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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ------EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- -------EXCHANGE ACT OF 1934
For the transition period from ________to __________
Commission file number 0-13324
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 (I.R.S. Employer Identification No.)
incorporation or organization)
6400 Congress Avenue, Suite 2000, 33487
Boca Raton, FL
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (561) 241 - 5251
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Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value
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(Title of class)
Series IV Common Stock Purchase Warrant
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(Title of class)
Preferred Share Purchase Right
to Purchase 1/1,000th of a share of
Series A Junior Participating Preferred Stock, par value $0.01 per share
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(Title of class)
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 preceding 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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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendments to this Form 10-K ---------
As of March 23, 2000, the aggregate market value of common
stock held by non-affiliates of the registrant was approximately $41,317,598. In
addition, as of March 23, 2000, the aggregate market value of Series IV Common
Stock Purchase Warrants held by non-affiliates of the registrant was
approximately $10,493,888.
As of March 23, 2000, there were 8,045,881 shares of the registrant's
common stock and 4,000,000 of the registrant's Series IV Common Stock Purchase
Warrants outstanding.
The following documents are incorporated herein by reference: Certain exhibits
are incorporated herein by reference as
set forth in Item 14 (a) 3., Exhibits,in Part IV.
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CERTAIN INFORMATION SET FORTH IN THIS ANNUAL REPORT INCLUDES "FORWARD
LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 AND IS SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING
THOSE IDENTIFIED UNDER THE CAPTION "RISK FACTORS" WHICH APPEARS IN ITEM 1.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO
OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS
TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT
UNANTICIPATED EVENTS OR DEVELOPMENTS.
PART I
ITEM 1. BUSINESS.
GENERAL
Questron Technology, Inc. (the "Company" or "Questron") provides supply
chain management solutions and inventory logistics management services for small
parts commonly referred to as C inventory items (fasteners and related products)
focused on the needs of original equipment manufacturers ("OEMs") through its
wholly owned subsidiary, Questron Distribution Logistics, Inc. ("QDL") (formerly
named Quest Electronic Hardware, Inc.). The Company is also a master distributor
of fasteners through its wholly owned subsidiary Integrated Material Systems,
Inc. ("IMS") and a distributor of lithium batteries through its wholly owned
subsidiary Power Components, Inc. ("PCI").
Effective April 1, 1999, QDL acquired 100% of the stock of Action
Threaded Products, Inc., a privately owned value-added distributor of stainless
steel fasteners and related items headquartered in Chicago, Illinois, with
branches in Norcross, Georgia, Minneapolis, Minnesota, Grand Rapids, Michigan,
Milwaukee Wisconsin, and Columbus, Ohio, with a primary focus on industrial
manufacturers. Effective April 1, 1999, QDL also acquired 100% of the stock of
Capital Fasteners, Inc., a privately owned provider of inventory logistics
management services and a value-added distributor of fasteners and related items
headquartered in High Point, North Carolina, with branches in Chesapeake,
Virginia and Jacksonville, Florida, with a primary focus on the non-automotive
transportation industry. Effective April 1, 1999, QDL also acquired certain of
the operating assets of Metro Form Corporation d.b.a. Olympic Fasteners and
Electronic Hardware, a privately owned provider of inventory logistics
management services and a value-added distributor of fasteners and related items
headquartered in Cleveland, Ohio, with branches in Cincinnati, Ohio, and Pompano
Beach, Florida, with a primary focus on the telecommunications industry.
Effective October 1, 1999, QDL acquired 100% of the stock of B&G Supply Company,
Inc., a privately owned distributor of fasteners and other C inventory items
located in Tyler, Texas, with a primary focus on the non-automotive
transportation industry.
BUSINESS
QDL provides its customers with supply chain management solutions and
inventory logistics management services, such as bin-stock replenishment and
other just-in-time inventory management programs, and is the outsourced
materials management function for many of its customers, providing complete
supply chain management solutions from procurement to deployment of the products
managed. QDL serves more than 6,000 diversified customers in industries such as
industrial products, military aerospace, commercial aerospace, consumer
products, transportation, furniture,
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telecommunications, semiconductor fabrication equipment, contract manufacturing,
computers and networking and medical electronics.
Small parts, commonly referred to as C inventory items, are typically
low unit cost, high volume parts that are (i) complex due to the multiplicity of
items; (ii) consume large amounts of administrative resources; and (iii) are
labor intensive in preparation for the production line. C items include, but are
not limited to, screws, bolts, nuts, washers, pins, rings, fittings, springs,
spacers, standoffs, plastic components, cable ties and accessories, drawer
slides, connectors and similar parts. According to an industry study, sales of
fasteners in 1999 were approximately $8.0 billion in the United States. The OEM
market represents in excess of 80% of the total U.S. fastener market, the
maintenance and repair operations ("MRO") market accounts for 13% of the market,
with construction and other markets accounting for the remaining 7%. The United
States fastener market is estimated to have over 1,900 distributors. The Company
believes that the supply chain management solutions and inventory logistics
management services industry is in the early stages of consolidation, and the
Company plans to participate in the consolidation of the industry. The Company
believes that its broad selection of C inventory items, high quality services,
professional management team, and strong competitive position will allow it to
be one of the leading consolidators.
C inventory items constitute a majority of the total number of parts
needed by an OEM to manufacture its products, but represent only a small
fraction of the total materials cost. The cost for an OEM to manage its
inventory of C items internally is relatively high due to: (i) the large
number of C items in inventory; (ii) the inability of an OEM to achieve scale
economies that QDL is able to derive from servicing multiple customers; (iii)
the risk of interruptions for just-in-time ("JIT") manufacturing operations;
and (iv) the need to perform quality assurance testing of the fasteners and
other C inventory items. The Company believes that OEMs are increasingly
outsourcing their C item inventory procurement and management needs to
specialists like the Company in order to focus on their key competency, their
core manufacturing businesses, thereby reducing costs. To further reduce
costs, many manufacturers are seeking to consolidate the number of suppliers
they use and are selecting companies with extensive product lines who can
also provide inventory-related services. To capitalize on these trends, the
Company offers a broad array of C items, and provides a variety of related
procurement and inventory management services, including inventory management
information systems and reports, JIT delivery programs, quality assurance,
advisory engineering services, component kit production and delivery, and
electronic data interchange ("EDI") applications.
The Company's combined net sales have increased at a compound annual
rate of approximately 13% per year over the five years ended December 31, 1999,
adjusted for 1997, 1998 and 1999 acquisitions to reflect true internal growth.
The Company has generated such growth primarily by expanding its supply chain
management solutions and inventory logistics management services, the breadth of
its product offerings and value-added services, which has allowed the Company to
increase its sales to existing customers and attract new customers.
INDUSTRY OVERVIEW
Companies operating in the supply chain management solutions and
inventory logistics management services business can generally be characterized
by the end-users they serve, which are comprised broadly of OEMs, MROs and
construction companies. The traditional C item distribution market is similar to
most industrial distribution markets. C items are purchased from both domestic
and
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overseas manufacturers and sold to both domestic and overseas customers. The
majority of these C items are sold to OEM and MRO clients on a purchase order
basis. Some smaller distributors specialize along industry lines because of
the uniqueness of customer requirements. Other smaller distributors provide a
wide range of C items used for general assembly. The Company provides a wide
range of C items to meet the specialized needs of its OEM customers.
Customer demand for supply chain management solutions and inventory
logistics management services including electronic data interchange has required
industry participants to invest in the development and utilization of
sophisticated computer systems in order to remain competitive. Automated
inventory picking, component kit assembly and quality control procedures also
require investments in personnel and equipment. In addition, many customers are
seeking to reduce their operating costs by decreasing the number of suppliers
with whom they do business, often eliminating those suppliers offering limited
ranges of products and services. QDL believes that these trends have placed a
substantial number of small, owner-operated fastener distributors at a
competitive disadvantage because of their limited product lines and inventory
systems. In addition, many of these smaller distributors have limited access to
the capital resources necessary to provide working capital needed to provide a
full range of services to their customers.
BUSINESS STRATEGY
The Company intends to become one of the premier national providers of
supply chain management solutions and inventory logistics management services
for C inventory items focused on the needs of OEMs. QDL seeks to develop and
supply inventory-related services designed to reduce its customers' operating
costs. Quality assurance, JIT delivery programs and component kit production are
examples of such services currently provided by QDL to its customers. By
supplying such services, QDL strives to become integrated into its customers'
internal manufacturing processes and be able to anticipate its customers' needs,
which the Company believes results in improved profitability and customer
retention.
OEMs and other customers choose suppliers based, in significant part,
on the quality of the service supplied. QDL believes that its superior customer
service depends on its well-trained, technically competent workforce and its
belief that its workforce provides an advantage over other distributors of C
inventory items. QDL continually reviews its training and operating practices to
insure the highest standards of quality and customer service are maintained
throughout its operations. As part of its commitment to superior quality and
customer service, the Company is SSQA compliant (SEMATECH Quality Standard) and
ISO 9002 (International Standards Organization) certified or compliant, becoming
certified as required by its customers on a branch location basis.
One of the primary goals of the Company is to accelerate internal
growth both by expanding the range of products and services provided to existing
customers and by aggressively pursuing new customers. The Company believes that
it will be able to expand sales to existing customers by capitalizing on (i)
diverse product offerings and marketing expertise, (ii) cross-selling
opportunities across the Company's customer base, and (iii) access to financial
resources that are necessary to support the demands of its customers. The
Company intends to broaden its geographic coverage, which will present
opportunities to capture new business as well as additional business from
existing customers that operate nationwide.
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The Company has centralized appropriate administrative functions and
used its increased purchasing power to improve contractual relationships and
gain volume discounts from its suppliers. The Company has also improved
productivity through enhanced inventory management procedures, standardization
of its quality procedures, and the consolidation of its information systems and
employee benefit plans. All of the acquired businesses operate through an
on-line, real-time computer system except its aerospace businesses, Fas-Tronics,
Inc. and Fortune Industries, Inc., Action Threaded Products, Inc., its stainless
steel business, and B&G Supply Company, Inc. The Company intends to fully
integrate these businesses in 2000.
The Company pursued an aggressive acquisition program during 1997, 1998
and 1999, having completed 11 acquisitions during that period. As described
above, the Company believes that the supply chain management solutions and
inventory logistics management services business for C inventory items is highly
fragmented and in the early stages of consolidation. The Company intends to
acquire other businesses focused on C inventory items in order to enter new
industries and markets, increase sales in certain industries it currently
serves, develop new customer relationships with major OEMs, expand the
geographical reach of the Company, and expand its range of products and
services. Potential acquisition candidates will be evaluated on the strength of
management, profitability, quality of customer base and service, and industry
orientation. The Company believes it will continue to be regarded by acquisition
candidates as an attractive acquirer because of (i) its ability to create
professionally managed supply chain management solutions and inventory logistics
management services for C inventory items focused on the needs of original
equipment manufacturers; (ii) its ability to acquire businesses with a
combination of cash and publicly traded stock; (iii) the Company's access to
financial resources as a public company to support growth; and (iv) the
potential for increased profitability of the acquired company due to purchasing
economies, centralization of administrative functions, enhanced systems
capabilities and access to increased marketing resources.
To date, management of the companies acquired in 1997, 1998 and 1999
has been instrumental in identifying future acquisition candidates. Several of
the principals of such acquired companies have held leadership roles in industry
trade associations, which has enabled these individuals to develop relationships
with the owners of numerous acquisition candidates across the country. The
Company expects that the visibility of these individuals and the Company within
the industry will increase the awareness and interest of acquisition candidates
in the Company and its acquisition program. The Company has engaged in
preliminary discussions with a number of potential acquisition candidates. Such
discussions are in various stages and none have as yet resulted in any binding
agreements, understandings, arrangements or commitments with respect to any such
potential acquisitions. As consideration for future acquisitions, the Company
primarily intends to use various combinations of cash and its common stock. The
consideration for each future acquisition will vary on a case-by-case basis,
with the major factors in establishing the purchase price being historical
operating results, future prospects of the acquisition candidate and the ability
of the candidate to provide entry to new markets or OEM customers.
PRODUCTS
The Company stocks over 100,000 different C inventory items, generally
denoted by a unique standard identifier known as a Stock-keeping Unit ("SKU").
The SKUs fall into two general categories: fasteners and other C inventory
items.
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Fasteners sold by QDL include screws, bolts, nuts, washers, rings,
pins, rivets and staples. These items come in a variety of materials, sizes,
plantings, and shapes. The item sold is driven by the end-use requirement or
specification of the fastener, such as strength, resistance to corrosion,
reusability, and many other factors. QDL's sales and purchasing departments have
extensive knowledge of the available products offered by fastener manufacturers,
and play an important role in assisting OEMs in selecting the appropriate
fastener for a given application.
QDL also distributes other C inventory items used by OEMs to
manufacture their products. These items include spacers, standoffs, inserts,
clamps, springs, brackets, connectors, small molded parts, cable ties, plugs,
hoses, fittings and other products. Like fasteners, these parts come in many
shapes, sizes and materials depending upon the designated end-use. OEMs are
increasingly requesting that the Company provide these parts because they are
often used during the manufacturing or assembly process in conjunction with the
fasteners supplied by QDL.
SERVICES
In connection with its supply chain management solutions and inventory
logistics management services, the Company provides a wide range of value-added
services including purchasing, quality assurance, inventory management
information systems and reports, JIT delivery programs, advisory
engineering services, component kit production and delivery, consolidated
billing and electronic data interchange applications to OEMs. The OEMs' demand
for these services is driven by the reduction in costs achievable through the
outsourcing of such functions. Such cost reductions are achievable as a result
of the Company's ability to derive economies of scale by providing such services
to many customers, which economies the OEM is unable to achieve on its own.
These value-added services also benefit the Company by further integrating the
Company into its customers' internal manufacturing process.
Increasingly, manufacturers are outsourcing their inventory management
needs to companies like QDL. These services range from installing a simple
inventory bin card system to developing a complete turnkey inventory management
system with full-time staff. These inventory systems are designed to meet the
specific needs of QDL's customers. They range in sophistication from helping the
OEM set appropriate order quantities and frequencies to delivering the correct C
items to the assembly floor on a JIT basis. In some cases, the Company utilizes
computer systems deployed at the OEM's sites to facilitate the management of the
C item inventories. Inventory replenishment services and product consolidation
services decrease the number of invoices and vendors, lower inventory carrying
cost, and allow customers to focus on their key competency, manufacturing.
OEMs have reduced their operating costs by reducing the number of
suppliers they use. QDL provides a wide array of C inventory items and will,
upon a customer's request, stock additional parts. As a result, QDL's customers
are able to reduce the number of suppliers, distributors as well as
manufacturers that they utilize.
Often OEMs request that QDL package several parts into a package or
"kit." A common use of this service is to supply fastener kits included with
products the retail consumer is required to assemble. The use of kits has also
expanded into the manufacturing environment. Manufacturers frequently desire to
have several related fasteners or components arrive at the assembly line in a
single package; this ensures that all of the parts arrive at the same time and
that no part will be missed in the manufacturing
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process. This "kit" process aids the manufacturer by decreasing the number of
suppliers needed and improves productivity by having the fasteners delivered to
the assembly line with the other related parts. Kit services improve the
efficiency and effectiveness of the manufacturing line and decrease the number
of stockouts and subsequent manufacturing line stoppages.
Quality assurance services provided by QDL involve the testing of
fasteners to ensure they meet the specifications required by the OEM customer
and stated by the manufacturer. Many OEMs require strict quality control with
respect to fasteners. QDL has installed specialized equipment and hired trained
technicians to perform quality control tests on some of its fastener products.
QDL is SSQA compliant (SEMATECH Quality Standard), and ISO 9002 certified or
compliant (International Standards Organization), becoming certified as required
by its customers on a branch location basis.
In order to meet the exacting requirements of customers, QDL maintains
relationships with vendors that provide plating, galvanizing and coating
services. These services are used to meet the specific requirements of its OEM
and other customers.
COMPETITION
The Company is engaged in a highly fragmented and competitive industry.
Competition is based primarily on service, quality and geographic proximity. The
Company competes with a large number of fastener distributors on a regional and
local basis, some of which may have greater financial resources than the Company
and some of which are also public companies or divisions of public companies.
The Company may also face competition for acquisitions from these companies,
some of which have acquired fastener distribution businesses during the past
decade. Other smaller fastener distributors may also seek acquisitions from time
to time.
The Company believes that it will be able to compete effectively
because of its strategically situated locations, geographic diversity,
knowledgeable and trained sales force, integrated computer system, modern
equipment, broad-based product line, long-term customer relationships, combined
purchasing volume, operational economies of scale, and expertise in acquiring
and integrating businesses. The Company believes that it differentiates itself
from its competition in terms of service and quality, and by offering a broad
range of products and services.
SALES AND MARKETING
QDL utilizes a sales force comprised of both inside and outside sales
people. QDL markets its products and services primarily to OEMs. QDL generally
targets those OEMs that could achieve significant cost savings from the products
and services offered by QDL. These would include OEMs that (i) maintain
substantial inventories of fasteners and other C inventory items; (ii) utilize
multiple suppliers and wish to reduce that number; (iii) experience a
significant number of stockouts; (iv) desire to improve the quality and
reliability of their products; or (v) desire to improve the efficiency and
effectiveness of the manufacturing process. QDL believes that its commitment to
consistent quality and service has enabled it to develop and maintain long-term
relationships with existing customers, while expanding its market penetration
through the use of its sales and marketing program.
CUSTOMERS
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QDL sells C inventory items to more than 6,000 customers. These
customers include leading industrial products, military aerospace, commercial
aerospace, consumer products, transportation, furniture, telecommunications,
semiconductor fabrication equipment, contract manufacturing, computer and
computer networking, and medical electronics manufacturing companies. QDL's
contracts with its customers for the supply of C items vary in length up to five
years and may be cancelled by either party with proper notice. QDL accepts
returns of C items and issues a credit in exchange for such returns.
Historically, returns have not been of an amount to materially affect the
Company's business. For the year ended December 31, 1999, the Company had
reported net sales of $109.0 million (pro forma net sales of $120.3 million).
The ten largest customers accounted for approximately 31% of QDL's sales in 1999
(on a pro forma basis), with no one customer contributing more than 5.6%.
SUPPLIERS
Over 1,000 suppliers located in the United States and abroad
manufacture the C items sold by QDL. QDL purchases C items directly from
manufacturers or, to a lesser degree, from authorized distributors. QDL's
decision to purchase from a specific supplier is based on product
specifications, quality, reliability of delivery, production lead times and
price. In addition, the Company purchases products from foreign suppliers when
favorable pricing is available (approximately 12% of purchases for 1999 were
from foreign suppliers).
QDL routinely reviews its supplier base and believes that it is able to
purchase C items in sufficient volumes necessary to achieve improved service and
pricing. QDL believes that it is not materially dependent on any single supplier
and that it currently maintains good relationships with all of its suppliers.
The ten largest suppliers accounted for approximately 22% of QDL's purchases in
1999, with the largest supplier accounting for approximately 4%.
PATENT, TRADEMARK, COPYRIGHT AND PROPRIETARY RIGHTS
The Company received registrations from the United States Patent and
Trademark Office in 1997 for the marks "Questron Technology, Inc.(R)" and "Quest
Electronic Hardware, Inc.(R)" relating to certain of the Company's services. The
Company does not have any patent or copyright applications pending.
MANAGEMENT INFORMATION SYSTEM
The Company operates a management information system that is used to
purchase, monitor and allocate inventory throughout its facilities. The Company
believes that its system enables it to manage inventory costs effectively and to
achieve appropriate inventory turnover rates. QDL's system includes computerized
order entry, sales analysis, inventory status, invoicing and payment, bar-code
tracking, and EDI through which the Company offers its customers a paperless
electronic process for order entry, shipment tracking, customer billing,
remittance processing and other routine matters. The Company's information
system operates over a wide-area network. The real-time information system
allows each sales and warehouse center to share information and monitor daily
progress relating to sales activities, credit approval, inventory levels, stock
balancing, vendor returns, order fulfillment, and other measures of performance.
The Company's computer system and programs successfully processed all of the
Company's transactions without any dating implications associated with the new
millennium.
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GOVERNMENT REGULATION
The Fastener Quality Act of 1991, as amended (the "Fastener Act"),
was signed into law on November 16, 1990 and was subsequently amended in
March 1996, August 1998 and June 1999. The Fastener Act is intended to
protect the public safety by deterring the introduction of non-conforming
fasteners into commerce and by improving the traceability of fasteners.
Generally, the Fastener Act covers fasteners including screws, nuts, bolts or
studs with internal or external threads and load indicating washers with
nominal diameters of greater than approximately one quarter inch, which
contain metal or are held out as meeting a standard or specification that
requires through-hardening, and are manufactured to standards and
specifications that require a grade mark. Fastners manufactured in accordance
with a fastner quality assurance system are not covered by the Fastner Act.
Companies that provide supply chain management solutions and inventory
logistics management services that sell fasteners, such as the Company, are
subject to the Fastener Act. The Fastner Act prohibits the manufacturer or
distributor from knowingly misrepresenting or falsifying: Fastners' physical,
mechanical, or performance identification; the record of conformance for
Fastners; or the manufacturer's insignia.
The Company currently employs quality control personnel at its
facilities and believes it will not be obligated to make any significant
investment to comply with the Fastener Act. The Company anticipates that the
majority of any additional costs resulting from compliance with the Fastener Act
will be included in the prices to its customers
The Company's operations are subject to various federal, state and
local laws and regulations, including those relating to worker safety and
protection of the environment. The Company provides supply chain management
solutions and inventory logistics management services and does not engage in
manufacturing of C items. As a result, environmental laws generally have a
minimal effect on its operations. The Company believes it is in substantial
compliance with applicable regulatory requirements.
INTEGRATED MATERIAL SYSTEMS, INC.
IMS is a master distributor of fasteners based in Scottsdale, Arizona.
The addition of IMS brought to the Company expertise in sourcing products on a
worldwide basis and additional materials management skills. IMS sells to
distributors nationwide, no one of which contributed more than 21% of IMS's 1999
sales. IMS purchases fasteners principally from Taiwan and Japan, as well as
domestic sources. In 1999, IMS's two largest suppliers accounted for
approximately 39% and 19%, respectively, of its total purchases.
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POWER COMPONENTS, INC.
PCI is a distributor of lithium batteries and battery packs and
assemblies based in Fond du Lac, Wisconsin. PCI sells to distributor and
end-user customers nationwide, no one of which contributed more than 6% of its
1999 sales. PCI purchases product from international and domestic manufacturers
of batteries, with one such supplier accounting for approximately 73% of its
1999 purchases.
EMPLOYEES
At March 23, 2000, the Company had 439 full-time employees. The Company
is not a party to any collective bargaining agreements. The Company believes
that its relationship with its employees is good.
RISK FACTORS
LIMITED COMBINED OPERATING HISTORY; RECENT ACQUISITIONS.
The Company has grown significantly in the past three years, primarily
as a result of acquisitions. The Company has acquired 11 companies since March
1997. As a result, the Company's historical results of operations are not
necessarily indicative of future results. Prior to the acquisition of these
companies, they were each private companies with different objectives,
management information systems and accounting and other standards. Consequently,
there is limited information about the performance of the acquired companies
under the Company's management that is available for evaluation.
The acquisitions have been accounted for using the purchase method of
accounting and the total purchase prices have been allocated to the assets and
liabilities acquired based upon their respective fair values. As a result, the
Company has significant non-cash charges for amortization expense related to
goodwill. In addition, the Company has substantial indebtedness in connection
with the acquisitions for which it will have significant debt service
requirements.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY.
A disciplined acquisition program is part of the Company's business
strategy. The success of this program in the future will depend upon finding
strategic acquisition candidates that would expand and complement the Company's
business at attractive prices. The Company expects to face competition for
acquisitions, which may limit the number of acquisition opportunities and lead
to higher acquisition prices. The Company cannot ensure that it will be able to
identify additional acquisition candidates on terms acceptable to the Company or
in a timely manner, enter into acceptable agreements or close any such
transactions. In addition, the Company may not be able to integrate newly
acquired businesses successfully without unplanned costs, delays or other
difficulties and the Company may not be able to achieve its targeted synergies
and cost savings.
The Company may finance future acquisitions through internally
generated funds, bank borrowings, public offerings or private placements of
equity or debt securities, or a combination of these sources. The Company may
not be able to obtain any required additional financing on terms that are
acceptable to the Company and the Company may be limited in its ability to issue
equity if the
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Company's common stock does not maintain a sufficient market value or if
potential acquisition candidates are unwilling to accept common stock in
exchange for the sale of their businesses. The Company's inability to obtain the
necessary funds to make such acquisitions may have a material adverse effect on
its ability to affect its acquisition strategy and to continue to grow its
business.
THE MARKET PRICE FOR THE COMPANY'S COMMON STOCK COULD BE AFFECTED BY SHARES
THAT BECOME ELIGIBLE FOR SALE IN THE FUTURE
Shares of the Company's common stock may be sold in the public market,
subject in some cases to the volume and other limitations of Rule 144 under
the Securities Act of 1933, as amended, including, following their issuance,
shares of common stock underlying warrants, options, and issued in the future
in connection with acquisitions by the Company. To fulfill its obligations to
certain persons, in April 2000, the Company plans to file under the
Securities Act of 1933, as amended, a registration statement with the
Securities and Exchange Commission registering for sale by these persons,
from time to time, approximately 2,340,000 shares of its common stock,
including shares underlying options and warrants. The Company is not aware of
any obligation of these persons to sell the shares to be registered for sale
under the registration statement. The sale, or availability for sale, of
substantial amounts of common stock in the public market could adversely
affect the prevailing market price of the common stock.
CHALLENGES OF BUSINESS INTEGRATION -- THE COMPANY MAY NOT BE ABLE TO INTEGRATE
ITS ACQUIRED BUSINESSES SUCCESSFULLY.
Since March 1997, the Company has acquired 11 businesses. Although all
acquisitions are subject to risks, the high number and aggregate size of the
acquisitions the Company has completed since March 1997 subject the Company to
greater risks than usual. In particular, successful integration of these
companies, or any other companies that the Company may acquire in the future,
into the Company's business presents the Company with significant challenges.
The process of integration could divert management's attention from its daily
operation, require the implementation of enhancements to the Company's
operational and financial systems, require additional management, operational
and financial resources, and place significant demands on the Company's
management and infrastructure. Successful integration will also depend on a
number of other factors, including the Company's ability to maintain the quality
of services it provides to its customers and the recruitment, motivation and
retention of qualified personnel. The Company cannot ensure that it will be able
to succeed with such integration or effectively manage newly acquired businesses
or that such business will perform as expected. In addition, the Company cannot
ensure that the acquired companies will not have additional liabilities or
contingencies that the Company did not anticipate at the time of the
acquisitions.
THE COMPANY FACES THE PRESSURES OF A COMPETITIVE INDUSTRY.
The Company is engaged in a highly fragmented and competitive
industry. Competition is based primarily on service, quality and geographic
proximity. The Company competes with a large number of other companies, that
also provide supply chain management solutions and inventory logistics
management services for C inventory items focused on the needs of OEMs, on a
regional and local basis, some of which have greater financial resources and
technical expertise than the Company. In addition, these competitors may have
greater established customer relationships with certain customers for whose
business the Company competes and may offer lower prices on competing
products. Furthermore, the potential growth of the market in which the
Company competes may attract new participants, as they perceive
opportunities. The Company cannot ensure that it will be able to compete
successfully with its existing or future competitors.
THE COMPANY DEPENDS ON SIGNIFICANT CUSTOMERS.
For the year ended December 31, 1999, on a pro forma basis, the
Company's ten largest customers accounted for approximately 31% of its sales,
with no one customer contributing more than 5.6%. These sales arrangements are
terminable upon short notice and none of these customers is obligated to
continue to use the Company's services, or acquire the Company's products, at
all or at existing prices. The dependence on significant customers subjects the
Company to significant financial risk in the operation of its business. The
Company's ability to maintain these customer relationships and build new
customer relationships is dependent, among other things, upon the Company's
ability to maintain high quality standards and competitive prices. The Company
cannot ensure that it will
11
<PAGE>
maintain these relationships. The loss of any of these significant customers or
any other significant customer for any reason or a reduction in business with a
significant customer for any reason could result in a material loss of revenue
or otherwise have a material adverse effect on the Company's business. In
addition, from time to time, certain of the Company's customers may seek to
implement competitive bidding and other procedures designed to reduce prices for
C inventory items, which may lower the Company's gross margins on sales to these
customers. The Company will seek to mitigate any adverse impact to gross margins
in the future through its own cost reduction initiatives and by providing
additional services to these customers, however, the Company can not ensure the
timing or the extent to which such mitigating efforts will offset lower margins,
if at all.
CUSTOMER INDUSTRY RISKS AND CYCLICALITY.
The Company sells a significant number of its products to customers in
industries that experience fluctuations in demand because of changes in economic
conditions, consumer demand and other factors beyond its or their control. As a
result, the Company may not be able to increase or maintain its level of sales
in periods of economic stagnation or downturn in the Company's customers'
industries. The Company expects that the cyclicality of the industries could
adversely affect its sales and therefore potentially have a material adverse
effect on the Company's financial condition, liquidity and results of
operations.
THE COMPANY DEPENDS ON ITS INFORMATION SYSTEMS.
The Company operates a management information system that is used to
purchase, monitor and allocate inventory throughout its facilities. The Company
believes that its information system is an integral part of its business and
certain growth strategies are contingent upon such system. The Company depends
heavily on its management information system to provide real-time information
used in monitoring progress relating to sales activities, credit approval,
inventory levels, stock balancing, vendor returns and order fulfillment. Any
disruption in the operation of the Company's information system could have a
material adverse effect on the Company's financial condition, liquidity and
results of operations.
THE COMPANY DEPENDS ON THIRD-PARTY SUPPLIERS AND MANUFACTURERS.
The Company purchases substantially all of its products, principally
fasteners and other C inventory items, from third-party suppliers and
manufacturers. Although the Company believes there are numerous available
sources of supply for most of its products, the Company is subject to the risk
of price fluctuations, different product performance and quality, and periodic
delays in the delivery of certain specialty fasteners and other products.
THE COMPANY HAS SUBSTANTIAL INDEBTEDNESS.
The Company's high level of debt could interfere with its ability to
meet its obligations under its Senior Secured Credit Facility and its Senior
Subordinated Notes. At December 31, 1999, the Company had total indebtedness of
approximately $89.6 million, representing 72.2% of its total capitalization. In
addition, subject to restrictions in the Senior Secured Credit Facility,
Questron may incur up to $10.6 million of additional borrowings under the
revolving credit portion of the Senior Secured Credit Facility
12
<PAGE>
from time to time to finance acquisitions, provide for working capital or
capital expenditures, or for other purposes.
The Company's level of indebtedness could increase its vulnerability to
general economic and industry conditions, limit its ability to fund capital
expenditures, future acquisitions, working capital, and other general corporate
requirements, limit its flexibility in planning for, or reacting to, changes in
its business and the industry in which it operates, and place the Company at a
competitive disadvantage to its competitors that have less debt. The Company
currently expects that it will be able to service its debt out of cash flow from
operations. If the Company is unable to generate sufficient cash flow to meet
its debt service obligations, the Company will have to pursue one or more
alternatives, such as reducing or delaying capital expenditures, refinancing
debt, selling assets or raising equity capital. Each of these alternatives is
dependent upon financial, business and other general economic factors that
affect the Company, many of which are beyond its control. The Company cannot
make any assurances that any of these alternatives could be accomplished on
satisfactory terms or that they would yield sufficient funds to refinance the
Senior Secured Credit Facility or the Senior Subordinated Notes.
THE COMPANY DEPENDS ON KEY MANAGEMENT.
The Company's success depends largely upon the efforts, abilities and
expertise of its executive officers and other senior managers, including Dominic
A. Polimeni, its Chairman, and Chief Executive Officer, as well as the executive
management of its operating units. In addition, the Company may depend on the
management of any significant business the Company acquires in the future. The
loss of the services of one or more of such individuals could have a material
adverse effect on the Company's financial condition, liquidity and results of
operations.
MANAGEMENT CONTROL.
Management owns approximately 52% of the Company's outstanding shares
of common stock. Accordingly, management has the ability to direct many of the
Company's affairs and actions, including actions requiring stockholder approval.
13
<PAGE>
ITEM 2. PROPERTIES.
The Company is headquartered at 6400 Congress Avenue, Suite 2000, Boca
Raton, Florida 33487, operating from 33 well-equipped modern
facilities, all but one of which are leased, as follows:
Boca Raton, Florida (Company headquarters) - occupies 6,500 square feet
of office space under a lease expiring May 18, 2002, which space is
approximately 90% utilized;
Anaheim, California - occupies 3,000 square feet of office space and
17,000 square feet of warehouse space under a lease expiring March 1,
2016, which space is approximately 90% utilized;
Austin, Texas - occupies 900 square feet of office space and 8,100
square feet of warehouse space under a lease expiring September 15,
2000, which space is approximately 75% utilized;
Charlotte, North Carolina - occupies 500 square feet of office space
under a month-to-month lease, which space is approximately 95%
utilized;
Chesapeake, Virginia - occupies 1,000 square feet of office space and
5,000 square feet of warehouse space under a lease expiring December
31, 2004, which space is approximately 65% utilized;
Chicago, Illinois - occupies 5,000 square feet of office space and
35,000 square feet of warehouse space under a lease expiring November
30, 2002, which space is approximately 100% utilized;
Cincinnati, Ohio - occupies 1,000 square feet of office space and 3,000
square feet of warehouse space under a lease expiring August 20, 2003,
which space is approximately 95% utilized;
Cleveland, Ohio - occupies 3,500 square feet of office space and 14,500
square feet of warehouse space under a lease expiring June 30, 2004,
which space is approximately 95% utilized;
Colorado Springs, Colorado - occupies 1,000 square feet of office space
and 4,000 square feet of warehouse space under a lease, which expired
November 30, 1998 (now month-to-month), which space is approximately
80% utilized;
Columbus, Ohio - occupies 600 square feet of office space and 4,400
square feet of warehouse space under a lease, which expires May 31,
2001, which space is approximately 95%utilized;
Dallas, Texas - occupies 1,575 square feet of office space and 11,945
square feet of warehouse space under a lease expiring February 28,
2003, which space is approximately 90% utilized;
Deerfield, Florida - occupies 3,000 square feet of office space and
3,630 square feet of warehouse space under a lease expiring January 31,
2005, which space is approximately 95% utilized;
14
<PAGE>
Fond du Lac, Wisconsin - occupies 150 square feet of office space and
1,950 square feet of warehouse space under a lease expiring June 30,
2001, which space is approximately 95% utilized;
Fort Worth, Texas (Fas-Tronics) (1) - occupies 10,000 square feet of
office space and 12,000 square feet of warehouse space under a lease
expiring June 30, 2000, which space is approximately 95% utilized;
Fort Worth, Texas (Fortune) (1) - occupies 10,000 square feet of office
space and 15,000 square feet of warehouse space under a lease which
expired February 28, 2000 (now month-to-month), which space is
approximately 90% utilized;
Grand Rapids, Michigan - occupies 3,000 square feet of office space and
37,000 square feet of warehouse space under a lease expiring May 30,
2002, which space is approximately 95% utilized;
High Point, North Carolina - occupies 3,000 square feet of office space
and 37,000 square feet of warehouse space under a lease expiring March
31, 2004, which space is approximately 95% utilized;
Jacksonville, Florida - occupies 1,000 square feet of office space and
3,000 square feet of warehouse space under a lease expiring June 30,
2000, which space is approximately 95% utilized;
Juarez, Mexico - occupies 6,000 square feet of warehouse space that is
customer provided, which space is approximately 95% utilized;
Melbourne, Florida - occupies 600 square feet of office space and 900
square feet of warehouse space under a lease expiring January 31, 2003,
which space is approximately 90% utilized;
Milpitas, California - occupies 6,000 square feet of office space and
13,500 square feet of warehouse space under a lease expiring April 30,
2005, which space is approximately 95% utilized;
Milwaukee, Wisconsin - occupies 1,600 square feet of office space and
3,600 square feet of warehouse space under a lease expiring June 30,
2001, which space is approximately 95% utilized;
Minneapolis, Minnesota - occupies 2,000 square feet of office space and
6,000 square feet of warehouse space under a lease expiring June 30,
2005, which space is approximately 95% utilized;
Nogales, Mexico - occupies 500 square feet of office space and 2,000
square feet of warehouse space under a lease expiring July 30, 2000,
which space is approximately 95% utilized;
15
<PAGE>
Norcross, Georgia - occupies 2,000 square feet of office space and
8,000 square feet of warehouse space under a lease expiring December
31, 2001, which space is approximately 95% utilized;
Orlando, Florida - occupies 4,200 square feet of office space and 6,000
square feet of warehouse space in a facility owned by the Company,
which space is approximately 65% utilized;
Phoenix, Arizona - occupies 1,000 square feet of office space and
11,000 square feet of warehouse space under a lease expiring October
31, 2000, which space is approximately 95% utilized;
San Antonio, Texas - occupies 300 square feet of office space and 3,500
square feet of warehouse space under a lease expiring February 28,
2005, which space is approximately 60% utilized;
San Diego, California - occupies 2,600 square feet of office space and
19,300 square feet of warehouse space under a lease expiring February
29, 2004, which space is approximately 50% utilized;
Scottsdale, Arizona - occupies 1,000 square feet of office space and
3,000 square feet of warehouse space under a lease expiring May 31,
2000, which space is approximately 75% utilized;
Tyler, Texas - occupies 800 square feet of office space and 4,000
square feet of warehouse space under a month-to-month lease, which
space is 100% utilized;
Tucson, Arizona - occupies 1,500 square feet of office space and 10,000
square feet of warehouse space under a lease expiring January 31, 2002,
which space is approximately 75% utilized;
Winchester, Massachusetts - occupies 4,000 square feet of office space
and 16,000 square feet of warehouse space under a lease expiring March
31, 2003, which space is approximately 90% utilized.
Total rent expense for the Company amounted to $2,001,854 in 1999. The
aggregate minimum rental commitment under all non-cancelable operating leases
for the year ending December 31, 2000 is $2,441,718.
- ---------------------------------------------
(1) These two facilities are in the process of being consolidated into a
newly leased 40,000 square foot facility in Fort Worth, Texas.
16
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
On July 16, 1997, Unit Instruments, Inc., a California corporation
("Unit"), filed a complaint against California Fasteners, Inc. ("Calfast") and
others in the Superior Court of the State of California for Orange County (Case
No. 781801) (the "Complaint"). The Complaint alleges breach of contract, breach
of various warranties and negligence. The action relates to certain screws
allegedly purchased by Unit from Calfast as a distributor, which Unit alleges
malfunctioned thereby causing Unit to suffer damages. Unit has claimed damages
in an amount to be proved at trial, but alleged damages of not less than
$1,000,000. Calfast filed an answer to the complaint on September 22, 1997,
which denies the allegations made therein and asserted cross-claims against
certain of the other defendants in the action, including the manufacturer of the
screws. Calfast has referred this litigation to its insurance carrier, which has
assumed the defense of the case under a reservation of all rights. The former
stockholders of Calfast have provided the Company with certain indemnities in
connection with liabilities arising out of this litigation. In August 1999, the
matter was settled by a payment to Unit by the Company's insurance carrier. The
settlement was within the Company's policy limits and the defendant parties were
released and a dismissal, with prejudice, was filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 28, 1999, at the Annual Meeting of Stockholders, the
stockholders of the Company elected the following Directors and approved the
following proposals put forth by management and the board of directors:
<TABLE>
<CAPTION>
Election of Directors: For Withheld
- -------------------------- ------------------- ---------------------
<S> <C> <C>
Dominic A. Polimeni 5,204,310 54,336
Robert V. Gubitosi 5,204,310 54,336
Douglas D. Zadow 5,204,310 54,336
Milton M. Adler 5,204,290 54,356
Frederick W. London 5,204,310 54,336
William J. McSherry, Jr. 5,204,310 54,336
</TABLE>
<TABLE>
<CAPTION>
Affirmative Negative
Proposal Votes Votes Abstained
- --------------------------------------------------------- ------------------- -------------- ---------------
<S> <C> <C> <C>
To amend the 1996 Employee Stock Option
Plan to increase the number of options
available for grant under such plan (requires
affirmative
votes of 50% of the votes cast) 3,427,333 266,010 232,342
To ratify the appointment of Ernst & Young LLP
as the independent accountants for the
Company (requires affirmative
votes of 50% of the votes cast) 5,232,835 10,156 14,655
</TABLE>
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is included for quotation on the NASDAQ
Small Cap Market under the symbol "QUST".
The following table sets forth the reported high and low bid quotations
of the common stock for the periods indicated. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------
HIGH LOW
---- ---
1998:
-----
<S> <C> <C>
First Quarter $ 9.00 $ 6.13
Second Quarter $ 9.88 $ 6.38
Third Quarter $ 8.25 $ 3.75
Fourth Quarter $ 6.22 $ 3.50
1999:
-----
First Quarter $ 5.25 $ 3.56
Second Quarter $ 5.63 $ 3.25
Third Quarter $ 4.38 $ 3.31
Fourth Quarter $ 8.13 $ 2.75
</TABLE>
On March 23, 2000, there were approximately 1,000 holders of record of
the Company's common stock (including entities which hold stock in street name
on behalf of other beneficial owners).
The Company has not paid any cash dividends on its common stock to
date. The Company anticipates that for the foreseeable future it will follow a
policy of retaining earnings, if any, in order to finance the expansion and
development of its business. Payment of common stock dividends is within the
discretion of the Company's board of directors and will depend upon the
earnings, capital requirements, and the operating and financial condition of the
Company, among other factors, including restrictions under the Company's loan
and security agreement with its lenders, which presently prohibits the payment
of any dividends. The Company does not anticipate the declaration or payment of
any dividends in the foreseeable future. There can be no assurance that cash
dividends of any kind will ever be paid.
In April 1999, in connection with the final payment on the deferred
purchase price for Calfast, the Company issued 277,777 shares of common stock in
a private transaction exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended, to the former shareholders of Calfast.
In June 1999, in connection with the deferred purchase price for
Fortune, the Company issued 63,710 shares of common stock in a private
transaction exempt from registration under Section 4(2) of the Securities Act of
1933, as amended, to the former shareholders of Fortune. In September 1999,
pursuant to the stock purchase agreements between the Company and the former
shareholders of Fortune and Fas-Tronics, the Company issued 164,065 shares of
common stock in private transactions exempt from registration under Section 4(2)
of the Securities Act of 1933, as amended, to the former shareholders of Fortune
and 133,615 shares of common stock to the former shareholders of Fas-Tronics.
In connection with the Company's acquisitions of Action Threaded
Products, Inc., Capital Fasteners, Inc. and Metro Form Corporation d.b.a.
Olympic Fasteners and Electronic Hardware, the Company had issued
18
<PAGE>
$5,000,000 in notes to the former shareholders of the acquired businesses. Such
notes bore interest at 8.5% per annum and required principal payments of
$1,250,000 on June 30, 2000, $1,250,000 on June 30, 2001 and $2,500,000 on June
30, 2002. On March 7, 2000, the Company reached agreements with the all of the
note holders whereby the $5,000,000 in notes and the approximately $291,100 in
accrued interest on such notes were exchanged for 450,000 shares of the
Company's common stock in a private transaction exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended.
In connection with the acquisition of B&G Supply Company, Inc. ("B&G")
effective as of October 1, 1999, the Company issued 86,451 shares of the
Company's common stock in a private transaction exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended, to the former owners of
B&G as a part of the consideration paid for the acquisition.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected consolidated financial
data and should be read in conjunction with Management's Discussion and Analysis
of Financial Condition and Results of Operations, and the Company's consolidated
financial statements and related notes appearing elsewhere in this annual
report.
SELECTED FINANCIAL DATA (In thousands except per share data):
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------- -------------- ------------- -------------- --------------
FOR THE YEAR:
<S> <C> <C> <C> <C> <C>
Sales $ 108,958 $ 56,968 $ 25,710 $ 11,036 $ 7,259
Operating income 12,947 8,279 3,302 915 585
Income before extraordinary
charge (a) 2,372 3,286 1,637 549 352
Net income 921 3,286 1,637 549 352
PER COMMON SHARE:
- -----------------
Income before
extraordinary charge (a) $ .38 $ .60 $ .56 $ .36 $ .03
Net Income $ .15 $ .60 $ .56 $ .36 $ .03
PER DILUTED COMMON SHARE:
- -------------------------
Income before
extraordinary charge (a) $ .38 $ .60 $ .47 $ .36 $ .03
Net Income $ .15 $ .60 $ .47 $ .36 $ .03
AT YEAR-END:
Accounts receivable and
inventories $ 55,382 $ 32,323 $ 13,234 $ 4,412 $ 4,954
Total assets 137,352 77,725 35,194 12,032 12,433
Total long-term debt
obligations 87,809 39,286 9,894 1,785 2,185
</TABLE>
(a) In 1999, the Company incurred an extraordinary charge in connection with the
early extinguishment of debt in the amount of $1,451,516 (net of applicable
income taxes of $1,187,604).
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 COMPARED WITH 1998.
The results of operations through December 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 lithium
battery distribution business, Power Components, Inc. ("PCI"). QDL (formerly
Quest Electronic Hardware, Inc.) includes the operating results of Webb
Distribution ("Webb"), and California Fasteners, Inc. ("Calfast"), which were
acquired in 1997; the operating results of Fas-Tronics, Inc. ("Fas-Tronics"),
Fortune Industries, Inc. ("Fortune") and AFCOM, which were acquired in 1998; and
the operating results of Action Threaded Products, Inc. ("Action"), Capital
Fasteners, Inc. ("Capital"), Olympic Fasteners & Electronic Hardware ("Olympic")
and B & G Supply Company, Inc. ("B&G"), which were acquired in 1999. In 1999,
the operations of Fas-Tronics and Fortune began to operate as Questron Aerospace
Logistics ("QAL"), a division of QDL dedicated to providing inventory logistics
management services to aerospace manufacturers.
The Company's revenues for the year ended December 31, 1999 amounted to
$108,958,426 compared with $56,968,007 for the year ended December 31, 1998. The
significant growth in the Company's revenues in 1999 is primarily attributable
to the full-year results of Fas-Tronics, Fortune and AFCOM and the acquisitions
of Action, Capital, Olympic and B&G during the year, as well as the internal
growth of the other QDL branches. Revenues, excluding revenues attributable to
the 1999 and 1998 acquisitions, amounted to $54,290,070 and $45,481,650 for the
years ended December 31, 1999 and 1998, respectively. This increase represents
an internal growth rate of 19.4% from 1998 to 1999.
The Company's operating income was $12,947,323 for the year ended
December 31, 1999, compared with operating income of $8,279,478 for the prior
year. The increase in operating income for the year ended December 31, 1999 is
primarily due to the operating income attributable to the acquired businesses,
as well as internal growth. Operating income as a percentage of sales declined
to 11.9% for the year ended December 31, 1999 from 14.5% for the year ended
December 31, 1998. The increase in operating expenses as a percentage of sales
is primarily due to redundant expenses of the acquired businesses and the
investment by QDL in personnel and facilities to support recently signed
inventory logistics management agreements. While some of the redundant costs
associated with the acquired businesses have been eliminated as a result of
recent business and systems integrations, the Company will not realize the full
benefit of the cost savings associated with the integration of the acquired
businesses until 2000 when the remaining acquired businesses are integrated and
the Company benefits from a full year of cost savings attributable to the
businesses that were integrated in the fourth quarter of 1999.
Interest expense for the years ended December 31, 1999 and 1998
amounted to $8,496,097 and $2,709,979, respectively. The increase in interest
expense principally reflects the cost of increased borrowings associated with
the acquisitions of Fortune and Fas-Tronics as of July 1, 1998 and Action,
Capital and Olympic as of April 1, 1999, as well as borrowings associated with
QDL's working capital needs.
20
<PAGE>
The provision for income taxes for the years ended December 31, 1999
and 1998, respectively, reflects a federal income tax provision at an effective
rate of 44.1% and 35%, respectively, and a state income tax provision at an
effective rate of 5.1% and 6%, respectively, for the states in which the Company
conducts business. The increase in the effective tax rate in 1999 is primarily
due to the effect of non-deductible goodwill associated with the acquired
businesses.
Income before an extraordinary charge for the year ended December 31,
1999 was $2,372,066, compared with $3,286,004 for the prior year. The decrease
in income before the extraordinary charge in 1999 as compared with 1998 reflects
the increased interest expense associated with the financing of four
acquisitions, increased selling, general and administrative expenses, as well as
the redundant expenses associated with the acquired businesses, partially offset
by the growth in operating income attributable to the acquired businesses. While
certain of these redundant expenses associated with the acquired businesses have
been eliminated, the Company should realize the full benefit of the integration
of the acquired businesses with the completion of the integration of QAL and
Action, scheduled for the second quarter of 2000.
During the second quarter of 1999, the Company refinanced its existing
debt and, as a result, incurred an extraordinary charge to earnings for the
unamortized balance of loan costs associated with the previous financing. After
the extraordinary charge, the net income for the year ended December 31, 1999
amounted to $920,550.
FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED WITH 1997.
The results of operations through December 31, 1998 include the
operating results of the Company's inventory logistics management business, QDL,
its master distribution of fasteners business, IMS and its lithium battery
distribution business, PCI. QDL includes the operating results of Webb and
Calfast, which were acquired in 1997, and the operating results of Fas-Tronics,
Fortune and AFCOM, which were acquired in 1998.
The Company's revenues for the year ended December 31, 1998 amounted to
$56,968,007 compared with $25,710,194 for the year ended December 31, 1997. The
significant growth in the Company's revenues in 1998 is primarily attributable
to the full year results of Calfast in 1998 and the acquisitions of Fas-Tronics
and Fortune during the year, as well as the internal growth of the other QDL
branches and the opening of a new QDL branch during the second quarter of 1998.
Revenues associated with Calfast, Fas-Tronics and Fortune included in the
Company's results for the year ended December 31, 1998 amounted to $37,914,140,
compared with revenues associated with Calfast of $12,239,655 included in the
Company's results for the year ended December 31, 1997.
The Company's operating income was $8,279,478 for the year ended
December 31, 1998, compared with operating income of $3,302,403 for the prior
year. The increase in operating income for the year ended December 31, 1998
compared with the prior year, is primarily due to the increased operating income
attributable to the acquired businesses, as well as internal growth. In
addition, operating income as a percentage of sales improved to 14.5% for the
year ended December 31, 1998 from 12.8% for the year ended December 31, 1997,
reflecting a 1.7 percentage point improvement in operating expenses as a
percentage of sales. This improvement is attributable to the successful
integration of the 1997 acquired businesses and the resultant cost savings from
the combination of these businesses with the Company.
21
<PAGE>
Interest expense for the years ended December 31, 1998 and 1997
amounted to $2,709,979 and $513,406, respectively. The increase in interest
expense principally reflects the cost of increased borrowings associated with
the acquisition of Calfast in September 1997 and the acquisitions of Fas-Tronics
and Fortune as of July 1, 1998, as well as borrowings associated with QDL's
working capital needs.
The provision for income taxes for the years ended December 31, 1998
and 1997, respectively, reflects a federal income tax provision at an effective
rate of 35% and 35.1%, respectively, and a state income tax provision at an
effective rate of 6% and 6.2%, respectively, for the states in which the Company
does business.
Net income for the year ended December 31, 1998 amounted to $3,286,004,
compared with net income of $1,637,141 for the prior year. This improvement
reflects the increased operating income attributable to the acquired businesses
and continued internal growth, partially reduced by increased corporate
expenses, interest expense, and income taxes.
Net income per share and net income per diluted common share reflect
deductions for preferred stock dividends, including imputed, non-cash dividends
associated with the issuance of the preferred stock. The preferred stock
converted into common stock on July 2, 1998, causing the acceleration of the
amortization of the imputed dividend as a one-time, non-cash dividend. As a
result of this conversion, the common stock into which the preferred stock
converted (1,653,125 shares of common stock) is included for two quarters in the
weighted average number of common shares outstanding for the year ended December
31, 1998. The effect of this one-time, non-cash dividend is anti-dilutive,
accordingly, the presentation of net income per diluted common share is
presented on the face of the income statement as the same amount as net income
per common share. Excluding the one-time, non-cash preferred stock dividend, net
income per diluted common share was $.70 for the year ended December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had $111,102 in cash and cash
equivalents, compared with $229,285 as of December 31, 1998. As of December 31,
1999, the Company had working capital of $41,885,433, compared with working
capital of $21,995,423 as of December 31, 1998.
For the year ended December 31, 1999, the net cash used in the
Company's operating activities amounted to $7,191,344, principally reflecting
current year earnings, as well as increases in inventories and receivables, a
decrease in income taxes payable and an increase in accounts payable.
For the year ended December 31, 1999, the net cash used in the
Company's investing activities amounted to $31,071,462, including $25,033,466 of
net cash consideration paid in connection with the acquisitions of Action,
Capital and Olympic and $5,408,457 net cash consideration paid in connection
with the deferred purchase price of Calfast, IMS, PCI, Fas-Tronics and Fortune.
The Company also had capital expenditures of $629,539 for the purchase of fixed
assets, principally for the expansion of the Company's computer systems in order
to complete the integration of AFCOM, Olympic and Capital and to prepare for the
upcoming integration of Fas-Tronics, Fortune and Action. The Company does not
22
<PAGE>
have significant commitments for capital expenditures as of December 31, 1999
and no significant commitments are anticipated for the next twelve months.
In connection with the acquisitions of Action, Capital and
Olympic, the Company entered into a $75,000,000 senior secured credit facility
with Ableco Finance L.L.C. and Congress Financial Corporation (Florida). Also in
connection with the above acquisitions, the Company completed a $20,000,000
senior subordinated debt private placement. The senior subordinated notes were
placed with affiliates of Albion Alliance LLC and Alliance Capital Management
LP, The Equitable Life Assurance Society of the United States and IBJ Whitehall
Financial Group.
The senior secured credit facility consists of a four and one-quarter
year term loan for $52,500,000 and a $22,500,000 revolving credit facility. The
term loan is divided into two notes: Note A for $25,000,000 and Note B for
$27,500,000. The loan agreement includes a provision for the calculation of a
borrowing base, which determines the amount of borrowings available under the
revolving credit facility. At December 31, 1999, $11,938,548 was borrowed and
outstanding under the revolving credit facility. Of the remaining amount of the
$22,500,000 revolving credit facility, $10,561,452 was available at December 31,
1999 for future working capital needs. Interest on the revolving credit facility
is payable monthly at the prime rate plus 1.5%, with a minimum rate of interest
of 9.25% per annum. The Company can elect a LIBOR Rate Election for amounts
borrowed and outstanding under the revolving facility. During all times that a
LIBOR Rate Election is in effect, the interest due on the principal amount of
the LIBOR revolving credit portion outstanding is at an interest rate of LIBOR
plus 2.75%. Interest on Note A is payable monthly at the prime rate plus 2.0%
with a minimum rate of interest of 9.75% per annum. Interest on Note B is
payable monthly at the prime rate plus 2.5% with a minimum rate of interest of
10.25% per annum.
For the year ended December 31, 1999, the net cash provided by the
Company's financing activities amounted to $38,144,623, which principally
consists of $72,500,000 of bank financing associated with the acquisitions of
Action, Capital and Olympic and the refinancing of the $35,000,000 of bank debt,
as well as $6,644,029 of bank borrowings under the Company's revolving credit
facility and expenses associated with the bank financing of $4,112,982.
Interest on the $20,000,000 senior subordinated debt is payable
quarterly in arrears at an annual fixed rate of 12.5% in cash and 2.00% in kind
or cash, at the Company's option. Principal on the senior subordinated debt is
payable in full on June 30, 2005. In connection with the financing, the Company
issued 680,000 shares of the Company's common stock to the senior subordinated
lenders. These shares were valued at $1,190,000 and were treated as original
issue discount.
In connection with amendments to the senior secured credit facility and
the senior subordinated debt facility (the "agreements") obtained in November
1999 and March 2000, the lenders waived all defaults arising from the failure to
satisfy certain financial covenants at September 30, 1999 and December 31, 1999,
respectively. Under the agreements, the Company is required to satisfy certain
financial covenants at March 31, 2000 and at each subsequent quarter end during
the year ending December 31, 2000. The Company believes it will be able to
satisfy the financial and other covenants included in the agreements for the
year ending December 31, 2000. However, there can be no assurance that the
Company will be able to remain in compliance with the financial covenants or, in
the event of noncompliance, be able to obtain appropriate amendments or waivers.
Fees of $161,250 and $211,250, respectively, were incurred in connection with
the November 1999 and March 2000 amendments to the
23
<PAGE>
agreements. In addition, in connection with the March 2000 amendment, 28,630
warrants were issued to purchase shares of the Company's common stock for $.01
per share, valued at $270,000 based on the market price, as defined, for the
Company's common stock. Such amounts will be amortized over the remaining terms
of the agreements.
In order to secure the obligations of the Company and its subsidiaries
under the revolving credit facility and the related term loan facility under the
loan and security agreement with the lender, the Company entered into a stock
pledge agreement with the lender whereby the Company pledged to the lender the
shares of capital stock of each of its subsidiaries at the date of such
agreement and any shares of its subsidiaries in which the Company may thereafter
acquire an interest. In addition, the Company and its subsidiaries granted to
the lender a security interest in substantially all of their assets.
On March 7, 2000, the Company reached agreements with the former
shareholders of Action, Capital and Olympic whereby notes payable aggregating
$5,000,000 will be settled in exchange for 450,000 shares of the Company's
common stock.
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. 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 2000, exclusive of cash
requirements associated with any business acquisitions.
IMPACT OF THE YEAR 2000
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-technology systems and believes
those systems successfully responded to the Year 2000 date change. The Company
expensed approximately $20,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
is required to be adopted in years beginning after June 15, 2000. Management
does not anticipate that the adoption of the new Statement will have a
significant effect on earnings or the financial position of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has significant amounts outstanding under various credit
agreements, a substantial portion of which bears interest at variable rates. As
a result, the Company's interest expense is sensitive
24
<PAGE>
to changes in the general level of interest rates. The Company may, from time to
time, enter into interest rate swap arrangements to manage its interest cost and
mitigate its exposure to fluctuating interest rates. There were no such swap
arrangements outstanding at December 31, 1999 or during the year then ended.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Questron Technology, Inc.
We have audited the accompanying consolidated balance sheets of
Questron Technology, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for the years then ended. Our audits also included the financial
statement schedules listed in the Index at Item 14(a)(2). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Questron Technology, Inc. and subsidiaries at December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
March 15, 2000
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Questron Technology, Inc.
We have audited the accompanying consolidated statements of income,
changes in stockholders' equity, and cash flows of Questron Technology, Inc. and
its subsidiaries for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Questron Technology, Inc. and its subsidiaries for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
MOORE STEPHENS, P.C.
Certified Public Accountants
New York, New York
February 24, 1998
27
<PAGE>
QUESTRON TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 111,102 $ 229,285
Accounts receivable, less allowances for
doubtful accounts of $283,666 in 1999 and $186,256 in 1998 16,827,678 11,279,876
Other receivables 253,057 70,412
Inventories 38,301,589 20,972,593
Other current assets 515,705 345,814
----------------- ----------------
Total current assets 56,009,131 32,897,980
Property and equipment - net 2,898,919 2,042,786
Cost in excess of net assets of businesses acquired,
less accumulated amortization of $2,699,305 in 1999 and $1,165,977 in 1998 71,650,585 37,575,334
Deferred income taxes 3,431,438 3,595,906
Other assets 4,007,768 2,244,852
----------------- ----------------
Total assets $137,997,841 $78,356,858
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,668,171 $ 5,328,023
Accrued expenses 1,958,596 1,415,626
Income taxes payable 750,333 2,347,106
Current portion of long-term debt 1,746,598 1,811,802
----------------- ----------------
Total current liabilities 14,123,698 10,902,557
Deferred income taxes payable 993,048 364,639
Long-term debt 87,808,934 39,285,698
----------------- ----------------
Total liabilities 102,925,680 50,552,894
----------------- ----------------
Commitments and contingencies:
Common stock subject to put option agreement 622,170 339,697
Stockholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares -- --
Common stock, $.001 par value; authorized 20,000,000
shares; issued 7,164,522 shares in 1999 and 4,795,175 in 1998 7,165 4,795
Additional paid-in capital 45,678,802 39,615,998
Accumulated deficit (10,880,498) (11,801,048)
----------------- ----------------
34,805,469 27,819,745
Less: treasury stock at cost, 11,849 shares (355,478) (355,478)
----------------- ----------------
Total stockholders' equity 34,449,991 27,464,267
----------------- ----------------
Total liabilities and stockholders' equity $137,997,841 $78,356,858
================= ================
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE>
QUESTRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Sales $ 108,958,426 $56,968,007 $25,710,194
Cost of good sold 65,623,111 34,319,326 15,486,763
------------------- ------------------- -------------------
Gross profit 43,335,315 22,648,681 10,223,431
Selling, general and administrative expenses 28,279,252 13,385,018 6,512,757
Depreciation and amortization 2,108,740 984,185 408,271
------------------- ------------------- -------------------
Total operating expenses 30,387,992 14,369,203 6,921,028
------------------- ------------------- -------------------
Operating income 12,947,323 8,279,478 3,302,403
Interest expense 8,496,097 2,709,979 513,406
------------------- ------------------- -------------------
Income before income taxes and extraordinary charge 4,451,226 5,569,499 2,788,997
Provision for income taxes 2,079,160 2,283,495 1,151,856
------------------- ------------------- -------------------
Income before extraordinary charge 2,372,066 3,286,004 1,637,141
Extraordinary charge in connection with the early
extinguishment of debt (less applicable income
taxes of $1,187,604) (1,451,516) -- --
------------------- ------------------- -------------------
Net income $ 920,550 $ 3,286,004 $ 1,637,141
=================== =================== ===================
Net income $ 920,550 $ 3,286,004 $ 1,637,141
Deduct: Preferred Stock dividend -- 165,310 99,189
Imputed non-cash Preferred Stock dividend -- 1,075,988 577,137
------------------- ------------------- -------------------
Net income used in per common share calculation $ 920,550 $ 2,044,706 $ 960,815
=================== =================== ===================
PER COMMON SHARE:
Income before extraordinary charge $ .38 $ .60 $ .56
Extraordinary charge (.23) -- --
---------- ---------- ----------
Net income $ .15 $ .60 $ .56
========== ========== ==========
PER DILUTED COMMON SHARE:
Income before extraordinary charge $ .38 $ .60 $ .47
Extraordinary charge (.23) -- --
---------- ---------- ----------
Net income $ .15 $ .60 $ .47
========== ========== ==========
Average number of common shares outstanding 6,162,168 3,435,162 1,718,062
=================== =================== ====================
Average number of diluted common shares outstanding 6,296,302 4,718,566 3,456,555
=================== =================== ====================
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
QUESTRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------------------- ------------------------ Paid in Accumulated Treasury
Shares Amounts Shares Amounts Capital Deficit Stock
-------------- ----------- ------------- --------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
January 1, 1997 -- $ -- 1,547,333 $ 1,547 $ 23,880,069 $(14,806,605) $ (355,478)
Issuance of securities:
Series IV Warrants issued
in connection with the
acquisition of Webb -- -- -- -- 375,000 -- --
Preferred stock offering 1,150,000 11,500 -- -- 5,623,412 -- --
Issuance of common stock upon
Acquisitions -- -- 575,106 575 3,006,906 -- --
Series B Preferred Stock
Dividend -- -- -- -- -- (99,189) --
Imputed non-cash Series B
Preferred Stock dividend -- -- -- -- 577,137 (577,137) --
Net income for the year -- -- -- -- -- 1,637,141 --
--------- ------ --------- ----- ---------- ----------- --------
Balance - December 31, 1997 1,150,000 11,500 2,122,439 2,122 33,462,524 (13,845,790) (355,478)
Issuance of securities:
Issuance of common stock upon
Acquisitions -- -- 990,043 990 4,676,550 -- --
Series B Preferred Stock
Dividend -- -- -- -- -- (165,274) --
Payment of Series B
Preferred Stock dividend
in common stock -- -- 35,583 36 165,274 -- --
Imputed non-cash Series B
Preferred Stock dividend -- -- -- -- 1,075,988 (1,075,988) --
Conversion of Series B
Preferred Stock (1,150,000) (11,500) 1,653,125 1,653 (9,847) -- --
Put agreement exercised
by former shareholders
of Calfast -- -- (6,015) (6) -- -- --
Put agreement declined
by former shareholders
of Calfast -- -- -- -- 245,509 -- --
Net income for the year -- -- -- -- -- 3,286,004 --
-------------- ----------- ------------- --------- -------------- --------------- ------------
Balance - December 31, 1998 -- -- 4,795,175 $ 4,795 $ 39,615,998 $(11,801,048) $ (355,478)
Issuance of securities:
Issuance of common stock upon
acquisitions -- -- 2,382,579 2,383 6,428,314 -- --
Put agreement exercised
by former shareholders
of Calfast -- -- (13,232) (13) -- -- --
Put agreement declined
by former shareholders
of Calfast -- -- -- -- 7,549 -- --
B & G shares subject to put
agreement -- -- -- -- (373,059) -- --
Net income for the year -- -- -- -- -- 920,550 --
-------------- ----------- ------------- --------- -------------- --------------- ------------
Balance - December 31, 1999 -- $ -- 7,164,522 $ 7,165 $ 45,678,802 $(10,880,498) $ (355,478)
============== =========== ============= ========= ============== =============== ============
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
QUESTRON TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------------- -------------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 920,550 $ 3,286,004 $ 1,637,141
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Amortization of cost in excess of net assets
of businesses acquired 1,533,328 616,411 241,099
Depreciation of property and equipment 575,412 367,774 167,172
Provision for doubtful accounts 63,000 26,695 10,702
Recognition of current year income tax benefit of net
operating loss carryforward -- 344,450 807,053
Extraordinary charge in connection with the early extinguish-
ment of debt (less applicable income taxes of $1,187,604) 1,451,516 -- --
Change in operating assets and liabilities:
(Increase) in accounts receivable (1,549,583) (3,135,956) (1,265,885)
(Increase) decrease in other receivables (182,645) 7,321 43,323
(Increase) in inventories (9,823,501) (7,331,154) (1,456,811)
(Increase) decrease in prepaid expenses and other assets (5,367) (560,362) 230,724
Increase in accounts payable 1,524,112 1,809,897 73,587
(Decrease) increase in accrued expenses (84,165) (194,254) 154,747
(Decrease) increase in income taxes payable (1,738,684) 1,514,024 (221,146)
Increase in deferred income taxes payable 124,683 182,087 143,329
-------------------- -------------------- -------------------
Net cash (used in) provided by operating activities (7,191,344) (3,067,063) 565,035
-------------------- -------------------- -------------------
Cash flows from investing activities:
Net cash consideration paid for acquired businesses (30,441,923) (24,072,714) (12,641,922)
Acquisition of property and equipment (629,539) (325,830) (187,127)
-------------------- -------------------- -------------------
Net cash used in investing activities (31,071,462) (24,398,544) (12,829,049)
-------------------- -------------------- -------------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving facility 6,644,029 3,869,519 (733,387)
Proceeds from long-term debt 72,500,000 35,000,000 10,000,000
Repayment of long-term debt (35,019,686) (9,583,334) (1,791,666)
Fees and expenses associated with long-term debt financing (4,112,982) (2,193,973) --
Extraordinary charge in connection with the early extinguish-
ment of debt (less applicable income taxes of $1,187,604) (1,451,516) -- --
Payments on capital leases (139,750) (79,085) --
Payments on exercise of put options (83,037) (37,744) --
Proceeds from Convertible Preferred Stock Unit Offering -- -- 6,900,000
Costs associated with Convertible Preferred Stock Unit Offering -- -- (1,265,188)
Payments on notes issued for acquired business (192,435) (155,571) (45,065)
-------------------- -------------------- -------------------
Net cash provided by financing activities 38,144,623 26,819,812 13,064,694
-------------------- -------------------- -------------------
(Decrease) increase in cash and cash equivalents (118,183) (645,795) 800,680
Cash and cash equivalents at beginning of period 229,285 875,080 74,400
-------------------- -------------------- -------------------
Cash and cash equivalents at end of period $ 111,102 $ 229,285 $ 875,080
==================== ==================== ===================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 7,380,139 $ 2,166,687 $ 398,904
==================== ==================== ===================
Income taxes $ 1,764,688 $ 298,367 $ 27,400
==================== ==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Questron Technology, Inc. ("Questron" or the "Company") provides supply
chain management solutions and inventory logistics management services for small
parts commonly referred to as C inventory items (fasteners and related products)
focused on the needs of original equipment manufacturers ("OEMs") throughout the
United States through its subsidiary, Questron Distribution Logistics, Inc.
("QDL"). The Company is also a master distributor of fasteners through its
subsidiary Integrated Material Systems, Inc. ("IMS"), and a distributor of
lithium batteries through its subsidiary Power Components, Inc. ("PCI"). QDL
(formerly Quest Electronic Hardware, Inc.) includes the operations of Comp Ware,
Inc., d.b.a. Webb Distribution ("Webb"), California Fasteners, Inc. ("Calfast"),
Fas-Tronics, Inc. ("Fas-Tronics"), Fortune Industries, Inc. ("Fortune"), AFCOM,
Action Threaded Products, Inc. ("Action"), Capital Fasteners, Inc. ("Capital"),
Olympic Fasteners & Electronic Hardware ("Olympic") and B&G Supply Co., Inc.
("B&G"). In 1999 the operations of Fas-Tronics and Fortune began to operate as
Questron Aerospace Logistics ("QAL"), a division of QDL dedicated to providing
inventory logistics management programs to aerospace manufacturers. These two
locations will be merged in early 2000 into a single facility in Fort Worth, TX
and will operate under the QAL name.
All of the Company's operations comprise one business segment.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - In 1999, the Company acquired Action, Capital,
B&G, and the business and operating assets of Metro Form Corporation, d.b.a.
Olympic. In 1998, the Company acquired Fortune, Fas-Tronics, and the business
and operating assets of AFCOM, Inc. In 1997, the Company acquired Webb, IMS, PCI
and Calfast. All acquisitions were recorded under the purchase method of
accounting. Accordingly, the consolidated financial statements include the
operations of the acquired businesses from their respective dates of
acquisition. Certain amounts in the prior year have been reclassified to conform
to the current year presentation.
CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany transactions and amounts are eliminated.
CASH AND CASH EQUIVALENTS - The Company considers certain highly liquid
investments with original maturities of three months or less when acquired to be
cash equivalents. The Company maintains its cash and cash equivalents in
accounts which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts and believes it is not exposed to
any significant credit risk.
32
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK - The Company extends credit to its
customers which results in accounts receivable arising from its normal business
activities. The Company does not require collateral from its customers, but
routinely assesses the financial strength of its customers. Such estimate of the
financial strength of customers may be subject to change in the near term. Based
upon factors surrounding the credit risk of its customers, the Company believes
that its receivable credit risk exposure is limited. During the years ended
December 31, 1998 and 1997, sales to one customer of the Company represented
approximately 13.4% and 11.5% of revenue, respectively. For the year ended
December 31, 1999, no single customer represented more than 5.0% of revenue.
REVENUE RECOGNITION - The Company recognizes revenue when products are
shipped.
INVENTORIES - Inventories, which consist solely of finished products,
are stated at the lower of cost or market. Cost is determined on the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Expenditures for normal repairs and maintenance are charged to earnings as
incurred. When assets are retired or otherwise disposed, their costs and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are included in operations. Depreciation is recorded using the
straight-line method over the shorter of the estimated lives of the related
asset or the remaining lease term. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Building 30 years
Furniture and fixtures 7 years
Computer equipment 5 years
Office equipment 5 years
Automobiles 5 years
Leasehold improvements 5 years
</TABLE>
33
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED - The cost in
excess of net assets of businesses acquired is being amortized on a
straight-line basis over 40 years. The Company reviews the recoverability of
intangible and other long-lived assets whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. A loss
is recognized for the difference between the carrying amount and the recoverable
amount.
STOCK OPTIONS AND SIMILAR EQUITY INSTRUMENTS - The Company accounts for
stock options and similar equity instruments (collectively "Options") issued to
employees and directors in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," rather than the fair
value based method of accounting prescribed by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." The
exercise price for Options issued to employees and directors equals or exceeds
the fair market value of the Company's common stock at the date of grant and,
accordingly, no compensation expense is recorded. Equity instruments issued to
acquire goods and services from non-employees are accounted for based on the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more readily determinable.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is required to be adopted in years beginning
after June 15, 2000. Management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
2. EARNINGS PER SHARE
Earnings per share is based on the weighted average number of common
shares outstanding during the period. Diluted earnings per share reflects the
potential dilution that would occur if securities or other contracts to issue
common stock were exercised or converted into common stock using, when
appropriate, the treasury stock method.
34
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following table sets forth the computation of earnings per share
and diluted earnings per share for the years ended December 31, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ------------------
<S> <C> <C> <C>
Numerator:
Income before extraordinary item $ 2,372,066 $ 3,286,004 $ 1,637,141
Less: preferred stock dividends -- 1,241,298 676,326
----------------- ----------------- ------------------
Numerator for income before extraordinary
charge per common share 2,372,066 2,044,706 960,815
Effect of dilutive securities -
Preferred stock dividends -- 1,241,298 676,326
----------------- ----------------- ------------------
Numerator for income before extraordinary
charge per diluted common share $ 2,372,066 $ 3,286,004 $ 1,637,141
================= ================= ==================
Denominator:
Denominator for net income per common share
Weighted-average shares 6,162,168 3,435,162 1,718,062
----------------- ----------------- ------------------
Effect of dilutive securities:
Options 17,970 79,693 125,183
Warrants 668 374,884 268,164
Stock earned, not issued 115,496 -- --
Convertible preferred stock -- 828,827 1,345,146
----------------- ----------------- ------------------
Dilutive potential common shares 134,134 1,283,404 1,738,493
----------------- ----------------- ------------------
Denominator for net income per
diluted common share 6,296,302 4,718,566 3,456,555
================= ================= ==================
Income before extraordinary charge per
common share $ .38 $.60 $.56
========== ========= ==========
Income before extraordinary charge per diluted
common share $ .38 $.60 $.47
========== ========= ==========
</TABLE>
Net income per common share and net income per diluted common share for
the year ended December 31, 1998 reflect deductions for preferred stock
dividends, including imputed, non-cash dividends associated with the issuance of
the preferred stock. The preferred stock converted into common stock on July 2,
1998, causing the acceleration of the amortization of the imputed dividend as a
one-time, non-cash dividend. As a result of this conversion, the common stock
into which the preferred stock converted (1,653,125 shares of common stock) is
included for two quarters in the weighted average number of common shares
outstanding for the year ended December 31, 1998. The effect of this one-time,
non-cash dividend is anti-dilutive, accordingly, the presentation of net income
per diluted common share is presented on the face of the income statement as the
same amount as net income per common share.
35
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
3. ACQUISITIONS
Effective July 1, 1998, the Company acquired 100% of the issued and
outstanding capital stock of Fas-Tronics, a privately owned distributor of
fasteners and related products. The purchase price for Fas-Tronics consisted of
(i) $7,422,803 in cash; (ii) 421,941 shares of the Company's common stock,
valued at $1,930,380; and (iii) additional amounts payable in cash and shares of
the Company's common stock if Fas-Tronics attained certain earnings targets for
the twelve months ending June 30, 1999. In addition, the Company granted to the
former shareholders of Fas-Tronics and one key employee options to purchase an
aggregate of 50,000 shares of the Company's common stock at $4.58 per share,
market price at time of grant, exercisable for five years.
Effective July 1, 1998, the Company acquired 100% of the issued and
outstanding capital stock of Fortune, a privately owned distributor of fasteners
and related products. The purchase price for Fortune consisted of (i) $9,830,660
in cash; (ii) 518,102 shares of the Company's common stock, valued at
$2,370,317; and (iii) additional amounts payable in cash and shares of the
Company's common stock if Fortune attained certain earnings targets for the year
ended December 31, 1998.
Effective December 1, 1998, the Company acquired the business and
operating assets of AFCOM, a privately owned distributor of fasteners and
related products. The purchase price for AFCOM consisted of $5,766,718 in cash
and 50,000 shares of the Company's common stock valued at $257,344.
Effective April 1, 1999, the Company acquired 100% of the issued and
outstanding capital stock of Action Threaded Products, Inc., an Illinois
corporation ("Action"), a privately owned distributor of fasteners and related
products. The purchase price for Action consisted of (i) $8,437,280 in cash;
(ii) the assumption of $2,062,720 in debt net of cash on hand; (iii) 470,588
shares of the Company's common stock valued at $1,800,000; (iv) a note payable
to the sellers of Action in the amount of $1,500,000; and (v) up to $1,800,000
if Action attains certain earnings targets for the twelve months ending March
31, 2000.
Effective April 1, 1999, the Company acquired of 100% of the issued and
outstanding capital stock of Capital Fasteners, Inc., a North Carolina
corporation ("Capital"), a privately owned distributor of fasteners and related
products. The purchase price for Capital consisted of (i) $7,037,197 in cash;
(ii) the assumption of $1,220,078 in debt net of cash on hand; (iii) 169,935
shares of the Company's common stock valued at $650,000; (iv) a note payable to
the sellers of Capital in the amount of $2,000,000; and (v) up to $1,500,000 if
Capital attains certain earnings targets for the twelve months ending March 31,
2000.
36
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Effective April 1, 1999, the Company acquired the business and
operating assets of Metro Form Corporation, an Ohio corporation d/b/a Olympic
Fasteners ("Olympic"). The purchase price for Olympic consisted of (i)
$5,550,113 in cash; (ii) the assumption of $960,481 in debt net of cash on hand;
(iii) 261,438 shares of the Company's common stock valued at $1,000,000; (iv) a
note payable to the sellers of Olympic in the amount of $1,500,000; and (v) up
to $1,000,000 if Olympic attains certain earnings targets for the twelve months
ending March 31, 2000.
Effective October 1, 1999, the Company acquired the business and
operating assets of B & G Supply Company, Inc. ("B&G"). The purchase price for
B&G consisted of (i) 86,451 shares of the Company's common stock valued at
$580,000; (ii) the assumption of $388,386 in debt; (iii) additional initial
consideration of up to a maximum of $420,000 payable in cash or stock if B&G
attains certain earnings targets for the twelve month periods ended June 30,
2001 and June 30, 2002; and (iv) additional amounts payable in cash or stock if
B&G attains certain earnings targets for each calendar year from 2000 through
2004.
In connection with certain of the above acquisitions, the Company may
be required to make additional purchase price payments that are contingent upon
the achievement of specified operating goals. Such payments may be in the form
of cash and/or shares of common stock of the Company and will be recorded at
fair market value at the time of payment. The amounts of such additional
consideration, if any, will be recorded when paid as cost in excess of net
assets of businesses acquired and amortized over the remaining life of the
asset. During the years ended December 31, 1999 and 1998, the Company paid
$6,902,148 and $657,177, respectively, as additional consideration. Of the 1999
amount, $1,493,691 represented the fair value of shares issued in settlement of
these obligations. The balance of these amounts was paid in cash.
During 1999, the Company issued 297,680 additional shares of common
stock to the former owners of Fas-Tronics and Fortune pursuant to amendments to
the original purchase agreements. Such amendments required the issuance of
additional shares if the market price of the Company's common stock fell below
certain levels. The value of the additional shares has been reflected as a
reduction to the value of the initial common stock consideration through a
reduction of additional paid-in capital.
37
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following unaudited pro forma information presents the combined
operating results of the Company, Fas-Tronics, Fortune, AFCOM, Action, Capital,
Olympic and B&G, treating the acquired companies as if they were subsidiaries of
the Company for the full years ended December 31, 1999 and 1998. This unaudited
pro forma information does not purport to be indicative of what would have
occurred had the acquisitions been completed as of January 1, 1998 or results
which may occur in the future:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998
----------------- --------------------
<S> <C> <C>
Sales $ 120,320,000 $113,231,000
----------------- --------------------
Operating income 14,084,000 15,436,000
----------------- --------------------
Net income $ 2,203,000 $ 3,207,000
================= ====================
Pro forma net income per diluted common
Share $.32 $ .39
======== =========
Average number of diluted
common shares outstanding 6,963,838 6,905,648
================== =================
</TABLE>
4. LONG-TERM DEBT
At December 31, the Company's long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
<S> <C> <C>
Term loans(a) $ 52,500,000 $ 35,000,000
Revolving facility(b) 11,938,548 5,294,519
Senior subordinated debt(c) 19,109,167 -
Notes payable to sellers(d) 5,231,930 424,365
Other(e) 775,887 378,616
--------------------- ---------------------
89,555,532 41,097,500
Less installments due within one year 1,746,598 1,811,802
===================== =====================
$ 87,808,934 $ 39,285,698
===================== =====================
</TABLE>
(a) In 1999, the Company entered into a $75,000,000 Senior Secured Credit
Facility that consists of a four and one-quarter year term loan for
$52,500,000 and $22,500,000 revolving credit facility. The term loan is
divided into Note A for $25,000,000 and Note B for $27,500,000. The
proceeds were used in conjunction with the acquisitions of Action, Capital
and Olympic and to retire amounts outstanding under the Company's previous
credit facility.
38
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Interest on Note A is payable monthly at a rate of prime plus 2%, with a
minimum interest rate of 9.75% (10.5% at December 31, 1999). Note A is due
in quarterly installments beginning July 1, 2001, through April 1, 2003.
Interest on Note B is payable monthly at a rate of prime plus 2.5%, with a
minimum interest rate of 10.25% (11% at December 31, 1999). Note B is due
in full on September 30, 2003.
Amounts borrowed under the Company's previous credit facility consisted of
a term loan A for $25,000,000, which bore interest at a rate of prime plus
1.5%, with a minimum interest rate of 9.5%; term loan B for $5,000,000,
which bore interest at a rate of prime plus 3%, with a minimum interest
rate of 11%; and term loan C, which bore interest at a rate of prime plus
4%, with a minimum rate of 12%. All amounts were repaid in conjunction with
the execution of the Company's existing credit facility.
(b) Amounts available for borrowing under the revolving credit facility are
determined pursuant to a borrowing base calculation. Interest on
outstanding amounts under the revolving credit facility is payable monthly
and, at the option of the Company, accrues at either prime plus 1.5%, with
a minimum rate of 9.25%, (10% at December 31, 1999) or at LIBOR plus 2.75%
(9.22% at December 31, 1999). The maturity of the revolving credit facility
is September 30, 2003.
Under the Company's previous revolving credit facility, interest was
payable monthly at a rate of prime plus 1%, with a minimum rate of 9%. All
amounts were repaid in conjunction with the execution of the Company's
existing credit facility.
(c) Simultaneously with the execution of the Senior Secured Credit Facility,
the Company completed a private placement of $20,000,000 Senior
Subordinated Debt. Interest on the Senior Subordinated Debt is payable
quarterly in arrears at a fixed rate of 14.5% (12.5% in cash and 2% payable
in kind or cash, at the Company's option). Principal is payable in full on
June 30, 2005. In connection with the private placement, the company issued
680,000 shares of the Company's common stock to the senior subordinated
lenders. The carrying amount of the Senior Subordinated Debt is reduced by
$1,190,000, the fair value of the shares. Such shares are treated as
original issue discount and amortized over the term of the debt as an
adjustment to interest expense.
(d) In connection with certain of the Company's acquisitions, the Company
issued notes to the former shareholders of the acquired businesses. Such
notes bear interest at interest rates ranging from 8.5% to 10% and are
payable in monthly installments through March 1, 2002.
On March 7, 2000, the Company reached an agreement with the former
shareholders of Action, Capital and Olympic whereby notes payable
aggregating $5,000,000 will be settled in exchange for 450,000 shares of
the Company's common stock.
(e) Other long-term indebtedness includes amounts related to capital leases and
notes payable assumed in certain acquisitions.
39
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The Senior Secured Credit Facility and the Senior Subordinated Debt are
secured by substantially all of the assets of the Company and its subsidiaries.
In addition, the Company has pledged the shares of capital stock of each of its
subsidiaries at the date of the agreements and any shares of companies that the
Company may acquire in the future.
In connection with the repayment of amounts outstanding under the
Company's previous credit facility, the Company wrote off the remaining deferred
financing costs associated with that facility, as well as amounts paid to
continuing participants in the new facilities. This write-off resulted in an
extraordinary charge of $1,451,516, net of related taxes of $1,187,604, for the
year ended December 31, 1999.
In connection with amendments to the senior secured credit facility and
the senior subordinated debt facility (the "agreements") obtained in November
1999 and March 2000, the lenders waived all defaults arising from the failure to
satisfy certain financial covenants at September 30, 1999 and December 31, 1999,
respectively. Under the agreements, the Company is required to satisfy certain
financial covenants at March 31, 2000 and at each subsequent quarter end during
the year ending December 31, 2000. The Company believes it will be able to
satisfy the financial and other covenants included in the agreements for the
year ending December 31, 2000. However, there can be no assurance that the
Company will be able to remain in compliance with the financial covenants or, in
the event of noncompliance, be able to obtain appropriate amendments or waivers.
Fees of $161,250 and $211,250, respectively, were incurred in connection with
the November 1999 and March 2000 amendments to the agreements. In addition, in
connection with the March 2000 amendment, 28,630 warrants were issued to
purchase shares of the Company's common stock for $.01 per share, valued at
$270,000 based on the market price, as defined, for the Company's common stock.
Such amounts will be amortized over the remaining terms of the agreements.
The aggregate annual maturities of long-term debt, including the loan
and security agreement, as amended, for periods subsequent to December 31, 1999
are: $1,746,598 in 2000; $6,620,815 in 2001; $15,138,406 in 2002; and
$46,940,546 in 2003. The outstanding balance on the senior subordinated debt
matures and is payable on June 30, 2005.
Included in the aggregate annual maturities of long-term debt above is
$1,250,000 in 2000, $1,250,000 in 2001 and $2,500,000 in 2002 representing the
principal payments due on the notes payable to the sellers of Action, Capital
and Olympic as they existed in the original agreement. These notes were settled
in exchange for 450,000 shares of the Company's common stock on March 7, 2000
and, therefore, these principal payments will not be required to be made by the
Company.
40
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Land $ 24,000 $ 24,000
Building 341,625 341,625
Furniture and fixtures 935,043 402,966
Computer equipment 1,417,285 1,280,537
Office equipment 870,078 381,192
Autos and trucks 337,276 208,292
Leasehold improvements 383,111 238,261
------------------- -------------------
Subtotal 4,308,418 2,876,873
Less: accumulated depreciation 1,409,499 834,087
------------------- -------------------
Total $ 2,898,919 $ 2,042,786
=================== ===================
</TABLE>
Depreciation expense related to property and equipment for the years
ended December 31, 1999, 1998 and 1997 was $575,412, $367,774 and $167,172,
respectively.
6. STOCKHOLDERS' EQUITY
On March 10, 1997, the Company completed an offering of 1,150,000 Units
(the "Offering") at a price of $6.00 per unit. Each Unit consisted of one share
of the Company's Series B Convertible Preferred Stock and one redeemable Series
IV Common Stock Purchase Warrant of the Company. Each share of the Series B
Convertible Preferred Stock was converted into 1.4375 shares of the Company's
common stock on July 2, 1998. Such conversion ratio represented a 20% discount
to the price of the Company's common stock on the day immediately preceding the
effective date of the Offering. The discount $1,653,125 has been amortized as an
imputed non-cash dividend to retained earnings over the period from March 1997
through the date of conversion, July 2, 1998.
In addition to the 1,150,000 Series IV Warrants issued in connection
with the Offering, the Company issued 2,750,000 Series IV Warrants to former
shareholders of acquired businesses. Each of the 3,900,000 Series IV Common
Stock Purchase Warrants is exercisable through March 2002 and entitles the
holder to purchase one share of the Company's common stock at $5.75 per share.
In connection with the acquisition of Calfast, the Company granted to
the former shareholders of Calfast the option to sell 125,896 shares back to the
Company on a monthly basis as follows: for each of the seven months during the
period October 1997 through April 1998, an aggregate of 8,879 shares per month
valued at $6.275 per share, or $55,715 per month, and for each of the 53 months
during the period May through September 2002, an aggregate of 1,203 shares per
month valued at $6.275 per share, or $7,549 per month. During 1999 and 1998, the
former shareholders of Calfast exercised their options on 13,232 shares and
6,015 shares, respectively.
41
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
In connection with the acquisition of B&G, the Company granted to the
former shareholders of B&G the option to sell 41,451 shares back to the Company
on a monthly basis as follows: for each of the eleven months during the period
July 2000 through May 2001, an aggregate of 3,600 shares per month valued at
$9.00 per share, or $32,400 per month, and for the month of June 2001, an
aggregate of 1,851 shares valued at $9.00 per share, or $16,659.
In 1998, the Company paid a dividend of one preferred share purchase
right on each outstanding share of the Company's common stock. The rights are
exercisable if a person or group acquires 15% or more of the outstanding shares
of the Company's common stock or announces or commences a tender offer for 15%
or more of such shares. When a person or group acquires such 15%, each
exercisable right will entitle its holder (other than such person or group) to
purchase, at the right's then-current exercise price (presently $30), a number
of the Company's shares of common stock having a market value of twice such
price. In addition, if the Company is acquired in a merger or other business
combination transaction after a person has acquired 15% or more of the Company's
outstanding common stock, each right will entitle its holder to purchase, at the
right's then-current exercise price, a number of the acquiring company's shares
of common stock having a market value of twice such price. Prior to the
acquisition by a person or group of beneficial ownership of 15% or more of the
Company's common stock, the rights are redeemable for $.01 per right at the
option of the board of directors. The rights do not have voting rights and will
expire on November 16, 2008, unless otherwise extended by the Company's board of
directors.
7. STOCK OPTIONS
1996 STOCK OPTION PLAN
Under the terms of the 1996 Stock Option Plan, as amended (the "1996
Plan"), both incentive and nonqualified stock options may be granted to
officers, employees and directors of the Company and its subsidiaries. The 1996
Plan provides for options to purchase an aggregate number of shares of the
Company's common stock that be granted equal to the greater of 1,000,000 shares
of common stock or 14% of the total number of shares of common stock outstanding
on December 31 of the immediately preceding calendar year. As of December 31,
1999, an aggregate of 1,003,033 shares of the Company's common stock were
authorized for grant under the 1996 Plan. In the case of incentive stock
options, which may be granted only to officers, employees and directors of the
Company and its subsidiaries, such options are to be granted at prices greater
than or equal to fair market value of the shares at date of grant. Options
currently outstanding under the 1996 Plan have terms of ten years and become
exercisable in three equal nine-month installments, three equal annual
installments or three years from date of grant.
42
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The transactions under the 1996 Plan during the years ended December
31, 1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ------------------------- ----------------------------
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------- ------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year 123,250 $ 6.32 159,450 $ 6.51 -- $ --
Granted 355,551 3.56 10,300 4.80 159,450 6.51
Exercised -- -- -- --
Cancelled (5,550) 6.63 (46,500) 6.63 -- --
------------- ------------ ------------ ------------ -------------- -------------
Options outstanding at end of year 473,251 $ 4.24 123,250 $ 6.32 159,450 $ 6.51
============= ============ ============ ============ ============== =============
Prices per share of options $3.56 - $4.75 - $6.00 -
Outstanding $6.63 $6.63 $6.63
============ ============ =============
Options exercisable at end of year 111,033 $ 6.40 65,500 $ 6.53 -- $ --
============= ============ ============ ============ ============== =============
Options available for future grant
at end of year 528,123 376,750 90,550
============= ============ ==============
Weighted average remaining
life of options outstanding 9.38 Yrs. 8.77 Yrs. 9.70 Yrs
============= ============ ==============
</TABLE>
PERFORMANCE OPTIONS
In connection with certain business acquisitions, the Company agreed to
issue to the former shareholders of such companies acquired, performance options
to purchase shares of common stock upon the Company's attainment of certain
pre-tax income targets. During the years ended December 31, 1998 and 1997,
options to purchase 798,333 and 166,667 shares of common stock, respectively, at
exercise prices of $4.50 and $7.75, respectively, were granted pursuant to these
arrangements.
OTHER OPTIONS
In connection with the early termination of a consulting agreement with
one of the former shareholders of an acquired company, options to purchase a
total of 1,160,500 shares of common stock at an average exercise price of $5.43
were cancelled. In connection with the revised employment agreement, dated March
29, 1999, of the chief executive officer of the Company, options to purchase
1,100,000 shares of common stock at an exercise price of $4.50 were granted. In
connection with the acquisition of IMS, the Company granted to the former
shareholders of IMS options to purchase 100,000 shares of common stock at an
exercise price of $6.00 per share. Such options vest and become exercisable in
five equal annual installments commencing on June 1, 1998. In connection with
the acquisition of Fas-Tronics, the Company granted to the former shareholders
and one key employee of Fas-Tronics options to purchase an aggregate of 50,000
shares of common stock at an exercise price of $4.50 per share. In connection
with the acquisition of the business of AFCOM, the Company granted to one of the
former shareholders of AFCOM options to purchase 20,000 shares of common stock
at an exercise price of $4.89.
43
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1994 DIRECTOR NON-QUALIFIED STOCK OPTION PLAN
Under the terms of the 1994 Director Non-qualified Stock Option Plan, as amended
(the "1994 Plan"), options to purchase up to an aggregate of 150,000 shares of
the Company's common stock may be granted to non-employee directors of the
Company. Under the 1994 Plan, options are to be granted to each eligible
director at the rate of 5,000 per year at an exercise price equal to the fair
market value of the underlying stock on the date of grant, are immediately
exercisable, and have a term of ten years. Transactions under the 1994 Plan
during the years ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- --------------------------- ----------------------------
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------ ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year 62,000 $ 7.15 29,000 $ 8.77 12,000 $ 18.01
Granted 10,000 4.91 33,000 5.72 23,000 6.27
Exercised -- -- -- -- -- --
Cancelled -- -- -- -- (6,000) 17.67
------------ ------------ ------------- ------------ ------------- -------------
Options outstanding at end of year 72,000 $ 6.84 62,000 $ 7.15 29,000 $ 8.77
============ ============ ============= ============ ============= =============
Options exercisable at end of year 72,000 $ 6.84 62,000 $ 7.15 29,000 $ 8.77
============ ============ ============= ============ ============= =============
Options available for future grant
at end of year 78,000 88,000 121,000
============ ============= =============
Weighted average remaining
life of options outstanding 8.05 Yrs. 8.88 Yrs. 9.16 Yrs
============ ============= =============
</TABLE>
At December 31, 1999, 66,000 options were outstanding with exercise
prices ranging from $3.88 to $8.25 per share, or a weighted average exercise
price of $5.79 per share, and a weighted average remaining life of 8.28 years.
An additional 6,000 options were outstanding with exercise prices ranging from
$11.25 to $24.08 per share, or a weighted average exercise price of $18.36 per
share, and a weighted average remaining life of 5.33 years.
44
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
OTHER
If the Company had accounted for the issuance of all options pursuant to the
fair value based method of SFAS No. 123, the Company would have recorded
additional compensation expense of $5,104,380, $996,190 and $116,539 for the
years ended December 31, 1999, 1998 and 1997, respectively, and the Company's
income before extraordinary charge and net income per share before extraordinary
charge would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -------------
<S> <C> <C> <C>
INCOME PER COMMON SHARE BEFORE EXTRAORDINARY CHARGE:
Net income used in per common share
calculation as reported $ 2,372,066 $ 2,044,706 $ 960,815
=========== =========== =============
Pro forma net income (loss) used in per
common share calculation $ (639,518) $ 1,456,954 $ 892,407
=========== =========== =============
Income per common share before
extraordinary charge, as reported $ .38 $ .60 $ .56
=========== =========== =============
Pro forma income (loss) per share before
extraordinary charge $ (.10) $ .42 $ .52
=========== =========== =============
NET INCOME PER DILUTED COMMON SHARE:
Net income as reported $ 2,372,066 $ 3,286,004 $ 1,637,141
=========== =========== =============
Pro forma net income (loss) $ (639,518) $ 2,698,252 $ 1,568,733
=========== =========== =============
Net income per diluted common share as
Reported $ .38 $ .60 $ .47
=========== =========== =============
Pro forma net income (loss) per diluted
common share $ (.10) $ .57 $ .45
=========== =========== =============
</TABLE>
The fair value of options at date of grant was estimated using the fair
value based method with the following weighted average assumptions for the years
ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1999 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate 6.26% 4.64% 5.71%
Annual rate of dividends -- -- --
Volatility factor .606 .627 .502
</TABLE>
The weighted average fair value of options at date of grant using the
fair value based method during 1999, 1998 and 1997 is estimated at $3.13, $4.15
and $2.50, respectively.
45
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
8. RETIREMENT PLAN
The Company has a defined contribution plan for eligible employees,
which qualifies under Section 401(k) of the Internal Revenue Code. The Company's
contributions to the plan, which is based on a specified percentage of employee
contributions amounted to $274,510, $76,123 and $60,886 in 1999, 1998 and 1997,
respectively.
In 1997, the Board of Directors of the Company approved the adoption of
a noncontributory employee stock ownership plan that enables all eligible
employees to acquire shares of the Company's common stock. Contributions, which
are determined by the Board of Directors, are in the form of common stock or
cash that is used to purchase the Company's common stock for the benefit of
participating employees. The Company accrued $75,000, $75,000 and $68,000 for
the years ended December 31, 1999, 1998 and 1997, respectively, to fund the
purchase of the Company's common stock pursuant to the plan.
9. LEASE COMMITMENTS
The Company leases certain office and warehouse space under
non-cancelable operating leases expiring at various dates through 2016. Rent
expense for all non-cancelable operating leases amounted to $2,001,854, $639,601
and $424,176 for the years ended December 31, 1999, 1998 and 1997, respectively.
Aggregate minimum rental commitments under all non-cancelable operating leases
approximate $11,051,581 as of December 31, 1999.
Such commitments on annual basis are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
<S> <C>
2000 $ 2,441,718
2001 2,211,085
2002 1,770,783
2003 1,166,019
2004 897,989
Thereafter 2,563,987
===================
Total $ 11,051,581
===================
</TABLE>
46
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
10. INCOME TAXES
The provision for income taxes for the years ended December 31, 1999,
1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Current
Federal $ 1,380,319 $ 1,450,861 $ 47,969
State 182,958 306,097 153,508
--------------------- --------------------- ---------------------
1,563,277 1,756,958 201,477
--------------------- --------------------- ---------------------
Deferred
Federal 463,911 498,464 930,969
State 51,972 28,073 19,410
--------------------- --------------------- ---------------------
515,883 526,537 950,379
--------------------- --------------------- ---------------------
$ 2,079,160 $ 2,283,495 $ 1,151,856
===================== ===================== =====================
</TABLE>
Income taxes are determined using the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The Company has reflected a deferred tax asset
resulting from the availability of net operating loss carryforwards. At December
31, 1999 and 1998, the balance of the deferred tax asset relating to the net
operating loss carryforwards was $2,504,047 and $2,848,497, respectively, after
having been reduced by $344,450 each year for the amount of the benefit related
to the 1999 and 1998 utilization of net operating loss carryforwards.
The significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
<S> <C> <C>
Deferred tax assets:
Benefit of net operating loss carry-
Forwards $ 2,968,764 $ 3,313,214
Inventory reserves 362,590 208,190
Allowance for doubtful accounts 100,084 74,502
---------------------- ----------------------
Total deferred tax assets 3,431,438 3,595,906
---------------------- ----------------------
Deferred tax liabilities:
Differences in basis of acquired assets 935,627 173,242
Other 57,421 191,397
---------------------- ----------------------
Total deferred tax liabilities 993,048 364,639
---------------------- ----------------------
Net deferred tax assets 2,438,390 3,231,267
====================== ======================
</TABLE>
The deferred tax liabilities are principally the result of the
differences between the bases of the cost in excess of net assets acquired
related to certain acquisitions for tax and financial reporting purposes.
47
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
A reconciliation of the federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997
----------------- ---------------- -----------------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes 5.1% 6.0% 6.2%
Effect of permanent differences between
financial statement treatment and tax
treatment of certain items, primarily
amortization of goodwill 10.1% 1.0% 1.1%
----------------- ---------------- -----------------
Effective tax rate 49.2% 41.0% 41.3%
================= ================ =================
</TABLE>
As of December 31, 1999, the Company had unused net operating loss
carryforwards of $8,731,664, expiring in various years through 2010. Although
the Company's use of these net operating loss carryforwards is limited to
approximately $1 million per year as a result of a change of control as defined
under Section 382 of the Internal Revenue Code, the expiration of such
carryforwards will not inhibit the utilization or realization thereof. The
amount of the net operating loss carryforwards and their expiration dates are as
follows:
<TABLE>
<CAPTION>
Net
Operating Loss
Expiring in Years Ending December 31, Carryforwards
---------------------
<S> <C>
2003 $ 228,726
2004 1,100,173
2005 579,718
2006 782,129
2007 2,945,421
2008 2,336,094
2009 591,906
2010 167,497
---------------------
Total $ 8,731,664
=====================
</TABLE>
48
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes financial instruments by individual
balance sheet accounts at December 31, 1999:
<TABLE>
<CAPTION>
Carrying
Amount Fair Value
-------------------- --------------------
<S> <C> <C>
Cash and cash equivalents $ 111,102 $ 111,102
Receivables 16,827,678 16,827,678
Accounts payable 9,668,171 9,668,171
Accrued expenses 1,958,596 1,958,596
Current portion of long-term debt 1,746,598 1,746,598
Long-term debt 87,808,934 86,889,201
</TABLE>
For certain financial instruments, including cash and cash equivalents,
trade receivables and payables, and short-term debt, the carrying amount
approximated fair value because of the near term maturities of such obligations.
The fair value of long-term debt was determined based on current rates at which
the Company could borrow funds with similar remaining maturities, which amount
approximates its carrying value. Fair value of the financial instruments
disclosed in the balance sheet is not necessarily representative of the amount
that could be realized or settled, nor does the fair value amount consider the
tax consequences of realization or settlement.
12. RELATED PARTY TRANSACTIONS
The Company had a management advisory and consulting agreement with
Gulfstream Financial Group, Inc. ("Gulfstream"), of which the chairman and chief
executive officer of the Company is a 50% owner. Under the terms of such
agreement, Gulfstream acted as an advisor and consultant to the Company
principally concerning the expansion of the Company's business through the
identification of potential acquisition candidates. This agreement was
terminated effective March 1, 1999. Fees paid to Gulfstream in connection with
the agreement amounted to $68,000, $305,000 and $105,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. Gulfstream presently owns 5.4%
of the Company's outstanding common stock.
The Company leases seven of its facilities from entities owned by
former stockholders of acquired businesses who are now employees of the Company.
Rent expense of approximately $499,000 associated with these facilities has been
charged to selling, general & administrative expenses for the year ended
December 31, 1999. Management believes that the terms of such leases are no less
favorable than those which otherwise are available in the market for those
facilities.
49
<PAGE>
QUESTRON TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Battle Fowler LLP, the law firm in which Mr. McSherry, a director of
the Company, was a partner, provided legal services to the Company during the
years ended December 31, 1999 and 1998 of $611,000 and $129,798, respectively.
Arent Fox Kintner Plotkin & Kahn, PLLC, the law firm in which Mr. McSherry is
now a member, presently provides legal services to the Company and is expected
to continue to provide legal services to the Company in the future.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of the Company's quarterly results of operations follows (in
thousands except per share data):
<TABLE>
<CAPTION>
1999 Quarters ended 1998 Quarters ended
-------------------------------------------------- -------------------------------------------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---- ---- ---- ----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $19,304 $29,974 $29,324 $30,356 $ 10,401 $ 10,671 $17,800 $18,096
Gross profit 7,488 11,508 11,351 12,988 4,220 4,291 7,140 6,998
Income before
extraordinary
item 703 869 349 452 758 718 1,035 775
Net income 703 (583) 349 452 758 718 1,035 775
Per common
share:
Income before
extraordinary
charge $ .14 $ .15 $ .05 $ .06 $ .25 $ .22 $ .06 $ .16
Net income $ .14 $ (.10) $ .05 $ .06 $ .25 $ .22 $ .06 $ .16
Per diluted common share:
Income before
extraordinary
charge $ .14 $ .15 $ .05 $ .06 $ .16 $ .15 $ .06 $ .16
Net income $ .14 $ (.10) $ .05 $ .06 $ .16 $ .15 $ .06 $ .16
</TABLE>
50
<PAGE>
ITEM 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable
51
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
A. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C>
Dominic A. Polimeni..................... 53 Chairman and Chief Executive Officer
Robert V. Gubitosi........................ 52 Director, President and Chief Financial Officer
Douglas D. Zadow........................ 42 Director and Vice President; President, QDL
Milton M. Adler.......................... 73 Director
Frederick W. London..................... 48 Director
William J. McSherry, Jr.................. 52 Director
Phillip W. Schwiebert.................... 61 Vice President; Regional Vice President, QDL
Malcolm A. Tallmon..................... 61 Vice President, Aerospace Business Development
James W. Taylor........................... 55 Vice President; President, Integrated Material
Services
</TABLE>
Each of the directors of the Company holds office until the next annual
meeting of stockholders, or until their successors are elected and qualified.
The Company's by-laws currently provide for not less than five directors nor
more than twelve directors. Currently, there are six directors of the Company.
The by-laws permit the board of directors to fill any vacancy and such director
may serve until the next annual meeting of stockholders or until his successor
is elected and qualified. Officers serve at the discretion of the board of
directors. There are no family relationships among any of the officers or
directors of the Company except that Dominic A. Polimeni is the brother-in-law
of Robert V. Gubitosi.
The principal occupation and business experience for each officer and
director of the Company for the last five years is as follows:
DOMINIC A. POLIMENI has been Director of the Company since March 1995
and Chairman and Chief Executive Officer of the Company since February 1996.
Previously, Mr. Polimeni was also President of the Company from March 1995 until
May 1999. Since September 1997, he has been a director of Nu Horizons, Inc., a
publicly held company based in Melville, New York, which is a distributor of
electronic components. Mr. Polimeni has been a Managing Director of Gulfstream
Financial Group, Inc., a privately held financial consulting and investment
banking firm since
52
<PAGE>
August 1990. Prior to that he held the position of Chief Financial Officer of
Arrow Electronics, Inc. ("Arrow") for four (4) years. He also held several other
positions, including general management positions, with Arrow over an eight-year
period. Mr. Polimeni also practiced as a Certified Public Accountant for more
than 12 years and was a Partner in the New York office of Arthur Young &
Company. Mr. Polimeni is the brother-in-law of Mr. Gubitosi.
ROBERT V. GUBITOSI has been a Director of the Company since February
1996, and President and Chief Financial Officer since May 1999. Mr. Gubitosi has
been a Managing Director of Gulfstream Financial Group, Inc., a privately held
financial consulting and investment banking firm since August 1990. Prior to
that he held the position of General Partner and Chief Financial Officer of the
Securities Groups, a New York investment banking firm and primary dealer of U.S.
government securities, with responsibility for the investment banking activities
of the firm. In addition, Mr. Gubitosi has held managerial positions at Goldman
Sachs & Company and Oppenheimer & Company, and specialized in brokerage
accounting and auditing at Haskins & Sells and Touche Ross & Company. Mr.
Gubitosi is the brother-in-law of Mr. Polimeni.
DOUGLAS D. ZADOW has been a Director of the Company since September
1999, a Vice President of the Company and President of QDL since May 1998 and
President of Calfast, now a wholly owned subsidiary of the Company, since May
1995. Calfast became a part of the Company as of September 1997. From 1987 to
1996, he served as President of All-Spec, Inc., a manufacturers representative
of fastener products. In 1986, Mr. Zadow served as President of the Southwest
Fastener Association.
MILTON M. ADLER has been a Director of the Company since February 1996.
Mr. Adler was Secretary of the Company from October 1993 through September 1999,
and Treasurer of the Company from February 1992 through September 1999. Since
July 1997, he has been President, Secretary, and Treasurer of Judicate of
Philadelphia, Inc., a former subsidiary of the Company. Prior to October 1993,
Mr. Adler was employed by Travelco, a travel-consulting firm, for more than 18
years in various capacities, the most recent of which was Vice President of
Administration. Mr. Adler is a Certified Public Accountant.
FREDERICK W. LONDON has been a Director of the Company since April
1998. Mr. London has been a partner of the law firm of Dunnington, Bartholow &
Miller LLP, Westlake Village, California since September 1999. Mr. London was
Vice President and Deputy General Counsel of Pinkerton's, Inc., a provider of
global security solutions based in Westlake Village, California, from February
1998 to June 1999. During the period January 1995 through February 1998, Mr.
London was a partner of Gould & Wilkie, a law firm based in New York City. Prior
to that, he was a partner in the New York City office of the law firm of
Dunnington, Bartholow & Miller LLP.
WILLIAM J. MCSHERRY, JR. has been a Director of the Company since
February 1996. Mr. McSherry has been a member of Arent Fox Kintner Plotkin &
Kahn, PLLC, a law firm with offices in New York City and Washington, DC, since
February 2000. Arent Fox is legal counsel to the Company. Prior to February
2000, Mr. McSherry was a partner in the law firms of Battle Fowler and Bryan
Cave. He is also President and a director of Playtex Marketing Corporation, a
privately-owned corporation, and, up to April 1998, served as a trustee and as
Deputy Mayor of the Village of Larchmont, State of New York.
53
<PAGE>
PHILLIP D. SCHWIEBERT has been a Vice President of the Company and
Northwest and South Central Regional Vice President of QDL since May 1998. From
March 1995 to May 1998, he was President of Quest Electronic Hardware, Inc.,
which is now QDL. From 1991 to 1995, Mr. Schwiebert served as the Vice President
and General Manager of the Fastener Division of Arrow Electronics, Inc. Prior to
that, he held the position of Vice President of Connector Marketing for Arrow
and Vice President of Marketing for Amphenol, a division of Allied Corporation.
MALCOLM A. TALLMON has been a Vice President of the Company responsible
for Aerospace Business Development since August 1999 and President of Fortune,
now a wholly owned subsidiary of the Company since its inception in March 1964.
Fortune became a part of the Company as of July 1998.
JAMES W. TAYLOR has been a Vice President of the Company since May 1998
and President of IMS, now a wholly owned subsidiary of the Company, since its
inception in February 1997. IMS became a part of the Company as of June 1997.
From 1971 to 1996, he served as Executive Vice President of Semblex Corporation,
a manufacturer of fasteners. From 1992 to 1995, Mr. Taylor served as Chairman of
the National Fastener Distributor Association, and from 1994 to 1997, he served
as one of nine industry representatives on the Public Law Task Force, a federal
government committee for fastener regulation.
B. COMPLIANCE WITH SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership of equity securities of the Company with the Securities and Exchange
Commission and the National Association of Securities Dealers. Officers,
directors and greater-than-ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on a review of the copies of Forms 3, 4 and 5 and
amendments thereto furnished to the Company, or written representations from
certain reporting persons that such persons have filed on a timely basis all
reports required by Section 16(a), and without researching or making any inquiry
regarding delinquent Section 16(a) filings, the Company believes that, during
the fiscal year ended December 31, 1999, all such reports were filed on a timely
basis, except that each of Messrs. Polimeni, Gubitosi, Zadow, London, Adler and
McSherry failed to timely file a report of change in beneficial ownership on
Form 5 with respect to stock options granted to him in November 1999, which
reports will be filed as soon as practicable.
54
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth summary information concerning the
compensation for the past three years of the named executives.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------------------
Name and Other annual
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($)
------------------ ---- ---------- ---------- ----------------
(a) (b) (c) (d) (e)
<S> <C> <C>
Dominic A. Polimeni 1999 $265,600 -- --
Chairman and 1998 $182,800 -- --
Chief Executive Officer 1997 $100,000 -- --
Robert V. Gubitosi 1999 $176,241 -- --
President and 1998 $47,600 -- --
Chief Financial Officer 1997 $45,000 -- --
Douglas D. Zadow 1999 $218,000 $37,500 --
Vice President and 1998 $198,000 -- --
President of Questron 1997 $60,000 -- --
Distribution Logistics, Inc.
Phillip D. Schwiebert 1999 $106,000 $57,763 --
Vice President and 1998 $106,000 $62,050 --
Regional Vice 1997 $106,000 $63,578 --
President of Questron
Distribution Logistics, Inc.
Malcolm A. Tallmon
Vice President, Aerospace 1999 $144,400 $20,000 --
Business Development 1998 $72,200 $10,000 --
1997 -- -- --
James W. Taylor
Vice President and 1999 $156,000 -- --
President of Integrated 1998 $156,000 -- --
Material Systems, Inc. 1997 $91,000 -- --
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Long-Term Compensation0
----------------------------------------------------------
Awards Payouts
--------------------------------- -----------------------
Restricted Securities
Name and stock Underlying LTIP All other
PRINCIPAL POSITION YEAR AWARDS ($) OPTIONS/SARS(#) PAYOUTS ($) COMPENSATION ($)
------------------ --- --------- -------------- ---------- -----------------
(a) (b) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C>
Dominic A. Polimeni 1999 -- 26,265 -- --
Chairman and 1998 -- 1,100,000 -- --
Chief Executive Officer 1997 -- -- -- --
Robert V. Gubitosi 1999 -- 26,265 -- --
President and 1998 -- -- -- --
Chief Financial Officer 1997 -- -- -- --
Douglas D. Zadow 1999 -- 24,621 -- --
Vice President and 1998 -- 300,000 -- --
President of Questron 1997 -- -- -- --
Distribution Logistics, Inc.
Phillip D. Schwiebert 1999 -- 9,000 -- --
Vice President and 1998 -- 333,333 -- --
Regional Vice 1997 -- 196,667 -- --
President of Questron
Distribution Logistics, Inc.
Malcolm A. Tallmon
Vice President, Aerospace 1999 -- 37,500 -- --
Business Development 1998 -- -- -- --
1997 -- -- -- --
James W. Taylor
Vice President and 1999 -- 10,500 -- --
President of Integrated 1998 -- 90,000 -- --
Material Systems, Inc. 1997 -- 90,000 -- --
</TABLE>
56
<PAGE>
EMPLOYMENT AGREEMENTS
Dominic A. Polimeni, Chairman and Chief Executive Officer of the
Company, is a party to a five-year employment agreement with the Company
effective July 1, 1998. Under the terms of such employment agreement, the
Company has agreed to compensate Mr. Polimeni with a regular salary at the rate
of $250,000 per annum and incentive compensation of up to $100,000 based upon
the attainment of certain operating and earnings targets. Effective March 29,
1999, options to purchase 1,100,000 shares of common stock of the Company at an
exercise price of $4.50 per share were awarded to Mr. Polimeni pursuant to the
terms of the agreement.
Mr. Polimeni is a 50% stockholder of Gulfstream Financial Group, Inc.
("Gulfstream"), and shares voting and investment power with respect to the
shares of the Company's common stock owned by Gulfstream. Pursuant to a
Management Advisory and Consulting Agreement, dated as of November 29, 1994,
between the Company and Gulfstream, Gulfstream acted as an advisor and
consultant to the Company. Such advisory and consulting services were directed
principally at the expansion of the Company's business through the
identification of potential acquisition candidates. The agreement was terminated
effective March 1, 1999, more than one year prior to its stated expiration and
options to purchase 1,160,500 shares of common stock at an average exercise
price of $5.43 were cancelled. Fees paid to Gulfstream in connection with the
agreement and the termination thereof amounted to $68,000 in 1999, $305,000 in
1998 and $105,000 in 1997. Pursuant to a shareholders' agreement, Mr. Polimeni
has agreed to share his beneficial ownership of the options received under his
employment agreement with the other 50% shareholder of Gulfstream.
Robert V. Gubitosi, President and Chief Financial Officer of the
Company, is a party to an employment agreement with the Company effective
October 1, 1999 through June 30, 2003. Under the terms of such employment
agreement, the Company has agreed to compensate Mr. Gubitosi with a regular
salary at the rate of $250,000 per annum and incentive compensation of up to
$100,000 based upon the attainment of certain operating and earnings targets.
In connection with the acquisition of Calfast, the Company entered into
a five-year employment agreement with Douglas D. Zadow, a former shareholder and
President of Calfast, effective September 1, 1997. Under the terms of such
employment agreement, as amended, the Company has agreed to compensate Mr. Zadow
with a regular salary at the rate of $200,000 per year and incentive
compensation of up to $100,000 based on the attainment of certain operating
goals. Effective March 31, 1999, options to purchase 300,000 shares of common
stock of the Company at an exercise price of $4.50 per share were awarded to Mr.
Zadow pursuant to the terms of the agreement, as amended.
QDL entered into a four-year employment agreement with Phillip D.
Schwiebert, its Western Regional Vice President, effective April 1, 2000. Under
the terms of such employment agreement, QDL has agreed to compensate Mr.
Schwiebert with regular salary at the rate of $106,000 per year, plus bonus
compensation based on the attainment of certain operating goals at the rate of
$15,000 per quarter. In addition, pursuant to an Exchange Agreement dated
November 8, 1996 (See Item 11 - "Exchange Agreement"), on February 24, 1998,
options to purchase 166,667 shares of common stock of the Company at an exercise
price of $7.75 per share and, effective March 31, 1999, options to purchase
333,333 shares of common stock at an exercise price of $4.50 per share, were
awarded to Mr. Schwiebert.
57
<PAGE>
In connection with the acquisition of Fortune Industries, the Company
entered into a five-year employment agreement with Malcolm A. Tallmon, the
former shareholder and President of Fortune Industries, effective June 30, 1998.
Under the terms of such employment agreement, the Company had agreed to
compensate Mr. Tallmon with a regular salary at the rate of $144,400 per year,
plus bonus compensation based on the attainment of certain operating goals at
the rate of $20,000 per year. Pursuant to the terms of the employment agreement
as amended, reflecting a change in his role and responsibilities, the Company
agreed to compensate Mr. Tallmon for the remaining term of the agreement with
regular salary at the rate of $64,400 per year effective January 1, 2000.
In connection with the acquisition of IMS, the Company entered into a
five-year employment agreement with James W. Taylor, the former shareholder and
President of IMS, effective June 1, 1997. Under the terms of such employment
agreement, the Company has agreed to compensate Mr. Taylor with regular a salary
at the rate of $144,000 per year, plus bonus compensation based on the
attainment of certain operating goals at the rate of $14,400 per year. Effective
March 31, 1999, options to purchase 90,000 shares of common stock of the Company
at an exercise price of $4.50 per share were awarded to Mr. Taylor pursuant to
the terms of the agreement.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth summary information concerning stock
options granted in respect of employment for the year ended December 31, 1999 to
the named executives.
<TABLE>
<CAPTION>
Potential realizable value
at assumed annual rates of
stock price appreciation for
option term
Individual Grants
- ------------------------------ ---------------- ---------------- --------------- --------------- -------------- ---------------
Percent of
Number of total
securities Options/SARs
underlying granted to Exercise or
Options/SARs employees in base price Expiration
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ----------- ----------- ------ ---- ------ -------
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C> <C>
Dominic A. Polimeni 26,265 6.7% $3.56 11/19/09 $58,845 $149,125
Robert V. Gubitosi 26,265 6.7% $3.56 11/19/09 $58,845 $149,125
Douglas D. Zadow 24,621 6.3% $3.56 11/19/09 $55,162 $139,791
Phillip D. Schwiebert 9,000 2.3% $3.56 11/19/09 $20,164 $51,099
Malcolm A. Tallmon 37,500 9.5% $3.63 11/17/09 $85,490 $216,649
James W. Taylor 10,500 2.7% $3.56 11/19/09 $23,525 $59,616
</TABLE>
58
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL]
YEAR-END OPTION/SAR VALUES
The following table sets forth summary information concerning the
exercise options during the year ended December 31, 1999 by each of the named
executives and the year-end value of their respective unexercised options. None
of the named executives exercised any stock options during 1999.
<TABLE>
<CAPTION>
Number of securities
underlying Value of unexercised
unexercised in-the-money
options/SARs at options/SARs at
fiscal year end fiscal year end ($)
----------------------- -----------------------
Shares acquired on Exercisable/ Exercisable/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
------------ ------------------ ------------- -------------
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
Dominic A. Polimeni -- -- 1,100,000/ $2,131,250/
26,265 $75,512
Robert V. Gubitosi -- -- -- / $ -- /
26,265 $75,512
Douglas D. Zadow -- -- 300,000/ $581,250/
24,621 $70,785
Phillip D. Schwiebert -- -- 550,000/ $735,208/
19,000 $30,250
Malcolm A. Tallmon -- -- 37,500/ $105,469/
-- --
James W. Taylor -- -- 126,000/ $190,125/
64,500 $53,813
</TABLE>
COMPENSATION OF DIRECTORS
Other than the 1994 Director Non-Qualified Stock Option Plan and the
1996 Stock Option Plan described below, the Company does not have a standard
policy regarding compensation of members of the board of directors. Other than
as reported below, the members of the board of directors did not receive
compensation for their services as such during the year ended December 31, 1999.
THE 1994 DIRECTOR NON-QUALIFIED STOCK OPTION PLAN
The 1994 Director Non-qualified Stock Option Plan, as amended (the
"1994 Plan"), was approved by stockholders at the annual meeting held June 11,
1998. The 1994 Plan provides for options to purchase an aggregate of 150,000
shares of the Company's common stock that may be granted to non-employee
directors of the Company.
59
<PAGE>
All non-employee directors shall receive an option to purchase 5,000
shares of the common stock of the Company on the first Wednesday of February in
each calendar year at an exercise price equal to the fair market value per share
of the common stock on that date. In addition, on September 8, 1998 Mr. McSherry
was awarded options to purchase 20,000 shares of common stock of the Company at
an exercise price equal to the fair market value per share of the common stock
on that date and Mr. London was awarded options to purchase 3,000 shares of
common stock of the Company at an exercise price equal to the fair market value
per share of the common stock on that date. Such options are exercisable
immediately for a period of 10 years from date of grant unless terminated
earlier pursuant to the terms of the Plan. Under the 1994 Plan, 72,000 have been
granted to date at exercise prices ranging from $3.88 per share to $24.08 per
share.
1996 STOCK OPTION PLAN
The 1996 Stock Option Plan, as amended (the "1996 Plan"), was approved
by stockholders at the annual meeting held October 28, 1999. Under the 1996
Plan, either Incentive Stock Options or Non-Qualified Stock Options may be
granted; however, the former may be granted only to officers, employees and
directors of the Company and its subsidiaries. The 1996 Plan provides for
options to purchase an aggregate number of shares of the Company's common stock
that be granted to officers, employees and directors of the Company and its
subsidiaries equal to the greater of 1,000,000 shares of common stock or 14% of
the total number of shares of common stock outstanding on December 31 of the
immediately preceding calendar year. As of December 31, 1999, an aggregate of
1,003,033 shares of the Company's common stock were authorized for grant under
the 1996 Plan.
In 1999, 1998 and 1997, the Company granted to its officers, employees
and directors options to purchase 355,551, 10,300 and 159,450 shares,
respectively, of the Company's common stock. In 1999 and 1998, options to
purchase 5,550 and 46,500 shares, respectively, of the Company's common stock
were cancelled. Options granted were issued with an exercise price equal to the
fair market value of the common stock on the date of grant. The options have
terms of ten years and become exercisable in three equal nine-month
installments, three equal annual installments or three years from date of grant.
Accordingly, pursuant to the terms of the 1996 Plan, a total of 528,123 shares
of the Company's common stock are reserved and available for future stock option
awards under the 1996 Plan.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1997, the Board approved the adoption of an Employee Stock Ownership
Plan ("ESOP") beginning with the year ended December 31, 1997. In 1999 and 1998,
the Company purchased 17,700 and 14,300 shares, respectively, in respect of the
1998 and 1997 contributions, respectively, to the ESOP. For the year ended
December 31, 1999, the Company accrued $75,000 to fund the purchase of
additional shares of the Company's common stock pursuant to the ESOP.
60
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information, as of March 21,
2000, known to the Company regarding beneficial ownership of the Company's
common stock by (i) any holder of more than five percent of the outstanding
shares; (ii) the Company's directors; and (iii) all executive officers and
directors as a group:
<TABLE>
<CAPTION>
% of
Name and address of Number of Shares of Common Common
beneficial owner Position With the Company Stock Stock
- -------------------------------------------- ----------------------------------- ---------------------------- ------------
<S> <C> <C> <C> <C>
Dominic A. Polimeni (1) Chairman and Chief Executive 2,374,957 (2) 25.78
Officer
Robert V. Gubitosi (1) Director, President and Chief -- (3) --
Financial Officer
Douglas D. Zadow Vice President and President of 872,176 (4) 11.77
1 Fox Hollow Lane Questron Distribution Logistics,
Melissa, TX 75454 Inc., a subsidiary of the Company
Milton M. Adler (1) Director 8,247 (5) *
Frederick W. London (1) Director 14,000 (6) *
William J. McSherry, Jr. (1) Director 95,384 (7) 1.32
Phillip D. Schwiebert (8) Vice President and Regional Vice 913,339 (9) 11.54
c/o Questron Distribution President of Questron
Logistics, Inc. Distribution Logistics, Inc., a
386 Railroad Court subsidiary of the Company
Milpitas, CA 95035
Gulfstream Financial Group, Inc. -- 1,260,273 (10) 15.54
6400 Congress Ave.
Suite 2000
Boca Raton, FL 33487
Joan R. Gubitosi (4) -- 2,360,273 (11) 25.62
c/o Gulfstream Financial Group,
Inc.
6400 Congress Ave.
Suite 2000
Boca Raton, FL 33487
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Malcolm A. Tallmon President and General Manager of 662,040 (12) 9.26
c/o Fortune Industries, Inc. Fortune Industries, Inc., a
3408 S. Jones subsidiary of the Company
Fort Worth, TX 76110
Gregory S. Fitzgerald President and General Manager of 887,626 (13) 11.97
c/o Fas-Tronics, Inc. Fas-Tronics, Inc., a subsidiary
4324 Garland Drive of the Company
Fort Worth, TX 76117
Valerie L. Fitzgerald Operations Manager of 887,626 (13) 11.97
c/o Fas-Tronics, Inc. Fas-Tronics, Inc., a subsidiary
4324 Garland Drive of the Company
Fort Worth, TX 76117
All officers and directors as a 5,158,243 49.36
group
(nine persons)
- ----------------------------
* Less than 1 %
</TABLE>
1. c/o Questron Technology, Inc., 6400 Congress Avenue, Suite
2000, Boca Raton, FL 33487.
2. Consists of 260,273 shares of common stock and Series IV
Warrants to purchase 1,000,000 shares of common stock owned by
Gulfstream, 14,684 shares of common stock owned by Mr.
Polimeni and options to purchase 1,100,000 shares of common
stock at an exercise price of $4.50 per share that were
awarded to Mr. Polimeni pursuant to the terms of his
employment agreement. Pursuant to the terms of a Gulfstream
shareholder agreement, beneficial interest in such options is
shared equally by Mr. Polimeni and Mrs. Gubitosi. These
amounts do not include options to purchase 26,265 shares of
common stock at $3.5625 per share granted effective November
19, 1999, which vest and become exercisable as to 8,875 shares
on each of the first, second and third anniversary dates of
the date of the grant.
3. Does not include options to purchase 26,265 shares of common
stock at $3.5625 per share granted effective November 19,
1999, which vest and become exercisable as to 8,875 shares on
each of the first, second and third anniversary dates of the
date of the grant. Mr. Gubitosi's wife, Joan R. Gubitosi, has
shared beneficial ownership with Mr. Polimeni of 2,360,273
shares of common stock (see Footnote 11). Mr. Gubitosi
disclaims beneficial ownership of such shares.
4. The 872,176 shares of common stock reported above include
30,162 shares subject to a serial put agreement dated
September 22, 1997, which gives Mr. Zadow the option to sell
the shares to the Company on a monthly basis during the five
year period ending September 22, 2002 for a price of $6.275
per share, and options to purchase 300,000
62
<PAGE>
shares of common stock at an exercise price of $4.50 per share
that were awarded to Mr. Zadow effective March 31, 1999
pursuant to the terms of his employment agreement. These
amounts do not include options to purchase 24,621 shares of
common stock at $3.5625 per share granted effective November
19, 1999, which vest and become exercisable as to 8,297 shares
on each of the first, second and third anniversary dates of
the date of the grant.
5. Includes options to purchase 8,000 shares of common stock.
These amounts do not include options to purchase 3,000 shares
of common stock at $3.5625 per share granted effective
November 19, 1999, which vest and become exercisable as to
1,000 shares on each of the first, second and third
anniversary dates of the date of the grant.
6. Consists of 500 shares of common stock, Series IV Warrants to
purchase 500 shares of common stock and options to purchase
13,000 shares of common stock. These amounts do not include
options to purchase 3,000 shares of common stock at $3.5625
per share granted effective November 19, 1999, which vest and
become exercisable as to 1,000 shares on each of the first,
second and third anniversary dates of the date of the grant.
7. Includes 5,984 shares of common stock owned by Mr. McSherry,
options to purchase 48,000 shares of common stock and Series
IV Warrants to purchase 41,400 shares of common stock. These
amounts do not include 886 shares of common stock owned by one
of his adult sons, as to which Mr. McSherry disclaims
beneficial ownership. These amounts do not include options to
purchase 3,000 shares of common stock at $3.5625 per share
granted effective November 19, 1999, which vest and become
exercisable as to 1,000 shares on each of the first, second
and third anniversary dates of the date of the grant.
8. Pursuant to the terms of the Exchange Agreement, Mr.
Schwiebert received options to purchase 166,667 shares of
common stock of the Company at an exercise price of $7.75 per
share on February 24, 1998 and options to purchase 333,333
shares of common stock at an exercise price of $4.50 per share
effective March 31, 1999.
9. The shares reported above consist of 113,339 shares owned by
Mr. Schwiebert, options to purchase 550,000 shares of common
stock and Series IV Warrants to purchase 250,000 shares of
common stock. These amounts do not include options to purchase
10,000 shares of common stock at $6.00 per share granted
effective May 31, 1997, which vest and become exercisable on
the third anniversary date of the date of the grant. Also see
footnote 8.
10. Consists of 260,273 shares of common stock and Series IV
Warrants to purchase 1,000,000 shares of common stock. Joan R.
Gubitosi and Dominic A. Polimeni are executive officers and
the stockholders of Gulfstream and share voting and investment
power with respect to the shares owned by Gulfstream.
11. Consists of 260,273 shares of common stock and Series IV
Warrants to purchase 1,000,000 shares of common stock owned by
Gulfstream, and options to purchase 1,100,000 shares of common
stock, at an exercise price of $4.50 per share, in which
63
<PAGE>
beneficial interest is shared equally by Mrs. Gubitosi and Mr.
Polimeni pursuant to a Gulfstream shareholder agreement.
12. The 662,040 shares of common stock reported above include
options to purchase 37,500 shares of common stock at an
exercise price of $3.625 per share that were awarded to Mr.
Tallmon effective November 17, 1999.
13. The 887,626 shares of common stock reported above are owned
jointly by Mr. and Mrs. Fitzgerald and include options to
purchase 40,000 shares of common stock at an exercise price of
$4.575 that were awarded September 24, 1998 and 14,534 shares
of common stock purchased in open market transactions.
EXCHANGE AGREEMENT
In connection with the Webb acquisition and the related offering of
units, Gulfstream and Phillip D. Schwiebert, stockholders of the Company,
entered into an Exchange Agreement dated as of November 8, 1996 (the "Exchange
Agreement") pursuant to which Gulfstream and Schwiebert agreed to exchange their
rights to receive warrants to purchase up to 10% and 5%, respectively, of the
common stock outstanding as of March 31, 1995. Based upon the number of shares
of common stock outstanding on such date (after giving effect to the exercise of
all the outstanding options and warrants), the foregoing represented the right
of Gulfstream and Schwiebert to acquire up to 264,172 and 132,086 shares of
common stock, respectively, at $1.00 per share.
The board of directors deemed it desirable to enter into the Exchange
Agreement by reason of the fact that the rights previously granted to Gulfstream
and Schwiebert would have resulted in substantial charges to the Company's
earnings by reason of accounting rules now in effect and would have resulted in
substantial dilution to the other stockholders. Under the options, warrants and
rights granted under the Exchange Agreement, no charge to earnings resulted as a
consequence of their being exercisable at the fair market value at the date of
grant in lieu of $1.00 per share. In addition, pursuant to the Exchange
Agreement the Company substantially increased the pre-tax income targets needed
to earn certain of the awards from $1.4 million, $1.8 million, $2.2 million and
$2.6 million to $2.5 million, $3.5 million and $4.5 million. Under the prior
arrangements, one half of the awards would have been earned upon completion of
the acquisition of Webb, thereby resulting in a substantial charge to earnings
and substantial dilution to stockholders. Under the Exchange Agreement, no
awards, which were conditioned on meeting the pre-tax income targets set forth
below, were earned until the $2.5 million pre-tax income target was met or
exceeded. Finally, although Gulfstream and Mr. Schwiebert had the opportunity to
earn a substantially greater number of shares, the amount of consideration,
which will have to be paid for such shares, substantially increased as well.
Based upon then current market prices, the price to be paid per share acquired
increased under the Exchange Agreement from $1.00 to at least $3.75.
Pursuant to the Exchange Agreement, Gulfstream and Schwiebert received
the following in exchange for the rights previously granted under their
agreements.
Gulfstream: 1) Options to acquire 120,000 shares of Common Stock
for a per share exercise price equal to $3.75; and
64
<PAGE>
2) Series IV Warrants to acquire 1,000,000 shares of
Common Stock.
Schwiebert: 1) Options to acquire 30,000 shares of Common Stock
for a per share exercise price equal to $3.75; and
2) Series IV Warrants to acquire 250,000 shares of
Common Stock.
In addition, Gulfstream and Schwiebert were entitled to receive options
to acquire additional shares of common stock at an exercise price equal to the
fair market value of the common stock at the date of grant when the pre-tax
income targets set forth below were met or exceeded in any fiscal year up to and
including fiscal year 2001:
<TABLE>
<CAPTION>
<S> <C> <C>
No. of Additional
No. of Additional Schwiebert Shares
Gulfstream Shares Pre-tax Income at Least
--------------------------- ----------------------- -------------------------------
333,333 166,667 $2,500,000
333,333 166,667 $3,500,000
333,334 166,668 $4,500,000
</TABLE>
The Company's pre-tax income for the year ended December 31, 1997
exceeded $2.5 million, accordingly, pursuant to the terms of the Exchange
Agreement, on February 24, 1998, options to purchase 333,333 shares of Common
Stock of the Company at an exercise price of $7.75 per share were granted to
Gulfstream and options to purchase 166,667 shares of Common Stock of the Company
at an exercise price of $7.75 per share were granted to Schwiebert. The
Company's pre-tax income for the year ended December 31, 1998 exceeded $4.5
million, accordingly, options to purchase 333,333 shares of common stock of the
Company at an exercise price of $4.50 were granted to Schwiebert effective March
31, 1999. Effective March 1, 1999, the Company and Gulfstream agreed to cancel
all the Gulfstream options earned and to be earned pursuant to the terms of the
Exchange Agreement. Accordingly, options awarded to Gulfstream, on November 8,
1996, to acquire 120,000 shares of common stock at an exercise price of $3.75
per share and options awarded to Gulfstream, on February 24, 1998, to purchase
333,333 shares of common stock at an exercise price of $7.75 per share have been
cancelled.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to a Management and Advisory Consulting Agreement, the Company
agreed to compensate Gulfstream for advisory and consulting services. This
agreement, which can be terminated by either party on 90 days notice, was to
expire on March 31, 2000. The agreement was terminated effective March 1, 1999,
more than one year prior to its stated expiration. Fees paid to Gulfstream in
connection with the agreement and the termination thereof amounted to $68,000 in
1999, $305,000 in 1998 and $105,000 in 1997.
Battle Fowler LLP, the law firm in which Mr. McSherry, a director of
the Company, was a partner through February 2000, provided legal services to the
Company during the year ended December 31, 1999. Arent Fox Kintner Plotkin &
Kahn, PLLC, the law firm in which Mr. McSherry is now a member, presently
provides legal services to the Company and is expected to continue to provide
legal services to the Company in the future.
65
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules, and Exhibits.
1. The financial statements listed in the accompanying index to
financial statements are filed as part of this annual report.
2. The financial statement schedule is filed as part of this annual
report.
3. See Index to Exhibits on page 75.
(b) Report on Form 8-K.
<TABLE>
<CAPTION>
Date of Report
(Date of Earliest Event Reported) Item Reported
------------------------------------------- ------------------------------------------------------------
<S> <C>
Acquisition of fastener distributors; included pro forma
July 15, 1999 combined statement of operations for the Company, Action
(amended August 13, 1999) Threaded Products, Inc, Capital Fasteners, Inc., a North
Carolina corporation ("Capital"), Metro Form Corporation,
d.b.a. Olympic Fasteners & Electronic Hardware Fortune
Industries, Inc., Fas-Tronics, Inc., a Texas corporation
and AFCOM, Inc., a Florida corporation ("AFCOM") for the
three month periods ended March 31, 1998 and March 1999,
and for the year ended December 31, 1998, and audited
balance sheet at December 31, 1998 and audited statements
of operations, stockholders equity, and cash flows for
the year ended December 31, 1998 for Action Threaded
Products, Inc., and unaudited balance sheet at March 31,
1999 and unaudited statements of operations, stockholders
equity, and cash flows for the three month period ended
March 31, 1999 for Action Threaded Products, Inc.
</TABLE>
66
<PAGE>
QUESTRON TECHNOLOGY, INC.
INDEX
TO FINANCIAL STATEMENTS
(ITEM 14 (a))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors covering consolidated financial statements
at December 31, 1999 and 1998 and for each of the two years in the period
ended December 31, 1999 26
Report of Independent Auditors covering consolidated financial statements
for the year ended December 31, 1997 27
Consolidated Balance Sheet as of December 31, 1999 and 1998 28
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statement of Operations 29
Consolidated Statement of Changes in Stockholders' Equity 30
Consolidated Statement of Cash Flows 31
Notes to Consolidated Financial Statements at December 31, 1999, 1998 and
1997 and for the years then ended 32
The following financial statement schedules for the three years ended
December 31, 1999 are included in Item 14 (d):
Schedule I - Condensed financial information of registrant
Schedule II - Valuation and qualifying accounts
</TABLE>
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
67
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUESTRON TECHNOLOGY, INC.
By: /s/ DOMINIC A. POLIMENI
-----------------------------
Dominic A. Polimeni,
Chairman and
Chief Executive Officer
Date: March 30, 2000
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
indicated on March 30, 2000:
<TABLE>
<S> <C>
(1) Principal Executive Officer: (3) A Majority of the Board of Directors:
/s/ DOMINIC A. POLIMENI /s/ MILTON M. ADLER
------------------------------- --------------------------------
Dominic A. Polimeni, Milton M. Adler, Director
Chief Executive Officer
/s/ ROBERT V. GUBITOSI
--------------------------------
Robert V. Gubitosi, Director
(2) Principal Financial and Accounting /s/ FREDERICK W. LONDON
Officer: --------------------------------
Frederick W. London, Director
/s/ ROBERT V. GUBITOSI /s/ WILLIAM J. MCSHERRY, JR.
------------------------------- --------------------------------
Robert V. Gubitosi, William J. McSherry, Jr., Director
Chief Financial Officer
/s/ DOMINIC A. POLIMENI
--------------------------------
Dominic A. Polimeni, Director
/s/ DOUGLAS D. ZADOW
--------------------------------
Douglas D. Zadow, Director
</TABLE>
68
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
QUESTRON TECHNOLOGY, INC.
(Parent Company)
CONDENSED BALANCE SHEET
AT DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 867,444 $ -
Other current assets 300,074 96,166
----------- -----------
Total current assets 1,167,518 96,166
Property and equipment--net 522,509 539,024
Deferred income taxes 3,431,438 3,595,906
Other assets (principally investment in and amounts due from
wholly owned subsidiaries) 32,766,054 67,467,339
----------- -----------
Total assets $37,887,519 $71,698,435
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,822,310 $ 2,764,959
Current portion of long-term debt - 1,610,000
----------- -----------
Total current liabilities 1,822,310 4,374,959
Deferred income taxes 993,048 364,639
Long-term debt - 39,154,873
Common stock subject to put agreement 622,170 339,697
Stockholders' equity:
Common stock 7,165 4,795
Other stockholders' equity 34,443,826 27,459,472
----------- -----------
Total stockholders' equity 34,449,991 27,464,267
----------- -----------
Total liabilities and stockholders' equity $37,887,519 $71,698,435
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
69
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
QUESTRON TECHNOLOGY, INC.
(Parent Company)
CONDENSED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997 (*)
---------- ---------- -----------
<S> <C> <C> <C>
Costs and expenses:
General and administrative $3,054,827 $1,746,473 $ 399,191
Depreciation and amortization 413,413 676,806 266,411
Interest expense 3,042,110 2,647,836 298,510
---------- ---------- -----------
Total costs and expenses 6,510,350 5,071,115 964,112
---------- ---------- -----------
Loss before income taxes, equity in
net income of subsidiaries and
extraordinary charge (6,510,350) (5,071,115) (964,112)
Income tax benefit 3,203,000 2,079,157 398,178
---------- ---------- -----------
Loss before equity in net income of (3,307,350) (2,991,958) (565,934)
subsidiaries and extraordinary
charge
Equity in net income of subsidiaries 5,363,166 6,277,962 2,203,075
---------- ---------- -----------
Loss before extraordinary charge 2,055,816 3,286,004 1,637,141
Extraordinary charge (less applicable
income taxes of $928,854) (1,135,266) - -
---------- ---------- -----------
Net income $ 920,550 $3,286,004 $1,637,141
=========== ========== ==========
</TABLE>
(*) Not covered by report of independent auditors.
See Notes to Condensed Financial Statements.
70
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
QUESTRON TECHNOLOGY, INC.
(Parent Company)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997 (*)
------------ ---------- -------------
<S> <C> <C> <C>
Net cash from operating
activities $ 1,249,713 $2,816,657 $ 989,484
Investing activities
Net cash consideration paid for
acquired businesses - (24,072,714) (12,641,922)
Other (159,482) (576,746) (42,794)
------------ ---------- -------------
Net cash used in investing
activities (159,482) (24,649,460) (12,684,716)
Financing activities
Proceeds from long-term debt - 40,294,519 11,425,000
Repayments of long-term debt - (11,128,334) (3,950,053)
Fees and expenses associated with
long-term financing - (2,193,973) -
Net proceeds from Convertible
Preferred Stock Unit Offering - - 5,634,812
Other (222,787) (116,829) (45,065)
------------ ---------- -------------
Net cash (used in) provided by
financing activities (222,787) 26,855,383 13,064,694
------------ ---------- -------------
Increase (decrease) in cash $ 867,444 $(610,734) $ 609,506
=========== ========= ============
</TABLE>
(*) Not covered by report of independent auditors.
See Notes to Condensed Financial Statements.
71
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
QUESTRON TECHNOLOGY, INC.
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1. BASIS OF PRESENTATION
In the parent company financial statements, the company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since date of acquisition. The Company's share of net income of its
consolidated income statement is included in consolidated income using the
equity method. Parent-company-only financial statements should be read in
conjunction with the Company's consolidated financial statements.
2. LONG-TERM DEBT
Long-term debt at December 31, 1998 consisted principally of borrowings
under a loan and security agreement that provided for long-term borrowings and
availability under a revolving credit facility. During 1999, the Company
refinanced this indebtedness through borrowings made by its wholly owned
subsidiaries Questron Finance Company and Questron Operating Company. In
connection with the refinancing and extinguishment of debt at the parent company
level, the Company wrote off the remaining balance of deferred financing costs
associated with the extinguished debt. This resulted in an extraordinary charge
of $1,135,266 (net of taxes of $928,854).
The subsidiaries' loan agreements include, among other matters,
restrictions on the amounts of retained earnings available for distribution to
the Company and additional borrowings, and require that the Company maintain
certain consolidated financial ratios.
72
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
QUESTRON TECHNOLOGY, INC.
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Balance at Balance at
beginning of Charged to Charged to end of
year income other (1) Write-offs year
------------------- ------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts
1999 $186,256 $63,000 $33,455 $0 $283,666
=================== =================== ================= ================= =================
1998 $93,561 $52,729 $60,000 $20,034 $186,256
=================== =================== ================= ================= =================
1997 (2) $53,773 $20,000 $26,000 $6,212 $93,561
=================== =================== ================= ================= =================
</TABLE>
(1) Represents the allowance for doubtful accounts of the businesses acquired by
the Company during each of the respective years.
(2) Not covered by report of independent auditors.
73
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS TO
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
- ----- ACT OF 1934 (Fee Required)
For the fiscal year ended DECEMBER 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
(No Fee Required)
For the transition period from _______________ to
Commission file number 0-13324
QUESTRON TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Delaware 23-2257354
- ------------------------------------------------ ------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
6400 Congress Avenue, Suite 2000, Boca Raton, FL 33487
- ------------------------------------------------ ------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (561) 241 - 5251
----------------
74
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed as part of this Annual Report on Form
10-K:
*3.0 Certificate of Incorporation, incorporated by reference to
Exhibit 3(i) to the Company'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 Company, incorporated by reference to Exhibit 4.1
to Amendment No. 1 of the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on March 9, 1995
(File No. 33-44331).
*3.2 Certificate of Amendment, dated June 9, 1989, to Certificate of
Incorporation of the Company, incorporated by reference to Exhibit 4.1
to Amendment No. 1 of the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on March 9, 1995
(File No. 33-44331).
*3.3 Certificate of Correction, dated May 17, 1991, to Certificate of
Incorporation of the Company, incorporated by reference to Exhibit 4.1
to Amendment No. 1 of the Company's Registration Statement on Form S-3
filed with the Securities and Exchange Commission on March 9, 1995
(File No. 33-44331).
*3.4 Certificate of Amendment, dated December 20, 1993, to Certificate
of Incorporation of the Company, incorporated by reference to Exhibit
3(i) to the Company's Form 10-KSB filed with the Securities and
Exchange Commission for the fiscal year ended December 31, 1993 (File
No. 0-13324).
*3.5 Certificate of Correction, dated December 22, 1993, to
Certificate of Incorporation of the Company, incorporated by reference
to Exhibit 3.3 to the Company'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 Company, incorporated by reference to Exhibit 4.1
to Amendment No. 1 to the Company'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 Company, incorporated by reference to Exhibit 3.5
to the Company's Form 10-KSB filed with the Securities and Exchange
Commission for the fiscal year ended December 31, 1995 (File No.
0-13324).
*3.8 Certificate of Amendment, filed December 31, 1996, to Certificate
of Incorporation of the Company, incorporated by reference to Exhibit
3.10 to Amendment No. 1 to the Company's Form SB-2 filed with the
Securities and Exchange Commission on February 25, 1997 (File No.
333-18243).
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*3.9 By-Laws of the Company, incorporated by reference to Exhibit
3b(ii) to the Company'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 Company, incorporated by reference to
Exhibit 3.4 of the Company'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 Company's Form SB-2 filed with
the Securities and Exchange Commission on February 25, 1997 (File No.
333-18243).
*4.1 Form of Series IV Warrant Agreement, incorporated by reference to
Exhibit 4.3 to Amendment No. 1 to the Company's Form SB-2 filed with
the Securities and Exchange Commission on February 25, 1997 (File No.
333-18243).
*4.2 Form of Series III Warrant Agreement, dated as of November 7,
1994, incorporated by reference to Exhibit 10.22 to the Company's Form
10-KSB filed with the Securities and Exchange Commission for the fiscal
year ended December 31, 1994 (File No. 0-13324).
*4.3 Form of Underwriters' Purchase Option, incorporated by reference
to Exhibit 4.5 to Amendment No. 1 to the Company's Form SB-2 filed with
the Securities and Exchange Commission on February 25, 1997 (File No.
333-18243).
*4.4 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 Company's Form SB-2 filed with the Securities
and Exchange Commission on February 25, 1997 (File No. 333-18243).
*4.5 Amended Certificate of Designation Establishing Series of
Preferred Stock of Questron Technology, Inc., incorporated by reference
to Exhibit 4.7 to the Company's Quarterly Report on Form 10-QSB for the
three month period ended June 30, 1998 filed with the Securities and
Exchange Commission on May 15, 1998 (File No. 0-13324).
*4.6 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).
*4.7 Certificate of Designation of Series A Junior Participating
Preferred Stock of Questron Technology, Inc., incorporated by reference
to the Company's Quarterly Report on Form 10-QSB for the three month
period ended September 30, 1998, filed with the Securities and Exchange
Commission on November 16, 1998 (File No. 0-13324).
*10.1 The Company's 1994 Director Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 10.28 of the Company's Report on
Form 10-KSB filed with the Securities and Exchange Commission for the
fiscal year ended December 31 1993 (File No. 0-13324).
*10.2 Employment Agreement, dated March 29, 1999 between Questron
Technology, Inc. and Dominic A. Polimeni incorporated by reference to
Exhibit 10.2 of the Company's Report on
76
<PAGE>
Form 10-KSB filed with the Securities and Exchange Commission for the
fiscal year ended December 31 1998 (File No. 0-13324).
*10.3 Employment Agreement, dated November 29, 1994, between Quest
Electronic Hardware, Inc. and Phillip D. Schwiebert, incorporated by
reference to Exhibit 10.25 to the Company's Form 10-KSB filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1994 (File No. 0-13324).
+10.4 Employment Agreement dated October 1, 1999 between Questron
Technology, Inc. and Robert v. Gubitosi.
+10.5 Non-Statutory Stock Option Agreement between Questron Technology
and Malcolm Tallmon dated Mach 6, 2000.
*10.6. Termination of Management Advisory and Consulting Agreement,
dated as of March 1, 1999, between Gulfstream Financial Group, Inc. and
the Company.
*10.7. Purchase of Assets Agreement, dated as of November 29, 1994,
between Quest Electronic Hardware, Inc. and Arrow Electronics, Inc.,
incorporated by reference to Exhibit 10.29 to the Company's Form 10-KSB
filed with the Securities and Exchange Commission for the fiscal year
ended December 31, 1994 (File No. 0-13324).
*10.8. 1996 Stock Option Plan, incorporated by reference to Exhibit
10.19 to Amendment No. 1 to the Company's Form SB-2 filed with the
Securities and Exchange Commission on February 25, 1997 (File No.
333-18243).
*10.9. Exchange Agreement, dated November 8, 1996 by and among the
Company, Gulfstream Financial Group, Inc. and Phillip D. Schwiebert,
incorporated by reference to Exhibit 10.21 to Amendment No. 1 to the
Company's Form SB-2 filed with the Securities and Exchange Commission
on February 25, 1997 (File No. 333-18243).
*10.10. Stock Purchase Agreement dated as of December 16, 1996 relating
to Webb Distribution, Inc., incorporated by reference to Exhibit 2.0 to
Amendment No. 1 to the Company's Form SB-2 filed with the Securities
and Exchange Commission on February 25, 1997 (File No. 333-18243).
*10.11. Form of Underwriting Agreement, incorporated by reference to
Exhibit 2.0 to Amendment No. 1 to the Company's Form SB-2 filed with
the Securities and Exchange Commission on February 25, 1997 (File No.
333-18243).
*10.12. Stock Option Grant Agreement between the Company and Phillip D.
Schwiebert made as of November 8, 1996, incorporated by reference to
Exhibit 10.20 to the Company's Form 10-KSB filed with the Securities
and Exchange Commission for the fiscal year ended December 31, 1996
(File No. 0-13324).
*10.13. Stock Purchase Agreement between Questron Technology, Inc. and
the shareholders of California Fasteners, Inc. dated August 29, 1997,
incorporated by reference to Exhibit 2.0 to the Company's Form 8-K,
filed October 7, 1997 (File No. 0-13324).
*10.14. Serial Put Agreement between Questron Technology, Inc. and
Douglas D. Zadow and Terry Bastian dated September 22, 1997,
incorporated by reference to Exhibit 2.1 to the Company's Form 8-K,
filed October 7, 1997 (File No. 0-13324).
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<PAGE>
*10.15. 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).
*10.16. Stock Purchase Agreement, dated as of June 12, 1998, by and
between the Company, Gregory Fitzgerald, Valerie Fitzgerald and
Fas-Tronics, Inc. (the "Fas-Tronics Stock Purchase Agreement"),
incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-QSB for the three-month period ended June 30, 1998
filed with the Securities and Exchange Commission on August 14, 1998
(File. No. 0-13324).
*10.17. Letter Agreement, dated July 29, 1998, by and between the
Company, Fortune Industries, Inc. and the Stockholders listed on
Schedule 1.1 to the Fortune Stock Purchase Agreement, incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on Form
10-QSB for the three-month period ended June 30, 1998 filed with the
Securities and Exchange Commission on August 14, 1998 (File. No.
0-13324).
*10.18. 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 filed with the Securities and Exchange Commission
on August 14, 1998 (File No. 0-13324).
*10.19. 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).
+10.20. Settlement Agreement dated as of March 1, 2000, is entered into
by and among Questron Technology, Inc., a Delaware corporation,
Gregory Fitzgerald and Valerie Fitzgerald
*10.21. 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).
*10.22. 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 with the Securities and Exchange Commission on November
6, 1998 (File No. 0-13324).
*10.23. 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 signatures which is a signatory thereto,
Congress Financial Corporation (Florida), as administrative agent, and
Madeleine L.L.C., as collateral agent, incorporated by reference to
Exhibit 10.17 to the Company's Quarterly Report on Form 10-QSB for the
three-month period ended September 30, 1998, filed with the Securities
and Exchange Commission on November 16, 1998 (File No. 0-13324).
78
<PAGE>
*10.24. Amendment Number One to the Loan and Security Agreement, dated
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 signatures which is a signatory
thereto, Congress Financial Corporation (Florida), as administrative
agent and Madeleine L.L.C., as collateral agent, incorporated by
reference to Exhibit 10.18 to the Company's Quarterly Report on Form
10-QSB for the three-month period ended September 30, 1998, filed with
the Securities and Exchange Commission on November 16, 1998 (File No.
0-13324).
*10.25. Asset Purchase Agreement, dated as of January 29, 1999, by and
between the Company, Questron Distribution Logistics, Inc. and AFCOM,
Inc., and each of the persons listed on Schedule 1.1 thereto and
signatory thereto, incorporated by reference to Exhibit 10.19 to the
Company's Quarterly Report on Form 10-Q for the three month period
ended March 31, 1999 (File No. 0-13324).
*10.26. Asset Purchase Agreement, dated as of March 11, 1999, by and
between Questron Technology, Inc., Questron Distribution Logistics,
Inc., and Metro Form Corporation, d.b.a. Olympic Fasteners & Electronic
Hardware, and each of the persons listed on Schedule 1.1 thereto and
signatory thereto (the "Olympic Purchase Agreement"), incorporated by
reference to Exhibit 10.20 to the Company's Quarterly Report on Form
10-Q for the three-month period ended March 31, 1999 (File No.
0-13324).
*10.27. Amendment to the Olympic Purchase Agreement, dated June 28, 1999,
incorporated by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
+10.28. Settlement Agreement in Connection with the Acquisition of
Olympic dated as of March 7, 2000, by and among Questron Finance Corp.,
a Delaware corporation (ii) Questron Technology, Inc., a Delaware
corporation and Sheldon Enterprises, Inc (James Mraz as notified
party).
+10.29. Settlement Agreement in Connection with the Acquisition of
Olympic dated as of March 7, 2000, by and among Questron Finance Corp.,
a Delaware corporation (ii) Questron Technology, Inc., a Delaware
corporation and Sheldon Enterprises, Inc (Rudolph M. Petric as notified
party).
*10.30. Stock Purchase Agreement, dated as of April 26, 1999, between
Questron Distribution Logistics, Inc., Questron Technology, Inc., James
R. Gilchrist and Capital Fasteners, Inc. (the "Capital Purchase
Agreement"), incorporated by reference to Exhibit 2.3 to the Company's
Current Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
*10.31. Amendment to the Capital Purchase Agreement, dated June 25, 1999,
incorporated by reference to Exhibit 2.4 to the Company's Current
Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
+10.32. Settlement Agreement in Connection with Capital Acquisition dated
as of March 7, 2000, by and among Questron Finance Corp., a Delaware
corporation, Questron Technology, Inc., a Delaware corporation and
James R. Gilchrist, Trustee of James R. Gilchrist Revocable Trust Under
Agreement Dated June 25, 1999.
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<PAGE>
+10.33. Settlement Agreement in Connection with Capital Acquisition dated
as of March 7, 2000, by and among Questron Finance Corp., a Delaware
corporation, Questron Technology, Inc., a Delaware corporation and
James R. Gilchrist.
*10.34. Letter Agreement, dated as of June 29, 1999, amending the Capital
Purchase Agreement, incorporated by reference to Exhibit 2.5 to the
Company's Current Report on Form 8-K, dated June 30, 1999 (File No.
0-13324).
*10.35. Stock Purchase Agreement, dated as of May 7, 1999, by and between
Questron Technology, Inc, Questron Distribution Logistics, a Delaware
corporation, Action Threaded Products, Inc. and the persons signatory
thereto (the "Action Purchase Agreement"), incorporated by reference to
Exhibit 2.6 to the Company's Current Report on Form 8-K, dated June 30,
1999 (File No. 0-13324).
*10.36. Letter Agreement, dated as of June 29, 1999, amending the Action
Purchase Agreement, incorporated by reference to Exhibit 2.7 to the
Company's Current Report on Form 8-K, dated June 30, 1999 (File No.
0-13324).
+10.37. Settlement Agreement in Connection with the Action Acquisition
dated as of March 7, 2000, by and among Questron Finance Corp., a
Delaware corporation, Questron Technology, Inc., a Delaware corporation
and Gerald H. Ablan.
+10.38. Settlement Agreement in Connection with the Action Acquisition
dated as of March 7, 2000, by and among Questron Finance Corp., a
Delaware corporation, Questron Technology, Inc., a Delaware corporation
and Robert A. Lehman.
+10.39. Settlement Agreement in Connection with the Action Acquisition
dated as of March 7, 2000, by and among Questron Finance Corp., a
Delaware corporation, Questron Technology, Inc., a Delaware corporation
and William P. Hackett.
+10.40. Settlement Agreement in Connection with the Action Acquisition
dated as of March 7, 2000, by and among Questron Finance Corp., a
Delaware corporation, Questron Technology, Inc., a Delaware corporation
and Charles W. Gozder.
*10.41. Securities Purchase Agreement (identical agreement executed
separately with each of four purchasers), dated as of June 29, 1999, by
and between Questron Technology, Inc., Questron Operating Company,
Inc., and, separately, each of Albion Alliance Mezzanine Fund, L.P.,
Alliance Investment Opportunities Fund, L.L.C., The Equitable Life
Assurance Society of the United States and IBJ Whitehall Bank & Trust
Company, incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
*10.42. Note Agreement, dated as of June 29, 1999, among Questron
Operating Company, Inc. and Albion Alliance Mezzanine Fund, L.P.,
Alliance Investment Opportunities Fund, L.L.C., The Equitable Life
Assurance Society of the United States and IBJ Whitehall Bank & Trust
Company, incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
*10.43. Investors Rights Agreement, dated as of June 29, 1999, among
Questron Technology, Inc. and Albion Alliance Mezzanine Fund, L.P.,
Alliance Investment Opportunities Fund, L.L.C., The Equitable Life
Assurance Society of the United States and IBJ Whitehall Bank & Trust
80
<PAGE>
Company, incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
*10.44. Unconditional Guaranty, dated as of June 30, 1999, by Questron
Technology, Inc., Questron Finance Corp., Questron Distribution
Logistics, Inc., Integrated Material Systems, Inc., Power Components,
Inc., Fortune Industries, Inc., Fas-Tronics, Inc., California
Fasteners, Inc., Comp Ware, Inc., Action Threaded Products, Inc.,
Action Threaded Products of Georgia, Inc., Action Threaded Products of
Minnesota, Inc. and Capital Fasteners, Inc., in favor of each of Albion
Alliance Mezzanine Fund, L.P., Alliance Investment Opportunities Fund,
L.L.C., The Equitable Life Assurance Society of the United States and
IBJ Whitehall Bank & Trust Company, incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K, dated June
30, 1999 (File No. 0-13324).
*10.45. Amended and Restated Loan and Security Agreement, dated as of
June 29, 1999, by and between Questron Technology, Inc. and its
subsidiaries and Congress Financial Corporation (Florida) and Ableco
Finance LLC, incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, dated June 30, 1999 (File No. 0-13324).
*10.46. Amendment Number One to Amended and Restated Loan and Security
Agreement, dated as of October 1, 1999, by and among Questron
Technology, Inc., certain of its direct and indirect Subsidiaries
identified therein, each of the Lenders signatory thereto, Congress
Financial Corporation and Ableco Finance LLC, "), incorporated by
reference to Exhibit 10.26 to the Company's Quarterly Report on Form
10-Q for the three month period ended September 30, 1999 (File No.
0-13324).
*10.47. Amendment to Note Agreement, dated as of September 29, 1999, by
and among Questron Operating Company, Inc. and Albion Alliance
Mezzanine Fund, L.P., Alliance Investment Opportunities Fund, LLC, The
Equitable Life Assurance Society of the United States and IBJ Whitehall
Bank & Trust Company "), incorporated by reference to Exhibit 10.27 to
the Company's Quarterly Report on Form 10-Q for the three month period
ended September 30, 1999 (File No. 0-13324).
+21.1. Subsidiaries of the Company, as amended.
+23.1. Consent of Ernst & Young L.L.P., dated March 29, 2000.
+23.2. Consent of Moore Stephens, P.C., dated March 29, 2000.
+27. Financial Data Schedule.
* previously filed
+ filed herewith
81
<PAGE>
Exhibit 21.1
QUESTRON TECHNOLOGY, INC.
EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT
AT MARCH 31, 1999
<TABLE>
<CAPTION>
Name of Subsidiary Date of State of
Incorporation Incorporation
--------------------------------------------------------- -------------------------- -------------------------
<S> <C> <C>
Questron Distribution Logistics, Inc., formerly
Quest Electronic Hardware, Inc. October 12, 1994 Delaware
Questnet Components, Inc. February 13, 1996 Delaware
CompWare, Inc. d/b/a Webb Distribution November 21, 1994 Delaware
Power Components, Inc. July 17, 1997 Pennsylvania
Integrated Material Systems, Inc. January 14, 1997 Arizona
California Fasteners, Inc. August 17, 1973 California
Fas-Tronics, Inc. February 12, 1985 Texas
Fortune Industries, Inc. March 10, 1964 Texas
Capital Fasteners, Inc. May 29, 1985 North Carolina
Action Threaded Products, Inc. July 12, 1971 Illinois
B&G Supply Company, Inc. October 5, 1989 Texas
</TABLE>
82
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
AGREEMENT dated as of October 1, 1999, between Questron
Technology, Inc., a Delaware corporation (referred to herein as "Employer" or
"Questron"), and Robert V. Gubitosi ("Executive").
W I T N E S S E T H
WHEREAS, the Employer desires to retain the services of
Executive and Executive desires to be employed by Employer upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual undertakings and agreements contained herein, Employer and Executive
agree as follows:
1. EMPLOYMENT. Employer hereby employs Executive, and
Executive hereby agrees to serve as President and Chief Financial Officer of
Employer, or in such other senior executive positions as shall be assigned to
Executive by Employer's board of directors with Executive's consent during the
Term of Employment (as hereinafter defined). Executive further agrees to use his
best efforts to promote the interests of Employer and to devote all his business
time and energies to the business and affairs of Employer during the Term of
Employment.
2. TERM OF EMPLOYMENT. Unless earlier terminated pursuant to
Paragraph 7 hereof, the employment hereunder shall commence as of October 1,
1999 and shall end on June 30, 2003 (the "Term of Employment").
3. COMPENSATION. As compensation for services hereunder and in
consideration of the covenants set forth in Paragraph 4 hereof, during the Term
of Employment Executive shall be compensated as follows:
(a) BASE SALARY. Effective October 1, 1999 and during
the Term of Employment, Employer shall pay Executive a base salary at
the rate of Two Hundred and Fifty Thousand Dollars ($250,000) per
annum. Such salary shall be payable in appropriate installments to
conform to the regular payroll dates for salaried personnel of
Employer. The base salary of the Executive shall be reviewed annually
by the Employer's board of directors or compensation committee of the
board who may, in their sole discretion, approve an increase to the
Executive's base salary.
(b) BONUSES. Employer shall pay Executive annual
bonuses as follows (i) a discretionary bonus of up to Fifty Thousand
Dollars ($50,000), to be determined by the board of directors or
compensation committee of the board in their sole discretion; and (ii)
an additional bonus of up to $50,000 based upon attaining
<PAGE>
targeted increases in diluted earnings per share as mutually agreed
upon at the beginning of each year by the Executive and the board of
directors or compensation committee of the board.
(c) EXPENSES. Employer shall provide Executive with a
car allowance of $1,300 per month. Employer shall also reimburse
Executive for all reasonable out-of-pocket expenses incurred in
connection with rendering services hereunder in accordance with
Employer's customary policies, including without limitation,
reimbursement of travel expenses for business purposes and
reimbursement of Executive's cellular telephone expenses.
(d) FRINGE BENEFITS. Executive shall be eligible to
participate in and to receive benefits under any pension plan,
profit-sharing plan, savings plan, stock option/savings plan, ESOP,
life insurance, health and accident plan or arrangement made available
by Employer to its senior executives and key management employees
generally, subject to and on a basis consistent with the terms,
conditions and overall administration of each such plan or arrangement;
provided, however, that with respect to any plan or arrangement under
which participation is at the discretion of a committee or other body
administering such plan or arrangement, nothing contained herein shall
entitle Executive to participate in such plan or arrangement to be paid
for by the Employer. Nothing paid to Executive under any plan or
arrangement presently in effect or made available in the future shall
be deemed to be in lieu of compensation to Executive hereunder, and
nothing paid to Executive hereunder shall be deemed to be in lieu of
any payment to which Executive may be entitled under any such plan or
arrangement.
(e) VACATION. Executive shall be entitled to four (4)
weeks of paid vacation days in each calendar year during the Term of
Employment. In the event that Executive is employed hereunder during a
calendar year for less than all of that year, he shall be entitled in
that year to a number of paid vacation days which shall be prorated in
accordance with the number of days on which he is so employed in that
year. Executive shall also be entitled to all paid holidays given by
Employer to its senior executive officers during the Term of
Employment.
4. COVENANT NOT TO COMPETE; INTELLECTUAL PROPERTY;
CONFIDENTIALITY.
(a) COVENANT NOT TO COMPETE. Executive acknowledges
that in consideration of the Employer entering into this Agreement,
Executive is simultaneously executing and delivering to Employer the
attached letter (the "Restrictive Letter") containing certain covenants
relating to his conduct during and after the Term of Employment.
Notwithstanding the provisions of the Restrictive Letter, during the
Term of Employment Executive will not manage, operate, control,
2
<PAGE>
be employed by or participate in the ownership, management operation or
control of, or be connected in any manner with, any business of the
type and character engaged in and competitive with that to be conducted
by Employer. The decision of Employer's board of directors as to what
constitutes a competing business shall be final and binding upon
Executive. For these purposes, Executive's service as a director of or
his ownership of 1% or less of any class of securities of a public
company shall not be considered to be competition with Employer.
(b) INTELLECTUAL PROPERTY. Executive agrees that all
ideas, sketches, designs, prototypes, samples, patterns, and related
work product developed by him during the Term of Employment which
relate directly or indirectly to the business of Employer or any of its
subsidiaries or affiliates are work-for-hire and will be the property
of Employer and that he will, at Employer's request and cost, do
whatever is reasonably necessary to secure the rights thereto to
Employer.
(c) CONFIDENTIALITY. Except as required pursuant to a
court order or applicable law, Executive agrees that he will not
divulge to anyone (other than Employer or any persons employed or
designated by Employer) any knowledge or information of any type
whatsoever of a confidential nature relating to the business of
Employer or any of its subsidiaries or affiliates, including, without
limitation, all types of trade secrets. Executive further agrees not to
disclose, publish or make use of any such knowledge or information of a
confidential nature without the prior written consent of Employer.
5. BREACH BY EXECUTIVE. Both parties hereto recognize that the
services to be rendered under this Agreement by Executive are special,
unique and extraordinary in character, and that in the event of the
breach by Executive of the terms and conditions of this Agreement or
the Restrictive Letter to be performed by him, then Employer shall be
entitled, if it so elects, to institute and prosecute proceedings in
any court of competent jurisdiction, either in law or in equity, to
obtain damages for any breach of this Agreement or of the Restrictive
Letter, or to enforce the specific performance thereof by Executive, or
to enjoin Executive from performing services for another person, firm
or corporation in violation of this Agreement or the Restrictive
Letter. If any of the restrictive covenants set forth in this Agreement
or in the Restrictive Letter are held to be unenforceable because of
the duration or scope of any such covenant, the parties hereto agree
that the duration or scope of such provision shall be reduced to the
maximum scope permitted by law, and, in its reduced form, shall be
enforceable.
6. INDEMNIFICATION. The Employer agrees to indemnify the
Executive to the fullest extent permitted by Delaware law for any and
all liabilities to which he may be subject as a result of his
employment hereunder (and as a result of his services as an officer or
director of the Employer, or as an officer or director of any of
3
<PAGE>
its subsidiaries or affiliates), as well as the costs of any legal
action brought or threatened against him as a result of such
employment, to the fullest extent permitted by law.
7. TERMINATION.
(a) GENERAL. The employment of Executive hereunder
shall terminate as provided in Paragraph 2 hereof and may be sooner
terminated in accordance with the provisions of this Paragraph 7.
(b) DEATH OR DISABILITY OF EXECUTIVE. The employment
of Executive hereunder shall terminate upon (i) the death of Executive;
and (ii) at the option of Employer, upon not less than thirty (30)
days' prior written notice to Executive or his legal representative, in
the event that Executive becomes disabled. Executive shall be deemed to
be disabled if by reason of physical or mental incapacity or
disability, he is unable to render the services to be rendered by him
pursuant to this Agreement for a continuous period of ninety (90)
successive days or for shorter periods aggregating one hundred twenty
(120) days or more during any twelve (12) successive months (the advice
of a reputable physician mutually acceptable to Employer and Executive
as to the existence of any such incapacity or disability to be final
and binding upon the parties).
(c) TERMINATION FOR CAUSE. The employment of the
Executive under this Agreement shall terminate for cause upon delivery
to the Executive of notice in writing from Employer of termination of
the Executive's employment for cause. Cause shall mean (i) any willful
or grossly negligent act or failure to act by the Executive that causes
material harm to Employer; any fraud by Executive upon the Employer;
the conviction by the Executive or the plea of nolo contendere by the
Executive, with respect to any felony; (ii) the Executive's habitual
absenteeism, chronic alcoholism or other form of chemical addiction; or
(iii) any material breach by the Executive of the Executive's
obligations under this Agreement which remain uncured thirty (30) days
after receipt of notice from Employer of such breach.
(d) EFFECT OF TERMINATION ON SALARY AND BENEFITS. If
Executive's employment is terminated under Paragraph 7(a), (b) or (c)
hereof, Employer shall have no further obligation to Executive
hereunder other than as provided by this subparagraph (d) but the
restrictions on the Executive's activities contained in Paragraph 4 and
the obligations of Executive contained in the Restrictive Letter shall
continue in effect as provided therein. In the event that the
Executive's employment hereunder is terminated by Employer other than
pursuant to Paragraph 7(a), (b) or (c) hereof, prior to the end of the
Term of Employment, then Employer shall be obligated to pay Executive
all salary and benefits (excluding any unpaid bonuses for this purpose)
in installments through the remainder of the Term of Employment;
PROVIDED, HOWEVER,
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if Executive is in breach of the Restrictive Letter at any time, the
Employer shall have no further obligation to pay salary to Executive.
For purposes of the immediately preceding sentence, Executive will also
be treated as having been terminated by Employer other than pursuant to
Paragraph 7(a), (b) or (c), after a Change in Control of Employer (as
that term is defined in Paragraph 7(e)), occurs, and Executive is
assigned duties materially inconsistent with Executive's positions as
described in Paragraph 1 hereof or there is any significant diminution
in Executive's duties or responsibilities, other than in connection
with the termination of Executive's employment for Cause or disability.
In the event of a termination of Executive's employment by the Company
pursuant to Paragraph 7(a), (b) or (c) or by Executive, Executive's
entitlement to salary and benefits shall cease as of the effective date
of termination and Executive shall be entitled to all salary and
benefits (excluding any unpaid bonuses) accrued but unpaid as of the
date of termination.
(e) CHANGE IN CONTROL. For purposes of this
Agreement, the term "Change of Control" shall mean the occurrence of
any of the following events: (i) any "person" as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange of 1934, as amended
(the "Exchange Act"), other than a trustee or other fiduciary holding
securities under an employee benefit plan of Employer or any subsidiary
or affiliate of Employer or any stockholder (and such stockholder's
affiliates) as of the date hereof and direct transferees thereof,
becomes, after the date hereof, the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of the
securities of Employer representing 50.1% or more of the total voting
power represented by Employer's then outstanding securities that vote
generally in the election of directors ("Voting Securities"); or (ii)
the merger or consolidation of Employer with any other corporation,
other than a merger or consolidation in which the Voting Securities of
Employer outstanding immediately prior thereto continue to represent
(either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least a majority of the total
voting power of the surviving entity, or the sale (in one transaction)
of all or substantially all of the assets of Employer, other than to a
subsidiary or affiliate of Employer.
8. ASSIGNMENT. This Agreement is a personal contract,
and except as specifically set forth herein, the rights and interests
of Employer and Executive herein may not be sold, transferred,
assigned, pledged or hypothecated. The rights and obligations of
Employer hereunder shall be binding upon and run in favor of the
successors of Employer as a result of the sale, merger or
reorganization of Employer or Employer's present corporation, subject
to Executive's rights set forth in Paragraph 7(d).
9. GOVERNING LAW: CAPTIONS: CONSENT TO JURISDICTION.
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(a) This Agreement contains the entire agreement
between the parties hereto, supersedes any prior agreements relating to
the employment of the Executive and shall be governed by the laws of
the State of Florida. It may not be changed orally, but only by
agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought. Section
headings are for convenience of reference only and shall not be
considered a part of this Agreement.
(b) Each of the parties hereby irrevocably and
unconditionally consent to the exclusive jurisdiction of the courts of
the State of Florida and the United States District Court for the
District of Florida for any action, suit or proceeding arising out of
or relating to this Agreement, or the transactions contemplated hereby,
and agrees not to commence any action, suit or proceeding related
thereto except in such courts. Each of the parties further hereby
irrevocably and unconditionally waive any objection to laying of venue
of any lawsuit, claim or other proceeding arising out of or related to
this Agreement in the courts of the State of Florida or the United
States district Court for the District of Florida, 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 Florida. Each
of the parties further agree that service of any process, summons,
notice or document by U.S. registered mail to its address set forth
below 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 attorney's fees and court
costs from the other party hereto.
10. NOTICES. Any notices or other communications required or
permitted hereunder shall be in writing and shall be deemed to be duly
given if personally delivered, or, if mailed (by certified or
registered mail, return receipt requested) or if delivered by a
nationally recognized-overnight mail or courier service, to the party
at its address set forth below:
If to Executive:
Robert V. Gubitosi
18540 Long Lake Drive
Boca Raton, FL 33496
If to Employer:
Questron Technology, Inc.
6400 Congress Avenue
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Suite 200A
Boca Raton, FL 33487
With a copy to:
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attn: Luke P. Iovine, III, Esq.
11. RIGHT TO WITHHOLD/REPORT. Employer shall have the right to
withhold from Executive's salary and other compensation hereunder and
to report to appropriate federal, state and local taxing authorities
all amounts required to be withheld or reported, including such amounts
in respect of any compensation deemed paid to Executive under federal,
state and local tax laws.
[SIGNATURE PAGE TO IMMEDIATELY FOLLOW]
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IN WITNESS WHEREOF, Employer has by its duly authorized
officer signed this Agreement and Executive has signed this Agreement, as of the
day and year first above written.
EXECUTIVE QUESTRON TECHNOLOGY, INC.
________________________ By:_____________________________
ROBERT V. GUBITOSI Title:__________________________
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RESTRICTIVE COVENANT
October 1, 1999
Questron Technology, Inc.
6400 Congress Avenue
Suite 200A
Boca Raton, FL 33487
Gentlemen:
This will confirm my agreement with Questron Technology, Inc. (the
"Company", which term for purposes of this letter shall include all of the
Company's successor, subsidiary and affiliated companies).
1. In consideration of my employment, I agree that while I am in the
Company's employ, and for two years thereafter (provided that the
Company elects to pay me a consulting and non-competition fee of
$100,000 per year in equal quarterly installments in arrears, which
Executive cannot waive), I will not, directly or indirectly:
(a) Persuade or attempt to persuade any customer of the
Company to cease doing business with the Company, or
to reduce the amount of business it does with the
Company;
(b) Persuade or attempt to persuade any potential
customer to which the Company has made a sales
presentation, not to purchase the Company's products;
(c) Solicit for myself or any person other than the
Company the business of any person or entity which is
a customer of the Company, or was its customer within
two years prior to the termination of my employment;
(d) Persuade or attempt to persuade any employees of the
Company, or any individual who was its employee
during the two years prior to my termination of
employment, to leave the Company's employ, or to
become employed by any person other than the Company;
(e) Perform any service for any person other than the
Company in connection with the design or development
of any product, which competes, with a product of the
Company; and
(f) Work for any other firm, corporation, partnership or
other entity, which compete with the Company.
<PAGE>
2. I also agree that during my employment by the Company, or at any
time thereafter, I will not disclose or use any confidential or secret
information relating to the Company or any of its products, designs,
processes or operations.
3. If I violate any of the terms outlined above, I agree that the
Company, in addition to any other rights it may have, shall be entitled
to injunctive relief.
Very truly yours,
Robert V. Gubitosi
<PAGE>
Exhibit 10.5
THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR UNDER 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.
QUESTRON TECHNOLOGY, INC.
NON-STATUTORY STOCK OPTION AGREEMENT
I. GRANT OF OPTION
Questron Technology, Inc., a Delaware corporation (the "Company" or
"Questron") hereby grants to Malcolm Tallmon (the "Optionee"), an option to
purchase an aggregate of 37,500 shares of common stock, par value $0.001 per
share ("Common Stock"), of the Company at a price of $3.625 per share (the
"Exercise Price per Share"), purchasable as set forth in and subject to the
terms and conditions of this Option Agreement.
II. EXERCISE OF OPTION AND PROVISIONS FOR TERMINATION
A. VESTING OF OPTION. The Option shall vest in its entirety on the
date hereof.
B. EXERCISABILITY OF OPTION. All Options are vested and are immediately
exercisable. Notwithstanding the foregoing, the Option shall not be exercisable
unless such exercise is in compliance with the Act, all other applicable laws
and regulations (including state securities laws) and the requirements of any
securities exchange or interdealer quotation system on which the shares of
Common Stock may be listed or included for quotation.
C. EXPIRATION DATE. Except as otherwise provided in this Option
Agreement, the Option may not be exercised after May 7, 2000
D. EXERCISE PROCEDURE. Subject to the conditions set forth in this
Agreement, the Option shall be exercised by the Optionee's delivery of a written
Notice of Exercise to the Secretary of the Company in the form attached hereto.
The Optionee may not purchase less than the total number of shares of Common
Stock covered hereby.
<PAGE>
III. PAYMENT OF EXERCISE PRICE; RESTRICTIONS ON EXERCISE.
Payment of the Exercise Price per Share for the shares of Common Stock
purchased upon exercise of the Option (the "Option Shares") shall be made by
delivery to the Company of the Exercise Price, payable as follows: (i)
$28,776.44 in cash (by certified check) on or before the time of exercise, and
(ii) delivery to the Company of an executed Release as set forth in the form of
Notice of Exercise attached hereto.
IV. DELIVERY OF SHARES.
The Company shall, upon payment of the Exercise Price per Share for
Option Shares paid for, make prompt delivery of such Option Shares to the
Optionee. No Option Shares shall be issued and delivered upon exercise of an
Option unless and until, in the option of counsel for the Company, any
applicable registration requirements of the Act, any applicable listing
requirements of any national securities exchange or interdealer quotation system
on which stock of the same class is then traded or included for quotation, and
any other requirements of law, including state securities laws, or of any
regulatory bodies having jurisdiction over such issuance and delivery, shall
have been fully complied with. As a condition to the exercise of this Option,
the Company may require the Optionee to make such representations and warranties
to the Company as may be required to determine whether such exercise would
constitute a violation of any applicable law or regulation. If it is determined
pursuant to this Section IV that an Option may not be exercised, then the
Company must return to the Optionee, within one business day, any payment made
by the Optionee to the Company with respect to such Option.
V. NON-TRANSFERABILITY OF OPTION.
The Options are personal and no rights granted hereunder may be
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise), except by will or the laws of descent and distribution,
nor shall an such rights be subject to execution, attachment or similar process.
Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose
of an Option or of such rights contrary to the provisions hereof, or upon the
levy of any attachment or similar process upon any Option or such rights, this
Option Agreement and such rights shall, at the election of the Company, become
null and void.
VI. RIGHTS AS A STOCKHOLDER.
The Optionee shall have no rights as a stockholder with respect to any
Option Shares unless and until a certificate representing such shares is duly
issued to the Optionee. No adjustment shall be made for dividends or other
rights for which the record date is prior to the date on such stock certificate.
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VII. RECAPITALIZATION.
In the event that the outstanding shares of Common Stock of the Company
are changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split, stock dividend, combination or subdivision, an appropriate and
proportionate adjustment may be made in the number and kind of shares and in the
number, kind, and per share exercise price, of shares subject to unexercised
Option or portions thereof granted prior to such adjustment.
VIII. REORGANIZATION.
In the event that (i) there is a reorganization or liquidation of the
Company, prior to the expiration date of the Option or termination of this
Option Agreement, the Company shall, with respect to the Option or any
unexercised portion hereof, as to outstanding Options, either (x) in the case of
a merger, consolidation or reorganization of the Company, make appropriate
provision for the protection of any such outstanding Options by the substitution
on an equivalent basis of appropriate stock of the Company, or of the merged,
consolidated or otherwise reorganized corporation that will be issuable in
respect of the shares of Common Stock of the Company (provided that no
additional benefits shall be conferred upon Optionee as a result of such
substitution), or (y) upon written notice to the Optionee, provide that all
unexercised Options must be exercised within a specified number of days of the
date of such notice or they will be terminated, or (z) upon written notice to
the Optionee, provide that all unexercised Options shall be purchased by the
Company or its successor within a specified number of days of the date of such
notice at a purchase price equal to the difference between the aggregate
Exercise Price per Share of the Option over the Book Value per Share (as of any
date means the book value per share of Common stock as of such date, as
reflected in the regularly prepared consolidated financial statements of the
Company prepared in accordance with generally accepted accounting principles
consistently applied) of the shares of Common Stock underlying the Option as of
the close of business on the last day of the fiscal year of the Company
immediately preceding the purchase or fair market value, calculated on the basis
of the average last reported sale price for the Company's Common Stock for the
five (5) trading days ending on the third trading day immediately prior to such
date, whichever is greater. Any Option or portion thereof purchased by the
Company in this manner shall be canceled and shall have no further force or
effect.
IX. WITHHOLDING TAXES.
The Company's obligation to deliver shares upon the exercise of an
Option shall be subject to the Optionee's satisfaction of all applicable
federal, state and local income and employment tax withholding requirements with
respect to the Option.
X. OPTIONEE REPRESENTATIONS; LEGEND
A. REPRESENTATIONS. The Optionee
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(i) represents and warrants that the Option and any Option
Shares (together, 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 the Company (which the
Optionee 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 Optionee to
liquidate its investment in the Securities, and agrees not to sell,
assign or otherwise transfer or dispose of the Securities unless such
Securities have been so registered or an exemption from registration is
available;
(iv) acknowledges that all documents, records and books
pertaining to the Company and its business, including, but not limited
to, the following documents which have been provided to, and reviewed
by, the Optionee: (a) the Company's Annual Reports on Form 10-KSB for
the fiscal years ended December 31, 1996, 1997 and 1998, (b) the
Company's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999 and March
31, 1998, (c) the Company's Proxy Statement, dated October 1, 1999,
relating to itsAnnual Meeting of Shareholders, and (d) the Company's
Form 8-K and Form 8-K/A dated July 14, 1999 and August 13, 1999,
respectively, have been made available to the Optionee and the
Optionee's attorney and/or accountant and/or representative. The
Optionee has had an opportunity to ask questions and receive answers
from the Company concerning the business and assets of and all such
questions have been answered to the full satisfaction of the Optionee;
and
(v) represents and warrants that it is an accredited investor,
as that term is defined in Regulation D under the Act.
B. LEGEND ON STOCK CERTIFICATE. The Optionee understands that, the
Option Shares not have been registered under the Act nor the securities laws of
any state. Accordingly, unless all such registrations are then in effect, all
stock certificates representing Option Shares shall have affixed thereto a
legend substantially in the following form, in addition to any other legends
required by applicable state law:
"THE SECURITIES PRESENTED 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
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UNDER THE ACT, (II) 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."
XI. REGISTRATION OF OPTION SHARES.
A. REGISTRATION STATEMENT.
(i) Within 90 days of the date hereof, Questron shall prepare
and file under the Act with the Securities and Exchange Commission a
registration statement with respect to the Option Shares and use its
reasonable best efforts to cause such registration statement to become
effective.
(ii) Questron shall notify the Optionee of the effectiveness
of the registration statement filed hereunder and prepare and file with
the Securities and Exchange Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for a period of not less than 180 days and comply with the
provisions of the Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance
with the intended methods of disposition by the Optonee set forth in
such registration statement.
(iii) Questron will use its reasonable best efforts to
register or qualify such Option Shares under such other securities or
blue sky laws of such jurisdictions as the Optionee reasonably requests
(provided Questron shall not be required to (a) qualify generally to do
business in any jurisdiction where it would not otherwise be required
to qualify but for this subparagraph, (b) subject itself to taxation in
any such jurisdiction or (c) consent to general service of process in
any such jurisdiction).
(iv) Questron shall notify the Optionee at any time when a
prospectus relating thereto is required to be delivered under the Act
as amended, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of the Optionee,
Questron shall prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Option Shares,
such prospectus shall not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statements therein
not misleading.
(v) Questron shall cause the Option Shares to be listed on
each securities exchange on which similar securities issued by Questron
are then listed.
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(vi) Questron may postpone or suspend for up to 180 days the
filing or the effectiveness of a registration statement if the
Questron=s board of directors determines in its reasonable good faith
judgment that such filing or effectiveness would reasonably be expected
to have a material adverse effect on any proposal or plan by Questron
or any of its subsidiaries to engage in any acquisition of assets
(other than in the ordinary course of business) or any merger,
consolidation, tender offer, reorganization or similar transaction or
any financing transaction.
B. REGISTRATION EXPENSES. All expenses incident to the Questron=s
performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, fees and disbursements of custodians,
and fees and disbursements of counsel for Questron and all independent
certified public accountants, underwriters (excluding discounts and
commissions) and other persons retained by Questron, shall be borne by
Questron All brokerage commissions or similar selling expenses in
connection with the sale by the Optionee of the Option Shares shall be
borne by the Optionee.
C. INDEMNIFICATION.
(i) Questron agrees to indemnify, to the extent permitted by
law, the Optionee against all losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any
information furnished in writing to Questron by the Optionee expressly
for use therein or by the Optionee's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements
thereto after Questron has furnished the Optionee with a sufficient
number of copies of the same.
(ii) The Optionee shall furnish to Questron in writing such
information and affidavits as Questron reasonably requests for use in
connection with the registration statement or prospectus and, to the
extent permitted by law, shall indemnify Questron, its directors and
officers and each person who controls the Company (within the meaning
of the Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue or alleged untrue statement of
material fact contained in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto
or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or
omission is contained in any information or affidavit so furnished in
writing by the Optionee; provided that the obligation to indemnify
shall be limited to the
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net amount of proceeds received by the Optionee from the sale of Option
Shares pursuant to such registration statement.
(iii) Any party entitled to indemnification hereunder shall
(a) give prompt written notice to the indemnifying party of any claim
with respect to which it seeks indemnification (provided that the
failure to give prompt notice shall not impair any party's right to
indemnification hereunder to the extent such failure has not prejudiced
the indemnifying party) and (b) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party shall not be subject to any liability
for any settlement made by the indemnified party without its consent
(but such consent shall not be unreasonably withheld). An indemnifying
party who is not entitled to, or elects not to, assume the defense of a
claim shall not be obligated to pay the fees and expenses of more than
one counsel for all parties indemnified by such indemnifying party with
respect to such claim.
XII. MISCELLANEOUS
Except as provided herein, this Option Agreement may not be amended or
otherwise modified unless evidenced in writing and signed by the Company and the
Optionee.
All notices under this Option Agreement shall, unless otherwise
provided herein, be mailed or delivered by hand to the parties at their
respective addresses set forth beneath their names below or at such other
address as may be designated in writing by either of the parties to the other.
This Option Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to the conflicts of laws
provisions.
This Option Agreement shall be binding upon and inure to the heirs,
successors and assigns of the Optionee (subject, however, to the limitations set
forth herein with respect to assignment of the Option or rights therein) and the
Company.
Date: March 6, 2000 QUESTRON TECHNOLOGY, INC.
____________________________________________
By: Dominic A. Polimeni
Title: Chairman and Chief Executive Officer
Address: 6400 Congress Avenue
Suite 2000
Boca Raton, Florida 33487
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OPTIONEE
_____________________________________
Malcolm Tallmon
Address: c/o Fortune Industries, Inc.
3408 South Jones
Fort Worth, Texas 76110
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NOTICE OF EXERCISE
Questron Technology, Inc.
Date of Exercise: _______________
Ladies and Gentlemen:
This constitutes notice under the nonstatutory stock option dated March
6, 2000 (the "Option") that I elect to purchase the number of shares for the
price set forth below.
Number of shares as
to which option is exercised: 37,500
Certificate to be
issued in name of: MALCOLM TALLMON
Total exercise price: $135,937.50
Cash payment delivered
herewith: $28,776.44
Additional consideration delivered herewith: The Release below below
Value of Release $107,161.06
RELEASE
In payment of $107,161.06 of the exercise price of the Option, I hereby
waive, release, cancel, discharge and relinquish any and all
obligations, judgments, liens, claims, debts, demands, causes of
action, rights and interests (whether known or unknown, choate or
inchoate), that are now owned, claimed or held or which may hereafter
be owned, claimed or held by the undersigned against Questron
Technology, Inc., including any and all payment obligations, as a
result of, in connection with, or otherwise relating to the Stock
Purchase Agreement by and among Questron Technology, Inc., Fortune
Industries, Inc. and the stockholders of Fortune Industries, Inc.,
dated as of June 12, 1998, as amended, and all such payment obligations
are hereby fully and finally paid and satisified.
___________________________
MALCOLM TALLMON
Notice of Exercise page 1 of 1
<PAGE>
Exhibit 10.20
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 1, 2000, is entered into by and among Questron
Technology, Inc., a Delaware corporation ("Questron"), Gregory Fitzgerald and
Valerie Fitzgerald (each individually a "Seller" and collectively, the
"Sellers").
RECITALS
WHEREAS, the parties hereto and Fas-Tronics, Inc.
("Fas-Tronics"), entered into that certain Stock Purchase Agreement dated June
12, 1998, as amended (the "Stock Purchase Agreement") pursuant to which Questron
purchased all of the Capital Stock of Fas-Tronics from the Sellers;
WHEREAS, as of the date hereof Questron has certain payment
obligations to the Sellers pursuant to the Stock Purchase Agreement; and
WHEREAS, pursuant to the terms and conditions set forth below,
the Sellers and Questron wish to settle, fully and finally, all obligations of
Questron to the Sellers pursuant to the Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. At the Settlement Closing, Questron agrees to issue and
deliver 131,501 shares of Questron's common stock, par value $0.001 per share,
to each of the Sellers (the "Settlement Shares"). The Settlement Shares shall be
restricted securities under Rule 144 of the Act of 1933, as amended (the "Act"),
will not have been registered under the Act and may not be sold or transferred
absent such registration or unless an exception from registration is available
and the certificates evidencing such shares shall bear an appropriate legend
restricting transfers under the Act. Each of the Sellers agrees to accept the
Settlement Shares issued and delivered to him/her in full and final settlement
and satisfaction of all obligations of Questron arising under or in connection
with the Stock Purchase Agreement. "Settlement Closing" means the closing of the
transactions contemplated by this paragraph 1. The Settlement Closing shall take
place on March 1, 2000 at 5:00 p.m. Eastern Time, at the offices of Questron
located at 6400 Congress Avenue, Suite 2000, Boca Raton, Florida 33487, or at
such other time and place as the parties may mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares and use its reasonable best efforts to cause such registration
statement to become effective.
<PAGE>
(b) Questron shall notify each Seller of the effectiveness of the
registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective for a period of
not less than 180 days and comply with the provisions of the Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by
the Sellers set forth in such registration statement. (c) Questron will use
its reasonable best efforts to register or qualify such the Settlement Shares
under such other securities or blue sky laws of such jurisdictions as any
Seller reasonably requests (provided Questron shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction). (d) Questron shall notify the
Sellers at any time when a prospectus relating thereto is required to be
delivered under the Act as amended, of the happening of any event as a result
of which the prospectus included in such registration statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller,
the Questron shall prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Settlement Shares,
such prospectus shall not contain an untrue statement of a material fact or
omit to state any fact necessary to make the statements therein not
misleading. (e) Questron shall cause the Settlement Shares to be listed on
each securities exchange on which similar securities issued by Questron are
then listed. (f) Questron may postpone or suspend for up to 180 days the
filing or the effectiveness of a registration statement if the Questron's
board of directors determines in its reasonable good faith judgment that such
filing or effectiveness would reasonably be expected to have a material
adverse effect on any proposal or plan by Questron or any of its subsidiaries
to engage in any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer, reorganization or
similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by Questron,
shall be borne by Questron. All brokerage commissions or similar selling
expenses in connection with the sale by the Sellers of the Settlement Shares
shall be borne by the Sellers.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, each Seller against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be
2
<PAGE>
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to Questron by such Seller expressly for use therein or
by such Seller's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after Questron has
furnished such Seller with a sufficient number of copies of the same. (b)
Each Seller shall furnish to Questron in writing such information and
affidavits as Questron reasonably requests for use in connection with the
registration statement or prospectus and, to the extent permitted by law,
shall indemnify the Questron, its directors and officers and each person who
controls the Company (within the meaning of the Act) against any losses,
claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
Seller; provided that the obligation to indemnify shall be individual, not
joint and several, for each Seller and shall be limited to the net amount of
proceeds received by such Seller from the sale of Settlement Shares pursuant
to such registration statement. (c) Any party entitled to indemnification
hereunder shall (i) give prompt written notice to the indemnifying party of
any claim with respect to which it seeks indemnification (provided that the
failure to give prompt notice shall not impair any party's right to
indemnification hereunder to the extent such failure has not prejudiced the
indemnifying party) and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party
to assume the defense of such claim with counsel reasonably satisfactory to
the indemnified party. If such defense is assumed, the indemnifying party
shall not be subject to any liability for any settlement made by the
indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim shall not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) Each Seller,
(i) represents and warrants that the Settlement
Shares to be issued to him/her are being acquired as an investment and
not with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares have been approved or
disapproved by the United States Securities and Exchange Commission or
by any other Federal or state agency;
3
<PAGE>
(iii) understands that none of the Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1996, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its 1999
Annual Meeting of Shareholders, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to Sellers and Sellers' attorney and/or accountant
and/or representative. Each Seller has had an opportunity to ask
questions and receive answers from Questron concerning the business and
assets of Questron and all such questions have been answered to the
full satisfaction of Sellers;
(v) represents and warrants that such Seller is
an accredited investor, as that term is defined in Regulation D under
the Act; and
(vi) represent and warrants that such Seller has
not assigned, transferred or conveyed any of its rights under the
Stock Purchase Agreement.
(B) Questron represents and warrants to each Seller that all
Settlement Shares delivered to such seller pursuant to this Settlement
Agreement, when issued as contemplated hereby, will be duly authorized, fully
paid and non-assessable.
6. 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:
If to either or both of the Sellers:
Fas-Tronics, Inc.
4324 Garland Drive
Fort Worth Texas, 76117
Telecopier: (817) 656-3494
Telephone: (817) 656-3987
Attention: Gregory and Valerie Fitzgerald
4
<PAGE>
(with a copy to)
Murphy Mahon Keffler & Farrier, L.L.P.
500 Throckmorton Street
Fort Worth, Texas 76102
Telecopier: (817) 877-3668
Telephone: (817) 877-3347
Attention: Robert J. Keffler, Esq.
If to Questron, to
Questron Technology, Inc.
6400 Congress Avenue
Suite 2000
Boca Raton, Florida 33487
Telecopier: (561) 241-2866
Telephone: (561) 241-5251
Attention: Dominic A. Polimeni
(with a copy to)
Arent Fox Kintner Plotkin & Kahn, PLLC
1675 Broadway, 25th Floor
New York, New York 10019
Telecopier: (212) 484-3900
Telephone: (212) 484-3994
Attention: William J. McSherry, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
5
<PAGE>
10. ASSIGNABILITY . This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties provided that
Questron may assign its rights under the Agreement to any affiliate of Questron.
11. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
12. 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.
[Remainder of Page Intentionally Blank]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By
--------------------------------
Dominic A. Polimeni
Chairman and
Chief Executive Officer
--------------------------------
Gregory Fitzgerald
--------------------------------
Valerie Fitzgerald
7
<PAGE>
Exhibit 10.28
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 7, 2000, is entered into by and among (i)
Questron Finance Corp., a Delaware corporation (the "Maker"), (ii) Questron
Technology, Inc., a Delaware corporation ("Questron") and (iii) Sheldon
Enterprises, Inc. (the "Holder").
RECITALS
WHEREAS, the Holder is the holder of that certain Senior A
Note of the Maker, in the principal amount of $750,000, dated June 30, 1999,
which Senior A Note contains a notice provision providing for notices sent to
the Payee to be sent c/o James A. Mraz (the "Note");
WHEREAS, Questron is a signatory to each Note; and
WHEREAS, pursuant to the terms and conditions set forth below,
the parties hereto wish to settle, fully and finally, all obligations of
Questron and the Maker to the Holder under the Note.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. (a) At the Settlement Closing, Questron agrees to issue
and deliver 67,500 shares of Questron's common stock, par value $0.001 per
share, to the Holder (the "Settlement Shares"). The Settlement Shares shall be
restricted securities under Rule 144 of the Act of 1933, as amended (the "Act"),
will not have been registered under the Act and may not be sold or transferred
absent such registration or unless an exception from registration is available
and the certificates evidencing such shares shall bear an appropriate legend
restricting transfers under the Act. (b) The Holder agrees to accept the
Settlement Shares issued and delivered to it in full and final settlement and
satisfaction of all obligations of Questron and Maker arising under of in
connection with the Note, including all unpaid principal and accrued interest
thereon, and such acceptance shall constitute the release, cancellation,
discharge and relinquishment of any and all obligations, judgments, liens,
claims, debts, demands, causes of action, rights and interests (whether known or
unknown, choate or inchoate), that are now owned, claimed or held or which may
hereafter be owned, claimed or held by the Holder against Questron or Maker, as
a result of, in connection with, or otherwise relating to the Note. (c) At the
Settlement Closing, Holder shall deliver to the Maker, the original Note marked
"Paid In Full," and such other instruments, certificates and documents as the
Maker may reasonably request to evidence the full payment and satisfaction of
such obligations. (d) "Settlement Closing" means the closing of the transactions
contemplated by this paragraph 1. The Settlement Closing shall take place on
March 7, 2000 at 12:00 p.m.
<PAGE>
Eastern Time, at the offices of Questron located at 6400 Congress Avenue, Suite
2000, Boca Raton, Florida 33487, or at such other time and place as the parties
may mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares, plus an additional 67,500 shares of Common Stock held by the
Holder (together the "Registrable Shares") and use its reasonable best efforts
to cause such registration statement to become effective. (b) Questron shall
notify the Holder of the effectiveness of the registration statement filed
hereunder and prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days and comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the Holder set forth in such registration
statement. (c) Questron will use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as Holder reasonably requests (provided Questron shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction). (d) Questron shall notify the
Holder at any time when a prospectus relating thereto is required to be
delivered under the Act as amended, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, Questron shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading. (e) Questron shall
cause the Registrable Shares to be listed on each securities exchange on which
similar securities issued by Questron are then listed. (f) Questron may postpone
or suspend for up to 180 days the filing or the effectiveness of a registration
statement if the Questron's board of directors determines in its reasonable good
faith judgment that such filing or effectiveness would reasonably be expected to
have a material adverse effect on any proposal or plan by Questron or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and
2
<PAGE>
other persons retained by Questron, shall be borne by Questron. All brokerage
commissions or similar selling expenses in connection with the sale by the
Holder of the Registrable Shares shall be borne by the Holder.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, the Holder against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Questron by the Holder
expressly for use therein or by the Holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after Questron has furnished the Holder with a sufficient number of copies of
the same. (b) the Holder shall furnish to Questron in writing such information
and affidavits as Questron reasonably requests for use in connection with the
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Questron, its directors and officers and each person who controls
the Questron (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by the Holder; provided that the obligation to
indemnify shall be limited to the net amount of proceeds received by the Holder
from the sale of Registrable Shares pursuant to such registration statement. (c)
Any party entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any party's right to indemnification hereunder to the extent such failure
has not prejudiced the indemnifying party) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) The Holder,
3
<PAGE>
(i) represents and warrants that the Settlement
Shares to be issued to it are being acquired as an investment and not
with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares 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 Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its
Annual Meeting of Shareholders, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to the Holder and the Holder's attorney and/or
accountant and/or representative. The Holder 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 Holder;
(v) represents and warrants that the Holder is an
accredited investor, as that term is defined in Regulation D under the Act; and
(vi) represent and warrants that the Holder has not
assigned, transferred or conveyed any of its rights under the Note.
(B) Questron represents and warrants to the Holder that all
Settlement Shares delivered to the Holder pursuant to this Settlement Agreement,
when issued as contemplated hereby, will be duly authorized, fully paid and
non-assessable.
4
<PAGE>
6. NOTICES . All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given: (i) if to Questron and the
Maker upon receipt of hand delivery; certified or registered mail, return
receipt requested or telecopy transmission with confirmation of receipt
addressed to Questron Technology, Inc., 6400 Congress Avenue, Suite 2000, Boca
Raton, Florida 33487, telecopier (561) 241-2866, telephone (561) 241-5251,
attention: Dominic A. Polimeni, with copy to Arent Fox Kintner Plotkin & Kahn,
PLLC, 1675 Broadway, 25th Floor, New York, New York 10019, Telecopier: (212)
484-3900, Telephone: (212) 484-3944, attention: William J. McSherry, Esq.; and
(ii) if to the Holder, in the manner and to the address set forth in the Note.
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
11. 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.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By _________________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
QUESTRON FINANCE CORP.
By _________________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
HOLDER:
SHELDON ENTERPRISES, INC.
By ______________________________
Name:
Title:
6
<PAGE>
Exhibit 10.29
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 7, 2000, is entered into by and among (i)
Questron Finance Corp., a Delaware corporation (the "Maker"), (ii) Questron
Technology, Inc., a Delaware corporation ("Questron") and (iii) Sheldon
Enterprises, Inc. (the "Holder").
RECITALS
WHEREAS, the Holder is the holder of that certain Senior A
Note of the Maker, in the principal amount of $750,000, dated June 30, 1999,
which Senior A Note contains a notice provision providing for notices sent to
the Payee to be sent c/o Rudolph M. Petric (the "Note");
WHEREAS, Questron is a signatory to each Note; and
WHEREAS, pursuant to the terms and conditions set forth below,
the parties hereto wish to settle, fully and finally, all obligations of
Questron and the Maker to the Holder under the Note.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. (a) At the Settlement Closing, Questron agrees to issue
and deliver 67,500 shares of Questron's common stock, par value $0.001 per
share, to the Holder (the "Settlement Shares"). The Settlement Shares shall be
restricted securities under Rule 144 of the Act of 1933, as amended (the "Act"),
will not have been registered under the Act and may not be sold or transferred
absent such registration or unless an exception from registration is available
and the certificates evidencing such shares shall bear an appropriate legend
restricting transfers under the Act. (b) The Holder agrees to accept the
Settlement Shares issued and delivered to it in full and final settlement and
satisfaction of all obligations of Questron and Maker arising under of in
connection with the Note, including all unpaid principal and accrued interest
thereon, and such acceptance shall constitute the release, cancellation,
discharge and relinquishment of any and all obligations, judgments, liens,
claims, debts, demands, causes of action, rights and interests (whether known or
unknown, choate or inchoate), that are now owned, claimed or held or which may
hereafter be owned, claimed or held by the Holder against Questron or Maker, as
a result of, in connection with, or otherwise relating to the Note. (c) At the
Settlement Closing, Holder shall deliver to the Maker, the original Note marked
"Paid In Full," and such other instruments, certificates and documents as the
Maker may reasonably request to evidence the full payment and satisfaction of
such obligations. (d) "Settlement Closing" means the closing of the transactions
contemplated by this paragraph 1. The Settlement Closing shall take place on
March 7, 2000 at 12:00 p.m.
<PAGE>
Eastern Time, at the offices of Questron located at 6400 Congress Avenue, Suite
2000, Boca Raton, Florida 33487, or at such other time and place as the parties
may mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares, plus an additional 67,500 shares of Common Stock held by the
Holder (together the "Registrable Shares") and use its reasonable best efforts
to cause such registration statement to become effective. (b) Questron shall
notify the Holder of the effectiveness of the registration statement filed
hereunder and prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days and comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the Holder set forth in such registration
statement. (c) Questron will use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as Holder reasonably requests (provided Questron shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction). (d) Questron shall notify the
Holder at any time when a prospectus relating thereto is required to be
delivered under the Act as amended, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, Questron shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading. (e) Questron shall
cause the Registrable Shares to be listed on each securities exchange on which
similar securities issued by Questron are then listed. (f) Questron may postpone
or suspend for up to 180 days the filing or the effectiveness of a registration
statement if the Questron's board of directors determines in its reasonable good
faith judgment that such filing or effectiveness would reasonably be expected to
have a material adverse effect on any proposal or plan by Questron or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and
2
<PAGE>
other persons retained by Questron, shall be borne by Questron. All brokerage
commissions or similar selling expenses in connection with the sale by the
Holder of the Registrable Shares shall be borne by the Holder.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, the Holder against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Questron by the Holder
expressly for use therein or by the Holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after Questron has furnished the Holder with a sufficient number of copies of
the same. (b) the Holder shall furnish to Questron in writing such information
and affidavits as Questron reasonably requests for use in connection with the
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Questron, its directors and officers and each person who controls
the Questron (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by the Holder; provided that the obligation to
indemnify shall be limited to the net amount of proceeds received by the Holder
from the sale of Registrable Shares pursuant to such registration statement. (c)
Any party entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any party's right to indemnification hereunder to the extent such failure
has not prejudiced the indemnifying party) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) The Holder,
3
<PAGE>
(i) represents and warrants that the Settlement
Shares to be issued to it are being acquired as an investment and not
with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares 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 Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its
Annual Meeting of Shareholders, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to the Holder and the Holder's attorney and/or
accountant and/or representative. The Holder 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 Holder;
(v) represents and warrants that the Holder is an
accredited investor, as that term is defined in Regulation D under the Act; and
(vi) represent and warrants that the Holder has not
assigned, transferred or conveyed any of its rights under the Note.
(B) Questron represents and warrants to the Holder that all
Settlement Shares delivered to the Holder pursuant to this Settlement Agreement,
when issued as contemplated hereby, will be duly authorized, fully paid and
non-assessable.
4
<PAGE>
6. NOTICES . All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given: (i) if to Questron and the
Maker upon receipt of hand delivery; certified or registered mail, return
receipt requested or telecopy transmission with confirmation of receipt
addressed to Questron Technology, Inc., 6400 Congress Avenue, Suite 2000, Boca
Raton, Florida 33487, telecopier (561) 241-2866, telephone (561) 241-5251,
attention: Dominic A. Polimeni, with copy to Arent Fox Kintner Plotkin & Kahn,
PLLC, 1675 Broadway, 25th Floor, New York, New York 10019, Telecopier: (212)
484-3900, Telephone: (212) 484-3944, attention: William J. McSherry, Esq.; and
(ii) if to the Holder, in the manner and to the address set forth in the Note.
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
11. 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.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By ______________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
QUESTRON FINANCE CORP.
By ______________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
HOLDER:
SHELDON ENTERPRISES, INC.
By ___________________________
Name:
Title:
6
<PAGE>
Exhibit 10.32
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 7, 2000, is entered into by and among (i)
Questron Finance Corp., a Delaware corporation (the "Maker"), (ii) Questron
Technology, Inc., a Delaware corporation ("Questron") and (iii) James R.
Gilchrist, Trustee of James R. Gilchrist Revocable Trust Under Agreement Dated
June 25, 1999 (the "Holder").
RECITALS
WHEREAS, the Holder is the holder of that certain Senior A
Note of the Maker, in the principal amount of $2,000,000, dated June 30, 1999
(the "Note");
WHEREAS, Questron is a signatory to the Note; and
WHEREAS, pursuant to the terms and conditions set forth below,
the parties hereto wish to settle, fully and finally, all obligations of
Questron and the Maker to the Holder under the Note.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. (a) At the Settlement Closing, Questron agrees to issue
and deliver 180,000 shares of Questron's common stock, par value $0.001 per
share, to the Holder (the "Settlement Shares"). The Settlement Shares shall be
restricted securities under Rule 144 of the Act of 1933, as amended (the "Act"),
will not have been registered under the Act and may not be sold or transferred
absent such registration or unless an exception from registration is available
and the certificates evidencing such shares shall bear an appropriate legend
restricting transfers under the Act. (b) The Holder agrees to accept the
Settlement Shares issued and delivered to him/her in full and final settlement
and satisfaction of all obligations of Questron and Maker arising under of in
connection with the Note, including all unpaid principal and accrued interest
thereon, and such acceptance shall constitute the release, cancellation,
discharge and relinquishment of any and all obligations, judgments, liens,
claims, debts, demands, causes of action, rights and interests (whether known or
unknown, choate or inchoate), that are now owned, claimed or held or which may
hereafter be owned, claimed or held by the Holder against Questron or Maker, as
a result of, in connection with, or otherwise relating to the Note. (c) At the
Settlement Closing, Holder shall deliver to the Maker, the original Note, marked
"Paid In Full," and such other instruments, certificates and documents as the
Maker may reasonably request to evidence the full payment and satisfaction of
such obligations. (d) "Settlement Closing" means the closing of the transactions
contemplated by this paragraph 1. The Settlement Closing shall take place on
March 7, 2000 at 12:00 p.m. Eastern Time, at the offices of Questron located at
6400 Congress Avenue, Suite 2000,
<PAGE>
Boca Raton, Florida 33487, or at such other time and place as the parties may
mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares, plus an additional 180,000 shares of Common Stock held by the
Holder (together the "Registrable Shares") and use its reasonable best efforts
to cause such registration statement to become effective. (b) Questron shall
notify the Holder of the effectiveness of the registration statement filed
hereunder and prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days and comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the Holder set forth in such registration
statement. (c) Questron will use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as Holder reasonably requests (provided Questron shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction). (d) Questron shall notify the
Holder at any time when a prospectus relating thereto is required to be
delivered under the Act as amended, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, Questron shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading. (e) Questron shall
cause the Registrable Shares to be listed on each securities exchange on which
similar securities issued by Questron are then listed. (f) Questron may postpone
or suspend for up to 180 days the filing or the effectiveness of a registration
statement if the Questron's board of directors determines in its reasonable good
faith judgment that such filing or effectiveness would reasonably be expected to
have a material adverse effect on any proposal or plan by Questron or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by Questron,
shall be borne by Questron. All brokerage
2
<PAGE>
commissions or similar selling expenses in connection with the sale by the
Holder of the Registrable Shares shall be borne by the Holder.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, the Holder against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Questron by the Holder
expressly for use therein or by the Holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after Questron has furnished the Holder with a sufficient number of copies of
the same. (b) the Holder shall furnish to Questron in writing such information
and affidavits as Questron reasonably requests for use in connection with the
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Questron, its directors and officers and each person who controls
the Questron (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by the Holder; provided that the obligation to
indemnify shall be limited to the net amount of proceeds received by the Holder
from the sale of Registrable Shares pursuant to such registration statement. (c)
Any party entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any party's right to indemnification hereunder to the extent such failure
has not prejudiced the indemnifying party) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) The Holder,
3
<PAGE>
(i) represents and warrants that the Settlement
Shares to be issued to him/her are being acquired as an investment and
not with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares 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 Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its
Annual Meeting of Shareholders, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to the Holder and the Holder's attorney and/or
accountant and/or representative. The Holder 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 Holder;
(v) represents and warrants that the Holder is an
accredited investor, as that term is defined in Regulation D under the Act; and
(vi) represent and warrants that the Holder has not
assigned, transferred or conveyed any of its rights under the Note.
(B) Questron represents and warrants to the Holder that all
Settlement Shares delivered to the Holder pursuant to this Settlement Agreement,
when issued as contemplated hereby, will be duly authorized, fully paid and
non-assessable.
4
<PAGE>
6. NOTICES . All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given: (i) if to Questron and the
Maker upon receipt of hand delivery; certified or registered mail, return
receipt requested or telecopy transmission with confirmation of receipt
addressed to Questron Technology, Inc., 6400 Congress Avenue, Suite 2000, Boca
Raton, Florida 33487, telecopier (561) 241-2866, telephone (561) 241-5251,
attention: Dominic A. Polimeni, with copy to Arent Fox Kintner Plotkin & Kahn,
PLLC, 1675 Broadway, 25th Floor, New York, New York 10019, Telecopier: (212)
484-3900, Telephone: (212) 484-3944, attention: William J. McSherry, Esq.; and
(ii) if to the Holder, in the manner and to the address set forth in the Note.
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
11. 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.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By ________________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
QUESTRON FINANCE CORP.
By ________________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
HOLDER:
________________________________
James R. Gilchrist,
Trustee of James R. Gilchrist
Revocable Trust Under Agreement
Dated June 25, 1999
6
<PAGE>
Exhibit 10.33
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 7, 2000, is entered into by and among (i)
Questron Distribution Logistics, Inc., a Delaware corporation (the "QDL"), (ii)
Questron Technology, Inc., a Delaware corporation (the "Company" or "Questron")
and (iii) James R. Gilchrist (the "Seller").
RECITALS
WHEREAS, the parties hereto and Capital Fastners, Inc.
("CFI"), entered into that certain Stock Purchase Agreement dated June 26, 1999,
as amended (the "Stock Purchase Agreement") pursuant to which Questron purchased
all of the capital stock of CFI (the "Acquisition");
WHEREAS, as of the date hereof Questron has a certain payment
obligation to the Seller in connection with the Acquisition, which on the date
hereof is approximately $261,575 (the "Obligation");
WHEREAS, pursuant to the terms and conditions set forth below,
the Seller and Questron wish to settle, fully and finally, all obligations of
Questron to the Seller in connection with the Acquisition.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. At the Settlement Closing, Questron agrees to issue and
deliver 26,158 shares of Questron's common stock, par value $0.001 per share, to
the Seller (the "Settlement Shares"). The Settlement Shares shall be restricted
securities under Rule 144 of the Act of 1933, as amended (the "Act"), will not
have been registered under the Act and may not be sold or transferred absent
such registration or unless an exception from registration is available and the
certificates evidencing such shares shall bear an appropriate legend restricting
transfers under the Act. The Seller agrees to accept the Settlement Shares
issued and delivered to him/her in full and final settlement and satisfaction of
the Obligation. "Settlement Closing" means the closing of the transactions
contemplated by this paragraph 1. The Settlement Closing shall take place on
March 7, 2000 at 12:00 p.m. Eastern Time, at the offices of Questron located at
6400 Congress Avenue, Suite 2000, Boca Raton, Florida 33487, or at such other
time and place as the parties may mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares, (the
2
<PAGE>
"Registrable Shares") and use its reasonable best efforts to cause such
registration statement to become effective. (b) Questron shall notify the Seller
of the effectiveness of the registration statement filed hereunder and prepare
and file with the Securities and Exchange Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 180 days and comply with the provisions of the Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Seller set forth in such registration statement. (c) Questron
will use its reasonable best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as
Seller reasonably requests (provided Questron shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction). (d) Questron shall notify the Seller at any
time when a prospectus relating thereto is required to be delivered under the
Act as amended, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of the Seller, Questron shall prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Shares, such prospectus shall not contain an
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading. (e) Questron shall cause the Registrable
Shares to be listed on each securities exchange on which similar securities
issued by Questron are then listed. (f) Questron may postpone or suspend for up
to 180 days the filing or the effectiveness of a registration statement if the
Questron's board of directors determines in its reasonable good faith judgment
that such filing or effectiveness would reasonably be expected to have a
material adverse effect on any proposal or plan by Questron or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by Questron,
shall be borne by Questron. All brokerage commissions or similar selling
expenses in connection with the sale by the Seller of the Registrable Shares
shall be borne by the Seller.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, the Seller against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or
2
<PAGE>
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to Questron by the Seller expressly for use
therein or by the Seller's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after Questron
has furnished the Seller with a sufficient number of copies of the same. (b) the
Seller shall furnish to Questron in writing such information and affidavits as
Questron reasonably requests for use in connection with the registration
statement or prospectus and, to the extent permitted by law, shall indemnify the
Questron, its directors and officers and each person who controls the Questron
(within the meaning of the Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by the Seller; provided that the obligation to indemnify
shall be limited to the net amount of proceeds received by the Seller from the
sale of Registrable Shares pursuant to such registration statement. (c) Any
party entitled to indemnification hereunder shall (i) give prompt written notice
to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any party's right to indemnification hereunder to the extent such failure
has not prejudiced the indemnifying party) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) The Seller,
(i) represents and warrants that the Settlement
Shares to be issued to him/her are being acquired as an investment and
not with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares have been approved or
disapproved by the United States Securities and Exchange Commission or
by any other Federal or state agency;
3
<PAGE>
(iii) understands that none of the Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its
Annual Meeting of ShareSellers, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to the Seller and the Seller's attorney and/or
accountant and/or representative. The Seller has had an opportunity to
ask questions and receive answers from Questron concerning the business
and assets of Questron and all such questions have been answered to the
full satisfaction of the Seller;
(v) represents and warrants that the Seller is an
accredited investor, as that term is defined in Regulation D under the Act; and
(vi) represent and warrants that the Seller has not
assigned, transferred or conveyed any of its rights under the Note.
(B) Questron represents and warrants to the Seller that all
Settlement Shares delivered to the Seller pursuant to this Settlement Agreement,
when issued as contemplated hereby, will be duly authorized, fully paid and
non-assessable.
6. NOTICES . All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given: (i) if to Questron and the
QDL upon receipt of hand delivery; certified or registered mail, return receipt
requested or telecopy transmission with confirmation of receipt addressed to
Questron Technology, Inc., 6400 Congress Avenue, Suite 2000, Boca Raton, Florida
33487, telecopier (561) 241-2866, telephone (561) 241-5251, attention: Dominic
A. Polimeni, with copy to Arent Fox Kintner Plotkin & Kahn, PLLC, 1675 Broadway,
25th Floor, New York, New York 10019, telecopier (212) 484-3900, telephone (212)
484-3944, attention: William J. McSherry, Esq.; and (ii) if to the Seller to
James R. Gilchrist, 507 Cascade Drive, High Point, North Carolina 27265,
telecopier (336) 884-0302, telephone (336) 884-0301, with copy Wyatt Early
Harris & Wheeler, P.O. Drawer 2086, High Point, North Carolina 27261, telecopier
(336) 889-5232, telephone (336) 884-4444, attention: Charles L. Cain, Esq.
4
<PAGE>
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
11. 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.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By ___________________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
QUESTRON DISTRIUBTION LOGISITIC, INC.
By ___________________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
SELLER:
_____________________________
James R. Gilchrist,
Trustee of James R. Gilchrist
Revocable Trust Under Agreement
Dated June 25, 1999
6
<PAGE>
Exhibit 10.37
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 7, 2000, is entered into by and among (i)
Questron Finance Corp., a Delaware corporation (the "Maker"), (ii) Questron
Technology, Inc., a Delaware corporation ("Questron") and (iii) Gerald H. Ablan
(the "Holder").
RECITALS
WHEREAS, the Holder is the holder of that certain Senior A
Note of the Maker, in the principal amount of $722,100, dated June 30, 1999 (the
"Note");
WHEREAS, Questron is a signatory to the Note; and
WHEREAS, pursuant to the terms and conditions set forth below,
the parties hereto wish to settle, fully and finally, all obligations of
Questron and the Maker to the Holder under the Note.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. (a) At the Settlement Closing, Questron agrees to issue
and deliver 64,989 shares of Questron's common stock, par value $0.001 per
share, to the Holder (the "Settlement Shares"). The Settlement Shares shall be
restricted securities under Rule 144 of the Act of 1933, as amended (the "Act"),
will not have been registered under the Act and may not be sold or transferred
absent such registration or unless an exception from registration is available
and the certificates evidencing such shares shall bear an appropriate legend
restricting transfers under the Act. (b) The Holder agrees to accept the
Settlement Shares issued and delivered to him/her in full and final settlement
and satisfaction of all obligations of Questron and Maker arising under of in
connection with the Note, including all unpaid principal and accrued interest
thereon, and such acceptance shall constitute the release, cancellation,
discharge and relinquishment of any and all obligations, judgments, liens,
claims, debts, demands, causes of action, rights and interests (whether known or
unknown, choate or inchoate), that are now owned, claimed or held or which may
hereafter be owned, claimed or held by the Holder against Questron or Maker, as
a result of, in connection with, or otherwise relating to the Note. (c) At the
Settlement Closing, Holder shall deliver to the Maker, the original Note, marked
"Paid In Full," and such other instruments, certificates and documents as the
Maker may reasonably request to evidence the full payment and satisfaction of
such obligations. (d) "Settlement Closing" means the closing of the transactions
contemplated by this paragraph 1. The Settlement Closing shall take place on
March 7, 2000 at 12:00 p.m. Eastern Time, at the offices of Questron located at
6400 Congress Avenue, Suite 2000,
<PAGE>
Boca Raton, Florida 33487, or at such other time and place as the parties may
mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares, plus an additional 64,989 shares of Common Stock held by the
Holder (together the "Registrable Shares") and use its reasonable best efforts
to cause such registration statement to become effective. (b) Questron shall
notify the Holder of the effectiveness of the registration statement filed
hereunder and prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days and comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the Holder set forth in such registration
statement. (c) Questron will use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as Holder reasonably requests (provided Questron shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction). (d) Questron shall notify the
Holder at any time when a prospectus relating thereto is required to be
delivered under the Act as amended, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, Questron shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading. (e) Questron shall
cause the Registrable Shares to be listed on each securities exchange on which
similar securities issued by Questron are then listed. (f) Questron may postpone
or suspend for up to 180 days the filing or the effectiveness of a registration
statement if the Questron's board of directors determines in its reasonable good
faith judgment that such filing or effectiveness would reasonably be expected to
have a material adverse effect on any proposal or plan by Questron or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by Questron,
shall be borne by Questron. All brokerage
2
<PAGE>
commissions or similar selling expenses in connection with the sale by the
Holder of the Registrable Shares shall be borne by the Holder.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, the Holder against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Questron by the Holder
expressly for use therein or by the Holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after Questron has furnished the Holder with a sufficient number of copies of
the same. (b) the Holder shall furnish to Questron in writing such information
and affidavits as Questron reasonably requests for use in connection with the
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Questron, its directors and officers and each person who controls
the Questron (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by the Holder; provided that the obligation to
indemnify shall be limited to the net amount of proceeds received by the Holder
from the sale of Registrable Shares pursuant to such registration statement. (c)
Any party entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any party's right to indemnification hereunder to the extent such failure
has not prejudiced the indemnifying party) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) The Holder,
3
<PAGE>
(i) represents and warrants that the Settlement
Shares to be issued to him/her are being acquired as an investment and
not with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares 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 Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its
Annual Meeting of Shareholders, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to the Holder and the Holder's attorney and/or
accountant and/or representative. The Holder 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 Holder;
(v) represents and warrants that the Holder is an
accredited investor, as that term is defined in Regulation D under the Act; and
(vi) represent and warrants that the Holder has not
assigned, transferred or conveyed any of its rights under the Note.
(B) Questron represents and warrants to the Holder that all
Settlement Shares delivered to the Holder pursuant to this Settlement Agreement,
when issued as contemplated hereby, will be duly authorized, fully paid and
non-assessable.
4
<PAGE>
6. NOTICES . All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given: (i) if to Questron and the
Maker upon receipt of hand delivery; certified or registered mail, return
receipt requested or telecopy transmission with confirmation of receipt
addressed to Questron Technology, Inc., 6400 Congress Avenue, Suite 2000, Boca
Raton, Florida 33487, telecopier (561) 241-2866, telephone (561) 241-5251,
attention: Dominic A. Polimeni, with copy to Arent Fox Kintner Plotkin & Kahn,
PLLC, 1675 Broadway, 25th Floor, New York, New York 10019, Telecopier: (212)
484-3900, Telephone: (212) 484-3944, attention: William J. McSherry, Esq.; and
(ii) if to the Holder, in the manner and to the address set forth in the Note.
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
11. 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.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By ________________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
QUESTRON FINANCE CORP.
By ________________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
HOLDER:
________________________________
Gerland H. Ablan
6
<PAGE>
Exhibit 10.38
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 7, 2000, is entered into by and among (i)
Questron Finance Corp., a Delaware corporation (the "Maker"), (ii) Questron
Technology, Inc., a Delaware corporation ("Questron") and (iii) Robert A. Lehman
(the "Holder").
RECITALS
WHEREAS, the Holder is the holder of that certain Senior A
Note of the Maker, in the principal amount of $27,900, dated June 30, 1999 (the
"Note");
WHEREAS, Questron is a signatory to the Note; and
WHEREAS, pursuant to the terms and conditions set forth below,
the parties hereto wish to settle, fully and finally, all obligations of
Questron and the Maker to the Holder under the Note.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. (a) At the Settlement Closing, Questron agrees to issue
and deliver 2,511 shares of Questron's common stock, par value $0.001 per share,
to the Holder (the "Settlement Shares"). The Settlement Shares shall be
restricted securities under Rule 144 of the Act of 1933, as amended (the "Act"),
will not have been registered under the Act and may not be sold or transferred
absent such registration or unless an exception from registration is available
and the certificates evidencing such shares shall bear an appropriate legend
restricting transfers under the Act. (b) The Holder agrees to accept the
Settlement Shares issued and delivered to him/her in full and final settlement
and satisfaction of all obligations of Questron and Maker arising under of in
connection with the Note, including all unpaid principal and accrued interest
thereon, and such acceptance shall constitute the release, cancellation,
discharge and relinquishment of any and all obligations, judgments, liens,
claims, debts, demands, causes of action, rights and interests (whether known or
unknown, choate or inchoate), that are now owned, claimed or held or which may
hereafter be owned, claimed or held by the Holder against Questron or Maker, as
a result of, in connection with, or otherwise relating to the Note. (c) At the
Settlement Closing, Holder shall deliver to the Maker, the original Note, marked
"Paid In Full," and such other instruments, certificates and documents as the
Maker may reasonably request to evidence the full payment and satisfaction of
such obligations. (d) "Settlement Closing" means the closing of the transactions
contemplated by this paragraph 1. The Settlement Closing shall take place on
March 7, 2000 at 12:00 p.m. Eastern Time, at the offices of Questron located at
6400 Congress Avenue, Suite 2000,
<PAGE>
Boca Raton, Florida 33487, or at such other time and place as the parties may
mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares, plus an additional 2,511 shares of Common Stock held by the
Holder (together the "Registrable Shares") and use its reasonable best efforts
to cause such registration statement to become effective. (b) Questron shall
notify the Holder of the effectiveness of the registration statement filed
hereunder and prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days and comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the Holder set forth in such registration
statement. (c) Questron will use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as Holder reasonably requests (provided Questron shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction). (d) Questron shall notify the
Holder at any time when a prospectus relating thereto is required to be
delivered under the Act as amended, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, Questron shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading. (e) Questron shall
cause the Registrable Shares to be listed on each securities exchange on which
similar securities issued by Questron are then listed. (f) Questron may postpone
or suspend for up to 180 days the filing or the effectiveness of a registration
statement if the Questron's board of directors determines in its reasonable good
faith judgment that such filing or effectiveness would reasonably be expected to
have a material adverse effect on any proposal or plan by Questron or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by Questron,
shall be borne by Questron. All brokerage
2
<PAGE>
commissions or similar selling expenses in connection with the sale by the
Holder of the Registrable Shares shall be borne by the Holder.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, the Holder against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Questron by the Holder
expressly for use therein or by the Holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after Questron has furnished the Holder with a sufficient number of copies of
the same. (b) the Holder shall furnish to Questron in writing such information
and affidavits as Questron reasonably requests for use in connection with the
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Questron, its directors and officers and each person who controls
the Questron (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by the Holder; provided that the obligation to
indemnify shall be limited to the net amount of proceeds received by the Holder
from the sale of Registrable Shares pursuant to such registration statement. (c)
Any party entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any party's right to indemnification hereunder to the extent such failure
has not prejudiced the indemnifying party) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) The Holder,
3
<PAGE>
(i) represents and warrants that the Settlement
Shares to be issued to him/her are being acquired as an investment and
not with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares 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 Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its
Annual Meeting of Shareholders, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to the Holder and the Holder's attorney and/or
accountant and/or representative. The Holder 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 Holder;
(v) represents and warrants that the Holder is an
accredited investor, as that term is defined in Regulation D under the Act; and
(vi) represent and warrants that the Holder has not
assigned, transferred or conveyed any of its rights under the Note.
(B) Questron represents and warrants to the Holder that all
Settlement Shares delivered to the Holder pursuant to this Settlement Agreement,
when issued as contemplated hereby, will be duly authorized, fully paid and
non-assessable.
4
<PAGE>
6. NOTICES . All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given: (i) if to Questron and the
Maker upon receipt of hand delivery; certified or registered mail, return
receipt requested or telecopy transmission with confirmation of receipt
addressed to Questron Technology, Inc., 6400 Congress Avenue, Suite 2000, Boca
Raton, Florida 33487, telecopier (561) 241-2866, telephone (561) 241-5251,
attention: Dominic A. Polimeni, with copy to Arent Fox Kintner Plotkin & Kahn,
PLLC, 1675 Broadway, 25th Floor, New York, New York 10019, Telecopier: (212)
484-3900, Telephone: (212) 484-3944, attention: William J. McSherry, Esq.; and
(ii) if to the Holder, in the manner and to the address set forth in the Note.
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
11. 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.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By ______________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
QUESTRON FINANCE CORP.
By ______________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
HOLDER:
______________________________
Robert A. Lehman
6
<PAGE>
Exhibit 10.39
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 7, 2000, is entered into by and among (i)
Questron Finance Corp., a Delaware corporation (the "Maker"), (ii) Questron
Technology, Inc., a Delaware corporation ("Questron") and (iii) William P.
Hacket (the "Holder").
RECITALS
WHEREAS, the Holder is the holder of that certain Senior A
Note of the Maker, in the principal amount of $27,900, dated June 30, 1999 (the
"Note");
WHEREAS, Questron is a signatory to the Note; and
WHEREAS, pursuant to the terms and conditions set forth below,
the parties hereto wish to settle, fully and finally, all obligations of
Questron and the Maker to the Holder under the Note.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. (a) At the Settlement Closing, Questron agrees to issue
and deliver 2,511 shares of Questron's common stock, par value $0.001 per share,
to the Holder (the "Settlement Shares"). The Settlement Shares shall be
restricted securities under Rule 144 of the Act of 1933, as amended (the "Act"),
will not have been registered under the Act and may not be sold or transferred
absent such registration or unless an exception from registration is available
and the certificates evidencing such shares shall bear an appropriate legend
restricting transfers under the Act. (b) The Holder agrees to accept the
Settlement Shares issued and delivered to him/her in full and final settlement
and satisfaction of all obligations of Questron and Maker arising under of in
connection with the Note, including all unpaid principal and accrued interest
thereon, and such acceptance shall constitute the release, cancellation,
discharge and relinquishment of any and all obligations, judgments, liens,
claims, debts, demands, causes of action, rights and interests (whether known or
unknown, choate or inchoate), that are now owned, claimed or held or which may
hereafter be owned, claimed or held by the Holder against Questron or Maker, as
a result of, in connection with, or otherwise relating to the Note. (c) At the
Settlement Closing, Holder shall deliver to the Maker, the original Note, marked
"Paid In Full," and such other instruments, certificates and documents as the
Maker may reasonably request to evidence the full payment and satisfaction of
such obligations. (d) "Settlement Closing" means the closing of the transactions
contemplated by this paragraph 1. The Settlement Closing shall take place on
March 7, 2000 at 12:00 p.m. Eastern Time, at the offices of Questron located at
6400 Congress Avenue, Suite 2000,
<PAGE>
Boca Raton, Florida 33487, or at such other time and place as the parties may
mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares, plus an additional 2,511 shares of Common Stock held by the
Holder (together the "Registrable Shares") and use its reasonable best efforts
to cause such registration statement to become effective. (b) Questron shall
notify the Holder of the effectiveness of the registration statement filed
hereunder and prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days and comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the Holder set forth in such registration
statement. (c) Questron will use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as Holder reasonably requests (provided Questron shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction). (d) Questron shall notify the
Holder at any time when a prospectus relating thereto is required to be
delivered under the Act as amended, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, Questron shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading. (e) Questron shall
cause the Registrable Shares to be listed on each securities exchange on which
similar securities issued by Questron are then listed. (f) Questron may postpone
or suspend for up to 180 days the filing or the effectiveness of a registration
statement if the Questron's board of directors determines in its reasonable good
faith judgment that such filing or effectiveness would reasonably be expected to
have a material adverse effect on any proposal or plan by Questron or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by Questron,
shall be borne by Questron. All brokerage
2
<PAGE>
commissions or similar selling expenses in connection with the sale by the
Holder of the Registrable Shares shall be borne by the Holder.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, the Holder against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Questron by the Holder
expressly for use therein or by the Holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after Questron has furnished the Holder with a sufficient number of copies of
the same. (b) the Holder shall furnish to Questron in writing such information
and affidavits as Questron reasonably requests for use in connection with the
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Questron, its directors and officers and each person who controls
the Questron (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by the Holder; provided that the obligation to
indemnify shall be limited to the net amount of proceeds received by the Holder
from the sale of Registrable Shares pursuant to such registration statement. (c)
Any party entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any party's right to indemnification hereunder to the extent such failure
has not prejudiced the indemnifying party) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) The Holder,
3
<PAGE>
(i) represents and warrants that the Settlement
Shares to be issued to him/her are being acquired as an investment and
not with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares 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 Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its
Annual Meeting of Shareholders, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to the Holder and the Holder's attorney and/or
accountant and/or representative. The Holder 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 Holder;
(v) represents and warrants that the Holder is an
accredited investor, as that term is defined in Regulation D under the Act; and
(vi) represent and warrants that the Holder has not
assigned, transferred or conveyed any of its rights under the Note.
(B) Questron represents and warrants to the Holder that all
Settlement Shares delivered to the Holder pursuant to this Settlement Agreement,
when issued as contemplated hereby, will be duly authorized, fully paid and
non-assessable.
4
<PAGE>
6. NOTICES . All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given: (i) if to Questron and the
Maker upon receipt of hand delivery; certified or registered mail, return
receipt requested or telecopy transmission with confirmation of receipt
addressed to Questron Technology, Inc., 6400 Congress Avenue, Suite 2000, Boca
Raton, Florida 33487, telecopier (561) 241-2866, telephone (561) 241-5251,
attention: Dominic A. Polimeni, with copy to Arent Fox Kintner Plotkin & Kahn,
PLLC, 1675 Broadway, 25th Floor, New York, New York 10019, Telecopier: (212)
484-3900, Telephone: (212) 484-3944, attention: William J. McSherry, Esq.; and
(ii) if to the Holder, in the manner and to the address set forth in the Note.
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
11. 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.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By ______________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
QUESTRON FINANCE CORP.
By ______________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
HOLDER:
______________________________
William P. Hackett
6
<PAGE>
Exhibit 10.40
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Settlement Agreement" or this
"Agreement") dated as of March 7, 2000, is entered into by and among (i)
Questron Finance Corp., a Delaware corporation (the "Maker"), (ii) Questron
Technology, Inc., a Delaware corporation ("Questron") and (iii) Charles W.
Gozder (the "Holder").
RECITALS
WHEREAS, the Holder is the holder of that certain Senior A
Note of the Maker, in the principal amount of $722,100, dated June 30, 1999 (the
"Note");
WHEREAS, Questron is a signatory to the Note; and
WHEREAS, pursuant to the terms and conditions set forth below,
the parties hereto wish to settle, fully and finally, all obligations of
Questron and the Maker to the Holder under the Note.
NOW, THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. SETTLEMENT. (a) At the Settlement Closing, Questron agrees to issue
and deliver 64,989 shares of Questron's common stock, par value $0.001 per
share, to the Holder (the "Settlement Shares"). The Settlement Shares shall be
restricted securities under Rule 144 of the Act of 1933, as amended (the "Act"),
will not have been registered under the Act and may not be sold or transferred
absent such registration or unless an exception from registration is available
and the certificates evidencing such shares shall bear an appropriate legend
restricting transfers under the Act. (b) The Holder agrees to accept the
Settlement Shares issued and delivered to him/her in full and final settlement
and satisfaction of all obligations of Questron and Maker arising under of in
connection with the Note, including all unpaid principal and accrued interest
thereon, and such acceptance shall constitute the release, cancellation,
discharge and relinquishment of any and all obligations, judgments, liens,
claims, debts, demands, causes of action, rights and interests (whether known or
unknown, choate or inchoate), that are now owned, claimed or held or which may
hereafter be owned, claimed or held by the Holder against Questron or Maker, as
a result of, in connection with, or otherwise relating to the Note. (c) At the
Settlement Closing, Holder shall deliver to the Maker, the original Note, marked
"Paid In Full," and such other instruments, certificates and documents as the
Maker may reasonably request to evidence the full payment and satisfaction of
such obligations. (d) "Settlement Closing" means the closing of the transactions
contemplated by this paragraph 1. The Settlement Closing shall take place on
March 7, 2000 at 12:00 p.m. Eastern Time, at the offices of Questron located at
6400 Congress Avenue, Suite 2000,
<PAGE>
Boca Raton, Florida 33487, or at such other time and place as the parties may
mutually agree.
2. REGISTRATION OF SETTLEMENT SHARES. (a) Within 90 days of the
Settlement Closing, Questron shall prepare and file under the Act with the
Securities and Exchange Commission a registration statement with respect to the
Settlement Shares, plus an additional 64,989 shares of Common Stock held by the
Holder (together the "Registrable Shares") and use its reasonable best efforts
to cause such registration statement to become effective. (b) Questron shall
notify the Holder of the effectiveness of the registration statement filed
hereunder and prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than 180 days and comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the Holder set forth in such registration
statement. (c) Questron will use its reasonable best efforts to register or
qualify such Registrable Shares under such other securities or blue sky laws of
such jurisdictions as Holder reasonably requests (provided Questron shall not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph, (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction). (d) Questron shall notify the
Holder at any time when a prospectus relating thereto is required to be
delivered under the Act as amended, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of the Holder, Questron shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading. (e) Questron shall
cause the Registrable Shares to be listed on each securities exchange on which
similar securities issued by Questron are then listed. (f) Questron may postpone
or suspend for up to 180 days the filing or the effectiveness of a registration
statement if the Questron's board of directors determines in its reasonable good
faith judgment that such filing or effectiveness would reasonably be expected to
have a material adverse effect on any proposal or plan by Questron or any of its
subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer, reorganization
or similar transaction or any financing transaction.
3. REGISTRATION EXPENSES. All expenses incident to the Questron's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
fees and disbursements of custodians, and fees and disbursements of counsel for
Questron and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by Questron,
shall be borne by Questron. All brokerage
2
<PAGE>
commissions or similar selling expenses in connection with the sale by the
Holder of the Registrable Shares shall be borne by the Holder.
4. INDEMNIFICATION. (a) Questron agrees to indemnify, to the extent
permitted by law, the Holder against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Questron by the Holder
expressly for use therein or by the Holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after Questron has furnished the Holder with a sufficient number of copies of
the same. (b) the Holder shall furnish to Questron in writing such information
and affidavits as Questron reasonably requests for use in connection with the
registration statement or prospectus and, to the extent permitted by law, shall
indemnify the Questron, its directors and officers and each person who controls
the Questron (within the meaning of the Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the registration statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so furnished in writing by the Holder; provided that the obligation to
indemnify shall be limited to the net amount of proceeds received by the Holder
from the sale of Registrable Shares pursuant to such registration statement. (c)
Any party entitled to indemnification hereunder shall (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any party's right to indemnification hereunder to the extent such failure
has not prejudiced the indemnifying party) and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
5. REPRESENTATIONS AND WARRANTIES.
(A) The Holder,
3
<PAGE>
(i) represents and warrants that the Settlement
Shares to be issued to him/her are being acquired as an investment and
not with a view to the distribution thereof;
(ii) understands that none of the Settlement Shares
have been registered under the Act, in reliance on an exemption
therefrom, and that none of the Settlement Shares 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 Settlement Shares
can be sold, transferred or assigned unless registered by 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 any Seller to liquidate its investment in the Settlement
Shares, and agrees not to sell, assign or otherwise transfer or dispose
of the Settlement Shares unless such securities have been so registered
or an exemption from registration is available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business, including, but not
limited to, the following documents which have been provided to, and
reviewed by, each of Sellers: (a) Questron's Annual Reports on Form
10-KSB for the fiscal years ended December 31, 1997 and 1998, (b)
Questron's Quarterly Reports on Form 10-QSB for the quarterly periods
ended March 31, 1999, June 30, 1999 and September 30, 1999, (c)
Questron's Proxy Statement, dated October 1, 1999, relating to its
Annual Meeting of Shareholders, and (d) Questron's Form 8-K and Form
8-K/A dated July 14, 1999 and August 13, 1999, respectively, have been
made available to the Holder and the Holder's attorney and/or
accountant and/or representative. The Holder 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 Holder;
(v) represents and warrants that the Holder is an
accredited investor, as that term is defined in Regulation D under the Act; and
(vi) represent and warrants that the Holder has not
assigned, transferred or conveyed any of its rights under the Note.
(B) Questron represents and warrants to the Holder that all
Settlement Shares delivered to the Holder pursuant to this Settlement Agreement,
when issued as contemplated hereby, will be duly authorized, fully paid and
non-assessable.
4
<PAGE>
6. NOTICES . All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given: (i) if to Questron and the
Maker upon receipt of hand delivery; certified or registered mail, return
receipt requested or telecopy transmission with confirmation of receipt
addressed to Questron Technology, Inc., 6400 Congress Avenue, Suite 2000, Boca
Raton, Florida 33487, telecopier (561) 241-2866, telephone (561) 241-5251,
attention: Dominic A. Polimeni, with copy to Arent Fox Kintner Plotkin & Kahn,
PLLC, 1675 Broadway, 25th Floor, New York, New York 10019, Telecopier: (212)
484-3900, Telephone: (212) 484-3944, attention: William J. McSherry, Esq.; and
(ii) if to the Holder, in the manner and to the address set forth in the Note.
7. ENTIRE AGREEMENT. This Agreement 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.
8. AMENDMENT AND MODIFICATION . This Agreement may be amended or
modified only by written agreement of the parties hereto.
9. BINDING EFFECT; BENEFITS . This Agreement shall inure to the benefit
of and be binding upon the parties hereto; nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto.
10. CHOICE OF LAW. This Agreement shall be governed by the laws of the
State of New York, exclusive of its principles concerning conflicts of law.
11. 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.
[Remainder of Page Intentionally Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By ______________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
QUESTRON FINANCE CORP.
By ______________________________
Dominic A. Polimeni
Chairman and
Chief Executive Officer
HOLDER:
______________________________
Charles W. Gozder
6
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 33-18243) and related prospectus pertaining to the
registration of 4,143,750 shares of Questron Technology, Inc. common stock, in
the Registration Statement (Form S-3 No. 33-84222) and related Prospectus
pertaining to the registration of 214,044 shares of Questron Technology, Inc.
common stock, in the Registration Statement (Form S-3 No. 33-63555) and related
Prospectus pertaining to the registration of 601,744 shares of Questron
Technology, Inc. common stock, in the Registration Statement (Form S-8 No.
33-87628) pertaining to the registration of 75,667 shares of Questron
Technology, Inc. common stock issuable pursuant to the various stock option
plans of Questron Technology, Inc., in the Registration Statement (Form S-3 No.
333-07049) and related Prospectus pertaining to the registration of 107,000
shares of Questron Technology, Inc. common stock, in the Registration Statement
(Form S-3 No. 333-40835) and related Prospectus pertaining to the registration
of 125,912 shares of Questron Technology, Inc. common stock, in the Registration
Statement (Form S-8 No. 333-42983) pertaining to the registration of 60,000
shares of Questron Technology, Inc. common stock issuable upon the exercise of
options granted pursuant to a stock option grant agreement made in connection
with an acquisition, of our report dated March 15, 2000 with respect to the
consolidated financial statements of Questron Technology, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 1999.
ERNST & YOUNG LLP
New York, New York
March 29, 2000
83
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement Form S-3 (No. 33-18243) and related prospectus pertaining to the
registration of 4,143,750 shares of Questron Technology, Inc. common stock, in
the Registration Statement on Form S-3 (No. 33-84222) and related Prospectus
pertaining to the registration of 214,044 shares of Questron Technology, Inc.
common stock, in the Registration Statement on Form S-3 (No. 33-63555) and
related Prospectus pertaining to the registration of 601,744 shares of Questron
Technology, Inc. common stock, in the Registration Statement on Form S-8 (No.
33-87628) pertaining to the registration of 75,667 shares of Questron
Technology, Inc. common stock issuable pursuant to the various stock option
plans of Questron Technology, Inc., in the Registration Statement on Form S-3
(No. 333-07049) and related Prospectus pertaining to the registration of 107,000
shares of Questron Technology, Inc. common stock, in the Registration Statement
on Form S-3 (No. 333-40835) and related Prospectus pertaining to the
registration of 125,912 shares of Questron Technology, Inc. common stock, in the
Registration Statement on Form S-8 (No. 333-42983) pertaining to the
registration of 60,000 shares of Questron Technology, Inc. common stock issuable
upon the exercise of options granted pursuant to a stock option grant agreement
made in connection with an acquisition, of our report dated February 24, 1998
with respect to the consolidated financial statements of Questron Technology,
Inc. included in the Annual Report (Form 10-K) for the year ended December 31,
1999.
MOORE STEPHENS, P.C.
Certified Public Accountants.
New York, New York
March 29, 2000
84
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEUDLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR YEAR ENDED DECEMBER 31, 1999 AND THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 111,102
<SECURITIES> 0
<RECEIVABLES> 17,111,344
<ALLOWANCES> 283,666
<INVENTORY> 38,301,589
<CURRENT-ASSETS> 56,009,131
<PP&E> 4,308,418
<DEPRECIATION> 1,409,499
<TOTAL-ASSETS> 137,997,841
<CURRENT-LIABILITIES> 14,123,698
<BONDS> 0
0
0
<COMMON> 7,165
<OTHER-SE> 34,442,826
<TOTAL-LIABILITY-AND-EQUITY> 137,997,841
<SALES> 108,958,426
<TOTAL-REVENUES> 108,958,426
<CGS> 65,623,111
<TOTAL-COSTS> 93,902,363
<OTHER-EXPENSES> 2,108,740
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,496,097
<INCOME-PRETAX> 4,451,226
<INCOME-TAX> 2,079,160
<INCOME-CONTINUING> 2,372,066
<DISCONTINUED> 0
<EXTRAORDINARY> (1,451,516)
<CHANGES> 0
<NET-INCOME> 920,550
<EPS-BASIC> .15
<EPS-DILUTED> .15
</TABLE>
