FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-13324
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QUESTRON TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 23-2257354
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(State or other jurisdiction of incorporation (I.R. S. Employer
or organization) Identification No.)
6400 Congress Avenue, Suite 200A, Boca Raton, FL 33487
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(Address of principal executive offices)
(Zip Code)
(561) 241 - 5251
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of May 10, 1999, there were 5,057,495 shares of the issuer's
Common Stock outstanding.
<PAGE>
QUESTRON TECHNOLOGY, INC.
INDEX
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, which
involves certain risks and uncertainties. The Company's actual results in future
periods may be materially different from any future performance anticipated
herein. Each forward-looking statement that the Company believes is material is
accompanied by a cautionary statement or statements identifying important
factors that could cause actual results to differ materially from those
described in the forward-looking statement. In the context of forward-looking
information provided in this Quarterly Report on Form 10-Q and in other reports,
please refer to the discussion of risk factors detailed in, as well as the other
information contained in, the Company's filings with the Securities and Exchange
Commission during the past 12 months.
<TABLE>
<CAPTION>
Page No.
-----------------
PART I. Financial Information
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet -
At March 31, 1999 (unaudited) and December 31, 1998 3
Consolidated Statement of Income (unaudited) -
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statement of Cash Flows (unaudited) -
Three Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
9 - 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II. Other Information 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL NFORMATION
Item 1. Financial Statements
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999 (unaudited) AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------- --------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,231,586 $ 229,285
Accounts receivable, less allowance for
doubtful accounts of $186,256 12,001,770 11,279,876
Other receivables 243,610 70,412
Inventories 23,212,218 20,972,593
Other current assets 525,200 345,814
--------------------- --------------------
Total current assets 37,214,384 32,897,980
Property and equipment - net 1,994,860 2,042,786
Cost in excess of net assets of businesses acquired,
less accumulated amortization of $1,419,823 and $1,165,977, respectively 37,705,021 37,575,334
Deferred income taxes 2,762,384 2,848,497
Other assets 2,687,774 2,360,656
===================== ====================
Total assets $ 82,364,423 $ 77,725,253
===================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,592,946 $ 5,328,023
Accrued expenses 1,323,531 1,415,626
Income taxes payable 150,039 1,715,501
Current portion of long-term debt 1,685,000 1,811,802
--------------------- --------------------
Total current liabilities 8,751,516 10,270,952
Deferred income taxes payable 317,890 364,639
Long-term debt 44,788,143 39,285,698
--------------------- --------------------
Total liabilities 53,857,549 49,921,289
--------------------- --------------------
Commitments and contingencies
Common stock subject to put option agreement 317,051 339,697
Shareholders' Equity:
Common stock, $.001 par value; authorized 20,000,000
shares; issued 4,792,769 shares in 1999 and 4,795,175 in 1998 4,791 4,795
Additional paid-in capital 39,610,412 39,615,998
Accumulated deficit (11,069,902) (11,801,048)
--------------------- --------------------
28,545,301 27,819,745
Less: Treasury stock, 11,849 shares, at cost (355,478) (355,478)
--------------------- --------------------
Total shareholders' equity 28,189,823 27,464,267
--------------------- --------------------
Total liabilities and shareholders' equity $ 82,364,423 $ 77,725,253
===================== ====================
See notes to consolidated financial statements.
3
<PAGE>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1999 1998
-------------------- ---------------------
<S> <C> <C>
Sales $19,304,486 $10,400,966
-------------------- ---------------------
Operating costs and expenses:
Cost of products sold 11,815,652 6,181,350
Selling, general & administrative expenses 4,676,636 2,490,567
Depreciation and amortization 368,948 163,600
-------------------- ---------------------
16,861,236 8,835,517
-------------------- ---------------------
Operating income 2,443,250 1,565,449
Interest expense 1,251,952 281,375
-------------------- ---------------------
Income before income taxes 1,191,298 1,284,074
Provision for income taxes 488,432 526,470
-------------------- ---------------------
Net income $ 702,866 $ 757,604
==================== =====================
Net income $ 702,866 $ 757,604
Deduct: Preferred Stock dividend -- 33,063
Imputed non-cash Preferred Stock dividend -- 197,769
==================== =====================
Net income used in per common share calculation $ 702,866 $ 526,772
==================== =====================
Net income per common share $.14 $.25
========== ===========
Net income per diluted common share $.14 $.16
========== ===========
Average number of common shares outstanding 5,008,172 2,115,793
==================== =====================
Average number of diluted common shares outstanding 5,080,338 4,716,440
==================== =====================
See Notes to Consolidated Financial Statements.
4
<PAGE>
QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<CAPTION>
March 31, March 31,
1999 1998
------------------------ ------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 702,866 $ 757,604
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 368,948 163,600
Recognition of current year income tax benefit of net
operating loss carryforward 86,113 57,536
Change in assets and liabilities:
Increase in accounts receivable (721,894) (919,615)
Increase in other receivables (173,198) (23,017)
Increase in inventories (2,239,625) (861,993)
Increase in accounts payable 264,923 788,571
Decrease in accrued expenses (92,095) (124,589)
(Decrease) increase in income taxes payable (1,565,462) 241,603
(Decrease) increase in deferred income taxes (46,749) 66,925
Increase in other assets (506,504) (94,993)
-------------------- ------------------------
Net cash (used) provided by operating activities (3,922,677) 51,632
-------------------- ------------------------
Cash flows from investing activities:
Net cash consideration paid for acquired business (373,479) (600,000)
Acquisition of property and equipment (54,541) (407,326)
-------------------- ------------------------
Net cash used for investing activities (428,020) (1,007,326)
-------------------- ------------------------
Cash flows from financing activities:
Proceeds from borrowings under revolving facility 5,656,412 1,340,000
Repayment of long-term debt (200,000) (416,667)
Repayment of revolving facilities -- (525,000)
Proceeds from capital lease for computer system -- 371,228
Payments on capital leases (33,330) (29,308)
Payments in respect of exercise of put options (22,646) --
Payments on note issued for acquired business (47,438) (18,535)
-------------------- ------------------------
Net cash provided by financing activities 5,352,998 721,718
-------------------- ------------------------
Increase (decrease) in cash and cash equivalents 1,002,301 (233,976)
Cash and cash equivalents at beginning of period 229,285 875,080
==================== ========================
Cash and cash equivalents at end of period $ 1,231,586 $ 641,104
==================== ========================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Note 1. Basis of presentation.
The accompanying unaudited consolidated financial statements include
the accounts of Questron Technology, Inc. (the "Company") and its subsidiaries.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the Securities and Exchange Commission's instructions for
Form 10-Q. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
Management believes that all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. The consolidated balance sheet as of December 31, 1998
reflects the audited balance sheet at that date. For further information, refer
to the financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1998.
Note 2. Earnings per share.
The following table sets forth the calculation of net income per
common share and net income per diluted common share:
<TABLE>
<CAPTION>
For the three months ended
---------------------------------------------------
March 31, 1999 March 31, 1998
------------------------- ------------------------
Numerator:
<S> <C> <C>
Net income $ 702,866 $ 757,604
Less: preferred stock dividends -- 230,832
------------------------- ------------------------
Numerator for net income per common share 702,866 526,772
Effect of dilutive securities -
Preferred stock dividends -- 230,832
========================= ========================
Numerator for net income per diluted common
Share $ 702,866 $ 757,604
========================= ========================
Denominator:
Denominator for net income per common share -
weighted-average shares 5,008,172 2,115,793
------------------------- ------------------------
Effect of dilutive securities:
Options 7,247 111,893
Warrants 896 835,629
Contingent shares - deferred purchase price 64,023 --
Convertible preferred stock -- 1,653,125
------------------------- ------------------------
Dilutive potential common shares 72,166 2,600,647
------------------------- ------------------------
Denominator for net income per diluted common
share 5,080,338 4,716,440
======================== =========================
Net income per common share $.14 $.25
========== ===========
Net income per diluted common share $.14 $.16
========== ===========
</TABLE>
6
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Note 3. Acquisitions - Pro forma financial information.
The following unaudited pro forma information for the three month
period ended March 31, 1998 presents the combined operating results of the
Company, Fas-Tronics, Inc. ("Fas-Tronics"), Fortune Industries, Inc. ("Fortune")
and AFCOM, Inc. ("AFCOM") as though each of the acquisitions had been made on
January 1, 1998. The unaudited pro forma combined summary of operations includes
the additional interest expense on debt incurred in connection with the
acquisitions as if the debt had been outstanding since January 1, 1998. The pro
forma net income per common share and diluted common share assume that all
shares of common stock of the Company outstanding as of March 31, 1999 were
outstanding as of January 1, 1998. This pro forma information does not purport
to be indicative of what would have occurred had the acquisitions been completed
as of January 1, 1998 or results which may occur in the future:
March 31, 1998
---------------------
Sales $17,825,434
--------------------
Operating income 2,854,043
--------------------
Net income $ 1,070,317
====================
Net income $ 1,070,317
Less:
Preferred stock dividends 33,063
Imputed non-cash dividend 192,329
====================
Net income used in per
Common share calculation $ 844,925
====================
Pro forma net income per common share $ .27
=========
Pro forma net income per diluted common
Share $ .19
=========
Average number of common shares
Outstanding 3,105,836
=====================
Average number of diluted
Common shares outstanding 5,706,483
=====================
7
<PAGE>
QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Note 4. Subsequent events.
In March 1999, the Company announced that it had entered into a
definitive agreement to acquire the operating assets of Metro Form Corporation
d/b/a Olympic Fasteners ("Olympic") for an initial purchase price of $9 million.
In April 1999, the Company announced that it had entered into a definitive
agreement to acquire 100% of the outstanding stock of Capital Fasteners, Inc.
("Capital") for an initial purchase price of $10.65 million. In May 1999, the
Company announced that it had entered into a definitive agreement to acquire
100% of the outstanding stock of Action Threaded Products, Inc. ("Action") for
an initial purchase price of $13.8 million. All three acquisitions are expected
to close in June 1999.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the three months ended March 31, 1999.
The Company's results of operations through March 31, 1999 include
the operating results of the Company's inventory logistics management business,
Questron Distribution Logistics, Inc. ("QDL"), its master distribution of
fasteners business, Integrated Material Systems, Inc. ("IMS") and its battery
distribution business, Power Components, Inc. ("PCI"). The operating results for
QDL include the results of its 1998 acquisitions of Fortune, Fas-Tronics and
AFCOM, as well as the operating results of its previously existing branches.
The Company's revenues for the three months ended March 31, 1999
amounted to $19,304,486, compared with $10,400,966 for the three months ended
March 31, 1998. The significant growth in the Company's revenues is due to the
growth of QDL, which had revenues of $18,138,915 in the 1999 period,
representing a record level of sales for the business, compared with $9,238,508
for the prior year period. The significant growth in QDL's revenues for the
period ended March 31, 1999 is due to the acquisitions of Fortune, Fas-Tronics
and AFCOM, as well as the internal growth of the other QDL branches and the
opening of a new QDL branch in Grand Rapids, MI during the second quarter of
1998. Revenues from Fortune, Fas-Tronics and AFCOM for the three months ended
March 31, 1999 amounted to $6,879,088.
The Company's operating income was $2,443,250 for the three months
ended March 31, 1999, compared with operating income of $1,565,449 for the prior
year period. Operating income as a percentage of sales for the three months
ended March 31, 1999 amounted to 12.7% compared with 15.1% for the comparable
prior year period. This decline in operating income as a percentage of sales is
the result of the additional investment in infrastructure, including the
expansion of facilities and staff in San Diego, San Jose and Grand Rapids, to
support the expected increase in QDL's inventory logistics management business,
as well as the increased amortization of goodwill related to the acquisitions of
Fortune, Fas-Tronics and AFCOM, without the benefit of costs savings resulting
from the integration of these businesses. The organizational, system, and
physical integration of these businesses will be completed in phases between the
second quarter of 1999 and the first quarter of 2000.
Interest expense, which reflects the cost of borrowings associated
with the acquisitions of Fortune, Fas-Tronics and AFCOM and borrowings
associated with QDL's working capital needs, amounted to $1,251,952 for the
three months ended March 31, 1999 compared with $281,375 for the comparable
prior year period. The increase in interest expense principally reflects the
costs of increased borrowings to complete the acquisitions of Fortune,
Fas-Tronics and AFCOM.
The provision for income taxes for the three months ended March 31,
1999 reflects a federal income tax provision at an effective rate of 35% and a
state income tax provision at an effective rate of 6% for the states in which
the Company does business.
9
<PAGE>
Net income for the three months ended March 31, 1999 amounted to
$702,866 compared with net income of $757,604 for the comparable period of the
prior year. The decline in net income is attributable to the additional
investment in infrastructure to support the expected increase in QDL's inventory
logistics management business, as well as the increased amortization of goodwill
and increased interest expense related to the acquisitions of Fortune,
Fas-Tronics and AFCOM, without the benefit of costs savings resulting from the
integration of these businesses.
Liquidity and Capital Resources
As of March 31, 1999, the Company had $1,231,586 in cash and
short-term investments, compared to $229,285 as of December 31, 1998. As of
March 31, 1999, the Company had working capital of $28,376,755, compared with
working capital of $22,627,028 as of December 31, 1998.
For the three months ended March 31, 1999, the net cash used by the
Company's operating activities amounted to $3,922,677, principally reflecting
the increases in inventories, receivables and other assets, as well as decreases
in income taxes payable and accrued expenses, offset in part by the profits of
the Company and the increases in accounts payable.
For the three months ended March 31, 1999, the net cash used in the
Company's investing activities amounted to $428,020, including $450,000 net cash
consideration paid in connection with the deferred purchase price of California
Fasteners, Inc. ("Calfast"). The Company also had capital expenditures $54,541
for the acquisition of fixed assets. The Company does not have significant
commitments for capital expenditures as of March 31, 1999 and no significant
commitments are anticipated for the remainder of 1999, other than the expansion
of the Company's computer system to complete the integration of the acquired
businesses of Fortune, Fas-Tronics and AFCOM.
For the three months ended March 31, 1999, the net cash provided by
the Company's financing activities amounted to $5,352,998, which consists of
$5,656,412 of bank borrowings under the Company's revolving credit facility,
reduced by long-term debt principal payments of $200,000, principal payments of
$33,330 on various capital leases, principal payments of $47,438 on notes issued
for acquired businesses and payments of $22,646 in respect of the exercise of
put options by the shareholders of Calfast.
In connection with the acquisitions of Fas-Tronics and Fortune, the
Company entered into a $45,000,000 loan and security agreement (the "Loan and
Security Agreement") with its lenders providing for term debt of $30,000,000 and
a revolving facility of $15,000,000. In connection with its acquisition of
AFCOM, the Company entered into an amendment to the Loan and Security Agreement
in February 1999. The amendment increased the credit facility to $51,000,000,
providing for an additional term loan amount of $5,000,000 and an increase in
the revolving facility to $16,000,000. At March 31, 1999, $10,046,798 was
outstanding under the revolving facility. Of the remaining amount of the
$16,000,000 revolving facility, $5,953,202 was available at March 31, 1999 for
future working capital needs. Amounts outstanding under the revolving facility
bear interest at a rate equal to 1.0% above the lender's prime rate with a
minimum rate of interest of 9% per annum. As of May 12, 1999, the interest rate
under the revolving facility was 9%. In order to secure the
10
<PAGE>
obligations of the Company and its subsidiaries under the revolving facility and
the related term loan facility of the Loan and Security Agreement with the
lender, the Company entered into a stock pledge agreement with the lender
whereby the Company pledged to the lender the shares of capital stock of each of
its subsidiaries at the date of such agreement and any shares of its
subsidiaries in which the Company may thereafter acquire an interest. In
addition, the Company and its subsidiaries granted a security interest in
substantially all of their assets to the lender.
The Company intends to continue to identify and evaluate potential
merger and acquisition candidates engaged in businesses complementary to its
business. While certain of such additional potential acquisition opportunities
are at various stages of consideration and evaluation, none is at any definitive
stage at this time, other than the definitive agreements to acquire Olympic,
Capital and Action.
The definitive agreement dated as of March 11, 1999 to acquire the
business and assets of Olympic calls for a purchase price of $9 million,
consisting of $6.5 million in cash, $1.5 million in notes and the balance in
shares of Questron common stock. Additional purchase consideration of up to $1
million may be paid based on future operating results. The acquisition is
subject to financing and other customary closing conditions. Olympic had
revenues of $10 million in 1998.
The definitive agreement dated as of April 26, 1999 to acquire 100%
of the outstanding stock of Capital calls for a purchase price of $10.65
million, consisting of $8 million in cash, $2 million in notes and the balance
in shares of Questron common stock. Additional purchase consideration of up to
$1.5 million may be paid based on future operating results. The acquisition is
subject to financing and other customary closing conditions. Capital had
revenues of $9.5 million in 1998.
The definitive agreement dated as of May 7, 1999 to acquire 100% of
the outstanding stock of Action calls for a purchase price of $13.8 million,
consisting of $10.5 million in cash, $1.5 million in notes and the balance in
shares of Questron common stock. Additional purchase consideration of up to $1.8
million may be paid based on future operating results. The acquisition is
subject to financing and other customary closing conditions. Action had revenues
of $16.3 million in 1998.
Management believes that its working capital, funds available under
its credit agreement, and funds generated from operations will be sufficient to
meet its obligations through 1999, exclusive of cash requirements associated
with the pending acquisitions referred to above. The Company is actively
pursuing several financing alternatives in connection with financing the
Olympic, Capital and Action acquisitions. No assurances can be given that the
Company will be able to obtain the financing necessary to finance such
acquisitions or that it will be able to obtain the financing on favorable terms.
Year 2000 Compliance
The Year 2000 presents potential concerns for business and consumer
computing. The consequences of this issue may include systems failures and
business process interruption. It may also include additional business and
competitive differentiation. Aside from the well-known calculation problems with
the use of 2-digit date formats as the year
11
<PAGE>
changes from 1999 to 2000, the Year 2000 is a special case leap year and in many
organizations using older technology, dates were used for special programmatic
functions.
The Year 2000 issue may affect the Company's internal systems,
including information technology ("IT") and non-IT systems. While the Company's
IT system is prepared to handle all dating implications associated with the new
millennium, the Company's management is presently engaged in an ongoing
assessment of the readiness of all its systems for handling the Year 2000.
Although the assessment is still underway, management currently believes that it
will be successful in identifying and resolving any potential deficiencies in
its non-IT systems with respect to the Year 2000 issue by June 1999 and that all
such material systems will be compliant by the Year 2000 and that the cost to
address the issues is not material. Nevertheless, the Company expects to assess
its need to create contingency plans during the remainder of 1999 for certain
internal systems in the event management determines that such contingency plans
may become warranted.
All organizations dealing with the Year 2000 issue must address the
effect this issue will have on their third-party supply chain. The Company has
already begun the process of identifying whether its vendors have sufficiently
identified and are taking steps to address the Year 2000 issue. Management has
completed a survey and plan for working with key third-parties to understand
their ability to continue providing services and products through the change to
2000 and is in the process of receiving and evaluating responses to these
surveys. The Company will continue to work directly with its key vendors,
distributors, and resellers, and coordinate its action with respect to the Year
2000 issue with them, if necessary, to avoid any business interruptions in 2000.
For these key third-parties, contingency plans may be required.
The Company's management believes the impact of the Year 2000 will
not cause any material disruptions in the Company's operations. However, the
impact of such potential disruptions is difficult to discern.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's interest expense is sensitive to changes in the general
level of U.S. interest rates. In this regard, changes in the U.S. rates may
effect the interest paid on a portion of its debt. The Company does not
generally enter into derivative financial instruments in the normal course of
business, nor are such instruments used for speculative purposes.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes In Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
The exhibits listed on the Exhibit Index
immediately following the signature page are
filed as part of this Quarterly Report on Form
10-Q.
b) Reports on Form 8-K:
None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
QUESTRON TECHNOLOGY, INC.
(1) Principal Executive Officer:
Date: May 17, 1999 /s/ Dominic A. Polimeni
-------------- -----------------------
Dominic A. Polimeni
Chief Executive Officer
(2) Principal Financial and Accounting
Officer:
Date: May 17, 1999 /s/ Milton M. Adler
------------- -------------------
Milton M. Adler
Treasurer
14
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this quarterly report on Form
10-Q:
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
3.0 Certificate of Incorporation, incorporated by reference to
Exhibit 3(i) to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended
December 31, 1987 (File No. 0-13324)
3.1 Certificate of Amendment, dated March 20, 1985, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on March 9, 1995 (File No. 33-44331)
3.3 Certificate of Amendment, dated June 9, 1989, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on March 9, 1995 (File No. 33-44331)
3.4 Certificate of Correction, dated May 17, 1991, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on March 9, 1995 (File No. 33-44331)
3.5 Certificate of Amendment, dated December 20, 1993, to Certificate
of Incorporation of the Registrant, incorporated by reference to
Exhibit 3(i) to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended
December 31, 1993 (File No. 0-13324)
3.6 Certificate of Correction, dated July 19, 1994, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission on March 9, 1995 (File No. 33-44331)
3.7 Certificate of Amendment, dated April 2, 1996, to Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 3.5 to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended
December 31, 1995 (File No. 0-13324)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
3.8 Certificate of Amendment, filed December 31, 1996, to Certificate
of Incorporation of the Registrant, incorporated by reference to
Exhibit 3.10 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
3.9 By-Laws of the Registrant, incorporated by reference to Exhibit
3b(ii) to the Registrant's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31,
1987 (File No. 0-13324)
3.10 Amendment to By-Laws of the Registrant, incorporated by reference
to Exhibit 3.4 of the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended
December 31, 1992 (File No. 0-13324)
4.0 Specimen Common Stock Certificate, incorporated by reference to
Exhibit 4.0 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.1 Specimen Preferred Stock Certificate, incorporated by reference
to Exhibit 4.1 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.2 Certificate of Designations, Preferences and Rights of the
Registrant's Series B Convertible Preferred Stock, incorporated
by reference to Exhibit 4.2 to Amendment No. 1 to the
Registrant's Form SB-2 filed with the Securities and Exchange
Commission on February 25, 1997 (File No. 333-18243)
4.3 Form of Series IV Warrant Agreement, incorporated by reference to
Exhibit 4.3 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.4 Form of Series III Warrant Agreement, dated as of November 7,
1994, incorporated by reference to Exhibit 10.22 to the
Registrant's Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1994 (File No.
0-13324)
4.5 Form of Underwriters' Purchase Option, incorporated by reference
to Exhibit 4.5 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.6 Stock Purchase Warrant Certificate for Purchase of Common Stock
of Questron Technology, Inc., incorporated by reference to
Exhibit 4.6 to Amendment No. 1 to the Registrant's Form SB-2
filed with the Securities and Exchange Commission on February 25,
1997 (File No. 333-18243)
4.7 Amended Certificate of Designation Establishing a Series of
Preferred Stock of Questron Technology, Inc., incorporated by
reference to Exhibit 4.7 to the Registrant's Quarterly Report on
Form 10-Q/SB for the three-month period ended June 30, 1998 (File
No. 0-13324)
4.8 Registration Rights Agreement, dated as of September 24, 1998, by
and between the Company and the persons listed on Schedule A
thereto, incorporated by reference to the Company's current
report on Form 8-K, filed with the Securities and Exchange
commission on October 8, 1998 (File No. 0-13324).
4.9 Certificate of Designation of Series A Junior Participating
Preferred Stock of Questron Technology, Inc.
10.1 1996 Stock Option Plan, incorporated by reference to Exhibit
10.19 to Amendment No. 1 to the Company's Registration Statement
on Form SB-2 filed with the Securities and Exchange Commission on
February 25, 1997 (File No. 333-18243)
10.2 Exchange Agreement, dated November 8, 1996 by and among the
Company, Gulfstream Financial Group, Inc. and Phillip D.
Schwiebert, incorporated by reference to Exhibit 10.21 to
Amendment No. 1 to the Registrant's Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on
February 25, 1997 (File No. 333-18243)
10.3 Stock Purchase Agreement dated as of December 16, 1996 relating
to Webb Distribution, Inc., incorporated by reference to Exhibit
2.0 to Amendment No. 1 to the Company' Registration Statement on
Form SB-2 filed with the Securities and Exchange Commission on
February 25, 1997 (File No. 333-18243).
10.4 Form of Underwriting Agreement, incorporated by reference to
Exhibit 2.0 to Amendment No. 1 to the Company's Registration
Statement on Form SB-2 filed with the Securities and Exchange
Commission on February 25, 1997 (File No. 333-18243).
10.5 Stock Option Grant Agreement between the Company and Gulfstream
Financial Group, Inc. made as of November 8, 1996, incorporated
by reference to Exhibit 10.22 to the Registrant's Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission
for the fiscal year ended December 31, 1996 (File No. 0-13324).
10.6 Stock Option Grant Agreement between the Company and Phillip D.
Schwiebert made as of November 8, 1996, incorporated by reference
to Exhibit 10.23 to the Company's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1996 (File No. 0-13324).
10.7 Amendment No. 4, dated as of April 9, 1997, to the Loan and
Security Agreement, dated as of March 31, 1995, between Silicon
Valley Bank and Quest Electronics Hardware, Inc., incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-QSB for the three month period ended March 31, 1997 (File
No. 0-13324).
10.8 Stock Purchase Agreement dated as of August 29, 1997 relating to
the acquisition of all of the outstanding stock of California
Fasteners, Inc., incorporated by reference to the Company's
Current Report on Form 8-K filed October 7, 1997 (File No.
0-13324).
10.9 Asset Purchase Agreement dated September 4, 1997 relating to the
acquisition of substantially all of the assets of Power
Components, Inc. with the related Stock Purchase Agreement dated
September 4, 1997 relating to the acquisition of all of the stock
of AR Acquisition Company, incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-QSB for the
three month period ended September 30, 1997 (File No. 0-13324).
10.10 Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Gregory Fitzgerald, Valerie Fitzgerald and
Fas-Tronics, Inc., incorporated by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-QSB for the three month
period ended June 30, 1998 filed with the Securities and Exchange
Commission on August 14, 1998 (File No. 0-13324).
10.11 Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Fortune Industries, Inc. and the
Stockholders of the Company listed on Schedule 1.1 thereto (the
"Fortune Stock Purchase Agreement"), incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for
the three month period ended June 30, 1998 filed with the
Securities and Exchange Commission on August 14, 1998 (File No.
0-13324).
10.12 Letter Agreement, dated July 29, 1998, by and between the
Company, Gregory Fitzgerald, Valerie Fitzgerald and Fas-Tronics,
Inc., incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-QSB for the three month period ended
June 30, 1998 filed with the Securities and Exchange Commission
on August 14, 1998 (File No. 0-13324).
10.13 Letter Agreement, dated July 29, 1998, by and between the
Company, Fortune Industries, Inc. and the Stockholders of the
Company listed on Schedule 1.1 to the Fortune Stock Purchase
Agreement, incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-QSB for the three month
period ended June 30, 1998 filed with the Securities and Exchange
Commission on August 14, 1998 (File No. 0-13324).
10.14 Second Amendment to the Fas-Tronics Stock Purchase Agreement,
incorporated by reference to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on October
8, 1998 (File No. 0-13324).
10.15 Second Amendment to the Fortune Stock Purchase Agreement,
incorporated by reference to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on October
8, 1998 (File No. 0-13324).
10.16 Rights Agreement dated as of October 23, 1998, between the
Company and American Stock Transfer & Trust Company, as Rights
Agent, incorporated by reference to the Company's Registration
Statement on Form 8-A, filed November 6, 1998 (File No. 0-13324).
10.17 Loan and Security Agreement dated as of September 24, 1998, by
and among the Company, Questron Distribution Logistics, Inc.,
Integrated Material Systems, Inc., Power Components, Inc.,
California Fasteners, Inc., Comp Ware, Inc., Fas-Tronics, Inc.,
Fortune Industries, Inc., each of the signatories which is a
signatory thereto, Congress Financial Corporation (Florida), as
administrative agent and Madeleine L.L.C., as collateral agent,
incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the three month period ended September 30, 1998.
10.18 Amendment Number One to the Loan and Security Agreement, dated as
of November 2, 1998, by and among the Company, Questron
Distribution Logistics, Inc., Integrated Material Systems, Inc.,
Power Components, Inc., California Fasteners, Inc., Comp Ware,
Inc., Fas-Tronics, Inc., Fortune Industries, Inc., each of the
Lenders, Congress Financial Corporation (Florida), as
Administrative Agent and Madeleine L.L.C., as Collateral Agent,
incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the three month period ended September 30, 1998.
10.19 Asset Purchase Agreement, dated as of January 29, 1999, by and
between Questron Technology, Inc., Questron Distribution
Logistics, Inc. and AFCOM, Inc., and each of the persons listed
on Schedule 1.1 thereto and signatory thereto.
10.20 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.
27.1 Financial Data Schedule
</TABLE>
Exhibit 10.19
================================================================================
ASSET PURCHASE AGREEMENT
By and Between
QUESTRON TECHNOLOGY, INC.,
QUESTRON DISTRIBUTION LOGISTICS, INC.,
AFCOM, INC.
and
THE SHAREHOLDERS OF AFCOM, INC.
SIGNATORIES HERETO
Dated as of January 29, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS....................................................................1
1.1 Definitions....................................................................1
ARTICLE 2 PURCHASE AND SALE OF ASSETS....................................................6
2.1 Acquired Assets................................................................6
2.2 Excluded Assets................................................................7
2.3 Assumption and Exclusion of Certain Liabilities................................7
2.4 Purchase Consideration and Payment for Purchased Assets........................7
2.5 Transactions on the Closing Date...............................................9
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..................................................................12
4.3 Subsidiaries and Equity Investments...........................................12
4.4 Capitalization................................................................12
4.5 Ownership of Shares...........................................................12
4.6 Title to Acquired Assets......................................................12
4.7 Acquired Assets Complete......................................................12
4.8 No Violation..................................................................13
4.9 Litigation....................................................................13
4.10 Intentionally Omitted.........................................................14
4.11 Real Property.................................................................14
4.12 Non-Real Estate Leases........................................................15
4.13 Financial Statements..........................................................15
4.14 Books and Records.............................................................16
4.15 Tax Matters...................................................................16
4.16 Employee Matters..............................................................17
4.17 Intellectual Property.........................................................20
4.18 Accounts Receivable and Accounts Payable......................................21
4.19 Inventory.....................................................................21
4.20 Absence of Change or Event....................................................21
4.21 Compliance with Law...........................................................23
4.22 Contracts and Commitments.....................................................24
4.23 Insurance.....................................................................25
4.24 Intentionally Omitted.........................................................26
4.25 Customers, Suppliers, Distributors, Etc.......................................26
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4.26 Previous Sales; Warranties; Product Liability.................................27
4.27 Environmental Matters.........................................................27
4.28 Absence of Certain Payments...................................................28
4.29 Additional Information........................................................28
4.30 Investment Intent.............................................................29
4.31 Disclosure....................................................................30
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF QDL
AND QUESTRON..................................................................30
5.1 Organization..................................................................30
5.2 Corporate Authority; Due Execution............................................31
5.3 No Violation..................................................................31
5.4 SEC Documents.................................................................31
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.................................................................33
6.3 Expenses and Finder's Fees....................................................34
6.4 Access to Information and Confidentiality.....................................34
6.5 No Solicitation...............................................................35
6.7 Press Releases................................................................36
6.8 Transitional Assistance.......................................................36
6.9 Reserved......................................................................36
6.10 Conditions....................................................................36
6.11 Rule 144......................................................................37
6.12 SEC Filings...................................................................37
6.13 Name Change...................................................................37
ARTICLE 7 CONDITIONS PRECEDENT OF QDL AND QUESTRON......................................37
7.1 Representations and Warranties................................................37
7.2 Closing Certificates..........................................................37
7.3 Due Diligence.................................................................38
7.4 Opinion of Counsel............................................................38
7.5 No Actions....................................................................38
7.6 Consents......................................................................38
7.7 Instruments and Possession....................................................38
7.8 Employment Agreement..........................................................39
7.9 Non-Competition Agreements....................................................39
7.10 Evidence of Termination of the Schedule 2.5(c) Debt. ........................39
7.11 Financing.....................................................................39
7.12 Financial Statements..........................................................40
7.13 Material Adverse Change.......................................................40
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ARTICLE 8 CONDITIONS PRECEDENT OF THE COMPANY
AND THE SHAREHOLDERS...........................................................40
8.1 Representations and Warranties.................................................40
8.2 Closing Certificates...........................................................40
8.3 No Actions.....................................................................40
8.4 Consents.......................................................................40
8.5 Instruments of Assumption......................................................41
8.6 Employment Agreement...........................................................41
8.7 Opinion of Counsel.............................................................41
8.8 No Material Adverse Change.....................................................41
ARTICLE 9 INDEMNIFICATION................................................................41
9.1 Indemnification by the Company and the Shareholders............................41
9.2 Indemnification by QDL and Questron............................................42
9.3 Limitation on Liability........................................................43
ARTICLE 10 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS......................................................................43
10.1 Representations, Warranties and Covenants......................................43
ARTICLE 11 NON-COMPETITION BY SHAREHOLDERS AND THE COMPANY................................44
11.1 Non-Compete....................................................................44
11.2 Remedies.......................................................................44
ARTICLE 12 MISCELLANEOUS..................................................................44
12.1 Cooperation....................................................................44
12.2 Waiver.........................................................................44
12.3 Notices........................................................................44
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.....................................................46
12.9 Binding Effect; Benefits.......................................................46
12.10 Assignability..................................................................47
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT, dated as of January 29, 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 AFCOM, Inc.,
a Florida 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. The Shareholders are the beneficial and record holders
of 100% of the issued and outstanding shares of capital stock of the Company.
2. QDL is a wholly-owned subsidiary of Questron.
3. The Company and the Shareholders desire to sell and QDL
desires to purchase the Business and the Acquired Assets (each as hereinafter
defined) of the Company 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 2.4(b)(ii).
"Accrued Interest" is defined in Section 2.4(a).
"Acquired Assets" is defined in Section 2.1.
"Actions" is defined in Section 4.9.
"Additional Cash Payment" is defined in Section 2.4(a).
"Additional Shares" is defined in Section 2.4(a).
<PAGE>
"Agreement" is defined in the preamble to this Agreement.
"Anniversary Date" is defined in Section 2.4(a).
"Anniversary Date Price" is defined in Section 2.4(a).
"Assumed Liabilities" is defined in Section 2.3.
"Benefit Plans" is defined in Section 4.16.
"Books and Records" shall mean with respect to the Company all books
and records pertaining to the Acquired Assets, the Business, the customers,
distributors and suppliers of the Company, including Tax returns and other
information relevant to such returns, but not including minutes of shareholder
and directors meetings.
"Business" is defined in Section 2.1.
"Claims" shall mean with respect to the Company 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
Acquired Assets or the Business of the Company.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Closing Shares" is defined in Section 2.4(a).
"Company" is defined in the preamble to this Agreement.
"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 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, to which the Company is a party or to
which any of its assets are subject, whether oral or written, express or
implied.
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"Contract Rights" shall mean with respect to the Company all of the
Company's rights and obligations under the Contracts.
"Deferred Purchase Price" is defined in Section 2.4(b).
"Dispute Notice" is defined in Section 2.4(b)(ii).
"EBIT" is defined in Section 2.4(b).
"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 4.27.
"ERISA" is defined in Section 4.16.
"ERISA Affiliate" is defined in Section 4.16(c).
"Excluded Liabilities" is defined in Section 2.3.
"Final Period" is defined in Section 4.31.
"Fixtures and Equipment" shall mean with respect to the Company all
of the furniture, fixtures, furnishings, machinery and equipment, spare parts,
supplies, vehicles and other tangible personal property owned by the Company and
located in, at or upon the Real Property of the Company as of the Reference
Balance Sheet Date, plus all additions, replacements or deletions since the
Reference Balance Sheet Date in the ordinary course of the Company's Business.
"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 4.27.
"Immaterial Lease" is defined in Section 4.12.
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<PAGE>
"Initial Cash Consideration" is defined in Section 2.4(a).
"Insurance Policies" shall mean with respect to the Company the
insurance policies issued by unaffiliated, third-party carriers relating to the
Acquired Assets and Business of the Company listed under the Company's name on
Schedule 4.23.
"Inventory" shall mean with respect to the Company (a) all of the
Company's inventories whether (x) in transit and owned by the Company or (y)
within the facilities of the Company held for resale or lease in the ordinary
course of the Company's Business to its customers and distributors, (b) all
office supplies and similar materials of the Company located in the facilities
of the Company and (c) all of the raw materials, work in process, finished
products and similar items of the Company, in the facilities of the Company 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.
"Leases" shall mean with respect to the Company all of the leases of
the Company (whether relating to real property, improvements thereon, vehicles,
machinery or equipment or other assets) listed under the Company's name on
Schedules 4.11(b) and 4.12 and all other leases relating to the Acquired Assets
or Business which are not required to be scheduled pursuant to this Agreement,
including the Immaterial Leases.
"Leased Real Property" is defined in Section 4.11(a).
"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 inaccrued,
due or to become due, liquidated or unliquidated.
"Material Adverse Effect" shall mean with respect to (A) the Company,
a material adverse effect on (i) the Acquired Assets, 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 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, 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.
"Net Debt" is defined in Section 2.4(a).
"Non-Competition Agreements" is defined in Section 7.9.
"Non-Real Estate Leases" is defined in Section 4.12.
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<PAGE>
"Owned Real Property" is defined in Section 4.11(a).
"Permits" shall mean with respect to the Company all licenses,
permits and other governmental authorization necessary to carry on the Business
of the Company.
"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.
"Purchase Price" is defined in Section 2.4.
"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 2.4(a).
"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 defined in Section 4.11(a).
"Real Property Leases" is defined in Section 4.11(a).
"Reference Balance Sheet" is defined in Section 4.13.
"Reference Balance Sheet Date" is defined in Section 4.13.
"Reference Income Statement" is defined in Section 4.13.
"Schedule 2.5(c) Debt" is defined in Section 2.5(c).
"Schedule 2.5(c) Creditors" is defined in Section 2.5(c).
"SEC" is defined in Section 5.4.
"SEC Documents" is defined in Section 5.4.
"Shares" is define din Section 2.4(a).
"Shareholders" is defined in the preamble to this Agreement.
-5-
<PAGE>
"Taxes" is defined in Section 4.15.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Acquired Assets. Subject to the terms and conditions of this
Agreement, the Company shall sell, assign, transfer, convey and deliver to QDL,
and QDL shall purchase from the Company on the Closing Date, all right, title
and interest of the Company in and to all of the Acquired Assets, free and clear
of all Encumbrances.
The Acquired Assets shall mean all of the Company's right,
title and interest in and to the assets, properties and rights of every type and
description, real and personal, 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 (the "Business"), all of which assets are
hereinafter referred to collectively as the "Acquired Assets", including,
without limitation:
(a) accounts and notes receivable, and, to the extent
transferable, deposits and prepaid expenses (including, without limitation, any
prepaid insurance premiums);
(b) cash and cash equivalents;
(c) all Owned Real Property;
(d) all Contract Rights;
(e) all of the Company's rights and obligations as lessees
under the Leases (including, without limitation, under the Real Property Leases,
the Non-Real Estate Leases and the Immaterial Leases);
(f) all Fixtures and Equipment;
(g) all Inventory of the Company;
(h) all Books and Records;
(i) all Intellectual Property Rights;
(j) all Claims;
(k) the Insurance Policies;
-6-
<PAGE>
(l) all Permits;
(m) all manufacturers', vendors' and suppliers' warranties
in respect of any item of property falling within the scope of the Acquired
Assets;
(n) all restrictive covenants and obligations of present
and former officers and employees of each of the Company (or any predecessor of
the Company) and of other individuals and corporations in favor of the Company
(or any predecessor of the Company);
(o) all of the Company's rights under and interests in the
Benefit Plans, collective bargaining and other employee agreements described on
Schedule 2.1(o) hereto;
(p) to the extent transferable, all environmental and, to
the extent related to the Business and the Acquired Assets other indemnification
rights inuring to the benefit of the Company under agreements to which the
Company is a party or is entitled to assert such rights; and
(q) all other assets used or held for use in the Business
by the Company, whether tangible or intangible, not expressly mentioned herein
which, as of the Closing Date, are owned by the Company, or in which the Company
has a right, title or interest.
2.2 Excluded Assets. Notwithstanding any other provision of this
Agreement, Questron shall not acquire (i) the accounts receivable from certain
of the Shareholders listed on Schedule 2.2, and (ii) the other assets listed on
Schedule 2.2 hereto.
2.3 Assumption and Exclusion of Certain Liabilities. QDL agrees to
assume, as of the Closing Date, (i) the Liabilities specifically listed on
Schedule 2.3(i) hereto, and (ii) all Liabilities of the Company which have been
incurred by the Company in the ordinary course of business since November 30,
1998 and which relate solely to any state of facts or circumstances arising
after November 30, 1998 (the Liabilities described in clauses in Section 2.3(i)
and Section 2.3(ii) are collectively referred to as the "Assumed Liabilities").
Except as specifically set forth in the preceding sentence, Questron is not
assuming, and shall not be liable for or bound by, any obligations or
Liabilities of the Company of any kind or nature, known or unknown, express,
implied, contingent or otherwise, including, but not limited to, (x) any
Liabilities of the Company or Business which are not expressly Assumed
Liabilities relating or arising from any state of facts or circumstances
existing or occurring on or prior to November 30, 1998, and (y) the Liabilities
listed on Schedule 2.3(iii) hereto (collectively, the "Excluded Liabilities").
2.4 Purchase Consideration and Payment for Purchased Assets. In
consideration of the sale, conveyance, transfer, assignment and delivery of the
Acquired Assets and Business by the Company 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 Company a total
purchase price up to Seven Million Three Hundred Thousand Dollars ($7,300,000)
plus the Accrued Interest, which will consist of the Initial Purchase Price and
the Deferred Purchase Price, in each case as defined below .
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(a) Initial Purchase Price. The "Initial Purchase Price"
shall be paid at Closing and shall equal Five Million Eight Hundred Thousand
Dollars ($5,800,000), plus the Accrued Interest (defined below) payable as
follows: (i) wire transfers (or certified checks) from or on behalf of QDL to
the Company or its designees as specified in a written notice to QDL in an
aggregate amount equal to Five Million Ninety-Seven Thousand Eight Hundred
Eighteen Dollars ($5,097,818) (which amount is equal to Five Million Eight
Hundred Thousand Dollars ($5,800,000) less the stated debt of the Company net of
cash and cash equivalents to the Company being transferred hereunder as of
November 30, 1998 as reflected on Schedule 2.4 (a)(i) in the aggregate amount of
Four Hundred Fifty-Two Thousand One Hundred Eighty Two Dollars ($452,182) ("Net
Debt") less the deemed value of the Closing Shares (as defined below in clause
(ii))), plus interest (the "Accrued Interest") on such amount at a rate of 6%
per annum calculated from the Effective Date to the Closing Date (the "Initial
Cash Consideration") and (ii) delivery of Fifty Thousand (50,000) shares of
Questron's Common Stock, par value $0.0001 per share (the "Questron Common
Stock"), issued by Questron to the Shareholders on behalf of the Company, which
shall be deemed to have a value of Two Hundred Fifty Thousand Dollars ($250,000)
(the "Closing Shares"). On behalf of and at the direction of, the Company, each
Shareholder shall be issued the number of Closing Shares specified on Schedule
2.4(a)(ii). On the eighteen-month anniversary of the Effective 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, as reported by the Wall Street Journal for the ten
trading days period ending on the third trading day immediately prior to the
Anniversary Date. If the Anniversary Date Price is less than Five Dollars
($5.00) per share of Questron Common Stock, 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 Two Hundred Fifty Thousand Dollars ($250,000) calculated on the basis
of the Anniversary Date Price, and (ii) the number of Closing Shares (50,000)
(the "Additional Shares" and, together with the Closing Shares, the "Shares"),
or (B) QDL shall pay to the Shareholders by wire transfers (or certified checks)
an amount in cash equal to Two Hundred Fifty Thousand Dollars ($250,000) less
the amount equal to the number of Closing Shares (50,000) 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 2.4(a), each Shareholder shall be
issued Additional Shares in the proportion set forth on Schedule 2.4(a)(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. Each of QDL, the Shareholders and the Company acknowledge and agree
that all payments of cash and deliveries of shares of Questron Common Stock to
the Shareholders under this Section 2.4(a) shall be treated as if made directly
to the Company and, to the extent made directly to the Shareholders, are being
made at the direction of the Company for convenience purposes only. QDL and
Questron shall in no event have any further liability or obligations to the
Company with respect to any payments of cash or deliveries of shares of Questron
Common Stock to the Shareholders in accordance with this Section 2.4(a) after
such cash payments have been made and such shares have been delivered to the
Shareholders in accordance with this Section 2.4(a).
(b) Deferred Purchase Price. (i) The "Deferred Purchase
Price" will be an amount, subject to the limitations set forth below, equal to
six (6) times the difference between EBIT
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(as defined below) for the Business for the twelve (12) month period ending
December 31, 1999 and Nine Hundred Fifty Thousand Dollars ($950,000), provided
that the maximum amount payable to the Company pursuant to this Section 2.4(b)
shall not exceed One Million Five Hundred Thousand Dollars ($1,500,000). QDL
shall pay the Company or its designees or assigns the Deferred Purchase Price by
wire transfers (or certified checks) within fifteen (15) days of the date
Questron files its Annual Report in Form 10-K for the fiscal year ended December
31, 1999 with the Securities and Exchange Commission. For purposes of this
Section 2.4(b), "EBIT" shall mean the aggregate earnings before interest, income
taxes, amortization of goodwill and Questron's and QDL's rights under the
Non-Competition Agreements, and the allocation of corporate expenses associated
with the Business, any extraordinary expenses and payments made to Affiliates of
QDL or Questron which are related to the Business and are made other than in the
ordinary course of business. With respect to the calculations of EBIT,
depreciation of the Acquired Assets shall be determined in accordance with GAAP.
For the avoidance of doubt, EBIT shall be calculated solely with respect to the
AFCOM division of QDL and shall not include any operations of QDL not associated
with the Business. EBIT shall be calculated in accordance with GAAP,
consistently applied. EBIT shall be determined by QDL and reviewed by the
Company's and QDL's respective independent accountants.
(ii) In the event that either Shareholder disputes QDL's
calculation of EBIT in accordance with Section 2.4(b)(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.
2.5 Transactions on the Closing Date.
(a) At the Closing, the Company will deliver, or cause to
be delivered, to QDL and/or Questron the following:
(i) each of the certificates and documents
contemplated by Article 7; and
(ii) 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.
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(b) At the Closing, QDL and/or Questron will deliver to the
Company and/or the Shareholders the following:
(i) the Initial Cash Consideration;
(ii) the stock certificates representing the
Closing Shares;
(iii) each of the certificates and documents
contemplated by Article 8; and
(iv) 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, wire transfers from or on behalf of QDL
will be made to the entities listed on Schedule 2.5 (c) (the "Schedule 2.5(c)
Creditors") in the aggregate amounts set forth on Schedule 2.5(c), which amount
shall represent all of the outstanding indebtedness of the Company owed to those
Schedule 2.5 Creditors as of the Closing Date (the "Schedule 2.5(c) Debt").
(d) Restricted Securities. The shares representing the
Closing Shares and any Additional Shares shall be restricted securities under
the Securities Act of 1933, as amended (the "Securities 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. 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:
"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 February 2, 1999 (the
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"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 December 1, 1998 (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 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 February 15, 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 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:
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
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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. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida and
has all requisite corporate power and authority to carry on its Business as now
being conducted and to own the Acquired Assets 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.
4.3 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.
4.4 Capitalization. The authorized capital of the Company consists of
100,000 shares of common stock, no par value per share (the "Company Common
Stock"), of which 100,000 shares are issued and outstanding.
4.5 Ownership of Shares. Each Shareholder is the lawful record and
beneficial owner of that number of shares of Company Common Stock set forth
opposite such Shareholder's name on Schedule 1.1, which shares represent all of
the issued and outstanding shares of capital stock of the Company.
4.6 Title to Acquired Assets. Schedule 4.6 categorizes and lists the
Acquired Asset owned or leased by the Company. The Acquired Assets constitute
and include all the property, assets and rights related to, used, or useful in
the conduct of the Business of the Company in the ordinary course, consistent
with past practice. Except as set forth on Schedule 4.6, the Company owns free
and clear of any Encumbrances or, as specifically set forth on Schedule 4.6,
leases or has rights to use, the Acquired Assets set forth on Schedule 4.6. The
Acquired Assets are suitable for the purposes for which such assets are
currently used or are held for use, and are in adequate working condition,
subject to normal wear and tear, and are free from any known defects. Upon
consummation of the transactions contemplated hereby, QDL will acquire good
title to all of the
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Acquired Assets owned by the Company, free and clear of all Encumbrances, except
for Encumbrances specifically identified on Schedule 4.6.
4.7 Acquired Assets Complete. The Acquired Assets constitute all of
the properties and assets used or held for use in connection with the Business
and the conduct of the Business as currently conducted, and include all
properties, rights and assets necessary for the performance of any of the
Contracts and to permit QDL to conduct the Business in all material respects as
such Business is conducted on, and has been conducted prior to, the date of this
Agreement.
4.8 No Violation. Neither any Shareholder nor the Company is subject
to or bound by any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) (in the case of the Company) its articles of
incorporation or by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, proxy, bond, indenture, other instrument or
agreement, license, Permit, trust, custodianship or other
restriction, or
(d) any consent, judgment, order, writ, award, injunction
or decree of any 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 or the Company of this Agreement or any Other
Document and the consummation of the transactions contemplated hereby and
thereby. 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.
4.9 Litigation. Except as set forth on Schedule 4.9, 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, the Assumed Liabilities, the Acquired Assets, 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 any trust or other funding
instrument, fiduciary or administrator thereof 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. 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
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available to QDL or Questron copies of all proceedings, correspondence and other
documents relating to each Action listed on Schedule 4.9. Each Action pending
or, to the knowledge of the Company and the Shareholders, threatened or that the
Company and the Shareholders have a reasonable basis to expect or anticipate
(whether or not disclosed on Schedule 4.9) is fully covered by insurance of
reputable and solvent insurance companies and each such applicable insurance
policy is in full force and effect and the Company has not received any notice
or, to the knowledge of the Company and the Shareholders, threat of
cancellation, limitation or non-coverage of such insurance policies.
4.10 Intentionally Omitted.
4.11 Real Property. (a) Schedule 4.11(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 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.
(b) Schedule 4.11(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
4.11(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. Except as set forth in Schedule
4.11(c), 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
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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 4.11(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 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) Except as set forth in Schedule 4.11(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 necessary Permits to carry on the
Business in the ordinary course. Except as set forth in Schedule 4.11(g), since
December 31, 1993 there has been no material construction or modifications to
the leased Real Property or the owned Real Property.
4.12 Non-Real Estate Leases. Schedule 4.12 lists all Acquired Assets
(other than Real Property) 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 Five Thousand Dollars ($5,000) (each, an
"Immaterial Lease"). Schedule 4.12 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 4.12.
4.13 Financial Statements. (a) The Shareholders and the Company have
heretofore furnished QDL and/or Questron with copies of the following financial
statements of the Company: (i) unaudited balance sheets as at September 30 for
each of 1995, 1996 and 1997, respectively, and as at December 31, 1997; (ii)
unaudited statements of operations for each of the years ended on September 30,
for 1995, 1996, 1997 and for the three months ended December 31, 1997; (iii) an
unaudited balance sheet (the "Reference Balance Sheet") as at November 30, 1998
(the "Reference Balance Sheet Date"); and (iv) an unaudited statement of
operations (the "Reference Income Statement") for the eleven (11) month period
ended November 30, 1998. Except as noted therein and except for normal year-end
adjustments with respect to the partial year financial statements, all such
financial statements are complete and correct, were prepared, to the knowledge
of the Company, in accordance with GAAP consistently applied throughout the
periods indicated except as otherwise set forth on Schedule 4.13 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.
(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
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(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) The Company has heretofore delivered true and complete
copies of all 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.
4.14 Books and Records. 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. Such Books and Records of the
Company reflect all the material transactions and other material matters
required, to the knowledge of the Company, to be set forth under GAAP applied on
a consistent basis except as set forth on Schedule 4.13.
4.15 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;
(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 timely filed
when due in accordance with all applicable laws;
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(ii) all Taxes shown on the Returns have been or
will be timely paid when due;
(iii) the Returns completely, accurately, and
correctly in all material respects reflect the facts regarding the
income, properties, operations and status of any entity required to
be shown thereon.;
(iv) 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;
(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 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.
4.16 Employee Matters. (a) Schedule 4.16 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
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 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 incentive or deferred
compensation plans, agreements, policies or other arrangements 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
4.16, each of the following is true:
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(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) 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 the Company's and the Company's and the Shareholders'
knowledge, threatened, and to the Company's and the Shareholders'
knowledge, there are no facts which could give rise to any such
material actions, suits or claims (other than routine claims for
benefits in the ordinary course);
(iv) none of the Shareholders, 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 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);
(v) all Benefits Plans are in compliance in all
material respects with ERISA and the Code and each Benefit Plan may
be amended or terminated without obligation or liability to QDL and
Questron (other than those for which specific assets have been set
aside in a trust or other funding vehicle);
(vi) all contributions and insurance premiums
required as of the Closing Date have been paid;
(vii) 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;
(viii) 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
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(ix) 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 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).
(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 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.
(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.
(f) With respect to the Company, except as set forth on
Schedule 4.16(f), each of the following is true in all material respects:
(i) the Company is in compliance with all
applicable laws and agreements respecting employment and employment
practices, terms and conditions of employment and wages and hours and
occupational safety and health and is not engaged in any unfair labor
practice within the meaning of Section 8 of the National Labor
Relations Act, and there is no action, suit or legal, administrative,
arbitration, grievance or other proceeding pending or, to the
Company's and the Shareholders' knowledge, threatened, or, to the
Company's and the Shareholders' knowledge, is any investigation
pending or threatened against the Company 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;
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(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;
(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 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, 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 have been no claims with
respect to the equal employment opportunity practices or affirmative
action practices of the Company 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 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 they are not retained, except as
otherwise provided by Law or as set forth on Schedule 4.16.
4.17 Intellectual Property. Schedule 4.17 (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) concerning (x) all of the Company's registrations
of trademarks and of other marks, trade names, brand names or other trade
rights, and all pending applications for any such registrations and all of the
Company's patents and copyrights and all pending applications therefor, (y) all
material computer software used by the Company in the
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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 use and
ownership of the names "AFCOM" or "AFCOM, Inc.," and to the knowledge of the
Shareholders and the Company, all rights of the Company to exclusive use and
ownership of the names "AFCOM" or "AFCOM, 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 4.17) (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 4.17,
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 4.17, 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 in whole or in part to any of
the Intellectual Property Rights except as set forth on Schedule 4.17. Except as
set forth on Schedule 4.17, the Company has not received notice of nor has any
reason to believe 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.
4.18 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, have arisen from bona fide transactions in the ordinary course of
business and are fully collectible by the Company in the ordinary course of
business; provided, however, that any doubtful accounts receivable equal, in the
aggregate, to Ten Thousand Dollars ($10,000) shall not be deemed material for
the purposes of this Section 4.18. Except as set forth on Schedule 4.18(a), and
as provided in the preceding sentence, all accounts receivable of the Company as
of the Closing Date 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.
(b) Except as expressly and fully set forth on Schedule
4.18(b), since the Reference Balance Sheet Date, the Company has paid all
accounts payable in the ordinary course of business in accordance with the terms
thereof, and have not delayed the payment thereof in contemplation of the
transactions provided in the Agreement or otherwise.
4.19 Inventory. Except as set forth on Schedule 4.19, the Inventories
of raw materials, in-process and finished products of the Company are in good
condition, conform in all material
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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, to the knowledge of the
Company, with GAAP consistently applied except as set forth on Schedule 4.13.
All Inventory disposed of by the Company since the Reference Balance Sheet Date
has been disposed of under terms consistent with the Company's past practices.
4.20 Absence of Change or Event. Except as set forth on Schedule
4.20, 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) experienced a material adverse change in the Acquired
Assets, Liabilities (contingent or otherwise), property, Business,
condition (financial or otherwise), operations, results of operations
or prospects of the Company;
(b) incurred any obligation or Liability, absolute,
accrued, contingent or otherwise, whether due or to become due, in
excess of Five Thousand Dollars ($5,000) 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, Business or assets,
tangible or intangible, of the Company;
(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, 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) suffered any damage, destruction or loss (whether or
not covered by insurance) in an amount greater than Five Thousand
Dollars ($5,000);
(f) made or committed to make any capital expenditures or
capital additions or betterments in excess of an aggregate of Five
Thousand Dollars ($5,000);
(g) instituted or threatened any litigation, action or
proceeding before any Governmental Authority relating to it or its
property;
(h) 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
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<PAGE>
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;
(i) increased the compensation of any officer, director,
employee or agent of the Company, directly or indirectly, including
by means of any bonus, pension plan, profit sharing, deferred
compensation, savings, insurance, retirement, or any other employee
benefit plan, except in the case of any employee whose annual base
compensation is less than 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 to lapse or terminate;
(m) materially amended or terminated or received any threat
(not subsequently withdrawn) to terminate, any Contract;
(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;
(p) 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 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;
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<PAGE>
(r) 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;
(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; or
(t) engaged in any other material transaction other than in
the ordinary course of business.
4.21 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.
4.22 Contracts and Commitments. (a) Except for Contracts listed on
Schedule 4.22, the Company is not a party to, or bound by, any Contract of any
kind to be performed, in whole or in part, after the Closing Date (i) pursuant
to which it is obligated to expend more than Ten Thousand Dollars ($10,000) in
any twelve-month period or that is not subject to cancellation on not more than
Thirty (30) days' notice by the Company without penalty or increased cost, or
(ii) with any affiliate of the Company or the Shareholders. There is not under
any Contract: (A) any existing material default by the Company or, to the
Company's and the Shareholders' knowledge, by any other party thereto, or (B)
any event which, after notice or lapse of time or both, would constitute a
material default by the Company or, to the Company's and the Shareholders'
knowledge, by any other party, or result in a right to accelerate, suspend or
terminate or result in a loss of rights of the Company. Schedule 4.22 lists the
following Contracts, agreements and other written arrangements to which the
Company is a party:
(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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<PAGE>
(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 Benefit Plan of the Company 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;
(vii) 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), 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;
(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;
(ix) any other written arrangement (or group of related
written arrangements) either involving aggregate 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).
(b) The Company has delivered to QDL and/or Questron a
correct and complete copy of each written arrangement listed in Schedule 4.22
and has included as part of Schedule 4.22 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 4.22, with respect to each written arrangement listed, (A)
the written arrangement is legal, valid, binding, and enforceable obligation of
the Company (except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar laws
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<PAGE>
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 if 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 the Shareholders'
knowledge, no party has repudiated any term of the written arrangement.
4.23 Insurance. (a) Schedule 4.23 sets forth (i) the Insurance
Policies presently in force and, without restricting the generality of the
foregoing, those covering the Company's 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, the expiration date, the policy
number and annual premium; (ii) the Company's premiums, deductibles and losses
in excess of Twenty-Five Thousand Dollars ($25,000), by year, by type of
coverage, for the calendar years 1995, 1996 and 1997 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 for
damage to or loss of property or income which have been referred to insurers or
which the Company believes to be covered by commercial insurance; (iv) general
comprehensive liability policies carried by the Company for the calendar years
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 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 4.23.
(b) The Insurance Policies set forth on Schedule 4.23 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 consistent with industry practices and 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
4.23; 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. 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 4.23 will not be
available in the future on substantially the same terms as now in effect.
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4.24 Intentionally Omitted.
4.25 Customers, Suppliers, Distributors, Etc. (a) No supplier,
customer, distributor or sales representative of the Company has canceled or
otherwise terminated, or made any written threat to the Company or to any of its
Affiliates to cancel or otherwise terminate, for any reason, including the
consummation of the transactions contemplated hereby, its relationship with the
Company 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 Five Thousand Dollars ($5,000). Except as set forth on
Schedule 4.25, 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 4.25, 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 4.25(b) sets forth the customer sales history
of the top twenty customers of the Company for the calendar years ended December
31, 1997 and 1998. Such information is true and complete.
(c) Schedule 4.25(c) sets forth a complete and accurate
list of suppliers of the Company from whom the Company has made aggregate
purchases in excess of Twenty Thousand Dollars ($20,000) during the calendar
year ended December 31, 1998, showing the approximate total purchase by the
Company from each such supplier during such calendar year.
4.26 Previous Sales; Warranties; Product Liability. (a) The Company
has not breached any express or implied warranties in connection with the sale
or distribution of goods or the performance of services.
(b) Schedule 4.26(b) sets forth all warranty claims for
amounts in excess of Fifteen Thousand Dollars ($15,000), individually, asserted
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
three fiscal years ended September 30, 1997, 1996 and 1995.
(c) Schedule 4.26(c) contains a complete and correct list
of (i) product liability claims made against the Company since September 30,
1995 and (ii) any amounts paid by the Company or its insurance company with
respect to such claims. Set forth on Schedule 4.26(c) is a list of all product
liability insurance policies currently in effect or providing coverage for
occurrences in prior periods. Except as set forth on Schedule 4.26(c), there is
no Action, suit, inquiry, proceeding or investigation by or before any
Governmental Authority pending or
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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.
4.27 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 4.27, the Company and
the Shareholders warrant and represent that: (i) neither the Company 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 and the Real Property are in compliance with all applicable
Environmental Laws; (iii) the Company has 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 is 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 or the Real Property and neither the Shareholders nor the Company has
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 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 Shareholders'
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) 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 the Real Property or any other
property which may give rise to liability under any Environmental Law.
4.28 Absence of Certain Payments. Except as set forth on Schedule
4.28, neither the Company nor any director, officer, agent, employee or other
Person acting on behalf of the Company nor any Shareholder has used any
corporate or other funds for unlawful contributions, payments,
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gifts, or entertainment, or made any unlawful expenditures relating to political
activity to government officials or others or established or maintained any
unlawful or unrecorded funds in violation of Section 30A of the Exchange Act.
Neither the Company nor any current director, officer, agent, employee or other
Person acting on behalf of the Company has accepted or received any unlawful
contributions, payments, gifts or expenditures.
4.29 Additional Information. Schedule 4.29 accurately lists the
following (Schedule 4.29 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
(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.
4.30 Investment Intent. The Company and each of the Shareholders, on
their own behalf and in their individual capacities:
(i) represents and warrants that (a) the Closing
Shares, and (b) the Additional Shares, if any (the securities
describes in clauses (a), (b) and (c) 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
neither the Company nor any Shareholder 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 the Company or any Shareholder 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;
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(iv) acknowledges that all documents, records and
books pertaining to Questron and its business (including, but not
limited to, the following documents) have been provided to, and
reviewed by, the Company and each Shareholder:
(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
Shareholders and Shareholders' attorney and/or accountant and/or
representative. Each Shareholder 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 such Shareholders;
(v) the Company and each Shareholder is an
accredited investor, as that term is defined in Regulation D under
the Act; and
(vi) understands that any distribution of the
Securities by the Company to the Shareholders must comply with all
provisions of the Securities Act.
4.31 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. There is no
fact known to the Company and the Shareholders 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 4.13
(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 Shareholders or the Company
in connection with the transactions contemplated by this Agreement.
(b) The Company has furnished or caused to be furnished to
QDL and/or 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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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 Company or its designees pursuant to this Agreement, when
issued and paid for as contemplated hereby, will be duly authorized, 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 contemplated by this Agreement or permitted
by written consent of QDL, the Shareholders 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 the Shareholders or undertake any similar
transactions affecting the capital of the Company;
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(ii) sell or dispose of any assets of the Company
other than the sale of inventory in the ordinary course of
business;
(iii) take any action of the nature referred to
in Section 4.20, 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) of the Company 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 acknowledge and agree
that from the Effective Date until Closing the Shareholders and the Company
shall conduct the Business for the account of QDL and that all of the profits
and losses associated with the Business during such period shall accrue solely
to QDL. 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 intact; to keep available
to QDL the services of the present officers and employees of the Company; to
preserve for QDL the good will of the Company's suppliers, customers,
distributors, sales representatives and others having business relations with
the Company; 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 4.23 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; Bulk Sales Act.
(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. 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.
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 Acquired Assets 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, including all costs and fees
relating to the assignment of Contracts and Leases to QDL and the obtaining of
consents with respect thereto.
(c) At least thirty (30) days prior to the date that
Internal Revenue Service Form 8594 is required to be filed with respect to the
Acquisition, QDL shall prepare and submit to the Company, and the Company and
the Shareholders hereby agree to be bound by, an allocation of the Purchase
Price among the Acquired Assets and the Assumed Liabilities as set forth on
Schedule 6.2(c). Each of QDL and the Company and/or the Shareholders agrees that
(a) it will prepare all required Tax returns and reports in a manner that is
consistent with such allocation, (b) it will file Internal Revenue Service Form
8594 in such manner and (c) it will not voluntarily take any position
inconsistent therewith upon examination of any such Tax return, in any refund
claim, in any litigation or otherwise with respect to such income Tax returns.
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(d) Within thirty (30) days after the Closing, the Company
and the Shareholders shall provide QDL with a clearance certificate or similar
documents that may be required by any state Tax Authority in order to relieve
QDL of any obligation to withhold any portion of the Purchase Price.
(e) The parties hereby waive compliance with the bulk sales
act or comparable statutory provisions of each applicable jurisdiction. The
Company and the Shareholders, jointly and severally, shall indemnify QDL and
Questron and their respective Affiliates and hold each of them harmless, from
and against any and all losses, deficiencies, liabilities, damages, assessments,
judgments, costs and expenses caused by, resulting from or arising out of the
failure of the Company and the Shareholders to comply with the terms of any such
provisions applicable to the transactions completed by this Agreement and the
Other Documents.
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 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. (a) 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,
Acquired Assets, Assumed Liabilities, Liabilities (contingent or otherwise),
results of operations, employees and financial condition of the Company 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, to the extent directly relating thereto, of the
Shareholders) for purposes of 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). 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 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
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of QDL and Questron, on the one hand, and the Company 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, 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 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 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 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, 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 or enter into any agreement with respect thereto. The
Company 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 shall use its best efforts to keep available current
Company employees for employment by QDL. At the Closing, QDL shall offer
employment, effective immediately upon the Closing, to the Company employees
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. The
Company further agrees to make the officers and the Company employees listed on
Schedule 6.6(a) and whom QDL deems reasonably necessary to the continued
operation of the Business available to QDL during the 90-day period following
the Closing Date for the purpose of working for QDL.
(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
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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
2.1(o), 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 or the Shareholders
regarding the transactions contemplated hereby shall be made only with the
consent of QDL.
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 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.
6.9 Reserved.
6.10 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.
6.11 Rule 144. Following the Closing Date, Questron agrees to use
commercially reasonable efforts to cooperate with the Company or the
Shareholders with respect to permitted sales of Questron Common Stock by the
Company under Rule 144 of the Exchange Act.
6.12 SEC Filings. Questron will provide the Company 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.
6.13 Name Change. At the Closing, the Company shall deliver to QDL
such documents as QDL may reasonably request in connection with the consent or
approval or filing requirements to effect the change of the name of the Company
in the states and jurisdiction in which the Company conducts business, including
"doing business as" designations to a name other than "AFCOM" or any name
similar to such name or any variant or abbreviations of such name.
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:
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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 Florida and a certificate of existence and good standing
as of a recent date from the Secretary of State of the State of Georgia and the
Secretary of State of the State of Florida.
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 Charles H. Stark P.A., counsel for the
Shareholders and the Company, substantially in the form attached hereto as
Exhibit A.
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 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. All consents of third parties, including, without
limitation, Governmental Authorities and non-governmental self-regulatory
agencies, and all filings with and notifications of Governmental Authorities,
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of 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
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conducted, other than routine post-closing notifications or filings, shall have
been obtained or effected.
7.7 Instruments and Possession. To effect the transfers referred to
in Section 2.1, the Company and the Shareholders shall have executed and
delivered to QDL:
(i) a bill of sale, substantially in the form
attached hereto as Exhibit B, conveying in the aggregate all personal
property included in the Acquired Assets;
(ii) an Assignment and Assumption of Lease, with
respect to each of the Real Property Leases; an estoppel certificate
from the landlord for each Real Property Lease, 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) deeds in favor of QDL for each parcel of
Owned Real Property, in forms reasonably satisfactory to QDL;
(v) assignments, in form and substance
satisfactory to QDL, of all Intellectual Property Rights, in
recordable form to the extent necessary to assign such rights;
(vi) to the extent in written or other
deliverable form and not previously delivered, all copies of
Intellectual Property or other secret, proprietary or confidential
information included in the Acquired Assets;
(vii) evidence of the name change of the Company
required by Section 6.13, which evidence shall be reasonably
satisfactory to QDL;
(viii) all cash and cash equivalents of the Company;
(ix) all Books and Records of the Company;
(x) 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 facilities and Business;
(xi) such changes relating to the bank accounts
and safe deposit boxes of the Company 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;
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(xii) such other instruments as shall be
reasonably requested by QDL to vest in QDL good and valid title in
and to the Acquired Assets in accordance with the provisions hereof;
and
(xiii) 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 E (together with
the "Restrictive Letter" and any other exhibits attached thereto, the
"Employment Agreement") duly executed and delivered by Dermott Rogers.
7.9 Non-Competition Agreements. QDL shall have received from each of
the Company and the Shareholders a Non-Competition Agreement, substantially in
the form attached hereto as Exhibit F (the "Non-Competition Agreements").
7.10 Evidence of Termination of the Schedule 2.5(c) Debt. QDL shall
have received from the Company evidence satisfactory to it of the termination of
the Schedule 2.5(c) Debt upon the payment of the Schedule 2.5(c) Debt as
contemplated by Section 2.5(c) and evidence of the release of any Encumbrances
on the Acquired Assets associated with the Schedule 2.5(c) Debt, in each case,
in a form reasonably satisfactory to QDL.
7.11 Financing. QDL shall have obtained bank 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.
7.12 Financial Statements. QDL and Questron shall have received the
financial statements referenced in Section 4.13.
7.13 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.
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE SHAREHOLDERS
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
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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.
8.2 Closing Certificates. The Company and the Shareholders shall have
received (A) 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, Governmental Authorities, and non-governmental self-regulatory
agencies, and all filings with and notifications of Governmental Authorities,
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the Business of 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.
8.5 Instruments of Assumption. The Company shall have received from
QDL such instruments of assumption with respect to the Assumed Liabilities as
the Company may reasonably request, duly executed by QDL.
8.6 Employment Agreement. QDL shall have executed and delivered the
Employment Agreement.
8.7 Opinion of Counsel. The Shareholder shall have been furnished
with an opinion, dated the Closing Date, of Battle Fowler LLP, counsel to QDL
and Questron, in form and substance reasonably satisfactory to the Company.
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<PAGE>
8.8 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 Shareholders hereby agrees to jointly and
severally defend, indemnify and hold harmless QDL, Questron and their
successors, assigns and affiliates (collectively, the "Questron Indemnitees")
from and against any and all losses, deficiencies, liabilities, damages,
assessments, judgments, costs and expenses, including reasonable attorneys' fees
(both those incurred in connection with the defense or prosecution of the
indemnifiable claim and those incurred in connection with the enforcement of
this provision) including, without limitation, Environmental Liabilities and
Costs (collectively, "Questron Losses"), caused by, resulting from or arising
out of:
(a) (i) breaches of representation or warranty under this
Agreement on the part of 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) all Excluded Liabilities;
(c) any recalls, warranty claims, returns or product
liability with respect to sales by the Company prior to the Closing
Date or included in the finished goods inventory transferred to QDL;
(d) any and all Taxes imposed on the Company;
(e) 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;
(f) the failure to collect in full any accounts receivable
which are included in the Acquired Assets within three (3) months
following the Closing;
(g) the maintenance, amendment or termination of any
Benefit Plan of the Company or out of any obligations under any such
plan; and
(h) any and all actions, suits, proceedings, claims,
demands, incident to any of the foregoing or such indemnification;
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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 Company and
the Shareholders thereof, provided further, however, that the failure to so
notify the Company and the Shareholders shall not reduce or affect the Company's
and the Shareholders' obligations with respect thereto except to the extent that
the Company and the Shareholders are materially prejudiced thereby. Subject to
rights of or duties to any insurer or other third Person having liability
therefor, the Company and the Shareholders shall have the right promptly upon
receipt of such notice (after acknowledging responsibility for such 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 QDL and/or Questron), including, at
its own expense, employment of counsel reasonably satisfactory to QDL and/or
Questron; provided, however, that if the Company and 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. QDL and Questron hereby
agree to jointly and severally defend, indemnify and hold harmless the Company,
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;
(b) all Assumed Liabilities and excluding any Excluded
Liabilities;
(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 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
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<PAGE>
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 Company and the Shareholders;
provided, however, that if QDL and Questron shall have exercised their right to
assume such control, the Company and 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.
9.3 Limitation on Liability. The aggregate liability of the Company
and Shareholders under this Article 9 shall not exceed the aggregate amount of
the cash consideration received by the Company as the Purchase Price (including,
without limitation, any Additional Shares or Additional Cash Payment) ,
provided, however, that such limitation shall not apply to the representation
set forth in Section 4.27.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
10.1 Representations, Warranties and Covenants. The covenants
contained in this Agreement shall survive the Closing Date without limitation.
The representations and warranties contained herein shall survive the Closing
Date for a period of three (3) years, except that any representation or warranty
of the Company and the Shareholders contained in Sections 4.1, 4.6, 4.7, 4.13
and 4.27 shall survive the Closing Date without limitation, and any
representation or warranty of the Company and the Shareholders contained in
Sections 4.15 (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 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 in such case such representations and
warranties shall survive to the date on which such agreement to extend expires).
ARTICLE 11
NON-COMPETITION BY SHAREHOLDERS AND THE COMPANY
11.1 Non-Compete. In consideration of the purchase by QDL of the
Acquired Assets and the assumption by QDL of the Assumed Liabilities under this
Agreement, the Company and each Shareholder will at the Closing execute and
deliver the Non-Competition Agreements.
11.2 Remedies. The Company and each Shareholder recognize that a
breach or threatened breach by such party of such party's obligations under this
Article 11 and the Non-Competition Agreements would cause irreparable injury to
QDL and Questron, and QDL and Questron shall be
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<PAGE>
entitled to seek preliminary and permanent injunctions enjoining such party from
violating the Non-Compete Agreements, in addition to any other remedies which
may be available.
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 Shareholders 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.
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:
Allen R. Anderson
1852 Wayfield Drive
Longwood, Florida 32779
and
Dermott P. Rogers
1209 Waverly Way
Longwood, Florida 32750
(with a copy to)
Charles H. Stark, p.a.
986 Douglas Avenue
Suite 100
Altamonte Springs, FL 32714
Telecopier: (407) 788-7244
Telephone: (407) 788-0250
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<PAGE>
(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.
(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. The prevailing party of any
action, suit or proceeding arising out of or relating to this Agreement shall be
entitled to receive its attorneys' fees and court costs from the other party
hereto.
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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.
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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 Executiv
Officer
AFCOM, INC.
By /s/ Dermott P. Rogers
-------------------------------------------
Name: Dermott P. Rogers
Title: President
SHAREHOLDERS:
/s/ Dermott P. Rogers
--------------------------------------------
Dermott P. Rogers
/s/ Allen R. Anderson
--------------------------------------------
Allen R. Anderson
EXHIBIT 10.20
-------------
================================================================================
ASSET PURCHASE AGREEMENT
By and Between
QUESTRON TECHNOLOGY, INC.,
QUESTRON DISTRIBUTION LOGISTICS, INC.,
METRO FORM CORPORATION
d.b.a. Olympic Fasteners & Electronic Hardware
and
THE PERSONS
SIGNATORY HERETO
Dated as of March 11, 1999
================================================================================
<PAGE>
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
ARTICLE 1
<S> <C>
DEFINITIONS...............................................................................................1
1.1 Definitions..........................................................................1
ARTICLE 2
PURCHASE AND SALE OF ASSETS...............................................................................7
2.1 Acquired Assets......................................................................7
2.2 Excluded Assets......................................................................8
2.3 Assumption and Exclusion of Certain Liabilities......................................8
2.4 Purchase Consideration and Payment for Acquired Assets...............................8
2.5 Transactions on the Closing Date....................................................10
ARTICLE 3
CLOSING AND TERMINATION..................................................................................11
3.1 Closing.............................................................................11
3.2 Termination.........................................................................11
3.3 Fee Upon Termination................................................................12
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
AND THE COMPANY..........................................................................................12
4.1 Authority; Due Execution............................................................12
4.2 Organization........................................................................13
4.3 Subsidiaries and Equity Investments.................................................13
4.4 Capitalization......................................................................13
4.5 Ownership of Shares.................................................................13
4.6 Title to Acquired Assets............................................................13
4.7 Acquired Assets Complete............................................................14
4.8 No Violation........................................................................14
4.9 Litigation..........................................................................14
4.10 Intentionally Omitted...............................................................15
4.11 Real Property.......................................................................15
4.12 Non-Real Estate Leases..............................................................16
4.13 Financial Statements................................................................16
4.14 Books and Records...................................................................17
4.15 Tax Matters.........................................................................17
4.16 Employee Matters....................................................................18
4.17 Intellectual Property...............................................................21
4.18 Accounts Receivable and Accounts Payable............................................22
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4.19 Inventory...........................................................................22
4.20 Absence of Change or Event..........................................................22
4.21 Compliance with Law.................................................................24
4.22 Contracts and Commitments...........................................................24
4.23 Insurance...........................................................................26
4.24 Intentionally Omitted...............................................................27
4.25 Customers, Suppliers, Distributors, Etc.............................................27
4.26 Previous Sales; Warranties; Product Liability.......................................27
4.27 Environmental Matters...............................................................28
4.28 Absence of Certain Payments.........................................................29
4.29 Additional Information..............................................................29
4.30 Investment Intent...................................................................29
4.31 Disclosure..........................................................................30
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON.......................................................30
5.1 Organization........................................................................30
5.2 Corporate Authority; Due Execution..................................................31
5.3 No Violation........................................................................31
5.4 SEC Documents.......................................................................31
5.5 Questron Common Stock...............................................................32
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS OF
PRINCIPALS, THE COMPANY, QDL AND QUESTRON................................................................32
6.1 Conduct of Business Prior to the Closing Date.......................................32
6.2 Tax Covenants; Bulk Sales Act.......................................................33
6.3 Expenses and Finder's Fees..........................................................34
6.4 Access to Information and Confidentiality...........................................35
6.5 No Solicitation.....................................................................36
6.7 Press Releases......................................................................36
6.8 Transitional Assistance.............................................................36
6.9 Conditions..........................................................................37
6.10 Rule 144............................................................................37
6.11 SEC Filings.........................................................................37
6.12 Name Change.........................................................................37
6.13 Balance Sheets......................................................................37
6.14 Replacement Lease...................................................................37
6.15 Florida Dealers License.............................................................37
6.16 HSR Act and Other Filings...........................................................37
ARTICLE 7
CONDITIONS PRECEDENT OF QDL AND QUESTRON.................................................................38
7.1 Representations and Warranties......................................................38
7.2 Closing Certificates................................................................38
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7.3 Due Diligence.......................................................................38
7.4 Opinion of Counsel..................................................................38
7.5 No Actions..........................................................................38
7.6 Consents............................................................................39
7.7 Instruments and Possession..........................................................39
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
7.13 Environmental Report................................................................40
7.14 Investor Representation Letter......................................................41
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE PRINCIPALS...................................................41
8.1 Representations and Warranties......................................................41
8.2 Closing Certificates................................................................41
8.3 No Actions..........................................................................41
8.4 Consents............................................................................41
8.5 Instruments of Assumption...........................................................42
8.6 Employment Agreement................................................................42
8.7 Opinion of Counsel..................................................................42
8.8 No Material Adverse Change..........................................................42
ARTICLE 9
INDEMNIFICATION..........................................................................................42
9.1 Indemnification by the Company and the Principals...................................42
9.2 Indemnification by QDL and Questron.................................................43
9.3 Limitation on Liability.............................................................44
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS....................................................45
ARTICLE 11
INTENTIONALLY OMITTED....................................................................................46
ARTICLE 12
MISCELLANEOUS............................................................................................46
12.1 Cooperation.........................................................................46
12.2 Waiver..............................................................................46
12.3 Notices.............................................................................46
12.4 Governing Law and Consent to Jurisdiction...........................................47
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12.5 Counterparts........................................................................48
12.6 Headings; Schedules.................................................................48
12.7 Entire Agreement....................................................................48
12.8 Amendment and Modification..........................................................48
12.9 Binding Effect; Benefits............................................................48
12.10 Assignability.......................................................................48
12.11 Post-Closing Reimbursement..........................................................48
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT, dated as of March 11, 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 Metro Form Corporation, an
Ohio corporation doing business as Olympic Fasteners & Electronic Hardware (the
"Company"), and each of the persons listed on Schedule 1.1 hereto and signatory
hereto (each a "Principal," and collectively, the "Principals").
PRELIMINARY STATEMENT
1. QDL is a wholly-owned subsidiary of Questron.
2. The Company desires to sell and QDL desires to purchase
substantially all of the assets of the Company 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.
"Accrued Interest" is defined in Section 2.4(a).
"Acquired Assets" is defined in Section 2.1.
"Actions" is defined in Section 4.9.
"Agreement" is defined in the preamble to this Agreement.
"Arbitrating Accountants" is defined in Section 2.4(d)(ii).
"Assumed Liabilities" is defined in Section 2.3.
<PAGE>
"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 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 all books
and records pertaining to the Acquired Assets, the Assumed Liabilities, the
Business, the customers, distributors and suppliers of the Company, including
Tax returns and other information relevant to such returns, but not including
minutes of shareholder and directors meetings.
"Business" shall mean the Company's business and operations in respect
of distributing fasteners, hardware and related components.
"Claims" shall mean with respect to the Company 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
Acquired Assets the Assumed Liabilities, or the Business.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Closing Shares" is defined in Section 2.4(b).
"Code" is defined in Section 4.15.
"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 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, to
2
<PAGE>
which the Company is a party or to which any of its assets are subject, whether
oral or written, express or implied.
"Contract Rights" shall mean with respect to the Company all of the
Company's rights and obligations under the Transferred Contracts.
"December 31, 1998 Audited Balance Sheet" is defined in Section 6.13.
"Deferred Purchase Price" is defined in Section 2.4(c).
"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 2.4(c).
"EBIT Report" is defined in Section 2.4(d)(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 4.27.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" is defined in Section 4.16(d).
"ERISA Plans" is defined in Section 4.16(b).
"Excluded Assets" shall mean (a) the Excluded Contracts, (b) the
Excluded Records, (c) all tax refunds relating to periods preceding the Closing
Date, (d) all Benefit Plans and related assets, (e) all claims, causes of
action, choses in action, rights of recovery and rights of set-off of whatever
kind or description which the Company may have under, or arising out of or
relating to, this Agreement or any of the Other Documents to which it is a party
(f) amounts owing from officers or shareholders of the Company, and (g) each of
those assets, properties or rights of the Company otherwise listed on Schedule
1.1(a) hereto.
"Excluded Contracts" shall mean the Contracts listed on Schedule 1.1(b)
hereto.
"Excluded Liabilities" is defined in Section 2.3.
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"Excluded Records" shall mean (a) the Company's corporate record books,
(b) the Tax returns of the Company and other information relevant to such
returns and (c) such other Books and Records which primarily relate to any
Excluded Asset.
"Existing Master Lease" shall mean that certain Lease Agreement by and
between Nova Investments Group Corp., as lessor, and the Company, as Lessee,
relating to the Company's lease of office and warehouse space in Middleburg
Heights, Ohio.
"First Replacement Lease" shall mean that certain lease agreement in
the form attached hereto as Exhibit A-1.
"Fixtures and Equipment" shall mean with respect to the Company all of
the furniture, fixtures, furnishings, machinery and equipment, spare parts,
supplies, vehicles and other tangible personal property owned by the Company and
located in, at or upon the Real Property of the Company as of the Effective
Date, plus all additions, replacements or deletions since the Effective Date.
"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 4.27.
"HSR Act" is defined in Section 6.16.
"Immaterial Lease" is defined in Section 4.12.
"Initial Cash Consideration" is defined in Section 2.4(a).
"Insurance Policies" shall mean with respect to the Company the
insurance policies issued by unaffiliated, third-party carriers relating to the
Acquired Assets and Business of the Company listed under the Company's name on
Schedule 4.23.
"Intellectual Property Rights" is defined in Section 4.17.
"Inventory" shall mean with respect to the Company (a) all of the
Company's inventories whether (x) in transit and owned by the Company or (y)
within the facilities of the Company held for resale or lease in the ordinary
course of the Company's Business to its customers and distributors, (b) all
office supplies and similar materials of the Company located in the facilities
of the Company
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and (c) all of the raw materials, work in process, finished products and similar
items of the Company, in the facilities of the Company 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 all of the leases of
the Company (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 Acquired Assets
or 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.
"March 31, 1999 Balance Sheet" is defined in Section 6.13.
"Material Adverse Effect" shall mean with respect to (A) the Company, a
material adverse effect on (i) the Acquired Assets, 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 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, 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.
"Net Operating Assets" is defined in Section 2.4(a).
"Non-Competition Agreements" is defined in Section 7.9.
"Non-Real Estate Leases" is defined in Section 4.12.
"Other Documents" is defined in Section 4.1.
"Permits" shall mean with respect to the Company all licenses, permits
and other governmental authorization necessary to carry on the Business of the
Company.
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"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.
"Principals" is defined in the preamble to this Agreement.
"Purchase Price" is defined in Section 2.4.
"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 2.4(b).
"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 4.11(a).
"Reference Balance Sheet" is defined in Section 4.13.
"Reference Balance Sheet Date" is defined in Section 4.13.
"Reference Income Statement" is defined in Section 4.13.
"SEC" is defined in Section 5.4.
"SEC Documents" is defined in Section 5.4.
"Second Replacement Lease" shall mean that certain lease agreement in
the form attached hereto as Exhibit A-2.
"Securities" is defined in Section 4.30(i).
"Securities Act" is defined in Section 2.5(d).
"Shares" is defined in Section 2.4(a).
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"Stated Debt" is the aggregate amount of the outstanding liabilities of
the Company specifically identified and described in Schedule 1.2 as of the
Effective Date.
"Stated Net Debt" is defined in Section 2.4(a).
"Subsidiary" is defined in Section 4.3.
"Taxes" is defined in Section 4.15.
"Transferred Contracts" shall mean the Contracts other than the
Excluded Contracts.
"1998 Audit" is defined in Section 6.4.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
---------------------------
2.1 Acquired Assets. Subject to the terms and conditions of this
Agreement, the Company shall sell, assign, transfer, convey and deliver to QDL,
and QDL shall purchase from the Company on the Closing Date, all right, title
and interest of the Company in and to all of the Acquired Assets, free and clear
of all Encumbrances.
The term "Acquired Assets" as used herein shall mean all of the assets,
properties and rights of every type and description, real and personal, tangible
and intangible, wherever located, owned by the Company 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 Business, exclusive of the Excluded Assets,
but otherwise including, without limitation, all of the Company's right, title
and interest in and to the following:
(a) accounts and notes receivable, refunds, and, to the extent
transferable, deposits and prepaid expenses (including, without limitation, any
prepaid insurance premiums);
(b) cash and cash equivalents;
(c) all Contract Rights, including, without limitation, all of the
Company's rights and obligations under or in respect of (i) the Leases
(exclusive of the Existing Matter Lease but including the Replacement Lease),
(ii) the Insurance Policies, (iii) all restrictive covenants and obligations of
present and former officers and employees of each of the Company (or any
predecessor of the Company) and of other individuals and corporations in favor
of the Company (or any predecessor of the Company) and (iv) any collective
bargaining or other employee agreements described on Schedule 2.1(c) hereto;
(d) all Fixtures and Equipment;
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(e) all Inventory;
(f) all Books and Records;
(g) all Intellectual Property Rights;
(h) all Claims;
(i) all Permits;
(j) all manufacturers', vendors' and suppliers' warranties in
respect of any item of property falling within the scope of the Acquired Assets;
(k) to the extent transferable, all rights to indemnification,
including environmental indemnification rights related to the Business and/or
the Acquired Assets inuring to the benefit of the Company; and
(l) all other assets used or held for use in the Business by the
Company, whether tangible or intangible, not expressly mentioned herein which,
as of the Closing Date, are owned by the Company, or in which the Company has a
right, title or interest.
2.2 Excluded Assets. Notwithstanding any other provision of this
Agreement, Questron shall not acquire any interest in the Excluded Assets.
2.3 Assumption and Exclusion of Certain Liabilities. QDL agrees to
assume, as of the Closing Date, (i) solely to the extent related to any facts or
circumstances arising or occurring after the Effective Date (but not with
respect to facts or circumstances existing, arising or occurring prior to the
Effective Date), all Liabilities of the Company arising under the Transferred
Contracts, (ii) all Liabilities of the Company which have been incurred by the
Company in the ordinary course of business, including all Liabilities with
respect to trade accounts payable of the Company and accrued current liabilities
(including payroll and payroll taxes) existing as of the Closing Date, and (iii)
such other liabilities specifically listed on Schedule 2.3 hereto (the
Liabilities described in clauses (i) through (iii) are collectively referred to
as the "Assumed Liabilities"). Except for the Assumed Liabilities, Questron is
not assuming, and shall not be liable for or bound by, any obligations or
Liabilities of the Company of any kind or nature, known or unknown, express,
implied, contingent or otherwise (collectively, the "Excluded Liabilities").
2.4 Purchase Consideration and Payment for Acquired Assets. In
consideration of the sale, conveyance, transfer, assignment and delivery of the
Acquired Assets and Business by the Company to QDL on the Closing Date, and in
reliance upon the representations, warranties, covenants and agreements made
herein by the Company and the Principals, QDL shall pay to the Company a total
purchase price of Nine Million Dollars ($9,000,000) (the "Purchase Price")
subject to payment and adjustment as follows:
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(a) Initial Cash Consideration. At the Closing, the Company shall
be paid an amount equal to (w) Eight Million Dollars ($8,000,000), (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 foregoing 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 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.
(b) Questron Common Stock. At the Closing, the Company (or its
designees) 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 Dollars ($1,000,000) (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 trading day immediately prior
to the Closing Date. The Closing Shares shall be issued and registered in the
name of the Company or its designees and in such denominations as the Company
may designate to QDL in writing no later than five (5) business days prior to
the Closing Date.
(c) Post-Closing Payments. Subject to the terms and conditions set
forth in subsection (d) 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).
(d) Determination of Post-Closing Payment Amounts. The amount of
post- closing payments referred to subsection (c) above shall be finally
determined, and subject to payment, as follows:
(i) The amount of the Deferred Purchase Price shall be initially
computed by QDL, and a report thereon (the "EBIT Report") shall be delivered
to the Company within sixty (60) calendar days following the end of the EBIT
Period. The EBIT Report will be deemed to be accepted by the parties hereto
and shall be conclusive for purposes of determining the amount of the
Deferred Purchase Price, except to the extent, if any, that the Company
shall have delivered to QDL, within thirty (30) calendar days after
receiving such
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EBIT Report, a statement describing the Company's objections (if any)
thereto, specifying the amount in dispute and setting forth in reasonable
detail the basis for such dispute (it being understood any amounts not
disputed shall be paid promptly). The parties and their respective
independent accountants shall use reasonable efforts to resolve any such
objections in good faith, but if they do not obtain a final resolution
within thirty (30) calendar days after the Company has delivered the
statement of objections, then the resolution of the disputed items shall be
submitted to arbitration as provided in clause (ii) below.
(ii) Disputes in the final determination of the amount of the
Deferred Purchase Price shall, to the extent not otherwise resolved by the
parties as provided in clause (i) above, as applicable, shall be submitted
to an independent accounting firm mutually acceptable to the parties (the
"Arbitrating Accountants") for resolution. The parties shall bear the fees
and disbursements of the Arbitrating Accountants in the same proportion that
their respective positions are confirmed or rejected by the Arbitrating
Accountants. The determination of the Arbitrating Accountants will be
conclusive and binding on the parties.
(iii) Amounts payable in respect of the Deferred Purchase Price
shall be paid within five (5) calendar days following the date of final
determination, by wire transfer of immediately available funds to the
account specified by the party entitled to receive payment.
2.5 Transactions on the Closing Date.
(a) At the Closing, the Company will deliver, or cause to be
delivered, to QDL and/or Questron the following:
(i) each of the certificates and documents contemplated by Article
7; and
(ii) 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
Company and/or the Principals the following:
(i) the Initial Cash Consideration;
(ii) the stock certificates representing the Closing Shares;
(iii) each of the certificates and documents contemplated by
Article 8; and
(iv) such other certificates, documents, instruments and
agreements as the Company shall deem necessary in its reasonable discretion
in order to effectuate the
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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 issued to the Company or its designees shall be restricted securities
under the Securities Act of 1933, as amended (the "Securities 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. 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:
"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 April 20, 1999 (the "Closing Date"), or at such other place,
time and date as may be agreed upon by QDL, Questron, the Company and the
Principals. 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
Principals, on the other;
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(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 Principals, 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 Principals 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 Principals 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 Principals, 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 provided reasonable assurance that
such breach can and will be cured on or before the Closing Date, provided,
however, that the Company and the Principals have not breached in any material
respect any of their respective representations, warranties or obligations
hereunder.
3.3 Fee Upon Termination Under Section 3.2(b). In the event that
QDL or the Company terminates this Agreement pursuant to Section 3.2(b), QDL
shall pay to the Company Fifty Thousand Dollars ($50,000). Such payment shall be
made within fifteen (15) calendar days after the date of termination and shall
be paid 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.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
------------------------------------------------
AND THE COMPANY
---------------
Each Principal 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 Principal has the power to enter into this
Agreement and each Other Document to which such Principal 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 Principals are
parties will be as of the Closing Date, duly executed
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and delivered by the Company and/or the Principals, and (assuming due execution
and delivery by QDL and Questron) this Agreement and each Other Document to
which the Company and the Principals are parties will constitute valid and
binding obligations of the Company and the Principals, 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. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and has all
requisite corporate power and authority to carry on its Business as now being
conducted and to own the Acquired Assets 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.
4.3 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.
4.4 Capitalization. As of the date hereof, the authorized capital of
the Company consists of the number of shares of common stock set forth on
Schedule 4.4, no par value per share (the "Company Common Stock"), of which the
number of shaers set forth on Schedule 4.4 are issued and outstanding. The
authorized capital of the Company as of the Closing shall be set forth on a
schedule to be provided to QDL prior to Closing.
4.5 Ownership of Shares. As of the date hereof, each shareholder of the
Company is the lawful record and beneficial owner of that number of shares of
Company Common Stock set forth opposite such shareholders name on Schedule 1.1,
which shares represent all of the issued and outstanding shares of capital stock
of the Company. The ownership of the Company Common Stock as of the Closing
shall be set forth on a schedule to be provided to QDL prior to Closing.
4.6 Title to Acquired Assets. The Company has good and marketable title
to all of the Acquired Assets owned by it, and has a valid leasehold interest in
all of the assets and properties leased by it, in each instance free and clear
of any Encumbrances, other than such Encumbrances specifically identified on
Schedule 4.6(a). Schedule 4.6(b) lists all items of personal property (exclusive
of Inventory) owned by the Company as of the date of this Agreement having a
current book value of in excess of Five Thousand Dollars ($5,000). All of the
items of equipment used by the Company in the conduct of the Business are
suitable for the purposes for which such assets are currently used or are held
for use, in adequate working condition, subject to normal wear and tear, and are
free from any known defects. Upon consummation of the transactions contemplated
hereby,
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QDL will acquire good title to all of the Acquired Assets owned by the Company,
free and clear of all Encumbrances, except for Encumbrances specifically
identified on Schedule 4.6(c).
4.7 Acquired Assets Complete. The Acquired Assets constitute all of the
properties and assets used or held for use in connection with the Business and
the conduct of the Business as currently conducted (other than the Excluded
Assets), and include all properties, rights and assets necessary to permit QDL
to conduct the Business in all material respects as such Business is conducted
on, and has been conducted prior to, the date of this Agreement.
4.8 No Violation. Neither any Principal nor the Company is subject to
or bound by any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) (in the case of the Company) its articles of incorporation or
by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, proxy, bond, indenture, other instrument or agreement,
license, Permit, trust, custodianship or other restriction, or
(d) any consent, judgment, order, writ, award, injunction or
decree of any 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 Principal or the Company of this Agreement or any Other
Document and the consummation of the transactions contemplated hereby and
thereby. Except as set forth in Schedule 4.8, 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
Principal 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.
4.9 Litigation. Except as set forth on Schedule 4.9, 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 Principals, investigation
(collectively, "Actions") pending or, to the knowledge of the Company and the
Principals, threatened or anticipated against, relating to or affecting (i) the
Company, the Assumed Liabilities, the Acquired Assets or the Assigned
Liabilities, 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
any trust or other funding instrument, fiduciary or administrator thereof 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. To the knowledge of the Company and the Principals, 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
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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 4.9. The Company and the Principals have no knowledge of any
Action so pending or threatened or that the Company and the Principals have a
reasonable basis to expect or anticipate (whether or not disclosed on Schedule
4.9) which would not, subject to applicable deductions, be fully covered by
insurance under the Insurance Policies.
4.10 Intentionally Omitted.
4.11 Real Property. (a) All of the Real Property used in the conduct of
the Business is either leased or subleased by the Company and the Company does
not otherwise own any real property. Schedule 4.11(a) sets forth, as of the date
of this Agreement, a complete and accurate list of (i) all of the real property
that the Company has currently leased or subleased (the "Leased Real Property")
and (ii) the applicable leases, including all amendments thereto and all
material agreements incidental thereto (the "Real Property Leases"). The Company
has 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 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 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 4.11(a). 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 (other than
the Existing Master Lease) the Company has, to the knowledge of the Company and
the Principals, adequate rights of ingress and egress for the operation of the
Business of the Company in the ordinary course. With respect to the Real
Property leased under the Existing Master Lease and to be leased pursuant to the
Replacement Lease, the Company has adequate rights of ingress and egress for the
operation of the Business of the Company in the ordinary course. Except as set
forth in Schedule 4.11(c), to the knowledge of the Company and the Principals,
with respect to the Leased Real Property (other than the Leased Real Property
leased under the Existing Master Lease and to be leased under the Replacement
Lease) 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 materially adversely affect
the value or use of any such building, structure, appurtenance or equipment.
Except as set forth in Schedule 4.11(c), with respect to the Leased Real
Property leased under the Existing Master lease and to be leased under the
Replacement Lease, none of the buildings, structures or appurtenances
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(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 materially
adversely affect the value or use of any such building, structure, appurtenance
or equipment.
(d) Except as set forth in Schedule 4.11(d), (i) no condemnation
proceeding is pending or, to the knowledge of the Company and the Principals,
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 has all necessary Permits to carry on the Business
in the ordinary course.
4.12 Non-Real Estate Leases. Schedule 4.12 lists all Acquired Assets
(other than Real Property) 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 Five Thousand Dollars ($5,000) (each, an
"Immaterial Lease"). Schedule 4.12 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 leased Acquired Assets, and has not been assigned, modified, supplemented
or amended except as set forth on Schedule 4.12.
4.13 Financial Statements. (a) The Principals and the Company have
heretofore furnished QDL and/or Questron with copies of the following financial
statements of the Company: (i) audited balance sheets as at December 31 for each
of 1995, 1996 and 1997, respectively; (ii) audited statements of operations for
each of the years ended on December 31, for 1995, 1996, 1997; (iii) an unaudited
balance sheet (the "Reference Balance Sheet") as at December 31, 1998 (the
"Reference Balance Sheet Date"); and (iv) an unaudited statement of operations
(the "Reference Income Statement") for the year ended December 31, 1998. Except
as noted on Schedule 4.13 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.
(b) Except as set forth on Schedule 4.13(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
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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 in
excess of Twenty-Five Thousand Dollars ($25,000) and were incurred since the
Reference Balance Sheet Date in the ordinary course of business consistent with
prior practice; or (iv) Company payroll expenses, open purchase or sales orders
or agreements for delivery of goods and services in the ordinary course of
business consistent with prior practice. The Company shall provide QDL with an
updated Schedule 4.13(b) at the Closing.
(c) The Company has heretofore delivered true and complete copies
of all 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.
4.14 Books and Records. (a) The Principals 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. Such Books and Records of the
Company reflect all the material transactions and other material matters
required to be set forth under GAAP applied on a consistent basis.
(b) The minute books of the Company that have been made available
to 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 of its Shareholders and accurately
reflect all material transactions referred to in such minutes and consents in
lieu of meetings. The stock books that have been made available to QDL and/or
Questron for their inspection are true and complete in all material respects.
4.15 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;
(iii) "Code" shall mean the Internal Revenue Code of 1986, as
amended; and
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(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 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;
(v) there is no action, suit, proceeding, investigation, audit or
claim currently pending, or to the Company's and the Principals' knowledge,
threatened, regarding any Taxes relating to the Company 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 Principals' knowledge, ever has been a party which will survive
the Closing.
4.16 Employee Matters. (a) Schedule 4.16(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
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 compensation plan, agreement or arrangement
covering present or former employees, consultants or directors of the Company.
(b) Schedule 4.16(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.
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(c) For each ERISA Plan, except as set forth on Schedule 4.16(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 Principals, 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 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 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
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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
4.16(g), each of the following is true in all material respects:
(i) the Company is in compliance with all applicable laws and
agreements respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and
health and is not engaged in any unfair labor practice within the meaning of
Section 8 of the National Labor Relations Act, and there is no action, suit
or legal, administrative, arbitration, grievance or other proceeding pending
or, to the Company's and the Principals' knowledge, threatened, or, to the
Company's and the Shareholders' knowledge, is any investigation pending or
threatened against the Company 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 Principals' knowledge,
threatened against the Company;
(iii) none of the employees of the Company is a member of or
represented by any labor union and, to the knowledge of the Company and the
Principals, 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;
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(v) no agreement (including any collective bargaining agreement),
arbitration or court decision, decree or order which is binding on the
Company in any material way limits or restricts the Company from relocating
or closing any of its operations;
(vi) the Company has not experienced any organized work stoppage
in the last five 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 Principals' knowledge, threatened, or to the Company's or
Principals' 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 to the
knowledge of the Company or the Principals, threatened claims with respect
to the equal employment opportunity practices or affirmative action
practices of the Company and, to the Company's and the Principals'
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 they are not retained, except as
otherwise provided by law or as set forth on Schedule 4.16(g).
4.17 Intellectual Property. Schedule 4.17(a) (i) contains a list
(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 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 patents and copyrights and all pending
applications therefor, (y) all material computer software used by the Company in
the conduct of its Business and (z) all licenses and other trademarks and other
marks, trade names, 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 the use and ownership of the names "Olympic Fasteners & Electronic
Hardware," "Spacers and Standoffs" or "Olympic Threaded," 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 4.17(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 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 4.17(a),
possesses enforceable licenses or other rights to use) all of such Intellectual
Property Rights. Except as set forth on Schedule 4.17(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
otherwise. The Company has granted no licenses, relating in whole or in part to
any of the
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Intellectual Property Rights. Except as set forth on Schedule 4.17(c), the
Company has not received notice of nor has any reason to believe 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.
4.18 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 (less any reserves for bad
debt, which reserves are determined in accordance with past practices) represent
in all material respects and will in all material respects represent valid
obligations owing to the Company, have arisen from bona fide transactions in the
ordinary course of business and are fully collectible by the Company in the
ordinary course of business, subject to the reserve for doubtful accounts
appearing on the Reference Balance Sheet. Except as set forth on Schedule
4.18(a), and as provided in the preceding sentence, all accounts receivable of
the Company 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 are reasonable in amount.
(b) Except as expressly and fully set forth on Schedule 4.18(b),
since the Reference Balance Sheet Date, the Company has 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.
4.19 Inventory. Except as set forth on Schedule 4.19, the Inventories
of raw materials, in-process and finished products of the Company are in good
condition, conform in all material respects with the Company's applicable
specifications and warranties, are not obsolete, and are saleable as of the date
hereof at values not less than the book value amounts thereof. Adequate reserves
have been provided for inventory obsolescence and the values at which such
Inventories are carried are in accordance with the normal valuation of the
Company and with GAAP consistently applied. All Inventory disposed of by the
Company since the Reference Balance Sheet Date has been disposed of under terms
consistent with the Company's past practices.
4.20 Absence of Change or Event. Except as set forth on Schedule 4.20,
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) experienced a material adverse change in the Acquired Assets,
Liabilities (contingent or otherwise), property, Business, condition (financial
or otherwise), operations, results of operations or prospects of the Company;
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(b) incurred any obligation or Liability other than as described
in Section 4.13(b);
(c) other than in the ordinary course of business, mortgaged,
pledged or subjected to lien, restriction or any other Encumbrance any of the
property, Business or assets, tangible or intangible, of the Company;
(d) sold, transferred, leased to others or otherwise disposed of
any of its assets (or committed to do any of the foregoing), except for
inventory sold to customers or returned to vendors;
(e) suffered any damage, destruction or loss (whether or not
covered by insurance) in an amount greater than Five Thousand Dollars ($5,000);
(f) 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);
(g) instituted or threatened any litigation, action or proceeding
before any Governmental Authority relating to it or its property;
(h) increased the compensation of any officer, director, employee
or agent of the Company, directly or indirectly, including by means of any
bonus, pension plan, profit sharing, deferred compensation, savings, insurance,
retirement, or any other employee benefit plan, except in the case of any
employee whose annual base compensation is less than Twenty Thousand Dollars
($20,000);
(i) materially changed any of its business or accounting accrual
practices, including, without limitation, the amount of promotional or
advertising expenditures, investments, marketing, pricing, purchasing,
production, personnel, sales, returns or budgets, accounts receivable or
inventory reserves, or otherwise changed its policies with respect thereto;
(j) made or changed any election concerning Taxes or Tax returns,
changed 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;
(k) allowed any Permit 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 involving more than Five
Thousand Dollars ($5,000);
(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 the Principals,
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(ii) involving more than Five Thousand Dollars ($5,000) 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 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) made any loan to any Company employee outside the ordinary
course of business consistent with past practice;
(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.
4.21 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.
4.22 Contracts and Commitments. (a) Except for Contracts listed on
Schedule 4.22 or Schedule 4.11(a), the Company is not a party to, or bound by,
any Contract of any kind to be performed, in whole or in part, after the Closing
Date (i) pursuant to which it is obligated to expend more than Ten Thousand
Dollars ($10,000) in any twelve-month period or that is not subject to
cancellation on not more than Thirty (30) days' notice by the Company without
penalty or increased cost, or (ii) with any affiliate of the Company or the
Principals. There is not under any Contract: (A) any existing material default
by the Company or, to the Company's and the Principals' knowledge, by any other
party thereto, or (B) any event which, after notice or lapse of time or both,
would constitute a material default by the Company or, to the Company's and the
Principals'
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knowledge, by any other party, or result in a right to accelerate, suspend or
terminate or result in a loss of rights of the Company. Schedule 4.22 lists the
following Contracts, agreements and other written arrangements to which the
Company is a party:
(i) except for purchase orders made in the ordinary course of
business, 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);
(ii) 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;
(iii) any written arrangement (or group of related written
arrangements) concerning confidentiality or non-competition arrangements;
(iv) 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), 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;
(v) 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;
(vi) 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
(vii) 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 (vi).
(b) The Company has delivered to QDL and/or Questron a correct and
complete copy of each written arrangement listed in Schedule 4.22 and has
included as part of Schedule 4.22 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 4.22, with respect to each written arrangement listed, (A) the
written arrangement
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is legal, valid, binding, and enforceable obligation of the Company (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; (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
Principals' knowledge, no party has repudiated any term of the written
arrangement.
4.23 Insurance. (a) Schedule 4.23 sets forth (i) the Insurance Policies
presently in force and, without restricting the generality of the foregoing,
those covering the Company's product liability and its 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 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 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 under which the
Company indemnifies any other Person or is 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 4.23.
(b) The Insurance Policies set forth on Schedule 4.23 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.
To the knowledge of the Company and the Principals, such policies are sufficient
for compliance with all requirements of Law and all agreements to which the
Company is 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 4.23; 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. The Company and the Principals have not received any notice
of default under such policies and, to the knowledge of the Company and the
Principals, the Company is not in default under any of such policies or binders.
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 1997 and
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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 4.23 will not be available in the future
on substantially the same terms as now in effect.
4.24 Intentionally Omitted.
4.25 Customers, Suppliers, Distributors, Etc. (a) Since December 31,
1997, with respect to transactions involving in excess of Twenty-Five Thousand
Dollars ($25,000), no supplier, customer, distributor or sales representative of
the Company has canceled or otherwise terminated, or made any written threat to
the Company or to any of its Affiliates to cancel or otherwise terminate, for
any reason, including the consummation of the transactions contemplated hereby,
its relationship with the Company 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 4.25(a), the Company and the
Principals 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 4.25(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 4.25(b) sets forth the customer sales history of all
customers of the Company since December 31, 1996. Such information is true and
complete.
(c) Schedule 4.25(c) sets forth a complete and accurate list of
suppliers of the Company from whom the Company has made purchases in excess of
Fifty Thousand Dollars ($50,000) during the calendar years ended December 31,
1997 and 1998, showing the approximate total purchase by the Company from each
such supplier during such calendar year.
4.26 Previous Sales; Warranties; Product Liability. (a) Since December
31, 1996 other than in the ordinary course of business, the Company has not
breached any express or implied warranties in connection with the sale or
distribution of goods or the performance of services.
(b) Schedule 4.26(b) sets forth all warranty claims for amounts in
excess of Twenty-Five Thousand Dollars ($25,000), individually, asserted 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
fiscal years ended December 31, 1998 and 1997.
(c) Schedule 4.26(c) 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
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Company or its insurance company with respect to such claims. Except as set
forth on Schedule 4.26(c), there is no action, suit, inquiry, proceeding or
investigation by or before any Governmental Authority pending or 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.
4.27 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 4.27, the Company and the
Principals warrant and represent that: (i) neither the Company 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 and the Real Property are in compliance with all applicable
Environmental Laws; (iii) the Company has secured all material 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 is in compliance therewith; (iv) there are no pending or, to the
Company's and the Principals' knowledge, threatened claims by any Governmental
Authority or any other person in respect of Environmental Laws affecting the
Company or the Real Property and neither the Principals nor the Company has
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 or
conditions on the Real Property are, or may be, in violation of any
Environmental Laws; (v) to the best of the Company's and the Principals'
knowledge, 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 occurred at, into, onto or under the Real
Property or any other property which may give rise to liability under any
Environmental Law.
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4.28 Absence of Certain Payments. Except as set forth on Schedule 4.28,
neither the Company nor any director, officer, agent, employee or other Person
acting on behalf of the Company nor any Principal has used any corporate or
other funds for unlawful contributions, payments, gifts, or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or unrecorded
funds in violation of Section 30A of the Exchange Act. Neither the Company nor
any current director, officer, agent, employee or other Person acting on behalf
of the Company has accepted or received any unlawful contributions, payments,
gifts or expenditures.
4.29 Additional Information. Schedule 4.29 accurately lists the
following (Schedule 4.29 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
(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.
4.30 Investment Intent. The Company:
(i) represents and warrants that the Closing 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 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 the Company
does not have 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 the Company 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;
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(iv) acknowledges that the following documents have been provided
to, and reviewed by, the Company:
(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 Company and the
Company's attorney and/or accountant and/or representative. The Company 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 the Company;
(vi) the Company is an accredited investor, as that term is defined
in Regulation D under the Act; and
(vi) understands that any distribution of the Securities by the
Company to any of its shareholders must comply with all provisions of the
Securities Act.
4.31 Disclosure. No representations or warranties by the Principals 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 Principals 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.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON
--------------------------------------------------
QDL and Questron represent and warrant to the Company and the
Principals 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,
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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 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.
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 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
Principal 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;
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(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.
Each of the SEC Documents, as of its respective date of filing, conformed 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.
5.5 Questron Common Stock. All shares of Questron Common Stock
delivered to the Company or its designees 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
PRINCIPALS, THE COMPANY, QDL AND QUESTRON
-----------------------------------------
6.1 Conduct of Business Prior to the Closing Date. The Principals and
the Company agree with Questron and QDL that, between the date hereof and the
Closing Date:
(a) Except as disclosed on Schedule 6.1 or as otherwise
contemplated by this Agreement or permitted by written consent of QDL, the
Principals 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 the
Principals 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;
(iii) take any action of the nature referred to in Section 4.20,
except as permitted therein;
(iv) change the Company's banking or safe deposit arrangements;
(v) incur indebtedness (which for purposes of this clause (v)
shall be deemed to exclude trade payables consisting of accounts payable,
deferred taxes and accrued expenses) of the Company to exceed Ten Thousand
Dollars ($10,000) in the aggregate; or
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(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 Principals 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 intact; to keep
available to QDL the services of the present officers and employees of the
Company; to preserve for QDL the good will of the Company's suppliers,
customers, distributors, sales representatives and others having business
relations with the Company; 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 Company shall maintain in force the Insurance Policies
referred to on Schedule 4.23 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.
(e) The Principals 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 Principals or the Company of which the Principals 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 Principals contained in this Agreement.
6.2 Tax Covenants; Bulk Sales Act.
(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. 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
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delivered to the Company, the Principals or QDL, as applicable, until the final
determination of any Tax in respect of such years. 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 Principals, 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 Principals 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 Acquired Assets
to QDL and the assumption of the Assumed Liabilities by QDL as provided
hereunder and any deficiency, interest or penalty asserted with respect thereto.
The Company and/or the Principals shall pay the fees and costs of obtaining,
recording or filing all applicable conveyancing instruments described in Section
7.7.
(c) At least thirty (30) days prior to the date that Internal
Revenue Service Form 8594 is required to be filed with respect to the
Acquisition, QDL shall prepare and submit to the Company, and the Company and
the Principals hereby agree to be bound by, an allocation of the Purchase Price
among the Acquired Assets and the Assumed Liabilities as set forth on Schedule
6.2(c). Each of QDL and the Company and/or the Principals agrees that (a) it
will prepare all required Tax returns and reports in a manner that is consistent
with such allocation, (b) it will file Internal Revenue Service Form 8594 in
such manner and (c) it will not voluntarily take any position inconsistent
therewith upon examination of any such Tax return, in any refund claim, in any
litigation or otherwise with respect to such income Tax returns.
(d) Within thirty (30) days after the Closing, the Company and the
Principals shall provide QDL with such clearance certificates or similar
documents that may be required by any state Tax Authority in order to relieve
QDL of any obligation to withhold any portion of the Purchase Price.
(e) The parties hereby waive compliance with the bulk sales act or
comparable statutory provisions of each applicable jurisdiction. Other than for
any bulk sales act liabilities relating to the Assumed Liabilities, the Company
and the Principals, jointly and severally, shall indemnify QDL and Questron and
their respective Affiliates and hold each of them harmless, from and against any
and all losses, deficiencies, liabilities, damages, assessments, judgments,
costs and expenses caused by, resulting from or arising out of the failure of
the Company and the Principals to comply with the terms of any such provisions
applicable to the transactions completed by this Agreement and the Other
Documents.
6.3 Expenses and Finder's Fees. QDL and Questron, on the one hand, and
the Company and the Principals, on the other, will bear their own expenses in
connection with this Agreement and its performance. The Company and the
Principals, 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
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<PAGE>
transactions contemplated hereby have been carried on in such a manner as not to
give rise 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 Principals and the
Company agree that until the Closing, QDL and Questron may conduct such
reasonable investigation with respect to the Business, business prospects,
Acquired Assets, Assumed Liabilities, Liabilities (contingent or otherwise),
results of operations, employees and financial condition of the Company as will
permit QDL and Questron to evaluate the transactions contemplated by this
Agreement. Until the Closing, the Company and the Principals shall afford QDL
and Questron reasonable access to the premises, Books and Records and business
affairs of the Company (and, to the extent directly relating thereto, of the
Principals) 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 year ended
December 31, 1998 as audited by the Company'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 Principals 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 Principals, 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 and the Principals 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 and
the Principals, 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 Principals, the Company, 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 6.4 or otherwise shall prohibit the holder
from making disclosure of Confidential Information to the extent required by
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<PAGE>
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 Confidential Information
has been supplied over the past two (2) 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 Principals 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, 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 or enter into any agreement with respect thereto. The
Company and the Principals 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 shall use its best efforts to keep available current
Company employees for employment by QDL. At the Closing, QDL shall offer
employment, effective immediately upon the Closing, to the Company employees
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) QDL shall have no liability with respect to the Benefit Plans.
6.7 Press Releases. Except as required by law or stock exchange
regulation, any public announcements by the Company or the Principals, 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.
6.8 Transitional Assistance. The Company and the Principals shall
reasonably cooperate with and assist QDL 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 and Records
and computer software of the Company included in the Acquired Assets.
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6.9 Conditions. The Company and the Principals 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 Company or its designees
with respect to permitted sales of Questron Common Stock by the Company under
Rule 144 of the Exchange Act.
6.11 SEC Filings. Questron will provide the Company 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 Name Change. At the Closing, the Company shall deliver to QDL such
documents as QDL may reasonably request in connection with the consent or
approval or filing requirements to effect the change of the name of the Company
in the states and jurisdiction in which the Company conducts business, including
"doing business as" designations to a name other than "METRO FORM CORPORATION"
or "OLYMPIC FASTENERS & ELECTRONIC HARDWARE" or any name similar to such name or
any variant or abbreviations of such name.
6.13 Balance Sheets. The Company, at its cost and expense, shall
prepare and deliver to Questron, for its review and approval, as soon as
practicable, but in no event later than April 11, 1999, (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, (ii) the Company's calculation, set forth in reasonable detail,
of Stated Net Debt and Net Operating Assets as at March 31, 1999, (iii) an
audited balance sheet of the Company as at December 31, 1998 (the "December 31,
1998 Audited Balance Sheet"), which shall be prepared on a basis consistent with
generally accepted accounting principles (subject to the accounting departures
from generally accepted accounting principles set forth in Schedule 4.13) and
(iv) the Company's calculation, set forth in reasonable detail, of Net Operating
Assets at December 31, 1998. Any disputes by Questron or QDL in regard to the
foregoing, shall be resolved pursuant to the procedures set forth in Section
2.4(d)(ii).
6.14 Replacement Leases. On or prior to April 1, 1999, the Company
shall execute and deliver the First Replacement Lease and on or prior to the
Closing Date, QDL shall execute and deliver the Second Replacement Lease.
6.15 Florida Dealers License. On or prior to the Closing Date, the
Company shall obtain a Florida dealers license from the State of Florida.
6.16 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,
37
<PAGE>
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 7
CONDITIONS PRECEDENT OF QDL AND QUESTRON
----------------------------------------
Subject to the provisions of Section 3.3 hereof, 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 Principals 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 Principals 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 Principals prior to or on the Closing Date, and QDL
and/or Questron shall have been furnished with certificates of the Company and
the Principals, 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 Ohio and a certificate of existence and good standing as
of a recent date from the Secretary of State of the State of Ohio and the
Secretary of State of the State of Florida.
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 Arter & Hadden LLP, counsel for the
Shareholders and the Company, substantially in the form attached hereto as
Exhibit B.
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
38
<PAGE>
commenced, and no action, suit or proceeding by any Governmental Authority shall
have been threatened, against QDL, Questron, the Principals, 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 6.16 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 6.16), regulatory agencies
(including non-governmental self-regulatory agencies) or other entities which
regulate the business of QDL, Questron, the Principals or the Company necessary
on the part of QDL, Questron, the Principals 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 Principals shall have executed and delivered to
QDL:
(i) a bill of sale, substantially in the form attached hereto as
Exhibit C, conveying in the aggregate all personal property included in the
Acquired Assets;
(ii) an Assignment and Assumption of Lease, with respect to each
of the Real Property Leases (other than the Existing Master Lease), 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) assignments, in form and substance satisfactory to QDL, of
all Intellectual Property Rights, in recordable form to the extent necessary
to assign such rights;
(v) to the extent in written or other deliverable form and not
previously delivered, all copies of Intellectual Property or other secret,
proprietary or confidential information included in the Acquired Assets;
(vi) evidence of the name change of the Company required by
Section 6.12, which evidence shall be reasonably satisfactory to QDL;
(vii) all cash and cash equivalents of the Company;
39
<PAGE>
(viii) other than the Excluded Assets, all Books and Records of
the Company (QDL shall be granted access to such Books and Records
immediately after Closing);
(ix) 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 facilities and Business;
(x) such changes relating to the bank accounts and safe deposit
boxes of the Company 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;
(xi) such other instruments as shall be reasonably requested by
QDL to vest in QDL good and valid title in and to the Acquired Assets in
accordance with the provisions hereof; and
(xii) 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 Rudolph M. Petric.
7.9 Non-Competition Agreements. QDL shall have received from each of
the Company and the Principals 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.
7.13 Environmental Report. QDL shall have received a recent phase one
environmental report on the office and warehouse space located in Middleburg
Heights, Ohio which is leased by the Company pursuant to the Existing Master
Lease.
40
<PAGE>
7.14 Investor Representation Letter. QDL shall have received an
executed investor representation letter from each shareholder of the Company,
substantially in the form attached hereto as Exhibit F.
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE PRINCIPALS
------------------------------------------------------
The Company and the Principals 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 Principals 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.
8.2 Closing Certificates. The Company and the Principals 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 and Ohio.
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 Principals 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 6.16 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 6.16), regulatory agencies (including non-governmental
self-regulatory agencies) or other entities which regulate the Business of the
Company, necessary on the part of the
41
<PAGE>
Company and the Principals, 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 Instruments of Assumption. The Company shall have received from QDL
such instruments of assumption with respect to the Assumed Liabilities as the
Company may reasonably request, duly executed by QDL.
8.6 Employment Agreement. QDL shall have executed and delivered the
Employment Agreement.
8.7 Opinion of Counsel. The Principals 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 G.
8.8 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 Principals. Effective only
from and upon the occurrence of the Closing, and subject to Section 9.3 below,
the Company and each of the Principals hereby agrees to jointly and severally
defend, indemnify and hold harmless QDL, Questron and their successors, assigns
and affiliates (collectively, the "Questron Indemnitees") from and against any
and all losses, deficiencies, liabilities, damages, assessments, judgments,
costs and expenses, including reasonable attorneys' fees (both those incurred in
connection with the defense or prosecution of the indemnifiable claim and those
incurred in connection with the enforcement of this provision) including,
without limitation, Environmental Liabilities and Costs (collectively, "Questron
Losses"), caused by, resulting from or arising out of:
(a) (i) breaches of representation or warranty under this
Agreement on the part of the Company or any Principal; and (ii) failures by the
Company and any of the Principals to perform or otherwise fulfill any
undertaking or other agreement or obligation under this Agreement;
(b) all Excluded Liabilities;
(c) any recalls, warranty claims, or product liability with
respect to sales by the Company prior to the Closing Date or included in the
finished goods inventory transferred to QDL;
42
<PAGE>
(d) except as otherwise provided in Section 2.3, any and all Taxes
imposed on the Company with respect to the period prior to the Effective Date;
(e) 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;
(f) the failure to collect in full any accounts receivable (less
any reserves for bad debt, which reserves are determined in accordance with past
practice) which are included in the Acquired Assets within three (3) months
following the Closing;
(g) the maintenance, amendment or termination of any Benefit Plan
of the Company or out of any obligations under any such plan; and
(h) 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 Company and
the Principals thereof, provided further, however, that the failure to so notify
the Company and the Principals shall not reduce or affect the Company's and the
Principals' obligations with respect thereto except to the extent that the
Company and the Principals are materially prejudiced thereby. Subject to rights
of or duties to any insurer or other third Person having liability therefor, the
Company and the Principals 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 QDL and/or Questron), including, at its own expense,
employment of counsel reasonably satisfactory to QDL and/or Questron; provided,
however, that if the Company and the Principals 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 Principals) in any such matter. So long as the Company and the Principals
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.
To the extent the Company makes payments to QDL for any accounts receivable
pursuant to clause (f) above and this Section 9.1, QDL shall assign to the
Company any such uncollected accounts receivables.
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 Company, the Principals and their respective
43
<PAGE>
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;
(b) all Assumed Liabilities and excluding any Excluded
Liabilities;
(c) all Taxes incurred by the Company (including Taxes payable in
respect of any income of the Company) after the Effective Date;
(d) facts or circumstances occurring after the Closing Date and
relating to the operation of the Business after the Closing Date;
(e) actions taken by the Company after the Effective Date in the
ordinary course of business and taken in accordance with the provisions of this
Agreement, and
(f) 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 Principals; provided, however, that if QDL
and Questron shall have exercised their right to assume such control, the
Company and the Principals 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.
9.3 Limitation on Liability. (a) Notwithstanding anything contained
herein to the contrary, the Company 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 9.1(a)(i) unless the aggregate
amount of such Questron Losses exceeds Seventy-Five Thousand
44
<PAGE>
Dollars ($75,000); provided, that, the foregoing limitation shall not apply to
(i) any claim for indemnity made by any Questron Indemnitee arising out of the
failure of Seller to discharge any Encumbrance required to be released as a
condition to this Agreement, (ii) the representations set forth in Section 4.27
and the liabilities described in Section 9.1(e), and (iii) the representations
and warranties set forth in Section 4.15.
(b) The aggregate liability of the Company under this Article 9
shall not exceed the aggregate amount of the consideration actually received by
the Company 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 4.27.
(c) The aggregate liability of QDL and Questron under Section
9.2(a) (and 9.2(d), to the extent it relates to 9.2(a)) shall in no event exceed
One Million Dollars ($1,000,000).
(d) No party shall have any liability for any inaccuracy in or
breach of any representation or warranty by such party if the other party or any
of its officers, employees, counsel or other representatives had actual
knowledge on or before the Closing Date that such representation or warranty was
inaccurate or breached.
(e) Except for remedies that cannot be waived as a matter of law
and injunctive and provisional relief, if the Closing occurs, this Article 9
shall be the exclusive remedy for breaches of this Agreement or otherwise in
respect of the sale of the Acquired Assets contemplated hereby.
(f) Notwithstanding anything contained herein to the contrary, no
party shall have any liability hereunder for any lost profits or any
consequential or incidental damages, each of which is hereby excluded by
agreement of the parties regardless of whether or not any party has been advised
of the possibility of such damages.
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 Principals contained in Sections 4.1, 4.6, 4.13(b) and
4.27 shall survive the Closing Date without limitation, and any representation
or warranty of the Company and the Principals contained in Section 4.15 (Tax
Matters) shall survive until the expiration of one year after the expiration of
the applicable statute of limitations (provided that, if any Principal 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 in such case such representations and warranties shall survive to
the date on which such agreement to extend expires).
45
<PAGE>
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 Principal 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.
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 Principals or the Company, to:
c/o Nova Machine Products Co.
18001 Sheldon Road
Middleburg Heights, Ohio 44130
Attn: Jim Mraz
Telecopier: (216) 267-8519
Telephone: (216) 898-8005
(with a copy to)
Arter & Hadden LLP
925 Euclid Avenue
1100 Hummington Building
Cleveland, Ohio 44115-1475
Attn: Edwin Kennedy, Esq.
Telecopier: (216) 696-2645
Telephone: (216) 696-1100
46
<PAGE>
(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.
(b) Each of the Company, the Principals, 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 Principals, 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
Principals, 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.
47
<PAGE>
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
Principals 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.
12.11 Post-Closing Reimbursement. (a) QDL shall be responsible for all
costs incurred by the Company in maintaining its benefit plans after the Closing
Date for the Company employees hired by QDL after the Closing.
(b) QDL shall reimburse the Company for QDL's pro rata share of
any personal property taxes relating to the Acquired Assets paid by the Company
for the calendar year ended December 31, 1999.
48
<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
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 M. Petric
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE 3 MONTHS ENDED MARCH 31, 1999 AND
THE CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,231,586
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