Exhibit 2.3
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STOCK PURCHASE AGREEMENT
By and Between
QUESTRON DISTRIBUTION LOGISTICS, INC.,
and
QUESTRON TECHNOLOGY, INC.
and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
and
CAPITAL FASTENERS, INC.
Dated as of April 26, 1999
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790690.11
TABLE OF CONTENTS
Page
ARTICLE 1
SALE AND PURCHASE OF SHARES................................................1
1.1 Sale of Shares.................................................1
1.2 Purchase Consideration and Payment for Shares..................1
1.3 Transactions on the Closing Date...............................2
1.4 Restricted Securities; Registered Securities...................3
ARTICLE 2
CLOSING AND TERMINATION....................................................4
2.1 Closing........................................................4
2.2 Termination............................ .......................4
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY...................4
3.1 Authority; Due Execution.......................................4
3.2 Organization...................................................5
3.3 Certificate of Incorporation; By-laws..........................5
3.4 Subsidiaries and Equity Investments............................5
3.5 Ownership of Shares............................................5
3.6 Capitalization.................................................5
3.7 No Violation...................................................6
3.8 Personal Property..............................................6
3.9 Litigation.....................................................7
3.10 Real Property..................................................7
3.11 Non-Real Estate Leases.........................................8
3.12 Financial Statements...........................................8
3.13 Books and Records..............................................8
3.14 Tax Matters....................................................9
3.15 Employee Matters..............................................11
3.16 Intellectual Property.........................................14
3.17 Accounts Receivable...........................................14
3.18 Inventory.....................................................15
3.19 No Material Change............................................15
3.20 Absence of Change or Event....................................15
3.21 Compliance With Law...........................................17
3.22 Contracts and Commitments.....................................17
3.23 Insurance.....................................................18
3.24 Affiliate Interests...........................................19
3.25 Customers, Suppliers, Distributors, Etc.......................19
3.26 Previous Sales; Warranties; Product Liability.................20
3.27 Additional Information........................................20
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3.28 Claims Under Stock Redemption Agreement.......................21
3.29 Environmental Matters.........................................21
3.30 Absence of Questionable Payments..............................21
3.31 Investment Intent.............................................22
3.32 Disclosure....................................................22
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON........................23
4.1 Organization..................................................23
4.2 Corporate Authority; Due Execution............................23
4.3 No Violation..................................................23
4.4 Investment Intent.............................................24
4.5 SEC Documents.................................................24
4.6 Questron Common Stock.........................................24
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND QUESTRON...................25
5.1 Conduct of Business Prior to the Closing Date.................25
5.2 Tax Covenants.................................................26
5.3 Expenses and Finder's Fees....................................27
5.4 Access to Information and Confidentiality/1998 Audit..........28
5.5 No Solicitation...............................................28
5.6 Press Releases................................................29
5.7 Transitional Assistance.......................................29
5.8 Conditions....................................................29
5.9 Rule 144......................................................29
5.10 SEC Filings...................................................29
5.11 Purchase of Vehicles..........................................29
5.12 Employee Benefits.............................................29
5.13 Personal Items................................................29
5.14 Balance Sheets................................................29
5.15 HSR Act and Other Filings.....................................30
ARTICLE 6
CONDITIONS PRECEDENT OF QDL AND QUESTRON..................................30
6.1 Representations and Warranties................................30
6.2 Due Diligence.................................................31
6.3 Opinion of Counsel............................................31
6.4 No Actions....................................................31
6.5 Consents......................................................31
6.6 Employment Agreement..........................................31
6.7 Outstanding Seller Loans......................................31
6.8 Financing.....................................................31
6.9 Material Adverse Change.......................................31
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Page
6.10 Releases......................................................31
ARTICLE 7
CONDITIONS PRECEDENT OF THE COMPANY AND SELLER............................32
7.1 Representations and Warranties................................32
7.2 No Actions....................................................32
7.3 Consents......................................................32
7.4 Employment Agreements.........................................32
7.5 Opinion of Counsel............................................32
7.6 No Material Adverse Change....................................32
7.7 Board Approval................................................33
7.8 Payoff of Indebtedness........................................33
7.9 Lease Agreements..............................................33
ARTICLE 8
INDEMNIFICATION...........................................................33
8.1 Indemnification by Seller.....................................33
8.2 Indemnification by Questron...................................34
8.3 Limitation on Liability.......................................35
8.4 Right to Indemnification not Affected by Knowledge............35
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.....................35
9.1 Representations, Warranties and Covenants.....................35
ARTICLE 10
NON-COMPETITION BY SELLER AND NO SOLICITATION.............................36
10.1 Non-Compete....................................................36
10.2 Remedies.......................................................36
ARTICLE 11
MISCELLANEOUS.............................................................36
11.1 Cooperation....................................................36
11.2 Waiver.........................................................36
11.3 Notices........................................................36
11.4 Governing Law and Consent to Jurisdiction; Dispute Resolution..37
11.5 Counterparts...................................................38
11.6 Headings; Schedules............................................38
11.7 Entire Agreement...............................................38
11.8 Amendment and Modification.....................................38
11.9 Binding Effect; Benefits.......................................38
11.10 Assignability..................................................38
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of April 26, 1999
(herein, together with the Schedules and Exhibits attached hereto, referred to
as the "Agreement"), by and between Questron Technology, Inc., a Delaware
corporation ("Questron"), Questron Distribution Logistics, Inc., a Delaware
corporation and a wholly-owned subsidiary of Questron ("QDL"), ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ ("Seller") and Capital Fasteners, Inc., a North Carolina corporation
(the "Company").
W I T N E S S E T H :
WHEREAS, Seller is the beneficial and record holder of all
of the issued and outstanding shares of capital stock of the Company (the
"Shares"); and
WHEREAS, Seller wishes to sell and QDL wishes to acquire
the Shares upon the terms and subject to the conditions contained in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
and premises set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby mutually acknowledged, the
parties hereto hereby agree as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1 Sale of Shares. At the Closing provided for in Section 2.1,
Seller shall sell to QDL the Shares beneficially owned by Seller as set forth on
Schedule 1.1, and QDL shall purchase such Shares for the aggregate purchase
consideration specified in Section 1.2.
1.2 Purchase Consideration and Payment for Shares. In consideration
of the sale, conveyance, transfer, assignment and delivery of the Shares by
Seller to QDL on the Closing Date, and in reliance on the representations,
warranties, covenants and agreements made herein by Seller and the Company, QDL
and Questron shall pay to Seller a total purchase price of up to $12,150,000,
subject to adjustment as set forth in this Agreement, which will consist of the
Initial Purchase Price and the Deferred Purchase Price, in each case, as defined
below.
(a) Initial Purchase Price. The "Initial Purchase Price"
will equal $10,650,000, subject to adjustment as set forth below, payable as
follows: (i) a wire transfer (or certified check) in an amount equal to
$8,000,000 (x) less the Stated Net Debt (as defined below) of the Company, (y)
plus or minus, the increase or decrease, as the case may be, in Net Operating
Assets (as defined below) of the Company from that derived from the December 31,
1998 Audited Balance Sheet (as defined in Section 5.14) to that derived from the
March 31, 1999 Balance Sheet (as defined in Section 5.14), (z) plus interest on
the sum of (A) the amount calculated in accordance with the foregoing and (B)
$2,000,000, which interest shall be in the amount equal to 8% per annum
calculated from the Effective Date through the Closing Date (said amount being
hereinafter referred to as the "Initial Cash Consideration"); (ii) delivery of
shares of Questron's common stock, par value $0.001 per share (the "Questron
Common Stock"), having a value equal to $650,000 (the "Initial Stock
Consideration"), calculated on the basis of
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the average closing market price reported in the Wall Street Journal for
Questron Common Stock for the five (5) trading days ending on the third trading
day immediately prior to the Closing Date (as defined in Section 2.1); and (iii)
delivery of a promissory note in the principal amount equal to $2,000,000, made
by Questron Finance Corp., a wholly-owned subsidiary of Questron, in favor of
Seller, substantially in the form attached hereto as Exhibit A, as may be
modified to reflect such changes to the definition of "Available Amount"
contained therein as may be requested by any lender providing financing to
Questron as contemplated by Section 6.8 (the "Closing Promissory Note"). As used
herein, (a) "Net Operating Assets" means, at the applicable measurement date,
the total assets of the Company (exclusive of cash and cash equivalents), net of
total liabilities of the Company (exclusive of the aggregate amount of the
indebtedness and tax liability described in Schedule 1.2, at the applicable
measurement date), and (b) "Stated Net Debt" means the aggregate amount, as of
March 31, 1999, of those liabilities of the Company specifically identified and
described on Schedule 1.2 (net of cash and cash equivalents at March 31, 1999).
(b) Deferred Purchase Price. The "Deferred Purchase Price"
will be an amount, subject to the limitations set forth below, equal to six (6)
times the difference between EBITDA (as defined below) for the Company for the
twelve-month period ending March 31, 2000 and $1,600,000, provided that the
maximum amount payable to Seller pursuant to this Section 1.2(b) (as adjusted in
accordance with Section 1.2(c) below) shall in no event exceed $1,500,000 in the
aggregate. The Deferred Purchase Price shall be paid by June 30, 2000 (the
"Second Closing Date") payable as follows: (i) delivery of a promissory note in
the principal amount equal to one-third (1/3) of the Deferred Purchase Price,
made by Questron Finance Corp., in favor of Seller, substantially in the form
attached hereto as Exhibit B (the "Post-Closing Promissory Note"); (ii) delivery
of shares of Questron Common Stock having a value equal to one-third (1/3) of
the Deferred Purchase Price (the "Deferred Stock Consideration"), calculated on
the basis of the average closing market price reported in the Wall Street
Journal for Questron Common Stock for the five (5) trading days ending on the
third trading day immediately prior to the Second Closing Date; and (iii) at the
option of Questron, either (a) a wire transfer (or certified check) in an amount
equal to one-third (1/3) of the Deferred Purchase Price (the "Optional Deferred
Cash Consideration") or (b) delivery of shares of Questron Common Stock having a
value equal to one-third (1/3) of the Deferred Purchase Price (the "Optional
Deferred Stock Consideration"), calculated on the basis of the average closing
market price reported in the Wall Street Journal for Questron Common Stock for
the five (5) trading days ending on the third trading day immediately prior to
the Second Closing Date.
(c) Definition of EBITDA. For purposes of this Section 1.2,
"EBITDA" shall mean the aggregate earnings of the Company before interest,
income taxes, depreciation, amortization of goodwill, and the allocation of
corporate expenses associated with the Company and without regard to
extraordinary or non-recurring items that are paid or incurred after Closing,
including any extraordinary bonus or severance payments made to employees.
EBITDA shall be calculated in accordance with generally accepted accounting
principles, consistently applied ("GAAP"). EBITDA shall be determined by
Questron and reviewed by Seller's and Questron's respective independent public
accountants.
1.3 Transactions on the Closing Date.
(a) At the Closing, Seller will deliver, or cause to be
delivered, to Questron the following:
(i) stock certificate(s) representing the Shares
in form suitable for transfer, registered in the name of
Seller, evidencing the number of Shares set forth opposite
Seller's name
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on Schedule 1.1, endorsed in blank or with an executed blank
stock transfer power attached, and with any necessary stock
transfer tax stamps attached thereto;
(ii) all stock books, stock transfer ledgers,
minute books and the corporate seals of the Company;
(iii) resignations of all of the directors and
officers of the Company, effective as of the Closing;
(iv) duly executed signature cards for all bank
accounts of the Company which are necessary to establish
Questron's designees, and only Questron's designees, as the
authorized signatories for such accounts;
(v) each of the certificates and documents
contemplated by Article 6; and
(vi) such other certificates, documents,
instruments and agreements as Questron shall deem necessary in
its reasonable discretion in order to effectuate the
transactions contemplated herein, in form and substance
reasonably satisfactory to Questron.
(b) At the Closing, Questron will deliver to Seller the
following:
(i) the Initial Cash Consideration;
(ii) the Initial Stock Consideration;
(iii) the Closing Promissory Note;
(iv) each of the certificates and documents
contemplated by Article 7; and
(v) such other certificates, documents,
instruments and agreements as Seller shall deem necessary in
its reasonable discretion in order to effectuate the
transactions contemplated herein, in form and substance
reasonably satisfactory to Seller.
1.4 Restricted Securities; Registered Securities. The shares
representing the Initial Stock Consideration and the Deferred Stock
Consideration shall be restricted securities under the Securities Act of 1933,
as amended (the "Act"), will not have been registered under the Act and may not
be sold or transferred absent such registration or unless an exception from
registration is available and the certificates evidencing such shares shall bear
an appropriate legend restricting transfers under the Act. In the event that the
shares representing the Optional Deferred Stock Consideration are not registered
pursuant to an effective registration statement filed under the Act at the time
of the payment of the Deferred Purchase Price, Questron undertakes to file a
registration statement covering the resale of such shares (the "Shelf
Registration") and to use its best efforts to cause such registration statement
to become effective within ninety (90) days of the Second Closing Date. Questron
shall maintain the effectiveness of the Shelf Registration until such time as
the Seller has sold all of its shares representing the Optional Deferred Stock
Consideration or the shares representing the Optional Deferred Stock
Consideration are eligible for sale under Rule 144 of the Securities Act without
limitation. In connection with any such registration, the holder of such shares
shall provide Questron such information, and shall execute and deliver such
certificates and other agreements, as Questron shall reasonably request.
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ARTICLE 2
CLOSING AND TERMINATION
2.1 Closing. The closing of the transactions provided for in Section
1.3 above (the "Closing") will take place at the offices of Battle ▇▇▇▇▇▇ LLP,
Park Avenue Tower, ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇▇▇, at 10:00 A.M.
(local time) on or about June 2, 1999 (the "Closing Date"), or at such other
place, time and date as may be agreed upon by Questron and Seller. The effective
date of the Closing shall be April 1, 1999 (the "Effective Date").
2.2 Termination. Anything contained in this Agreement other than in
this Section 2.2 to the contrary notwithstanding, this Agreement may be
terminated in writing at any time on or prior to the Closing:
(a) without liability on the part of any party hereto, by
mutual written consent of Questron and Seller;
(b) without liability on the part of any party hereto
(unless occasioned by reason of a breach by any party hereto of any
of its representations, warranties or obligations hereunder) by
either Questron or Seller, if the Closing shall not have occurred on
or before June 30, 1999 (or such later date as may be agreed upon in
writing by the parties hereto);
(c) by Questron, if Seller shall breach in any material
respect any of its representations, warranties or obligations
hereunder and such breach shall not have been cured or waived or
Seller shall not have provided reasonable assurance that such breach
can and will be cured on or before the Closing Date; or
(d) by Seller, if Questron shall breach in any material
respect any of its representations, warranties or obligations
hereunder and such breach shall not have been cured or waived or
Questron shall not have provided reasonable assurance that such
breach can and will be cured on or before the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE COMPANY
Seller and the Company jointly and severally represent and warrant to
Questron and QDL that:
3.1 Authority; Due Execution. The Company has full corporate power
and authority to enter into this Agreement and all other agreements, documents,
certificates and instruments contemplated by this Agreement to which it is a
party and to consummate the transactions contemplated hereby and thereby. Seller
has the power to enter into this Agreement and all other agreements contemplated
by this Agreement to which Seller is a party and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and the Employment
Agreement (as hereinafter defined) and all other agreements contemplated by this
Agreement to which the Company and Seller are a party will be as of the Closing
Date, duly executed and delivered by the Company and Seller, and (assuming due
execution and delivery by QDL and Questron) this Agreement and the Employment
Agreement and all other agreements contemplated by this Agreement to which the
Company and Seller are a party will constitute valid and
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binding obligations of the Company and Seller, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization or
similar laws affecting creditors' rights generally or by general equitable
principles.
3.2 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina and has all requisite corporate power and authority to carry on its
business as now being conducted and to own its properties and is duly licensed
or qualified and in good standing as a foreign corporation in each jurisdiction
in which it is required to be so licensed or so qualified, except where the
failure to be so licensed or so qualified would not have a material adverse
effect on the financial condition, assets, liabilities (contingent or
otherwise), results of operations or business (a "Material Adverse Effect") of
the Company.
3.3 Certificate of Incorporation; By-laws. Seller has heretofore
delivered to Questron complete and correct copies of the articles of
incorporation and by-laws of the Company as currently in effect.
3.4 Subsidiaries and Equity Investments. The Company has no
subsidiaries and does not own, directly or indirectly, any investments, capital
stock or other equity or ownership interests in any other corporations or
business enterprises and is not a partner in any partnership or a co-venturer in
any joint venture or other business enterprise. The term "subsidiary" means any
corporation or other entity of which the Company, directly or indirectly, owns
or controls capital stock or ownership interests representing either (i) more
than fifty percent (50%) of the general voting power under ordinary
circumstances of such corporation or entity, or (ii) if an entity other than a
corporation, more than fifty percent (50%) of the economic interest therein.
3.5 Ownership of Shares. Seller is the lawful record and beneficial
owner of that number of Shares set forth opposite Seller's name on Schedule 1.1
which Shares represent all of the issued and outstanding shares of the Company's
capital stock. Seller owns the Shares set forth opposite Seller's name on
Schedule 1.1 free and clear of all pledges, liens, encumbrances, easements,
security interests, claims, options and restrictions of every kind
("Encumbrances"), except for those Encumbrances identified on Schedule 3.5
(which shall be satisfied and released on or prior to the Closing), and for
restrictions on transfer generally applicable under federal and state securities
laws. Upon the delivery of the Shares in the manner contemplated under Section
1.3, at Closing, Seller will transfer to Questron valid record and beneficial
title to such Shares, free and clear of all Encumbrances, except for
restrictions on transfer generally applicable under federal and state securities
laws.
3.6 Capitalization. The authorized capital of the Company consists of
100,000 shares of common stock, no par value (the "Common Stock"), of which 100
shares are issued and outstanding. Except as set forth on Schedule 3.6(a), no
other class of capital stock or other ownership interests of the Company or any
subsidiary is authorized, issued, reserved for issuance or outstanding. All such
issued and outstanding shares of Common Stock have been duly authorized and are
validly issued, fully paid and nonassessable. No shares of Common Stock
(including, without limitation, the Shares), and no options, warrants or other
rights, agreements, commitments or arrangements of any kind to acquire shares of
Common Stock, were issued in violation of (x) any preemptive or other rights, or
(y) any provision of any contract, agreement or arrangement of any kind. Except
as set forth on Schedule 3.6(b), there are no outstanding options, warrants,
subscriptions, unsatisfied preemptive rights, calls or other rights, agreements,
commitments or arrangements of any kind to acquire any of the outstanding,
authorized but unissued, unauthorized or treasury shares of the capital stock of
the Company or any subsidiary or any
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security of any kind convertible into or exchangeable for any such capital
stock. Except as set forth on Schedule 3.6(c), there are no voting trusts,
shareholder agreements, proxies or other agreements relating to the voting,
purchase or sale of capital stock of the Company (i) between or among the
Company and any of its shareholders, and (ii) between or among any of the
Company's shareholders. There is no outstanding bond, debenture, note or other
indebtedness of the Company having the right to vote (or convertible into or
exchangeable for securities having the right to vote) on any matter on which
shareholders of the Company or any subsidiary may vote.
3.7 No Violation. Neither Seller nor the Company is subject to
or bound by any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) (in the case of the Company) its articles of
incorporation or by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, proxy, bond, indenture, other instrument or
agreement, Permit (as defined below), trust, custodianship or other
restriction, or
(d) any consent, judgment, order, writ, award, injunction
or decree of any court, governmental or regulatory body,
administrative agency or arbitrator,
that would conflict with, prevent or be violated by or that would result in the
creation of any Encumbrance as a result of, or under which there would be a
default or right of termination, amendment, acceleration, revocation,
cancellation or suspension as a result of, the execution, delivery and
performance by Seller of the Agreements to which such Seller is a party and the
consummation of the transactions contemplated thereby. Except as set forth on
Schedule 3.7, no consent, order, license, permit, approval or authorization of
or declaration, notice or filing (collectively, "Permits") with any individual,
corporation, partnership, limited liability company, trust or unincorporated
organization or any government or any agency or political subdivision thereof (a
"Person") is required for the valid execution, delivery and performance by
Seller or the Company of the Agreements to which it is a party and the
consummation of the transactions contemplated thereby.
3.8 Personal Property. Schedule 3.8(a) sets forth (i) the tangible
physical assets of the Company as of the date of this Agreement that do not
constitute real property (including machinery, equipment, tools, dies,
furniture, furnishings, leasehold improvements, software, vehicles, buildings
and fixtures) and that have a book value or replacement value in excess of
$50,000 per item or per category of items and the location by address of such
items; (ii) individual refundable deposits in excess of $10,000 or $25,000 in
the aggregate; and (iii) all outstanding loans or advances made by the Company
or any subsidiary to any Person in excess of $20,000.
Except as set forth on Schedule 3.8(b), the Company has
good and valid title to all of its material properties and assets that do not
constitute real property, free and clear of all Encumbrances. Except as set
forth on Schedule 3.8(c), the Company owns, has valid leasehold interests
(pursuant to leases disclosed in such Schedule) in or valid contractual rights
pursuant to contracts disclosed in such Schedule (or not required to be
disclosed therein due to the dollar threshold set forth in Section 3.22(a)) to
use, all of the material assets, tangible and intangible, currently used by, or
necessary for the present conduct of the business of, the Company.
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3.9 Litigation. There is no charge, complaint, action, order, writ,
injunction, judgment or decree outstanding or claim, suit, litigation,
proceeding, labor dispute, arbitral action or, to the knowledge of the Company
and Seller, investigation (collectively, "Actions") pending or, to the knowledge
of the Company and Seller, threatened against, relating to or affecting (i) the
Company or the operation of the business of the Company as currently operated
and as proposed to be operated, (ii) any Benefit Plan of the Company, or (iii)
the transactions contemplated by this Agreement. The Company is not in default
with respect to any judgment, order, writ, injunction or decree of any
Governmental Authority, and there are no unsatisfied judgments against the
Company.
3.10 Real Property. (a) Schedule 3.10(a) sets forth, as of the date
of this Agreement, a complete and accurate list, in all material respects, of
(i) all of the real property owned by the Company (the "Owned Real Property"),
(ii) all of the real property that the Company has leased or subleased (the
"Leased Real Property," and together with the Owned Real Property, the "Real
Property") and an identification of the applicable leases, including all
amendments thereto and all material agreements incidental thereto (the "Real
Property Leases"), and (iii) all indebtedness secured by a lien, mortgage or
deed of trust on the Real Property and the outstanding principal amount of each
such lien, mortgage and deed of trust as of the date hereof. As of the date of
this Agreement, the Company has good and marketable fee title to its interest in
the Owned Real Property or a valid leasehold interest in the Leased Real
Property as provided in the applicable Real Property Lease, in each case, free
and clear of all Encumbrances and defects, except for (A) liens, mortgage or
deed of trust securing the indebtedness referred to in clause (iii) of the
preceding sentence, and (B) taxes or assessments, special or otherwise, not due
and payable or being contested in good faith. There exists no default or event
of default or, to the knowledge of the Company and Seller, event, occurrence,
condition or act (including the consummation of the transactions contemplated
hereby) on the part of the Company which, with the giving of notice, the lapse
of time, or the happening of any other event or condition, would become a
default or event of default under any indebtedness secured by a lien, mortgage
or deed of trust on the Real Property, except as set forth on Schedule 3.10(a).
(b) Schedule 3.10(b) lists all of the Real Property Leases.
Each of the Real Property Leases is in full force and effect and constitutes a
valid leasehold interest in the respective Leased Real Property and has not been
assigned, modified, supplemented or amended except as set forth on Schedule
3.10(b). The Company has not received a written notice of any monetary default
or other material default under any Real Property Lease or has given or received
any notice for purpose of terminating any Real Property Lease; all rents due
under the Real Property Leases have been paid.
(c) With respect to each of the Real Property Leases, the
Company has adequate rights of ingress and egress for the operation of the
business of the Company in the ordinary course. To the knowledge of the Company
and Seller, except as set forth in Schedule 3.10(c), none of the buildings,
structures or appurtenances (or any equipment therein), nor the operation or
maintenance thereof, violates any restrictive covenant or any provision of any
federal, state, provincial or local law, ordinance, rule or regulation, or
encroaches on any property owned by others, except where such violation or
encroachment does not materially adversely affect the value or use of any such
building, structure, appurtenance or equipment.
(d) Except as set forth in Schedule 3.10(d), (i) no
condemnation proceeding is pending or, to the knowledge of the Company and
Seller, threatened with respect to the Real Property or any buildings,
structures or appurtenances located thereon, and (ii) none of the buildings,
structures or appurtenances have been damaged or destroyed, in whole or in part,
as a result of any fire or other casualty, which damage or destruction has not
been fully repaired or restored.
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(e) Except as set forth in Schedule 3.10(e), no interest of
the Company in any Real Property is subject to any right of first offer, first
refusal or right or option to purchase.
(f) The Company has all Permits and other governmental
authorizations necessary to carry on the business of the Company.
3.11 Non-Real Estate Leases. Schedule 3.11 lists all of the Company's
right, title and interest in and to the assets, properties and rights of every
type and description (other than Real Property), tangible and intangible,
wherever located, owned by the Company from and after the Effective Date and on
the Closing Date or in which the Company has any interest whatsoever on the
Closing Date relating to, used or useful in the conduct of the Company's
business of distributing fasteners, hardware and related components and
providing inventory logistics management services for such products (all of
which assets are hereinafter referred to collectively as the "Acquired Assets")
that are possessed by the Company under an existing lease, including, without
limitation, all vehicles, forklifts, machinery, equipment, furniture, fixtures
and computers, except for any lease under which the aggregate annual payments
(excluding Taxes) for the last twelve (12) preceding months are less than Ten
Thousand Dollars ($10,000) (each, an "Immaterial Lease"). Schedule 3.11 also
lists the leases under which such Acquired Assets are possessed. All of such
leases (excluding Immaterial Leases) are referred to herein as the "Non-Real
Estate Leases." Each Non-Real Estate Lease is in full force and effect and
constitutes a valid leasehold interest in such Acquired Assets, and has not been
assigned, modified, supplemented or amended except as set forth on Schedule
3.11.
3.12 Financial Statements. Seller and the Company have heretofore
furnished QDL and/or Questron with copies of the following consolidated
financial statements of the Company (i) unaudited balance sheets as at December
31 for each of 1995, 1996 and 1997, respectively; (ii) unaudited statements of
operations for each of the years ended December 31, 1995, 1996, 1997, and 1998;
and (iii) the unaudited balance sheet (the "Reference Balance Sheet") at
December 31, 1998 (the "Reference Balance Sheet Date"). Except as noted therein
and except for normal year-end adjustments with respect to the December 31, 1998
unaudited financial statements, and adjustments for profit-sharing plan
contribution and tax accruals, all such financial statements are complete and
correct, were prepared in accordance with the Company's historical accounting
practices, consistently applied throughout the periods indicated and present
fairly the financial position of the Company at such dates and the results of
its operations for the periods then ended, subject to such inaccuracies, if any,
which are not material in nature or amount.
Except as set forth on Schedule 3.12 or Schedule 1.2, there
are no liabilities, debts, obligations or claims against the Company of any
nature (accrued, absolute or contingent, unasserted, known or unknown, or
otherwise), except (i) as and to the extent reflected or reserved against on the
Reference Balance Sheet; (ii) those that are not in excess of $10,000
individually or $25,000 in the aggregate and were incurred since the Reference
Balance Sheet Date in the ordinary course of business consistent with prior
practice; or (iii) open purchase or sales orders or agreements for delivery of
goods and services in the ordinary course of business consistent with prior
practice.
3.13 Books and Records. Seller and the Company have made and will
make available for inspection by Questron all the books of account relating to
business of the Company. Such books of account of the Company reflect all the
material transactions and other material matters required to be set forth under
the Company's historical accounting practices, applied on a consistent basis.
The minute book of the Company that has been made available
to Questron for its inspection contains true and complete records of all
meetings and consents in lieu of meetings of the Board
790690.11
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of Directors (and any committees thereof) of the Company and of Seller and
accurately reflects all material transactions referred to in such minutes and
consents in lieu of meetings. The stock books that have been made available to
Questron for its inspection are true and complete in all material respects.
3.14 Tax Matters. (a) For purposes of this Agreement,
(i) "Tax" or "Taxes" shall mean any federal,
state, local, foreign or other taxes (including, without
limitation, income (net or gross), gross receipts, profits,
alternative or add-on minimum, franchise, license, capital,
capital stock, intangible, services, premium, mining, transfer,
sales, use, ad valorem, payroll, wage, severance, employment,
occupation, property (real or personal), windfall profits,
import, excise, custom, stamp, withholding or estimated taxes),
fees, duties, assessments, withholdings or governmental charges
of any kind whatsoever (including interest, penalties,
additions to tax or additional amounts with respect to such
items) relating to the income, operations or properties of the
Company or the ownership thereof (by Seller);
(ii) "Pre-Effective Date Periods" shall mean all
Tax periods ending on or before the Effective Date and, with
respect to any Tax period that includes but does not end on the
Effective Date, the portion of such period that ends on and
includes the Effective Date;
(iii) "Returns" shall mean all returns,
declarations, reports, estimates, information returns and
statements of any nature regarding Taxes for any Pre-Effective
Date Period required to be filed by the Company or Seller and
relating to the Company and which previously were filed or are,
or become, due on or before the Closing Date;
(iv) "Code" shall mean the Internal Revenue Code
of 1986, as amended; and
(v) the term "Tax Deficiency" shall include a
reduction in any net operating losses.
(b) In respect of the Pre-Effective Date Periods only,
(i) all Returns have been or will be timely filed
when due in accordance with all applicable laws;
(ii) all Taxes shown on the Returns as due have
been or will be timely paid when due;
(iii) the Returns completely, accurately, and
correctly in all material respects reflect the facts regarding
the income, properties, operations and status of any entity
required to be shown thereon;
(iv) the charges, accruals, and reserves for
Taxes due, or accrued but not yet due, relating to the income,
properties or operations of the Company for any Pre-Effective
Date Period as reflected on the books of the Company are
adequate in all material respects to cover such Taxes;
790690.11
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(v) except with respect to the Return due March
31, 1999, as to which an extension has been filed, there are no
agreements or consents currently in effect for the extension or
waiver of the time (A) to file any Return or (B) for assessment
or collection of any Taxes relating to the Company for any
Pre-Effective Date Period, and no Person has been requested to
enter into any such agreement or consent;
(vi) no Returns of the Company have been examined
by the relevant tax authorities in the past, and the Company
has received no notice that the relevant taxing authorities
intend to examine the Company's Returns;
(vii) all Returns with respect to taxable years
ending on or prior to December 31, 1994 are Returns with
respect to which the applicable statute of limitations, after
giving effect to any extensions and waivers, has expired;
(viii) all Taxes which the Company is required by
law to withhold or collect have been in all material respects
duly withheld or collected, and have been timely paid over to
the appropriate governmental authorities to the extent due and
payable;
(ix) there is no action, suit, proceeding,
investigation, audit or claim currently pending, or to Seller's
knowledge, threatened, regarding any Taxes relating to the
Company for any Pre-Effective Date Period;
(x) all Tax Deficiencies which have been claimed,
proposed or asserted against Seller or, to Seller's knowledge,
any prior Seller of the Company relating to ownership of stock
in the Company or against the Company or any group of which the
Company is now or was formerly a member have been fully paid or
finally settled;
(xi) no Person has executed or entered into a
closing agreement pursuant to Code Section 7121 (or any
comparable provision of state, local or foreign law) that is
currently in force and determines the Tax liabilities of the
Company;
(xii) there is no, and will not be any, agreement
or consent made under Code Section 341(f) (or any comparable
provision of state, local or foreign law) affecting the
Company;
(xiii) there are no liens for any Tax on the
assets of the Company except liens which arise as a matter of
law;
(xiv) there are no tax sharing agreements to
which the Company is now or, to Seller's knowledge, ever has
been a party;
(xv) the Company is not a party to any agreement,
contract, arrangement or plan that would result, separately or
in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Code Section 280G (or any
comparable provision of state, local or foreign law);
(xvi) the Company has not received any written
notice of any reassessment and, to Seller's knowledge, there
are no proposed reassessments of any property owned or
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leased by the Company or any other proposals that would
increase the amount of any Tax for which the Company could be
liable;
(xvii) the Company has not agreed, and is not
required, to make any adjustment under Code Section 481(a) (or
any comparable provision of state, local or foreign law) by
reason of a change in accounting method or otherwise; and
(xviii) no power of attorney is currently in
effect, and no Tax ruling has been requested of any
governmental authority, with respect to any Tax matter relating
to the Company.
3.15 Employee Matters. (a) Schedule 3.15(a) sets forth as of the date
hereof the name, date of hire, current annual compensation rate (including bonus
and commissions), title, current base salary rate and accrued bonus and vacation
of each present employee of the Company; and a list of any employment,
managerial, advisory, consulting, collective bargaining and severance
agreements; employee confidentiality or other agreements protecting proprietary
processes, formulae or information; any employee handbook(s) and written
employment policies; any reports and/or plans prepared or adopted pursuant to
the Equal Employment Opportunity Act of 1972, as amended; any affirmative action
plans; and each employee benefit or compensation plan, agreement or arrangement
covering present or former employees, consultants or directors of the Company,
including "employee benefit plans" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), stock purchase, stock
option, fringe benefit, change in control, bonus and deferred compensation
plans, agreements or funding arrangements (collectively, the "Benefit Plans"),
whether sponsored, maintained or contributed to by the Company.
(b) For each Benefit Plan, except as set forth on Schedule
3.15(b), each of the following is true:
(i) if such Benefit Plan is an employee pension
benefit plan (as such term is defined in ERISA Section 3(2))
intended to qualify under the Code, is and since its inception
has been so qualified and the Plan has received a favorable
determination letter as to its qualification under the Code (or
such a letter has been or will be applied for prior to
expiration of the applicable remedial amendment period), and,
to the knowledge of the Company and Seller, nothing has
occurred, whether by action or failure to act, which could
cause the loss of such qualification or which would result in
material costs to the Company under the Internal Revenue
Service's Closing Agreement Program, Voluntary Compliance
Resolution Program or Administrative Policy Regarding
Sanctions;
(ii) the financial statements of the Company
reflect in all material respects all employee liabilities
arising under such Benefit Plan in a manner satisfying the
applicable requirements (if any) of Statement of Financial
Accounting Standards ("SFAS") Nos. 87, 88, 106 and 112;
(iii) there are no actions, suits or claims
(other than routine claims for benefits in the ordinary course)
pending, or to Seller's knowledge, threatened, and to Seller's
knowledge, there are no facts which could give rise to any such
material actions, suits or claims (other than routine claims
for benefits in the ordinary course);
790690.11
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(iv) none of Seller, the Company, nor any other
party has, with respect to any such Benefit Plan, engaged in a
prohibited transaction, as such term is defined in Code Section
4975 or ERISA Section 406, which could subject the Company or
Questron to any Taxes, penalties or other material liabilities
resulting from prohibited transactions under Code Section 4975
or under ERISA Sections 409 or 502(i);
(v) to the knowledge of the Company and Seller,
all Benefit Plans are in compliance in all material respects
with ERISA and the Code;
(vi) all contributions and insurance premiums
required as of the Closing Date have been paid;
(vii) the execution and delivery of this
Agreement by Seller and the consummation of the transactions
contemplated hereunder, will not (pursuant to any
"change-of-control provision" or otherwise) result in any
additional (or otherwise modify or accelerate any existing or
contingent) obligation or liability (with respect to accrued
benefits or otherwise) to any such Benefit Plan, to any
employee or former employee of the Company;
(viii) the transactions contemplated by this
Agreement will not result in the payment or series of payments
to any employee of the Company which is a "parachute payment"
within the meaning of Section 280G of the Code; and
(ix) Seller has delivered to Questron current,
accurate and complete copies of such Benefit Plan (including
the plan document, trust agreement and other funding or
insurance instruments relating thereto) and, to the extent
applicable, copies of the most recent: (A) determination letter
and any outstanding request for a determination letter; (B)
Form 5500 with respect to the plan years ending in calendar
years 1995, 1996 and 1997; (C) collective bargaining agreements
or other such contracts; and (D) the general notification to
employees of their "COBRA" rights under Code Section 4980B and
ERISA Sections 601-609 and the form of letter(s) distributed
upon the occurrence of a COBRA qualifying event for each
Benefit Plan that is a "group health plan" as defined in Code
Section 5000(b)(1) and ERISA Section 607(1).
(c) Neither the Company nor any entity which is considered
one employer with the Company under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate") sponsors or maintains (and has not sponsored or
maintained in the calendar years ending 1996, 1997 and 1998) an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) that is
subject to Title IV of ERISA or to the minimum funding requirements of Section
412 of the Code or Part 3 of Title I of ERISA.
(d) Neither the Company nor any ERISA Affiliate contributes
or is obligated to contribute (or in the past six years has been obligated to
contribute) to a "multiemployer plan" (within the meaning of Section 4001(a)(3)
of ERISA).
(e) The Company has no employee welfare benefit plans
(within the meaning of ERISA Section 3(1)) which provide benefits beyond
termination of employment except as required by applicable law.
790690.11
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(f) With respect to the Company, except as set forth on
Schedule 3.15(f), each of the following is true in all material respects:
(i) to the knowledge of the Company and Seller,
the Company is in compliance with all applicable laws and
agreements respecting employment and employment practices,
terms and conditions of employment and wages and hours and
occupational safety and health and is not engaged in any unfair
labor practice within the meaning of Section 8 of the National
Labor Relations Act, and there is no action, suit or legal,
administrative, arbitration, grievance or other proceeding
pending or, to Seller's knowledge, threatened, or, to Seller's
knowledge, is any investigation pending or threatened against
the Company or any subsidiary relating to any employment
matter, and, to Seller's knowledge, no basis exists for any
such action, suit or legal, administrative, arbitration,
grievance or other proceeding or governmental investigation;
(ii) there is no labor strike, dispute, slowdown
or stoppage actually pending or, to Seller's knowledge,
threatened against the Company;
(iii) none of the employees of the Company is a
member of or represented by any labor union and, there are no
attempts of whatever kind and nature being made to organize any
of such employees;
(iv) without limiting the generality of paragraph
(iii) above, no certification or decertification is pending or
was filed within the past twelve months respecting the
employees of the Company and no certification or
decertification petition is being or was circulated among the
employees of the Company within the past twelve months;
(v) no agreement (including any collective
bargaining agreement), arbitration or court decision, decree or
order or governmental order which is specifically directed or
applicable to the Company and is binding on the Company in any
material way limits or restricts the Company from relocating or
closing any of its operations;
(vi) the Company has not experienced any
organized work stoppage in the last five years;
(vii) there are no administrative proceedings,
lawsuits or complaints of discrimination (including but not
limited to discrimination based upon sex, age, marital status,
race, national origin, sexual orientation, disability or
veteran status) pending or, to Seller's knowledge, threatened,
or to Seller's knowledge, is any investigation pending or
threatened before the Equal Employment Opportunity Commission
or any federal, state or local agency or court, or is any
complaint or internal investigation pending with regard to
sexual or other harassment. There have been no audits of the
equal employment opportunity practices or affirmative action
practices of the Company and, to Seller's knowledge, no
reasonable basis for any claim regarding such practices exists;
and
(viii) there are no individual agreements,
employment practices, policies or procedures, or other
representations, warranties written or oral, which have been
made by the Company to employees of the Company that commit QDL
to retain them as employees for any period of time subsequent
to the Closing, or to pay them severance if
790690.11
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they are not retained, except as otherwise provided by Law or
as set forth on Schedule 3.15(f).
3.16 Intellectual Property. Schedule 3.16 sets forth a list
containing detailed information concerning (x) registered trademarks, trademark
registrations and applications therefor, trade names, brand names, all service
marks, service ▇▇▇▇ registrations and applications therefor, all registered
trade dress rights, registrations and applications therefor, patents and patent
applications, material registered copyrights, and applications therefor
(including information as to expiration dates and federal registration numbers,
date of registration or application for registration and the name in which
registration was applied for of all the foregoing where applicable) presently
owned or used, in whole or in part, by the Company or any subsidiary or for
which the Company is licensed. Neither Seller nor the Company are licensors in
respect of any patents, trade secrets, inventions, shop rights, copyrights or
applications therefor, (y) all material computer software used by the Company in
the conduct of its business and (z) all other trademarks and other marks, trade
names and other trade rights and all other material trade secrets, material
designs, plans, specifications, patents, patent applications and other
intellectual property rights of any kind of the Company, whether or not
registered, including, without limitation, all rights of the Company to
exclusive use and ownership of the names "Capital Fasteners" or "Capital
Fasteners Incorporated" and any and all other names associated with, derived
from or used in connection with the conduct of the business (and all trade names
listed on Schedule 3.16) (all of the items referred to in this clause (i) being
"Intellectual Property Rights") and (ii) identifies any Intellectual Property
Rights that any third party owns and that the Company uses or proposes to use in
the business of the Company, and specifies whether such use is or will be
pursuant to license, sublicense, agreement or permission. The Company owns (or,
as set forth on Schedule 3.16, possesses enforceable licenses or other rights to
use) all Intellectual Property Rights now used or proposed to be used in its
business and has taken all reasonably necessary or appropriate action to protect
the Intellectual Property Rights of the Company. Except as set forth on Schedule
3.16, no Person has a right to receive a royalty or similar payment in respect
of any Intellectual Property Rights pursuant to any contractual arrangements
entered into by the Company or otherwise. The Company has no licenses granted by
or to it and no other agreements to which it is a party, relating to any of the
Intellectual Property Rights except as set forth on Schedule 3.16, the Company
has not received notice that the Company's use of the Intellectual Property
Rights is interfering with infringing upon or otherwise violating the rights of
any third party in or to such Intellectual Property Rights, and no proceedings
have been instituted against or notices received by the Company alleging that
the Company's use or proposed use of any Intellectual Property Rights infringes
upon or otherwise violates any rights of a third party in or to such
Intellectual Property Rights, which infringement or violation could have a
Material Adverse Effect on the Company.
3.17 Accounts Receivable. The accounts receivable appearing on the
Reference Balance Sheet and all accounts receivable created since that date
through the Closing Date represent in all material respects and will in all
material respects represent valid obligations owing to the Company, have arisen
from bona fide transactions in the ordinary course of business and are fully
collectible by the Company within ninety (90) days of the Closing Date without
cost to QDL, subject to the reserve for doubtful accounts appearing on the
Reference Balance Sheet. If and to the extent that Questron or any Questron
Indemnitee actually has recovered from Seller any Questron Losses under Article
8 hereof resulting from or arising out of a breach of the representation or
warranty set forth in this Section 3.17 (insofar at it relates to collectibility
of accounts receivable), then (i) if Questron or QDL thereafter receives payment
in respect of such an accounts receivable from the debtor(s), then Questron or
QDL, as the case may be, shall pay to Seller such amounts received in respect of
such account receivable up to the amount previously paid by Seller to Questron
(or any Questron Indemnitee) as a Questron Loss, and (ii) if Questron or QDL has
not thereafter received payment in respect of such an accounts receivable from
the debtor(s), then at
790690.11
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the written request of Seller, Questron will assign to Seller such accounts
receivable with respect to which Seller has indemnified Questron (or any
Questron Indemnitee) up to the amount previously paid by Seller to Questron (or
any Questron Indemnitee) as a Questron Loss.
3.18 Inventory. Except as set forth on Schedule 3.18, the inventories
of raw materials, in-process and finished products of the Company are in good
condition, conform in all material respects with the Company's applicable
specifications and warranties, are not obsolete, and are saleable as of the date
hereof at values not less than the book value amounts thereof. Adequate reserves
have been provided for inventory obsolescence in the aggregate.
3.19 No Material Change. Except as set forth on Schedule 3.19, since
the Reference Balance Sheet Date, there has been no material adverse change in
the financial condition, assets, liabilities (contingent or otherwise), results
of operations or business of the Company.
3.20 Absence of Change or Event. Except as set forth on Schedule
3.20, since the Reference Balance Sheet Date, the Company has conducted its
business only in the ordinary course consistent with past practice and has not:
(a) incurred any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become due, in
excess of $25,000 in the aggregate, except liabilities or obligations
incurred in the ordinary course of business and consistent with prior
practice;
(b) mortgaged, pledged or subjected to lien, restriction or
any other Encumbrance any of the property, businesses or assets,
tangible or intangible, of the Company, except for purchase money
liens;
(c) sold, transferred, leased to others or otherwise
disposed of any of its assets (or committed to do any of the
foregoing), including the payment of any loans owed, or the making of
any loans, to any officer, director, Seller or other affiliate of the
Company, except for inventory sold to customers or returned to
vendors and payments to any non-affiliates on account of accounts
payable or scheduled payments in respect of indebtedness for money
borrowed disclosed on the Reference Balance Sheet or in the
Schedules, or canceled, waived, released or otherwise compromised any
debt or claim other than in the ordinary course of business, or any
material right;
(d) suffered any damage, destruction or loss (whether or
not covered by insurance) in an amount greater than $25,000;
(e) made or committed to make any capital expenditures or
capital additions or betterments in excess of an aggregate of
$50,000;
(f) instituted or threatened any litigation, action or
proceeding before any court, governmental or regulatory body,
administrative agency or arbitrator relating to it or its property;
(g) issued, authorized for issuance or sold any capital
stock, notes, bonds or other securities, or any option, warrant or
other right to acquire the same, of the Company, or declared or paid
any dividend or made any other payment or distribution in respect of
its capital stock, or directly or indirectly redeemed, purchased or
otherwise acquired any of its capital stock or any option, warrant or
other right to acquire such capital stock;
790690.11
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(h) increased the compensation of any officer, director,
employee or agent of the Company, directly or indirectly, including
by means of any bonus, pension plan, profit sharing, deferred
compensation, savings, insurance, retirement, or any other employee
benefit plan, except in the case of any employee or agent whose
annual base compensation is less than $50,000;
(i) materially changed any of its business or accounting
accrual practices, including, without limitation, the amount of
promotional or advertising expenditures, investments, marketing,
pricing, purchasing, production, personnel, sales, returns or
budgets, accounts receivable or inventory reserves, or otherwise
changed its policies with respect thereto;
(j) made or changed any election concerning Taxes or Tax
Returns, changed an annual accounting period, adopted or changed any
accounting method, filed any amended Return, entered into any closing
agreement with respect to Taxes, settled any Tax claim or assessment
or surrendered any right to claim a refund of Taxes or obtained or
entered into any Tax ruling, agreement, contract, understanding,
arrangement or plan;
(k) allowed any Permit (as hereinafter defined) relating to
the business of the Company to lapse or terminate;
(l) materially amended or terminated or received any threat
(not subsequently withdrawn) to terminate, any Contract (as
hereinafter defined);
(m) cancelled, compromised, waived or released any rights
or claims (or series of related rights or claims) either (i)
involving an affiliate of the Company or Seller, (ii) involving more
than Ten Thousand Dollars ($10,000) or (iii) outside the ordinary
course of business consistent with past practice;
(n) delayed or failed to repay when due any material
obligation of the Company;
(o) failed to operate the business of the Company in the
ordinary course consistent with past practice so as to use reasonable
efforts to preserve the business and operations of the Company
intact, to keep available to QDL the services of its employees, and
to preserve for QDL the goodwill of the Company's suppliers,
customers, distributors and others having business relations with it;
(p) granted any license or sublicense of any rights under
or with respect to any Intellectual Property Rights of the Company;
(q) lent to, or made other agreement with any Company
employee outside the ordinary course of business consistent with past
practice giving rise to any claim or right on its part against the
Person or on the part of the Person against it;
(r) amended its articles of incorporation or bylaws or
merged with or into or consolidated with any Person, subdivided,
combined or in any way reclassified any shares of its capital stock,
or changed or agreed to change the rights of its capital stock or the
character thereof; or
(s) engaged in any other material transaction other than in
the ordinary course of business.
790690.11
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3.21 Compliance With Law. The operations and activities of the
Company have complied and are in compliance in all respects with all applicable
federal, state, local and foreign laws, statutes, rules, regulations, judicial
and administrative decisions and consents, judgments, orders, awards, writs and
decrees of any court, governmental or regulatory body, administrative agency or
arbitrator, including, without limitation, health and safety statutes and
regulations and all environmental laws, including, without limitation, all
restrictions, conditions, standards, limitations, prohibitions, requirements,
obligations, schedules and timetables contained in the environmental laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder, the
failure of which could have a Material Adverse Effect on the Company.
3.22 Contracts and Commitments. (a) Schedule 3.22 sets forth each
written contract or agreement involving a liability or obligation of the Company
equal to or in excess of $10,000 annually and outstanding as of the date hereof
to which the Company is a party, other than ordinary course of business purchase
orders.
(b) Except as set forth on Schedule 3.22, the Company is
not a party to:
(i) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw
materials, commodities, supplies, products or other property or
for the furnishing or receipt of services, including, without
limitation, any customer or vendor contracts involving more
than Ten Thousand Dollars ($10,000), excluding customer
purchaser orders in the ordinary course of business and
excluding arrangements which are terminable by the Company
without penalty on 30 days or less notice;
(ii) any written arrangement (or group of related
written arrangements) concerning a partnership or joint venture
with any other Person;
(iii) any written arrangement (or group of
related written arrangements) under which it has created,
incurred, assumed or guaranteed (or may create, incur, assume
or guarantee) indebtedness (including capitalized lease
obligations) involving more than Ten Thousand Dollars
($10,000), in principal amount or under which it has imposed
(or may impose) a security interest or lien on any of its
assets, tangible or intangible;
(iv) any written arrangement (or group of related
written arrangements) concerning confidentiality or
non-competition arrangements;
(v) any written arrangement with any of its
directors, officers, stockholders or employees in the nature of
a collective bargaining agreement, employment agreement or
severance agreement;
(vi) any written arrangement with any of its
directors, officers, Seller or employees or any member of any
such Person's immediate family (x) providing for the furnishing
of material services by, (y) providing for the rental of
material real or personal property from, or (z) otherwise
requiring material payments to (other than for services as
officers, directors or employees of the Company), any such
Person or any corporation, partnership, trust or other entity
in which any such Person has a substantial interest as a
Seller, officer, director, trustee or partner;
790690.11
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(vii) any other written arrangement (or group of
related written arrangements) under which the consequences of a
default or termination could have a Material Adverse Effect on
the Company;
(viii) any other written arrangement (or group of
related written arrangements) involving aggregate payments of
more than Ten Thousand Dollars ($10,000) annually or not
entered into in the ordinary course of business consistent with
past practice; or
(ix) any oral contract, agreement, past or
present practice or policy, or other arrangement with respect
to any of the matters referred to in the foregoing clauses (i)
through (ix) and any proposal (oral or written) to enter into
any contract, agreement or other arrangement with respect to
any of the matters referred to in the foregoing clauses (i)
through (ix).
(c) The Company has delivered to QDL and/or Questron a
correct and complete copy of each written arrangement listed in Schedule 3.22
and has included as part of Schedule 3.22 a brief summary of any oral contracts,
agreements or other arrangements and any proposals (oral or written) to enter
into any such contracts, agreements or other arrangements. Except as set forth
on Schedule 3.22, with respect to each written arrangement listed, (A) the
written arrangement is legal, valid, binding, and enforceable obligation of the
Company (assuming due authorization, execution and delivery thereof by the
parties thereto (other than the Company and Seller), and except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law) and is in full force and effect; (B) the written
arrangement will continue to be legal, valid binding obligation of the Company
and enforceable (except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar laws affecting
creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law) and is in
full force and effect on identical terms following the Closing Date; and (C) to
the Company's and Seller's knowledge, no party has repudiated any term of the
written arrangement.
(i) No purchase contracts (other than inventory
purchase commitments) of the Company continue for a period of
more than 12 months; and
(ii) Except as described in item (hh) of Schedule
3.22, the Company has no material liability or material
obligation with respect to the return of inventory or
merchandise in the possession of distributors, customers or
other Persons.
3.23 Insurance. (a) Schedule 3.23 sets forth (i) the policies of
insurance presently in force and, without restricting the generality of the
foregoing, those covering the Company's public and product liability and its
personnel, properties, buildings, machinery, equipment, furniture, fixtures and
operations, specifying with respect to each such policy the name of the insurer,
type of coverage, term of policy, limits of liability and annual premium; (ii)
the Company's premiums, deductibles and losses in excess of $25,000, by year, by
type of coverage, for the calendar years 1996, 1997 and 1998 based on
information received from the Company's insurance carrier(s); (iii) all
outstanding insurance claims in excess of $10,000 by the Company for damage to
or loss of property or income which have been referred to insurers or which
Seller believes to be covered by commercial insurance; (iv) general
comprehensive liability policies carried by the Company for the calendar years
1996, 1997 and 1998, including excess liability policies; and (v) any
agreements, arrangements or commitments by or relating to the Company under
which the Company indemnifies any other Person or is required to carry insurance
for the benefit of any
790690.11
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other Person. Seller has heretofore delivered to Questron complete and correct
copies of the policies and agreements set forth on Schedule 3.23.
(b) The insurance policies set forth on Schedule 3.23 are
in full force and effect, all premiums which are due with respect thereto
covering all periods up to and including the date of the Closing have been paid,
and no notice of cancellation or termination has been received with respect to
any such policy. Such policies are sufficient for compliance with all
requirements of law and all agreements to which the Company is a party; are
valid, outstanding and enforceable policies; will remain in full force and
effect through the respective dates set forth on Schedule 3.23; and will not in
any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. The Company is not in default under any of such
policies or binders, and the Company has not failed to give any notice or to
present any claim under any such policy or binder in a due and timely fashion
where such default or failure to give notice or present a claim could have a
Material Adverse Effect on the Company. The Company has not been refused any
insurance with respect to the respective assets or operations of the Company,
nor has any such coverage been limited, by any insurance carrier to which the
Company has applied for any such insurance or with which the Company has carried
insurance during the calendar years 1996, 1997 and 1998. The Company has not
received any notice from its insurance carriers that any insurance premiums will
be materially increased in the future or that any insurance coverage listed on
Schedule 3.23 will not be available in the future on substantially the same
terms as now in effect.
3.24 Affiliate Interests. (a) Except as set forth in Schedule 3.24,
no payments other than compensation payments during calendar years 1996, 1997
and 1998, have been made by the Company to Seller or any officer or director of
the Company, other than reimbursement of business expenses in the ordinary
course of business.
(b) Except as set forth on Schedule 3.24, no Seller,
officer or director of the Company or any affiliate of Seller (in each case, or
any family member thereof) (i) has any interest, directly or indirectly, in any
property, real or personal, tangible or intangible, including without
limitation, inventions, patents, trademarks or trade names, used in or
pertaining to the business of the Company, (ii) owns, directly or indirectly,
any interest in (excepting less than 5% stock holdings for investment purposes
in securities of companies which are publicly held and traded), or is an
officer, director, employee or consultant of, any Person which is, or is engaged
in business as, a competitor, lessor, lessee, supplier, distributor, sales agent
or customer of the Company, or (iii) has any cause of action or other claim
whatsoever against, or owes any amount to, the Company, except for claims
arising in the ordinary course of business arising from such Person's employment
with the Company and indebtedness described in Section 6.7 hereof.
3.25 Customers, Suppliers, Distributors, Etc. (a) Except as set forth
on Schedule 3.25(a), and except for the loss of such other customers or
relationship that will not have a Material Adverse Effect on the Company, no
such supplier, customer, distributor or sales representative of the Company has
cancelled or otherwise terminated, or made any written threat to the Company or
to any of their affiliates to cancel or otherwise terminate, for any reason,
including the consummation of the transactions contemplated hereby, its
relationship with the Company or to reduce sales volumes below those presently
existing, or has at any time on or after the Reference Balance Sheet Date
decreased materially its services or supplies to the Company or its usage of the
services or products of the Company or made any written claim that any item sold
by the Company failed to meet any specification with respect thereto or were
otherwise defective other than in the ordinary course of business or where such
claim does not involve an amount in excess of Ten Thousand Dollars ($10,000).
Except as set forth on Schedule 3.25(a), the Company and Seller have no
knowledge that any such supplier or customer intends to cancel or otherwise
790690.11
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terminate its relationship with the Company or to decrease materially its
services or supplies to the Company or their usage of the services or products
of the Company, as the case may be. Except as set forth on Schedule 3.25(a), the
Company has not sold goods to be delivered after Closing to any customer on a
consignment basis, and the Company has not agreed with any customer of the
Company to sell goods to it to be delivered after Closing at either a discounted
price or at a price which includes any type of allowance for the cost of the
customer's advertising.
(b) Schedule 3.25(b) sets forth the customer sales history
of the 10 largest customers of the Company, by dollar volume, for each of 1997
and 1998. Such information is true and complete.
(c) Schedule 3.25(c) sets forth a complete and accurate
list of suppliers of the Company from whom the Company has made aggregate
purchases of in excess of $25,000 during any of the calendar years ended
December 31, 1996, 1997 and 1998, showing the approximate total purchase by the
Company from each such supplier during such fiscal year.
3.26 Previous Sales; Warranties; Product Liability. Except as set
forth on Schedule 3.26, since January 1, 1993, the Company has not received any
written notice or claim that it has breached any express or implied warranties
in connection with the sale or distribution of goods or the performance of
services, except for such breaches as would not have or cause a Material Adverse
Effect on the Company.
(a) Schedule 3.26(a) sets forth all warranty claims for
amounts in excess of Fifteen Thousand Dollars ($15,000), individually, asserted
in writing against the Company, together with the actual or estimated cost of
repair or replacement, (i) outstanding as of the date hereof, and (ii) for each
of the two fiscal years ended December 31, 1997 and 1998.
(b) Schedule 3.26(b) contains a complete and correct list
of (i) product liability claims made against the Company since December 31, 1996
and (ii) any amounts paid by the Company or its insurance company with respect
to such claims. Except as set forth on Schedule 3.26(b), there is no Action,
suit, inquiry, proceeding or investigation by or before any Governmental
Authority pending or, to the knowledge of Seller, threatened against or
involving the Company relating to any product manufactured or sold by the
Company and alleged to have been defective, or improperly designed or
manufactured.
3.27 Additional Information. Schedule 3.27 accurately lists the
following (Schedule 3.27 may be revised as of immediately prior to the Closing
to account for any changes):
(a) the names of all officers and directors of the Company;
(b) the names and addresses of every bank or other
financial institution in which the Company maintains an account
(whether checking, savings or otherwise), lock box or safe deposit
box, and the account numbers and names of Persons having signing
authority or other access thereto;
(c) the names of all Persons authorized to borrow money or
incur or guarantee indebtedness on behalf of the Company;
(d) the names of any Persons holding powers of attorney
from the Company and a summary statement of the terms thereof; and
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(e) all names under which the Company has conducted any
part of the business or which it has otherwise used at any time
during the past five years.
3.28 Claims Under Stock Redemption Agreement. No claims for
indemnification have been made and, to the knowledge of the Company and Seller,
no claims for indemnification have been threatened against the Company under the
Indemnification provisions of the Stock Redemption Agreement, dated as of March
24, 1997 (the "Stock Redemption Agreement"), by and among Seller, the Company
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇").
3.29 Environmental Matters. For the purposes of this Section the
following terms shall have the following meanings: (i) the term "Hazardous
Material" shall mean any material or substance that, whether by its nature or
use, is now or hereafter defined, determined or identified as a hazardous
material, hazardous waste, hazardous substance, toxic substance, pollutant or
contaminant under any Environmental Law, or which is toxic, explosive,
corrosive, ignitable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous or is harmful to human health or the environment, or which
is or contains petroleum, gasoline, diesel fuel or another petroleum hydrocarbon
product; (ii) "Environmental Laws" shall collectively mean all present and
future federal, state and local laws, statutes, ordinances, rules, regulations,
orders, codes, licenses, Permits, decrees, judgments, directives, guidelines,
standards or the equivalent of or by any governmental authority and relating to
or addressing the protection of the environment or human health (including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
9601 et seq.), and the regulations adopted and publications promulgated pursuant
thereto); and (iii) the term "governmental authority" shall mean the Federal
government, or any state or other political subdivision thereof, or any agency,
court or body of the Federal government, any state or other political
subdivision thereof, exercising executive, legislative, judicial, regulatory or
administrative functions.
Except as set forth in Schedule 3.29, Seller warrants and
represents that: (i) neither the Company nor, to the best of Seller's knowledge,
any prior owner or any user or tenant or operator of the Real Property, has
generated, stored, treated, disposed of, used, caused to be used, or permitted
the use of Hazardous Materials in, on or about the Real Property in violation of
Environmental Laws; (ii) the Company is in compliance, in all material respects,
with all applicable Environmental Laws; (iii) the Company has secured all
Permits, authorizations, registrations and approvals necessary for the storage,
use or handling of Hazardous Materials and is in compliance therewith; (iv)
there are no pending claims by any governmental authority or any other person in
respect of Environmental Laws affecting the Company or the Real Property and
neither Seller nor the Company has received any written notice of any violations
of any Environmental Laws or has received any written warning notices,
administrative complaints, judicial complaints or other formal or informal
notices from any person alleging that the Company or conditions on the Real
Property are, or may be, in violation of any Environmental Laws; (v) there is
not now, nor, to the best of Seller's knowledge, has there ever been, any
disposal, discharge or other type of release on property adjacent to or near the
Real Property or to the surface or ground water flowing to the Real Property
which may constitute a risk of contamination to the Real Property; and (vi) to
the knowledge of Seller, no releasing, emitting, discharging, leaching, dumping
or disposing of any Hazardous Material by the Company or from the Real Property
has occurred at, into, onto or under any other property which may give rise to
liability under any Environmental Law.
3.30 Absence of Questionable Payments. Except as set forth on
Schedule 3.30, neither the Company nor, to Seller's knowledge, any director,
officer, agent, employee or other Person acting on
790690.11
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behalf of the Company has used any corporate or other funds for unlawful
contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others or
established or maintained any unlawful or unrecorded funds in violation of
Section 30A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Neither the Company nor, to Seller's knowledge, any current director,
officer, agent, employee or other Person acting on behalf of the Company has
accepted or received any unlawful contributions, payments, gifts or
expenditures.
3.31 Investment Intent. Seller
(i) represents and warrants that the shares of
Questron Common Stock representing the Initial Stock
Consideration and the Deferred Stock Consideration (such
securities being herein referred to collectively as the
"Securities") are being acquired as an investment and not with
a view to the distribution thereof;
(ii) understands that none of the Securities have
been registered under the Act, in reliance on an exemption
therefrom, and that none of the Securities have been approved
or disapproved by the United States Securities and Exchange
Commission or by any other Federal or state agency;
(iii) understands that none of the Securities can
be sold, transferred or assigned unless registered by Questron
(which no Seller has the right to compel) pursuant to the Act
and any applicable state securities laws, or unless an
exemption therefrom is available, and, accordingly, it may not
be possible for Seller to liquidate its investment in the
Securities, and agrees not to sell, assign or otherwise
transfer or dispose of the Securities unless such Securities
have been so registered or an exemption from registration is
available;
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business (including, but
not limited to, the following documents which have been
provided to, and reviewed by, Seller: (a) Questron's Annual
Reports on Form 10-KSB for the fiscal years ended December 31,
1995, 1996 and 1997, (b) Questron's Quarterly Reports on Form
10-QSB for the quarterly periods ended March 31, 1997, June 30,
1997, September 30, 1997, March 31, 1998, June 30, 1998 and
September 30, 1998, (c) Questron's Proxy Statement, dated May
5, 1998, relating to its 1998 Annual Meeting of Shareholders),
(d) Questron's Current Reports on Form 8-K and Form 8-K/A filed
on October 7, 1997, December 5, 1997, October 8, 1998 and
December 8, 1998, and (e) all written press releases issued and
released by Questron since December 31, 1998, respectively,
have been made available to Seller and Seller's attorney and/or
accountant and/or representative. Seller has had an opportunity
to ask questions and receive answers from Questron concerning
the business and assets of Questron and all such questions have
been answered to the full satisfaction of Seller; and
(v) is an accredited investor, as that term is
defined in Regulation D under the Act.
3.32 Disclosure. (a) No representations or warranties by Seller and
the Company in this Agreement, including the Exhibits and the Schedules, and no
statement contained in any document (including, without limitation, the
financial statements, certificates and other writings furnished or to be
furnished by Seller or the Company to Questron or any of its representatives
pursuant to the provisions
790690.11
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hereof or in connection with the transactions contemplated hereby), contains or
will contain any untrue statement of material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under which it
was made, in order to make the statements herein or therein not misleading.
There is no fact known to Seller which has a Material Adverse Effect on the
Company which has not been set forth in this Agreement, including any Exhibit or
Schedule, the financial statements referred to in Section 3.12 (including the
footnotes thereto), any schedule, exhibit, or certificate delivered in
accordance with the terms hereof or any document or statement in writing which
has been supplied by or on behalf of Seller or the Company in connection with
the transactions contemplated by this Agreement.
(b) Seller has furnished or caused to be furnished to
Questron complete and correct copies of all agreements, instruments and
documents set forth in the Schedules. Each of the Schedules is true, complete
and correct.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON
QDL and Questron jointly and severally represent and
warrant to Seller that:
4.1 Organization. Each of QDL and Questron is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware. Each of QDL and Questron has all requisite corporate power and
authority to carry on its respective business as now being conducted and to own
its respective properties and is duly licensed or qualified and in good standing
as a foreign corporation in each jurisdiction in which it is required to be so
licensed or so qualified, except where the failure to be so licensed or so
qualified would not have a Material Adverse Effect on such entity.
4.2 Corporate Authority; Due Execution. Each of QDL and Questron has
full corporate power and authority to enter into this Agreement and all other
agreements, documents and instruments contemplated by this Agreement to which it
is party and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by each of QDL and Questron of this
Agreement and all other agreements, documents and instruments contemplated by
this Agreement to which it is party have been duly authorized by all requisite
corporate action. This Agreement has been, and each of the other agreements,
documents and instruments contemplated by this Agreement to which it is party
will be as of the Closing Date, duly executed and delivered by each of QDL and
Questron, and (assuming due execution and delivery by Seller and the Company)
this Agreement constitutes, and each of such other agreements when executed and
delivered will constitute, a valid and binding obligation of each of QDL and
Questron, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization or similar laws affecting creditors' rights generally
or by general equitable principles.
4.3 No Violation. Neither QDL nor Questron is subject to or bound by
any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) any certificate of incorporation or by-laws,
(c) any mortgage, deed of trust, lease, note, shareholders'
agreement, bond, indenture, other instrument or agreement, Permit,
trust, custodianship or other restriction, or
790690.11
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(d) any judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator,
that would prevent or be violated by, or under which there would be a default as
a result of, the execution, delivery and performance by QDL or Questron of this
Agreement and the consummation of the transactions contemplated hereby. No
consent, approval or authorization of or declaration or filing with any Person
is required for the valid execution, delivery and performance by QDL and
Questron of this Agreement and the consummation of the transactions contemplated
hereby.
4.4 Investment Intent. QDL is acquiring the Shares for its own
account for investment and not with a view to any distribution thereof. In
entering into this Agreement, QDL and Questron have relied solely on the express
representations, warranties and covenants of Seller in this Agreement, its
independent investigation of the Company, including its independent audit of the
Company's books and records, and not on any oral comments or statements of
Seller or any representatives of or advisors engaged by Seller.
4.5 SEC Documents. Questron has furnished Seller with, or made
available to Seller, copies of the following reports (the "SEC Documents") filed
by Questron with the United States Securities and Exchange Commission (the
"SEC"):
(a) Questron's Annual Reports on Form 10-KSB for the fiscal
years ended December 31, 1995, 1996 and 1997;
(b) Questron's Quarterly Reports on Form 10-QSB for the
quarterly periods ending March 31, 1997, June 30, 1997, September 30,
1997, March 31, 1998, June 30, 1998 and September 30, 1998;
(c) Questron's Proxy Statement, dated May 5, 1998, relating
to its 1998 Annual Meeting of Shareholders;
(d) Questron's Current Reports on Form 8-K and 8-K/A filed
on October 7, 1997, December 8, 1997, October 8, 1998 and December 8,
1998, respectively; and
Each of the SEC Documents, as of its respective date of filing, complied in all
material respects with the applicable requirements of the Exchange Act. Questron
is current in its obligations to file all periodic reports and proxy statements
with the SEC required to be filed under the Exchange Act and applicable rules
and regulations promulgated thereunder. As soon as practicable following its
date of filing, Questron covenants to provide to Seller a copy of Questron's
Annual Report on Form 10-QSB for the fiscal year ended December 31, 1998.
4.6 Questron Common Stock. All shares of Questron Common Stock
representing the Initial Stock Consideration, the Deferred Stock Consideration
and, if applicable, the Optional Deferred Stock Consideration delivered to
Seller pursuant to this Agreement, when issued as contemplated hereby, will be
duly authorized, validly issued, fully paid and non-assessable.
790690.11
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ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS OF SELLER AND QUESTRON
5.1 Conduct of Business Prior to the Closing Date. Seller and the
Company agree with QDL and Questron that, between the date hereof and the
Closing Date:
(a) Except as contemplated by this Agreement or permitted
by written consent of Questron, Seller shall cause the Company to
operate its business only in the ordinary course consistent with
prior practice and not to:
(i) declare or pay any dividends, make any
distributions to Seller or undertake any similar transactions
affecting the capital of the Company;
(ii) sell or dispose of any assets of the Company
other than the sale of inventory in the ordinary course of
business and dispositions of immaterial assets;
(iii) take any action of the nature referred to
in Section 3.20, except as permitted therein;
(iv) change the Company's banking or safe deposit
arrangements;
(v) cause or permit indebtedness (which for
purposes of this clause (v) shall be deemed to exclude trade
payables consisting of accounts payable, deferred taxes and
accrued expenses) in excess of the indebtedness represented by
Stated Net Debt of the Company to exceed $10,000; provided,
further, that no such indebtedness of the Company shall
represent indebtedness to Seller, officers or directors of the
Company; or
(vi) except as may be required by law, take
any action to amend or terminate any employee benefit plan or
adopt any other plan, program, arrangement or practice
providing new benefits or compensation to its employees.
(b) Seller and the Company shall use their reasonable best
efforts to conduct the business of the Company in a manner consistent
with past business practices; to preserve the business organization
of the Company intact; to keep available to Questron the services of
the present officers and employees of the Company; to preserve for
Questron the goodwill of the Company's suppliers, customers,
distributors, sales representatives and others having business
relations with the Company; and to inform Questron of, and consult
with Questron on, any key decisions involving any capital expenditure
in excess of $50,000.
(c) Seller shall cause the Company to maintain in force the
insurance policies referred to on Schedule 3.23 or insurance policies
providing the same or substantially similar coverage; provided,
however, that Seller will notify Questron prior to the expiration of
any of such insurance policies.
(d) Except as contemplated by this Agreement or permitted
by written consent of Questron, no Benefit Plan disclosed or required
to be disclosed has been or will be:
(i) terminated by the Company other than for
expiration of its terms;
790690.11
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(ii) except as required by law, amended in any
manner which would directly or indirectly increase the benefits
accrued in a material amount, by any participant thereunder; or
(iii) except as required by law, amended in any
manner which would materially increase the cost to Questron or
QDL of maintaining such plan, fund or arrangement.
(e) Seller and the Company shall give Questron prompt
notice of any event, condition or circumstance occurring from the
date hereof through the Closing Date that would constitute a
violation or breach of any representation or warranty of Seller or
the Company of which Seller have knowledge, whether made as of the
date hereof or as of the Closing Date, or that would constitute a
violation or breach of any covenant of Seller contained in this
Agreement.
5.2 Tax Covenants. (a) Seller shall timely cause to be prepared and
filed by the Company all Returns of the Company relating to Pre-Effective Date
Periods and shall timely pay, or cause to be paid by the Company, when due all
Taxes relating to such Returns filed on or before the Closing Date. With respect
to any such Taxes relating to Returns for Pre-Effective Periods that are payable
subsequent to the Closing Date, to the extent that such Taxes exceed the amount
of tax liabilities identified on Schedule 1.2, Seller shall timely pay, or cause
to be paid on behalf of the Company, such Taxes when due or Seller shall pay, or
cause to be paid, to the Company in advance of such due dates all amounts owed
relating to such Returns in order to allow the Company to pay such Taxes in a
timely manner. Such Returns shall be prepared or completed in a manner
consistent with prior practice of Seller and the Company with respect to Returns
concerning the income, properties or operations of the Company (including
elections and accounting methods and conventions), except as otherwise required
by law or regulation or otherwise agreed to by Questron prior to the filing
thereof, subject to the proviso of the preceding sentence.
(b) Questron and Seller shall cooperate with each other in
responding to any audit or proceeding relating to any Returns (including any
proceeding relating to the Company for Pre-Effective Date Periods).
Notwithstanding anything to the contrary contained or implied in this Agreement,
(i) without the prior written approval of Questron (which shall not be
unreasonably withheld or delayed), neither Seller nor any affiliate of Seller
shall agree or consent to compromise or settle, either administratively or after
the commencement of litigation, any issue or claim arising in any such audit or
proceeding, or otherwise agree or consent to any Tax liability, to the extent
that any such compromise, settlement, consent or agreement shall materially
affect the Tax liability of Questron, any of its affiliates or the Company
(including, but not limited to, the imposition of Tax deficiencies, the material
reduction of asset basis or cost adjustments, the lengthening of any
amortization or depreciation periods, the denial of material amortization or
depreciation deductions, or the material reduction of loss or credit
carry-forwards).
(c) Questron shall promptly notify Seller upon receipt by
Questron, any affiliate of Questron or the Company of notice of any pending or
threatened Tax audits or assessments relating to the income, properties or
operations of the Company, in each case for Pre-Effective Date Periods only, so
long as Pre-Effective Date Periods remain open; provided, however, that failure
by Questron to comply with this Section 5.2(c) shall not affect Questron's right
to indemnification relating to Taxes if such failure does not prejudice the
rights of Seller. Seller shall promptly notify Questron upon receipt by Seller
or any affiliate thereof of notice of any pending or threatened Tax audits or
assessments relating to the income, properties or operations of the Company, in
each case for Pre-Effective Date Periods only.
790690.11
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(d) Neither Seller nor any affiliate of Seller shall,
without the prior written consent of Questron, file, or cause to be filed, any
amended Tax return or claim for Tax refund, with respect to the Company, to the
extent that any such filing shall materially affect the Tax liability of
Questron, any of its affiliates or the Company (including, but not limited to,
the imposition of Tax deficiencies, the material reduction of asset basis or
cost adjustments, the lengthening of any amortization or depreciation periods,
the denial of material amortization or depreciation deductions, or the material
reduction of loss or credit carry-forwards).
(e) Any and all powers of attorney relating to Tax matters
concerning the Company shall be terminated as to the Company on or prior to the
Closing Date and shall have no further force or effect.
(f) After the Closing Date, Questron and Seller shall
provide each other, and Questron shall cause the Company to provide Seller, with
such cooperation and information relating to the Company as either party
reasonably may request in (A) filing any Tax return, amended return or claim for
refund, (B) determining any Tax liability or a right to refund of Taxes, (C)
conducting or defending any audit or other proceeding in respect of Taxes or (D)
effectuating the terms of this Agreement. The parties shall retain, and Questron
shall cause the Company to retain, all returns, schedules and work papers, and
all material records and other documents relating thereto, until the expiration
of the statute of limitation (and, to the extent notified by any party, any
extensions thereof) of the taxable years to which such returns and other
documents relate and, unless such returns and other documents are offered and
delivered to Seller or Questron, as applicable, until the final determination of
any Tax in respect of such years. Any information obtained under this Section
5.2 shall be kept confidential, except as may be otherwise necessary in
connection with filing any Tax return, amended return, or claim for refund,
determining any Tax liability or right to refund of Taxes, or in conducting or
defending any audit or other proceeding in respect of Taxes. Notwithstanding the
foregoing, neither Seller nor Questron, nor any of their affiliates of either
such entity, shall be required unreasonably to prepare any document, or
determine any information not then in its possession, in response to a request
under this Section 5.2(f).
(g) Questron shall have received from Seller, on or before
the Closing Date, an affidavit to the effect that Seller is not a "foreign
person" within the meaning of Code Section 1445. If, on or before the Closing
Date, Questron shall not have received such affidavit from Seller, Questron may
withhold from the Initial Cash Consideration payable at the Closing to such
Seller pursuant hereto such sums as are required to be withheld therefrom under
Section 1445 of the Code.
(h) Seller shall be liable for, and shall pay when due, (i)
any transfer, gains, documentary, sales, use, registration, stamp, value added
or other similar Taxes payable by reason of the transactions contemplated by
this Agreement or attributable to the sale, transfer or delivery of the Shares
hereunder, and (ii) other Taxes imposed on Seller or any former shareholder of
the Company for which Questron or the Company is held liable. Seller shall, at
its own expense, file all necessary Tax returns and other documentation with
respect to all such Taxes described in the preceding sentence.
5.3 Expenses and Finder's Fees. Except as set forth in this Section
5.3, Questron and Seller will each bear their own expenses in connection with
this Agreement and its performance. Seller, on the one hand, and Questron, on
the other hand, each represent and warrant to the other that the negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on in such a manner as not to give rise to any valid claims against the
other party or the Company for a brokerage commission, finder's fee or other
like payment. Upon delivery by Seller to Questron of a schedule detailing its
reasonable out-of-pocket expenses, including labor expenses of Company
personnel, accounting and other
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expenses, incurred in connection with conducting and preparing the 1998 Audit,
Questron agrees that, no later than the Closing Date, it will reimburse Seller
for all (up to a maximum of $25,000) of such reasonable out-of-pocket expenses.
5.4 Access to Information and Confidentiality/1998 Audit. Seller and
the Company agree that until the Closing, Questron and Seller may conduct such
reasonable investigation with respect to the business, business prospects,
assets, liabilities (contingent or otherwise), results of operations, employees
and financial condition of the other as will permit Questron and Seller,
respectively, to evaluate the transactions contemplated by this Agreement. Until
the Closing, Seller shall afford Questron and its authorized representatives
reasonable access to the premises, books, records and business affairs of the
Company (and, to the extent directly relating thereto, of Seller) for purposes
of (i) conducting such investigation and, promptly after the end of each month
(without demand or notice), shall furnish Questron with copies of an unaudited
balance sheet as of the end of such month and unaudited statements of income for
such month, in each case prepared consistent with the standards set forth in the
second sentence of Section 3.12(a) and (ii) conducting an audit and preparing
audited financial statements (the "1998 Audit") of the Company's financial
position as at and for the year ended December 31, 1998 (which audited financial
statements the Company and Seller agree may be disclosed by Questron for
purposes of satisfying the financing condition set forth in Section 6.8.). The
Company and Seller agree to cooperate with Questron and its representatives in
the conduct of the 1998 Audit. Unless and until the transactions contemplated
herein have been consummated, each of Questron and Seller shall maintain all
confidential information received from the other in connection with its
evaluation of the transactions contemplated by this Agreement (the "Confidential
Information") in strict confidence, and shall take all precautions necessary to
prevent disclosure, access to, or transmission of the Confidential Information,
or any part thereof, to any third party. Each of Questron and Seller may make
limited disclosure of Confidential Information to its representatives and to
such other persons as need to know for the purpose of preparing for and
negotiating this Agreement and in connection with the consummation of the
purchase and sale contemplated hereby, including arranging Questron's financing
in connection with the purchase, provided such persons are informed of and bound
by Questron's confidentiality obligations hereunder. In the event the Closing
does not occur for any reason, each of Questron and Seller shall, promptly upon
the other's request, return all copies and recordings of the Confidential
Information in its possession or under its control and delete all records
thereof in any data storage system maintained by it. For the purposes of this
Section 5.4, Confidential Information shall not include information which (a)
the holder can reasonably demonstrate was already in the holder's possession,
provided that such information is not known by the holder to be subject to
another confidentiality agreement with, or other obligation of secrecy to
another party, (b) becomes generally available to the public other than as a
result of a disclosure by the holder or the holder's directors, officers,
employees, agents or advisors, or (c) becomes available to the holder on a
non-confidential basis from a source other than Seller or its advisors, provided
that such source is not known by the holder to be bound by a confidentiality
agreement with, or other obligation of secrecy to another party. Nothing
contained in this Section 5.4 or otherwise shall prohibit the holder from making
disclosure of Confidential Information to the extent required by law, rule or
regulation, provided that the holder shall give the other prior notice as to the
nature of the required disclosure so as to provide the other the opportunity to
challenge the need for such disclosure.
5.5 No Solicitation. Seller and the Company shall not, and each shall
direct their respective affiliates, representatives and agents and the Company's
officers and employees, not to, directly or indirectly, encourage, solicit,
initiate or engage in discussions or negotiations with, or provide any
non-public information to, any Person concerning any merger, sales of
substantial assets, sales of shares of capital stock or similar transactions
involving the Company or enter into any agreement with respect
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thereto. Seller will promptly communicate to Questron the terms of any proposal
which it may receive in respect of all such transactions prohibited by the
foregoing.
5.6 Press Releases. Except as required by law or stock exchange or
NASDAQ regulation, any public announcements by any party regarding the
transactions contemplated hereby shall be made only with the consent of the
other parties.
5.7 Transitional Assistance. Seller shall reasonably cooperate with
and assist Questron in the orderly transfer of the business of the Company after
the Closing Date. Such cooperation and assistance shall include, but not be
limited to, the physical transfer of any books, records and computer software of
the Company.
5.8 Conditions. Seller shall use its best efforts to fulfill or cause
the fulfillment of the conditions set forth in Article 6. Questron shall use its
best efforts to fulfill or cause the fulfillment of the conditions set forth in
Article 7.
5.9 Rule 144. Following the Closing Date, Questron agrees to use
commercially reasonable efforts to cooperate with Seller with respect to
permitted sales of Questron Common Stock by Seller under Rule 144 of the
Exchange Act, including, without limitation, filing on a timely basis all
reports required under the Exchange Act.
5.10 SEC Filings. Questron will provide Seller with copies of all
reports filed by Questron under the Act and the Exchange Act subsequent to the
date hereof and prior to the Closing Date.
5.11 Purchase of Vehicles. Prior to the Closing, the Company and
Seller may transfer to Seller title and possession of the vehicles listed on
Schedule 5.11 on the terms set forth on such Schedule 5.11.
5.12 Employee Benefits. After the Closing, Questron shall cause the
Company to allow all employees of the Company to carry over their years of
service to the Company for purposes of vesting and qualifying for employee
benefits provided by Questron and the Company including, without limitation,
profit-sharing plans, insurance, retirement plans and vacation accruals.
5.13 Personal Items. Upon termination of Seller's employment with the
Company for any reason, Seller shall be entitled to remove, during normal
business hours and under supervision of a representative of the Company, all
personal and other items and furnishings owned by Seller currently located in
Seller's office and in the adjoining conference room from the Company's premises
without compensation to the Company.
5.14 Balance Sheets. (a) The Company and Seller, at the Company's
cost and expense, shall prepare and deliver to Questron, for its review and
approval, as soon as practicable, but in no event later than five days prior to
the Closing, (i) an unaudited balance sheet of the Company as at March 31, 1999
(the "March 31, 1999 Balance Sheet"), which shall be prepared on a basis
consistent with the December 31, 1998 Audited Balance Sheet and (ii) Seller's
calculation, set forth in reasonable detail, of Stated Net Debt and Net
Operating Assets at March 31, 1999.
(b) Questron, at its cost and expense, shall cause to be
prepared and delivered to the Company, for its review and approval, as soon as
practicable, (i) an audited balance sheet of the Company as at December 31, 1998
(the "December 31, 1998 Audited Balance Sheet"), which shall be prepared on
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a basis consistent with generally accepted accounting principles, and (ii)
Questron's calculation, set forth in reasonable detail, of Net Operating Assets
at December 31, 1998.
(c) In the event that either (x) Questron disputes Seller's
calculation of Stated Net Debt and/or Net Operating Assets at March 31, 1999 (or
the March 31, 1999 Balance Sheet itself), and/or (y) the Company disputes
Questron's calculation of Net Operating Assets at December 31, 1998 (or the
December 31, 1998 Audited Balance Sheet itself), such party shall notify the
other in writing of the nature of its dispute within three (3) days of its
receipt of notice from the other (a "Dispute Notice"). If the parties are unable
to agree upon such amounts within two (2) days after delivery of a Dispute
Notice, then the parties shall attempt to mutually agree on an independent
public accounting firm ("Accountant") who shall determine the disputed amounts
or items. If the parties are unable to agree upon a single Accountant within one
(1) day after delivery of the Dispute Notice, then each of the Company, on the
one hand, and Questron, on the other, shall select an Accountant and within two
(2) days of their appointment, the two Accountants shall select a third
Accountant. The determination(s) of the single Accountant or the average of two
of the three applicable disputed amounts or items determined by the three
Accountants which are closest in amount, as the case may be, shall be determined
as soon as practicable and shall be final and binding upon the parties. The
expenses of the determination of disputes amounts or items by the Accountant(s)
shall be shared equally by Questron or QDL, on the one hand, and Seller, on the
other.
5.15 HSR Act and Other Filings. As promptly as practicable after the
execution of this Agreement, each party shall, in connection with the others,
make or cause to be made any filing or filings required to be made in connection
with the transactions contemplated by this Agreement under the ▇▇▇▇-
▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
with the Federal Trade Commission and the Antitrust Division of the Department
of Justice (and shall request the early termination of any applicable waiting
periods in connection therewith), and, as promptly as practicable from time to
time thereafter, each party shall make or cause to be made all such further
filings and submissions, and take or cause to be taken such further action, as
may reasonably be required in connection therewith. Each party agrees promptly
to provide the other party or parties with copies of all final consent,
approval, termination or confirmation letters provided to such party pursuant to
filings made under this section.
ARTICLE 6
CONDITIONS PRECEDENT OF QDL AND QUESTRON
QDL and Questron need not consummate the transactions contemplated by
this Agreement unless the following conditions shall be fulfilled or waived by
QDL or Questron in their sole discretion on or prior to the Closing:
6.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of Seller
contained in this Agreement and in any certificate or document delivered to
Questron pursuant hereto shall be deemed to have been made again at and as of
the Closing Date and shall then be true in all material respects, except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true in all
material respects as of such date, and (b) Seller shall have performed and
complied with all material agreements and conditions required by this Agreement
to be performed or complied with by Seller prior to or on the Closing Date, and
Questron shall have been furnished with certificates of Seller, dated the
Closing Date, certifying to the effect of clauses (a) and (b) of this Section
6.1.
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6.2 Due Diligence. Questron shall have completed, to its sole
satisfaction, its due diligence investigation of the Company.
6.3 Opinion of Counsel. Questron shall have been furnished with an
opinion dated the Closing Date of ▇▇▇▇▇ Early ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.P., counsel
for Seller and the Company, in substantially the form attached hereto as Exhibit
C.
6.4 No Actions. No action, suit, or proceeding before any court or
governmental or regulatory authority shall be pending, no investigation by any
governmental or regulatory authority shall have been commenced, and no action,
suit or proceeding by any governmental or regulatory authority shall have been
threatened, against Questron, Seller, the Company or any of the principals,
officers or directors of any of them, seeking to restrain, prevent or change the
transactions contemplated hereby or questioning the legality or validity of any
such transactions or seeking damages in connection with any such transactions.
6.5 Consents. All consents of third parties, including, without
limitation, any and all consents required by Section 5.10 above and any other
consents required by any other governmental authorities or non-governmental
self-regulatory agencies, and all filings with and notifications of governmental
authorities (including any and all filings required by Section 5.10 above),
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of Questron, Seller or the Company
necessary on the part of Questron, Seller or the Company, to the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and to permit the continued operation of the respective businesses of
Questron and the Company in substantially the same manner immediately after the
Closing Date as theretofore conducted, other than routine post-closing
notifications or filings, shall have been obtained or effected or any applicable
waiting period shall have expired or terminated.
6.6 Employment Agreement. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ shall have executed and
delivered an Employment Agreement substantially in the forms attached as Exhibit
D hereto (together with the "Restrictive Letter" and any other exhibits attached
thereto, the "Employment Agreement").
6.7 Outstanding Seller Loans. Except with respect to the Company
guaranty(ies) described on Schedule 6.7, any outstanding loans from or
guarantees by the Company to or for the benefit of Seller shall have been
satisfied and discharged or otherwise have terminated or been canceled, and
Seller and the Company shall have delivered to Questron satisfactory evidence
thereof.
6.8 Financing. Questron shall have obtained financing on terms
reasonably satisfactory to it in an amount sufficient to pay the purchase
consideration contemplated by Section 1.2 and fees and expenses related to the
transactions contemplated by this Agreement.
6.9 Material Adverse Change. There shall have been no material
adverse change in the financial conditions, assets, liabilities (contingent or
otherwise), results of operations or business of the Company since December 31,
1998.
6.10 Releases. QDL and Questron shall have received UCC-3 Termination
Statements, payoff letters or other evidence satisfactory to QDL and Questron
that each of the security interests held by the parties identified on Schedule
3.8(b), other than that held by ▇▇▇▇▇, have been released. In addition, Questron
and QDL shall have received a written release, in form and substance
satisfactory to Questron and QDL, releasing the Company from any and all
guarantees of obligations of Seller (or any of his
790690.11
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affiliates), including, without limitation, the Company's guarantee in favor of
First Citizens Bank referred to on Schedule 3.20 and 6.7.
ARTICLE 7
CONDITIONS PRECEDENT OF THE COMPANY AND SELLER
The Company and Seller need not consummate the transactions
contemplated hereby unless the following conditions shall be fulfilled or waived
by the Company or Seller in their sole discretion on or prior to the Closing:
7.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of
Questron and QDL contained in this Agreement or in any certificate or document
delivered to Seller pursuant hereto shall be deemed to have been made again at
and as of the Closing Date and shall then be true in all material respects, and
(b) Questron and QDL shall have performed and complied with all material
agreements and conditions required by this Agreement to be performed or complied
with by it prior to or on the Closing Date, and Seller shall have been furnished
a certificate of an appropriate officer of Questron, dated the Closing Date,
certifying to the effect of clauses (a) and (b) of this Section 7.1.
7.2 No Actions. No action, suit, or proceeding before any court,
governmental or regulatory authority, administrative agency or arbitrator shall
be pending, no investigation by any governmental or regulatory authority shall
have been commenced, and no action, suit or proceeding by any Person shall have
been threatened, against Seller, Questron or QDL seeking to restrain, prevent,
or change the transactions contemplated hereby or questioning the legality or
validity of any such transactions or seeking damages in connection with any such
transactions.
7.3 Consents. All consents of third parties including, without
limitation, any and all consents required by Section 5.10 above and any other
consents required by any other governmental authorities or non-governmental
self-regulatory agencies, and all filings with and notifications of governmental
authorities (including any and all filings required by Section 5.10 above),
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of Seller, Questron or QDL, necessary
on the part of Seller, Questron or QDL, to the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, other
than routine post-closing notifications or filings, shall have been obtained or
effected or any applicable waiting period shall have expired or terminated.
7.4 Employment Agreements. Questron shall have caused the Employment
Agreement to be duly executed and delivered by the Company.
7.5 Opinion of Counsel. Seller shall have been furnished with an
opinion, dated the Closing Date, of Battle ▇▇▇▇▇▇ LLP, counsel to Questron and
QDL, in substantially the form attached hereto as Exhibit E.
7.6 No Material Adverse Change. There shall have been no material
adverse change in the financial condition, assets, liabilities (contingent or
otherwise), results of operations or business of Questron and its subsidiaries,
taken as a whole, since September 30, 1998.
790690.11
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7.7 Board Approval. The secretary of Questron shall have delivered to
the Company and Seller resolutions of Questron's and QDL's boards of directors
authorizing the execution, delivery and performance by Questron and QDL,
respectively, of this Agreement and any related agreements, documents and
instruments, and the transactions contemplated hereby and thereby, accompanied
by a Secretary's Certificate to the effect that such resolutions are true,
complete and correct and have not been amended as of the Closing.
7.8 Payoff of Indebtedness. All outstanding indebtedness payable
under (i) the promissory note, dated October 14, 1998, payable to the High Point
Bank and Trust Company in the principal amount of $1,537,587.31, and (ii) the
promissory note, dated January 25, 1995, payable to Production Marketing, Inc.
in the principal amount of $180,000.00, shall have been paid off or, in the
alternative, provision shall have been made to pay off such indebtedness within
three (3) business days of the Closing.
7.9 Lease Agreements. At or prior to the Closing, the Company shall
have executed and delivered to Capital Property Investments, LLC, as Lessor, (i)
a Lease Agreement for the Company's facility in High Point, North Carolina, in
substantially the form attached hereto as Exhibit F, but with such changes to
the terms and provisions thereof as shall be negotiated and agreed upon by the
parties hereto prior to the execution and delivery thereof by the Company, and
(ii) a Lease Agreement for a facility to be constructed by Capital Property
Investments, LLC, as Lessor in Chesapeake, Virginia, in substantially the form
attached hereto as Exhibit G, but with such changes to the terms and provisions
thereof as shall be negotiated and agreed upon by the parties hereto prior to
the execution and delivery thereof by the Company. The parties acknowledge each
of such lease agreements shall remain in full force and effect following the
Closing, in accordance with their terms.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Seller. Effective only from and upon the
occurrence of the Closing, and subject to Section 8.3 below, Seller hereby
agrees to defend, indemnify and hold harmless Questron and the Company and their
respective successors, assigns and affiliates (collectively, the "Questron
Indemnitees") from and against any and all losses, deficiencies, liabilities,
damages, assessments, judgments, costs and expenses, including reasonable
attorneys' fees (both those incurred in connection with the defense or
prosecution of the indemnifiable claim and those incurred in connection with the
enforcement of this provision), including, without limitation, Environmental
Liabilities and Costs, but excluding consequential or incidental damages
(collectively, "Questron Losses"), caused by, resulting from or arising out of:
(a) (i) breaches of representation or warranty under this
Agreement on the part of Seller; and (ii) failures by Seller to
perform or otherwise fulfill any undertaking or other agreement or
obligation under this Agreement;
(b) any and all Taxes imposed on the Company (including,
without limitation, Taxes relating to the Tax liability of Seller to
the extent any governmental authority seeks to impose such Taxes on
the Company) for, or relating to, all periods prior to the Effective
Date to the extent that such Taxes exceed the amount of tax
liabilities identified on Schedule 1.2;
790690.11
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(c) any and all liability arising out of a claim for
indemnity made by ▇▇▇▇▇ under the Stock Redemption Agreement; and
(d) any and all actions, suits, proceedings, claims,
demands, incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Questron Indemnitee
proposes to demand indemnification ("Questron Indemnified Claims"), Questron or
such other Questron Indemnitee shall promptly notify Seller in writing thereof,
provided further, however, that the failure to so notify Seller shall not reduce
or affect Seller's obligations with respect thereto except to the extent that
Seller is materially prejudiced thereby. Subject to rights of or duties to any
insurer or other third Person having liability therefor, Seller shall have the
right promptly upon receipt of such notice (after acknowledging responsibility
for such Questron Indemnified Claim) to assume the control of the defense,
compromise or settlement of any such Questron Indemnified Claims (provided that
any compromise or settlement must be reasonably approved by Questron),
including, at its own expense, employment of counsel reasonably satisfactory to
Questron; provided, however, that if Seller shall have exercised its right to
assume such control, Questron may, in its sole discretion and at its expense,
employ counsel to represent it (in addition to counsel employed by Seller) in
any such matter. So long as Seller is contesting any such Questron Indemnified
Claim in good faith, Questron and each other Questron Indemnitee shall not pay
or settle any such Questron Indemnified Claim.
8.2 Indemnification by Questron. Questron and QDL, jointly and
severally, hereby agree to defend, indemnify and hold harmless Seller and its
respective successors, assigns and affiliates (collectively, "Seller
Indemnitees") from and against any and all losses, deficiencies, liabilities,
damages, assessments, judgments, costs and expenses, including reasonable
attorneys' fees (both those incurred in connection with the defense or
prosecution of the indemnifiable claim and those incurred in connection with the
enforcement of this provision), but in no event consequential or incidental
damages or losses (collectively, "Seller Losses"), resulting from or arising out
of:
(a) breaches of representation and warranty hereunder on
the part of Questron and failures by Questron or QDL to perform or
otherwise fulfill any undertaking or agreement or obligation
hereunder;
(b) any liabilities of Seller arising out of any facts,
circumstances or events existing or occurring after the Closing Date,
including, without limitation, the operations of the Company after
the Closing Date and any product liability claim with respect to any
products, goods or services distributed or sold by the Company after
the Closing Date (except, in all cases, for any facts, circumstances
or events, the existence of which, constitute a breach by Seller or
the Company of any representation or warranty set forth in this
Agreement); and
(c) any and all actions, suits, proceedings, claims and
demands incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Seller Indemnitee
proposes to demand indemnification ("Seller Indemnified Claims"), Seller or such
other Seller Indemnitee shall notify Questron thereof, provided further,
however, that the failure to so notify Questron shall not reduce or affect
Questron's obligations with respect thereto except to the extent that Questron
is materially prejudiced thereby. Subject to rights of or duties to any
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insurer or other third Person having liability therefor, Questron shall have the
right promptly upon receipt of such notice to assume the control of the defense,
compromise or settlement of such Seller Indemnified Claims (provided that any
compromise or settlement must be reasonably approved by Seller) including, at
its own expense, employment of counsel reasonably satisfactory to Seller;
provided, however, that if Questron shall have exercised its right to assume
such control, Seller may, in its sole discretion and at its expense, employ
counsel to represent it (in addition to counsel employed by Questron) in any
such matter. So long as Questron is contesting such Seller Indemnified Claim in
good faith, Seller or such other Seller Indemnitees shall not pay or settle any
such Seller Indemnified Claim.
8.3 Limitation on Liability. (a) The aggregate liability of Seller
under this Article 8 shall not exceed $5,000,000 (five million dollars). The
aggregate liability of Questron under this Article 8 shall in no event exceed
$1,000,000 (one million dollars) in the aggregate.
(b) Notwithstanding anything contained herein to the
contrary, Seller shall have no obligation to indemnify and hold harmless any
Questron Indemnitee with respect to any Questron Losses pursuant to a claim for
indemnity under Section 8.1(a)(i) and 8.1(d) (to the extent such Section relates
to Section 8.1(a)(i)) unless the aggregate amount of such Questron Losses in
respect thereof exceeds Two Hundred Thousand Dollars ($200,000) (at which time
Questron may assert and recover the full amount of such Questron Losses, other
than the first One Hundred Thousand Dollars ($100,000) of such Questron Losses,
which shall not be recoverable by Questron); provided, that, the foregoing
limitation in this paragraph (b) shall not apply to the representations and
warranties set forth in Sections 3.5, 3.6, 3.14 and 3.29.
(c) The amount of any insurance proceeds received or
receivable (and not subject to any dispute with the insurer) by any Questron
Indemnitee to cover Questron Losses shall be deducted from the Questron Losses
otherwise payable by Seller to the Questron Indemnitees.
8.4 Right to Indemnification Not Affected by Knowledge. The right to
indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be limited or
affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement, with respect to the accuracy or
inaccuracy of or compliance with, any such representation, warranty, covenant,
or obligation.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
9.1 Representations, Warranties and Covenants. The covenants
contained in this Agreement shall survive the Closing Date without limitation.
The representations and warranties contained herein shall survive the Closing
Date for a period of two (2) years, except that any representation or warranty
of Seller contained in Sections 3.12 (Financial Statements) and 3.29
(Environmental Matters) shall survive the Closing Date without limitation, any
representation or warranty of Seller contained in Sections 3.1 (Authority; Due
Execution), 3.5 (Ownership of Shares) and 3.6 (Capitalization) shall survive
until the tenth anniversary of the Closing Date, and any representation or
warranty of Seller contained in Section 3.14 (Tax Matters) shall survive until
the expiration of one year after the expiration of the applicable statute of
limitations (provided, that if Seller or the Company and the United States
Internal Revenue Service or other taxing authority have agreed to extend the
applicable statute of limitations beyond any such period, then
790690.11
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in such case such representations and warranties shall survive to the date on
which such agreement to extend expires).
ARTICLE 10
NON-COMPETITION BY SELLER AND NO SOLICITATION
10.1 Non-Compete. In consideration of the purchase by Questron of the
Shares under this Agreement, Seller will at the Closing execute and deliver
non-compete agreements in the form attached to the Employment Agreement.
10.2 Remedies. Seller recognizes that a breach or threatened breach
by him of his obligations under this Article 10 and the Employment Agreement
would cause irreparable injury to the Company, and the Company shall be entitled
to seek preliminary and permanent injunctions enjoining him from violating the
non-compete agreements contemplated by this Article 10, in addition to any other
remedies which may be available.
ARTICLE 11
MISCELLANEOUS
11.1 Cooperation. Each of the parties hereto shall use its reasonable
efforts to take or cause to be taken all actions, to cooperate with the other
party hereto with respect to all actions, and to do or cause to be done all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
11.2 Waiver. Any failure of Seller to comply with any of their
respective obligations or agreements herein contained may be waived only in
writing by Questron. Any failure of Questron to comply with any of its
obligations or agreements herein contained may be waived only in writing by
Seller.
11.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given upon receipt of: hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
(i) If to the Company (prior to the Closing), to:
Capital Fasteners, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
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If to Seller, to:
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in each case, (with a copy to)
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Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
(ii) If to Questron, to
Questron Technology, Inc.
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Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(with a copy to)
Battle ▇▇▇▇▇▇ LLP
Park Avenue Tower
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Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇ III, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
11.4 Governing Law and Consent to Jurisdiction; Dispute Resolution.
(a) This Agreement shall be governed by and construed in accordance with the
internal substantive laws, and not the choice of law rules, of the State of
Delaware.
(b) Any dispute, claim or controversy arising out of or
relating to this Agreement, or the interpretation or breach thereof, shall be
referred to arbitration under the rules of the American Arbitration Association,
to the extent such rules are not inconsistent with this Section 11.4. Judgment
upon the award of the arbitrators may be entered in any court having
jurisdiction thereof or such court may be asked to judicially confirm the award
and order its enforcement, as the case may be. The demand for arbitration shall
be made within a reasonable time after the claim, dispute or other matter in
question has
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arisen, and in any event shall not be made after the date when institution of
legal or equitable proceedings, based on such claim, dispute or other matter in
question, would be barred by the applicable statute of limitations.
(c) The arbitration panel shall consist of three
arbitrators, one of whom shall be appointed by each party hereto. The two
arbitrators thus appointed shall choose the third arbitrator; provided, however,
that if the two arbitrators are unable to agree on the appointment of the third
arbitrator, either arbitrator may petition the American Arbitration Association
to make the appointment.
(d) The place of arbitration shall be Delaware.
11.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.6 Headings; Schedules. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All references to "Schedules" shall
mean the disclosure schedules heretofore delivered by Seller to Questron.
11.7 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the documents referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of the parties hereto.
11.9 Binding Effect; Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns; nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto and their
respective successors and assigns (and, to the extent provided in Sections 8.1
and 8.2, the other Questron Indemnitees and Seller Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
11.10 Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties, provided
that Questron may assign its rights under the Agreement to any affiliate of
Questron, but such assignment shall not relieve Questron of primary liability
for its obligations hereunder.
[Signature page follows]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chairman, President and
Chief Executive Officer
QUESTRON DISTRIBUTION LOGISTICS,
INC.
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executive
Officer
790690.11
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CAPITAL FASTENERS, INC.
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
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