on the part of any party hereto, by
mutual written consent of Questron and Seller;
(b) without liability on the part of any party hereto
(unless occasioned by reason of a breach by any party hereto of any
of its representations, warranties or obligations hereunder) by
either Questron or Seller, if the Closing shall not have occurred on
or before June 30, 1999 (or such later date as may be agreed upon in
writing by the parties hereto);
(c) by Questron, if Seller shall breach in any material
respect any of its representations, warranties or obligations
hereunder and such breach shall not have been cured or waived or
Seller shall not have provided reasonable assurance that such breach
can and will be cured on or before the Closing Date; or
(d) by Seller, if Questron shall breach in any material
respect any of its representations, warranties or obligations
hereunder and such breach shall not have been cured or waived or
Questron shall not have provided reasonable assurance that such
breach can and will be cured on or before the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
Seller and the Company jointly and severally represent and warrant to
Questron and QDL that:
3.1 Authority; Due Execution. The Company has full corporate power
and authority to enter into this Agreement and all other agreements, documents,
certificates and instruments contemplated by this Agreement to which it is a
party and to consummate the transactions contemplated hereby and thereby. Seller
has the power to enter into this Agreement and all other agreements contemplated
by this Agreement to which Seller is a party and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and the Employment
Agreement (as hereinafter defined) and all other agreements contemplated by this
Agreement to which the Company and Seller are a party will be as of the Closing
Date, duly executed and delivered by the Company and Seller, and (assuming due
execution and delivery by QDL and Questron) this Agreement and the Employment
Agreement and all other agreements contemplated by this Agreement to which the
Company and Seller are a party will constitute valid and
790690.11
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<PAGE>
binding obligations of the Company and Seller, enforceable in accordance with
their respective 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 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina 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. Seller has heretofore
delivered to Questron complete and correct copies of the articles of
incorporation and by-laws of the Company as currently in effect.
3.4 Subsidiaries and Equity Investments. The Company has no
subsidiaries and does not own, directly or indirectly, any investments, capital
stock or other equity or ownership interests in any other corporations or
business enterprises and is not a partner in any partnership or a co-venturer in
any joint venture or other business enterprise. The term "subsidiary" means any
corporation or other entity of which the Company, directly or indirectly, owns
or controls capital stock or ownership interests representing either (i) more
than fifty percent (50%) of the general voting power under ordinary
circumstances of such corporation or entity, or (ii) if an entity other than a
corporation, more than fifty percent (50%) of the economic interest therein.
3.5 Ownership of Shares. Seller is the lawful record and beneficial
owner of that number of Shares set forth opposite Seller's name on Schedule 1.1
which Shares represent all of the issued and outstanding shares of the Company's
capital stock. Seller owns the Shares set forth opposite Seller's name on
Schedule 1.1 free and clear of all pledges, liens, encumbrances, easements,
security interests, claims, options and restrictions of every kind
("Encumbrances"), except for those Encumbrances identified on Schedule 3.5
(which shall be satisfied and released on or prior to the Closing), and for
restrictions on transfer generally applicable under federal and state securities
laws. Upon the delivery of the Shares in the manner contemplated under Section
1.3, at Closing, Seller 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.
3.6 Capitalization. The authorized capital of the Company consists of
100,000 shares of common stock, no par value (the "Common Stock"), of which 100
shares are issued and outstanding. Except as set forth on Schedule 3.6(a), 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 of Common Stock have been duly authorized and are
validly issued, fully paid and nonassessable. No shares of Common Stock
(including, without limitation, the Shares), and no options, warrants or other
rights, agreements, commitments or arrangements of any kind to acquire shares of
Common Stock, were issued in violation of (x) any preemptive or other rights, or
(y) any provision of any contract, agreement or arrangement of any kind. Except
as set forth on Schedule 3.6(b), 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
790690.11
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<PAGE>
security of any kind convertible into or exchangeable for any such capital
stock. Except as set forth on Schedule 3.6(c), there are no voting trusts,
shareholder agreements, proxies or other agreements relating to the voting,
purchase or sale of capital stock of the Company (i) between or among the
Company and any of its shareholders, and (ii) between or among any of the
Company's shareholders. There is no outstanding bond, debenture, note or other
indebtedness of the Company having the right to vote (or convertible into or
exchangeable for securities having the right to vote) on any matter on which
shareholders of the Company or any subsidiary may vote.
3.7 No Violation. Neither Seller 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, Permit (as defined below), trust, custodianship or other
restriction, or
(d) any consent, judgment, order, writ, award, injunction
or decree of any court, governmental or regulatory body,
administrative agency or arbitrator,
that would conflict with, prevent or be violated by or that would result in the
creation of any Encumbrance as a result of, or under which there would be a
default or right of termination, amendment, acceleration, revocation,
cancellation or suspension as a result of, the execution, delivery and
performance by Seller of the Agreements to which such Seller is a party and the
consummation of the transactions contemplated thereby. Except as set forth on
Schedule 3.7, no consent, order, license, permit, approval or authorization of
or declaration, notice or filing (collectively, "Permits") with any individual,
corporation, partnership, limited liability company, trust or unincorporated
organization or any government or any agency or political subdivision thereof (a
"Person") is required for the valid execution, delivery and performance by
Seller or the Company of the Agreements to which it is a party and the
consummation of the transactions contemplated thereby.
3.8 Personal Property. Schedule 3.8(a) sets forth (i) the tangible
physical assets of the Company as of the date of this Agreement that do not
constitute real property (including machinery, equipment, tools, dies,
furniture, furnishings, leasehold improvements, software, vehicles, buildings
and fixtures) and that have a book value or replacement value in excess of
$50,000 per item or per category of items and the location by address of such
items; (ii) individual refundable deposits in excess of $10,000 or $25,000 in
the aggregate; and (iii) all outstanding loans or advances made by the Company
or any subsidiary to any Person in excess of $20,000.
Except as set forth on Schedule 3.8(b), the Company has
good and valid title to all of its material properties and assets that do not
constitute real property, free and clear of all Encumbrances. Except as set
forth on Schedule 3.8(c), the Company owns, has valid leasehold interests
(pursuant to leases disclosed in such Schedule) in or valid contractual rights
pursuant to contracts disclosed in such Schedule (or not required to be
disclosed therein due to the dollar threshold set forth in Section 3.22(a)) to
use, all of the material assets, tangible and intangible, currently used by, or
necessary for the present conduct of the business of, the Company.
790690.11
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3.9 Litigation. There is no charge, complaint, action, order, writ,
injunction, judgment or decree outstanding or claim, suit, litigation,
proceeding, labor dispute, arbitral action or, to the knowledge of the Company
and Seller, investigation (collectively, "Actions") pending or, to the knowledge
of the Company and Seller, threatened against, relating to or affecting (i) the
Company or the operation of the business of the Company as currently operated
and as proposed to be operated, (ii) any Benefit Plan of the Company, or (iii)
the transactions contemplated by this Agreement. The Company is not in default
with respect to any judgment, order, writ, injunction or decree of any
Governmental Authority, and there are no unsatisfied judgments against the
Company.
3.10 Real Property. (a) Schedule 3.10(a) sets forth, as of the date
of this Agreement, a complete and accurate list, in all material respects, of
(i) all of the real property owned by the Company (the "Owned Real Property"),
(ii) all of the real property that the Company has leased or subleased (the
"Leased Real Property," and together with the Owned Real Property, the "Real
Property") and an identification of the applicable leases, including all
amendments thereto and all material agreements incidental thereto (the "Real
Property Leases"), and (iii) all indebtedness secured by a lien, mortgage or
deed of trust on the Real Property and the outstanding principal amount of each
such lien, mortgage and deed of trust as of the date hereof. As of the date of
this Agreement, the Company has good and marketable fee title to its interest in
the Owned Real Property or a valid leasehold interest in the Leased Real
Property as provided in the applicable Real Property Lease, in each case, free
and clear of all Encumbrances and defects, except for (A) liens, mortgage or
deed of trust securing the indebtedness referred to in clause (iii) of the
preceding sentence, and (B) taxes or assessments, special or otherwise, not due
and payable or being contested in good faith. There exists no default or event
of default or, to the knowledge of the Company and Seller, event, occurrence,
condition or act (including the consummation of the transactions contemplated
hereby) on the part of the Company which, with the giving of notice, the lapse
of time, or the happening of any other event or condition, would become a
default or event of default under any indebtedness secured by a lien, mortgage
or deed of trust on the Real Property, except as set forth on Schedule 3.10(a).
(b) Schedule 3.10(b) lists all of the Real Property Leases.
Each of the Real Property Leases is in full force and effect and constitutes a
valid leasehold interest in the respective Leased Real Property and has not been
assigned, modified, supplemented or amended except as set forth on Schedule
3.10(b). The Company has not received a written notice of any monetary default
or other material default under any Real Property Lease or has given or received
any notice for purpose of terminating any Real Property Lease; all rents due
under the Real Property Leases have been paid.
(c) With respect to each of the Real Property Leases, the
Company has adequate rights of ingress and egress for the operation of the
business of the Company in the ordinary course. To the knowledge of the Company
and Seller, except as set forth in Schedule 3.10(c), none of the buildings,
structures or appurtenances (or any equipment therein), nor the operation or
maintenance thereof, violates any restrictive covenant or any provision of any
federal, state, provincial or local law, ordinance, rule or regulation, or
encroaches on any property owned by others, except where such violation or
encroachment does not materially adversely affect the value or use of any such
building, structure, appurtenance or equipment.
(d) Except as set forth in Schedule 3.10(d), (i) no
condemnation proceeding is pending or, to the knowledge of the Company and
Seller, threatened with respect to the Real Property or any buildings,
structures or appurtenances located thereon, and (ii) none of the buildings,
structures or appurtenances have been damaged or destroyed, in whole or in part,
as a result of any fire or other casualty, which damage or destruction has not
been fully repaired or restored.
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(e) Except as set forth in Schedule 3.10(e), no interest of
the Company in any Real Property is subject to any right of first offer, first
refusal or right or option to purchase.
(f) The Company has all Permits and other governmental
authorizations necessary to carry on the business of the Company.
3.11 Non-Real Estate Leases. Schedule 3.11 lists all of the Company's
right, title and interest in and to the assets, properties and rights of every
type and description (other than Real Property), tangible and intangible,
wherever located, owned by the Company from and after the Effective Date and on
the Closing Date or in which the Company has any interest whatsoever on the
Closing Date relating to, used or useful in the conduct of the Company's
business of distributing fasteners, hardware and related components and
providing inventory logistics management services for such products (all of
which assets are hereinafter referred to collectively as the "Acquired Assets")
that are possessed by the Company under an existing lease, including, without
limitation, all vehicles, forklifts, machinery, equipment, furniture, fixtures
and computers, except for any lease under which the aggregate annual payments
(excluding Taxes) for the last twelve (12) preceding months are less than Ten
Thousand Dollars ($10,000) (each, an "Immaterial Lease"). Schedule 3.11 also
lists the leases under which such Acquired Assets are possessed. All of such
leases (excluding Immaterial Leases) are referred to herein as the "Non-Real
Estate Leases." Each Non-Real Estate Lease is in full force and effect and
constitutes a valid leasehold interest in such Acquired Assets, and has not been
assigned, modified, supplemented or amended except as set forth on Schedule
3.11.
3.12 Financial Statements. Seller and the Company have heretofore
furnished QDL and/or Questron with copies of the following consolidated
financial statements of the Company (i) unaudited balance sheets as at December
31 for each of 1995, 1996 and 1997, respectively; (ii) unaudited statements of
operations for each of the years ended December 31, 1995, 1996, 1997, and 1998;
and (iii) the unaudited balance sheet (the "Reference Balance Sheet") at
December 31, 1998 (the "Reference Balance Sheet Date"). Except as noted therein
and except for normal year-end adjustments with respect to the December 31, 1998
unaudited financial statements, and adjustments for profit-sharing plan
contribution and tax accruals, all such financial statements are complete and
correct, were prepared in accordance with the Company's historical accounting
practices, consistently applied throughout the periods indicated 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.
Except as set forth on Schedule 3.12 or Schedule 1.2, there
are no liabilities, debts, obligations or claims against the Company of any
nature (accrued, absolute or contingent, unasserted, known or unknown, or
otherwise), except (i) as and to the extent reflected or reserved against on the
Reference Balance Sheet; (ii) those that are not in excess of $10,000
individually or $25,000 in the aggregate and were incurred since the Reference
Balance Sheet Date in the ordinary course of business consistent with prior
practice; or (iii) open purchase or sales orders or agreements for delivery of
goods and services in the ordinary course of business consistent with prior
practice.
3.13 Books and Records. Seller and the Company have made and will
make available for inspection by Questron 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
the Company's historical accounting practices, applied on a consistent basis.
The minute book of the Company that has been made available
to Questron for its inspection contains true and complete records of all
meetings and consents in lieu of meetings of the Board
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of Directors (and any committees thereof) of the Company and of Seller and
accurately reflects all material transactions referred to in such minutes and
consents in lieu of meetings. The stock books that have been made available to
Questron for its inspection are true and complete in all material respects.
3.14 Tax Matters. (a) For purposes of this Agreement,
(i) "Tax" or "Taxes" shall mean any federal,
state, local, foreign or other taxes (including, without
limitation, income (net or gross), gross receipts, profits,
alternative or add-on minimum, franchise, license, capital,
capital stock, intangible, services, premium, mining, transfer,
sales, use, ad valorem, payroll, wage, severance, employment,
occupation, property (real or personal), windfall profits,
import, excise, custom, stamp, withholding or estimated taxes),
fees, duties, assessments, withholdings or governmental charges
of any kind whatsoever (including interest, penalties,
additions to tax or additional amounts with respect to such
items) relating to the income, operations or properties of the
Company or the ownership thereof (by Seller);
(ii) "Pre-Effective Date Periods" shall mean all
Tax periods ending on or before the Effective Date and, with
respect to any Tax period that includes but does not end on the
Effective Date, the portion of such period that ends on and
includes the Effective Date;
(iii) "Returns" shall mean all returns,
declarations, reports, estimates, information returns and
statements of any nature regarding Taxes for any Pre-Effective
Date Period required to be filed by the Company or Seller and
relating to the Company and which previously were filed or are,
or become, due on or before the Closing Date;
(iv) "Code" shall mean the Internal Revenue Code
of 1986, as amended; and
(v) the term "Tax Deficiency" shall include a
reduction in any net operating losses.
(b) In respect of the Pre-Effective Date Periods only,
(i) all Returns have been or will be timely filed
when due in accordance with all applicable laws;
(ii) all Taxes shown on the Returns as due have
been or will be timely paid when due;
(iii) the Returns completely, accurately, and
correctly in all material respects reflect the facts regarding
the income, properties, operations and status of any entity
required to be shown thereon;
(iv) the charges, accruals, and reserves for
Taxes due, or accrued but not yet due, relating to the income,
properties or operations of the Company for any Pre-Effective
Date Period as reflected on the books of the Company are
adequate in all material respects to cover such Taxes;
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(v) except with respect to the Return due March
31, 1999, as to which an extension has been filed, there are no
agreements or consents currently in effect for the extension or
waiver of the time (A) to file any Return or (B) for assessment
or collection of any Taxes relating to the Company for any
Pre-Effective Date Period, and no Person has been requested to
enter into any such agreement or consent;
(vi) no Returns of the Company have been examined
by the relevant tax authorities in the past, and the Company
has received no notice that the relevant taxing authorities
intend to examine the Company's Returns;
(vii) all Returns with respect to taxable years
ending on or prior to December 31, 1994 are Returns with
respect to which the applicable statute of limitations, after
giving effect to any extensions and waivers, has expired;
(viii) 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;
(ix) there is no action, suit, proceeding,
investigation, audit or claim currently pending, or to Seller's
knowledge, threatened, regarding any Taxes relating to the
Company for any Pre-Effective Date Period;
(x) all Tax Deficiencies which have been claimed,
proposed or asserted against Seller or, to Seller's knowledge,
any prior Seller of the Company relating to ownership of stock
in the Company or against the Company or any group of which the
Company is now or was formerly a member have been fully paid or
finally settled;
(xi) no Person has executed or entered into a
closing agreement pursuant to Code Section 7121 (or any
comparable provision of state, local or foreign law) that is
currently in force and determines the Tax liabilities of the
Company;
(xii) there is no, and will not be any, agreement
or consent made under Code Section 341(f) (or any comparable
provision of state, local or foreign law) affecting the
Company;
(xiii) there are no liens for any Tax on the
assets of the Company except liens which arise as a matter of
law;
(xiv) there are no tax sharing agreements to
which the Company is now or, to Seller's knowledge, ever has
been a party;
(xv) the Company is not a party to any agreement,
contract, arrangement or plan that would result, separately or
in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Code Section 280G (or any
comparable provision of state, local or foreign law);
(xvi) the Company has not received any written
notice of any reassessment and, to Seller's knowledge, there
are no proposed reassessments of any property owned or
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leased by the Company or any other proposals that would
increase the amount of any Tax for which the Company could be
liable;
(xvii) the Company has not agreed, and is not
required, to make any adjustment under Code Section 481(a) (or
any comparable provision of state, local or foreign law) by
reason of a change in accounting method or otherwise; and
(xviii) no power of attorney is currently in
effect, and no Tax ruling has been requested of any
governmental authority, with respect to any Tax matter relating
to the Company.
3.15 Employee Matters. (a) Schedule 3.15(a) sets forth as of the date
hereof the name, date of hire, current annual compensation rate (including bonus
and commissions), title, current base salary rate and accrued bonus and vacation
of each present employee of the Company; and a list of any employment,
managerial, advisory, consulting, collective bargaining and severance
agreements; employee confidentiality or other agreements protecting proprietary
processes, formulae or information; any employee handbook(s) and written
employment policies; any reports and/or plans prepared or adopted pursuant to
the Equal Employment Opportunity Act of 1972, as amended; any affirmative action
plans; and each employee benefit or compensation plan, agreement or arrangement
covering present or former employees, consultants or directors 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, except as set forth on Schedule
3.15(b), each of the following is true:
(i) if such Benefit Plan is an employee pension
benefit plan (as such term is defined in ERISA Section 3(2))
intended to qualify under the Code, is and since its inception
has been so qualified and the Plan has received a favorable
determination letter as to its qualification under the Code (or
such a letter has been or will be applied for prior to
expiration of the applicable remedial amendment period), and,
to the knowledge of the Company and Seller, nothing has
occurred, whether by action or failure to act, which could
cause the loss of such qualification or which would result in
material costs to the Company under the Internal Revenue
Service's Closing Agreement Program, Voluntary Compliance
Resolution Program or Administrative Policy Regarding
Sanctions;
(ii) the financial statements of the Company
reflect in all material respects all employee liabilities
arising under such Benefit Plan in a manner satisfying the
applicable requirements (if any) of Statement of Financial
Accounting Standards ("SFAS") Nos. 87, 88, 106 and 112;
(iii) there are no actions, suits or claims
(other than routine claims for benefits in the ordinary course)
pending, or to Seller's knowledge, threatened, and to Seller's
knowledge, there are no facts which could give rise to any such
material actions, suits or claims (other than routine claims
for benefits in the ordinary course);
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(iv) none of Seller, the Company, nor any other
party has, with respect to any such Benefit Plan, engaged in a
prohibited transaction, as such term is defined in Code Section
4975 or ERISA Section 406, which could subject the Company or
Questron to any Taxes, penalties or other material liabilities
resulting from prohibited transactions under Code Section 4975
or under ERISA Sections 409 or 502(i);
(v) to the knowledge of the Company and Seller,
all Benefit Plans are in compliance in all material respects
with ERISA and the Code;
(vi) all contributions and insurance premiums
required as of the Closing Date have been paid;
(vii) the execution and delivery of this
Agreement by Seller 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;
(viii) the transactions contemplated by this
Agreement will not result in the payment or series of payments
to any employee of the Company which is a "parachute payment"
within the meaning of Section 280G of the Code; and
(ix) Seller has delivered to Questron current,
accurate and complete copies of such Benefit Plan (including
the plan document, trust agreement and other funding or
insurance instruments relating thereto) and, to the extent
applicable, copies of the most recent: (A) determination letter
and any outstanding request for a determination letter; (B)
Form 5500 with respect to the plan years ending in calendar
years 1995, 1996 and 1997; (C) collective bargaining agreements
or other such contracts; and (D) the general notification to
employees of their "COBRA" rights under Code Section 4980B and
ERISA Sections 601-609 and the form of letter(s) distributed
upon the occurrence of a COBRA qualifying event for each
Benefit Plan that is a "group health plan" as defined in Code
Section 5000(b)(1) and ERISA Section 607(1).
(c) Neither the Company nor any entity which is considered
one employer with the Company under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate") sponsors or maintains (and has not sponsored or
maintained in the calendar years ending 1996, 1997 and 1998) 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) Neither the Company nor any ERISA Affiliate contributes
or is obligated to contribute (or in the past six years has been obligated to
contribute) 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)) which provide benefits beyond
termination of employment except as required by applicable law.
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(f) With respect to the Company, except as set forth on
Schedule 3.15(f), each of the following is true in all material respects:
(i) to the knowledge of the Company and Seller,
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 Seller's knowledge, threatened, or, to Seller's
knowledge, is any investigation pending or threatened against
the Company or any subsidiary relating to any employment
matter, and, to Seller'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 Seller's knowledge,
threatened against the Company;
(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 months;
(v) no agreement (including any collective
bargaining agreement), arbitration or court decision, decree or
order or governmental order which is specifically directed or
applicable to the Company and 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 years;
(vii) there are no administrative proceedings,
lawsuits or complaints of discrimination (including but not
limited to discrimination based upon sex, age, marital status,
race, national origin, sexual orientation, disability or
veteran status) pending or, to Seller's knowledge, threatened,
or to Seller's knowledge, is any investigation pending or
threatened before the Equal Employment Opportunity Commission
or any federal, state or local agency or court, or is any
complaint or internal investigation pending with regard to
sexual or other harassment. There have been no audits of the
equal employment opportunity practices or affirmative action
practices of the Company and, to Seller's knowledge, no
reasonable basis for any claim regarding such practices exists;
and
(viii) there are no individual agreements,
employment practices, policies or procedures, or other
representations, warranties written or oral, which have been
made by the Company to employees of the Company that commit QDL
to retain them as employees for any period of time subsequent
to the Closing, or to pay them severance if
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they are not retained, except as otherwise provided by Law or
as set forth on Schedule 3.15(f).
3.16 Intellectual Property. Schedule 3.16 sets forth a list
containing detailed information concerning (x) registered trademarks, trademark
registrations and applications therefor, trade names, brand names, all service
marks, service mark registrations and applications therefor, all registered
trade dress rights, registrations and applications therefor, patents and patent
applications, material registered copyrights, and applications therefor
(including information as to expiration dates and federal registration numbers,
date of registration or application for registration and the name in which
registration was applied for of all the foregoing where applicable) presently
owned or used, in whole or in part, by the Company or any subsidiary or for
which the Company is licensed. Neither Seller nor the Company are licensors in
respect of any patents, trade secrets, inventions, shop rights, copyrights or
applications therefor, (y) all material computer software used by the Company in
the conduct of its business and (z) all other trademarks and other marks, trade
names and other trade rights and all other material trade secrets, material
designs, plans, specifications, patents, patent applications and other
intellectual property rights of any kind of the Company, whether or not
registered, including, without limitation, all rights of the Company to
exclusive use and ownership of the names "Capital Fasteners" or "Capital
Fasteners Incorporated" and any and all other names associated with, derived
from or used in connection with the conduct of the business (and all trade names
listed on Schedule 3.16) (all of the items referred to in this clause (i) being
"Intellectual Property Rights") and (ii) identifies any Intellectual Property
Rights that any third party owns and that the Company uses or proposes to use in
the business of the Company, and specifies whether such use is or will be
pursuant to license, sublicense, agreement or permission. The Company owns (or,
as set forth on Schedule 3.16, possesses enforceable licenses or other rights to
use) all Intellectual Property Rights now used or proposed to be used in its
business and has taken all reasonably necessary or appropriate action to protect
the Intellectual Property Rights of the Company. Except as set forth on Schedule
3.16, no Person has a right to receive a royalty or similar payment in respect
of any Intellectual Property Rights pursuant to any contractual arrangements
entered into by the Company or otherwise. The Company has no licenses granted by
or to it and no other agreements to which it is a party, relating to any of the
Intellectual Property Rights except as set forth on Schedule 3.16, the Company
has not received notice that the Company's use of the Intellectual Property
Rights is interfering with infringing upon or otherwise violating the rights of
any third party in or to such Intellectual Property Rights, and no proceedings
have been instituted against or notices received by the Company alleging that
the Company's use or proposed use of any Intellectual Property Rights infringes
upon or otherwise violates any rights of a third party in or to such
Intellectual Property Rights, which infringement or violation could have a
Material Adverse Effect on the Company.
3.17 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 within ninety (90) days of the Closing Date without
cost to QDL, subject to the reserve for doubtful accounts appearing on the
Reference Balance Sheet. If and to the extent that Questron or any Questron
Indemnitee actually has recovered from Seller any Questron Losses under Article
8 hereof resulting from or arising out of a breach of the representation or
warranty set forth in this Section 3.17 (insofar at it relates to collectibility
of accounts receivable), then (i) if Questron or QDL thereafter receives payment
in respect of such an accounts receivable from the debtor(s), then Questron or
QDL, as the case may be, shall pay to Seller such amounts received in respect of
such account receivable up to the amount previously paid by Seller to Questron
(or any Questron Indemnitee) as a Questron Loss, and (ii) if Questron or QDL has
not thereafter received payment in respect of such an accounts receivable from
the debtor(s), then at
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the written request of Seller, Questron will assign to Seller such accounts
receivable with respect to which Seller has indemnified Questron (or any
Questron Indemnitee) up to the amount previously paid by Seller to Questron (or
any Questron Indemnitee) as a Questron Loss.
3.18 Inventory. Except as set forth on Schedule 3.18, the inventories
of raw materials, in-process and finished products of the Company are in good
condition, conform in all material respects with the Company's applicable
specifications and warranties, are not obsolete, and are saleable as of the date
hereof at values not less than the book value amounts thereof. Adequate reserves
have been provided for inventory obsolescence in the aggregate.
3.19 No Material Change. Except as set forth on Schedule 3.19, 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.
3.20 Absence of Change or Event. Except as set forth on Schedule
3.20, since the Reference Balance Sheet Date, the Company has conducted its
business only in the ordinary course consistent with past practice and has not:
(a) incurred any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due, in
excess of $25,000 in the aggregate, except liabilities or obligations
incurred in the ordinary course of business and consistent with prior
practice;
(b) mortgaged, pledged or subjected to lien, restriction or
any other Encumbrance any of the property, businesses or assets,
tangible or intangible, of the Company, except for purchase money
liens;
(c) sold, transferred, leased to others or otherwise
disposed of any of its assets (or committed to do any of the
foregoing), including the payment of any loans owed, or the making of
any loans, to any officer, director, Seller or other affiliate of the
Company, except for inventory sold to customers or returned to
vendors and payments to any non-affiliates on account of accounts
payable or scheduled payments in respect of indebtedness for money
borrowed disclosed on the Reference Balance Sheet or in the
Schedules, or canceled, waived, released or otherwise compromised any
debt or claim other than in the ordinary course of business, or any
material right;
(d) suffered any damage, destruction or loss (whether or
not covered by insurance) in an amount greater than $25,000;
(e) made or committed to make any capital expenditures or
capital additions or betterments in excess of an aggregate of
$50,000;
(f) instituted or threatened any litigation, action or
proceeding before any court, governmental or regulatory body,
administrative agency or arbitrator relating to it or its property;
(g) issued, authorized for issuance or sold any capital
stock, notes, bonds or other securities, or any option, warrant or
other right to acquire the same, of the Company, or declared or paid
any dividend or made any other payment or distribution in respect of
its capital stock, or directly or indirectly redeemed, purchased or
otherwise acquired any of its capital stock or any option, warrant or
other right to acquire such capital stock;
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(h) increased the compensation of any officer, director,
employee or agent of the Company, directly or indirectly, including
by means of any bonus, pension plan, profit sharing, deferred
compensation, savings, insurance, retirement, or any other employee
benefit plan, except in the case of any employee or agent whose
annual base compensation is less than $50,000;
(i) materially changed any of its business or accounting
accrual practices, including, without limitation, the amount of
promotional or advertising expenditures, investments, marketing,
pricing, purchasing, production, personnel, sales, returns or
budgets, accounts receivable or inventory reserves, or otherwise
changed its policies with respect thereto;
(j) made or changed any election concerning Taxes or Tax
Returns, changed an annual accounting period, adopted or changed any
accounting method, filed any amended Return, entered into any closing
agreement with respect to Taxes, settled any Tax claim or assessment
or surrendered any right to claim a refund of Taxes or obtained or
entered into any Tax ruling, agreement, contract, understanding,
arrangement or plan;
(k) allowed any Permit (as hereinafter defined) relating to
the business of the Company to lapse or terminate;
(l) materially amended or terminated or received any threat
(not subsequently withdrawn) to terminate, any Contract (as
hereinafter defined);
(m) cancelled, compromised, waived or released any rights
or claims (or series of related rights or claims) either (i)
involving an affiliate of the Company or Seller, (ii) involving more
than Ten Thousand Dollars ($10,000) or (iii) outside the ordinary
course of business consistent with past practice;
(n) delayed or failed to repay when due any material
obligation of the Company;
(o) failed to operate the business of the Company in the
ordinary course consistent with past practice so as to use reasonable
efforts to preserve the business and operations of the Company
intact, to keep available to QDL the services of its employees, and
to preserve for QDL the goodwill of the Company's suppliers,
customers, distributors and others having business relations with it;
(p) granted any license or sublicense of any rights under
or with respect to any Intellectual Property Rights of the Company;
(q) lent to, or made other agreement with any Company
employee outside the ordinary course of business consistent with past
practice giving rise to any claim or right on its part against the
Person or on the part of the Person against it;
(r) 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
(s) engaged in any other material transaction other than in
the ordinary course of business.
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3.21 Compliance With Law. 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 Company.
3.22 Contracts and Commitments. (a) Schedule 3.22 sets forth each
written contract or agreement involving a liability or obligation of the Company
equal to or in excess of $10,000 annually and outstanding as of the date hereof
to which the Company is a party, other than ordinary course of business purchase
orders.
(b) Except as set forth on Schedule 3.22, the Company is
not a party to:
(i) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw
materials, commodities, supplies, products or other property or
for the furnishing or receipt of services, including, without
limitation, any customer or vendor contracts involving more
than Ten Thousand Dollars ($10,000), excluding customer
purchaser orders in the ordinary course of business and
excluding arrangements which are terminable by the Company
without penalty on 30 days or less notice;
(ii) any written arrangement (or group of related
written arrangements) concerning a partnership or joint venture
with any other Person;
(iii) any written arrangement (or group of
related written arrangements) under which it has created,
incurred, assumed or guaranteed (or may create, incur, assume
or guarantee) indebtedness (including capitalized lease
obligations) involving more than Ten Thousand Dollars
($10,000), in principal amount or under which it has imposed
(or may impose) a security interest or lien on any of its
assets, tangible or intangible;
(iv) any written arrangement (or group of related
written arrangements) concerning confidentiality or
non-competition arrangements;
(v) any written arrangement with any of its
directors, officers, stockholders or employees in the nature of
a collective bargaining agreement, employment agreement or
severance agreement;
(vi) any written arrangement with any of its
directors, officers, Seller or employees or any member of any
such Person's immediate family (x) providing for the furnishing
of material services by, (y) providing for the rental of
material real or personal property from, or (z) otherwise
requiring material payments to (other than for services as
officers, directors or employees of the Company), any such
Person or any corporation, partnership, trust or other entity
in which any such Person has a substantial interest as a
Seller, officer, director, trustee or partner;
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(vii) any other written arrangement (or group of
related written arrangements) under which the consequences of a
default or termination could have a Material Adverse Effect on
the Company;
(viii) any other written arrangement (or group of
related written arrangements) involving aggregate payments of
more than Ten Thousand Dollars ($10,000) annually or not
entered into in the ordinary course of business consistent with
past practice; or
(ix) any oral contract, agreement, past or
present practice or policy, or other arrangement with respect
to any of the matters referred to in the foregoing clauses (i)
through (ix) and any proposal (oral or written) to enter into
any contract, agreement or other arrangement with respect to
any of the matters referred to in the foregoing clauses (i)
through (ix).
(c) The Company has delivered to QDL and/or Questron a
correct and complete copy of each written arrangement listed in Schedule 3.22
and has included as part of Schedule 3.22 a brief summary of any oral contracts,
agreements or other arrangements and any proposals (oral or written) to enter
into any such contracts, agreements or other arrangements. Except as set forth
on Schedule 3.22, with respect to each written arrangement listed, (A) the
written arrangement is legal, valid, binding, and enforceable obligation of the
Company (assuming due authorization, execution and delivery thereof by the
parties thereto (other than the Company and Seller), and except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law) and is in full force and effect; (B) the written
arrangement will continue to be legal, valid binding obligation of the Company
and enforceable (except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar laws affecting
creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law) and is in
full force and effect on identical terms following the Closing Date; and (C) to
the Company's and Seller's knowledge, no party has repudiated any term of the
written arrangement.
(i) No purchase contracts (other than inventory
purchase commitments) of the Company continue for a period of
more than 12 months; and
(ii) Except as described in item (hh) of Schedule
3.22, the Company has no material liability or material
obligation with respect to the return of inventory or
merchandise in the possession of distributors, customers or
other Persons.
3.23 Insurance. (a) Schedule 3.23 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 1996, 1997 and 1998 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
Seller believes to be covered by commercial insurance; (iv) general
comprehensive liability policies carried by the Company for the calendar years
1996, 1997 and 1998, 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
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other Person. Seller has heretofore delivered to Questron complete and correct
copies of the policies and agreements set forth on Schedule 3.23.
(b) The insurance policies set forth on Schedule 3.23 are
in full force and effect, all premiums which are due with respect thereto
covering all periods up to and including the date of the Closing have been paid,
and no notice of cancellation or termination has been received with respect to
any such policy. Such policies are sufficient for compliance with all
requirements of law and all agreements to which the Company is a party; are
valid, outstanding and enforceable policies; will remain in full force and
effect through the respective dates set forth on Schedule 3.23; and will not in
any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. The Company is not in default under any of such
policies or binders, and the Company has not failed to give any notice or to
present any claim under any such policy or binder in a due and timely fashion
where such default or failure to give notice or present a claim could have a
Material Adverse Effect on the Company. 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 1996, 1997 and 1998. The Company has not
received any notice from its insurance carriers that any insurance premiums will
be materially increased in the future or that any insurance coverage listed on
Schedule 3.23 will not be available in the future on substantially the same
terms as now in effect.
3.24 Affiliate Interests. (a) Except as set forth in Schedule 3.24,
no payments other than compensation payments during calendar years 1996, 1997
and 1998, have been made by the Company to Seller or any officer or director of
the Company, other than reimbursement of business expenses in the ordinary
course of business.
(b) Except as set forth on Schedule 3.24, no Seller,
officer or director of the Company or any affiliate of Seller (in each case, or
any family member thereof) (i) has any interest, directly or indirectly, in any
property, real or personal, tangible or intangible, including without
limitation, inventions, patents, trademarks or trade names, used in or
pertaining to the business of the Company, (ii) owns, directly or indirectly,
any interest in (excepting less than 5% stock holdings for investment purposes
in securities of companies which are publicly held and traded), or is an
officer, director, employee or consultant of, any Person which is, or is engaged
in business as, a competitor, lessor, lessee, supplier, distributor, sales agent
or customer of the Company, or (iii) has any cause of action or other claim
whatsoever against, or owes any amount to, the Company, except for claims
arising in the ordinary course of business arising from such Person's employment
with the Company and indebtedness described in Section 6.7 hereof.
3.25 Customers, Suppliers, Distributors, Etc. (a) Except as set forth
on Schedule 3.25(a), and except for the loss of such other customers or
relationship that will not have a Material Adverse Effect on the Company, no
such supplier, customer, distributor or sales representative of the Company has
cancelled or otherwise terminated, or made any written threat to the Company or
to any of their affiliates to cancel or otherwise terminate, for any reason,
including the consummation of the transactions contemplated hereby, its
relationship with the Company or to reduce sales volumes below those presently
existing, or has at any time on or after the Reference Balance Sheet Date
decreased materially its services or supplies to the Company or its usage of the
services or products of the Company or made any written claim that any item sold
by the Company failed to meet any specification with respect thereto or were
otherwise defective other than in the ordinary course of business or where such
claim does not involve an amount in excess of Ten Thousand Dollars ($10,000).
Except as set forth on Schedule 3.25(a), the Company and Seller have no
knowledge that any such supplier or customer intends to cancel or otherwise
790690.11
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terminate its relationship with the Company or to decrease materially its
services or supplies to the Company or their usage of the services or products
of the Company, as the case may be. Except as set forth on Schedule 3.25(a), the
Company has not sold goods to be delivered after Closing to any customer on a
consignment basis, and the Company has not agreed with any customer of the
Company to sell goods to it to be delivered after Closing at either a discounted
price or at a price which includes any type of allowance for the cost of the
customer's advertising.
(b) Schedule 3.25(b) sets forth the customer sales history
of the 10 largest customers of the Company, by dollar volume, for each of 1997
and 1998. Such information is true and complete.
(c) Schedule 3.25(c) sets forth a complete and accurate
list of suppliers of the Company from whom the Company has made aggregate
purchases of in excess of $25,000 during any of the calendar years ended
December 31, 1996, 1997 and 1998, showing the approximate total purchase by the
Company from each such supplier during such fiscal year.
3.26 Previous Sales; Warranties; Product Liability. Except as set
forth on Schedule 3.26, since January 1, 1993, the Company has not received any
written notice or claim that it has breached any express or implied warranties
in connection with the sale or distribution of goods or the performance of
services, except for such breaches as would not have or cause a Material Adverse
Effect on the Company.
(a) Schedule 3.26(a) sets forth all warranty claims for
amounts in excess of Fifteen Thousand Dollars ($15,000), individually, asserted
in writing against the Company, together with the actual or estimated cost of
repair or replacement, (i) outstanding as of the date hereof, and (ii) for each
of the two fiscal years ended December 31, 1997 and 1998.
(b) Schedule 3.26(b) contains a complete and correct list
of (i) product liability claims made against the Company since December 31, 1996
and (ii) any amounts paid by the Company or its insurance company with respect
to such claims. Except as set forth on Schedule 3.26(b), there is no Action,
suit, inquiry, proceeding or investigation by or before any Governmental
Authority pending or, to the knowledge of Seller, threatened against or
involving the Company relating to any product manufactured or sold by the
Company and alleged to have been defective, or improperly designed or
manufactured.
3.27 Additional Information. Schedule 3.27 accurately lists the
following (Schedule 3.27 may be revised as of immediately prior to the Closing
to account for any changes):
(a) the names of all officers and directors of the Company;
(b) the names and addresses of every bank or other
financial institution in which the Company maintains an account
(whether checking, savings or otherwise), lock box or safe deposit
box, and the account numbers and names of Persons having signing
authority or other access thereto;
(c) the names of all Persons authorized to borrow money or
incur or guarantee indebtedness on behalf of the Company;
(d) the names of any Persons holding powers of attorney
from the Company and a summary statement of the terms thereof; and
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(e) all names under which the Company has conducted any
part of the business or which it has otherwise used at any time
during the past five years.
3.28 Claims Under Stock Redemption Agreement. No claims for
indemnification have been made and, to the knowledge of the Company and Seller,
no claims for indemnification have been threatened against the Company under the
Indemnification provisions of the Stock Redemption Agreement, dated as of March
24, 1997 (the "Stock Redemption Agreement"), by and among Seller, the Company
and Norman G. Yates ("Yates").
3.29 Environmental Matters. For the purposes of this Section the
following terms shall have the following meanings: (i) the term "Hazardous
Material" shall mean any material or substance that, whether by its nature or
use, is now or hereafter defined, determined or identified as a hazardous
material, hazardous waste, hazardous substance, toxic substance, pollutant or
contaminant under any Environmental Law, or which is toxic, explosive,
corrosive, ignitable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous or is harmful to human health or the environment, or which
is or contains petroleum, gasoline, diesel fuel or another petroleum hydrocarbon
product; (ii) "Environmental Laws" shall collectively mean all present and
future federal, state and local laws, statutes, ordinances, rules, regulations,
orders, codes, licenses, Permits, decrees, judgments, directives, guidelines,
standards or the equivalent of or by any governmental authority and relating to
or addressing the protection of the environment or human health (including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
9601 et seq.), and the regulations adopted and publications promulgated pursuant
thereto); and (iii) the term "governmental authority" shall mean the Federal
government, or any state or other political subdivision thereof, or any agency,
court or body of the Federal government, any state or other political
subdivision thereof, exercising executive, legislative, judicial, regulatory or
administrative functions.
Except as set forth in Schedule 3.29, Seller warrants and
represents that: (i) neither the Company nor, to the best of Seller's knowledge,
any prior owner or any user or tenant or operator of the Real Property, has
generated, stored, treated, disposed of, used, caused to be used, or permitted
the use of Hazardous Materials in, on or about the Real Property in violation of
Environmental Laws; (ii) the Company is in compliance, in all material respects,
with all applicable Environmental Laws; (iii) the Company has secured all
Permits, authorizations, registrations and approvals necessary for the storage,
use or handling of Hazardous Materials and is in compliance therewith; (iv)
there are no pending claims by any governmental authority or any other person in
respect of Environmental Laws affecting the Company or the Real Property and
neither Seller nor the Company has received any written notice of any violations
of any Environmental Laws or has received any written warning notices,
administrative complaints, judicial complaints or other formal or informal
notices from any person alleging that the Company or conditions on the Real
Property are, or may be, in violation of any Environmental Laws; (v) there is
not now, nor, to the best of Seller's knowledge, has there ever been, any
disposal, discharge or other type of release on property adjacent to or near the
Real Property or to the surface or ground water flowing to the Real Property
which may constitute a risk of contamination to the Real Property; and (vi) to
the knowledge of Seller, no releasing, emitting, discharging, leaching, dumping
or disposing of any Hazardous Material by the Company or from the Real Property
has occurred at, into, onto or under any other property which may give rise to
liability under any Environmental Law.
3.30 Absence of Questionable Payments. Except as set forth on
Schedule 3.30, neither the Company nor, to Seller's knowledge, any director,
officer, agent, employee or other Person acting on
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behalf of the Company has used any corporate or other funds for unlawful
contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Neither the Company nor, to Seller'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.
3.31 Investment Intent. Seller
(i) represents and warrants that the shares of
Questron Common Stock representing the Initial Stock
Consideration and the Deferred Stock Consideration (such
securities being herein referred to collectively as the
"Securities") are being acquired as an investment and not with
a view to the distribution thereof;
(ii) understands that none of the Securities have
been registered under the Act, in reliance on an exemption
therefrom, and that none of the Securities have been approved
or disapproved by the United States Securities and Exchange
Commission or by any other Federal or state agency;
(iii) understands that none of the Securities can
be sold, transferred or assigned unless registered by Questron
(which no Seller has the right to compel) pursuant to the Act
and any applicable state securities laws, or unless an
exemption therefrom is available, and, accordingly, it may not
be possible for Seller to liquidate its investment in the
Securities, and agrees not to sell, assign or otherwise
transfer or dispose of the Securities unless such Securities
have been so registered or an exemption from registration is
available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business (including, but
not limited to, the following documents which have been
provided to, and reviewed by, Seller: (a) Questron's Annual
Reports on Form 10-KSB for the fiscal years ended December 31,
1995, 1996 and 1997, (b) Questron's Quarterly Reports on Form
10-QSB for the quarterly periods ended March 31, 1997, June 30,
1997, September 30, 1997, March 31, 1998, June 30, 1998 and
September 30, 1998, (c) Questron's Proxy Statement, dated May
5, 1998, relating to its 1998 Annual Meeting of Shareholders),
(d) Questron's Current Reports on Form 8-K and Form 8-K/A filed
on October 7, 1997, December 5, 1997, October 8, 1998 and
December 8, 1998, and (e) all written press releases issued and
released by Questron since December 31, 1998, respectively,
have been made available to Seller and Seller's attorney and/or
accountant and/or representative. Seller has had an opportunity
to ask questions and receive answers from Questron concerning
the business and assets of Questron and all such questions have
been answered to the full satisfaction of Seller; and
(v) is an accredited investor, as that term is
defined in Regulation D under the Act.
3.32 Disclosure. (a) No representations or warranties by Seller and
the Company in this Agreement, including the Exhibits and the Schedules, and no
statement contained in any document (including, without limitation, the
financial statements, certificates and other writings furnished or to be
furnished by Seller or the Company to Questron or any of its representatives
pursuant to the provisions
790690.11
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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 Seller which has a Material Adverse Effect on the
Company which has not been set forth in this Agreement, including any Exhibit or
Schedule, the financial statements referred to in Section 3.12 (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 Seller or the Company in connection with
the transactions contemplated by this Agreement.
(b) Seller has furnished or caused to be furnished to
Questron complete and correct copies of all agreements, instruments and
documents set forth in the Schedules. Each of the Schedules is true, complete
and correct.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON
QDL and Questron jointly and severally represent and
warrant to Seller that:
4.1 Organization. Each of QDL and Questron is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware. Each of QDL and Questron has all requisite corporate power and
authority to carry on its respective business as now being conducted and to own
its respective 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 such entity.
4.2 Corporate Authority; Due Execution. Each of QDL and Questron has
full corporate power and authority to enter into this Agreement and all other
agreements, documents and instruments contemplated by this Agreement to which it
is party and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by each of QDL and Questron of this
Agreement and all other agreements, documents and instruments contemplated by
this Agreement to which it is party have been duly authorized by all requisite
corporate action. This Agreement has been, and each of the other agreements,
documents and instruments contemplated by this Agreement to which it is party
will be as of the Closing Date, duly executed and delivered by each of QDL and
Questron, and (assuming due execution and delivery by Seller and the Company)
this Agreement constitutes, and each of such other agreements when executed and
delivered will constitute, a valid and binding obligation of each of QDL and
Questron, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization or similar laws affecting creditors' rights generally
or by general equitable principles.
4.3 No Violation. Neither QDL nor Questron is 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, Permit,
trust, custodianship or other restriction, or
790690.11
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(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 QDL or 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 QDL and
Questron of this Agreement and the consummation of the transactions contemplated
hereby.
4.4 Investment Intent. QDL is acquiring the Shares for its own
account for investment and not with a view to any distribution thereof. In
entering into this Agreement, QDL and Questron have relied solely on the express
representations, warranties and covenants of Seller in this Agreement, its
independent investigation of the Company, including its independent audit of the
Company's books and records, and not on any oral comments or statements of
Seller or any representatives of or advisors engaged by Seller.
4.5 SEC Documents. Questron has furnished Seller with, or made
available to Seller, copies of the following reports (the "SEC Documents") filed
by Questron with the United States Securities and Exchange Commission (the
"SEC"):
(a) Questron's Annual Reports on Form 10-KSB for the fiscal
years ended December 31, 1995, 1996 and 1997;
(b) Questron's Quarterly Reports on Form 10-QSB for the
quarterly periods ending March 31, 1997, June 30, 1997, September 30,
1997, March 31, 1998, June 30, 1998 and September 30, 1998;
(c) Questron's Proxy Statement, dated May 5, 1998, relating
to its 1998 Annual Meeting of Shareholders;
(d) Questron's Current Reports on Form 8-K and 8-K/A filed
on October 7, 1997, December 8, 1997, October 8, 1998 and December 8,
1998, respectively; and
Each of the SEC Documents, as of its respective date of filing, complied in all
material respects with the applicable requirements of the Exchange Act. Questron
is current in its obligations to file all periodic reports and proxy statements
with the SEC required to be filed under the Exchange Act and applicable rules
and regulations promulgated thereunder. As soon as practicable following its
date of filing, Questron covenants to provide to Seller a copy of Questron's
Annual Report on Form 10-QSB for the fiscal year ended December 31, 1998.
4.6 Questron Common Stock. All shares of Questron Common Stock
representing the Initial Stock Consideration, the Deferred Stock Consideration
and, if applicable, the Optional Deferred Stock Consideration delivered to
Seller pursuant to this Agreement, when issued as contemplated hereby, will be
duly authorized, validly issued, fully paid and non-assessable.
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ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND QUESTRON
5.1 Conduct of Business Prior to the Closing Date. Seller and the
Company agree with QDL and Questron that, between the date hereof and the
Closing Date:
(a) Except as contemplated by this Agreement or permitted
by written consent of Questron, Seller shall cause the Company to
operate its business only in the ordinary course consistent with
prior practice and not to:
(i) declare or pay any dividends, make any
distributions to Seller or undertake any similar transactions
affecting the capital of the Company;
(ii) sell or dispose of any assets of the Company
other than the sale of inventory in the ordinary course of
business and dispositions of immaterial assets;
(iii) take any action of the nature referred to
in Section 3.20, except as permitted therein;
(iv) change the Company's banking or safe deposit
arrangements;
(v) cause or permit indebtedness (which for
purposes of this clause (v) shall be deemed to exclude trade
payables consisting of accounts payable, deferred taxes and
accrued expenses) in excess of the indebtedness represented by
Stated Net Debt of the Company to exceed $10,000; provided,
further, that no such indebtedness of the Company shall
represent indebtedness to Seller, officers or directors of the
Company; or
(vi) except as may be required by law, take
any action to amend or terminate any employee benefit plan or
adopt any other plan, program, arrangement or practice
providing new benefits or compensation to its employees.
(b) Seller and the Company shall use their reasonable best
efforts to conduct the business of the Company in a manner consistent
with past business practices; to preserve the business organization
of the Company intact; to keep available to Questron the services of
the present officers and employees of the Company; to preserve for
Questron the goodwill of the Company's suppliers, customers,
distributors, sales representatives and others having business
relations with the Company; and to inform Questron of, and consult
with Questron on, any key decisions involving any capital expenditure
in excess of $50,000.
(c) Seller shall cause the Company to maintain in force the
insurance policies referred to on Schedule 3.23 or insurance policies
providing the same or substantially similar coverage; provided,
however, that Seller will notify Questron prior to the expiration of
any of such insurance policies.
(d) Except as contemplated by this Agreement or permitted
by written consent of Questron, no Benefit Plan disclosed or required
to be disclosed has been or will be:
(i) terminated by the Company other than for
expiration of its terms;
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(ii) except as required by law, amended in any
manner which would directly or indirectly increase the benefits
accrued in a material amount, by any participant thereunder; or
(iii) except as required by law, amended in any
manner which would materially increase the cost to Questron or
QDL of maintaining such plan, fund or arrangement.
(e) Seller and the Company shall give Questron prompt
notice of any event, condition or circumstance occurring from the
date hereof through the Closing Date that would constitute a
violation or breach of any representation or warranty of Seller or
the Company of which Seller have knowledge, whether made as of the
date hereof or as of the Closing Date, or that would constitute a
violation or breach of any covenant of Seller contained in this
Agreement.
5.2 Tax Covenants. (a) Seller shall timely cause to be prepared and
filed by the Company all Returns of the Company relating to Pre-Effective Date
Periods and shall timely pay, or cause to be paid by the Company, when due all
Taxes relating to such Returns filed on or before the Closing Date. With respect
to any such Taxes relating to Returns for Pre-Effective Periods that are payable
subsequent to the Closing Date, to the extent that such Taxes exceed the amount
of tax liabilities identified on Schedule 1.2, Seller shall timely pay, or cause
to be paid on behalf of the Company, such Taxes when due or Seller shall pay, or
cause to be paid, to the Company in advance of such due dates all amounts owed
relating to such Returns in order to allow the Company to pay such Taxes in a
timely manner. Such Returns shall be prepared or completed in a manner
consistent with prior practice of Seller 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.
(b) Questron and Seller shall cooperate with each other in
responding to any audit or proceeding relating to any Returns (including any
proceeding relating to the Company for Pre-Effective Date Periods).
Notwithstanding anything to the contrary contained or implied in this Agreement,
(i) without the prior written approval of Questron (which shall not be
unreasonably withheld or delayed), neither Seller nor any affiliate of Seller
shall agree or consent to compromise or settle, either administratively or after
the commencement of litigation, any issue or claim arising in any such audit or
proceeding, or otherwise agree or consent to any Tax liability, to the extent
that any such compromise, settlement, consent or agreement shall materially
affect the Tax liability of Questron, any of its affiliates or the Company
(including, but not limited to, the imposition of Tax deficiencies, the material
reduction of asset basis or cost adjustments, the lengthening of any
amortization or depreciation periods, the denial of material amortization or
depreciation deductions, or the material reduction of loss or credit
carry-forwards).
(c) Questron shall promptly notify Seller upon receipt by
Questron, any affiliate of Questron or the Company of notice of any pending or
threatened Tax audits or assessments relating to the income, properties or
operations of the Company, in each case for Pre-Effective Date Periods only, so
long as Pre-Effective Date Periods remain open; provided, however, that failure
by Questron to comply with this Section 5.2(c) shall not affect Questron's right
to indemnification relating to Taxes if such failure does not prejudice the
rights of Seller. Seller shall promptly notify Questron upon receipt by Seller
or any affiliate thereof of notice of any pending or threatened Tax audits or
assessments relating to the income, properties or operations of the Company, in
each case for Pre-Effective Date Periods only.
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(d) Neither Seller nor any affiliate of Seller shall,
without the prior written consent of Questron, file, or cause to be filed, any
amended Tax return or claim for Tax refund, with respect to the Company, to the
extent that any such filing shall materially affect the Tax liability of
Questron, any of its affiliates or the Company (including, but not limited to,
the imposition of Tax deficiencies, the material reduction of asset basis or
cost adjustments, the lengthening of any amortization or depreciation periods,
the denial of material amortization or depreciation deductions, or the material
reduction of loss or credit carry-forwards).
(e) Any and all powers of attorney relating to Tax matters
concerning the Company shall be terminated as to the Company on or prior to the
Closing Date and shall have no further force or effect.
(f) After the Closing Date, Questron and Seller shall
provide each other, and Questron shall cause the Company to provide Seller, 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 Seller or Questron, as applicable, until the final determination of
any Tax in respect of such years. Any information obtained under this Section
5.2 shall be kept confidential, except as may be otherwise necessary in
connection with filing any Tax return, amended return, or claim for refund,
determining any Tax liability or right to refund of Taxes, or in conducting or
defending any audit or other proceeding in respect of Taxes. Notwithstanding the
foregoing, neither Seller nor Questron, nor any of their affiliates of either
such entity, shall be required unreasonably to prepare any document, or
determine any information not then in its possession, in response to a request
under this Section 5.2(f).
(g) Questron shall have received from Seller, on or before
the Closing Date, an affidavit to the effect that Seller is not a "foreign
person" within the meaning of Code Section 1445. If, on or before the Closing
Date, Questron shall not have received such affidavit from Seller, Questron may
withhold from the Initial Cash Consideration payable at the Closing to such
Seller pursuant hereto such sums as are required to be withheld therefrom under
Section 1445 of the Code.
(h) Seller 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 Seller or any former shareholder of
the Company for which Questron or the Company is held liable. Seller shall, at
its own expense, file all necessary Tax returns and other documentation with
respect to all such Taxes described in the preceding sentence.
5.3 Expenses and Finder's Fees. Except as set forth in this Section
5.3, Questron and Seller will each bear their own expenses in connection with
this Agreement and its performance. Seller, 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. Upon delivery by Seller to Questron of a schedule detailing its
reasonable out-of-pocket expenses, including labor expenses of Company
personnel, accounting and other
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expenses, incurred in connection with conducting and preparing the 1998 Audit,
Questron agrees that, no later than the Closing Date, it will reimburse Seller
for all (up to a maximum of $25,000) of such reasonable out-of-pocket expenses.
5.4 Access to Information and Confidentiality/1998 Audit. Seller and
the Company agree that until the Closing, Questron and Seller may conduct such
reasonable investigation with respect to the business, business prospects,
assets, liabilities (contingent or otherwise), results of operations, employees
and financial condition of the other as will permit Questron and Seller,
respectively, to evaluate the transactions contemplated by this Agreement. Until
the Closing, Seller shall afford Questron and its authorized representatives
reasonable access to the premises, books, records and business affairs of the
Company (and, to the extent directly relating thereto, of Seller) for purposes
of (i) conducting such investigation and, promptly after the end of each month
(without demand or notice), shall furnish Questron with copies of an unaudited
balance sheet as of the end of such month and unaudited statements of income for
such month, in each case prepared consistent with the standards set forth in the
second sentence of Section 3.12(a) and (ii) conducting an audit and preparing
audited financial statements (the "1998 Audit") of the Company's financial
position as at and for the year ended December 31, 1998 (which audited financial
statements the Company and Seller agree may be disclosed by Questron for
purposes of satisfying the financing condition set forth in Section 6.8.). The
Company and Seller agree to cooperate with Questron and its representatives in
the conduct of the 1998 Audit. Unless and until the transactions contemplated
herein have been consummated, each of Questron and Seller shall maintain all
confidential information received from the other in connection with its
evaluation of the transactions contemplated by this Agreement (the "Confidential
Information") in strict confidence, and shall take all precautions necessary to
prevent disclosure, access to, or transmission of the Confidential Information,
or any part thereof, to any third party. Each of Questron and Seller may make
limited disclosure of Confidential Information to its representatives and to
such other persons as need to know for the purpose of preparing for and
negotiating this Agreement and in connection with the consummation of the
purchase and sale contemplated hereby, including arranging Questron's financing
in connection with the purchase, provided such persons are informed of and bound
by Questron's confidentiality obligations hereunder. In the event the Closing
does not occur for any reason, each of Questron and Seller shall, promptly upon
the other's request, return all copies and recordings of the Confidential
Information in its possession or under its control and delete all records
thereof in any data storage system maintained by it. For the purposes of this
Section 5.4, Confidential Information shall not include information which (a)
the holder can reasonably demonstrate was already in the holder's possession,
provided that such information is not known by the holder to be subject to
another confidentiality agreement with, or other obligation of secrecy to
another party, (b) becomes generally available to the public other than as a
result of a disclosure by the holder or the holder's directors, officers,
employees, agents or advisors, or (c) becomes available to the holder on a
non-confidential basis from a source other than Seller or its advisors, provided
that such source is not known by the holder to be bound by a confidentiality
agreement with, or other obligation of secrecy to another party. Nothing
contained in this Section 5.4 or otherwise shall prohibit the holder from making
disclosure of Confidential Information to the extent required by law, rule or
regulation, provided that the holder shall give the other prior notice as to the
nature of the required disclosure so as to provide the other the opportunity to
challenge the need for such disclosure.
5.5 No Solicitation. Seller and the Company shall not, and each shall
direct their respective affiliates, representatives and agents and the Company's
officers and employees, 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
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thereto. Seller will promptly communicate to Questron the terms of any proposal
which it may receive in respect of all such transactions prohibited by the
foregoing.
5.6 Press Releases. Except as required by law or stock exchange or
NASDAQ regulation, any public announcements by any party regarding the
transactions contemplated hereby shall be made only with the consent of the
other parties.
5.7 Transitional Assistance. Seller shall reasonably cooperate with
and assist Questron in the orderly transfer of the business of the Company after
the Closing Date. Such cooperation and assistance shall include, but not be
limited to, the physical transfer of any books, records and computer software of
the Company.
5.8 Conditions. Seller shall use its best efforts to fulfill or cause
the fulfillment of the conditions set forth in Article 6. Questron shall use its
best efforts to fulfill or cause the fulfillment of the conditions set forth in
Article 7.
5.9 Rule 144. Following the Closing Date, Questron agrees to use
commercially reasonable efforts to cooperate with Seller with respect to
permitted sales of Questron Common Stock by Seller under Rule 144 of the
Exchange Act, including, without limitation, filing on a timely basis all
reports required under the Exchange Act.
5.10 SEC Filings. Questron will provide Seller with copies of all
reports filed by Questron under the Act and the Exchange Act subsequent to the
date hereof and prior to the Closing Date.
5.11 Purchase of Vehicles. Prior to the Closing, the Company and
Seller may transfer to Seller title and possession of the vehicles listed on
Schedule 5.11 on the terms set forth on such Schedule 5.11.
5.12 Employee Benefits. After the Closing, Questron shall cause the
Company to allow all employees of the Company to carry over their years of
service to the Company for purposes of vesting and qualifying for employee
benefits provided by Questron and the Company including, without limitation,
profit-sharing plans, insurance, retirement plans and vacation accruals.
5.13 Personal Items. Upon termination of Seller's employment with the
Company for any reason, Seller shall be entitled to remove, during normal
business hours and under supervision of a representative of the Company, all
personal and other items and furnishings owned by Seller currently located in
Seller's office and in the adjoining conference room from the Company's premises
without compensation to the Company.
5.14 Balance Sheets. (a) The Company and Seller, at the Company's
cost and expense, shall prepare and deliver to Questron, for its review and
approval, as soon as practicable, but in no event later than five days prior to
the Closing, (i) an unaudited balance sheet of the Company as at March 31, 1999
(the "March 31, 1999 Balance Sheet"), which shall be prepared on a basis
consistent with the December 31, 1998 Audited Balance Sheet and (ii) Seller's
calculation, set forth in reasonable detail, of Stated Net Debt and Net
Operating Assets at March 31, 1999.
(b) Questron, at its cost and expense, shall cause to be
prepared and delivered to the Company, for its review and approval, as soon as
practicable, (i) an audited balance sheet of the Company as at December 31, 1998
(the "December 31, 1998 Audited Balance Sheet"), which shall be prepared on
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a basis consistent with generally accepted accounting principles, and (ii)
Questron's calculation, set forth in reasonable detail, of Net Operating Assets
at December 31, 1998.
(c) In the event that either (x) Questron disputes Seller's
calculation of Stated Net Debt and/or Net Operating Assets at March 31, 1999 (or
the March 31, 1999 Balance Sheet itself), and/or (y) the Company disputes
Questron's calculation of Net Operating Assets at December 31, 1998 (or the
December 31, 1998 Audited Balance Sheet itself), such party shall notify the
other in writing of the nature of its dispute within three (3) days of its
receipt of notice from the other (a "Dispute Notice"). If the parties are unable
to agree upon such amounts within two (2) days after delivery of a Dispute
Notice, then the parties shall attempt to mutually agree on an independent
public accounting firm ("Accountant") who shall determine the disputed amounts
or items. If the parties are unable to agree upon a single Accountant within one
(1) day after delivery of the Dispute Notice, then each of the Company, on the
one hand, and Questron, on the other, shall select an Accountant and within two
(2) days of their appointment, the two Accountants shall select a third
Accountant. The determination(s) of the single Accountant or the average of two
of the three applicable disputed amounts or items determined by the three
Accountants which are closest in amount, as the case may be, shall be determined
as soon as practicable and shall be final and binding upon the parties. The
expenses of the determination of disputes amounts or items by the Accountant(s)
shall be shared equally by Questron or QDL, on the one hand, and Seller, on the
other.
5.15 HSR Act and Other Filings. As promptly as practicable after the
execution of this Agreement, each party shall, in connection with the others,
make or cause to be made any filing or filings required to be made in connection
with the transactions contemplated by this Agreement under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
with the Federal Trade Commission and the Antitrust Division of the Department
of Justice (and shall request the early termination of any applicable waiting
periods in connection therewith), and, as promptly as practicable from time to
time thereafter, each party shall make or cause to be made all such further
filings and submissions, and take or cause to be taken such further action, as
may reasonably be required in connection therewith. Each party agrees promptly
to provide the other party or parties with copies of all final consent,
approval, termination or confirmation letters provided to such party pursuant to
filings made under this section.
ARTICLE 6
CONDITIONS PRECEDENT OF QDL AND QUESTRON
QDL and Questron need not consummate the transactions contemplated by
this Agreement unless the following conditions shall be fulfilled or waived by
QDL or Questron in their sole discretion on or prior to the Closing:
6.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of Seller
contained in this Agreement and in any certificate or document delivered to
Questron pursuant hereto shall be deemed to have been made again at and as of
the Closing Date and shall then be true in all material respects, except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true in all
material respects as of such date, and (b) Seller shall have performed and
complied with all material agreements and conditions required by this Agreement
to be performed or complied with by Seller prior to or on the Closing Date, and
Questron shall have been furnished with certificates of Seller, dated the
Closing Date, certifying to the effect of clauses (a) and (b) of this Section
6.1.
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6.2 Due Diligence. Questron shall have completed, to its sole
satisfaction, its due diligence investigation of the Company.
6.3 Opinion of Counsel. Questron shall have been furnished with an
opinion dated the Closing Date of Wyatt Early Harris & Wheeler, L.L.P., counsel
for Seller and the Company, in substantially the form attached hereto as Exhibit
C.
6.4 No Actions. No action, suit, or proceeding before any court or
governmental or regulatory authority shall be pending, no investigation by any
governmental or regulatory authority shall have been commenced, and no action,
suit or proceeding by any governmental or regulatory authority shall have been
threatened, against Questron, Seller, the Company or any of the principals,
officers or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the legality or validity of any
such transactions or seeking damages in connection with any such transactions.
6.5 Consents. All consents of third parties, including, without
limitation, any and all consents required by Section 5.10 above and any other
consents required by any other governmental authorities or non-governmental
self-regulatory agencies, and all filings with and notifications of governmental
authorities (including any and all filings required by Section 5.10 above),
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of Questron, Seller or the Company
necessary on the part of Questron, Seller or the Company, to the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and to permit the continued operation of the respective businesses of
Questron and the Company in substantially the same manner immediately after the
Closing Date as theretofore conducted, other than routine post-closing
notifications or filings, shall have been obtained or effected or any applicable
waiting period shall have expired or terminated.
6.6 Employment Agreement. James R. Gilchrist shall have executed and
delivered an Employment Agreement substantially in the forms attached as Exhibit
D hereto (together with the "Restrictive Letter" and any other exhibits attached
thereto, the "Employment Agreement").
6.7 Outstanding Seller Loans. Except with respect to the Company
guaranty(ies) described on Schedule 6.7, any outstanding loans from or
guarantees by the Company to or for the benefit of Seller shall have been
satisfied and discharged or otherwise have terminated or been canceled, and
Seller and the Company shall have delivered to Questron satisfactory evidence
thereof.
6.8 Financing. Questron shall have obtained financing on terms
reasonably satisfactory to it in an amount sufficient to pay the purchase
consideration contemplated by Section 1.2 and fees and expenses related to the
transactions contemplated by this Agreement.
6.9 Material Adverse Change. There shall have been no material
adverse change in the financial conditions, assets, liabilities (contingent or
otherwise), results of operations or business of the Company since December 31,
1998.
6.10 Releases. QDL and Questron shall have received UCC-3 Termination
Statements, payoff letters or other evidence satisfactory to QDL and Questron
that each of the security interests held by the parties identified on Schedule
3.8(b), other than that held by Yates, have been released. In addition, Questron
and QDL shall have received a written release, in form and substance
satisfactory to Questron and QDL, releasing the Company from any and all
guarantees of obligations of Seller (or any of his
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affiliates), including, without limitation, the Company's guarantee in favor of
First Citizens Bank referred to on Schedule 3.20 and 6.7.
ARTICLE 7
CONDITIONS PRECEDENT OF THE COMPANY AND SELLER
The Company and Seller need not consummate the transactions
contemplated hereby unless the following conditions shall be fulfilled or waived
by the Company or Seller in their sole discretion on or prior to the Closing:
7.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of
Questron and QDL contained in this Agreement or in any certificate or document
delivered to Seller pursuant hereto shall be deemed to have been made again at
and as of the Closing Date and shall then be true in all material respects, and
(b) Questron and QDL shall have performed and complied with all material
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or on the Closing Date, and Seller shall have been furnished
a certificate of an appropriate officer of Questron, dated the Closing Date,
certifying to the effect of clauses (a) and (b) of this Section 7.1.
7.2 No Actions. No action, suit, or proceeding before any court,
governmental or regulatory authority, administrative agency or arbitrator shall
be pending, no investigation by any governmental or regulatory authority shall
have been commenced, and no action, suit or proceeding by any Person shall have
been threatened, against Seller, Questron or QDL seeking to restrain, prevent,
or change the transactions contemplated hereby or questioning the legality or
validity of any such transactions or seeking damages in connection with any such
transactions.
7.3 Consents. All consents of third parties including, without
limitation, any and all consents required by Section 5.10 above and any other
consents required by any other governmental authorities or non-governmental
self-regulatory agencies, and all filings with and notifications of governmental
authorities (including any and all filings required by Section 5.10 above),
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of Seller, Questron or QDL, necessary
on the part of Seller, Questron or QDL, to the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, other
than routine post-closing notifications or filings, shall have been obtained or
effected or any applicable waiting period shall have expired or terminated.
7.4 Employment Agreements. Questron shall have caused the Employment
Agreement to be duly executed and delivered by the Company.
7.5 Opinion of Counsel. Seller shall have been furnished with an
opinion, dated the Closing Date, of Battle Fowler LLP, counsel to Questron and
QDL, in substantially the form attached hereto as Exhibit E.
7.6 No Material Adverse Change. There shall have been no material
adverse change in the financial condition, assets, liabilities (contingent or
otherwise), results of operations or business of Questron and its subsidiaries,
taken as a whole, since September 30, 1998.
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7.7 Board Approval. The secretary of Questron shall have delivered to
the Company and Seller resolutions of Questron's and QDL's boards of directors
authorizing the execution, delivery and performance by Questron and QDL,
respectively, of this Agreement and any related agreements, documents and
instruments, and the transactions contemplated hereby and thereby, accompanied
by a Secretary's Certificate to the effect that such resolutions are true,
complete and correct and have not been amended as of the Closing.
7.8 Payoff of Indebtedness. All outstanding indebtedness payable
under (i) the promissory note, dated October 14, 1998, payable to the High Point
Bank and Trust Company in the principal amount of $1,537,587.31, and (ii) the
promissory note, dated January 25, 1995, payable to Production Marketing, Inc.
in the principal amount of $180,000.00, shall have been paid off or, in the
alternative, provision shall have been made to pay off such indebtedness within
three (3) business days of the Closing.
7.9 Lease Agreements. At or prior to the Closing, the Company shall
have executed and delivered to Capital Property Investments, LLC, as Lessor, (i)
a Lease Agreement for the Company's facility in High Point, North Carolina, in
substantially the form attached hereto as Exhibit F, but with such changes to
the terms and provisions thereof as shall be negotiated and agreed upon by the
parties hereto prior to the execution and delivery thereof by the Company, and
(ii) a Lease Agreement for a facility to be constructed by Capital Property
Investments, LLC, as Lessor in Chesapeake, Virginia, in substantially the form
attached hereto as Exhibit G, but with such changes to the terms and provisions
thereof as shall be negotiated and agreed upon by the parties hereto prior to
the execution and delivery thereof by the Company. The parties acknowledge each
of such lease agreements shall remain in full force and effect following the
Closing, in accordance with their terms.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Seller. Effective only from and upon the
occurrence of the Closing, and subject to Section 8.3 below, Seller hereby
agrees to 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, but excluding consequential or incidental damages
(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 Seller; and (ii) failures by Seller 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 Seller to
the extent any governmental authority seeks to impose such Taxes on
the Company) for, or relating to, all periods prior to the Effective
Date to the extent that such Taxes exceed the amount of tax
liabilities identified on Schedule 1.2;
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(c) any and all liability arising out of a claim for
indemnity made by Yates under the Stock Redemption Agreement; and
(d) 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 Seller in writing thereof,
provided further, however, that the failure to so notify Seller shall not reduce
or affect Seller's obligations with respect thereto except to the extent that
Seller is materially prejudiced thereby. Subject to rights of or duties to any
insurer or other third Person having liability therefor, Seller 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 Seller shall have exercised its 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 Seller) in
any such matter. So long as Seller is 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.
8.2 Indemnification by Questron. Questron and QDL, jointly and
severally, hereby agree to defend, indemnify and hold harmless Seller and its
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), but in no event consequential or incidental
damages or losses (collectively, "Seller Losses"), resulting from or arising out
of:
(a) breaches of representation and warranty hereunder on
the part of Questron and failures by Questron or QDL to perform or
otherwise fulfill any undertaking or agreement or obligation
hereunder;
(b) any liabilities of Seller arising out of any facts,
circumstances or events existing or occurring after the Closing Date,
including, without limitation, the operations of the Company after
the Closing Date and any product liability claim with respect to any
products, goods or services distributed or sold by the Company after
the Closing Date (except, in all cases, for any facts, circumstances
or events, the existence of which, constitute a breach by Seller or
the Company of any representation or warranty set forth in this
Agreement); and
(c) 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
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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 such Seller Indemnified Claims (provided that any
compromise or settlement must be reasonably approved by Seller) including, at
its own expense, employment of counsel reasonably satisfactory to Seller;
provided, however, that if Questron shall have exercised its right to assume
such control, Seller may, in its sole discretion and at its expense, employ
counsel to represent it (in addition to counsel employed by Questron) in any
such matter. So long as Questron is contesting such Seller Indemnified Claim in
good faith, Seller or such other Seller Indemnitees shall not pay or settle any
such Seller Indemnified Claim.
8.3 Limitation on Liability. (a) The aggregate liability of Seller
under this Article 8 shall not exceed $5,000,000 (five million dollars). The
aggregate liability of Questron under this Article 8 shall in no event exceed
$1,000,000 (one million dollars) in the aggregate.
(b) Notwithstanding anything contained herein to the
contrary, Seller shall have no obligation to indemnify and hold harmless any
Questron Indemnitee with respect to any Questron Losses pursuant to a claim for
indemnity under Section 8.1(a)(i) and 8.1(d) (to the extent such Section relates
to Section 8.1(a)(i)) unless the aggregate amount of such Questron Losses in
respect thereof exceeds Two Hundred Thousand Dollars ($200,000) (at which time
Questron may assert and recover the full amount of such Questron Losses, other
than the first One Hundred Thousand Dollars ($100,000) of such Questron Losses,
which shall not be recoverable by Questron); provided, that, the foregoing
limitation in this paragraph (b) shall not apply to the representations and
warranties set forth in Sections 3.5, 3.6, 3.14 and 3.29.
(c) The amount of any insurance proceeds received or
receivable (and not subject to any dispute with the insurer) by any Questron
Indemnitee to cover Questron Losses shall be deducted from the Questron Losses
otherwise payable by Seller to the Questron Indemnitees.
8.4 Right to Indemnification Not Affected by Knowledge. The right to
indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be limited or
affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement, with respect to the accuracy or
inaccuracy of or compliance with, any such representation, warranty, covenant,
or obligation.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Representations, Warranties and Covenants. The covenants
contained in this Agreement shall survive the Closing Date without limitation.
The representations and warranties contained herein shall survive the Closing
Date for a period of two (2) years, except that any representation or warranty
of Seller contained in Sections 3.12 (Financial Statements) and 3.29
(Environmental Matters) shall survive the Closing Date without limitation, any
representation or warranty of Seller contained in Sections 3.1 (Authority; Due
Execution), 3.5 (Ownership of Shares) and 3.6 (Capitalization) shall survive
until the tenth anniversary of the Closing Date, and any representation or
warranty of Seller contained in Section 3.14 (Tax Matters) shall survive until
the expiration of one year after the expiration of the applicable statute of
limitations (provided, that if Seller or the Company and the United States
Internal Revenue Service or other taxing authority have agreed to extend the
applicable statute of limitations beyond any such period, then
790690.11
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<PAGE>
in such case such representations and warranties shall survive to the date on
which such agreement to extend expires).
ARTICLE 10
NON-COMPETITION BY SELLER AND NO SOLICITATION
10.1 Non-Compete. In consideration of the purchase by Questron of the
Shares under this Agreement, Seller will at the Closing execute and deliver
non-compete agreements in the form attached to the Employment Agreement.
10.2 Remedies. Seller recognizes that a breach or threatened breach
by him of his obligations under this Article 10 and the Employment Agreement
would cause irreparable injury to the Company, and the Company shall be entitled
to seek preliminary and permanent injunctions enjoining him from violating the
non-compete agreements contemplated by this Article 10, in addition to any other
remedies which may be available.
ARTICLE 11
MISCELLANEOUS
11.1 Cooperation. Each of the parties hereto shall use its reasonable
efforts to take or cause to be taken all actions, to cooperate with the other
party hereto with respect to all actions, and to do or cause to be done all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
11.2 Waiver. Any failure of Seller to comply with any of their
respective obligations or agreements herein contained may be waived only in
writing by Questron. Any failure of Questron to comply with any of its
obligations or agreements herein contained may be waived only in writing by
Seller.
11.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given upon receipt of: hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
(i) If to the Company (prior to the Closing), to:
Capital Fasteners, Inc.
1920 West Green Drive
High Point, North Carolina 27265
Telecopier: (336) 884-4020
Telephone: (336) 884-4016
Attention: James R. Gilchrist
790690.11
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<PAGE>
If to Seller, to:
James R. Gilchrist
507 Cascade Drive
High Point, North Carolina 27265
Telephone (336) 884-0301
Telecopier (336) 884-0302
in each case, (with a copy to)
Wyatt Early Harris & Wheeler
P.O. Drawer 2086
High Point, North Carolina 27261
Telecopier: (336) 889-5232
Telephone: (336) 884-4444
Attention: Charles L. Cain, Esq.
(ii) If to Questron, to
Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, Florida 33487
Telecopier: (561) 241-2866
Telephone: (561) 241-5251
Attention: Dominic A. Polimeni
(with a copy to)
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, New York 10022
Telecopier: (212) 856-7816
Telephone: (212) 856-7000
Attention: Luke P. Iovine III, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
11.4 Governing Law and Consent to Jurisdiction; Dispute Resolution.
(a) This Agreement shall be governed by and construed in accordance with the
internal substantive laws, and not the choice of law rules, of the State of
Delaware.
(b) Any dispute, claim or controversy arising out of or
relating to this Agreement, or the interpretation or breach thereof, shall be
referred to arbitration under the rules of the American Arbitration Association,
to the extent such rules are not inconsistent with this Section 11.4. Judgment
upon the award of the arbitrators may be entered in any court having
jurisdiction thereof or such court may be asked to judicially confirm the award
and order its enforcement, as the case may be. The demand for arbitration shall
be made within a reasonable time after the claim, dispute or other matter in
question has
790690.11
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<PAGE>
arisen, and in any event shall not be made after the date when institution of
legal or equitable proceedings, based on such claim, dispute or other matter in
question, would be barred by the applicable statute of limitations.
(c) The arbitration panel shall consist of three
arbitrators, one of whom shall be appointed by each party hereto. The two
arbitrators thus appointed shall choose the third arbitrator; provided, however,
that if the two arbitrators are unable to agree on the appointment of the third
arbitrator, either arbitrator may petition the American Arbitration Association
to make the appointment.
(d) The place of arbitration shall be Delaware.
11.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.6 Headings; Schedules. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All references to "Schedules" shall
mean the disclosure schedules heretofore delivered by Seller to Questron.
11.7 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the documents referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of the parties hereto.
11.9 Binding Effect; Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns; nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto and their
respective successors and assigns (and, to the extent provided in Sections 8.1
and 8.2, the other Questron Indemnitees and Seller Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
11.10 Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties, provided
that Questron may assign its rights under the Agreement to any affiliate of
Questron, but such assignment shall not relieve Questron of primary liability
for its obligations hereunder.
[Signature page follows]
790690.11
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By:/s/ Dominic A. Polimeni
------------------------------------
Name: Dominic A. Polimeni
Title: Chairman, President and
Chief Executive Officer
QUESTRON DISTRIBUTION LOGISTICS,
INC.
By:/s/ Dominic A. Polimeni
-------------------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief Executive
Officer
790690.11
<PAGE>
/s/ James R. Gilchrist
----------------------------------------
James R. Gilchrist
CAPITAL FASTENERS, INC.
By:/s/ James R. Gilchrist
-------------------------------------
Name: James R. Gilchrist
Title: President
790690.11
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Exhibit 2.4
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to Stock Purchase Agreement is dated as of June 25, 1999,
by and between QUESTRON DISTRIBUTION LOGISTICS, INC. a Delaware corporation
("QDL"), QUESTRON TECHNOLOGY, INC., a Delaware corporation ("Questron"), JAMES
R. GILCHRIST ("Gilchrist"), CAPITAL FASTENERS, INC., a North Carolina
corporation (the "Company") and JAMES R. GILCHRIST REVOCABLE TRUST UNDER
AGREEMENT DATED JUNE 25, 1999, JAMES R. GILCHRIST GRANTOR AND TRUSTEE (the
"Trust").
WITNESSETH:
WHEREAS, Questron, QDL, Gilchrist and the Company are parties to a Stock
Purchase Agreement dated as of April 26, 1999 (the "Stock Purchase Agreement"),
providing for the sale by Gilchrist to QDL of all the issued and outstanding
share of capital stock of the Company (the "Shares"); and
WHEREAS, Gilchrist has transferred to the Trust all of Gilchrist's
beneficial and record ownership of the Shares; and
WHEREAS, the parties now desire to enter into this Amendment to Stock
Purchase Agreement, to provide for the addition of the Trust as a party to the
Stock Purchase Agreement, for purposes of assuming and performing on a joint and
several basis with Gilchrist the obligations of Gilchrist under the Stock
Purchase Agreement including, without limitation, the obligations of Gilchrist
with respect to the transfer and sale of the Shares;
NOW, THEREFORE, in consideration of the mutual covenants and premises
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby mutually acknowledged, the parties hereto agree
as follows:
1. The Stock Purchase Agreement is hereby amended to add the Trust as a
party to the Stock Purchase Agreement. The Trust hereby undertakes, assumes and
agrees to perform all the obligations of Gilchrist as the "Seller" under the
Stock Purchase Agreement, in accordance with its terms; provided, however, that
Gilchrist shall remain jointly and severally obligated to perform any and all
obligations of Seller under the Stock Purchase Agreement, including, but not
limited to, any and all of Seller's indemnity obligations under the Stock
Purchase Agreement.
2. The Trust is hereby substituted in place of Gilchrist under the Stock
Purchase Agreement for the purpose of transferring to QDL valid record and
beneficial title to the Shares in accordance with the Stock Purchase Agreement.
The parties acknowledge that payment of the Initial Purchase Price and the
Deferred Purchase Price (as such terms are
853597.1
<PAGE>
defined in the Stock Purchase Agreement), to the extent payable under the Stock
Purchase Agreement, shall be made to the Trust.
3. The Trust hereby undertakes, assumes and agrees to perform and make,
on behalf of itself, the Company and Gilchrist, as and to the fullest extent
applicable, all of the representations and warranties, covenants and obligations
whatsoever (including, but not limited to, any and all of Seller's indemnity
obligations under the Stock Purchase Agreement) of Gilchrist under the Stock
Purchase Agreement including, without limitation, the representations and
warranties of Gilchrist set forth in Paragraphs 3.1 ("Authority; Due
Execution"), 3.5 ("Ownership of Shares"), 3.7 ("No Violation") and 3.31
("Investment Intent").
4. Gilchrist acknowledges that nothing herein shall release him from his
obligations under the Stock Purchase Agreement including, but not limited to,
any and all of Seller's indemnity obligations under the Stock Purchase
Agreement. Gilchrist and the Trust acknowledge that their obligations under the
Stock Purchase Agreement shall be joint and several.
5. This Amendment may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Amendment shall be
governed by and construed in accordance with the terms, conditions and
provisions of the Stock Purchase Agreement. Unless otherwise defined herein all
defined terms herein shall have such meaning ascribed to such terms in the Stock
Purchase Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
as of the date first above written.
QUESTRON DISTRIBUTION LOGISTICS, INC.
By: /s/ Dominic A. Polimeni
---------------------------------------
Title: Chairman and Chief Executive Officer
QUESTRON TECHNOLOGY, INC.
By: /s/ Dominic A. Polimeni
---------------------------------------
Title: Chairman and Chief Executive Officer
/s/ James Gilchrist
-------------------------------------------
James R. Gilchrist
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
853597.1
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<PAGE>
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
CAPITAL FASTENERS, INC.
By: /s/ James R. Gilchrist
--------------------------------
James R. Gilchrist, President
JAMES R. GILCHRIST REVOCABLE TRUST
UNDER AGREEMENT DATED JUNE 25, 1999,
JAMES R. GILCHRIST GRANTOR AND
TRUSTEE
By: /s/ James R. Gilchrist
--------------------------------
James R. Gilchrist, Trustee
853597.1
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Exhibit 2.5
QUESTRON TECHNOLOGY, INC.
QUESTRON DISTRIBUTION LOGISTICS, INC.
6400 Congress Avenue, Suite 200A
Boca Raton, Florida 33487
June 29, 1999
Capital Fasteners, Inc.
1920 West Green Drive
High Point, North Carolina 27265
James R. Gilchrist Revocable Trust Under Agreement Date June 25, 1999
507 Cascade Drive
High Point, North Carolina 27265
Gentlemen:
Reference is made to that certain Stock Purchase Agreement, dated as of
April 26, 1999, by and between Questron Distribution Logistics, Inc., Questron
Technology, Inc., James R. Gilchrist and Capital Fasteners, Inc. (as amended,
the "Agreement"). The undersigned hereby agree to amend the Agreement by
replacing in their entirety Exhibits A and B to the Agreement with Exhibits A
and B attached hereto. Except as modified by this letter agreement, all of the
terms, covenants and conditions of the Agreement shall remain in full force and
effect. This letter agreement may be executed in one or more counterparts which,
taken together, shall constitute one and the same document.
Sincerely,
QUESTRON TECHNOLOGY, INC.
By: /s/ Dominic A. Polimeni
------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief
Executive Officer
QUESTRON DISTRIBUTION LOGISTICS, INC.
By: /s/ Dominic A. Polimeni
------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief
Executive Officer
AGREED TO AND ACCEPTED:
JAMES R. GILCHRIST REVOCABLE TRUST UNDER AGREEMENT
DATED JUNE 25, 1999
By: /s/ James R. Gilchrist
------------------------------
James R. Gilchrist, as Trustee
852569.1
<PAGE>
Exhibit A
Form of Senior A Note
<PAGE>
REVISED DRAFT
FORM OF SENIOR A NOTE
SENIOR A NOTE
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS, AND NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED, UNLESS SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS
AVAILABLE.
QUESTRON FINANCE CORP.
$_________ New York, New York
________ __, 1999
FOR VALUE RECEIVED, the undersigned, QUESTRON FINANCE CORP., a Delaware
corporation ("Maker"), hereby promises to pay to the order of _________
("Payee"), an individual residing at ____________________, at such address or at
such other location as Payee shall have specified (by not less than 3 Business
Days' prior written notice to Maker delivered in accordance with Section 11
hereof), the principal amount of $__________, in accordance with the terms set
forth below, in lawful money of the United States of America, together with
interest on the unpaid principal balance from time to time outstanding, at such
address and in such currency, in the manner provided below.
1. Interest. Subject to Section 4 below, Maker promises to pay interest
(calculated on the basis of a 365-day year) on the unpaid principal balance from
time to time outstanding (including, without limitation, with respect to any and
all principal payment deferrals which may occur, from time to time, while this
Note is outstanding), together with any Interest Deficiency Amount (as defined
in Section 4 below) from time to time outstanding hereunder, to the extent
permitted by law, at the rate of 8.5% per annum, payable on a semi-annual basis
(each, an "Interest Payment Period") in arrears on each April 10 and October 10,
commencing April 10, 2000 (each, an "Interest Payment Date").
2. Principal Amount. Subject to Section 4 below, the principal amount
of this Note shall be due and payable in the following three annual
installments: (i) on June 30, 2000 (the "First Payment Date"), Maker shall pay
Payee $_________ [25% of principal]; (ii) on June 30, 2001 (the "Second Payment
Date"), Maker shall pay Payee $_________ [25% of principal]; and (iii) on June
30, 2002 (the "Third Payment Date" and together with the First Payment Date and
the Second Payment Date, each a "Payment Date" and collectively, the "Payment
Dates"), Maker shall pay Payee the remaining principal balance then outstanding
of this Note.
828410.11
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<PAGE>
3. Payments. Any and all payments of principal and interest in
connection with this Note shall be made by certified check to Payee's address
listed in Section 11 (Notice) below or at such other place as Payee or such
other registered holder shall designate to Maker in writing or by wire transfer
of immediately available funds to an account designated by Payee in writing. If
the payment of principal and interest on this Note is due on a day which is not
a Business Day, such payment shall be due on the next succeeding Business Day,
and such extension of time shall be taken into account in calculating the amount
of interest payable under this Note. "Business Day" means any day other than a
Saturday, Sunday or legal holiday in the United States of America.
4. Limitations on Certain Payments; Conversion. (a) To the extent that
accrued and unpaid interest payable on any Interest Payment Date exceeds the
Available Amount (as defined below) as of such date (such difference being
referred to herein as the "Interest Deficiency Amount"), Maker shall defer
payment of that Interest Deficiency Amount to the earlier of (i) the Third
Payment Date or (ii) the next succeeding Interest Payment Date, at which there
exists Available Amount sufficient in amount to make such interest payment, or
any portion thereof.
(b) To the extent that the face amount of any scheduled principal
payment, at the applicable Payment Date, exceeds the difference between (i) the
Available Amount (as defined below) less (ii) the interest paid, or to be paid,
to Payee at any corresponding Interest Payment Date (together with the aggregate
amount of any Interest Deficiency Amounts in respect of any prior Interest
Payment Periods, "Accrued Interest"), then Maker shall pay Payee, in the manner
provided herein, on the applicable Payment Date:
(A) that portion of the required principal payment which is equal to the
difference between the Available Amount less the Accrued Interest (the
"Mandatory Principal Payment");
(B) that portion of the outstanding principal amount of this Note equal to
the difference between the then scheduled principal payment and the
Mandatory Principal Payment (such difference being referred to herein
as a "Conversion Amount") shall be deemed converted on such Payment
Date (each a "Conversion"), in the manner provided in Section 5 below,
into such number of fully paid and non-assessable shares of common
stock, par value $0.001 per share (the "Common Stock"), of Questron
Technology, Inc., a Delaware corporation and the parent corporation of
Maker ("Questron Technology"), as shall be obtained by dividing the
Conversion Amount by the Conversion Price (as defined below) (the
"Conversion Shares"). The "Conversion Price" shall mean the average
closing market price per share of Common Stock for the twenty (20)
trading days ending on the seventh (7th) trading day preceding the
applicable Payment Date, as reported by the Wall Street Journal;
provided, however, with respect to all Payment Dates other than the
Third Payment Date, in no event shall the Conversion Price be less than
$4.00 per share. If, in any such case, the average closing market price
per share of Common Stock for the twenty (20) trading days ending on
the seventh (7th) trading day preceding the applicable Payment Date is
less than $4.00 per share (the "Average Price"), an amount of principal
equal to Conversion Shortfall (as defined below) shall be deferred for
payment on the Third Payment Date; and
828410.11
2
<PAGE>
(c) on the Third Payment Date, to the extent there remains outstanding
hereunder any Interest Deficiency Amounts and/or any Conversion Shortfall
amounts (collectively, the "Final Payment Amount"), Maker shall, in its sole
discretion, either (i) pay to Payee, in the manner prescribed in Section 3
above, all or a portion of the Final Payment Amount, or (ii) convert such
portion of the Final Payment Amount that remains unpaid pursuant to the
preceding clause (i) into shares of Questron Technology Common Stock, based on
the average closing market price per share of Common Stock for the twenty (20)
trading days ending on the seventh (7th) trading day preceding the applicable
date of such conversion.
As used herein, "Conversion Shortfall" means an amount equal to the applicable
Conversion Amount, minus the product of (x) the number of Conversion Shares to
be issued as provided above, multiplied by (y) the Average Price. The occurrence
of a Conversion shall not constitute a default or Event of Default hereunder.
(d) For purposes of this Note, "Available Amount" shall mean, subject
to the next succeeding sentence, the dollar amount which is equal to fifty
percent (50%) of the reported consolidated net income of Questron Technology and
its subsidiaries (after adjustment to exclude the operating results of Maker)
for the twelve month period ended on the date of the most recent financial
statements of Questron Technology, as reflected in the most recently filed
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
of Questron Technology preceding the applicable payment date, provided, however,
that the Available Amount shall be deemed to be zero in the event that Questron
Operating Company, Inc., a Delaware corporation and a wholly-owned subsidiary of
Maker ("QOC") is prohibited, pursuant to the terms and conditions of its
instruments for borrowed money, from distributing or dividending funds to Maker
on the applicable payment date. By acceptance of this Note, Payee acknowledges
that this Note is one of a series of Senior A Notes of Maker and that Maker is
concurrently issuing to certain holders a series of Senior B Notes, and agrees
that scheduled, required payments of any Available Amounts to holders of Senior
A Notes and/or Senior B Notes, as the case may be, and any payments required
pursuant to Section 6 below, shall be made pro rata to all such holders to the
extent any such payments are concurrently scheduled or required to be made,
based on the original principal amounts of each respective Senior A Note and/or
Senior B Note, as the case may be, and that as used herein, the term Available
Amount refers only to the pro rata portion thereof relating to this Note.
5. Conversion Procedures; Registration. (a) On any Payment Date on
which a Conversion shall occur, Maker shall cause a notice of conversion (each a
"Conversion Notice") to be delivered to Payee at Payee's address appearing in
Section 11 (Notice) below or to such other registered holder at such other place
as such other registered holder shall designate to Maker in writing specifying
the Conversion Amount, Conversion Price and number of Conversion Shares, no
later than five (5) days prior to the Payment Date upon which any such
conversion shall occur. Promptly upon receipt of a Conversion Notice, Payee or
such other registered holder shall (x)(i) if applicable to the First or Second
Payment Date, surrender this Note for cancellation and a new Note shall be
issued by maker and delivered to the holder in the face amount of the principal
outstanding under this Note after giving effect to the applicable Conversion
and, (ii) if on the Third Payment Date, surrender this Note for cancellation,
and, (y) deliver to maker a written statement specifying the name or names (with
address) in which the Conversion Shares which shall be issuable on such
Conversion shall be issued (provided, however, that Conversion Shares will be
issued in the name of Payee unless otherwise specified as provided herein). The
failure by payee to so surrender the Note, or the failure by Payee or such other
registered holder to present the Note to maker, shall not, in either case,
effect the validity of the Conversion and following
828410.11
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<PAGE>
delivery of such Conversion Notice the Conversion shall, in all cases, be deemed
to have occurred and be effective on the applicable Payment Date and this Note
shall be deemed to evidence the obligation to pay principal in an amount which
gives effect to such conversion.
(b) When surrendered for Conversion, this Note shall, unless the shares
of Common Stock issuable on Conversion are to be issued in the same name as the
name in which this Note is then registered, be duly endorsed by, or accompanied
by instruments of transfer in form satisfactory to Maker duly executed by Payee
or such other registered holder, or their respective duly authorized attorney.
As promptly as practicable following the applicable Payment Date, Maker shall
deliver, or cause to be delivered, to Payee or to such other registered holder,
or on such party's written order, a certificate or certificates for the number
of full shares issuable upon the conversion of this Note, or a portion hereof,
in accordance with the provisions hereof and, if applicable, a check in lieu of
any fractional shares. Upon Conversion of all or any portion of this Note, the
registered holder may be required to execute and deliver to the issuer an
instrument, in form satisfactory to the issuer, representing that the shares
issuable upon conversion hereof are being acquired for investment and not with a
view to distribution within the meaning of the Act, together with such other
certifications and agreements as Maker shall reasonably request.
(c) Questron Technology covenants and agrees to file a registration
statement covering the resale of any Conversion Shares (the "Shelf
Registration") and to use its best efforts to cause such registration statement
to become effective prior to the issuance of the Conversion Shares. Questron
shall use its best efforts to maintain the effectiveness of the Shelf
Registration until such time as the Seller has sold all of its Conversion Share
or such shares are eligible for resale pursuant Rule 144 of the Act, without
limitation. Prior to such time as the applicable Conversion Shares are so
registered, such shares shall be restricted securities under the Act, will not
have been registered under the Act and may not be sold or transferred 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 the Act. In connection with such registration, Payee or such
other permitted holder of such shares, shall provide to Questron Technology such
information, and execute and deliver such certificates and other agreements, as
it may reasonably request.
6. Mandatory Repayment. (a) To the extent that on any Interest Payment
Date or Payment Date, the Available Amount exceeds the scheduled principal
payment amount and/or interest payment amount (including, without limitation,
accrued Interest Deficiency Amounts) due and owing on such date, such excess
Available Amount shall be used to prepay this Note, in whole, if sufficient, or
otherwise in part, without premium or penalty.
(b) In addition, in the event that (i) Maker, Questron Technology or
QOC consummates (i) a registered public offering of equity securities after the
date hereof (an "Offering"), and (ii) Maker, Questron Technology or QOC
consummates a public or Rule 144A or Regulation D (or their respective
successors) private offering of debt securities after the date hereof for the
purpose of acquiring assets or refinancing indebtedness and "excess proceeds"
are realized therefrom (a "Debt Offering"), Maker shall apply, and Questron
Technology shall cause to be applied, the net proceeds from such Offering or
"excess proceeds" from such Debt Offering, as the case may be, to prepay, in
whole, if sufficient , or otherwise in part, outstanding principal and accrued
and unpaid interest under this Note, without penalty or premium. As used herein
"excess proceeds", means the net proceeds to the applicable company after the
application of proceeds in connection with any acquisition(s) or refinancing,
and the
828410.11
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<PAGE>
payment of related transaction costs. Any partial prepayments of principal shall
be applied to installments of principal in the order of their maturity.
7. Prepayment. Maker may, without premium or penalty, at any time and
from time to time, prepay all or any portion of the outstanding principal
balance due under this Note, provided that each such prepayment is accompanied
by accrued interest on the amount of principal prepaid calculated to the date of
such prepayment. Any partial prepayments shall be applied to installments of
principal in the order of their maturity. Any mandatory or voluntary prepayment
on this Note shall be applied first to accrued and unpaid interest on this Note
then to the principal.
8. No Guarantees. Neither Questron Technology, nor any affiliate or
subsidiary thereof, or any other person or entity has guaranteed the performance
by Maker or Questron Technology, as the case may be, of their respective
obligations under this Note or the transactions contemplated hereby.
9. Events of Default. (a) Upon the occurrence of any of the following
events of default ("Events of Default"): (i) a Change of Control (as defined
below) shall have occurred; (ii) a case or proceeding under the bankruptcy laws
of the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Maker or all or any substantial
part of its properties and such petition or application is not dismissed within
ninety (90) days after the date of its filing or Maker shall file any answer
admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner; (iii) a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at law or equity) is filed by Maker or for all or any part of
its property; or (iv) Maker shall fail to pay (whether in cash or pursuant to a
Conversion) as and when due (whether at stated maturity, by mandatory
prepayment, acceleration or otherwise) any principal on this Note when due and
payable, or shall fail to pay interest on this Note within ten (10) Business
Days after the same becomes due and payable or fails to make payment or
otherwise perform on a timely basis any other obligation or covenant called by
this Note for 30 days following the receipt by Maker of written notice thereof
from Payee (unless Maker shall be diligently pursuing a remedy of such breach in
which event the 30 day period referred to in this clause shall extend to 90
days); then, and in each and every such case, the holder hereof may by notice in
writing to Maker declare all amounts owing hereunder to be due and payable, and
they shall forthwith become due and payable without further action; provided,
however, that Payee by written notice to Maker may waive any default or rescind
and annul any such acceleration, but no such waiver or rescission and annulment
shall extend to or affect any subsequent default or impair any right consequent
thereon or any term, provision or covenant herein.
(b) For purposes of this Note, "Change of Control" shall mean the
occurrence of any of the following events: (i) any "person" as such term is used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the applicable entity specified below or any
subsidiary or affiliate thereof or any stockholder (and such stockholder's
affiliates) as of the date hereof and direct transferees thereof, becomes, after
the date hereof, the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of the securities of Maker, QOC, or
Questron Distribution
828410.11
5
<PAGE>
Logistics, Inc., representing 50.1% or more of the total voting power
represented by such entity's then outstanding securities that vote generally in
the election of directors ("Voting Securities"), (ii) the merger or
consolidation of any such entity with any other corporation (other than an
affiliate or subsidiary), other than a merger or consolidation in which the
Voting Securities of any such entity outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least a majority of the total
voting power of the surviving entity, or (iii) the sale (in one transaction) of
all or substantially all of the assets of any such entity, other than to a
subsidiary or affiliate of any such entity.
10. Jurisdiction and Related Matters. (a) Maker and Payee irrevocably
consent and submit to the non-exclusive jurisdiction of the State of Delaware
and the United States District Court located in the city of Wilmington, Delaware
and waive any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Note or in any way connected
with or related or incidental to this Note whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agrees that any
dispute with respect to any such matters shall be heard only in the courts
described above.
(b) Maker hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth below and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Payee's option, by service upon
Maker in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Maker shall appear in answer to such
process, failing which Maker shall be deemed in default and judgment may be
entered by Payee against Maker for the amount of the claim and other relief
requested.
(c) The validity, interpretation and enforcement of this Note, shall be
governed by the internal laws of the State of Delaware (without giving effect to
principles of conflicts of law).
(d) MAKER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS NOTE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. MAKER
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PAYEE MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE
OF ITS CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
11. Notice. All notices, requests and demands hereunder shall be in
writing and (i) made to a party at the following addresses:
To Borrower:
Questron Finance Corp.
c/o Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
828410.11
6
<PAGE>
Boca Raton, Florida 33487
Attention: Dominic A. Polimeni
Tel: (561) 241-2866
Fax: (561) 241-5251
with a copy to:
Battle Fowler LLP
Park Avenue Tower 75 East 55th Street
New York, New York 10022
Attention: Luke P. Iovine, III, Esq.
Telephone: (212) 856-7000
Facsimile: (212) 856-7816
To Payee:
[insert name]
[insert address]
Telephone:
Facsimile:
with a copy to:
[to be provided]
Telephone:
Facsimile:
Attention:
or to such other address as either party may designate by written notice to the
other in accordance with this provision, and (i) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
12. Amendments. No provision of the Note may be waived, modified,
amended or discharged orally or otherwise, except by a writing duly executed by
Maker and the holder hereof.
13. Section Headings, Construction. (a) The headings of Sections and
Subsections in this Note are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Note unless otherwise
specified.
(b) All words used in this Note will be construed to be of such gender
or number as
828410.11
7
<PAGE>
the circumstances require. Unless otherwise expressly provided, the words
"hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
QUESTRON FINANCE CORP.
By: _________________________
Name:
Title:
AGREED TO AND ACCEPTED (solely with
respect to Sections 4(b)(B) and (C),
5(c) and 6(b) hereof and as of the
date first-above written):
QUESTRON TECHNOLOGY, INC.
By: ________________________
Name:
Title:
828410.11
8
<PAGE>
Exhibit B
Form of Senior B Note
<PAGE>
REVISED DRAFT
FORM OF SENIOR B NOTE
SENIOR B NOTE
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS, AND NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED, UNLESS SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS
AVAILABLE.
QUESTRON FINANCE CORP.
$______________ New York, New York
_____ __, 2000
FOR VALUE RECEIVED, the undersigned, QUESTRON FINANCE CORP., a Delaware
corporation ("Maker"), hereby promises to pay to the order of
___________________ ("Payee"), an individual residing at __________, __________,
at such address or at such other location as Payee shall have specified (by not
less than three (3) days' prior written notice to Maker), the principal amount
of $___________, in accordance with the terms set forth below, in lawful money
of the United States of America, together with interest on the unpaid principal
balance from time to time outstanding, at such address and in such currency, in
the manner provided below.
1. Interest. Subject to Section 4 below, Maker promises to pay interest
(calculated on the basis of a 365-day year) on the unpaid principal balance from
time to time outstanding, together with any Interest Deficiency Amount (as
defined in Section 4 below) from time to time outstanding hereunder, to the
extent permitted by law, at the annual rate of 8.5% per annum, payable on a
semi-annual basis (each, an "Interest Payment Period") in arrears on each April
10 and October 10, commencing April 10, 2001 (each, an "Interest Payment Date").
2. Principal Amount. Subject to Section 4 below, the outstanding
principal amount of this Note (the "Principal Amount") shall be due and payable
on __________, 2002 (the "Principal Payment Date");
3. Payments. Any and all payments of principal and interest in
connection with this Note shall be made by certified check to Payee's address
listed in Section 11 (Notice) below or at such other place as Payee or such
other registered holder shall designate to Maker in writing or by wire transfer
of immediately available funds to an account designated by Payee in writing. If
the payment of principal
830267.10
1
<PAGE>
and interest on this Note is due on a day which is not a Business Day, such
payment shall be due on the next succeeding Business Day, and such extension of
time shall be taken into account in calculating the amount of interest payable
under this Note. "Business Day" means any day other than a Saturday, Sunday or
legal holiday in the United States of America.
4. Limitations on Certain Payments; Conversion. (a) To the extent that
accrued and unpaid interest payable on any Interest Payment Date exceeds the
Available Amount (as defined below) as of such date (such difference being
referred to herein as the "Interest Deficiency Amount"), Maker shall defer
payment of that Interest Deficiency Amount to the earlier of (i) the Principal
Payment Date or (ii) the next succeeding Interest Payment Date, at which there
exists Available Amount sufficient in amount to make such interest payment, or
any portion thereof.
(b) To the extent that the face amount of the scheduled principal
payment, at the Principal Payment Date, exceeds the difference between (i) the
Available Amount (as defined below) less (ii) the interest paid, or to be paid,
to Payee at any corresponding Interest Payment Date (together with the aggregate
amount of any Interest Deficiency Amounts in respect of any prior Interest
Payment Periods, "Accrued Interest"), then:
(A) on the Principal Payment Date, Maker shall pay Payee, in the manner
provided herein, that portion of the required principal payment which
is equal to the difference between the Available Amount less the
Accrued Interest (the "Mandatory Principal Payment"); and
(B) on the Principal Payment Date, that portion of the outstanding
principal amount of this Note equal to the difference between the then
scheduled principal payment and the Mandatory Principal Payment (such
difference being referred to herein as a "Conversion Amount"), together
with any accrued Interest Deficiency Amounts that remain unpaid
pursuant to Section 4(a) above, shall be deemed converted on the
Principal Payment Date (the "Conversion"), in the manner provided in
Section 5 below, into such number of fully paid and non-assessable
shares of common stock, par value $0.001 per share (the "Common
Stock"), of Questron Technology, Inc., a Delaware corporation and the
parent corporation of Maker ("Questron Technology"), as shall be
obtained by dividing the Conversion Amount, plus the amount of any such
accrued and unpaid Interest Deficiency Amounts, by the Conversion Price
(as defined below) (the "Conversion Shares"). The "Conversion Price"
shall mean the average closing market price per share of Common Stock
for the twenty (20) trading days ending on the seventh (7th) trading
day preceding the Principal Payment Date, as reported by the Wall
Street Journal.
(c) For purposes of this Note, "Available Amount" shall mean, subject
to the next succeeding sentence, the dollar amount which is equal to fifty
percent (50%) of the reported consolidated net income of Questron Technology and
its subsidiaries (after adjustment to exclude the operating results of Maker)
for the twelve month period ended on the date of the most recent financial
statements of Questron Technology, as reflected in the most recently filed
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
of Questron Technology preceding the applicable payment date, provided, however,
that the Available Amount shall be deemed to be zero in the event that Questron
Operating Company, Inc., a Delaware corporation and a wholly-owned subsidiary of
Maker ("QOC"), is prohibited, pursuant to the terms and conditions of its
instruments for borrowed money, from
830267.10
2
<PAGE>
distributing or dividending funds to Maker on the applicable payment date. By
acceptance of this Note, Payee acknowledges that this Note is one of a series of
Senior B Notes of Maker and that Maker is concurrently issuing to certain
holders a series of Senior A Notes, and agrees that scheduled, required payments
of any Available Amounts to holders of Senior B Notes and/or Senior A Notes, as
the case may be, and any payments required pursuant to Section 6 below, shall be
made pro rata to all such holders to the extent any such payments are
concurrently scheduled or required to be made, based on the original principal
amounts of each respective Senior B Note and/or Senior A Note, as the case may
be, and that as used herein, the term Available Amount refers only to the pro
rata portion thereof relating to this Note.
5. Conversion Procedures; Registration. (a) If a Conversion is to occur
on the Principal Payment Date, Maker shall cause a notice of conversion (each a
"Conversion Notice") to be delivered to Payee at Payee's address appearing in
Section 11 (Notice) below or to such other registered holder at such other place
as such other registered holder shall designate to Maker in writing specifying
the Principal Amount, Conversion Price and number of Conversion Shares, no later
than five (5) days prior to the Principal Payment Date upon which any such
conversion shall occur. Promptly upon receipt of a Conversion Notice, Payee or
such other registered holder shall (x) surrender this Note for cancellation, and
(y) deliver to Maker a written statement specifying the name or names (with
address) in which the Conversion Shares which shall be issuable on such
Conversion shall be issued (provided, however, that Conversion Shares will be
issued in the name of Payee unless otherwise specified as provided herein). The
failure by Payee to so surrender the Note, or the failure by Payee or such other
registered holder to present the Note to Maker, shall not, in either case,
effect the validity of the Conversion and following delivery of such Conversion
Notice the Conversion shall, in all cases, be deemed to have occurred and be
effective on the Principal Payment Date and this Note shall be deemed to
evidence the obligation to issue the Conversion Shares.
(b) When surrendered for Conversion, this Note shall, unless the shares
of Common Stock issuable on Conversion are to be issued in the same name as the
name in which this Note is then registered, be duly endorsed by, or accompanied
by instruments of transfer in form satisfactory to Maker duly executed by Payee
or such other registered holder, or their respective duly authorized attorney.
As promptly as practicable following the Principal Payment Date, Maker shall
deliver, or cause to be delivered, to Payee or to such other registered holder,
or on such party's written order, a certificate or certificates for the number
of full shares issuable upon the conversion of this Note, or a portion hereof,
in accordance with the provisions hereof and, if applicable, a check in lieu of
any fractional shares. Upon Conversion of all or any portion of this Note, the
registered holder may be required to execute and deliver to the issuer an
instrument, in form satisfactory to the issuer, representing that the shares
issuable upon conversion hereof are being acquired for investment and not with a
view to distribution within the meaning of the Act, together with such other
certifications and agreements as Maker shall reasonably request.
(c) Questron Technology covenants and agrees to file a registration
statement covering the resale of any Conversion Shares (the "Shelf
Registration") and to use its best efforts to cause such registration statement
to become effective prior to the issuance of the Conversion Shares. Questron
shall use its best efforts to maintain the effectiveness of the Shelf
Registration until such time as the Seller has sold all of its Conversion Share
or such shares are eligible for resale pursuant Rule 144 of the Act, without
limitation. Prior to such time as the applicable Conversion Shares are so
registered, such shares shall be restricted securities under the Act, will not
have been registered under the Act and may not be sold or transferred absent
such registration or unless an exception from registration is available and the
830267.10
3
<PAGE>
certificates evidencing such shares shall bear an appropriate legend restricting
transfers under the Act. In connection with such registration, Payee or such
other permitted holder of such shares, shall provide to Questron Technology such
information, and execute and deliver such certificates and other agreements, as
it may reasonably request.
6. Mandatory Repayment. (a) To the extent that on any Interest Payment
Date or on the Principal Payment Date, the Available Amount exceeds the
scheduled principal payment amount and/or interest payment amount (including,
without limitation, accrued Interest Deficiency Amounts) due and owing on such
date, such excess Available Amount shall be used to prepay this Note, in whole,
if sufficient, or otherwise in part, without premium or penalty.
(b) In addition, in the event that (i) Maker, Questron Technology or
QOC consummates (i) a registered public offering of equity securities after the
date hereof (an "Offering"), and (ii) Maker, Questron Technology or QOC
consummates a public or Rule 144A or Regulation D (or their respective
successors) private offering of debt securities after the date hereof for the
purpose of acquiring assets or refinancing indebtedness and "excess proceeds"
are realized therefrom (a "Debt Offering"), Maker shall apply, and Questron
Technology shall cause to be applied, the net proceeds from such Offering or
"excess proceeds" from such Debt Offering, as the case may be, to prepay, in
whole, if sufficient , or otherwise in part, outstanding principal and accrued
and unpaid interest under this Note, without penalty or premium. As used herein
"excess proceeds", means the net proceeds to the applicable company after the
application of proceeds in connection with any acquisition(s) or refinancing,
and the payment of related transaction costs. Any partial prepayments of
principal shall be applied to installments of principal in the order of their
maturity.
7. Prepayment. Maker may, without premium or penalty, at any time and
from time to time, prepay all or any portion of the outstanding principal
balance due under this Note, provided that each such prepayment is accompanied
by accrued interest on the amount of principal prepaid calculated to the date of
such prepayment. Any voluntary prepayment on this Note shall be applied first to
accrued and unpaid interest on this Note then to the principal.
8. No Guarantees. Neither Questron Technology, nor any affiliate or
subsidiary thereof, or any other person or entity has guaranteed the performance
by Maker or Questron Technology, as the case may be, of their respective
obligations under this Note or the transactions contemplated hereby.
9. Events of Default. (a) Upon the occurrence of any of the following
events of default ("Events of Default"): (i) a Change of Control (as defined
below) shall have occurred; (ii) a case or proceeding under the bankruptcy laws
of the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Maker or all or any substantial
part of its properties and such petition or application is not dismissed within
ninety (90) days after the date of its filing or Maker shall file any answer
admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner; (iii) a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at law or equity) is filed by Maker or for all or any part of
its property; or (iv) Maker shall fail to pay (whether in cash or pursuant to a
Conversion) as and when due (whether at stated maturity, by
830267.10
4
<PAGE>
mandatory prepayment, acceleration or otherwise) any principal on this Note when
due or interest on this Note within ten (10) Business Days after the same
becomes due and payable or fails to make payment or otherwise perform on a
timely basis any other obligation or covenant called by this Note for thirty
(30) days following the receipt by Maker of written notice thereof from Payee
(unless Maker shall be diligently pursuing a remedy of such breach in which
event the thirty (30) day period referred to in this clause shall extend to
ninety (90) days); then, and in each and every such case, the holder hereof may
by notice in writing to Maker declare all amounts owing hereunder due and
payable, and they shall forthwith become due and payable without further action;
provided, however, that Payee by written notice to Maker may waive any default
or rescind and annul any such acceleration, but no such waiver or rescission and
annulment shall extend to or affect any subsequent default or impair any right
consequent thereon or any term, provision or covenant herein.
(b) For purposes of this Note, "Change of Control" shall mean the
occurrence of any of the following events: (i) any "person" as such term is used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the applicable entity specified below or any
subsidiary or affiliate thereof or any stockholder (and such stockholder's
affiliates) as of the date hereof and direct transferees thereof, becomes, after
the date hereof, the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of the securities of Maker, QOC or
Questron Distribution Logistics, Inc., representing 50.1% or more of the total
voting power represented by such entity's then outstanding securities that vote
generally in the election of directors ("Voting Securities"), (ii) the merger or
consolidation of any such entity with any other corporation (other than an
affiliate or subsidiary), other than a merger or consolidation in which the
Voting Securities of any such entity outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least a majority of the total
voting power of the surviving entity, or (iii) the sale (in one transaction) of
all or substantially all of the assets of any such entity, other than to a
subsidiary or affiliate of any such entity.
10. Jurisdiction and Related Matters. (a) Maker and Payee irrevocably
consent and submit to the non-exclusive jurisdiction of the State of Delaware
and the United States District Court located in the city of Wilmington, Delaware
and waive any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Note or in any way connected
with or related or incidental to this Note whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agrees that any
dispute with respect to any such matters shall be heard only in the courts
described above.
(b) Maker hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth below and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Payee's option, by service upon
Maker in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Maker shall appear in answer to such
process, failing which Maker shall be deemed in default and judgment may be
entered by Payee against Maker for the amount of the claim and other relief
requested.
(c) The validity, interpretation and enforcement of this Note, shall be
governed by the internal laws of the State of Delaware (without giving effect to
principles of conflicts of law).
830267.10
<PAGE>
(d) MAKER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS NOTE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. MAKER
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PAYEE MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE
OF ITS CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
11. Notice. All notices, requests and demands hereunder shall be in
writing and (i) made to a party at the following addresses:
To Borrower:
Questron Finance Corp.
c/o Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, Florida 33487
Attention: Dominic A. Polimeni
Tel: (561) 241-2866
Fax: (561) 241-5251
with a copy to:
Battle Fowler LLP
Park Avenue Tower 75 East 55th Street
New York, New York 10022
Attention: Luke P. Iovine, III, Esq.
Telephone: (212) 856-7000
Facsimile: (212) 856-7816
To Payee:
[insert name]
[insert address]
Telephone:
Facsimile:
with a copy to:
[to be provided]
Telephone:
Facsimile:
Attention:
830267.10
<PAGE>
or to such other address as either party may designate by written notice to the
other in accordance with this provision, and (i) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
12. Amendments. No provision of the Note may be waived, modified,
amended or discharged orally or otherwise, except by a writing duly executed by
Maker and the holder hereof.
13. Section Headings, Construction. (a) The headings of Sections and
Subsections in this Note are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Note unless otherwise
specified.
(b) All words used in this Note will be construed to be of such gender
or number as the circumstances require. Unless otherwise expressly provided, the
words "hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
QUESTRON FINANCE CORP.
By: _________________________
Name:
Title:
AGREED TO AND ACCEPTED (solely with
respect to Sections 4(b)(B), 5(c)
and 6(b) hereof and as of the date
first-above written):
QUESTRON TECHNOLOGY, INC.
By: __________________________
Name:
Title:
830267.10
Exhibit 2.6
================================================================================
STOCK PURCHASE AGREEMENT
By and Between
QUESTRON TECHNOLOGY, INC.,
QUESTRON DISTRIBUTION LOGISTICS, INC.,
ACTION THREADED PRODUCTS, INC.
and
THE PERSONS
SIGNATORY HERETO
Dated as of May 7, 1999
================================================================================
817104.6
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS............................................................5
1.1 Definitions...........................................5
ARTICLE 2
PURCHASE AND SALE OF SHARES............................................6
2.1 Sale of Shares........................................6
2.2 Purchase Consideration and Payment for the Shares.....6
2.3 Transactions on the Closing Date......................8
ARTICLE 3
CLOSING AND TERMINATION................................................10
3.1 Closing...............................................10
3.2 Termination...........................................10
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
AND THE COMPANY........................................................11
4.1 Authority; Due Execution..............................11
4.2 Organization; Certificate of Incorporation; Bylaws....11
4.3 Subsidiaries and Equity Investments...................11
4.4 Capitalization........................................12
4.5 Ownership of Shares...................................12
4.6 Personal Property.....................................12
4.7 No Violation..........................................13
4.8 Litigation............................................13
4.9 Real Property.........................................14
4.10 Non-Real Estate Leases................................15
4.11 Financial Statements..................................15
4.12 Books and Records.....................................16
4.13 Tax Matters...........................................16
4.14 Employee Matters......................................17
4.15 Intellectual Property.................................20
4.16 Accounts Receivable and Accounts Payable..............21
4.17 Inventory.............................................22
4.18 Absence of Change or Event............................22
4.19 Compliance with Law...................................24
4.20 Contracts and Commitments.............................24
4.21 Insurance.............................................26
817104.6
-i-
<PAGE>
4.22 Customers, Suppliers, Distributors, Etc...............27
4.23 Previous Sales; Warranties; Product Liability.........27
4.24 Environmental Matters.................................28
4.25 Absence of Certain Payments...........................29
4.26 Additional Information................................29
4.27 Investment Intent.....................................29
4.28 Disclosure............................................30
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON.....................31
5.1 Organization..........................................31
5.2 Corporate Authority; Due Execution....................31
5.3 No Violation..........................................31
5.4 SEC Documents.........................................32
5.5 Questron Common Stock.................................32
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS OF
SHAREHOLDERS, THE COMPANY, QDL AND QUESTRON............................32
6.1 Conduct of Business Prior to the Closing Date.........32
6.2 Tax Covenants.........................................34
6.3 Expenses and Finder's Fees............................34
6.4 Access to Information and Confidentiality.............35
6.5 No Solicitation.......................................36
6.6 Employees.............................................36
6.7 Press Releases........................................37
6.8 Transitional Assistance...............................37
6.9 Conditions............................................37
6.10 Rule 144..............................................37
6.11 SEC Filings...........................................37
6.12 Balance Sheets........................................37
6.13 HSR Act and Other Filings. ..........................37
6.14 Millennium Capability. ..............................37
ARTICLE 7
CONDITIONS PRECEDENT OF QDL AND QUESTRON...............................38
7.1 Representations and Warranties........................38
7.2 Closing Certificates..................................38
7.3 Due Diligence.........................................38
7.4 Opinion of Counsel....................................39
7.5 No Actions............................................39
7.6 Consents..............................................39
7.7 Instruments and Possession............................39
817104.6
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7.8 Employment Agreement..................................40
7.9 Non-Competition Agreements............................40
7.10 Financing.............................................40
7.11 Financial Statements..................................40
7.12 Material Adverse Change...............................40
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE PRINCIPALS.................40
8.1 Representations and Warranties........................40
8.2 Closing Certificates..................................41
8.3 No Actions............................................41
8.4 Consents..............................................41
8.5 Opinion of Counsel....................................41
8.6 No Material Adverse Change............................41
ARTICLE 9
INDEMNIFICATION........................................................42
9.1 Indemnification by the Company and the Shareholders...42
9.2 Indemnification by QDL and Questron...................43
9.3 Limitation on Liability...............................44
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..................44
ARTICLE 11
INTENTIONALLY OMITTED..................................................44
ARTICLE 12
MISCELLANEOUS..........................................................45
12.1 Cooperation...........................................45
12.2 Waiver................................................45
12.3 Notices...............................................45
12.4 Governing Law and Consent to Jurisdiction.............46
12.5 Counterparts..........................................46
12.6 Headings; Schedules...................................46
12.7 Entire Agreement......................................46
12.8 Amendment and Modification............................47
12.9 Binding Effect; Benefits..............................47
12.10 Assignability.........................................47
817104.6
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STOCK PURCHASE AGREEMENT, dated as of May 7, 1999 (herein, together
with the Schedules and Exhibits attached hereto, referred to as the
"Agreement"), by and between Questron Technology, Inc., a Delaware corporation
("Questron"), Questron Distribution Logistics, Inc., a Delaware corporation and
a wholly-owned subsidiary of Questron ("QDL"), and Action Threaded Products,
Inc., an Illinois corporation (the "Company"), and each of the persons listed on
Schedule 1.1 hereto and signatory hereto (each a "Shareholder," and
collectively, the "Shareholders").
PRELIMINARY STATEMENT
1. QDL is a wholly-owned subsidiary of Questron.
2. The Shareholders are the beneficial and record holders
of all of the issued and outstanding shares of capital stock of the Company (the
"Shares").
3. The Shareholders desire to sell, and QDL desires to
purchase, the Shares upon the terms and subject to the conditions contained in
this Agreement.
NOW, THEREFORE, in reliance upon the respective representations and
warranties made herein and in consideration of the mutual agreements and
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have
the meanings specified or referred to in this Article 1.
"Accountant" is defined in Section 2.2(c)(ii).
"Actions" is defined in Section 4.8.
"Additional Cash Payment" is defined in Section 2.2(b).
"Additional Shares" is defined in Section 2.2(b).
"Agreement" is defined in the preamble to this Agreement.
"Benefit Plans" shall mean each employee benefit or compensation
plan, agreement or arrangement covering present or former employees, consultants
or directors of the Company or any ERISA Affiliate or with respect to which the
Company or any ERISA Affiliates could have any present or future liability,
including "employee benefit plans" within the meaning of Section 3(3) of
817104.6
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ERISA,stock purchase, stock option, severance, employment, collective bargaining
agreement, fringe benefit, change in control, bonus and incentive or deferred
compensation plans, agreements, policies or other arrangements or finding
arrangements.
"Books and Records" shall mean with respect to the Company and its
subsidiaries all books and records pertaining to the Shares, the Business, the
customers, distributors and suppliers of the Company and its subsidiaries,
including Tax returns and other information relevant to such returns, but not
including minutes of shareholder and directors meetings.
"Business" shall mean the business and operations of the Company and
its subsidiaries in respect of distributing fasteners, hardware and related
components.
"Claims" shall mean with respect to the Company and its subsidiaries
all claims, causes of action, choses in action, rights of recovery and rights of
set-off of whatever kind or description against any Person or arising out of or
relating to the Shares or the Business.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Closing Notes" is defined in Section 2.2(b).
"Closing Price" is defined in Section 2.2(c).
"Closing Shares" is defined in Section 2.2(c).
"Code" is defined in Section 4.13.
"Company" is defined in the preamble to this Agreement.
"Company Common Stock" is defined in Section 4.4.
"Company Indemnified Claims" is defined in Section 9.2.
"Company Indemnitees" is defined in Section 9.2.
"Company Losses" is defined in Section 9.2.
"Confidential Information" is defined in Section 6.4.
"Contract" shall mean with respect to the Company and its
subsidiaries any of the agreements, contracts, Leases, notes, loans, evidences
of indebtedness, purchase orders, letters of credit, distributor agreements,
franchise agreements, undertakings, covenants not to compete, employment
agreements, licenses, instruments, obligations, commitments, policies, purchase
and sales orders, quotations and other executory commitments, in each case,
related to, used or useful in the Business of the Company and its subsidiaries,
to which the Company and its subsidiaries are
817104.6
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<PAGE>
a party or to which any of their respective assets are subject, whether oral or
written, express or implied.
"Deferred Cash Consideration" is defined in Section 2.2(d)(i).
"Deferred Purchase Price" is defined in Section 2.2(d)(i).
"Deferred Shares" is defined in Section 2.2(d)(i).
"Dispute Notice"is defined in Section 2.2(d)(ii).
"EBIT" shall mean the aggregate earnings of the Business before
interest, income taxes, amortization of goodwill and the allocation of corporate
expenses associated with the Business and without regard to extraordinary items
that are paid or incurred after Closing, including any extraordinary bonus or
severance payments made to employees.
"EBIT Period" is defined in Section 2.2(c)(i).
"Effective Date" is defined in Section 3.1.
"Employment Agreement" is defined in Section 7.8.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
easement, security interest, encumbrance or other right of third parties.
"Environmental Laws" is defined in Section 4.24.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" is defined in Section 4.14(d).
"ERISA Plans" is defined in Section 4.14(b).
"GAAP" shall mean generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board consistently applied.
"Governmental Authorities" means the Federal government, or any state
or other political subdivision thereof, or any agency, court or body of the
Federal government, any state or political subdivision thereof, exercising
executive, legislative, judicial, regulatory or administrative functions.
"Hazardous Materials" is defined in Section 4.24.
"HSR Act" is defined in Section 6.13.
817104.6
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"Immaterial Lease" is defined in Section 4.10.
"Initial Cash Consideration" is defined in Section 2.2(a).
"Insurance Policies" shall mean with respect to the Company the
insurance policies issued by unaffiliated, third-party carriers relating to the
Business of the Company listed under the Company's name on Schedule 4.23.
"Intellectual Property Rights" is defined in Section 4.15.
"Inventory" shall mean with respect to the Company and its
subsidiaries (a) all of the Company's and its subsidiaries' inventories whether
(x) in transit and owned by the Company and its subsidiaries or (y) within the
facilities of the Company and its subsidiaries held for resale or lease in the
ordinary course of the Business to the customers and distributors of the Company
and its subsidiaries, (b) all office supplies and similar materials of the
Company and its subsidiaries located in the facilities of the Company and its
subsidiaries and (c) all of the raw materials, work in process, finished
products and similar items of the Company and its subsidiaries in the facilities
of the Company and its subsidiaries or wherever otherwise located.
"Laws" shall mean any law, statute, rule, regulation, ordinance,
standard, code, order, judgment, decision, writ, injunction, decree, award or
other governmental restriction including, without limitation, any policy or
procedure issued or enforced by any Governmental Authority.
"Leased Real Property" is defined in Section 4.11(a).
"Leases" shall mean with respect to the Company and its subsidiaries
all of the leases of the Company and its subsidiaries (whether relating to real
property, improvements thereon, vehicles, machinery or equipment or other
assets) listed under the Company's name on Schedules 4.11(a) and 4.12 and all
other leases relating to the Business which are not required to be scheduled
pursuant to this Agreement, including the Immaterial Leases.
"Liability" shall mean any direct or indirect liability,
indebtedness, obligation, expense, claim, loss, damage, deficiency, guaranty or
endorsement of or by any Person, absolute or contingent, accrued or unaccrued,
due or to become due, liquidated or unliquidated.
"Majority Shareholders" shall mean Gerald Ablan and Charles Gozder.
"March 31, 1999 Balance Sheet" is defined in Section 6.12.
"Material Adverse Effect" shall mean with respect to (A) the Company
and its subsidiaries, a material adverse effect on (i) the Shares, the Business
or the condition (financial or otherwise), properties, Liabilities, reserves,
working capital, earnings, results of operations, or business prospects, or
relations with customers, suppliers, distributors or employees of the Company
and its subsidiaries or (ii) the right or ability of the Company to consummate
the transactions contemplated hereby, and (B) with respect to QDL and Questron,
a material adverse effect on (i) the business or the condition (financial or
otherwise) properties, liabilities, reserves, working capital, earnings,
817104.6
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<PAGE>
results of operations, or business prospects, or relations with customers,
suppliers, distributions or employees of QDL and Questron or (ii) the right or
ability of such entities to consummate the transactions contemplated hereby.
"Minority Shareholders" shall mean William P. Hackett and Robert
Lehman.
"Non-Competition Agreements" is defined in Section 7.9.
"Non-Real Estate Leases" is defined in Section 4.10.
"Other Documents" is defined in Section 4.1.
"Permits" shall mean with respect to the Company and its subsidiaries
all licenses, permits and other governmental authorization necessary to carry on
the Business of the Company and its subsidiaries.
"Person" means any natural person, business trust, corporation,
partnership, limited liability company, joint stock company, proprietorship,
association, joint venture, unincorporated association or other legal entity of
whatever nature.
"Post Closing Payment Notes" is defined in Section 2.2(d).
"Purchase Price" is defined in Section 2.2.
"QDL" is defined in the preamble to this Agreement.
"Questron" is defined in the preamble to this Agreement.
"Questron Common Stock" is defined in Section 2.2(c).
"Questron Indemnified Claims" is defined in Section 9.1.
"Questron Indemnities" is defined in Section 9.1.
"Questron Losses" is defined in Section 9.1.
"Real Property" is all of the real property that has been or is
currently being used in the conduct of the Business, including, without
limitation, the Leased Real Property.
"Real Property Leases" is defined in Section 4.9(a).
"Reference Balance Sheet" is defined in Section 4.11.
"Reference Balance Sheet Date" is defined in Section 4.11.
"Reference Income Statement" is defined in Section 4.11.
817104.6
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"SEC" is defined in Section 5.4.
"SEC Documents" is defined in Section 5.4.
"Second Closing Date" is defined in Section 2.2(d)(i).
"Securities" is defined in Section 4.27(i).
"Securities Act" is defined in Section 2.3(d).
"Shares" is defined in the Preliminary Statement to this Agreement.
"Shareholders" is defined in the preamble to this Agreement.
"Stated Debt" is the aggregate amount of the outstanding liabilities
of the Company and its subsidiaries specifically identified and described in
Schedule 2.2(a) as of the Effective Date.
"Stated Net Debt" is defined in Section 2.2(a).
"Subsidiary" is defined in Section 4.3.
"Taxes" is defined in Section 4.13.
"Technology" is defined in Section 6.14.
"Year 2000 Compliant" is defined in Section 6.14.
"1998 Audit" is defined in Section 6.4.
ARTICLE 2
PURCHASE AND SALE OF SHARES
2.1 Sale of Shares. At the Closing provided for in Section 3.1, the
Shareholders shall sell to QDL the Shares beneficially owned by the Shareholders
as set forth on Schedule 1.1, and QDL shall purchase such Shares for the
aggregate purchase consideration specified in Section 2.2.
2.2 Purchase Consideration and Payment for the Shares. In
consideration of the sale, conveyance, transfer, assignment and delivery of the
Shares by the Shareholders to QDL on the Closing Date, and in reliance upon the
representations, warranties, covenants and agreements made herein by the Company
and the Shareholders, QDL shall pay to the Shareholders a total purchase price
of Fifteen Million Six Hundred Thousand Dollars ($15,600,000) (the "Purchase
Price") subject to payment and adjustment as follows:
817104.6
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(a) At the Closing, the Shareholders shall be paid an
amount equal to Ten Million Five Hundred Thousand Dollars ($10,500,000), (x)
less the Stated Net Debt (as defined below) of the Company, and (y) plus
interest on the sum of (A) the amount calculated in accordance with the
foregoing, and (B) One Million Five Hundred Thousand Dollars ($1,500,000), which
interest shall be in the amount equal to six percent (6%) per annum calculated
from the Effective Date to the Closing Date (said amount as set forth in this
Section 2.2(a) and as reflected on Schedule 2.2(a) being herein referred to as
the "Initial Cash Consideration"). The Initial Cash Consideration shall be paid
to the Shareholders by wire transfers of immediately available funds (or
certified checks) from or on behalf of QDL to such account(s) as the
Shareholders may designate to QDL in writing no later than five (5) business
days prior to the Closing Date. As used herein, "Stated Net Debt" means the
aggregate amount of Stated Debt net of cash and cash equivalents as of March 31,
1999.
(b) At the Closing, QDL shall deliver to each Shareholder a
promissory note, made by Questron Finance Corp., a wholly-owned subsidiary of
Questron, in favor of such Shareholder in the principal amount set forth
opposite such Shareholder's name on Schedule 2.2(b), substantially in the form
attached hereto as Exhibit A, as may be modified to reflect such changes to the
definition of "Available Amount" contained therein as may be requested by any
lender providing financing to Questron as contemplated by Section 7.10 (the
"Closing Notes"). The aggregate principal amount of the four Closing Notes shall
be One Million Five Hundred Thousand Dollars ($1,500,000).
(c) At the Closing, the Shareholders shall be issued such
aggregate number of shares of Questron's Common Stock, par value $0.001 per
share (the "Questron Common Stock"), having a value equal to One Million Eight
Hundred Thousand Dollars ($1,800,000) (the "Closing Shares") calculated on the
basis of the average last reported sales price for the Questron Common Stock for
the five (5) trading days ending on the third (3rd) trading day immediately
prior to the Closing Date (the "Closing Price"). Each Shareholder shall be
issued Closing Shares in the proportion set forth on Schedule 2.2(c)(i) to be
delivered to QDL. The Closing Shares shall be issued and registered in the name
of the Shareholders on or prior to the Closing Date. On the twenty-four-month
anniversary of the Closing Date (and if such date is not a Business Day, the
next Business Day) (the "Anniversary Date"), Questron shall calculate the value
(the "Anniversary Date Price") of the Questron Common Stock based on the average
last reported sales price for the Questron Common Stock for the five (5) trading
days period ending on the third (3rd) trading day immediately prior to the
Anniversary Date. If the Anniversary Date Price is less than the Closing Price,
either (A) Questron shall deliver to the Shareholders a number of shares of
Questron Common Stock equal to the difference between (i) the number of shares
of Questron Common Stock having a value of One Million Eight Hundred Thousand
Dollars ($1,800,000) calculated on the basis of the Anniversary Date Price, and
(ii) the number of Closing Shares (the "Additional Shares"), or (B) QDL shall
pay to the Shareholders by wire transfers (or certified checks) an amount in
cash equal to One Million Eight Hundred Thousand Dollars ($1,800,000) less the
amount equal to the number of Closing Shares multiplied by the Anniversary Date
Price (the "Additional Cash Payment"). On behalf of and at the direction of, the
Company, to the extent Additional Shares are to be issued to the Shareholders
pursuant to this Section 2.2(c), each Shareholder shall be issued Additional
Shares in the proportion set forth on Schedule 2.2(c)(ii). The election of
whether QDL shall pay the Additional Cash Payment or Questron shall issue the
Additional Shares shall be made by QDL and Questron in their sole discretion.
817104.6
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(d) (i) Following the Closing, QDL shall pay to the
Shareholders an amount (the "Deferred Purchase Price") equal to the lesser of
(A) an amount equal to (x) the amount, if any, by which the EBIT for the six (6)
Company branches located in Atlanta, Minneapolis, Milwaukee, Grand Rapids,
Chicago and Columbus for the twelve (12) month period beginning on the Effective
Date (the "EBIT Period") exceeds Two Million One Hundred Fifty Thousand Dollars
($2,150,000), multiplied by (y) six (6), and (B) One Million Eight Hundred
Thousand Dollars ($1,800,000). The Deferred Purchase Price shall be paid by June
30, 2000 (the "Second Closing Date") payable as follows: (i) delivery to the
Shareholders by wire transfers (or certified checks) of an aggregate amount
equal to forty-three and five tenths percent (43.5%) of the Deferred Purchase
Price (the "Deferred Cash Consideration"); (ii) delivery of a promissory note,
made by Questron Finance Corp., in favor of each Shareholder, substantially in
the form attached hereto as Exhibit B (the "Post-Closing Payment Notes") in the
aggregate principal amount equal to forty-three and five tenths percent (43.5%)
of the Deferred Purchase Price; and (iii) delivery to the Shareholders of shares
of Questron Common Stock (the "Deferred Shares"), the value of which shall equal
to thirteen percent (13%) of the Deferred Purchase Price. The number of Deferred
Shares will be based on the average last reported sales price of the Questron
Common Stock for the five (5) trading days ending on the third (3rd) trading day
immediately prior to the Second Closing Date.
(ii) In the event that any Shareholder disputes QDL's
calculation of EBIT in accordance with Section 2.2(d)(i), such Shareholder shall
notify QDL in writing of the nature of his dispute within thirty (30) days of
its receipt of notice from QDL of its calculation of EBIT (a "Dispute Notice").
If the parties are unable to agree upon EBIT within twenty (20) days after
delivery of a Dispute Notice, then the parties shall attempt to mutually agree
on an independent public accounting firm ("Accountant") who shall determine
EBIT. If the parties are unable to agree upon a single Accountant within thirty
(30) days after delivery of the Dispute Notice, then each of QDL, on the one
hand, and the Shareholders, on the other, shall select an Accountant and within
ten (10) days of their appointment, the two Accountants shall select a third
Accountant. The determination of the single Accountant or the average of two of
the three EBITs determined by the three Accountants which are closest in amount,
if EBIT is determined by three Accountants, as the case may be, shall be
determined within thirty (30) days from the appointment of the Accountants and
shall be final and binding upon the parties. The expenses of the determination
of EBIT by the Accountants shall be shared equally by QDL, on the one hand, and
the disputing Shareholder(s), on the other.
2.3 Transactions on the Closing Date.
(a) At the Closing, the Company and the Shareholders will
deliver, or cause to be delivered, to QDL and/or Questron the following:
(i) stock certificate(s) representing all of the
Shares, in form suitable for transfer, registered in the name of each
Shareholder evidencing the number of Shares set forth opposite each
such Shareholder's name on Schedule 1.1, endorsed in blank or with an
executed blank stock transfer power attached, and, in each case, with
any necessary stock transfer tax stamps attached thereto;
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(ii) all stock books, stock transfer ledgers, minute
books and the corporate seals of the Company and all subsidiaries of
the Company;
(iii) resignations of all of the directors and
officers of the Company, effective as of the Closing;
(iv) duly executed signature cards for all bank
accounts of the Company and its subsidiaries which are necessary to
establish QDL's designees, and only QDL's designees, as the
authorized signatories for such accounts;
(v) each of the certificates and documents
contemplated by Article 7; and
(vi) such other certificates, documents, instruments
and agreements as QDL and/or Questron shall deem necessary in its
reasonable discretion in order to effectuate the transactions
contemplated herein, in form and substance reasonably satisfactory to
QDL and/or Questron.
(b) At the Closing, QDL and/or Questron will deliver to the
Shareholders the following:
(i) the Initial Cash Consideration;
(ii) the Closing Note;
(iii) the stock certificates representing the Closing
Shares;
(iv) each of the certificates and documents
contemplated by Article 8; and
(v) such other certificates, documents, instruments
and agreements as the Company shall deem necessary in its reasonable
discretion in order to effectuate the transactions contemplated
herein, in form and substance reasonably satisfactory to the Company.
(c) At the Closing, and on behalf of the Company, Questron
shall deliver, or cause to be delivered, by wire transfer such amounts as are
necessary to pay and discharge the outstanding balance of the indebtedness set
forth on Schedule 1.2 to the entities listed thereon, which amounts shall
represent all of such indebtedness outstanding as of the Closing Date.
(d) Restricted Securities. The shares representing the
Closing Shares, the Additional Shares and Deferred Shares issued to the
Shareholders shall be restricted securities under the Securities Act of 1933, as
amended (the "Securities Act"), will not have been registered under the
Securities Act and may not be sold or transferred absent such registration or
unless an exception from registration is available. The certificates evidencing
such shares shall bear a legend substantially in the following form, in addition
to any other legends required by applicable state law:
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"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE."
ARTICLE 3
CLOSING AND TERMINATION
3.1 Closing. The closing of the transactions provided for in Article
2 above (the "Closing") will take place at the offices of Battle Fowler LLP,
Park Avenue Tower, 75 East 55th Street, New York, N.Y. 10022, at 10:00 A.M.
(local time) on or about June 30, 1999 (the "Closing Date"), or at such other
place, time and date as may be agreed upon by QDL, Questron, the Company and the
Shareholders. The effective date of the Closing shall be April 1, 1999 (the
"Effective Date").
3.2 Termination. Anything contained in this Agreement other than in
this Section 3.2 to the contrary notwithstanding, this Agreement may be
terminated in writing at any time on or prior to the Closing:
(a) without liability on the part of any party hereto, by
mutual written consent of QDL and Questron, on the one hand, and the
Company and the Shareholders, on the other;
(b) without liability on the part of any party hereto
(unless occasioned by reason of a material breach by any party hereto
of any of its representations, warranties or obligations hereunder)
by either QDL and Questron, on the one hand, or the Company and the
Shareholders, on the other, if the Closing shall not have occurred on
or before June 30, 1999 (or such later date as may be agreed upon in
writing by the parties hereto);
(c) by QDL and Questron, if the Company or the Shareholders
shall breach in any material respect any of their respective
representations, warranties or obligations hereunder and such breach
shall not have been cured or waived or the Company or the
Shareholders shall not have provided reasonable assurance that such
breach can and will be cured on or before the Closing Date, provided,
however, that QDL and Questron have not breached in any material
respect any of their respective representations, warranties or
obligations hereunder; or
(d) by the Company and the Shareholders, if QDL or Questron
shall breach in any material respect any of their respective
representations, warranties or obligations hereunder and such breach
shall not have been cured or waived or QDL and Questron shall not
have
817104.6
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provided reasonable assurance that such breach can and will be cured
on or before the Closing Date, provided, however, that the Company
and the Shareholders have not breached in any material respect any of
their respective representations, warranties or obligations
hereunder.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
AND THE COMPANY
Each Shareholder and the Company, jointly and severally, represents
and warrants to QDL and Questron that as of the date hereof and as of the
Closing Date (except as otherwise noted):
4.1 Authority; Due Execution. The Company has full corporate power
and authority to enter into this Agreement and all other agreements, documents,
certificates and instruments contemplated by this Agreement (the "Other
Documents") to which it is a party and to consummate the transactions
contemplated hereby and thereby. Each Shareholder has the power to enter into
this Agreement and each Other Document to which such Shareholder is a party and
to consummate the transactions contemplated hereby and thereby. This Agreement
has been, and each Other Document to which the Company and/or the Shareholders
are parties will be as of the Closing Date, duly executed and delivered by the
Company and/or the Shareholders, and (assuming due execution and delivery by QDL
and Questron) this Agreement and each Other Document to which the Company and
the Shareholders are parties will constitute valid and binding obligations of
the Company and the Shareholders, respectively, enforceable in accordance with
their respective 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.
4.2 Organization; Certificate of Incorporation; Bylaws. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois 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 Company. The Shareholders have heretofore
delivered to QDL complete and correct copies of the articles of incorporation
and bylaws of the Company as currently in effect.
4.3 Subsidiaries and Equity Investments. Except as set forth on
Schedule 4.3, the Company has no subsidiaries and does not own, directly or
indirectly, any investments, capital stock or other equity or ownership
interests in any other corporations or business enterprises and is not a partner
in any partnership or a co-venturer in any joint venture or other business
enterprise. The term "subsidiary" means any corporation or other entity of which
the Company, directly or indirectly, owns or controls capital stock or ownership
interests representing either (i) more than fifty percent (50%) of the general
voting power under ordinary circumstances of such corporation or entity, or (ii)
if an entity other than a corporation, more than fifty percent (50%) of the
economic interest therein.
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4.4 Capitalization. The authorized capital of the Company consists of
5,000 shares of common stock, par value $10.00 per share (the "Common Stock"),
of which 2,530 shares are issued and outstanding. The authorized capital and the
issued and outstanding capital of each of the Company's subsidiaries is set
forth on Schedule 4.4(a). Except as set forth on Schedule 4.4(b), no other class
of capital stock or other ownership interests of the Company or its subsidiaries
is authorized, issued, reserved for issuance or outstanding. All such issued and
outstanding shares of Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable. No shares of Common Stock (including,
without limitation, the Shares), and no common stock or other equity interests
in the Company's subsidiaries and no options, warrants or other rights,
agreements, commitments or arrangements of any kind to acquire shares of Common
Stock or the common stock or other equity interests of the Company's
subsidiaries, were issued in violation of (x) any preemptive or other rights, or
(y) any provision of any contract, agreement or arrangement of any kind. Except
as set forth on Schedule 4.4(c), 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 the common stock or other equity interests of the Company's
subsidiaries or any security of any kind convertible into or exchangeable for
any such capital stock. Except as set forth on Schedule 4.4(d), there are no
voting trusts, shareholder agreements, proxies or other agreements relating to
the voting, purchase or sale of capital stock of the Company or its subsidiaries
(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.
4.5 Ownership of Shares. The Shareholders are the lawful record and
beneficial owner of that number of Shares set forth opposite each Shareholder's
name on Schedule 1.1 which Shares represent all of the issued and outstanding
shares of the Company's capital stock. Sellers own the Shares set forth opposite
each Shareholder's name on Schedule 1.1 free and clear of all pledges, liens,
charges, Encumbrances, easements, security interests, claims, options and
restrictions of every kind, except for those Encumbrances identified on Schedule
4.5 (which shall be satisfied and released on or prior to the Closing). Upon the
delivery of the Shares in the manner contemplated under Section 2.2, at Closing,
Shareholders will each transfer to QDL valid record and beneficial title to such
Shares, free and clear of all Encumbrances.
4.6 Personal Property. Schedule 4.6(a) sets forth (i) the tangible
physical assets of the Company and its subsidiaries as of the date of this
Agreement that do not constitute real property (including machinery, equipment,
tools, dies, furniture, furnishings, leasehold improvements, software, vehicles,
buildings and fixtures) and that have a book value or replacement value in
excess of Five Thousand Dollars ($5,000) per item or per category of items and
the location by address of such items; (ii) individual refundable deposits in
excess of Ten Thousand Dollars ($10,000) or Twenty-Five Thousand Dollars
($25,000) in the aggregate; and (iii) all outstanding loans or advances made by
the Company or any subsidiary to any Person in excess of Twenty Thousand Dollars
($20,000).
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Except as set forth on Schedule 4.6(b), the Company and each of the
Company's subsidiaries has good and valid title to all of their respective
material properties and assets that do not constitute real property, free and
clear of all Encumbrances. Except as set forth on Schedule 4.6(c), the Company
and its subsidiaries own and have valid leasehold interests (pursuant to leases
disclosed in such Schedule) in or valid contractual rights pursuant to contracts
disclosed in such Schedule to use, all of the material assets, tangible and
intangible, currently used by, or necessary for the present conduct of the
business of, the Company and its subsidiaries.
Immediately prior to Closing, the items listed on Schedule 4.6(d)
shall be transferred to the Persons listed on Schedule 4.6(d).
4.7 No Violation. Neither any Shareholder, the Company nor any
Company subsidiary are subject to or bound by any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) (in the case of the Company) its articles of
incorporation or by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, proxy, bond, indenture, other instrument or
agreement, license, Permit, trust, custodianship or other
restriction, or
(d) any consent, judgment, order, writ, award, injunction
or decree of any Governmental Authority or arbitrator,
that would conflict with, prevent or be violated by or that would result in the
creation of any Encumbrance as a result of, or under which there would be a
default or right of termination, amendment, acceleration, revocation,
cancellation or suspension as a result of, the execution, delivery and
performance by any Shareholder, the Company or any Company subsidiary of this
Agreement or any Other Document and the consummation of the transactions
contemplated hereby and thereby. Except as set forth in Schedule 4.7, no
consent, order, license, permit, approval or authorization of or declaration,
notice or filing with any Person is required for the valid execution, delivery
and performance by any Shareholder or the Company of this Agreement or any Other
Document to which it is a party and the consummation of the transactions
contemplated hereby and thereby.
4.8 Litigation. Except as set forth on Schedule 4.8, there is no
charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, labor dispute, arbitral
action or, to the knowledge of the Company and the Shareholders, investigation
(collectively, "Actions") pending or, to the knowledge of the Company and the
Shareholders, threatened or anticipated against, relating to or affecting (i)
the Company, any Company subsidiary or the operation of the Business of the
Company and its subsidiaries as currently operated and as proposed to be
operated, (ii) any Benefit Plan of the Company or any trust or other funding
instrument, fiduciary or administrator thereof or (iii) the transactions
contemplated by this Agreement. Neither the Company nor any Company subsidiary
is in default with respect to any
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judgment, order, writ, injunction or decree of any Governmental Authority, and
there are no unsatisfied judgments against the Company. No event has occurred or
circumstances exist that could reasonably be expected to give rise to or serve
as a basis for the commencement of any Action. The Company has delivered or made
available to QDL or Questron copies of all proceedings, correspondence and other
documents relating to each Action listed on Schedule 4.8. Each Action pending
or, to the knowledge of the Company and the Shareholders, threatened or that the
Company or the Shareholders have a reasonable basis to expect or anticipate
(whether or not disclosed on Schedule 4.8) is fully covered by insurance of
reputable and solvent insurance companies and each such applicable insurance
policy is in full force and effect and neither the Company nor any Company
subsidiary has received any notice or, to the knowledge of the Company and the
Shareholders, threat of cancellation, limitation or non-coverage of such
insurance policies.
4.9 Real Property. (a) Schedule 4.9(a) sets forth, as of the date of
this Agreement, a complete and accurate list, in all material respects, of (i)
all of the real property owned by the Company and its subsidiaries (the "Owned
Real Property"), (ii) all of the real property that the Company and its
subsidiaries have leased or subleased (the "Leased Real Property") (iii) the
applicable leases, including all amendments thereto and all material agreements
incidental thereto (the "Real Property Leases"), and (iv) all indebtedness
secured by a lien, mortgage or deed of trust on the Real Property and the
outstanding principal amount of each such lien, mortgage and deed of trust as of
the date hereof. As of the date of this Agreement, the Company and its
subsidiaries have good and marketable fee title to its interest in the Owned
Real Property or a valid leasehold interest in the Leased Real Property as
provided in the applicable Real Property Lease, in each case, free and clear of
all Encumbrances and defects, except for (A) liens, mortgage or deed of trust
securing the Indebtedness referred to in clause (i) of the preceding sentence,
and (B) taxes or assessments, special or otherwise, not due and payable or being
contested in good faith. There exists no default or event of default or event,
occurrence, condition or act (including the consummation of the transactions
contemplated hereby) on the part of the Company or any Company subsidiary which,
with the giving of notice, the lapse of time, or the happening of any other
event or condition, would become a default or event of default under any Real
Property Lease.
(b) Each of the Real Property Leases is in full force and
effect and constitutes a valid leasehold interest in the respective Leased Real
Property and has not been assigned, modified, supplemented or amended except as
set forth on Schedule 4.9(a). Neither the Company nor any Company subsidiary has
received a written notice of any monetary default or other material default
under any Real Property Lease or has given or received any notice for purpose of
terminating any Real Property Lease; all rents due under the Real Property
Leases have been paid.
(c) With respect to each of the Real Property Leases the
Company and its subsidiaries have adequate rights of ingress and egress for the
operation of the Business of the Company and its subsidiaries in the ordinary
course. Except as set forth in Schedule 4.9(c) with respect to the Leased Real
Property none of the buildings, structures or appurtenances (or any equipment
therein), nor the operation of maintenance thereof, violates any restrictive
covenant or any provision of any federal, state, provincial or local law,
ordinance, rule or regulation, or encroaches on any property owned by others,
except where such violation or encroachment does not
817104.6
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<PAGE>
materially adversely affect the value or use of any such building, structure,
appurtenance or equipment.
(d) Except as set forth in Schedule 4.9(d), (i) no
condemnation proceeding is pending or threatened with respect to the Real
Property or any buildings, structures or appurtenances located thereon, and (ii)
none of the buildings, structures or appurtenances used by the Company in the
conduct of the Business have been damaged or destroyed, in whole or in part, as
a result of any fire or other casualty, which damage or destruction has not been
fully repaired or restored.
(e) The Company and its subsidiaries have all necessary
Permits to carry on the Business in the ordinary course.
(f) Except as set forth in Schedule 4.9(f), no interest of
the Company and its subsidiaries in any Real Property is subject to any right of
first offer, first refusal or right or option to purchase.
4.10 Non-Real Estate Leases. Schedule 4.10 lists all of the Company's
and its subsidiaries' right, title and interest in and to the assets, properties
and rights of every type and description, tangible and intangible, wherever
located, owned by the Company and its subsidiaries from and after the Effective
Date and on the Closing Date or in which the Company and its subsidiaries have
any interest whatsoever on the Closing Date relating to, used or useful in the
conduct of the Company's business that are possessed by the Company and its
subsidiaries under an existing lease, including, without limitation, all
vehicles, forklifts, machinery, equipment, furniture, fixtures and computers,
except for any lease under which the aggregate annual payments (excluding Taxes)
for the last twelve (12) preceding months are less than Five Thousand Dollars
($5,000) (each, an "Immaterial Lease"). Schedule 4.10 also lists the leases
under which such assets are possessed. All of such leases (excluding Immaterial
Leases) are referred to herein as the "Non-Real Estate Leases." Each Non-Real
Estate Lease is in full force and effect and constitutes a valid leasehold
interest in such assets, and has not been assigned, modified, supplemented or
amended except as set forth on Schedule 4.10.
4.11 Financial Statements. (a) The Shareholders and the Company have
heretofore furnished QDL and/or Questron with copies of the following
consolidated financial statements of the Company and its subsidiaries: (i)
unaudited balance sheets as at March 31 for each of 1995, 1996 and 1997,
respectively; (ii) unaudited statements of operations for each of the years
ended on March 31, for 1995, 1996, and 1997; (iii) an audited balance sheet (the
"Reference Balance Sheet") as at December 31, 1998 (the "Reference Balance Sheet
Date"); and (iv) an audited statement of operations (the "Reference Income
Statement") for the year ended December 31, 1998. Except as noted on Schedule
4.11 or otherwise noted therein and except for normal year-end adjustments, all
such financial statements are complete and correct, were prepared in accordance
with GAAP consistently applied throughout the periods indicated and have been
prepared in accordance with the Books and Records of the Company, and present
fairly the financial position of the Company at such dates and the results of
its operations and cash flows for the periods then ended, subject to such
inaccuracies, if any, which are not material in nature or amount.
817104.6
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(b) There are no Liabilities, debts, obligations or claims
against the Company of any nature (accrued, absolute or contingent, unasserted,
known or unknown, 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 QDL and Questron pursuant to this Agreement; (iii) those that are
individually, or in the aggregate, not material and were 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.
(c) There are no auditor letters to management or the board
of directors of the Company with respect to the audits of the Company for the
preceding five fiscal years of the Company.
4.12 Books and Records. (a) The Shareholders and the Company have
made and will make available for inspection by QDL and/or Questron all the Books
and Records relating to the Business of the Company and its subsidiaries. Except
as set forth on Schedule 4.11, such Books and Records of the Company and its
subsidiaries reflect all the material transactions and other material matters
required to be set forth under GAAP applied on a consistent basis.
(b) The minute books of the Company and its subsidiaries
that have been made available to QDL and/or Questron for their inspection
contain true and complete records of all meetings and consents in lieu of
meetings of the Board of Directors (and any committees thereof) of the Company
and its subsidiaries and of its Shareholders and accurately reflect all material
transactions referred to in such minutes and consents in lieu of meetings. The
stock books of the Company and its subsidiaries that have been made available to
QDL and/or Questron for their inspection are true and complete in all material
respects.
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, 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.
(i) "Pre-Closing Periods" shall mean all Tax periods
ending on or before the Closing Date and, with respect to any Tax
period that includes but does not end on the Closing Date, the
portion of such period that ends on and includes the Closing Date;
(ii) "Returns" shall mean all returns, declarations,
reports, estimates, information returns and statements of any nature
regarding Taxes for any Pre-Closing Period required to be filed by
any Person and relating to the Company and its subsidiaries;
817104.6
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(iii) "Code" shall mean the Internal Revenue Code of
1986, as amended; and
(iv) the term "Tax Deficiency" shall include a
reduction in any net operating losses.
(b) In respect of the Pre-Closing Periods only,
(i) all Returns have been (or will be prior to
Closing) timely filed when due in accordance with all applicable
laws;
(ii) all Taxes shown on the Returns have been timely
paid when due;
(iii) the Returns completely, accurately, and
correctly in all material respects reflect the facts regarding the
income, properties, operations and status of any entity required to
be shown thereon;
(iv) all Taxes which the Company and its subsidiaries
are 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;
(v) there is no action, suit, proceeding,
investigation, audit or claim currently pending, or to the Company's
and the Shareholders' knowledge, threatened, regarding any Taxes
relating to the Company and its subsidiaries for any Pre-Closing
Period;
(vi) no Person has executed or entered into a closing
agreement pursuant to Code Section 7121 (or any comparable provision
of state, local or foreign law) that is currently in force and
determines the Tax liabilities of the Company;
(vii) there are no liens for any Tax on the assets of
the Company except liens which arise as a matter of law; and
(viii) there are no tax sharing agreements to which
the Company is now or, to Shareholders' knowledge, ever has been a
party which will survive the Closing.
4.14 Employee Matters. (a) Schedule 4.14(a) sets forth as of the date
hereof the name, date of hire, current annual compensation rate (including bonus
and commissions), title, current base salary rate and accrued bonus and vacation
of each present employee of the Company and its subsidiaries; and a list of any
employment, managerial, advisory, consulting, collective bargaining and
severance agreements or plans; employee confidentiality or other agreements
protecting proprietary processes, formulae or information; any employee
handbook(s) and written employment policies; any reports and/or plans prepared
or adopted pursuant to the Equal Employment Opportunity Act of 1972, as amended;
any affirmative action plans; and each employee benefit or
817104.6
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compensation plan, agreement or arrangement covering present or former
employees, consultants or directors of the Company and its subsidiaries.
(b) Schedule 4.14(b) sets forth a list of all Benefit Plans
that are "employee benefit plans" within the meaning of Section 3(3) of ERISA
("ERISA Plans") and all other Benefit Plans, whether sponsored, maintained or
contributed to by the Company.
(c) For each ERISA Plan, except as set forth on Schedule
4.14(c), each of the following is true:
(i) if such Benefit Plan is an employee pension
benefit plan (as such term is defined in ERISA Section 3(2)) intended
to qualify under the Code, such plan is and since its inception has
been so qualified and the Plan has received a favorable determination
letter as to its qualification under the Code (or such a letter has
been or will be applied for prior to expiration of the applicable
remedial amendment period), and nothing has occurred, whether by
action or failure to act, which could cause the loss of such
qualification or which would result in material costs to the Company
under the Internal Revenue Service's Closing Agreement Program,
Voluntary Compliance Resolution Program or Administrative Policy
Regarding Sanctions;
(ii) none of the Shareholders, the Company, the
Company's subsidiaries nor any other party has, with respect to any
such Benefit Plan, engaged in a prohibited transaction, as such term
is defined in Code Section 4975 or ERISA Section 406, which could
subject the Company or QDL to any Taxes, penalties or other material
liabilities resulting from prohibited transactions under Code Section
4975 or under ERISA Sections 409 or 502(i);
(iii) such Benefits Plans are in compliance in all
material respects with ERISA and the Code and all filings required to
be made have been made on a timely basis;
(iv) all contributions and insurance premiums required
as of the Closing Date have been paid;
(v) 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 its
subsidiaries;
(vi) the transactions contemplated by this Agreement
will not result in the payment or series of payments to any employee
of the Company or its subsidiaries which is a "parachute payment"
within the meaning of Section 280G of the Code; and
(vii) the Company has delivered to QDL and/or Questron
current, accurate and complete copies of such Benefit Plan (including
the plan document, trust agreement and other
817104.6
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<PAGE>
funding or insurance instruments relating thereto) and, to the extent
applicable, copies of the most recent (A) determination letter and
any outstanding request for a determination letter; (B) summary plan
description and other written communications by the Company to its
employees concerning the extent of the benefits provided under any
Benefit Plan; (C) Form 5500 with attached schedules, financial
statements and actuaries statement with respect to the plan years
ending in fiscal years 1995, 1996 and 1997; (D) collective bargaining
agreements or other such contracts; and (E) the general notification
to employees of their "COBRA" rights under Code Section 4980B and
ERISA Sections 601-609 and the form of letter(s) distributed upon the
occurrence of a COBRA qualifying event for each Benefit Plan that is
a "group health plan" as defined in Code Section 5000(b)(1) and ERISA
Section 607(1).
(d) Neither the Company nor any entity which is considered
one employer with the Company under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate") sponsors or maintains (and has not sponsored or
maintained in the calendar years ending 1995, 1996, 1997 and 1998) 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.
(e) Neither the Company nor any ERISA Affiliate contributes
or is obligated to contribute (or in the past six years has been obligated to
contribute) to a "multiemployer plan" (within the meaning of Section 4001(a)(3)
of ERISA).
(f) The Company has no employee welfare benefit plans
(within the meaning of ERISA Section 3(1)) which provide benefits beyond
termination of employment except as required by applicable law.
(g) With respect to the Company, except as set forth on
Schedule 4.14(g), each of the following is true in all material respects:
(i) the Company and its subsidiaries are 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 and the Shareholders' knowledge, threatened, or,
to the Company's and the Shareholders' knowledge, is any
investigation pending or threatened against the Company or any
subsidiary relating to any employment matter, and, to the Company's
and the Shareholders' 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 the Company's and the Shareholders'
knowledge, threatened against the Company and its subsidiaries;
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(iii) none of the employees of the Company and its
subsidiaries 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 its subsidiaries and no certification or decertification
petition is being or was circulated among the employees of the
Company and its subsidiaries within the past twelve months;
(v) no agreement (including any collective bargaining
agreement), arbitration or court decision, decree or order which is
binding on the Company or its subsidiaries in any material way limits
or restricts the Company or its subsidiaries from relocating or
closing any of its operations;
(vi) the Company and its subsidiaries have not
experienced any organized work stoppage in the last five years;
(vii) there are no administrative proceedings,
lawsuits or complaints of discrimination (including but not limited
to discrimination based upon sex, age, marital status, race, national
origin, sexual orientation, religion, disability or veteran status)
pending or, to the Company's and the Shareholders' knowledge,
threatened, or to the Company's or Shareholders' knowledge, is any
investigation pending or threatened before the Equal Employment
Opportunity Commission or any federal, state or local agency or
court, or is any complaint or internal investigation pending with
regard to sexual or other harassment. There are no pending or
threatened claims with respect to the equal employment opportunity
practices or affirmative action practices of the Company and its
subsidiaries and, to the Company's and the Shareholders' knowledge,
no reasonable basis for any claim regarding such practices exists;
and
(viii) there are no individual agreements, employment
practices, policies or procedures, or other representations,
warranties written or oral, which have been made by the Company and
its subsidiaries to employees of the Company and its subsidiaries
that commit QDL to retain them as employees for any period of time
subsequent to the Closing, or to pay them severance if they are not
retained, except as otherwise provided by law or as set forth on
Schedule 4.14(g).
4.15 Intellectual Property. Schedule 4.15(a) (i) contains detailed
information (including where applicable the federal registration number and the
date of registration or application for registration and the name in which
registration was applied for) of (x) all of the Company's and its subsidiaries'
registrations of trademarks and of other marks, trade names, brand names, and
all pending applications for any such registrations and all of the Company's and
its subsidiaries' patents and copyrights and all pending applications therefor,
(y) all material computer software used by the Company and its subsidiaries in
the conduct of the Business and (z) all licenses and other trademarks and other
marks, trade names, material designs, plans, specifications, patents, patent
applications and
817104.6
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other intellectual property rights of any kind of the Company and its
subsidiaries, whether or not registered, including, without limitation, all
rights of the Company and its subsidiaries to the use and ownership of the names
"Action Threaded Products, Inc.," and any and all other names associated with,
derived from or used in connection with the conduct of the Business (and all
trade names listed on Schedule 4.15(a)) (all of the items referred to in this
clause (i) being "Intellectual Property Rights"), and (ii) identifies any
Intellectual Property Rights that any third party owns and that the Company or
its subsidiaries use or propose to use in the Business of the Company and its
subsidiaries, and specifies whether such use is or will be pursuant to license,
sublicense, agreement or permission. The Company and its subsidiaries own (or,
as set forth on Schedule 4.15(a), possess enforceable licenses or other rights
to use) all of such Intellectual Property Rights. Except as set forth on
Schedule 4.15(b), no Person has a right to receive a royalty or similar payment
in respect of any Intellectual Property Rights pursuant to any contractual
arrangements entered into by the Company or any subsidiary or otherwise. Neither
the Company nor any Company subsidiary has any licenses granted by or to it and
no other agreements to which it is a party, relating in whole or in part to any
of the Intellectual Property Rights. Except as set forth on Schedule 4.15(c),
neither the Company nor any Company subsidiary has received notice of or has any
reason to believe that the Company's or its subsidiaries' use of the
Intellectual Property Rights is interfering with, infringing upon or otherwise
violating the rights of any third party in or to such Intellectual Property
Rights, and no proceedings have been instituted against or notices received by
the Company or any subsidiary alleging that the Company's or its subsidiaries'
use or proposed use of any Intellectual Property Rights infringes upon or
otherwise violates any rights of a third party in or to such Intellectual
Property Rights, which infringement or violation could have a Material Adverse
Effect on the Company and its subsidiaries.
4.16 Accounts Receivable and Accounts Payable. (a) 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 and its subsidiaries, have arisen from bona fide transactions in the
ordinary course of business and are fully collectible by the Company and its
subsidiaries in the ordinary course of business, subject to the reserve for
doubtful accounts appearing on the Reference Balance Sheet. Except as set forth
on Schedule 4.16(a), and as provided in the preceding sentence, all accounts
receivable of the Company and its subsidiaries as of the Closing Date (less any
reserves for bad debt, which reserves are determined in accordance with past
practices) shall be subject to no defenses, counterclaims or rights of set-off
and shall be fully collectible within ninety (90) days of the Closing Date
without cost to QDL, except to the extent of any reserve with respect thereto
set forth in the March Balance Sheet. The reserves or associated Liabilities
reflected on the Reference Balance Sheet relating to accounts receivable of the
Company and its subsidiaries are reasonable in amount.
(b) Except as expressly and fully set forth on Schedule
4.16(b), since the Reference Balance Sheet Date, the Company and its
subsidiaries have paid all accounts payable in the ordinary course of business
in accordance with the terms thereof, and has not delayed the payment thereof in
contemplation of the transactions provided in the Agreement or otherwise.
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4.17 Inventory. Except as set forth on Schedule 4.17, the Inventories
of raw materials, in-process and finished products of the Company and its
subsidiaries are in good condition, conform in all material respects with the
Company's applicable specifications and warranties, are not obsolete, and are
saleable as of the date hereof at values not less than the book value amounts
thereof. Adequate reserves have been provided for inventory obsolescence and the
values at which such Inventories are carried are in accordance with the normal
valuation of the Company and its subsidiaries and with GAAP consistently
applied. All Inventory disposed of by the Company and its subsidiaries since the
Reference Balance Sheet Date has been disposed of under terms consistent with
the Company's past practices.
4.18 Absence of Change or Event. Except as set forth on Schedule
4.18, since the Reference Balance Sheet Date, the Company and its subsidiaries
have conducted the Business only in the ordinary course consistent with past
practice and have not:
(a) experienced a material adverse change in the assets,
liabilities (contingent or otherwise), property, Business, condition (financial
or otherwise), operations, results of operations or prospects of the Company and
its subsidiaries;
(b) incurred any obligation or Liability, absolute,
accrued, contingent or otherwise, whether due or to become due, in excess of
Twenty-Five Thousand Dollars ($25,000) in the aggregate, except liabilities or
obligations incurred in the ordinary course of business and consistent with
prior practice;
(c) mortgaged, pledged or subjected to lien, restriction or
any other Encumbrance any of the property, businesses or assets, tangible or
intangible, of the Company and its subsidiaries, except for purchase money
liens;
(d) sold, transferred, leased to others or otherwise
disposed of any of its assets (or committed to do any of the foregoing),
including the payment of any loans owed, or the making of any loans, to any
officer, director, shareholder or other affiliate of the Company and its
subsidiaries, except for inventory sold to customers or returned to vendors and
payments to any non-affiliates on account of accounts payable or scheduled
payments in respect of indebtedness for money borrowed disclosed on the
Reference Balance Sheet or in the Schedules, or canceled, waived, released or
otherwise compromised any debt or claim other than in the ordinary course of
business, or any material right;
(e) 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 and its subsidiaries, or declared or paid
any dividend or made any other payment or distribution in respect of its capital
stock, or directly or indirectly redeemed, purchased or otherwise acquired any
of its capital stock or any option, warrant or other right to acquire such
capital stock.
(f) suffered any damage, destruction or loss (whether or
not covered by insurance) in an amount greater than Five Thousand Dollars
($5,000);
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(g) made or committed to make any capital expenditures or
capital additions or betterments in excess of an aggregate of Twenty-Five
Thousand Dollars ($25,000);
(h) instituted or threatened any litigation, action or
proceeding before any Governmental Authority relating to it or its property;
(i) increased the compensation of any officer, director,
employee or agent of the Company and its subsidiaries, 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 Twenty Thousand Dollars ($20,000);
(j) 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;
(k) made or changed any election concerning Taxes or Tax
returns, changed an annual accounting period, adopted or changed any accounting
method, filed any amended Tax 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;
(l) allowed any Permit relating to the Business of the
Company and its subsidiaries to lapse or terminate;
(m) materially amended or terminated or received any threat
(not subsequently withdrawn) to terminate, any Contract involving more than Five
Thousand Dollars ($5,000);
(n) cancelled, compromised, waived or released any rights
or claims (or series of related rights or claims) either (i) involving an
affiliate of the Company or the Shareholders, (ii) involving more than Five
Thousand Dollars ($5,000), or (iii) outside the ordinary course of business
consistent with past practice;
(o) delayed or failed to repay when due any material
obligation of the Company and its subsidiaries;
(p) failed to operate the Business of the Company and its
subsidiaries in the ordinary course consistent with past practice so as to use
reasonable efforts to preserve the Business intact, to keep available to QDL the
services of its employees, and to preserve for QDL the goodwill of the Company's
suppliers, customers, distributors and others having business relations with it;
(q) granted any license or sublicense of any rights under
or with respect to any Intellectual Property Rights of the Company and its
subsidiaries;
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(r) lent to, or made other agreement with any employee of
the Company and its subsidiaries outside the ordinary course of business
consistent with past practice giving rise to any claim or right on its part
against the Person or on the part of the Person against it;
(s) 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;
(t) 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
(u) engaged in any other material transaction other than in
the ordinary course of business.
4.19 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 and its subsidiaries.
4.20 Contracts and Commitments. (a) Schedule 4.20 sets forth each
written contract or agreement involving a liability or obligation of the Company
equal to or in excess of Ten Thousand Dollars ($10,000) and outstanding as of
the date hereof to which the Company is a party, other than ordinary course of
business purchase orders and other than any items listed on Schedule 4.9 and
Schedule 4.10.
(b) Except as set forth on Schedule 4.20, neither the
Company nor any Company subsidiary is a party to:
(i) any written arrangements (or group of related
written arrangements) for the lease of personal property or real
property providing for lease payments in excess of Five Thousand
Dollars ($5,000) per annum;
(ii) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw materials,
commodities, supplies, products or other property or for the
furnishing or receipt of services, including, without limitation, any
customer or vendor contracts involving more than Five Thousand
Dollars ($5,000);
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(iii) any written arrangement (or group of related
written arrangements) concerning a partnership or joint venture with
any other Person;
(iv) any written arrangement (or group of related
written arrangements) under which it has created, incurred, assumed
or guaranteed (or may create, incur, assume or guarantee)
indebtedness (including capitalized lease obligations) involving more
than Five Thousand Dollars ($5,000) in principal amount or under
which it has imposed (or may impose) a security interest or lien on
any of its assets, tangible or intangible;
(v) any written arrangement (or group of related
written arrangements) concerning confidentiality or non-competition
arrangements;
(vi) any written arrangement with any of its
directors, officers, shareholders or employees or any member of any
such Person's immediate family (x) providing for the furnishing of
material services by, (y) providing for the rental of material real
or personal property from, or (z) otherwise requiring material
payments to (other than for services as officers, directors or
employees of the Company and its subsidiaries), any such Person or
any corporation, partnership, trust or other entity in which any such
Person has a substantial interest as a shareholder, officer,
director, trustee or partner;
(vii) any Benefit Plan of the Company and its
subsidiaries and any written arrangement with any of its directors,
officers, stockholders or employees in the nature of a collective
bargaining agreement, employment agreement or severance agreement;
(viii) any other written arrangement (or group of
related written arrangements) under which the consequences of a
default or termination could have a Material Adverse Effect on the
Company and its subsidiaries;
(ix) any other written arrangement (or group of
related written arrangements) other than Leases, either involving
aggregate annual payments of more than Five Thousand Dollars ($5,000)
or not entered into in the ordinary course of business consistent
with past practice; or
(x) any oral contract, agreement, past or present
practice or policy, or other arrangement with respect to any of the
matters referred to in the foregoing clauses (i) through (ix) and any
proposal (oral or written) to enter into any contract, agreement or
other arrangement with respect to any of the matters referred to in
the foregoing clauses (i) through (ix).
(c) The Company has delivered to QDL and/or Questron a
correct and complete copy of each written arrangement listed in Schedule 4.20
and has included as part of Schedule 4.20 a brief summary of any such oral
contracts, agreements or other arrangements and any proposals (oral or written)
to enter into any such contracts, agreements or other arrangements. Except as
set forth on Schedule 4.20, with respect to each written arrangement listed, (A)
the written arrangement is legal, valid, binding, and enforceable obligation of
the Company and its subsidiaries (except as
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such enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law) and will be in full force and effect; (B) upon
consummation of the transactions contemplated hereby, the written arrangement
will continue to be legal, valid binding obligation and enforceable (except as
such enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law) and will be in full force and effect on
identical terms following the Closing Date; and (C) to the Company's and the
Shareholders' knowledge, no party has repudiated any term of the written
arrangement.
4.21 Insurance. (a) Schedule 4.21 sets forth (i) the Insurance
Policies presently in force and, without restricting the generality of the
foregoing, those covering the Company's and its subsidiaries' product liability
and their respective personnel, properties, buildings, machinery, equipment,
furniture, fixtures and operations and any general comprehensive liability
policies including excess liability policies specifying with respect to each
such policy the name of the insurer, type of coverage, term of policy, limits of
liability, the expiration date, the policy number and annual premium; (ii) the
Company's and its subsidiaries' premiums, deductibles and losses in excess of
Twenty-Five Thousand Dollars ($25,000), by year, by type of coverage, for the
calendar years 1997 and 1998 based on information received from the Company's
insurance carrier(s); (iii) all outstanding insurance claims in excess of Ten
Thousand Dollars ($10,000) by the Company and its subsidiaries 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; and (iv) any agreements,
arrangements or commitments by or relating to the Company and its subsidiaries
under which the Company or its subsidiaries indemnify any other Person or are
required to carry insurance for the benefit of any other Person. The Company has
heretofore delivered to QDL and/or Questron complete and correct copies of the
Insurance Policies and agreements set forth on Schedule 4.21.
(b) The Insurance Policies set forth on 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 Closing Date have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy. Such policies are sufficient for compliance with all requirements of Law
and all agreements to which the Company and its subsidiaries are a party. Such
policies are valid, outstanding and enforceable policies; will remain in full
force and effect through the respective dates set forth on Schedule 4.21;
provided sufficient coverage, in the reasonable opinion of the Company, for the
risks insured against; and will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. Neither the
Company nor any Company subsidiary is in default under any of such policies or
binders. Neither the Company nor any Company subsidiary has failed to give any
notice or to present any claim under any such policy or binder in a due and
timely fashion where such default or failure to give notice or present a claim
could have a Material Adverse Effect on the Company or its subsidiaries. Neither
the Company nor any Company subsidiary has been refused any insurance with
respect to the respective assets or operations of the Company and its
subsidiaries, nor has any such coverage been limited, by any insurance carrier
to which the Company or its subsidiaries have applied for any such insurance or
with which the Company or its subsidiaries have carried insurance during the
calendar years 1997
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<PAGE>
and 1998. Neither the Company nor any Company subsidiary has received any notice
from their respective insurance carriers that any insurance premiums will be
materially increased in the future or that any insurance coverage listed on
Schedule 4.21 will not be available in the future on substantially the same
terms as now in effect.
4.22 Customers, Suppliers, Distributors, Etc. (a) No supplier,
customer, distributor or sales representative of the Company and its
subsidiaries 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 or to reduce sales volumes below those
presently existing, or has at any time on or after the Reference Balance Sheet
Date decreased materially its services or supplies to the Company and its
subsidiaries or its usage of the services or products of the Company and its
subsidiaries or made any written claim that any item sold by the Company and its
subsidiaries failed to meet any specification with respect thereto or were
otherwise defective other than in the ordinary course of business or where such
claim does not involve an amount in excess of Five Thousand Dollars ($5,000).
Except as set forth on Schedule 4.22(a), the Company and the Shareholders have
no knowledge that any such supplier or customer intends to cancel or otherwise
terminate its relationship with the Company or to decrease materially its
services or supplies to the Company or their usage of the services or products
of the Company, as the case may be. Except as set forth on Schedule 4.22(a), the
Company and its subsidiaries have not sold goods to be delivered after Closing
to any customer on a consignment basis, and neither the Company nor any Company
subsidiary has agreed with any customer of the Company and its subsidiaries to
sell goods to it to be delivered after Closing at either a discounted price or
at a price which includes any type of allowance for the cost of the customer's
advertising.
(b) Schedule 4.22(b) sets forth the customer sales history
of all customers of the Company that made aggregate purchases from the Company
of more than Ten Thousand Dollars ($10,000) since April 1, 1997. Such
information is true and complete.
(c) Schedule 4.22(c) sets forth a complete and accurate
list of suppliers of the Company from whom the Company and its Subsidiaries have
made aggregate purchases in excess of Ten Thousand Dollars ($10,000) during the
fiscal years ended March 31, 1999, showing the approximate total purchase by the
Company and its Subsidiaries from each such supplier during such fiscal year.
4.23 Previous Sales; Warranties; Product Liability. (a) The Company
and its subsidiaries have not breached any express or implied warranties in
connection with the sale or distribution of goods or the performance of
services.
(b) Schedule 4.23(b) sets forth all warranty claims for
amounts in excess of Fifteen Thousand Dollars ($15,000), individually, asserted
against the Company and its subsidiaries, together with the actual or estimated
cost of repair or replacement, (i) outstanding as of the date hereof, and (ii)
for each of the fiscal years ended March 31, 1997 and 1998.
817104.6
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<PAGE>
(c) Schedule 4.23(c) contains a complete and correct list
of (i) product liability claims made against the Company and its subsidiaries
since December 31, 1995 and (ii) any amounts paid by the Company and its
subsidiaries or the Company's insurance company with respect to such claims.
Except as set forth on Schedule 4.23(c), there is no action, suit, inquiry,
proceeding or investigation by or before any Governmental Authority pending or
threatened against or involving the Company and its subsidiaries relating to any
product manufactured or sold by the Company and its subsidiaries and alleged to
have been defective, or improperly designed or manufactured.
4.24 Environmental Matters. (a) For the purposes of this Section the
following terms shall have the following meanings: (i) the term "Hazardous
Material" shall mean any material or substance that, whether by its nature or
use, is now or hereafter defined, determined or identified as a hazardous
material, hazardous waste, hazardous substance, toxic substance, pollutant or
contaminant under any Environmental Law, or which is toxic, explosive,
corrosive, ignitable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous or is harmful to human health or the environment, or which
is or contains petroleum, gasoline, diesel fuel or another petroleum hydrocarbon
product; and (ii) "Environmental Laws" shall collectively mean all present and
future federal, state and local laws, statutes, ordinances, rules, regulations,
orders, codes, licenses, permits, decrees, judgments, directives, guidelines,
standards or the equivalent of or by any governmental authority and relating to
or addressing the protection of the environment or human health (including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
9601 et seq.), and the regulations adopted and publications promulgated pursuant
thereto).
(b) Except as set forth in Schedule 4.24, the Company and
the Shareholders warrant and represent that: (i) neither the Company, its
subsidiaries nor, to the best of the Company's and the Shareholders' knowledge,
any prior owner or any user or tenant or operator of the Real Property, has
generated, stored, treated, disposed of, used, caused to be used, or permitted
the use of Hazardous Materials in, on or about the Real Property in violation of
Environmental Laws; (ii) the Company, its subsidiaries and the Real Property are
in compliance with all applicable Environmental Laws; (iii) the Company and its
subsidiaries have secured all permits, licenses, authorizations, registrations
and approvals necessary for the storage, use or handling of Hazardous Materials,
such approvals are currently in effect, and the Company and its subsidiaries are
in compliance therewith; (iv) there are no pending or, to the Company's and the
Shareholders' knowledge, threatened claims by any Governmental Authority or any
other person in respect of Environmental Laws affecting the Company, its
subsidiaries or the Real Property and neither the Shareholders nor the Company
and its subsidiaries have received any notice of any violations of any
Environmental Laws or has received any warning notices, administrative
complaints, judicial complaints or other formal or informal notices from any
person alleging that the Company, its subsidiaries or conditions on the Real
Property are, or may be, in violation of any Environmental Laws; (v) there is
not now, nor has there ever been, any disposal, discharge or other type of
release on property adjacent to or near the Real Property or to the surface or
ground water flowing to the Real Property which constitutes a risk of
contamination to the Real Property; and (vi) no releasing, emitting,
discharging, leaching, dumping or disposing of any Hazardous Material by the
Company or from the Real Property has
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<PAGE>
occurred at, into, onto or under the Real Property or any other property which
may give rise to liability under any Environmental Law.
4.25 Absence of Certain Payments. Except as set forth on Schedule
4.25, neither the Company, its subsidiaries nor any director, officer, agent,
employee or other Person acting on behalf of the Company, its subsidiaries nor
any Shareholder 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, its subsidiaries nor any
current director, officer, agent, employee or other Person acting on behalf of
the Company and its subsidiaries have accepted or received any unlawful
contributions, payments, gifts or expenditures.
4.26 Additional Information. Schedule 4.26 accurately lists the
following (Schedule 4.26 may be revised as of immediately prior to the Closing
to account for any changes):
(a) the names of all officers and directors of the Company
and its subsidiaries;
(b) the names and addresses of every bank or other
financial institution in which the Company and its subsidiaries maintain an
account (whether checking, savings or otherwise), lock box or safe deposit box,
and the account numbers and names of Persons having signing authority or other
access thereto;
(c) the names of all Persons authorized to borrow money or
incur or guarantee indebtedness on behalf of the Company and its subsidiaries;
(d) the names of any Persons holding powers of attorney
from the Company and its subsidiaries and a summary statement of the terms
thereof; and
(e) all names under which the Company and its subsidiaries
have conducted any part of the Business or which they have otherwise used at any
time during the past five years.
4.27 Investment Intent. Each of the Shareholders on their own behalf
and in their individual capacities:
(i) represents and warrants that the Closing Shares,
the Additional Shares and the Deferred Shares (the "Securities") are
being acquired as an investment and not with a view to the
distribution thereof;
(ii) understands that none of the Securities have been
registered under the Securities Act, in reliance on an exemption
therefrom, and that none of the Securities have been approved or
disapproved by the United States Securities and Exchange Commission
or by any other Federal or state agency;
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<PAGE>
(iii) understands that none of the Securities can be
sold, transferred or assigned unless registered by Questron (which
the Shareholders do not have the right to compel) pursuant to the
Securities Act and any applicable state securities laws, or unless an
exemption therefrom is available, and, accordingly, it may not be
possible for the Shareholders to liquidate their investment in the
Securities, and agrees not to sell, assign or otherwise transfer or
dispose of the Securities unless such Securities have been so
registered or an exemption from registration is available;
(iv) acknowledges that the following documents have
been provided to, and reviewed by, the Shareholders:
(a) Questron's Annual Reports on Form 10-KSB for the fiscal
years ended December 31, 1995, 1996 and 1997;
(b) Questron's Quarterly Reports on Form 10-QSB for the
quarterly periods ending March 31, 1998, June 30, 1998 and September
30, 1998;
(c) Questron's Proxy Statement, dated May 5, 1998, relating
to its 1998 Annual Meeting of Shareholders; and
(d) Questron's Form 8-K and 8-K/A dated October 8, 1998 and
December 8, 1998, respectively, have been made available to the
Shareholders and the Shareholders' attorney and/or accountant and/or
representative. The Shareholders have had an opportunity to ask
questions and receive answers from Questron concerning its business
and assets of Questron and all such questions have been answered to
the full satisfaction of the Shareholders; and
(v) each Shareholder is an accredited investor, as
that term is defined in Regulation D under the Act.
4.28 Disclosure. (a) No representations or warranties by the
Shareholders and the Company in this Agreement, including the Exhibits and the
Schedules, and no statement contained in any document (including, without
limitation, the financial statements, certificates and other writings furnished
or to be furnished by the Shareholders or the Company to QDL and/or Questron or
any of their respective 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.
(b) The Shareholders have furnished or caused to be
furnished to QDL and Questron complete and correct copies of all agreements,
instruments and documents set forth in the Schedules. Each of the Schedules is
true, complete and correct.
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON
QDL and Questron represent and warrant to the Company and the
Shareholders that:
5.1 Organization. Each of QDL and Questron is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware. Each of QDL and Questron has all requisite corporate power and
authority to carry on its respective business as now being conducted and to own
its respective 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 such entity.
5.2 Corporate Authority; Due Execution. Each of QDL and Questron has
full corporate power and authority to enter into this Agreement and each Other
Document to which it is party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by each of QDL and
Questron of this Agreement and each Other Document to which it is party have
been duly authorized by all requisite corporate action. This Agreement has been,
and each of the other agreements contemplated by this Agreement to which it is
party will be as of the Closing Date, duly executed and delivered by each of QDL
and Questron, and (assuming due execution and delivery by Shareholders and the
Company) this Agreement constitutes, and each of such other agreements when
executed and delivered will constitute, a valid and binding obligation of each
of QDL and Questron, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization or similar laws affecting creditors' rights generally
or by general equitable principles.
5.3 No Violation. Neither QDL nor Questron is 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 contract, 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 QDL or Questron of this
Agreement, and each Other Document and the consummation of the transactions
contemplated hereby and thereby. No consent, approval or authorization of or
declaration or filing with any Person is required for the valid
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<PAGE>
execution, delivery and performance by QDL and Questron of this Agreement and
the consummation of the transactions contemplated hereby.
5.4 SEC Documents. Questron has furnished the Company and each
Shareholder with copies of the following reports (the "SEC Documents") filed by
Questron with the United States Securities and Exchange Commission (the "SEC"):
(a) Questron's Annual Reports on Form 10-KSB for the fiscal
years ended December 31, 1995, 1996 and 1997;
(b) Questron's Quarterly Reports on Form 10-QSB for the
quarterly periods ending March 31, 1998, June 30, 1998 and September
30, 1998;
(c) Questron's Proxy Statement, dated May 5, 1998, relating
to its 1998 Annual Meeting of Shareholders; and
(d) Questron's Forms 8-K and 8-K/A dated October 8, 1998
and December 8, 1998, respectively.
Questron is current in its obligations to file all periodic reports and proxy
statements with the SEC required to be filed under the Exchange Act and
applicable rules and regulations promulgated thereunder.
5.5 Questron Common Stock. All shares of Questron Common Stock
delivered to the Shareholders pursuant to this Agreement, when issued as
contemplated hereby, will be duly authorized, validly issued, fully paid and
non-assessable.
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS OF
SHAREHOLDERS, THE COMPANY, QDL AND QUESTRON
6.1 Conduct of Business Prior to the Closing Date. The Shareholders
and the Company agree with Questron and QDL that, between the date hereof and
the Closing Date:
(a) Except as otherwise contemplated by this Agreement or
permitted by written consent of QDL, the Shareholders shall cause the Company
and its subsidiaries to operate the Business only in the ordinary course
consistent with prior practice and not to:
(i) declare or pay any dividends, make any
distributions to the Shareholders or undertake any similar
transactions affecting the capital of the Company and its
subsidiaries;
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(ii) sell or dispose of any assets of the Company and
its subsidiaries other than the sale of inventory in the ordinary
course of business;
(iii) take any action of the nature referred to in
Section 4.18, except as permitted therein;
(iv) change the Company's and its subsidiaries'
banking or safe deposit arrangements;
(v) cause or permit indebtedness (which for purposes
of this clause (v) shall be deemed to exclude trade payables
consisting of accounts payable, deferred taxes and accrued expenses)
of the Company and its subsidiaries to exceed Ten Thousand Dollars
($10,000) in the aggregate; or
(vi) except as may be required by law, take any action
to amend or terminate any Benefit Plan or adopt any other plan,
program, arrangement or practice providing new benefits or
compensation to its employees.
(b) The Shareholders and the Company shall use their best
efforts to conduct the Business of the Company in a manner consistent with past
business practices; to preserve the business organization of the Company and its
subsidiaries intact; to keep available to QDL the services of the present
officers and employees of the Company and its subsidiaries; to preserve for QDL
the good will of the Company's and its subsidiaries' suppliers, customers,
distributors, sales representatives and others having business relations with
the Company and its subsidiaries; and to inform QDL of, and consult with QDL on,
any key decisions involving any capital expenditure in excess of Fifty Thousand
Dollars ($50,000).
(c) The Shareholders shall cause the Company to maintain in
force the Insurance Policies referred to on Schedule 4.21 or Insurance Policies
providing the same or substantially similar coverage; provided, however, that
the Company will notify QDL prior to the expiration of any of such Insurance
Policies.
(d) Except as contemplated by this Agreement or permitted
by written consent of QDL, no Benefit Plan disclosed or required to be disclosed
has been or will be:
(i) terminated by the Company other than for
expiration of its terms;
(ii) except as required by law, amended in any manner
which would directly or indirectly increase the benefits accrued in a
material amount, by any participant thereunder; or
(iii) except as required by law, amended in any manner
which would materially increase the cost to QDL of maintaining such
plan, fund or arrangement.
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(e) The Shareholders and the Company shall give QDL prompt
notice of any event, condition or circumstance occurring from the date hereof
through the Closing Date that would constitute a violation or breach of any
representation or warranty of the Shareholders or the Company of which the
Shareholders or the Company have knowledge, whether made as of the date hereof
or as of the Closing Date, or that would constitute a violation or breach of any
covenant of the Company or the Shareholders contained in this Agreement.
6.2 Tax Covenants.
(a) After the Closing Date, the Company and QDL shall
provide each other with such cooperation and information as any party reasonably
may request in (i) filing any Tax return, amended return or claim for refund,
(ii) determining any Tax liability or a right to refund of Taxes, (iii)
conducting or defending any audit or other proceeding in respect of Taxes or
(iv) effectuating the terms of this Agreement. With respect to any Taxes
relating to Tax returns for pre-Effective Date periods that are payable
subsequent to the Closing Date, to the extent that such Taxes exceed the amount
of tax liabilities identified on Schedule 2.2(a), the Shareholders shall timely
pay, or cause to be paid, on behalf of the Company, such Taxes when due or the
Shareholders shall pay, or cause to be paid on behalf of the Company in advance
of such due dates all amounts owned relating to such Tax returns in order to
allow the Company to pay such Taxes in a timely manner. The parties shall retain
all returns, schedules and workpapers, 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 QDL, as applicable, until the final determination of any Tax in
respect of such years. The Shareholders shall be entitled to retain any tax
refunds relating to the fiscal year ended March 31, 1999 or any prior year. Any
information obtained under this Section 6.2 shall be kept confidential, except
as may be otherwise necessary in connection with filing any Tax return, amended
return, or claim for refund, determining any Tax liability or right to refund of
Taxes, or in conducting or defending any audit or other proceeding in respect of
Taxes. Notwithstanding the foregoing, none of the Company, QDL 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,
or the possession of its agents, representatives or affiliates, in response to a
request under this Section 6.2.
(b) The Company and/or the Shareholders shall be
responsible for any documentary transfer or gains Taxes and any sales, use, real
property, transfer or gains or other Taxes imposed by reason of the transfer of
the Shares to QDL, as provided hereunder and any deficiency, interest or penalty
asserted with respect thereto. The Company and/or the Shareholders shall pay the
fees and costs of obtaining, recording or filing all applicable conveyancing
instruments described in Section 7.7.
6.3 Expenses and Finder's Fees. QDL and Questron, on the one hand,
and the Company and the Shareholders, on the other, will bear their own expenses
in connection with this Agreement and its performance. The Company and the
Shareholders, on the one hand, and QDL and Questron, on the other, 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
817104.6
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to any valid claims against the other party for a brokerage commission, finder's
fee or other like payment.
6.4 Access to Information and Confidentiality. The Shareholders and
the Company agree that until the Closing, QDL and Questron may conduct such
reasonable investigation with respect to the Business, business prospects, the
Shares, Liabilities (contingent or otherwise), properties, assets, results of
operations, employees and financial condition of the Company and its
subsidiaries as will permit QDL and Questron to evaluate the transactions
contemplated by this Agreement. Until the Closing, the Company and the
Shareholders shall afford QDL and Questron reasonable access to the premises,
Books and Records and business affairs of the Company and its subsidiaries (and,
to the extent directly relating thereto, of the Shareholders) for purposes of
(i) conducting such investigation and, promptly after the end of each month
(without demand or notice), shall furnish QDL and Questron with copies of an
unaudited balance sheet as of the end of such month and unaudited statements of
income and cash flows for such month, in each case prepared consistent with the
standards set forth in the second sentence of Section 4.13(a) and (ii) review
the audited financial statements (the "1998 Audit") of the Company's financial
position as of and for the nine months ended December 31, 1998 as audited by
Questron's certified public accountants (which audited financial statements the
Company and Seller agree may be disclosed by Questron for purposes of satisfying
the financing condition set forth in Section 7.10). The Company and the
Shareholders agree to cooperate with Questron and its representatives in the
review of the 1998 Audit. Unless and until the transactions contemplated herein
have been consummated, each of QDL and Questron, on the one hand, and the
Company and the Shareholders, on the other, shall maintain all confidential
information received from the other parties in connection with its evaluation of
the transactions contemplated by this Agreement, including the independent audit
of the Company performed by QDL and/or Questron (the "Confidential Information")
in strict confidence, and shall take all precautions necessary to prevent
disclosure, access to, or transmission of the Confidential Information, or any
part thereof, to any third party. Each of QDL, Questron, the Company, its
subsidiaries and the Shareholders may make limited disclosure of Confidential
Information to its representatives and to such other persons as need to know for
the purpose of preparing for and negotiating this Agreement and in connection
with the consummation of the purchase and sale contemplated hereby, including
arranging QDL's financing in connection with the purchase, provided such persons
are informed of and bound by QDL's and Questron's confidentiality obligations
hereunder. In the event the Closing does not occur for any reason, each of QDL,
and Questron, on the one hand, and the Company, its subsidiaries and the
Shareholders, on the other hand, shall, promptly upon the other parties'
request, return all copies and recordings of the Confidential Information in its
possession or under its control and delete all records thereof in any data
storage system maintained by it. For the purposes of this Section 6.4,
Confidential Information shall not include information which (a) the holder can
reasonably demonstrate was already in the holder's possession, provided that
such information is not known by the holder to be subject to another
confidentiality agreement with, or other obligation of secrecy to another party,
(b) becomes generally available to the public other than as a result of a
disclosure by the holder or the holder's directors, officers, employees, agents
or advisors, or (c) becomes available to the holder on a non-confidential basis
from a source other than the Shareholders, the Company, its subsidiaries, or
their advisors, provided that such source is not known by the holder to be bound
by a confidentiality agreement with, or other obligation of secrecy to another
party. Nothing contained in this Section
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<PAGE>
6.4 or otherwise shall prohibit the holder from making disclosure of
Confidential Information to the extent required by Law, rule or regulation,
provided that the holder shall give the other prior notice as to the nature of
the required disclosure so as to provide the other the opportunity to challenge
the need for such disclosure.
(b) Upon execution of this Agreement, the Company shall
supply QDL with a correct and complete list of all Persons to whom, to the
knowledge of the Company and the Shareholders, Confidential Information has been
supplied over the past five (5) years. The Company agrees to use its best
efforts to retrieve, procure and deliver to QDL all Confidential Information
previously provided to any Person or prospective purchaser of any assets,
business or capital stock of the Company immediately upon execution of this
Agreement.
6.5 No Solicitation. The Shareholders, the Company and its
subsidiaries shall not, and each shall direct their respective affiliates,
representatives and agents and the Company's and its subsidiaries' officers and
employees, not to, directly or indirectly, encourage, solicit, initiate,
continue 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 and its subsidiaries or enter into any agreement with respect thereto.
The Company, its subsidiaries and the Shareholders will promptly communicate to
Questron the terms of any proposal and the identity of the Person making such
proposal which they may receive in respect of all such transactions prohibited
by the foregoing.
6.6 Employees. (a) During the period between the date hereof and the
Closing Date, the Company and its subsidiaries shall use their best efforts to
keep available current employees of the Company and its subsidiaries for
employment by QDL. At the Closing, QDL shall offer employment, effective
immediately upon the Closing, to the employees of the Company and its
subsidiaries listed on Schedule 6.6(a) on the terms and conditions similar to
those in effect immediately prior to the Closing Date. The Company shall
encourage each of the employees listed on Schedule 6.6(a) to accept such offers
of employment.
(b) There shall be during the period between the date
hereof and the Closing Date no amendment or announcement by or on behalf of the
Company or any ERISA Affiliate with respect to any Benefit Plan which could
materially increase the expense of maintaining such Benefit Plan with respect to
the Company employees above the level of expense incurred in respect thereof for
the fiscal year ended on the Reference Balance Sheet Date.
(c) With respect to the Benefit Plans listed on Schedule
4.14(b), the Company and QDL shall at the Closing take such reasonable action
and execute such reasonable documents as shall be necessary and proper to
transfer the sponsorship of such Benefit Plans, together with the trusts assets
relating thereto, from the Company or an ERISA Affiliate to QDL.
6.7 Press Releases. Except as required by law or stock exchange
regulation, any public announcements by the Company, its subsidiaries or the
Shareholders, on the one hand, and QDL and Questron, on the other, regarding the
transactions contemplated hereby shall be made only with the consent of the
other party.
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<PAGE>
6.8 Transitional Assistance. The Company and the Shareholders shall
reasonably cooperate with and assist QDL in the orderly transfer of the Business
of the Company and its subsidiaries after the Closing Date. Such cooperation and
assistance shall include, but not be limited to, the physical transfer of any
Books and Records and computer software of the Company and its subsidiaries.
6.9 Conditions. The Company and the Shareholders shall use their best
efforts to fulfill or cause the fulfillment of the conditions set forth in
Article 7. QDL and Questron shall use their best efforts to fulfill or cause the
fulfillment of the conditions set forth in Article 8.
6.10 Rule 144. Following the Closing Date, Questron agrees to use
commercially reasonable efforts to cooperate with the Shareholders with respect
to permitted sales of Questron Common Stock by the Shareholders under Rule 144
of the Exchange Act.
6.11 SEC Filings. Questron will provide the Shareholders with copies
of all reports filed by Questron under the Securities Act and the Exchange Act
subsequent to the date hereof and prior to the Closing Date.
6.12 Balance Sheets. The Company, at Questron's cost and expense,
prepared and delivered to Questron, for its review and approval on April 23,
1999, (i) an unaudited balance sheet of the Company as at March 31, 1999 (the
"March 31, 1999 Balance Sheet"), which was prepared on a basis consistent with
the Reference Balance Sheet, and (ii) the Company's calculation, set forth in
reasonable detail of Stated Net Debt as at March 31, 1999.
6.13 HSR Act and Other Filings. As promptly as practicable after the
execution of this Agreement, each party shall, in connection with the others,
make or cause to be made any filing or filings required to be made in connection
with the transactions contemplated by this Agreement under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with the Federal
Trade Commission and the Antitrust Division of the Department of Justice (and
shall request the early termination of any applicable waiting periods in
connection therewith), and, as promptly as practicable from time to time
thereafter, each party shall make or cause to be made all such further filings
and submissions, and take or cause to be taken such further action, as may
reasonably be required in connection therewith. Each party agrees promptly to
provide the other party or parties with copies of all final consent, approval,
termination or confirmation letters provided to such party pursuant to filings
made under this section.
6.14 Millennium Capability. Except as set forth on Schedule 6.14, to
the knowledge of the Company and the Shareholders, all of the Company's
Technology (as defined below) is Year 2000 Compliant (as defined below). For
purposes of this Section 6.14, "Technology" includes, without limitation, all
computer hardware, software and network components; all communications systems
and equipment; and all machinery, equipment and devices containing
microprocessors. For purposes of this Agreement, "Year 2000 Compliant" means
that the Technology must correctly process date data within and between the 20th
and 21st centuries, so that (a) no value for a calendar date (including 9/9/99)
will cause interruptions in normal operation; (b) all manipulations of calendar-
related data (dates, durations, days of week, etc.) will produce desired results
for all valid
817104.6
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<PAGE>
date values; (c) date elements in interfaces and data storage permit specifying
century to eliminate date ambiguity; (d) for any date element represented
without century, the correct is unambiguous for all manipulations involving that
element; and (e) the Year 2000 must be recognized as a leap year without
interruption to normal operations or generation of erroneous results.
ARTICLE 7
CONDITIONS PRECEDENT OF QDL AND QUESTRON
QDL and Questron need not consummate the transactions contemplated by
this Agreement unless the following conditions shall be fulfilled or waived by
QDL or Questron in their sole discretion:
7.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of the
Company and the Shareholders contained in this Agreement and in any certificate
or document delivered to QDL and/or Questron pursuant hereto shall be deemed to
have been made again at and as of the Closing Date and shall then be true in all
material respects, except to the extent that any such representation or warranty
is made as of a specified date, in which case such representation or warranty
shall have been true in all material respects as of such date, and (b) the
Company and the Shareholders shall have performed and complied with all material
agreements and conditions required by this Agreement to be performed or complied
with by the Company and the Shareholders prior to or on the Closing Date, and
QDL and/or Questron shall have been furnished with certificates of the Company
and the Shareholders, dated the Closing Date, certifying to the effect of
clauses (a) and (b) of this Section 7.1.
7.2 Closing Certificates. QDL shall have received (A) a duly executed
certificate from an authorized officer of the Company with respect to (i) the
Company's articles of incorporation and bylaws, (ii) resolutions of the
Company's board of directors and shareholders with respect to the authorization
of this Agreement and the other agreements contemplated hereby, and (iii) the
incumbency of the executing officers of the Company, and (B) a copy of the
certificate of incorporation of the Company as certified by the Secretary of
State of the State of Illinois and a certificate of existence and good standing
as of a recent date from the Secretary of State of the State of Illinois.
7.3 Due Diligence. QDL and/or Questron shall have completed, to their
sole satisfaction, their due diligence investigation of the Company.
7.4 Opinion of Counsel. QDL and Questron shall have been furnished
with an opinion dated the Closing Date of Hinshaw & Culbertson, counsel for the
Shareholders and the Company, substantially in the form attached hereto as
Exhibit C.
7.5 No Actions. No action, suit, or proceeding before any court or
Governmental Authority shall be pending, no investigation by any Governmental
Authority shall have been
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<PAGE>
commenced, and no action, suit or proceeding by any Governmental Authority shall
have been threatened, against QDL, Questron, the Shareholders, the Company or
any of the principals, officers or directors of any of them, seeking to
restrain, prevent or change the transactions contemplated hereby or questioning
the legality or validity of any such transactions or seeking damages in
connection with any such transactions.
7.6 Consents. Except as set forth on Schedule 7.6, all consents of
third parties, including, without limitation, any filing or filings required by
Section 6.13, Governmental Authorities and non-governmental self-regulatory
agencies, and all filings with and notifications of Governmental Authorities
(including any and all filings required by Section 6.13), regulatory agencies
(including non-governmental self-regulatory agencies) or other entities which
regulate the business of QDL, Questron, the Shareholders or the Company
necessary on the part of QDL, Questron, the Shareholders or the Company, to the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and to permit the continued operation of the
respective businesses of QDL, Questron and the Company in substantially the same
manner immediately after the Closing Date as theretofore conducted, other than
routine post-closing notifications or filings, shall have been obtained or
effected or any applicable waiting period shall have expired or terminated.
7.7 Instruments and Possession. To effect the transfers referred to
in Section 2.1, the Company and the Shareholders shall have obtained and/or
executed, as applicable, and delivered to QDL:
(i) any required consents from landlords under the
Real Property Leases;
(ii) an Assignment and Assumption of Lease, with
respect to each of the Real Property Leases, which shall be in a form
reasonably satisfactory to QDL; and a duly executed certificate from
an authorized officer of the Company certifying that all rents due
from the Company under each Real Property Lease has been paid as of
the Closing Date and that no defaults exist under any of the Real
Property Leases as of the Closing Date;
(iii) an Assignment and Assumption of Lease, with
respect to each Non-Real Estate Lease in a form reasonably
satisfactory to QDL;
(iv) to the extent in written or other deliverable
form and not previously delivered, all copies of Intellectual
Property or other secret, proprietary or confidential;
(v) all cash and cash equivalents of the Company and
any subsidiary;
(vi) all Books and Records of the Company and any
subsidiary (QDL shall be granted access to such Books and Records
immediately after Closing);
(vii) such keys, lock and safe combinations and other
similar items as QDL shall require to obtain full occupation,
possession and control of the Company's and any subsidiary's
facilities and Business;
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(viii) such changes relating to the bank accounts and
safe deposit boxes of the Company and any Subsidiary as are being
transferred to QDL and which QDL shall have requested by notice to
the Company at least five (5) business days prior to the Closing
Date; and
(ix) such other certificates, documents, instruments
and agreements as Questron shall deem necessary in its reasonable
discretion in order to effectuate the transactions contemplated
herein, in form and substance reasonably satisfactory to Questron.
7.8 Employment Agreement. QDL shall have received an Employment
Agreement substantially in the form attached hereto as Exhibit D (together with
any other exhibits attached thereto, the "Employment Agreement") duly executed
and delivered by Raul Torres.
7.9 Non-Competition Agreements. QDL shall have received from each of
the Majority Shareholders a Non-Competition Agreement, substantially in the form
attached hereto as Exhibit E (the "Non-Competition Agreements").
7.10 Financing. QDL shall have obtained financing on terms reasonably
satisfactory to it in an amount sufficient to pay the purchase consideration
contemplated by Section 2.4 and fees and expenses related to the transactions
contemplated by this Agreement.
7.11 Financial Statements. QDL and Questron shall have received the
financial statements referenced in Section 4.13.
7.12 Material Adverse Change. There shall have been no material
adverse change in the financial conditions, assets, liabilities (contingent or
otherwise), results of operations or business of the Company and its
subsidiaries.
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE PRINCIPALS
The Company and the Shareholders need not consummate the transactions
contemplated hereby unless the following conditions shall be fulfilled on or
prior to the Closing:
8.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of QDL
and Questron contained in this Agreement or in any certificate or document
delivered to the Company and the Shareholders pursuant hereto shall be deemed to
have been made again at and as of the Closing Date and shall then be true in all
material respects, and (b) QDL and Questron shall have each performed and
complied with all material agreements and conditions required by this Agreement
to be performed or complied with by it prior to or on the Closing Date, and the
Company shall have been furnished a certificate of an appropriate officer of QDL
and Questron, dated the Closing Date, certifying to the effect of clauses (a)
and (b) of this Section 8.1.
817104.6
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<PAGE>
8.2 Closing Certificates. The Company and the Shareholders shall have
received (A) duly executed certificates from authorized officers of QDL and
Questron with respect to (i) such entity's certificate of incorporation and
bylaws, (ii) resolutions of the board of directors of such entity with respect
to the authorizations of this Agreement and the other agreements contemplated
hereby, and (iii) the incumbency of the executing officers of such entity, and
(B)(i) a copy of the certificate of incorporation of QDL as certified by the
Secretary of State of the State of Delaware and a certificate of existence and
good standing as of a recent date from the Secretary of State of the State of
Delaware, and (ii) a copy of the certificate of incorporation of Questron as
certified by the Secretary of State of the State of Delaware and a certificate
of existence and good standing as of a recent date from the Secretary of State
of the State of Delaware.
8.3 No Actions. No action, suit, or proceeding before any court,
Governmental Authority, administrative agency or arbitrator shall be pending, no
investigation by any Governmental Authority shall have been commenced, and no
action, suit or proceeding by any Person shall have been threatened, against the
Company and the Shareholders seeking to restrain, prevent, or change the
transactions contemplated hereby or questioning the legality or validity of any
such transactions or seeking damages in connection with any such transactions.
8.4 Consents. All consents of third parties including, without
limitation, any filing or filing required by Section 6.12, Governmental
Authorities, and non-governmental self-regulatory agencies, and all filings with
and notifications of Governmental Authorities (including any and all filings
required by Section 6.12), regulatory agencies (including non-governmental
self-regulatory agencies) or other entities which regulate the Business of the
Company, necessary on the part of the Company and the Shareholders, to the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, other than routine post-closing notifications
or filings, shall have been obtained or effected or any applicable waiting
period shall have expired or terminated.
8.5 Opinion of Counsel. The Shareholders and the Company shall have
been furnished with an opinion, dated the Closing Date, of Battle Fowler LLP,
counsel to QDL and Questron, substantially in the form attached hereto as
Exhibit F.
8.6 No Material Adverse Change. There shall have been no material
adverse change in the financial condition, assets, liabilities (contingent or
otherwise), results of operations or business of Questron and its subsidiaries.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by the Company and the Shareholders. Effective
only from and upon the occurrence of the Closing, and subject to Section 9.3
below, the Company and each of the Majority Shareholders hereby agrees to
jointly and severally and the Minority Shareholders agree to severally defend,
indemnify and hold harmless QDL, Questron and their successors, assigns and
817104.6
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<PAGE>
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 the Company or any Shareholder; and (ii)
failures by the Company and any of the Shareholders to perform or
otherwise fulfill any undertaking or other agreement or obligation
under this Agreement;
(b) any recalls, warranty claims, returns, or product
liability with respect to sales by the Company and its subsidiaries
prior to the Closing Date or included in the finished goods inventory
as of the Closing Date which exceed the amount of recalls, warranty
claims, returns and product liability the Company and its
subsidiaries historically incurred as reflected in the Company's
financial statements delivered to QDL pursuant to Section 4.11;
(c) any and all Taxes imposed on the Company and its
subsidiaries with respect to the period prior to the Effective Date
to the extent that such income Taxes exceed the amount of Tax
liabilities identified on Schedule 2.2(a) and the amount of all other
Taxes reflected on the March 31, 1999 Balance Sheet;
(d) any liabilities arising out of the presence, release or
disposal of any Hazardous Substances, or arising out of Environmental
Claims or the violation of any Environmental Laws prior to the
Closing Date;
(e) the failure to collect in full any accounts receivable
of the Company and its subsidiaries within four (4) months following
the Closing in excess of any reserves reflected in the Company's
financial statements delivered to QDL pursuant to Section 4.11;
(f) the maintenance, amendment or termination of any
Benefit Plan of the Company and its subsidiaries or out of any
obligations under any such plan; and
(g) 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"), QDL,
Questron or such other Questron Indemnitee shall promptly notify the
Shareholders thereof, provided further, however, that the failure to so notify
the Shareholders shall not reduce or affect the Shareholders' obligations with
respect thereto except to the extent that the Shareholders are materially
prejudiced thereby. Subject to rights of or duties to any insurer or other third
Person having liability therefor, the Shareholders shall have the right promptly
upon receipt of such notice (after acknowledging responsibility for such
Questron
817104.6
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<PAGE>
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 QDL and/or Questron), including, at
its own expense, employment of counsel reasonably satisfactory to QDL and/or
Questron; provided, however, that if the Shareholders shall have exercised their
right to assume such control, QDL and/or Questron may, in their sole discretion
and at their expense, employ counsel to represent them (in addition to counsel
employed by the Shareholders) in any such matter. So long as the Company and the
Shareholders are contesting any such Questron Indemnified Claim in good faith,
QDL, Questron and each other Questron Indemnitee shall not pay or settle any
such Questron Indemnified Claim. Notwithstanding the foregoing, QDL shall have
the right to offset any Questron Indemnified Claims and/or Questron Losses
against the Deferred Purchase Price.
9.2 Indemnification by QDL and Questron. Effective only from and upon
the occurrence of the Closing, and subject to Section 9.3 below, QDL and
Questron hereby agree to jointly and severally defend, indemnify and hold
harmless 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) breaches of representation and warranty hereunder on
the part of QDL and Questron and failures by QDL and 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 Company Indemnitee
proposes to demand indemnification ("Company Indemnified Claims"), such Company
Indemnitee shall notify QDL and Questron thereof, provided further, however,
that the failure to so notify QDL and Questron shall not reduce or affect QDL's
and Questron's obligations with respect thereto except to the extent that QDL
and Questron are materially prejudiced thereby. Subject to rights of or duties
to any insurer or other third Person having liability therefor, QDL and Questron
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 their own expense, employment of counsel reasonably
satisfactory to the Company and the Shareholders; provided, however, that if QDL
and Questron shall have exercised their right to assume such control, the
Shareholders may, in their sole discretion and at their expense, employ counsel
to represent the Company Indemnitees (in addition to counsel employed by QDL and
Questron) in any such matter. So long as QDL and Questron are contesting any
such Company Indemnified Claim in good faith, the Company Indemnitees shall not
pay or settle any such Company Indemnified Claim.
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9.3 Limitation on Liability. (a) The aggregate liability of the
Shareholders under this Article 9 shall not exceed the aggregate amount of the
consideration actually received by the Shareholders as the Purchase Price
(including, without limitation, any Deferred Purchase Price), provided, however,
that such limitation shall not apply to the representations set forth in Section
4.24,
(b) The aggregate liability of QDL and Questron under
Sections 9.2(a) and 9.2(b) shall in no event exceed One Million Eight Hundred
Thousand Dollars ($1,800,000).
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) 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 the Company and the Shareholders contained in Sections 4.4, 4.5,
4.7, 4.11 and 4.24 shall survive the Closing Date without limitation, and any
representation or warranty of the Company and the Shareholders contained in
Section 4.13 (Tax Matters) shall survive until the expiration of one year after
the expiration of the applicable statute of limitations (provided that, if any
Shareholder or the United States Internal Revenue Service or other taxing
authority have agreed to extend the applicable statute of limitations beyond any
such period, then in such case such representations and warranties shall survive
to the date on which such agreement to extend expires).
ARTICLE 11
INTENTIONALLY OMITTED
ARTICLE 12
MISCELLANEOUS
12.1 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.
12.2 Waiver. Any failure of the Company and the Shareholder to comply
with any of their respective obligations or agreements herein contained may be
waived only in writing by QDL. Any failure of QDL and Questron to comply with
any of its obligations or agreements herein contained may be waived only in
writing by the Company.
817104.6
44
<PAGE>
12.3 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 Shareholders or the Company, to the
addresses listed on Schedule 1.1:
(with a copy to)
Hinshaw & Culbertson
Suite 300
222 North LaSalle Street
Chicago, Illinois 60601-1081
Attn: John W. Dubbs III, Esq.
Telecopier: 312-704-3001
Telephone: 312-704-3075
(ii) If to QDL and 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)
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, New York 10022
Telecopier: (212) 856-7816
Telephone: (212) 856-7000
Attention: Luke P. Iovine, III, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
12.4 Governing Law and Consent to Jurisdiction. (a) This Agreement
shall be governed by and construed in accordance with the internal substantive
laws, and not the choice of law rules, of the State of Delaware.
817104.6
45
<PAGE>
(b) Each of the Company, the Shareholders, QDL and Questron
hereby irrevocably and unconditionally consent to the exclusive jurisdiction of
the courts of the State of Delaware and the United States District Court for the
District of Delaware for any action, suit or proceeding arising out of or
relating to this Agreement, the Other Documents or the transactions contemplated
hereby and thereby, and agrees not to commence any action, suit or proceeding
related thereto except in such courts. Each of the Company, the Shareholders,
QDL and Questron further hereby irrevocably and unconditionally waive any
objection to the laying of venue of any lawsuit, claim or other proceeding
arising out of or relating to this Agreement in the courts of the State of
Delaware or the United States District Court for the District of Delaware,
hereby further irrevocably and unconditionally waive and agree not to plead or
claim an inconvenient forum, and further covenant and agree not to institute any
action or proceeding in any jurisdiction other than Delaware. Each of the
Company, the Shareholders, QDL and Questron further agree that service of any
process, summons, notice or document by U.S. registered mail to its address set
forth above shall be effective service of process for any action, suit or
proceeding brought against it in any such court.
12.5 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.
12.6 Headings; Schedules. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All references to "Schedules" shall
mean the disclosure schedules heretofore delivered by the Company and the
Shareholders to QDL and Questron.
12.7 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.
12.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of the parties hereto.
12.9 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 9.1
and 9.2, the other Questron Indemnitees and Company Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
12.10 Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties provided
that QDL and Questron may assign its rights under the Agreement to any affiliate
of QDL and Questron.
46
817104.6
<PAGE>
[signature page follows]
817104.6
47
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By /s/ Dominic A. Polimeni
--------------------------------------
Name: Dominic A. Polimeni
Title: Chairman, President and
Chief Executive Officer
QUESTRON DISTRIBUTION LOGISTICS, INC.
By /s/ Dominic A. Polimeni
--------------------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief Executive
Officer
ACTION THREADED PRODUCTS, INC.
By /s/ Gerald H. Ablan
--------------------------------------
Name: Gerald H. Ablan
Title: Chairman
SHAREHOLDERS:
/s/ William P. Hackett
---------------------------------
William P. Hackett
/s/ Robert A. Lehman
---------------------------------
Robert A. Lehman
/s/ Gerald H. Ablan
---------------------------------
Gerald H. Ablan
/s/ Charles W. Gozder
---------------------------------
Charles W. Gozder
817104.6
Exhibit 2.7
QUESTRON TECHNOLOGY, INC.
QUESTRON DISTRIBUTION LOGISTICS, INC.
6400 Congress Avenue, Suite 200A
Boca Raton, Florida 33487
As of June 29, 1999
Action Threaded Products, Inc. and its Shareholders
6955 South Harlem Avenue
Bedford Park, Illinois 60638
Gentlemen:
Reference is made to that certain 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 "Agreement"). The undersigned hereby
agree to amend the Agreement by replacing in their entirety Exhibits A and B to
the Agreement with Exhibits A and B attached hereto. Except as modified by this
letter agreement, all of the terms, covenants and conditions of the Agreement
shall remain in full force and effect. This letter agreement may be executed in
one or more counterparts which, taken together, shall constitute one and the
same document.
Sincerely,
<TABLE>
<CAPTION>
<S> <C>
QUESTRON TECHNOLOGY, INC. QUESTRON DISTRIBUTION LOGISTICS, INC.
By: /s/Dominic A. Polimeni By:/s/Dominic A. Polimeni
-------------------------------- ----------------------------------
Name: Dominic A. Polimeni Name: Dominic A. Polimeni
Title: Chairman, President and Title: Chairman and Chief Executive Officer
Chief Executive Officer
AGREED TO AND ACCEPTED:
ACTION THREADED PRODUCTS, INC.
By: /s/John W. Dubbs III
-------------------------------
Name: John W. Dubbs III
Title: Attorney-in-fact
/s/John W. Dubbs III /s/John W. Dubbs III
- -------------------------------------- -------------------------------------
Gerald H. Ablan, William P. Hackett,
By John W. Dubbs III, Attorney-in-fact By John W. Dubbs III, Attorney-in-fact
/s/John W. Dubbs III /s/John W. Dubbs III
- -------------------------------------- -------------------------------------
Charles W. Gozder, Robert A. Lehman,
By John W. Dubbs III, Attorney-in-fact By John W. Dubbs III, Attorney-in-fact
</TABLE>
852587.1
<PAGE>
Exhibit A
Form of Senior A Note
<PAGE>
REVISED DRAFT
FORM OF SENIOR A NOTE
SENIOR A NOTE
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS, AND NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED, UNLESS SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS
AVAILABLE.
QUESTRON FINANCE CORP.
$_________ New York, New York
________ __, 1999
FOR VALUE RECEIVED, the undersigned, QUESTRON FINANCE CORP., a Delaware
corporation ("Maker"), hereby promises to pay to the order of _________
("Payee"), an individual residing at ____________________, at such address or at
such other location as Payee shall have specified (by not less than 3 Business
Days' prior written notice to Maker delivered in accordance with Section 11
hereof), the principal amount of $__________, in accordance with the terms set
forth below, in lawful money of the United States of America, together with
interest on the unpaid principal balance from time to time outstanding, at such
address and in such currency, in the manner provided below.
1. Interest. Subject to Section 4 below, Maker promises to pay interest
(calculated on the basis of a 365-day year) on the unpaid principal balance from
time to time outstanding (including, without limitation, with respect to any and
all principal payment deferrals which may occur, from time to time, while this
Note is outstanding), together with any Interest Deficiency Amount (as defined
in Section 4 below) from time to time outstanding hereunder, to the extent
permitted by law, at the rate of 8.5% per annum, payable on a semi-annual basis
(each, an "Interest Payment Period") in arrears on each April 10 and October 10,
commencing April 10, 2000 (each, an "Interest Payment Date").
2. Principal Amount. Subject to Section 4 below, the principal amount
of this Note shall be due and payable in the following three annual
installments: (i) on June 30, 2000 (the "First Payment Date"), Maker shall pay
Payee $_________ [25% of principal]; (ii) on June 30, 2001 (the "Second Payment
Date"), Maker shall pay Payee $_________ [25% of principal]; and (iii) on June
30, 2002 (the "Third Payment Date" and together with the First Payment Date and
the Second Payment Date, each a "Payment Date" and collectively, the "Payment
Dates"), Maker shall pay Payee the remaining principal balance then outstanding
of this Note.
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<PAGE>
3. Payments. Any and all payments of principal and interest in
connection with this Note shall be made by certified check to Payee's address
listed in Section 11 (Notice) below or at such other place as Payee or such
other registered holder shall designate to Maker in writing or by wire transfer
of immediately available funds to an account designated by Payee in writing. If
the payment of principal and interest on this Note is due on a day which is not
a Business Day, such payment shall be due on the next succeeding Business Day,
and such extension of time shall be taken into account in calculating the amount
of interest payable under this Note. "Business Day" means any day other than a
Saturday, Sunday or legal holiday in the United States of America.
4. Limitations on Certain Payments; Conversion. (a) To the extent that
accrued and unpaid interest payable on any Interest Payment Date exceeds the
Available Amount (as defined below) as of such date (such difference being
referred to herein as the "Interest Deficiency Amount"), Maker shall defer
payment of that Interest Deficiency Amount to the earlier of (i) the Third
Payment Date or (ii) the next succeeding Interest Payment Date, at which there
exists Available Amount sufficient in amount to make such interest payment, or
any portion thereof.
(b) To the extent that the face amount of any scheduled principal
payment, at the applicable Payment Date, exceeds the difference between (i) the
Available Amount (as defined below) less (ii) the interest paid, or to be paid,
to Payee at any corresponding Interest Payment Date (together with the aggregate
amount of any Interest Deficiency Amounts in respect of any prior Interest
Payment Periods, "Accrued Interest"), then Maker shall pay Payee, in the manner
provided herein, on the applicable Payment Date:
(A) that portion of the required principal payment which is equal to the
difference between the Available Amount less the Accrued Interest (the
"Mandatory Principal Payment");
(B) that portion of the outstanding principal amount of this Note equal to
the difference between the then scheduled principal payment and the
Mandatory Principal Payment (such difference being referred to herein
as a "Conversion Amount") shall be deemed converted on such Payment
Date (each a "Conversion"), in the manner provided in Section 5 below,
into such number of fully paid and non-assessable shares of common
stock, par value $0.001 per share (the "Common Stock"), of Questron
Technology, Inc., a Delaware corporation and the parent corporation of
Maker ("Questron Technology"), as shall be obtained by dividing the
Conversion Amount by the Conversion Price (as defined below) (the
"Conversion Shares"). The "Conversion Price" shall mean the average
closing market price per share of Common Stock for the twenty (20)
trading days ending on the seventh (7th) trading day preceding the
applicable Payment Date, as reported by the Wall Street Journal;
provided, however, with respect to all Payment Dates other than the
Third Payment Date, in no event shall the Conversion Price be less than
$4.00 per share. If, in any such case, the average closing market price
per share of Common Stock for the twenty (20) trading days ending on
the seventh (7th) trading day preceding the applicable Payment Date is
less than $4.00 per share (the "Average Price"), an amount of principal
equal to Conversion Shortfall (as defined below) shall be deferred for
payment on the Third Payment Date; and
2
<PAGE>
(c) on the Third Payment Date, to the extent there remains outstanding
hereunder any Interest Deficiency Amounts and/or any Conversion Shortfall
amounts (collectively, the "Final Payment Amount"), Maker shall, in its sole
discretion, either (i) pay to Payee, in the manner prescribed in Section 3
above, all or a portion of the Final Payment Amount, or (ii) convert such
portion of the Final Payment Amount that remains unpaid pursuant to the
preceding clause (i) into shares of Questron Technology Common Stock, based on
the average closing market price per share of Common Stock for the twenty (20)
trading days ending on the seventh (7th) trading day preceding the applicable
date of such conversion.
As used herein, "Conversion Shortfall" means an amount equal to the applicable
Conversion Amount, minus the product of (x) the number of Conversion Shares to
be issued as provided above, multiplied by (y) the Average Price. The occurrence
of a Conversion shall not constitute a default or Event of Default hereunder.
(d) For purposes of this Note, "Available Amount" shall mean, subject
to the next succeeding sentence, the dollar amount which is equal to fifty
percent (50%) of the reported consolidated net income of Questron Technology and
its subsidiaries (after adjustment to exclude the operating results of Maker)
for the twelve month period ended on the date of the most recent financial
statements of Questron Technology, as reflected in the most recently filed
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
of Questron Technology preceding the applicable payment date, provided, however,
that the Available Amount shall be deemed to be zero in the event that Questron
Operating Company, Inc., a Delaware corporation and a wholly-owned subsidiary of
Maker ("QOC") is prohibited, pursuant to the terms and conditions of its
instruments for borrowed money, from distributing or dividending funds to Maker
on the applicable payment date. By acceptance of this Note, Payee acknowledges
that this Note is one of a series of Senior A Notes of Maker and that Maker is
concurrently issuing to certain holders a series of Senior B Notes, and agrees
that scheduled, required payments of any Available Amounts to holders of Senior
A Notes and/or Senior B Notes, as the case may be, and any payments required
pursuant to Section 6 below, shall be made pro rata to all such holders to the
extent any such payments are concurrently scheduled or required to be made,
based on the original principal amounts of each respective Senior A Note and/or
Senior B Note, as the case may be, and that as used herein, the term Available
Amount refers only to the pro rata portion thereof relating to this Note.
5. Conversion Procedures; Registration. (a) On any Payment Date on
which a Conversion shall occur, Maker shall cause a notice of conversion (each a
"Conversion Notice") to be delivered to Payee at Payee's address appearing in
Section 11 (Notice) below or to such other registered holder at such other place
as such other registered holder shall designate to Maker in writing specifying
the Conversion Amount, Conversion Price and number of Conversion Shares, no
later than five (5) days prior to the Payment Date upon which any such
conversion shall occur. Promptly upon receipt of a Conversion Notice, Payee or
such other registered holder shall (x)(i) if applicable to the First or Second
Payment Date, surrender this Note for cancellation and a new Note shall be
issued by maker and delivered to the holder in the face amount of the principal
outstanding under this Note after giving effect to the applicable Conversion
and, (ii) if on the Third Payment Date, surrender this Note for cancellation,
and, (y) deliver to maker a written statement specifying the name or names (with
address) in which the Conversion Shares which shall be issuable on such
Conversion shall be issued (provided, however, that Conversion Shares will be
issued in the name of Payee unless otherwise specified as provided herein). The
failure by payee to so surrender the Note, or the failure by Payee or such other
registered holder to present the Note to maker, shall not, in either case,
effect the validity of the Conversion and following
3
<PAGE>
delivery of such Conversion Notice the Conversion shall, in all cases, be deemed
to have occurred and be effective on the applicable Payment Date and this Note
shall be deemed to evidence the obligation to pay principal in an amount which
gives effect to such conversion.
(b) When surrendered for Conversion, this Note shall, unless the shares
of Common Stock issuable on Conversion are to be issued in the same name as the
name in which this Note is then registered, be duly endorsed by, or accompanied
by instruments of transfer in form satisfactory to Maker duly executed by Payee
or such other registered holder, or their respective duly authorized attorney.
As promptly as practicable following the applicable Payment Date, Maker shall
deliver, or cause to be delivered, to Payee or to such other registered holder,
or on such party's written order, a certificate or certificates for the number
of full shares issuable upon the conversion of this Note, or a portion hereof,
in accordance with the provisions hereof and, if applicable, a check in lieu of
any fractional shares. Upon Conversion of all or any portion of this Note, the
registered holder may be required to execute and deliver to the issuer an
instrument, in form satisfactory to the issuer, representing that the shares
issuable upon conversion hereof are being acquired for investment and not with a
view to distribution within the meaning of the Act, together with such other
certifications and agreements as Maker shall reasonably request.
(c) Questron Technology covenants and agrees to file a registration
statement covering the resale of any Conversion Shares (the "Shelf
Registration") and to use its best efforts to cause such registration statement
to become effective prior to the issuance of the Conversion Shares. Questron
shall use its best efforts to maintain the effectiveness of the Shelf
Registration until such time as the Seller has sold all of its Conversion Share
or such shares are eligible for resale pursuant Rule 144 of the Act, without
limitation. Prior to such time as the applicable Conversion Shares are so
registered, such shares shall be restricted securities under the Act, will not
have been registered under the Act and may not be sold or transferred 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 the Act. In connection with such registration, Payee or such
other permitted holder of such shares, shall provide to Questron Technology such
information, and execute and deliver such certificates and other agreements, as
it may reasonably request.
6. Mandatory Repayment. (a) To the extent that on any Interest Payment
Date or Payment Date, the Available Amount exceeds the scheduled principal
payment amount and/or interest payment amount (including, without limitation,
accrued Interest Deficiency Amounts) due and owing on such date, such excess
Available Amount shall be used to prepay this Note, in whole, if sufficient, or
otherwise in part, without premium or penalty.
(b) In addition, in the event that (i) Maker, Questron Technology or
QOC consummates (i) a registered public offering of equity securities after the
date hereof (an "Offering"), and (ii) Maker, Questron Technology or QOC
consummates a public or Rule 144A or Regulation D (or their respective
successors) private offering of debt securities after the date hereof for the
purpose of acquiring assets or refinancing indebtedness and "excess proceeds"
are realized therefrom (a "Debt Offering"), Maker shall apply, and Questron
Technology shall cause to be applied, the net proceeds from such Offering or
"excess proceeds" from such Debt Offering, as the case may be, to prepay, in
whole, if sufficient , or otherwise in part, outstanding principal and accrued
and unpaid interest under this Note, without penalty or premium. As used herein
"excess proceeds", means the net proceeds to the applicable company after the
application of proceeds in connection with any acquisition(s) or refinancing,
and the
4
<PAGE>
payment of related transaction costs. Any partial prepayments of principal shall
be applied to installments of principal in the order of their maturity.
7. Prepayment. Maker may, without premium or penalty, at any time and
from time to time, prepay all or any portion of the outstanding principal
balance due under this Note, provided that each such prepayment is accompanied
by accrued interest on the amount of principal prepaid calculated to the date of
such prepayment. Any partial prepayments shall be applied to installments of
principal in the order of their maturity. Any mandatory or voluntary prepayment
on this Note shall be applied first to accrued and unpaid interest on this Note
then to the principal.
8. No Guarantees. Neither Questron Technology, nor any affiliate or
subsidiary thereof, or any other person or entity has guaranteed the performance
by Maker or Questron Technology, as the case may be, of their respective
obligations under this Note or the transactions contemplated hereby.
9. Events of Default. (a) Upon the occurrence of any of the following
events of default ("Events of Default"): (i) a Change of Control (as defined
below) shall have occurred; (ii) a case or proceeding under the bankruptcy laws
of the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Maker or all or any substantial
part of its properties and such petition or application is not dismissed within
ninety (90) days after the date of its filing or Maker shall file any answer
admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner; (iii) a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at law or equity) is filed by Maker or for all or any part of
its property; or (iv) Maker shall fail to pay (whether in cash or pursuant to a
Conversion) as and when due (whether at stated maturity, by mandatory
prepayment, acceleration or otherwise) any principal on this Note when due and
payable, or shall fail to pay interest on this Note within ten (10) Business
Days after the same becomes due and payable or fails to make payment or
otherwise perform on a timely basis any other obligation or covenant called by
this Note for 30 days following the receipt by Maker of written notice thereof
from Payee (unless Maker shall be diligently pursuing a remedy of such breach in
which event the 30 day period referred to in this clause shall extend to 90
days); then, and in each and every such case, the holder hereof may by notice in
writing to Maker declare all amounts owing hereunder to be due and payable, and
they shall forthwith become due and payable without further action; provided,
however, that Payee by written notice to Maker may waive any default or rescind
and annul any such acceleration, but no such waiver or rescission and annulment
shall extend to or affect any subsequent default or impair any right consequent
thereon or any term, provision or covenant herein.
(b) For purposes of this Note, "Change of Control" shall mean the
occurrence of any of the following events: (i) any "person" as such term is used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the applicable entity specified below or any
subsidiary or affiliate thereof or any stockholder (and such stockholder's
affiliates) as of the date hereof and direct transferees thereof, becomes, after
the date hereof, the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of the securities of Maker, QOC, or
Questron Distribution
5
<PAGE>
Logistics, Inc., representing 50.1% or more of the total voting power
represented by such entity's then outstanding securities that vote generally in
the election of directors ("Voting Securities"), (ii) the merger or
consolidation of any such entity with any other corporation (other than an
affiliate or subsidiary), other than a merger or consolidation in which the
Voting Securities of any such entity outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least a majority of the total
voting power of the surviving entity, or (iii) the sale (in one transaction) of
all or substantially all of the assets of any such entity, other than to a
subsidiary or affiliate of any such entity.
10. Jurisdiction and Related Matters. (a) Maker and Payee irrevocably
consent and submit to the non-exclusive jurisdiction of the State of Delaware
and the United States District Court located in the city of Wilmington, Delaware
and waive any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Note or in any way connected
with or related or incidental to this Note whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agrees that any
dispute with respect to any such matters shall be heard only in the courts
described above.
(b) Maker hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth below and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Payee's option, by service upon
Maker in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Maker shall appear in answer to such
process, failing which Maker shall be deemed in default and judgment may be
entered by Payee against Maker for the amount of the claim and other relief
requested.
(c) The validity, interpretation and enforcement of this Note, shall be
governed by the internal laws of the State of Delaware (without giving effect to
principles of conflicts of law).
(d) MAKER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS NOTE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. MAKER
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PAYEE MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE
OF ITS CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
11. Notice. All notices, requests and demands hereunder shall be in
writing and (i) made to a party at the following addresses:
To Borrower:
Questron Finance Corp.
c/o Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
6
<PAGE>
Boca Raton, Florida 33487
Attention: Dominic A. Polimeni
Tel: (561) 241-2866
Fax: (561) 241-5251
with a copy to:
Battle Fowler LLP
Park Avenue Tower 75 East 55th Street
New York, New York 10022
Attention: Luke P. Iovine, III, Esq.
Telephone: (212) 856-7000
Facsimile: (212) 856-7816
To Payee:
[insert name]
[insert address]
Telephone:
Facsimile:
with a copy to:
[to be provided]
Telephone:
Facsimile:
Attention:
or to such other address as either party may designate by written notice to the
other in accordance with this provision, and (i) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
12. Amendments. No provision of the Note may be waived, modified,
amended or discharged orally or otherwise, except by a writing duly executed by
Maker and the holder hereof.
13. Section Headings, Construction. (a) The headings of Sections and
Subsections in this Note are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Note unless otherwise
specified.
(b) All words used in this Note will be construed to be of such gender
or number as
7
<PAGE>
the circumstances require. Unless otherwise expressly provided, the words
"hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
QUESTRON FINANCE CORP.
By: _________________________
Name:
Title:
AGREED TO AND ACCEPTED (solely with
respect to Sections 4(b)(B) and (C),
5(c) and 6(b) hereof and as of the
date first-above written):
QUESTRON TECHNOLOGY, INC.
By: ________________________
Name:
Title:
8
<PAGE>
Exhibit B
Form of Senior B Note
<PAGE>
REVISED DRAFT
FORM OF SENIOR B NOTE
SENIOR B NOTE
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS, AND NEITHER
THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED, UNLESS SO
REGISTERED OR AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS
AVAILABLE.
QUESTRON FINANCE CORP.
$______________ New York, New York
_____ __, 2000
FOR VALUE RECEIVED, the undersigned, QUESTRON FINANCE CORP., a Delaware
corporation ("Maker"), hereby promises to pay to the order of
___________________ ("Payee"), an individual residing at __________, __________,
at such address or at such other location as Payee shall have specified (by not
less than three (3) days' prior written notice to Maker), the principal amount
of $___________, in accordance with the terms set forth below, in lawful money
of the United States of America, together with interest on the unpaid principal
balance from time to time outstanding, at such address and in such currency, in
the manner provided below.
1. Interest. Subject to Section 4 below, Maker promises to pay interest
(calculated on the basis of a 365-day year) on the unpaid principal balance from
time to time outstanding, together with any Interest Deficiency Amount (as
defined in Section 4 below) from time to time outstanding hereunder, to the
extent permitted by law, at the annual rate of 8.5% per annum, payable on a
semi-annual basis (each, an "Interest Payment Period") in arrears on each April
10 and October 10, commencing April 10, 2001 (each, an "Interest Payment Date").
2. Principal Amount. Subject to Section 4 below, the outstanding
principal amount of this Note (the "Principal Amount") shall be due and payable
on __________, 2002 (the "Principal Payment Date");
3. Payments. Any and all payments of principal and interest in
connection with this Note shall be made by certified check to Payee's address
listed in Section 11 (Notice) below or at such other place as Payee or such
other registered holder shall designate to Maker in writing or by wire transfer
of immediately available funds to an account designated by Payee in writing. If
the payment of principal
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<PAGE>
and interest on this Note is due on a day which is not a Business Day, such
payment shall be due on the next succeeding Business Day, and such extension of
time shall be taken into account in calculating the amount of interest payable
under this Note. "Business Day" means any day other than a Saturday, Sunday or
legal holiday in the United States of America.
4. Limitations on Certain Payments; Conversion. (a) To the extent that
accrued and unpaid interest payable on any Interest Payment Date exceeds the
Available Amount (as defined below) as of such date (such difference being
referred to herein as the "Interest Deficiency Amount"), Maker shall defer
payment of that Interest Deficiency Amount to the earlier of (i) the Principal
Payment Date or (ii) the next succeeding Interest Payment Date, at which there
exists Available Amount sufficient in amount to make such interest payment, or
any portion thereof.
(b) To the extent that the face amount of the scheduled principal
payment, at the Principal Payment Date, exceeds the difference between (i) the
Available Amount (as defined below) less (ii) the interest paid, or to be paid,
to Payee at any corresponding Interest Payment Date (together with the aggregate
amount of any Interest Deficiency Amounts in respect of any prior Interest
Payment Periods, "Accrued Interest"), then:
(A) on the Principal Payment Date, Maker shall pay Payee, in the manner
provided herein, that portion of the required principal payment which
is equal to the difference between the Available Amount less the
Accrued Interest (the "Mandatory Principal Payment"); and
(B) on the Principal Payment Date, that portion of the outstanding
principal amount of this Note equal to the difference between the then
scheduled principal payment and the Mandatory Principal Payment (such
difference being referred to herein as a "Conversion Amount"), together
with any accrued Interest Deficiency Amounts that remain unpaid
pursuant to Section 4(a) above, shall be deemed converted on the
Principal Payment Date (the "Conversion"), in the manner provided in
Section 5 below, into such number of fully paid and non-assessable
shares of common stock, par value $0.001 per share (the "Common
Stock"), of Questron Technology, Inc., a Delaware corporation and the
parent corporation of Maker ("Questron Technology"), as shall be
obtained by dividing the Conversion Amount, plus the amount of any such
accrued and unpaid Interest Deficiency Amounts, by the Conversion Price
(as defined below) (the "Conversion Shares"). The "Conversion Price"
shall mean the average closing market price per share of Common Stock
for the twenty (20) trading days ending on the seventh (7th) trading
day preceding the Principal Payment Date, as reported by the Wall
Street Journal.
(c) For purposes of this Note, "Available Amount" shall mean, subject
to the next succeeding sentence, the dollar amount which is equal to fifty
percent (50%) of the reported consolidated net income of Questron Technology and
its subsidiaries (after adjustment to exclude the operating results of Maker)
for the twelve month period ended on the date of the most recent financial
statements of Questron Technology, as reflected in the most recently filed
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
of Questron Technology preceding the applicable payment date, provided, however,
that the Available Amount shall be deemed to be zero in the event that Questron
Operating Company, Inc., a Delaware corporation and a wholly-owned subsidiary of
Maker ("QOC"), is prohibited, pursuant to the terms and conditions of its
instruments for borrowed money, from
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<PAGE>
distributing or dividending funds to Maker on the applicable payment date. By
acceptance of this Note, Payee acknowledges that this Note is one of a series of
Senior B Notes of Maker and that Maker is concurrently issuing to certain
holders a series of Senior A Notes, and agrees that scheduled, required payments
of any Available Amounts to holders of Senior B Notes and/or Senior A Notes, as
the case may be, and any payments required pursuant to Section 6 below, shall be
made pro rata to all such holders to the extent any such payments are
concurrently scheduled or required to be made, based on the original principal
amounts of each respective Senior B Note and/or Senior A Note, as the case may
be, and that as used herein, the term Available Amount refers only to the pro
rata portion thereof relating to this Note.
5. Conversion Procedures; Registration. (a) If a Conversion is to occur
on the Principal Payment Date, Maker shall cause a notice of conversion (each a
"Conversion Notice") to be delivered to Payee at Payee's address appearing in
Section 11 (Notice) below or to such other registered holder at such other place
as such other registered holder shall designate to Maker in writing specifying
the Principal Amount, Conversion Price and number of Conversion Shares, no later
than five (5) days prior to the Principal Payment Date upon which any such
conversion shall occur. Promptly upon receipt of a Conversion Notice, Payee or
such other registered holder shall (x) surrender this Note for cancellation, and
(y) deliver to Maker a written statement specifying the name or names (with
address) in which the Conversion Shares which shall be issuable on such
Conversion shall be issued (provided, however, that Conversion Shares will be
issued in the name of Payee unless otherwise specified as provided herein). The
failure by Payee to so surrender the Note, or the failure by Payee or such other
registered holder to present the Note to Maker, shall not, in either case,
effect the validity of the Conversion and following delivery of such Conversion
Notice the Conversion shall, in all cases, be deemed to have occurred and be
effective on the Principal Payment Date and this Note shall be deemed to
evidence the obligation to issue the Conversion Shares.
(b) When surrendered for Conversion, this Note shall, unless the shares
of Common Stock issuable on Conversion are to be issued in the same name as the
name in which this Note is then registered, be duly endorsed by, or accompanied
by instruments of transfer in form satisfactory to Maker duly executed by Payee
or such other registered holder, or their respective duly authorized attorney.
As promptly as practicable following the Principal Payment Date, Maker shall
deliver, or cause to be delivered, to Payee or to such other registered holder,
or on such party's written order, a certificate or certificates for the number
of full shares issuable upon the conversion of this Note, or a portion hereof,
in accordance with the provisions hereof and, if applicable, a check in lieu of
any fractional shares. Upon Conversion of all or any portion of this Note, the
registered holder may be required to execute and deliver to the issuer an
instrument, in form satisfactory to the issuer, representing that the shares
issuable upon conversion hereof are being acquired for investment and not with a
view to distribution within the meaning of the Act, together with such other
certifications and agreements as Maker shall reasonably request.
(c) Questron Technology covenants and agrees to file a registration
statement covering the resale of any Conversion Shares (the "Shelf
Registration") and to use its best efforts to cause such registration statement
to become effective prior to the issuance of the Conversion Shares. Questron
shall use its best efforts to maintain the effectiveness of the Shelf
Registration until such time as the Seller has sold all of its Conversion Share
or such shares are eligible for resale pursuant Rule 144 of the Act, without
limitation. Prior to such time as the applicable Conversion Shares are so
registered, such shares shall be restricted securities under the Act, will not
have been registered under the Act and may not be sold or transferred absent
such registration or unless an exception from registration is available and the
3
<PAGE>
certificates evidencing such shares shall bear an appropriate legend restricting
transfers under the Act. In connection with such registration, Payee or such
other permitted holder of such shares, shall provide to Questron Technology such
information, and execute and deliver such certificates and other agreements, as
it may reasonably request.
6. Mandatory Repayment. (a) To the extent that on any Interest Payment
Date or on the Principal Payment Date, the Available Amount exceeds the
scheduled principal payment amount and/or interest payment amount (including,
without limitation, accrued Interest Deficiency Amounts) due and owing on such
date, such excess Available Amount shall be used to prepay this Note, in whole,
if sufficient, or otherwise in part, without premium or penalty.
(b) In addition, in the event that (i) Maker, Questron Technology or
QOC consummates (i) a registered public offering of equity securities after the
date hereof (an "Offering"), and (ii) Maker, Questron Technology or QOC
consummates a public or Rule 144A or Regulation D (or their respective
successors) private offering of debt securities after the date hereof for the
purpose of acquiring assets or refinancing indebtedness and "excess proceeds"
are realized therefrom (a "Debt Offering"), Maker shall apply, and Questron
Technology shall cause to be applied, the net proceeds from such Offering or
"excess proceeds" from such Debt Offering, as the case may be, to prepay, in
whole, if sufficient , or otherwise in part, outstanding principal and accrued
and unpaid interest under this Note, without penalty or premium. As used herein
"excess proceeds", means the net proceeds to the applicable company after the
application of proceeds in connection with any acquisition(s) or refinancing,
and the payment of related transaction costs. Any partial prepayments of
principal shall be applied to installments of principal in the order of their
maturity.
7. Prepayment. Maker may, without premium or penalty, at any time and
from time to time, prepay all or any portion of the outstanding principal
balance due under this Note, provided that each such prepayment is accompanied
by accrued interest on the amount of principal prepaid calculated to the date of
such prepayment. Any voluntary prepayment on this Note shall be applied first to
accrued and unpaid interest on this Note then to the principal.
8. No Guarantees. Neither Questron Technology, nor any affiliate or
subsidiary thereof, or any other person or entity has guaranteed the performance
by Maker or Questron Technology, as the case may be, of their respective
obligations under this Note or the transactions contemplated hereby.
9. Events of Default. (a) Upon the occurrence of any of the following
events of default ("Events of Default"): (i) a Change of Control (as defined
below) shall have occurred; (ii) a case or proceeding under the bankruptcy laws
of the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Maker or all or any substantial
part of its properties and such petition or application is not dismissed within
ninety (90) days after the date of its filing or Maker shall file any answer
admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner; (iii) a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect or
under any insolvency, reorganization, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter
in effect (whether at law or equity) is filed by Maker or for all or any part of
its property; or (iv) Maker shall fail to pay (whether in cash or pursuant to a
Conversion) as and when due (whether at stated maturity, by
4
<PAGE>
mandatory prepayment, acceleration or otherwise) any principal on this Note when
due or interest on this Note within ten (10) Business Days after the same
becomes due and payable or fails to make payment or otherwise perform on a
timely basis any other obligation or covenant called by this Note for thirty
(30) days following the receipt by Maker of written notice thereof from Payee
(unless Maker shall be diligently pursuing a remedy of such breach in which
event the thirty (30) day period referred to in this clause shall extend to
ninety (90) days); then, and in each and every such case, the holder hereof may
by notice in writing to Maker declare all amounts owing hereunder due and
payable, and they shall forthwith become due and payable without further action;
provided, however, that Payee by written notice to Maker may waive any default
or rescind and annul any such acceleration, but no such waiver or rescission and
annulment shall extend to or affect any subsequent default or impair any right
consequent thereon or any term, provision or covenant herein.
(b) For purposes of this Note, "Change of Control" shall mean the
occurrence of any of the following events: (i) any "person" as such term is used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the applicable entity specified below or any
subsidiary or affiliate thereof or any stockholder (and such stockholder's
affiliates) as of the date hereof and direct transferees thereof, becomes, after
the date hereof, the "beneficial owner" (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of the securities of Maker, QOC or
Questron Distribution Logistics, Inc., representing 50.1% or more of the total
voting power represented by such entity's then outstanding securities that vote
generally in the election of directors ("Voting Securities"), (ii) the merger or
consolidation of any such entity with any other corporation (other than an
affiliate or subsidiary), other than a merger or consolidation in which the
Voting Securities of any such entity outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least a majority of the total
voting power of the surviving entity, or (iii) the sale (in one transaction) of
all or substantially all of the assets of any such entity, other than to a
subsidiary or affiliate of any such entity.
10. Jurisdiction and Related Matters. (a) Maker and Payee irrevocably
consent and submit to the non-exclusive jurisdiction of the State of Delaware
and the United States District Court located in the city of Wilmington, Delaware
and waive any objection based on venue or forum non conveniens with respect to
any action instituted therein arising under this Note or in any way connected
with or related or incidental to this Note whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agrees that any
dispute with respect to any such matters shall be heard only in the courts
described above.
(b) Maker hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth below and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Payee's option, by service upon
Maker in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Maker shall appear in answer to such
process, failing which Maker shall be deemed in default and judgment may be
entered by Payee against Maker for the amount of the claim and other relief
requested.
(c) The validity, interpretation and enforcement of this Note, shall be
governed by the internal laws of the State of Delaware (without giving effect to
principles of conflicts of law).
<PAGE>
(d) MAKER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS NOTE WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. MAKER
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT PAYEE MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE
OF ITS CONSENT TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.
11. Notice. All notices, requests and demands hereunder shall be in
writing and (i) made to a party at the following addresses:
To Borrower:
Questron Finance Corp.
c/o Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, Florida 33487
Attention: Dominic A. Polimeni
Tel: (561) 241-2866
Fax: (561) 241-5251
with a copy to:
Battle Fowler LLP
Park Avenue Tower 75 East 55th Street
New York, New York 10022
Attention: Luke P. Iovine, III, Esq.
Telephone: (212) 856-7000
Facsimile: (212) 856-7816
To Payee:
[insert name]
[insert address]
Telephone:
Facsimile:
with a copy to:
[to be provided]
Telephone:
Facsimile:
Attention:
<PAGE>
or to such other address as either party may designate by written notice to the
other in accordance with this provision, and (i) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex, telegram
or facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with instructions
to deliver the next business day, one (1) business day after sending; and if by
certified mail, return receipt requested, five (5) days after mailing.
12. Amendments. No provision of the Note may be waived, modified,
amended or discharged orally or otherwise, except by a writing duly executed by
Maker and the holder hereof.
13. Section Headings, Construction. (a) The headings of Sections and
Subsections in this Note are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Note unless otherwise
specified.
(b) All words used in this Note will be construed to be of such gender
or number as the circumstances require. Unless otherwise expressly provided, the
words "hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
QUESTRON FINANCE CORP.
By: _________________________
Name:
Title:
AGREED TO AND ACCEPTED (solely with
respect to Sections 4(b)(B), 5(c)
and 6(b) hereof and as of the date
first-above written):
QUESTRON TECHNOLOGY, INC.
By: __________________________
Name:
Title:
Exhibit 10.1
================================================================================
QUESTRON TECHNOLOGY, INC.
QUESTRON OPERATING COMPANY, INC.
-----------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
-----------------------------------------------------------
Dated as of June 29, 1999
$20,000,000 14.50% Senior Subordinated Notes due June 30, 2005 of
Questron Operating Company, Inc.
680,000 Shares of Common Stock of Questron Technology, Inc.
<PAGE>
TABLE OF CONTENTS PAGE
1. PURCHASE AND SALE OF SECURITIES............................................1
1.1 Issue of Securities..............................................1
1.2 The Closing......................................................2
1.3 Original Issue Discount..........................................2
2. WARRANTIES AND REPRESENTATIONS OF THE ISSUERS..............................3
2.1 Nature of Business...............................................3
2.2 Financial Statements; Debt; Material Adverse Change..............3
2.3 Subsidiaries and Affiliates......................................4
2.4 Title to Properties..............................................5
2.5 Taxes............................................................6
2.6 Pending Litigation...............................................6
2.7 Corporate Organization and Authority.............................6
2.8 Charter Instruments, Other Agreements............................7
2.9 Restrictions on the Company......................................7
2.10 Compliance with Law..............................................8
2.11 Pension Plans....................................................8
2.12 Environmental Compliance.........................................9
2.13 Year 2000 Compliance............................................10
2.14 Due Authorization; Enforceability...............................10
2.15 Governmental Consent to Sale of Purchased Securities............11
2.16 Hart-Scott-Rodino Compliance....................................11
2.17 No Defaults.....................................................12
2.18 Private Offering of Purchased Securities........................12
2.19 Use of Proceeds.................................................13
2.20 Capitalization..................................................13
2.21 The Acquisition.................................................14
2.22 Senior Credit Documents.........................................15
2.23 Solvency........................................................15
2.24 Full Disclosure.................................................16
3. REPRESENTATIONS OF THE PURCHASER..........................................16
3.1 Purchase for Investment.........................................16
3.2 ERISA...........................................................17
4. CLOSING CONDITIONS........................................................18
4.1 Opinions of Counsel.............................................18
4.2 Warranties and Representations True; Compliance.................19
4.3 Officers' Certificates..........................................19
4.4 Organic Documents...............................................19
4.5 Legality........................................................20
4.6 Financing Documents.............................................20
4.7 Certain Consents and Agreements.................................20
4.8 Senior Debt.....................................................21
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4.9 Prepayment of Debt..............................................21
4.10 Closing of Acquisition..........................................21
4.11 Offeree Letter..................................................22
4.12 Private Placement Numbers.......................................22
4.13 Fees and Expenses...............................................22
4.15 Transaction Fee.................................................22
4.16 Other Purchasers................................................23
4.17 Proceedings Satisfactory........................................23
5. INTERPRETATION OF THIS AGREEMENT..........................................23
5.1 Terms Defined...................................................23
5.2 Other Definitions...............................................26
5.3 Directly or Indirectly..........................................26
5.4 Section Headings and Table of Contents and Construction.........27
5.5 Governing Law...................................................27
6. MISCELLANEOUS.............................................................27
6.1 Communications..................................................27
6.2 Reproduction of Documents.......................................28
6.3 Survival; Entire Agreement......................................28
6.4 Successors and Assigns..........................................28
6.5 Amendment and Waiver............................................28
6.6 Expenses........................................................28
6.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc..............29
6.8 Indemnification of Each Purchaser...............................30
6.9 Execution in Counterpart........................................31
Annex 1 - Information as to Purchasers
Annex 2 - Payment Instructions at Closing; Address of Company for Notices
Annex 3 - Information as to Company
Exhibit 1.1(a) - Form of Note Agreement
Exhibit 1.1(b) - Form of Charter
Exhibit 4.1(a) - Form of Opinion of Company Counsel
Exhibit 4.1(b) - Form of Opinion of Purchasers' Counsel
Exhibit 4.3(a) - Form of Officers' Certificate - Company
Exhibit 4.3(b) - Form of Officers' Certificate - Parent
Exhibit 4.3(c) - Form of Secretary's Certificate - Company
Exhibit 4.3(d) - Form of Secretary's Certificate - Parent
Exhibit 4.3(e) - Form of Secretary's Certificate - Subsidiary Affiliate
Guarantor
Exhibit 4.6(c) - Form of Affiliate Guaranty
Exhibit 4.6(d) - Form of Investors Rights Agreement
ii
<PAGE>
QUESTRON TECHNOLOGY, INC.
QUESTRON OPERATING COMPANY, INC.
Securities Purchase Agreement
$20,000,000 14.50% Senior Subordinated Notes due June 30, 2005 of
Questron Operating Company, Inc.
680,000 Shares of Common Stock of Questron Technology, Inc.
Dated as of June 29, 1999
[Separately executed by each of the
Purchasers Listed on Annex 1 hereto]
Ladies and Gentlemen:
QUESTRON TECHNOLOGY, INC. (together with any successors and assigns
who become such in accordance herewith, the "Parent"), a Delaware corporation,
and QUESTRON OPERATING COMPANY, INC. (together with any successors and assigns
who become such in accordance herewith, the "Company;" and, together with the
Parent, the "Issuers"), a Delaware corporation, hereby agree with you as set
forth below.
1. PURCHASE AND SALE OF SECURITIES.
1.1 Issue of Securities.
(a) Issue of Notes. The Company will authorize the issue of
Twenty Million Dollars ($20,000,000) in aggregate principal amount of
its fourteen and fifty one-hundredths percent (14.50%) Senior
Subordinated Notes due June 30, 2005 (all such notes, whether
initially issued, or issued in exchange or substitution for any such
note, in each case in accordance with the Note Agreement,
collectively, the "Notes"). The Notes shall be issued pursuant to a
Note Agreement (as may be amended, restated or otherwise modified
from time to time, the "Note Agreement") in the form of Exhibit
1.1(a). The Notes shall be in the form of Attachment A to the Note
Agreement, and shall have the terms as provided in the Note Agreement
and in the Notes.
(b) Issue of Common Shares. The Parent will authorize the
issuance of an aggregate of six hundred eighty thousand (680,000)
shares (the "Common Shares") of its Common Stock. The rights and
obligations of holders of Common Stock shall be governed by the
Charter, which is in the form of Exhibit 1.1(b), and by applicable
law.
1
<PAGE>
1.2 The Closing.
(a) Purchase and Sale of Purchased Securities. The Company
hereby agrees to sell to you, and you hereby agree to purchase from
the Company, in accordance with the provisions hereof, the aggregate
principal amount of Notes set forth below your name on Annex 1 at the
purchase price for such Notes, equal to ninety-four and ninety
one-hundredths percent (94.90%) of the principal amount of Notes to
be purchased, set forth on Annex 1 hereto.
The Parent hereby agrees to sell to you, and you hereby
agree to purchase from the Parent, in accordance with the provisions
hereof, the aggregate number of Common Shares set forth below your
name on Annex 1, at a purchase price for Common Shares, equal to One
Dollar and Fifty Cents ($1.50) per share, set forth on Annex 1
hereto.
(b) The Closing. The closing (the "Closing") of the sale of
the Purchased Securities will be held at 10:00 a.m., local time, on
June 28, 1999, or such other time and date as the Other Purchasers,
the Parent and the Company and you shall agree (the "Closing Date"),
at the office of Battle Fowler LLP, 75 East 55th Street, New York,
New York 10022. At the Closing:
(i) the Company will deliver to you one or more
Notes (as set forth below your name on Annex 1), in the
denominations indicated on Annex 1, in the aggregate
principal amount of your purchase, dated the Closing Date
and registered in the name of the holder indicated on Annex
1; and
(ii) the Parent will deliver to you one or more
certificates (as set forth below your name on Annex 1),
representing the number of Common Shares indicated below
your name on Annex 1 and registered in the name of the
holder indicated below your name on Annex 1;
against payment by federal funds wire transfer in immediately
available funds of the purchase price therefor, as directed by the
Company on Annex 2, which shall be an account at a bank located in
the United States of America. The Parent hereby agrees to deliver the
Common Shares in consideration of the Purchasers' execution and
delivery of the Note Agreement and their purchase of the Notes, in
respect of which the Parent shall receive a direct financial benefit.
(c) Other Purchasers. Contemporaneously with the execution
and delivery hereof, the Parent and the Company are entering into a
separate Securities Purchase Agreement identical (except for the name
and signature of the purchaser) to this Agreement (this Agreement and
such other separate Securities Purchase Agreements, each as from time
to time amended or modified, being herein sometimes referred to as
the "Securities Purchase Agreements") with each other purchaser
(individually, an "Other Purchaser," and collectively, the "Other
Purchasers") listed on Annex 1, providing for the sale to each Other
Purchaser of the Purchased Securities set forth below its name on
such Annex. The sales of the Purchased Securities to you and to each
Other Purchaser are separate sales.
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<PAGE>
1.3 Original Issue Discount.
You, the Parent and the Company agree that, for all United States
federal, state and local income tax purposes with respect to the transactions
contemplated by the Financing Documents, the original issue discount
attributable to the Notes issued by the Company in accordance with the terms and
conditions of the Securities Purchase Agreement is equal to One Million Twenty
Thousand Dollars ($1,020,000). You, the Parent and the Company agree to use the
foregoing in preparing all United States federal, state and local income tax
returns and for all other income tax purposes with respect to the transactions
contemplated by the Financing Documents.
2. WARRANTIES AND REPRESENTATIONS OF THE ISSUERS
To induce you to enter into this Agreement and to purchase and pay
for the Purchased Securities to be delivered to you at the Closing, the Issuers
jointly and severally warrant and represent, as of the Closing Date, and after
giving effect to the transactions contemplated by the Financing Documents and
the Acquisition Documents and the consummation of the Acquisitions, as follows:
2.1 Nature of Business.
The information memorandum dated _____, 1999 (the "Offering
Memorandum") describes correctly in all material respects the general nature of
the business and principal Properties and assets of the Issuers and the
Subsidiaries.
2.2 Financial Statements; Debt; Material Adverse Change.
(a) Financial Statements.
(i) Of the Parent. The Parent has provided you
with the consolidated financial statements of the Parent
listed on Part 2.2(a)(i) of Annex 3. Such financial
statements present fairly in all material respects the
consolidated financial position of the Parent as of the
respective dates specified therein and the results of its
consolidated operations and cash flows for the respective
periods so specified in conformity with GAAP applied on a
consistent basis throughout the periods involved.
(ii) Of the Acquired Entities. The Parent has
provided you with the consolidated financial statements of
each of the Acquired Entities listed on Part 2.2(a)(ii) of
Annex 3. Each such financial statement presents fairly in
all material respects the consolidated financial position
of the respective Acquired Entity as of the respective
dates specified therein and the results of their operations
and cash flows for the respective periods so specified in
conformity with GAAP applied on a consistent basis
throughout the periods presented.
(b) Debt. Part 2.2(b) of Annex 3 lists all Debt of the
Issuers and the Subsidiaries as of the Closing Date, both before and
after giving effect to the transactions contemplated by the Financing
Documents, the Senior Credit Documents and the Acquisition Documents
and the consummation of the Acquisitions, and provides the following
information with respect to each
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item of such Debt: the obligor, each guarantor thereof and each other
Person similarly liable in respect thereof, the holder thereof (to
the knowledge of the Issuers), the outstanding amount, the current
portion of the outstanding amount, the final maturity, required
sinking fund payments, and a description of the collateral securing
such Debt.
(c) Liens. Part 2.2(c) of Annex 3 lists all Liens securing
Debt of the Issuers and the Subsidiaries in existence as of the
Closing Date, both before and after giving effect to the transactions
contemplated by the Financing Documents, the Senior Credit Documents
and the Acquisition Documents and the consummation of the
Acquisitions, and provides the following information with respect to
each Lien: the holder thereof, the outstanding amount secured, the
nature of the Debt and a description of the collateral.
(d) Contingent Obligations. There are no Guaranties or
other contingent obligations in respect of which disclosure is
required, or for which provisions are required to be made, in the
Company's consolidated financial statements in accordance with GAAP,
other than those so disclosed, and for which such provision has been
made, in the financial statements referred to in Section 2.2(a) and
which are described on Part 2.2(a)(i) of Annex 3 or Part 2.2(a)(ii)
of Annex 3, as the case may be.
(e) Material Adverse Change. Since December 31, 1998, there
has been no change in the business, operations, profits, financial
condition, Properties or business prospects of the Issuer and the
Subsidiaries or of the Company and its Subsidiaries except changes
that, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(f) Projections. The Parent has delivered to you projected
financial statements of the Issuers contained in the Offering
Memorandum and those specified in Part 2.2(f) of Annex 3
(collectively, the "Projections"). The assumptions used in
preparation of the Projections were reasonable when made and continue
to be reasonable. Such Projections have been prepared by the
executive or financial personnel of the Company or the Parent in the
light of the business of the Issuers and the Subsidiaries. Such
Projections have been prepared in good faith, have a reasonable basis
and represent the good faith opinion of the Issuers as to the
projected results of the operations of the Issuers and the
Subsidiaries. No material facts have occurred since the preparation
of the Projections that would cause the Projections, taken as a
whole, not to be reasonably attainable, and the Issuers do not have,
on the Closing Date, any material obligations (whether accrued,
matured, absolute, actual, contingent or otherwise) that are not
reflected in the Projections.
(g) Investments. Part 2.2(g) of Annex 3 lists all
Investments of the Company outstanding on the Closing Date which, but
for clause (g) of the definition of Restricted Investments, would be
classified as Restricted Investments in accordance with the
provisions of the Note Agreement.
2.3 Subsidiaries and Affiliates.
(a) Ownership of Subsidiaries. Part 2.3(a) of Annex 3 sets
forth for each Subsidiary:
(i) its full legal name;
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(ii) its jurisdiction of incorporation or
organization;
(iii) the percentage of the Voting Stock which is
held by the Parent and each other Subsidiary; and
(iv) stating if such Subsidiary is an
Insignificant Subsidiary.
All of the Capital Stock of each Subsidiary is owned, directly or
indirectly through another Subsidiary, by the Parent. No
Insignificant Subsidiary is engaged in any business activity
whatsoever.
(b) Affiliates. Part 2.3(b) of Annex 3 sets forth the name
of each Affiliate (other than members of the families of officers and
directors of the Company) and the nature of the affiliation of such
Affiliate.
2.4 Title to Properties.
(a) General. The Issuers and the Subsidiaries have good and
marketable title to all of the Property reflected in the most recent
consolidated balance sheet referred to in Section 2.2 (except as sold
or otherwise disposed of in the ordinary course of business), free
from Liens not permitted by the provisions of the Note Agreement.
Each of the Issuers and the Subsidiaries have maintained and kept, or
caused to be maintained and kept, its respective properties in good
repair, working order and condition (ordinary wear and tear
excepted).
(b) Leases. All leases necessary for the conduct of the
business of the Issuers and the Subsidiaries are valid and subsisting
and are in full force and effect, except for such failures to be
valid and subsisting that, in the aggregate for all such failures,
could not reasonably be expected to have a Material Adverse Effect.
Each lease of real Property grants to the Issuers or Subsidiary party
thereto the right to the quiet enjoyment of the premises leased
thereunder during the term thereof, except where the absence of such
grants, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(c) Intellectual Property. Except as disclosed in Part
2.4(c) of Annex 3:
(i) each of the Issuers and the Subsidiaries owns
or possesses all licenses, permits, franchises,
authorizations, patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without
known conflict with the rights of others;
(ii) no product or practice of an Issuer or any
Subsidiary infringes in any Material respect any license,
permit, franchise, authorization, patent, copyright,
service mark, trademark, trade name or other right owned by
any other Person;
(iii) there is no Material violation by any
Person of any right of any Issuer or any Subsidiary with
respect to any patent, copyright, service mark, trademark,
trade name or other right owned or used by an Issuer or any
Subsidiary; and
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(iv) all Material filings in federal and state
offices (including, without limitation, the United States
Patent and Trademark Office) in respect of all such
patents, pending patents, copyrights, service marks,
trademarks and tradenames, and licenses with respect
thereto, necessary to protect the rights therein of the
Issuers and the Subsidiaries against third parties, have
been made.
2.5 Taxes.
(a) Returns Filed; Taxes Paid. All tax returns required to
be filed by the Issuers and the Subsidiaries and each other Person
with which any Issuer or Subsidiary files or has filed a consolidated
return in any jurisdiction have in fact been filed on a timely basis.
All taxes, assessments, fees and other governmental charges upon the
Issuers, the Subsidiaries and any such Person, and upon any of their
respective Properties, income or franchises, that are due and payable
have been paid, except for such failures to pay that, in the
aggregate for all such Persons, could not reasonably be expected to
have a Material Adverse Effect. The Issuers know of no proposed
additional tax assessment against either of them or any such Person
that could reasonably be expected to have a Material Adverse Effect.
(b) Book Provisions Adequate. The amount of the liability
for taxes reflected in each of the balance sheets referred to in
Section 2.2(a) is in each case an adequate provision for taxes as of
the date of such balance sheet (including, without limitation, any
payment due pursuant to any tax sharing agreement) as are or may
become payable by any one or more of the Issuers, the Subsidiaries,
the Acquired Entities and the other Persons consolidated with any of
them in such financial statements in respect of all tax periods
ending on or prior to such dates.
2.6 Pending Litigation.
(a) Pending Litigation. There are no proceedings, actions
or investigations pending against or, to the knowledge of either
Issuer, threatened against or affecting, any Issuer or Subsidiary in
any court or before any Governmental Authority or arbitration board
or tribunal that, in the aggregate for all such proceedings, actions
and investigations, could reasonably be expected to have a Material
Adverse Effect.
(b) No Violations. Neither the Company nor any Subsidiary
is in violation of any judgment, order, writ, injunction or decree of
any court, Governmental Authority, arbitration board or tribunal
that, in the aggregate for all such violations, could reasonably be
expected to have a Material Adverse Effect.
2.7 Corporate Organization and Authority.
Each of the Issuers and each Subsidiary:
(a) is a corporation duly incorporated, validly existing
and in good standing under the laws of its state of incorporation;
(b) has all corporate power and authority necessary to own
and operate its Properties and to carry on its business as now
conducted and as presently proposed to be conducted;
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(c) has all licenses, certificates, permits, franchises and
other governmental authorizations necessary to own and operate its
Properties and to carry on its business as now conducted and as
presently proposed to be conducted, except where the failure to have
such licenses, certificates, permits, franchises and other
governmental authorizations, in the aggregate for all such failures,
could not reasonably be expected to have a Material Adverse Effect;
and
(d) has duly qualified or has been duly licensed, and is
authorized to do business and is in good standing, as a foreign
corporation, in each state in the United States of America and in
each other jurisdiction where it is required to do so, except where
the failure to be so qualified or licensed and authorized and in good
standing, in the aggregate for all such failures, could not
reasonably be expected to have a Material Adverse Effect.
2.8 Charter Instruments, Other Agreements.
Neither Issuer and no Subsidiary is in violation in any respect of:
(a) any term of any charter instrument (including, without
limitation, the Charter) or bylaw; or
(b) any term in any agreement or other instrument to which
it is a party or by which it or any of its Property may be bound,
except for such violations that, in the aggregate for all such
violations, could not reasonably be expected to have a Material
Adverse Effect.
2.9 Restrictions on the Company.
Neither Issuer and no Subsidiary:
(a) is a party to any contract or agreement, or subject to
any charter or other corporate restriction that, in the aggregate for
all such contracts, agreements, and charter and corporate
restrictions, is reasonably likely to have a Material Adverse Effect;
(b) is a party to any contract or agreement that restricts
its right or ability to incur Debt, to make guarantees or to issue
Common Stock of the Company, as the case may be, other than the
Financing Documents and the agreements listed on Part 2.9(b) of Annex
3, none of which restricts the issuance and sale of the Purchased
Securities or the execution and delivery of or the compliance with
this Agreement or the other Financing Documents by the Issuers and
the Affiliate Guarantors;
(c) has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its
Property, whether now owned or hereafter acquired, to be subject to a
Lien not permitted by the provisions of the Note Agreement; or
(d) is (other than as identified on Part 2.9(d) of Annex 3)
subject to any encumbrance, restriction, limitation or prohibition on
the ability of any Subsidiary, whether by agreement, amendment or
modification of any existing agreement or otherwise, to:
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(i) pay dividends or make any other distributions
on the Capital Stock of such Subsidiary or any other
interest or participation measured by its profits;
(ii) pay any Debt or other indebtedness or
obligation owed to the Company or any other Subsidiary
owning Capital Stock of such Subsidiary;
(iii) make loans or advances to the Company;
(iv) transfer any of its Property to the Company;
or
(v) enter into or become obligated in respect of
the Affiliate Guaranty;
in each case, except for such encumbrances, restrictions, limitations
or prohibitions existing under or by reason of applicable law.
True, correct and complete copies of each of the agreements, if any, listed on
Part 2.9(b) of Annex 3 and Part 2.9(d) of Annex 3 have been provided to you.
2.10 Compliance with Law.
Neither Issuer and no Subsidiary is in violation of any law,
ordinance, governmental rule or regulation to which it is subject, except for
such violations that, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
2.11 Pension Plans.
(a) Operation of Plans; Liabilities. The Issuers and each
ERISA Affiliate have operated and administered each Plan in
compliance with all applicable laws except for such instances of
noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither Issuer and
no ERISA Affiliate has incurred any liability pursuant to Title I or
IV of ERISA or the penalty or excise tax provisions of the IRC
relating to any Plan and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by an Issuer or any ERISA Affiliate,
or in the imposition of any Lien on any of the rights, Properties or
assets of an Issuer or any ERISA Affiliate, in either case pursuant
to Title I or IV of ERISA or to such penalty or excise tax provisions
or to section 401(a)(29) or 412 of the IRC, other than such
liabilities or Liens as individually or in the aggregate would not
have a Material Adverse Effect.
(b) Relationship of Benefit Liabilities to Plan Assets. The
present value of the aggregate benefit liabilities under each of the
Plans (other than Multiemployer Plans), determined as of the end of
such Plan's most recently ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Plan's
most recent actuarial valuation report, did not exceed the aggregate
current value of the assets of such Plan allocable to such benefit
liabilities. The term "benefit liabilities" has the meaning specified
in section 4001 of ERISA and the terms "current value" and "present
value" have the meaning specified in section 3 of ERISA.
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(c) Withdrawal Liabilities. The Issuers and their ERISA
Affiliates have not incurred withdrawal liabilities (and are not
subject to contingent withdrawal liabilities) under section 4201 or
4204 of ERISA in respect of Multiemployer Plans, other than such
liabilities as individually or in the aggregate would not have a
Material Adverse Effect.
(d) Postretirement Benefit Obligations. The expected
postretirement benefit obligation (determined as of the last day of
the Parent's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without
regard to liabilities attributable to continuation coverage mandated
by section 4980B of the IRC) of the Issuers and the Subsidiaries will
not have a Material Adverse Effect.
(e) Prohibited Transactions. The execution and delivery of
the Financing Documents and the issuance and sale of the Purchased
Securities hereunder will not involve any transaction that is subject
to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of
the IRC. The representation by the Issuers in the foregoing sentence
is made in reliance upon and subject to the accuracy of your
representation (and that of your transferees) in Section 3.2 as to
the Sources of the funds used to pay the purchase price of the
Purchased Securities to be purchased by you and, in the event that
your representation is made pursuant to clause (a) of Section 3.2
hereof, assuming that PTCE 95-60 applies to exempt your purchase and
holding of the Purchased Securities.
(f) Foreign Pension Plans. Neither Issuer nor any
Subsidiary has, maintains or is required to contribute to, any
Foreign Pension Plan.
2.12 Environmental Compliance.
(a) Compliance - Except as disclosed on Part 2.12(a) of
Annex 3, each of the Issuers and the Subsidiaries is in compliance
with all Environmental Protection Laws in effect in each jurisdiction
where it is presently doing business or is located, other than any
non-compliance which could not reasonably be expected to have a
Material Adverse Effect.
(b) Liability - Except as disclosed on Part 2.12(b) of
Annex 3, neither Issuer and no Subsidiary is subject to any liability
under any Environmental Protection Law that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect.
(c) Notices - Except as disclosed on Part 2.12(c) of Annex
3, neither Issuer and no Subsidiary has received any:
(i) written notice from any Governmental
Authority by which any of its present or previously-owned
or leased real Properties has been designated, listed, or
identified in any manner by any Governmental Authority
charged with administering or enforcing any Environmental
Protection Law as a hazardous substance disposal or removal
site, "Superfund" clean-up site, or candidate for
remediation or closure pursuant to any Environmental
Protection Law;
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(ii) written notice of any Lien arising under or
in connection with any Environmental Protection Law that
has attached to any revenues of, or to, any of its owned or
leased real Properties; or
(iii) summons, citation, notice, directive,
letter, or other written communication from any
Governmental Authority concerning any releasing, spilling,
leaking, pumping, pouring, emitting, emptying, dumping, or
disposing of any hazardous substance into the environment
in violation of any Environmental Protection Law;
which, in any such case, relates to or makes reference to an event or
condition which could reasonably be expected to have a Material
Adverse Effect.
2.13 Year 2000 Compliance.
The internal computing systems and applications (including those
affected by information received from its suppliers and vendors) of the Issuers
and the Subsidiaries are, or will be on or before October 31, 1999, Year 2000
Compliant so that the advent of the year 2000 and its impact upon such computer
systems and on the computer systems of the suppliers and vendors of the Issuers
and the Subsidiaries that are Material is not expected to have a Material
Adverse Effect.
2.14 Due Authorization; Enforceability.
(a) Sale of Purchased Securities is Legal and Authorized.
The issuance, sale and delivery of the Purchased Securities, the
execution and delivery by each Obligor of each of the Financing
Documents to which it is a party and compliance by each Obligor with
all of the provisions of such Financing Documents:
(i) is within the corporate powers of such
Obligor; and
(ii) is legal and does not conflict with, result
in any breach of any of the provisions of, constitute a
default under, or result in the creation of any Lien (other
than Liens permitted by the provisions of the Note
Agreement) upon any Property of such Obligor under the
provisions of:
(A) any agreement, charter instrument,
bylaw or other instrument to which such Obligor
is a party or by which such Obligor is or may be
bound;
(B) any order, judgment, decree, or
ruling of any court, arbitrator or Governmental
Authority applicable to such Obligor or any of
its Property; or
(C) any statute or other rule or
regulation of any Governmental Authority
applicable to such Obligor or any of its
Property.
(b) Obligations are Enforceable. Each Obligor has duly
authorized by all necessary action on its part each of the Financing
Documents to which it is a party. Each such Financing Document has
been executed and delivered by one or more duly authorized officers
of each
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Obligor which is or purports to be a party thereto, and constitutes a
legal, valid and binding obligation of each such Obligor enforceable
in accordance with its terms, except that:
(i) 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; and
(ii) rights to indemnity and contribution
contained therein may be limited by applicable law or
public policy.
2.15 Governmental Consent to Sale of Purchased Securities.
(a) Neither the nature of the Obligors nor of any of their
businesses or Properties, nor any relationship between any Obligor
and any other Person, nor any circumstance in connection with the
offer, issuance, sale or delivery of the Purchased Securities and the
Affiliate Guarantees and the execution and delivery of any Financing
Document, nor the performance of the obligations of any Obligor
hereunder or thereunder, is such as to require a consent, approval or
authorization of, or pre-filing, registration or qualification with,
any Governmental Authority on the part of any Obligor as a condition
thereto, except for:
(i) such consents, approvals, authorizations,
pre-filings, registrations and qualifications described on
Part 2.15(a) of Annex 3, all of which have been obtained on
or prior to the Closing Date; and
(ii) such consents, approvals, authorizations,
pre-filings, registrations and qualifications which, if not
obtained, could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(b) Neither the issuance and sale of the Purchased
Securities and the Affiliate Guarantees, nor the incurrence of the
Debt and the other obligations represented thereby, nor the execution
and delivery of the Financing Documents and the performance of the
obligations of the Obligors hereunder and thereunder:
(i) is subject to regulation under the Investment
Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Transportation Acts of
the United States of America (49 U.S.C.), as amended, or
the Federal Power Act, as amended; and
(ii) violates any provision of any statute or
other rule or regulation of any Governmental Authority
applicable to any Obligor.
2.16 Hart-Scott-Rodino Compliance.
(a) With Respect to the Acquisition. With respect to each
Acquisition of each Acquired Entity, either:
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(i) each of the Company and the Sellers with
respect to such Acquired Entity have filed a Notification
and Report Form under the Hart-Scott-Rodino Act with the
Federal Trade Commission and the Antitrust Division; the
waiting period (together with any extensions thereof)
specified in the Hart-Scott-Rodino Act shall have expired
or shall have been terminated by the Federal Trade
Commission and the Antitrust Division; and neither the
Federal Trade Commission nor the Antitrust Division shall
have taken any action to enjoin the consummation of the
Acquisition or notified either the Company or the Seller in
writing of its intent to do so; or
(ii) such Acquisition is exempt from the
provisions of the Hart-Scott-Rodino Act, and neither the
Company nor the Seller has any obligation to file a
Notification and Report Form thereunder with the Federal
Trade Commission or the Antitrust Division.
(b) With Respect to the Purchase of the Purchased
Securities. As a result of the purchase of the Common Shares and the
consummation of the other transactions contemplated by or in the
Financing Documents and the Acquisition Documents, (and assuming that
no Purchaser (together with its affiliates), will be the beneficial
owner of any Capital Stock or Rights of the Parent other than the
Common Shares) no Purchaser, together with its affiliates, will hold
(as such term is defined in 16 C.F.R. ss.801.1(c)) either:
(i) fifteen percent (15%) or more of the total
number of shares of the outstanding Common Stock of the
Company; or
(ii) Common Stock having a Fair Market Value of
Fifteen Million Dollars ($15,000,000) or more.
Based upon the foregoing, neither the Company nor any Purchaser is
required to file a Notification and Report Form thereunder with the
Federal Trade Commission or the Antitrust Division with respect to
the purchase and sale of the Common Shares.
2.17 No Defaults.
No event has occurred and no condition exists that, upon the
execution and delivery of the Financing Documents, the Acquisition Documents and
the Senior Credit Documents and the issuance and sale of the Purchased
Securities, would constitute a Default or an Event of Default or a breach,
default or event of default under any Acquisition Document or Senior Credit
Document.
2.18 Private Offering of Purchased Securities.
(a) Number of Offerees. Neither any Obligor, CIBC
Oppenheimer (the only agent, broker or dealer retained by any Obligor
in connection with the sale of the Purchased Securities) nor any
other Person acting on behalf of any Obligor has offered any of the
Purchased Securities or any Security of any Obligor similar to either
the Notes, the Common Shares or the Affiliate Guarantees for sale to,
or solicited offers to buy any thereof from, or otherwise approached
or negotiated with respect thereto with, any prospective purchaser,
other than (i) the institutional
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investors (including you) listed on Part 2.18 of Annex 3, each of
whom was offered all or a portion of the Purchased Securities at
private sale for investment and (ii) the Sellers.
(b) Conduct of Sale. Assuming the accuracy of
(i) the Purchasers' representations and
warranties contained in each Securities Purchase Agreement;
(ii) the information contained in each Securities
Purchase Agreement; and
(iii) the information contained in the offeree
letter referred to in Section 4.11,
the sale hereunder of Notes and Common Shares is exempt from the
registration and prospectus delivery requirements of the Securities
Act and it is not necessary in connection with the sale of the Notes
and Common Shares to you in accordance herewith to qualify the Notes
under the Trust Indenture Act of 1939, as amended. In the case of
each offer or sale to you and the Other Purchasers of the Notes and
Common Shares, no form of general solicitation or general advertising
was used by the Issuers or the officers, directors or employees of
either of them, or, to the Issuers' knowledge, by [CIBC] or its
officers, directors or employees, including advertisements, articles,
notices or other communications published in any newspaper, magazine
or similar medium or broadcast over television or radio, and any
seminar or meeting whose attendees were invited by any general
solicitation or general advertising.
2.19 Use of Proceeds.
(a) Use of Proceeds. The Company shall apply the proceeds
from the sale of the Purchased Securities as specified on Part
2.19(a) of Annex 3.
(b) Margin Regulations. None of the transactions
contemplated in any of the Financing Documents (including, without
limitation, the use of the proceeds from the sale of the Purchased
Securities) violates, will violate or will result in a violation of
section 7 of the Exchange Act, or any regulation issued pursuant
thereto, including, without limitation, Regulation T, Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System,
12 C.F.R., Chapter II.
(a) Absence of Foreign or Enemy Status. Neither the sale of
the Purchased Securities nor the use of proceeds from the sale
thereof will result in a violation of any of the foreign assets
control regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended), or any ruling issued thereunder
or any enabling legislation or Presidential Executive Order in
connection therewith.
2.20 Capitalization.
(a) Capitalization of the Company. Part 2.20(a) of Annex 3
correctly sets forth, after giving effect to the issuance of the
Purchased Securities and the consummation of all other transactions
contemplated by this Agreement on the Closing Date:
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(i) the authorized and outstanding shares of the
Capital Stock and other Securities of the Company
(specifying the type, class or series of all such Capital
Stock and other Securities and whether such Capital Stock
and other Securities are voting or non-voting);
(ii) for each legal and beneficial holder of the
Company's Capital Stock, the identity of such holder, the
number of shares of each class of Capital Stock held by
such holder and the percentage of the shares of each class
so held;
(iii) all Rights of the Company, together with
descriptions of the terms thereof; and
(iv) all obligations (contingent or otherwise) of
the Company to repurchase or otherwise acquire or retire
any shares of Capital Stock or Rights of the Company.
All such outstanding shares of Capital Stock have been duly
authorized and validly issued and are fully paid, non-assessable and
free and clear of any Lien (other than as specified on Part 2.20(a)
of Annex 3). Except as specified on Part 2.20(a) of Annex 3, there
are no preemptive rights, subscription rights, or other contractual
rights similar in nature to preemptive rights with respect to any
Capital Stock of the Company.
(b) Capitalization of the Parent. Part 2.20(b) of Annex 3
correctly sets forth, after giving effect to the issuance of the
Purchased Securities and the consummation of all other transactions
contemplated by this Agreement on the Closing Date:
(i) the authorized and outstanding shares of the
Capital Stock and other Securities of the Parent
(specifying the type, class or series of all such Capital
Stock and other Securities and whether such Capital Stock
and other Securities are voting or non-voting);
(ii) for each beneficial owner of more than five
percent (5%) of the Parent's Capital Stock, the identity of
such owner, the number of shares of each class of Capital
Stock held by such holder and the percentage of the shares
of each class so held (it being understood that, except
with respect to officers or directors of the Parent and
other Affiliates, the Issuers are making this
representation solely in reliance upon Schedules 13D and
13G under the Exchange Act and Forms 3, 4 and 5 under the
Exchange Act delivered to the Parent);
(iii) all Rights of the Parent, together with
descriptions of the terms thereof; and
(iv) all obligations (contingent or otherwise) of
the Parent to repurchase or otherwise acquire or retire any
shares of Capital Stock or Rights of the Parent.
All such outstanding shares of Capital Stock have been duly
authorized and validly issued, are fully paid and non-assessable, and
are free and clear of any Lien known to the Issuers (other than as
specified on Part 2.20(b) of Annex 3). Except as specified on Part
2.20(b) of Annex 3, there are
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no preemptive rights, subscription rights, or other contractual
rights similar in nature to preemptive rights with respect to any
Capital Stock of the Parent.
(c) Stockholders Agreements. Other than as specified on
Part 2.20(c) of Annex 3, there is no agreement or understanding
between or among the holders of the Capital Stock or Rights of the
Parent or the Company regarding the Capital Stock of the Company. The
Company has provided you with true, accurate and complete copies of
all agreements referred to in Part 2.20(c) of Annex 3.
2.21 The Acquisition.
(a) All Documents Provided; No Other Agreements. The
Issuers have provided to you true, correct and complete copies of the
Acquisition Documents. There is no agreement or understanding between
any of the parties to the Acquisition Documents except as set forth
in the Acquisition Documents.
(b) Closing of the Acquisition. The Acquisitions have been
closed, or are closing contemporaneously with the sale of the
Purchased Securities hereunder, in accordance with the Acquisition
Documents, and no closing condition of the Acquisition Documents was
waived by any Obligor. On the Closing Date, each of the
representations and warranties made by any Obligor and, to the best
knowledge of the Issuers, the Sellers in the Acquisition Documents is
true and correct in all material respects. The Company has acquired,
or is acquiring contemporaneously with the sale of the Purchased
Securities hereunder, such title to the Acquired Entity as is
purported to be acquired pursuant to the Acquisition Documents.
(c) Governmental Consent. All consents, approvals and
authorizations of, and filings, registrations and qualifications
with, any Governmental Authority on the part of the Obligors and the
Sellers required in connection with the consummation of the
Acquisition have been obtained or made and remain in full force and
effect.
2.22 Senior Credit Documents.
The Issuers have provided to you true, correct and complete copies of
the Senior Credit Documents, and there is no agreement or understanding between
or among any Obligor or Subsidiary, the Senior Agent or any of the Senior
Lenders except as set forth in the Senior Credit Documents.
2.23 Solvency.
(a) Assets Greater than Liabilities. The fair value of the
business and assets of the Company (and of the Company and its
Subsidiaries, on a consolidated basis) exceeds, as of and after
giving effect to the transactions contemplated by the Financing
Documents and the Senior Credit Agreements and consummated on the
Closing Date, the liabilities of the Company (including, without
limitation, the Notes and all other Debt of the Company (and, as the
case may be, of the Company and the Subsidiaries, on a consolidated
basis)) as of such time.
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(b) Meeting Liabilities. After giving effect to the
transactions contemplated by the Financing Documents and the Senior
Credit Documents, the Company (and the Company and its Subsidiaries,
on a consolidated basis):
(i) will not be engaged in any business or
transaction, or about to engage in any business or
transaction, for which the Company (or, as the case may be,
the Company and its Subsidiaries, on a consolidated basis)
has unreasonably small assets or capital (within the
meaning of the Uniform Fraudulent Transfer Act, the Uniform
Fraudulent Conveyance Act and section 548 of the Federal
Bankruptcy Code); and
(ii) will be able to pay its debts as they
mature.
(c) Intent. Each Obligor is entering into the Financing
Documents with no intent to hinder, delay, or defraud either current
creditors or future creditors of any Obligor.
2.24 Full Disclosure.
Neither the statements made in this Agreement, the Offering
Memorandum, the financial statements referred to in Section 2.2, nor any other
written statement furnished by or on behalf of any Obligor to you in connection
with the negotiation or the closing of the sale of the Purchased Securities,
taken as a whole, contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein and herein,
taken as a whole, not misleading. There is no fact that the Issuers have not
disclosed to you in writing that has had or, so far as the Issuers can now
reasonably foresee, could reasonably be expected to have, a Material Adverse
Effect.
3. REPRESENTATIONS OF THE PURCHASER
3.1 Purchase for Investment.
You acknowledge that the Notes and Common Shares sold hereunder are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. You represent to the Issuers that each of (i) you and (ii) any account
maintained by you for whose account you are purchasing the Notes and Common
Shares is a financially sophisticated institutional investor, is an "accredited
investor" as the term is defined in Rule 501(a) of Regulation D under the
Securities Act, has such knowledge and experience in business and financial
matters as to be capable of evaluating the merits and risks of an investment in
the Notes and Common Shares and has the capacity to protect its interest in
connection with the acquisition hereunder of the Notes and Common Shares. You
further represent to the Issuers that you are purchasing the Purchased
Securities listed on Annex 1 below your name for your own account, or for the
account of one or more separate accounts maintained by you, for investment
purposes only and with no present intention of, or view to, distributing such
Purchased Securities or any part thereof except in compliance with the
Securities Act, but without prejudice to your right at all times to:
(a) sell or otherwise dispose of all or any part of the
Purchased Securities under a registration statement filed under the
Securities Act, or in a transaction exempt from the registration
requirements of such Act, including a transaction complying with and
pursuant to Rule 144A; and
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(b) have control over the disposition of all of your assets
to the fullest extent required by any applicable law; provided that
such disposition complies with applicable law.
You acknowledge receipt of the Offering Memorandum and further
acknowledge that you have been afforded the opportunity (i) to ask such
questions as you have deemed necessary of, and to receive answers from,
representatives of the Issuers concerning the terms and conditions of the
offering of the Purchased Securities and the merits and risks of investing in
the Purchased Securities and (ii) to obtain such additional information which
the Issuers possess or can acquire that is necessary to verify the accuracy and
completeness of the information contained in the Offering Memorandum.
It is understood that, in making the representations set out in
Section 2.14(a) and Section 2.15, the Company is relying, to the extent
applicable, upon your representation as aforesaid.
3.2 ERISA.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Purchased Securities:
(a) General Account - you are an insurance company and the
Source is an "insurance company general account," as such term is
defined in DOL Prohibited Transaction Class Exemption 95-60 (issued
July 12, 1995) ("PTCE 95-60"), and there is no "employee benefit
plan" (as defined in section 3(3) of ERISA and section 4975(e)(1) of
the IRC), treating as a single plan all plans maintained by the same
employer (and affiliates thereof as defined in section V(a)(1) of
PTCE 95-60) or by the same employee organization, with respect to
which the amount of the general account reserves and liabilities for
all contracts held by or on behalf of such plan, exceeds 10% of the
total reserves and liabilities of such general account as determined
under PTCE 95-60 (exclusive of separate account liabilities) plus
surplus, as set forth in the National Association of Insurance
Commissioners Annual Statement filed with your state of domicile and
that such acquisition is eligible for and satisfies the other
requirements of such exemption; or
(b) Separate Account - the Source is a separate account:
(i) 10% Pooled Separate Account - that is an
insurance company pooled separate account, within the
meaning of DOL Prohibited Transaction Class Exemption 90- 1
(issued January 29, 1990), and to the extent that there is
any employee benefit plan, or group of plans maintained by
the same employer or employer organization, whose assets in
such separate account exceed ten percent (10%) of the
assets of such separate account, you have disclosed the
names of such plans to the Issuer in writing; or
(ii) Identified Plan Assets - that is comprised
of employee benefit plans identified by you in writing and
with respect to which the Issuers hereby warrant and
represent that, as of the Closing Date, neither the Issuer
nor any ERISA Affiliate is a "party in interest" (as
defined in section 3 of ERISA) or a "disqualified person"
(as defined in section 4975 of the Code) with respect to
any plan so identified; or
(iii) Guarantied Separate Account - that is
maintained solely in connection with fixed contractual
obligations of an insurance company, under which any
amounts
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payable, or credited, to any employee benefit plan having
an interest in such account and to any participant or
beneficiary of such plan (including an annuitant) are not
affected in any manner by the investment performance of the
separate account (as provided by 29 CFR
ss.2510.3-101(h)(1)(iii)); or
(c) QPAM - the Source constitutes assets of an "investment
fund" (within the meaning of Part V of the QPAM Exemption) managed by
a "qualified professional asset manager" or "QPAM" (within the
meaning of Part V of the QPAM Exemption), no employee benefit plan's
assets that are included in such investment fund, when combined with
the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the
meaning of section V(c)(1) of the QPAM Exemption) of such employer or
by the same employee organization and managed by such QPAM, exceed
twenty percent (20%) of the total client assets managed by such QPAM,
the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by
the QPAM (applying the definition of "control" in section V(e) of the
QPAM Exemption) owns a five percent (5%) or more interest in the
Company and:
(i) the identity of such QPAM; and
(ii) the names of all employee benefit plans
whose assets are included in such investment fund;
have been disclosed to the Issuer in writing; or
(d) Governmental Plans - the Source is a governmental plan
or a church plan; or
(e) Identified Plans - the Source is one or more employee
benefit plans, or a separate account or trust fund comprised of one
or more employee benefit plans, each of which has been identified to
the Company in writing; or
(f) Exempt Plans - the Source does not include assets of
any employee benefit plan, other than a plan exempt from the coverage
of ERISA, or
As used in this Section 3.2, the terms "employee benefit plan", "governmental
plan" "church plan" and "separate account" shall have the respective meanings
assigned to such terms in section 3 of ERISA.
It is understood that, in making the representations set out in
Section 2.14(a), Section 2.15 and Section 2.11(e), the Company is relying, to
the extent applicable, upon your representation as aforesaid.
4. CLOSING CONDITIONS
Your obligations under this Agreement, including, without limitation,
the obligation to purchase and pay for the Purchased Securities, are subject to
the following conditions precedent, and the failure by the Issuers to satisfy
all such conditions shall relieve you, at your election, of all such
obligations.
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4.1 Opinions of Counsel.
You shall have received from:
(a) Battle Fowler LLP, special counsel for the Obligors;
and
(b) Hebb & Gitlin, your special counsel;
closing opinions, each dated as of the Closing Date, and substantially in the
respective forms set forth in Exhibit 4.1(a) and Exhibit 4.1(b) and as to such
other matters as you may reasonably request. This Section 4.1 shall constitute
direction by the Issuers to such counsel named in Section 4.1(a) to deliver such
closing opinion to you.
4.2 Warranties and Representations True; Compliance.
(a) Warranties and Representations True. The warranties and
representations contained in Section 2 shall be true on the Closing
Date with the same effect as though made on and as of that date.
(b) Compliance with this Agreement and Financing Documents.
The Obligors shall have performed and complied with all agreements
and conditions contained herein and in the other Financing Documents
that are required to be performed or complied with by the Obligors on
or prior to the Closing Date, and such performance and compliance
shall remain in effect on the Closing Date.
4.3 Officers' Certificates.
You shall have received:
(a) Company Officers' Certificate - a certificate dated the
Closing Date and signed (on behalf of the Company) by two (2) Senior
Officers of the Company, substantially in the form of Exhibit 4.3(a);
(b) Parent Officers' Certificate - a certificate dated the
Closing Date and signed (on behalf of the Parent) by two (2) Senior
Officers of the Parent, substantially in the form of Exhibit 4.3(b);
(c) Company Secretary's Certificate - a certificate dated
the Closing Date and signed (on behalf of the Company) by the
Secretary or an Assistant Secretary of the Company, substantially in
the form of Exhibit 4.3(c);
(d) Parent Secretary's Certificate - a certificate dated
the Closing Date and signed (on behalf of the Parent) by the
Secretary or an Assistant Secretary of the Parent, substantially in
the form of Exhibit 4.3(d); and
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(e) Subsidiary Affiliate Guarantor Secretary's Certificates
- a certificate from each Subsidiary which is an Affiliate Guarantor,
dated the Closing Date and signed (on behalf of such Affiliate
Guarantor) by the Secretary or an Assistant Secretary of such
Affiliate Guarantor, substantially in the form of Exhibit 4.3(e).
4.4 Organic Documents.
You shall have received:
(a) Good Standing Certificates -- For each Obligor, a
long-form certificate of good standing or equivalent certificate or
certificates of the Secretary of State of its state or other
jurisdiction of incorporation, certifying its due incorporation, good
standing and satisfactory tax status and listing all charter
documents with respect to such Obligor on file with such Secretary of
State; and
(b) Charter Documents - with respect to each Obligor,
copies of all charter documents on file with the Secretary of State
of its state or other jurisdiction of incorporation, certified by the
such Secretary of State to be true, correct and complete.
4.5 Legality.
The Purchased Securities shall on the Closing Date qualify as a legal
investment for you under applicable insurance law (without regard to any
"basket" or "leeway" provisions), and the acquisition thereof shall not subject
you to any penalty or other onerous condition pursuant to any such law or
regulation, and you shall have received such evidence as you may reasonably
request to establish compliance with this condition.
4.6 Financing Documents.
(a) Note Agreement; Notes. The Company shall have executed
and delivered to each Purchaser the Note Agreement. The Company shall
have issued to each such Purchaser Notes in the respective principal
amounts set forth below such Purchaser's name on Annex 1.
(b) Charter; Common Share Certificates. The Charter shall
be in the form of Exhibit 1.1(b). The Parent shall have executed and
delivered to each Purchaser certificates representing the Common
Shares in the respective numbers of Common Shares set forth below
such Purchaser's name on Annex 1.
(c) Affiliate Guaranty. Each of the Affiliate Guarantors
shall have executed and delivered to you the Affiliate Guaranty (as
may be amended, restated or otherwise modified from time to time in
accordance with the terms thereof, the "Affiliate Guaranty") in the
form of Exhibit 4.6(c).
(d) Investors Rights Agreement. The Parent shall have
executed and delivered to each Purchaser an Investors Rights
Agreement (as may be amended, restated or otherwise modified from
time to time in accordance with the terms thereof, the "Investors
Rights Agreement") in the form of Exhibit 4.6(d).
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4.7 Certain Consents and Agreements.
Each holder of Debt, Capital Stock or Rights of any Obligor, and each
other Person, the consent of which is, in the reasonable judgment of you and
your special counsel, necessary or desirable to permit any Obligor to enter into
the transactions contemplated by this Agreement and to perform its respective
obligations in respect of the Financing Documents, shall have executed and
delivered to you a consent, in form and substance acceptable to you, to the
transactions contemplated by the Financing Documents:
(a) permitting the Company to enter into, and to incur and
have outstanding the indebtedness and all other obligations in
respect of, this Agreement, the Note Agreement and the Notes and to
issue and sell the Notes;
(b) permitting the Parent to enter into, and to have
outstanding its obligations in respect of, this Agreement and the
Investors Rights Agreement, and to issue and sell the Common Shares;
(c) permitting each Affiliate Guarantor to enter into and
have outstanding its obligations in respect, of the Affiliate
Guaranty; and
(d) waiving any default or event of default which might
have occurred by virtue of the execution and delivery of this
Agreement and the other Financing Documents.
4.8 Senior Debt.
(a) Senior Credit Documents. The Company, the Senior Agent
and the Senior Lenders shall have entered into the Senior Credit
Documents, which documents shall be in form and substance
satisfactory to you. The Company shall deliver to you a copy of fully
executed counterparts of the Senior Credit Documents, certified as
true and correct by an officer of the Company. Pursuant to the Senior
Credit Documents, the Company shall have:
(i) received proceeds of not less than Fifty-Two
Million Five Hundred Thousand Dollars ($52,500,000) in
respect of term loans thereunder; and
(ii) have the ability to borrow under a
commitment of not less than Twenty-Two Million Five
Hundred Thousand Dollars ($22,500,000) under a revolving
credit facility, the borrowing base conditions to which
shall have been satisfied; up to Three Million Dollars
($3,000,000) of which commitment may be drawn at closing.
(b) No Defaults; Satisfaction of Conditions Precedent. No
event shall have occurred and no condition shall exist that shall
prohibit the Company from borrowing under the Senior Credit Documents
and all conditions precedent to closing specified in the Senior
Credit Documents shall have been satisfied on or prior to the Closing
Date and you shall have received such evidence of the satisfaction of
such conditions precedent as you shall deem appropriate.
4.9 Prepayment of Debt.
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The Company shall have prepaid Debt specified in Part 2.2(b) of Annex
3 as being prepaid in connection with the transactions contemplated by the
Financing Documents, the Senior Credit Documents and the Acquisition Documents
in an aggregate amount of Forty-Six Million Fifty Thousand Dollars
($46,050,000).
4.10 Closing of Acquisitions.
(a) Acquisition Documents; Consummation of Acquisition. The
Acquisition Documents shall be in form and substance satisfactory to
you and your special counsel. The Company shall have delivered to you
copies of the fully executed Acquisition Documents (including,
without limitation, copies of the opinions delivered in connection
with the consummation of the Acquisitions), certified as true and
correct by an officer of the Company. The Acquisitions shall have
been consummated substantially in accordance with the terms of the
Acquisition Documents, without waiver of any closing condition set
forth therein.
(b) Purchase Price; Transaction Costs. The aggregate
initial purchase price for the Acquired Entities shall not exceed
Thirty-Three Million Four Hundred Fifty Thousand Dollars
($33,450,000), which shall consist of not more than Twenty-Five
Million Dollars ($25,000,000) paid in cash, shares of Common Stock
having a Fair Market Value of not more than Three Million Four
Hundred Fifty Thousand Dollars ($3,450,000) and Seller Notes in an
aggregate principal amount not exceeding Five Million Dollars
($5,000,000); provided, however, that the Acquisitions may provide
for payment in the year 2000 to the Sellers of an additional amount,
based on the Acquired Businesses performing as expected in 1999, of
not more than Four Million Three Hundred Thousand Dollars
($4,300,000), which shall consist of not more than One Million Seven
Hundred Eighty-Three Thousand Dollars ($1,783,000) paid in cash,
shares of Common Stock having a Fair Market Value of not more than
Seven Hundred Thirty-Four Thousand Dollars ($734,000) and Seller
Notes in an aggregate principal amount not exceeding One Million
Seven Hundred Eighty-Three Thousand Dollars ($1,783,000). The
transaction costs in connection with the transactions contemplated by
the Financing Documents, the Acquisition Documents and the Senior
Credit Documents shall not have exceeded Three Million Six Hundred
Thousand Dollars ($3,600,000) in the aggregate.
(c) Terms of Seller Notes. The terms of the Seller Notes,
and of any documents, agreements or other instruments executed in
connection therewith, including, without limitation, the payment
terms, subordination provisions, covenants, rights and remedies
thereof, shall be acceptable to you in your discretion. You shall
have received copies, certified as true, accurate and complete by the
Secretary or Assistant Secretary of the Parent, of the Seller Notes
and all documents, agreements or other instruments executed in
connection therewith.
4.11 Offeree Letter.
The Company shall have caused CIBC Oppenheimer to deliver to the
Issuers, their special counsel and your special counsel an offeree letter, in
form and substance reasonably satisfactory to you and each of the Other
Purchasers, confirming the manner of the offering of the Purchased Securities by
CIBC Oppenheimer.
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4.12 Private Placement Numbers.
The Company shall have obtained or caused to be obtained private
placement number for the Notes and a CUSIP number for the Common Shares from the
CUSIP Service Bureau of Standard & Poor's, a division of McGraw-Hill, Inc. and
you shall have been informed of such private placement numbers.
4.13 Fees and Expenses.
All fees and disbursements required to be paid pursuant to Section
6.6 shall have been paid in full.
4.15 Transaction Fee.
The Company shall have paid to you and each Other Purchaser (or, if
another Person is designated on Annex 1 to receive the transaction fee on behalf
of any Purchaser, to such other Person on such Purchaser's behalf) the
transaction fee set forth on Annex 1, the aggregate amount of which shall be
Four Hundred Thousand Dollars ($400,000).
4.16 Other Purchasers.
None of the Other Purchasers shall have failed to execute and deliver
the Note Agreement, the Investors Rights Agreement or any other Financing
Document to be executed and delivered by it, or to accept delivery of or make
payment for the Purchased Securities.
4.17 Proceedings Satisfactory.
All proceedings taken in connection with the issuance and sale of the
Purchased Securities and all documents and papers relating thereto shall be
satisfactory to you and your special counsel. You and your special counsel shall
have received copies of such documents and papers as you or they may reasonably
request in connection therewith or in connection with your special counsel's
closing opinion, all in form and substance satisfactory to you and your special
counsel.
5. INTERPRETATION OF THIS AGREEMENT
5.1 Terms Defined.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
Acquired Entities - means Action Threaded Products, Inc.; Olympic &
Electronic Hardware; and Capital Fasteners, Inc.
Acquisition Documents - means:
(a) with respect to Action Threaded Products, Inc., the
Stock Purchase Agreement, dated as of May 7, 1999, by and among the
Parent, Questron Distribution Logistics, Inc., Action Threaded
Products, Inc., and the other Persons signatory thereto;
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(b) with respect to Capital Fasteners, Inc., the Stock
Purchase Agreement, dated as of April 26, 1999, by and among the
Parent, Questron Distribution Logistics, Inc., James R. Gilchrist,
and Capital Fasteners, Inc.; and
(c) with respect to Metro Form Corporation (d/b/a Olympic &
Electronic Hardware), the Asset Purchase Agreement, dated as of March
11, 1999, by and among the Parent, Questron Distribution Logistics,
Inc., Metro Form Corporation (d/b/a Olympic & Electronic Hardware)
and the other Persons signatory thereto.
.
Acquisitions - means the acquisitions by the Company of each of the
Acquired Entities, whether, in each case, by acquisition by the Company of all
or substantially all of the Property of such Acquired Entity or of all of the
Capital Stock of such Acquired Entity, or by virtue of a merger of consolidation
of such Acquired Entity with or into a Subsidiary of the Company which results
in the Company holding all of the Capital Stock of such Acquired Entity; and, in
each case, pursuant to the Acquisition Documents.
Affiliate Guarantor - means the Parent, Finance and each Subsidiary
on the Closing Date (other than any Insignificant Subsidiary)..
Affiliate Guaranty - Section 4.6(c).
Agreement, this - means this Securities Purchase Agreement, as it may
be amended, restated or otherwise modified from time to time.
Charter - means the Certificate of Incorporation of the Parent, as
amended through the date hereof, in the form of Exhibit 1.1(b).
Closing - Section 1.2(b).
Closing Date - Section 1.2(b).
Common Shares - Section 1.1(b).
Common Stock - means the Common Stock, par value $.001 per share, of
the Parent, together with the associated Share Purchase Rights attached thereto.
Company - has the meaning specified in the introductory sentence.
Financing Documents - means and includes this Agreement, the
identical Securities Purchase Agreements executed by the Other Purchasers, the
Note Agreement, the Notes, the Affiliate Guaranty, the certificates representing
the Common Shares, the Investors Rights Agreement and the other agreements,
certificates and instruments to be executed pursuant to the terms of each of the
foregoing, as each may be amended, restated or otherwise modified from time to
time.
Indemnified Party - Section 6.8.
Investors Rights Agreement - Section 4.6(d).
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Issuers - has the meaning specified in the introductory sentence.
Material -- means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Issuers
and the Subsidiaries, taken as a whole, or having any effect upon the legality,
validity or enforceability of the Financing Documents.
Note Agreement - Section 1.1(a).
Notes - Section 1.1(a).
Obligors - means and includes the Company and each Affiliate
Guarantor.
Offering Memorandum - Section 2.1.
Other Purchasers - Section 1.2(c).
Parent - has the meaning specified in the introductory sentence.
Proceeding - Section 6.8.
Projections - Section 2.2(f).
PTCE 95-60 -- Section 3.2(a).
Purchased Securities - means the Notes and the Common Shares to be
purchased by the Purchasers pursuant to Section 1.2 of this Agreement.
Purchasers - means you and the Other Purchasers.
QPAM Exemption - means Prohibited Transaction Class Exemption 84-14
issued by the DOL.
Rule 144A - means Rule 144A promulgated under the Securities Act, 17
C.F.R. ss.230.144A, as such rule may be amended from time to time.
Securities Purchase Agreement - Section 1.2(c).
Seller Notes - means notes issued by Questron Finance Corp., a
Delaware corporation and Subsidiary of the Parent, to the Sellers as part of the
consideration paid for the Acquired Entities.
Sellers - means:
(a) William P. Hackett, Robert A. Lehman, Gerald H. Ablan,
and Charles W. Gozder (with respect to Action Threaded Products,
Inc.);
(b) James R. Gilchrist and the James R. Gilchrist Revocable
Trust dated June __ 1999, with James R. Gilchrist as Grantor and
Trustee (Assignee) (with respect to Capital Fasteners, Inc.); and
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(c) James Mraz and Rudolph Petric (with respect to Metro
Form Corporation (d/b/a Olympic & Electronic Hardware).
Senior Credit Documents - means the Senior Credit Agreement and each
other agreement, document or instrument executed in connection therewith or
Guaranteeing or securing the obligations of any obligor in respect thereof.
Share Purchase Rights - means the preferred share purchase rights
issued pursuant to the Share Purchase Rights Agreement.
Share Purchase Rights Agreement - means the Rights Agreement, dated
as of October 23, 1998, between the Parent and American Stock Transfer & Trust
Company, as Rights Agent, as amended and modified from time to time in
accordance with its terms.
Source - Section 3.2.
Subsidiary - means, at any time, with respect to any Person, any
other Person which would be treated as a subsidiary of such Person in accordance
with GAAP at such time. The term "Subsidiary," as used herein without regard to
any particular Person, means a Subsidiary of the Parent and includes, without
limitation, the Company.
Year 2000 Compliant - means that the Issuers' and the Subsidiaries'
hardware and software systems, with respect to the operation of their business,
will:
(a) handle satisfactorily date information involving any
and all dates before, during and/or after January 1, 2000, including
accepting input, providing output and performing date calculations in
whole or in part; and
(b) operate accurately, without Material interruption, on
and in respect of any and all dates before, during and/or after
January 1, 2000 and without any Material change in performance.
5.2 Other Definitions.
The following terms shall have the respective meanings ascribed to
such terms in the Note Agreement:
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Affiliate
Capital Stock
Debt
Default
DOL
Environmental Protection Law
ERISA
ERISA Affiliate
Event of Default
Exchange Act
Fair Market Value
Finance
Foreign Pension Plan
GAAP
Governmental Authority
Guaranties
Hazardous Materials
Insignificant Subsidiary
Investment
IRC
Lien
Material Adverse Effect
Multiemployer Plan
Person
Plan
Property
Restricted Investment
Right
Securities Act
Security
Senior Agent
Senior Lender
Senior Officer
Voting Stock
5.3 Directly or Indirectly.
Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person,
including actions taken by or on behalf of any partnership in which such Person
is a general partner.
5.4 Section Headings and Table of Contents and Construction.
(a) Section Headings and Table of Contents, etc. The titles
of the Sections of this Agreement and the Table of Contents of this
Agreement 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 Agreement
as a whole and not to any particular Section or other subdivision.
References to Sections are, unless otherwise specified, references to
Sections of this Agreement. References to Annexes and Exhibits are,
unless otherwise specified, references to Annexes and Exhibits
attached to this Agreement.
(b) Construction. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being
independent of each other covenant contained herein, and compliance
with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with one or more other
covenants.
5.5 Governing Law.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE
LAW OF ANY OTHER JURISDICTION.
27
<PAGE>
6. MISCELLANEOUS
6.1 Communications.
(a) Method; Address. All communications hereunder shall be
in writing and shall be delivered either by hand or by nationwide
overnight courier, or by facsimile transmission followed by delivery
by hand or by nationwide overnight courier sent on the day of the
sending of such facsimile transmission. Communications to either
Issuer shall be addressed as set forth on Annex 2, or at such other
address of which the Company or the Parent shall have notified each
Purchaser. Communications to the Purchasers shall be addressed as set
forth on Annex 1.
(b) When Given. Any communication addressed and delivered
as herein provided shall be deemed to be received when actually
delivered to the address of the addressee (whether or not delivery is
accepted) or received by the telecopy machine of the recipient. Any
communication not so addressed and delivered shall be ineffective.
(c) Service of Process. Notwithstanding the foregoing
provisions of this Section 6.1, service of process in any suit,
action or proceeding arising out of or relating to this Agreement or
any document, agreement or transaction contemplated hereby shall be
delivered in the manner provided in Section 6.7(c).
6.2 Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by you at the closing of your purchase of the Purchased
Securities (except the Purchased Securities themselves), and financial
statements, certificates and other information previously or hereafter furnished
to any Purchaser, may be reproduced by the Issuers or any Purchaser by any
photographic, photostatic, microfilm, micro-card, miniature photographic,
digital or other similar process and each Purchaser may destroy any original
document so reproduced. Any such reproduction shall be admissible in evidence as
the original itself in any judicial or administrative proceeding (whether or not
the original is in existence and whether or not such reproduction was made by an
Issuer or such Purchaser in the regular course of business) and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence. Nothing in this Section 6.2 shall prohibit an Issuer or
any Purchaser from contesting the accuracy or validity of any such reproduction.
6.3 Survival; Entire Agreement.
All warranties, representations, certifications and covenants made by
the Issuers herein or in any certificate or other instrument delivered by or on
behalf of any Obligor hereunder shall be considered to have been relied upon by
you and shall survive the delivery to you of the Purchased Securities regardless
of any investigation made by you or on your behalf. All statements in any
certificate or other instrument delivered by or on behalf of any Obligor
pursuant to the terms hereof shall constitute warranties and representations by
the Issuers hereunder. All obligations hereunder ( including, without
limitation, reimbursement obligations in respect of costs, expenses and fees)
shall survive the termination hereof. Subject to the preceding sentence, this
Agreement and the other Financing Documents embody the entire
28
<PAGE>
agreement and understanding among the Issuers and the Purchasers, and supersede
all prior agreements and understandings, relating to the subject matter hereof.
6.4 Successors and Assigns.
This Agreement 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 the Purchasers and their successors and
assigns, and shall be enforceable by any Purchaser, successor or assignee
whether or not an express assignment of rights hereunder shall have been made by
you or your successor or assign. Anything contained in this Section 6.4
notwithstanding, the Issuers may not assign any of their respective rights,
duties or obligations hereunder without the prior written consent of all
Purchasers.
6.5 Amendment and Waiver.
This Agreement may be amended, and the observance of any term hereof
may be waived, with (and only with) the written consent of the Issuers and you.
6.6 Expenses.
Whether or not the Purchased Securities are sold, the Issuers,
jointly and severally, shall pay, at the Closing (if the Purchased Securities
are sold, and otherwise upon receipt of any statement or invoice therefor), all
reasonable fees, expenses and costs incurred by you relating hereto, including,
without limitation, all reasonable fees and disbursements of your special
counsel, and all reasonable expenses incurred by you or on your behalf or the
behalf of any Obligor in complying with each of the conditions to the Closing
set forth in Section 4. Without limiting the generality of the foregoing, the
Issuers agree to pay:
(a) contemporaneously with the Closing, the invoice
presented by your special counsel at least one Business Day prior to
the Closing Date, which invoice will include all accrued fees and
disbursements of such special counsel, together with an estimate for
the additional fees and disbursements of such counsel necessary to
complete the Closing and all post-Closing matters relating thereto
(including, without limitation, preparation of Closing files); and
(b) within thirty (30) days of receipt of a final statement
presented following the Closing and completion of all post-Closing
work, reconciling the actual amount due with the amount paid pursuant
to the estimated invoice referred to in Section 6.6(a), any balance
due your special counsel pursuant to such invoice and statement (and,
in the event that a balance is due the Issuers pursuant to such
invoice and statement, such special counsel shall remit that balance
to the Company); and
(c) any additional statement for reasonable fees and
disbursements (promptly upon receipt thereof) of your special counsel
rendered after the Closing in connection with the issuance of the
Purchased Securities.
29
<PAGE>
6.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc.
(a) Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS
CONTEMPLATED HEREBY.
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OF THE
DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY
ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN
RESPECT OF ANY BREACH UNDER THIS AGREEMENT OR ANY DOCUMENT OR
AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT BY SUCH PARTY IN ANY
FEDERAL DISTRICT COURT LOCATED IN NEW YORK CITY, NEW YORK OR ANY NEW
YORK STATE COURT OF COMPETENT JURISDICTION LOCATED IN NEW YORK CITY,
NEW YORK AS SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO
IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN
PERSONAM JURISDICTION OF EACH SUCH COURT, AND EACH OF THE PARTIES
HERETO IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING
BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY
CLAIM THAT IT IS NOT SUBJECT TO THE IN PERSONAM JURISDICTION OF ANY
SUCH COURT. IN ADDITION, EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY
SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH
SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY
AGREES THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED
MAIL AT THE ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE,
TO THE EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREE-
MENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY,
OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY
JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY DOCUMENT OR
AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL BE
CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY
THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.
30
<PAGE>
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED
TO LIMIT THE ABILITY OF ANY PURCHASER TO SERVE ANY WRITS, PROCESS OR
SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN
JURISDICTION OVER THE COMPANY IN SUCH OTHER JURISDICTION, AND IN SUCH
OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
6.8 Indemnification of Each Purchaser.
From and at all times after the date of this Agreement, and in
addition to all of your other rights and remedies against the Issuers, the
Issuers, jointly and severally, agree to indemnify and hold harmless you and
each of your directors, officers, partners, employees, agents, investment
advisors and affiliates (collectively, the "Indemnified Parties") against any
and all claims (whether valid or not), losses, damages, liabilities, costs and
expenses of any kind or nature whatsoever (including, without limitation,
reasonable attorneys' fees, costs and expenses), incurred by or asserted against
any Indemnified Party, from and after the date hereof, whether direct, indirect
or consequential, as a result of or arising from or in any way relating to any
suit, action or proceeding (including any inquiry or investigation) by any
Person, whether threatened or initiated, asserting a claim for any legal or
equitable remedy against any Person under any statute or regulation, including,
but not limited to, any federal or state securities laws, or under any common
law or equitable cause or otherwise, arising from or in connection with the
negotiation, preparation, execution, performance or enforcement of this
Agreement or the other Financing Documents or any transactions contemplated
herein or therein, or any of the transactions contemplated hereunder
(collectively, the "Proceedings"), whether or not such Indemnified Party is a
party to any such Proceeding; provided, however, that no Indemnified Party shall
have the right to be indemnified hereunder for any liability resulting from the
willful misconduct or gross negligence of such Indemnified Party or breach by
such Indemnified Party of its own obligations under this Agreement. All of your
foregoing losses, damages, costs and expenses shall be payable as and when
incurred upon your demand. Without limiting the generality of the foregoing,
each such indemnified Person shall be entitled to collect, and, subject to the
following paragraph, the Issuers shall be obligated to advance to each such
Person, to the fullest extent permitted by applicable law, all expenses
(including, without limitation, reasonable fees and disbursements of counsel)
attendant to defending against any such claims (whether valid or not), losses,
damages, liabilities, costs and expenses when and as incurred, regardless of
whether any judicial determination of your entitlement to such indemnity has
been made, until or unless a final judicial determination that such Indemnified
Party is not entitled to such indemnity, in which case, such Indemnified Party
shall promptly repay to the Issuers, with interest at the applicable statutory
rate applicable to judgments in the relevant jurisdiction, all amounts so
advanced by either Issuer. The obligations of the Issuers and your rights under
this Section 6.8 shall survive the termination of this Agreement.
If any Proceeding shall be brought or asserted or threatened to be
brought or asserted against an Indemnified Party in respect of which indemnity
may be sought from the Issuers hereunder, such Indemnified Party shall promptly
notify the Issuers in writing, and the Issuers may, in their sole discretion,
promptly upon receipt of such notice, assume the defense thereof, including the
employment of counsel (who may be counsel for either of the Issuers) reasonably
satisfactory to such Indemnified Party and the payment of all expenses therefor.
If the Issuers elect to assume the defense of any such Proceeding, the
Indemnified Party shall have the right, in its sole discretion, to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless;
31
<PAGE>
(a) either of the Issuers has agreed to pay such fees and expenses;
(b) each of the Issuers shall have elected not to assume the defense
of such Proceeding or shall have failed to promptly assume the defense of such
Proceeding or shall have failed to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or
(c) the named parties to any such Proceeding (including any impleaded
parties) include both such Indemnified Party and either of the Issuers, and such
Indemnified Party shall have been advised by counsel that there may be one or
more legal defenses available to such Indemnified Party that are different from
or additional to those available to that Issuer (in which case, if such
Indemnified Party notifies the Issuers in writing that it elects to employ
separate counsel at the expense of the Issuers, the Issuers shall not have the
right to assume the defense of such Proceeding on behalf of such Indemnified
Party, it being understood, however, that the Issuers shall not, in connection
with any one such Proceeding or separate but substantially similar or related
Proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses or more than
one separate firm of attorneys at any time for such Indemnified Party and any
other Indemnified Parties, which firm shall be designated in writing by such
Indemnified Parties). The Issuers shall not be liable for any settlement of any
Proceeding by an Indemnified Party effected without the Issuers' written consent
(which consent shall not be unreasonably withheld). In addition, the Indemnified
Party shall cooperate with the Issuers and their representatives in connection
with the defense or investigation of any claim or other matter for which
indemnification is sought, as reasonably requested by the Issuers.
6.9 Execution in Counterpart.
This Agreement 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.
[Remainder of page intentionally blank. Next page is signature page.]
32
<PAGE>
If this Agreement is satisfactory to you, please so indicate by
signing the acceptance at the foot of a counterpart hereof and returning such
counterpart to the Company, whereupon this Agreement shall become binding among
us in accordance with its terms.
Very truly yours,
QUESTRON TECHNOLOGY, INC.
By: /s/ Dominic A. Polimeni
--------------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief Executive
Officer
QUESTRON OPERATING COMPANY, INC.
By: /s/ Dominic A. Polimeni
--------------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief Executive
Officer
Accepted:
ALLIANCE INVESTMENT OPPORTUNITIES FUND, L.L.C.
By: Alliance Investment Opportunities Management, L.L.C., as Managing Member
By: Alliance Capital Management, L.P. as Managing Member
By: Alliance Capital Management Corporation, as General Partner
By: /s/ Sheryl Rothman
----------------------------
Name: Sheryl A. Rothman
Title: Vice President
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
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/ Kevin P. Falvey
----------------------------
Name: Kevin P. Falvey
Title: Director
<PAGE>
ANNEX 1
INFORMATION AS TO PURCHASERS
================================================================================
Purchaser Name ALBION ALLIANCE MEZZANINE FUND, L.P.
Name in Which Note is Registered ALBION ALLIANCE MEZZANINE FUND, L.P.
Name in Which Common Shares are
Registered (if different from above)
Note Registration Number; Principal R-1; $7,000,000
Amount Note
Purchase Price of Notes $6,643,000
Number of Common Shares 238,000
Purchase Price of Shares $357,000
Transaction Fee $140,000
Address for Payment IBJ Whitehall Bank & Trust Company
ABA No. 026-007-825
For the account of Albion Alliance LLC
Account No. 01098103
Tax ID No. 13-3903734
Address for all written Albion Alliance Mezzanine Fund, L.P.
communications c/o Albion Alliance LLC
1345 Avenue of the Americas
New York, NY 10105
Attn: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
Other Instructions Signature Page Format:
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC, its General
Partner
By:_____________________
Name:
Title:
Instructions re Delivery of Note The Equitable Life Assurance Society of
the United States
1290 Avenue of the Americas
New York, NY 10104
Attn: Sherry Weitman, 12th Floor
Tax Identification Number 13-3975300
================================================================================
Annex 1-1
<PAGE>
================================================================================
Purchaser Name ALLIANCE INVESTMENT OPPORTUNITIES
FUND, LLC
Name in Which Note is Registered INLETSIDE & Co.
Name in Which Common Shares are
Registered (if different from above)
Note Registration Number; Principal R-2; $5,000,000
Amount Note
Purchase Price of Notes $4,745,000
Number of Common Shares 170,000
Purchase Price of Shares $255,000
Transaction Fee $100,000
Address for Payment State Street Bank & Trust Co.
ABA No. 011 0000 28
Attn: Mutual Fund Services
Ref: Alliance Investment Opportunities
Fund-M376
Account No. 5985-0420
Address for all written Alliance Investment Opportunities
communications Fund, LLC
c/o Albion Alliance LLC
1245 Avenue of the Americas
New York, NY 10105
Attn: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
and to:
Alliance Capital Management
1345 Avenue of the Americas
New York, NY 10105
Attn: Elizabeth Hennessey
Tel: (212) 969-2341
Fax: (212) 969-6953
Other Instructions Signature Page Format:
ALLIANCE INVESTMENT OPPORTUNITIES FUND,
LLC
By: Alliance Investment Opportunities
Management, L.L.C., as Managing
Member
By: Alliance Capital Management L.P.,
as Managing Member
By: Alliance Capital Management
Corporation, as General Partner
By: _______________________________
Name:
Title:
Instructions re Delivery of the Note Alliance Capital Management
1345 Avenue of the Americas
New York, NY 10105
Attn: Elizabeth Hennessey
Tax Identification Number ###-##-####
================================================================================
Annex 1-2
<PAGE>
================================================================================
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF
THE UNITED STATES
Name in Which Note is Registered THE EQUITABLE LIFE ASSURANCE SOCIETY OF
THE UNITED STATES
Name in Which Common Shares are
Registered (if different from above)
Note Registration Number; Principal R-3; $5,000,000
Amount Note
Purchase Price for Notes $4,745,000
Number of Common Shares 170,000
Purchase Price for Shares $255,000
Transaction Fee $100,000
Address for Payment IBJ Whitehall Bank & Trust Company
ABA No. 026-007-825
For the account of Albion Alliance LLC
Account No. 01098103
Tax ID No. 13-3903734
Address for all written The Equitable Life Assurance Society of
communications the United States
c/o Albion Alliance LLC
1345 Avenue of the Americas
New York, NY 10105
Attn: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
Other Instructions Signature Page Format:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF
THE UNITED STATES
By:_____________________
Name:
Title:
Instructions re Delivery of the Note The Equitable Life Assurance
Society of the United States
1290 Avenue of Americas
New York, NY 10104
Attn: Sherry Weitman, 12th Floor
Tax Identification Number 13-5570651
================================================================================
Annex 1-3
<PAGE>
================================================================================
Purchaser Name IBJ WHITEHALL BANK & TRUST COMPANY
Name in Which Note is Registered IBJ WHITEHALL BANK & TRUST COMPANY
Name in Which Common Shares are IBJ WHITEHALL CAPITAL CORPORATION
Registered (if different from above)
Note Registration Number; Principal R-4; $3,000,000
Amount Note
Purchase Price of Notes $2,847,000
Number of Common Shares 102,000
Purchase Price of Shares $153,000
Transaction Fee $60,000
Address for Payment IBJ Whitehall Bank & Trust Company
ABA No. 026-007-825
Attn: Commercial Loan Department,
William Reyes
Address for all written IBJ Whitehall Bank & Trust Company
communications One State Street, 9th Floor
New York, NY 10004
Attn: Jean-Louis Pernin
Other Instructions: Signature Page Format:
IBJ WHITEHALL BANK & TRUST COMPANY
By:_____________________
Name:
Title:
Instructions re Delivery of the Note IBJ Whitehall Bank & Trust Company
One State Street, 9th Floor
New York, NY 10004
Attn: Jean-Louis Pernin
Tax Identification Number 135375195
================================================================================
Annex 1-4
<PAGE>
ANNEX 2
PAYMENT INSTRUCTIONS AT CLOSING;
ADDRESS OF COMPANY FOR NOTICES
Bank: The Chase Manhattan Bank, N.A.
ABA #: 021 000 021
A/C: 322 020 565
A/C Name: Congress Financial Corp. (Florida)
RE: Questron / [Identify Purchasers]
Address for Notices to the Parent:
Questron Technology, Inc.
6400 Congress Avenue, Suite 200A
Boca Raton, FL 33487
Address for Notices to the Company:
Questron Operating Company, Inc.
6400 Congress Avenue, Suite 200A
Boca Raton, FL 33487
With a copy, in either case, to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attn: Luke P. Iovine, Esq.
Exhibit 10.2
================================================================================
QUESTRON OPERATING COMPANY, INC.
----------------------------
NOTE AGREEMENT
----------------------------
DATED AS OF JUNE 29, 1999
$20,000,000 14.50% SENIOR SUBORDINATED NOTES DUE JUNE 30, 2005
================================================================================
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. PAYMENTS...................................................................................1
1.1 Interest Payments................................................................1
1.2 Principal Payment At Maturity....................................................3
1.3 Optional Principal Payments......................................................3
1.4 Payments Among Noteholders.......................................................5
1.5 Notation of Notes on Payment.....................................................5
1.6 Offer to Pay Upon Change in Control..............................................5
1.7 Delivery of Notes in Payment of Share Purchase Price.............................7
1.8 No Other Payments of Principal; Acquisition of Notes.............................7
1.9 Manner of Payments...............................................................7
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES..............................................8
2.1 Registration of Notes............................................................8
2.2 Exchange of Notes................................................................8
2.3 Replacement of Notes.............................................................9
2.4 Issuance Taxes...................................................................9
3. AFFIRMATIVE COVENANTS......................................................................9
3.1 Payment of Taxes and Claims......................................................9
3.2 Maintenance of Properties; Corporate Existence; etc.............................10
3.3 Payment of Notes and Maintenance of Office......................................11
3.4 Pension Plans...................................................................11
3.5 Private Offering................................................................12
4. NEGATIVE COVENANTS........................................................................12
4.1 Restricted Payments and Restricted Investments..................................12
4.2 Consolidated Senior Secured Funded Debt to Pro Forma Combined EBITDA............14
4.3 Total Funded Debt to Pro Forma Combined EBITDA..................................15
4.4 Pro Forma Combined EBITDA to Pro Forma Combined Interest Expense................15
4.5 Limitation on Capital Expenditures..............................................15
4.6 Incurrence of Debt..............................................................16
4.7 Liens...........................................................................18
4.8 Mergers and Consolidations......................................................20
4.9 Disposition of Assets, Subsidiary Stock.........................................21
4.10 Limitations on Acquisitions.....................................................23
4.11 Ownership of Subsidiaries; Affiliate Guaranty...................................23
4.12 Line of Business................................................................23
4.13 Transactions with Affiliates....................................................23
4.14 Limitation on Payment Restrictions Affecting Subsidiaries.......................24
4.15 Limitation on Issuance of Preferred Stock.......................................25
4.16 Affiliate Debt..................................................................25
i
<PAGE>
4.17 Modification and Refinancing Of Senior Credit Facility..........................25
5. REPORTING COVENANTS.......................................................................27
5.1 Financial and Business Information..............................................27
5.2 Officer's Certificates..........................................................31
5.3 Accountants' Certificates.......................................................32
5.4 Inspection......................................................................32
5.5 Suspension of Obligation to Provide Non-Public Information......................32
6. EVENTS OF DEFAULT.........................................................................32
6.1 Events of Default...............................................................32
6.2 Default Remedies................................................................36
6.3 Annulment of Acceleration of Notes..............................................38
7. SUBORDINATION.............................................................................39
7.1 General; Amendment of Subordinated Debt; No Liens Securing Subordinated Debt....39
7.2 Insolvency, etc.................................................................98
7.3 Blockage of Payments on Subordinated Debt.......................................40
7.4 Subordinated Debt Payments and Remedies.........................................43
7.5 Payments and Distributions Received.............................................44
7.6 No Prejudice or Impairment......................................................45
7.7 Payment of Senior Debt, Subrogation, etc........................................45
7.8 Reliance of Holders of Senior Debt..............................................45
7.9 Changes in Holders of Senior Debt...............................................46
7.10 Obligations of Holders of Subordinated Debt.....................................46
8. INTERPRETATION OF THIS AGREEMENT..........................................................46
8.1 Terms Defined...................................................................46
8.2 Accounting Principles...........................................................73
8.3 Directly or Indirectly..........................................................73
8.4 Section Headings and Table of Contents and Construction.........................73
8.5 Governing Law...................................................................74
8.6 General Interest Provisions.....................................................74
9. MISCELLANEOUS.............................................................................75
9.1 Communications..................................................................75
9.2 Reproduction of Documents.......................................................76
9.3 Survival; Entire Agreement......................................................76
9.4 Successors and Assigns..........................................................76
9.5 Amendment and Waiver............................................................77
9.6 Expenses........................................................................78
9.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc..............................79
9.8 Indemnification of Each Holder..................................................80
9.9 Execution in Counterpart........................................................81
</TABLE>
ii
<PAGE>
Annex 1 - Addresses of Purchasers; Payment Instructions
Annex 2 - Address of Company
Attachment A - Form of Note
iii
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NOTE AGREEMENT
NOTE AGREEMENT, dated as of June 29, 1999, among QUESTRON OPERATING
COMPANY, INC., a Delaware corporation (together with its successors and assigns,
the "Company"), 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 (together with their respective
successors and assigns, the "Purchasers").
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreement, the
Purchasers have agreed to purchase from the Company, and the Company has agreed
to sell to the Purchasers, Twenty Million Dollars ($20,000,000) in aggregate
principal amount of the Notes; and
WHEREAS, the Company and the Purchasers wish to enter into this
Agreement to govern the terms of the Notes.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties to this Agreement hereby agree as
follows:
1. PAYMENTS
1.1 Interest Payments.
(a) Generally. Interest (computed on the basis of a 360-day year of
twelve 30-day months) shall accrue on the unpaid principal balance of the
Notes from time to time outstanding from and including the date thereof at
the rate of fourteen and fifty one-hundredths percent (14.50%) per annum,
payable quarterly on each September 30, December 31, March 31 and June 30
of each year (each, a "Quarterly Interest Payment Date"), commencing on
September 30, 1999, until the principal thereof shall have become due and
payable, and to the extent permitted by law in respect of any Note on any
overdue payment of principal, any overdue payment of interest and any
overdue payment of any Prepayment Compensation Amount, payable, on demand,
at a rate per annum equal to the lesser of:
(i) the highest rate allowed by applicable law; and
(ii) the greater of:
(A) sixteen and fifty one-hundredths percent (16.50%); and
(B) the sum of two percent (2%) plus the rate of interest
publicly announced from time to time by Morgan Guaranty Trust
Company of New York in New York, New York as its "base" or
"prime" rate.
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(b) Capitalized Interest. On each Quarterly Interest Payment Date, the
Company shall:
(i) pay on such Quarterly Interest Payment Date, in cash, that
portion of the interest accrued on the outstanding principal amount of
such Note to such Quarterly Interest Payment Date as would have
accrued at the rate of twelve and fifty one-hundredths percent
(12.50%) per annum; and
(ii) both:
(A) pay on such Interest Payment Date, in the Company's sole
discretion, in cash, none, any part or all of the interest
accrued on such principal to such Quarterly Interest Payment Date
as would have accrued at the rate of two percent (2.00%) per
annum; and
(B) add to the outstanding principal amount of such Notes on
such Quarterly Interest Payment Date the portion of such interest
as would have accrued at the rate of two percent (2.00%) per
annum which is not paid in cash pursuant to the immediately
preceding clause (A) (each such addition with respect to any
Note, a "Capitalized Interest Amount").
Interest shall begin to accrue on each Capitalized Interest Amount
beginning on and including the Quarterly Interest Payment Date on which
such Capitalized Interest Amount is added to the principal amount of the
related Note, and shall compound semiannually on each December 31 and June
30 of each year (each, a "Semi-Annual Interest Accrual Date"), commencing
on December 31, 1999, until the principal thereof shall have become due and
payable, at the rate provided in Section 1.1(a), and such interest shall be
added to the outstanding principal amount of each Note on each Semi-Annual
Interest Accrual Date.
(c) Notice of Election. Not less than ten (10) Business Days but not
more than thirty (30) Business Days prior to each Quarterly Interest
Payment Date, the Company shall deliver to each holder of Notes a written
notice setting forth, in each case, for all Notes and for each Note
individually:
(i) the principal amount thereof on the date of such notice;
(ii) the amount of interest accrued and unpaid thereon to and
including such Quarterly Interest Payment Date;
(iii) the minimum amount of interest accrued and unpaid thereon
which the Company is required to pay in cash pursuant to Section
1.1(b)(i);
(iv) the actual amount of interest accrued and unpaid thereon
which the Company will pay in cash on such Quarterly Interest Payment
Date;
(v) the Capitalized Interest Amount in respect thereof which will
be added to the principal amount thereof on such Quarterly Interest
Payment Date;
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(vi) if the next Quarterly Interest Payment Date will be a
Semi-Annual Interest Accrual Date, the amount of interest in respect
of the aggregate Capitalized Interest Amount of such Note or Notes
which will be added to the outstanding principal amount thereof on
such Semi-Annual Interest Accrual Date as required by Section 1.1(b);
and if the next Quarterly Interest Payment Date is not a Semi-Annual
Interest Accrual Date, a statement to that effect; and
(vii) the aggregate principal amount thereof after giving effect
both to any Capitalized Interest Amount added thereto on such
Quarterly Interest Payment Date and, if such Quarterly Interest
Payment Date will be a Semi-Annual Interest Accrual Date, the amount
of interest in respect of the aggregate Capitalized Interest Amount of
such Note or Notes which will be added to the outstanding principal
amount thereof on such Semi-Annual Interest Accrual Date as required
by Section 1.1(b).
(d) Payment Pro Rata. If, on any Quarterly Interest Payment Date,
there is more than one (1) Note outstanding, then:
(i) the aggregate amount of interest in respect of all the Notes
shall be paid ratably to each holder of Notes in accordance with the
respective outstanding principal amounts thereof; and
(ii) in the event that the Company elects to capitalize any
portion of an interest payment pursuant to Section 1.1(b), then the
amount of interest paid in cash in respect of the Notes shall be paid
ratably to each holder of Notes in accordance with the respective
outstanding principal amounts thereof, and the Capitalized Interest
Amount in respect of all the Notes shall be added ratably to the
principal amount of each Note in accordance with the respective
outstanding principal amounts thereof.
1.2 Principal Payment At Maturity.
The entire principal of the Notes remaining outstanding on June 30, 2005
(including, without limitation, all principal in respect of Capitalized Interest
Amounts), together with interest accrued thereon, shall become due and payable
on such date.
1.3 Optional Principal Payments.
(a) Optional Principal Payments. The Company may pay the principal
amount of the Notes, in whole or in part, at any time, and, if in part,
then in aggregate amounts not less than One Million Dollars ($1,000,000),
together with:
(i) cash interest on such principal amount then being paid
accrued to the payment date; and
(ii) an amount equal to the Prepayment Compensation Amount due at
such time in respect of the principal amount of the Notes being so
paid.
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(b) Special Optional Prepayments from Equity Offering Proceeds. At any
time on or after March 31, 2000 and prior to July 1, 2001,
contemporaneously or substantially contemporaneously with the occurrence of
an Equity Offering, the Company may apply the Net Equity Offering Proceeds
to prepay a principal amount of Notes equal to no more than one-third (1/3)
of the aggregate principal amount of the Notes outstanding at such time,
together with:
(i) cash interest on such principal amount then being paid
accrued to the payment date; and
(ii) an amount equal to six percent (6%) of the principal amount
of the Notes being so paid (the "Equity Offering Compensation
Amount").
(c) Notice of Optional Payment. The Company will give notice of any
optional payment of the Notes pursuant to this Section 1.3 to each holder
of Notes not less than fifteen (15) days nor more than sixty (60) days
before the specified payment date, stating:
(i) the specified payment date;
(ii) whether such payment is to be made pursuant to Section
1.3(a) or Section 1.3(b);
(iii) the principal amount of each Note to be paid on such date;
(iv) the cash interest to be paid on each such Note, accrued to
the specified payment date; and
(v) if such payment of the Notes is to be made with a Prepayment
Compensation Amount in accordance with Section 1.3(a) prior to July 1,
2001, the calculation (with details) of the estimated Prepayment
Compensation Amount (calculated as if the date of such notice was the
date of payment) due in connection with such payment; if such payment
of the Notes is to be made with a Prepayment Compensation Amount in
accordance with Section 1.3(a) on or after July 1, 2001, the actual
Prepayment Compensation Amount due in connection with such payment;
and if such payment of the Notes is to be made with the Equity
Offering Compensation Amount in accordance with Section 1.3(b), a
statement to such effect and a statement of the Equity Offering
Compensation Amount with respect to each Note.
Notice of payment having been so given, the aggregate principal amount
of the Notes to be paid stated in such notice, together with the Prepayment
Compensation Amount determined as of the specified payment date, if any, the
Equity Offering Compensation Amount, if any, and, in each case, cash interest
thereon accrued to the specified payment date, shall become due and payable on
the specified payment date. If such payment of the Notes is to be made with a
Prepayment Compensation Amount in accordance with Section 1.3(a) prior to July
1, 2001, then two (2) Business Days prior to the making of such payment, the
Company shall deliver to each holder of Notes by facsimile transmission
(confirmed by nationwide overnight courier) a certificate of a Senior Financial
Officer specifying the details of the calculation of such Prepayment
Compensation
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Amount as of the specified payment date, and including a copy of the source
of interest rate information used in the calculation thereof.
1.4 Payments Among Noteholders.
If at the time any payment of the principal of the Notes made pursuant to
Section 1.3 is due there is more than one Note outstanding, the aggregate
principal amount of each such required or optional partial payment of the Notes
shall be allocated among the Notes at the time outstanding pro rata in
proportion to the respective unpaid principal amounts of all such outstanding
Notes.
1.5 Notation of Notes on Payment.
Upon any partial payment of a Note or any Capitalized Interest Amount being
added to the principal amount of any Note pursuant to Section 1.1(b)(ii), the
holder of such Note may (but shall not be required to), at its option:
(a) surrender such Note to the Company pursuant to Section 2.2 in
exchange for a new Note in a principal amount equal to the principal amount
remaining unpaid on the surrendered Note;
(b) make such Note available to the Company for notation thereon of
the portion of the principal so paid or so added to the principal amount
thereof in respect of capitalized interest; or
(c) mark such Note with a notation thereon of the portion of the
principal so paid or so added to the principal amount thereof in respect of
capitalized interest.
In case the entire principal amount of any Note is paid, such Note shall be
surrendered to the Company for cancellation and shall not be reissued, and no
Note shall be issued in lieu of the paid principal amount of any Note.
1.6 Offer to Pay Upon Change in Control.
(a) Notice of Change in Control Notice Event. In the event of the
obtaining of knowledge of a Change in Control Notice Event by any Senior
Officer (including, without limitation, via the receipt of notice of a
Change in Control Notice Event from any holder of Notes), the Company will,
within five (5) Business Days after the occurrence of such event, give
notice of such Change in Control Notice Event to each holder of Notes. Each
such notice shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Senior Officer;
(iii) refer to this Section 1.6; and
(iv) specify, in reasonable detail, the nature and date of the
Change in Control Notice Event.
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(b) Offer in Respect of a Change in Control. In the event of a Change
in Control, the Company will, within five (5) Business Days after the
occurrence of such event (or, in the case of any Change in Control the
consummation or finalization of which would involve any action of the
Company, at least thirty (30) days prior to such Change in Control), give
notice of such Change in Control to each holder of Notes. Such notice shall
contain an irrevocable separate offer to each holder of Notes to pay all,
but not less than all, of the principal of, and interest on, the Notes held
by such holder, together with an amount equal to one percent (1%) of the
principal amount of the Notes held by such holder (the "Change in Control
Compensation Amount"), on a date (the "Change in Control Payment Date")
specified in such notice that is not less than twenty (20) days and not
more than thirty (30) days after the date of such notice. Each such notice
shall:
(i) be dated the date of the sending of such notice;
(ii) be executed by a Senior Officer;
(iii) specify, in reasonable detail, the nature and date of the
Change in Control;
(iv) specify the Change in Control Payment Date;
(v) specify the principal amount of each Note outstanding;
(vi) specify the Change in Control Compensation Amount; and
(vii) specify the interest that would be due on each Note offered
to be paid, accrued to the Change in Control Payment Date.
If the Company shall not have received a written response to such notice
from any holder of Notes within ten (10) Business Days after the date of
posting of such notice to such holder of Notes, then the Company shall
immediately send a second notice to each such holder of Notes.
In addition, the Company agrees to provide a written copy of each such
notice required either by Section 1.6(a) or by this Section 1.6(b) to
Bingham Dana LLP, One State Street, Hartford, Connecticut 06103 Attention:
Gary S. Hammersmith, Esq., tel. 860-240-2760, facsimile 860-240-2800.
(c) Acceptance, Rejection. Each holder of Notes shall have the option
to accept or reject such offered payment. In order to accept such offered
payment, a holder of Notes shall cause a notice of such acceptance to be
delivered to the Company at least five (5) days prior to the Change in
Control Payment Date. A failure to accept in writing such written offer of
payment as provided in this Section 1.6(c), or a written rejection of such
offered prepayment, shall be deemed to constitute a rejection of such
offer.
(d) Deferral of Obligation to Purchase. The obligation of the Company
to purchase Notes pursuant to the offers required by Section 1.6(b) and
accepted in accordance with Section 1.6(c) is subject to the occurrence of
the Change in Control in respect of which such offers and
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acceptances shall have been made. In the event that such Change in Control
does not occur prior to the Change in Control Payment Date in respect
thereof, such purchase shall be deferred until and shall be made on the
date on which such Change in Control occurs or, if the Company determines
that efforts to effect such Change in Control have ceased or have been
abandoned, then such offer, acceptances and obligation to purchase shall be
deemed to have been rescinded. The Company shall keep each holder of Notes
reasonably and timely informed of:
(i) any such deferral of the date of purchase;
(ii) the date on which such Change in Control and the purchase
are expected to occur; and
(iii) any determination by the Company that efforts to effect
such Change in Control have ceased or been abandoned.
(e) Payment. The offered payment shall be made at one hundred percent
(100%) of the principal amount of the Notes to be prepaid, together with
the Change in Control Compensation Amount in respect of such Notes and
interest on such Notes accrued to the Change in Control Payment Date.
1.7 Delivery of Notes in Payment of Share Purchase Price.
The Investors Rights Agreement provides that a holder of Common Shares may
tender Notes in partial or complete payment of the purchase price for certain
additional shares of Parent Common Stock issued pursuant to the Investors Rights
Agreement. Promptly following the receipt of any Note so tendered from the
Parent, the Company shall promptly cancel and retire such surrendered Note (and
no such Note shall be reissued), and shall deliver to the Parent, for issuance
to the holder thereof a new Note in the principal amount of such tendered Note
remaining after deduction of the principal amount thereof applied to payment of
the purchase price for the Common Stock. For purposes of Rule 144 under the
Securities Act, 17 C.F.R. ss.230.144, the Company and each Purchaser agree that
a tender of Notes in payment of the such purchase price pursuant to the
Investors Rights Agreement shall not be deemed a prepayment of the Notes, but
rather a conversion of such Notes, pursuant to the terms of the Investors Rights
Agreement and this Agreement, into Common Stock.
1.8 No Other Payments of Principal; Acquisition of Notes.
Except for payments of principal made in accordance with this Section 1,
the Company may not make any payment of principal in respect of the Notes. The
Company will not, and will not permit any Subsidiary or any Affiliate which it
controls to, directly or indirectly, acquire or make any offer to acquire any
Notes.
1.9 Manner of Payments.
(a) Manner of Payment. The Company shall pay all amounts payable with
respect to each Note (without any presentment of such Notes and without any
notation of such payment being made thereon) by crediting, by federal funds
bank wire transfer, the account of the holder thereof in any bank in the
United States of America as may be designated in writing by such
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holder, or in such other manner as may be reasonably directed or to such
other address in the United States of America as may be reasonably
designated in writing by such holder. Annex 1 shall be deemed to constitute
notice, direction or designation (as appropriate) by the Purchaser to the
Company with respect to payments to be made to the Purchaser as aforesaid.
In the absence of such written direction, all amounts payable with respect
to each Note shall be paid by check mailed and addressed to the registered
holder of such Note at the address shown in the register maintained by the
Company pursuant to Section 2.1.
(b) Payments Due on Holidays. If any payment due on, or with respect
to, any Note shall fall due on a day other than a Business Day, then such
payment shall be made on the first Business Day following the day on which
such payment shall have so fallen due; provided that if all or any portion
of such payment shall consist of a payment of interest, for purposes of
calculating such interest, such payment shall be deemed to have been
originally due on such first following Business Day, such interest shall
accrue and be payable to (but not including) the actual date of payment,
and the amount of the next succeeding interest payment shall be adjusted
accordingly.
(c) Payments, When Received. Any payment to be made to the holders of
Notes hereunder or under the Notes shall be deemed to have been made on the
Business Day such payment actually becomes available at such holder's bank
prior to the close of business of such bank; provided that interest for one
day at the non-default interest rate of the Notes shall be due on the
amount of any such payment that actually becomes available to such holder
at such holder's bank after 1:00 p.m. (local time of such bank).
2. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
2.1 Registration of Notes.
The Company will keep at its office, maintained pursuant to Section
3.3, a register for the registration and transfer of Notes. The name and
address of each holder of one or more Notes, each transfer thereof made in
accordance with Section 2.2 and the name and address of each transferee of
one or more Notes shall be registered in such register. The Person in whose
name any Note shall be registered shall be deemed and treated as the owner
and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary, other than in
accordance with Section 2.2.
2.2 Exchange of Notes.
(a) Exchange of Notes. Upon surrender of any Note at the office of the
Company maintained pursuant to Section 3.3, duly endorsed or accompanied by
a written instrument of transfer duly executed by the registered holder of
such Note or such holder's attorney duly authorized in writing, the Company
will execute and deliver, at the Company's expense (except as provided in
Section 2.2(b)), a new Note or Notes in exchange therefor, in an aggregate
principal amount equal to the unpaid principal amount of the surrendered
Note. Each such new Note shall be registered in the name of such Person as
such holder may request and shall be substantially in the form of
Attachment A. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or
dated the date of the surrendered Note if no interest shall have been paid
thereon. Each such new Note shall carry the same rights
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to unpaid interest and interest to accrue that were carried by the Note so
exchanged or transferred. Notes shall not be transferred in denominations
of less than One Million Dollars ($1,000,000); provided that a holder of
Notes may transfer its entire holding of Notes regardless of the principal
amount of such holder's Notes.
(b) Costs. The Company will pay the cost of delivering to or from such
holder's home office or custodian bank from or to the Company, insured to
the reasonable satisfaction of such holder, the surrendered Note and any
Note issued in substitution or replacement for the surrendered Note. The
Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge (in each case, other than any Florida Excise Tax, to
the extent any becomes payable or is charged) imposed in respect of any
such transfer of Notes. The Company shall pay and hold each holder of Notes
harmless against any Florida Excise Tax, should any such tax be determined
to be due in respect of the Notes upon or in connection with any transfer
or exchange thereof.
2.3 Replacement of Notes.
Upon receipt by the Company from the registered holder of a Note of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Note (which evidence shall be, in the case of an
institutional investor, notice from such institutional investor of such loss,
theft, destruction or mutilation), and:
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Company; provided, however, that if the holder of such
Note is a Purchaser, an institutional investor or a nominee of either, the
unsecured agreement of indemnity of such Purchaser or such institutional
investor (but not of any nominee therefor) shall be deemed to be
satisfactory; or
(b) in the case of mutilation, upon surrender and cancellation
thereof;
the Company at its own expense will execute and deliver, in lieu thereof, a
replacement Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Note or dated
the date of such lost, stolen, destroyed or mutilated Note if no interest shall
have been paid thereon.
2.4 Issuance Taxes.
The Company will pay all taxes, if any, including, without limitation, any
stamp tax, documentary stamp tax or other similar tax, due in connection with
and as the result of the initial issuance and sale of the Notes and in
connection with any modification, waiver or amendment of this Agreement or the
Notes and shall save each holder of Notes harmless without limitation as to time
against any and all liabilities with respect to all such taxes. Without limiting
the generality of the foregoing, the Company shall pay and hold each holder of
Notes harmless against the Florida Excise Tax, should any such tax be determined
to be due at any time in respect of the Notes, whether or not in connection with
the initial issuance thereof or any amendment thereto.
3. AFFIRMATIVE COVENANTS
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The Company covenants that on and after the Closing Date and so long as any
of the Notes shall be outstanding:
3.1 Payment of Taxes and Claims.
The Company will, and will cause each Subsidiary to, pay before they become
delinquent:
(a) all taxes, assessments and governmental charges or levies imposed
upon it or its Property; and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if unpaid,
might result in the creation of a statutory, regulatory or common law Lien
upon its Property;
provided, that items of the foregoing description need not be paid so long as
such items are being actively contested in good faith and by appropriate
proceedings, reasonable book reserves in accordance with GAAP have been
established and maintained with respect thereto, and such items, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
3.2 Maintenance of Properties; Corporate Existence; etc.
The Company will, and will cause each Subsidiary to:
(a) Property - maintain its Property in good condition, ordinary wear
and tear and obsolescence excepted, and make all necessary renewals,
replacements, additions, betterments and improvements thereto; provided,
however, that this Section 3.2(a) shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of
its Properties if such discontinuance is desirable in the conduct of its
business and such discontinuance could not reasonably be expected to have a
Material Adverse Effect;
(b) Insurance - maintain, with financially sound and reputable
insurers, insurance with respect to its Property and business against such
casualties and contingencies, of such types and in such amounts as is
customary in the case of corporations of established reputations engaged in
the same or a similar business and similarly situated;
(c) Financial Records - keep proper books of record and account, in
which full and correct entries shall be made of all dealings and
transactions of or in relation to the Properties and business thereof, and
which will permit the production of financial statements in accordance with
GAAP;
(d) Corporate Existence and Rights - do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence, corporate rights (charter and statutory) and corporate
franchises except as permitted by Section 4.8 or Section 4.9;
(e) Environmental Protection Laws - at all times comply in all
material respects with all applicable Environmental Protection Laws and
promptly take any and all necessary remedial actions in response to the
presence, storage, use, disposal, transportation or Release of any
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Hazardous Materials on, under or about any real Property owned, or, to the
extent permitted by the Property owner, leased or operated by the Company
or any of its Subsidiaries; and, in the event that the Company or any
Subsidiary undertakes any remedial action with respect to any Hazardous
Material on, under or about any real Property, the Company or such
Subsidiary shall conduct and complete such remedial action in compliance in
all material respects with all applicable Environmental Protection Laws and
in accordance with the policies, orders and directives of all federal,
state and local Governmental Authorities, except when the Company's or such
Subsidiary's liability for such presence, storage, use, disposal,
transportation or Release of any Hazardous Material is being contested in
good faith by the Company or such Subsidiary and appropriate reserves
therefor have been established; and
(f) Compliance with Law - comply with all other laws, ordinances and
governmental rules and regulations to which it is subject and obtain all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its Properties and the conduct
of its business except for such violations and failures to obtain that, in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
3.3 Payment of Notes and Maintenance of Office.
The Company will punctually pay, or cause to be paid, the principal of,
interest on, Compensation Amounts, if any, on, the Notes, as and when the same
shall become due according to the terms hereof and of the Notes, and will
maintain an office at the address of the Company as provided in Section 9.1
where notices, presentations and demands in respect hereof or the Notes may be
made upon it. Such office will be maintained at such address until such time as
the Company notifies the holders of the Notes of any change of location of such
office, which will in any event be located within the United States of America.
3.4 Pension Plans.
(a) Compliance. The Company will, and will cause each ERISA Affiliate
to, at all times with respect to each Plan, comply with all applicable
provisions of ERISA and the IRC, except for such failures to comply that,
in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
(b) Prohibited Actions. The Company will not, and will not permit any
ERISA Affiliate to:
(i) engage in any "prohibited transaction" (as such term is
defined in section 406 of ERISA or section 4975 of the IRC) or
"reportable event" (as such term is defined in section 4043 of ERISA)
that could result in the imposition of a tax or penalty;
(ii) incur with respect to any Plan any "accumulated funding
deficiency" (as such term is defined in section 302 of ERISA), whether
or not waived;
(iii) terminate any Plan in a manner that could result in the
imposition of a Lien on the Property of the Company or any Subsidiary
pursuant to section 4068 of ERISA or the creation of any liability
under section 4062 of ERISA;
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(iv) fail to make any payment required by section 515 of ERISA;
(v) incur any withdrawal liability under Title IV of ERISA with
respect to any Multiemployer Plan or any liability as a result of the
termination of any Multiemployer Plan; or
(vi) incur any liability or permit the existence of any Lien on
the Property of the Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or pursuant to the penalty or
excise tax or security provisions of the IRC;
if the aggregate amount of the taxes, penalties, funding deficiencies,
interest, amounts secured by Liens, and other liabilities in respect of any
of the foregoing at any time could reasonably be expected to have a
Material Adverse Effect.
(c) Foreign Pension Plans. The Company will, and will cause each
Subsidiary to, at all times, comply in all material respects with all laws,
regulations and orders applicable to the establishment, operation,
administration and maintenance of all Foreign Pension Plans, and pay when
due all premiums, contributions and any other amounts required by
applicable Foreign Pension Plan documents or applicable laws, except where
the failure to comply with such laws, regulations and orders, and to make
such payments, in the aggregate for all such failures, could not reasonably
be expected to have a Material Adverse Effect.
3.5 Private Offering.
The Company will not, and will not permit any Person acting on its behalf
to, offer the Notes or any part thereof or any similar securities for issue or
sale to, or solicit any offer to acquire any of the same from, any Person so as
to bring the issuance and sale of the Notes within the provisions of section 5
of the Securities Act.
4. NEGATIVE COVENANTS
4.1 Restricted Payments and Restricted Investments.
(a) Limitation on Restricted Payments and Restricted Investments.
Other than as expressly permitted by Section 4.1(b) or Section 4.1(c), the
Company will not, nor will it permit any Subsidiary to, at any time,
declare, make or pay, or incur any liability to declare, make or pay, any
Restricted Payment, or make or incur any liability to make any Restricted
Investment, unless immediately after giving effect to such Restricted
Payment or Restricted Investment:
(i) the Company is and would be in compliance with the provisions
of Section 4.2, Section 4.3 and Section 4.4;
(ii) no Default or Event of Default exists or would exist; and
(iii) the sum of:
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(A) the aggregate amount of all Restricted Payments made
during the period commencing on the Closing Date (including
Restricted Payments made in compliance with Section 4.1(c) but
excluding Restricted Payments made in compliance with Section
4.1(b)) and ending on the date of, and after giving effect to,
such Restricted Payment; plus
(B) the aggregate amount of Restricted Investments
outstanding at such time;
does not exceed the sum of:
(I) fifty percent (50%) of Consolidated Company Net Income
for the period (treated as a single accounting period) commencing
on June 30, 1999 and ending on the last day of the fiscal quarter
most recently ended as of the date of such Restricted Payment;
plus
(II) all Net Equity Offering Proceeds received since June
30, 1999.
(b) Certain Restricted Payments. Notwithstanding the provisions of
Section 4.1(a), the Company may pay cash dividends to Finance, so long as
such dividends are paid by Finance to the Parent and applied by the Parent,
within thirty (30) days of the payment of such dividend by the Company, for
the purposes of:
(i) the redemption of Series IV Warrants, so long as the amount
so dividended does not exceed Two Million Five Hundred Thousand
Dollars ($2,500,000) in the aggregate;
(ii) the purchase of equity interests in the Permitted Joint
Venture in an amount not to exceed One Million Dollars ($1,000,000) in
the aggregate;
(iii) making payments of principal and interest pursuant to that
certain promissory note issued by the Parent to the sellers in
connection with the acquisition documents relating to the acquisition
of Power Components, Inc., in an aggregate monthly amount not
exceeding Ten Thousand Dollars ($10,000) and an aggregate maximum
amount not exceeding One Hundred Ten Thousand Dollars ($110,000);
(iv) making payments in respect of any Capitalized Lease
Obligations in respect of the Parent's lease agreement with General
Electric Capital Corporation, in an aggregate maximum amount not
exceeding Three Hundred Seventy-Five Thousand Dollars ($375,000);
(v) making payments of the Parent's actual necessary general and
administrative expenses incurred solely as a result of the Parent's
ownership of the Company and the Subsidiaries, in an amount not
exceeding the actual amount of such expenses, so long as the proceeds
of such Restricted Payment are not used to make a capital
contribution, Loan or advance to Finance, nor to make payment on
account of the Seller Notes; or
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(vi) making payments in respect of repurchases of Common Stock
required by the Serial Put Agreement, as in effect on the Closing
Date, in monthly amounts not greater than those required to be made
thereby;
provided, however, that, in any event, immediately after giving effect
thereto:
(A) the Company is and would be in compliance with the
provisions of Section 4.2, Section 4.3 and Section 4.4;
(B) no Default or Event of Default exists or would exist;
and
(C) the ratio of Consolidated Total Funded Debt at the time
of, and after giving effect to, such Restricted Payment and all
related transactions, to Pro Forma Combined EBITDA for the period
of four (4) full consecutive fiscal quarters of the Company most
recently ended at such time does not exceed 4.0 to 1.0.
(c) Seller Note Payments. Notwithstanding the provisions of Section
4.1(a), the Company may pay cash dividends to Finance, so long as such
dividends are applied by Finance, within thirty (30) days of the payment of
such dividend by the Company, for the purposes of making payments of
principal and interest in respect of the Seller Notes, in an aggregate
amount not exceeding fifty percent (50%) of Consolidated Company Net Income
for the fiscal year of the Company preceding the applicable payment date,
provided however, that, immediately after giving effect thereto:
(i) the Company is and would be in compliance with the provisions
of Section 4.2, Section 4.3 and Section 4.4; and
(ii) no Default or Event of Default exists or would exist.
(d) Timing of Payments. The Company shall not, nor shall it permit any
Subsidiary to, authorize or declare, any Restricted Payment not payable
within sixty (60) days of the date of declaration or authorization.
(e) Other Matters. Each Person that becomes a Subsidiary after the
Closing Date shall be deemed to have made, at the time it becomes a
Subsidiary, all Restricted Investments of such Person existing immediately
after it becomes a Subsidiary.
4.2 Consolidated Senior Secured Funded Debt to Pro Forma Combined EBITDA.
The Company will not at any time permit the ratio of Consolidated Senior
Secured Funded Debt at such time to Pro Forma Combined EBITDA for the period of
four (4) full consecutive fiscal quarters of the Company most recently ended at
such time to be greater than the ratio set forth below opposite such time:
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================================================================================
At any Time During the Period Applicable Ratio
- --------------------------------------------------------------------------------
Closing Date through September 30, 2001 3.90 to 1.00
- --------------------------------------------------------------------------------
October 1, 2001 and at all times thereafter 3.65 to 1.00
================================================================================
4.3 Total Funded Debt to Pro Forma Combined EBITDA.
The Company will not at any time permit the ratio of Consolidated Total
Funded Debt at such time to Pro Forma Combined EBITDA for the period of four (4)
full consecutive fiscal quarters of the Company then most recently ended at such
time to be greater than the ratio set forth below opposite such time:
================================================================================
At any Time During the Period Applicable Ratio
- --------------------------------------------------------------------------------
Closing Date through September 30, 2001 4.90 to 1.00
- --------------------------------------------------------------------------------
October 1, 2001 and at all times thereafter 4.50 to 1.00
================================================================================
4.4 Pro Forma Combined EBITDA to Pro Forma Combined Interest Expense.
The Company will not at any time permit the ratio of Pro Forma Combined
EBITDA for the period of four (4) full consecutive fiscal quarters of the
Company then most recently ended to Pro Forma Combined Interest Expense for such
period to be less than the ratio set forth below opposite such time:
================================================================================
Period Applicable Ratio
- --------------------------------------------------------------------------------
Closing Date through September 30, 2001 2.00 to 1.00
- --------------------------------------------------------------------------------
October 1, 2001 and at all times thereafter 2.25 to 1.00
================================================================================
4.5 Limitation on Capital Expenditures.
The Company will not, and will not permit any Subsidiary to, permit
the aggregate amount of all Capital Expenditures during any fiscal year of the
Company to exceed the sum of:
(a) One Million Two Hundred Fifty Thousand Dollars ($1,250,000); plus
(b) the unused portion of permitted Capital Expenditures under clause
(a) for the immediately preceding fiscal year of the Company;
it being understood that in no event shall the Company make any Capital
Expenditures in excess of Two Million Five Hundred Thousand Dollars ($2,500,000)
in any fiscal year of the Company.
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4.6 Incurrence of Debt.
(a) Company Permitted Debt. The Company will not, directly or
indirectly, create, incur, assume, guarantee, or otherwise become directly
or indirectly liable with respect to, any Debt other than:
(i) the Notes;
(ii) Senior Debt in respect of the Senior Credit Facility;
provided, however, that:
(A) the aggregate outstanding principal amount under the
Senior Credit Facility does not exceed (except as expressly
permitted by Section 4.6(a)(iii)) Eighty-Six Million Two Hundred
Fifty Thousand Dollars ($86,250,000), reduced from time to time
by the amount of each principal payment made in respect of each
Senior Credit Facility (other than payments of principal in
respect of the Revolving Credit Facility which do not permanently
reduce the aggregate amount of the commitments thereunder); and
(B) the aggregate outstanding principal amount under the
Term Loan Facility does not exceed (except as expressly permitted
by Section 4.6(a)(iii)) Sixty-Five Million Dollars ($65,000,000),
reduced from time to time by the amount of each principal payment
made on the Term Loan Facility;
(iii) any other Debt of the Company, including, without
limitation, additional Debt in respect of the Senior Debt in excess
of or in addition to the amount permitted by Section 4.6(a)(ii);
provided, however, that immediately before, and immediately after
giving effect to, the incurrence of such Debt and the concurrent
retirement of any other Debt:
(A) the Company is and would be in compliance with the
provisions of Section 4.2, Section 4.3 and Section 4.4; and
(B) no Default or Event of Default exists or would exist;
(iv) Debt of the Company, other than Debt in respect of the
Senior Credit Facility and other than the Notes, existing on the date
hereof and described on Part 2.2(b) of Annex 3 to the Securities
Purchase Agreement; and any refinancing, renewal, replacement or
extension of any such Debt (other than Debt in respect of the Senior
Credit Facility), in each case, on terms no more onerous to the
Company than the terms of the Debt being refinanced, renewed, replaced
or extended; in an aggregate principal amount outstanding at any time
for all such Debt and all refinancings, renewals, replacements and
extensions thereof not exceeding Three Hundred Thousand Dollars
($300,000), reduced from time to time by the amount of each scheduled
principal payment in respect of any such Debt;
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(v) Debt in respect of Capital Leases of the Company, in an
aggregate principal amount outstanding at any one time not exceeding
One Million Dollars ($1,000,000); and
(vi) Debt owing to any Wholly-Owned Subsidiary which is an
Affiliate Guarantor.
(b) Subsidiary Debt. The Company will not permit any Subsidiary to,
directly or indirectly, create, incur, assume, guarantee, or otherwise
become directly or indirectly liable with respect to, any Debt other than:
(i) the Affiliate Guaranty and other Guaranties solely in respect
of the Notes;
(ii) obligations of the Subsidiaries in respect of the Senior
Credit Facility;
(iii) Debt of Subsidiaries, other than Debt in respect of the
Senior Credit Facility and other than the Notes, existing on the date
hereof and described on Part 2.2(b) of Annex 3 to the Securities
Purchase Agreement; and any refinancing, renewal, replacement or
extension of any such Debt (other than Debt in respect of the Senior
Credit Facility), in each case, on terms no more onerous to the
Company than the terms of the Debt being refinanced, renewed, replaced
or extended; in an aggregate principal amount outstanding at any time
for all such Debt and all refinancings, renewals, replacements and
extensions thereof not exceeding Three Hundred Thousand Dollars
($300,000), reduced from time to time by the amount of each scheduled
principal payment in respect of any such Debt;
(iv) Debt in respect of Capital Leases, in an aggregate principal
amount outstanding at any time not exceeding Five Hundred Thousand
Dollars ($500,000); and
(v) Debt owing to the Company or any Wholly-Owned Subsidiary
which is an Affiliate Guarantor.
For purposes of this Section 4.6(b), any Debt of any Person in existence on the
date such Person becomes a Subsidiary shall be deemed to have been incurred by
such Person on the date, and at the time immediately following the time, that
such Person becomes a Subsidiary.
(c) Finance Debt. The Company will not, and will not permit any
Subsidiary to, at any time:
(i) grant, create, incur or permit to exist any Lien in respect
of any Property of the Company or any Subsidiary which Lien secures,
directly or indirectly, any Debt or payment obligation in respect of
Preferred Stock (whether for payment of a redemption or repurchase
price, dividend or otherwise) of Finance; or
(ii) Guarantee, directly or indirectly, or otherwise become
liable in respect of any obligation to pay money in respect of any
Debt or Preferred Stock (whether for payment of a redemption or
repurchase price, dividend or otherwise) of Finance.
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4.7 Liens.
(a) Negative Pledge. The Company will not, and will not permit any
Subsidiary to, cause or permit, or agree or consent to cause or permit in
the future (upon the happening of a contingency or otherwise), any of their
Property, whether now owned or hereafter acquired, at any time to be
subject to a Lien except:
(i) Closing Date Liens - Liens in existence on the Closing Date
and described in Part 2.2(c) of Annex 3 to the Securities Purchase
Agreement, but not any renewals, extensions or refinancings thereof
except as expressly otherwise permitted hereby;
(ii) Ordinary Course Business Liens -
(A) Performance Bonds - Liens incurred or deposits made in
the ordinary course of business:
(I) in connection with workers' compensation,
unemployment insurance, social security and other like laws;
and
(II) to secure the performance of letters of credit,
bids, tenders, sales contracts, leases, statutory
obligations, surety and performance bonds (of a type other
than set forth in Section 4.7(a)(iii)) and other similar
obligations not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the
deferred purchase price of Property;
(B) Real Estate - Liens in the nature of reservations,
exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other similar title
exceptions or encumbrances affecting real Property; provided,
however, that such exceptions and encumbrances do not in the
aggregate materially detract from the value of said Properties or
materially interfere with the use of such Properties in the
ordinary conduct of the business of the Company and the
Subsidiaries; and
(C) Taxes, etc. - Liens securing taxes, assessments or
governmental charges or levies or the claims or demands of
materialmen, mechanics, carriers, warehousemen, vendors,
landlords and other like Persons; provided, however, that the
payment thereof is not required by Section 3.1;
(iii) Judicial Liens - Liens arising from judicial attachments
and judgments, securing appeal bonds or supersedeas bonds, and arising
in connection with court proceedings (including, without limitation,
surety bonds and letters of credit or any other instrument serving a
similar purpose); provided, however, that the execution or other
enforcement of such Liens is effectively stayed, that the claims
secured thereby are being actively contested in good faith and by
appropriate proceedings, that adequate reserves
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<PAGE>
have been made against such claims and that the aggregate amount so
secured will not at any time exceed One Million Dollars ($1,000,000);
(iv) Intergroup Liens - Liens on Property of a Subsidiary;
provided, however, that such Liens secure only obligations owing to
the Company or a Wholly-Owned Subsidiary;
(v) Purchase Money Liens - any Lien on Property acquired or owned
by the Company or any Subsidiary, or leased by the Company or any
Subsidiary as lessee under any Capital Lease, which secures Debt
(including Debt in respect of a Capital Lease) incurred to pay all or
a portion of the related purchase price or costs of construction,
extension or improvement of such Property, so long as:
(A) such purchase price or costs of construction, extension
or improvement shall not exceed the Fair Market Value of such
Property, extension or improvement, as the case may be,
determined at the time of the creation of such Lien;
(B) such Lien is created contemporaneously with, or within
one hundred eighty (180) days of, such acquisition, construction,
extension or improvement;
(C) such Lien encumbers only Property so purchased,
acquired, constructed, extended or improved after the Closing
Date;
(D) such Lien is not, after the creation thereof, extended
to any other Property; and
(E) immediately prior to the incurrence of, and after giving
effect to the incurrence of, all Debt secured by such Liens, no
Default or Event of Default exists or would exist;
(vi) Acquisition Liens - any Lien (including, without limitation,
any Lien arising out of a Capital Lease) existing on Property at the
time of acquisition thereof by the Company or any Subsidiary (whether
or not the Debt secured thereby is assumed by the Company or any
Subsidiary), or existing on the Property of, the Debt of or the
Capital Stock of any Person at the time such Person became a
Subsidiary (whether by means of the acquisition of all or
substantially all of the Property of such Person, of the Capital Stock
thereof or otherwise) or merges or consolidates with the Company or
any Subsidiary, so long as:
(A) the aggregate principal amount of Debt secured thereby
does not exceed the acquisition cost of such Property, the
consideration paid for the acquisition of such Person or the
consideration paid in connection with such merger or
consolidation, as the case may be, as determined at the date of
the acquisition, merger or consolidation;
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(B) such Lien shall not extend to or cover any Property
other than the Property subject to such Lien at the time of any
such acquisition; and
(C) immediately after, and after giving effect to, such
acquisition, merger or consolidation, and the assumption of all
such Liens, no Default or Event of Default exists or would exist;
and
(vii) Senior Debt Liens - Liens securing Senior Debt, so long as
such Senior Debt was permitted to be incurred at the time of
incurrence thereof pursuant to Section 4.6(a) or Section 4.6(b).
(b) Equal and Ratable Lien; Equitable Lien. In case any Property shall
be subjected to a Lien in violation of Section 4.7(a), the Company will
forthwith make or cause to be made, to the fullest extent permitted by
applicable law, provision whereby the Notes will be secured equally and
ratably as to such Property with all other obligations secured thereby
pursuant to such agreements and instruments as shall be approved by the
Required Holders, and the Company will promptly cause to be delivered to
each holder of a Note an opinion of independent counsel satisfactory to the
Required Holders to the effect that such agreements and instruments are
enforceable in accordance with their terms, and in any event the Notes shall
have the benefit, to the full extent that, and with such priority as, the
holders of Notes may be entitled under applicable law, of an equitable Lien
on such Property (and any proceeds thereof) securing the Notes. Such
violation of Section 4.7(a) will constitute an Event of Default hereunder,
whether or not any such provision is made or any equitable Lien is created
pursuant to this Section 4.7(b).
(c) Construction. Nothing in this Section 4.7 shall be construed to
permit the incurrence or existence of any Debt not otherwise permitted by
this Agreement. Nothing in this Agreement that permits the incurrence or
existence of any Debt shall be construed to permit the incurrence or
existence of a Lien securing such Debt unless such Lien is permitted by
Section 4.7(a).
4.8 Mergers and Consolidations.
The Company will not merge with or into, consolidate with, or
Transfer all or substantially all of its Property to, any other Person or permit
any other Person to consolidate with or merge into it; provided, however, that
the foregoing restriction does not apply to the merger or consolidation of the
Company with, or the Transfer by the Company of all or substantially all of its
Property to, another corporation, so long as:
(a) the Person (the "Successor Corporation") that results from such
merger or consolidation or that purchases, leases, or acquires all or
substantially all of such Property is a corporation duly incorporated under
the laws of the United States of America or a jurisdiction thereof;
(b) if the Company is not the Successor Corporation, the Successor
Corporation shall expressly assume in writing, pursuant to such agreements
and instruments as shall be reasonably satisfactory to the Required
Holders, the due and punctual payment of the principal of and Compensation
Amounts, if any, and interest on all of the Notes, according to their
tenor, and the
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due and punctual performance and observance of all the covenants in the
Notes, this Agreement and the other Financing Documents to be performed or
observed by the Company; and each Affiliate Guarantor shall confirm its
obligations in respect of the Affiliate Guaranty with respect to the
obligations of the Successor Corporation under the Notes, this Agreement
and the other Financing Documents;
(c) the Company shall cause to be delivered to each holder of Notes an
opinion of independent counsel reasonably satisfactory to the Required
Holders to the effect that such agreements and instruments are enforceable
in accordance with their terms and the terms hereof;
(d) immediately before and after giving effect to such transaction no
Default or Event of Default exists or would exist; and
(e) immediately after giving effect to such transaction the Company
shall have been permitted to incur at least One Dollar ($1.00) of
additional Debt under Section 4.6(a)(iii).
4.9 Disposition of Assets, Subsidiary Stock.
(a) Disposition of Assets. The Company will not, and will not permit
any Subsidiary to Transfer any Property except:
(i) Transfers of inventory and of current assets in the ordinary
course of business of the Company or such Subsidiary;
(ii) Transfers of other Property no longer necessary for the
operation of, and that are individually and in the aggregate
immaterial to, the business of the Company and the Subsidiaries, in
each case in the ordinary course of business of the Company or such
Subsidiary;
(iii) Transfers from the Company to a Wholly-Owned Subsidiary;
(iv) Transfers from a Subsidiary to the Company or a Wholly-Owned
Subsidiary; and
(v) any Transfer at any time of any Property to a Person for an
Acceptable Consideration (other than an Excluded Transfer) if:
(A) the sum of:
(I) the book value of such Property at the time of
Transfer; plus
(II) the aggregate book value of all other Property
Transferred (other than in Excluded Transfers) within the
period of three hundred sixty-five (365) days immediately
preceding the date of such Transfer;
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would be less than seven and one-half percent (7.5%) of
Consolidated Total Assets measured at such time; and
(B) immediately before and after the consummation of the
Transfer, and after giving effect thereto, no Default or Event of
Default would exist.
(b) Disposition of Subsidiary Stock. The Company will not, and will
not permit any Subsidiary to, sell or otherwise dispose of any shares of the
stock or Rights of a Subsidiary (such stock and Rights herein called
"Subsidiary Stock"), nor will any Subsidiary issue, sell or otherwise
dispose of any shares of, or Rights to purchase shares of, its own
Subsidiary Stock; provided, however, that the foregoing restrictions do not
apply to:
(i) Transfers by the Company or a Subsidiary of shares of
Subsidiary Stock to the Company or a Wholly-Owned Subsidiary;
(ii) the issuance by a Subsidiary of shares of its own Subsidiary
Stock to the Company or a Wholly-Owned Subsidiary;
(iii) the issuance by a Subsidiary of director's qualifying
shares of its own Subsidiary Stock; provided, however, that at no time
shall the total number of shares of such Subsidiary Stock issued to or
held by such directors as a group (including shares underlying Rights)
exceed five percent (5%) of the total number of shares of such
Subsidiary Stock outstanding following any such issuance; and
(iv) the Transfer of all of the Subsidiary Stock of a Subsidiary
owned by the Company and its other Subsidiaries if:
(A) such Transfer satisfies the requirements of Section
4.9(a)(v);
(B) in connection with such Transfer, the entire Investment
(whether represented by Capital Stock, Rights, Debt, claims or
otherwise) of the Company and its other Subsidiaries in such
Subsidiary is Transferred to a Person other than the Company or a
Subsidiary not being simultaneously disposed of; and
(C) the Subsidiary being disposed of has no continuing
Investment in any other Subsidiary not being simultaneously
disposed of or in the Company.
For purposes of determining the book value of assets constituting
Subsidiary Stock being Transferred as provided in this Section
4.9(b)(iv), such book value shall be deemed to be the aggregate book
value of the net assets of the Subsidiary that shall have issued such
Subsidiary Stock.
(c) Subsidiary Mergers and Consolidations. A merger or consolidation
of a Subsidiary in which a Person other than the Company or a Wholly-Owned
Subsidiary shall be the Surviving Corporation shall be deemed to be a
disposition of the Subsidiary Stock of such Subsidiary and shall be
permitted subject to Section 4.9(b)(iv).
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<PAGE>
4.10 Limitations on Acquisitions.
The Company will not, and will not permit any Subsidiary to, make any
Acquisition or otherwise acquire any Capital Stock or Rights of any Person
(other than a Subsidiary) unless, after giving effect thereto:
(a) the Company is and would be in compliance with the provisions of
Section 4.2, Section 4.3 and Section 4.4;
(b) no Default or Event of Default exists or would exist; and
(c) immediately after, and after giving effect to, such transaction,
the ratio of Consolidated Total Funded Debt at such time to Pro Forma
Combined EBITDA for the period of four (4) full consecutive fiscal quarters
of the Company most recently ended at such time does not exceed 4.50 to
1.00.
4.11 Ownership of Subsidiaries; Affiliate Guaranty.
(a) Ownership of Subsidiaries. The Company shall at all times maintain
each Subsidiary as a Wholly-Owned Subsidiary, and shall not permit any
Person other than the Company or another Wholly-Owned Subsidiary to hold,
own or control, beneficially or otherwise, any Capital Stock of any
Subsidiary, except that such restriction shall not apply to the Permitted
Joint Venture.
(b) Affiliate Guaranty. The Company will cause each Person that any
time after the Closing Date becomes a Subsidiary (other than an
Insignificant Subsidiary), and each Affiliate which after the Closing Date
becomes liable (as obligor, guarantor or otherwise) in respect of any
Senior Debt to become liable (simultaneously with or prior to becoming a
Subsidiary, in the case of a Subsidiary, or becoming liable in respect of
such Senior Debt, if an Affiliate) in respect of the Affiliate Guaranty by
executing and delivering to each holder of Notes a Joinder Agreement in the
form attached to the Affiliate Guaranty. Each such Joinder Agreement shall
be accompanied by copies of the constitutive documents of such Person and
corporate resolutions (or equivalent) authorizing such transaction, in each
case certified as true and correct by an appropriate officer of such
Person.
4.12 Line of Business.
The Company will not, and will not permit any Subsidiary to, engage in any
business if, as a result thereof, the general nature of the business in which
the Company and the Subsidiaries, taken as a whole, would then be engaged would
be substantially changed from the general nature of the business in which the
Company and the Subsidiaries, taken as a whole, are engaged on the Closing Date.
4.13 Transactions with Affiliates.
(a) Generally. The Company will not, and will not permit any
Subsidiary to, enter into any transaction (each, an "Affiliate
Transaction"), including, without limitation, the purchase, sale, lease or
exchange of Property or the rendering of any service, with any Affiliate,
except in
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the ordinary course of and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business and upon fair and reasonable terms
no less favorable to the Company or such Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
(b) Transactions Over $500,000. In the event that either:
(i) the value of any single Affiliate Transaction or group of
related Affiliate Transactions shall exceed Five Hundred Thousand
Dollars ($500,000); or
(ii) the aggregate amount of payments to be made to or from any
Affiliate in connection with all Affiliate Transaction with such
Affiliate, whether or not related, shall exceed Five Hundred Thousand
Dollars ($500,000);
the determination of the fairness and reasonableness of such terms shall be
made by a majority of the Independent Directors.
(c) Transactions over $1,000,000. In the event that either:
(i) the value of any single Affiliate Transaction or group of
related Affiliate Transactions shall exceed One Million Dollars
($1,000,000); or
(ii) the aggregate amount of payments to be made to or from any
Affiliate in connection with all Affiliate Transactions with such
Affiliate, whether or not related, shall exceed One Million Dollars
($1,000,000);
the determination of the fairness and reasonableness of such terms shall be
made by the Required Holders.
(d) Permitted Affiliate Leases. The provisions of Section 4.13(b) and
Section 4.13(c) shall not apply to Permitted Affiliate Leases.
4.14 Limitation on Payment Restrictions Affecting Subsidiaries.
The Company will not, and will not permit any of the Subsidiaries to,
directly or indirectly, create or otherwise cause or permit to exist or become
effective any encumbrance, restriction, limitation or prohibition on the ability
of any Subsidiary, whether by agreement, amendment or modification of any
existing agreement or otherwise, to:
(a) pay dividends or make any other distributions on the Capital Stock
of such Subsidiary or any other interest or participation measured by its
profits;
(b) pay any Debt or other indebtedness or obligation owed to the
Company or any other Subsidiary owning Capital Stock of such Subsidiary;
(c) make loans or advances to the Company;
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(d) transfer any of its Property to the Company; or
(e) enter into or become obligated in respect of the Affiliate
Guaranty;
in each case, except for such encumbrances, restrictions, limitations or
prohibitions:
(i) existing under or by reason of applicable law;
(ii) pursuant to the Senior Credit Facility, so long as such
provisions are no more restrictive than those existing in the Senior
Credit Agreement, as in effect on the date hereof; or
(iii) contained in agreements, documents or instruments to which
a Subsidiary is a party on the Closing Date, and which were disclosed
in writing to the Purchasers in Part 2.9(d) to Annex 3 of the
Securities Purchase Agreement.
4.15 Limitation on Issuance of Preferred Stock.
The Company will not, and will not permit any Subsidiary to, authorize,
issue, sell or permit to be outstanding, any Preferred Stock.
4.16 Affiliate Debt.
The Company will not, and will not permit any Subsidiary to, incur, assume
or Guarantee, or be or become liable in respect of, any Affiliate Debt unless:
(a) the obligations of the Company or such Subsidiary in respect of
such Affiliate Debt are subordinated in right of payment to the obligations
of the Company in respect of the Notes and this Agreement and, in the case
of Affiliate Debt of any Subsidiary, subordinated in right of payment to
the obligations of such Subsidiary in respect of the Affiliate Guaranty, in
each case, on terms reasonably acceptable to the Required Holders in their
discretion;
(b) such Affiliate Debt is not secured by any Lien on any Property of
the Company or any Subsidiary; and
(c) none of the principal amount of such Debt is scheduled to be due
or otherwise payable prior to December 31, 2005.
The Company will not, and will not permit any Subsidiary to, make any payment of
principal in respect of any Affiliate Debt.
4.17 Modification and Refinancing Of Senior Credit Facility.
(a) Modification of Senior Credit Facility. The Company will not, and
will not permit any Subsidiary to, amend, supplement, modify or waive any
term of the Senior Debt outstanding under any Senior Credit Facility or any
term of any of the agreements, documents and instruments relating to the
Senior Credit Facility, if the effect thereof is to:
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(i) increase the aggregate outstanding principal amount of the
Debt thereunder to an amount in excess of that permitted under Section
4.6(a)(ii) and Section 4.6(a)(iii);
(ii) make the scheduled final maturity date of the Debt
thereunder earlier than that specified under the Senior Credit
Agreement, as in effect on the Closing Date;
(iii) make the Weighted Average Life to Maturity of the Debt
thereunder less than that of the Debt under the Senior Credit
Agreement as in effect on the Closing Date; or
(iv) increase the interest rate on the Debt thereunder by one
hundred (100) basis points (or two hundred basis points if the Senior
Agent can identify to the Purchasers that the transaction most
recently concluded involving both the Senior Agent and the certain of
the Purchasers on or about April or May of 1999 provided that such
restriction was two hundred basis points) or more if the ratio of Pro
Forma Combined EBITDA for the period of four (4) full consecutive
fiscal quarters of the Company then most recently ended to Pro Forma
Combined Interest Expense for such period shall not be less than the
applicable ratio specified in Section 4.4 as at such time.
(b) Refinancings, Etc. The Company will not, and will not permit any
Subsidiary to, incur, create, assume or Guaranty any Debt (the "Refinancing
Debt") under any Senior Credit Facility to extend, refinance, refund or
renew any other Debt (including, without limitation, Debt in respect of
such or a predecessor Senior Credit Facility) (in each case, the
"Refinanced Debt") unless:
(i) the aggregate outstanding principal amount of the Refinancing
Debt shall not at any time exceed the amount permitted under Section
4.6(a)(ii) and Section 4.6(a)(iii) with respect thereto at such time;
provided, however, that no such extension, refinancing, refunding or
renewal may be in the form of a term loan in a principal amount in
excess of that permitted in respect of the Term Loan Facility under
section 4.6(a)(ii) at such time;
(ii) the scheduled final maturity date of the Refinancing Debt is
not earlier than that of the Refinanced Debt;
(iii) the Weighted Average Life to Maturity of the Refinancing
Debt is not less than that of the Refinanced Debt;
(iv) the Refinancing Debt has a ranking which is not senior (as a
result of any contractual or structural subordination, the grant of
any collateral security therefor, any change in the Persons obligated
with respect thereto or otherwise) to the ranking of the Refinanced
Debt;
(v) the Refinancing Debt bears interest at market rates
prevailing at its date of issuance;
(vi) no Default or Event of Default shall have occurred and be
continuing as a result of the incurrence of the Refinancing Debt; and
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(vii) if the interest rate on the Refinancing Debt is one hundred
(100) basis points (or two hundred basis points if the Senior Agent
can identify to the Purchasers that the transaction most recently
concluded involving both the Senior Agent and the certain of the
Purchasers on or about April or May of 1999 provided that such
restriction was two hundred basis points) or more higher than the
interest rate on the Refinanced Debt, the interest rate on the
Refinanced Debt, the ratio of Pro Forma Combined EBITDA for the period
of four (4) full consecutive fiscal quarters of the Company then most
recently ended to Pro Forma Combined Interest Expense for such period
shall not be less than the applicable ratio specified in Section 4.4
as at such time.
5. REPORTING COVENANTS
5.1 Financial and Business Information.
The Company shall deliver to each holder of Notes:
(a) Monthly Financial Statements - as soon as practicable after the
end of each monthly fiscal period in each Fiscal Year, and in any event
within thirty (30) days thereafter:
(i) a consolidated balance sheet as at the end of such month;
(ii) a consolidated income statement for such month and (in the
case of the second through the eleventh months, inclusive) for the
portion of the Fiscal Year ending with such month; and
(iii) consolidated statements of changes in stockholders' equity
for, and disclosure of capital expenditures made and Debt repaid
during, such month and (in the case of the second through the eleventh
months, inclusive) for the portion of the Fiscal Year ending with such
month;
for the Company and the Subsidiaries, setting forth in each case in
comparative form the figures for the corresponding month in the previous
Fiscal Year and the corresponding amounts for such month specified in the
annual financial budget required to be delivered pursuant to Section
5.1(d), all in reasonable detail, and certified by a Senior Financial
Officer of the Company as fairly presenting, in all material respects, the
financial position of the Company and the Subsidiaries and their results of
operations (subject to changes resulting from year-end adjustments), and
accompanied by the certificate required by Section 5.2;
(b) Quarterly Financial Statements - as soon as practicable after the
end of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year), and
in any event within fifty (50) days thereafter:
(i) a consolidated balance sheet as at the end of such quarter;
and
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(ii) consolidated statements of income and retained earnings and
cash flows for such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such quarter;
in each case for:
(A) the Company and the Subsidiaries; and
(B) the Parent and the Subsidiaries, together with
consolidating statements for the Parent, Finance and the Company;
setting forth in each case, in comparative form, the financial
statements for the corresponding periods in the previous fiscal year,
all in reasonable detail, prepared in accordance with GAAP applicable
to quarterly financial statements generally, and certified as complete
and correct by a Senior Financial Officer, and accompanied by the
certificate required by Section 5.2; provided, that delivery of copies
of the Parent's Quarterly Report on Form 10-Q or Form 10-QSB filed
with the SEC within the time period specified above shall be deemed to
satisfy the requirements of this Section 5.1(b) so long as such
Quarterly Report contains or is accompanied by the information
specified in this Section 5.1(b);
(c) Annual Financial Statements - as soon as practicable after the end
of each fiscal year of the Company, and in any event within one hundred
five (105) days thereafter:
(i) a consolidated balance sheet as at the end of such year; and
(ii) consolidated statements of income and retained earnings and
cash flows for such year;
in each case for:
(A) the Company and the Subsidiaries; and
(B) the Parent and the Subsidiaries, together with
consolidating statements for the Parent, Finance and the Company;
setting forth in the case of each consolidated financial statement, in
comparative form, the financial statement for the previous fiscal
year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied by:
(I) in the case of such consolidated financial
statements, an audit report thereon of independent certified
public accountants of recognized national standing, which
report shall state without qualification (including, without
limitation, qualifications related to the scope of the
audit, the compliance of the audit with generally accepted
auditing standards, or the ability of the Company or a
material subsidiary thereof to continue as a going concern),
that such financial statements have been prepared and are in
conformity with GAAP;
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(II) a certification by a Senior Financial Officer that
such consolidated and consolidating statements are complete
and correct; and
(III) the certificates required by Section 5.2 and
Section 5.3;
provided, that the delivery of the Parent's Annual Report on Form 10-K or
Form 10-KSB for such fiscal year filed with the SEC within the time period
specified above shall be deemed to satisfy the requirements of this Section
5.1(c) so long as such Annual Report contains or is accompanied by the
reports and other information otherwise specified in this Section 5.1(c);
(d) Annual Financial Budget - as soon as practicable after the end of
each Fiscal Year, and in any event within 60 days thereafter, a
consolidated budget and pro forma financial statements prepared by the
management of the Company for the next succeeding Fiscal Year, displayed on
a month-to-month basis, accompanied by a certification of a Senior
Financial Officer that such budget has been approved by the Board of
Directors;
(e) SEC and Other Reports - promptly upon their becoming available:
(i) each financial statement, report, notice or proxy statement
sent by the Parent, the Company or any Subsidiary to stockholders
generally;
(ii) each regular or periodic report (including, without
limitation, each Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB and
Form 8-K), any registration statement which shall have become
effective, and each final prospectus and all amendments thereto filed
by the Parent, the Company or any Subsidiary with the SEC; and
(iii) all press releases and other statements made available by
the Parent, the Company or any Subsidiary to the public concerning
material developments in the business of the Parent, the Company or
the Subsidiaries;
(f) Notice of Default or Event of Default - within three (3) Business
Days after becoming aware:
(i) of the existence of any condition or event which constitutes
a Default or an Event of Default; or
(ii) that the holder of any Note, or of any Debt having principal
amounts which individually or in the aggregate are equal to or greater
than Five Hundred Thousand Dollars ($500,000), shall have given notice
or taken any other action with respect to a claimed Default, Event of
Default or default or event of default;
a notice specifying the nature of the claimed Default, Event of Default or
default or event of default and the notice given or action taken (if any)
by such holder and what action the Company is taking or proposes to take
with respect thereto;
(g) ERISA -
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(i) within three (3) Business Days of becoming aware of the
occurrence of any "reportable event" (as such term is defined in
section 4043 of ERISA) for which notice thereof has not been waived
pursuant to regulations of the DOL or "prohibited transaction" (as
such term is defined in section 406 of ERISA or section 4975 of the
IRC) in connection with any Plan or any trust created thereunder, a
notice specifying the nature thereof, what action the Company is
taking or proposes to take with respect thereto, and, when known, any
action taken by the Internal Revenue Service, the DOL or the PBGC with
respect thereto; and
(ii) prompt notice of and, where applicable, a description of:
(A) any notice from the PBGC in respect of the commencement
of any proceedings pursuant to section 4042 of ERISA to terminate
any Plan or for the appointment of a trustee to administer any
Plan, and any distress termination notice delivered to the PBGC
under section 4041 of ERISA in respect of any Plan, and any
determination of the PBGC in respect thereof;
(B) the placement of any Multiemployer Plan in
reorganization status under Title IV of ERISA, any Multiemployer
Plan becoming "insolvent" (as such term is defined in section
4245 of ERISA) under Title IV of ERISA, or the whole or partial
withdrawal of the Company or any ERISA Affiliate from any
Multiemployer Plan and the withdrawal liability incurred in
connection therewith; or
(C) the occurrence of any event, transaction or condition
that could result in the incurrence of any liability of the
Company or any ERISA Affiliate or the imposition of a Lien on the
Property of the Company or any ERISA Affiliate, in either case
pursuant to Title I or Title IV of ERISA or pursuant to the
penalty or excise tax or security provisions of the IRC;
provided, however, that the Company shall not be required to deliver any
such notice at any time when the aggregate amount of the actual or
potential liability of the Company and the Subsidiaries in respect of all
such events at such time could not reasonably be expected to have a
Material Adverse Effect;
(h) Environmental Notices - upon the request of such holder made at
any time during which a holder of Notes has a reasonable basis to believe
that there may be a material violation of any Environmental Protection Law
by the Company or any of its Subsidiaries, or any material liability of the
Company or any of its Subsidiaries arising thereunder or related to a
Release of Hazardous Materials on any real property owned, leased or
operated by the Company or any of its Subsidiaries or a Release on real
Property adjacent to such real Property, all such reports, certificates,
engineering studies and other written material or data relative to such
alleged violation or Release as any holder of Notes may reasonably require;
(i) Auditor's Reports - each report or management letter submitted to
the Company or any Subsidiary by independent accountants in connection with
any annual, interim or special audit made of the books of the Company or
any Subsidiary;
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(j) Actions, Proceedings - promptly after the commencement of any
action or proceeding relating to the Company or any Subsidiary in any court
or before any governmental authority or arbitration board or tribunal as to
which there is a reasonable possibility of an adverse determination and
that, if adversely determined, is reasonably likely to have a Material
Adverse Effect, a notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto;
(k) Other Creditors - promptly upon the reasonable request of any
holder of Notes, copies of any statement, report or certificate furnished
to any holder of Debt to the extent that the information contained in such
statement, report or certificate has not already been delivered to each
holder of Notes;
(l) Amendments to Senior Credit Facility, etc. - promptly upon the
effectiveness thereof, copies of any amendment, waiver or consent with
respect to any Senior Credit Facility Debt, other Senior Debt or Debt
secured by a Lien;
(m) Rule 144A - promptly upon the reasonable request of any holder of
Notes, information required to permit the holder to comply with 17 C.F.R.
ss.230.144A, as amended from time to time, in connection with a transfer of
any Note; and
(n) Requested Information - with reasonable promptness, such other
data and information (including, without limitation, consolidating
financial statements of any Subsidiary for any quarterly fiscal period of
the Company or any fiscal year of the Company) as from time to time may be
reasonably requested by any holder of Notes.
5.2 Officer's Certificates.
Each set of financial statements delivered to each holder of Notes pursuant
to Section 5.1(c) shall be accompanied by a certificate of a Senior Financial
Officer, setting forth:
(a) Covenant Compliance -- the financial information (including
detailed calculations) required in order to establish whether the Company
was in compliance with the requirements of Section 4 (in each case where
such Section imposes numerical financial requirements) as of the end of the
period covered by the financial statements then being furnished (including
with respect to such Section, where applicable, the calculations of the
maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Section, and the calculation of the
amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that the signer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision or authority, a review of the transactions and conditions of
the Company and the Subsidiaries from the beginning of the accounting
period covered by the income statements being delivered therewith to the
date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed
or exists, specifying the nature and period of existence thereof and what
action the Company shall have taken or proposes to take with respect
thereto.
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5.3 Accountants' Certificates.
Each set of annual financial statements delivered pursuant to Section
5.1(c) shall be accompanied by a certificate of the accountants who were engaged
to audit such financial statements, stating that they have reviewed this
Agreement and stating further, whether, in making their audit, such accountants
have become aware of any condition or event that then constitutes a Default or
an Event of Default, and, if such accountants are aware that any such condition
or event then exists, specifying the nature and period of existence thereof.
5.4 Inspection.
The Company will permit the representatives of each holder of Notes to
visit and inspect any of the Properties of the Company or any of the
Subsidiaries, to examine all their respective books of account, records, reports
and other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the finances and affairs of the Company
and the Subsidiaries) all at such reasonable times and as often as may be
reasonably requested. Expenses incurred by the holders of the Notes in
connection with any exercise of their rights pursuant to this Section 5.4 at any
time during which a Default or Event of Default shall be continuing shall be
paid by the Company in accordance with Section 9.6.
5.5 Suspension of Obligation to Provide Non-Public Information.
Notwithstanding the provisions of Section 5.1, any holder of Notes may, at
any time, by written notice to the Company, suspend the obligation of the
Company to provide to such holder any Non-Public Information, and upon receipt
of any such notice, the Company, notwithstanding the provisions of Section 5.1,
shall not provide any information or data which the Company believes may be
Non-Public Information to such holder (but shall continue to provide all
information required by Section 5.1 to all other holders) for the duration of
the period of suspension indicated in such notice (or, if no period is
indicated, for the period commencing on the date of such notice and lasting
until the Company shall have received a contrary written notice from such
holder). Notwithstanding the foregoing and notwithstanding the receipt of any
such notice, the Company shall continue to provide to all holders all
information required by Section 5.1(b), Section 5.1(c), Section 5.1(e) and
Section 5.1(f) unless such notice specifically requests, in a writing
enumerating such Section number, the Company not to provide the information
required by any such Section.
6. EVENTS OF DEFAULT
6.1 Events of Default.
An "Event of Default" exists at any time if any of the following both
occurs and is continuing thereafter for any reason whatsoever (and whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of law or otherwise):
(a) Payments on Notes --
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(i) Principal or Compensation Amount Payments - the Company fails
to make any payment of principal or Compensation Amount on any Note on
the date such payment is due; or
(ii) Interest Payments, etc. - the Company fails to make any
payment of interest on, or any other amount due in respect of, any
Note within (10) Business Days after the date such payment is due;
(b) Other Defaults - the Company or any Subsidiary fails to comply
with any other provision hereof or of any other Financing Document, and
such failure continues for more than thirty (30) days after the date the
Company first becomes aware of such failure (including, without limitation,
by virtue of notice of such failure from the holder or holders of any
Notes);
(c) Warranties or Representations - any warranty, representation or
other statement by or on behalf of the Company contained in the Securities
Purchase Agreement or any other Financing Document, in any written
amendment, supplement, modification or waiver with respect to any Financing
Document or in any instrument furnished in compliance herewith or in
reference hereto, shall have been false or misleading in any material
respect when made;
(d) Acceleration of Senior Debt -
(i) any Obligor or any Subsidiary fails to make, when due, at
maturity, upon demand or otherwise, any payment or payments in an
amount aggregating in excess of Five Hundred Thousand Dollars
($500,000) in respect of any Senior Debt; or
(ii) any event shall occur or any condition shall exist in
respect of any Senior Debt, or under any agreement securing or
relating to such Senior Debt:
(A) as a result of which the maturity of such Senior Debt,
or a portion thereof, is accelerated; or
(B) that permits any one or more of the holders thereof or a
trustee therefor to require any Obligor or any Subsidiary to
repurchase such Senior Debt from the holders thereof, and any
such trustee or holder exercises such option;
provided that the aggregate amount of all obligations in respect of
all such Debt exceeds at such time Five Hundred Thousand Dollars
($500,000);
(e) Default on Other Debt -
(i) any Obligor or any Subsidiary fails to make, when due, at
maturity, upon demand or otherwise, any payment or payments in respect
of any Debt (other than Senior Debt) having an aggregate principal
amount of Five Hundred Thousand Dollars ($500,000) or more; or
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(ii) any event shall occur or any condition shall exist in
respect of Debt other than Senior Debt, or under any agreement
securing or relating to Debt other than Senior Debt:
(A) as a result of which the holder or holders of such Debt,
or some group of such holders or a trustee or agent acting on
their behalf, may accelerate the maturity of such Debt, or a
portion thereof; or
(B) that permits any one or more of the holders thereof or a
trustee therefor to require the Company or any Subsidiary to
repurchase such Debt from the holders thereof;
provided that the aggregate amount of all obligations in respect of
all such Debt exceeds at such time Five Hundred Thousand Dollars
($500,000); or
(f) Insolvency -
(i) a receiver, liquidator, custodian or trustee of any Obligor
or of all or any substantial part of the Property of any of them, is
appointed by court order; or an order for relief is entered with
respect to any Obligor, or any Obligor is adjudicated a bankrupt or
insolvent;
(ii) all or any substantial part of the Property any Obligor is
sequestered by court order; or
(iii) a petition is filed against any Obligor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, and is not dismissed within forty-five (45)
days after such filing;
(g) Voluntary Petitions - any Obligor files a petition in voluntary
bankruptcy or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution
or liquidation law of any jurisdiction, whether now or hereafter in effect,
or consents to the filing of any petition against it under any such law; or
(h) Assignments for Benefit of Creditors, etc. - any Obligor makes an
assignment for the benefit of its creditors, or admits in writing its
inability, or fails, to pay its debts generally as they become due, or
consents to the appointment of a receiver, liquidator or trustee of any
Obligor or of all or a substantial part of its Property;
(i) Undischarged Final Judgments - a final, non-appealable judgment or
final, non-appealable judgments for the payment of money aggregating in
excess of One Million Dollars ($1,000,000) is or are outstanding against
one or more of the Company and the Subsidiaries and such judgment or
judgments shall have been outstanding for more than sixty (60) days from
the date of its entry and shall not have been discharged in full or stayed;
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(j) Financing Documents - any Financing Document shall cease to be in
full force and effect or shall be declared by a court or other Governmental
Authority of competent jurisdiction to be void, voidable or unenforceable
against any Obligor party thereto; the validity or enforceability of any
Financing Document against any Obligor party thereto shall be contested by
any Obligor or any Affiliate; or any Obligor or Affiliate shall deny that
any Obligor has any further liability or obligation under any Financing
Document to which it is a party; or
(k) Certain Actions by Finance, the Parent and other Affiliates -
(i) Finance shall incur, create, assume or Guarantee, or
otherwise be or become liable with respect to any Debt (other than
Seller Notes, the Affiliate Guaranty and Guaranties of Senior Debt) or
shall amend, modify, supplement, renew, extend or refinance any Seller
Notes or any provision thereof without the consent of the Required
Holders in any way which would result in such notes not being Seller
Notes; or
(ii) Finance or the Parent shall authorize, issue, sell or permit
to be outstanding, any Preferred Stock, unless:
(A) such Preferred Stock shall not, by its terms, be
redeemable, and the issuer thereof shall have no obligation to
repurchase such Preferred Stock, in whole or in part, whether by
operation of its terms or at the option of the issuer thereof or
any holder thereof, for any reason (including, without
limitation, as a result of failure to pay dividends in respect of
such Preferred Stock) until December 31, 2005 or later;
(B) the issuer thereof shall not be required to pay in cash
dividends with respect to such Preferred Stock until December 31,
2005 or later; provided however, that such Preferred Stock may
permit accrued but unpaid cash dividends to cumulate and the
terms of such Preferred Stock may permit the board of directors
of the issuer thereof to declare and pay dividends in cash; but
provided, further, that such board of directors may not declare
or pay any such dividend in cash except to the extent that the
Company may be permitted pursuant to Section 4.1 to make payments
to Finance in at least the amount necessary to fund such
dividends; and
(C) no Obligor other than the Parent or Finance shall have
any obligation whatsoever (as obligor, guarantor or otherwise) in
respect thereof; or
(iii) the Parent shall permit changes to the exercise or
conversion price, expiration date or any other Material economic term
of the Series IV Warrants or any other Rights to acquire Capital Stock
of the Parent outstanding on the Closing Date; or
(iv) the Parent shall:
(A) own, hold or acquire any material Property other than
the Capital Stock of Finance; or permit Finance to hold or
acquire any material Property other than the Capital Stock of the
Company;
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(B) conduct, or permit Finance to conduct, any business
other than through the Company;
(C) create, incur, assume or permit to exist any Debt or
other obligations, or Guaranty (other than Debt existing on the
date hereof and scheduled on Part 2.2(b) of Annex 3 of the
Securities Purchase Agreement and other than pursuant to the
Affiliate Guaranty and Guaranties of Senior Debt), endorse,
become surety for or otherwise be responsible, directly or
indirectly, for the obligations of any other Person other than
pursuant to and in respect of any Right;
(D) authorize, issue or sell any class of Capital Stock
(other than the Parent Common Stock) or authorize, issue, sell or
create any Right exercisable into capital stock of any class
(other than the Parent Common Stock); or
(E) fail to own at any time (directly or indirectly through
Finance) all of the issued and outstanding Capital Stock of the
Company; or
(v) any Affiliate controlled by any Obligor shall, directly or
indirectly, acquire or make any offer to acquire any Notes.
6.2 Default Remedies.
(a) Acceleration of Maturity of Notes.
(i) Acceleration on Event of Default -
(A) Automatic. If any Event of Default specified in Section
6.1(f) shall exist, all of the Notes at the time outstanding
shall automatically become immediately due and payable together
with interest accrued thereon, together with, to the extent
permitted by law, the Prepayment Compensation Amount at the time
with respect to the principal amount of the Notes, without
presentment, demand, protest or notice of any kind, all of which
are hereby expressly waived.
(B) By Action of Holders. If any Event of Default (other
than an Event of Default specified in Section 6.1(f)) shall
exist, the holders of at least sixty percent (60%) in principal
amount of the Notes at the time outstanding (exclusive of Notes
then owned by any one or more the Company, any Subsidiary or any
Affiliate) may exercise any right, power or remedy permitted to
such holder or holders by law, and shall have, in particular,
without limiting the generality of the foregoing, the right to
declare the entire principal of, and all interest accrued on, all
the Notes then outstanding to be, and such Notes shall thereupon
become, forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which are
hereby expressly waived, and the Company shall forthwith pay to
the holder or holders of all the Notes then outstanding the
entire principal of, and interest accrued on, the Notes and, to
the extent permitted by law, the Prepayment Compensation Amount
at such time with respect to such
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principal amount of such Notes. Notwithstanding the foregoing,
during any time during which there shall be Debt outstanding in
respect of a Senior Credit Facility, no such declaration of
acceleration shall become effective until the earlier of:
(I) the exercise of any Remedies by the holder of any
Debt of the Company or a Subsidiary; and
(II) the date five (5) days after the Required Holders
have given written notice to both the Company and the Senior
Agent of such declaration of acceleration; provided,
however, that such acceleration shall only become effective
on the fifth (5th) day following such declaration if one or
more Events of Default shall be continuing.
(ii) Acceleration on Payment Default. During the existence of an
Event of Default described in Section 6.1(a), and irrespective of
whether the Notes then outstanding shall have become due and payable
pursuant to Section 6.2(a)(i)(B):
(A) any Purchaser who is a holder of Notes who or which
shall have not consented to any waiver with respect to such Event
of Default; or
(B) the holders of more than fifty percent (50%) in
principal amount of the Notes at the time outstanding (exclusive
of Notes then owned by any one or more the Company, any
Subsidiary or any Affiliate) which shall have not consented to
any waiver with respect to such Event of Default;
may, at its or their option, by notice in writing to the Company,
declare the Notes then held by such holder or holders to be, and such
Notes shall thereupon become, forthwith due and payable together with
all interest accrued thereon, without any presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived,
and the Company shall forthwith pay to such holder or holders the
entire principal of and interest accrued on such Notes and, to the
extent permitted by law, the Prepayment Compensation Amount at such
time with respect to such principal amount of such Notes.
Notwithstanding the foregoing, during any time during which there
shall be Debt outstanding in respect of a Senior Credit Facility, no
such declaration of acceleration shall become effective until the
earlier of:
(I) the exercise of any Remedies by the holder of any
Debt of the Company or a Subsidiary; and
(II) the date five (5) days after such Purchaser or
holder or holders of Notes shall have given written notice
to both the Company and the Senior Agent of such declaration
of acceleration; provided, however, that such acceleration
shall only become effective on the fifth (5th) day following
such declaration if an Event of Default described in Section
6.1(a) shall be continuing.
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(b) Valuable Rights. The Company acknowledges, and the parties hereto
agree, that the right of each holder to maintain its investment in the
Notes free from repayment by the Company (except as herein specifically
provided for) is a valuable right and that the provision for payment of a
Prepayment Compensation Amount by the Company in the event that the Notes
are prepaid or are accelerated as a result of an Event of Default is
intended to provide compensation for the deprivation of such right under
such circumstances.
(c) Other Remedies. During the existence of an Event of Default and
irrespective of whether the Notes then outstanding shall become due and
payable pursuant to Section 6.2(a), and irrespective of whether any holder
of Notes then outstanding shall otherwise have pursued or be pursuing any
other rights or remedies, any holder of Notes may proceed to protect and
enforce its rights hereunder and under such Notes by exercising such
remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any agreement contained herein or in
aid of the exercise of any power granted herein; provided, however, that
the maturity of such holder's Notes may be accelerated only in accordance
with Section 6.2(a).
(d) Nonwaiver; Remedies Cumulative. No course of dealing on the part
of any holder of Notes nor any delay or failure on the part of any holder
of Notes to exercise any right shall operate as a waiver of such right or
otherwise prejudice such holder's rights, powers and remedies. All rights
and remedies of each holder of Notes hereunder and under applicable law are
cumulative to, and not exclusive of, any other rights or remedies any such
holder of Notes would otherwise have.
(e) Subordination. The rights of the holders of the Notes to receive
payments in respect of this Agreement and the Notes, and to exercise any
remedies, solely as between the holders of the Notes and the holders of the
Senior Debt, shall be subject in all respects to the provisions of Section
7; provided, however, that all such rights shall remain unconditional and
absolute as between the holders of the Notes and the Company.
6.3 Annulment of Acceleration of Notes.
If a declaration is made pursuant to Section 6.2(a)(i)(B), then and in
every such case, the Required Holders may, by written instrument filed with the
Company, rescind and annul such declaration, and the consequences thereof;
provided, however, that at the time such declaration is annulled and rescinded:
(a) no judgment or decree shall have been entered for the payment of
any moneys due on or pursuant hereto or the Notes;
(b) all arrears of interest upon all of the Notes and all of the other
sums payable hereunder and under the Notes (except any principal of, or
interest or Prepayment Compensation Amount on, the Notes which shall have
become due and payable by reason of such declaration under Section
6.2(a)(i)(B)) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have been
waived pursuant to Section 9.5 or otherwise made good or cured;
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and provided further that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
7. SUBORDINATION
7.1 General; Amendment of Subordinated Debt; No Liens Securing
Subordinated Debt.
(a) General; Reliance. The Company agrees for itself and its
successors and assigns, and each holder of Subordinated Debt, by its
acceptance thereof, shall be deemed to have agreed, notwithstanding
anything to the contrary in any of the Subordinated Notes, this Agreement
or any other agreement, document or instrument related thereto, that the
payment of the Subordinated Debt shall be subordinated to the extent and in
the manner provided in this Section 7 to the prior payment in full of all
Senior Debt, and that each holder of Senior Debt whether now outstanding or
hereafter incurred, shall be deemed to have acquired Senior Debt in
reliance upon the provisions contained in this Section 7. No present or
future holder of Senior Debt shall be prejudiced in its right to enforce
the subordination of the Subordinated Debt effected pursuant to this
Section 7 by any act or failure to act on the part of the Company or any
Subsidiary.
(b) Amendments of Subordinated Debt. Without the consent of the Senior
Agent, the Company and the holders of the Subordinated Debt may not amend
or waive the provisions of Section 6.1, Section 6.2, Section 6.3 or Section
7, or amend or waive any defined term to the extent used therein, or change
the amount or timing of any payment of principal, interest or Compensation
Amount in a manner which would adversely affect the holders of the Senior
Debt.
(c) Security. Each holder of Subordinated Debt agrees with and for the
benefit of each holder of Senior Debt, but not with or for the benefit of
the Company, that until the Senior Debt is paid in full, it will not take
any action to obtain or accept, without the consent of the holders of
Senior Debt, any Lien upon any Property of the Company or any of its
Subsidiaries, other than a Lien created or granted by the Company, or any
equitable Lien created as contemplated pursuant to, Section 4.7(b).
(d) Other Obligors. The provisions of this Section 7 which apply to
the Company shall apply with equal force to each other Obligor, in case
case, with respect to the obligations of such Obligor in respect of any of
the Financing Documents, and the obligations of each such other Obligor in
respect of the Financing Documents shall be similarly subordinated to the
Senior Debt, mutatis mutandis.
7.2 Insolvency, etc.
In the event of and Insolvency Proceeding, all Senior Debt shall first be
paid in full before payment or distribution, whether in cash, securities or
other property (other than Reorganization Securities), shall be made to any
holder of any Subordinated Debt on account of any Subordinated Debt. Any payment
or distribution, whether in cash, securities or other property (other than
Reorganization Securities), which would otherwise (but for these subordination
provisions) be payable or deliverable in respect of Subordinated Debt shall be
paid or delivered directly to the holders of Senior Debt in accordance with the
priorities then existing among such holders until all Senior Debt (including any
interest thereon accruing at the contract rate after the commencement of any
such proceedings) shall have been paid in full. Each
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holder of Subordinated Debt shall duly and promptly take such action as is
reasonably necessary to file appropriate claims or proofs of claims in any of
the proceedings referred to above in this Section 7.2 and to execute and deliver
such other instruments and take such other actions as may be reasonably
necessary to prove or realize upon such claims and to have the proceeds of such
claims paid as provided in this Section 7.2, and, in the event any holder of
Subordinated Debt shall not have made any such filing on or prior to the date
ten (10) days before the expiration of the time for such filing or shall not
have timely executed or delivered any such other instruments and taken such
other actions, the holders of Senior Debt, acting through the Senior Agent, are
hereby irrevocably authorized and empowered (but shall have no obligation), as
the agent and attorney-in-fact for such holder for the specific and limited
purpose set forth in this Section 7.2, to file such proof of claim for or on
behalf of such holder, execute and deliver such other instrument for or on
behalf of such holder and take such other action as may be necessary under
applicable law to collect any amounts due in respect of such claim in such
proceeding. Anything contained in this paragraph notwithstanding, the right to
vote any claim or claims in respect of any Subordinated Debt in connection with
any proceedings referred to above in this Section 7.2 is exclusively reserved to
the holder of such Subordinated Debt.
7.3 Blockage of Payments on Subordinated Debt.
(a) Senior Debt Payment Default. In the event that the Company shall
default in the payment of any principal of, premium, if any, or interest
on, or any fees or other amounts in respect of, any Senior Debt outstanding
under the Senior Credit Facility when the same shall have become due and
payable, whether at maturity, at a date fixed for prepayment or otherwise,
then, unless and until such default shall have been cured or waived in a
writing received by the Company or shall have ceased to exist or all such
payments shall have been made in full or the stated maturity of such Senior
Debt shall have been accelerated (in which case the provisions of Section
7.3(b) shall immediately become applicable), no direct or indirect payment
or distribution of any kind or character (in cash, securities (except
Reorganization Securities) or other Property or otherwise) shall be made or
agreed to be made on or in respect of any Subordinated Debt. All payments
in respect of the Subordinated Debt postponed under this Section 7.3(a)
shall be immediately due and payable upon the termination of such
postponement (together with such additional interest as is provided herein
and in the Notes for late payment of principal, premium or interest); the
remittance in full of such payments by the Company in accordance with the
terms of this Agreement and the acceptance thereof by the holders of the
Notes shall be deemed to constitute a cure by the Company and a waiver by
the holders of the Notes of any Event of Default that existed immediately
prior to such remittance and acceptance to the extent that such Event of
Default existed solely as a consequence of the previous non-payment of such
postponed payments during such period of postponement.
(b) Acceleration of Senior Debt. In the event that the holders of any
Senior Debt outstanding under a Senior Credit Facility shall declare such
Senior Debt to be due and payable prior to its stated maturity in
accordance with such Senior Credit Facility, no payment or distribution of
any kind or character (whether in cash, securities (except Reorganization
Securities) or other Property) shall be made on or in respect of any
Subordinated Debt, and no holder of Subordinated Debt shall take or receive
from the Company, directly or indirectly, in cash, securities (except
Reorganization Securities) or other Property by way of set-off or in any
other manner, payment of all or any of the Subordinated Debt until the
earlier of:
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(i) the payment in full of such Senior Debt; or
(ii) the rescission or termination of such declaration by the
Senior Agent, as required under the Senior Credit Facility.
All payments in respect of the Subordinated Debt postponed under this
Section 7.3(b) shall be immediately due and payable upon the termination of
such postponement (together with such additional interest as is provided
herein and in the Notes for late payment of principal, premium or
interest); the remittance in full of such payments by the Company in
accordance with the terms of this Agreement and the acceptance thereof by
the holders of the Notes shall be deemed to constitute a cure by the
Company and a waiver by the holders of the Notes of any Event of Default
that existed immediately prior to such remittance and acceptance to the
extent that such Event of Default existed solely as a consequence of the
previous non-payment of such postponed payments during such period of
postponement.
(c) Senior Debt Event of Default. In the event and during the
continuance of any non-payment "Event of Default" (after the expiration of
any grace period in respect thereof and the giving of any notice with
respect thereto) under, and as defined in, the Senior Credit Facility (a
"Senior Debt Event of Default") and before the declaration of the Senior
Debt under the Senior Credit Facility to be due and payable prior to its
stated maturity (in which case the provisions of Section 7.3(b) shall
immediately become applicable), the holders of such Senior Debt acting
through the Senior Agent may give to the Company written notice referring
to the Notes and this Agreement and specifying that it is a notice of a
Senior Debt Event of Default (a "Senior Debt Event of Default Notice") and,
thereafter, no payment or distribution of any kind or character (whether in
cash, securities (except Reorganization Securities) or other Property)
shall be made on or in respect of any Subordinated Debt, and no holder of
Subordinated Debt shall take or receive from the Company, directly or
indirectly, in cash, securities (except Reorganization Securities) or other
Property or by way of set-off or in any other manner, payment of all or any
of the Subordinated Debt during the period (a "Senior Debt Blockage
Period") commencing on the Senior Debt Blockage Commencement Date and
ending on the earliest of:
(i) the date of the repayment in full of such Senior Debt;
(ii) the date on which such Senior Debt shall have been declared
due and payable prior to its stated maturity (in which case the
provisions of Section 7.3(b) immediately shall become applicable);
(iii) the date on which such Senior Debt Event of Default shall
have been cured or waived and written notice thereof received by the
Company from the holders of such Senior Debt acting through the Senior
Agent;
(iv) the date on which such holders of such Senior Debt, acting
through the Senior Agent, shall have delivered to the Company and each
holder of Subordinated Debt a notice referring to the Notes and the
immediately preceding Senior Debt Event of Default Notice and stating
that such Senior Debt Event of Default Notice has been withdrawn; or
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(v) the one hundred seventy-ninth (179th) day following the
giving of such Senior Debt Event of Default Notice pursuant to this
Section 7.3(c).
Notwithstanding the foregoing:
(A) only one Senior Debt Event of Default Notice may be
given with respect to any single occurrence of a Senior Debt
Event of Default;
(B) no Senior Debt Event of Default Notice may be given in
respect of any Senior Debt Event of Default that was continuing
during a previous Senior Debt Blockage Period;
(C) no Senior Debt Event of Default Notice shall be
effective at any time to prevent any payment from being made by
or on behalf of the Company for or on account of any Subordinated
Debt (and any such Senior Debt Event of Default Notice shall be
or become null and void ab initio) if, within the one hundred
eighty (180) day period ending immediately prior to the date on
which such Senior Debt Default Notice shall have been delivered
to the Company and each holder of Subordinated Debt, a Senior
Debt Blockage Period was in effect for all or part of such
period; and
(D) not more than five (5) Senior Debt Blockage Periods may
be imposed under this Section 7.3(c) during the term of the
Notes.
All payments in respect of the Subordinated Debt postponed during any
Senior Debt Blockage Period shall be immediately due and payable upon the
termination thereof (together with such additional interest at the default
rate of interest provided in the Notes for late payment of principal,
premium, or interest); the remittance in full of such payments by the
Company in accordance with the terms of this Agreement and the acceptance
thereof by the holders of the Notes shall be deemed to constitute a cure by
the Company and a waiver by the holders of the Notes of any Event of
Default that existed immediately prior to such remittance and acceptance to
the extent that such Event of Default existed solely as a consequence of
the previous non-payment of such postponed payments during such period.
As used herein the term "Senior Debt Blockage Commencement Date" means:
(A) in the case of any Senior Debt Event of Default arising solely
under Section 10.1.9 of the Senior Credit Agreement (or any similar provision
under a successor Senior Credit Facility), the earlier of
(1) the date ninety-one (91) days after the date of receipt
by the Company of the Senior Debt Event of Default Notice; and
(2) the date the Senior Agent shall have given notice to
the Company that another Senior Debt Event of Default (other than a Senior Debt
Event of Default arising under Section 10.1.9 of the Senior Credit Agreement (or
any similar provision under a successor Senior Credit Facility), has occurred;
and
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(B) in the case of other Senior Debt Event of Default, the date of
receipt by the Company of the Senior Debt Event of Default Notice.
(d) Acceleration of Subordinated Debt. Without limiting any provision
hereof that may restrict the ability of the holders of the Subordinated
Debt to accelerate the maturity of all or any portion thereof, in the event
that any Subordinated Debt is declared due and payable before its stated
maturity, then and in such event the holders of Senior Debt outstanding at
the time such Subordinated Debt so becomes due and payable shall be
entitled to receive payment in full on all amounts due or to become due on
or in respect of such Senior Debt, before the Company may make, and before
any holder of Subordinated Debt is entitled to receive, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, securities (except Reorganization Securities) or other Property on
account of any Subordinated Debt. All payments in respect of Subordinated
Debt postponed under this Section 7.3(d), including all principal and
interest, and the Compensation Amount in respect of, and all other amounts
payable in respect of Section 9.6(c) in respect of thereof, shall be
immediately due and payable upon the termination of such postponement
(together with such additional interest as is provided herein and in the
Notes for late payment of principal, premium or interest).
(e) Notice by Company. The Company shall given prompt written notice
to each holder of Subordinated Debt of its receipt of any notice received
by it from any holder of Senior Debt (or any agent acting on its behalf)
under this Section 7.3. The Company shall include with each notice given to
a holder of Subordinated Debt under this Section 7.3(e) a copy of the
applicable notice received by the Company from any holder or holders of
Senior Debt (or any agent acting on its or their behalf). All such notices
and copies shall be delivered by the Company as provided for in Section
9.1. Failure of the Company to give any notice that the Company is required
to give shall not affect the enforceability of this Section 7.
7.4 Subordinated Debt Payments and Remedies.
Nothing contained in this Section 7 shall prevent the Company from making,
or any holder of Subordinated Debt from accepting, at any time except as
expressly provided in Section 7.3 and Section 7.2, payments of principal of (and
Compensation Amount, if any) or interest on the Notes and other payments in
respect thereof in accordance with the terms thereof, except that the Company
may not make and the holders of the Subordinated Debt may not accept or retain
any prepayment to or for the benefit of any holder of Subordinated Debt without
the consent of the Senior Agent; provided, however, that, notwithstanding the
foregoing: (1) the Company may repurchase Notes in accordance with Section 1.6,
and the holders of Notes may accept and retain payments made in respect of such
repurchases so long as, after giving effect thereto, either no default or event
of default under the Senior Credit Facility shall have occurred or be continuing
or the Senior Bank Obligations shall have been or concurrently therewith shall
be paid in full; and (2) the holders of Notes shall be permitted to tender Notes
in payment of the purchase price for additional shares of Common Stock pursuant
to the Investors Rights Agreement in accordance with the provisions of Section
1.7. Nothing contained in this Section 7 is intended to or shall prevent any
holder of Subordinated Debt from exercising any rights or remedies provided by
applicable law, at equity, hereunder or under the Notes upon a Default or an
Event of Default, subject to the rights under the provisions of Section 7.3 and
Section 7.2 of the holders of the Senior Debt to receive cash, Securities or
other Property otherwise payable or deliverable to the holders of Subordinated
Debt; provided, however, that, the foregoing notwithstanding, no holder of
Subordinated Debt may declare, or join in the declaration
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of, any Subordinated Debt to be due and payable prior to its stated maturity or
otherwise accelerate the maturity of the principal of its Subordinated Notes,
accrued interest thereon or Compensation Amount or other amounts due thereon
(other than pursuant to Section 6.2(a)(i)(A)), without first providing the five
(5) days' notice referred to in Section 6.2(a)(i)(B) or Section 6.2(a)(ii), as
the case may be (which notice may be given during the last five (5) Business
Days of a Senior Debt Default Blockage Period); and provided further that, the
foregoing notwithstanding, in the event that any payment or payments in respect
of the Subordinated Debt shall have been suspended pursuant to Section 7.3(a) or
Section 7.3(c), no holder of Subordinated Debt may exercise any Remedies (except
that the holders of Subordinated Debt may join in any bankruptcy or similar
proceeding commenced or joined in by the holders of the Senior Debt), at any
time during any period commencing on the date such payments shall have been
suspended pursuant to Section 7.3(a) or Section 7.3(c), as the case may be, and
ending on the earlier to occur:
(a) the date one hundred seventy-nine (179) days after the date such
payments shall have been suspended pursuant to Section 7.3(a) or Section
7.3(c), as the case may be;
(b) the date such suspension of payments pursuant to Section 7.3(a) or
Section 7.3(c), as the case may be, shall have terminated pursuant to
Section 7.3(a) or Section 7.3(c), as the case may be; and
(c) the first day upon which any holder of Debt of the Company or any
Subsidiary shall commence the exercise of any Remedies in respect of such
Debt (including, without limitation, any declaration by the holders of the
Senior Debt that such Senior Debt is due and payable prior to its stated
maturity date);
but may exercise any Remedies at any time during which payment in respect of the
Subordinated Debt shall have been suspended pursuant to Section 7.3(b). For the
avoidance of doubt, the holders of Subordinated Debt may exercise any and all
Remedies immediately upon the termination of the period referred to in the
immediately preceding sentence.
7.5 Payments and Distributions Received.
If:
(a) any payment or distribution of any character or any security,
whether in cash, Securities or other Property (other than Reorganization
Securities), shall be received by any holder of any Subordinated Debt in
contravention of any of the terms hereof and before all the Senior Debt
shall have been paid in full in cash or cash equivalents (or with other
assets acceptable to the holders of the Senior Debt); and
(b) any holder of such Senior Debt shall have notified such holders of
Subordinated Debt, within forty-five (45) days of any such payment or
distribution, of facts by reason of which such collection or receipt so
contravenes this Section 7;
then such holders of Subordinated Debt will deliver such payment or
distribution, to the extent necessary to pay all such Senior Debt in full, to
the Senior Agent, for the benefit of the holders of the Senior Debt, and, until
so delivered, the same shall be held in trust by such holders of the
Subordinated Debt as the Property of the holders of the Senior Debt in
accordance with the priorities then existing among such
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holders for application to the payment of all Senior Debt remaining unpaid. If
after any amount is so delivered to the Senior Agent pursuant to this Section
7.5, whether or not such amount has been applied to the payment of Senior Debt,
the outstanding Senior Debt shall thereafter be paid in full by the Company or
otherwise other than pursuant to this Section 7.5, the holders of the Senior
Debt shall return to such holders of Subordinated Debt an amount equal to the
amount delivered to such holders of Senior Debt pursuant to this Section 7.5
that is in excess of the amount, if any, so applied to the payment of such
Senior Debt.
Notwithstanding the foregoing, in the event that the holders of the
Subordinated Debt reasonably believe that there is more than one holder of
Senior Debt and the holders of the Subordinated Debt shall not have received
reasonably satisfactory evidence that such Senior Agent is both entitled to
accept such payment on behalf of all holders of Senior Debt and required to
deliver payment to the other holders of the Senior Debt in the respective
amounts, if any, due such holders of Senior Debt, then the holders of the
Subordinated Debt may turn over such payment or distribution, rather than to the
Senior Agent, to a court of competent jurisdiction in an appropriate
interpleader proceeding pending determination by such court of the holders of
Senior Debt entitled to receive all or any portion of such payment or
distribution, and, from and after the date of such payment into court, the
holders of the Subordinated Debt shall have no further liability therefor.
7.6 No Prejudice or Impairment.
No present or future holder of any Senior Debt shall be prejudiced in the
right to enforce the subordination of the Subordinated Debt by any act or
failure to act on the part of the Company or the holders of the Subordinated
Debt. Nothing contained herein shall impair, as between the Company and the
holder of any Subordinated Debt, the obligation of the Company to pay to the
holder thereof the principal thereof and interest thereon and Compensation
Amount as and when the same shall become due and payable in accordance with the
terms thereof and of this Agreement, or prevent the holder of any Subordinated
Debt from exercising all rights, powers and Remedies otherwise permitted by
applicable law or hereunder upon a Default or Event of Default hereunder, all
subject to the terms of this Section 7.
7.7 Payment of Senior Debt, Subrogation, etc.
Upon the payment in full of all Senior Debt in cash or cash equivalents (or
with other assets acceptable to the holders of the Senior Debt), the holders of
Subordinated Debt shall be subrogated to all rights of any holders of Senior
Debt to receive any further payments or distributions applicable to the Senior
Debt until the Subordinated Debt shall have been paid in full, and such payments
or distributions received by the holders of the Subordinated Debt by reason of
such subrogation, of cash, securities or other Property that otherwise would be
paid or distributed to the holders of the Subordinated Debt shall, as between
the Company and its creditors other than the holders of Senior Debt, on the one
hand, and the holders of Subordinated Debt, on the other, be deemed to be a
payment or distribution by the Company on account of Senior Debt and not on the
account of the Subordinated Debt.
7.8 Reliance of Holders of Senior Debt.
Each holder of Subordinated Debt by its acceptance thereof shall be deemed
to acknowledge and agree that the foregoing subordination provisions set forth
in this Section 7 are, and are intended to be, an inducement to and a
consideration of each holder of Senior Debt, whether such Senior Debt was
created
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or acquired before or after the creation of the Subordinated Debt, to acquire
and hold, or to continue to hold, such Senior Debt, and such holder of Senior
Debt shall be deemed conclusively to have relied ons such subordination
provisions in acquiring and holding, or in continuing to hold, such Senior Debt.
7.9 Changes in Holders of Senior Debt.
Upon the Company's being informed of any new holder of Senior Debt, the
Company shall promptly inform the holders of Subordinated Debt of the names and
addresses of such new holders. Upon the Company's being informed of the change
in the addresses of any holder or holders of Senior Debt, the Company shall
promptly inform the holders of Subordinated Debt of the same; provided, however,
that the failure of the Company to provide such notice to the holders of the
Subordinated Debt shall not affect the validity of this Section 7 with respect
to, or the enforceability of this Section 7 by, the Senior Agent and the lenders
under the Senior Credit Facility.
7.10 Obligations of Holders of Subordinated Debt. The obligations of the
holders of the Subordinated Debt under this Section 7 are several and not joint.
No holder of Subordinated Debt shall be liable, directly or indirectly,
hereunder or on account of any act or omission of any other holder of
Subordinated Debt.
8. INTERPRETATION OF THIS AGREEMENT
8.1 Terms Defined.
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
Acceptable Consideration - means, with respect to any Transfer of any
Property of the Company or any Subsidiary, cash consideration, promissory notes
or such other consideration (or any combination of the foregoing) as is, in each
case, equal to the Fair Market Value thereof.
Acceptable Control Person - means any Person or Group who were the
beneficial owners of a majority of the Voting Stock or other voting equity
interest in an Acquired Person immediately prior to the Acquisition of such
Acquired Person by the Company or a Subsidiary, and who received, whether prior
to, on or after the Closing Date, Parent Common Stock in respect of such
Acquisition.
Acquired Business - means and includes, in connection with any computation
of Pro Forma Combined EBITDA or Pro Forma Combined Interest Expense for any
period, any Person, all the Capital Stock of which or substantially all of the
Property of which was acquired by the Company or a Subsidiary, or which shall
have merged into or consolidated with the Company (with the Company being the
Surviving Corporation) or which shall have merged with or into or consolidated
with a Subsidiary with the result that the Surviving Corporation became a
Subsidiary, in each case, during such period, if, but only if:
(a) Consolidated EBITDA and Consolidated Interest Expense for such
acquired Persons for such Period can be determined on a basis reasonably
acceptable to the Required Holders for such period, and the Debt of such
acquired Persons can be determined on a basis reasonably acceptable to the
Required Holders as at the relevant time of determination; and
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(b) concurrently with any such determination, the Company shall have
delivered to the holders of the Notes audited financial statements (to the
extent available) and other financial information prepared in accordance
with GAAP and reasonably satisfactory to the Required Holders with respect
to such acquired Person, which financial statements and information
demonstrates the basis for such determination to an extent reasonably
satisfactory to the Required Holders.
Acquired Person - means a Person which becomes the subject of an
Acquisition (whether or not such Person becomes a Subsidiary as a result of such
Acquisition).
Acquisition - means any transaction (including any merger or consolidation,
but not including the formation of new Subsidiaries after the Closing Date)
pursuant to which:
(a) the Company or any Subsidiary acquires all or substantially all
the Voting Stock of any Person other than the Company or any Person which
is then a Subsidiary;
(b) any other Person merges into or consolidates with the Company or a
Subsidiary such that the Company or a Subsidiary is the Surviving
Corporation;
(c) any Person undertakes any reorganization providing for the
delivery or issuance to the holders of all such Person's then outstanding
Voting Stock in exchange for such Voting Stock, of any Securities of the
Company or any Subsidiary; or
(d) the Company or any Subsidiary purchases all or substantially all
of the business or Property of any Person (other than a Subsidiary of the
Company), or a division comprising any discrete business or business
segment of any Person.
Affiliate - means and includes, at any time, each Person (other than a
Subsidiary):
(a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the
Company;
(b) that beneficially owns or holds five percent (5%) or more of any
class of the Voting Stock of the Company;
(c) five percent (5%) or more of the Voting Stock (or in the case of a
Person that is not a corporation, five percent (5%) or more of the equity
interest) of which is beneficially owned or held by the Company; or
(d) that is an officer or director of the Company, the Parent, Finance
or any Subsidiary;
at such time; provided, however, that none of the Purchasers nor any affiliate
of any Purchaser shall be deemed to be an "Affiliate," and no Person holding any
one or more of the Notes shall be deemed to be an "Affiliate" solely by virtue
of the ownership of such securities. As used in this definition:
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control - means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
In any event, the Parent and Finance shall be deemed to be Affiliates.
Affiliate Debt - means any Debt of the Company or a Subsidiary which is
owing to an Affiliate.
Affiliate Guarantor - means the Parent, Finance, each Subsidiary (other
than an Insignificant Subsidiary) and each other Affiliate which becomes
obligated in respect of any Senior Debt.
Affiliate Guaranty - means the Unconditional Guaranty, dated as of June 30,
1999, of the Affiliate Guarantors, in the form of Exhibit 4.6(c) to the
Securities Purchase Agreement, as may be amended, restated or otherwise modified
from time to time in accordance with the terms thereof, and together with any
Joinder Agreements, in the form of Annex 2 thereto, executed by any Subsidiaries
or Affiliates becoming parties thereto.
Affiliate Transaction - Section 4.13(a).
Agreement, this - and references thereto shall mean this Note Agreement as
it may from time to time be amended or supplemented.
Applicable Interest Law - means any present or future law (including,
without limitation, the laws of the State of New York and the United States of
America) which has application to the interest and other charges pursuant to
this Agreement and the Notes.
Beneficial Owner - has the meaning contemplated by Rule 13d-3 under the
Exchange Act.
Board of Directors - means the Board of Directors of the Company.
Business Day - means a day other than a Saturday, a Sunday or a day on
which banks in the State of New York are required or permitted by law (other
than a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
Capitalized Interest Amount - Section 1.1(b)(ii)(B).
Capital Lease - means, at any time, a lease with respect to which the
lessee is required to recognize the acquisition of an asset and the incurrence
of a liability in accordance with GAAP.
Capital Expenditures - means, for any period, the difference of all
expenditures made, directly or indirectly, by the Company and the Subsidiaries
for equipment, fixed assets, real property or improvements, or for replacements
or substitutions therefor or additions thereto, which would be shown on a
consolidated balance sheet prepared in accordance with GAAP for such period as
additions to property, plant or equipment of the Company and the Subsidiaries.
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Capital Stock - means any class of preferred, common or other capital
stock, share capital or similar equity interest of a Person including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
Change in Control - means, at any time, the occurrence of any one or more
of the following events:
(a) any Person other than an Acceptable Control Person, or any Group
other than a Group composed solely of Acceptable Control Persons, shall be
or have become Beneficial Owners of Parent Common Stock, Rights or other
Voting Stock of the Parent of more than thirty-five percent (35%) (by
percentage of votes) on a Diluted Basis of the Voting Stock of the Parent
outstanding at such time;
(b) an Acceptable Control Person, or any Group composed solely of
Acceptable Control Persons, shall be or have become Beneficial Owners of
Parent Common Stock, Rights or other Voting Stock of the Parent of fifty
percent (50%) or more (by percentage of votes) on a Diluted Basis of the
Voting Stock of the Parent outstanding at such time;
(c) the Parent shall fail at any time, either directly or indirectly
through Finance, to hold one hundred percent (100%) of the Capital Stock of
the Company (including, without limitation, all Voting Stock of the
Company) and one hundred percent (100%) of the Rights exercisable or
convertible into Capital Stock of the Company;
(d) any one Person or Group shall have nominated, elected or named, or
shall have obtained the right or ability to nominate, elect or name,
whether by contract, as Beneficial Owners of Voting Stock of the Parent or
otherwise, a majority of the board of directors of the Parent, or Persons
serving similar functions;
(e) any Person or Group other than the Parent, directly or indirectly
through Finance, shall have nominated, elected or named, or shall have
obtained the right or ability to nominate, elect or name, a majority of the
Board of Directors or Persons serving similar functions; or
(f) a Transfer, in a single transaction or series of related
transactions, of all or substantially all of the Property of either the
Parent or the Company shall occur.
Change in Control Notice Event - means:
(a) the execution of any written agreement which, when fully performed
by the parties thereto, would result in a Change in Control; or
(b) the making of any written offer by any Person or Group to the
holders of any Voting Stock which offer, if accepted by the requisite
number of such holders, would result in a Change in Control.
Change in Control Payment Date -- Section 1.6(b).
Change in Control Compensation Amount -- Section 1.6(b).
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Closing Date - means the date any Notes are first sold.
Common Shares - means the shares of Parent Common Stock purchased by the
Purchasers pursuant to the Securities Purchase Agreement.
Company - the introductory paragraph.
Company Common Stock - means the Common Stock, par value $.001 per share,
of the Company.
Compensation Amount - means and includes Prepayment Compensation Amount,
Equity Offering Compensation Amount and Change in Control Compensation Amount.
Consolidated Depreciation Expense - means, for any Persons for any period,
the amount of depreciation and amortization expense of such Persons determined
on a consolidated basis for such period.
Consolidated EBITDA -- means, for any Persons for any period, the sum of:
(a) the difference of:
(i) Consolidated Net Income of such Persons; minus
(ii) to the extent included in revenues in the determination of
Consolidated Net Income of such Persons, the aggregate amount of
interest income and non-cash income of such Persons, determined on a
consolidated basis for such Persons for such period;
plus
(b) to the extent, but only to the extent, each of such amounts were
deducted from revenues in the determination of Consolidated Net Income of
such Persons for such period:
(i) Consolidated Interest Expense of such Persons; plus
(ii) Consolidated Tax Expense of such Persons; plus
(iii) Consolidated Depreciation Expense of such Persons; plus
(iv) other non-cash charges (including amortization of deferred
financing costs or original issue discount attributable to Debt, but
excluding capitalized interest in respect of Debt), determined on a
consolidated basis for such Persons;
in each case determined in respect of such period.
Consolidated Interest Expense -- means, for any Persons for any period, the
amount of interest accrued on, or with respect to, interest bearing obligations
of such Persons, including, without limitation:
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(a) interest on Debt (including, in the case of Consolidated Interest
Expense of the Company and the Subsidiaries, the Notes) accruing (whether
or not such interest is paid in cash during such period);
(b) imputed interest on Capital Leases; and
(c) commissions, discounts and other fees and charges payable in
connection with Letters of Credit of such Persons;
but in each such case, excluding any amortization of any deferred financing
costs or original issue discount attributable to such Debt; in each case,
determined on a consolidated basis for such period.
Consolidated Net Company Income -- means, for any period, net income of the
Company and the Subsidiaries determined on a consolidated basis for such period,
but excluding:
(a) any gain or loss arising from the sale of capital assets or any
write-up or write-down of assets;
(b) earnings or losses of any Subsidiary accrued prior to the date it
became a Subsidiary;
(c) earnings or losses of any Person, substantially all the Capital
Stock or Property of which have been acquired in any manner, realized by
such other Person prior to the date of such acquisition;
(d) net earnings of any Person (other than a Subsidiary) in which the
Company or any Subsidiary shall have an ownership interest unless such net
earnings shall have actually been received by the Company or such
Subsidiary in the form of cash distributions;
(e) any portion of the net earnings of any Subsidiary that for any
reason is unavailable for payment of dividends to the Company or any other
Subsidiary;
(f) the earnings or losses of any Person to which assets of the
Company shall have been sold, transferred or disposed of, or into which the
Company shall have merged, prior to the date of such transaction;
(g) any gain or loss arising from the acquisition of any Securities of
the Company or any Subsidiary;
(h) any portion of the net earnings of the Company that cannot be
freely converted into United States dollars; and
(i) other extraordinary gains or losses (including, without
limitation, non-recurring charges attributable to the transaction expenses
related to the transactions contemplated by the Financing Documents).
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Consolidated Net Income -- means, for the Company and the Subsidiaries for
any period, Consolidated Net Company Income, and for any other Persons for any
period, net income of such Persons determined on a consolidated basis for such
period, but excluding:
(a) any gain or loss arising from the sale of capital assets or any
write-up or write-down of assets;
(b) earnings or losses of any Person accrued prior to the date it
became a subsidiary of such Person or Persons;
(c) earnings or losses of any Person, substantially all the Capital
Stock or Property of which have been acquired in any manner, realized by
such other Person prior to the date of such acquisition;
(d) net earnings of any other Person in which such Persons shall have
an ownership interest unless such net earnings shall have actually been
received by one or more of such Persons in the form of cash distributions;
(e) any portion of the net earnings of any of such Persons that for
any reason is unavailable for payment of dividends to the parent company of
such Persons;
(f) the earnings or losses of any other Person to which assets of any
of such Persons shall have been sold, transferred or disposed of, or into
which any of such Persons shall have merged, prior to the date of such
transaction;
(g) any gain or loss arising from the acquisition of any Securities of
any of such Persons;
(h) any portion of the net earnings of such Persons that cannot be
freely converted into United States dollars; and
(i) other extraordinary gains or losses.
Consolidated Senior Secured Funded Debt - means, at any time, Senior
Secured Funded Debt of the Company and the Subsidiaries, determined on a
consolidated basis at such time.
Consolidated Tax Expense - means, for any Persons for any period, tax
expense of the such Persons, determined on a consolidated basis for such period.
Consolidated Total Assets - means, at any time, an amount equal to the book
value of all assets of the Company and the Subsidiaries, determined on a
consolidated basis at such time.
Consolidated Total Funded Debt - means, at any time, Total Funded Debt of
the Company and the Subsidiaries, determined on a consolidated basis at such
time.
Debt -- with respect to any Person, means, without duplication, the
liabilities of such Person with respect to:
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(a) Borrowed Money - borrowed money or evidenced by a note, bond or
debenture;
(b) Deferred Purchase Price of Property - the deferred purchase price
of Property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including all liabilities created or
arising under any conditional sale or other title retention agreement with
respect to any such Property);
(c) Secured Liabilities - borrowed money secured by any Lien existing
on Property owned by such Person (whether or not such liabilities have been
assumed);
(d) Capital Leases - Capital Leases of such Person;
(e) Letters of Credit - Letters of Credit issued for the benefit of
such Person;
(f) Swaps - Swaps of such Person; and
(g) Guaranties - any Guaranty of such Person of any obligation or
liability of another Person of obligations of the type listed in clause (a)
through clause (f) of this definition of Debt.
As used in this definition,
Swaps - means, with respect to any Person, obligations with respect to
interest rate swaps and currency swaps and similar obligations obligating
such Person to make payments, whether periodically or upon the happening of
a contingency, except that if any agreement relating to such obligation
provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment
of amounts by and to such Person, then in each such case, the amount of
such obligations shall be the net amount thereof. The aggregate net
obligation of Swaps at any time shall be the aggregate amount of the
obligations of such Person under all Swaps assuming all such Swaps had been
terminated by such Person as of the end of the then most recently ended
fiscal quarter of such Person. If such net aggregate obligation shall be an
amount owing to such Person, then the amount shall be deemed to be Zero
Dollars ($0).
Unless the context otherwise requires, "Debt" means Debt of the Company or of a
Subsidiary.
Default - means any event which, with the giving of notice or the passage
of time, or both, would become an Event of Default.
Diluted Basis - means, with respect to any calculation of the number of
shares of Voting Stock of any Person held by another Person at any time, the sum
of:
(a) the number of shares of Voting Stock (by number of votes)
outstanding at such time; plus
(b) the aggregate number of shares of Voting Stock issuable upon the
exercise, conversion or exchange, as the case may be, of all Rights held by
such Person (but not any other Rights) at such time which are then
currently exercisable or may become exercisable within sixty (60) days into
Voting Stock.
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DOL - means the United States Department of Labor and any successor agency.
Environmental Protection Law - means any law, statute or regulation enacted
by any Governmental Authority in connection with or relating to the protection
or regulation of the environment, including, without limitation, those laws,
statutes and regulations regulating the disposal, removal, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Materials and any applicable orders, decrees or judgments issued by any court of
competent jurisdiction in connection with any of the foregoing.
Equity Offering - means the issuance and sale of Parent Common Stock by the
Parent to the public in an offering registered under section 5 of the Securities
Act.
Equity Offering Compensation Amount - Section 1.3(b)(ii).
ERISA - means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA Affiliate - means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
Event of Default - Section 6.1.
Exchange Act - means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC thereunder.
Excluded Transfers - means and included Transfers referred to in and
expressly permitted by any of Section 4.9(a)(i), Section 4.9(a)(ii), Section
4.9(a)(iv) or Section 4.9(a)(iii).
Fair Market Value - means, with respect to any Property, the sale value of
such Property that would be realized in an arm's-length sale at such time
between an informed and willing buyer, and an informed and willing seller, under
no compulsion to buy or sell, respectively.
Finance - means Questron Finance Corp., a Delaware corporation, a
wholly-owned subsidiary of the Parent and parent of the Company.
Financing Documents - means and includes this Agreement, the Securities
Purchase Agreement, the Notes, the Affiliate Guaranty, the Investors Rights
Agreement and each instrument of joinder or accession thereto and the other
agreements, certificates and instruments to be executed pursuant to the terms of
each of the foregoing, as each may be amended, restated or otherwise modified
from time to time.
Florida Excise Tax - means and includes the Florida excise tax on documents
imposed by FLA. STAT. ss.201.08 or any similar or successor provision.
Foreign Pension Plan - means any plan, fund or other similar program:
(a) established or maintained outside of the United States of America
by the Company or a Subsidiary primarily for the benefit of the employees
(substantially all of whom are aliens not
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residing in the United States of America) of the Company or a Subsidiary,
which plan, fund or other similar program provides for retirement income
for such employees or results in a deferral of income for such employees in
contemplation of retirement; and
(b) not otherwise subject to ERISA.
Funded Debt - means, at any time, Debt which would be classified as
long-term Debt on a balance sheet of the obligor thereof at such time, and
including, without limitation, in any event, but without duplication:
(a) Debt which, by its terms or by the terms of any instrument or
agreement relating thereto, matures, or which is otherwise payable or
unpaid, one (1) year or more from, or is directly or indirectly renewable
or extendible at the option of the obligor in respect thereof, to a date
one (1) year or more from the date of the creation thereof;
(b) Debt outstanding in respect of any revolving credit or similar
agreement providing for borrowings (and renewals and extensions thereof)
over a period of more than one (1) year, notwithstanding that any such Debt
may be payable on demand or within one (1) year after the creation thereof;
and
(c) all payments required to be made within one (1) year on account of
principal of Debt described in clause (a) or clause (b) of this definition;
provided, however, that "Funded Debt" shall not in any event include Letters of
Credit.
GAAP - means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States of
America.
Governmental Authority - means:
(a) the government of:
(i) the United States of America and any state or other political
subdivision thereof; or
(ii) any other jurisdiction in which the Company conducts all or
any part of its business, or that asserts any jurisdiction over the
conduct of the affairs of, or the Property of, the Company; and
(b) any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, any such government.
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Group - means two (2) or more Persons acting as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring, holding or
disposing of Securities of an issuer, as contemplated by section 13(d)(3) of the
Exchange Act.
Guaranty -- means with respect to any Person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person (the "Primary Obligor") in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by the Guarantor:
(a) to purchase such indebtedness or obligation or any Property
constituting security therefor;
(b) to advance or supply funds:
(i) for the purchase or payment of such indebtedness, dividend or
obligation; or
(ii) to maintain working capital or other balance sheet condition
or any income statement condition of the Primary Obligor or otherwise
to advance or make available funds for the purchase or payment of such
indebtedness, dividend or obligation;
(c) to lease Property or to purchase Securities or other Property or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the Primary Obligor to make
payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or obligation of
the Primary Obligor against loss in respect thereof;
and the terms "Guarantee," "Guaranteed" or "Guaranteeing," used as verbs, have
correlative meanings.
For purposes of computing the amount of any Guaranty, in connection with any
computation of indebtedness or other liability:
(i) in each case where the obligation that is the subject of such
Guaranty is in the nature of indebtedness for money borrowed it shall
be assumed that the amount of the Guaranty is the amount of the direct
obligation then outstanding; and
(ii) in each case where the obligation that is the subject of
such Guaranty is not in the nature of indebtedness for money borrowed
it shall be assumed that the amount of the Guaranty is the amount (if
any) of the direct obligation that is then due.
Hazardous Material - means all or any of the following:
(a) substances that are defined or listed in, or otherwise classified
pursuant to, any applicable Environmental Protection Laws as "hazardous
substances", "hazardous materials",
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"hazardous wastes", "toxic substances" or any other formulation intended to
define, list or classify substances by reason of deleterious properties
such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, "TLCP toxicity" or "EP toxicity";
(b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters
and other wastes associated with the exploration, development or production
of crude oil, natural gas or geothermal resources;
(c) any flammable substances or explosives or any radioactive
materials;
(d) asbestos or urea formaldehyde in any form; and
(e) dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty parts per million.
Independent Directors - means those directors of the Parent who are not
employed by, and who otherwise do not serve, the Company other than in their
capacity as directors, and who, but for their being directors of the Parent,
would not otherwise be an Affiliate.
Insignificant Subsidiary - means, at any time, a Subsidiary or group of
Subsidiaries which, individually or in the aggregate, meets or meet all three
(3) of the following tests:
(a) the aggregate amount of all Investments of the Company and all
other Subsidiaries in such Subsidiary at such time is not more than two
percent (2%) of Consolidated Total Assets at such time;
(b) the amount of total assets which would appear on a balance sheet
of such Subsidiary prepared in accordance with GAAP at such time is not
more than two percent (2%) of Consolidated Total Assets at such time; and
(c) the Consolidated Net Income of such Subsidiary and its
Subsidiaries for the period of four (4) full consecutive fiscal quarters of
the Company most recently ended at such time is not more than two percent
(2%) of Consolidated Net Company Income for such period.
Insolvency Proceeding - means and includes:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Company, its creditors or its Property;
(b) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings;
(c) any assignment by the Company for the benefit of creditors; or
(d) any other marshaling of the assets of the Company.
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Investments - means all investments, made in cash or by delivery of
Property, by the Company and the Subsidiaries:
(a) in any Person, whether by acquisition of Capital Stock, Debt or
other obligation or Security, or by loan, Guaranty, advance or capital
contribution, or otherwise; or
(b) in any Property.
Investments shall be valued at cost less any net return of capital through the
sale or liquidation thereof or other return of capital thereon.
Investors Rights Agreement - means the Investors Rights Agreement, of even
date herewith, among the Parent and the Purchasers, as amended and modified from
time to time in compliance with its terms.
IRC - means the Internal Revenue Code of 1986, together with all rules and
regulations promulgated pursuant thereto, as amended from time to time.
Junior Subordinated Debt - means and includes:
(a) any Affiliate Debt; and
(b) all other Debt of the Company or any Subsidiary which, by its
terms, is expressly subordinated in right of payment to the Notes.
Letters of Credit - means, with respect to any Person, letters of credit,
bankers' acceptances or instruments serving a similar function issued or
accepted by banks and other financial institutions, in each case, for the
account of such Person.
Lien - means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property (for purposes of this
definition, the "Owner"), whether such interest is based on the common law,
statute or contract, and includes but is not limited to:
(a) the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes, and the filing of any financing statement
under the Uniform Commercial Code of any jurisdiction, or an agreement to
give any of the foregoing;
(b) reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting real Property;
(c) stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements affecting the Owner's rights in
stock owned by the Owner; and
(d) any interest in any Property held by the Owner evidenced by a
conditional sale agreement, Capital Lease or other arrangement pursuant to
which title to such Property has been retained by or vested in some other
Person for security purposes.
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The term "Lien" does not include negative pledge clauses in loan agreements and
equal and ratable security clauses in loan agreements.
Make-Whole Amount - means, with respect to Prepaid Principal and the date
the payment thereof is due (the "Payment Date") an amount equal to the excess
(if any) of the Present Value of the Prepaid Cash Flows over the amount of such
Prepaid Principal, determined in respect of such Prepaid Principal as of such
Payment Date. As used in this definition:
Prepaid Principal -- means any portion of the principal amount of any
Debt being paid for any reason (including, without limitation,
acceleration, optional payment or mandatory payment required because of the
occurrence of a contingency) prior to its regularly scheduled maturity
date.
Present Value of the Prepaid Cash Flows -- means the sum of the
present values of the then-remaining scheduled payments of principal and
interest that would have been payable in respect of such Prepaid Principal
but that are no longer payable as a result of the early payment of such
Prepaid Principal. In determining such present values:
(a) the amount of interest accrued through and including the day
immediately preceding such Payment Date on such Prepaid Principal
since the scheduled Quarterly Interest Payment Date immediately
preceding such Payment Date shall be deducted from the first of such
payments of interest; and
(b) a discount rate per annum equal to the Make-Whole Discount
Rate determined with respect to such Prepaid Principal and such
Payment Date divided by four (4), and a discount period of three (3)
months of thirty (30) days each, shall be used.
Make-Whole Discount Rate -- means the sum of:
(a) (i) if the Payment Date is prior to July 1, 2000,
seventy-five one-hundredths percent (0.75%) per annum; and
(ii) if the Payment Date is on or after July 1, 2000, one
and fifty one-hundredths percent (1.50%) per annum;
plus
(b) the per annum percentage rate (rounded to the nearest three
(3) decimal places) equal to the bond equivalent yield to maturity
derived from the Applicable Treasury Rate determined as of the date
that is two (2) Business Days prior to such Payment Date.
Applicable Treasury Rate - means, at any time:
(a) the Bloomberg Rate;
(b) if the Bloomberg Financial Markets System is not then quoting
yields on United States government securities, then the Dow Jones
Markets Service Rate;
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(c) if neither the Bloomberg Financial Markets System nor Dow
Jones Markets Service is then quoting yields on United States
government securities, then the per annum yield reported on such other
electronic quotation service selected by the Company and agreed to by
the Required Holders at 10:00 a.m. (New York time) on the second (2nd)
Business Day preceding such Payment Date for United States government
securities having a maturity (rounded to the nearest month)
corresponding to the Weighted Average Life to Prepaid Principal
Maturity of such Prepaid Principal; and
(d) if neither the Bloomberg Financial Markets System nor Dow
Jones Markets Service is then quoting yields on United States
government securities and the Company and the Required Holders cannot
agree on another electronic quotation service, then the Applicable
H.15 Rate.
In each such case, If no such United States Treasury obligation with a Treasury
Constant Maturity corresponding exactly to such Weighted Average Life to Prepaid
Principal Maturity is listed, then the yields for the two (2) then most current
hypothetical United States Treasury obligations with Treasury Constant
Maturities most closely corresponding to such Weighted Average Life to Prepaid
Principal Maturity (one (1) with a longer maturity and one (1) with a shorter
maturity, if available) shall be calculated pursuant to the immediately
preceding sentence and the Make-Whole Discount Rate shall be interpolated or
extrapolated from such yields on a straight-line basis.
Applicable H.15 -- means, at any time, the United States Federal
Reserve Statistical Release H.15(519) then most recently published and
available to the public, or if such publication is not available, then any
other source of current information in respect of interest rates on
securities of the United States of America that is generally available and,
in the judgment of the Required Holders, provides information reasonably
comparable to the H.15(519) report.
Applicable H.15 Rate -- means, at any time, the then most current
annual yield to maturity of the hypothetical United States Treasury
obligation listed in the Applicable H.15 with a equal to the Weighted
Average Life to Prepaid Principal Maturity of such Prepaid Principal.
Bloomberg Rate -- means the per annum yield reported on the Bloomberg
Financial Markets System at 10:00 a.m. (New York time) on the second (2nd)
Business Day preceding such Payment Date for United States Treasury
obligations having a Treasury Constant Maturity corresponding to the
Weighted Average Life to Prepaid Principal Maturity of such Prepaid
Principal. Page USD shall be used as the source of such yields, or if not
then available, such other screen available on the Bloomberg Financial
Markets System as shall, in the opinion of the Required Holders, provide
equivalent information.
Dow Jones Markets Service Rate - means the per annum yield reported on
the Dow Jones Markets Service at 10:00 a.m. (New York time) on the second
(2nd) Business Day preceding such Payment Date for United States Treasury
obligations having a Treasury Constant Maturity (rounded to the nearest
month) corresponding to the Weighted Average Life to Prepaid Principal
Maturity of such Prepaid Principal. Page 678 shall be used as the source of
such yields, or if not then available, such other screen available on the
Dow Jones Markets Service as shall, in the opinion of the Required Holders,
provide equivalent information.
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Treasury Constant Maturity - has the meaning specified in the
Applicable H.15.
Weighted Average Life to Prepaid Principal Maturity -- means, with
respect to any Prepaid Principal, the number of years (calculated to the
nearest one-twelfth (1/12th)) obtained by dividing the Remaining Prepaid
Principal Dollar-Years of such Prepaid Principal by such Prepaid Principal,
determined as of such Payment Date.
Remaining Prepaid Principal Dollar-Years -- means the result obtained
by:
(a) multiplying, in the case of each then remaining scheduled
payment of principal that would have been payable in respect of
Prepaid Principal but is no longer payable as a result of the payment
of such Prepaid Principal;
(i) an amount equal to such scheduled payment of principal;
by
(ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between such Payment Date and the
date such scheduled principal payment would be due if such
Prepaid Principal had not been so prepaid; and
(b) calculating the sum of each of the products obtained in the
preceding subsection (a).
Material - means material in relation to:
(a) the business, operations, profits, financial condition, Properties
or business prospects of the Company and the Subsidiaries, taken as a
whole;
(b) the ability of the Company or an Subsidiary to perform its
respective obligations under any Financing Document; or
(c) the validity or enforceability of any of the Financing Documents.
Material Adverse Effect - means, with respect to any event or circumstance
(either individually or in the aggregate with all other events and
circumstances), an effect caused thereby or resulting therefrom that would be
materially adverse as to, or in respect of:
(a) the business, operations, profits, financial condition, Properties
or business prospects of the Company and the Subsidiaries, taken as a
whole;
(b) the ability of the Company or an Subsidiary to perform its
respective obligations under any Financing Document; or
(c) the validity or enforceability of any of the Financing Documents.
Maximum Legal Rate of Interest - means the maximum rate of interest that a
holder of Notes may from time to time legally charge the Company by agreement
and in regard to which the Company would
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be prevented successfully from raising the claim or defense of usury under the
Applicable Interest Law as now or hereafter construed by courts having
appropriate jurisdiction.
Multiemployer Plan - means any "multiemployer plan" (as defined in section
3(37) of ERISA) in respect of which the Company or any ERISA Affiliate is an
"employer" (as such term is defined in section 3 of ERISA).
Net Equity Offering Proceeds - means, with respect to any Equity Offering,
the cash proceeds thereof, net of all costs and out-of-pocket expenses in
connection therewith (including, without limitation, placement, underwriting and
brokerage fees and expenses), to the extent, but only to the extent, that such
net proceeds are paid by the Parent (directly or indirectly through Finance) to
the Company in respect of the purchase of additional Company Common Stock or are
otherwise contributed by the Parent to the Company.
Non-Public Information - means any information or data concerning the
business, financial condition, results of operations, properties or prospects of
the Parent, the Company, the Obligors or the Company and the Subsidiaries,
which:
(a) has not been delivered generally to the securityholders of the
Parent; and
(b) has not been made generally available to the public through SEC
filing, press release or otherwise.
Note - means and includes each 14.50% Senior Subordinated Note due June 30,
2005 issued pursuant to this Agreement, as each may be amended from time to
time.
Obligors - means and includes the Company and each Affiliate Guarantor.
Paid in full, payment in full and similar expressions refer to payment in
full in cash in lawful currency of the United States of America or immediately
available United States federal funds. Unless expressly agreed to in writing by
the holder of a claim, payment in any other manner or by any other type of
Property or substituted obligation shall not constitute payment in full.
Parent - means Questron Technology, Inc., a Delaware corporation.
Parent Common Stock - means the Common Stock, par value $0.001 per share,
of the Parent, together with the associated Share Purchase Rights, for so long
as such Share Purchase Rights shall remain attached thereto pursuant to the
terms of the Share Purchase Rights Agreement.
PBGC - means the Pension Benefit Guaranty Corporation, or any other Person
succeeding to the duties thereof.
Permitted Affiliate Lease - means and includes:
(a) a lease (other than a Capital Lease) by a Permitted Seller, as
lessor, of real Property owned by such Permitted Seller and previously
leased by such Permitted Seller to an Acquired Person as a facility or
other place of business of such Acquired Person, to the Company
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or any Subsidiary, as lessee, for use as a facility or other place of
business of the Company or such Subsidiary, in contemplation of and in
connection with the Acquisition of such Acquired Person; provided, however,
that such lease is entered into by the Company or such Subsidiary pursuant
to the reasonable requirements of the business of the Company or such
Subsidiary and upon fair and reasonable terms no less favorable to the
Company or such Subsidiary than would obtain in a comparable arm's length
transaction with a Person not an Affiliate; and
(b) any subsequent renegotiation, modification, amendment or extension
of any such lease, notwithstanding that the Permitted Seller may, at the
time of such renegotiation, modification, amendment or extension, be an
Affiliate, so long as:
(i) such Permitted Seller, together with all of its affiliates,
does not hold or beneficially own more than fifteen percent (15%) of
the Parent Common Stock; and
(ii) such renegotiated, modified, amended or extended terms
continue to meet the reasonable requirements of the business of the
Company or such Subsidiary and continue to be upon fair and reasonable
terms no less favorable to the Company or such Subsidiary than would
obtain in a comparable arm's length transaction with a Person not an
Affiliate;
provided, however, that the aggregate amount of all payments in respect of all
such leases to any one Permitted Seller and its affiliates shall not exceed Five
Hundred Thousand Dollars ($500,000) in any calendar year.
Permitted Joint Venture - means equity Investments agreed upon among the
Company and the Required Holders.
Permitted Seller - means and includes a stockholder or other owner or
affiliate of any Acquired Person; provided, however, that such stockholder,
owner or other affiliate of such Acquired Person was not, prior to the date of
the Acquisition of such Acquired Person, an Affiliate.
Person - means an individual, partnership, corporation, limited liability
company, joint venture, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
Plan - means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
Preferred Stock - means, with respect to any company, Capital Stock of such
company which shall be entitled to preference or priority over any other Capital
Stock of such company in respect of either or both of the payment of dividends
or the distribution of assets upon liquidation.
Prepayment Compensation Amount - means, with respect to the date any
payment of principal in respect of the Notes is due, whether upon acceleration
of the maturity thereof, upon an optional prepayment or otherwise, (the "Payment
Date"):
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(a) if the Payment Date is prior to July 1, 2001, the Make-Whole
Amount in respect of such principal amount of the Notes; and
(b) if the Payment Date is on or after July 1, 2001, the amount equal
to product of the principal amount being prepaid multiplied by the
percentage reflected in the chart below for the relevant Payment Date:
================================================================================
If Prepayment Occurs During
the Period Specified Below: Percentage of Prepaid Principal:
================================================================================
From and including July 1, 2001 up to and
including June 30, 2002 6.00%
- --------------------------------------------------------------------------------
From and including July 1, 2002 up to and
including June 30, 2003 4.00%
- --------------------------------------------------------------------------------
From and including July 1, 2003 up to and
including June 30, 2004 2.00%
- --------------------------------------------------------------------------------
From and including July 1, 2004 and thereafter 0.00%
- --------------------------------------------------------------------------------
Pro Forma Assumptions - means, with respect to any acquisition by the
Company or any Subsidiary of an Acquired Business during any measuring period,
the following assumptions:
(a) the acquisition of each Acquired Business occurred on the first
day of such period;
(b) all Debt incurred, created, assumed or Guaranteed by the Company
or any Subsidiary during such period (including, without limitation, in
respect of any such acquisition) was incurred by the Company or such
Subsidiary on the first day of such period, and any existing Debt repaid
with the proceeds of any such newly incurred Debt was repaid on the first
day of such period; and
(c) all interests expense and other expense in connection with such
newly incurred Debt began accruing as of the first date of such period and,
to the extent that any such newly incurred Debt bore or bears interest at a
floating rate, the rate in effect prior to the date of the actual
incurrence thereof was the rate in effect on the date of incurrence
thereof.
Pro Forma Combined EBITDA - means, for any period, without duplication:
(a) Consolidated EBITDA of the Company and the Subsidiaries for such
period; and
(b) Consolidated EBITDA of each Acquired Business acquired during such
period;
on a pro forma combined basis, making the Pro Forma Assumptions in connection
with such calculation.
Pro Forma Combined Interest Expense - means, for any period, without
duplication:
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(a) Consolidated Interest Expense of the Company and the Subsidiaries
for such period; and
(b) Consolidated Interest Expense of each Acquired Business acquired
during such period;
on a pro forma combined basis, making the Pro Forma Assumptions in connection
with such calculation.
Property - means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
Purchasers - the introductory paragraph.
Quarterly Interest Payment Date - Section 1.1.
Refinanced Debt - Section 4.17(b).
Refinancing Debt - Section 4.17(b).
Release - has the meaning set forth in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. ss.ss.39601 et
seq.
Remedies - means, with respect to any Debt:
(a) the acceleration of the maturity such Debt or joining in the
acceleration thereof; the exercise of any option by the holder of such Debt
to require the Company or any Subsidiary to repurchase such Debt; or the
demand for payment in respect of any Debt due on demand;
(b) the collection of, or commencement of proceedings to enforce or
collect, such Debt against the Company or any Subsidiary or any of their
respective Property;
(c) the holder of such Debt taking possession of or foreclosing upon
(whether by judicial proceedings or otherwise) any security for, or
exercising any other such rights and remedies with respect to, such Debt or
any claim with respect thereto;
(d) the filing by holders of such Debt of a petition under 11 U.S.C.
ss.303(b) or any similar federal, state or local law respecting relief of
debtors or commencing any Insolvency Proceeding; or
(e) the taking by the holder of such Debt of any other similar action
against the Company or any Subsidiary.
As used in this definition, the term "holder" of Debt shall include an agent or
trustee therefor, whether or not such agent or trustee holds any Debt.
Reorganization Securities - means and includes:
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(a) Capital Stock or Rights of the Company or any successor
corporation, provided for by a plan of reorganization or readjustment, the
payment of which (to the extent any payments are required) is subordinated,
at least to the extent provided in Section 7 with respect to Subordinated
Debt, to the payment of all Senior Debt at the time outstanding and to any
Securities issued in respect of the Senior Debt under any such plan of
reorganization or readjustment; and
(b) other Securities of the Company or any other Person, provided for
by a plan of reorganization or readjustment, the payment of which is
subordinated, at least to the extent provided in Section 7 with respect to
Subordinated Debt, to the payment of all Senior Debt at the time
outstanding and to any Securities issued in respect of the Senior Debt
under any such plan of reorganization or readjustment.
Required Holders - means, at any time, the holders of more than fifty
percent (50%) in principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by any one or more of the Company, any Subsidiary
or any Affiliate).
Restricted Investment - means, at any time, all Investments (including,
without limitation, Investments in Persons other than Wholly-Owned Subsidiaries)
except Investments:
(a) in Property (including, without limitation, real Property and
interests therein) to be used in the ordinary course of business, and
current assets arising from the sale of goods and services in the ordinary
course of business, of the Company and the Subsidiaries;
(b) in direct obligations of the United States of America, or any
agency thereof or obligations guaranteed by the full faith and credit of
the United States of America; provided that such obligations mature within
one (1) year from the date of acquisition thereof;
(c) in any obligation of any state or municipality thereof given
either of the two (2) highest ratings by at least one credit rating agency
of recognized national standing and maturing within one (1) year from the
date of acquisition;
(d) in certificates of deposit maturing within one (1) year from the
date of acquisition and given one (1) of the two (2) highest ratings by at
least one credit rating agency of recognized national standing and issued
by a bank or trust company organized under the laws of the United States of
America or any state thereof having capital, surplus and undivided profits
aggregating at least Two Hundred Fifty Million Dollars ($250,000,000);
(e) in money market mutual funds that invest solely in so-called
"money market" instruments maturing not more than one (1) year after the
acquisition thereof and given the highest rating by at least one credit
rating agency of recognized national standing;
(f) in commercial paper given either of the two (2) highest ratings by
at least one credit rating agency of recognized national standing and
maturing not more than two hundred seventy (270) days from the date of
creation thereof;
(g) outstanding on the Closing Date and listed on Part 2.2(g) of Annex
3;
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(h) in an amount not exceeding One Million Dollars ($1,000,000) in the
aggregate in the Permitted Joint Venture; and
(i) consisting of loans or other advances of money for salary, travel
advances, advances against commissions and other similar advances in the
ordinary course of business, in an aggregate amount not exceeding Two
Hundred Fifty Thousand Dollars ($250,000) at any one time;
(j) any other Investments not expressly permitted by the provisions of
clauses (a) through (i), inclusive, of this definition, in an aggregate
outstanding amount at any one time not exceeding Five Hundred Thousand
Dollars ($500,000); and
(k) in Wholly-Owned Subsidiaries or Persons who, immediately after
giving effect to the making of such Investment, would become Wholly-Owned
Subsidiaries, so long as such Persons are in materially the same line of
business as was the Company on the Closing Date; it being understood that
any Investment in any Person other than a Wholly-Owned Subsidiary which is
not expressly permitted by the provisions of clauses (a) through (j),
inclusive, of this definition shall be Restricted Investments.
Restricted Payment -- means
(a) any dividend or other distribution, direct or indirect, on account
of any shares of Capital Stock or Rights of the Company (including, without
limitation, the Company Common Stock and any Preferred Stock of the
Company), now or hereafter outstanding, except a dividend payable in
respect of the Company Common Stock which is payable solely in shares of
Company Common Stock;
(b) any dividend or other distribution, direct or indirect, on account
of any shares of Capital Stock or Rights of any Subsidiary, now or
hereafter outstanding, except:
(i) a dividend in respect of the common stock of such Subsidiary
payable solely in shares of common stock of such Subsidiary; and
(ii) to the extent that such dividend or distribution is,
directly or indirectly, payable to the Company or a Wholly-Owned
Subsidiary;
(c) any redemption, retirement, purchase or other acquisition, direct
or indirect, of any shares of Capital Stock or Rights of the Company now or
hereafter outstanding, except to the extent that such redemption,
retirement, purchase or other acquisition is effected solely by the
issuance of Company Common Stock to Finance or the Parent;
(d) any redemption, retirement, purchase or other acquisition, direct
or indirect, of any shares of Capital Stock or Rights of any Subsidiary now
or hereafter outstanding, except to the extent that either:
(i) such redemption, retirement, purchase or other acquisition is
effected solely by the issuance of common stock of such Subsidiary; or
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(ii) such redemption, retirement, purchase or other acquisition
is made from, and the payment in respect of such redemption,
retirement, purchase or other acquisition is paid, directly or
indirectly, to the Company; and
(e) any payment, whether in respect of principal, premium, interest,
fees, expenses or otherwise, in respect of, or any redemption, retirement,
purchase or other acquisition, direct or indirect, of, any Affiliate Debt.
Revolving Credit Facility - means each revolving credit or similar facility
existing under a Senior Credit Facility providing for a commitment to make loans
on the request of the Company or a Subsidiary from time to time, which funds may
be repaid by the Company or such Subsidiary from time to time and reborrowed by
the Company or a Subsidiary.
Rights - means, with respect to any Person, any right, warrant, option or
other similar right to purchase or receive Capital Stock of such Person
(including, without limitation, in the case of the Parent, the Share Purchase
Rights).
SEC - means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
Securities Act - means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Securities Purchase Agreement - means, collectively, each of the several
identical Securities Purchase Agreements, of even date herewith, among the
Company, the Parent and each of the Purchasers, relating to the offering and
sale of the Notes and the Common Shares, as each is amended from time to time.
Security - means "security" as defined by section 2(1) of the Securities
Act.
Seller Notes - means promissory notes issued by Finance to the former
owners of any business acquired in a transaction or series of substantially
contemporaneous transactions by the Company or any Subsidiary (whether by
purchase of the Property of such business, purchase of the Capital Stock of the
Person owning and operating such business, by merger or consolidation with such
Person or otherwise) as the part of the purchase or acquisition price paid by
the Company or such Subsidiary for such business, so long as:
(a) as a result of such transaction, all the Property of such business
shall become Property of the Company or a Wholly-Owned Subsidiary;
(b) such notes shall not require any payment or prepayment of
principal or be redeemable, and Finance shall have no obligation to
repurchase such notes, in whole or in part, whether by operation of their
terms or at the option of Finance or any holder thereof, for any reason
until December 31, 2005 or later; and
(c) Finance shall not be required to pay interest in cash with respect
to such notes (or, if payment of any interest is required, then Finance
shall be permitted, at its option, to capitalize
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such payment of interest or make such payment of interest in additional
Seller Notes) until December 31, 2005;
(d) Finance shall not pay any such interest in cash except to the
extent that the Company may be permitted pursuant to Section 4.1 to make
payments to Finance in at least the amount necessary to fund such cash
payments of interest;
(e) no Obligor other than Finance shall have any obligation whatsoever
(as obligor, guarantor or otherwise) in respect thereof; and
(f) such notes are subordinated in right of payment to the Notes on
terms and subject to conditions acceptable to the Required Holders in their
discretion.
Semi-Annual Interest Accrual Date - Section 1.1(b).
Senior Agent - means and includes:
(a) for so long as the Senior Credit Agreement remains outstanding,
Ableco Finance LLC, as collateral agent under the Senior Credit Agreement;
and
(b) thereafter, any one agent or lender in respect of a successor
revolving credit, term loan or similar agreement which is designated as a
Senior Credit Facility, or representative of either, designated in writing
to each holder of Notes by the predecessor Senior Agent and the Company as
being a "Senior Agent."
Senior Bank Obligations - means, with respect to a Senior Credit Facility,
all present and future Debt and obligations of every type and description
arising under or in respect of the Senior Credit Facility and all claims in any
manner based thereon, arising therefrom or related thereto, and shall include,
without limitation:
(a) all debts, liabilities and other obligations at any time
outstanding in respect of such Debt or under any agreement governing the
Senior Credit Facility or any part thereof, and all other claims from time
to time outstanding for loans made or letters of credit issued, Guaranteed
or provided or other credit extended to the Company or any Subsidiary under
the Senior Credit Facility or any part thereof, in each case whether or not
allowed, allowable or enforceable in any Insolvency Proceeding;
(b) all claims for interest at any time accrued thereon, computed and
determined at the rates (including any applicable post-default rates)
provided in the agreements or instruments governing the Senior Credit
Facility or any part thereof, whether or not any such claim is allowed,
allowable or enforceable in any Insolvency Proceeding;
(c) all claims for fees, expense reimbursements and indemnification
payable by the Company or any Subsidiary under any such agreement or
instrument or under any document, agreement or instrument executed by the
Company or any Subsidiary pursuant thereto in connection therewith, whether
or not any such claim is allowed, allowable or enforceable in any
Insolvency Proceeding;
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(d) all claims of the holders of all or any part of the Senior Credit
Facility for which collateral security is granted by the Company or any
Subsidiary under any such document, instrument or agreement; and
(e) all other claims in any manner based thereon, arising therefrom or
related thereto; and specifically including (without limitation) any and
all disallowed post-petition interest or expense claims in any Insolvency
Proceeding.
Senior Credit Agreement - means the Amended and Restated Loan and Security
Agreement , dated as of June 29, 1999, among the Obligors, Congress Financial
Corporation (Florida), as administrative agent, Ableco Finance LLC, as
collateral agent, and the lenders named therein.
Senior Credit Facility - means and includes:
(a) the Senior Credit Agreement, for so long as the Senior Credit
Agreement remains in effect, as amended, modified or supplemented in
accordance with Section 4.17(a); and
(b) any other Senior Secured Funded Debt of the Company, which has
refinanced, renewed, replaced or extended the Senior Debt governed by the
terms of either the Senior Credit Agreement or a predecessor Senior Credit
Facility, which both the Company and the Senior Agent under the predecessor
Senior Credit Facility (or, if no such other agreement is then in effect,
by the Company) have designated in writing to each holder of Notes as being
a "Senior Credit Facility;" provided, however, that, by making such
designation, the predecessor Senior Credit Facility shall cease to be the
Senior Credit Facility (but any Debt outstanding or incurred thereunder
shall continue to be Senior Debt for so long as such Debt meets the
definition thereof), and which is incurred in compliance with Section
4.17(b).
Senior Debt - means and includes:
(a) all Senior Bank Obligations, in an aggregate amount not greater
than that permitted pursuant to Section 4.6(a)(ii); and
(b) all principal and interest and other obligations on other Debt of
the Company incurred or otherwise created in compliance with Section
4.6(a)(iii), to the extent that, and only to the extent that, either such
Debt is incurred under a Senior Credit Facility or the Company shall have
identified such Debt, and the holder thereof, to each holder of Notes in
writing as Senior Debt, together with a certificate of a Senior Financial
Officer demonstrating that the incurrence thereof complies with the
provisions of Section 4.6(a)(iii), together with any Guaranty of such
amounts;
provided, however, that "Senior Debt" shall not include under any circumstances:
(i) any Debt (other than Junior Subordinated Debt) that, by its
terms or the terms of any ancillary agreement with the holders of such
Debt, is expressed to be subordinated in right of payment to any other
Debt of the Company or any Subsidiary, (other than the Subordinated
Debt), all of which Debt shall be pari passu with the Subordinated
Debt;
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(ii) any Junior Subordinated Debt; and
(iii) any Debt incurred in violation of the provisions of Section
4.6.
For the avoidance of doubt, trade indebtedness, the deferred purchase price of
Property (including accounts payable arising in the ordinary course of business
and all liabilities created or arising under any conditional sale or other title
retention agreement with respect to any such Property), Capital Leases and all
other Debt other than Debt for borrowed money (whether or not secured by any
Lien or Guaranteed by the Company) shall not be "Senior Debt" hereunder. The
Senior Debt shall continue to be Senior Debt and entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of the Senior Debt or extension or renewal of the Senior Debt.
Senior Debt Blockage Period - Section 7.3(c).
Senior Debt Event of Default - Section 7.3(c).
Senior Debt Event of Default Notice - Section 7.3(c).
Senior Financial Officer - means any one of the chief financial officer,
the treasurer, the controller and the principal accounting officer of the
Company.
Senior Officer - means any one of the chairman of the Board of Directors,
the chief executive officer, the chief operating officer and the president of
the Company.
Senior Secured Funded Debt - means, with respect to any Persons at any
time, all Funded Debt of such Persons which both:
(a) meets the definition of "Senior Debt;" and
(b) is secured by any Lien.
Serial Put Agreement - means the Serial Put Agreement, entered into as of
September 22, 1997, among the Company, Doug Zadow and Terry Bastian.
Series IV Warrants -- means the Parent's series IV common stock purchase
warrants.
Share Purchase Rights - means the preferred share purchase rights issued
pursuant to the Share Purchase Rights Agreement.
Share Purchase Rights Agreement - means the Rights Agreement, dated as of
October 23, 1998, between the Parent and American Stock Transfer & Trust
Company, as Rights Agent, as amended and modified from time to time in
accordance with its terms.
Subordinated Debt - means the principal amount of the Debt evidenced by the
Notes, together with any interest (including any interest accruing after the
commencement of any Insolvency Proceeding and any interest that would have
accrued but for the commencement of any Insolvency Proceeding, whether or not
such interest is allowed as an enforceable claim in such Insolvency Proceeding),
and Compensation
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Amount and other premium and other amount (including any fee or expense) due
thereon or payable, if any, with respect thereto, including any such amounts
payable by any Obligor pursuant to the Affiliate Guaranty and any indemnity
obligation of the Company or any Subsidiary and any claim of any holder of any
Note for fraud, recission or the like.
Subsidiary - means, at any time, each corporation, association, limited
liability company or other business entity which qualifies as a subsidiary of
the Company that is properly included in a consolidated financial statement of
the Company and its subsidiaries in accordance with GAAP at such time.
Subsidiary Stock - Section 4.9(b).
Successor Corporation - Section 4.8(a).
Term Loan Facility - means and includes each term loan or other
non-revolving loan under a Senior Credit Facility providing for a borrowing of
money in an a specified amount or amounts at one or more specified times, which
loans are required to be repaid at one or more times and which may not be
reborrowed from time to time.
Total Funded Debt - means, with respect to any Persons, at any time, all
Funded Debt of such Persons at such time.
Transfers - means and includes, with respect to any Property, any sales,
leases, transfers or other dispositions of such Property; the term "Transfer,"
when used as a verb with respect to any Property, means to sell, lease as
lessor, transfer or otherwise dispose of such Property; and the term
"Transferred" has a correlative meaning.
Voting Stock - means, with respect to any corporation, any shares of stock
of such corporation whose holders are entitled under ordinary circumstances to
vote for the election of directors of such corporation (irrespective of whether
at the time any stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency), and, in the case of
the Parent, shall include the Parent Common Stock and in the case of the Company
shall include the Company Common Stock.
Weighted Average Life to Maturity - means, with respect to any Debt at any
time, the number of years obtained by dividing the then Remaining Dollar-Years
of such Debt by the then-outstanding principal amount of such Debt.
For purposes of this definition:
Remaining Dollar-Years - means the result obtained by:
(a) multiplying, in the case of each then remaining scheduled payment
of principal payable in respect of such Debt:
(i) an amount equal to such scheduled payment of principal; by
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(ii) the number of years (calculated to the nearest one-twelfth)
that will elapse between the date of determination and the date such
payment is due; and
(b) calculating the sum of each of the products obtained in the
preceding subsection (a).
Wholly-Owned Subsidiary - means, at any time, any Subsidiary one hundred
percent (100%) of all of the Capital Stock (except directors' qualifying
shares), Voting Stock and Rights of which are owned by any one or more of the
Company and the Company's other Wholly-Owned Subsidiaries at such time.
8.2 Accounting Principles.
(a) Generally. Unless otherwise provided herein, all financial
statements delivered in connection herewith will be prepared in accordance
with GAAP, provided that if there are any changes in GAAP after the Closing
Date, the financial reporting required by Sections 5.1(a), 5.1(b) and
5.1(c) shall be produced both under GAAP as then in effect and also under
GAAP as in effect on the Closing Date. Determination of compliance with the
covenants contained in Section 4 and related definitions shall be made in
accordance with GAAP as in effect on the Closing Date.
(b) Consolidation. Whenever accounting amounts of a group of Persons
are to be determined "on a consolidated basis" it shall mean that, as to
balance sheet amounts to be determined as of a specific time, the amount
that would appear on a consolidated balance sheet of such Persons prepared
as of such time, and as to income statement amounts to be determined for a
specific period, the amount that would appear on a consolidated income
statement of such Persons prepared in respect of such period, in each case
with all transactions among such Persons eliminated, and prepared in
accordance with GAAP except as otherwise required hereby.
(c) Currency. With respect to any determination, consolidation or
accounting computation required hereby, any amounts not denominated in the
currency in which this Agreement specifies shall be converted to such
currency in accordance with the requirements of GAAP (as such requirements
relate to such determination, consolidation or computation) and, if no such
requirements shall exist, converted to such currency in accordance with
normal banking procedures, at the closing rate as reported in The Wall
Street Journal published most recently as of the date of such
determination, consolidation or computation or, if no such quotation shall
then be available, as quoted on such date by any bank or trust company
reasonably acceptable to the Required Holders.
8.3 Directly or Indirectly.
Where any provision herein refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, including
actions taken by or on behalf of any partnership in which such Person is a
general partner.
8.4 Section Headings and Table of Contents and Construction.
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(a) Section Headings and Table of Contents, etc. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement
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 Agreement as a whole and not to any
particular Section or other subdivision. References to Sections are, unless
otherwise specified, references to Sections of this Agreement. References
to Annexes and Exhibits are, unless otherwise specified, references to
Annexes and Exhibits attached to this Agreement.
(b) Construction. Each covenant contained herein shall be construed
(absent an express contrary provision herein) as being independent of each
other covenant contained herein, and compliance with any one covenant shall
not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
8.5 Governing Law.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE
LAW OF ANY OTHER JURISDICTION. IN ADDITION, THE PARTIES HERETO SELECT, TO THE
EXTENT THEY MAY LAWFULLY DO SO, THE INTERNAL LAWS OF THE STATE OF NEW YORK AS
THE APPLICABLE INTEREST LAW.
8.6 General Interest Provisions.
(a) Interest in Respect of the Notes. It is the intention of the
Company and the Purchasers to conform strictly to the Applicable Interest
Law. Accordingly, it is agreed that, notwithstanding any provisions to the
contrary in this Agreement or in the Notes, the aggregate of all interest,
and any other charges or consideration constituting interest under the
Applicable Interest Law that is taken, reserved, contracted for, charged or
received pursuant to this Agreement or the Notes shall under no
circumstances exceed the maximum amount of interest allowed by the
Applicable Interest Law. If any such excess interest is ever charged,
received or collected on account of or relating to this Agreement and the
Notes (including any charge or amount which is not denominated as
"interest" but is legally deemed to be interest under Applicable Interest
Law), then in such event:
(i) the provisions of this Section 8.6 shall govern and control;
(ii) the Company shall not be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of
interest allowed by the Applicable Interest Law;
(iii) any excess shall be deemed a mistake and cancelled
automatically and, if theretofore paid, shall be credited to the
principal amount of the Notes by the holders thereof, and if the
principal balance of the Notes is paid in full, any remaining excess
shall be forthwith paid to the Company; and
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(iv) the effective rate of interest shall be automatically
subject to reduction to the Maximum Legal Rate of Interest.
If at any time thereafter, the Maximum Legal Rate of Interest is increased,
then, to the extent that it shall be permissible under the Applicable Interest
Law, the Company shall forthwith pay to the holders of the Notes, on a pro rata
basis, all amounts of such excess interest that the holders of the Notes would
have been entitled to receive pursuant to the terms of this Agreement and the
Notes had such increased Maximum Legal Rate of Interest been in effect at all
times when such excess interest accrued. To the extent permitted by the
Applicable Interest Law, all sums paid or agreed to be paid to the holders of
the Notes for the use, forbearance or detention of the indebtedness evidenced
thereby shall be amortized, prorated, allocated and spread throughout the full
term of the Notes.
(b) Effect of Issuance of Notes Together with Common Shares. The
Company and the Purchasers agree, to the extent permitted by the Applicable
Interest Law, that, for purposes of computing the interest in respect of
the Notes under the Applicable Interest Law:
(i) the aggregate purchase price of the Notes shall equal the
difference of:
(A) the initial aggregate principal amount of the Notes; and
(B) the amount of original issue discount attributable to
the Notes in respect of the issuance of the Common Shares
together with the Notes;
(ii) the amount of original issue discount attributable to the
Notes in respect of the issuance of the Common Shares shall be deemed
to be the purchase price of the Common Shares;
(iii) the Common Shares and the Notes shall be deemed to have
been separately issued for the respective purchase prices set forth
above; and
(iv) no portion of the return, if any, to the holders of the
Common Shares in respect of their investment therein shall be deemed
to be interest in respect of the Notes.
9. MISCELLANEOUS
9.1 Communications.
(a) Method; Address. All communications hereunder or under the Notes
shall be in writing and shall be delivered either by nationwide overnight
courier or by facsimile transmission (confirmed by delivery by nationwide
overnight courier sent on the day of the sending of such facsimile
transmission). Communications to the Company shall be addressed as set
forth on Annex 2, or at such other address of which the Company shall have
notified each holder of Notes. Communications to the holders of the Notes
shall be addressed as set forth on Annex 1 by such holder, or at such other
address of which such holder shall have notified the Company (and the
Company shall record such address in the register for the registration and
transfer of Notes maintained pursuant to Section 2.1).
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(b) When Given. Any communication addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the
address of the addressee (whether or not delivery is accepted) or received
by the telecopy machine of the recipient. Any communication not so
addressed and delivered shall be ineffective.
(c) Service of Process. Notwithstanding the foregoing provisions of
this Section 9.1, service of process in any suit, action or proceeding
arising out of or relating to this agreement or any document, agreement or
transaction contemplated hereby, or any action or proceeding to execute or
otherwise enforce any judgment in respect of any breach hereunder or under
any document or agreement contemplated hereby, shall be delivered in the
manner provided in Section 9.7(c).
9.2 Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by you at the closing of your purchase of the Notes (except
the Notes themselves), and financial statements, certificates and other
information previously or hereafter furnished to any holder of Notes, may be
reproduced by the Company or any holder of Notes by any photographic,
photostatic, microfilm, micro-card, miniature photographic, digital or other
similar process and each holder of Notes may destroy any original document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by the
Company or such holder of Notes in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. Nothing in this Section 9.2 shall prohibit
the Company or any holder of Notes from contesting the accuracy or validity of
any such reproduction.
9.3 Survival; Entire Agreement.
All warranties, representations, certifications and covenants contained
herein, in the Securities Purchase Agreement or in any certificate or other
instrument delivered hereunder shall be considered to have been relied upon by
the other parties hereto and shall survive the delivery to you of the Notes
regardless of any investigation made by or on behalf of any party hereto. All
statements in any certificate or other instrument delivered pursuant to the
terms hereof or of the Securities Purchase Agreement shall constitute warranties
and representations hereunder. All obligations hereunder (other than payment of
the Notes, but including, without limitation, reimbursement obligations in
respect of costs, expenses and fees) shall survive the payment of the Notes and
the termination hereof. Subject to the preceding sentence, this Agreement, the
Notes and the other Financing Documents embody the entire agreement and
understanding among the Company and the Purchasers, and supersede all prior
agreements and understandings, relating to the subject matter hereof.
9.4 Successors and Assigns.
This Agreement 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
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holder of rights hereunder shall have been made by any holder. Anything
contained in this Section 9.4 notwithstanding, the Company may not assign any of
its respective rights, duties or obligations hereunder or under any of the other
Financing Documents without the prior written consent of all holders of Notes.
For purposes of the avoidance of doubt, any holder of a Note shall be permitted
to pledge or otherwise grant a Lien in and to such Note (including, without
limitation, pledging such Note to a trustee for the benefit of certain secured
noteholders pursuant to documents relating to the financing of such holder or to
one or more banks or other institutions providing financing in connection with
the purchase by such holder of such Note); provided, however, that any such
pledgee or holder of a Lien shall not be considered a holder hereunder until it
shall have foreclosed upon such Note in accordance with applicable law and
informed the Company, in writing, of the same.
9.5 Amendment and Waiver.
(a) Requirements. This Agreement may be amended, and the observance of
any term hereof may be waived, with (and only with) the written consent of
the Company and the Required Holders; provided, however, that no such
amendment or waiver shall, without the written consent of the holders of
all Notes (exclusive of Notes held by any Obligor or any Affiliate) at the
time outstanding;
(i) change the amount or time of any prepayment or payment of
principal or Compensation Amount or the rate or time of payment of
interest;
(ii) without the consent of the holders of the Senior Debt, amend
or waive the provisions of Section 6.1, Section 6.2, Section 6.3 or
Section 7, or amend or waive any defined term to the extent used
therein;
(iii) amend or waive the definition of "Required Holders;" or
(iv) amend or waive this Section 9.5 or amend or waive any
defined term to the extent used herein.
The holder of any Note may specify that any such written consent executed by it
shall be effective only with respect to a portion of the Notes held by it (in
which case it shall specify, by dollar amount, the aggregate principal amount of
Notes with respect to which such consent shall be effective) and in the event of
any such specification such holder shall be deemed to have executed such written
consent only with respect to the portion of the Notes so specified.
No amendment, supplement or modification of the provisions of Section 7, or
any defined term to the extent used therein, shall be effective as to any holder
of Senior Debt who has not consented to such amendment, supplement or
modification.
(b) Solicitation of Noteholders.
(i) Solicitation. Each holder of the Notes (irrespective of the
amount of Notes then owned by it) shall be provided by the Company
with all material information provided by the Company to any other
holder of Notes with respect to any proposed waiver or amendment of
any of the provisions hereof or the Notes. Executed or true and
correct
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copies of any amendment or waiver effected pursuant to the provisions
of this Section 9.5 shall be delivered by the Company to each holder
of outstanding Notes within five (5) Business Days following the date
on which such amendment or waiver becomes effective.
(ii) Payment. No Obligor or Affiliate shall, directly or
indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, or grant any
security, to any holder of Notes as consideration for or as an
inducement to the entering into by any holder of Notes of any waiver
or amendment of any of the provisions hereof or of the Notes unless
such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to the holders of all Notes then
outstanding.
(iii) Scope of Consent. Any amendment or waiver made pursuant to
this Section 9.5 by a holder of Notes that has transferred or has
agreed to transfer its Notes to any Obligor or any Affiliate and has
provided or has agreed to provide such amendment or waiver as a
condition to such transfer shall be void and of no force and effect
except solely as to such holder, and any amendments effected or
waivers granted that would not have been or would not be so effected
or granted but for such amendment or waiver (and the amendments or
waivers of all other holders of Notes that were acquired under the
same or similar conditions) shall be void and of no force and effect,
retroactive to the date such amendment or waiver initially took or
takes effect, except solely as to such holder.
(c) Binding Effect. Except as provided in Section 9.5(b)(iii), any
amendment or waiver consented to as provided in this Section 9.5 shall
apply equally to all holders of Notes and shall be binding upon them and
upon each future holder of any Note and upon the Company whether or not
such Note shall have been marked to indicate such amendment or waiver. No
such amendment or waiver shall extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or
waived or impair any right consequent thereon.
9.6 Expenses.
(a) Amendments and Waivers. The Company shall pay when billed the
reasonable costs and expenses (including reasonable attorneys' fees)
incurred by the holders of the Notes in connection with the consideration,
negotiation, preparation or execution of any amendments, waivers, consents,
standstill agreements and other similar agreements with respect to this
Agreement or any other Financing Document (whether or not any such
amendments, waivers, consents, standstill agreements or other similar
agreements are executed).
(b) Restructuring and Workout, Inspections. At any time when the
Company and the holders of Notes are conducting restructuring or workout
negotiations in respect hereof, or a Default or Event of Default exists,
the Company shall pay when billed the reasonable costs and expenses
(including reasonable attorneys' fees and the reasonable fees of
professional advisors) incurred by the holders of the Notes in connection
with the assessment, analysis or enforcement of any rights or remedies that
are or may be available to the holders of Notes, including, without
limitation, in connection with inspections made pursuant to Section 5.4;
provided, however, that at all other times inspections will be at the
expense of the inspecting holder of Notes.
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(c) Collection. If the Company shall fail to pay when due any
principal of, or Compensation Amount or interest on, any Note, the Company
shall pay to each holder of Notes, to the extent permitted by law, such
amounts as shall be sufficient to cover the costs and expenses, including
but not limited to reasonable attorneys' fees, incurred by such holder in
collecting any sums due on such Note.
9.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc.
(a) Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR
ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY.
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY OF THE DOCUMENTS,
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING
TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER
THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY MAY BE
BROUGHT BY SUCH PARTY IN ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK
CITY, NEW YORK OR ANY NEW YORK STATE COURT LOCATED IN NEW YORK CITY, NEW
YORK AS SUCH PARTY MAY IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION
AND DELIVERY OF THIS AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF
EACH SUCH COURT, AND EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES AND
AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE
IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN
ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY AGREES THAT
PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE
ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT
PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY DOCUMENT,
AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY, OR ANY ACTION OR PROCEEDING
TO EXECUTE OR
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OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER
ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED
SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED
BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT
THE ABILITY OF ANY HOLDER OF NOTES TO SERVE ANY WRITS, PROCESS OR SUMMONSES
IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER
THE COMPANY IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE
PERMITTED BY APPLICABLE LAW.
9.8 Indemnification of Each Holder.
From and at all times after the date of this Agreement, and in addition to
all other rights and Remedies against the Company, the Company agrees to
indemnify and hold harmless each holder of Notes and each of its directors,
officers, partners, employees, agents, investment advisors and affiliates
(collectively, the "Indemnified Parties") against any and all claims (whether
valid or not), losses, damages, liabilities, costs and expenses of any kind or
nature whatsoever (including, without limitation, reasonable attorneys' fees,
costs and expenses), incurred by or asserted against any such Indemnified Party,
from and after the date hereof, whether direct, indirect or consequential, as a
result of or arising from or in any way relating to any suit, action or
proceeding (including any inquiry or investigation) by any Person, whether
threatened or initiated, asserting a claim for any legal or equitable remedy
against any Person under any statute or regulation, including, but not limited
to, any federal or state securities laws, or under any common law or equitable
cause or otherwise, arising from or in connection with the negotiation,
preparation, execution, performance or enforcement of this Agreement or the
other Financing Documents or any transactions contemplated herein or therein, or
any of the transactions contemplated hereunder (colletively, "Proceedings"),
whether or not such Indemnified Party is a party to or target of any such
Proceeding; provided, however, that no Indemnified Party shall have the right to
be indemnified hereunder for any liability resulting from the willful misconduct
or gross negligence of such Indemnified Party or breach by such Indemnified
Party of its own obligations under this Agreement. All of the foregoing losses,
damages, costs and expenses shall be payable as and when incurred upon the
demand of each holder. Without limiting the generality of the foregoing, each
such indemnified Person shall be entitled to collect, and the Company shall be
obligated to advance to each such Person, to the fullest extent permitted by
applicable law, all expenses (including, without limitation, reasonable fees and
disbursements of counsel) attendant to defending against any such claims
(whether valid or not), losses, damages, liabilities, costs and expenses when
and as incurred, regardless of whether any judicial determination of entitlement
to such indemnity has been made, until or unless a final judicial determination
that such Indemnified Party is not entitled to such indemnity, in which case,
such Indemnified Party shall promptly repay to the Company, with interest at the
applicable statutory rate applicable to judgments in the relevant jurisdiction,
all amounts so advanced by the Company. The obligations of the Company and the
rights under this Section 9.8 of each holder of Notes shall survive the
termination of this Agreement and the payment of the Notes.
If any Proceeding shall be brought or asserted or threatened to be brought
or asserted against an Indemnified Party in respect of which indemnity may be
sought from the Company hereunder, such
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Indemnified Party shall promptly notify the Company in writing, and the Company
may, in its sole discretion, promptly upon receipt of such notice, assume the
defense thereof, including the employment of counsel (who may be counsel for the
Company) reasonably satisfactory to such Indemnified Party and the payment of
all expenses therefor. If the Company elects to assume the defense of any such
Proceeding, the Indemnified Party shall have the right, in its sole discretion,
to employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless:
(a) the Company has agreed to pay such fees and expenses;
(b) the Company shall have elected not to assume the defense of such
Proceeding or shall have failed to promptly assume the defense of
Proceeding or shall have failed to employ counsel reasonably satisfactory
to such Indemnified Part in any such Proceeding; or
(c) the named parties to any such Proceeding (including any impleded
parties) include both such Indemnified Party and the Company and such
Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to such Indemnified Party that are
different from or additional to those available to the Company (in which
case, if such Indemnified Party notifies the Company in writing that it
elects to employ separate counsel at the expense of the Company, the
Company shall not have the right to assume the defense of such Proceeding
on behalf of such Indemnified Party, it being understood, however, that the
Company shall not, in connection with any one such Proceeding or separate
but substantially similar or related Proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
the reasonable fees and expenses or more than one separate firm of
attorneys at any time for such Indemnified Party and any other Indemnified
Parties, which firm shall be designated in writing by such Indemnified
Parties).
The Company shall not be liable for any settlement of any Proceeding by an
Indemnified Party effected without the Company's written consent (which consent
shall not be unreasonably withheld). In addition, the Indemnified Party shall
cooperate with the Company and their representatives in connection with the
defense or investigation of any claim or other matter for which indemnification
is sought, as reasonably requested by the Company.
9.9 Execution in Counterpart.
This Agreement 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.
[Remainder of page intentionally blank. Next page is signature page.]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered by one of its duly authorized officers or
representatives.
QUESTRON OPERATING COMPANY, INC.
By: /s/ Dominic A. Polimeni
--------------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief Executive
Officer
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, L.L.C.
By: Alliance Investment Opportunities Management,
LLC, its Managing Member
By: Alliance Capital Management L.P., its
Managing Member
By: Alliance Capital Management Corporation, its
General Partner
By: /s/ Sheryl A. Rothman
--------------------------------
Name: Sheryl A. Rothman
Title: Vice President
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By: /s/ U. Peter C. Gummeson
--------------------------------
Name: U. Peter C. Gummeson
Title: Investment Officer
<PAGE>
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Kevin P. Falvey
--------------------------------
Name: Kevin P. Falvey
Title: Director
<PAGE>
<TABLE>
<CAPTION>
ANNEX 1
ADDRESSES OF PURCHASERS; PAYMENT INSTRUCTIONS
<S> <C>
Purchaser Name ALBION ALLIANCE MEZZANINE FUND, L.P.
Name in which Note is Registered ALBION ALLIANCE MEZZANINE FUND, L.P.
Note Registration Number; Principal Amount R-1; $7,000,000
Payments on Account of Note
Method Federal Funds Wire Transfer
Account Information Chase Manhattan Bank, N.A.
New York, New York 10019
ABA # 021 000 021
For the Account: Albion Alliance Mezzanine Fund, L.P.
Account #910-2-795953
Re: See "Accompanying Information" below
Accompanying Information Name of Company: Questron Operating Company, Inc.
Description of
Security: 14.50% Senior Subordinated Note due June 30, 2005
PPN: 74837# AA 8
Due Date and Application (as
among principal, premium and
interest) of the payment being
made:
Address for Notices Related Albion Alliance Mezzanine Fund, L.P.
to Payments c/o Alliance Capital Management, L.P.
135 West 50th Street, 6th Floor
New York, NY 10020
Attn: Cash Operations
Annex 1-1
<PAGE>
Purchaser Name ALBION ALLIANCE MEZZANINE FUND, L.P.
Address for All Other Notices Albion Alliance Mezzanine Fund, L.P.
c/o Albion Alliance LLC
1345 Avenue of the Americas
New York, NY 10105
Attn: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
Other Instructions Signature Page Format:
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC, its General Partner
By___________________________
Name:
Title:
Tax Identification Number 13-3975300
Annex 1-2
<PAGE>
Purchaser Name ALLIANCE INVESTMENT OPPORTUNITIES FUND, L.L.C.
Name in which Note is INLETSIDE & Co.
Registered
Note Registration Number; R-2; $5,000,000
Principal Amount
Payments on Account of Note
Method Federal Funds Wire Transfer
Account Information State Street Bank & Trust Co.
ABA No. 011 0000 28
Attn: Mutual Fund Services
Ref: Alliance Investment Opportunities
Fund-M376
Account No. 5985-0420
Re: See "Accompanying Information" below
Accompanying Information Name of Company: Questron Operating Company, Inc.
Description of
Security: 14.50% Senior Subordinated Note due
June 30, 2005
PPN: 74837# AA 8
Due Date and Application (as among principal, premium and
interest) of the payment being made:
Address for Notices Related Alliance Capital Management
to Payments 1345 Avenue of the Americas
New York, NY 10105
Attn: Elizabeth Hennessey
Tel: (212) 969-2341
Fax: (212) 969-6923
Annex 1-3
<PAGE>
Purchaser Name ALLIANCE INVESTMENT OPPORTUNITIES FUND, L.L.C.
Address for All Other Notices Alliance Investment Opportunities Fund
c/o Albion Alliance LLC
1345 Avenue of the Americas
New York, NY 10105
Attn: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
and to:
Alliance Capital Management
1345 Avenue of the Americas
New York, NY 10105
Attn: Elizabeth Hennessey
Tel: (212) 969-2341
Fax: (212) 969-6953
Other Instructions Signature Page Format:
ALLIANCE INVESTMENT OPPORTUNITIES FUND
By: Alliance Investment Opportunities Management, L.L.C.,
as Managing Member
By: Alliance Capital Management L.P., as Managing
Member
By: Alliance Capital Management Corporation, as General
Partner
By___________________________
Title:
Tax Identification Number ###-##-####
Annex 1-4
<PAGE>
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
Name in which Note is THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
Registered UNITED STATES
Note Registration Number; R-3; $5,000,000
Principal Amount
Payments on Account of Note
Method
Federal Funds Wire Transfer
Account Information
Chase Manhattan Bank
New York, New York 10019
ABA # 021 000 021
For the Account: The Equitable Life Assurance Society of the
United States
Account No. 037-2-409417
Re: See "Accompanying Information" below
Accompanying Information Name of Company: Questron Operating Company, Inc.
Description of
Security: 14.50% Senior Subordinated Note due
June 30, 2005
PPN: 74837# AA 8
Due Date and Application (as among principal, premium and
interest) of the payment being made:
Address for Notices Related The Equitable Life Assurance Society of the United States
to Payments c/o Alliance Capital Management, L.P.
500 Plaza Drive - 6th Floor
Secaucus, NY07094
Attn: Cash Operations
Address for All Other Notices The Equitable Life Assurance Society of the United States
c/o Albion Alliance LLC
1345 Avenue of the Americas
New York, NY 10105
Attn: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
Annex 1-5
<PAGE>
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
Other Instructions Signature Page Format:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES
By___________________________
Name:
Title:
Tax Identification Number 13-3975300
Annex 1-6
<PAGE>
Purchaser Name IBJ WHITEHALL BANK & TRUST COMPANY
Name in which Note is IBJ WHITEHALL BANK & TRUST COMPANY
Registered
Note Registration Number; S-4; $3,000,000
Principal Amount
Payments on Account of Note
Method
Federal Funds Wire Transfer
Account Information
IBJ Whitehall Bank & Trust Company
ABA No. 026-007-825
Attn: Commercial Loan Department, William Reyes
Re: See "Accompanying Information" below
Accompanying Information Name of Company: Questron Operating Company, Inc.
Description of
Security: 14.50% Senior Subordinated Note due
June 30, 2005
PPN: 74837# AA 8
Due Date and Application (as among principal, premium and
interest) of the payment being made:
Address for Notices Related IBJ Whitehall Bank & Trust Company
to Payments One State Street
New York, NY 10004
Attn: Frank Delillo
Re: Questron Technology, Inc.
Fax: (212) 858-2768
Address for All Other Notices IBJ Whitehall Bank & Trust Company
One State Street, 9th Floor
New York, NY 10004
Attn: Jean-Louis Pernin
Fax: (212) 858-2768
Annex 1-7
<PAGE>
Purchaser Name IBJ WHITEHALL BANK & TRUST COMPANY
Other Instructions Signature Page Format:
IBJ WHITEHALL BANK & TRUST COMPANY
By___________________________
Name:
Title:
Tax Identification Number 135375195
</TABLE>
Annex 1-8
<PAGE>
ANNEX 2
ADDRESS OF COMPANY
Questron Operating Company, Inc.
6400 Congress Ave., Suite 200A
Boca Raton, Florida 33487
Telephone: 561-241-5251
Facsimile: 561-241-2866
Attn:
Annex 2-1
<PAGE>
ATTACHMENT A
[FORM OF NOTE]
THE PAYMENT OF THIS NOTE AND THE RIGHTS OF THE HOLDER OF THIS NOTE ARE
SUBORDINATED TO THE PAYMENT OF SENIOR DEBT AND THE RIGHTS OF THE
HOLDERS OF SENIOR DEBT UPON THE TERMS OF SUBORDINATION SET FORTH IN
THE NOTE AGREEMENT (DEFINED BELOW).
QUESTRON OPERATING COMPANY, INC.
14.50% SENIOR SUBORDINATED NOTE DUE JUNE 30, 2005
No. R-__ PPN: _____________
$_______ June __, 1999
QUESTRON OPERATING COMPANY, INC. (together with its successors, the
"Company"), a Delaware corporation, for value received, hereby promises to pay
to ______ or registered assigns the principal sum of ______ DOLLARS ($______) on
June 30, 2005, and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the unpaid principal balance hereof from the date of
this Note at the rate of fourteen and fifty one-hundreds percent (14.50%) per
annum, in arrears, quarterly on each September 30, December 31, March 31 and
June 30 of each year, commencing on the later of September 30, 1999 and the
payment date next succeeding the date hereof, until the principal amount hereof
shall become due and payable; and to pay on demand interest on any overdue
principal (including any overdue partial payment of principal and principal
payable at the maturity hereof) and Compensation Amount, if any, and (to the
extent permitted by applicable law) on any overdue installment of interest (the
due date of such payments to be determined without giving effect to any grace
period), at a rate per annum equal to the lesser of (a) the highest rate allowed
by applicable law and (b) the greater of (i) sixteen and fifty one-hundredths
percent (16.50%), and (ii) two percent (2%) over the rate of interest publicly
announced from time to time by Morgan Guaranty Trust Company of New York in New
York, New York as its "base" or "prime" rate. The Company may pay a portion of
such scheduled interest payments by adding it to the outstanding principal
amount of this Note, in lieu of paying such interest in cash, all as further
provided in Section 1.1 of the Note Agreement (defined below).
Payments of principal, Compensation Amount, if any, interest and all other
amounts due in respect hereof shall be made in such coin or currency of the
United States of America as at the time of payment is legal tender for the
payment of public and private debts to the registered holder hereof at the
address shown in the register maintained by the Company for such purpose, in the
manner provided in the Note Agreement (defined below).
This Note is one of an issue of Notes of the Company issued in an aggregate
principal amount limited to Twenty Million Dollars ($20,000,000) pursuant to the
Note Agreement (as may be amended, restated or otherwise modified from time to
time, the "Note Agreement"), dated as of June 29, 1999, among the Company and
the purchasers listed on Annex 1 thereto. The holder of this Note is entitled to
the benefits of the Note Agreement. This Note is subject to the terms of the
Note Agreement, and such terms are incorporated herein by reference. Capitalized
terms used herein and not defined herein have the meanings specified in the Note
Agreement.
Attachment A-1
<PAGE>
As provided in the Note Agreement, this Note is subject to prepayment, in
whole or in part, in certain cases without a Compensation Amount and in other
cases with a Compensation Amount, on the terms and subject to the conditions set
forth in the Note Agreement. The holder of this Note, on the terms and subject
to the conditions set forth in the Note Agreement, may elect to have the Company
prepay the entire principal amount of this Note (together with any applicable
Change in Control Compensation Amount) in connection with a Change of Control.
All of the principal of this Note (together with any applicable Compensation
Amount) may, under certain circumstances, be declared due and payable in the
manner and with the effect provided in the Note Agreement.
The holder of this Note is hereby authorized by the Company to record (in
good faith) in its manual or data processing records, and/or on Schedule A
annexed to this Note, the date and amount of each addition of capitalized
interest to principal, and the date and amount of each repayment of such
principal and each payment of interest on account of such outstanding principal.
In the absence of manifest error, such records and Schedule shall be conclusive
as to the outstanding principal amount of this Note and the payment of interest
accrued hereunder; provided, that the failure to make any such record entry with
respect to any addition of capitalized interest to principal or any payment of
principal or interest shall not limit or otherwise affect the obligations of the
Company under this Note.
This Note is a registered Note and is transferable only by surrender at the
principal office of the Company as specified in the Note Agreement, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
The obligations evidenced by this Note are subordinated to the Senior Debt
on the terms provided in the Note Agreement.
THIS NOTE AND THE NOTE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE
LAW OF ANY OTHER JURISDICTION.
QUESTRON OPERATING COMPANY, INC.
By:________________________________
Name:
Title:
Attachment A-2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A TO NOTE NO. R-__
<S> <C> <C> <C> <C> <C>
====================================================================================================================================
Date of Cash Interest Original Balance Amount of Interest Amount of Interest Amount of Principal Aggregate Unpaid
Payment or Principal of Principal Paid in Cash Added to Principal Prepaid Balance of Principal
Addition or
Payment/Initials of
Person Making Entry
- ------------------------------------------------------------------------------------------------------------------------------------
/
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/
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/
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/
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/
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/
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/
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/
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/
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/
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/
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</TABLE>
EXHIBIT 10.3
================================================================================
QUESTRON TECHNOLOGY, INC.
---------------------------
INVESTORS RIGHTS AGREEMENT
---------------------------
DATED AS OF JUNE 29, 1999
680,000 SHARES OF COMMON STOCK
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
1. HOLDERS' PUT RIGHTS....................................................1
1.1 Granting of Put; Price.......................................1
1.2 Put Notice...................................................1
1.3 Acceptance, Rejection........................................2
1.4 Obligation to Purchase Purchaser Shares......................2
1.5 Limitations on Right of Repurchase...........................3
2. OFFER TO REPURCHASE UPON CHANGE IN CONTROL.............................4
2.1 Notice of Change in Control Notice Event.....................4
2.2 Offer in Respect of a Change in Control......................4
2.3 Acceptance, Rejection........................................5
2.4 Obligation to Purchase Purchaser Shares......................5
2.5 Deferral of Obligation to Purchase...........................5
2.6 Limitations on Obligation to Repurchase......................6
3. REGISTRATION RIGHTS....................................................7
3.1 Incidental Registration......................................7
3.2 Shelf Registration...........................................8
3.3 Companies Registration.......................................9
3.4 Registration Procedures......................................9
3.5 Reasonable Investigation....................................13
3.6 Registration Expenses.......................................13
3.7 Indemnification; Contribution...............................13
3.8 Holdback Agreements; Registration Rights to Others..........16
3.9 Availability of Information.................................17
3.10 Material Development Election...............................17
4. ANTI-DILUTION PROTECTION..............................................18
4.1 Repurchases of Common Stock or Rights.......................18
4.2 Issuances of Additional Common Stock or Rights..............19
4.3 Notice of Issuance..........................................20
4.4 Closing of Issuance and Payment of Purchase Price...........21
4.5 Additional Agreements of the Parent.........................21
5. AGREEMENTS OF THE PARENT..............................................22
5.1 CUSIP Number................................................22
5.2 Financial and Business Information..........................22
5.3 Inspection..................................................23
6. RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS.........................24
6.1 Restrictions on Transfer....................................24
6.2 Legending of Certificates...................................24
6.3 Securities Act Restrictions; Legend.........................24
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
6.4 Termination of Restrictions..................................25
7. DEFINED TERMS..........................................................25
7.1 Terms Defined................................................25
7.2 Accounting Principles........................................36
7.3 Directly or Indirectly.......................................37
7.4 Section Headings and Table of Contents and Construction......37
7.5 Governing Law................................................37
8. MISCELLANEOUS..........................................................37
8.1 Notices......................................................38
8.2 Reproduction of Documents....................................38
8.3 Survival; Entire Agreement...................................38
8.4 Successors and Assigns.......................................39
8.5 Amendments and Waivers.......................................39
8.6 Expenses.....................................................39
8.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc...........39
8.8 Indemnification of Each Holder...............................41
8.9 Execution in Counterpart.....................................42
Annex 1 - Names and Addresses of Purchasers
Annex 2 - Address of the Parent
ii
<PAGE>
INVESTORS RIGHTS AGREEMENT
INVESTORS RIGHTS AGREEMENT, dated as of June 29, 1999, among QUESTRON
TECHNOLOGY, INC., a Delaware corporation (together with its successors and
assigns, the "Parent"), 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 (together with their
respective successors and assigns, the "Purchasers").
RECITALS
WHEREAS, pursuant to the Securities Purchase Agreement, the
Purchasers have agreed to purchase from the Parent, and the Parent has agreed to
sell to the Purchasers, six hundred eighty thousand (680,000) Common Shares; and
WHEREAS, the Parent and the Purchasers wish to enter into this
Agreement to govern the terms of the relationship between the Parent and the
Purchasers;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties to this Agreement hereby agree as
follows:
1. HOLDERS' PUT RIGHTS.
1.1 Granting of Put; Price.
If, at any time, the Company shall elect to prepay all or any portion
of the principal amount of the Notes pursuant to Section 1.3 of the Note
Agreement, then, and in each such case, the Parent shall offer to repurchase
from each holder of Purchaser Shares which either holds Notes or is an affiliate
of a holder of Notes, a number of the Purchaser Shares equal to the
Proportionate Number of Purchaser Shares, at a price per share equal to the
Market Price.
1.2 Put Notice.
The Parent will give notice of any each Put Option pursuant to this
Section 1 to each holder of Purchaser Shares not less than fifteen (15) days nor
more than sixty (60) days before the date fixed for prepayment of the Notes (the
"Put Repurchase Date"), stating:
(a) that the Company has elected to prepay Notes;
(b) the aggregate principal amount of Notes that the
Company has elected to prepay;
(c) the aggregate principal amount of Notes outstanding on
the date of the notice;
1
<PAGE>
(d) that each holder of Purchaser Shares has the right to
cause the Parent to repurchase the Proportionate Number of the
Purchaser Shares held by such holder at the Market Price;
(e) a detailed calculation, for each holder of Purchaser
Shares, of the Proportionate Number;
(f) a calculation reflecting the Market Price, calculated
as of the date of such notice;
(g) if the Market Price is based upon the Closing Prices
for the immediately preceding twenty (20) trading days, a statement
to that effect, and a statement that the actual Market Price will be
the Market Price calculated as of the actual Put Repurchase Date,
which may be greater or less than the estimated Market Price set
forth in such notice; and
(h) a description of the procedure for accepting the
offered repurchase (as set forth in Section 1.3) and stating that
holders seeking to have Purchaser Shares repurchased shall deliver
certificates representing the Purchaser Shares to be repurchased to
the Parent, together with stock powers duly endorsed, for arrival on
the Put Repurchase Date.
If the Parent shall not have received a written response to such notice from any
holder of Purchaser Shares within ten (10) Business Days prior to the Put
Repurchase Date, then the Parent shall immediately send a second notice to each
such holder of Purchaser Shares.
1.3 Acceptance, Rejection.
Each holder of Purchaser Shares shall have the option to accept or
reject such offered repurchase. In order to accept such offered repurchase, a
holder of Purchaser Shares shall cause a notice of such acceptance to be
delivered to the Parent at least five (5) days prior to the Put Repurchase Date,
specifying the number of Purchaser Shares (which shall not exceed the
Proportionate Number with respect to such holder) which such holder is electing
to have the Parent repurchase. A failure to accept in writing such written offer
of repurchase as provided in this Section 1.3, or a written rejection of such
offered repurchase, shall be deemed to constitute a rejection of such offer.
1.4 Obligation to Purchase Purchaser Shares.
The Parent shall be obligated to purchase all Purchaser Shares
requested to be purchased by any holder delivering a notice of acceptance
pursuant to Section 1.3, and shall pay the aggregate Market Price for all shares
tendered for repurchase to each such holder in immediately available funds, on
the Put Repurchase Date, against delivery by such holder of any and all
certificates or other instruments evidencing the Purchaser Shares, together with
appropriate stock powers or other instruments of transfer or assignment duly
endorsed. In the event that any holder shall deliver a certificate or
certificates representing a number of Purchaser Shares greater than the number
tendered for repurchase, the Parent, in addition to making payment for the
repurchased shares, shall promptly deliver to he holder of such certificate a
new share certificate representing the number of shares of Common Stock not
repurchased pursuant to this Section 1.
2
<PAGE>
1.5 Limitations on Right of Repurchase.
Notwithstanding anything contained in this Section 1 to the contrary,
the Parent shall not be obligated to pay the repurchase price in respect of any
Put Option, to the extent that (but only to the extent that), at any time:
(a) payment of the repurchase price at such time would
result in a breach of, or default or event of default in respect of,
the Note Agreement, the Notes or the Senior Credit Facility without
the written consent of those holders of the Notes and those lenders
under the Senior Credit Facility the consent of which would be
necessary to waive such breach, default or event of default (and,
unless each such required consent is given, the holders of the
Purchaser Shares shall not accept or be permitted to retain such
payment); or
(b) payment of the repurchase price is, at such time,
prohibited by applicable law (including, without limitation, section
160 of the Delaware General Corporation Law);
provided, however, that if any such breach, event of default, default or
violation would not result from the purchase of any number of Purchaser Shares
that is less than the total number of shares the Parent is obligated to purchase
on the Put Repurchase Date, then:
(i) the Parent shall purchase on the Put
Repurchase Date the maximum number of Purchaser Shares it
may so purchase, allocated among the holders which have
elected to have their Purchaser Shares so repurchased
ratably according to the number of Purchaser Shares so
tendered, at a purchase price, in the case of each holder,
equal to the Market Price calculated with respect to such
maximum number of shares;
(ii) at each such time thereafter as the Parent
may be permitted to purchase additional tendered and
unpurchased Purchaser Shares, the Parent shall give written
notice to the tendering holders of Purchaser Shares within
three (3) Business Days after such time and shall purchase,
on the tenth (10th) Business Day following the date such
notice is required to be given the maximum number of
Purchaser Shares it may so purchase, allocated among the
holders which have elected to have their Purchaser Shares
so repurchased ratably according to the number of remaining
tendered and unpurchased Purchaser Shares, at a purchase
price per share, in the case of each holder, equal to
either:
(A) in the event that the Lock-Up
Termination Date has occurred, the Market Price
calculated as of the Put Repurchase Date; or
(B) in the event that the Lock-Up
Termination Date has not yet occurred, the
greater of the Market Price calculated as of the
Put Repurchase Date and the Market Price,
recalculated as of the date such notice is given;
and
(iii) at any time following any failure of the
Parent to pay the repurchase price, whether as a result of
the operation of the provisions of this Section 1.5 or
otherwise, any
3
<PAGE>
holder of Purchaser Shares which has elected to have any of
such Purchaser Shares purchased by the Parent pursuant to
this Section 1 may demand that the Parent execute and
deliver to such holder, in lieu of and in satisfaction of
the obligation of the Parent to pay the repurchase price
with respect thereto, a promissory note of the Parent in a
principal amount equal to such repurchase price, which
promissory note shall bear interest, payable quarterly
after the date of such promissory note, at the rate of
sixteen and fifty one-hundredths percent (16.50%) per
annum, in arrears, and at the maturity thereof on the
unpaid principal balance of such promissory note, which
promissory note shall mature on June 30, 2005 or, if issued
on or after June 30, 2005, which shall be payable upon
demand. The form of such promissory note shall be
acceptable to the Required Holders in their discretion.
2. OFFER TO REPURCHASE UPON CHANGE IN CONTROL
2.1 Notice of Change in Control Notice Event
In the event of the obtaining of actual knowledge of a Change in
Control Notice Event by the Parent (including, without limitation, via the
receipt of notice of a Change in Control Notice Event from any holder of
Purchaser Shares), the Parent will, within three (3) Business Days after the
obtaining of such actual knowledge, give notice of such Change in Control Notice
Event to each holder of Purchaser Shares. Each such notice shall:
(a) be dated the date of the sending of such notice;
(b) refer to this Section 2; and
(c) specify, in reasonable detail, the nature and expected
date of the Change in Control which, if consummated, would result
from such Change in Control Notice Event.
2.2 Offer in Respect of a Change in Control.
In the event of a Change in Control occurring on or prior to the
Shelf Effective Date, the Parent will, within three (3) Business Days after the
occurrence of such event (or, in the case of any Change in Control the
consummation or finalization of which would involve any action of the Parent, at
least five (5) days prior to such Change in Control), give notice of such Change
in Control to each holder of Purchaser Shares. Such notice shall contain a
separate offer (which offer shall be irrevocable, except as set forth in Section
2.5) to each holder of Purchaser Shares to repurchase at the Market Price all,
but not less than all, of the Purchaser Shares held by such holder no later than
a date (as applicable, the "Change in Control Repurchase Date") specified in
such notice that is not less than twenty (20) days and not more than thirty (30)
days after the date of such notice, but in any event not later than the date of
the occurrence of such Change in Control. Each such notice shall:
(a) be dated the date of the sending of such notice;
(b) specify, in reasonable detail, the nature and expected
date of the Change in Control;
4
<PAGE>
(c) specify the Change in Control Repurchase Date;
(d) specify the number of Purchase Shares outstanding and
the number of Purchaser Shares held by each holder;
(e) a calculation reflecting the Market Price, calculated
as of the date of such notice;
(f) if the Market Price is based upon the Closing Prices
for the immediately preceding twenty (20) trading days, a statement
to that effect, and a statement that the actual Market Price will be
the Market Price calculated as of the actual Put Repurchase Date,
which may be greater or less than the estimated Market Price set
forth in such notice; and
(g) a description of the procedure for accepting the
offered repurchase (as set forth in Section 2.3) and stating that
holders seeking to have Purchaser Shares repurchased shall deliver
certificates representing the Purchaser Shares to be repurchased to
the Parent, together with stock powers duly endorsed, for arrival on
the Put Repurchase Date.
If the Parent shall not have received a written response to such notice from any
holder of Purchaser Shares within ten (10) days after the date of posting of
such notice to such holder of Purchaser Shares, then the Parent shall
immediately send a second notice to each such holder of Purchaser Shares.
In addition, the Company agrees to provide a written copy of each such notice
required either by Section 2.1 or by this Section 2.2 to Bingham Dana LLP, One
State Street, Hartford, Connecticut 06103 Attention: Gary S. Hammersmith, Esq.,
tel. 860-240-2760, facsimile 860-240-2800.
2.3 Acceptance, Rejection
Each holder of Purchaser Shares shall have the option to accept or
reject such offered repurchase. To accept such offered repurchase, a holder of
Purchaser Shares shall cause a notice of such acceptance to be delivered to the
Parent not later than fifteen (15) days after the date of receipt by such holder
of the written offer of such repurchase (it being understood that the failure by
a holder to respond to such written offer of repurchase within such period of
fifteen (15) days or the delivery of a written notice of rejection of such offer
within such period shall be deemed to constitute a rejection of such offer).
2.4 Obligation to Purchase Purchaser Shares
The Parent shall be obligated to purchase all Purchaser Shares
requested to be purchased by any holder delivering a notice of acceptance, and
shall pay the aggregate Market Price for payable to each such holder in
immediately available funds, on the Change in Control Repurchase Date, against
delivery by such holder of any and all certificates or other instruments
evidencing the Purchaser Shares, together with appropriate powers or other
instruments of transfer or assignment duly endorsed.
2.5 Deferral of Obligation to Purchase
The obligation of the Parent to repurchase Purchaser Shares pursuant
to the offers required by Section 2.2 and accepted in accordance with Section
2.3 is expressly subject to the occurrence of the Change in Control in respect
of which such offers and acceptances shall have been made. In the event that
5
<PAGE>
such Change in Control does not occur prior to the Change in Control Repurchase
Date in respect thereof, such purchase shall be deferred until and shall be made
on the date on which such Change in Control occurs or, if the Parent determines
that efforts to effect such Change in Control have ceased or have been
abandoned, or that such Change in Control will occur, if at all, after the Shelf
Effective Date, then such offer, acceptances and obligation to purchase shall be
deemed to have been rescinded without liability or penalty to any Person
hereunder. The Parent shall keep each holder of Purchaser Shares reasonably and
timely informed of:
(a) any such deferral of the date of repurchase;
(b) the date on which such Change in Control and the
repurchase are expected to occur; and
(c) any determination by the Parent that efforts to effect
such Change in Control have ceased or been abandoned or that the
Change in Control will occur, if at all, after the Shelf Effective
Date.
2.6 Limitations on Obligation to Repurchase
Notwithstanding anything contained in this Section 2 to the contrary,
the Parent shall not be obligated to pay the repurchase price in respect of any
Put Option, to the extent that (but only to the extent that), at any time:
(a) payment of the repurchase price at such time would
result in a breach of, or default or event of default in respect of,
the Note Agreement, the Notes or the Senior Credit Facility without
the written consent of those holders of the Notes and those lenders
under the Senior Credit Facility the consent of which would be
necessary to waive such breach, default or event of default (and,
unless each such required consent is given, the holders of the
Purchaser Shares shall not accept or be permitted to retain such
payment); or
(b) payment of the repurchase price is, at such time,
prohibited by applicable law (including, without limitation, section
160 of the Delaware General Corporation Law);
provided, however, that if any such breach, event of default, default or
violation would not result from the purchase of any number of Purchaser Shares
that is less than the total number of shares the Parent is obligated to purchase
on the Put Repurchase Date, then:
(i) the Parent shall purchase on the Change in
Control Repurchase Date the maximum number of Purchaser
Shares it may so purchase, allocated among the holders
which have elected to have their Purchaser Shares so
repurchased ratably according to the number of Purchaser
Shares so tendered, at a purchase price, in the case of
each holder, equal to the Market Price calculated with
respect to such maximum number of shares;
(ii) at each such time thereafter as the Parent
may be permitted to purchase additional tendered and
unpurchased Purchaser Shares, the Parent shall give written
notice to the tendering holders of Purchaser Shares within
three (3) Business Days after such time and shall purchase,
on the tenth (10th) Business Day following the date such
notice is
6
<PAGE>
required to be given the maximum number of Purchaser Shares
it may so purchase, allocated among the holders which have
elected to have their Purchaser Shares so repurchased
ratably according to the number of remaining tendered and
unpurchased Purchaser Shares, at a purchase price per
share, in the case of each holder, equal to either:
(A) in the event that the Lock-Up
Termination Date has occurred, the Market Price
calculated as of the Put Repurchase Date; or
(B) in the event that the Lock-Up
Termination Date has not yet occurred, the
greater of the Market Price calculated as of the
Put Repurchase Date and the Market Price,
recalculated as of the date such notice is given;
and
(iii) at any time following any failure of the
Parent to pay the repurchase price, whether as a result of
the operation of the provisions of this Section 2.6 or
otherwise, any holder of Purchaser Shares which has elected
to have any of such Purchaser Shares purchased by the
Parent pursuant to this Section 2 may demand that the
Parent execute and deliver to such holder, in lieu of and
in satisfaction of the obligation of the Parent to pay the
repurchase price with respect thereto, a promissory note of
the Parent in a principal amount equal to such repurchase
price, which promissory note shall bear interest, payable
quarterly after the date of such promissory note, at the
rate of sixteen and fifty one-hundredths percent (16.50%)
per annum, in arrears, and at the maturity thereof on the
unpaid principal balance of such promissory note, which
promissory note shall mature on June 30, 2005 or, if issued
on or after June 30, 2005, which shall be payable upon
demand. The form of such promissory note shall be
acceptable to the Required Holders in their discretion.
3. REGISTRATION RIGHTS.
3.1 Incidental Registration.
(a) Filing of Registration Statement. If the Parent at any
time proposes to register any of its Common Stock pursuant to a
demand or request by any Other Stockholder to register Securities
held by such Other Stockholder (an "Incidental Registration") under
the Securities Act (but not including any registration initiated by
the Parent for the purpose of selling shares for its own account, or
any registration pursuant to a registration statement on Form S-4 or
Form S-8 or any successor forms thereto, in connection with an offer
made solely to existing Security holders or employees of the Parent),
for sale in a Public Offering, it will each such time give prompt
written notice to all holders of Registrable Securities of its
intention to do so, which notice shall be given to all such holders
at least thirty (30) Business Days prior to the date that a
registration statement relating to such registration is proposed to
be filed with the SEC. Upon the written request of any such holder to
include its Registrable Securities under such registration statement
(which request shall be made within fifteen (15) Business Days after
the receipt of any such notice and shall specify the Registrable
Securities intended to be disposed of by such holder), the Parent
will use its best efforts to effect the registration of all
Registrable Securities that the Parent has
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been so requested to register by such holder; provided, however, that
if, at any time after giving written notice of its intention to
register any Securities and prior to the effective date of the
registration statement filed in connection with such registration,
the Parent shall determine for any reason not to register such
Securities, the Parent may, at its election, give written notice of
such determination to each such holder and, thereupon, shall be
relieved of its obligation to register any Registrable Securities of
such Persons in connection with such registration.
(b) Selection of Underwriters. Notice of the Parent's
intention to register such Securities shall designate the proposed
underwriters of such offering, if any, and shall contain the Parent's
agreement to use its best efforts, if requested to do so, to arrange
for such underwriters to include in such underwriting the Registrable
Securities that the Parent has been so requested to register pursuant
to this Section 3.1, it being understood that the holders of
Registrable Securities shall have no right to select different
underwriters for the disposition of their Registrable Securities.
(c) Priority on Incidental Registrations. If the managing
underwriter shall advise the Parent in writing (with a copy to each
holder of Registrable Securities requesting sale) that, in such
underwriter's opinion, the number of shares of Securities requested
to be included in such Incidental Registration exceeds the number
that can be sold in such offering within a price range acceptable to
the Parent (such writing to state the basis of such opinion and the
approximate number of shares of Securities that may be included in
such offering without such effect), the Parent will include in such
Incidental Registration, to the extent of the number of shares of
Common Stock that the Parent is so advised can be sold in such
offering:
(i) first, Issuable Shares requested to be sold
by the Other Stockholders requesting such Registration;
(ii) second, Registrable Securities requested to
be sold by the holders of Purchaser Shares pursuant to this
Section 3.1 and all Issuable Shares proposed to be
registered by the Other Stockholders (other than those
referred to in Section 3.1(c)(i)), pro rata among such
holders on the basis of the number of shares of Issuable
Shares requested to be so registered by such holders; and
(iii) third, Issuable Shares of Common Stock that
the Parent proposes to issue and sell for its own account.
3.2 Shelf Registration.
(a) Filing and Effectiveness. The Parent will file a
"shelf" registration statement (the "Shelf Registration") on an
appropriate form pursuant to Rule 415 under the Securities Act or any
similar rule that may be adopted by the SEC with respect to
dispositions of all of the Registrable Securities in such manner or
manners specified by the holders thereof. The Parent agrees to cause
the Shelf Registration to be declared effective prior to the Shelf
Effective Date, and agrees to keep the Shelf Registration effective
(and to take any and all other actions reasonably necessary in order
to permit public resale of the Registrable Securities covered by the
Shelf Registration) for a period (the "Shelf Effective Period")
beginning on the date such Shelf Registration shall first be declared
effective under the Securities Act and ending upon the Shelf
Termination Date, subject to the terms
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and conditions set forth in this Agreement. The Parent further
agrees, if necessary, to supplement or make amendments to such Shelf
Registration, if required by the registration form utilized by the
Parent for the Shelf Registration or by the instructions applicable
to such registration form or by the Securities Act, and the Parent
agrees to furnish to the holders of the Registrable Securities
covered by the Shelf Registration copies of any such supplement or
amendment prior to its being used or filed with the SEC.
(b) Approval of Shelf Registrations. If any holder of
Registrable Securities objects to such filing on the grounds that the
disclosure contained in the Shelf Registration contains any
misstatement of a material fact or omits to state a fact required to
be stated therein or necessary to make the statements therein not
misleading, then such holder shall have the right, in its sole
discretion, to withdraw from the Shelf Registration. If the Parent
receives notice of such withdrawal from any holder wishing to
withdraw from the Shelf Registration, then the Parent shall not name
such holder in the registration statement or, in the case of
withdrawal in connection with any amendment or supplement to a
registration statement in which such holder is already named, shall
amend such registration statement to delete references to such
holder, and to withdraw the Registrable Securities of such holder,
from the registration statement. The Shelf Registration shall not be
considered effective with respect to any such withdrawing holder.
(c) Selection of Underwriters. If any offering pursuant to
a Shelf Registration is in the form of an underwritten offering, the
underwriters of such offering shall be one or more underwriting firms
of recognized national standing selected by the Requisite Holders and
reasonably acceptable to the Parent. In the event of an underwritten
offering pursuant to the Shelf Registration, no securities of the
Parent (other than the Registrable Securities) shall be included in
any such offering without the prior written consent of all holders of
Registrable Securities participating in such offering.
Notwithstanding the foregoing, the Parent shall not be obligated to
cooperate or participate in more than one (1) underwritten offering
under the Shelf Registration.
3.3 Companies Registration. If the Securities Act (whether by
statutory amendment, amendment of the rules and regulations thereunder or both)
is amended after the date hereof to provide for a Companies Registration Scheme,
and the Parent is or becomes eligible to participate in the Companies
Registration Scheme, then the Parent, promptly following the request of the
Required Holders made at any time at which the Parent is eligible to use such
Companies Registration Scheme, shall use its reasonable best efforts to register
promptly under the Companies Registration Scheme so as to facilitate the resale
under the registration statement contemplated by such Companies Registration
Scheme of the Registrable Securities in accordance with the method or methods of
distribution contemplated by the Holders.
3.4 Registration Procedures.
The Parent will use its best efforts, subject, in the case of an
Incidental Registration, to the proviso to Section 3.1(a), to effect each
Registration, and to cooperate with the sale of such Registrable Securities in
accordance with the intended method of disposition, and the Parent will:
(a) subject, in the case of an Incidental Registration, to
the proviso to Section 3.1(a), prepare and file with the SEC the
registration statement and use its best efforts to cause the
Registration to become effective; provided, however, that before
filing:
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(i) any registration statement, the Parent will
furnish to the holders of the Registrable Securities
covered by such registration statement, their counsel, and
the underwriters, if any, and their counsel, copies of all
such documents proposed to be filed, in the case of the
Shelf Registration, twenty (20) days, and, in the case of
an Incidental Registration, seven (7) days prior thereto;
and
(ii) any amendment to any registration statement,
any prospectus or any supplement thereto, the Parent will
furnish to the holders of the Registrable Securities
covered by such registration statement, their counsel, and
the underwriters, if any, and their counsel, copies of all
such documents proposed to be filed a reasonable number of
days prior thereto;
which documents will in each case be subject to the reasonable
review, within such specified period, of such holders, their counsel
and the underwriters; and the Parent will not file (in, the case of
the Shelf Registration) or name or make reference to in such
registration statement, prospectus, amendment or supplement (in the
case of any Incidental Registration) any registration statement or
amendment thereto or any prospectus or any supplement thereto
(including such documents incorporated by reference) to which the
Requisite Holders shall reasonably object within such specified
period;
(b) subject, in the case of an Incidental Registration, to
the proviso to Section 3.1(a), prepare and file with the SEC such
amendments and post-effective amendments to any registration
statement and any prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such
registration statement; and cause the prospectus to be supplemented
by any required prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act;
(c) furnish to each holder of Registrable Securities
included in such Registration and the underwriter or underwriters, if
any, without charge, at least one signed copy of the registration
statement and any post-effective amendment thereto, upon request, and
such number of conformed copies thereof and such number of copies of
the prospectus (including each preliminary prospectus and each
prospectus filed under Rule 424 under the Securities Act), any
amendments or supplements thereto and any documents incorporated by
reference therein, as such holder or underwriter may reasonably
request in order to facilitate the disposition of the Registrable
Securities being sold by such holder (it being understood that the
Parent consents to the use of the prospectus and any amendment or
supplement thereto by each holder of Registrable Securities covered
by such registration statement and the underwriter or underwriters,
if any, in connection with the offering and sale of the Registrable
Securities covered by the prospectus or any amendment or supplement
thereto);
(d) notify each holder of the Registrable Securities of any
stop order or other order suspending the effectiveness of any
registration statement, issued or threatened by the SEC in connection
therewith, and take all reasonable actions required to prevent the
entry of such stop order or to remove it or obtain withdrawal of it
at the earliest possible moment if entered;
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(e) if requested by the managing underwriter or
underwriters, if any, or any holder of Registrable Securities in
connection with any sale pursuant to a registration statement,
promptly incorporate in a prospectus supplement or post-effective
amendment such information relating to such underwriting as the
managing underwriter or underwriters, if any, or such holder
reasonably requests to be included therein; and make all required
filings of such prospectus supplement or post-effective amendment as
soon as practicable after being notified of the matters incorporated
in such prospectus supplement or post-effective amendment;
(f) on or prior to the date on which a Registration is
declared effective, use its best efforts to register or qualify, and
cooperate with the holders of Registrable Securities included in such
Registration, the underwriter or underwriters, if any, and their
counsel, in connection with the registration or qualification of the
Registrable Securities covered by such Registration for offer and
sale under the securities or "blue sky" laws of each state and other
jurisdiction of the United States as any such holder or the managing
underwriter, if any, reasonably requests in writing; use its best
efforts to keep each such registration or qualification effective,
including through new filings, or amendments or renewals, during the
period such registration statement is required to be kept effective;
and do any and all other acts or things necessary or advisable to
enable the disposition in all such jurisdictions reasonably requested
of the Registrable Securities covered by such Registration; provided,
however, that the Parent will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or
to take any action which would subject it to general service of
process or taxation in any such jurisdiction where it is not then so
subject;
(g) in connection with any sale pursuant to a Registration,
cooperate with the holders of Registrable Securities and the managing
underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing Securities to be sold under such Registration,
and enable such Registrable Securities to be in such denominations
and registered in such names as the managing underwriter or
underwriters, if any, or such holders may request;
(h) use its best efforts to cause the Registrable
Securities to be registered with or approved by such other
governmental agencies or authorities within the United States and
having jurisdiction over the Parent or any Subsidiary as may
reasonably be necessary to enable the seller or sellers thereof or
the underwriter or underwriters, if any, to consummate the
disposition of such Registrable Securities;
(i) subject to the last sentence of Section 3.2(c), enter
into such agreements (including underwriting agreements in customary
form) and take such other actions as the Requisite Holders shall
reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities;
(j) use its best efforts to obtain:
(i) at the time of effectiveness of each
Registration, a "comfort letter" from the Parent's
independent certified public accountants covering such
matters of the type customarily covered by "cold comfort
letters" as the underwriters, if any, and (in the case of
the Shelf Registration) the Required Holders reasonably
request; and
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(ii) at the time of any underwritten sale
pursuant to the registration statement, a "bring-down
comfort letter," dated as of the date of such sale, from
the Parent's independent certified public accountants
covering such matters of the type customarily covered by
comfort letters as the underwriters, if any, and (in the
case of the Shelf Registration) the Required Holders
reasonably request;
(k) use its best efforts to obtain, at the time of
effectiveness of each Registration and at the time of any
underwritten sale pursuant to each Registration, an opinion or
opinions, favorable to the underwriters, if any, or (in the case of
the Shelf Registration) the Required Holders in form and scope, from
counsel for the Parent in customary form;
(l) notify each seller of Registrable Securities covered by
such Registration, upon discovery that, or upon the happening of any
event as a result of which, the prospectus included in such
Registration, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and promptly prepare, file with the SEC and furnish to
such seller or holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers or prospective purchasers of
such Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which
they are made;
(m) otherwise comply with all applicable rules and
regulations of the SEC, and make generally available to its security
holders (as contemplated by Section 11(a) under the Securities Act)
an earnings statement satisfying the provisions of Rule 158 under the
Securities Act no later than ninety (90) days after the end of the
twelve (12) month period beginning with the first month of the
Parent's first fiscal quarter commencing after the effective date of
the registration statement, which statement shall cover said twelve
(12) month period;
(n) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by each Registration
from and after a date not later than the effective date of such
Registration; and
(o) use its best efforts to cause all Registrable
Securities covered by each Registration to be listed subject to
notice of issuance, prior to the date of first sale of such
Registrable Securities pursuant to such Registration, on each
securities exchange on which the Common Stock is then listed; and, if
the Common Stock is not so listed, to use its best efforts to cause
all Registrable Securities covered by each Registration to be
designated as National Market System Securities, if the Common Stock
is so designated (and, if the Common Stock is listed on the NASDAQ
National Market or the NASDAQ SmallCap Market, to cause all
Registrable Securities covered by each Registration to be so listed);
and, if the Common Stock is not so designated, to arrange for at
least two market makers to register with the NASD as such with
respect to such Registrable Securities.
The Parent may require each holder of Registrable Securities that will be
included in such Registration to furnish the Parent with such information in
respect of such holder of its Registrable Securities that will be included in
such Registration as the Parent may reasonably request in writing.
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3.5 Reasonable Investigation.
Subject to the last sentence of Section 3.2(c), the Parent shall:
(a) give the holders of Registrable Securities, their
underwriters, if any, and their respective counsel and accountants
the opportunity to participate in the preparation of the registration
statement, each prospectus included therein or filed with the SEC and
each amendment thereof or supplement thereto;
(b) give each such holder and underwriter reasonable
opportunities to discuss the business of the Parent with its
officers, counsel and the independent public accountants who have
certified its financial statements;
(c) make available for inspection by any holder of
Registrable Securities included in any Registration, any underwriter
participating in any disposition pursuant to any Registration, and
any attorney, accountant or other agent retained by any such seller
or underwriter, all financial and other records, pertinent corporate
documents and properties of the Parent reasonably requested; and
(d) cause the Parent's officers, directors and employees to
supply all information reasonably requested by any such Person in
connection with such Registration;
in each such case, as shall be reasonably necessary, in the opinion of such
holder or such underwriter, to enable it to conduct a "reasonable investigation"
within the meaning of the section 11(b)(3) of the Securities Act and to satisfy
the requirement of reasonable care imposed by section 12(a)(2) of the Securities
Act.
3.6 Registration Expenses.
The Parent will pay all Registration Expenses in connection with each
registration of Registrable Securities, including, without limitation, any such
registration not effected by the Parent.
3.7 Indemnification; Contribution.
(a) Indemnification by the Parent. The Parent shall
indemnify, to the fullest extent permitted by law, each holder of
Registrable Securities, its officers, partners, directors and agents,
if any, and each Person, if any, who controls such holder within the
meaning of section 15 of the Securities Act, against all losses,
claims, damages, liabilities (or proceedings in respect thereof) and
expenses (under the Securities Act or common law or otherwise), joint
or several, resulting from any violation by the Parent of the
provisions of the Securities Act or any untrue statement or alleged
untrue statement of a material fact contained in any registration
statement or prospectus (and as amended or supplemented if amended or
supplemented) or any preliminary prospectus or caused by any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the
case of any prospectus, in light of the circumstances under which
they were made) not misleading, except to the extent that such
losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses are caused by any untrue statement or alleged
untrue statement contained in or by any omission or alleged omission
from information concerning any holder furnished in writing to the
Parent by such holder expressly
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for use therein. If the offering pursuant to any registration
statement provided for under this Section 3 is made through
underwriters, no action or failure to act on the part of such
underwriters (whether or not such underwriter is an Affiliate of any
holder of Registrable Securities) shall affect the obligations of the
Parent to indemnify any holder of Registrable Securities or any other
Person pursuant to the preceding sentence. If the offering pursuant
to any registration statement provided for under this Section 3 is
made through underwriters, the Parent agrees, to the extent required
by such underwriters, to enter into an underwriting or other
agreement providing for indemnity of such underwriters, their
officers, partners, directors and agents, if any, and each Person, if
any, who controls such underwriters within the meaning of section 15
of the Securities Act to the same extent as hereinbefore provided
with respect to the indemnification of the holders of Registrable
Securities; provided that the Parent shall not be required to
indemnify any such underwriter, or any officer or director of such
underwriter or any Person who controls such underwriter within the
meaning of section 15 of the Securities Act, to the extent that the
loss, claim, damage, liability (or proceedings in respect thereof) or
expense for which indemnification is claimed results from such
underwriter's failure to send or give a copy of an amended or
supplemented final prospectus to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission
at or prior to the written confirmation of the sale of Registrable
Securities to such Person if such statement or omission was corrected
in such amended or supplemented final prospectus prior to such
written confirmation and the underwriter was provided with such
amended or supplemented final prospectus.
(b) Indemnification for Controlling Person Liability. In
addition to the indemnification provided for in Section 3.7(a), the
Parent shall indemnify each holder of Registrable Securities, its
officers, partners, directors, partners and agents, if any, and each
Person, if any, who controls such holder within the meaning of
section 15 of the Securities Act or Section 20 of the Exchange Act,
against all losses, claims, damages, liabilities (or proceedings in
respect thereof) and expenses, joint or several, in each case, under
the Securities Act, the Exchange Act, common law or otherwise,
resulting from:
(i) any violation by the Parent of the provisions
of the Securities Act or the Exchange Act;
(ii) any untrue statement or alleged untrue
statement of a material fact contained in any registration
statement or amendment thereto or prospectus (and as
amended or supplemented if amended or supplemented) or any
preliminary prospectus or caused by any omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
(in the case of any prospectus, in light of the
circumstances under which they were made) not misleading,
whether or not, in each such case, the registration
statement or amendment thereto or prospectus (or amendment
or supplement thereto) or preliminary prospectus related or
relates to any offering or sale of Registrable Securities
by any holder; and
(iii) any other untrue statement or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact necessary to make the
statements in any document issued or delivered to any
purchaser or potential purchaser or filed with the SEC
pursuant to section 13 or section 15(d) of the Exchange Act
(in light of the circumstances under which they were made)
not misleading, in each case, in connection
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with any offering or sale of Securities of the Parent by
any Person, whether or not such Securities offered or sold
are or were registered or required to be registered under
the Securities Act;
in each such case, to the extent that such losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses, joint
or several, are alleged to result from or exist by virtue of the fact
that any holder of Registrable Securities controls or is alleged to
control (within the meaning of section 15 of the Securities Act or
section 20 of the Exchange Act) the Parent or any Subsidiary or
Affiliate, whether such claim or allegation arises under section 15
of the Securities Act or section 20 of the Exchange Act or otherwise;
provided, however, that such indemnification shall not extend to
losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses caused by any untrue statement or alleged untrue
statement contained in or by any omission or alleged omission from
information furnished in writing to the Parent by such holder
expressly for use therein, or from any such information provided by
an underwriter selected by the holders or any of them.
(c) Indemnification by the Holders. In connection with any
registration statement in which a holder of Registrable Securities is
participating, each such holder, severally and not jointly, shall
indemnify, to the fullest extent permitted by law, the Parent, each
underwriter (if the underwriter so requires) and their respective
officers, partners, directors and agents, if any, and each Person, if
any, who controls the Parent or such underwriter within the meaning
of section 15 of the Securities Act, against any losses, claims,
damages, liabilities (or proceedings in respect thereof) and expenses
resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact
required to be stated in the registration statement or prospectus or
preliminary prospectus or any amendment thereof or supplement thereto
or necessary to make the statements therein (in the case of any
prospectus, in light of the circumstances under which they were made)
not misleading, but only to the extent that such untrue statement is
contained in or such omission is from information so concerning a
holder furnished in writing by such holder expressly for use therein;
provided, however, that such holder's obligations hereunder shall be
limited to an amount equal to the net proceeds to such holder of the
Registrable Securities sold pursuant to such registration statement.
(d) Control of Defense. Any Person entitled to
indemnification under the provisions of this Section 3.7 shall give
prompt notice to the indemnifying party of any claim with respect to
which it seeks indemnification and unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim, permit
such indemnifying party to assume the defense of such claim, with
counsel reasonably satisfactory to the indemnified party; and if such
defense is so assumed, such indemnifying party shall not enter into
any settlement without the consent of the indemnified party if such
settlement attributes liability to the indemnified party and such
indemnifying party shall not be subject to any liability for any
settlement made without its consent (which shall not be unreasonably
withheld); and any underwriting agreement entered into with respect
to any registration statement provided for under this Section 3 shall
so provide. In the event an indemnifying party shall not be entitled,
or elects not, to assume the defense of a claim, such indemnifying
party shall not be obligated to pay the fees and expenses of more
than one counsel or firm of counsel for all parties indemnified by
such indemnifying party in respect of such claim,
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unless in the reasonable judgment of any such indemnified party a
conflict of interest may exist between such indemnified party and any
other of such indemnified parties in respect to such claim.
(e) Contribution. If for any reason the foregoing indemnity
is unavailable, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such
losses, claims, damages, liabilities or expenses:
(i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the
other; or
(ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a
lesser sum to the indemnified party than the amount
hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits
received by the indemnifying party on the one hand and the
indemnified party on the other but also the relative fault
of the indemnifying party and the indemnified party as well
as any other relevant equitable considerations.
Notwithstanding the foregoing, no holder of Registrable Securities
shall be required to contribute any amount in excess of the amount
such holder would have been required to pay to an indemnified party
if the indemnity under Section 3.7(b) hereof was available. No Person
guilty of fraudulent misrepresentation (within the meaning of section
11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
The obligation of any Person to contribute pursuant to this Section
3.7 shall be several and not joint.
(f) Timing of Payments. An indemnifying party shall make
payments of all amounts required to be made pursuant to the foregoing
provisions of this Section 3.7 to or for the account of the
indemnified party from time to time promptly upon receipt of bills or
invoices relating thereto or when otherwise due or payable. Without
limiting the generality of the foregoing, each indemnifying party, as
an interim measure during the pendency of any claim, action,
investigation, inquiry or proceeding arising our of or based upon
any matter or subject for which indemnity (or contribution in lieu
thereof) may be available to any indemnified party under this Section
3.7, it will promptly reimburse each indemnified party, as often as
invoiced therefor (but in no event more often than monthly) for all
reasonable legal or other expenses incurred in connection with the
investigation or defense of any such claim, action, investigation,
inquiry or proceeding, notwithstanding the absence of any judicial
determination as to the propriety or enforceability of the
indemnifying party's obligation to reimburse the indemnified party
for such expenses and notwithstanding the possibility that the
obligations to pay such expenses might later have been held to be
improper by a court of competent jurisdiction. To the extent that any
such interim reimbursement is held to be improper, the indemnified
party agrees to promptly return the amount so advanced to the
indemnifying party, together with interest from the date of
determination, compounded monthly, at the prime rate (or other
commercial lending rate for borrowers of the highest credit standing)
listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of
the nation's thirty (30) largest banks. Any such interim
reimbursement payments which are not made to the indemnified party
within thirty (30) days of a request therefor shall bear interest at
such prime rate from the date of such request. To the extent required
by any underwriter in connection with the execution of any
underwriting agreement pursuant to which the holders of Registrable
Securities shall be selling any
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shares of Common Stock, the Parent shall agree to advancement of the
expenses of such underwriter to at least the same extent as provided
in this Section 3.7.
(g) Survival. The indemnity and contribution agreements
contained in this Section 3.7 shall remain in full force and effect
regardless of any investigation made by or on behalf of a
participating holder of Registrable Securities, its officers,
partners, directors, agents or any Person, if any, who controls such
holder as aforesaid, and shall survive the transfer of such
Securities by such holder.
3.8 Holdback Agreements; Registration Rights to Others.
(a) In connection with each underwritten sale of
Registrable Securities, the Parent agrees, and each holder of
Registrable Securities by acquisition of such Registrable Securities
agrees, to enter into customary holdback agreements (for an aggregate
period or periods not exceeding one hundred twenty (120) days in any
period of three hundred sixty (360) days or, in the case of any
Registration, such shorter time in which all securities purchased by
the underwriters are actually sold) concerning the sale or
distribution of Registrable Securities and other equity Securities of
the Parent, except, in the case of any holder of Registrable
Securities, to the extent that such holder is prohibited by
applicable law or exercise of fiduciary duties from agreeing to
withhold Registrable Securities from sale or is acting in its
capacity as a fiduciary or investment adviser. Without limiting the
scope of the term "fiduciary," a holder shall be deemed to be acting
as a fiduciary or an investment adviser if its actions or the
Registrable Securities proposed to be sold are subject to the
Employee Retirement Income Security Act of 1974, as amended, or the
Investment Company Act of 1940, as amended, or if such Registrable
Securities are held in a separate account under applicable insurance
law or regulation.
(b) If the Parent shall at any time after the date hereof
provide to any holder of any Securities of the Parent rights with
respect to the registration of such Securities under the Securities
Act, such rights shall not be in conflict with or adversely affect
any of the rights provided in this Section 3 to the holders of
Registrable Securities.
3.9 Availability of Information.
At any time that any class of the Common Stock is registered under
section 12(b) or section 12(g) of the Exchange Act, the Parent will comply with
the reporting requirements of sections 13 and 15(d) of the Exchange Act (whether
or not it shall be required to do so pursuant to such Sections) and will comply
with all other public information reporting requirements of the SEC from time to
time in effect. In addition, the Parent shall file such reports and information,
and shall make available to the public and to the holders of Purchaser Shares
such information, as shall be necessary to permit such holders to offer and sell
Issuable Shares pursuant to the provisions of Rules 144 and 144A promulgated
under the Securities Act. The Parent will also cooperate with each such holder
in supplying such information as may be necessary for such holder to complete
and file any information reporting forms presently or hereafter required by the
SEC as a condition to the availability of an exemption from the registration
provisions of the Securities Act in connection with the sale of any Issuable
Shares. The Parent will furnish to each such holder, promptly upon their
becoming available, copies of all financial statements, reports, notices and
proxy statements sent or made available generally by the Parent to its
stockholders, and copies of all
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regular and periodic reports and all registration statements and prospectuses
filed by the Parent with any securities exchange or with the SEC.
3.10 Material Development Election.
The Parent shall be entitled, for a period of not more than ninety
(90) consecutive days, and on no more than one (1) occasion during any period of
two hundred seventy (270) days, to require that the holders of Registrable
Securities refrain from effecting any distribution of their Registrable
Securities pursuant to the Shelf Registration if the chief executive officer of
the Parent determines in his reasonable good faith judgment that, in accordance
with his understanding of the disclosure requirements of the United States
federal securities laws, such distribution would require disclosure of any
financing (other than a distribution of Securities under the Shelf Registration
or any Incidental Registration), acquisition, disposition, corporate
reorganization or other transaction or development involving the Parent or any
Subsidiary that is or would be material to the Parent and that, in the
reasonable good faith business judgment of such chief executive officer, such
disclosure at such time would not be in the best interests of the Parent (a
"Material Development Election"); provided, however, that the Company may not
exercise its Material Development Election for a period of more than forty-five
days between the Shelf Effective Date and the second anniversary of the date of
issuance of the Registrable Securities. The Parent shall, as promptly as
practicable, give the holders of Registrable Securities written notice of any
Material Development Election. The Parent, as promptly as practicable following
any determination that the holders may recommence sales under the Shelf
Registration (but no later than the expiration of the applicable number of days
after invoking such Material Development Election), shall notify all holders of
Registrable Securities in writing of such determination.
4. ANTI-DILUTION PROTECTION.
4.1 Repurchases of Common Stock or Rights.
In the event that the Parent shall repurchase, redeem, retire or
otherwise acquire shares of Common Stock or Rights from any Affiliate of the
Parent (other than repurchases of shares of Common Stock pursuant to and in
compliance with the Serial Put Agreement) for a Consideration Per Share greater
than the Closing Price in effect on the date prior to the date of such
repurchase, redemption, retirement or acquisition, then the Parent shall issue
and sell to each holder of Purchaser Shares an additional number of shares of
Common Stock equal to the difference of:
(a) the product of:
(i) the number of Purchaser Shares held by such
holder of Purchaser Shares immediately prior to such event;
multiplied by
(ii) the quotient of:
(A) the product of:
(I) the Closing Price in effect on the
date immediately prior to the date of such
event; multiplied by
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(II) the number of shares of Common Stock
(calculated on a Fully-Diluted Basis)
immediately after such event;
divided by
(B) the difference of:
(I) the product of:
(1) the number of shares of Common
Stock immediately prior to such event
(calculated on a Fully-Diluted Basis);
multiplied by
(2) the Closing Price in effect on
the date immediately prior to the date
of such event;
minus
(II) the Aggregate Consideration Paid;
minus
(b) the number of Purchaser Shares held by such holder
of Purchaser Shares immediately prior to such event;
in each case, at a price per share equal to the Purchase Price, as further
provided in Section 4.4.
In the event that any of the Aggregate Consideration Paid consists of
Property other than cash, the value of such Property for purposes of computing
the Aggregate Consideration Paid shall be determined by the Valuation Agent as
of a date not more than thirty (30) days prior to the date of determination
thereof and shall be set forth in a written certificate of the Valuation Agent
which shall be delivered to the holders of the Purchaser Shares in the manner
contemplated by Section 8.1.
4.2 Issuances of Additional Common Stock or Rights.
In the event that the Parent shall issue or sell shares of Additional
Common Stock or Rights (excluding Excluded Securities) for no consideration or
at a Consideration Per Share lower than the Closing Price in effect on the date
prior to the date of such issuance or sale, then the Parent shall issue and sell
to each holder of Purchaser Shares an additional number of shares of Common
Stock equal to the difference of:
(a) the product of:
(i) the number of Purchaser Shares held by such
holder of Purchaser Shares immediately prior to such event;
multiplied by
(ii) the quotient of:
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(A) the sum of:
(I) the number of shares of Common Stock
outstanding immediately prior to such event;
plus
(II) the number of shares of Additional
Common Stock so issued or sold (or initially
issuable pursuant to such Rights); divided by
(B) the sum of:
(I) the number of shares of Common Stock
outstanding immediately prior to such event;
plus
(II) the quotient of:
(1) the Aggregate Consideration
Receivable; divided by
(2) the Closing Price in effect on
the date immediately prior to the
date of such issuance or sale;
in each case immediately prior to such event;
minus
(b) the number of Purchaser Shares held by such holder
of Purchaser Shares immediately prior to such event;
in each case, at a purchase price per share equal to the Purchase Price.
In the event that any of the Aggregate Consideration Receivable
consists of Property other than cash, the value of such Property for purposes of
computing the Aggregate Consideration Receivable shall be determined by the
Valuation Agent as of a date not more than thirty (30) days prior to the date of
determination thereof and shall be set forth in a written certificate of the
Valuation Agent which shall be delivered to the holders of the Purchaser Shares
in the manner contemplated by Section 8.1.
4.3 Notice of Issuance.
Whenever the Parent becomes obligated to issue and sell additional
shares of Common Stock to the holders of Purchaser Shares pursuant to the
provisions of Section 4.1 or Section 4.2, the Parent shall promptly (but no
later than five (5) Business Days, following the occurrence of such event) give
to each holder of Purchaser Shares notice of such issuance and sale, and shall
promptly deliver to each holder of Purchaser Shares a certificate of the chief
financial officer of the Parent setting forth:
(a) a brief statement of the facts requiring such issuance;
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(b) the computation of the Consideration Per Share and
Closing Price used in connection with determining that such issuance
and sale are necessary, and the number of shares repurchased or sold
and the actual prices at which such repurchases or sales occurred
(which computation, in the event of any dispute, shall be verified by
the Valuation Agent at the expense of the Parent);
(c) for each holder, the number of Purchaser Shares held by
such holder;
(d) for each holder, the number of shares of Common Stock
to be issued pursuant to Section 4.1 or Section 4.2, as the case may
be, to such holder, together with the computation of such number;
(e) for each holder, the aggregate Purchase Price for the
shares to be issued and sold;
(f) the closing date for such sale, which shall be a date
fixed by the Parent which is not less than ten (10) Business Days and
not more than thirty (30) days after the date of such notice (the
"Additional Sale Closing Date"); and
(g) a description of the closing mechanics set forth in
Section 4.4.
4.4 Closing of Issuance and Payment of Purchase Price.
Each holder of Purchaser Shares shall make payment of the Purchase
Price on the Additional Sale Closing Date of the aggregate Purchase Price for
the additional shares of Common Stock to be issued pursuant this Section 4,
which may be paid, as set forth below, in cash, in Notes or in a combination of
cash and Notes. The Parent shall deliver to each holder of Purchaser Shares,
against such wire transfer, a certificate or certificates representing the
aggregate number of shares of Common Stock to be issued pursuant this Section 4.
Notwithstanding the foregoing, no holder of Purchaser Shares shall have any
liability to the Parent or any other holder of Purchaser Shares in respect of
any failure to deliver the Purchase Price in connection with any issuance and
sale of additional shares of Common Stock by the Parent pursuant to this Section
4; provided, however, that the Parent shall not be required to issue
certificates representing any additional shares it is required to sell pursuant
to this Section 4, and no holder of Purchaser Shares shall have any rights in
respect of any such additional shares, until payment of the aggregate Purchase
Price therefor is made by such holder.
(a) Payment in Cash. The holder of any Purchaser Shares may
pay the aggregate Purchase Price for the additional shares of Common
Stock being issued (and shall pay the excess of the Purchase Price
for such shares over the amounts so deemed to be paid by tender of
Notes pursuant to Section 4.4(b)) in cash or by certified or official
bank check payable to the order of the Parent or by wire transfer of
immediately available funds to the account of the Parent.
(b) Payment in Notes. To the extent that any holder of any
Purchaser Shares surrenders with the certificates representing such
Purchaser Shares any Note then held by such holder (or by an
affiliate of such holder), such holder shall be deemed to have paid
that portion of the Purchase Price equal to one hundred percent
(100%) of the principal of such Note which the holder thereof directs
the Parent to accept as payment of the Purchase Price, which Note
shall be
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contributed to the Company and cancelled and not reissued by the
Company. To the extent that the principal amount of such tendered
Note is greater than the amount of the aggregate Purchase Price paid
by surrender thereof, the Parent shall cause the Company shall
deliver a new Note to the tendering holder thereof, in accordance
with the provisions of the Note Agreement, in the principal amount
equal to the amount not so applied to payment of the aggregate
Purchase Price. At the time of the issuance of the additional shares
of Common Stock pursuant hereto, the Company shall pay all accrued
and unpaid interest on the principal amount of any Note of such
holder cancelled pursuant to this Section 4.4(b) up to but excluding
the date of such issuance. For purposes of Rule 144 under the
Securities Act, 17 C.F.R. ss.230.144, the Parent and you agree that a
tender of the principal of any Notes in payment of the aggregate
Purchase Price in respect of additional shares shall not be deemed a
prepayment of the Notes, but rather a conversion of such Notes,
pursuant to the terms of the Notes, the Note Agreement and this
Agreement, into such additional shares of Common Stock.
4.5 Additional Agreements of the Parent.
The Parent covenants and agrees that:
(a) The Parent shall not, by amendment to its certificate
of incorporation, as in effect on the date hereof, or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, liquidation, issuance or sale of Securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Parent, or which would have the effect of circumventing or
avoiding the provisions of this Section 4.
(b) The Parent shall not amend the provisions of the Series
IV Warrants or any other Rights or make any adjustment thereto
(pursuant to any antidilution provision or otherwise) so as to
reduce the Consideration Per Share applicable thereto, increase the
number of shares issuable upon exercise thereof or otherwise change
the economic terms (such as the purchase price, exercise price,
conversion price or conversion ratio thereof). If, notwithstanding
such prohibition, the Parent shall amend the provisions of the Series
IV Warrants or any other any Rights or make any adjustment thereto
(pursuant to any antidilution provision or otherwise) so as to
reduce the Consideration Per Share applicable thereto, increase the
number of shares issuable upon exercise thereof or otherwise change
the economic terms (such as the purchase price, exercise price,
conversion price or conversion ratio thereof), then, in addition to
whatever other rights the holders of Purchaser Shares may have at law
or in equity, the Parent shall issue additional shares of Common
Stock to each of the holders of the Purchaser Shares, which numbers
of shares shall be as near as appropriate and practical to those that
would be required by the provisions of Section 4.1 through Section
4.2, inclusive, as are most nearly analogous to the effect of such
amendment and as shall be fair and equitable, such number to be
determined by the Valuation Agent. Notwithstanding the foregoing, the
Parent may amend the provisions of the Share Purchase Rights or the
Share Purchase Rights Agreement in any manner which treats alike all
holders of the Common Stock (other than an "Acquiring Person," as
defined in the Share Purchase Rights Agreement).
(c) In the event that any of the events described in any of
Section 4.1 through Section 4.2, inclusive, give rise to an
adjustment to the purchase, exercise or conversion price or
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conversion ratio, or number of shares of Common Stock issuable upon
conversion or exercise, of any Rights, then the numbers of additional
shares of Common Stock provided for in Section 4.1 through Section
4.2, inclusive, in respect of such event shall give effect both to
the event giving rise to such issuance under this Agreement and to
all such adjustments made in respect of such other Rights; provided,
however, that no such issuance shall duplicate any issuance required
to be made in respect thereof by virtue of the provisions of Section
4.5(b).
(d) The Parent shall not at any time increase the par value
of the Common Stock.
5. AGREEMENTS OF THE PARENT.
5.1 CUSIP Number.
The Parent covenants and agrees to maintain a CUSIP number in respect
of the Common Stock from the CUSIP Service Bureau of Standard & Poor's, a
division of McGraw-Hill, Inc.
5.2 Financial and Business Information.
The Parent shall deliver to each holder of Purchaser Shares:
(a) Quarterly Financial Statements - as soon as practicable
after the end of each quarterly fiscal period in each fiscal year of
the Parent (other than the last quarterly fiscal period of each such
fiscal year), and in any event within fifty (50) days thereafter:
(i) a consolidated balance sheet as at the end of
such quarter; and
(ii) consolidated statements of income and
retained earnings and cash flows for such quarter and (in
the case of the second and third quarters) for the portion
of the fiscal year ending with such quarter;
in each case for the Parent and the Subsidiaries, setting forth in
each case, in comparative form, the financial statements for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified as complete and correct
by a Senior Financial Officer; provided, that delivery of copies of
the Parent's Quarterly Report on Form 10-Q or Form 10-QSB filed with
the SEC within the time period specified above shall be deemed to
satisfy the requirements of this Section 5.2 so long as such
Quarterly Report contains or is accompanied by the information
specified in this Section 5.2;
(b) Annual Financial Statements - as soon as practicable
after the end of each fiscal year of the Parent, and in any event
within one hundred five (105) days thereafter:
(i) a consolidated balance sheet as at the end of
such year; and
(ii) consolidated statements of income and
retained earnings and cash flows for such year;
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in each case for the Parent and the Subsidiaries, setting forth in
the case of each consolidated financial statement, in comparative
form, the financial statement for the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP, and accompanied
by an audit report thereon of independent certified public
accountants of recognized national standing, which report shall state
without qualification (including, without limitation, qualifications
related to the scope of the audit, the compliance of the audit with
generally accepted auditing standards, or the ability of the Parent
or a material subsidiary thereof to continue as a going concern),
that such financial statements have been prepared and are in
conformity with GAAP; provided, that the delivery of the Parent's
Annual Report on Form 10-K or Form 10-KSB for such fiscal year filed
with the SEC within the time period specified above shall be deemed
to satisfy the requirements of this Section 5.2(b) so long as such
Annual Report contains or is accompanied by the reports and other
information otherwise specified in this Section 5.2(b);
(c) SEC and Other Reports - promptly upon their becoming
available:
(i) each financial statement, report, notice or
proxy statement sent by the Parent or any Subsidiary to
stockholders generally;
(ii) each regular or periodic report (including,
without limitation, each Form 10-K, Form 10-KSB, Form 10-Q,
Form 10-QSB and Form 8-K), any registration statement which
shall have become effective, and each final prospectus and
all amendments thereto filed by the Parent or any
Subsidiary with the SEC; and
(iii) all press releases and other statements
made available by the Parent or any Subsidiary to the
public concerning material developments in the business of
the Parent or the Subsidiaries; and
(d) Requested Information - with reasonable promptness,
such other data and information as from time to time may be
reasonably requested by any holder of Purchaser Shares.
5.3 Inspection.
The Parent will permit the representatives of each holder of
Purchaser Shares to visit and inspect any of the Properties of the Parent or any
of the Subsidiaries, to examine all their respective books of account, records,
reports and other papers, to make copies and extracts therefrom, and to discuss
their respective affairs, finances and accounts with their respective officers,
partners employees and independent public accountants (and by this provision
the Parent authorizes said accountants to discuss the finances and affairs of
the Parent and the Subsidiaries) all at such reasonable times and as often as
may be reasonably requested.
6. RESTRICTIONS ON TRANSFER AND OTHER AGREEMENTS.
6.1 Restrictions on Transfer.
No holder of Purchaser Shares shall sell, assign, transfer or
otherwise dispose of any Purchaser Shares to any transferee prior to the earlier
to occur of December 31, 2000 and a Change in Control
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without the prior written consent of the Parent, which, in the case of a
disposition in a private sale and not in a Public Offering or pursuant to Rule
144 under the Securities Act, shall not be unreasonably withheld.
Notwithstanding the foregoing, any holder of a Purchaser Share shall be
permitted to pledge or otherwise grant a Lien in and to such Purchaser Shares
(including, without limitation, pledging such Purchaser Shares to a trustee for
the benefit of certain secured noteholders pursuant to documents relating to the
financing of such holder or to one or more banks or other institutions providing
financing in connection with the purchase by such holder of such Purchaser
Shares), and, upon due foreclosure of any such pledge, the Parent agrees to
permit the registration of such Purchaser Shares in the name of such pledgee and
to permit such pledgee to sell such Purchaser Shares, at private sale, in a
foreclosure sale.
6.2 Legending of Certificates.
Each certificate representing any Purchaser Shares prior to December
31, 2000 shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE TERMS OF AN INVESTORS RIGHTS AGREEMENT, DATED AS OF
JUNE 29, 1999, THE PROVISIONS OF WHICH ARE INCORPORATED
HEREIN BY REFERENCE. SUCH AGREEMENT CONTAINS, AMONG OTHER
PROVISIONS, PROVISIONS WHICH LIMIT THE TRANSFER OF THIS
SECURITY. A COPY OF SUCH AGREEMENT IS AVAILABLE FROM THE
PARENT UPON REQUEST."
At any time on or after December 31, 2000, each holder of Purchaser Shares shall
be entitled to receive from the Parent, in exchange for any certificate
representing Purchaser Shares and bearing such legend, a replacement certificate
not bearing such legend, without any charge to such holder.
6.3 Securities Act Restrictions; Legend. The Parent shall not register
any transfer of Purchaser Shares if it has reason to believe that such transfer
is being requested in violation of the registration requirements of section 5 of
the Securities Act. Each certificate representing a Registrable Securities prior
to the effectiveness of the Shelf Registration shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE OFFERED OR SOLD EXCEPT IN A
TRANSACTION REGISTERED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT."
At any time on or after December 31, 2000 or, if a Change in Control shall have
happened prior to such date, on the later of the Shelf Effective Date and the
date of such Change in Control, each holder of Purchaser Shares shall be
entitled to receive from the Parent, in exchange for any certificate
representing Purchaser Shares and bearing such legend, a replacement certificate
not bearing such legend, without any charge to such holder.
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6.4 Termination of Restrictions.
(a) Shares Sold to Public. So long as a holder of Purchaser
Shares is in compliance with this Agreement, each and all of the
provisions of this Agreement shall terminate immediately as to any of
such holder's Purchaser Shares (but this Agreement shall remain in
force with respect to any remaining Purchaser Shares):
(i) when such Purchaser Shares have been both
effectively registered under the Securities Act and
disposed of in accordance with the registration statement
covering such Purchaser Shares; or
(ii) when they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision)
under the Securities Act; or
(iii) when they shall have been otherwise
transferred and subsequent disposition of them shall not
require registration or qualification under the Securities
Act or any similar state law then in force.
(b) Offer to Purchase on Change In Control. The provisions
of Section 2.1, Section 2.2, Section 2.3, Section 2.4 and Section 2.5
shall terminate on the Shelf Effective Date.
Whenever such restrictions shall terminate as to any Issuable Shares, the holder
thereof shall be entitled to receive from the Parent, without expenses (other
than transfer taxes, if any, in connection with any change of registered
holder), new Issuable Shares of like tenor not bearing the applicable legends
set forth in Section 6.2 or Section 6.3 hereof.
7. DEFINED TERMS.
7.1 Terms Defined.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
Acceptable Control Person - means any Person or Group who were the
beneficial owners of a majority of the Voting Stock or other voting equity
interest in a Person which became a Subsidiary (by acquisition of the Capital
Stock of such Person, merger or consolidation with a Subsidiary, acquisition of
Property of such Person or otherwise) immediately prior to the acquisition of
such Subsidiary by the Parent or a Subsidiary, and who received, whether prior
to, on or after the Closing Date, Common Stock in respect of the transfer of
such ownership.
Additional Common Stock - means Common Stock, including treasury
shares, issued after the date hereof.
Additional Sale Closing Date - Section 4.3(f).
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Affiliate - means, at any time, a Person (other than a Subsidiary):
(a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
control with, the Parent;
(b) that beneficially owns or holds five percent (5%) or
more of any class of the Voting Stock of the Parent;
(c) five percent (5%) or more of the Voting Stock (or in
the case of a Person that is not a corporation, five percent (5%) or
more of the equity interest) of which is beneficially owned or held
by the Parent or a Subsidiary; or
(d) that is an officer or director of the Parent or any
Subsidiary;
at such time; provided, however, that none of the Purchasers nor any affiliate
of any Purchaser shall be deemed to be an "Affiliate," and no Person holding any
Purchaser Shares shall be deemed to be an "Affiliate" solely by virtue of the
ownership of such securities.
As used in this definition,
control - means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
Agreement - the introductory paragraph hereof.
Aggregate Consideration Paid - means, in the case of a repurchase,
redemption, retirement or acquisition of shares of Common Stock, the aggregate
amount paid by the Parent in connection therewith and, in the case of a
repurchase, redemption, retirement or acquisition of Rights, the sum of:
(a) the aggregate amount paid by the Parent for such
Rights; plus
(b) the aggregate consideration or premiums stated in such
Rights to be payable for the shares of Common Stock covered thereby.
For purposes of clause (a) above, in the event of the repurchase,
redemption, retirement or acquisition of any Rights together with other
Securities or obligations of the Parent or any other Person in which the
purchase price for the Rights and such other Securities or obligations is
expressed as a single purchase price (including, without limitation, upon the
repurchase, redemption, retirement or acquisition of Preferred Stock or debt
Securities which are convertible into Common Stock), the aggregate amount paid
by the Parent for such Rights shall include only the portion of such single
purchase price attributable to such Rights, and not the portion attributable to
such other Securities or obligations. The portion of such purchase price
attributable to such Rights in such case shall be equal to the product of:
(i) such single purchase price; multiplied by
(ii) the quotient of:
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(A) the fair market value (as determined by the
Valuation Agent) of such Right, independent of the value of
such other securities or obligations (computed using the
Black-Scholes option pricing model or such other pricing
model as the Valuation Agent determines is appropriate, and
applying such reasonable assumptions concerning price
variances with respect to the Common Stock and such other
variables as the Valuation Agent considers appropriate);
divided by
(B) the fair market value (as determined by the
Valuation Agent) of such Right together with such other
securities or obligations (computed using such methodology
and making such assumptions as the Valuation Agent
determines is appropriate).
Aggregate Consideration Receivable - means, in the case of an
issuance or sale of shares of Additional Common Stock, the aggregate amount paid
to the Parent in connection therewith and, in the case of an issuance or sale of
Rights, or any amendment thereto, the sum of:
(a) the aggregate amount paid to the Parent for such
Rights; plus
(b) the aggregate consideration or premiums stated in such
Rights to be payable for the shares of Additional Common Stock
covered thereby;
in each case without deduction for any fees, expenses or underwriters discounts.
For purposes of clause (a) above, in the event of the issuance or
sale of any Rights together with other Securities or obligations of the Parent
or any other Person in which the purchase price for the Rights and such other
Securities or obligations is expressed as a single purchase price (including,
without limitation, upon the issuance or sale of Preferred Stock or debt
Securities which are convertible into Common Stock), the aggregate amount paid
to the Parent for such Rights should include only the portion of such single
purchase price attributable to such Rights, and not the portion attributable to
such other Securities or obligations. The portion of such purchase price
attributable to such Rights in such case shall be equal to the product of:
(i) such single purchase price; multiplied by
(ii) the quotient of:
(A) the fair market value (as determined by the
Valuation Agent) of such Right, independent of the value of
such other securities or obligations (computed using the
Black-Scholes option pricing model or such other pricing
model as the Valuation Agent determines is appropriate, and
applying such reasonable assumptions concerning price
variances with respect to the Common Stock and such other
variables as the Valuation Agent considers appropriate);
divided by
(B) the fair market value (as determined by the
Valuation Agent) of such Right together with such other
securities or obligations (computed using such methodology
and making such assumptions as the Valuation Agent
determines is appropriate).
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Beneficial Owner - has the meaning contemplated by Rule 13d-3 under
the Exchange Act.
Business Day - means a day other than a Saturday, a Sunday or a day
on which banks in the State of New York are required or permitted by law (other
than a general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
Capital Stock - means any class of preferred, common or other capital
stock, share capital or similar equity interest of a Person including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
Change in Control - means, at any time, the occurrence of any one or
more of the following events:
(a) any Person other than an Acceptable Control Person, or
any Group other than a Group composed solely of Acceptable Control
Persons, shall be or have become Beneficial Owners of Common Stock,
Rights or other Voting Stock of the Parent of more than thirty-five
percent (35%) (by percentage of votes) on a Partially Diluted Basis
of the Voting Stock of the Parent outstanding at such time;
(b) an Acceptable Control Person, or any Group composed
solely of Acceptable Control Persons, shall be or have become
Beneficial Owners of Common Stock, Rights or other Voting Stock of
the Parent of fifty percent (50%) (by percentage of votes) or more on
a Partially Diluted Basis of the Voting Stock of the Parent
outstanding at such time;
(c) the Parent shall fail at any time, either directly or
indirectly through Finance, to hold one hundred percent (100%) of the
Capital Stock of the Company (including, without limitation, all
Voting Stock of the Company) and one hundred percent (100%) of the
Rights exercisable or convertible into Capital Stock of the Company;
(d) any one Person or Group shall have nominated, elected
or named, or shall have obtained the right or ability to nominate,
elect or name, whether by contract, as Beneficial Owners of Voting
Stock of the Parent or otherwise, a majority of the board of
directors of the Parent or of the Company, or Persons serving similar
functions; or
(f) a sale, lease, conveyance, or other transfer, in a
single transaction or series of related transactions, of all or
substantially all of the Property of either the Parent or the Company
shall occur.
Change in Control Notice Event - means:
(a) the execution of any written agreement which, when
fully performed by the parties thereto, would result in a Change in
Control; or
(b) the making of any written offer by any Person or Group
to the holders of any Voting Stock which offer, if accepted by the
requisite number of such holders, would result in a Change in
Control.
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Change in Control Payment Date - Section 2.2.
Closing Price - means, on any date with respect to any share of
Common Stock:
(a) the last sale price, regular way, on such date or, if
no such sale takes place on such date, the average of the closing bid
and asked prices on such date, in each case as officially reported on
the principal national securities exchange on which the Common Stock
is then listed or admitted to trading; and
(b) if the Common Stock is not then listed or admitted to
trading on any national securities exchange, but is listed on the
NASDAQ National Market or the NASDAQ SmallCap Market, as the case may
be, the last trading price of the Common Stock on such date as
reported by NASDAQ, or if there shall have been no trading on such
date, the average of the reported closing bid and asked prices on
such date as shown by NASDAQ.
Common Shares - means the six hundred eighty thousand (680,000)
shares of the Common Stock issued to the Purchasers pursuant to the Securities
Purchase Agreement.
Common Stock - means the Common Stock, par value $0.001 per share, of
the Parent, together with the associated Share Purchase Rights, for so long as
such Share Purchase Rights shall remain attached thereto pursuant to the terms
of the Share Purchase Rights Agreement.
Companies Registration Scheme - means an amendment or amendment to
the Securities Act (whether by statutory amendment, amendment of the rules and
regulations thereunder or both), such as, without limitation, as proposed in the
Report of the Advisory Committee on the Capital Formation and Regulatory
Processes of the Securities and Exchange Commission, dated July 24, 1996,
pursuant to which:
(a) issuers of Securities are permitted to register all
issuances of securities on an integrated company registration
statement; and
(b) under the provisions of such amendment, such
registration could cover the reoffering or resale by the holders
thereof of Registrable Securities..
Company - means Questron Operating Company, Inc., an indirect
wholly-owned subsidiary of the Parent.
Consideration Per Share - means, with respect to shares of Common
Stock or Rights, the quotient of:
(a) the Aggregate Consideration Paid (in the case of a
repurchase, redemption, retirement or other acquisition for value of
Common Stock or Rights) or the Aggregate Consideration Receivable (in
the case of an issuance or sale of Common Stock or Rights by the
Parent), as the case may be, in respect of such shares of Common
Stock or such Rights; divided by
(b) the total number of such shares of Common Stock or, in
the case of Rights, the total number of shares of Common Stock into
which such Rights are exercisable or convertible.
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Exchange Act - means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder.
Excluded Securities - means and includes:
(a) shares of Common Stock or Rights issued in any of the
transactions described in Section 4.1 through Section 4.2, inclusive,
hereof, and in respect of which additional shares of Common Stock
have been issued pursuant to such Section;
(b) shares of Common Stock issuable upon exercise of the
Series IV Warrants or any other Rights outstanding on the date
hereof, pursuant to the terms of the Series IV Warrants or such
Rights as in effect on the date hereof and without any amendment
thereto;
(c) shares of Common Stock or Rights issued to the public
in a bona fide public offering registered under the Securities Act to
Persons other than:
(i) Affiliates;
(ii) employees of the Parent or any Subsidiary;
or
(iii) existing holders of Common Stock or Rights;
(d) shares of Common Stock issued to Persons (other than
the Parent or any Subsidiary or Affiliate) selling all or
substantially all of the Property of any business, or all of the
Capital Stock of any Person, to the Parent or any wholly-owned
Subsidiary, or issued to the former stockholders of any corporation
with which any Subsidiary shall have merged, in any case, as a part
of the consideration paid to such Persons in connection with the
acquisition by the Parent or such Subsidiary of such business or
Person; provided, however, that such transaction was negotiated at
arm's length in good faith by the Parent;
(e) following the Lock-Up Termination Date, shares of
Common Stock or Rights issued in any other bona fide sale transaction
not requiring registration under the Securities Act to Persons other
than:
(i) Affiliates;
(ii) employees of the Parent or any Subsidiary;
or
(iii) existing holders of Common Stock or Rights;
and
(f) Rights consisting of employee stock options granted
with an exercise price not less than the Closing Price thereof as of
the date prior to the date of the grant, and shares of Common Stock
issued upon exercise of such Rights, issued to employees, consultants
or independent contractors of the Parent pursuant to any stock option
plan approved by the Board of Directors at any time, so long as, and
to the extent that:
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(i) the aggregate number of shares of Common
Stock issuable upon exercise of such stock options (whether
or not then currently exercisable) at such time, together
with all shares of Common Stock previously issued upon
exercise of such stock options, does not exceed fifteen
percent (15%) of the outstanding number of shares of Common
Stock at any time; and
(ii) no other holder of any Rights or any other
Securities of the Parent shall have the right to any
preemptive, subscription or similar right in respect of
such issuance.
Fair Value - means, with respect to any share of Common Stock, the
quotient of:
(a) the fair salable value of the Parent, as a going
concern, giving effect to all Property thereof and subject to all
liabilities thereof, that would be realized in an arm's length sale
between an informed and willing buyer and an informed and willing
seller, under no compulsion to buy or sell, respectively, as of a
date that is within fifteen (15) days of the date as of which the
determination is to be made, determined by the Valuation Agent, such
determination to be made without regard to the absence of a liquid or
ready market for such Common Stock; divided by
(b) the total number of shares of Common Stock outstanding
at such time.
Finance - means Questron Finance Corp., a Delaware corporation, a
wholly-owned subsidiary of the Parent and parent of the Company.
Fully Diluted Basis - means, with respect to any calculation of the
number of shares of Common Stock at any time, the sum of:
(a) the number of shares of Common Stock outstanding at
such time; plus
(b) the aggregate number of shares of Common Stock issuable
upon the exercise, conversion or exchange, as the case may be, of all
Rights outstanding at such time, regardless of whether such Rights
are then exercisable, convertible or exchangeable and regardless of
whether the consideration given up by the holder of such Right in
connection with the exercise, conversion or exchange thereof would
exceed the value of the Common Stock received upon such exercise,
conversion or exchange.
GAAP - means accounting principles as promulgated from time to time
in statements, opinions and pronouncements by the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board and in
such statements, opinions and pronouncements of such other entities with respect
to financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States of
America.
Group - means two (2) or more Persons acting as a partnership,
limited partnership, syndicate or other group for the purpose of acquiring,
holding or disposing of Securities of an issuer, as contemplated by section
13(d)(3) of the Exchange Act.
Incidental Registration - Section 3.1.
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Issuable Share - means and includes at any time:
(a) a share of issued and outstanding Common Stock; and
(b) a Right and (without duplication) all shares of Common
Stock issuable upon exercise of such Right, in each case at such
time.
For purposes of this definition of "Issuable Share", a Right to acquire one
share of Common Stock shall constitute one Issuable Share, and a Person shall be
deemed to own an Issuable Share if such Person has a Right to acquire such share
whether or not such Right is exercisable at such time.
Lock-Up Termination Date - means the later to occur of the Shelf
Effective Date and the date upon which the restrictions on transfer of the
Purchaser Shares pursuant to Section 6.1 shall terminate (whether by the terms
of Section 6.1 or by waiver thereof).
Market Price - means, per share of Common Stock, as of any date of
determination, the arithmetic mean of the daily Closing Prices for the twenty
(20) consecutive trading days before such date of determination; provided that
if no Common Stock is then neither listed or admitted to trading on any national
securities exchange, the NASDAQ National Market or the NASDAQ SmallCap Market,
then "Market Price" means the Fair Value of one share of Common Stock, as
determined by the Valuation Agent as of the date of determination.
Material Development Election - Section 3.10.
National Market System Security - has the meaning ascribed thereto in
Rule 11Aa2-1 under the Exchange Act.
NASD - means the National Association of Securities Dealers, Inc.
NASDAQ - means the NASDAQ Stock Market, Inc., a subsidiary of the
NASD.
NASDAQ National Market - has the meaning ascribed thereto in Rule
4200(r) of the NASDAQ.
NASDAQ SmallCap Market - has the meaning ascribed thereto in Rule
4200(t) of the NASDAQ.
Note Agreement - means the Note Agreement, of even date herewith,
among the Company and the Purchasers, pursuant to which the Notes are governed.
Notes - means each of the 14.50% Senior Subordinated Notes due June
30, 2005 of the Company issued pursuant to the Note Agreement.
Other Stockholders - means and includes, at any time, all holders of
Issuable Shares at such time (other than the holders of Purchaser Shares).
Parent - the introductory paragraph.
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Partially Diluted Basis - means, with respect to any calculation of
the number of shares of Voting Stock of any Person held by another Person at any
time, the sum of:
(a) the number of shares of Voting Stock (by number of
votes) outstanding at such time; plus
(b) the aggregate number of shares of Voting Stock issuable
upon the exercise, conversion or exchange, as the case may be, of all
Rights held by such Person (but not any other Rights) at such time
which are then currently exercisable or may become exercisable within
sixty (60) days into Voting Stock.
Person - means an individual, partnership, corporation, limited
liability company, trust, unincorporated organization, or a government or agency
or political subdivision thereof.
Preferred Stock - means, with respect to any Person, all Capital
Stock of such Person of any class which is preferred, as to payment of
dividends, payment upon a liquidation or dissolution of such Person or both,
over the common stock of such Person. When used herein without any modifier,
"Preferred Stock" means Preferred Stock of the Parent.
Property - means any and all interests in any kind of property of
asset whatsoever, whether real, personal or mixed and whether tangible or
intangible.
Proportionate Number - with respect to any holder of Purchaser
Shares, means the product of:
(a) the aggregate number of Purchaser Shares held by such
holder; multiplied by
(b) the quotient of:
(i) the aggregate principal amount of Notes which
the Company has elected to prepay; divided by
(ii) the aggregate principal amount of Notes
outstanding immediately prior to such prepayment.
Public Offering - shall mean, with respect to any Issuable Shares,
any sale in a transaction either registered under, or requiring registration
under, section 5 of the Securities Act.
Purchase Price - means, with respect to any share (or shares) of
Common Stock, the par value (or aggregate par value) thereof.
Purchasers - the introductory paragraph hereof.
Purchaser Shares - means the following, without duplication:
(a) all the Common Shares;
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(b) any additional shares of Common Stock issued to the
holders of any Common Shares pursuant to Section 4; and
(c) any shares of Common Stock into which any such shares
of Common Stock shall have been converted, exchanged or recapitalized
at any time.
Put Option - means the option of each holder of Purchaser Shares to
have such Purchaser Shares purchased by the Parent pursuant to Section 1.
Put Repurchase Date - Section 1.2.
Registrable Securities - means, at any time, and Purchaser Shares at
such time; provided, however, that Purchaser Shares shall cease to be
Registrable Securities:
(a) when a registration statement with respect to the sale
of such Securities shall have become effective under the Securities
Act and such Securities shall have been disposed of in accordance
with such registration statement;
(b) when they shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) under the
Securities Act;
(c) when they shall have been otherwise transferred and
subsequent disposition of them shall not require registration or
qualification under the Securities Act or any similar state law then
in force; or
(d) when they shall have ceased to be outstanding.
Registration - means the Shelf Registration and each Incidental
Registration.
Registration Expenses - means all expenses incident to the Parent's
performance of or compliance with compliance with Section 3.1 through Section
3.5, inclusive, including, without limitation:
(a) all registration and filing fees;
(b) fees and expenses of compliance with securities or blue
sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable
Securities);
(c) expenses of printing certificates for the Registrable
Securities in a form eligible for deposit with The Depositary Trust
Company;
(d) messenger and delivery expenses;
(e) internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal
or accounting duties);
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(f) fees and disbursements of counsel for the Parent and
its independent certified public accountants (including the expenses
of any management review, cold comfort letters or any special audits
required by or incident to such performance and compliance);
(g) securities acts liability insurance (if the Parent
elects to obtain such insurance);
(h) the reasonable fees and expenses of any special experts
retained by the Parent in connection with such registration;
(i) fees and expenses of other Persons retained by the
Parent; and
(j) reasonable fees and expenses of one (1) counsel for
holders of Registrable Securities, selected by the Requisite Holders;
but not including any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities or any other selling expenses, discounts
or commissions incurred in connection with the sale of Registrable Securities.
Required Holders - means, at any time, the holders (other than the
Parent or any Affiliate or Subsidiary) of at least a majority of the Purchaser
Shares at such time (excluding any Purchaser Shares held directly or indirectly
by the Parent or any Subsidiary).
Requisite Holders - means, with respect to any registration or
proposed registration of Registrable Securities pursuant to Section 3 hereof,
any holder or holders (other than the Parent or any Affiliate or Subsidiary)
holding at least a majority of the shares of Registrable Securities (excluding
any shares of Registrable Securities directly or indirectly held by the Parent
or any Affiliate or Subsidiary) to be so registered.
Right - means and includes any warrant, option or other right to
acquire Common Stock and including, without limitation, and any right pursuant
to the provisions of any Security convertible or exchangeable into Common Stock
to acquire Common Stock.
SEC - means, at any time, the Securities and Exchange Commission or
any other federal agency at such time administering the Securities Act.
Securities Act - means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Securities Purchase Agreement - means, collectively, each of the
several substantially identical Securities Purchase Agreements, of even date
herewith, among the Parent, the Company and each of the Purchasers, pursuant to
which the Common Shares and the Notes were issued to the Purchasers.
Security - means "security" as defined by Section 2(1) of the
Securities Act.
Senior Agent - has the meaning set forth in the Note Agreement.
Senior Credit Facility - has the meaning set forth in the Note
Agreement.
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Serial Put Agreement - means the Serial Put Agreement, entered into
as of September 22, 1997, among the Parent, Doug Zadow and Terry Bastian.
Share Purchase Rights - means the preferred share purchase rights
issued pursuant to the Share Purchase Rights Agreement.
Share Purchase Rights Agreement - means the Rights Agreement, dated
as of October 23, 1998, between the Parent and American Stock Transfer & Trust
Company, as Rights Agent, as amended and modified from time to time in
accordance with its terms.
Shelf Effective Date - means June 30, 2000.
Shelf Effective Period - Section 3.2(a).
Shelf Termination Date - means, with respect to the Shelf
Registration, the earlier of:
(a) the first date upon which no Registrable Securities
remain; and
(b) the first date after June 30, 2002 upon which the
aggregate number of Registrable Securities comprises less than ten
percent (10%) of the aggregate number of outstanding shares of Common
Stock on such date.
Shelf Registration - Section 3.2(a).
Subsidiary - means, as to any Person, any corporation in which such
Person or one or more Subsidiaries of such Person or such Person and one or more
Subsidiaries of such Person owns sufficient voting securities to enable it or
them (as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of such
corporation. The term "Subsidiary," as used herein without reference to any
Person, shall mean a Subsidiary of the Parent, and shall include, without
limitation, the Company.
Valuation Agent - means a firm of independent certified public
accountants, an investment banking firm or a securities rating service (which
firm or service shall own no Securities of, and shall not be an Affiliate,
Subsidiary or a related Person of, the Parent) of recognized national standing
retained by the Parent and reasonably acceptable to the Required Holders.
Voting Stock - means, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes shall
have or might have voting power by reason of the happening of any contingency)
and, in the case of the Parent, shall include the Common Stock.
7.2 Accounting Principles.
(a) Generally. Unless otherwise provided herein, all
financial statements delivered in connection herewith will be
prepared in accordance with GAAP. Where the character or amount of
any asset or liability or item of income or expense, or any
consolidation or other
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accounting computation is required to be made for any purpose
hereunder, it shall be done in accordance with GAAP; provided,
however, that if any term defined herein includes or excludes
amounts, items or concepts that would not be included in or excluded
from such term if such term were defined with reference solely to
GAAP, such term will be deemed to include or exclude such amounts,
items or concepts as set forth herein.
(b) Consolidation. Whenever accounting amounts of a group
of Persons are to be determined "on a consolidated basis" it shall
mean that, as to balance sheet amounts to be determined as of a
specific time, the amount that would appear on a consolidated balance
sheet of such Persons prepared as of such time, and as to income
statement amounts to be determined for a specific period, the amount
that would appear on a consolidated income statement of such Persons
prepared in respect of such period, in each case with all
transactions among such Persons eliminated, and prepared in
accordance with GAAP except as otherwise required hereby.
(c) Currency. With respect to any determination,
consolidation or accounting computation required hereby, any amounts
not denominated in the currency in which this Agreement specifies
shall be converted to such currency in accordance with the
requirements of GAAP (as such requirements relate to such
determination, consolidation or computation) and, if no such
requirements shall exist, converted to such currency in accordance
with normal banking procedures, at the closing rate as reported in
The Wall Street Journal published most recently as of the date of
such determination, consolidation or computation or, if no such
quotation shall then be available, as quoted on such date by any bank
or trust company reasonably acceptable to the Required Holders.
7.3 Directly or Indirectly.
Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person,
including actions taken by or on behalf of any partnership in which such Person
is a general partner.
7.4 Section Headings and Table of Contents and Construction.
(a) Section Headings and Table of Contents, etc. The titles
of the Sections of this Agreement and the Table of Contents of this
Agreement 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 Agreement
as a whole and not to any particular Section or other subdivision.
References to Sections are, unless otherwise specified, references to
Sections of this Agreement. References to Annexes and Exhibits are,
unless otherwise specified, references to Annexes and Exhibits
attached to this Agreement.
(b) Construction. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being
independent of each other covenant contained herein, and compliance
with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with one or more other
covenants.
7.5 Governing Law.
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THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY
OTHER JURISDICTION.
8. MISCELLANEOUS.
8.1 Notices.
(a) Method; Address. All communications hereunder shall be
in writing and shall be delivered either by nationwide overnight
courier or by facsimile transmission (confirmed by delivery by
nationwide overnight courier sent on the day of the sending of such
facsimile transmission). Communications to the Parent shall be
addressed as set forth on Annex 2, or at such other address of which
the Parent shall have notified each holder of Purchaser Shares.
Communications to the holders of the Purchaser Shares shall be
addressed as set forth on Annex 1 by such holder, or at such other
address of which such holder shall have notified the Parent, and the
Parent shall, or shall cause the transfer agent for the Common Stock
to, record such address in the share register for the Common Stock.
(b) When Given. Any communication addressed and delivered
as herein provided shall be deemed to be received when actually
delivered to the address of the addressee (whether or not delivery is
accepted) or received by the telecopy machine of the recipient. Any
communication not so addressed and delivered shall be ineffective.
(c) Service of Process. Notwithstanding the foregoing
provisions of this Section 8.1, service of process in any suit,
action or proceeding arising out of or relating to this agreement or
any document, agreement or transaction contemplated hereby, or any
action or proceeding to execute or otherwise enforce any judgment in
respect of any breach hereunder or under any document or agreement
contemplated hereby, shall be delivered in the manner provided in
Section 8.6(c).
8.2 Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by you at the closing of your purchase of the Common Shares
(except the share certificates themselves), and financial statements,
certificates and other information previously or hereafter furnished to any
holder of Purchaser Shares may be reproduced by the Parent or any holder of
Purchaser Shares by any photographic, photostatic, microfilm, micro-card,
miniature photographic, digital or other similar process and each holder of
Purchaser Shares may destroy any original document so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Parent or such
holder of Purchaser Shares in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. Nothing in this Section 8.2 shall prohibit
the Parent or any holder of Purchaser Shares from contesting the accuracy or
validity of any such reproduction.
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8.3 Survival; Entire Agreement.
All warranties, representations, certifications and covenants
contained herein, in the Securities Purchase Agreement or in any certificate or
other instrument delivered hereunder shall be considered to have been relied
upon by the other parties hereto and shall survive the delivery to you of the
Common Shares regardless of any investigation made by or on behalf of any party
hereto. All statements in any certificate or other instrument delivered pursuant
to the terms hereof or of the Securities Purchase Agreement shall constitute
warranties and representations hereunder. All obligations hereunder (including,
without limitation, reimbursement obligations in respect of costs, expenses and
fees) shall survive the termination hereof. Subject to the preceding sentence,
this Agreement, the Purchaser Shares and the other Financing Documents embody
the entire agreement and understanding among the Parent and the Purchasers, and
supersede all prior agreements and understandings, relating to the subject
matter hereof.
8.4 Successors and Assigns.
This Agreement 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 Purchaser
Shares, 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
holder. Anything contained in this Section 8.4 notwithstanding, the Parent may
not assign any of its respective rights, duties or obligations hereunder or
under any of the other Financing Documents without the prior written consent of
all holders of Purchaser Shares. Any holder of a Purchaser Share shall be
permitted to pledge or otherwise grant a pledge in and to such Purchaser Shares
(including, without limitation, pledging such Purchaser Shares to a trustee for
the benefit of certain secured noteholders pursuant to documents relating to the
financing of such holder or to one or more banks or other institutions providing
financing in connection with the purchase by such holder of such Purchaser
Share); provided, however, that any such pledgee shall not be considered a
holder hereunder until it shall have foreclosed upon such Purchaser Shares in
accordance with applicable law and informed the Parent in writing, of the same.
8.5 Amendments and Waivers.
This Agreement may be amended, and the observance of any term hereof
may be waived, with (and only with) the written consent of the Parent and the
Required Holders; provided, however, that compliance by the Parent with the
provisions of Section 3 hereof, with respect to any particular registration, may
be waived by the Requisite Holders and provided, further, that no such amendment
or waiver shall, without the written consent of the holders of all Purchaser
Shares (exclusive of Purchaser Shares held by the Parent, any Subsidiary or any
Affiliate), amend or waive the provisions of this Section 8.5; and provided
further that the Company and the Required Holders shall not amend, modify, waive
or supplement any provision of Section 1.5 or Section 2.6 which in any way
affects the rights of the lenders under the Senior Credit Agreement without the
express written consent of the Senior Agent.
8.6 Expenses.
The Parent shall pay when billed the reasonable costs and expenses
(including reasonable attorneys' fees) incurred by the holders of the Purchaser
Shares in connection with the consideration, negotiation, preparation or
execution of any amendments, waivers, consents, standstill agreements and other
similar
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agreements with respect to this Agreement, the Charter or any other Financing
Document (whether or not any such amendments, waivers, consents, standstill
agreements or other similar agreements are executed).
8.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc.
(a) Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS
CONTEMPLATED HEREBY.
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE DOCUMENTS,
AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR
PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF
ANY BREACH UNDER THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT
CONTEMPLATED HEREBY MAY BE BROUGHT BY SUCH PARTY IN ANY FEDERAL
DISTRICT COURT LOCATED IN NEW YORK CITY, NEW YORK OR ANY NEW YORK
STATE COURT LOCATED IN NEW YORK CITY, NEW YORK AS SUCH PARTY MAY IN
ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT
TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION OF EACH SUCH COURT, AND
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES AND AGREES NOT TO
ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF MOTION, AS A
DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT TO THE IN
PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF THE
PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED
HEREBY BROUGHT IN ANY SUCH COURT, AND HEREBY IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY
AGREES THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED
MAIL AT THE ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE,
TO THE EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED
HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE
ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY DOCUMENT
OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL
BE CONCLUSIVELY
41
<PAGE>
PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED BY THE UNITED
STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY SERVICE.
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED
TO LIMIT THE ABILITY OF ANY HOLDER OF PURCHASER SHARES TO SERVE ANY
WRITS, PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW
OR TO OBTAIN JURISDICTION OVER THE PARENT IN SUCH OTHER JURISDICTION,
AND IN SUCH OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
8.8 Indemnification of Each Holder.
From and at all times after the date of this Agreement, and in
addition to all other rights and remedies against the Parent, the Parent agrees
to indemnify and hold harmless each holder of Purchaser Shares and each of its
directors, officers, partners, employees, agents, investment advisors and
affiliates (collectively, the "Indemnified Parties") against any and all claims
(whether valid or not), losses, damages, liabilities, costs and expenses of any
kind or nature whatsoever (including, without limitation, reasonable attorneys'
fees, costs and expenses), incurred by or asserted against such Indemnified
Party, from and after the date hereof, whether direct, indirect or
consequential, as a result of or arising from or in any way relating to any
suit, action or proceeding (including any inquiry or investigation) by any
Person, whether threatened or initiated, asserting a claim for any legal or
equitable remedy against any Person under any statute or regulation, including,
but not limited to, any federal or state securities laws, or under any common
law or equitable cause or otherwise, arising from or in connection with the
negotiation, preparation, execution, performance or enforcement of this
Agreement or the other Financing Documents or any transactions contemplated
herein or therein, or any of the transactions contemplated hereunder
(collectively, the "Proceedings"), whether or not such Indemnified Party is a
party to or target of any such Proceeding; provided, however, that no
Indemnified Party shall have the right to be indemnified hereunder for any
liability resulting from the willful misconduct or gross negligence of such
Indemnified Party or breach by such Indemnified Party of its own obligations
under this Agreement. All of the foregoing losses, damages, costs and expenses
shall be payable as and when incurred upon the demand of each holder. Without
limiting the generality of the foregoing, each such indemnified Person shall be
entitled to collect, and the Parent shall be obligated to advance to each such
Person, to the fullest extent permitted by applicable law, all expenses
(including, without limitation, reasonable fees and disbursements of counsel)
attendant to defending against any such claims (whether valid or not), losses,
damages, liabilities, costs and expenses when and as incurred, regardless of
whether any judicial determination of entitlement to such indemnity has been
made, until or unless a final judicial determination that such Indemnified Party
is not entitled to such indemnity, in which case, such Indemnified Party shall
promptly repay to the Parent, with interest at the applicable statutory rate
applicable to judgments in the relevant jurisdiction, all amounts so advanced by
the Parent. The obligations of the Parent and the rights under this Section 8.8
of each holder of Purchased Securities shall survive the termination of this
Agreement.
If any Proceeding shall be brought or asserted or threatened to be
brought or asserted against an Indemnified Party in respect of which indemnity
may be sought from the Parent hereunder, such Indemnified Party shall promptly
notify the Parent in writing, and the Parent may, in its sole discretion,
promptly upon receipt of such notice, assume the defense thereof, including the
employment of counsel (who may be counsel for the Parent) reasonably
satisfactory to such Indemnified Party and the payment
42
<PAGE>
of all expenses therefor. If the Parent elects to assume the defense of any such
Proceeding, the Indemnified Party shall have the right, in its sole discretion,
to employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be the expense of such
Indemnified Party unless:
(a) the Parent has agreed to pay such fees and expenses;
(b) the Parent shall have elected not to assume the defense
of such Proceeding or shall have failed to promptly assume the
defense of Proceeding or shall have failed to employ counsel
reasonably satisfactory to such Indemnified Part in any such
Proceeding; or
(c) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Parent
and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to such Indemnified
Party that are different from or additional to those available to the
Parent (in which case, if such Indemnified Party notifies the Parent
in writing that it elects to employ separate counsel at the expense
of the Parent, the Parent shall not have the right to assume the
defense of such Proceeding on behalf of such Indemnified Party, it
being understood, however, that the Parent shall not, in connection
with any one such Proceeding or separate but substantially similar or
related Proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable
fees and expenses or more than one separate firm of attorneys at any
time for such Indemnified Party and any other Indemnified Parties,
which firm shall be designated in writing by such Indemnified
Parties).
The Parent shall not be liable for any settlement of any Proceeding by an
Indemnified Party effected without the Parent's written consent (which consent
shall not be unreasonably withheld). In addition, the Indemnified Party shall
cooperate with the Parent and their representatives in connection with the
defense or investigation of any claim or other matter for which indemnification
is sought, as reasonably requested by the Parent.
8.9 Execution in Counterpart.
This Agreement 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.
[Remainder of page left blank intentionally; next page is signature page]
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered, all as of the date and year first above written.
QUESTRON TECHNOLOGY, INC.
By: /s/ Dominic A. Polimeni
------------------------------
Name: Dominic A. Polimeni
Title: Chairman, President and
Chief Executive Officer
ALLIANCE INVESTMENT OPPORTUNITIES FUND, L.L.C.
By: Alliance Investment Opportunities Management, L.L.C., as Managing Member
By: Alliance Capital Management, L.P. as Managing Member
By: Alliance Capital Management Corporation, as General Partner
By: /s/ Sheryl Rothman
----------------------------
Name: Sheryl A. Rothman
Title: Vice President
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
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/ Kevin P. Falvey
----------------------------
Name: Kevin P. Falvey
Title: Director
<PAGE>
ANNEX 1
Names and Addresses of Purchasers
================================================================================
Purchaser Name ALBION ALLIANCE MEZZANINE FUND, L.P.
- --------------------------------------------------------------------------------
Address for All Other Albion Alliance Mezzanine Fund, L.P.
Notices c/o Albion Alliance LLC
1345 Avenue of the Americas, 41st Floor
New York, NY 10105
Attention: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
- --------------------------------------------------------------------------------
Other Instructions Signature Page Format:
ALBION ALLIANCE MEZZANINE FUND, L.P.
By: Albion Alliance LLC, its General Partner
By:
------------------------------
Name:
Title:
================================================================================
Annex 1-1
<PAGE>
================================================================================
Purchaser Name ALLIANCE INVESTMENT OPPORTUNITIES FUND,
L.L.C.
- --------------------------------------------------------------------------------
Address for All Other Alliance Investment Opportunities Fund, L.L.C.
Notices c/o Albion Alliance LLC
1245 Avenue of the Americas
New York, NY 10105
Attn: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
and to:
Alliance Capital Management
1345 Avenue of the Americas
New York, NY 10105
Attn: Elizabeth Hennessey
Tel: (212) 969-2341
Fax: (212) 969-6953
- --------------------------------------------------------------------------------
Other Instructions Signature Page Format:
ALLIANCE INVESTMENT OPPORTUNITIES FUND,
L.L.C.
By: Alliance Investment Opportunities
Management, L.L.C., as Managing Member
By: Alliance Capital Management L.P., as
Managing Member
By: Alliance Capital Management Corporation,
as General Partner
By:
----------------------------------
Name:
Title:
================================================================================
Annex 1-2
<PAGE>
================================================================================
Purchaser Name THE EQUITABLE LIFE ASSURANCE SOCIETY OF
THE UNITED STATES
- --------------------------------------------------------------------------------
Address for All Other The Equitable Life Assurance Society of
Notices the United States
c/o Albion Alliance LLC
1345 Avenue of the Americas, 41st Floor
New York, NY 10105
Attn: Peter Gummeson
Tel: (212) 969-1545
Fax: (212) 969-1529
- --------------------------------------------------------------------------------
Other Instructions Signature Page Format:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF
THE UNITED STATES
By:
------------------------------
Name:
Title:
================================================================================
Annex 1-3
<PAGE>
================================================================================
Purchaser Name IBJ WHITEHALL BANK & TRUST COMPANY
- --------------------------------------------------------------------------------
Address for All Other IBJ Whitehall Bank & Trust Company
Notices One State Street, 9th Floor
New York, NY 10004
Attn: Jean-Louis Pernin
Fax: (212) 858-2768
- --------------------------------------------------------------------------------
Other Instructions Signature Page Format:
IBJ WHITEHALL BANK & TRUST COMPANY
By:
------------------------------
Name:
Title:
================================================================================
Annex 1-4
<PAGE>
ANNEX 2
Address of Parent
Questron Technology, Inc.
6400 Congress Ave., Suite 200A
Boca Raton, Florida 33487
Telephone: 561-241-5251
Facsimile: 561-241-2866
Attn:
Annex 2-1
Exhibit 10.4
-----------------------------------------------------------
UNCONDITIONAL GUARANTY
-----------------------------------------------------------
DATED AS OF JUNE 30, 1999
Re:
$20,000,000 14.5% SENIOR SUBORDINATED NOTES DUE JUNE 30, 2005
ISSUED BY QUESTRON OPERATING COMPANY, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
Annex 1 - Addresses of Guarantors
Annex 2 - Form of Joinder Agreement
<PAGE>
UNCONDITIONAL GUARANTY
UNCONDITIONAL GUARANTY, dated as of June 30, 1999 (as amended,
restated or otherwise modified from time to time, this "Subsidiary Guaranty"),
by QUESTRON TECHNOLOGY, INC., a Delaware corporation, QUESTRON FINANCE CORP., a
Delaware corporation, QUESTRON DISTRIBUTION LOGISTICS, INC., a Delaware
corporation, INTEGRATED MATERIAL SYSTEMS, INC., an Arizona corporation, POWER
COMPONENTS, INC., a Pennsylvania corporation, FORTUNE INDUSTRIES, INC., a Texas
corporation, FAS-TRONICS, INC., a Texas corporation, CALIFORNIA FASTENERS, INC.,
a California corporation, COMP WARE, INC., 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 and CAPITAL FASTENERS, INC., a North Carolina
corporation (collectively, the "Original Guarantors") and each other Person
that becomes a party hereto from time to time by execution and delivery of a
Joinder Agreement (collectively, with the Original Guarantors, and including
their respective successors and assigns, the "Guarantors"), in favor of each of
the Noteholders (as such term is hereinafter defined).
1. PRELIMINARY STATEMENTS
WHEREAS, Questron Operating Company, Inc. (together with its
successors and assigns, the "Company"), a Delaware corporation, has authorized
the issuance of its 14.50% Senior Subordinated Notes due June 30, 2005 (as may
be amended, restated or otherwise modified from time to time, the "Notes"), in
the aggregate principal amount of Twenty Million Dollars ($20,000,000), pursuant
to a Note Agreement, dated as of June 29, 1999 (as may be amended, restated or
otherwise modified from time to time, the "Note Agreement"), entered into by the
Company with each of the purchasers of the Notes named on Annex 1 to the Note
Agreement (the "Purchasers"); and
WHEREAS, the proceeds of the sale of the Notes will be used, in part,
and together with other new indebtedness of the Company, to repay indebtedness
of the Company which is guaranteed by the Original Guarantors and which is
secured by Liens upon the assets of the Original Guarantors; and
WHEREAS, in order to induce the Purchasers to purchase the Notes,
each of the Original Guarantors has agreed to become a Guarantor hereunder and
the Company has agreed, pursuant to the Note Agreement, that each other
Subsidiary, will be required to become a Guarantor hereunder; and
WHEREAS, each of the Original Guarantors will receive direct economic
benefit from the granting of this Subsidiary Guaranty in that the proceeds from
the sale of the Notes will be used to prepay indebtedness of the Company, which
payment will result in the discharge of the existing guarantees of such
indebtedness by the Original Guarantors and the discharge of existing Liens upon
the Property of such Original Guarantors; and each Guarantor will receive direct
and indirect economic, financial and other benefits from the Debt incurred under
the Note Agreement and the Notes by the Company, and under this Subsidiary
Guaranty, and the incurrence of such Debt and the guaranteeing of such Debt
hereby is in the best interests of such Guarantor; and
WHEREAS, all acts and proceedings required by law and by the
constitutive documents of each Guarantor necessary to constitute this Subsidiary
Guaranty a valid and binding agreement for the uses and purposes set forth
herein in accordance with its terms have been done and taken, and the execution
and delivery hereof have been in all respects duly authorized;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth herein, each of the Guarantors agrees as follows:
2. GUARANTY AND OTHER RIGHTS AND UNDERTAKINGS
2.1 Guarantied Obligations
(a) Each Guarantor, in consideration of the execution and
delivery of the Note Agreement, the purchase of the Notes by the
Purchasers and other consideration, hereby irrevocably,
unconditionally and absolutely guaranties, on a continuing basis, to
each Noteholder, jointly and severally, as and for such Guarantor's
own debt:
(i) the prompt payment of the principal of the
Notes and any and all accrued and unpaid interest
(including, without limitation, interest which otherwise
may cease to accrue by operation of any insolvency law,
rule, regulation or interpretation thereof) and
Compensation Amount on the Notes and all other obligations
of the Company to the Noteholders under the Note Agreement
(including, without limitation, its obligations in respect
of Section 9.6 and Section 9.8 thereof), whether by
mandatory or optional prepayment, acceleration or
otherwise, all in accordance with the terms of the Note
Agreement and the Notes, including, without limitation,
overdue interest, indemnification payments and all
reasonable costs and expenses incurred by the Noteholders
in connection with enforcing any obligations of the Company
under the Note Agreement and the Notes, including, without
limitation, the reasonable fees and disbursements of
Noteholders' special counsel;
(ii) the prompt and punctual performance and
observance of each and every term, covenant or agreement
contained in the Note Agreement and the Notes to be
performed or observed on the part of the Company; and
(iii) the prompt and complete payment, on demand,
of any and all reasonable costs and expenses incurred by
the Noteholders in connection with enforcing the
obligations of such Guarantor hereunder, including, without
limitation, the reasonable fees and disbursements of
Noteholders' special counsel.
All of the obligations set forth in subsections (i), (ii) and (iii)
of this Section 2.1 are referred to herein as the "Guarantied
Obligations" and the guaranty thereof contained herein is a primary,
original and immediate obligation of each Guarantor and is an
absolute, unconditional, continuing and irrevocable guaranty of
payment and performance and shall remain in full force and effect
until the full, final and indefeasible payment of the Guarantied
Obligations.
(b) If for any reason any duty, agreement or obligation of
the Company contained in the Note Agreement shall not be performed or
observed by the Company as provided therein, or if any amount payable
under or in connection with the Note Agreement or the Notes shall not
be paid in full when the same becomes due and payable, each Guarantor
undertakes to perform or cause to be performed promptly each of such
duties, agreements and obligations and to pay forthwith each such
amount to the Noteholders regardless of any defense or setoff or
counterclaim which the Company may have or assert, and regardless of
any other condition or contingency.
2.2 Waivers and Other Agreements
<PAGE>
Each Guarantor hereby unconditionally:
(a) waives any requirement that the Noteholders, upon the
occurrence of an Event of Default, first make demand upon, or seek to
enforce remedies against, the Company before demanding payment under
or seeking to enforce the obligations of such Guarantor under this
Subsidiary Guaranty;
(b) agrees that the obligations of such Guarantor under
this Subsidiary Guaranty will not be discharged except by complete
performance of all obligations of the Company contained in the Note
Agreement, the Notes and the other Financing Documents;
(c) agrees that the obligations of such Guarantor under
this Subsidiary Guaranty shall remain in full force and effect
without regard to, and shall not be affected or impaired, without
limitation, by any invalidity, irregularity or unenforceability in
whole or in part of the Note Agreement, the Notes or any other
Financing Document, or any limitation on the liability of any
Guarantor under this Subsidiary Guaranty, or any limitation on the
method or terms of payment under the Note Agreement, the Notes or any
other Financing Document which may at any time be caused or imposed
in any manner whatsoever (including, without limitation, usury laws);
(d) waives diligence, presentment and protest with respect
to, and any notice of default or dishonor in the payment of any
amount at any time payable by the Company under or in connection with
the Note Agreement, the Notes or any other Financing Document, and
further waives any requirement of notice of acceptance of, or other
formality relating to, the obligations of such Guarantor under this
Subsidiary Guaranty; and
(e) agrees that to the extent the Company makes a payment
or payments to any Noteholder, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required, for any of the foregoing reasons
or for any other reason, to be repaid or paid over to a custodian,
trustee, receiver or any other party or officer under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, state or federal
law, or any common law or equitable cause, then to the extent of such
payment or repayment, the obligation or part thereof intended to be
satisfied shall be revived and continued in full force and effect as
if said payment had not been made and each Guarantor shall be
primarily liable for such obligation.
2.3 Nature of Guaranty
The obligations of each Guarantor under this Subsidiary Guaranty
constitute an absolute and unconditional and irrevocable guaranty of payment and
not a guaranty of collection and are wholly independent of and in addition to
other rights and remedies of the Noteholders and are not contingent upon the
pursuit by the Noteholders of any such rights and remedies, such pursuit being
hereby waived by such Guarantor. Notwithstanding anything to the contrary set
forth in the Note Agreement, the Notes or any other Financing Document, the
obligations of each Guarantor under this Subsidiary Guaranty are joint and
several with the obligations of each other Guarantor and any other guarantor of
all or any part of the Guarantied Obligations.
2.4 Obligations Absolute
<PAGE>
The obligations, covenants, agreements and duties of each Guarantor
under this Subsidiary Guaranty shall not be released, affected or impaired by
any of the following, whether or not undertaken with notice to or consent of
such Guarantor:
(a) any assignment or transfer, in whole or in part, of any
Note although made without notice to or consent of such Guarantor;
(b) any waiver by any Noteholder, or by any other Person,
of the performance or observance by the Company of any of the
agreements, covenants, terms or conditions contained in the Note
Agreement or in any other Financing Document;
(c) any indulgence in or the extension of the time for
payment by the Company of any amounts payable under or in connection
with the Note Agreement, the Notes or any other Financing Document,
or of the time for performance by the Company of any other
obligations under or arising out of the Note Agreement, the Notes or
any other Financing Document, or the extension or renewal thereof;
(d) the modification, amendment or waiver (whether material
or otherwise) of any duty, agreement or obligation of the Company set
forth in the Note Agreement, the Notes or any other Financing
Document (the modification, amendment or waiver from time to time of
the Note Agreement, the Notes and the other Financing Documents being
expressly authorized without further notice to or consent of such
Guarantor);
(e) the voluntary or involuntary liquidation, sale or other
disposition of all or substantially all of the assets of the Company
or any receivership, insolvency, bankruptcy, reorganization or other
similar proceedings affecting the Company or any of its assets;
(f) the merger or consolidation of the Company or any
Guarantor with any other Person;
(g) the release or discharge of the Company from the
performance or observance of any agreement, covenant, term or
condition contained in the Note Agreement, the Notes or any other
Financing Document, by operation of law; or
(h) any other cause, whether similar or dissimilar to the
foregoing, that would release, affect or impair the obligations,
covenants, agreements or duties of any Guarantor under this
Subsidiary Guaranty.
2.5 No Investigation by Noteholders
Each Guarantor hereby waives unconditionally any obligation that, in
the absence of such provision, the Noteholders might otherwise have to
investigate or to assure that there has been compliance with the law of any
jurisdiction with respect to the Guarantied Obligations, recognizing that, to
save both time and expense, such Guarantor has requested that the Noteholders
not undertake such investigation. Each Guarantor hereby expressly confirms that
the obligations of such Guarantor hereunder shall remain in full force and
effect without regard to compliance or noncompliance with any such law and
irrespective of any investigation or knowledge of any such law by any
Noteholder.
<PAGE>
2.6 Indemnity
As a separate, additional and continuing obligation, each Guarantor
unconditionally and irrevocably undertakes and agrees with the Noteholders that,
should the Guarantied Obligations not be recoverable from such Guarantor under
Section ? for any reason whatsoever (including, without limitation, by reason of
any provision of the Note Agreement or the Notes or any other agreement or
instrument executed in connection therewith being or becoming void,
unenforceable or otherwise invalid under any applicable law) then,
notwithstanding any knowledge thereof by any Noteholder at any time, such
Guarantor as sole, original and independent obligor, upon demand by the Required
Holders, will make payment of the Guarantied Obligations to the Noteholders by
way of a full indemnity in such currency and otherwise in such manner as is
provided in the Note Agreement and the Notes.
2.7 Subordination, Subrogation, Etc.
Each Guarantor agrees that any present or future indebtedness,
obligations or liabilities of the Company to such Guarantor shall be fully
subordinate and junior in right and priority of payment to the Guarantied
Obligations and any present or future indebtedness, obligations or liabilities
of the Company to the Noteholders. Each Guarantor waives any right of
subrogation to the rights of the Noteholders against the Company or any other
Person obligated for payment of the Guarantied Obligations and any right of
reimbursement, contribution or indemnity whatsoever (including, without
limitation, any such right as against the Company or any other Guarantor)
arising or accruing out of any payment that such Guarantor may make pursuant to
this Subsidiary Guaranty, and any right of recourse to security for the debts
and obligations of the Company, unless and until the entire amount of the
Guarantied Obligations shall have been fully, finally and indefeasibly paid in
full for a period of not less than one hundred twenty (120) days.
2.8 Waiver
To the extent that it lawfully may, each Guarantor agrees that it
will not at any time insist upon or plead, or in any manner whatsoever claim or
take any benefit or advantage of any applicable present or future stay,
extension or moratorium law, which may affect observance or performance of the
provisions of this Subsidiary Guaranty, the Note Agreement, the Notes or any
other Financing Document; nor will it claim, take or insist upon any benefit or
advantage of any present or future law providing for the evaluation or appraisal
of any security for its obligations hereunder or the Company under the Note
Agreement, the Notes or any other Financing Document prior to any sale or sales
thereof which may be made under or by virtue of any instrument governing the
same; nor will it, after any such sale or sales, claim or exercise any right,
under any applicable law, to redeem any portion of such security so sold.
2.10 Limitation on Guarantied Obligations.
Notwithstanding anything in Section 2.1 or elsewhere in this
Subsidiary Guaranty or any other Financing Document to the contrary, the
obligations of each Guarantor under this Subsidiary Guaranty shall at each point
in time be limited to an aggregate amount equal to the greatest amount that
would not result in such obligations being subject to avoidance, or otherwise
result in such obligations being unenforceable, at such time under applicable
law (including, without limitation, to the extent, and only to the extent,
applicable to any such Guarantor, Section 548 of the Bankruptcy Code of the
United States of America and any comparable provisions of the law of any other
jurisdiction, any capital preservation law of any jurisdiction and any other law
of any jurisdiction that at such time limits the enforceability of the
obligations of such Guarantor under this Subsidiary Guaranty).
<PAGE>
2.11 Marshaling
Neither any Noteholder nor any Person acting for the benefit of any
Noteholder shall be under any obligation to marshal any assets in favor of any
Guarantor or against or in payment of any or all of the Guarantied Obligations.
2.12 Setoff, Counterclaim or Other Deductions
Except as otherwise required by law, each payment by each Guarantor
shall be made without setoff, counterclaim or other deduction.
2.13 No Election of Remedies by Noteholders
No election to proceed in one form of action or proceeding, or
against any party, or on any obligation, shall constitute a waiver of such
Noteholder's right to proceed in any other form of action or proceeding or
against other parties unless such Noteholder has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing, no
action or proceeding by any Noteholder against the Company or any Guarantor
under any document or instrument evidencing obligations of the Company or any
Guarantor to such Noteholder shall serve to diminish the liability of any
Guarantor under this Subsidiary Guaranty, except to the extent that such
Noteholder finally and unconditionally shall have realized payment by such
action or proceeding in respect of the Guarantied Obligations.
2.14 Separate Action; Other Enforcement Rights
Each of the rights and remedies granted under this Subsidiary
Guaranty to each Noteholder in respect of the Notes held by such Noteholder may
be exercised by such Noteholder without notice by such Noteholder to, or the
consent of or any other action by, any other Noteholder. Each Noteholder may
proceed to protect and enforce this Subsidiary Guaranty by suit or suits or
proceedings in equity, at law or in bankruptcy, and whether for the specific
performance of any covenant or agreement contained herein or in execution or aid
of any power herein granted or for the recovery of judgment for the obligations
hereby guarantied or for the enforcement of any other proper, legal or equitable
remedy available under applicable law.
2.15 Noteholder Setoff
Each Noteholder shall have, to the fullest extent permitted by law
and this Subsidiary Guaranty, a right of set-off against any and all credits and
any and all other property of each Guarantor now or at any time whatsoever,with
or in the possession of such Noteholder, or anyone acting for such Noteholder,
to ensure the full performance of any and all obligations of each Guarantor
hereunder.
2.16 Delay or Omission; No Waiver
No course of dealing on the part of any Noteholder and no delay or
failure on the part of any such Person to exercise any right hereunder shall
impair such right or operate as a waiver of such right or otherwise prejudice
such Person's rights, powers and remedies hereunder. Every right and remedy
given by this Subsidiary Guaranty or by law to any Noteholder may be exercised
from time to time as often as may be deemed expedient by such Person.
<PAGE>
2.17 Restoration of Rights and Remedies
If any Noteholder shall have instituted any proceeding to enforce any
right or remedy under this Subsidiary Guaranty or under any Note held by such
Noteholder, and such proceeding shall have been dismissed, discontinued or
abandoned for any reason, or shall have been determined adversely to such
Noteholder, then and in every such case each such Noteholder, the Company and
each Guarantor shall, except as may be limited or affected by any determination
(including, without limitation, any determination in connection with any such
dismissal) in such proceeding, be restored severally and respectively to its
respective former positions hereunder and thereunder, and thereafter, subject as
aforesaid, the rights and remedies of such Noteholders shall continue as though
no such proceeding had been instituted.
2.18 Cumulative Remedies
No remedy under this Subsidiary Guaranty, the Note Agreement, the
Notes or any other Financing Document is intended to be exclusive of any other
remedy, but each and every remedy shall be cumulative and in addition to any and
every other remedy given pursuant to this Subsidiary Guaranty, the Note
Agreement, the Notes or any other Financing Document.
2.19 Subordination to Senior Debt
The Guarantied Obligations are subordinate and junior in right of
payment to any and all guaranties or other Debt of the Guarantors owing to the
holders of Senior Debt in respect of the Senior Debt to the same extent and on
the same terms as the Notes are subordinated to the Senior Debt pursuant to the
provisions of Section 7 of the Note Agreement. The provisions of Section 7 of
the Note Agreement and the defined terms set forth in Section 8.1 of the Note
Agreement, to the extent used in such Section 7, are hereby incorporated in
their entirety herein, mutatis mutandis, by this reference thereto. Each
Noteholder shall be deemed to acknowledge and agree that the these subordination
provisions are, and are intended to be, an inducement to and a consideration of
each holder of any Senior Debt, whether such Senior Debt was created or acquired
before or after the creation of Notes, to acquire and hold, or to continue to
hold, such Senior Debt, and such holder of Senior Debt shall be deemed
conclusively to have relied on such subordination provisions in acquiring and
holding, or in continuing to hold, such Senior Debt, and each holder of Senior
Debt shall be a direct beneficiary of the provisions of this Section ?.
Notwithstanding anything contained in this Unconditional Guaranty or any other
Financing Document to the contrary, this Section ? may not, directly or
indirectly, be amended, modified, supplemented or waived without the prior
written consent of the Senior Agent, on behalf of the holders of the Senior
Debt, for so long as the Senior Credit Facility shall exist, and, thereafter,
the holders of the Senior Debt. Nothing in this Section ? shall affect, as among
the Guarantors and the Noteholders, the obligations of the Guarantors under this
Subsidiary Guaranty, which obligations remain absolute and unconditional
notwithstanding such subordination.
3. WARRANTIES AND REPRESENTATIONS
Each Guarantor warrants and represents, as of the date such Guarantor
becomes a Guarantor hereunder, as follows:
<PAGE>
3.1 Representations and Warranties in Securities Purchase
Agreement
Each of the warranties and representations made by the Company in
Section 2 of the Securities Purchase Agreement with respect to Subsidiaries or
the Guarantors generally are true with respect to such Guarantor on the date
that such Guarantor becomes a Guarantor, with the same effect as though such
warranties and representations were made on and as of such date rather than on
and as of the date of this Subsidiary Guaranty.
3.2 Due Authorization; Enforceability
(a) Unconditional Guaranty is Legal and Authorized. The
execution and delivery of this Subsidiary Guaranty by such Guarantor
and compliance by such Guarantor with all of the provisions hereof:
(i) is within the corporate powers of such
Guarantor; and
(ii) is legal and does not conflict with, result
in any breach of any of the provisions of, constitute a
default under, or result in the creation of any Lien upon
any Property of such Guarantor under the provisions of:
(A) any agreement, charter instrument,
bylaw or other instrument to which such Guarantor
is a party or by which such Guarantor is or may
be bound;
(B) any order, judgment, decree, or
ruling of any court, arbitrator or Governmental
Authority applicable to such Guarantor or any of
its Property; or
(C) any statute or other rule or
regulation of any Governmental Authority
applicable to such Guarantor or any of its
Property.
(b) Obligations are Enforceable. This Subsidiary Guaranty
has been duly authorized by all necessary action on the part of such
Guarantor, has been executed and delivered by one or more duly
authorized officers of such Guarantor, and constitutes a legal, valid
and binding obligation of such Guarantor, enforceable in accordance
with its terms, except that:
(i) 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; and
(ii) rights to indemnity and contribution
contained therein may be limited by applicable law or
public policy.
3.3 Governmental Consent
(a) Neither the execution and delivery of this Subsidiary
Guaranty by such Guarantor, nor the performance of the obligations of
such Guarantor hereunder, is such as to require a consent, approval
or authorization of, or pre-filing, registration or qualification
with, any Governmental Authority on the part of such Guarantor as a
condition hereto, except for such
<PAGE>
consents, approvals, authorizations, pre-filings, registrations and
qualifications as have been obtained on or prior to the date that
such Guarantor becomes a Guarantor.
(b) Neither the execution and delivery of this Subsidiary
Guaranty by such Guarantor, nor the incurrence of obligations
represented hereby, nor the performance of its obligations hereunder:
(i) is subject to regulation under the Investment
Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Transportation Acts of
the United States of America (49 U.S.C.), as amended, or
the Federal Power Act, as amended; or
(ii) violates any provision of any statute or
other rule or regulation of any Governmental Authority
applicable to such Guarantor.
3.4 Nature of Business of Company and Subsidiaries
The Company and the Subsidiaries have sought and obtained the Note
Agreement, the sale of the Notes and the related transactions based upon their
consolidated financial position and such Guarantor understands that the
Purchasers are relying upon the consolidated financial condition of the Company
and the Subsidiaries in purchasing the Notes.
3.5 Solvency
The fair value of the business and assets of each of the Company and
the Guarantors exceeds the amount that will be required to pay its liabilities
(including, without limitation, contingent, subordinated, unmatured and
unliquidated liabilities on existing debts, as such liabilities may become
absolute and matured), in each case after giving effect to the transactions
contemplated by the Note Agreement, the Notes and this Subsidiary Guaranty,
including, without limitation, the provisions of Section ?. Neither the Company
nor any of the Guarantors, after giving effect to the transactions contemplated
by the Note Agreement, the Notes and this Subsidiary Guaranty, will be insolvent
or will be engaged in any business or transaction, or about to engage in any
business or transaction, for which such Person has unreasonably small assets or
capital (within the meaning of the Uniform Fraudulent Transfer Act, the Uniform
Fraudulent Conveyance Act and Section 548 of Title 11 of the United States
Code), and none of the Guarantors nor the Company has any intent to hinder,
delay or defraud any entity to which it is, or will become, on or after the
Closing Date, indebted or incur debts that would be beyond its ability to pay as
they mature.
4. INTERPRETATION OF THIS SUBSIDIARY GUARANTY
4.1 Terms Defined
As used in this Subsidiary Guaranty, the capitalized terms have the
meaning specified in the Note Agreement unless otherwise specified below or set
forth in the section of this Subsidiary Guaranty referred to immediately
following such term (such definitions, unless otherwise expressly provided, to
be equally applicable to both the singular and plural forms of the terms
defined):
Company - the first Recital.
<PAGE>
Financing Documents - means and includes this Subsidiary Guaranty,
the Note Agreement, the Securities Purchase Agreements, the Notes, and the other
agreements, certificates and instruments to be executed pursuant to the terms of
each of the foregoing, as each may be amended, restated or otherwise modified
from time to time.
Guarantied Obligations - Section 2.1.
Guarantors - the introductory paragraph.
Note Agreement - the first Recital.
Noteholder - means, at any time, each Person that is the holder of
any Note at such time.
Notes - the first Recital.
Original Guarantor - the introductory paragraph.
Purchasers - the first Recital.
Subsidiary Guaranty, this - the introductory paragraph.
4.2 Directly or Indirectly.
Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person,
including actions taken by or on behalf of any partnership in which such Person
is a general partner.
4.3 Section Headings and Construction
(b) Section Headings, etc. The titles of the Sections of
this Subsidiary Guaranty and the Table of Contents of this Subsidiary
Guaranty 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 Subsidiary
Guaranty as a whole and not to any particular Section or other
subdivision. References to Sections are, unless otherwise specified,
references to Sections of this Subsidiary Guaranty. References to
Annexes and Exhibits are, unless otherwise specified, references to
Annexes and Exhibits attached to this Subsidiary Guaranty.
(d) Construction. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being
independent of each other covenant contained herein, so that
compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other
covenant.
4.4 Governing Law.
THIS SUBSIDIARY GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ANY CONFLICTS OF LAW RULES WHICH WOULD REQUIRE THE APPLICATION OF THE
LAW OF ANY OTHER JURISDICTION.
<PAGE>
5. MISCELLANEOUS
5.1 Communications
(a) Method; Address. All communications hereunder shall be
in writing and shall be delivered either by nationwide overnight
courier or by facsimile transmission (confirmed by delivery by
nationwide overnight courier sent on the day of the sending of such
facsimile transmission). Communications to any Guarantor shall be
addressed to such Guarantor at the address of the Company as set
forth in the Note Agreement, or, at the option of any holder of
Notes, as set forth on Annex 1 or at such other address of which such
Guarantor shall have notified each holder of Notes. Communications to
the holders of the Notes shall be addressed as provided in Section
9.1 of the Note Agreement.
(b) When Given. Any communication addressed and delivered
as herein provided shall be deemed to be received when actually
delivered to the address of the addressee (whether or not delivery is
accepted) or received by the telecopy machine of the recipient. Any
communication not so addressed and delivered shall be ineffective.
(c) Service of Process. Notwithstanding the foregoing
provisions of this Section 9.1, service of process in any suit,
action or proceeding arising out of or relating to this agreement or
any document, agreement or transaction contemplated hereby, or any
action or proceeding to execute or otherwise enforce any judgment in
respect of any breach hereunder or under any document or agreement
contemplated hereby, shall be delivered in the manner provided in
Section 9.7(c).
5.2 Reproduction of Documents
This Subsidiary Guaranty and all documents relating hereto,
including, without limitation, consents, waivers and modifications that may
hereafter be executed may be reproduced by any Guarantor or any holder of Notes
by any photographic, photostatic, microfilm, micro-card, miniature photographic,
digital or other similar process and each holder of Notes may destroy any
original document so reproduced. Any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by such Guarantor or such holder of Notes in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. Nothing in this
Section 9.2 shall prohibit any Guarantor or holder of Notes from contesting the
accuracy or validity of any such reproduction.
5.3 Survival; Entire Agreement
All warranties, representations, certifications and covenants
contained herein, in the Securities Purchase Agreement or in any certificate or
other instrument delivered hereunder shall be considered to have been relied
upon by the other parties hereto and shall survive the delivery to you of the
Notes regardless of any investigation made by or on behalf of any party hereto.
All statements in any certificate or other instrument delivered pursuant to the
terms hereof or of the Securities Purchase Agreement shall constitute warranties
and representations hereunder. All obligations hereunder (other than payment of
the Guarantied Obligations, but including, without limitation, reimbursement
obligations in respect of costs, expenses and fees) shall survive the payment of
the Notes and the termination hereof. Subject to the preceding sentence, this
Subsidiary Guaranty and the other Financing Documents embody the entire
<PAGE>
agreement and understanding among the Guarantors and the Purchasers, and
supersede all prior agreements and understandings, relating to the subject
matter hereof.
5.4 Successors and Assigns
This Subsidiary Guaranty 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
holder. Anything contained in this Section 9.4 notwithstanding, no Guarantor may
assign any of its respective rights, duties or obligations hereunder or under
any of the other Financing Documents without the prior written consent of all
holders of Notes.
5.5 Amendment
This Subsidiary Guaranty may be amended in accordance with Section ?
and this Subsidiary Guaranty may be further amended, and the observance of any
term hereof may be waived (either retroactively or prospectively), with (and
only with) the written consent of each Guarantor and the Required Holders,
except that no amendment or waiver of any of the provisions of Section ?, or any
defined term as it is used therein, will be effective unless consented to by
each Guarantor and each Noteholder in writing; provided that this Subsidiary
Guaranty may, in the manner specified in Section ?, be amended to add one or
more new Guarantors hereunder without the consent of any other Guarantor or any
holder of Notes.
5.6 Benefits of Guaranty Restricted to Noteholders
Nothing express or implied in this Subsidiary Guaranty is intended or
shall be construed to give to any Person other than the Guarantors and the
Noteholders any legal or equitable right, remedy or claim under or in respect
hereof or any covenant, condition or provision therein or herein contained, and
all such covenants, conditions and provisions are and shall be held to be for
the sole and exclusive benefit of the Guarantors and the Noteholders.
5.7 Joinder Agreement
Upon execution and delivery by any Person of a counterpart of a
Joinder Agreement substantially in the form attached to this Subsidiary Guaranty
as Annex 2, this Subsidiary Guaranty shall for all purposes, without further
action, be deemed to have been amended to add such Person as a Guarantor
hereunder with the same effect as if such Person had been an original party
hereto.
5.8 Waiver of Jury Trial; Consent to Jurisdiction; Etc.
(a) Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SUBSIDIARY
GUARANTY OR ANY OF THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS
CONTEMPLATED HEREBY.
<PAGE>
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS SUBSIDIARY GUARANTY OR ANY OF THE
DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR ANY
ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN
RESPECT OF ANY BREACH UNDER THIS SUBSIDIARY GUARANTY OR ANY DOCUMENT
OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT BY SUCH PARTY IN ANY
FEDERAL DISTRICT COURT LOCATED IN NEW YORK CITY, NEW YORK OR ANY NEW
YORK STATE COURT LOCATED IN NEW YORK CITY, NEW YORK AS SUCH PARTY MAY
IN ITS SOLE DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF
THIS SUBSIDIARY GUARANTY, EACH GUARANTOR HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE IN PERSONAM JURISDICTION
OF EACH SUCH COURT, AND EACH GUARANTOR HERETO IRREVOCABLY WAIVES AND
AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY TRIBUNAL, BY WAY OF
MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT SUBJECT
TO THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH
GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS SUBSIDIARY GUARANTY OR ANY DOCUMENT, AGREEMENT OR TRANSACTION
CONTEMPLATED HEREBY BROUGHT IN ANY SUCH COURT, AND HEREBY IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) Service of Process. EACH GUARANTOR IRREVOCABLY AGREES
THAT PROCESS PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT
THE ADDRESSES PROVIDED HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE
EXTENT PERMITTED BY LAW, ADEQUATE SERVICE OF PROCESS IN ANY SUIT,
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SUBSIDIARY
GUARANTY OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED
HEREBY, OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE
ANY JUDGMENT IN RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY DOCUMENT
OR AGREEMENT CONTEMPLATED HEREBY. RECEIPT OF PROCESS SO SERVED SHALL
BE CONCLUSIVELY PRESUMED AS EVIDENCED BY A DELIVERY RECEIPT FURNISHED
BY THE UNITED STATES POSTAL SERVICE OR ANY COMMERCIAL DELIVERY
SERVICE.
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED
TO LIMIT THE ABILITY OF ANY HOLDER OF NOTES TO SERVE ANY WRITS,
PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO
OBTAIN JURISDICTION OVER ANY GUARANTOR IN SUCH OTHER JURISDICTION,
AND IN SUCH OTHER MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
5.9 Execution in Counterpart
<PAGE>
This Subsidiary Guaranty 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.
[Remainder of page intentionally blank. Next page is signature page.]
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Unconditional
Guaranty to be executed on its behalf by its duly authorized officer.
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.
ACTIONED THREADED PRODUCTS OF GEORGIA,
INC.
ACTION THREADED PRODUCTS OF MINNESOTA,
INC.
By /s/ Dominic A. Polimeni
------------------------------
Name: Dominic A. Polimeni
Title: Chairman and Chief
Executive Officer
[Signature Page to UNCONDITIONAL GUARANTY]
<PAGE>
Annex 1
Addresses of Guarantors
<PAGE>
Annex 2
[FORM OF JOINDER AGREEMENT]
JOINDER AGREEMENT
[Date]
To each of the Noteholders (as defined in the Subsidiary Guaranty
hereinafter referred to)
Ladies and Gentlemen:
Reference is made to the Unconditional Guaranty, dated as of June
___, 1999 (as amended, restated or otherwise modified from time to time, the
"Subsidiary Guaranty"), by QUESTRON DISTRIBUTION LOGISTICS, INC., a
{JURISDICTION?} corporation; QUESTNET COMPONENTS, INC., a {JURISDICTION?}
corporation; COMPWARE, INC. , a {JURISDICTION?} corporation; POWER COMPONENTS,
INC., a {JURISDICTION?} corporation; INTEGRATED MATERIAL SYSTEMS, INC., a
{JURISDICTION?} corporation; CALIFORNIA FASTENERS, INC., a {JURISDICTION?}
corporation; FAS-TRONICS, INC., a {JURISDICTION?} corporation; FORTUNE
INDUSTRIES, INC., a {JURISDICTION?} corporation; METRO FORM CORPORATION , a
{JURISDICTION?} corporation; CAPITAL FASTENERS, INCORPORATED , a {JURISDICTION?}
corporation; and ACTION THREADED PRODUCTS, INC., a {JURISDICTION?} corporation
(collectively, together with each other Person that becomes or has become a
party to the Subsidiary Guaranty and including their respective successors and
assigns, the "Guarantors"), in favor of each of the Noteholders (as defined in
the Subsidiary Guaranty). Capitalized terms used herein and not otherwise
defined have the meanings ascribed to such terms in the Subsidiary Guaranty.
[NEW GUARANTOR], a ________________________ (the "New Guarantor"),
agrees with you as follows:
1. Guaranty. The New Guarantor hereby unconditionally and expressly
agrees to become, by execution and delivery of this Agreement does become, and
assumes each and every one of the obligations of, a "Guarantor" under and as
defined in the Subsidiary Guaranty. In addition, the New Guarantor makes each
and every representation and warranty of a Guarantor set forth in the Subsidiary
Guaranty as of the date hereof. Without limitation of the foregoing or of
anything in the Subsidiary Guaranty, by such execution and delivery hereof the
New Guarantor does become fully liable, as a Guarantor, for the payment of the
Guarantied Obligations as further provided in Section ? of the Subsidiary
Guaranty. As provided in Section ? of the Subsidiary Guaranty, the Subsidiary
Guaranty is hereby amended, without any further action, to add the New Guarantor
as a Guarantor thereunder as if the New Guarantor had been an original party to
the Subsidiary Guaranty. Annex 1 to the Subsidiary Guaranty is hereby amended by
adding the following address of the New Guarantor for purposes of communications
pursuant to Section ? of the Subsidiary Guaranty: [insert name and address of
New Guarantor].
<PAGE>
2. Further Assurances. The New Guarantor agrees to cooperate with the
Noteholders and execute such further instruments and documents as the Required
Holders shall reasonably request to effect, to the reasonable satisfaction of
the Required Holders, the purposes of this Agreement.
3. Binding Effect. This Agreement shall be binding upon the New
Guarantor and shall inure to the benefit of the Noteholders and their respective
successors and assigns.
4. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH
STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER
THAN SUCH STATE.
IN WITNESS WHEREOF, the New Guarantor has caused this Agreement to be
executed on its behalf by one of its duly authorized officers.
[NEW GUARANTOR]
By______________________________
Name:
Title:
Exhibit 10.5
---------------------------------------
QUESTRON TECHNOLOGY, INC.
and its Subsidiaries
---------------------------------------
---------------------------------------
---------------------------------------
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of June 29, 1999
$75,000,000
---------------------------------------
---------------------------------------
---------------------------------------
CONGRESS FINANCIAL CORPORATION (FLORIDA), AS ADMINISTRATIVE AGENT
ABLECO FINANCE LLC, AS COLLATERAL AGENT
---------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
TABLE OF CONTENTS........................................................................................................I
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT.........................................................................1
SECTION 1. CREDIT FACILITY............................................................................................2
1.1 Revolving Credit Loans...........................................................................2
1.2 Term Loans.......................................................................................3
1.3 [Intentionally Omitted]..........................................................................4
1.4 Letter of Credit Accommodations..................................................................4
1.5 Existing Loan Agreement..........................................................................8
SECTION 2. INTEREST, FEES AND CHARGES.................................................................................9
2.1 Interest.........................................................................................9
2.2 Computation of Interest and Fees................................................................10
2.3 Rate Elections..................................................................................10
2.4 LIBOR Option....................................................................................10
2.5 Fee Letter Fees.................................................................................12
2.6 Administrative Agency Fee.......................................................................12
2.7 [Intentionally Omitted].........................................................................12
2.8 Unused Line Fee.................................................................................12
2.9 [Intentionally Omitted].........................................................................12
2.10 Audit and Appraisal Fees........................................................................12
2.11 Reimbursement of Expenses.......................................................................12
2.12 Bank Charges....................................................................................13
SECTION 3. LOAN ADMINISTRATION.......................................................................................13
3.1 Manner of Borrowing Revolving Credit Loans......................................................13
3.2 Payments........................................................................................16
3.3 Prepayments.....................................................................................22
3.4 Application of Payments and Collections.........................................................23
3.5 All Loans to Constitute One Obligation..........................................................23
3.6 Loan Account....................................................................................23
3.7 Statements of Account...........................................................................23
3.8 General Provisions..............................................................................24
3.9 Pro Rata Treatment..............................................................................24
3.10 Sharing of Payments, Etc........................................................................24
SECTION 4. TERM AND TERMINATION......................................................................................25
4.1 Term of Agreement...............................................................................25
4.2 Termination.....................................................................................25
-i-
<PAGE>
SECTION 5. SECURITY INTERESTS........................................................................................26
5.1 Interest in Collateral..........................................................................26
5.2 Lien Perfection, Further Assurances.............................................................26
5.3 Lien on Realty..................................................................................27
SECTION 6. COLLATERAL ADMINISTRATION.................................................................................27
6.1 General.........................................................................................27
6.2 Administration of Accounts......................................................................28
6.3 Administration of Inventory.....................................................................30
6.4 Administration of Equipment.....................................................................31
6.5 Payment of Charges..............................................................................31
SECTION 7. REPRESENTATIONS AND WARRANTIES............................................................................31
7.1 General Representations and Warranties..........................................................31
7.2 [Intentionally Omitted].........................................................................38
7.3 Survival of Representations and Warranties......................................................38
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS.......................................................................38
8.1 Affirmative Covenants...........................................................................38
8.2 Negative Covenants..............................................................................42
8.3 Specific Financial Covenants....................................................................49
SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS...................................................................50
9.1 Documentation...................................................................................50
9.2 Other Loan Documents............................................................................51
9.3 Certificates of Title...........................................................................52
9.4 Approvals and Consents..........................................................................52
9.5 Certified Documents of the Obligors.............................................................52
9.6 [Intentionally Omitted].........................................................................52
9.7 Confirmation Searches...........................................................................52
9.8 Opinion of Counsel..............................................................................52
9.9 Pay-Off Letter and UCC Termination Statements, Etc..............................................53
9.10 Projections.....................................................................................53
9.11 Closing Date....................................................................................53
9.12 Availability....................................................................................53
9.13 No Litigation...................................................................................53
9.14 Acquisitions....................................................................................53
9.15 Subordinated Debt Documents.....................................................................54
9.16 Seller Note Documents...........................................................................54
9.17 Audits, Appraisals, and Valuations..............................................................54
9.18 [Intentionally Omitted].........................................................................54
9.19 Pro Forma Balance Sheet.........................................................................54
9.20 Contribution Agreements.........................................................................55
SECTION 10. EVENTS OF DEFAULT, RIGHTS AND REMEDIES ON DEFAULT.........................................................55
10.1 Events of Default...............................................................................55
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10.2 Acceleration of the Obligations.................................................................58
10.3 Other Remedies..................................................................................59
10.4 Remedies Cumulative, No Waiver..................................................................60
SECTION 11. THE AGENTS................................................................................................60
11.1 Appointment Powers and Immunities; Delegation of Duties; Liability of Agents....................60
11.2 Reliance by Agent...............................................................................62
11.3 Defaults........................................................................................63
11.4 Rights as a Lender..............................................................................63
11.5 Costs and Expenses; Indemnification.............................................................64
11.6 Nonreliance on Agent and Other Lenders..........................................................64
11.7 Failure to Act..................................................................................65
11.8 Resignation of Agent............................................................................65
11.9 Collateral Sub-Agents...........................................................................66
11.10 Communications by the Obligors..................................................................66
11.11 Collateral Matters..............................................................................66
11.12 Restrictions on Actions by Administrative Agent and the Lenders; Sharing of Payments............67
11.13 Withholding Tax.................................................................................68
11.14 Several Obligations; No Liability...............................................................69
SECTION 12. MISCELLANEOUS.............................................................................................70
12.1 Power of Attorney...............................................................................70
12.2 Indemnity.......................................................................................71
12.3 Amendments, Etc.................................................................................71
12.4 Successors; Assignments and Participations......................................................73
12.5 Concerning the Collateral and Related Loan Documents............................................76
12.6 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other
Reports and Information.........................................................................76
12.7 Severability....................................................................................78
12.8 Successors and Assigns..........................................................................78
12.9 Cumulative Effect, Conflict of Terms............................................................78
12.10 Execution in Counterparts.......................................................................78
12.11 Notice..........................................................................................78
12.12 Lender Group's Consent..........................................................................80
12.13 Credit Inquiries................................................................................80
12.14 Certain Matters of Construction.................................................................80
12.15 Entire Agreement................................................................................80
12.16 Interpretation..................................................................................80
12.17 GOVERNING LAW; CONSENT TO FORUM.................................................................80
12.18 WAIVERS BY THE OBLIGORS.........................................................................81
12.19 Legal Representation of Agent...................................................................82
APPENDIX A...............................................................................................................1
GENERAL DEFINITIONS......................................................................................................1
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LIST OF SCHEDULES AND EXHIBITS..........................................................................................26
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</TABLE>
<PAGE>
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS Amended and Restated LOAN AND SECURITY AGREEMENT is made as of
June 29, 1999 (the "Agreement"), by and among QUESTRON TECHNOLOGY, INC., a
Delaware corporation ("QTI"), with its chief executive office and principal
place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida
33487, QUESTRON DISTRIBUTION LOGISTICS, INC., a Delaware corporation ("QDLI"),
with its chief executive office and principal place of business at 6400 Congress
Avenue, Suite 200A, Boca Raton, Florida 33487, INTEGRATED MATERIAL SYSTEMS,
INC., an Arizona corporation ("IMSI"), with its chief executive office and
principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton,
Florida 33487, POWER COMPONENTS, INC., a Pennsylvania corporation ("PCI"), with
its chief executive office and principal place of business at 6400 Congress
Avenue, Suite 200A, Boca Raton, Florida 33487, CALIFORNIA FASTENERS, INC., a
California corporation ("CFI"), with its chief executive office and principal
place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida
33487, COMP WARE, INC., a Delaware corporation doing business as Webb
Distribution Inc. ("CWI"), with its chief executive office and principal place
of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487,
FAS-TRONICS, INC., a Texas corporation ("FTI"), with its chief executive office
and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton,
Florida 33487, FORTUNE INDUSTRIES, INC., a Texas corporation ("FII"), with its
chief executive office and principal place of business at 6400 Congress Avenue,
Suite 200A, Boca Raton, Florida 33487, QUESTRON FINANCE CORP., a Delaware
corporation ("QFC"), with its chief executive office and principal place of
business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487,
Questron Operating Company, Inc., a Delaware corporation ("QOC"), with its chief
executive office and principal place of business at 6400 Congress Avenue, Suite
200A, Boca Raton, Florida 33487, Action Threaded Products, Inc., an Illinois
corporation ("ATPI"), with its chief executive office and principal place of
business at 6955 South Harlem Avenue, Bedford Park, Illinois 60638 Action
Threaded Products Of Georgia, Inc., a Georgia corporation ("ATPG"), with its
chief executive office and principal place of business at 3120 Oakcliff
Industrial Street, Doraville, Georgia 30340, Action Threaded Products Of
Minnesota, Inc., a Minnesota corporation ("ATPM"), with its chief executive
office and place of business at 6168 Olson Memorial Highway, Minneapolis,
Minnesota 55422, Capital Fasteners, Inc., a North Carolina corporation
("CAPFI"), with its chief executive office and principal place of business at
1920 West Green Drive, High Point, North Carolina 27264, each of the lenders
that is a signatory to this Agreement (together with its successors and
permitted assigns, individually, "Lender" and, collectively, "Lenders"),
CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation, as
administrative agent for the Lenders (in such capacity, together with its
successors, if any, in such capacity, "Administrative Agent"), with an office at
777 Brickell Avenue, Suite 808, Miami, Florida 33131, and Ableco Finance LLC, a
Delaware limited liability company ("Ableco"), as successor to Madeleine L.L.C.,
a New York limited liability company ("Madeleine") as collateral agent for the
Lender Group (in such capacity, together with its successors, if any, in such
capacity, "Collateral Agent"), with an office at 450 Park Avenue, 28th Floor,
New York, New York 10022. Capitalized terms used in this Agreement have the
meanings assigned to them
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<PAGE>
in Appendix A attached hereto. Accounting terms not otherwise specifically
defined herein shall be construed in accordance with GAAP, consistently applied.
R E C I T A L S
---------------
WHEREAS, QTI, QDLI, IMSI, PCI, CFI, CWI, FTI, FII, the financial
institutions identified therein as "Lenders" (the "Old Lenders"), Administrative
Agent, and Madeleine, as the predecessor collateral agent, are parties to that
certain Loan and Security Agreement, dated as of September 24, 1998 (the
"Original Loan Agreement"), as amended by that certain Amendment Number One to
Loan and Security Agreement, dated as of November 2, 1999, and that certain
Amendment Number Two to Loan and Security Agreement, dated as of February 9,
1999 (the Original Loan Agreement, as so amended and as otherwise modified or
supplemented from time to time prior to the Closing Date, is referred to herein
as the "Existing Loan Agreement"); and
WHEREAS, QTI, QDLI, IMSI, PCI, CFI, CWI, FTI, FII, Old Lenders,
Administrative Agent, and Collateral Agent, as successor collateral agent to
Madeleine, desire to amend and restate the Existing Loan Agreement in its
entirety as provided in this Agreement, it being understood that no repayment of
the obligations under the Existing Loan Agreement is being effected hereby, but
merely an amendment and restatement in accordance with the terms hereof.
NOW THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereby agree as follows:
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, the Lenders agree to make a Total Credit Facility of up to
$75,000,000 available upon Borrower's request therefor, as follows:
1.1 Revolving Credit Loans.
1.1.1 Loans and Reserves. Each Revolving Credit Lender agrees,
ratably in accordance with its respective Revolving Credit Commitment, and
subject to the satisfaction of the applicable conditions precedent set forth in
Sections 9 and 9A hereof, to make Revolving Credit Loans to Borrower from time
to time, as requested by Borrower in the manner set forth in Section 3.1.1
hereof, up to a maximum principal amount at any time outstanding not to exceed
such Lender's Pro Rata Share (in accordance with its Revolving Credit
Commitment) of an amount equal to the lesser of (a) the Maximum Amount minus the
LC Amount, or (b) the Borrowing Base at such time minus the LC Amount and the
amount of reserves, if any, established by Administrative Agent as set forth
below. Administrative Agent shall have the right to establish reserves in such
amounts, and with respect to such matters, as Administrative Agent deems in its
good faith credit judgment necessary or appropriate, against the amount of
Revolving Credit Loans which Borrower may otherwise request under this Section
1.1.1, including, without limitation, with respect to (i) price adjustments,
damages, unearned discounts, returned products or other matters for which credit
memoranda are issued in the ordinary course of Borrower's business, (ii)
shrinkage, spoilage, and obsolescence of Inventory, (iii) slow
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moving Inventory, (iv) sums chargeable against Borrower's Loan Account as
Revolving Credit Loans under any section of this Agreement, (v) amounts owing by
the Obligors to any Person to the extent secured by a Lien on, or trust over,
any Property of the Obligors, and (vi) such other matters, events, conditions,
or contingencies as to which Administrative Agent, in its good faith sole credit
judgment, determines reserves should be established from time to time hereunder.
The Revolving Credit Loans shall be evidenced hereby and by the Revolving Notes,
shall be secured by all of the Collateral other than the AFCOM Acquisition Real
Property, and shall constitute Obligations. Subject to the foregoing, Borrower
may borrow, repay and reborrow Revolving Credit Loans.
1.1.2 Use of Proceeds. The Revolving Credit Loans shall be used
solely (a) on the Closing Date, for (i) the satisfaction in full of existing
Indebtedness of Borrower to the Existing Lenders, (ii) payment of transactional
costs, expenses, and fees incurred in connection with this Agreement and the
other Loan Documents, and (iii) funding the cash portion of the purchase price
of each of the Acquisitions after the proceeds of the investment by the
Purchasers giving rise to the Subordinated Obligations have been applied to the
purchase price of each of the Acquisitions, and (b) from and after the Closing
Date, for Borrower's general corporate purposes in a manner consistent with the
provisions of this Agreement (including funding (i) cash payments for deferred
purchase price adjustments pursuant to acquisition agreements (irrespective of
whether related to acquisitions consummated prior to the Closing Date, the
Acquisition Documents, or acquisition agreements related to Permitted
Acquisitions consummated after the Closing Date), and (ii) such cash portion of
the purchase price of Permitted Acquisitions as the Required Lenders may permit
in their sole and absolute discretion) and all applicable laws.
1.1.3 Existing Revolving Credit Loans. All Revolving Credit Loans
outstanding immediately following the initial use of proceeds on the Closing
Date shall be deemed to have been "Revolving Credit Loans" outstanding under the
Existing Loan Agreement.
1.2 Term Loans.
1.2.1 Term Loan A.
(a) (a) Lenders agree, ratably in accordance with their
respective Term Loan A Commitments, and subject to the satisfaction of
the applicable conditions precedent set forth in Sections 9 and 9A
hereof, to make term loans (collectively, "Term Loan A") to Borrower on
the Closing Date in an aggregate principal amount of $25,000,000, which
Term Loan A shall be repayable in accordance with the terms of Term
Note A, shall be secured by all of the Collateral, and shall constitute
Obligations. The proceeds of Term Loan A shall be used solely for the
purposes set forth in Section 1.1.2 above.
(a) "Term Loan A" (as defined in the Existing Loan Agreement)
outstanding under the Existing Loan Agreement (the "Existing Term Loan
A") shall be converted into Term Loan A hereunder, it being understood
that no repayment of the Existing Term Loan A is being effected hereby,
but
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merely an amendment, restatement, and renewal in accordance with
the terms hereof.
1.2.2 Term Loan B.
(a) (a) Lenders agree, ratably in accordance with their
respective Term Loan B Commitments, and subject to the satisfaction of
the applicable conditions precedent set forth in Sections 9 and 9A
hereof, to make term loans (collectively, "Term Loan B") to Borrower on
the Closing Date in an aggregate principal amount of $27,500,000, which
Term Loan B shall be repayable in accordance with the terms of Term
Note B, shall be secured by all of the Collateral, and shall constitute
Obligations. The proceeds of Term Loan B shall be used solely for the
purposes set forth in Section 1.1.2 above.
(b) On the Closing Date, "Term Loan B" (as defined in the
Existing Loan Agreement) outstanding under the Existing Loan Agreement
(the existing "Term Loan B") shall be converted into a portion of Term
Loan B hereunder, it being understood that no repayment of the Existing
Term Loan B is being effected hereby, but merely a consolidation,
amendment, restatement, and renewal in accordance with the terms
hereof. On the Closing Date, "Term Loan C" (as such term is defined in
the Existing Loan Agreement) outstanding under the Existing Loan
Agreement (the "Existing Term Loan C") shall be consolidated into and
become a portion of Term Loan B hereunder, it being understood that no
repayment of the Existing Term Loan C is being effected hereby, but
merely a consolidation, amendment, restatement, and renewal in
accordance with the terms hereof.
1.3 [Intentionally Omitted]
1.4 Letter of Credit Accommodations.
(a) For so long as no Default or Event of Default exists and
subject to and upon the terms and conditions contained herein
(including Sections 9 and 9A), at the written request of Borrower,
Administrative Agent, on behalf of the Revolving Credit Lenders
(ratably in accordance with their respective Letter of Credit
Sub-Commitments), agrees to provide or arrange for Letter of Credit
Accommodations for the account of Borrower containing terms and
conditions acceptable to Administrative Agent and (if other than
Administrative Agent) the issuer thereof.
(b) In addition to any charges, fees or expenses charged by
any bank or issuer in connection with the Letter of Credit
Accommodations, Borrower shall pay to Administrative Agent, for the
ratable benefit of the Revolving Credit Lenders, a Letter of Credit
Accommodation fee at a rate equal to 2.75% per annum on the daily
outstanding balance of the Letter of Credit Accommodations for the
immediately preceding month (or part thereof), payable in arrears as of
the first day of each succeeding month, except that Borrower shall pay
to Administrative Agent, for the ratable benefit of the Revolving
Credit Lenders, such Letter of Credit Accommodation fee, at the
Required Lender's option, without notice, at a rate equal to 5.75% per
annum on such daily outstanding
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balance for: (i) the period from and after the date of termination
hereof until the Lender Group has received full and final payment of
all Obligations (notwithstanding the entry of any judgment against
Borrower) and (ii) the period from and after the date of the occurrence
of an Event of Default and so long as such Event of Default is
continuing. Such Letter of Credit Accommodation fee shall be calculated
on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrower to pay such fee shall survive
the termination of this Agreement. Any and all charges, commissions,
fees, and costs incurred by the Lender Group relating to the Letters of
Credit Accommodations shall be considered Obligations for purposes of
this Agreement and immediately shall be reimbursable by Borrower to
Administrative Agent for the benefit of the Lender Group.
(c) Letter of Credit Accommodations shall be available only
if and to the extent that, on the date of the proposed issuance of any
Letter of Credit Accommodations, the LC Exposure shall not exceed the
lesser of (i) $2,500,000, and (ii) the lesser of (1) the Maximum Amount
minus the then aggregate outstanding principal amount of Revolving
Credit Loans, or (2) the Borrowing Base at such time minus the then
aggregate outstanding principal amount of Revolving Credit Loans.
(d) Without the prior written consent of the Required
Lenders, Borrower shall not request any Letter of Credit Accommodation
with an expiration date that is after the last day of the Term.
Borrower agrees immediately to reimburse Administrative Agent for the
benefit of the Lender Group for any amounts paid by the Lender Group
with respect to Letter of Credit Accommodations and Borrower and the
Lender Group agree that any amounts paid by the Lender Group under any
Letter of Credit Accommodation and not reimbursed by Borrower shall
constitute additional Revolving Credit Loans pursuant to Section
3.1.1(b), shall be secured by all of the Collateral, and shall bear
interest and be payable at the same rate and in the same manner as all
other Revolving Credit Loans.
(e) Immediately upon issuance of any Letter of Credit
Accommodation in accordance with this Section 1.4, each Revolving
Credit Lender shall be deemed to have irrevocably and unconditionally
purchased and received, without recourse or warranty, an undivided
interest and participation in the credit support or enhancement
provided through Administrative Agent to such issuer in connection with
the issuance of such Letter of Credit Accommodation equal to such
Lender's Pro Rata Share (based upon its respective Letter of Credit
Sub-Commitment) of the face amount of such Letter of Credit
Accommodation (including, without limitation, all obligations of
Borrower with respect thereto, and any security therefor or guaranty
pertaining thereto). In the event any payment by or on behalf of
Borrower received by Administrative Agent with respect to any Letter of
Credit Accommodation (or any guaranty by Borrower or reimbursement
obligation of Borrower relating thereto) and distributed by
Administrative Agent to the Revolving Credit Lenders on account of
their
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<PAGE>
respective participations therein is thereafter set aside, avoided, or
recovered from Administrative Agent in connection with any
receivership, liquidation, or bankruptcy proceeding, each of the
Revolving Credit Lenders shall, upon demand by Administrative Agent,
pay to Administrative Agent such Lender's Pro Rata Share (based upon
its respective Letter of Credit Sub-Commitment) of such amount set
aside, avoided, or recovered, together with interest at the rate
required to be paid by Administrative Agent upon the amount required to
be repaid by it.
(f) Borrower shall indemnify and hold the Lender Group
harmless from and against any and all losses, claims, damages,
liabilities, costs and expenses which the Lender Group may suffer or
incur in connection with any Letter of Credit Accommodations and any
documents, drafts or acceptances relating thereto, including any
losses, claims, damages, liabilities, costs and expenses due to any
action taken by any issuer or correspondent with respect to any Letter
of Credit Accommodation. Borrower assumes all risks with respect to
the acts or omissions of the drawer under or beneficiary of any Letter
of Credit Accommodation and for such purposes the drawer or beneficiary
shall be deemed Borrower's agent. Borrower assumes all risks for, and
agrees to pay, all foreign, federal, state, and local taxes, duties and
levies relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder.
Borrower hereby releases and holds the Lender Group harmless from and
against any acts, waivers, errors, delays or omissions, whether caused
by Borrower, by any issuer or correspondent or otherwise with respect
to or relating to any Letter of Credit Accommodation, The provisions of
this Section 1.4(f) shall survive the payment of Obligations and the
termination or non-renewal of this Agreement.
(g) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of the
Lender Group in any manner. The Lender Group shall have no liability of
any kind with respect to any Letter of Credit Accommodation provided by
an issuer other than Administrative Agent unless Administrative Agent
has duly executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such Letter of
Credit Accommodation. Borrower shall be bound by any interpretation
made in good faith by Administrative Agent, or any other issuer or
correspondent under or in connection with any Letter of Credit
Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Administrative Agent shall have the sole and
exclusive right and authority to, and Borrower shall not: (i) at any
time an Event of Default exists or has occurred and is continuing, (A)
approve or resolve any questions of non-compliance of documents, (B)
give any instructions as to acceptance or rejection of any documents or
goods, or (C) execute any and all applications for steamship or airway
guaranties, indemnities or delivery orders; and (ii) at all times, (A)
grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B)
agree to any amendments, renewals, extensions, modifications, changes
or cancellations of any of the terms
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or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any
letters of credit included in the Collateral. Administrative Agent may
take such actions either in its own name or in Borrower's name.
(h) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other
agreement in favor of any issuer or correspondent relating to any
Letter of Credit Accommodation, shall be deemed to have been granted or
undertaken by Borrower to Administrative Agent for the benefit of the
Lender Group. Any duties or obligations undertaken by Administrative
Agent to any issuer or correspondent in any application for any Letter
of Credit Accommodation, or any other agreement by Administrative Agent
in favor of any issuer or correspondent relating to any Letter of
Credit Accommodation, shall be deemed to have been undertaken by
Borrower to the Lender Group and to apply in all respects to Borrower.
(i) Borrower hereby authorizes and directs any issuing bank
that issues a Letter of Credit Accommodation to deliver to
Administrative Agent all instruments, documents, and other writings and
property received by the issuing bank pursuant to such Letter of Credit
Accommodation, and to accept and rely upon Administrative Agent's
instructions and agreements with respect to all matters arising in
connection with such Letter of Credit Accommodation and the related
application. Borrower shall be the "applicant" or "account party" with
respect to such Letter of Credit Accommodation.
(j) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or
application by any governmental authority of any such applicable law,
treaty, rule, or regulation, or (ii) compliance by the issuing bank or
the Lender Group with any direction, request, or requirement
(irrespective of whether having the force of law) of any governmental
authority or monetary authority including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System as
from time to time in effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement is or shall
be imposed or modified in respect of any Letter of Credit
Accommodation issued hereunder, or
(ii) there shall be imposed on the issuing bank or the Lender
Group any other condition regarding any Letter of Credit
Accommodation issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly,
the cost to the Lender Group of issuing any Letter of Credit
Accommodation, or to reduce the amount receivable in respect thereof
the Lender Group, then, and in any such case, Administrative Agent may,
at any time within a reasonable period
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after the additional cost is incurred or the amount received is
reduced, notify Borrower, and Borrower shall pay on demand such amounts
as Administrative Agent may specify to be necessary to compensate the
Lender Group for such additional cost or reduced receipt, together with
interest on such amount from the date of such demand until payment in
full thereof at the rate then applicable to Revolving Credit Loans
pursuant hereto. The determination by Administrative Agent of any
amount due pursuant to this Section 1.4(j), as set forth in a
certificate setting forth the calculation thereof in reasonable detail,
shall, in the absence of manifest or demonstrable error, be final and
conclusive and binding on all of the parties hereto.
(k) All letters of credit issued or guaranties delivered to
guaranty the payment and performance by Borrower of its reimbursement
obligations under any letter of credit under the Existing Loan
Agreement that are outstanding as of the Closing Date shall remain
outstanding and shall be deemed to be Letter of Credit Accommodations
provided under Section 1.4 of this Agreement.
1.5 Existing Loan Agreement. Anything herein to the contrary
notwithstanding, it is the express intent of the parties hereto to preserve the
outstanding nature of all loans made or issued under the Existing Loan Agreement
and outstanding on the Closing Date immediately prior to the closing of the
transactions contemplated hereby. To that end, all such outstanding loans shall
be converted on the Closing Date to the Loans hereunder, and shall not be deemed
to have been repaid or cancelled and reloaned or reissued, but rather, at all
times, continuously to have remained outstanding. To the extent that the shares
of the Lenders hereunder differ from the shares of the Old Lenders under the
Existing Loan Agreement, the claims of such Old Lenders that are being replaced,
or whose shares are being reduced, shall be considered to have been assigned,
without representation, warranty, or recourse by such Old Lenders to the Lenders
hereunder in such a manner as to achieve ratable outstandings hereunder, as
reflected in Schedule C-1, immediately following the Closing Date, and
Administrative Agent and the Lenders shall cooperate to effect such adjustments
and transfers at the Closing Date among the Lenders as may be necessary or
appropriate to achieve ratable outstandings immediately following the Closing
Date as are reflected on Schedule C-1.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rates of Interest.
(a) Term Loans. Interest shall accrue on Term Loan A and be
payable in accordance with the terms of Term Note A. Interest shall
accrue on Term Loan B and be payable in accordance with the terms of
Term Note B.
(b) Revolving Loans.
(i) During all times that a Base Rate Election is in
effect, interest shall accrue on the principal amount of the
Base
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Rate Revolving Credit Portion outstanding at the end of
each day at the greater of (y) 9.25% per annum, and (z) a
fluctuating rate per annum equal to the Base Rate plus 1.5%.
The rate of interest set forth in the foregoing clause (z)
shall increase or decrease by an amount equal to any increase
or decrease in the Base Rate, effective as of the first
Business Day of the month immediately following any such
change in the Base Rate.
(ii) During all times that a LIBOR Rate Election is in
effect, interest shall accrue on the principal amount of the
LIBOR Revolving Credit Portions outstanding at the end of
each day at a rate per annum equal to the LIBOR Rate
applicable to the relevant LIBOR Revolving Credit Portion for
the corresponding LIBOR Period plus 2.75%.
2.1.2 Default Rate of Interest. Upon and after the occurrence and
during the continuation of an Event of Default, the principal amount of all
Loans shall bear interest at a rate per annum equal to 3% above the interest
rate otherwise applicable thereto (the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall the aggregate
of all amounts deemed interest hereunder or under any Revolving Note or Term
Note and charged or collected pursuant to the terms of this Agreement or
pursuant to any Revolving Note or Term Note exceed the highest rate permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. If any provisions of this Agreement or
any Revolving Note or Term Note are in contravention of any such law, such
provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest and unused line fees
hereunder shall be calculated daily and shall be computed on the actual number
of days elapsed over a year of 360 days. For the purpose of computing interest
hereunder, all items of payment received by Administrative Agent for the account
of the Lender Group shall be deemed applied by Administrative Agent on account
of the Obligations (subject to final payment of such items) on the Business Day
of receipt by Administrative Agent of such items (in immediately available
funds) in Administrative Agent's Account.
2.3 Rate Elections. Unless one or more LIBOR Rate Elections by Borrower
are in effect, Borrower shall be deemed to have made an effective Base Rate
Election as to all of the Revolving Credit Loans. If one or more LIBOR Rate
Elections have been made by Borrower and are in effect, then Borrower shall be
deemed to have made a LIBOR Rate Election as to the Revolving Credit Loan, that
are the subject thereof and Borrower shall be deemed to have made an effective
Base Rate Election as to the balance of the Revolving Credit Loans that are not
the subject thereof.
2.4 LIBOR Option.
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(a) Upon the conditions that: (i) Administrative Agent shall
have received a LIBOR Request from Borrower at least 3 Business Days
prior to the first day of the LIBOR Period requested, (ii) there shall
have occurred no change in applicable law which would make it unlawful
for Administrative Agent or any Revolving Credit Lender with respect to
Revolving Credit Loans to obtain deposits of U.S. dollars in the London
interbank foreign currency deposits market, (iii) as of the date of the
LIBOR Request and the first day of the LIBOR Period, there shall exist
no Default or Event of Default, (iv) Administrative Agent with respect
to Revolving Credit Loans is able to determine the LIBOR Rate in
respect of the requested LIBOR Period, or Administrative Agent with
respect to Revolving Credit Loans is able to obtain deposits of U.S.
dollars in the London interbank foreign currency deposits market in the
applicable amounts and for the requested LIBOR Period, (v) as of the
first date of the LIBOR Period, there are no more than 5 outstanding
LIBOR Portions, including the LIBOR Portion being requested, and (vi)
each such election is in respect of a LIBOR Portion of not less than
$1,000,000 or an integral multiple thereof, then interest on the LIBOR
Portion requested during the LIBOR Period requested will be based on
the applicable LIBOR Rate.
(b) Each LIBOR Request shall be irrevocable and binding on
Borrower. Borrower shall indemnify the Lender Group for any loss,
penalty, or expense incurred by Lenders due to failure on the part of
Borrower to fulfill, on or before the date specified in any LIBOR
Request, the applicable conditions set forth in this Agreement or due
to the prepayment of the applicable LIBOR Portion prior to the last day
of the applicable LIBOR Period, including, without limitation, any loss
(including loss of anticipated profits) or expense incurred by reason
of the liquidation or redeployment of deposits or other funds acquired
by the Lender Group to fund or maintain the requested LIBOR Portion.
(c) If any Legal Requirement shall (i) make it unlawful for
Administrative Agent or any Revolving Credit Lender with respect to
Revolving Credit Loans to fund through the purchase of U.S. dollar
deposits any LIBOR Portion, or otherwise give effect to its obligations
as contemplated under this Section 2.4, or (ii) impose on
Administrative Agent or any Revolving Credit Lender with respect to
Revolving Credit Loans any costs based on or measured by the excess
above a specified level of the amount of a category of deposits or
other liabilities of such member of the Lender Group which includes
deposits by reference to which the LIBOR Rate is determined as provided
herein or a category of extensions of credit or other assets of such
member of the Lender Group which includes any LIBOR Portion, or (iii)
impose on Administrative Agent or any Revolving Credit Lender with
respect to Revolving Credit Loans any restrictions on the amount of
such a category of liabilities or assets which such member of the
Lender Group may hold, then, in each such case, Administrative Agent
with respect to Revolving Credit Loans may, by notice thereof to
Borrower setting forth in reasonable detail the reasons for such
termination, terminate the LIBOR Rate Election. Any LIBOR Portion
subject thereto shall immediately bear interest thereafter at the rate
and in the manner
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provided for Base Rate Portions pursuant hereto. Borrower shall
indemnify the Lender Group against any loss, penalty, or expense
incurred by the Lender Group due to liquidation or redeployment of
deposits or other funds acquired by the Lender Group to fund or
maintain any LIBOR Portion that is prepaid by Borrower or terminated
hereunder.
(d) Lenders shall receive payments of amounts of principal of
and interest on the Loans with respect to the LIBOR Portions free and
clear of, and without deduction for, any Taxes. If (i) Lenders shall be
subject to any Tax in respect of any LIBOR Portion, or any part
thereof, or (ii) Borrower shall be required to withhold or deduct any
Tax from any such amount, the LIBOR Rate applicable to such LIBOR
Portion shall be adjusted by Administrative Agent on behalf of the
Lender Group to reflect all additional costs incurred by the Lender
Group in connection with the payment by the Lender Group or the
withholding by Borrower of such Tax and Borrower shall provide
Administrative Agent on behalf of the Lender Group with a statement
detailing the amount of any such Tax actually paid by Borrower.
Determination by Administrative Agent on behalf of the Lender Group of
the amount of such costs shall, in the absence of manifest error, be
conclusive. If after any such adjustment any part of any Tax paid by
the Lender Group is subsequently recovered by the Lender Group, the
applicable members of the Lender Group shall reimburse Borrower to the
extent of the amount so recovered. A certificate of an officer of
Administrative Agent setting forth the amount of such recovery and the
basis therefor shall, in the absence of manifest error, be conclusive.
2.5 Fee Letter Fees. Borrower shall pay to the Collateral Agent the
fees set forth in the Fee Letter in accordance with the terms thereof and such
fees are Obligations hereunder.
2.6 Administrative Agency Fee. Borrower shall pay to Administrative
Agent (for its sole and separate account), on the Closing Date and on first day
of each month thereafter, an administrative agency fee of $7,500 per month. Such
fee, once paid, shall be fully earned and nonrefundable.
2.7 [Intentionally Omitted]
2.8 Unused Line Fee. Borrower shall pay to Administrative Agent (for
its sole and separate account), a fee equal to 0.25% per annum of the average
monthly amount by which (a) the Maximum Amount exceeds (b) the Revolving
Facility Usage.
2.9 [Intentionally Omitted]
2.10 Audit and Appraisal Fees. Borrower shall pay to Administrative
Agent: (a) for the sole and separate account of Administrative Agent, a separate
fee of $650 per day, per examiner, plus all out-of-pocket costs and expenses
incurred by Administrative Agent in connection with audits of the Obligors'
books and records related to the Collateral; and (b) for the benefit of
Collateral Agent for the sole and separate account of Collateral Agent, all
out-of-
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pocket costs and expenses incurred by Collateral Agent in connection with (i) so
long as no Event of Default has occurred and is continuing, confirmations of
Obligors' financial and Collateral reporting, and (ii) upon the occurrence and
during the continuation of an Event of Default, confirmations of Obligors'
financial and Collateral reporting and appraisals of the Collateral, plus , in
each case, all reasonable fees and expenses incurred by Collateral Agent in
connection with any such confirmations or appraisals of the Collateral
commissioned by Collateral Agent and performed by third party confirming parties
and appraisers. All such fees, costs, and expenses shall be payable pursuant to
Section 3.1.3.
2.11 Reimbursement of Expenses. If, at any time or times regardless of
whether an Event of Default then exists, Administrative Agent, Collateral Agent,
or any Lender incurs legal or accounting expenses or any other costs or
out-of-pocket expenses in connection with (a) the negotiation and preparation of
this Agreement or any of the other Loan Documents, or any amendment of or
modification of this Agreement or any of the other Loan Documents, (b) the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby, (c) any litigation, contest,
dispute, suit, proceeding or action (whether instituted by the Lender Group, any
Obligor, or any other Person) in any way relating to the Collateral, this
Agreement or any of the other Loan Documents or the Obligors' affairs, (d) any
attempt to enforce any rights of the Lender Group against the Obligors or any
other Person which may be obligated to the Lender Group by virtue of this
Agreement or any of the other Loan Documents, or (e) any attempt to inspect,
verify, protect, preserve, restore, collect, sell, liquidate or otherwise
dispose of or realize upon the Collateral, then all such reasonable legal and
accounting expenses, other costs and out-of-pocket expenses of the Lender Group
shall be charged to Borrower. All amounts chargeable to Borrower under this
Section 2.11 shall be Obligations secured by all of the Collateral, shall be
payable on demand to Administrative Agent for the benefit of the applicable
members of the Lender Group, and shall bear interest from the date such demand
is made until paid in full at the rate applicable to Base Rate Revolving Credit
Portions from time to time. Borrower also shall reimburse Collateral Agent for
expenses incurred by Collateral Agent in its administration of the Collateral to
the extent and in the manner provided in Section 6 hereof.
2.12 Bank Charges. Borrower shall pay to the Lender Group in accordance
with Section 3.1.1(b) any and all fees, costs, or expenses that the Lender Group
pays to a bank or other similar institution arising out of or in connection with
(a) the forwarding to Borrower or any other Person on behalf of Borrower, by the
Lender Group, of proceeds of Loans made by the Lender Group to Borrower pursuant
to this Agreement, and (b) the depositing for collection by the Lender Group, of
any check or item of payment received by or delivered to the Lender Group on
account of the Obligations.
SECTION 3. LOAN ADMINISTRATION
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the
credit facility established pursuant to Section 1.1 hereof shall be as follows:
3.1.1 Loan Requests. A request for a Revolving Credit Loan shall
be made, or shall be deemed to be made, in the following manner: (a) Borrower
may give Administrative Agent notice of its intention to borrow, in which notice
Borrower shall specify
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the amount of the proposed borrowing and the proposed borrowing date, no later
than 11:00 a.m. (New York time) on the proposed borrowing date (which also shall
be a Business Day); provided, however, that no such request may be made at a
time when the conditions precedent set forth in Section 9A hereof are not
satisfied, and (b) the becoming due of any amount required to be paid under this
Agreement, the Fee Letter, any Revolving Note or Term Note, or any other Loan
Document, whether of principal or interest or for any other Obligation, shall be
deemed irrevocably to be a request for a Revolving Credit Loan on the due date
in the amount required to pay such principal, interest, or other Obligation. As
an accommodation to Borrower, Administrative Agent may permit telephonic
requests for Revolving Credit Loans and electronic transmittal of instructions,
authorizations, agreements, or reports to Administrative Agent by Borrower.
Unless Borrower specifically directs Administrative Agent in writing not to
accept or act upon telephonic or electronic communications from Borrower,
neither Agent nor any other member of the Lender Group shall have any liability
to Borrower for any loss or damage suffered by Borrower as a result of
Administrative Agent's honoring of any requests, execution of any instructions,
authorizations, or agreements, or reliance on any reports communicated to it
telephonically or electronically and purporting to have been sent to
Administrative Agent by Borrower, and Administrative Agent shall have no duty to
verify the origin of any such communication or the authority of the person
sending it.
3.1.2 Funding by Lenders. Administrative Agent shall from time to
time, but no less frequently than weekly, notify each Revolving Credit Lender of
the date such Lender is to fund its Revolving Credit Loans, and fund any amounts
paid under any Letter of Credit Accommodation, and the amount to be made
available by it. If and to the extent that a Revolving Credit Lender and
Administrative Agent so agree, at Administrative Agent's discretion, the amount
to be made available by such Revolving Credit Lender on any date may be netted
against any amount owing to such Lender and otherwise payable by Administrative
Agent on account of payments received by it from Borrower on such date. The
amount to be made available by each Revolving Credit Lender on any date shall be
made available by it on such date to Administrative Agent at Administrative
Agent's Account, in immediately available funds, not later than 1:00 p.m. (New
York time) on any day in the case of fundings of which such Lenders have
received notice not later than 11:00 a.m. (New York time) on such day (or, if
notice is received after such time, not later than 12:00 p.m. (New York time) on
the next succeeding Business Day). The obligation of each Revolving Credit
Lender to Administrative Agent (as opposed to Borrower) to fund its Revolving
Credit Loans, and any payments under any Letter of Credit Accommodation, on the
date specified by Administrative Agent is absolute and unconditional and shall
not be affected by any circumstance whatsoever, including (a) any set off
counterclaim, recoupment, defense or other right which such Lender may have
against Administrative Agent, Borrower or any other Person for any reason
whatsoever, (b) the financial condition or prospects of Borrower, (c) the
failure of any other such Lender to make funds available to Agent with respect
to its Revolving Credit Loans or any payments under any Letter of Credit
Accommodation, (d) the occurrence or continuation of an Event of Default,
whether the same shall occur before or after Administrative Agent shall have
made the Revolving Credit Loans or Letter of Credit Accommodations, or (e) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.
3.1.3 Disbursement by Administrative Agent. Borrower and the
Lender Group hereby irrevocably authorize Administrative Agent to disburse the
proceeds of each
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Revolving Credit Loan requested, or deemed to be requested, pursuant to this
Section 3.1 as follows: (a) the proceeds of each Revolving Credit Loan requested
under Section 3.1.1(a) hereof shall (subject to receipt by Administrative Agent
of funds from the Revolving Credit Lenders) be disbursed by Administrative Agent
in lawful money of the United States of America in immediately available funds,
in the case of the initial borrowing, in accordance with the terms of a written
disbursement letter from Borrower, and in the case of each subsequent borrowing,
by wire transfer to such bank account as may be agreed upon by Borrower and
Administrative Agent from time to time or elsewhere if pursuant to a written
direction from Borrower, and (b) the proceeds of each Revolving Credit Loan
requested under Section 3.1.1(b) hereof shall be charged to the Loan Account and
disbursed by Administrative Agent by way of direct payment of the relevant
interest or other Obligation .
3.1.4 [Intentionally Omitted]
3.1.5 Authorization. Borrower and the Lender Group hereby
irrevocably authorizes and directs Administrative Agent to charge to Borrower's
Loan Account hereunder, as a Revolving Credit Loan deemed made to Borrower, a
sum sufficient to pay all principal of Term Loans due and all interest accrued
on the Obligations during the immediately preceding month and to pay all costs,
fees, and expenses at any time owed by Borrower to the Lender Group hereunder or
under any of the Loan Documents (including the Fee Letter); provided, however,
that Administrative Agent may, but shall not be required to, so charge
Borrower's Loan Account during the existence of an Event of Default or if and to
the extent such charge would result in an Overadvance. Amounts advanced pursuant
to this Section shall be deemed to have been requested by Borrower pursuant to
Section 3.1.1(b), and the provisions of Sections 3.1.2 and 3.1.3 shall be
applicable to each such advance.
3.1.6 Settlements.
(a) Revolving Credit Loans, Letter of Credit Accommodations,
and payments will be settled among Administrative Agent and the
Revolving Credit Lenders according to such procedures as Administrative
Agent and such Lenders may agree in writing from time to time. These
procedures notwithstanding, each such Lender's obligation to fund its
portion of the Revolving Credit Loans and amounts paid under Letter of
Credit Accommodations made by Administrative Agent to Borrower shall
commence on the date such Revolving Credit Loans and Letter of Credit
Accommodations are made by Administrative Agent. Such payments to
Administrative Agent will be made by such Lenders without set-off,
counterclaim or reduction of any kind.
(b) Administrative Agent may require the Revolving Credit
Lenders to settle Revolving Credit Loans, amounts paid under Letter of
Credit Accommodations, and payments on a daily basis (or such lesser
frequency as Administrative Agent may determine) (each day of
settlement being a "Settlement Date"). Administrative Agent will advise
each Revolving Credit Lender by telephone or telecopy of the amount of
each such Lender's Pro Rata Share (in accordance with its Revolving
Credit Commitment and its Letter of Credit Sub-Commitment) of the
Revolving Facility Usage as of the close of business of the
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Business Day immediately preceding the Settlement Date. In the event
that payments are necessary to adjust such Lender's actual Pro Rata
Share (in accordance with its Revolving Credit Commitment and its
Letter of Credit Sub-Commitment) of the Revolving Facility Usage as of
any Settlement Date to equal the amount of such Lender's required Pro
Rata Share (in accordance with its Revolving Credit Commitment and its
Letter of Credit Sub-Commitment) of the Revolving Facility Usage, the
party from which such payment is due will pay the other, in same day
funds, by wire transfer to the other's account not later than the
applicable time set forth on Section 3.1.2.
(c) If any such payment is not made to Administrative Agent
by any such Lender on the Settlement Date applicable thereto to the
extent required by the terms hereof, such Lender shall be a Defaulting
Lender and Administrative Agent shall be entitled to recover for its
account such amount on demand from such Lender together with interest
thereon at the Defaulting Lenders Rate. Administrative Agent shall not
be obligated to transfer to a Defaulting Lender any payments made by
Borrower to Administrative Agent for the Defaulting Lender's benefit on
account of its Revolving Credit Loans and participations in Letter of
Credit Accommodations. Any such amounts payable to a Defaulting Lender
shall instead be paid to or retained by Administrative Agent.
Administrative Agent may hold and, in its discretion, re-lend to
Borrower as Revolving Credit Loans the amount of any or all such
payments received or retained by it for the account of such Defaulting
Lender or treat any or all such amounts as participations in Letter of
Credit Accommodations made for Borrower's account. Solely for the
purposes of voting or consenting to matters with respect to the Loan
Documents and determining Required Lenders, Defaulting Lender shall be
deemed not to be a "Lender" (in respect of its Revolving Credit Loans,
participations in Letter of Credit Accommodations, Revolving Credit
Commitment, and Letter of Credit Sub-Commitment) and such Defaulting
Lender's Revolving Credit Commitment with respect to the Revolving
Credit Loans and Letter of Credit Sub-Commitment with respect to the
Letter of Credit Accommodations shall be deemed to be zero (-0-). This
section shall remain effective with respect to such Lender until (x)
the Obligations under this Agreement shall have been declared or shall
have become immediately due and payable or (y) the Revolving Credit
Lenders that are non-Defaulting Lenders and Administrative Agent shall
have waived such Lender's default in writing. The operation of this
section shall not be construed to increase or otherwise affect the
Commitments of any Lender other than such Defaulting Lender, or relieve
or excuse the performance by Borrower of its duties and obligations
hereunder.
3.2 Payments. Except where evidenced by notes or other instruments
(including the Revolving Notes and the Term Notes) issued or made by Borrower to
the Lender specifically containing payment provisions which are in conflict with
this Section 3.2 (in which event the conflicting provisions of said notes or
other instruments shall govern and control), the Obligations shall be payable as
follows:
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3.2.1 Principal. Principal payable on account of Revolving Credit
Loans shall be repayable in full by Borrower to Administrative Agent for the
account of the Revolving Credit Lenders immediately upon the earliest of (a) the
receipt by Administrative Agent or Borrower of any net cash proceeds of any of
the Collateral (other than proceeds consisting of Non-Ordinary Course Proceeds
unless and until all of the Obligations have become due and payable or as
otherwise provided in Section 3.2.6), to the extent of said proceeds, except
that, so long as no Default or Event of Default exists, if all Revolving Credit
Loans outstanding at the time of receipt by Borrower of any such proceeds are
LIBOR Portions, then Borrower may direct that such proceeds be held by
Administrative Agent in a non-interest bearing cash collateral account
maintained by Administrative Agent on its books and records (which funds may be
commingled with other funds of Administrative Agent) to be applied to the
payment of principal on the last day of the LIBOR Period applicable to each
LIBOR Portion in the order of maturity, (b) the occurrence of an Event of
Default in consequence of which Administrative Agent or Required Lenders elect
to accelerate the maturity and payment of the Obligations, or (c) termination of
this Agreement pursuant to Section 4 hereof; provided, however, that if an
Overadvance shall exist, Borrower shall, on demand in writing by any Lender,
repay the Overadvance. Principal payable on account of the Term Loans shall be
payable in accordance with the terms of the respective Term Notes.
3.2.2 Interest.
(a) Base Rate Portion. Interest accrued on Base Rate Portions
shall be due on the earliest of (i) the first calendar day of each
month (for the immediately preceding month), computed through the last
calendar day of the preceding month, (ii) the occurrence of an Event of
Default in consequence of which Administrative Agent or Required
Lenders elect to accelerate the maturity and payment of the
Obligations, or (iii) termination of this Agreement pursuant to Section
4 hereof.
(b) LIBOR Portion. Interest accrued on each LIBOR Portion
shall be due and payable on the earliest of (i) the first calendar day
of each month (for the immediately preceding month), computed through
the last calendar day of the preceding month, (ii) the last day of the
Interest Period applicable to such LIBOR Portion, (iii) the occurrence
of an Event of Default in consequence of which Administrative Agent or
Required Lenders elect to accelerate the maturity and payment of the
Obligations, or (iv) termination of this Agreement pursuant to Section
4 hereof.
3.2.3 Costs, Fees, and Charges. Costs, fees, and charges payable
pursuant to this Agreement (or the other Loan Documents) shall be payable by
Borrower as and when provided in the Loan Documents (including Section 2 hereof)
to Administrative Agent, to any other member of the Lender Group (including
Collateral Agent) to the extent expressly provided in this Agreement, the Fee
Letter, or the other Loan Documents, or to any other Person designated by them
in writing.
3.2.4 Other Obligations. The balance of the Obligations requiring
the payment of money, if any, shall be payable by Borrower to Administrative
Agent, for the
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account of the Lender Group as and when provided in this Agreement or the other
Loan Documents or, if no time is specified, on demand therefor by Administrative
Agent.
3.2.5 Return of Payments. Unless Administrative Agent receives
notice from Borrower prior to the date on which any payment is due to the Lender
Group that Borrower will not make such payment in full as and when required,
Administrative Agent may assume that Borrower has made such payment in full to
Administrative Agent on such date in immediately available funds and
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, distribute to the applicable members of the Lender Group on such due
date an amount equal to the amount then due such member of the Lender Group. If
and to the extent Borrower has not made such payment in full to Administrative
Agent, each member of the Lender Group shall repay to Administrative Agent on
demand such amount distributed to such member of the Lender Group, together with
interest thereon at the Base Rate for each day from the date such amount is
distributed to such member of the Lender Group until the date repaid by such
member of the Lender Group.
3.2.6 Apportionment and Application of Payments. Except as
otherwise provided with respect to Defaulting Lenders, aggregate principal
payments and interest payments shall be apportioned ratably among the Lenders
(according to their applicable Pro Rata Shares) and payments of the fees (other
than fees designated for Administrative Agent's sole and separate account, fees
designated for Collateral Agent's sole and separate account, and fees payable in
accordance with the Fee Letter) shall, as applicable, be apportioned ratably
among the Lenders. All payments shall be remitted to Administrative Agent and
all such payments (but, so long as no Event of Default has occurred and is
continuing, except for payments designated in writing by Borrower to
Administrative Agent and Collateral Agent as a prepayment of the Term Loans
hereunder, which may be so applied) and all Collections and all proceeds of
Collateral received by any Agent, shall be applied as follows:
(a) unless and until all of the Obligations have become, or been declared by
the Lender Group, due and payable or that all Obligations and Collateral have
become, or been declared by the Lender Group, in liquidation:
(i) (A) all Non-Ordinary Course Proceeds consisting of cash proceeds of
sales or other issuances of the Securities or Subordinated Debt of
Borrower (to the extent permitted hereunder) shall be applied in the
following order:
first, to pay any fees, or expense reimbursements then due to
Administrative Agent or Collateral Agent from Borrower until
paid in full;
second, to pay any fees or expense reimbursements then due to
the Lenders from Borrower until paid in full;
third, to pay interest due in respect of all Loans until paid
in full (if such proceeds are insufficient to pay all such
interest in full, then such amount shall be applied pro rata
to interest accrued and unpaid with respect to each of the
Loans);
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fourth, to repay the principal of the Revolving Credit Loans
until paid in full, and then to be held by Administrative
Agent as cash collateral hereunder with respect to
unreimbursed Obligations in respect of Letter of Credit
Accommodations;
fifth, to pay any other Obligations due to the Lender Group
(but exclusive of principal of the Term Loans);
sixth, if and to the extent Borrower elects in writing to do
so pursuant to a notice to Administrative Agent and
Collateral Agent, to pay or prepay principal of Term Loan A,
in inverse order of maturity of the installments thereof,
until paid in full;
seventh, if and to the extent Borrower elects in writing to
do so pursuant to a notice to Administrative Agent and
Collateral Agent, to pay or prepay principal of Term Loan B,
in inverse order of maturity of the installments thereof,
until paid in full; and
eighth, if and to the extent there is any surplus, to the
Borrower in accordance with applicable law.
(i) (B) all Non-Ordinary Course Proceeds consisting of cash
proceeds of sales or other dispositions of the AFCOM Acquisition
Real Property (to the extent permitted hereunder) shall be applied
in the following order:
first, to pay any fees, or expense reimbursements then due to
Administrative Agent or Collateral Agent from Borrower until
paid in full;
second, to pay any fees or expense reimbursements then due to
the Lenders from Borrower until paid in full;
third, to pay interest due in respect of all Loans until paid
in full (if such proceeds are insufficient to pay all such
interest in full, then such amount shall be applied pro rata
to interest accrued and unpaid with respect to each of the
Loans);
fourth, to pay or prepay principal of Term Loan A, in inverse
order of maturity of the installments thereof, until paid in
full;
fifth, to pay or prepay principal of Term Loan B, in inverse
order of maturity of the installments thereof, until paid in
full;
sixth, to repay the principal of the Revolving Credit Loans
until paid in full, and then to be held by Administrative
Agent as cash collateral hereunder with respect to
unreimbursed Obligations in respect of Letter of Credit
Accommodations;
seventh, to pay any other Obligations due to the Lender
Group; and
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eighth, if and to the extent there is any surplus, to the
Borrower in accordance with applicable law.
(ii) all other Non-Ordinary Course Proceeds shall be applied in
the following order:
first, to pay any fees, or expense reimbursements then due to
Administrative Agent or Collateral Agent from Borrower until
paid in full;
second, to pay any fees or expense reimbursements then due to
the Lenders from Borrower until paid in full;
third, to pay interest due in respect of all Loans until paid
in full (if such proceeds are insufficient to pay all such
interest in full, then such amount shall be applied pro rata
to interest accrued and unpaid with respect to each of the
Loans);
fourth, to pay or prepay principal of Term Loan A, in inverse
order of maturity of the installments thereof, until paid in
full;
fifth, to pay or prepay principal of Term Loan B, in inverse
order of maturity of the installments thereof, until paid in
full;
sixth, to repay the principal of the Revolving Credit Loans
until paid in full, and then to be held by Administrative
Agent as cash collateral hereunder with respect to
unreimbursed Obligations in respect of Letter of Credit
Accommodations;
seventh, to pay any other Obligations due to the Lender
Group; and
eighth, if and to the extent there is any surplus, to the
Borrower in accordance with applicable law.
(iii) all other Collections and all other proceeds of Collateral
shall be applied in the following order:
first, to pay any fees, or expense reimbursements then due to
Administrative Agent or Collateral Agent from Borrower until
paid in full;
second, to pay any fees or expense reimbursements then due to
the Lenders from Borrower until paid in full;
third, to pay interest due in respect of all Loans until paid
in full (if such proceeds are insufficient to pay all such
interest in full, then such amount shall be applied pro rata
to interest accrued and unpaid with respect to each of the
Loans);
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fourth, to repay the principal of the Revolving Credit Loans
until paid in full, and then to be held by Administrative
Agent as cash collateral hereunder with respect to
unreimbursed Obligations in respect of Letter of Credit
Accommodations;
fifth, to pay any other Obligations due to the Lender Group;
and
sixth, if and to the extent there is any surplus, to the
Borrower in accordance with applicable law.
(b) from and after the date that all Obligations have become, or been
declared by the Lender Group, due and payable or that all Obligations and
Collateral have become, or been declared by the Lender Group, in liquidation,
all Collections and all other proceeds of Collateral (irrespective of whether
constituting Non-Ordinary Course Proceeds) shall be applied in the following
order:
first, to pay any fees, or expense reimbursements then due to
Administrative Agent or Collateral Agent from Borrower until
paid in full;
second, to pay any fees or expense reimbursements then due to
the Lenders from Borrower until paid in full;
third, to pay interest due in respect of all Loans (other
than accrued but unpaid interest on the Term Loans previously
deferred by the Lender Group in writing or permitted by the
Lender Group to be paid by being added to the principal
balance of the Term Loans in excess of an amount equal to 5
months of such interest on the Term Loans at the applicable
rates under this Agreement or the Term Notes in effect on the
date hereof) until paid in full (if such proceeds are
insufficient to pay all such interest in full, then such
amount shall be applied pro rata to interest accrued and
unpaid with respect to each of the Loans);
fourth, to repay the principal of the Revolving Credit Loans
until paid in full, and then to be held by Administrative
Agent as cash collateral hereunder with respect to
unreimbursed Obligations in respect of Letter of Credit
Accommodations;
fifth, to pay all interest due in respect of all Loans to the
extent not paid under clause "third" of this Section 3.2.6(b)
until paid in full;
sixth, to pay or prepay principal of the Term Loan A, in
inverse order of maturity of the installments thereof, until
paid in full;
seventh, to pay or prepay principal of the Term Loan B, in
inverse order of maturity of the installments thereof, until
paid in full;
eighth, to pay any other Obligations due to the Lender Group;
and
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ninth, if and to the extent there is any surplus, to the
Borrower in accordance with applicable law.
3.3 Prepayments.
3.3.1 Non-Ordinary Course Proceeds. Unless all Obligations have
become, or been declared by the Lender Group in writing, due and payable or all
Obligations and Collateral have become, or been declared in writing by the
Lender Group, to be in liquidation, and except as provided for in Section 6.4.2,
Borrower shall pay to Administrative Agent all Non-Ordinary Course Proceeds and
each such payment shall be applied in accordance with the provisions of Section
3.2.6(a)(i) or (ii), as applicable.
3.3.2 Excess Cash Flow Recapture. Borrower shall prepay the Term
Loans in amounts equal to the Excess Cash Flow Recapture Amount with respect to
each fiscal year of Borrower during the Term hereof, such prepayments to be made
within 5 days following the due date for delivery by Borrower to Administrative
Agent of the annual financial statements required by Section 8.1.3(a) hereof;
provided, however, that if an Event of Default has occurred and is continuing at
the time of such required prepayment, such prepayment shall not be made until
such Event of Default no longer exists. Each such prepayment made pursuant to
this Section 3.3.2 shall be applied in accordance with the provisions of Section
3.2.6(a)(ii) or Section 3.2.6(b) hereof, as the case may be.
3.3.3 Optional Prepayments. Borrower may, upon prior written
notice to Administrative Agent, at any time and from time to time, prepay Term
Loan A, in full, and without penalty or premium so long as after giving effect
to any such repayment Borrower has Availability of at least $15,000,000. Any
notice of prepayment given to Lender under this Section 3.3.3 shall specify the
date (which shall be a Business Day) of prepayment and the aggregate principal
amount of the prepayment. When notice of prepayment is delivered as provided
herein, the principal amount of Term Loan A specified in the notice shall become
due and payable on the prepayment date specified in such notice.
3.4 Application of Payments and Collections. For purposes of
calculating Availability, all items of payment received by Administrative Agent
by 1:00 p.m. (New York time) on any Business Day shall be deemed received on
that Business Day. All items of payment received in immediately available funds
after 1:00 p.m. (New York time) on any Business Day shall be deemed received on
the following Business Day. Borrower irrevocably waives the right to direct the
application of any and all payments and collections at any time or times
hereafter received by Administrative Agent or any other member of the Lender
Group from or on behalf of Borrower, and Borrower does hereby irrevocably agree
that Administrative Agent shall have the continuing exclusive right to apply and
reapply any and all such payments and collections received at any time or times
hereafter by Administrative Agent or the other members of the Lender Group (or
their respective agents) against the Obligations, in such manner as is set forth
in Section 6.2.6 hereof, notwithstanding any entry by Administrative Agent upon
any of its books and records. If as the result of collections of Accounts as
authorized by Section 6.2.6 hereof a credit balance exists in the Loan Account,
such credit balance shall not accrue interest in favor of Borrower, but shall be
available to Borrower at any time or times for so long as no Default or Event of
Default exists. Such credit balance shall not be applied or be
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deemed to have been applied as a prepayment of the Term Loans, except that
Administrative Agent (on the written direction by the Required Lenders) may
offset such credit balance against the Obligations upon and after the occurrence
and during the continuance of an Event of Default.
3.5 All Loans to Constitute One Obligation. The Loans shall constitute
one general Obligation of Borrower, and shall be secured by Collateral Agent's
Lien upon all of the Collateral, for the benefit of the Lender Group; provided,
however, that the Revolving Credit Loans shall not be secured by Collateral
Agent's Lien upon the AFCOM Acquisition Real Property.
3.6 Loan Account. Administrative Agent shall enter all Loans as debits
to the Loan Account and also shall record in the Loan Account all payments made
by Borrower on any Obligations and all proceeds of Collateral which are finally
paid to the Lender Group, and may record therein, in accordance with its
customary practices, other debits and credits, including interest and all
charges and expenses properly chargeable to Borrower.
3.7 Statements of Account. Administrative Agent will account to
Borrower monthly with a statement of Loans, charges, and payments made pursuant
to this Agreement, and such accounting rendered by Administrative Agent shall be
deemed final, binding and conclusive upon Borrower unless Administrative Agent
is notified by Borrower in writing to the contrary within 30 days of the date
each accounting is mailed to Borrower. Such notice only shall be deemed an
objection to those items specifically objected to therein.
3.8 General Provisions.
3.8.1 Except to the extent otherwise provided in this Agreement or
any other Loan Document, all payments of any Obligations shall be made in U.S.
dollars, in immediately available funds, without deduction, set-off or
counterclaim, to Administrative Agent at Administrative Agent's Account, not
later than 1:00 p.m. (New York time) on the date on which such payment shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).
3.8.2 Each payment received by Administrative Agent under this
Agreement of any Obligation for the account of any member of the Lender Group
shall (subject to Section 3.1.2 hereof) be paid by Administrative Agent promptly
to such member of the Lender Group, in immediately available funds, to the
account of such member of the Lender Group as specified from time to time by
such member of the Lender Group in a written notice to Administrative Agent.
3.8.3 If the due date of any payment of any Obligation would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
3.9 Pro Rata Treatment. Except to the extent otherwise provided in this
Agreement: (a) (i) the making and conversion of Revolving Credit Loans shall be
made pro rata among the Revolving Credit Lenders according to the amounts of
their respective Revolving Credit Commitments or their respective Revolving
Credit Loans, and (ii) the making and
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conversion of Term Loans shall be made pro rata among the Term Loan Lenders
according to the amounts of their respective Term Loan A Commitments and Term
Loan B Commitments or their respective Term Loans; and (b) each payment on
account of any Obligations to or for the account of one or more members of the
Lender Group in respect of any Obligations due on a particular day shall be
allocated among the members of the Lender Group entitled to such payments pro
rata in accordance with the respective amounts due and payable to such members
of the Lender Group on such day and shall be distributed accordingly.
3.10 Sharing of Payments, Etc.
3.10.1 Borrower agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien, or counterclaim any Lender
may otherwise have, each Lender shall be entitled during the continuation of an
Event of Default, at its option but only with the prior written consent of all
Lenders, to offset balances held by it for the account of Borrower at any of its
offices, in U.S. dollars or in any other currency, against any Obligations of
Borrower to such Lender that are not paid when due (regardless of whether such
balances are then due to Borrower). Any Lender so entitled shall promptly notify
Borrower, Collateral Agent, and Administrative Agent of any offset effected by
it; provided, however, that such Lender's failure to give such notice shall not
affect the validity of such offset.
3.10.2 If any Lender shall obtain from Borrower payment of any
Obligation through the exercise of any right of set-off, banker's lien, or
counterclaim or similar right or otherwise (other than from Administrative Agent
as provided in this Agreement), and, as a result of such payment, such Lender
shall have received a greater amount of the Obligations than the amount
allocable to such Lender hereunder, Administrative Agent and the other members
of the Lender Group (including such Lender) shall promptly make such adjustments
from time to time as shall be equitable, to the end that the Lender Group shall
share the benefit of such excess payment (net of any expenses that may be
incurred by such Lender in obtaining or preserving such excess payment) in
accordance with Section 3.2.6. To such end the Lender Group shall make
appropriate adjustments among themselves if such payment is rescinded or must
otherwise be restored.
3.10.3 [intentionally omitted]
3.10.4 Nothing contained in this Section 3.10 shall require any
Lender to exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness or obligation of Borrower. If, under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured claim
in lieu of a set-off to which this Section 3.10 applies, such Lender shall, to
the extent practicable, exercise its rights in respect of such secured claim in
a manner consistent with the rights of Lenders entitled under this Section 3.10
to share in the benefits of any recovery on such secured claim.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to the right of the Lender Group to
cease making Loans to Borrower upon or after the occurrence and during the
continuance of any
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Default or Event of Default, this Agreement shall be in effect for a period
commencing on the date hereof and ending on September 30, 2003 (the "Term"),
unless sooner terminated as provided in Section 4.2 hereof.
4.2 Termination.
4.2.1 Termination by Agent. Administrative Agent (acting on the
written instructions of the Required Lenders) or Collateral Agent (acting on the
written instructions of the Required Lenders) may terminate this Agreement at
any time without notice upon or after the occurrence of an Event of Default.
4.2.2 Termination by Borrower. Upon at least 60 days prior written
notice to Administrative Agent, Borrower may, at its option, terminate this
Agreement without penalty or premium (other than as may be required by the
provisions of Section 2.4); provided, however, that no such termination shall be
effective until Borrower has paid all of the Obligations in immediately
available funds and all Letter of Credit Accommodations have expired or have
been cash collateralized to Administrative Agent's satisfaction. Any notice of
termination given by Borrower shall be irrevocable unless the Required Lenders
otherwise agree in writing, and the Lender Group shall have no obligation to
make any Loans or procure any Letter of Credit Accommodations on or after the
termination date stated in such notice. Borrower may elect to terminate this
Agreement in its entirety only. No section of this Agreement or type of Loan
available hereunder may be terminated singly (except as otherwise expressly
provided for in subsection 3.3.3 in respect of Term Loan A).
4.2.3 [Intentionally Omitted].
4.2.4 Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties, and representations of Borrower contained in the Loan Documents
shall survive any such termination, and, notwithstanding such termination,
Collateral Agent shall retain its Liens in the Collateral for the benefit of the
Lender Group, and the Lender Group shall retain all of its rights and remedies
under the Loan Documents, until Borrower has paid to Administrative Agent, for
the account of the Lender Group, all of Borrower's Obligations to the Lender
Group, in full, in immediately available funds. Notwithstanding the payment in
full of the Obligations, Collateral Agent shall not be required to terminate its
security interests in the Collateral unless, with respect to any loss or damage
the Lender Group may incur as a result of dishonored checks or other items of
payment received by the Lender Group from Borrower or any Account Debtor and
applied to the Obligations, Administrative Agent shall, at its option, (a) have
received a written agreement, executed by Borrower and by any Person whose loans
or other advances to Borrower are used in whole or in part to satisfy the
Obligations, indemnifying the Lender Group from any such loss or damage, or (b)
have retained such monetary reserves, and Collateral Agent shall have retained
such Liens on the Collateral, for such period of time as such Agents, in their
reasonable discretion, may deem necessary to protect the Lender Group from any
such loss or damage.
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SECTION 5. SECURITY INTERESTS
5.1 Interest in Collateral. To secure the prompt payment and
performance to the Lender Group of the Obligations, each Obligor hereby grants
to Collateral Agent, for the benefit of the Lender Group, a continuing Lien upon
all right, title, and interest of such Obligor in and to all currently existing
and hereafter acquired or arising Collateral (excluding, however, any real
Property or estates or interests therein). Collateral Agent's Liens on all such
Collateral shall attach thereto without further act on the part of the Lender
Group or such Obligor.
5.2 Lien Perfection, Further Assurances. The Obligors shall execute
such UCC-1 financing statements as are required by the Code and such other
instruments, assignments, or documents as are necessary to perfect Collateral
Agent's Lien upon any of the Collateral and shall take such other action as may
be required to perfect or to continue the perfection of Collateral Agent's Lien
upon the Collateral. Unless prohibited by applicable law, each Obligor hereby
authorizes Collateral Agent to execute and file any such financing statement on
such Obligor's behalf. The parties agree that a carbon, photographic, or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in any appropriate office in lieu thereof. At Collateral Agent's
request, the applicable Obligor also shall promptly execute or cause to be
executed and shall deliver to Collateral Agent any and all documents,
instruments, and agreements deemed necessary by Collateral Agent to give effect
to or carry out the terms or intent of the Loan Documents.
5.3 Lien on Realty. The due and punctual payment and performance of the
Obligations (other than the Revolving Credit Loans) also shall be secured by the
Lien created by the Mortgage upon all real Property of QDLI described therein.
The Mortgage shall be executed by QDLI in favor of Collateral Agent and shall be
duly recorded, at QDLI's expense, in each office where such recording is
required to constitute a fully perfected Lien on the real Property covered
thereby. QDLI shall deliver to Collateral Agent, at QDLI's expense, mortgagee
title insurance policies issued by a title insurance company satisfactory to
Collateral Agent, which policies shall be in form and substance satisfactory to
Collateral Agent and shall insure a valid first Lien in favor of Collateral
Agent on the Property covered thereby, subject only to those exceptions
acceptable to Collateral Agent and its counsel, QDLI shall deliver to Collateral
Agent such other documents, including, without limitation, as-built survey
prints of the real Property, as Collateral Agent and its counsel may request
relating to the real Property subject to the Mortgage.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General.
6.1.1 Location of Collateral. All Collateral, other than Inventory
in transit and motor vehicles, will at all times be kept by the Obligors and
their Subsidiaries at one or more of the business locations set forth in
Schedule 6.1.1 attached hereto and shall not, without the prior written approval
of Collateral Agent, be moved therefrom except, prior to the Lender Group's
acceleration of the maturity of the Obligations, for (a) sales of Inventory in
the ordinary course of business, and (b) removals in connection with
dispositions of Equipment that are authorized by Section 6.4.2 hereof; provided,
however, that the Obligors may amend
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Schedule 6.1.1 to identify a new location so long as such amendment occurs by
written notice to Administrative Agent and Collateral Agent not less than 30
days prior to the date that such Collateral is moved to such new location, so
long as such new location is within the continental United States, and so long
as, at the time of such written notification, the applicable Obligor executes
and delivers to Collateral Agent any financing statements or fixture filings
necessary to perfect and continue perfected Collateral Agent's Liens on such
Collateral and also provides to Collateral Agent a fully executed Collateral
Access Agreement relative to such new location.
6.1.2 Insurance of Collateral. The Obligors shall maintain and pay
for insurance upon all Collateral wherever located and with respect to the
Obligors' business, covering casualty, hazard, public liability, and such other
risks in such amounts and with such insurance companies as are reasonably
satisfactory to Collateral Agent. The Obligors shall deliver the originals of
such policies to Collateral Agent with 438 BFU lender's loss payable
endorsements or other satisfactory lender's loss payable endorsements, naming
Collateral Agent (on behalf of the Lender Group) as sole loss payee, assignee,
or additional insured, as appropriate. Each policy of insurance or endorsement
shall contain a clause requiring the insurer to give not less than 30 days prior
written notice to Collateral Agent in the event of cancellation of the policy
for any reason whatsoever and a clause specifying that the interest of
Collateral Agent shall not be impaired or invalidated by any act or neglect of
an Obligor or the owner of the Property or by the occupation of the premises for
purposes more hazardous than are permitted by said policy. If the Obligors fail
to provide and pay for such insurance, Collateral Agent may, at its option, but
shall not be required to, procure the same and charge Borrower therefor. The
Obligors agree to deliver to Collateral Agent, promptly as rendered, true copies
of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of protecting,
storing, warehousing, insuring, handling, maintaining, and shipping the
Collateral, any and all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral or in respect of the
sale thereof shall be borne and paid by the Obligors. If the Obligors fail to
promptly pay any portion thereof when due, Collateral Agent may, at its option,
but shall not be required to, pay the same and charge Borrower therefor.
Collateral Agent shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Collateral
Agent's actual possession) or for any diminution in the value thereof, but the
same shall be at the Obligors' sole risk.
6.2 Administration of Accounts.
6.2.1 Records, Schedules, and Assignments of Accounts. Borrower
shall keep accurate and complete records of its Accounts that compose the
Collateral and all payments and collections thereon, and shall submit to
Administrative Agent on such periodic basis as Administrative Agent shall
request a sales and collections report for the preceding period, in form
satisfactory to Administrative Agent. On or before 9:00 a.m. (New York time) on
the 2nd Business Day of each week from and after the date hereof, Borrower shall
deliver a Borrowing Base Certificate to Administrative Agent; provided, however,
that, so long as Availability is less than or equal to $1,500,000,
Administrative Agent may require that Borrower deliver a Borrowing Base
Certificate (including updated information concerning Eligible Inventory) on
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such frequency (including on a daily basis) as Administrative Agent may require.
No later than 9:00 a.m. (New York time) on the 20th day of each month from and
after the date hereof, Borrower shall deliver to Administrative Agent, in form
and substance satisfactory to Administrative Agent, a detailed aged trial
balance of all Accounts existing as of the last Business Day of the immediately
preceding week, specifying the names, addresses, face value, dates of invoices,
and due dates for each Account Debtor obligated on an Account so listed
("Schedule of Accounts"), and, upon Administrative Agent's request therefor,
copies of proof of delivery and the original copy of all documents, including,
without limitation, repayment histories and present status reports relating to
the Accounts so scheduled, and such other matters and information relating to
the status of then existing Accounts as Administrative Agent shall reasonably
request. In addition, if an aggregate face amount of more than $250,000 of
Accounts owed by any Account Debtor (together with its Affiliates) become
ineligible because they fall within one of the specified categories of
ineligibility set forth in the definition of Eligible Accounts or otherwise
established by Administrative Agent, Borrower shall notify Administrative Agent
of such occurrence on the first Business Day following such occurrence, and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence. If
requested by Administrative Agent, Borrower shall execute and deliver to
Administrative Agent formal written assignments in favor of Collateral Agent of
all of Borrower's Accounts weekly or daily, which shall include all Accounts
that have been created since the date of the last assignment, together with
copies of invoices or invoice registers related thereto.
6.2.2 Discounts Allowances, Disputes. If Borrower grants any
discounts, allowances, or credits that are not shown on the face of the invoice
for the Account involved, Borrower shall report such discounts, allowances, or
credits, as the case may be, to Administrative Agent as part of the next
required Schedule of Accounts. If any amounts due and owing in excess of
$100,000 are in dispute between Borrower and any Account Debtor, Borrower shall
provide Administrative Agent with written notice thereof at the time of
submission of the next Schedule of Accounts, explaining in detail the reason for
the dispute, all claims related thereto, and the amount in controversy. Upon and
after the occurrence and during the continuance of an Event of Default,
Administrative Agent shall have the right to (a) settle or adjust all disputes
and claims directly with the Account Debtor, (b) compromise the amount or extend
the time for payment of the Accounts upon such terms and conditions as
Administrative Agent may deem advisable, and (c) charge the deficiencies, costs
and expenses thereof, including attorneys' fees, to Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax payable
to any governmental taxing authority, Administrative Agent is authorized, in its
sole discretion, to pay the amount thereof to the proper taxing authority for
the account of the applicable Obligor and to charge Borrower therefor; provided,
however, that Administrative Agent shall not be liable for any taxes to any
governmental taxing authority that may be due by Borrower.
6.2.4 Account Verification. Whether or not a Default or an Event
of Default has occurred, any of Administrative Agent's officers, employees or
agents shall have the right, at any time or times hereafter, in the name of
Administrative Agent, any Lender, any designee of any of them, or Borrower, to
verify the validity, amount, or any other matter relating to any Accounts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
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Administrative Agent in an effort to facilitate and promptly conclude any such
verification process.
6.2.5 Maintenance of Dominion Account. Borrower shall maintain a
Dominion Account pursuant to one or more dominion account agreements (each, a
"Dominion Account Agreement") in form and substance satisfactory to
Administrative Agent with such banks as may be selected by Borrower and be
acceptable to Administrative Agent (including Wells Fargo Bank). Borrower shall
issue to any such banks an irrevocable letter of instruction directing such
banks to deposit all payments or other remittances received in the lockbox to
the Dominion Account for application on account of the Obligations. All funds
deposited in the Dominion Account shall immediately become the property of
Administrative Agent, for the benefit of the Lender Group, and Borrower shall
obtain the agreement by such banks in favor of Agent for the benefit of the
Lender Group to waive any offset rights against the funds so deposited. The
Lender Group and Administrative Agent on behalf thereof assume no responsibility
for such lockbox arrangement, including, without limitation, any claim of accord
and satisfaction or release with respect to deposits accepted by any bank
thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite
collection, Borrower shall endeavor in the first instance to make collection of
its Accounts for the Lender Group. All remittances received by Borrower on
account of Accounts, together with the proceeds of any other Collateral, shall
be held as the Lender Group's property by Borrower as trustee of an express
trust for the Lender Group's benefit, and Borrower shall immediately deposit
same in kind in the Dominion Account. Administrative Agent retains the right at
all times after the occurrence and during the continuance of an Event of
Default, and Borrower hereby irrevocably designates, makes, constitutes, and
appoints Administrative Agent (and all Persons designated by Administrative
Agent) as Borrower's true and lawful attorney (and agent-in-fact), to notify
Account Debtors that Accounts have been assigned to Collateral Agent and to
collect Accounts directly in the name of the Lender Group and to charge the
collection costs and expenses, including attorneys fees, to Borrower.
6.3 Administration of Inventory.
6.3.1 Records and Reports of Inventory. Borrower shall keep
accurate and complete records of its Inventories that compose the Collateral.
Borrower shall furnish Administrative Agent Inventory reports in form and detail
satisfactory to Administrative Agent at such times as Administrative Agent may
request, but at least once each month, not later than the twentieth day of such
month. Borrower shall conduct a physical inventory, no less frequently than
annually, of not less than such portion of the Inventory sufficient to permit
Borrower to produce unqualified audited financial statements prepared in
accordance with GAAP (and Borrower may so conduct such physical inventory, from
and after the date Borrower gives written notice to Administrative Agent of
Borrower's election to do so, on a cycle count basis, of not less than such
portion of the Inventory sufficient to permit Borrower to produce unqualified
audited financial statements prepared in accordance with GAAP), and shall
provide to Administrative Agent a report based on each such physical inventory
promptly thereafter, together with such supporting information as Administrative
Agent reasonably shall request.
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6.3.2 Returns of Inventory. If, at any time or times hereafter,
any Account Debtor returns any Inventory to Borrower the shipment of which
generated an Account on which such Account Debtor is obligated in excess of
$25,000, Borrower shall immediately notify Administrative Agent of the same,
specifying the reason for such return and the location, condition and intended
disposition of the returned Inventory.
6.4 Administration of Equipment.
6.4.1 Records and Schedules of Equipment. Borrower shall keep
accurate records itemizing and describing the kind, type, quality, quantity, and
value of its Equipment that composes the Collateral and all dispositions made in
accordance with Section 6.4.2 hereof, and shall furnish Administrative Agent and
Collateral Agent with copies of a current schedule containing the foregoing
information on at least an annual basis and more often if requested by
Administrative Agent or Collateral Agent. Immediately on request therefor by
Administrative Agent or Collateral Agent, the Obligors shall deliver to
Collateral Agent any and all certificates of title with respect to that portion
of the Equipment that composes the Collateral and that is subject to
certificates of title.
6.4.2 Dispositions of Equipment. Borrower will not sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of (a) in the case of dispositions of
Equipment which, in the aggregate with all other dispositions of Equipment, has
a fair market value or book value, whichever is less, of $500,000 or less,
Collateral Agent, or (b) in all other cases, Collateral Agent (acting on the
written instructions of all of the Lenders); provided, however, that the
foregoing restriction shall not apply, for so long as no Event of Default has
occurred and is continuing, to (i) dispositions of Equipment which, in the
aggregate during any consecutive twelve-month period, has a fair market value or
book value, whichever is less, of $10,000 or less, provided that all proceeds
thereof are remitted to Administrative Agent for application to the Obligations
in accordance herewith, or (ii) replacements of Equipment that is substantially
worn, damaged or obsolete with Equipment of like kind, function and value,
provided that the replacement Equipment shall be acquired prior to or
concurrently with any disposition of the Equipment that is to be replaced, the
replacement Equipment shall be free and clear of Liens other than Permitted
Liens that are not Purchase Money Liens, and Borrower shall have given
Collateral Agent at least 5 days prior written notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower under
Section 6 hereof shall be Obligations secured by all of the Collateral, shall be
payable on demand, and shall bear interest from the date such advance was made
until paid in full at the rate applicable to Revolving Credit Loans from time to
time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. In order to induce the
Lender Group to enter into this Agreement and to extend credit hereunder, each
Obligor hereby jointly and severally with each other Obligor makes the following
representations and warranties which shall be true, correct, and complete in all
material respects as of the date hereof, and, subject to the ability of the
Obligors to modify certain provisions thereof pursuant to the terms of Section
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7.3 hereof, shall be true, correct, and complete in all material respects as of
the Closing Date, and at and as of the date of the making of each Loan or Letter
of Credit Accommodation made hereafter, as though made on and as of the date of
such Loan (except to the extent that such representations and warranties relate
solely to an earlier date) and such representations and warranties shall survive
the execution and delivery of this Agreement:
7.1.1 Organization and Qualification. Each Obligor and each of its
Subsidiaries is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. Each Obligor
and each of its Subsidiaries is duly qualified and is authorized to do business
and is in good standing as a foreign corporation in each jurisdiction listed on
Schedule 7.1.1 attached hereto and, except as set forth on Schedule 7.1.1, in
all other states and jurisdictions where the character of its Properties or the
nature of its activities make such qualification necessary.
7.1.2 Corporate Power and Authority. Each Obligor and each of its
Subsidiaries is duly authorized and empowered to execute, deliver, and perform
this Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (a) require any consent or approval of the shareholders of any
Obligor or any of its Subsidiaries (except for any such approvals or consents
that have been, or on or prior to the Closing Date shall be, obtained), (b)
contravene any Obligor's or any of its Subsidiaries' charter, articles or
certificate of incorporation or by-laws, (c) violate, or cause any Obligor or
any of its Subsidiaries to be in default under, any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination, or award
in effect having applicability to any Obligor or any of its Subsidiaries, (d)
result in a material breach of or constitute a material default under any
indenture or loan or credit agreement or any other material agreement, lease, or
instrument to which any Obligor or any of its Subsidiaries is a parry or by
which it or its Properties may be bound or affected, or (e) result in, or
require, the creation or imposition of any Lien (other than Permitted Liens)
upon or with respect to any of the Properties now owned or hereafter acquired by
any Obligor or any of its Subsidiaries.
7.1.3 Legally Enforceable Agreement. As to each Obligor, this
Agreement is, and each of the other Loan Documents to which it is a party, when
delivered under this Agreement, will be, a legal, valid, and binding obligation
of such Obligor, enforceable against it in accordance with its respective terms.
7.1.4 Capital Structure. Schedule 7.1.4 attached hereto states (a)
the correct name of each of the Subsidiaries of each Obligor, its jurisdiction
of incorporation, and the percentage of its Voting Stock owned by such Obligor,
(b) the name of each Obligor's corporate or joint venture Affiliates, and the
nature of the affiliation, (c) the number, nature, and holder of all outstanding
Securities of each Obligor and each Subsidiary of Obligor, and (d) the number of
authorized, issued and treasury shares of each Obligor and each Subsidiary of
Obligor. Each Obligor has good title to all of the shares it purports to own of
the stock of each of its Subsidiaries, free and clear in each case of any Lien
other than Permitted Liens. All such shares have been duly issued and are fully
paid and non-assessable. Except as set forth on Schedule 7.1.4, there are no
outstanding options to purchase, or any rights or warrants to subscribe for, or
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any commitments or agreements to issue or sell, or any Securities or obligations
convertible into, or any powers of attorney relating to, shares of the capital
stock of any Obligor or any of its Subsidiaries. There are no outstanding
agreements or instruments binding upon any Obligor's shareholders relating to
the ownership of its shares of capital stock.
7.1.5 Corporate Names. Neither any Obligor nor any of its
Subsidiaries has been known as or used any corporate, fictitious, or trade names
except those listed on Schedule 7.1.5 attached hereto. Except as set forth on
Schedule 7.1.5 attached hereto, neither any Obligor nor any of its Subsidiaries
has been the surviving corporation of a merger or consolidation or acquired all
or substantially all of the assets of any Person.
7.1.6 Business Locations, Agent for Process. Each Obligor's and
each of its Subsidiaries' chief executive office and other places of business
are as listed on Schedule 6.1.1 attached hereto. During the preceding 1-year
period, neither any Obligor nor any of its Subsidiaries has had an office, place
of business, or agent for service of process other than as listed on Schedule
6.1.1 attached hereto. Except as shown on Schedule 6.1.1 attached hereto, no
Inventory is stored with a bailee, warehouseman or similar party, nor is any
Inventory consigned to any Person.
7.1.7 Title to Properties, Priority of Liens. Each Obligor and
each of its Subsidiaries has good and marketable title to, and fee simple
ownership of or valid and subsisting leasehold interests in, all of its real
Property (except for minor defects in title thereto that individually and in the
aggregate do not materially interfere with the ability of any Obligor or any
Subsidiary thereof to conduct its business as now conducted), and good title to
all of the Collateral and all of its other Property, in each case, free and
clear of all Liens except Permitted Liens. Subject to the Acquisition
Qualification, each Obligor has paid or discharged all lawful claims which, if
unpaid, might become a Lien against any of such Obligor's Properties that is not
a Permitted Lien. The Liens granted to Collateral Agent under Section 5 hereof
are first priority Liens, subject only to Permitted Liens.
7.1.8 Accounts. Administrative Agent may rely, in determining
which Accounts are Eligible Accounts, on all statements and representations made
by the Obligor with respect to any Account or Accounts. Unless otherwise
indicated in writing to Administrative Agent, with respect to each Account:
(a) It is genuine and in all respects what it purports to be,
and it is not evidenced by a judgment;
(b) It arises out of a completed, bona fide sale and delivery
of goods or rendition of services by the applicable Obligor in the
ordinary course of its business, and in accordance with the terms and
conditions of all purchase orders, contracts or other documents
relating thereto and forming a part of the contract between such
Obligor and the Account Debtor;
(c) it is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy
of which has been furnished or is available to Administrative Agent;
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(d) Such Account, and the Lender Group's security interest
therein, is not, and will not (by voluntary act or omission of any
Obligor) be in the future, subject to any offset, Lien, deduction,
defense, dispute, counterclaim, or any other adverse condition except
for disputes resulting in returned goods where the amount in
controversy is deemed by Administrative Agent to be immaterial, and
each such Account is absolutely owing to the relevant Obligor, and is
not contingent in any respect or for any reason;
(e) No Obligor has made any agreement with any Account Debtor
thereunder for any extension, compromise, settlement, or modification
of any such Account or any deduction therefrom, except discounts or
allowances which are granted by the relevant Obligor in the ordinary
course of its business for prompt payment, and which are reflected in
the calculation of the net amount of each respective invoice related
thereto, and which are reflected in the Schedules of Accounts submitted
to Agent pursuant to Section 6.2.1 hereof;
(f) Subject to the Acquisition Qualification, there are no
facts, events or occurrences which in any way impair in any material
respect the validity or enforceability of any Accounts, or which would
reduce the amount payable thereunder from the face amount of the
invoice and statements delivered to Administrative Agent with respect
thereto;
(g) To the best of each Obligor's knowledge, the Account
Debtor thereunder (i) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed, and
(ii) such Account Debtor is Solvent; and
(h) To the best of each Obligor's knowledge, there are no
proceedings or actions which are threatened or pending against any
Account Debtor thereunder which might result in any material adverse
change in such Account Debtor's financial condition or the
collectibility of such Account.
7.1.9 Equipment. Subject to the Acquisition Qualification, the
Equipment is in good operating condition and repair.
7.1.10 Financial Statements, Fiscal Year. The Consolidated balance
sheets of the Obligors (including the accounts of all Subsidiaries of each
Obligor for the period during which a Subsidiary relationship existed) as of
April 30, 1999, and the related statements of income, changes in stockholder's
equity, and changes in financial position for the period ended on such date,
have been prepared in accordance with GAAP, and present fairly the financial
positions of the Obligors at such date and the results of the Obligors'
operations for such period. Since April 30, 1999, there has been no Material
Adverse Change with respect to the Obligors as shown on the Consolidated balance
sheet as of such date and no change in the aggregate value of Equipment and real
Property owned by the Obligors, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse. The fiscal year of the Obligors and each of its Subsidiaries ends on
December 31 of each year.
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7.1.11 Full Disclosure. The financial statements referred to in
Section 7.1.10 hereof do not, nor does this Agreement or any other written
statement of any Obligor to the Lender Group, contain any untrue statement of a
material fact or omit a material fact necessary to make the statements contained
therein or herein not misleading. There is no fact which any Obligor has failed
to disclose to in writing that results in, or, so far as each Obligor can now
foresee, will result in, a Material Adverse Change.
7.1.12 Solvent Financial Condition. The Obligors, and their
Subsidiaries, taken as a whole, are and, after giving effect to the Loans to be
made hereunder, will be, Solvent.
7.1.13 Surety Obligations. Except as set forth on Schedule 7.1.13,
neither any Obligor nor any of its Subsidiaries is obligated as surety or
indemnitor under any surety or similar bond or other contract issued or entered
into any agreement to assure payment, performance, or completion of performance
of any undertaking or obligation of any Person.
7.1.14 FEIN; Taxes. The federal tax identification number of each
Obligor and each of its Subsidiaries is shown on Schedule 7.1.14 attached
hereto. Each Obligor and each of its Subsidiaries (a) has filed all federal,
state, and local tax returns and other reports it is required by law to file
(other than tax returns in respect of taxes that (i) are not franchise, capital,
income, or payroll taxes, (ii) are not material individually or in the
aggregate, and (iii) if unpaid, would not result in the imposition of any Lien
on any Property of any Obligor or any Subsidiary thereof), and (b) has paid, or
made provision for the payment of, all taxes, assessments, fees, levies, and
other governmental charges upon it, its income and Properties as and when such
taxes, assessments, fees, levies, and charges that are due and payable, unless
and to the extent any such taxes, assessments, fees, levies, or charges
(exclusive of federal income taxes and payroll taxes) are being actively
contested in good faith and by appropriate proceedings, and the Obligors
maintain reasonable reserves on its books therefor. The provision for taxes on
the books of each Obligor and each of its Subsidiaries are adequate for all
years not closed by applicable statutes and for its current fiscal year.
7.1.15 Brokers. Except as set forth in Schedule 7.1.15, there are
no claims for brokerage commissions, finder's fees, or investment banking fees
in connection with the transactions contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights, and Licenses. Each Obligor
and each of its Subsidiaries owns or possesses all the patents, trademarks,
service marks, trade names, copyrights, and licenses necessary for the present
and planned future conduct of its business without any known conflict with the
rights of others. All such patents, trademarks, service marks, trade names,
copyrights, licenses, and other similar rights are listed on Schedule 7.1.16
attached hereto.
7.1.17 Governmental Consents. Each Obligor and each of its
Subsidiaries has, and is in good standing with respect to, all governmental
consents, approvals, licenses, authorizations, permits, certificates,
inspections, and franchises (collectively, "Permits") necessary to continue to
conduct its business as now conducted by it and to own or lease and operate its
Properties as now owned or leased by it, other than Permits that individually
and in the aggregate are immaterial.
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7.1.18 Compliance with Laws. Each Obligor and each of its
Subsidiaries has duly complied with, and its Properties, business operations and
leaseholds are in compliance in all material respects with, the provisions of
all federal, state, and local laws, rules, and regulations applicable to such
Obligor or such Subsidiary, as applicable, its Properties or the conduct of its
business, and. There have been no citations, notices, or orders of noncompliance
issued to any Obligor or any of its Subsidiaries under any such law, rule, or
regulation, except as to such non-compliance that individually and in the
aggregate is immaterial. Each Obligor and each of its Subsidiaries has
established and maintains an adequate monitoring system to insure that it
remains in compliance with all federal, state, and local laws, rules, and
regulations applicable to it. No Inventory has been produced in violation of the
Fair Labor Standards Act (29 U.S.C. Sections 201 et seq.), as amended.
7.1.19 Restrictions. Neither any Obligor nor any of its
Subsidiaries is a party or subject to any contract, agreement, or charter or
other corporate restriction, which materially and adversely affects its business
or the use or ownership of any of its Properties. Neither any Obligor nor any of
its Subsidiaries is a party or subject to any contract or agreement which
restricts its right or ability to incur Indebtedness, other than as set forth on
Schedule 7.1.19 attached hereto, none of which prohibit the execution of or
compliance with this Agreement or the other Loan Documents by any Obligor or any
of its Subsidiaries, as applicable.
7.1.20 Litigation. Except as set forth on Schedule 7.1.20 attached
hereto, there are no actions, suits, proceedings, or investigations pending, or
to the knowledge of each Obligor, threatened, against or affecting any Obligor
or any of its Subsidiaries, or the business, operations, Properties, prospects,
profits, or condition of Obligor or any of its Subsidiaries. Neither any Obligor
nor any of its Subsidiaries is in default with respect to any order, writ,
injunction, judgment, decree, or rule of any court, governmental authority or
arbitration board, or tribunal.
7.1.21 No Defaults. No event has occurred and no condition exists
which would, upon or after the execution and delivery of this Agreement or any
Obligor's performance hereunder, constitute an Event of Default or, to the best
of each Obligor's knowledge, a Default. Neither any Obligor nor any of its
Subsidiaries is in default, and, to the best of each Obligor's knowledge, no
event has occurred and no condition exists which constitutes, or which with the
passage of time or the giving of notice or both would constitute, a default in
the payment of any Indebtedness to any Person for Money Borrowed.
7.1.22 Leases. Schedule 7.1.22(A) attached hereto identifies all
capitalized leases of each Obligor and its Subsidiaries and Schedule 7.1.22(B)
attached hereto identifies all operating leases of each Obligor and its
Subsidiaries. Each Obligor and each of its Subsidiaries is in compliance with
all of its obligations under the terms of each of its respective capitalized and
operating leases, except for such noncompliance that individually and in the
aggregate is immaterial.
7.1.23 Pension Plans. Except as disclosed on Schedule 7.1.23
attached hereto, neither any Obligor nor any of its Subsidiaries has any Plan.
Subject to the Acquisition Qualification, each Obligor and each of its
Subsidiaries is in compliance in all material respects with the requirements of
ERISA and the regulations promulgated thereunder with respect to each
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Plan (other than the failure by FTI to file on a timely basis a so-called IRS
Form 5500 for the fiscal year ended December 31, 1996). No fact or situation
that could result in a Material Adverse Change exists in connection with any
Plan. Neither any Obligor nor any of its Subsidiaries has any withdrawal
liability in connection with a Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or threatened (in
writing) termination, cancellation, or limitation of, or any modification or
change in, the business relationship between any Obligor or any of its
Subsidiaries and any customer or any group of customers whose purchases
individually or in the aggregate are material to the business of any Obligor or
any of its Subsidiaries, or with any material supplier, and there exists no
present condition or state of facts or circumstances which would result in a
Material Adverse Change or prevent any Obligor or any of its Subsidiaries from
conducting such business after the consummation of the transaction contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted.
7.1.25 Labor Relations. Except as described on Schedule 7.1.25
attached hereto, neither any Obligor nor any of its Subsidiaries is a party to
any collective bargaining agreement. There are no material grievances disputes
or controversies with any union or any other organization of Obligor's or any of
its Subsidiaries' employees, or threats of strikes, work stoppages, or any
asserted pending demands for collective bargaining by any union or organization.
7.1.26 Eligible Inventory. All Inventory identified on any
Borrowing Base Certificate as Eligible Inventory is (subject to the Acquisition
Qualification) of good and merchantable quality and free from defects (except to
the extent that a reserve has been taken with respect to any such defects).
7.1.27 Acquisitions. No default has occurred under any of the
Acquisition Documents. Each of the Acquisitions has been consummated
substantially in accordance with the terms of the applicable Acquisition
Documents and with all applicable laws, including laws respecting bulk transfer
of assets and the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended.
7.1.28 No Violation of Federal Reserve Board Regulations. The
making by the Lender Group of the Loans and Letter of Credit Accommodations, and
the use by each Obligor of the proceeds of any and all Loans and Letter of
Credit Accommodations, do not and will not violate any of Regulations T, U, and
X of the Federal Reserve Board.
7.1.29 Collateral Agent's Liens. The Liens granted by each Obligor
to Collateral Agent for the benefit of the Lender Group on the Collateral
pursuant to this Agreement and the other Loan Documents are validly created,
perfected, and first priority Liens.
7.1.30 Environmental Condition. None of the Properties or assets
of any Obligor or any Subsidiary thereof has ever been used by any Obligor or
any Subsidiary thereof or, to the best of such Obligor's knowledge, by previous
owners or operators in the disposal of, or to produce, store, handle, treat,
release, or transport, any Hazardous Materials. None of the Properties or assets
of any Obligor or any Subsidiary has ever been designated or identified in
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any manner pursuant to any environmental protection statute as a Hazardous
Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No Lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by any Obligor or any Subsidiary thereof. Neither any
Obligor nor any Subsidiary thereof has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by any Obligor or any
Subsidiary thereof resulting in the releasing or disposing of Hazardous
Materials into the environment.
7.1.31 QFC. QFC is not in any way liable with respect to any
Indebtedness other than the Obligations, the Seller Note Obligations, does not
own any assets of any kind other that the common stock of QOC, and does not
engage in any business activity whatsoever, except in connection with the
foregoing.
7.1.32 Immaterial Subsidiaries. The Immaterial Subsidiaries,
individually and in the aggregate, do not own any material assets and do not
engage in any business activity whatsoever.
7.2 [Intentionally Omitted]
7.3 Survival of Representations and Warranties. All representations and
warranties of the Obligors contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery, and acceptance thereof by Agent
and Lenders and the parties thereto and the closing of the transactions
described therein or related thereto. To the extent that the Obligors timely
comply with the notice provision set forth in Section 8.1.2 in respect of events
or facts after the Closing Date that would render the representations and
warranties set forth in any of Section 7.1.5, Section 7.1.6, Section 7.1.13,
Section 7.1.16, Section 7.1.22 (exclusive of the second sentence thereof), and
Section 7.1.23 inaccurate, incomplete, or misleading and the fact or event so
disclosed by the Obligors is not otherwise prohibited by this Agreement or any
other Loan Document, then the applicable Schedule referenced in that Section
shall be deemed to be amended to include and reflect such disclosed event or
fact.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to the Lender Group, each
Obligor covenants that, unless otherwise consented to by Administrative Agent
and Collateral Agent (each acting upon the instruction of the Required Lenders)
in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of
Administrative Agent, Collateral Agent, or any Lender:
(a) so long as no Event of Default has occurred and is continuing, from
time to time, as often as may be reasonably requested, but only during
normal business hours; provided, however, that, under this clause (a)
(as opposed to under clause (b)), the Obligors only shall be obligated
to reimburse Administrative Agent, Collateral Agent, and any Lender for
the costs and expenses of one such visit and inspection to any or all
the locations of the Obligors in any 3 month period, and
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(b) upon the occurrence and during the continuation of an Event of
Default, from time to time without prior notification or request to the
Obligors and at any time or times determined by Administrative Agent,
Collateral Agent, or such Lender, as the case may be, in its sole
discretion; it being understood that the Obligors shall be obligated to
reimburse Administrative Agent, Collateral Agent, and any Lender for
the costs and expenses of all such visits and inspections performed
under this clause (b),
to visit and inspect the Properties of the Obligors and each of its
Subsidiaries, inspect, audit, and make extracts from its books and records, and
discuss with its officers, its employees, and its independent accountants, the
Obligors' and each of its Subsidiaries' business, assets, liabilities, financial
condition, business prospects, and results of operations.
8.1.2 Notices. Promptly, but in any event no later than 5 days
after the date on which the Obligors become aware thereof, notify Administrative
Agent (with sufficient copies for each member of the Lender Group) in writing of
the occurrence of any event or the existence of any fact which renders any
representation or warranty in this Agreement or any of the other Loan Documents
inaccurate, incomplete, or misleading in any material respect.
8.1.3 Financial Statements. Keep, and cause each Subsidiary to
keep, adequate records and books of account with respect to its business
activities in which proper entries are made in accordance with GAAP reflecting
all its financial transactions, and cause to be prepared and furnished to
Administrative Agent (with sufficient copies for each member of the Lender
Group) the following (all to be prepared in accordance with GAAP applied on a
consistent basis, unless the Obligors' independent certified public accountants
concur in any change therein and such change is disclosed to Administrative
Agent and is consistent with GAAP):
(a) promptly upon the Obligors' receipt thereof and in any
event not later than 105 days after the close of each fiscal year of
the Obligors, unqualified audited financial statements of the Obligors
and its Subsidiaries as of the end of such year, on a Consolidated
basis, certified by a firm of independent certified public accountants
of recognized standing selected by the Obligors but acceptable to
Administrative Agent (except for a qualification for a change in
accounting principles with which the accountant concurs);
(b) not later than 45 days after the end of each fiscal
quarter hereafter (except for fiscal year end) unaudited interim
financial statements of the Obligors and its Subsidiaries as of the end
of such quarter and of the portion of the Obligors' financial year then
elapsed, on a Consolidated basis, certified by a Responsible Officer of
the Obligors as prepared in accordance with GAAP and fairly presenting
the Consolidated financial position and results of operations of the
Obligors and their Subsidiaries for such quarter and period subject
only to changes from audit and year-end adjustments and except that
such statements need not contain notes;
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(c) not later than 30 days after the end of each month
hereafter, including the last month of the Obligors' fiscal year,
unaudited interim financial statements of the Obligors' and their
Subsidiaries as of the end of such month and of the portion of the
Obligors' financial year then elapsed, on a Consolidated basis,
certified by a Responsible Officer of the Obligors as prepared in
accordance with GAAP and fairly presenting the Consolidated financial
position and results of operations of the Obligors and their
Subsidiaries for such month and period subject only to changes from
audit and year-end adjustments and except that such statements need not
contain notes;
(d) promptly after the sending or filing thereof, as the case
may be, copies of any proxy statements, financial statements, or
reports which the Obligors have made available to its shareholders and
copies of any regular, periodic, and special reports or registration
statements which the Obligors file with the Securities and Exchange
Commission or any governmental authority which may be substituted
therefor, or any national securities exchange;
(e) promptly after the filing thereof, copies of any annual
report required by ERISA to be filed in connection with each Plan; and
(f) such other data and information (financial and otherwise)
as Administrative Agent or Collateral Agent, from time to time,
reasonably may request, bearing upon or related to the Collateral or
the Obligors' and each of their Subsidiaries' financial condition or
results of operations.
As promptly as practicable and in no event later than 240 days after
the close of each fiscal year of the Obligors, the Obligors shall forward to
Administrative Agent a copy of the accountants' letter to the Obligors'
management that is prepared in connection with the financial statements
described in clause (a) of this Section 8.1.3. Concurrently with the delivery of
the financial statements described in clause (a) of this Section 8.1.3, the
Obligors shall cause to be prepared and shall furnish to Administrative Agent a
certificate of the aforesaid certified public accountants certifying to
Administrative Agent that, based upon their examination of the financial
statements of the Obligors and their Subsidiaries performed in connection with
their examination of said financial statements, they are not aware of any
Default or Event of Default, or, if they are aware of such Default or Event of
Default, specifying the nature thereof, and acknowledging, in a manner
satisfactory to Administrative Agent, that they are aware that the Lender Group
is relying on such financial statements in making its decisions with respect to
the Loans. Concurrently with the delivery of the financial statements described
in clauses (a) and (b) of this Section 8.1.3, or more frequently if requested by
Administrative Agent, the Obligors shall cause to be prepared and furnished to
Administrative Agent a Compliance Certificate in the form of Exhibit 8.1.3
attached hereto executed by a Responsible Officer.
8.1.4 Landlord and Storage Agreements. Provide Collateral Agent
with copies of all agreements between Borrower or any of its Subsidiaries and
any landlord or warehouseman which owns any premises at which any Inventory may,
from time to time, be kept.
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8.1.5 Year 2000 Compliance. Take all action necessary to assure
that at all times the computer-based systems utilized by the Obligors and each
of their Subsidiaries are able to effectively interpret, process and manipulate
data, including dates before, on and after October 31, 1999. At Collateral
Agent's request, the Obligors shall provide to Collateral Agent assurance
reasonably satisfactory to Collateral Agent that the computer-based systems
utilized by the Obligors and each of their Subsidiaries are able to recognize
and perform without error functions involving dates before, on and after October
31, 1999.
8.1.6 Projections. No later than 60 days following the end of each
fiscal year of the Obligors deliver to the Lender Group Projections of the
Obligors for the forthcoming 3 years, year by year, and for the forthcoming
fiscal year, month by month.
8.1.7 Equipment. Make all necessary replacements of and repairs to
the Equipment so that the value and operating efficiency thereof shall be
maintained and preserved, ordinary depreciation and reasonable wear and tear
excepted.
8.1.8 Taxes. (a) File on a timely basis all federal, state, and
local tax returns and other reports it is required by law to file (other than
tax returns in respect of taxes that (i) are not franchise, capital, income, or
payroll taxes, (ii) are not material individually or in the aggregate, and (iii)
if unpaid, would not result in the imposition of any Lien on any Property of any
Obligor or any Subsidiary thereof), and (b) pay, or make provision for the
payment of, all taxes, assessments, fees, levies, and other governmental charges
upon it, its income and Properties as and when such taxes, assessments, fees,
levies, and charges become are due and payable, unless and to the extent any
such taxes, assessments, fees, levies, or charges (exclusive of federal income
taxes and payroll taxes) are being actively contested in good faith and by
appropriate proceedings, and such Obligor maintains reasonable reserves on its
books therefor.
8.1.9 Compliance with Laws. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act, the Americans With Disabilities Act, and
all laws relative to Hazardous Materials, other than laws, rules, regulations,
and orders the non-compliance with which, individually or in the aggregate,
would not result in and reasonably could not be expected to result in a Material
Adverse Change.
8.1.10 Compliance with Corporate Formalities. Maintain, and cause
QFC to maintain, at all times in full force and effect its and their corporate
existence and any rights and franchises material to the Obligors' business.
8.2 Negative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to the Lender Group, each
Obligor, jointly and severally, covenants that, unless Administrative Agent and
Collateral Agent (acting upon the written instructions of the Required Lenders)
has first consented thereto in writing, it will not:
8.2.1 Mergers, Consolidations, Acquisitions. Except for Permitted
Acquisitions, merge or consolidate, or permit any Subsidiary of the Obligors to
merge or consolidate, with any Person, nor acquire, nor permit any of their
Subsidiaries to acquire, all or any substantial part of the Properties of any
Person; provided, however, so long as no Event of
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Default has occurred and is continuing, upon 10 days prior written notice to
Collateral Agent, QOC and any Subsidiary of QOC may merge or consolidate with
any other Subsidiary of QOC; provided that (i) if any such Subsidiary is a
Borrower, such Subsidiary shall be the surviving Person and (ii) Collateral
Agent shall have given its written consent to such merger or consolidation (such
consent shall not be unreasonably withheld).
8.2.2 Loans. Make, or permit any Subsidiary of the Obligors to
make, any loans or other advances of money (other than for salary, travel
advances, advances against commissions, and other similar advances in the
ordinary course of business) to any Person in excess of $250,000 in the
aggregate for all such loans and other advances to all Persons; provided,
however, so long as no Event of Default exists or is continuing or would result
therefrom, Borrower may make loans or other advances of money in order to
undertake a Permitted Joint Venture in the aggregate maximum principal amount of
$1,000,000 at any one time outstanding, provided, (i) Borrower shall have
Availability of at least $15,000,000 immediately after giving effect to any such
loan or advance of money to such Permitted Joint Venture, and (ii) any such loan
or advance of money shall not be made prior to September 30, 1999.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to
exist, or permit any Subsidiary of Obligor to create, incur, or suffer to exist,
any Indebtedness, except:
(a) Obligations owing to the Lender Group;
(b) QOC may incur the Subordinated Obligations;
(c) QFC may incur the Seller Note Obligations;
(d) Each of the relevant Obligors may incur the Earn-Out
Obligations specifically identified to them on Schedule E-1;
(e) Indebtedness identified on Schedule 8.2.3;
(f) Indebtedness of any Subsidiary of Borrower to Borrower;
(g) accounts payable to trade creditors and current operating
expenses (other than for Money Borrowed) which are not aged more than
120 days from billing date or more than 30 days from the due date, in
each case, incurred in the ordinary course of business and paid within
such time period, unless the same are being actively contested in good
faith and by appropriate and lawful proceedings, and Obligor or such
Subsidiary shall have set aside such reserves, if any, with respect
thereto as are required by GAAP and deemed adequate by Obligor or such
Subsidiary and its independent accountants;
(h) Obligations to pay Rentals permitted by Section 8.2.13
hereof;
(i) Permitted Purchase Money Indebtedness;
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(j) Subordinated Debt in amounts and on terms acceptable to
the Required Lenders;
(k) Indebtedness evidenced by Permitted Interest Rate or
Currency Protection Agreements of the Obligors;
(l) contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in
the ordinary course of business;
(m) refinancings, renewals, or extensions of Indebtedness
permitted under clause (b) of this Section 8.2.3 so long as the terms
and conditions of the refinancing Indebtedness are no less favorable to
the Lender Group as determined by the Collateral Agent in its sole
discretion;
(n) Indebtedness not included in paragraphs (a) through (m)
above which does not exceed at any time, in the aggregate, the sum of
$250,000; and
(o) Guarantees permitted under Section 8.2.18 hereof.
8.2.4 Affiliate Transactions. Enter into, or be a party to, or
permit any Subsidiary of the Obligors to enter into or be a party to, any
transaction with any Affiliate of the Obligors or stockholder, except as set
forth on Schedule 8.2.4 and except in the ordinary course of and pursuant to the
reasonable requirements of the Obligor's or such Subsidiary's business and upon
fair and reasonable terms that are fully disclosed to Administrative Agent and
Collateral Agent and are no less favorable to the Obligors than would obtain in
a comparable arm's length transaction with a Person not an Affiliate or
stockholder of the Obligors or such Subsidiary.
8.2.5 Limitation on Liens. Create or suffer to exist, or permit
any Subsidiary of the Obligors to create or suffer to exist, any Lien upon any
of its Property, income, or profits, whether now owned or hereafter acquired,
except:
(a) Liens at any time granted in favor of Collateral Agent
for the benefit of the Lender Group;
(b) Liens for taxes (excluding any Lien imposed pursuant to
any of the provisions of ERISA) not yet due, or being contested in the
manner described in Section 7.1.14 hereof, but only if in Collateral
Agent's judgment such Lien does not adversely affect the Lender Group's
rights or the priority of Collateral Agent's Lien in the Collateral;
(c) Liens arising in the ordinary course of the Obligor's
business by operation of law or regulation, but only if payment in
respect of any such Lien is not at the time required and such Liens do
not, in the aggregate, materially detract from the value of the
Property of the Obligor or materially impair the use thereof in the
operation of the Obligor's business;
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(d) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
(e) Liens securing Indebtedness of one of Borrower's
Subsidiaries to Borrower or another such Subsidiary;
(f) such other Liens as appear on Schedule 8.2.5 attached
hereto;
(g) Liens with respect to the AFCOM Acquisition Real Property
that are exceptions to the commitments for title insurance issued in
connection with the Mortgage, as accepted by Collateral Agent; and
(h) such other Liens as both Collateral Agent and
Administrative Agent may hereafter approve (in their sole discretion)
in writing (including as so approved relative to Permitted
Acquisitions).
8.2.6 Suspension, etc.; Nature of Business; Change of Name, etc.
(a) Cause, suffer, or permit any Obligor or any Subsidiary thereof (other than
an Immaterial Subsidiary) to be suspended or go out of business or to be
liquidated, wound up, or dissolved; (b) make any change in the principal nature
of the Obligors' business; and (c) except upon 30 days prior written notice,
change the name, FEIN, corporate structure (within the meaning of Section
9-402(7) of the Code), or identity, or add any new fictitious name, of any
Obligor or any Subsidiary thereof.
8.2.7 Distributions. Declare or make, or permit any Subsidiary of
Borrower to declare or make, any Distributions; provided, however, that each
Subsidiary of QOC may declare and pay Distributions to QOC or to any Subsidiary
of QOC that owns the equity Securities of the Subsidiary of QOC that is
declaring and paying such Distribution; provided, further, however, so long as
no Event of Default exists or is continuing or would result therefrom, QOC may
declare and make Distributions
(a) to QFC in an aggregate maximum amount not to exceed
$2,500,000, provided
(i) QFC, immediately upon receipt thereof, declares and
makes a Distribution to QTI of all amounts received pursuant
to clause (a) above,
(ii) the proceeds of such Distribution is used by QTI
exclusively to redeem the Warrants,
(iii) Borrower has Availability of at least $15,000,000
immediately after giving effect to any such Distribution, and
(iv) any such Distribution is not made prior to September
30, 1999, and
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(b) to QFC, in an amount equal to QFC's regularly scheduled
(i.e. not prepayments, whether voluntary or involuntary) payments of
principal and interest under the Seller Note Documents, provided
(i) the aggregate amount of all such Distributions in any
fiscal year does not exceed 50% of the Available Amount, and
(ii) Borrower has Availability of at least $10,000,000
immediately after giving effect to any such Distribution, and
(c) to QFC, in an aggregate monthly amount of $10,000 and in
the aggregate maximum amount not to exceed $110,000, provided
(i) QFC, immediately upon receipt thereof declares and
makes a Distribution to QTI of all amounts received pursuant
to clause (c) above, and
(ii) the proceeds of such Distribution by QTI are used
exclusively to make payments of principal and interest
pursuant to that certain promissory note issued by QTI to the
sellers in the acquisition documents relative to the
acquisition of PCI by QTI, and
(d) to QFC, in an aggregate maximum amount not to exceed
$375,000, provided
(i) QFC, immediately upon receipt thereof declares and
makes a Distribution to QTI of all amounts received pursuant
to clause (d) above, and
(ii) the proceeds of such Distribution are used by QTI
exclusively to make payments in respect of any Capitalized
Lease Obligations in respect of QTI's lease agreement with
General Electric Capital Corporation, and
(e) to QFC, in an aggregate maximum amount not to exceed
QTI's actual general and administrative expenses incurred solely as a
result of QTI's ownership of Borrower and Borrower's Subsidiaries,
provided
(i) QFC, immediately upon receipt thereof declares and
makes a Distribution to QTI of all amounts received pursuant
to clause (e) above, and
(ii) the proceeds of such Distribution are used
exclusively by QTI to make payments of QTI's actual general
and
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administrative expenses incurred solely as a result of QTI's
ownership of Borrower and Borrower's Subsidiaries, and
(iii) the proceeds of such Distribution is not used by
QTI to make a capital contribution, loan, or advance to QFC,
nor to make payment on account of QFC's Indebtedness
evidenced by the Seller Note Documents, nor to purchase or
otherwise acquire the Seller Note Documents.
8.2.8 Capital Expenditures. Make Capital Expenditures (including,
without limitation, by way of capitalized leases) which, in the aggregate, as to
Borrower and their Subsidiaries, exceed the sum of (a) $1,000,000 during any
fiscal year of Borrower, and (b) the unused portion of permitted Capital
Expenditures under clause (a) for the immediately preceding fiscal year; it
being understood that in no event shall Borrower make any Capital Expenditures
in excess of $2,000,000 in any fiscal year.
8.2.9 Disposition of Assets. Sell, lease, or otherwise dispose of
any of, or permit any Subsidiary of the Obligors to sell, lease, or otherwise
dispose of any of, its Properties, including any disposition of Property as part
of a sale and leaseback transaction, to or in favor of any Person, except (a)
sales of Inventory to buyers in the ordinary course of business or, (b) a
transfer of Property to Borrower by a Subsidiary of Borrower or by any Borrower
to any other Borrower.
8.2.10 Stock of Subsidiaries. Permit any of their Subsidiaries to
(a) issue any additional shares of its capital stock except director's
qualifying shares or (b) form or capitalize any new Subsidiary of an Obligor
(other than in connection with Permitted Acquisitions).
8.2.11 Bill-and-Hold Sales, Etc. Except as set forth on Schedule
8.2.11, make a sale to any customer on a bill-and-hold, guaranteed sale, sale
and return, sale on approval or consignment basis, or any sale on a repurchase
or return basis.
8.2.12 Restricted Investment. Except as permitted by Section
8.2.2, make or have, or permit any Subsidiary of any Obligor to make or have,
any Restricted Investment.
8.2.13 Leases. Become, or permit any of its Subsidiaries to
become, a lessee under any operating lease (other than a lease under which
Obligor or any of its Subsidiaries is lessor) of Property if the aggregate
Rentals payable during any current or future period of 12 consecutive months
under the lease in question and all other leases under which any Obligor or any
of its Subsidiaries is then lessee would exceed $2,250,000 (or such higher
amount as both Collateral Agent and Administrative Agent may agree in writing in
their sole discretion as a result of a Permitted Acquisition). The term
"Rentals" means, as of the date of determination, all payments which the lessee
is required to make by the terms of any lease.
8.2.14 Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than any other Obligor or a
Subsidiary of any Obligor.
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8.2.15 Equipment. Cause, suffer, or permit any of the Equipment to
become affixed to any real Property leased to an Obligor so that an interest
arises therein under the real estate laws of the applicable jurisdiction unless
the landlord of such real Property has executed a landlord waiver or leasehold
mortgage in favor of and in form acceptable to Collateral Agent, and the
Obligors will not permit any of the Equipment to become an accession to any
personal Property other than Equipment that is subject to first priority Liens
in favor of Collateral Agent.
8.2.16 Prepayments. Prepay any Indebtedness of the Obligors owing
to any Person (other than the Lender Group).
8.2.17 Preferred Stock. Issue any Preferred Stock other than
Permitted Preferred Stock.
8.2.18 Guarantees. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of the Obligors or
which are transmitted or turned over to Administrative Agent for the benefit of
the Lender Group; provided, however, each of the Obligors may guarantee the
Subordinated Obligations so long as any such guarantee is in form and substance
satisfactory to Administrative Agent and Collateral Agent; provided, further,
however, any Borrower may guarantee or otherwise become liable with respect to
the obligations of another Borrower.
8.2.19 Subordinated Obligations; Earn-Out Obligations.
(a) Make, or permit any Subsidiary of an Obligor to make, any
payment of principal or interest on any part or all of any Subordinated
Obligations (including without limitation its put obligations and repurchase
obligations in respect of the "Purchaser Shares" (as such term is defined in the
Investors Rights Agreement) under the Investors Rights Agreement) or take any
other action or omit to take any other action in respect thereof; provided,
however, the Obligors make, and may permit any Subsidiary of an Obligor to (i)
make payments of interest and reimbursement of expenses on the Subordinated
Obligations provided such payment, action, or omission (as the case may be) is
permitted by the terms of the subordination provisions applicable to such
Subordinated Obligations (including without limitation its put obligations and
repurchase obligations in respect of the "Purchaser Shares" (as such term is
defined in the Investors Rights Agreement) under the Investors Rights
Agreement); (ii) so long as no Event of Default has occurred and is continuing,
make payments in respect of indemnification obligations under the Subordinated
Debt Documents, and (iii) exercise the cashless exercise provision described in
Section 7.4(2) of the Note Agreement that forms a portion of the Subordinated
Debt Documents; provided, however, that in no event (other than clause (iii)
above) shall any Obligor or any Subsidiary of an Obligor prepay, defease,
purchase, or acquire any principal amount of the Subordinated Obligations
(including without limitation its put obligations and repurchase obligations in
respect of the "Purchaser Shares" (as such term is defined in the Investors
Rights Agreement) under the Investors Rights Agreement).
(b) Make, or permit any Subsidiary of an Obligor to make, any
payment of any part or all of any Seller Note Obligations or take any other
action or omit to take
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any other action in respect thereof, unless and to the extent: (i) the payment
is made with the proceeds of a Distribution that is permitted by the terms of
Section 8.2.7(b) hereof, (ii) no Event of Default has occurred and is continuing
or would result therefrom, and (iii) Administrative Agent has received and
reviewed (y) the Obligors' audited financial statements for the fiscal year most
recently ended and the unaudited interim financial statements of the Obligors
that are required to be delivered hereunder on or before the scheduled date of
such payment, (z) the most recently required Projections, and in each case
reflect that the Obligors are in compliance with Section 8.3 (after giving
effect to such payment), and (aa) with respect to that portion of the Seller
Note Obligations representing QFC's potential future Indebtedness in respect of
the Earn-Out Obligations, Borrower shall have Availability of at least
$10,000,000 immediately after giving effect to any such payment; provided,
however, that in no event shall any Obligor or any Subsidiary of an Obligor
prepay, defease, purchase, or acquire any principal amount of the Seller Note
Obligations.
(c) Make, or permit any Subsidiary of an Obligor to make, any
payment of any part or all of any other Subordinated Debt or omit to take any
action in respect thereof, unless and to the extent: (i) such payment, action,
or omission (as the case may be) is permitted by the terms of the subordination
provisions applicable to such Subordinated Debt, and (ii) no Event of Default
has occurred and is continuing or would result therefrom.
(d) Make, or permit any Subsidiary of an Obligor to make, any
payment in respect of any part or all of any Earn-Out Obligations, unless and to
the extent: (i) no Event of Default has occurred and is continuing or would
result therefrom, (ii) Administrative Agent has received and reviewed (y) the
Obligors' audited financial statements for the fiscal year most recently ended
and the unaudited interim financial statements of the Obligors that are required
to be delivered hereunder on or before the scheduled date of such payment, and
(z) the most recently delivered Projections, and in each case reflect that the
Obligors are in compliance with Section 8.3 (after giving effect to such
payment), (iii) Borrower shall have Availability of at least $10,000,000
immediately after giving effect to any such payment.
8.2.20 Amendments to Certain Documents. Enter into any amendment,
supplement, or modification of: (a) any Subordinated Debt Document; (b) any
Seller Note Document; or (c) any Acquisition Documents.
8.2.21 Indebtedness of QFC. Except for QFC's and QTI's obligations
under the Seller Note Documents, guarantee or otherwise become in any way liable
with respect to the Seller Note Obligations or create or suffer to exist any
Lien upon any of its Property, income, or profits in support of the Seller Note
Obligations directly owing by QFC.
8.2.22 QFC. Permit QFC to (a) guarantee or otherwise become in any
way liable with respect to any Indebtedness other than the Obligations, the
Seller Note Obligations, (b) own any assets of any kind other that the common
stock of the Subsidiaries of QTI, or (c) engage in any business activity
whatsoever other than in connection with the foregoing.
8.2.23 Immaterial Subsidiary. Permit any Immaterial Subsidiary,
whether individually or in the aggregate, to (a) own any material assets, or (b)
engage in any business activity whatsoever.
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8.3 Specific Financial Covenants. During the term of this Agreement,
and thereafter for so long as there are any Obligations to the Lender Group,
each Obligor covenants that, unless otherwise consented to by Administrative
Agent and Collateral Agent (acting upon the written instructions of the Required
Lenders) in writing, it shall:
8.3.1 Total Funded Debt Coverage Ratio. Maintain a Total Funded
Debt Coverage Ratio not greater than 4.75:1.00 with respect to each fiscal
quarter ending on or after June 30, 1999 through and including the fiscal
quarter ending September 30, 2001, and, with respect to each fiscal quarter
ending on or after December 31, 2001, maintain a Total Funded Debt Coverage
Ratio not greater than 4.50:1.00.
8.3.2 Minimum EBITDA. Maintain EBITDA for each of the following
fiscal periods of not less than the amount shown below for the period
corresponding thereto:
- ------------------------------------------------------------------------------
Fiscal Period Minimum EBITDA
fiscal quarter ended 6/30/1999 $3,750,000
- ------------------------------------------------------------------------------
fiscal quarter ended 9/30/1999 $4,250,000
- ------------------------------------------------------------------------------
fiscal quarter ended 12/31/1999 $4,500,000
- ------------------------------------------------------------------------------
fiscal quarter ended 3/31/2000 $4,750,000
- ------------------------------------------------------------------------------
fiscal quarter ended 6/30/2000 $4,750,000
- ------------------------------------------------------------------------------
fiscal quarter ended 9/30/2000 $5,000,000
- ------------------------------------------------------------------------------
fiscal quarter ended 12/31/2000 $5,000,000
- ------------------------------------------------------------------------------
fiscal quarter ended 3/31/2001 $5,250,000
- ------------------------------------------------------------------------------
fiscal quarter ended 6/30/2001 $5,250,000
- ------------------------------------------------------------------------------
fiscal quarter ended 9/30/2001 $5,500,000
- ------------------------------------------------------------------------------
fiscal quarter ended 12/31/2001 $5,500,000
- ------------------------------------------------------------------------------
fiscal quarter ended 3/31/2002 $6,250,000
- ------------------------------------------------------------------------------
fiscal quarter ended 6/30/2002 $6,250,000
- ------------------------------------------------------------------------------
fiscal quarter ended 9/30/2002 $6,500,000
- ------------------------------------------------------------------------------
fiscal quarter ended 12/31/2002
and each fiscal quarter $6,500,000
ended thereafter
- ------------------------------------------------------------------------------
8.3.3 Senior Debt Coverage Ratio. Maintain a Senior Debt Coverage
Ratio not greater than 3.75:1.00 with respect to each fiscal quarter ending on
or after June 30, 1999 through and including the fiscal quarter ending September
30, 2001, and, with respect to each fiscal quarter ending on or after December
31, 2001, maintain a Senior Debt Coverage Ratio not greater than 3.50:1.00.
8.3.4 Minimum Interest Coverage. Maintain an Interest Coverage
Ratio not less than 2.10:1.00 with respect to each fiscal quarter ending on or
after June 30, 1999 through and including the fiscal quarter ending September
30, 2001, and, with respect to each fiscal quarter ending on or after December
31, 2001, maintain an Interest Coverage not less than 2.35:1:00.
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8.3.5 Inventory Coverage. Maintain an Inventory Turnover as of the
end of each month of not greater than 183 days.
SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS
Any other provision of this Agreement or any of the other Loan
Documents notwithstanding, and without affecting in any manner the rights of
Agent or the Lenders under the other sections of this Agreement, Agent and the
Lenders shall not be required to make the initial Loan, or issue the initial
Letter of Credit Accommodations, under this Agreement unless and until each of
the following conditions has been and continues to be satisfied:
9.1 Documentation. Administrative Agent and Collateral Agent shall have
received each of the following Loan Documents, in form and substance
satisfactory to Administrative Agent and Collateral Agent and their respective
counsel, duly executed, and each such document shall be in full force and
effect:
(a) the Agreement;
(b) the Reaffirmation Agreement;
(c) the Revolving Notes;
(d) the Term Notes A and the Term Notes B;
(e) the Stock Pledge Agreement, together with the shares of
capital stock of each Subsidiary of QTI, as well as stock powers with
respect thereto endorsed in blank;
(f) the Fee Letter;
(g) the Trademark Security Agreement;
(h) the QFC Guaranty;
(i) the QTI Guaranty;
(j) the Subordination Agreement;
(k) the Suretyship Agreement;
(l) the Old Second Amendment Fee Letter Reaffirmation
Agreement;
(m) such amendment or amendment and restatement of or
supplement to the Mortgage as Collateral Agent may require, in form and
substance satisfactory to Collateral Agent; and such amendments of or
endorsements to the title insurance policy in respect of the AFCOM
Acquisition Real Property, together with such certificates or other
documents as the title
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insurance company may reasonably require in respect of such amendments
or endorsements; and
(n) such Collateral Access Agreements as Administrative Agent
or Collateral Agent may require.
9.2 Other Loan Documents. Each of the conditions precedent set forth in
the other Loan Documents shall have been satisfied.
9.3 Certificates of Title. Collateral Agent shall have received duly
executed certificates of title with respect to that portion of the Collateral
that is subject to certificates of title.
9.4 Approvals and Consents. The Obligors shall have received all
governmental consents, approvals, licenses, authorizations, permits,
certificates, inspections, and franchises necessary for the consummation of the
transactions contemplated by the Loan Documents.
9.5 Certified Documents of the Obligors. On or before the Closing Date,
each Obligor shall have delivered to Administrative Agent copies of the
following documents, duly certified, or the following certificates, as
applicable:
(a) Resolutions of the Board of Directors of such Obligor
authorizing (i) the execution, deliver, and performance of the
Loan Documents to which such Obligor is a party, (ii) the
consummation of the transactions contemplated by the Loan
Documents to which such Obligor is a party, and (iii) all other
actions to be taken by such Obligor in connection with the Loan
Documents to which Obligor is a party;
(b) A certificate, signed by the Secretary or an Assistant
Secretary of such Obligor, dated as of the Closing Date, as to (i)
the incumbency, and containing the specimen signature or
signatures, of the Person or Persons authorized to execute the
Loan Documents to which such Obligor is a party on behalf of such
Obligor, together with evidence of the incumbency of such
Secretary or Assistant Secretary, and (ii) the authenticity and
completeness of the certificate or articles of incorporation and
by-laws of such Obligor; and
(c) Certificates of status or good standing of such Obligor
from the Secretary of State of its organization, dated within 15
days of the Closing Date, and of each state or other jurisdiction
in which such Obligor is qualified to do business, dated within 15
days of the Closing Date.
9.6 [Intentionally Omitted]
9.7 Confirmation Searches. Collateral Agent shall have received
searches reflecting the filing of its financing statements and/or fixture
filings with respect to the Obligors.
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9.8 Opinion of Counsel. The Lender Group shall have received from
counsel for the Obligors a legal opinion in form and substance satisfactory to
Collateral Agent and its counsel.
9.9 Pay-Off Letter and UCC Termination Statements, Etc. (1) Each
Existing Lender shall have executed and delivered a Pay-Off Letter, which shall
be in full force and effect, together with original share certificates
evidencing the capital stock of the relevant Borrower, and UCC termination
statements, mortgage releases, and other documentation evidencing the
termination of its Liens on the Properties or capital stock, as the case may be,
of Borrower, and (2) a certificate of an authorized officer of Borrower,
together with supporting evidence satisfactory to Administrative Agent and
Collateral Agent, that the tax Lien filed by the State of Illinois does not
relate to ATPI or its assets.
9.10 Projections The Lender Group shall have received Projections of
the Obligors for the forthcoming 3 years, year by year, and for the current
fiscal year, month by month in form and substance satisfactory to the Lender
Group.
9.11 Closing Date. The Closing Date shall occur on or before June 30,
1999.
9.12 Availability. Administrative Agent shall have determined that
immediately after the Lender Group has made the initial Loans, and all closing
fees, costs, and expenses incurred in connection with the transactions
contemplated hereby and the Fee Letter, Availability shall not be less than
$15,000,000, provided that Borrower's trade payables are at a level and are aged
consistent with the historical practices of Borrower (inclusive of CAPFI, ATPI,
ATPG, ATPM, and the Olympic Acquisition).
9.13 No Litigation. No action proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed in writing before
any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby.
9.14 Acquisitions. Administrative Agent and Collateral Agent shall have
received and reviewed copies, certified as true, correct, and complete by an
appropriate officer of the Obligors, of each of the Acquisition Documents, the
form and substance of which shall be reasonably satisfactory to Administrative
Agent and Collateral Agent. Each of the Acquisitions shall have been or shall be
consummated substantially in accordance with the terms of the applicable
Acquisition Documents. Administrative Agent and Collateral Agent shall have
received evidence, satisfactory to Administrative Agent and Collateral Agent,
that each Acquisition has been or shall be consummated in accordance with all
applicable laws, including laws respecting bulk transfer of assets and the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended.
Administrative Agent and Collateral Agent shall have received and reviewed a
copy of the opinion letter of counsel to each of CAPFI, Olympic, and ATPI
delivered pursuant to the Acquisition Documents related thereto, the form and
substance of which shall be reasonably satisfactory to Administrative Agent and
Collateral Agent, that either (i) is addressed to Administrative Agent and
Collateral Agent for the benefit of the Lender Group, or (ii) is accompanied by
a letter from such counsel in favor of Administrative Agent and Collateral
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Agent for the benefit of the Lender Group, in form and substance satisfactory to
Administrative Agent and Collateral Agent, permitting Administrative Agent and
Collateral Agent to rely on such opinion.
9.15 Subordinated Debt Documents. QOC shall have executed and delivered
the Subordinated Debt Documents, which shall be in form and substance
satisfactory to the Lender Group. Administrative Agent shall have received a
certificate of the Secretary of QTI, dated as of the Closing Date, certifying to
a true, correct, and complete copy of each of the material Subordinated Debt
Documents. The Subordinated Debt Documents shall be in full force and effect,
and no material term or condition thereof shall have been amended, modified, or
waived except with the prior written consent of Administrative Agent.
Administrative Agent and Collateral Agent shall have received evidence
satisfactory to the Lender Group of the issuance and sale by QOC of notes
evidencing the Subordinated Obligations in an aggregate amount not less than
$20,000,000 pursuant to the Subordinated Debt Documents.
9.16 Seller Note Documents. Sellers and QFC shall have executed and
delivered the Seller Note Documents, which shall be in form and substance
satisfactory to the Lender Group. Administrative Agent shall have received a
certificate of the Secretary of QFC, dated as of the Closing Date, certifying to
a true and correct copy of each of the material Seller Note Documents. The
Seller Note Documents shall be in full force and effect, and no material term or
condition thereof shall have been amended, modified, or waived without the
express written consent of Administrative Agent. Administrative Agent and
Collateral Agent shall have received evidence satisfactory to the Lender Group
of the issuance and sale by QFC of notes evidencing the Seller Note Obligations
in an amount not more than $5,000,000 pursuant to the Seller Note Documents.
9.17 Audits, Appraisals, and Valuations. Collateral Agent shall have
received collateral audits, appraisals and valuations of the books and records
and tangible and intangible Property and assets of the Obligors, and the results
shall be acceptable to the Lender Group in its sole discretion.
9.18 [Intentionally Omitted]
9.19 Pro Forma Balance Sheet. The Lender Group shall have received the
Obligors' Pro Forma Balance Sheet, which shall be satisfactory to the Lender
Group in its sole discretion.
9.20 Contribution Agreements. The Lender Group shall have received a
true and correct copy of each Contribution Agreement, duly certified by the
Secretary of QTI, the form and substance of which shall be satisfactory to the
Lender Group. The Lender Group shall have received such other evidence as it
shall reasonably require that each Contribution Agreement has been duly executed
and delivered by and to the appropriate parties thereto and the transactions
contemplated thereunder have been consummated.
SECTION 9A. CONDITIONS PRECEDENT TO ALL CREDITS
Any other provision of this Agreement or any of the other Loan
Documents notwithstanding, and without affecting in any manner the rights of the
Lender Group under the
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other sections of this Agreement, the Lender Group shall not be required to make
any Loans or Letter of Credit Accommodations under this Agreement unless and
until each of the following conditions has been and continues to be satisfied:
9A.1 No Default. No Default or Event of Default shall exist.
9A.2 Representations and Warranties. The representations and warranties
contained in this Agreement and the other Loan Documents shall be true and
correct in all respects on and as of the date of such Loan (except to the extent
that such representations and warranties relate solely to an earlier date).
9A.3 Adverse Changes. No Material Adverse Change shall have occurred
with respect to the Obligors.
9A.4 Injunctions. No injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extension of such
credit shall have been issued and remain in force by any governmental authority
against any Obligor, the Lender Group, or any of their Affiliates.
SECTION 10. EVENTS OF DEFAULT, RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default":
10.1.1 [Intentionally Omitted]
10.1.2 Payment of Obligations. Borrower shall fail to pay any of
the Obligations on or before the due date thereof (whether due at stated
maturity, on demand, upon acceleration, or otherwise).
10.1.3 Misrepresentations. Any representation, warranty, or other
statement made or furnished to Agent or any Lender by or on behalf of an Obligor
in this Agreement, any of the other Loan Documents, or any instrument,
certificate, or financial statement furnished in compliance with or in reference
thereto proves to have been false or misleading in any material respect when
made or furnished or when reaffirmed pursuant to Section 7.2 hereof.
10.1.4 Breach of Specific Covenants. The Obligors shall fail or
neglect to perform, keep, or observe any covenant contained in Sections 5.2,
6.1.1, 6.2, 8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that the Obligors are
required to perform, keep or observe such covenant; provided, however, that, so
long as Availability exceeds $1,500,000, with respect to Borrower's obligation
under Section 6.2.1 to deliver to Administrative Agent a Borrowing Base
Certificate not later than 9:00 a.m. (New York time) on the 2nd Business Day of
each week, Borrower shall be permitted with respect to not more than 1 week in
any consecutive 3 month period to deliver the relevant Borrowing Base
Certificate as late as 9:00 a.m. (New York time) on the 4th Business Day of such
week without such late delivery constituting an Event of Default under this
Section 10.1.4.
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10.1.5 Breach of Other Covenants. The Obligors shall fail or
neglect to perform, keep, or observe any covenant contained in this Agreement
(other than a covenant that is dealt with specifically elsewhere in Section 10.1
hereof) and the breach of such other covenant is not cured to the Required
Lenders' satisfaction within 20 days after the sooner to occur of Obligors'
receipt of notice of such breach from Collateral Agent or the date on which such
failure or neglect first becomes known to any officer of the Obligors.
10.1.6 Default Under Loan Documents/ Subordinated Debt
Documents/Seller Note Documents/Acquisition Documents. Any event of default
shall occur under, or any Obligor shall default in the performance or observance
of any term, covenant, condition, or agreement contained in, any of the other
Loan Documents, the Subordinated Debt Documents, the Seller Note Documents, or
the Acquisition Documents and such default shall continue beyond any applicable
grace period.
10.1.7 Other Defaults. There shall occur any default or event of
default on the part of any Obligor under any agreement, document, or instrument
to which such Obligor is a party or by which such Obligor or any of its Property
is bound, creating or relating to any Indebtedness (other than the Obligations)
in excess of $100,000 if the payment or maturity of such Indebtedness is
accelerated in consequence of such event of default or demand for payment of
such Indebtedness is made.
10.1.8 Uninsured Losses. Any loss, theft, damage, or destruction
of any of the Collateral not fully covered (subject to such deductibles as
Collateral Agent shall have permitted) by insurance in excess of $500,000.
10.1.9 Adverse Changes. There shall occur any Material Adverse
Change.
10.1.10 Insolvency and Related Proceedings. The Obligors (taken as
a whole) shall cease to be Solvent or shall suffer the appointment of a
receiver, trustee, custodian, or similar fiduciary, or shall make an assignment
for the benefit of creditors, or any petition for an order for relief shall be
filed by or against any Obligor or under the Bankruptcy Code (if against any
Obligor, the continuation of such proceeding for more than 45 days), or any
Obligor shall make any offer of settlement, extension, or composition to their
respective unsecured creditors generally.
10.1.11 Business Disruption, Condemnation. There shall occur a
cessation of a substantial part of the business of any Obligor or any Subsidiary
thereof (other than an Immaterial Subsidiary) for a period which significantly
affects such Obligor's or such Subsidiary's capacity to continue its business,
on a profitable basis, or any Obligor or any Subsidiary thereof (other than an
Immaterial Subsidiary) shall suffer the loss or revocation of any material
Permit now held or hereafter acquired by such Obligor or such Subsidiary that is
necessary to the continued or lawful operation of its business, or any Obligor
or any Subsidiary thereof (other than an Immaterial Subsidiary) shall be
enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any material part of its business
affairs, or any material lease or agreement pursuant to which any Obligor or any
Subsidiary thereof (other than an Immaterial Subsidiary) leases, uses or
occupies any
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Property shall be canceled or terminated prior to the expiration of its stated
term, or any material part of the Collateral shall be taken through condemnation
or the value of such Property shall be materially impaired through condemnation.
10.1.12 Change of Control or Ownership. (a) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), other than the Permitted Holders,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of more than 35% of the total voting power of all
classes of Voting Stock then outstanding of QTI entitled to vote in the election
of directors; provided, however, that there shall not be a "Change of Control"
if the shareholders of a Person receive consideration in the form of common
stock of QTI pursuant to the acquisition of the stock of such Person by the
Obligors and their ownership of QTI in consequence thereof exceeds 35% of the
issued and outstanding capital Stock of QTI so long as their ownership of QTI
does not exceed 49% of the issued and outstanding capital Stock of QTI; or (b) a
majority of the members of the board of directors of QTI shall not be Continuing
Directors; or (c) QTI shall cease to own and control, directly or indirectly,
100% of the issued and outstanding Voting Stock of each Obligor other than QTI;
or (d) any third party Person successfully nominates, or has the ability to
nominate, a majority of the members of the board of directors of QTI, or (e) the
Polimeni Parties shall cease to own and control, directly and of record, at
least 5% (calculated on a fully diluted basis) of the issued and outstanding
capital Stock of QTI; or (f) Mr. Dominic A. Polimeni shall cease to be the
Chairman and Chief Executive Officer of QTI (other than by reason of death or
disability); provided, however, that the cessation of such Person to be so
employed shall not constitute a "Change of Control" if, within a period of 90
days after the first date of such cessation, the Board of Directors of the
applicable Obligor appoints a successor to such Person and such successor is
reasonably satisfactory to the Required Lenders and such successor agrees to so
serve in that position; or (g) a "Change in Control" (as defined in the
Subordinated Debt Documents) shall have occurred and be continuing.
10.1.13 ERISA. A Reportable Event shall occur which Administrative
Agent and Collateral Agent determine in good faith to be reasonably likely to
constitute grounds for the termination by the Pension Benefit Guaranty
Corporation of any Plan or for the appointment by the appropriate United States
district court of a trustee for any Plan, or if any Plan shall be terminated or
any such trustee shall be requested or appointed, or if the Obligors, or any
Subsidiary of the Obligors, is in "default" (as defined in Section 4219(c)(5) of
ERISA) with respect to payments to a Multiemployer Plan resulting from
Obligors', or such Subsidiary's, complete or partial withdrawal from such Plan.
10.1.14 Challenge to Agreement. The Obligors, or any Subsidiary of
the Obligors, or any Affiliate of any of them, shall challenge or contest in any
action, suit, or proceeding the validity or enforceability of this Agreement,
any of the other Loan Documents, the Subordinated Debt Documents, the Seller
Note Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Collateral Agent for the benefit
of the Lender Group.
10.1.15 [intentionally omitted].
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10.1.16 Criminal Forfeiture. The Obligors, or any Subsidiary of
the Obligors, shall be criminally indicted or convicted under any law that could
lead to a forfeiture of any Property of the Obligors, or any Subsidiary of the
Obligors.
10.1.17 Judgments. If one or more judgments or other claims
involving an aggregate amount of $500,000, or more, and not fully covered by
insurance, becomes a Lien or encumbrance upon any material portion of the
Properties of any Obligor and its Subsidiaries, taken as a whole, and the Lien
or encumbrance is not released, discharged, or bonded against before the earlier
of 30 days of the date it first arises or 5 days of the date when such property
or asset is subject to being forfeited; provided, however, that during such
period Administrative Agent shall be entitled to create and maintain (and
Collateral Agent shall be entitled to cause Administrative Agent to create and
maintain) a reserve against the Borrowing Base in an amount sufficient to
discharge such Lien or encumbrance and any and all penalties or interest payable
in connection therewith.
10.2 Acceleration of the Obligations. Without in any way limiting the
right of Administrative Agent (acting on the instructions of the Required
Lenders) to demand payment of any portion of the Obligations payable on demand
in accordance with Section 3.2 hereof, upon or at any time after the occurrence
and during the continuance of an Event of Default, all or any portion of the
Obligations shall, at the option of Administrative Agent (acting upon the
instructions of the Required Lenders) and without presentment, demand, protest,
or further notice by the Lender Group, become at once due and payable, and the
Obligors forthwith shall pay to Administrative Agent for the benefit of the
Lender Group the full amount of such Obligations; provided that upon the
occurrence of an Event of Default specified in Section 10.1.10 hereof, all of
the Obligations shall become automatically due and payable without declaration,
notice, or demand by the Lender Group.
10.3 Other Remedies. Upon and after the occurrence and during the
continuance of an Event of Default, the Lender Group shall have and Collateral
Agent, as the case may be, may exercise from time to time the following rights
and remedies:
10.3.1 All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable rights to
which the Lender Group may be entitled, all of which rights and remedies shall
be cumulative and shall be in addition to any other rights or remedies contained
in this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.
10.3.2 The right to take immediate possession of the Collateral
and to (a) require the Obligors to assemble the Collateral, at the Obligors'
expense, and make it available to Collateral Agent at a place designated by
Collateral Agent which is reasonably convenient to both parties, and (b) enter
any premises where any of the Collateral shall be located and to keep and store
the Collateral on said premises until sold (and if said premises be the Property
of an Obligor, such Obligor agrees not to charge the Lender Group for storage
thereof).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all
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as Collateral Agent, in its sole discretion, may deem advisable. The Obligors
agree that 10 days written notice to the Obligors of any public or private sale
or other disposition of Collateral shall be reasonable notice thereof, and such
sale shall be at such locations as Collateral Agent may designate in said
notice. Collateral Agent shall have the right to conduct such sales on the
Obligors' premises, without charge therefor, and such sales may be adjourned
from time to time in accordance with applicable law. Collateral Agent shall have
the right to sell, lease, or otherwise dispose of the Collateral, or any part
thereof, for cash, credit, or any combination thereof, and Collateral Agent on
behalf of the Lender Group may purchase all or any part of the Collateral at
public or, if permitted by law, private sale and, in lieu of actual payment of
such purchase price, may set off the amount of such price against the
Obligations. The proceeds realized from the sale of any Collateral may be
applied, after allowing 5 days for collection, (a) first, to the costs,
expenses, and attorneys fees incurred by the Collateral Agent in collecting the
Obligations, in enforcing the rights of the Lender Group under the Loan
Documents, and in collecting, retaking, completing, protecting, removing,
storing, advertising for sale, selling, and delivering any Collateral, and (b)
second, in accordance with the provisions of Section 3.2.6(b). If any deficiency
shall arise, Borrower shall remain jointly and severally liable to the Lender
Group therefor. If there shall arise any surplus, it shall be distributed in
accordance with all applicable laws and regulations.
10.3.4 Collateral Agent is hereby granted a license or other right
to use, without charge, the Obligors' labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks, and advertising matter, or
any Property of a similar nature as it pertains to the Collateral, in
advertising for sale and selling any Collateral and the Obligors' rights under
all licenses and all franchise agreements shall inure to Collateral Agent's
benefit.
10.3.5 Administrative Agent may, at its option, require Borrower
to deposit with Administrative Agent funds equal to the LC Exposure and, if
Borrower fails to promptly make such deposit, Administrative Agent may advance
such amount as a Revolving Credit Loan (whether or not an Overadvance is created
thereby). Any such deposit or advance shall be held by Administrative Agent as a
reserve to fund future payments on such LC Guaranties and future drawings
against such Letters of Credit. At such time as all LC Guaranties have been paid
or terminated and all Letters of Credit have been drawn upon or expired, any
amounts remaining in such reserve shall be applied against any outstanding
Obligations, or, if all Obligations have been indefeasibly paid in full,
returned to Borrower.
10.4 Remedies Cumulative, No Waiver. All covenants, conditions,
provisions, warranties, guaranties, indemnities, and other undertakings of the
Obligors contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule or contained in any other agreement between the Lender Group
and the Obligors, heretofore, concurrently, or hereafter entered into, shall be
deemed cumulative to and not in derogation or substitution of any of the terms,
covenants, conditions, or agreements of the Obligors contained herein. The
failure or delay of the Lender Group to require strict performance by the
Obligors of any provision of this Agreement or to exercise or enforce any
rights, Liens, powers, or remedies hereunder or under any of the aforesaid
agreements or other documents or security or Collateral shall not operate as a
waiver of such performance, Liens, rights, powers, and remedies, but all such
requirements, Liens, rights, powers, and remedies shall continue in full force
and effect until all Loans and all
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other Obligations owing or to become owing from the Obligors to Lenders shall
have been fully satisfied. None of the undertakings, agreements, warranties,
covenants, and representations of the Obligors contained in this Agreement or
any of the other Loan Documents, and no Event of Default by the Obligors under
this Agreement or any other Loan Documents shall be deemed to have been
suspended or waived by the Lender Group, unless such suspension or waiver is by
an instrument in writing specifying such suspension or waiver and is signed by
duly authorized representative of Administrative Agent and Collateral Agent (in
each case, acting on written instructions of the Required Lenders) and directed
to the Obligors.
SECTION 11. THE AGENTS
11.1 Appointment Powers and Immunities; Delegation of Duties; Liability
of Agents
11.1.1 Each member of the Lender Group hereby designates and
appoints Administrative Agent as its administrative agent under this Agreement
and the other Loan Documents and Collateral Agent as its collateral agent under
this Agreement and the other Loan Documents. Each member of the Lender Group
hereby irrevocably authorizes each such Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Each such Agent agrees to act as
such on the express conditions contained in this Article 11. The provisions of
this Article 11 are solely for the benefit of the Administrative Agent,
Collateral Agent, and the Lenders. The Obligors shall have no rights as a third
party beneficiary of any of the provisions contained herein; provided, however,
that certain of the provisions of Section 11.13 hereof also shall be for the
benefit of the Obligors. Any provision to the contrary contained elsewhere in
this Agreement or in any other Loan Document notwithstanding, each such Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall each such Agent have or be deemed to have any fiduciary
relationship with any other member of the Lender Group, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against each such Agent; it being expressly understood and agreed that the use
of the word "Agent" is for convenience only and that each such Agent is merely
the representative of the other members of the Lender Group, and has only the
contractual duties set forth in this Agreement and the other Loan Documents.
Except as expressly otherwise provided in this Agreement, each such Agent shall
have and may use its sole discretion with respect to exercising or refraining
from exercising any discretionary rights or taking or refraining from taking any
actions which such Agent is expressly entitled to take or assert under or
pursuant to this Agreement and the other Loan Documents. No member of the Lender
Group shall have any right of action whatsoever against each such Agent as a
result of such Agent acting or refraining from acting hereunder pursuant to such
discretion and any action taken or failure to act pursuant to such discretion
shall be binding on the Lender Group. Without limiting the generality of the
foregoing, or of any other provision of the Loan Documents that provides rights
or powers to Administrative Agent or Collateral Agent, each of the members of
the Lender Group agree that, as long as this Agreement remains in effect: (a)
(i) Administrative Agent shall have the right to maintain, in accordance with
its customary business practices, ledgers and records reflecting the status of
the Obligations, the Revolving Credit Loans, the
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Letter of Credit Accommodations, the Term Loans, the Collections, and related
matters, and (ii) Collateral Agent shall have the right to maintain, in
accordance with its customary business practices, ledgers and records reflecting
the status of the Collateral and related matters; (b) Collateral Agent shall
have the right to execute or file any and all financing or similar statements or
notices, amendments, renewals, supplements, documents, instruments, proofs of
claim, notices and other written agreements with respect to the Loan Documents;
(c) Administrative Agent shall have the right to make the Revolving Credit Loans
and the Letter of Credit Accommodations, for itself or on behalf of the
applicable Lenders as provided in the Loan Documents; (d) Administrative Agent
shall have the right to exclusively receive, apply, and distribute the
Collections as provided in the Loan Documents; (e) Administrative Agent shall
have the right to open and maintain such bank accounts and lock boxes as
Administrative Agent deems necessary and appropriate in accordance with the Loan
Documents for the foregoing purposes with respect to the Collections and, on
behalf of Collateral Agent, the Collateral; (f) (i) Administrative Agent shall
have the right to perform, exercise, and enforce any and all other rights and
remedies of the Lender Group with respect to the Obligors, the Obligations, the
Collections, or otherwise related to any of same as provided in the Loan
Documents, and (ii) Collateral Agent shall have the right to perform, exercise,
and enforce any and all other rights and remedies of the Lender Group with
respect to the Obligors, the Obligations, the Collateral, or otherwise related
to any of same as provided in the Loan Documents; and (g) Administrative Agent
and Collateral Agent each shall have the right to incur and pay such fees,
charges, and expenses under the Loan Documents as such Agent reasonably may deem
necessary or appropriate for the performance and fulfillment of its functions
and powers pursuant to the Loan Documents. Administrative Agent may deem and
treat the payee of any Obligation as the holder thereof for all purposes of the
Loan Documents unless and until a notice of the assignment or transfer of such
Obligation shall have been filed with Administrative Agent. Each member of the
Lender Group further consents to (y) the execution, delivery, and performance by
Administrative Agent or Collateral Agent of each Loan Document entered into by
such Agent on behalf of the Lender Group as contemplated by this Agreement, and
(z) the terms of such Loan Documents.
11.1.2 Except as otherwise provided in this section, each of
Administrative Agent and Collateral Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Each of Administrative Agent and Collateral
Agent shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects as long as such selection was made in
compliance with this section and without gross negligence or willful misconduct.
11.1.3 None of the Agent-Related Persons shall (i) be liable for
any action taken or omitted to be taken by any of them under or in connection
with this Agreement or any other Loan Document or the transactions contemplated
hereby (except for its own gross negligence or willful misconduct), or (ii) be
responsible in any manner to any members of the Lender Group for any recital,
statement, representation or warranty made by an Obligor or any Subsidiary or
Affiliate of an Obligor, or any officer or director thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by
Administrative Agent or Collateral Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
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Document, or for any failure of an Obligor or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any member of the Lender Group to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of an Obligor or any of
such Obligor's Subsidiaries or Affiliates.
11.2 Reliance by Agent. Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent, or made by the proper Person,
and upon advice and statements of legal counsel (including counsel to the
Obligors or counsel to any member of the Lender Group), independent accountants
and other experts selected by such Agent. Each Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it first shall receive such advice or concurrence of the Lenders
as it deems appropriate and until such instructions are received, such Agent
shall act, or refrain from acting, as it deems advisable. If any Agent so
requests, it first shall be indemnified to its reasonable satisfaction by the
Lender Group against any and all liability and expense that may be incurred by
it by reason of taking or continuing to take any such action. Each Agent in all
cases shall be fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a request or
consent of the Lender Group and such request and any action taken or failure to
act pursuant thereto shall be binding upon all members of the Lender Group.
11.3 Defaults. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Administrative Agent for the account of the
Lender Group, except with respect to Events of Default of which Administrative
Agent has actual knowledge, and unless Administrative Agent shall have received
written notice from a Lender or an Obligor referring to this Agreement,
describing such Default or Event of Default, and stating that such notice is a
"Notice of Default." Administrative Agent promptly will notify the Lender Group
of its receipt of any such notice or of any Event of Default of which
Administrative Agent has actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the other
Lenders and each Agent of such Event of Default. Each Lender shall be solely
responsible for giving any notices to its Participants, if any. Subject to
Sections 11.2 and 11.7, each Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Required Lenders in
accordance with Section 10; provided, however, that unless and until such Agent
has received any such request, such Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable.
11.4 Rights as a Lender. (a) With respect to its Commitments and
the Loans made by it, Congress Financial Corporation (Florida) (and any
successor acting as Administrative Agent, if any, as permitted by Section
11.8(a) hereof) in its capacity as a Lender under the Loan Documents shall have
the same rights, privileges and powers under the Loan Documents as any other
Lender and may exercise the same as though it were not acting as
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Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include Administrative Agent in its individual
capacity. Congress Financial Corporation (Florida) (and any successor acting as
Administrative Agent) and its affiliates may (without having to account for the
same to any member of the Lender Group) accept deposits from, lend money to,
make investments in and generally engage in any kind of banking, trust or other
business with the Obligors (and any of their Subsidiaries or Affiliates) as if
it were not acting as Administrative Agent, and Congress Financial Corporation
(Florida) (and its successors) and its affiliates may accept fees and other
consideration from the Obligors for services in connection with this Agreement
or otherwise without having to account for the same to the Lender Group.
(b) With respect to its Commitments and the Loans made by it, Ableco
Finance LLC (and any successor acting as Collateral Agent, if any, as permitted
by Section 11.8(b) hereof) in its capacity as a Lender under the Loan Documents
shall have the same rights, privileges and powers under the Loan Documents as
any other Lender and may exercise the same as though it were not acting as
Collateral Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include Collateral Agent in its individual capacity. Ableco
Finance LLC (and any successor acting as Collateral Agent) and its affiliates
may (without having to account for the same to any member of the Lender Group)
accept deposits from, lend money to, make investments in and generally engage in
any kind of banking, trust or other business with the Obligors (and any of their
Subsidiaries or Affiliates) as if it were not acting as Collateral Agent, and
Ableco Finance LLC and its affiliates may accept fees and other consideration
from the Obligors for services in connection with this Agreement or otherwise
without having to account for the same to the Lender Group.
11.5 Costs and Expenses; Indemnification. Each Agent may incur and pay
fees, costs, and expenses under the Loan Documents to the extent such Agent
deems reasonably necessary or appropriate for the performance and fulfillment of
its functions, powers, and obligations pursuant to the Loan Documents, including
without limiting the generality of the foregoing, court costs, reasonable
attorneys fees and expenses, costs of collection by outside collection agencies
and auctioneer fees and costs of security guards or insurance premiums paid to
maintain the Collateral, whether or not the Obligors are obligated to reimburse
the Lender Group for such expenses pursuant to the Loan Agreement or otherwise.
Each Lender hereby agrees that it is and shall be obligated to pay to or
reimburse Agent for the amount of such Lender's Pro Rata Share thereof (in
accordance with its Total Commitments). Whether or not the transactions
contemplated hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (without limiting the obligation of the Obligors to do
so), according to their Pro Rata Shares (in accordance with their respective
Total Commitments), from and against any and all Indemnified Liabilities
(including without limitation Indemnified Liabilities arising under any
Environmental Law as provided in Section 12.2); provided, however, that no
Lender shall be liable for the payment to the Agent-Related Persons of any
portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender shall reimburse Administrative Agent or Collateral Agent, as the
case may be, upon demand for such Lender's ratable share of any costs or
out-of-pocket expenses (including attorneys fees and expenses) incurred by such
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or
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otherwise) of, or legal advice in respect of rights or responsibilities under,
this Agreement, any other Loan Document, or any document contemplated by or
referred to herein . The undertaking in this section shall survive the payment
of all Obligations hereunder and the resignation or replacement of any Agent.
11.6 Nonreliance on Agent and Other Lenders. Each Lender acknowledges
that none of the Agent-Related Persons has made any representation or warranty
to it, and that no act by any Agent hereinafter taken, including any review of
the affairs or Property of the Obligors and their Subsidiaries or Affiliates,
shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Lender. Each Lender represents to each Agent that it
has, independently and without reliance upon any Agent-Related Person and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
Property, financial and other condition and creditworthiness of the Obligors and
any other Person (other than the Lender Group) party to a Loan Document, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to Borrower. Each Lender also represents that it will, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigations as
it deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Obligors and
any other Person (other than the Lender Group) party to a Loan Document. Except
for notices, reports and other documents expressly herein required to be
furnished to the Lender Group by Agent, no Agent shall have any duty or
responsibility to provide any member of the Lender Group with any credit or
other information concerning the business, prospects, operations, Property,
financial and other condition or creditworthiness of the Obligors and any other
Person party to a Loan Document that may come into the possession of any of the
Agent-Related Persons.
11.7 Failure to Act. Except for action expressly required of any Agent
under the Loan Documents, such Agent shall in all cases be fully justified in
failing or refusing to act under any Loan Document unless it shall receive
further assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 11.5 against any and all liability and expense that
may be incurred by it by reason of taking or continuing to take any such action.
11.8 Resignation of Agent. (a) Subject to the appointment and
acceptance of a successor Administrative Agent as provided below, Administrative
Agent may resign at any time by notice to the Lender Group and the Obligors.
Upon any such resignation, Required Lenders, in consultation with the Obligors,
shall have the right to appoint a successor Administrative Agent. If no
successor Administrative Agent shall have been appointed by Required Lenders and
have accepted such appointment within 30 days after the retiring Administrative
Agent's giving of notice of resignation, then the retiring Administrative Agent
may, in consultation with the Obligors, on behalf of Lenders, appoint a
successor Administrative Agent. Upon the acceptance of any appointment as
Administrative Agent by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, remedies, powers, privileges, duties and obligations of the retiring
Administrative Agent, and the
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retiring Administrative Agent shall be discharged from its duties and
obligations, under the Loan Documents. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of this Section 11 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Administrative Agent.
(b) Subject to the appointment and acceptance of a successor Collateral
Agent as provided below, Collateral Agent may resign at any time by notice to
the Lender Group and the Obligors. Upon any such resignation, Required Lenders,
in consultation with the Obligors, shall have the right to appoint a successor
Collateral Agent. If no successor Collateral Agent shall have been appointed by
Required Lenders and have accepted such appointment within 30 days after the
retiring Collateral Agent's giving of notice of resignation, then the retiring
Collateral Agent may, in consultation with the Obligors, on behalf of Lenders,
appoint a successor Collateral Agent. Upon the acceptance of any appointment as
Collateral Agent by a successor Collateral Agent, such successor Collateral
Agent shall thereupon succeed to and become vested with all the rights,
remedies, powers, privileges, duties and obligations of the retiring Collateral
Agent, and the retiring Collateral Agent shall be discharged from its duties and
obligations, under the Loan Documents. After any retiring Collateral Agent's
resignation as Collateral Agent, the provisions of this Section 11 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as Collateral Agent.
11.9 Collateral Sub-Agents. Each member of the Lender Group by its
execution and delivery of this Agreement agrees that, in the event it shall hold
any monies or other investments on account of the Obligors, such monies or other
investments shall be held in the name and under the control of such member of
the Lender Group, and such member of the Lender Group shall hold such monies or
other investments as a collateral sub-agent for Collateral Agent under this
Agreement and the other Loan Documents. Each Obligor by its execution and
delivery of this Agreement hereby consents to the foregoing.
11.10 Communications by the Obligors. Except as otherwise provided in
this Agreement, the Obligors' communications with respect to the Loan Documents
shall be with Administrative Agent or Collateral Agent, as the case may be, and
the Obligors shall not be under any obligation to communicate directly with the
Lenders.
11.11 Collateral Matters.
(a) The Lenders hereby irrevocably authorize Collateral
Agent, at its option and in its sole discretion, to release any Lien on
any Collateral (i) upon the termination of the Commitments and payment
and satisfaction in full by Borrower of all Obligations; (ii)
constituting property being sold or disposed of if a release is
required or desirable in connection therewith and if an Obligor
certifies in writing to Collateral Agent that the sale or disposition
is permitted under this Agreement or the other Loan Documents (and
Collateral Agent may rely conclusively on any such certificate, without
further inquiry); (iii) constituting property in which an Obligor owned
no interest at the time the security interest was granted or at any
time thereafter; (iv) constituting property leased to an Obligor under
a lease that has expired or is terminated in a transaction
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permitted under this Agreement, or (v) which, in the aggregate with all
other dispositions of Equipment, has a fair market value or book value,
whichever is less, of $500,000 or less. Except as provided above or
expressly provided in any other Loan Document, Collateral Agent will
not execute and deliver a release of any Lien on any Collateral without
the prior written authorization of all of the Lenders. Upon request by
Collateral Agent or the Obligors at any time, Administrative Agent and
the Lenders will confirm in writing Collateral Agent's authority to
release any such Liens on particular types or items of Collateral
pursuant to this Section 11.11; provided, however, that (1) Collateral
Agent shall not be required to execute any document necessary to
evidence such release on terms that, in Collateral Agent's opinion,
would expose Collateral Agent to liability or create any obligation or
entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not
in any manner discharge, affect, or impair the Obligations or any Liens
(other than those expressly being released) upon (or obligations of the
Obligors in respect of) all interests retained by the Obligors,
including, the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.
(b) Collateral Agent shall have no obligation whatsoever to
any other member of the Lender Group to assure that the Collateral
exists or is owned by an Obligor or is cared for, protected, or insured
or has been encumbered, or that the Collateral Agent's Liens have been
properly or sufficiently or lawfully created, perfected, protected, or
enforced or are entitled to any particular priority, or to exercise at
all or in any particular manner or under any duty of care, disclosure
or fidelity, or to continue exercising, any of the rights, authorities
and powers granted or available to Collateral Agent pursuant to any of
the Loan Documents, it being understood and agreed that in respect of
the Collateral, or any act, omission or event related thereto, subject
to the terms and conditions contained herein, Collateral Agent may act
in any manner it may deem appropriate, in its sole discretion given
Collateral Agent's own interest in the Collateral in its capacity as
one of the Lenders and that Collateral Agent shall have no other duty
or liability whatsoever to any other member of the Lender Group as to
any of the foregoing, except as otherwise provided herein.
11.12 Restrictions on Actions by Administrative Agent and the Lenders;
Sharing of Payments (a) Administrative Agent and each of the Lenders agrees that
it shall not, without the express consent of Collateral Agent, and that it
shall, to the extent it is lawfully entitled to do so, upon the request of
Administrative Agent and Collateral Agent, set off against the Obligations, any
amounts owing by such member of the Lender Group to an Obligor or any accounts
of an Obligor now or hereafter maintained with such member of the Lender Group.
Administrative Agent and each of the Lenders further agrees that it shall not,
unless specifically requested to do so by Collateral Agent , take or cause to be
taken any action, including, the commencement of any legal or equitable
proceedings, to foreclose any Lien on, or otherwise
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enforce any security interest in, any of the Collateral the purpose of which is,
or could be, to give such member of the Lender group any preference or priority
against the other members of the Lender group with respect to the Collateral.
(b) Subject to Section 11.4, if, at any time or times any Lender shall
receive (i) by payment, foreclosure, setoff or otherwise, any proceeds of
Collateral or any payments with respect to the Obligations arising under, or
relating to, this Agreement or the other Loan Documents, except for any such
proceeds or payments received by such Lender from Administrative Agent pursuant
to the terms of this Agreement, or (ii) payments from Administrative Agent in
excess of such Lender's ratable portion of all such distributions by
Administrative Agent, such Lender promptly shall turn the same over to
Administrative Agent, in kind, and with such endorsements as may be required to
negotiate the same to Administrative Agent, or in same day funds, as applicable,
for the account of the Lender Group and for apportionment and application to the
Obligations in accordance with Section 3.2.6 hereof.
11.13 Withholding Tax. (a) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the IRC and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the IRC, such Lender agrees with and in favor of Administrative Agent
and Borrower, to deliver to Administrative Agent and Borrower:
(i) if such Lender claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS Forms
1001 and W-8 before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding calendar year during
which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this Agreement is
exempt from United States withholding tax because it is effectively connected
with a United States trade or business of such Lender, two properly completed
and executed copies of IRS Form 4224 before the payment of any interest is due
in the first taxable year of such Lender and in each succeeding taxable year of
such Lender during which interest may be paid under this Agreement, and IRS Form
W-9; and
(iii) such other form or forms as may be required under the IRC or
other laws of the United States as a condition to exemption from, or reduction
of, United States withholding tax.
Such Lender agrees promptly to notify Administrative Agent and Borrower of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Lender claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of Borrower to such Lender, such Lender agrees to notify
Administrative Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of Borrower to such Lender. To the extent of
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such percentage amount, Administrative Agent will treat such Lender's IRS Form
1001 as no longer valid.
(c) If any Lender claiming exemption from United States withholding tax
by filing IRS Form 4224 with Administrative Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of
Borrower to such Lender, such Lender agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the IRC.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, Administrative Agent may withhold from any interest payment to
such Lender an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required by
clause (a) of this Section are not delivered to Administrative Agent, then
Administrative Agent may withhold from any interest payment to such Lender not
providing such forms or other documentation an amount equivalent to the
applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United States
or other jurisdiction asserts a claim that Administrative Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify Administrative Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Lender shall indemnify Administrative Agent fully for
all amounts paid, directly or indirectly, by Administrative Agent as tax or
otherwise, including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to Administrative Agent under this
Section, together with all costs and expenses (including attorneys fees and
expenses). The obligation of the Lenders under this Section shall survive the
payment of all Obligations and the resignation or replacement of Administrative
Agent.
11.14 Several Obligations; No Liability. Notwithstanding that certain
of the Loan Documents now or hereafter may have been or will be executed only by
or in favor of an Agent in its capacity as such, and not by or in favor of the
Lenders, any and all obligations on the part of Administrative Agent (if any) to
make any credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any member of the Lender
Group any interest in, or subject any member of the Lender Group to any
liability for, or in respect of, the business, assets, profits, losses, or
liabilities of any other member of the Lender Group. Each Lender shall be solely
responsible for notifying its Participants of any matters relating to the Loan
Documents to the extent any such notice may be required, and no member of the
Lender Group shall have any obligation, duty, or liability to any Participant of
any other Lender. Except as provided in Section 11.5, no Agent or any Lender
shall have any liability for the acts of the other Agent or any other Lender. No
Lender shall be responsible to Borrower or any other Person for any failure by
any other Lender to fulfill its obligations to make credit available hereunder,
nor to advance for it or on its behalf
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in connection with its Commitment, nor to take any other action on its behalf
hereunder or in connection with the financing contemplated herein.
SECTION 12. MISCELLANEOUS
12.1 Power of Attorney. Each Obligor hereby irrevocably designates,
makes, constitutes, and appoints Collateral Agent (and all Persons designated by
Collateral Agent) as such Obligor's true and lawful attorney (and
agent-in-fact), and Collateral Agent, or Collateral Agent's agent, may, without
notice to such Obligor and in either such Obligor's or Collateral Agent's name,
but at the cost and expense of Borrower:
12.1.1 At such time or times upon or after the occurrence and
during the continuance of an Event of Default as Collateral Agent or said agent
(including Administrative Agent), in its sole discretion, may determine, endorse
the applicable Obligor's name on any checks, notes, acceptances, drafts, money
orders, or any other evidence of payment or proceeds of the Collateral which
come into the possession of the Lender Group or under the Lender Group's control
and shall deposit such item of payment into the Dominion Account or credit the
amount thereof (in accordance with the provisions of this Agreement) to the
Obligations.
12.1.2 At such time or times upon and after the occurrence
and during the continuance of an Event of Default as Collateral Agent or its
agent, in its sole discretion, may determine: (a) demand payment of the Accounts
from the Account Debtors, enforce payment of the Accounts by legal proceedings
or otherwise, and generally exercise all of the Borrower's rights and remedies
with respect to the collection of the Accounts, (b) settle, adjust, compromise,
discharge, or release any of the Accounts or other Collateral or any legal
proceedings brought to collect any of the Accounts or other Collateral, (c) sell
or assign any of the Accounts and other Collateral upon such terms, for such
amounts, and at such time or times as Collateral Agent deems advisable, (d) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral, (e) prepare, file, and sign the Obligors' names to a proof of claim
in bankruptcy or similar document against any Account Debtor, or to any notice
of lien, assignment, or satisfaction of lien or similar document in connection
with any of the Collateral, (f) receive, open and dispose of all mail addressed
to the Obligors, and notify postal authorities to change the address for
delivery thereof to such address as Collateral Agent may designate, (g) endorse
the name of the applicable Obligor upon any of the items of payment or proceeds
relating to any Collateral, and deposit the same to the account of Collateral
Agent on account of the Obligations, (h) endorse the name of the applicable
Obligor upon any chattel paper, document, instrument, invoice, freight bill,
bill of lading or similar document, or agreement relating to the Accounts,
Inventory and any other Collateral, (i) use the Obligors' stationery and sign
the name of the applicable Obligor to verifications of the Accounts and notices
thereof to Account Debtors, (j) use the information recorded on or contained in
any data processing equipment, computer hardware, and software relating to the
Accounts, Inventory, Equipment, and any other Collateral, (k) make and adjust
claims under policies of insurance, and (l) do all other acts and things
necessary, in Collateral Agent's determination, to fulfill each Obligor's
obligations under this Agreement.
12.2 Indemnity. Each Obligor hereby agrees to pay, indemnify,
defend (with counsel selected by such Obligor and reasonably acceptable to the
Indemnified Person), and hold
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the Agent-Related Persons, the Lender-Related Persons with respect to each
Lender, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to this Agreement and any other Loan Documents (including
the enforcement, performance, and administration thereof, or any consents or
waivers hereunder or thereunder or any amendment or modifications hereof or
thereof) or the transactions contemplated herein, and with respect to any
investigation, litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any act,
omission, event or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities"). The Obligors shall have
no obligation to any Indemnified Person under this Section 12.2 with respect to
any Indemnified Liability that a court of competent jurisdiction finally
determines to have resulted from the gross negligence or willful misconduct of
such Indemnified Person. Without limiting the generality of the foregoing, these
indemnities shall extend to any claims asserted against Agent or any Lender by
any Person under any Environmental Laws or similar laws by reason of the
Obligors' or any other Person's failure to comply with laws applicable to solid
or hazardous waste materials or other toxic substances. Any contrary provision
in this Agreement notwithstanding, (a) the foregoing shall not be deemed to be a
waiver of Agent's obligations, if any, under Section 9-207 of the Code, and (b)
the obligation of the Obligors under this Section 12.2 shall survive the payment
in full of the Obligations and the termination of this Agreement.
12.3 Amendments, Etc.
12.3.1 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by the Obligors therefrom, shall be effective unless
the same shall be in writing and signed by the Required Lenders (or by
Administrative Agent and Collateral Agent, in each case, at the written request
of the Required Lenders) and the Obligors and then any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by the Obligors, all the Lenders,
Administrative Agent, and Collateral Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or
other amounts due to the Lenders (or any of them) hereunder or under
any other Loan Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable
hereunder or
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under any other Loan Document, or forgive, compromise, or cancel any of
the Obligations; provided, however, that no consent of the Term Loan
Lenders shall be required for the compromise of any Obligation relating
solely to Revolving Credit Loans and no consent of the Revolving Credit
Lenders shall be required for the compromise of any Obligation relating
solely to Term Loans;
(d) change the percentage of the Commitments that is required
for the Lenders or any of them to take any action hereunder;
(e) amend this Section or any provision of the Agreement
providing for consent or other action by all Lenders;
(f) release Collateral other than as permitted by Section
11.11, or subordinate any security interests or liens of Collateral
Agent for the benefit of the Lender Group;
(g) change the definition of "Required Lenders";
(h) release any Obligor from any Obligation for the payment
of money, or agree to subordinate any of the Obligations in right of
payment to any other Indebtedness;
(i) amend the provisions of Section 3.2.6;
(j) increase the advance rate with respect to the Eligible
Accounts or Eligible Inventory or any sublimit in the Borrowing Base
applicable thereto;
(k) permit the sale of all or substantially all of the
capital stock of any Obligor or any of their Subsidiaries;
(l) amend any of the provisions of Section 11;
and, provided further, however, that (1) no amendment, waiver or consent shall,
unless in writing and signed by Administrative Agent, affect the rights or
duties of Administrative Agent under this Agreement or any other Loan Document,
and (2) no amendment, waiver or consent shall, unless in writing and signed by
Collateral Agent, affect the rights or duties of Collateral Agent under this
Agreement or any other Loan Document. The foregoing notwithstanding, any
amendment, modification, waiver, consent, termination, or release of or with
respect to any provision of this Agreement or any other Loan Document that
relates only to the relationship of the Lender Group among themselves, and that
does not affect the rights or obligations of the Obligors, shall not require
consent by or the agreement of the Obligors.
12.3.2 No Waivers; Cumulative Remedies. No failure by the
Lender Group to exercise any right, remedy, or option under this Agreement, any
other Loan Document, or any present or future supplement hereto or thereto, or
in any other agreement between or among the Obligors and the Lender Group, or
delay by the Lender Group in exercising the same,
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will operate as a waiver thereof. No waiver by the Lender Group will be
effective unless it is in writing, and then only to the extent specifically
stated. No waiver by the Lender Group on any occasion shall affect or diminish
the Lender Group's rights thereafter to require strict performance by the
Obligors of any provision of this Agreement. The Lender Group's rights under
this Agreement and the other Loan Documents will be cumulative and not exclusive
of any other right or remedy which the Lender Group may have.
12.4 Successors; Assignments and Participations.
12.4.1 This Agreement shall bind and inure to the benefit of
the respective successors and assigns of each of the parties; provided, however,
that the Obligors may not assign this Agreement or any rights or duties
hereunder without the prior written consent of Administrative Agent, Collateral
Agent, and each of the Lenders, and any prohibited assignment shall be
absolutely void ab initio. No consent to assignment by the Lender Group shall
release the Obligors from their Obligations. A Lender may assign this Agreement
and the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 12.4.2 hereof and, except as expressly required pursuant to
Section 12.4.2 hereof, no consent or approval by the Obligors is required in
connection with any such assignment.
12.4.2 (a) Any Lender may, with the written consent of
Collateral Agent (which consent shall not be unreasonably withheld nor shall it
be required in respect to an assignment of the Term Loans), assign and delegate
to one or more assignees (provided that no written consent of Collateral Agent
shall be required in connection with any assignment and delegation by a Lender
to an Eligible Transferee) (each an "Assignee") all, or any part of all, of the
Obligations, the Commitments and the other rights and obligations of such Lender
hereunder and under the other Loan Documents, in a minimum amount of $2,500,000
(provided that there shall be no minimum monetary amount with respect to any
assignment by a Lender to an Affiliate of such Lender); provided, however, that
the Obligors, Collateral Agent, and Administrative Agent may continue to deal
solely and directly with such Lender in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses and related information with respect to the
Assignee, shall have been given to the Obligors, Collateral Agent, and
Administrative Agent by such Lender and the Assignee; (ii) such Lender and its
Assignee shall have delivered to the Obligors, Collateral Agent, and
Administrative Agent an Assignment and Acceptance in the form of Exhibit A-1
("Assignment and Acceptance") in form and substance satisfactory to Collateral
Agent; and (iii) the assignor Lender or Assignee has paid to Collateral Agent
for Collateral Agent's sole and separate account a processing fee in the amount
of $2,500. Anything contained herein to the contrary notwithstanding, the
consent of Collateral Agent shall not be required if such assignment is in
connection with any merger, consolidation, sale, transfer, or other disposition
of all or any substantial portion of the business or loan portfolio of such
Lender. Anything contained herein to the contrary notwithstanding, any Lender
that is a fund that invests in bank loans may (without the consent of the
Obligors or Administrative Agent) pledge all or any portion of its rights in
connection with this Agreement to the trustee for the holders of obligations
owed, or securities issued, by such fund as security for such obligations or
securities, provided, that any foreclosure or other exercise of remedies by such
trustee shall be subject to the provisions of this Section 12.4 regarding
assignments in all respects. No pledge described in the immediately preceding
clause (ii) shall release such Lender from its obligations hereunder.
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(b) From and after the date that Collateral Agent notifies the assignor
Lender that it has received an executed Assignment and Acceptance and payment of
the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Lender under the Loan Documents, and (ii) the assignor
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights (except with respect to Section 12.2 hereof)
and be released from its obligations under this Agreement (except with respect
to Section 11.5 hereof) (and in the case of an Assignment and Acceptance
covering all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement and the other Loan Documents, such Lender shall
cease to be a party hereto and thereto), and such assignment shall effect a
novation among the Obligors, the assignor Lender, and the Assignee.
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (1) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto; (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Obligors or the performance or observance by any Obligor of any of its
obligations under this Agreement or any other Loan Document furnished pursuant
hereto; (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (4) such Assignee will, independently and without
reliance upon Administrative Agent, Collateral Agent, such assigning Lender, or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (5) such Assignee appoints and
authorizes each of Administrative Agent and Collateral Agent to take such action
as Administrative Agent or Collateral Agent (as the case may be) on its behalf
and to exercise such powers under this Agreement as are delegated to
Administrative Agent or Collateral Agent (as the case may be) by the terms
hereof, together with such powers as are reasonably incidental thereto; and (6)
such Assignee agrees that it will perform in accordance with their terms all of
the obligations which by the terms of this Agreement are required to be
performed by it as a Lender.
(d) Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitments allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written consent of Collateral
Agent, sell to one or more commercial banks, financial institutions, or other
Persons not Affiliates of such Lender (a "Participant") participating interests
in the Obligations, the Commitments, and
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the other rights and interests of that Lender (the "originating Lender")
hereunder and under the other Loan Documents (provided that no written consent
of Collateral Agent shall be required in connection with any sale of any such
participating interests by a Lender to an Eligible Transferee); provided,
however, that (i) the originating Lender's obligations under this Agreement
shall remain unchanged, (ii) the originating Lender shall remain solely
responsible for the performance of such obligations, (iii) the Obligors,
Collateral Agent, and Administrative Agent shall continue to deal solely and
directly with the originating Lender in connection with the originating Lender's
rights and obligations under this Agreement and the other Loan Documents, (iv)
no Lender shall transfer or grant any participating interest under which the
Participant has the sole and exclusive right to approve any amendment to, or any
consent or waiver with respect to, this Agreement or any other Loan Document,
except to the extent such amendment to, or consent or waiver with respect to,
this Agreement or of any other Loan Document would (A) extend the final maturity
date of the Obligations hereunder in which such Participant is participating;
(B) reduce the interest rate applicable to the Obligations hereunder in which
such Participant is participating; (C) release all or a material portion of the
Collateral or guaranties (except to the extent expressly provided herein or in
any of the Loan Documents) supporting the Obligations hereunder in which such
Participant is participating; (D) postpone the payment of, or reduce the amount
of, the interest or fees payable to such Participant through such Lender; or (E)
change the amount or due dates of scheduled principal repayments or prepayments
or premiums; (v) all amounts payable by Borrower hereunder shall be determined
as if such Lender had not sold such participation and (vi) any such
participation shall be in a minimum amount of $5,000,000 (provided that there
shall be no minimum monetary amount with respect to any participation by a
Lender to an Affiliate of such Lender). The rights of any Participant only shall
be derivative through the originating Lender with whom such Participant
participates and no Participant shall have any direct rights as to the other
Lenders, Administrative Agent, Collateral Agent, the Obligors, the Collections,
the Collateral, or otherwise in respect of the Obligations. No Participant shall
have the right to participate directly in the making of decisions by the Lender
Group among themselves.
(f) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may disclose all documents and information
which it now or hereafter may have relating to the Obligors or the Obligors'
business; provided in each case that such assignee or participant (or
prospective assignee or participant) shall agree to maintain the confidentiality
of such information in accordance with its normal business practices.
(g) Any other provision in this Agreement notwithstanding, any Lender
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the Federal Reserve Bank or U.S.
Treasury Regulation 31 CFR sections 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
12.4.3 Notwithstanding anything in this Section 12.4 to the
contrary, no Lender may assign or participate to any Obligor or any of its
Affiliates or Subsidiaries, if any, any interest in any Obligation or Commitment
(or any related rights, remedies, powers or privileges) without the prior
written consent of each Lender, Collateral Agent, and Administrative Agent.
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12.5 Concerning the Collateral and Related Loan Documents. Each Lender
authorizes and directs Collateral Agent to enter into this Agreement and the
other Loan Documents relating to the Collateral, for the benefit of the Lenders.
Each Lender agrees that any action taken by Collateral Agent or Required
Lenders, as applicable, in accordance with the terms of this Agreement or the
other Loan Documents relating to the Collateral and the exercise by Collateral
Agent or Required Lenders, as applicable, of their respective powers set forth
therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.
12.6 Field Audits and Examination Reports; Confidentiality; Disclaimers
by Lenders; Other Reports and Information. By signing this Agreement, each
Lender:
(a) is deemed to have requested that Administrative Agent or
Collateral Agent, as the case may be, furnish such Lender, promptly
after it becomes available, a copy of each field audit or examination
report (each a "Report" and collectively, "Reports") prepared by such
Agent, and such Agent shall so furnish each Lender with such Reports;
(b) expressly agrees and acknowledges that neither Congress
Financial Corporation (Florida) and Administrative Agent nor Ableco
Finance LLC and Collateral Agent (i) makes any representation or
warranty as to the accuracy of any Report, or (ii) shall be liable for
any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are
not comprehensive audits or examinations, that the applicable Agent or
other party performing any audit or examination will inspect only
specific information regarding the Obligors and will rely significantly
upon the Obligors' books and records, as well as on representations of
the Obligors' personnel;
(d) agrees to keep all Reports and other material, non-public
information regarding the Obligors and their Subsidiaries and their
operations, assets, and existing and contemplated business plans in a
confidential manner; it being understood and agreed by the Obligors
that in any event such Lender may make disclosures (a) to counsel for
and other advisors, accountants, and auditors to such Lender, (b)
reasonably required by any bona fide potential or actual Assignee,
transferee, or Participant in connection with any contemplated or
actual assignment or transfer by such Lender of an interest herein or
any participation interest in such Lender's rights hereunder, (c) of
information that has become public by disclosures made by Persons other
than such Lender, its Affiliates, assignees, transferees, or
participants, or (d) to the extent required by any court, governmental
or administrative agency, pursuant to any subpoena or other legal
process, or by any law, statute, regulation, or court order; provided,
however, that, unless prohibited by applicable law, statute,
regulation, or court order, such Lender shall notify the Obligors of
any
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request by any court, governmental or administrative agency, or
pursuant to any subpoena or other legal process for disclosure of any
such non-public material information concurrent with, or where
practicable, prior to the disclosure thereof; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to
hold any Agent and any such other Lender preparing a Report harmless
from any action the indemnifying Lender may take or conclusion the
indemnifying Lender may reach or draw from any Report in connection
with any loans or other credit accommodations that the indemnifying
Lender has made or may make to an Obligor, or the indemnifying Lender's
participation in, or the indemnifying Lender's purchase of, a loan or
loans of an Obligor; and (ii) to pay and protect, and indemnify, defend
and hold any Agent and any such other Lender preparing a Report
harmless from and against, the claims, actions, proceedings, damages,
costs, expenses and other amounts (including reasonable attorneys fees)
incurred by any such Agent and any such other Lender preparing a Report
as the direct or indirect result of any third parties who might obtain
all or part of any Report through the indemnifying Lender.
In addition to the foregoing: (x) Any Lender may from time to time request of
any Agent in writing that such Agent provide to such Lender a copy of any report
or document provided by Borrower to such Agent that has not been
contemporaneously provided by Borrower to such Lender, and, upon receipt of such
request, such Agent shall provide a copy of same to such Lender promptly upon
receipt thereof from Borrower; (y) To the extent that any Agent is entitled,
under any provision of the Loan Documents, to request additional reports or
information from Borrower, any Lender may, from time to time, reasonably request
such Agent to exercise such right as specified in such Lender's notice to such
Agent, whereupon such Agent promptly shall request of Borrower the additional
reports or information specified by such Lender, and, upon receipt thereof from
Borrower, such Agent promptly shall provide a copy of same to such Lender; and
(z) Any time that Administrative Agent renders to Borrower a statement regarding
the Loan Account, Administrative Agent shall send a copy of such statement to
each Lender and Collateral Agent.
12.7 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
12.8 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding upon and inure to the benefit of the successors and
assigns of Obligor, Administrative Agent, Collateral Agent, and each of the
Lenders permitted under Section 11.3 hereof.
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12.9 Cumulative Effect, Conflict of Terms. The provisions of the other
Loan Documents are hereby made cumulative with the provisions of this Agreement.
Except as otherwise provided in Section 3.2 hereof and except as otherwise
provided in any of the other Loan Documents by specific reference to the
applicable provision of this Agreement, if any provision contained in this
Agreement is in direct conflict with, or inconsistent with, any provision in any
of the other Loan Documents, the provision contained in this Agreement shall
govern and control; provided, however, that the inclusion in such other Loan
Documents of additional duties and obligations of the Obligors or of additional
rights, powers, and remedies in favor of the Lender Group shall not constitute
such a conflict.
12.10 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
12.11 Notice. Except as otherwise provided herein, all notices,
requests and demands to or upon a party hereto, to be effective, shall be in
writing and shall be sent by certified or registered mail, return receipt
requested, by personal delivery against receipt, by overnight courier or by
facsimile and, unless otherwise expressly provided herein, shall be deemed to
have been validly served, given, or delivered immediately when delivered against
receipt, 1 Business Day after deposit in the mail, postage prepaid, or with an
overnight courier or, in the case of facsimile notice, when sent, addressed as
follows:
If to Collateral Agent or
Ableco Finance LLC:
ABLECO FINANCE LLC.
450 Park Avenue
New York, New York 11556
Attention: Dan Wolf, Managing Director
Facsimile No.: 212.755.3009
With a copy to: BROBECK, PHLEGER & HARRISON LLP
550 South Hope Street
Los Angeles, California 90071
Attention: John Francis Hilson, Esq.
Facsimile No.: 213.239.1324
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If to Administrative
Agent or Congress
Financial Corporation: CONGRESS FINANCIAL CORPORATION (FLORIDA)
777 Brickell Avenue, Suite 808
Miami, Florida 33131
Attention: Steven Harnick
Facsimile No.: 305.371.9456
With a copy to: OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
230 Park Avenue
New York, New York 10169
Attention: David Morse, Esq.
Facsimile No.: 212.682.6104
If to any Obligor: c/o QUESTRON TECHNOLOGY, INC.
6400 Congress Avenue, Suite 200A
Boca Raton, Florida 33487
Attention: Mr. Dominic A. Polimeni,
Chief Executive Officer
Facsimile No.: 561.241.2866
With a copy to: BATTLE FOWLER LLP
75 East 55th Street
New York, New York 10022
Attention: Luke Iovine, Esq.
Facsimile No.: 212.856.7822
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request, or demand to or upon Administrative Agent pursuant to Sections 3.1.1 or
4.2.2 hereof shall not be effective until received by Administrative Agent.
12.12 Lender Group's Consent. Whenever Administrative Agent's,
Collateral Agent's, or a Lender's consent or approval is required to be obtained
under this Agreement or any other Loan Document as a condition to any action,
inaction, condition, or event, such Agent or such Lender shall be authorized to
give or withhold such consent or approval in its sole and absolute discretion,
and to condition its consent or approval upon the giving of additional
collateral security for the Obligations, the payment of money, or any other
matter.
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12.13 Credit Inquiries. Each Obligor hereby authorizes and permits
Administrative Agent or Collateral Agent to respond to usual and customary
credit inquiries from third parties concerning such Obligor or any of its
Subsidiaries.
12.14 Certain Matters of Construction. The terms "herein," "hereof,"
and "hereunder," and other words of similar import refer to this Agreement as a
whole and not to any particular section, Section, paragraph, or subdivision. Any
pronoun used herein shall be deemed to cover all genders. The section titles,
table of contents, and list of exhibits appear as a matter of convenience only
and shall not affect the interpretation of this Agreement. All references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations. All references to any of the Loan Documents
shall include any and all modifications and supplements thereto and any and all
extensions or renewals thereof. All terms contained in this Agreement shall have
the meanings provided for by the Code to the extent the same are used or defined
therein.
12.15 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements, and certificates executed by
the parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings, and inducements, whether express or implied, oral or written.
12.16 Interpretation. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
12.17 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED, AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
NEW YORK, NEW YORK. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IF
ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW YORK,
THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER, AND PROCEDURE FOR
FORECLOSURE OF COLLATERAL AGENT'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT
OF THE LENDER GROUP'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT
THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE
LAWS OF NEW YORK. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND
REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF
EACH OBLIGOR OR THE LENDER GROUP, EACH OBLIGOR HEREBY CONSENTS AND AGREES THAT
THE SUPREME COURT OF NEW YORK, NEW YORK, OR, AT AGENT'S OPTION, THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE
OBLIGORS (OR ANY OF THEM) AND THE LENDER
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GROUP PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS AGREEMENT. EACH OBLIGOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH OBLIGOR
HEREBY WAIVES ANY OBJECTION THAT SUCH OBLIGOR MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS, HEREBY CONSENTS
TO THE EXERCISE OF PERSONAL JURISDICTION OF SUCH COURT, AND HEREBY CONSENTS TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. EACH OBLIGOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT,
AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF
SUCH SUMMONS, COMPLAINT, AND OTHER PROCESS MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL ADDRESSED TO SUCH OBLIGOR AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH OBLIGOR'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAIL,
PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
AFFECT THE RIGHT OF THE LENDER GROUP TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE LENDER GROUP OF ANY
JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS
AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
12.18 WAIVERS BY THE OBLIGORS. EACH OBLIGOR WAIVES (A) THE RIGHT TO
TRIAL BY JURY (WHICH THE LENDER GROUP HEREBY ALSO WAIVES) IN ANY ACTION, SUIT,
PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE
LOAN DOCUMENTS, THE OBLIGATIONS, OR THE COLLATERAL, (B) PRESENTMENT, DEMAND, AND
PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT, EXTENSION, OR RENEWAL OF ANY OR ALL COMMERCIAL
PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND
GUARANTIES AT ANY TIME HELD BY AGENT OR ANY LENDER ON WHICH SUCH OBLIGOR MAY IN
ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT OR SUCH LENDER
MAY DO IN THIS REGARD, (C) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE
COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO
ALLOWING AGENT TO EXERCISE ANY OF THE LENDER GROUP'S REMEDIES, (D) THE BENEFIT
OF ALL VALUATION, APPRAISEMENT, AND EXEMPTION LAWS, AND (E) NOTICE OF ACCEPTANCE
HEREOF. EACH OBLIGOR ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO THE LENDER GROUP'S ENTERING INTO THIS AGREEMENT AND THAT THE
LENDER GROUP IS RELYING UPON THE FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH
THE OBLIGORS. EACH OBLIGOR WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE
FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
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VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
12.19 Legal Representation of Agent. In connection with the
negotiation, drafting, and execution of this Agreement and the other Loan
Documents, or in connection with future legal representation relating to loan
administration, amendments, modifications, waivers, or enforcement of remedies,
Brobeck, Phleger & Harrison LLP ("Brobeck") only has represented and only shall
represent Ableco Finance LLC in its capacity as Collateral Agent and as a
Lender. Each other Lender hereby acknowledges that Brobeck does not represent
any other Lender in connection with any such matters.
[Signature page follows]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
on the day and the year specified at the beginning of this Agreement.
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
CONGRESS FINANCIAL CORPORATION (FLORIDA),
a Florida corporation, as Administrative
Agent and a Lender
By: /s/ Daniel Cott
------------------------------
Name: Daniel Cott
Title: Vice President
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ABLECO FINANCE LLC,
a Delaware limited liability company,
as Collateral Agent and a Lender
By: /s/ Kevin Genda
------------------------------
Name: Kevin Genda
Title: Vice President
STYX PARTNERS, L.P.
a Delaware limited partnership, as a Lender
By: Styx Associates LLC
Its: General Partner
By: /s/ Mark Neporent
------------------------------
Name: Mark Neporent
Title: Vice President
S-2
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APPENDIX A
GENERAL DEFINITIONS
When used in the Amended and Restated Loan and Security Agreement,
dated as of June 29, 1999, by and among 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 doing business as Webb
Distribution, FAS-TRONICS, INC., a Texas corporation, and FORTUNE INDUSTRIES,
INC., a Texas corporation, QUESTRON OPERATING CONPANY INC., a Delaware
corporation, QUESTRON FINANCE CORP., a Delaware corporation, CAPITAL FASTENERS,
INC., a North Carolina 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, each of
the lenders that is a signatory thereto (together with its successors and
permitted assigns, individually, "Lender" and, collectively, "Lenders"),
CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation, as
administrative agent for the Lenders (in such capacity, together with its
successors, if any, in such capacity, "Administrative Agent"), and ABLECO
FINANCE LLC, a Delaware limited liability company, as successor to Madeleine
L.L.C., a New York limited liability company, as collateral agent for the Lender
Group (in such capacity, together with its successors, if any, in such capacity,
"Collateral Agent"), the following terms shall have the following meanings
(terms defined in the singular to have the same meaning when used in the plural
and vice versa):
ATPI - has the meaning set forth in the preamble to this Agreement.
ATPG - has the meaning set forth in the preamble to this Agreement.
ATPM - has the meaning set forth in the preamble to this Agreement.
Ableco - has the meaning set forth in the preamble to this Agreement.
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments
and documents, whether now owned or hereafter created or acquired by any
Obligor or in which any Obligor now has or hereafter acquires any interest.
Acquisitions - individually and collectively, (a) the Olympic
Acquisition, (b) the purchase by QDLI of the stock of CAPFI pursuant to the
Acquisition Documents relative thereto, and (c) the purchase by QDLI of the
stock of ATPI pursuant to the Acquisition Documents relative thereto.
<PAGE>
Acquisition Documents - individually and collectively, (a) the Stock
Purchase Agreement, dated as of April 26, 1999 (as amended), by and among
QTI, QDLI, and the James Robert Gilchrist Revocable Trust Dated June 25,
1999, and all documents and instruments to be executed or delivered in
connection therewith, (b) the Stock Purchase Agreement, dated as of May 7,
1999 (as amended), by and among QTI, QDLI, and the stockholders of ATPI
identified on Schedule 1.1 thereto, and all documents and instruments to be
executed or delivered in connection therewith, and (c) the Olympic
Acquisition Documents.
Acquisition Qualification - with respect to any representation or
warranty hereunder that is expressly qualified by the phrase "subject to
the Acquisition Qualification" and solely to the extent such representation
or warranty relates to (a) CAPFI, Olympic, or ATPI (as the case may be) as
of the Closing Date, or (b) Property of CAPFI, Olympic, or ATPI (as the
case may be) in existence and owned by such Obligor on the Closing Date a
qualification that such representation or warranty is made to the best of
such Obligor's knowledge; it being expressly understood and agreed that the
Acquisition Qualification shall not apply to such representation or
warranty relative to (1) CAPFI, Olympic, or ATPI after the Closing Date,
and (2) any Property of CAPFI, Olympic, or ATPI acquired or arising after
the Closing Date.
Administrative Agent - Congress Financial Corporation (Florida), a
Florida corporation, solely in its capacity as administrative agent for the
Lenders, and shall include any successor administrative agent.
Administrative Agent's Account - account number 322-020565 (or such
other account as Administrative Agent shall have designated in writing to
the Lender Group, as applicable, from time to time) maintained by
Administrative Agent with The Chase Manhattan Bank, 4 New York Plaza, New
York, New York.
AFCOM - AFCOM, Inc., a Florida corporation.
AFCOM Acquisition - the acquisition by QDLI of all or substantially all
of the assets of AFCOM pursuant to the AFCOM Acquisition Documents.
AFCOM Acquisition Documents - individually and collectively, the Asset
Purchase Agreement, dated as of January 29, 1999, by and among QTI, QDLI,
AFCOM, and the shareholders of AFCOM signatory thereto, and all documents
and instruments to be executed or delivered in connection therewith.
AFCOM Acquisition Real Property - the parcel or parcels of real
Property and the related improvements thereto identified on Schedule A-1
acquired by QDLI pursuant to the AFCOM Acquisition.
Affiliate - a Person (other than a Subsidiary): (a) which directly or
indirectly through one or more intermediaries controls, or is controlled
by, or is under common control with, a Person, (b) which beneficially owns
or holds 5% or more of any class of the Voting Stock of a Person, or (c) 5%
or more of the Voting Stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of which is
2.
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beneficially owned or held by a Person or a Subsidiary of a Person, or
(d) which, in the case of any Lender, (i) is an investment fund or managed
account managed by such Lender or any other Person referred to in clause
(a) above in respect of such Lender, or (ii) is an investment manager of
such investment fund or managed account. The foregoing notwithstanding,
neither of the Purchasers or the Lenders signatory to this Agreement shall
be considered Affiliates of the Obligors.
Agent - Administrative Agent or Collateral Agent, as the context
requires.
Agent-Related Persons - Administrative Agent and any successor agents
thereto, and Collateral Agent and any successor agents thereto, together
with their respective Affiliates, and the officers, directors, employees,
counsel, agents, and attorneys-in-fact of such Persons and their
Affiliates.
Agreement - the Amended and Restated Loan and Security Agreement
referred to in the first sentence of this Appendix A, all Schedules,
Exhibits, and Appendices thereto, including this Appendix A.
Assignment and Acceptance - as defined in Section 12.4.2(a) of this
Agreement.
ATPI - has the meaning set forth in the preamble to this Agreement.
Availability - the amount of money that Borrower is entitled to borrow
from time to time as Revolving Credit Loans, such amount being the
difference derived when (a) the Revolving Facility Usage (including any
amounts that Agent or any of the Lenders may have paid for the account of
Borrower pursuant to any of the Loan Documents and that have not been
reimbursed by Borrower) is subtracted from (b) the lesser of (i) the
Borrowing Base (net of all reserves maintained by Administrative Agent
under the Loan Documents), or (ii) the Maximum Amount. If the amount
outstanding is equal to or greater than the Borrowing Base (net of all
reserves maintained by Administrative Agent under the Loan Documents) or
the Maximum Amount, Availability is 0.
Available Amount - means the dollar amount of the reported Consolidated
net income of QTI and its Subsidiaries (after adjustment to exclude the
operating results of QFC) for the twelve month period ended on the date of
the most recent financial statements of QTI, as reflected in the most
recently filed Annual Report on Form 10-K or Quarterly Report on Form 10-Q,
as the case may be, of QTI preceding the applicable payment date.
Bank - The Chase Manhattan Bank, National Association.
Base Rate - the rate of interest announced or quoted by Bank from time
to time as its prime rate for commercial loans, whether such rate is the
lowest rate charged by Bank to its most preferred borrowers, and, if such
prime rate for commercial loans is discontinued by Bank as a standard, a
comparable reference rate designated by Bank as a substitute therefor shall
be the Base Rate.
Base Rate Portion - a Base Rate Revolving Credit Portion.
3.
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Base Rate Election - the election deemed to be made by Borrower and in
effect under Section 2.3 to have interest based on the Base Rate apply to
all or the balance of the Revolving Credit Loans or the Term Loans not
subject to an effective LIBOR Rate Election.
Base Rate Revolving Credit Portion - that portion of the Revolving
Credit Loans that is not subject to an effective LIBOR Rate Election.
Borrower means, individually and collectively, and jointly and
severally, QOC, QDLI, IMSI, PCI, CFI, CWI, FTI, FII, ATPI, ATPG, ATPM, and
CAPFI, and any other Subsidiary of Borrower that in the future executes and
delivers a joinder to this Agreement as a Borrower with the written consent
of the Required Lenders and Collateral Agent.
Borrowing Base - as at any date of determination, an amount equal to:
(a) 85% of the net amount of Eligible Accounts outstanding at
such date, PLUS
(b) 50%, of the value of Eligible Inventory at such date
calculated on the basis of the lower of cost or market with the cost of
finished goods calculated on a first-in, first-out basis.
For purposes hereof, the net amount of Eligible Accounts at any time
shall be the face amount of such Eligible Accounts less any and all
returns, rebates, discounts (which may, at Administrative Agent's option,
be calculated on shortest terms), credits, allowances or excise taxes of
any nature at any time issued, owing, claimed by Account Debtors, granted,
outstanding or payable in connection with such Accounts at such time.
Borrowing Base Certificate - a borrowing base certificate in the form
of Exhibit B-1 attached hereto.
Business Day - (a) when used with respect to the LIBOR Rate Election,
shall mean a day on which dealings may be effected in deposits of United
States Dollars in the London interbank foreign currency deposits market and
on which Agent or its affiliates are conducting and other banks may conduct
business in London, England, or in the State of New York, and (b) when used
with respect to any other provision of the Agreement, any day excluding
Saturday, Sunday, and any day which is a legal holiday under the laws of
the State of New York or is a day on which banking institutions located in
such state are closed.
CAPFI - has the meaning set forth in the preamble to this Agreement.
Capital Expenditures - expenditures made or liabilities incurred for
the acquisition of any fixed assets or improvements, replacements,
substitutions, or additions thereto that have a useful life of more than 1
year, including the total principal portion of Capitalized Lease
Obligations.
4.
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Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
CFI - has the meaning set forth in the preamble to this Agreement.
Closing Date - the date on which the initial Loan is made under the
Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State
of New York as from time to time in effect, except that in those
circumstances where the New York Commercial Code requires the application
of the Uniform Commercial Code of another jurisdiction, the term Code shall
refer to the Uniform Commercial Code as enacted in such jurisdiction.
Collateral - all of the Property and interests in Property of the
Obligors, whether now owned or existing or hereafter created, acquired, or
arising and wheresoever located, including:
(a) Accounts;
(b) Inventory;
(c) Equipment;
(d) General Intangibles;
(e) Investment Property;
(f) All monies and other Property of the Obligors of any kind
now or at any time or times hereafter in the possession or under the
control of Collateral Agent or any member of the Lender Group or any
bailee or any Affiliate of Collateral Agent or any member of the Lender
Group;
(g) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (a) through
(f) above, including, without limitation, proceeds of and unearned
premiums with respect to insurance policies insuring any of the
Collateral; and
(h) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other
computer materials and records) of the Obligors pertaining to any of
(a) through (g) above.
Collateral Agent - Ableco Finance LLC, a Delaware limited liability
company, solely in its capacity as collateral agent for the Lender Group,
and shall include any successor collateral agent.
5.
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Collateral Access Agreement - a landlord waiver or consent, mortgagee
waiver or consent, Equipment lessor or Equipment secured financier waiver
or consent, bailee letter, or a similar acknowledgement agreement of any
warehouseman, processor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Collateral
consisting of goods, or of lessors or secured financiers of Equipment to
the Obligors, in each case, in form and substance satisfactory to
Collateral Agent.
Collections - all cash, checks, notes, instruments, and other items of
payment (including insurance and condemnation proceeds, cash proceeds of
sales and other voluntary or involuntary dispositions of Property, rental
proceeds, and tax refunds).
Commercial Letter of Credit - means a documentary letter of credit
issued by Administrative Agent or any of Administrative Agent's Affiliates
for the account of Borrower to support the purchase by Borrower of
Inventory prior to transit to a location set forth on Schedule 6.1.1, that
provides that all draws thereunder must require presentation of customary
documentation (including, if applicable, commercial invoices, packing list,
certificate of origin, bill of lading or airwaybill, customs clearance
documents, quota statement, inspection certificate, beneficiaries
statement, and bill of exchange, bills of lading, dock warrants, dock
receipts, warehouse receipts, or other documents of title) in form and
substance satisfactory to Administrative Agent and reflecting the passage
to Borrower of title to first quality Inventory conforming to Borrower's
contract with the seller thereof. Any such Letter of Credit shall cease to
be a "Commercial Letter of Credit" at such time, if any, as the goods
purchased thereunder become Eligible Inventory.
Commitment - Revolving Credit Commitment, Letter of Credit
Sub-Commitment, Term Loan A Commitment, Term Loan B Commitment, or Total
Commitment, as the context requires.
Commitment Percentage - with respect to any Lender the ratio of(i) the
amount of the Commitment of such Lender to (ii) the aggregate amount of the
Commitments of all of the Lenders.
Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
Continuing Director - as of any date of determination, a member of the
board of directors of QTI who (a) was a member of the board of directors of
QTI on the Closing Date, or (b) was nominated to be a member of the board
of directors of QTI by a majority of the Continuing Directors then in
office to fill a vacancy left by the death, expiration of term, permanent
disability, or resignation of a Continuing Director.
Contribution Agreement - a contribution agreement between QTI and each
of its appropriate Subsidiaries relative to the formation of QFC and QOC.
CWI - has the meaning set forth in the preamble to this Agreement.
6.
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Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in Section 2.1.2 of the Agreement.
Defaulting Lender - any Lender with a Revolving Credit Commitment that
fails to make any payment to Administrative Agent that it is required to
make hereunder on any Settlement Date and that has not cured such failure
by making such payment within 1 Business Day after written demand upon it
by Administrative Agent to do so.
Defaulting Lenders Rate - the Base Rate for the first 3 days from and
after the date the relevant payment is due and, thereafter, at the interest
rate then applicable to the relevant Revolving Credit Loan.
Distribution - in respect of any corporation means and includes: (a)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock or rights to acquire such
stock), and (b) the redemption or acquisition of Securities, unless made
contemporaneously from the net proceeds of the sale of Securities.
Dominion Account - a special account of Administrative Agent
established by Borrower pursuant to the Agreement at a bank selected by
Borrower, but acceptable to Administrative Agent in its reasonable
discretion, and over which Administrative Agent shall have sole and
exclusive access and control for withdrawal purposes.
Dominion Account Agreements - as defined in Section 6.2.5 of the
Agreement.
EBIT - with respect to any fiscal period, the sum of the Obligors'
Consolidated net earnings (or loss) before interest expense and taxes for
said period as determined in accordance with GAAP, excluding any
extraordinary gains or losses.
EBITDA - with respect to any fiscal period, the sum of the Obligors'
(a) EBIT, plus (b) depreciation and amortization, as determined on a
Consolidated basis in accordance with GAAP.
Earn-Out Obligations - means the Indebtedness of the relevant Obligor
specifically identified on Schedule E-1 attached hereto.
Eligible Account - an Account arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services which
Administrative Agent, in its sole credit judgment exercised in good faith,
deems to be an Eligible Account. Without limiting the generality of the
foregoing, no Account shall be an Eligible Account if:
(a) it arises out of a sale made by Borrower to a Subsidiary
or an Affiliate of Borrower, or to a Person controlled by an Affiliate
of Borrower; or
7.
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(b) it is unpaid for more than 60 days after the original due
date shown on the invoice, or it is due or unpaid more than 90 days
after the original invoice date; or
(c) 50% or more of the Accounts from the Account Debtor owing
such Account are not deemed Eligible Accounts hereunder, or
(d) the total unpaid Accounts of the Account Debtor exceed
10% of the net amount of all Eligible Accounts, to the extent of such
excess; provided, however, that, in the case of Steelcase, Inc. and
such other Account Debtors as to which Administrative Agent and
Collateral Agent have agreed in writing from time to time, the
foregoing percentage may, in the reasonable credit judgment of
Administrative Agent and Collateral Agent, be increased to up to 25%
before the excess would be deemed ineligible; or
(e) any covenant, representation, or warranty contained in
the Agreement with respect to such Account has been breached; or
(f) it arises from a sale to an Account Debtor outside the
United States, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to Agent in its sole
discretion; or
(g) the Account is subject to a Lien other than a Permitted
Lien.
Eligible Inventory - such Inventory of Borrower (other than packaging
materials and supplies) which Administrative Agent, in its sole credit
judgment exercised in good faith, deems to be Eligible inventory. Without
limiting the generality of the foregoing, no Inventory shall be Eligible
Inventory if:
(a) it is not finished goods that is, in Administrative
Agent's opinion, readily marketable in its current form, or
(b) it is not in good, new, and saleable condition, or
(c) it is slow-moving, obsolete (i.e., it has been in
Borrower's inventory for more than 365 days), or unmerchantable, or
(d) it does not meet all standards imposed by any
governmental agency or authority, or
(e) it does not conform in all respects to the warranties and
representations set forth in the Agreement, or
(f) it is not at all times subject to Collateral Agent's duly
perfected first priority security interest, and is subject to any Lien
except a Permitted Lien, or
(g) it is not situated at a location in compliance with the
Agreement (including any location that is neither owned by Borrower nor
the subject of a Collateral Access Agreement in full force and effect)
or is in transit, or
8.
<PAGE>
(h) it is purchased under a Commercial Letter of Credit,
unless such Commercial Letter of Credit either has been drawn in full
and reimbursed or has expired undrawn.
Eligible Transferee - means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having total assets in
excess of $100,000,000; (b) a commercial bank organized under the laws of
any other country which is a member of the Organization for Economic
Cooperation and Development or a political subdivision of any such country,
and having total assets in excess of $100,000,000; provided that such bank
is acting through a branch or agency located in the United States; (c) a
finance company, insurance company or other financial institution or fund
that is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business and having total assets in
excess of $100,000,000; (d) any Affiliate (other than individuals) of a
pre-existing Lender; (e) so long as no Event of Default has occurred and is
continuing, any other Person approved by Collateral Agent and the Obligors;
and (f) during the continuation of an Event of Default, any other Person
approved by Collateral Agent.
Environmental Laws - all federal, state, and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders, and consent
decrees relating to health, safety, and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles, and other tangible personal Property (other than
Inventory) of every kind and description used in any of the Obligors'
operations or owned by an Obligor or in which an Obligor has an interest,
whether now owned or hereafter acquired by an Obligor and wherever located,
and all parts, accessories, and special tools, and all increases and
accessions thereto and substitutions and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 10.1 of the Agreement.
Excess Cash Flow - with respect to any fiscal period of the Obligors,
the amount derived by adding to EBIT for such fiscal period depreciation
and amortization for such fiscal period and subtracting from such sum: (a)
payments of principal on the Term Loans, other Indebtedness (including
Capitalized Lease Obligations), and Capital Expenditures which are not
financed; (b)(i) cash payments for deferred purchase price adjustments
pursuant to acquisition agreements in effect as of the Closing Date, the
Acquisition Documents, and acquisition agreements in connection with
Permitted Acquisitions consummated after the Closing Date, and (ii) the
cash portion of the purchase price relative to Permitted Acquisition; (c)
taxes; (d) interest; and (e) payments to QFC as contemplated by Section
8.2.7; in each case, for such fiscal period.
Excess Cash Flow Recapture Amount - 50% of the amount of the Obligors'
Excess Cash Flow for the applicable period.
9.
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Existing Lenders - Bank One Cleveland, N.A.; First Third Bank of
Northeastern Ohio; First Midwest Bank, N.A. f/k/a Heritage County Bank,
N.A.; High Point Bank & Trust Company; Production Marketing, Inc.; Norman
G. Yates III.
Existing Loan Agreement - has the meaning set forth in the Recitals to
this Agreement.
Family Member - with respect to any individual, any other individual
having a relationship by blood (to the second degree of consanguinity),
marriage, or adoption to such individual.
Family Trust - with respect to any individual, trusts or other estate
planning vehicles established for the benefit of Family Members of such
individual and in respect of which such individual serves as trustee or in
a similar capacity.
Fee Letter - that certain letter agreement, dated as of the date
hereof, among Borrower and Collateral Agent, setting forth certain fees
payable to Collateral Agent.
FII - has the meaning set forth in the preamble to this Agreement.
FTI - has the meaning set forth in the preamble to this Agreement.
GAAP - as of any date of determination, generally accepted accounting
principles in the United States of America then in effect; provided,
however, that, for purposes of calculating the financial covenants
contained in Section 8.3 hereof (and the related definitions), GAAP shall
mean generally accepted accounting principles in effect in the United
States as of the Closing Date and, if there is any change in GAAP after the
Closing Date, the financial reporting of the Obligors shall be produced
both under GAAP as then in effect and also under GAAP as in effect on the
Closing Date.
General Intangibles - all personal property of any of the Obligors
(including things in action) other than goods, Accounts, chattel paper,
documents, instruments, and money, whether now owned or hereafter created
or acquired by an Obligor.
Guarantors - means, individually and collectively, and jointly and
severally, QTI and QFC and any other Subsidiary of QTI that in the future
executes and delivers a joinder to this Agreement or any other Loan
Document as a Guarantor.
Hazardous Materials - (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity," (b) oil, petroleum, or petroleum derived substances, natural
gas, natural gas liquids, synthetic gas, drilling fluids, produced waters,
and other wastes associated with the exploration, development, or
production of crude oil, natural gas, or geothermal resources, (c) any
flammable substances or explosives or
10.
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any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
IMSI - has the meaning set forth in the preamble to this Agreement.
Immaterial Subsidiary - means, collectively, Questnet Components, Inc.,
a Delaware corporation, and Power Too, Inc., a Delaware corporation.
Indebtedness - as applied to a Person means, without duplication;
(a) all items which in accordance with GAAP would be included
in determining total liabilities as shown on the liability side of a
balance sheet of such Person as at the date as of which Indebtedness is
to be determined, including, without limitation, Capitalized Lease
Obligations,
(b) all obligations of other Persons which such Person has
guaranteed,
(c) all reimbursement obligations in connection with letters
of credit or letter of credit guaranties issued for the account of such
Person, and
(d) in the case of the Obligors (without duplication), the
Obligations.
Interest Coverage Ratio - with respect to any period, the ratio of (a)
the Obligors' EBITDA for the 12 month period ended as of the end of such
period (except in the case of periods ended on or prior to June 30, 1999,
the calculation shall be made using (i) CAPFI's, ATPI's, ATPG's, ATPM's
EBITDA for the applicable 12 month period irrespective of whether they were
Subsidiaries of QTI during the relevant period, and (ii) with respect to
the AFCOM Acquisition and Olympic Acquisition, the EBIDTA of AFCOM and
Olympic for the applicable 12 month period notwithstanding the purchase by
QDLI of the assets of AFCOM and Olympic during such period), to (b) the
Obligors' Interest Expense for the 12 month period ended as of the end of
such period. For purposes of this definition, "EBITDA" shall be calculated
after giving effect to adjustments to eliminate expense items that would
not have been incurred, in each case, if each Permitted Acquisition
consummated during the applicable period had been accomplished on the first
day of the applicable period; such eliminations and inclusions to be
mutually agreed upon by the Obligors, Administrative Agent, and Collateral
Agent.
Interest Expense - cash interest expense with respect to Money Borrowed
as determined in accordance with GAAP, including all commissions,
discounts, fees, and expenses payable in connection with any letters of
credit.
Interest Rate or Currency Protection Agreement - any forward contract,
futures contract, swap, option, or other financial arrangement (including
caps, floors, collars, and similar arrangements) relating to, or the value
of which is dependent upon, interest rates or currency exchange rates or
indices.
11.
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Inventory - all inventory of any of the Obligors, whether now owned or
hereafter acquired, including, but not limited to, all goods intended for
sale or lease by any of the Obligors, or for display or demonstration, all
work in process, all raw materials and other materials and supplies of
every nature and description used or which might be used in connection with
the manufacture, printing, packing, shipping, advertising, selling, leasing
or furnishing of such goods or otherwise used or consumed in any of the
Obligors' business, and all documents evidencing and General Intangibles
relating to any of the foregoing, whether now owned or hereafter acquired
by the Obligors.
Inventory Turnover - means, for any period of determination, the result
of:
(a) x (b)
----
(c)
where (a) is 365, (b) is the result of (x) the sum of (1) the dollar amount
of Borrower's Inventory as of the first day of the applicable month, plus
(2) the dollar amount of Borrower's Inventory as of the last day of the
applicable month, divided by (y) 2, and (c) is Borrower's cost of goods
sold for the 365 day period then ended.
Investment Property - means all now owned and hereafter acquired
"investment property" (as that term is defined in Section 9-115 of the
Code) of any of the Obligors.
Investors Rights Agreement - means that certain Investors Rights
Agreement, dated as of June 29, 1999, among QTI and Purchasers.
LC Amount - at any time, an amount equal to the sum of (a) 100% of the
aggregate undrawn face amount of all Standby Letters of Credit and LC
Guaranties of Standby Letters of Credit then outstanding, and (b) 50% of
the aggregate undrawn face amount of all Commercial Letters of Credit and
LC Guaranties of Commercial Letters of Credit then outstanding.
LC Exposure - at any time, an amount equal to the sum of (a) 100% of
the aggregate undrawn face amount of all Standby Letters of Credit and LC
Guaranties of Standby Letters of Credit then outstanding, and (b) 100% of
the aggregate undrawn face amount of all Commercial Letters of Credit and
LC Guaranties of Commercial Letters of Credit then outstanding.
LC Guaranty - any guaranty pursuant to which Administrative Agent or
any Affiliate of Administrative Agent shall guaranty the payment or
performance by Borrower of its reimbursement obligation under any letter of
credit.
Legal Requirement - any requirement imposed upon any Lender by any law
of the United States of America or the United Kingdom or by any regulation,
order, interpretation, ruling, or official directive (whether or not having
the force of law) of the Federal Reserve Board, the Bank of England, or any
other board, central bank or governmental or administrative agency,
institution or authority of in the United States of America, the United
Kingdom, or any political subdivision of either thereof.
12.
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Lender and Lenders - have the respective meanings set forth in the
preamble to this Agreement, and shall include any other Person made a party
to this Agreement as a "Lender" in accordance with the provisions hereof.
Lender Group - individually and collectively, each of the individual
Lenders, Administrative Agent, and Collateral Agent.
Lender-Related Persons - with respect to any Lender, such Lender,
together with such Lender's Affiliates, and the officers, directors,
employees, counsel, agents, and attorneys-in-fact of such Lender and such
Lender's Affiliates.
Letter of Credit - any Standby Letter of Credit or Commercial Letter of
Credit.
Letter of Credit Accommodations - Letters of Credit or LC Guaranties.
Letter of Credit Sub-Commitment - for each Lender, the obligation of
such Lender to participate in Letter of Credit Accommodations, in an
aggregate amount at one time outstanding with respect to each such Lender
up to but not exceeding the amount set forth opposite the name of such
Lender under Letter of Credit Sub-Commitment on Schedule C-1. The Letter of
Credit Sub-Commitment of any Lender is a sub-commitment of such Lender's
Revolving Credit Commitment and is not to be added to such Lender's
Revolving Credit Commitment or Total Commitment.
LIBOR Interest Payment Date - with respect to any LIBOR Revolving
Credit Portion, the first day of each calendar month during the applicable
LIBOR Period.
LIBOR Period - any period of 1 month, 2 months, or 3 months commencing
on a Business Day, selected as provided in Section 2.4 of the Agreement;
provided, however, that no LIBOR Period shall extend beyond the last day of
the Term unless Borrower and the Lender Group have agreed to an extension
of the Term beyond the expiration of the LIBOR Period in question. If any
LIBOR Period so selected shall end on a date that is not a Business Day,
such LIBOR Period shall instead end on the next preceding or succeeding
Business Day as determined by Administrative Agent in accordance with the
then current banking practice in London; provided that Borrower shall not
be required to pay double interest, even though the preceding LIBOR Period
ends and the new LIBOR Period begins on the same day. Each determination by
Administrative Agent of the LIBOR Period shall, in the absence of manifest
error, be conclusive.
LIBOR Portion - a LIBOR Revolving Credit Portion.
LIBOR Rate - with respect to any LIBOR Portion for the related LIBOR
Period, an interest rate per annum (rounded upwards, if necessary, to the
next higher 1/8 of 1% equal to the product of (a) the Base LIBOR Rate (as
hereinafter defined) multiplied by (b) Statutory Reserves. For purposes of
this definition, the term "Base LIBOR Rate" shall mean the rate (rounded to
the nearest 1/8 of 1% or, if there is no nearest 1/8 of 1%, the next higher
1/8 of 1%) at which deposits of U.S. dollars approximately equal in
principal amount to the LIBOR Portion specified in the applicable LIBOR
Request are offered to Lenders by prime banks in the London interbank
foreign currency deposits
13.
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market at approximately 11:00 a.m., London time, 2 Business Days prior
to the commencement of such LIBOR Period, for delivery on the first day of
such LIBOR Period. Each determination by Administrative Agent of any LIBOR
Rate shall, in the absence of manifest error, be conclusive.
LIBOR Rate Election - the option granted pursuant to Section 2.4 to
have the interest on all or any portion of the principal amount of the
Revolving Credit Loans based on a LIBOR Rate.
LIBOR Request - a notice in writing (or by telephone confirmed by
telex, telecopy or other facsimile transmission on the same day as the
telephone request) from Borrower to Administrative Agent requesting that
interest on a Revolving Credit Loan be based on the LIBOR Rate, specifying:
(a) the first day of the LIBOR Period, (b) the length of the LIBOR Period
consistent with the definition of that term, and (c) the dollar amount of
the LIBOR Portion, consistent with the definition of such terms.
LIBOR Revolving Credit Portion - that portion of the Revolving Credit
Loans specified in a LIBOR Request (including any portion of Revolving
Credit Loans that is being borrowed by Borrower concurrently with such
LIBOR Request) that is not less than $1,000,000 or an integral multiple
thereof, that does not exceed the outstanding balance of Revolving Credit
Loans not already subject to an effective LIBOR Rate Election and, that, as
of the date of the LIBOR Request specifying such LIBOR Revolving Credit
Portion, has met the conditions for basing interest on the LIBOR Rate in
Section 2.1.1(b) of the Agreement, and the LIBOR Period of which was
commenced and not terminated.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such
interest is based on common law, statute, or contract. The term "Lien" also
shall include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property. For the purpose of the
Agreement, a Person shall be deemed to be the owner of any Property that it
has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
Loan Account - the loan account established on the books of Agent
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements, and the Security
Documents.
Loans - all Revolving Credit Loans, Term Loans, and other loans and
advances of any kind made by the Lender Group pursuant to the Agreement.
Material Adverse Change - (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrower (taken as a whole), (b)
the material impairment of Borrower's
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(taken as a whole) ability to perform its obligations under the Loan
Documents to which it is a party or of the Lender Group to enforce the
Obligations or realize upon the Collateral, (c) a material adverse effect
on the value of the Collateral or the amount that the Lender Group would be
likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral, or (d) a
material impairment of the priority of the Lender Group's Liens with
respect to the Collateral.
Maximum Amount - $22,500,000.
Money Borrowed - means (a) Indebtedness arising from the lending of
money by any Person to an Obligor, (b) Indebtedness, whether or not in any
such case arising from the lending by any Person of money to an Obligor,
(i) which is represented by notes payable or drafts accepted that evidence
extensions of credit, (ii) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which
interest charges are customarily paid (other than accounts payable) or that
was issued or assumed as full or partial payment for Property, (c)
Indebtedness that constitutes a Capitalized Lease Obligation, (d)
reimbursement obligations with respect to letters of credit or guaranties
of letters of credit, and (e) Indebtedness of an Obligor under any guaranty
of obligations that would constitute Indebtedness for Money Borrowed under
clauses (a) through (c) hereof, if owed directly by an Obligor.
Mortgage - the mortgage executed and delivered by QDLI on February 9,
1999 in favor of Collateral Agent and by which QDLI granted and conveyed to
Collateral Agent, as security for the Obligations (other than Revolving
Credit Loans), a Lien upon the AFCOM Acquisition Real Property.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
ERISA.
Net Worth - as of any date of determination, QTI's total stockholder's
equity calculated on a Consolidated basis in accordance with GAAP.
Non-Ordinary Course Proceeds - (a) tax refunds of the Obligors, (b) net
cash proceeds of sales or other voluntary or involuntary dispositions of
Equipment or real Property of the Obligors, (c) net cash proceeds of sales
or other issuances of Securities or Subordinated Debt of the Obligors, (d)
cash proceeds of sales or other voluntary or involuntary dispositions of
other Property of the Obligors not in the ordinary course of business,
provided, that, in no event shall the term "Non-Ordinary Course Proceeds"
be deemed to include: (i) Accounts (or any deposits from customers or other
collateral securing Accounts, letters of credit supporting Accounts,
guarantees with respect thereto or similar items), Inventory, any
Collections in respect of Accounts or any other identifiable proceeds of
Accounts or Inventory or (ii) identifiable proceeds of sales or other
voluntary or involuntary dispositions of Accounts and Inventory, and (e)
net cash proceeds of transactions (other than any sales or dispositions of
Property) by Borrower not in the ordinary course of business. Anything to
the contrary notwithstanding contained in this definition or otherwise in
this Agreement, in the event of the sale of all or substantially all of the
assets of any Obligor or of the capital stock of any Obligor, then the
portion of the purchase price that shall be deemed to be Non-Ordinary
Course
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Proceeds shall be limited to (i) the net cash proceeds of such sale
(the "Net Proceeds"), minus (ii) an amount that is fairly and reasonably
allocable to the Accounts and Inventory of the subject Obligor (but, in any
event, not less than the amount of the Revolving Facility Usage fairly and
reasonably allocable to such Accounts and Inventory), and the balance of
such Net Proceeds shall not be deemed Non-Ordinary Course Proceeds.
Obligations - all Loans and all other advances, debts, liabilities,
obligations (including contingent reimbursement obligations under any
outstanding Letter of Credit Accommodations), covenants, and duties,
together with all interest, fees, and other charges owing, arising, due or
payable from an Obligor to any Lender of any kind or nature, present or
future, whether or not evidenced by any note, guaranty, or other
instrument, whether arising under the Agreement or any of the other Loan
Documents or otherwise whether direct or indirect (including those acquired
by assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising, and however acquired.
Obligor - means, individually and collectively, and jointly and
severally, Borrower and Guarantors.
Old Lenders - has the meaning set forth in the recitals hereof.
Old Second Amendment - that certain Amendment Number Two to Loan and
Security Agreement, dated as of February 9, 1999, among the Obligors (other
than QOC, QFC, CAPFI, ATPG, ATPM, and ATPI) and the Lender Group.
Old Second Amendment Closing Date - the date on which Term Loan C (as
defined in the Existing Loan Agreement) was made under the Existing Loan
Agreement.
Old Second Amendment Fee Letter - that certain letter agreement, dated
as of the Second Amendment Closing Date, among the Obligors (other than
QOC, QFC, CAPFI, ATPG, ATPM, and ATPI) and Collateral Agent, setting forth
certain fees payable to Collateral Agent.
Olympic - Metro Form Corporation, an Ohio corporation, doing business
as Olympic Fasteners and Electronic Hardware.
Olympic Acquisition - the acquisition by QDLI of all or substantially
all of the assets of Olympic pursuant to the Olympic Acquisition Documents.
Olympic Acquisition Documents - individually and collectively, the
Asset Purchase Agreement, dated as of March 11, 1999 (as amended), by and
between QTI, QDLI, Olympic, and certain Persons identified on Schedule 1.1
thereto, and all documents and instruments executed or delivered in
connection therewith.
Original Closing Date - means September 24, 1998.
Original Loan Agreement - has the meaning set forth in the Recitals to
this Agreement.
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Other Agreements - the Fee Letter, the Reaffirmation Agreement, the
Suretyship Agreement, the QFC Guaranty, the QTI Guaranty, the Revolving
Notes, the Term Notes, the Subordination Agreement, the Dominion Account
Agreements, the Letter of Credit Accommodations, and any and all other
agreements, instruments, and documents (other than this Agreement and the
Security Documents), heretofore, now, or hereafter executed by an Obligor,
any Subsidiary of an Obligor, or any other third party and delivered to the
Lender Group in respect of the transactions contemplated by the Agreement.
Overadvance - the amount, if any, by which the Revolving Facility Usage
exceeds the lesser of (a) the Borrowing Base or (b) the Maximum Amount.
Participant - as defined in Section 12.4.2(e) of the Agreement.
Pay-Off Letter - a letter, in form and substance satisfactory to Agent,
from each Existing Lender respecting the amount necessary to repay in full
all of the obligations of CAPFI, ATPI, and Olympic, respectively, owing to
such Existing Lender and to obtain a termination or release of all of the
Liens existing in favor of such Existing Lender on the Properties or
capital stock, as the case may be, of CAPFI, and ATPI, respectively.
Permits - as defined in Section 7.1.17 of the Agreement.
Permitted Acquisitions - any purchase or acquisition by an Obligor of
all or substantially all of the assets or Voting Stock of any other Person
that is approved in writing by the Required Lenders and Collateral Agent,
which approval may be given or withheld in their sole and absolute
discretion.
Permitted Holders - each of the Persons identified on Schedule P-1, and
the respective Family Members (if any) and Family Trusts (if any) of each
such Person.
Permitted Interest Rate or Currency Protection Agreement - with respect
to any Person, any Interest Rate or Currency Protection Agreement of such
Person entered into with Bank (in its individual capacity and not as a
member of the Lender Group) in the ordinary course of business that is
designed to protect such Person against fluctuations in interest rates or
currency exchange rates with respect to Indebtedness of such Person and
which shall have a notional amount not greater than the payments due with
respect to the Indebtedness hedged thereby and not for purposes of
speculation.
Permitted Joint Ventures - equity investments in certain Persons as are
mutually agreed upon by the Obligors, Required Lenders, and Collateral
Agent.
Permitted Preferred Stock - means, (a) the Series A Junior
Participating Preferred Stock, par value $0.01 per share, of QTI, having
the rights and preferences set forth in the form of Certificate of
Designation attached to the Rights Agreement as Exhibit A, and (b) any
Preferred Stock issued by QTI that is not Prohibited Preferred Stock.
Permitted Liens - any Lien of a kind specified in Section 8.2.5 of the
Agreement.
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Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
the Obligors incurred after the date hereof which is secured by a Purchase
Money Lien and which does not exceed $1,000,000.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of the Obligors that is covered by Title IV of ERISA.
PCI - has the meaning set forth in the preamble to this Agreement.
Polimeni Parties - Mr. Dominic A. Polimeni, his Family Members, and his
Family Trusts.
Preferred Stock - with respect to any Person, any class or series of
equity Securities of such Person that is entitled, upon distribution of
assets of such Person, whether by dividend or liquidation, to a preference
over another class or series of equity Securities of such Person.
Pro Forma Balance Sheet - a pro forma balance sheet of the Obligors,
dated as of the Closing Date and based upon the financial statements of the
Obligors, as of April 30, 1999, which balance sheet shall (a) reflect the
effect of the transactions contemplated by the Acquisition Documents and
the Loan Documents, and (b) contain a Certificate of a Responsible Officer
to the effect that the pro forma balance sheet reflects such officer's good
faith best estimate as to the financial position of the Obligors as of the
Closing Document, after giving effect to such transactions.
Prohibited Preferred Stock - any Preferred Stock of an Obligor the
terms and conditions of issuance, and rights and preferences, of which are
not approved in writing by the Required Lenders in their sole and absolute
discretion, including any Preferred Stock of an Obligor that by its terms
is mandatorily redeemable or subject to any other payment obligation
(including any obligation to pay dividends, other than dividends of
Preferred Stock of the same class and series payable in kind or dividends
of common Stock) on or before a date not earlier than 2 years after the end
of the Term or, on or before a date not earlier than 2 years after the end
of the Term, is redeemable at the option of the holder thereof for cash (or
assets or securities other than distributions in kind of Preferred Stock of
the same class and series or of common Stock).
Projections - the Obligors' forecasted Consolidated (giving effect to
the Acquisitions) (a) balance sheets, (b) profit and loss statements, (c)
cash flow statements, and (d) capitalization statements, all prepared on a
consistent basis with the Obligors' historical financial statements,
together with appropriate supporting details and a statement of underlying
assumptions.
Property - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
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Pro Rata Share - (a) with respect to a Lender's obligation to make
Revolving Credit Loans and receive payments relative thereto, the
percentage obtained by dividing (i) such Lender's Revolving Credit
Commitment, as set forth on Schedule C-1, by (ii) the aggregate Revolving
Credit Commitments of all Lenders, as set forth on Schedule C-1;
(b) with respect to a Lender's obligation to participate in Letter of
Credit Accommodations, and receive payments relative thereto, the
percentage obtained by dividing (i) such Lender's Letter of Credit
Sub-Commitment, as set forth on Schedule C-1, by (ii) the aggregate Letter
of Credit Sub-Commitments of all Lenders, as set forth on Schedule C-1;
(c) with respect to a Lender's obligation to make Term Loan A and
receive payments relative thereto, the percentage obtained by dividing (i)
such Lender's Term Loan A Commitment, as set forth on Schedule C-1, by (ii)
the aggregate Term Loan A Commitments of all Lenders, as set forth on
Schedule C-1.
(d) with respect to a Lender's obligation to make Term Loan B and
receive payments relative thereto, the percentage obtained by dividing (i)
such Lender's Term Loan B Commitment, as set forth on Schedule C-1, by (ii)
the aggregate Term Loan B Commitments of all Lenders, as set forth on
Schedule C-1; and
(e) with respect to all other matters (including the indemnification
obligations arising under Section 11.5), the percentage obtained by
dividing (i) such Lender's Total Commitments to make Loans, as set forth on
Schedule C-1, by (ii) the aggregate Total Commitments of all Lenders, as
set forth on Schedule C-1.
Purchase Money Indebtedness - means Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred at the
time of, or within 30 days after, the acquisition of any fixed assets for
the purpose of financing all or any part of the acquisition cost thereof
and any renewals, extensions, or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets that secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined
solely to the fixed assets the purchase price of which was financed through
the incurrence of the Purchase Money Indebtedness secured by such Lien.
Purchasers - means each of the Persons identified as "Purchasers" in
the Subordinated Debt Documents.
QDLI - has the meaning set forth in the preamble to this Agreement.
QFC - has the meaning set forth in the preamble to this Agreement.
QFC Guaranty - a general continuing guaranty between QFC and the Lender
Group, in form and substance satisfactory to Collateral Agent.
QOC - has the meaning set forth in the preamble to this Agreement.
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QTI - has the meaning set forth in the preamble to this Agreement.
QTI Guaranty - a general continuing guaranty between QTI and the Lender
Group, in form and substance satisfactory to Collateral Agent.
Reaffirmation Agreement - the Reaffirmation Agreement, dated as of the
Closing Date, by each of the Obligors party to a Loan Document in favor of
the Lender Group pursuant to which each of each such Obligor reaffirms its
obligations under the Loan Documents to which it is party (including any
grants of security interests in favor of Collateral Agent) notwithstanding
the amendment and restatement of the Existing Loan Agreement effected by
this Agreement.
Rentals - as defined in Section 8.2.13 of the Agreement.
Reportable Event - any of the events set forth in Section 4043(c) of
ERISA.
Required Lenders - at any time, Lenders whose Pro Rata Shares aggregate
at least 51% of the Commitments or, if the Commitments shall have been
terminated irrevocably, Lenders holding at least 51% of the Obligations
then outstanding.
Responsible Officer - any of the duly appointed or elected Chief
Executive Officer, Chief Financial Officer, or Chief Accounting Officer of
QTI.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or
other obligation or Security, or by loan, advance or capital contribution,
or otherwise, or in any Property except the following:
(a) investments in one or more Subsidiaries of an Obligor to the extent
existing on the Closing Date;
(b) Property to be used in the ordinary course of business;
(c) Current assets arising from the sale of goods and services in the
ordinary course of business of the Obligors and their Subsidiaries;
(d) investments in direct obligations of the United States of America,
or any agency thereof or obligations guaranteed by the United States of
America, provided that such obligations mature within 1 year from the date
of acquisition thereof;
(e) investments in certificates of deposit maturing within 1 year from
the date of acquisition issued by a bank or trust company organized under
the laws of the United States or any state thereof having capital surplus
and undivided profits aggregating at least $100,000,000;
(f) investments in commercial paper given the highest rating by a
national credit rating agency and maturing not more than 270 days from the
date of creation thereof;
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(g) investments in Permitted Interest Rate and Currency Protection
Agreements; and
(h) Permitted Acquisitions.
Revolving Credit Commitment - for each Lender, the obligation of such
Lender to fund Revolving Credit Loans, in an aggregate amount at one time
outstanding with respect to each such Lender up to but not exceeding the
amount set forth opposite the name of such Lender under Revolving Credit
Commitment on Schedule C-1.
Revolving Credit Lenders - individually and collectively, the Lenders
with a Revolving Credit Commitment greater than zero.
Revolving Credit Loan - a Loan made by Lenders as provided in Section
2.1 of the Agreement.
Revolving Facility Usage - as of any date of determination, the sum of
the aggregate amount of Revolving Credit Loans outstanding and the LC
Amount.
Revolving Note - individually and collectively, the Secured Promissory
Notes executed and delivered by Borrower on or before the Closing Date in
favor of each Revolving Credit Lender to evidence the Revolving Credit
Loans, each in the form of Exhibit R-1 to the Agreement.
Rights Agreement - means that certain Rights Agreement, dated as of
October 23, 1998, between QTI and American Stock Transfer & Trust Company,
as Rights Agent.
Schedule of Accounts - as defined in Section 6.4.1 of the Agreement.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - the Stock Pledge Agreement, the Trademark Security
Agreement, the Mortgage, and all other instruments and agreements, securing
the whole or any part of the Obligations.
Seller Note Documents - means, collectively, (a) that certain
Promissory Note, dated as of June 29, 1999, made by QFC in favor of the
James Robert Gilchrist Revocable Trust of June 25, 1999 in the original
principal amount of $2,000,000, and all documents and instruments to be
executed or delivered in connection therewith, (b) those certain Promissory
Notes, dated as of June 29, 1999, made by QFC in favor of each of the
shareholders of ATPI in the aggregate original principal amount of
$1,500,000, and all documents and instruments to be executed or delivered
in connection therewith, (c) that certain Promissory Note, dated as of June
29, 1999, made by QFC in favor of Olympic in the aggregate original
principal amount of $1,500,000, and (d) each of the promissory notes to be
issued by QFC in favor of the respective Sellers in respect of that portion
of the Earn-Out Obligations payable directly by QFC.
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Seller Note Obligations - Indebtedness of QFC in favor of Sellers under
the respective Seller Note Documents in effect on the Closing Date and as
amended in compliance with the Loan Documents.
Sellers - means, in respect of (a) CAPFI, James Robert Gilchrist
Revocable Trust of June 25, 1999, (b) ATPI, the shareholders of ATPI
identified on Schedule 1.1 of the Stock Purchase Agreement executed in
connection with purchase by QDLI of the stock of ATPI, and (c) the Olympic
Acquisition, Olympic.
Senior Debt - as of any date of determination, all outstanding
obligations of the Obligors with respect to Money Borrowed (exclusive of
the Obligors' obligations in respect of Subordinated Debt).
Senior Debt Coverage Ratio - with respect to any period, the ratio of
(a) the Obligors' Senior Debt as of the last day of such period, to (b) the
Obligors' EBITDA for the 12 month period ended as of the end of such period
(except that in the case of periods ended on or prior to June 30, 1999, the
calculation shall be made using (i) CAPFI's, AFTI's, ATPG's, ATPM's EBITDA
for the applicable 12 month period irrespective of whether they were
Subsidiaries of QTI during the relevant period, and (ii) with respect to
the AFCOM Acquisition and Olympic Acquisition, the EBIDTA of AFCOM and
Olympic for the applicable 12 month period notwithstanding the purchase by
QDLI of the assets of AFCOM and Olympic during such period), all as
determined on a Consolidated basis in accordance with GAAP. For purposes of
this definition, "EBITDA" shall be calculated after giving effect to
adjustments to eliminate expense items that would not have been incurred,
in each case, if each Permitted Acquisition consummated during the
applicable period had been accomplished on the first day of the applicable
period; such eliminations and inclusions to be mutually agreed upon by the
Obligors, Administrative Agent, and Collateral Agent.
Solvent - as to any Person, such Person (a) owns Property whose fair
saleable value is greater than the amount required to pay all of such
Person's Indebtedness (including contingent debts), (b) is able to pay all
of its Indebtedness as such Indebtedness matures, and (c) has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage.
Standby Letter of Credit - any letter of credit issued by
Administrative Agent or any of Administrative Agent's Affiliates for the
account of Borrower other than a Commercial Letter of Credit.
Statutory Reserves - a fraction (expressed as a decimal) the numerator
of which is the number 1, and the denominator of which is the number 1,
minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency, or supplemental reserves),
expressed as a decimal, established by the Board of Governors of the
Federal Reserve System and any other banking authority to which Bank or any
Lender is subject for Eurocurrency Liabilities (as defined in Regulation D
of the Board of Governors of the Federal Reserve System or any successor
thereto). Such reserve percentages shall include, without limitation, those
imposed under such
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Regulation D. LIBOR Portions shall be deemed to constitute Eurocurrency
Liabilities and as such shall be deemed to be subject to such reserve
requirements without benefit of or credit for proration, exceptions, or
offsets which may be available from time to time to Bank or any Lender
under such Regulation D. Statutory Reserves shall be adjusted automatically
on and as of the effective date of any change in any reserve percentages.
Stock Pledge Agreement - an Amended and Restated Stock Pledge Agreement
between Collateral Agent and each Person composing Obligor that owns any
interest in any other Person composing Obligor, in form and substance
satisfactory to Collateral Agent.
Subordination Agreement - an amended and restated subordination
agreement between the Obligors and the Lender Group, in form and substance
satisfactory to Collateral Agent.
Subordinated Debt - Indebtedness of an Obligor that is subordinated to
the Obligations in a manner satisfactory to the Required Lenders.
Subordinated Debt Documents - means, collectively, (i) each of the
Securities Purchase Agreements, each dated as of June 29, 1999, among QTI,
QOC, and each of the Purchasers, (ii) Note Agreement, dated as of June 29,
1999, among QTI and the Purchasers, (iii) the Investors Rights Agreement,
(iv) each of the 14.50% Senior Subordinated Notes of QOC issued under the
Note Agreement referenced in clause (ii) above, and (v) the Subsidiary
Guarantee, dated as of June 29, 1999, by each of QOC and its Subsidiaries
in favor of the Purchasers, and all documents and instruments to be
executed or delivered in connection therewith.
Subordinated Obligations - Subordinated Debt of QOC in favor of the
Purchasers under the Subordinated Debt Documents in effect on the Closing
Date and as amended in compliance with the Loan Documents (including
without limitation, any repurchase or put obligations in respect of
"Purchaser Shares" (as such term is defined in the Investors Rights
Agreement) under the Investors Rights Agreement).
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting
Stock at the time of determination.
Suretyship Agreement - an amended and restated suretyship agreement by
each of the Obligors in favor of Collateral Agent for the benefit of the
Lender Group, in form and substance satisfactory to Collateral Agent.
Tax - in relation to any LIBOR Portion and the applicable LIBOR Rate,
any tax, levy, impost, duty, deduction, withholding or charges of whatever
nature required by any Legal Requirement (a) to be paid by a Lender and/or
(b) to be withheld or deducted from any payment otherwise required hereby
to be made by the Obligors to a Lender; provided, that the term "Tax" shall
not include any taxes imposed upon the net income of a Lender by the United
States of America, United Kingdom, or any political subdivision thereof.
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Term - as defined in Section 4.1 of the Agreement.
Term Loan A - the Loan described in Section 1.2.1 of the Agreement.
Term Loan A Commitment - for each Lender, the obligation of such Lender
to fund Term Loan A, in an aggregate amount with respect to each such
Lender equal to the amount set forth opposite the name of such Lender under
Term Loan A Commitment on Schedule C-1.
Term Loan B - the Loan described in Section 1.2.2 of the Agreement.
Term Loan B Commitment - for each Lender, the obligation of such Lender
to fund Term Loan B, in an aggregate amount with respect to each such
Lender equal to the amount set forth opposite the name of such Lender under
Term Loan B Commitment on Schedule C-1.
Term Loan Lenders - individually and collectively, the Lenders with a
Term Loan A Commitment greater than zero, or a Term Loan B Commitment
greater than zero.
Term Loans - individually and collectively, Term Loan A, and Term Loan
B.
Term Note A - individually and collectively, the Secured Promissory
Notes executed and delivered by Borrower on or before the Closing Date in
favor of each Lender with a Term Loan A Commitment to evidence Term Loan A,
each in the form of Exhibit T-1 to the Agreement.
Term Note B - individually and collectively, the Secured Promissory
Notes executed and delivered by Borrower on or before the Closing Date in
favor of each Lender with a Term Loan B Commitment to evidence Term Loan B,
each in the form of Exhibit T-2 to the Agreement.
Term Notes - individually and collectively, Term Note A, and Term Note
B.
Total Commitment - for each Lender, the obligation of such Lender to
fund Loans, with respect to each type of Loan in the amount set forth
opposite the name of such Lender under the Commitment relative to such Loan
type on Schedule C-1, and in an aggregate amount with respect to such
Lender equal to the amount set forth opposite the name of such Lender under
Total Commitment on Schedule C-1.
Total Credit Facility - subject to Section 1.3, $75,000,000.
Total Debt - as of any date of determination, all outstanding
obligations of the Obligors with respect to Money Borrowed that would
constitute long-term debt in accordance with GAAP (exclusive of any issued
and outstanding Letters of Credit).
Total Funded Debt Coverage Ratio - with respect to any period, the
ratio of (a) the Obligors' Total Debt as of the last day of such period, to
(b) the Obligors' EBITDA for the 12 month period ended as of the end of
such period (except that in the case of
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periods ended on or prior to June 30, 1999, the calculation shall be
made using (i) CAPFI's, ATPI's, ATPG's, ATPM's EBITDA for the applicable 12
month period irrespective of whether they were Subsidiaries of QTI during
the relevant period, and (ii) with respect to the AFCOM Acquisition and
Olympic Acquisition, the EBIDTA of AFCOM and Olympic for the applicable 12
month period notwithstanding the purchase by QDLI of the assets of AFCOM
and Olympic during such period), all as determined on a Consolidated basis
in accordance with GAAP. For purposes of this definition, "EBITDA" shall be
calculated after giving effect to adjustments to eliminate expense items
that would not have been incurred, in each case, if each Permitted
Acquisition consummated during the applicable period had been accomplished
on the first day of the applicable period; such eliminations and inclusions
to be mutually agreed upon by the Obligors, Administrative Agent, and
Collateral Agent.
Trademark Security Agreement - an Amended and Restated Trademark
Security Agreement between Collateral Agent and the Obligors, in form and
substance satisfactory to Collateral Agent.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing
similar functions).
Warrants - means those certain series IV common stock purchase warrants
issued by QTI.
Other Terms. All other terms contained in the Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
25.
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedule A-1 AFCOM Acquisition Real Property
Schedule C-1 Commitments
Schedule E-1 Obligors' Earn-Out Obligations
Schedule P-1 Permitted Holders
Schedule 6.1.1 Obligor's and each Subsidiary's Business Locations
Schedule 7.1.1 Jurisdictions in which Each Obligor and each Subsidiary is
Authorized to do Business
Schedule 7.1.4 Capital Structure of Each Obligor
Schedule 7.1.5 Corporate Names
Schedule 7.1.13 Surety Obligations
Schedule 7.1.14 Tax Identification Numbers of Subsidiaries
Schedule 7.1.15 Brokers
Schedule 7.1.16 Patents, Trademarks, Copyrights and Licenses
Schedule 7.1.19 Contracts Restricting the Obligors' Right to Incur Debts
Schedule 7.1.20 Litigation
Schedule 7.1.22(A) Capitalized Leases
Schedule 7.1.22(B) Operating Leases
Schedule 7.1.23 Pension Plans
Schedule 7.1.25 Labor Contracts
Schedule 8.2.3 Permitted Indebtedness
Schedule 8.2.4 Affiliate Transactions
Schedule 8.2.5 Permitted Liens
Schedule 8.2.11 Consignments
Exhibit A-1 Form of Assignment and Acceptance
Exhibit B-1 Form of Borrowing Base Certificate
Exhibit R-1 Form of Revolving Note
Exhibit T-1 Form of Term A Note
Exhibit T-2 Form of Term B Note
Exhibit 8.1.3 Form of Compliance Certificate
26.
<PAGE>
SCHEDULE C-1
(COMMITMENTS)
<TABLE>
<CAPTION>
- ------------------- ------------------- ------------------- --------------------------------------- -------------------
Pro Rata Share Pro Rata Share
Revolving Credit (Revolving Credit Letter of Credit (Letter of Credit
Commitments Commitments) Sub- Sub- Term Loan A
Lender Commitments Commitments) Commitments
- ------------------- ------------------- ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Congress $22,500,000 100% ($2,500,000) 100% -0-
Financial
Corporation
(Florida)
- ------------------- ------------------- ------------------- -------------------- ------------------- -------------------
Ableco Finance LLC -0- -0-% (-0-) -0-% $12,500,000
- ------------------- ------------------- ------------------- -------------------- ------------------- -------------------
Styx Partners, -0- -0-% (-0-) -0-% $12,500,000
L.P.
- ------------------- ------------------- ------------------- -------------------- ------------------- -------------------
All Lenders $22,500,000 100% ($2,500,000) 100% $25,000,000
- ------------------- ------------------- ------------------- -------------------- ------------------- -------------------
Pro Rata Share Pro Rata Share Pro Rata Share
(Term Loan A Term Loan B (Term Loan B Total Commitments (Total Commitments)
Lender Commitments) Commitments Commitments)
- -------------------- ------------------- ------------------- ------------------- --------------------------------------
Congress -0-% -0- -0-% $22,500,000 30%
Financial
Corporation
(Florida)
- -------------------- ------------------- ------------------- ------------------- --------------------------------------
Ableco Finance LLC 50% $13,750,000 50% $26,250,000 35%
- -------------------- ------------------- ------------------- ------------------- ---------------------------------------
Styx Partners, 50% $13,750,000 50% $26,250,000 35%
L.P.
- -------------------- ------------------- ------------------- ------------------- ------------------ ----------------------
All Lenders 100% $27,500,000 100% $75,000,000 100%
- -------------------- ------------------- ------------------- ------------------- ----------------------------------------
</TABLE>
