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STOCK PURCHASE AGREEMENT
By and Between
QUESTRON TECHNOLOGY, INC.
and
FORTUNE INDUSTRIES, INC.
and
THE STOCKHOLDERS OF FORTUNE INDUSTRIES, INC.
LISTED ON SCHEDULE 1.1 DELIVERED CONCURRENTLY HEREWITH
Dated as of June 12, 1998
TABLE OF CONTENTS
PAGE
ARTICLE 1 SALE AND PURCHASE OF SHARES. . . . . . . . . . . . . . . . . -6-
1.1 Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . -6-
1.2 Purchase Consideration and Payment for Shares. . . . . . . . -6-
1.3 Transactions on the Closing Date . . . . . . . . . . . . . . -4-
1.4 Payment of 1999 Deferred Purchase Price. . . . . . . . . . . -5-
1.5 Restricted Securities; Registration Rights.. . . . . . . . . -5-
ARTICLE 2 CLOSING AND TERMINATION. . . . . . . . . . . . . . . . . . . -6-
2.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
2.2 Termination. . . . . . . . . . . . . . . . . . . . . . . . . -6-
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE
COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
3.1 Authority; Due Execution . . . . . . . . . . . . . . . . . . -7-
3.2 Corporate Organization and Authority of Company. . . . . . . -7-
3.3 Certificate of Incorporation; By-laws. . . . . . . . . . . . -7-
3.4 Subsidiaries and Equity Investments. . . . . . . . . . . . . -7-
3.5 Ownership of Shares. . . . . . . . . . . . . . . . . . . . . -8-
3.6 Capitalization . . . . . . . . . . . . . . . . . . . . . . . -8-
3.7 No Violation . . . . . . . . . . . . . . . . . . . . . . . . -9-
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . -9-
3.9 Personal Property. . . . . . . . . . . . . . . . . . . . . . -9-
3.10 Real Property. . . . . . . . . . . . . . . . . . . . . . . . -10-
3.11 Financial Statements . . . . . . . . . . . . . . . . . . . . -10-
3.12 Books and Records. . . . . . . . . . . . . . . . . . . . . . -11-
3.13 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . -11-
3.14 Employee Matters . . . . . . . . . . . . . . . . . . . . . . -13-
3.15 Intellectual Property. . . . . . . . . . . . . . . . . . . . -16-
3.16 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . -16-
3.17 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . -17-
3.18 No Material Change . . . . . . . . . . . . . . . . . . . . . -17-
3.19 Absence of Change or Event . . . . . . . . . . . . . . . . . -17-
3.20 Compliance With Law. . . . . . . . . . . . . . . . . . . . . -18-
3.21 Contracts and Commitments. . . . . . . . . . . . . . . . . . -19-
3.22 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . -19-
3.23 Affiliate Interests. . . . . . . . . . . . . . . . . . . . . -20-
3.24 Customers, Suppliers, Distributors, Etc. . . . . . . . . . . -20-
3.25 Environmental Matters. . . . . . . . . . . . . . . . . . . . -21-
3.26 Absence of Questionable Payments . . . . . . . . . . . . . . -22-
3.27 Investment Intent. . . . . . . . . . . . . . . . . . . . . . -22-
3.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . -23-
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF QUESTRON . . . . . . . . . -23-
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . -23-
4.2 Corporate Authority. . . . . . . . . . . . . . . . . . . . . -24-
4.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . -24-
4.4 Investment Intent. . . . . . . . . . . . . . . . . . . . . . -24-
4.5 Due Execution. . . . . . . . . . . . . . . . . . . . . . . -24-
4.6 Questron Common Stock. . . . . . . . . . . . . . . . . . . . -25-
ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS OF SELLERS, THE
COMPANY 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 . . . . . . . . . . . . . . . . . -28-
5.4 Access to Information and Confidentiality. . . . . . . . . . -28-
5.5 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . -29-
5.6 Press Releases . . . . . . . . . . . . . . . . . . . . . . . -29-
5.7 Transitional Assistance. . . . . . . . . . . . . . . . . . . -29-
5.8 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . -29-
ARTICLE 6 CONDITIONS PRECEDENT OF QUESTRON . . . . . . . . . . . . . . -30-
6.1 Representations and Warranties . . . . . . . . . . . . . . . -30-
6.2 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . -30-
6.3 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . -30-
6.4 No Actions . . . . . . . . . . . . . . . . . . . . . . . . . -30-
6.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
6.6 Employment Agreement . . . . . . . . . . . . . . . . . . . . -31-
6.7 Outstanding Shareholder Loans. . . . . . . . . . . . . . . . -31-
6.8 Financing. . . . . . . . . . . . . . . . . . . . . . . . . . -31-
6.9 Minimum Net Worth. . . . . . . . . . . . . . . . . . . . . . -31-
6.10 Material Adverse Change. . . . . . . . . . . . . . . . . . . -31-
6.11 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . -31-
6.12 Lease Agreements . . . . . . . . . . . . . . . . . . . . . . -31-
ARTICLE 7 CONDITIONS PRECEDENT OF SELLERS. . . . . . . . . . . . . . . -31-
7.1 Representations and Warranties . . . . . . . . . . . . . . . -31-
7.2 No Actions . . . . . . . . . . . . . . . . . . . . . . . . . -32-
7.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
7.4 Employment Agreement . . . . . . . . . . . . . . . . . . . . -32-
7.5 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . -32-
7.7 Lease Agreements . . . . . . . . . . . . . . . . . . . . . . -32-
ARTICLE 8 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . -32-
8.1 Indemnification by Sellers . . . . . . . . . . . . . . . . . -32-
8.2 Indemnification by Questron. . . . . . . . . . . . . . . . . -33-
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ARTICLE 9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. . . . -35-
9.1 Representations, Warranties and Covenants. . . . . . . . . . -35-
ARTICLE 10 NON-COMPETITION BY SELLERS 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 . . . . . . . . . . . . . . . . . . . . . -38-
11.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . -38-
11.6 Headings; Schedules. . . . . . . . . . . . . . . . . . . . . -38-
11.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . -38-
11.8 Amendment and Modification . . . . . . . . . . . . . . . . . -39-
11.9 Binding Effect; Benefits . . . . . . . . . . . . . . . . . . -39-
11.10 Assignability. . . . . . . . . . . . . . . . . . . . . . . . -39-
715586.5 iii
EXHIBITS
A Employment Agreement of Xxxxxxx Xxxxxxx
B Registration Rights Agreement
715586.5 iv
STOCK PURCHASE AGREEMENT dated as of June 12, 1998 (herein,
together with the Exhibits attached hereto and the Schedules delivered
concurrently herewith, referred to as the "Agreement") by and between Questron
Technology, Inc., a Delaware corporation ("Questron"), Fortune Industries, Inc.,
a Texas corporation (the "Company") and the stockholders of the Company, listed
on Schedule 1.1 ("Sellers").
W I T N E S S E T H :
WHEREAS, Sellers are the beneficial and record holders of all of the
issued and outstanding shares of capital stock of the Company (the "Shares");
and
WHEREAS, Sellers wish to sell and Questron wishes to purchase the
Shares upon the terms and subject to the conditions contained in this Agreement.
NOW, THEREFORE, in reliance upon the representations and warranties
made herein and in consideration of the mutual agreements herein contained, the
parties agree as follows:
ARTICLE 1
SALE AND PURCHASE OF SHARES
1.1 Sale of Shares. At the Closing provided for in Section 2.1, each
Seller shall sell to Questron (or in Questron's sole discretion, any subsidiary
of Questron) the Shares beneficially owned by such Seller as set forth on
Schedule 1.1, and Questron shall purchase such Shares for the aggregate purchase
consideration specified in Section 1.2.
1.2 Purchase Consideration and Payment for Shares. Questron shall
acquire 100% of the issued and outstanding stock of the Company for a total
purchase price up to $15,014,174, which will consist of the Initial Purchase
Price, and the 1999 Deferred Purchase Price, in each case, as defined below.
(a) Initial Purchase Price. The "Initial Purchase Price" will equal
$13,014,174 payable as follows: (i) wire transfers (or certified checks) in an
aggregate amount equal to $9,881,958 (which includes an adjustment of $523,614
for the Company's net profit as of March 31, 1998) plus the Initial Purchase
Price Adjustment (as defined below) (said amount being hereinafter referred to
as the "Initial Cash Consideration"); and (ii) delivery of shares of Questron's
common stock, par value $0.001 per share (the "Questron Common Stock"), having a
value equal to $3,132,216 (the "Initial Questron Common Stock") calculated on
the basis of the average last reported sale price for the 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), provided that in no event shall
the Initial Questron Common Stock consist of less than 409,598 shares of
Questron Common Stock. The "Initial Purchase Price
715586.5
Adjustment" shall equal ninety percent (90%) of the Company's income before
taxes (as determined in accordance with generally accepted accounting
principles, consistently applied to the Company prior to Closing ("GAAP")) for
the period from April 1, 1998 through the last day of the full calendar month
preceding the Closing (as hereinafter defined) (the "Adjustment Period") less
(i) all distributions declared and paid by the Company to any of its
stockholders during such period, and (ii) as set forth on Schedule 1.2(a)(i),
accruals for the employee bonuses to certain of the Company's employees and
accruals for certain other expenses to be paid by the Company. The Initial Cash
Consideration and the Initial Questron Common Stock shall be allocated among the
Sellers as provided on Schedule 1.2(a)(ii). Only the Sellers who are identified
on Schedule 1.2(a)(ii) as accredited investors (the "Accredited Investor
Sellers") shall receive shares of the Initial Questron Common Stock.
(b) 1999 Deferred Purchase Price. The "1999 Deferred Purchase Price"
will be an amount, subject to the limitations set forth below, equal to six (6)
times the difference between EBIT (as defined below) for the Company for the
year ended December 31, 1998 (as adjusted for the items set forth on Schedule
1.2(b)(i) and in accordance with Section 1.2(c) below), and $2,000,000 provided,
that the maximum amount payable to Sellers pursuant to this Section 1.2(b) shall
in no event exceed $2,000,000 in the aggregate. The 1999 Deferred Purchase Price
shall be payable as follows: (i) delivery by wire transfers (or certified
checks) of an aggregate amount equal to approximately 80.73% of the 1999
Deferred Purchase Price up to a maximum amount of $1,614,497 (the "1999 Deferred
Cash Consideration"); and (ii) delivery of shares of Questron Common Stock
("Deferred Questron Common Stock"), the value of which shall equal approximately
19.27% of the 1999 Deferred Purchase Price up to a maximum amount of $385,503.
The number of shares of Deferred Questron Common Stock to be delivered will be
based on the average of the last reported sales price of the Questron Common
Stock for each of the five (5) trading days ending on the third (3rd) trading
day immediately prior to the date of payment of the 1999 Deferred Purchase
Price. The 1999 Deferred Cash Consideration and the Deferred Questron Common
Stock shall be allocated among the Sellers as provided on Schedule 1.2(b)(ii).
Only the Accredited Investor Sellers shall receive shares of the Deferred
Questron Common Stock.
(c) Definition of EBIT. For purposes of this Section 1.2, "EBIT" shall
mean the aggregate earnings before interest, income taxes, amortization of
goodwill, and the allocation of corporate expenses associated with the Company
and EBIT shall be adjusted for the items set forth on Schedule 1.2(b)(i). EBIT
shall be calculated in accordance with GAAP. EBIT shall be determined by
Questron and reviewed by Questron's independent public accountants. For the
purposes of this Section 1.2, EBIT shall not be reduced by any costs incurred by
the Company related to (i) the Company's administration of any affirmative
action programs or any activities related to affirmative action or (ii) the
start up costs associated with the Company's hiring of new sales personnel. The
parties hereto agree that no acquisition costs, fees, expenses, or adjustment
attributable to the sale of the Seller's Shares to Questron or changes in the
Company's operations shall be deducted from EBIT for the year ended December 31,
1998 which shall be used to calculate the 1999 Deferred Purchase Price pursuant
to Section 1.2(b). Questron agrees that it shall use its commercially reasonable
best efforts to assist the Company with respect to cost reductions,
consolidations and other cost-
715586.5 -2-
saving procedures, which benefits will be reflected in EBIT for the year ended
December 31, 1998.
1.3 Transactions on the Closing Date.
(a) At the Closing, Sellers will deliver, or cause to be delivered, to
Questron the following:
(i) stock certificates, in form suitable for transfer, registered
in the name of each Seller, evidencing the number of Shares set forth
opposite such Seller's name 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) evidence of termination of the Stockholder Voting, Stock
Redemption and Buy-Sell Agreement, dated as of June 11, 1996, among the
Sellers and the Company and the proxies executed by each Seller;
(v) 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;
(vi) the Employment Agreement, substantially in the form attached
hereto as Exhibit A, executed by Xxxxxxx Xxxxxxx;
(vii) the Registration Rights Agreement, substantially in the form
attached hereto as Exhibit B (the "Registration Rights Agreement"), executed
by each of the Accredited Investor Sellers;
(viii) each of the certificates and documents contemplated by
Article 6; and
(ix) such other certificates, documents, instruments and
agreements as Questron shall deem necessary in its reasonable discretion in
order to effectuate the transactions contemplated herein, in form and
substance reasonably satisfactory to Questron.
(b) At the Closing, Questron will deliver to Sellers the following:
(i) the Initial Cash Consideration;
715586.5 -3-
(ii) interest on the Initial Cash Consideration at an interest
rate of 9.5% per annum, calculated from the first date of the month in which
the Closing occurs through the Closing Date;
(iii) to the Accredited Investor Sellers, the shares representing
the Initial Questron Common Stock;
(iv) the Employment Agreement, substantially in the form attached
hereto as Exhibit A, executed by Questron;
(v) the Registration Rights Agreement, executed by Questron;
(vi) each of the certificates and documents contemplated by
Article 7; and
(vii) such other certificates, documents, instruments and
agreements as Sellers shall deem necessary in their reasonable discretion in
order to effectuate the transactions contemplated herein, in form and
substance reasonably satisfactory to Questron.
1.4 Payment of 1999 Deferred Purchase Price. Subject to the terms and
conditions of Section 1.2(b) above, on the earlier of (a) the first anniversary
of the Closing Date (as hereinafter defined), and (b) June 30, 1999, Questron
will deliver to Sellers the following:
(i) the 1999 Deferred Cash Consideration;
(ii) interest on the 1999 Deferred Cash Consideration at an
interest rate of 9.5% per annum, calculated from the earlier of (a) the date
on which Questron issues its press release regarding its financial results
for the year ended December 31, 1998, and (b) March 1, 1999, through the
date of payment;
(iii) to the Accredited Investor Sellers, the shares representing
the Deferred Questron Common Stock; and
(iv) a certificate of Questron setting forth its calculation of
EBIT accompanied by a report thereon by Questron's independent public
accountants covering their review of such calculation.
1.5 Restricted Securities; Registration Rights. The shares representing
the Initial Questron Common Stock and the Deferred Questron Common Stock shall
be restricted securities under Rule 144 of 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
715586.5 -4-
shall bear an appropriate legend restricting transfers under the Act. Pursuant
to the Registration Rights Agreement, the Accredited Investor Sellers shall have
incidental or "piggyback" registration rights with respect to the shares of the
Initial Questron Common Stock and the Deferred Questron Common Stock. The
Registration Rights Agreement shall provide that the Accredited Investor Sellers
shall have the right to exercise such piggyback registrations rights on two
occasions, provided, that each such exercise involves the registration of a
minimum of $50,000 of shares of Questron Common Stock.
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 Xxxxxx LLP,
Park Avenue Tower, 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, X.X. 00000, at 10:00 A.M.
(local time) on or about June __, 1998 (the "Closing Date"), or at such other
place, time and date as may be agreed upon by Questron and the Sellers. The
effective date of the Closing shall be April 1, 1998 (the "Effective Date").
2.2 Termination. (a) 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:
(i) without liability on the part of any party hereto (unless
occasioned by reason of a breach by any party hereto of its representations,
warranties or obligations hereunder) by mutual written consent of Questron
and Sellers;
(ii) 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
Sellers, if the Closing shall not have occurred on or before July 31, 1998
(or such later date as may be agreed upon in writing by the parties hereto);
(iii) by Questron, if any Seller shall breach any of its
representations, warranties or obligations hereunder and such breach shall
not have been cured or waived or Sellers shall not have provided reasonable
assurance that such breach will be cured on or before the Closing Date; or
(iv) by the Sellers, if Questron shall breach 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 will be cured on or before the Closing Date.
715586.5 -5-
(b) In the event that this Agreement is terminated pursuant to this
Section 2.2, the parties hereby acknowledge and agree that the confidentiality
agreement among the parties hereto, dated as of February 10, 1998 shall continue
and shall remain in full force and effect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY
Each Seller and the Company jointly and severally represent and warrant
to Questron that:
3.1 Authority; Due Execution. The Company has full corporate power and
authority to enter into this Agreement and all other agreements contemplated by
this Agreement to which it is a party and to consummate the transactions
contemplated hereby and thereby. Each Seller has the power to enter into this
Agreement and all other agreements contemplated by this Agreement to which such
Seller is a party and to consummate the transactions contemplated hereby and
thereby. This Agreement has been, and the Employment Agreements (as hereinafter
defined) and all other agreements contemplated by this Agreement to which the
Company and each Seller is a party will be as of the Closing Date, duly executed
and delivered by the Company and each Seller, and (assuming due execution and
delivery by Questron) this Agreement and the Employment Agreements and all other
agreements contemplated by this Agreement to which the Company and/or each
Seller is a party will constitute valid and binding obligations of the Company
and the Sellers, enforceable in accordance with their 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 Corporate Organization and Authority of Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas 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. Sellers have 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. Except as set forth on
Schedule 3.4, 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
6
715586.5
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. Each subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdictions set forth on Schedule 3.4 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 qualified, except when the failure to be so licensed or so qualified
would not have a Material Adverse Effect on such subsidiary.
3.5 Ownership of Shares. Each Seller is the lawful record and
beneficial owner of that number of Shares set forth opposite such Seller's name
on Schedule 1.1 which represent all of the issued and outstanding shares of the
Company's capital stock. Each Seller owns the Shares set forth opposite such
Seller's name on Schedule 1.1 free and clear of all pledges, liens, charges,
encumbrances, easements, security interests, claims, options and restrictions of
every kind ("Encumbrances"), except 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, Sellers 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. The Company is the lawful
record and beneficial owner of all of the issued and outstanding capital stock
of each subsidiary listed on Schedule 3.4.
3.6 Capitalization. The authorized capital of the Company consists of
200,000 shares of common stock, no par value (the "Common Stock"), of which
77,011 shares are issued and outstanding. Except as set forth on Schedule 3.6,
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 (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 , 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 security of any kind convertible into or exchangeable for
any such capital stock. Except as set forth on Schedule 3.6, 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.
715586.5 -7-
3.7 No Violation. Neither any 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, license,
permit, 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. No consent, order,
license, permit, approval or authorization of or declaration, notice or filing
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 any Seller or the Company of the Agreements to which it is a
party and the consummation of the transactions contemplated thereby.
3.8 Litigation. Except as set forth on Schedule 3.8, there is (i) no
outstanding consent, order, judgment, injunction, award or decree of any court,
governmental or regulatory body, administrative agency or arbitrator against or
involving the Company (including its subsidiaries), any of its officers or
directors as such or any Seller, (ii) no action, suit, dispute or governmental,
administrative, arbitration or regulatory proceeding pending or, to Sellers'
knowledge, threatened against the Company (including its subsidiaries) or any
Seller, and (iii) no investigation pending or, to Sellers' knowledge, threatened
against or relating to the Company (including its subsidiaries), any of its
officers or directors as such or any Seller (collectively, "Proceedings").
3.9 Personal Property. (a) Schedule 3.9(a) sets forth (i) the tangible
physical assets of the Company and its subsidiaries as of the date of this
Agreement that do not constitute real property (including machinery, equipment,
tools, dies, furniture, furnishings, leasehold improvements, software, vehicles,
buildings and fixtures) and that have a book value or replacement value in
excess of $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.
715586.5 -8-
(a) Except as set forth on Schedule 3.9(b), each of the Company and its
subsidiaries 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 3.9(b), each of the Company and its subsidiaries
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 3.21(a)(i)) 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.
3.10 Real Property. (a) Schedule 3.10 sets forth each and every parcel
of real property or interest in real estate held under a lease or used by the
Company and its subsidiaries (the "Real Property"). The Company and its
subsidiaries do not own any real property or interest (other than the leasehold
interests referenced on such Schedule) in real estate. Sellers have heretofore
delivered to Questron complete and correct copies of each and every lease and
all documents relating thereto, including any amendments thereto and any
assignment thereof.
(b) Except as set forth in Schedule 3.10, with respect to the Real
Property designated as "leased property" in Schedule 3.10, each of the Company
and its subsidiaries is in peaceful and undisturbed possession of the space
and/or estate under each lease under which it is a tenant, and there are no
defaults by it as tenant thereunder; and the Company has good and valid rights
of ingress and egress to and from all the Real Property from and to the public
street systems.
3.11 Financial Statements. (a) Sellers and the Company have heretofore
furnished Questron with copies of the following consolidated financial
statements of the Company and its subsidiaries: (i) unaudited balance sheets as
at December 31 for each of 1995, 1996 and 1997, respectively and as at March 31,
1998; (ii) unaudited statements of operations for each of the years ended
December 31, 1995, 1996 and 1997 and for the three month period ended March 31,
1998; (iii) an unaudited balance sheet (the "Reference Balance Sheet") as at
December 31, 1997 (the "Reference Balance Sheet Date"); and (iv) an unaudited
statement of operations (the "Reference Income Statement") and an unaudited
statement of cash flows for the year then ended. Except as noted therein and
except for normal year-end adjustments with respect to the partial year
financial statements, all such financial statements are complete and correct,
were prepared in accordance with GAAP consistently applied throughout the
periods indicated and present fairly the financial position of the Company at
such dates and the results of its operations and cash flows for the periods then
ended, subject to such inaccuracies, if any, which are not material in nature or
amount.
(b) There are no liabilities, debts, obligations or claims against the
Company or any of its subsidiaries of any nature (accrued, absolute or
contingent, unasserted, known or unknown, or otherwise), except (i) as and to
the extent reflected or reserved against on the Reference Balance Sheet; (ii)
specifically described and identified as an exception to this paragraph in any
of the Schedules delivered to Questron pursuant to this Agreement; (iii) those
that are individually, or in the aggregate, not material and were incurred since
the Reference
715586.5 -9-
Balance Sheet Date in the ordinary course of business consistent with prior
practice; or (iv) open purchase or sales orders or agreements for delivery of
goods and services in the ordinary course of business consistent with prior
practice.
3.12 Books and Records. (a) Sellers and the Company have made and will
make available for inspection by Questron all the books of account relating to
business of the Company and its subsidiaries. Such books of account of the
Company reflect all the material transactions and other material matters
required to be set forth under GAAP applied on a consistent basis.
(b) The minute books of the Company and its subsidiaries that have been
made available to Questron for its inspection contain true and complete records
of all meetings and consents in lieu of meetings of the Board of Directors (and
any committees thereof) of the Company and its subsidiaries and of their
shareholders and accurately reflect all material transactions referred to in
such minutes and consents in lieu of meetings. The stock books that have been
made available to Questron for its inspection are true and complete in all
material respects.
3.13 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
and its subsidiaries or the ownership thereof (by Sellers);
(ii) "Pre-Closing Periods" shall mean all Tax periods ending on or
before the Closing Date and, with respect to any Tax period that includes
but does not end on the Closing Date, the portion of such period that ends
on and includes the Closing Date;
(iii) "Returns" shall mean all returns, declarations, reports,
estimates, information returns and statements of any nature regarding Taxes
for any Pre-Closing Period required to be filed by any Person and relating
to the Company and its subsidiaries;
(iv) "Code" shall mean the Internal Revenue Code of 1986, as
amended; and
715586.5 -10-
(v) the term "Tax Deficiency" shall include a reduction in any net
operating losses.
(b) In respect of the Pre-Closing Periods only,
(i) all Returns have been or will be timely filed when
due in accordance with all applicable laws;
(ii) all Taxes shown on the Returns have been or will be
timely paid when due;
(iii) the Returns completely, accurately, and correctly in
all material respects reflect the facts regarding the income, properties,
operations and status of any entity required to be shown thereon;
(iv) 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 PreClosing Period as reflected on the books of the
Company are adequate in all material respects to cover such Taxes;
(v) 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-Closing Period, and no Person has been requested to enter into any such
agreement or consent;
(vi) all Returns with respect to taxable years ending on
or prior to December 31, 1994 have been examined by the relevant taxing
authorities and closed, or are Returns with respect to which the applicable
statute of limitations, after giving effect to any extensions and waivers,
has expired;
(vii) 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;
(viii) there is no action, suit, proceeding, investigation,
audit or claim currently pending, or to Sellers' knowledge, threatened,
regarding any Taxes relating to the Company for any Pre-Closing Period;
(ix) all Tax Deficiencies which have been claimed,
proposed or asserted against Sellers or, to Sellers' knowledge, any prior
shareholder 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;
715586.5 -11-
(x) 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;
(xi) 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;
(xii) there are no liens for any Tax on the assets of the
Company except liens which arise as a matter of law;
(xiii) there are no tax sharing agreements to which the
Company is now or, to Seller's knowledge, ever has been a party;
(xiv) 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);
(xv) the Company has not received any written notice of
any reassessment and, to Sellers' knowledge, there are no proposed
reassessments of any property owned or leased by the Company or any other
proposals that would increase the amount of any Tax for which the Company
could be liable;
(xvi) 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
(xvii) 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.
3.14 Employee Matters. (a) Schedule 3.14 sets forth as of the date
hereof the name, date of hire, current annual compensation rate (including bonus
and commissions), title, current base salary rate and accrued bonus and vacation
of each present employee of the Company and its subsidiaries; and a list of any
employment, managerial, advisory, consulting, collective bargaining and
severance agreements; 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 and its subsidiaries, 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
715586.5 -12-
(collectively, the "Benefit Plans"), whether sponsored, maintained or
contributed to by the Company or its subsidiaries.
(b) For each Benefit Plan, except as set forth on Schedule 3.14, 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 nothing has occurred,
whether by action or failure to act, which could cause the loss of such
qualification or which could 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 Sellers'
knowledge, threatened, and to Sellers' knowledge, there are no facts which
could give rise to any such material actions, suits or claims (other than
routine claims for benefits in the ordinary course);
(iv) none of the Sellers, the Company, its subsidiaries, nor any
other party has, with respect to any such Benefit Plan, engaged in a
prohibited transaction, as such term is defined in Code Section 4975 or
ERISA Section 406, which could subject the Company or 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) all Benefits 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;
715586.5 -13-
(vii) the execution and delivery of this Agreement by Sellers and
the consummation of the transactions contemplated hereunder, will not
(pursuant to any "change-of-control provision" or otherwise) result in any
additional (or otherwise modify or accelerate any existing or contingent)
obligation or liability (with respect to accrued benefits or otherwise) to
any such Benefit Plan, to any employee or former employee of the Company
and its subsidiaries; and
(viii) the transactions contemplated by this Agreement will not
result in the payment to any employee of the Company or its subsidiaries
which is a "parachute payment" within the meaning of Section 280G of the
Code; and
(ix) Sellers have 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 1995, 1996 and 1997) 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 and its subsidiaries have no employee welfare benefit
plans (within the meaning of ERISA Section 3(1)) which provide benefits beyond
termination of employment except as required by applicable law.
(f) With respect to the Company and its subsidiaries, except as set
forth on Schedule 3.14, each of the following is true in all material respects:
(i) each of the Company and its subsidiaries 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 Sellers' knowledge, threatened,
or, to Sellers' knowledge, any investigation pending or threatened against
the Company or any subsidiary relating to any employment matter, and, to
Sellers' knowledge, no basis exists for any such action, suit or legal,
administrative, arbitration, grievance or other proceeding or governmental
investigation;
715586.5 -14-
(ii) there is no labor strike, dispute, slowdown or
stoppage actually pending or, to Sellers' knowledge, threatened against the
Company or any subsidiary;
(iii) none of the employees of the Company or any
subsidiary 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 or any
subsidiary and no certification or decertification petition is being or was
circulated among the employees of the Company within the past twelve months;
(v) no agreement (including any collective bargaining
agreement), arbitration or court decision, decree or order or governmental
order which is binding on the Company or any subsidiary in any material way
limits or restricts the Company or any subsidiary from relocating or closing
any of its operations;
(vi) neither the Company nor any subsidiary has not
experienced any organized work stoppage in the last five years; and
(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 Sellers'
knowledge, threatened, or to Sellers' 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 or any subsidiary and, to Sellers'
knowledge, no reasonable basis for any claim regarding such practices
exists.
3.15 Intellectual Property. Schedule 3.15 sets forth a list of all
registered trademarks, trademark registrations and applications therefor, trade
names, brand names, all service marks, service xxxx 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 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 or any
subsidiary is licensed. Neither Sellers nor the Company nor any subsidiary are
licensors in respect of any patents, trade secrets, inventions, shop rights,
copyrights or applications therefor which are used in the business of the
Company.
3.16 Accounts Receivable. The accounts receivable appearing on the
Reference Balance Sheet and all accounts receivable created since that date
through the Closing
715586.5 -15-
Date represent in all material respects and will in all material respects
represent valid obligations owing to the Company, have arisen from bona fide
transactions in the ordinary course of business and are fully collectible by the
Company in the ordinary course of business, subject to the reserve for doubtful
accounts appearing on the Reference Balance Sheet.
3.17 Inventory. Except as set forth on Schedule 3.17, the inventories of raw
materials, in-process and finished products of the Company are in good
condition, conform in all material respects with the Company's applicable
specifications and warranties, are not obsolete, and are saleable as of the date
hereof at values not less than the book value amounts thereof. Adequate reserves
have been provided for inventory obsolescence and the values at which such
inventories are carried are in accordance with GAAP consistently applied.
3.18 No Material Change. 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 and
its subsidiaries.
3.19 Absence of Change or Event. Except as set forth on Schedule 3.19, 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, shareholder or
other affiliate of the Company, except for inventory sold to customers or
returned to vendors and payments to any non-affiliates on account of accounts
payable or scheduled payments in respect of indebtedness for money borrowed
disclosed on the Reference Balance Sheet or in the Schedules, or canceled,
waived, released or otherwise compromised any debt or claim other than in the
ordinary course of business, or any material right;
(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 $25,000;
715586.5 -16-
(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;
(h) increased the compensation of any officer, director, employee or agent
of the Company, directly or indirectly, including by means of any bonus, pension
plan, profit sharing, deferred compensation, savings, insurance, retirement, or
any other employee benefit plan, except in the case of any employee whose annual
base compensation is less than $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) 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
(n) engaged in any other material transaction other than in the ordinary
course of business;
3.20 Compliance With Law. Except as set forth on Schedule 3.20, the
operations and activities of the Company and its subsidiaries have complied and
are in compliance in all respects with all applicable federal, state, local and
foreign laws, statutes, rules, regulations, judicial and administrative
decisions and consents, judgments, orders,
715586.5 -17-
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.
3.21 Contracts and Commitments. Schedule 3.21 sets forth each written
contract or agreement involving a liability or obligation of the Company or any
subsidiary equal to or in excess of $10,000 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 3.21:
(i) Each of the agreements set forth on such Schedule
(the "Contracts") was entered into in a bona fide transaction in the
ordinary course of business, is valid and binding on the Company (assuming
due authorization, execution and delivery thereof by the other parties
thereto) and is in full force and effect and, upon consummation of the
transactions contemplated hereby, will continue in full force and effect
without penalty. Sellers have heretofore delivered to Questron complete and
correct copies of the Contracts. There is not under any Contract: (A) any
existing material default by the Company or, to Sellers' knowledge, by any
other party thereto, or (B) any event which, after notice or lapse of time
or both, would constitute a material default by the Company or, to Sellers'
knowledge, by any other party, or result in a right to accelerate, suspend
or terminate or result in a loss of rights of the Company;
(ii) No purchase contracts (other than inventory purchase
commitments) of the Company continue for a period of more than 12 months;
and
(iii) Neither the Company nor any subsidiary has any
material liability or material obligation with respect to the return of
inventory or merchandise in the possession of distributors, customers or
other Persons.
3.22 Insurance. (a) Schedule 3.22 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 1995, 1996 and 1997 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
Sellers believe to be covered by commercial insurance; (iv) general
comprehensive
715586.5 -18-
liability policies carried by the Company for the calendar years 1995, 1996 and
1997, including excess liability policies; and (v) any agreements, arrangements
or commitments by or relating to the Company under which the Company indemnifies
any other Person or is required to carry insurance for the benefit of any other
Person. Sellers have heretofore delivered to Questron complete and correct
copies of the policies and agreements set forth on Schedule 3.22.
(b) The insurance policies set forth on Schedule 3.22 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 3.22; and will not in any way be affected
by, or terminate or lapse by reason of, the transactions contemplated by this
Agreement. 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 1995, 1996 and 1997.
3.23 Affiliate Interests. No payments other than compensation payments
during calendar years 1995, 1996 and 1997, or during 1998 to date, have been
made by the Company to any officer, director or shareholder of the Company.
(b) Except as set forth on Schedule 3.23, no shareholder, officer or
director of the Company or any subsidiary or affiliate of any 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 or any subsidiary, (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 any subsidiary, or (iii)
has any cause of action or other claim whatsoever against, or owes any amount
to, the Company or any subsidiary, 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.
3.24 Customers, Suppliers, Distributors, Etc. (a) Except as set forth
on Schedule 3.24(a) and except for the loss of such other customers that will
not have a Material Adverse Effect on the Company, no supplier, customer,
distributor or sales representative of the Company has canceled or otherwise
terminated, or made any written threat to the Company or to any of their
affiliates to cancel or otherwise terminate, for any reason, including the
consummation of the transactions contemplated hereby, its relationship with the
Company. Except as set forth on Schedule 3.24(a) and except for the loss of such
relationship that will not
715586.5 -19-
have a Material Adverse Effect on the Company, to Sellers' knowledge no such
supplier, customer, distributor or sales representative intends to cancel or
otherwise terminate its relationship with the Company. Notwithstanding the
foregoing, Sellers do not make any representations as to the success of the
future sales of the Company after Closing, specifically, the amount or existence
of any future sales, orders or business relationships from, with or through any
customer, supplier, distributor or sales representative; however, Sellers
represent and warrant that they have no knowledge of and are not aware of any
facts or circumstances that would adversely impact the Company's future sales,
orders, or business relationships from, with or through any customer, supplier,
distributor or sales representative.
(b) Schedule 3.24(b) sets forth by dollar volume for the 1998 year to
date the 10 largest customers of the Company.
3.25 Environmental Matters. (a) For the purposes of this Section the
following terms shall have the following meanings: (i) the term "Hazardous
Material" shall mean any material or substance that, whether by its nature or
use, is now or hereafter defined, determined or identified as a hazardous
material, hazardous waste, hazardous substance, toxic substance, pollutant or
contaminant under any Environmental Law, or which is toxic, explosive,
corrosive, ignitable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous or is harmful to human health or the environment, or which
is or contains petroleum, gasoline, diesel fuel or another petroleum hydrocarbon
product; (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.
(b) Except as set forth in Schedule 3.25, Sellers warrant and
represent that: (i) neither the Company nor, to the best of Sellers' 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 with all applicable
Environmental Laws; (iii) the Company has secured all permits, licenses,
authorizations, registrations and approvals necessary for the storage, use or
handling of Hazardous Materials 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
Sellers nor the Company has received any notice of any violations of any
Environmental Laws or has received any warning notices, administrative
715586.5 -20-
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 Sellers' knowledge, has there ever been, any disposal, discharge or
other type of release on property adjacent to or near the Real Property or to
the surface or ground water flowing to the Real Property which may constitute a
risk of contamination to the Real Property; and (vi) no releasing, emitting,
discharging, leaching, dumping or disposing of any Hazardous Material by the
Company or from the Real Property has occurred at, into, onto or under any other
property which may give rise to liability under any Environmental Law.
3.26 Absence of Questionable Payments. Except as set forth on Schedule
3.26, neither the Company nor, to Sellers' knowledge, any director, officer,
agent, employee or other Person acting on 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 Sellers'
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.
3.27 Investment Intent. Each of the Accredited Investor Sellers
(a) represents and warrants that (i) the Initial Questron Common
Stock, and (ii) the Deferred Questron Common Stock (the securities describes in
clauses (i), and (ii) being herein referred to collectively as, the
"Securities") are being acquired as an investment and not with a view to the
distribution thereof;
(b) 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;
(c) understands that none of the Securities can be sold, transferred
or assigned unless registered by Questron pursuant to the Act and any applicable
state securities laws, or unless an exemption therefrom is available (including,
without limitation, sales of securities made in accordance with Rule 144
promulgated under the Act), and, accordingly, it may not be possible for any
Accredited Investor 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;
(d) acknowledges that all documents, records and books pertaining to
Questron and its business (including, but not limited to, the following
documents which have been provided to, and reviewed by, each of Accredited
Investor Seller: (a) Questron's Annual Report on Form 10-KSB for the year ended
December 31, 1997, (b) Questron's Quarterly Report on Form 10-QSB for the period
ended Xxxxx 00, 0000, (x) Questron's Proxy
715586.5 -21-
Statement, dated May 5, 1998, relating to its 1998 Annual Meeting of
Shareholders), and (d) Questron's Form 8-K and Form 8-K/A dated October 7, 1997
and December 5, 1997, respectively, have been made available to the Accredited
Investor Sellers and the Accredited Investor Sellers' attorney and/or accountant
and/or representative. Each Accredited Investor Seller has had an opportunity to
ask questions and receive answers from Questron concerning the business and
assets of Questron and all such questions have been answered to the full
satisfaction of the Accredited Investor Sellers; and
(e) is an accredited investor, as that term is defined in Regulation D
under the Act.
3.28 Disclosure. No representations or warranties by Sellers 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 Sellers or the Company to Questron or any of its representatives
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby), contains or will contain any untrue statement of material
fact or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein or
therein not misleading. There is no fact known to the Sellers 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 3.11 (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 Sellers or the
Company in connection with the transactions contemplated by this Agreement.
(b) Sellers have 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 QUESTRON
Questron represents and warrants to Sellers that:
4.1 Organization. Questron is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware. Questron
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 Questron.
715586.5 -22-
4.2 Corporate Authority. Questron has full corporate power and
authority to enter unto this Agreement and all other agreements contemplated by
this Agreement to which it is party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by
Questron of this Agreement and all other agreements 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
contemplated by this Agreement to which it is party will be as of the Closing
Date, duly executed and delivered by Questron, and (assuming due execution and
delivery by Sellers and the Company) this Agreement constitutes, and each of
such other agreements when executed and delivered will constitute, a valid and
binding obligation of 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. Questron is not 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, license, permit, trust,
custodianship or other restriction, or
(d) any judgment, order, writ, injunction or decree of any court,
governmental body, administrative agency or arbitrator,
that would prevent or be violated by, or under which there would be a default as
a result of, the execution, delivery and performance by 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 Questron of
this Agreement and the consummation of the transactions contemplated hereby.
4.4 Investment Intent. Questron is acquiring the Shares for its own
account for investment and not with a view to any distribution thereof.
4.5 Due Execution. This Agreement has been duly executed and delivered
by Questron and (assuming due execution and delivery by the Sellers and the
Company) the Agreement constitutes, and (assuming due execution and delivery by
each party thereto other than Questron) the Employment Agreements and all other
agreements to be executed and delivered by Questron pursuant to this Agreement
will constitute, valid and binding obligations of Questron, enforceable in
accordance with its 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.
715586.5 -23-
4.6 Questron Common Stock. All shares of Questron Common Stock
delivered to Accredited Investor Sellers pursuant to this Agreement, when issued
as contemplated hereby, will be duly authorized, fully paid and non-assessable.
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS OF
SELLERS, THE COMPANY AND QUESTRON
5.1 Conduct of Business Prior to the Closing Date. Sellers and the
Company agree that, between the Effective Date and the Closing Date:
(a) Except as contemplated by this Agreement or permitted by written
consent of Questron, Sellers 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 shareholders or undertake any similar transactions affecting the capital
of the Company, except for distributions lawfully declared and paid to
stockholders 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
3.19, except as permitted therein;
(iv) change the Company's banking or safe deposit
arrangements;
(v) cause or permit indebtedness (which for purposes of
this clause (v) shall be deemed to exclude trade payables consisting of
accounts payable, deferred taxes and accrued expenses) of the Company to
exceed $250,000 in the aggregate; or
(vi) except as my 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) Sellers shall use their best efforts to conduct the business of
the Company in a manner consistent with past business practices; to preserve the
business organization of the Company intact; to keep available to Questron the
services of the present officers and employees of the Company; to preserve for
Questron the good will 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.
715586.5 -24-
(c) Sellers shall cause the Company to maintain in force the insurance
policies referred to on Schedule 3.22 or insurance policies providing the same
or substantially similar coverage; provided, however, that the Sellers 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 plan, fund, or arrangement disclosed or required to be
disclosed has been or will be:
(i) terminated by the Company other than for expiration
of its terms;
(ii) except as required by law, amended in any manner
which would directly or indirectly increase the benefits accrued in a
material amount, by any participant thereunder; or
(iii) except as required by law, amended in any manner
which would materially increase the cost to Questron of maintaining such
plan, fund or arrangement.
(e) Sellers 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 Sellers of which Sellers 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 Sellers contained in this Agreement.
5.2 Tax Covenants. (a) Sellers shall timely cause to be prepared and
filed by the Company all Returns of the Company relating to Pre-Closing Periods
and shall timely pay, or cause to be paid by the Company, when due all Taxes
relating to such Returns. Such Returns shall be prepared or completed in a
manner consistent with prior practice of Sellers 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 Sellers 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-Closing 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 Sellers nor any affiliate thereof 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
715586.5 -25-
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 the Sellers 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-Closing Periods only, so long as
Pre-Closing 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 Sellers. Sellers shall promptly notify Questron upon receipt by any 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-Closing Periods only.
(d) Neither Sellers nor any affiliate of any 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 Sellers shall provide each
other, and Questron shall cause the Company to provide Sellers, 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 Sellers 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 Sellers nor Questron, nor any of their affiliates, 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).
715586.5 -26-
(g) Questron shall have received from each 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 any 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) Sellers 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 Sellers or any former shareholder of
the Company for which Questron or the Company is held liable. Other than in the
case of Returns and other documentation that are required to be filed by the
Company, which relate to Tax periods commencing on or after the Closing Date,
Sellers shall, at their own expense, file all necessary Tax returns and other
documentation with respect to all such Taxes.
5.3 Expenses and Finder's Fees. Questron and Sellers will bear their
own expenses in connection with this Agreement and its performance. Sellers, 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.
5.4 Access to Information and Confidentiality. Sellers and the Company
agree that until the Closing, Questron 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 Company as will permit Questron to evaluate the transactions
contemplated by this Agreement. Until the Closing, Sellers shall afford Questron
reasonable access to the premises, books, records and business affairs of the
Company (and, to the extent directly relating thereto, of Sellers) for purposes
of 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 and
cash flows for such month, in each case prepared consistent with the standards
set forth in the second sentence of Section 3.11(a). Unless and until the
transactions contemplated herein have been consummated, each of Questron and the
Sellers 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 the Sellers 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
715586.5 -27-
obligations hereunder. In the event the Closing does not occur for any reason,
each of Questron and the Sellers 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, (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 or (d) relates to the Company and
is acquired pursuant to and in accordance with this Agreement. 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. Sellers 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 thereto. Sellers
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
regulation, any public announcements by the Company or the Sellers regarding the
transactions contemplated hereby shall be made only jointly with Questron.
5.7 Transitional Assistance. Sellers 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. Sellers shall use their 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.
715586.5 -28-
ARTICLE 6
CONDITIONS PRECEDENT OF QUESTRON
Questron need not consummate the transactions contemplated by this
Agreement unless the following conditions shall be fulfilled or waived:
6.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of
Sellers 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) Sellers shall have performed and
complied with all material agreements and conditions required by this Agreement
to be performed or complied with by Sellers prior to or on the Closing Date, and
Questron shall have been furnished with certificates of the Sellers, dated the
Closing Date, certifying to the effect of clauses (a) and (b) of this Section
6.1.
6.2 Due Diligence. Questron shall have satisfactorily 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 Xxxxxx & Xxxxxxx, P.C., counsel for Sellers
and the Company, in form and substance reasonably acceptable to Questron.
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, Sellers, 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, governmental authorities and non-governmental self-regulatory
agencies, and all filings with and notifications of governmental authorities,
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of Questron, Sellers or the Company
necessary on the part of Questron, Sellers 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.
715586.5 -29-
6.6 Employment Agreement. Xxxxxxx Xxxxxxx shall have executed and
delivered an Employment Agreement substantially in the form attached hereto as
Exhibits A(together with the "Restrictive Letter" and any other exhibits
attached thereto, the "Employment Agreement").
6.7 Outstanding Shareholder Loans. Any outstanding loans from or
guarantees by the Company to or for the benefit of any Seller shall have been
satisfied and discharged or otherwise have terminated or been canceled, and
Sellers and the Company shall have delivered to Questron satisfactory evidence
thereof.
6.8 Financing. Questron shall have obtained bank or other debt
financing on terms reasonably satisfactory to it.
6.9 Minimum Net Worth. Questron shall have received Seller's
certificate certifying the Company's net worth as of the Closing Date. The
Company shall have a minimum net worth, as of the Closing Date, of not less than
$3,250,000.
6.10 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.
6.11 Insurance. At or prior to Closing the Company shall have
purchased a $10,000,000 liability umbrella insurance policy for the Company, the
terms of which shall be reasonably acceptable to Questron. Such policy shall
include, but shall not be limited to, products liability coverage and shall name
Questron as an additional insured.
6.12 Lease Agreements. The Company shall have executed lease
agreements for each of the properties identified on Schedule 6.12 with each of
the respective lessors of the properties (the "Lease Agreements"). The Lease
Agreements shall be in form and substance reasonably acceptable to Questron and
the Company.
ARTICLE 7
CONDITIONS PRECEDENT OF SELLERS
Sellers need not consummate the transactions contemplated hereby
unless the following conditions shall be fulfilled:
7.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of
Questron contained in this Agreement or in any certificate or document delivered
to Sellers 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 shall have performed and complied with all material agreements and
conditions required by this Agreement to be performed or complied with by it
715586.5 -30-
prior to or on the Closing Date, and the Sellers 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 Sellers 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, governmental authorities, and non-governmental self-regulatory
agencies, and all filings with and notifications of governmental authorities,
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of Sellers, necessary on the part of
Sellers, 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.
7.4 Employment Agreement. Questron shall have caused the Employment
Agreement to be duly executed and delivered by the Company.
7.5 Opinion of Counsel. The Seller shall have been furnished with an
opinion, dated the Closing Date, of Battle Xxxxxx LLP, counsel to Questron, in
form and substance reasonably satisfactory to Sellers.
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.
7.7 Lease Agreements. The Company shall have executed the Lease
Agreements, which shall be inform and substance reasonably acceptable to the
landlords of the leased properties.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification by Sellers. Effective only from and upon the
occurrence of the Closing, and subject to Section 8.3 and Section 9.1 below,
each of the Sellers hereby agrees to jointly and severally 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
715586.5 -31-
incurred in connection with the defense or prosecution of the indemnifiable
claim and those incurred in connection with the enforcement of this provision),
including, without limitation, Environmental Liabilities and Costs
(collectively, "Questron Losses"), caused by, resulting from or arising out of:
(a) (i) breaches of representation or warranty under this Agreement on
the part of any Seller; and (ii) failures by any of the Sellers 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 Sellers to the extent any
governmental authority seeks to impose such Taxes on the Company) for, or
relating to, all Pre-Closing Periods to the extent the charges, accruals and
reserves therefor as reflected on the books of the Company as of the date of the
Closing are inadequate to cover such Taxes;
(c) any liabilities of the Company arising out of the operations of
the Company's business, or any facts, circumstances or events existing or
occurring prior to the Closing Date, including, without limitation, any product
liability claim with respect to any products, goods or services distributed or
sold prior to the Closing Date; 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 the Sellers thereof,
provided further, however, that the failure to so notify the Sellers shall not
reduce or affect Sellers' obligations with respect thereto except to the extent
that Sellers are materially prejudiced thereby. Subject to rights of or duties
to any insurer or other third Person having liability therefor, the Sellers
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 the Sellers shall have
exercised their 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 the Sellers) in any such matter. So long as the Sellers are
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. Questron shall have the right to offset any Questron Indemnified Claims
and/or Questron Losses against the 1999 Deferred Purchase Price.
8.2 Indemnification by Questron. Questron hereby agrees to defend,
indemnify and hold harmless Sellers and their respective successors, assigns and
affiliates (collectively, "Seller Indemnitees") from and against any and all
losses, deficiencies, liabilities,
715586.5 -32-
damages, assessments, judgments, costs and expenses, including reasonable
attorneys' fees (both those incurred in connection with the defense or
prosecution of the indemnifiable claim and those incurred in connection with the
enforcement of this provision) (collectively, "Seller Losses"), resulting from
or arising out of:
(a) (i) breaches of representation and warranty hereunder on the part
of Questron and (ii) failures by Questron to perform or otherwise fulfill any
undertaking or agreement or obligation hereunder;
(b) any liabilities of the Sellers arising out of the operations of
the Company's business, or any facts, circumstances or events existing or
occurring after the Closing Date, including, without limitation, any product
liability claim with respect to any products goods or services distributed or
sold after the Closing Date; 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 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 any 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 any 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) With respect to any Questron Losses
that become Questron Losses from and after January 1, 1999 and are caused by or
resulting from or arising out of the items set forth in clauses (a), (c) and (to
the extent applicable to clauses (a) and (c)) clause (d) of Section 8.1, the
Sellers shall not have to pay any liability for any Questron Losses arising from
any single Questron Indemnified Claim until the Questron Losses resulting from
such claim exceed $50,000, and, in such event, the Sellers shall not be liable
for (x) the first $50,000 of such Questron Losses or (y) any Questron Losses
from any single claim that do not exceed $50,000 (the "Deductible") and shall
only be liable for the Questron Losses related to such claim in excess of
$50,000, provided, that, the foregoing limitation shall no longer apply at such
time as the aggregate Deductible accrued pursuant to this Section 8.3(a) equals
$250,000. In no event shall the Sellers be required to pay to Questron any
amounts constituting the Deductible up to $250,000.
715586.5 -33-
(b) Notwithstanding anything herein to the contrary, the limitation
set forth in Section 8.3(a) above shall not apply to any Questron Losses caused
by or resulting from or arising out of the items set forth in clause (b) and (to
the extent applicable to clause (b)) clause (d) of Section 8.1.
(c) Except for Questron Losses caused by or resulting from or arising
out of the items set forth in clause (b) and (to the extent applicable to clause
(b)) clause (d) of Section 8.1, the aggregate liability of the Sellers under
this Article 8 shall not exceed the aggregate amount of consideration received
by the Sellers as 1999 Deferred Purchase Price.
(d) The aggregate liability of Questron with respect to Seller Losses
caused by or resulting from or arising out of the items set forth in clause (a)
and (to the extent applicable to clause (a)) clause (c) of Section 8.2 shall not
exceed the value of the Initial Questron Common Stock and the Deferred Questron
Common Stock, which value shall be based on the last reported sales price of the
subject Questron Common Stock on the date the subject Questron Common Stock was
issued to the Sellers.
8.4 Adjustments to 1999 Deferred Purchase Price. The 1999 Deferred
Purchase Price shall be subject to adjustment as provided in this Section 8.4.
In the event that the Sellers are liable for any Questron Losses pursuant to
Sections 8.1 and 8.3 that are determined prior to the payment of the 1999
Deferred Purchase Price, the amount of the 1999 Deferred Purchase Price
otherwise payable to the Sellers shall be reduced on a dollar for dollar basis
by the amount of any such Questron Losses for which the Sellers are responsible.
In the event that the foregoing adjustment results in the 1999 Deferred Purchase
Price being less than the maximum amount of $2,000,000, then the Sellers shall
have the opportunity to earn back the amount of any such shortfall to the extent
that the EBIT for the Company in any of fiscal years 1999 through 2001 is in
excess of $2,000,000 on both an annual and cumulative basis until such time as
the Sellers have earned back the amount of such shortfall. The amount of such
shortfall that is earned back by the Seller shall be payable to the Sellers
within 30 days following the determination of EBIT for the years in question.
Such payment shall be made in cash and Questron Common Stock in accordance with
Section 1.2.
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
until the earlier of (i) the first anniversary of the Closing Date, and (ii)
June 30, 1999, except that any representation or warranty of Sellers contained
in Sections 3.1, 3.5, and 3.6, shall survive the Closing Date without
limitation, and any representation or warranty of Sellers contained in Section
3.13 (Tax Matters) shall survive until the expiration of one year after the
expiration of the
715586.5 -34-
applicable statute of limitations (provided, that if any 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 in such case such representations and warranties shall survive to the date
on which such agreement to extend expires).
ARTICLE 10
NON-COMPETITION BY SELLERS AND NO SOLICITATION
10.1 Non-Compete. In consideration of the purchase by Questron of the
Shares under this Agreement, the Sellers identified on Schedule 10.1 will at the
Closing execute and deliver non-compete agreements in the form attached to the
Employment Agreements.
10.2 Remedies. Each Seller recognizes that a breach or threatened
breach by him of his obligations under this Article 10 and the Employment
Agreements 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 Sellers 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 the
Sellers.
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:
715586.5 -35-
(i) If to Sellers or the Company, to:
Fortune Industries, Inc.
0000 Xxxxx Xxxxx
Xxxx Xxxxx, Xxxxx 00000
Telecopier: 000-000-0000
Telephone: 000-000-0000
Attention: Xxxxxxx Xxxxxxx
(with a copy to)
Xxxxxx & Xxxxxxx, P.C.
0000 X. Xxxxx Xxxx.
Xxxxx 000
Xxxxxxxxx, Xxxxx 00000
Telecopier: 000-000-0000
Telephone: 000-000-0000
Attention: Xxxxxxx Xxxxxxx
(ii) If to Questron, to
Questron Technology, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Attention: Chief Executive Officer
(with a copy to)
Battle Xxxxxx LLP
Park Avenue Tower
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxx X. Xxxxxx III, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
715586.5 -36-
11.4 Governing Law and Consent to Jurisdiction; Dispute Resolution.
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.
(a) If a dispute or controversy between the parties arises in the
calculation of the Initial Purchase Price Adjustment, the 1999 Deferred Purchase
Price or any other accounting or financial calculation, the parties agree in
good faith to attempt to resolve the controversy between themselves through the
use of any procedure or method they determine at that time to be agreeable to
them. If either determines at anytime and for any reason that such discussions
are not or will not be successful, then they may utilize the remainder of this
Section 11.4 to resolve the dispute.
(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
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 the Sellers 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.
715586.5 -37-
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.
715586.5 -38-
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Chairman, President and
Chief Executive Officer
FORTUNE INDUSTRIES, INC.
By /s/ Xxxxxxx Xxxxxxx
-------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: President
715586.5 -39-
SELLERS:
/s/ Xxxxxxx X. Xxx
________________________________________
Xxxxxxx X. Xxx
/s/ Xxxx X. Xxxxxxx
________________________________________
Xxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxxxxxxx
________________________________________
Xxxxxxx X. Xxxxxxxxx
/s/ Xxxxxxx X. Xxxxx
________________________________________
Xxxxxxx X. Xxxxx
/s/ Doc. X. Xxxxxxxx
________________________________________
Doc. X. Xxxxxxxx
/s/ Xxxxxxx X. Xxxxxxx
________________________________________
Xxxxxxx X. Xxxxxxx
/s/ Xxxx X. Xxxxxxxx
________________________________________
Xxxx X. Xxxxxxxx
/s/ Xxxxxxx Xxxxxxx
________________________________________
Xxxxxxx Xxxxxxx
/s/ Xxxxx XxXxxxxx
________________________________________
Xxxxx XxXxxxxx
/s/ Xxxxxxx X. Xxxxx
________________________________________
Xxxxxxx X. Xxxxx
/s/ Xxxxxx Xxxxxxx, Jr.
________________________________________
Xxxxxx Xxxxxxx, Jr.
/s/ Xxxxxxx X. Xxxxxxx
________________________________________
Xxxxxxx X. Xxxxxxx
715586.5 -40-
