EXHIBIT 10.20
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ASSET PURCHASE AGREEMENT
By and Between
QUESTRON TECHNOLOGY, INC.,
QUESTRON DISTRIBUTION LOGISTICS, INC.,
METRO FORM CORPORATION
d.b.a. Olympic Fasteners & Electronic Hardware
and
THE PERSONS
SIGNATORY HERETO
Dated as of March 11, 1999
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TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS...............................................................................................1
1.1 Definitions..........................................................................1
ARTICLE 2
PURCHASE AND SALE OF ASSETS...............................................................................7
2.1 Acquired Assets......................................................................7
2.2 Excluded Assets......................................................................8
2.3 Assumption and Exclusion of Certain Liabilities......................................8
2.4 Purchase Consideration and Payment for Acquired Assets...............................8
2.5 Transactions on the Closing Date....................................................10
ARTICLE 3
CLOSING AND TERMINATION..................................................................................11
3.1 Closing.............................................................................11
3.2 Termination.........................................................................11
3.3 Fee Upon Termination................................................................12
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
AND THE COMPANY..........................................................................................12
4.1 Authority; Due Execution............................................................12
4.2 Organization........................................................................13
4.3 Subsidiaries and Equity Investments.................................................13
4.4 Capitalization......................................................................13
4.5 Ownership of Shares.................................................................13
4.6 Title to Acquired Assets............................................................13
4.7 Acquired Assets Complete............................................................14
4.8 No Violation........................................................................14
4.9 Litigation..........................................................................14
4.10 Intentionally Omitted...............................................................15
4.11 Real Property.......................................................................15
4.12 Non-Real Estate Leases..............................................................16
4.13 Financial Statements................................................................16
4.14 Books and Records...................................................................17
4.15 Tax Matters.........................................................................17
4.16 Employee Matters....................................................................18
4.17 Intellectual Property...............................................................21
4.18 Accounts Receivable and Accounts Payable............................................22
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4.19 Inventory...........................................................................22
4.20 Absence of Change or Event..........................................................22
4.21 Compliance with Law.................................................................24
4.22 Contracts and Commitments...........................................................24
4.23 Insurance...........................................................................26
4.24 Intentionally Omitted...............................................................27
4.25 Customers, Suppliers, Distributors, Etc.............................................27
4.26 Previous Sales; Warranties; Product Liability.......................................27
4.27 Environmental Matters...............................................................28
4.28 Absence of Certain Payments.........................................................29
4.29 Additional Information..............................................................29
4.30 Investment Intent...................................................................29
4.31 Disclosure..........................................................................30
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON.......................................................30
5.1 Organization........................................................................30
5.2 Corporate Authority; Due Execution..................................................31
5.3 No Violation........................................................................31
5.4 SEC Documents.......................................................................31
5.5 Questron Common Stock...............................................................32
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS OF
PRINCIPALS, THE COMPANY, QDL AND QUESTRON................................................................32
6.1 Conduct of Business Prior to the Closing Date.......................................32
6.2 Tax Covenants; Bulk Sales Act.......................................................33
6.3 Expenses and Finder's Fees..........................................................34
6.4 Access to Information and Confidentiality...........................................35
6.5 No Solicitation.....................................................................36
6.7 Press Releases......................................................................36
6.8 Transitional Assistance.............................................................36
6.9 Conditions..........................................................................37
6.10 Rule 144............................................................................37
6.11 SEC Filings.........................................................................37
6.12 Name Change.........................................................................37
6.13 Balance Sheets......................................................................37
6.14 Replacement Lease...................................................................37
6.15 Florida Dealers License.............................................................37
6.16 HSR Act and Other Filings...........................................................37
ARTICLE 7
CONDITIONS PRECEDENT OF QDL AND QUESTRON.................................................................38
7.1 Representations and Warranties......................................................38
7.2 Closing Certificates................................................................38
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7.3 Due Diligence.......................................................................38
7.4 Opinion of Counsel..................................................................38
7.5 No Actions..........................................................................38
7.6 Consents............................................................................39
7.7 Instruments and Possession..........................................................39
7.8 Employment Agreement................................................................40
7.9 Non-Competition Agreements..........................................................40
7.10 Financing...........................................................................40
7.11 Financial Statements................................................................40
7.12 Material Adverse Change.............................................................40
7.13 Environmental Report................................................................40
7.14 Investor Representation Letter......................................................41
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE PRINCIPALS...................................................41
8.1 Representations and Warranties......................................................41
8.2 Closing Certificates................................................................41
8.3 No Actions..........................................................................41
8.4 Consents............................................................................41
8.5 Instruments of Assumption...........................................................42
8.6 Employment Agreement................................................................42
8.7 Opinion of Counsel..................................................................42
8.8 No Material Adverse Change..........................................................42
ARTICLE 9
INDEMNIFICATION..........................................................................................42
9.1 Indemnification by the Company and the Principals...................................42
9.2 Indemnification by QDL and Questron.................................................43
9.3 Limitation on Liability.............................................................44
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS....................................................45
ARTICLE 11
INTENTIONALLY OMITTED....................................................................................46
ARTICLE 12
MISCELLANEOUS............................................................................................46
12.1 Cooperation.........................................................................46
12.2 Waiver..............................................................................46
12.3 Notices.............................................................................46
12.4 Governing Law and Consent to Jurisdiction...........................................47
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12.5 Counterparts........................................................................48
12.6 Headings; Schedules.................................................................48
12.7 Entire Agreement....................................................................48
12.8 Amendment and Modification..........................................................48
12.9 Binding Effect; Benefits............................................................48
12.10 Assignability.......................................................................48
12.11 Post-Closing Reimbursement..........................................................48
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ASSET PURCHASE AGREEMENT, dated as of March 11, 1999 (herein, together
with the Schedules and Exhibits attached hereto, referred to as the
"Agreement"), by and between Questron Technology, Inc., a Delaware corporation
("Questron"), Questron Distribution Logistics, Inc., a Delaware corporation and
a wholly-owned subsidiary of Questron ("QDL"), and Metro Form Corporation, an
Ohio corporation doing business as Olympic Fasteners & Electronic Hardware (the
"Company"), and each of the persons listed on Schedule 1.1 hereto and signatory
hereto (each a "Principal," and collectively, the "Principals").
PRELIMINARY STATEMENT
1. QDL is a wholly-owned subsidiary of Questron.
2. The Company desires to sell and QDL desires to purchase
substantially all of the assets of the Company upon the terms and subject to the
conditions contained in this Agreement.
NOW, THEREFORE, in reliance upon the respective representations and
warranties made herein and in consideration of the mutual agreements and
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE 1
DEFINITIONS
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1.1 Definitions. As used in this Agreement, the following terms have
the meanings specified or referred to in this Article 1.
"Accrued Interest" is defined in Section 2.4(a).
"Acquired Assets" is defined in Section 2.1.
"Actions" is defined in Section 4.9.
"Agreement" is defined in the preamble to this Agreement.
"Arbitrating Accountants" is defined in Section 2.4(d)(ii).
"Assumed Liabilities" is defined in Section 2.3.
"Benefit Plans" shall mean each employee benefit or compensation plan,
agreement or arrangement covering present or former employees, consultants or
directors of the Company or any ERISA Affiliate or with respect to which the
Company or any ERISA Affiliates could have any present or future liability,
including "employee benefit plans" within the meaning of Section 3(3) of ERISA,
stock purchase, stock option, severance, employment, collective bargaining
agreement, fringe benefit, change in control, bonus and incentive or deferred
compensation plans, agreements, policies or other arrangements or finding
arrangements.
"Books and Records" shall mean with respect to the Company all books
and records pertaining to the Acquired Assets, the Assumed Liabilities, the
Business, the customers, distributors and suppliers of the Company, including
Tax returns and other information relevant to such returns, but not including
minutes of shareholder and directors meetings.
"Business" shall mean the Company's business and operations in respect
of distributing fasteners, hardware and related components.
"Claims" shall mean with respect to the Company all claims, causes of
action, choses in action, rights of recovery and rights of set-off of whatever
kind or description against any Person or arising out of or relating to the
Acquired Assets the Assumed Liabilities, or the Business.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Closing Shares" is defined in Section 2.4(b).
"Code" is defined in Section 4.15.
"Company" is defined in the preamble to this Agreement.
"Company Common Stock" is defined in Section 4.4.
"Company Indemnified Claims" is defined in Section 9.2.
"Company Indemnitees" is defined in Section 9.2.
"Company Losses" is defined in Section 9.2.
"Confidential Information" is defined in Section 6.4.
"Contract" shall mean with respect to the Company any of the
agreements, contracts, Leases, notes, loans, evidences of indebtedness, purchase
orders, letters of credit, distributor agreements, franchise agreements,
undertakings, covenants not to compete, employment agreements, licenses,
instruments, obligations, commitments, policies, purchase and sales orders,
quotations and other executory commitments, in each case, related to, used or
useful in the Business of the Company, to
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which the Company is a party or to which any of its assets are subject, whether
oral or written, express or implied.
"Contract Rights" shall mean with respect to the Company all of the
Company's rights and obligations under the Transferred Contracts.
"December 31, 1998 Audited Balance Sheet" is defined in Section 6.13.
"Deferred Purchase Price" is defined in Section 2.4(c).
"EBIT" shall mean the aggregate earnings of the Business before
interest, income taxes, amortization of goodwill and the allocation of corporate
expenses associated with the Business and without regard to extraordinary items
that are paid or incurred after Closing, including any extraordinary bonus or
severance payments made to employees.
"EBIT Period" is defined in Section 2.4(c).
"EBIT Report" is defined in Section 2.4(d)(i).
"Effective Date" is defined in Section 3.1.
"Employment Agreement" is defined in Section 7.8.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
easement, security interest, encumbrance or other right of third parties.
"Environmental Laws" is defined in Section 4.27.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" is defined in Section 4.16(d).
"ERISA Plans" is defined in Section 4.16(b).
"Excluded Assets" shall mean (a) the Excluded Contracts, (b) the
Excluded Records, (c) all tax refunds relating to periods preceding the Closing
Date, (d) all Benefit Plans and related assets, (e) all claims, causes of
action, choses in action, rights of recovery and rights of set-off of whatever
kind or description which the Company may have under, or arising out of or
relating to, this Agreement or any of the Other Documents to which it is a party
(f) amounts owing from officers or shareholders of the Company, and (g) each of
those assets, properties or rights of the Company otherwise listed on Schedule
1.1(a) hereto.
"Excluded Contracts" shall mean the Contracts listed on Schedule 1.1(b)
hereto.
"Excluded Liabilities" is defined in Section 2.3.
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"Excluded Records" shall mean (a) the Company's corporate record books,
(b) the Tax returns of the Company and other information relevant to such
returns and (c) such other Books and Records which primarily relate to any
Excluded Asset.
"Existing Master Lease" shall mean that certain Lease Agreement by and
between Nova Investments Group Corp., as lessor, and the Company, as Lessee,
relating to the Company's lease of office and warehouse space in Middleburg
Heights, Ohio.
"First Replacement Lease" shall mean that certain lease agreement in
the form attached hereto as Exhibit A-1.
"Fixtures and Equipment" shall mean with respect to the Company all of
the furniture, fixtures, furnishings, machinery and equipment, spare parts,
supplies, vehicles and other tangible personal property owned by the Company and
located in, at or upon the Real Property of the Company as of the Effective
Date, plus all additions, replacements or deletions since the Effective Date.
"GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board consistently applied.
"Governmental Authorities" means the Federal government, or any state
or other political subdivision thereof, or any agency, court or body of the
Federal government, any state or political subdivision thereof, exercising
executive, legislative, judicial, regulatory or administrative functions.
"Hazardous Materials" is defined in Section 4.27.
"HSR Act" is defined in Section 6.16.
"Immaterial Lease" is defined in Section 4.12.
"Initial Cash Consideration" is defined in Section 2.4(a).
"Insurance Policies" shall mean with respect to the Company the
insurance policies issued by unaffiliated, third-party carriers relating to the
Acquired Assets and Business of the Company listed under the Company's name on
Schedule 4.23.
"Intellectual Property Rights" is defined in Section 4.17.
"Inventory" shall mean with respect to the Company (a) all of the
Company's inventories whether (x) in transit and owned by the Company or (y)
within the facilities of the Company held for resale or lease in the ordinary
course of the Company's Business to its customers and distributors, (b) all
office supplies and similar materials of the Company located in the facilities
of the Company
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and (c) all of the raw materials, work in process, finished products and similar
items of the Company, in the facilities of the Company or wherever otherwise
located.
"Laws" shall mean any law, statute, rule, regulation, ordinance,
standard, code, order, judgment, decision, writ, injunction, decree, award or
other governmental restriction including, without limitation, any policy or
procedure issued or enforced by any Governmental Authority.
"Leased Real Property" is defined in Section 4.11(a).
"Leases" shall mean with respect to the Company all of the leases of
the Company (whether relating to real property, improvements thereon, vehicles,
machinery or equipment or other assets) listed under the Company's name on
Schedules 4.11(a) and 4.12 and all other leases relating to the Acquired Assets
or Business which are not required to be scheduled pursuant to this Agreement,
including the Immaterial Leases.
"Liability" shall mean any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"March 31, 1999 Balance Sheet" is defined in Section 6.13.
"Material Adverse Effect" shall mean with respect to (A) the Company, a
material adverse effect on (i) the Acquired Assets, the Business or the
condition (financial or otherwise), properties, Liabilities, reserves, working
capital, earnings, results of operations, or business prospects, or relations
with customers, suppliers, distributors or employees of the Company or (ii) the
right or ability of the Company to consummate the transactions contemplated
hereby, and (B) with respect to QDL and Questron, a material adverse effect on
(i) the business or the condition (financial or otherwise) properties,
liabilities, reserves, working capital, earnings, results of operations, or
business prospects, or relations with customers, suppliers, distributions or
employees of QDL and Questron or (ii) the right or ability of such entities to
consummate the transactions contemplated hereby.
"Net Operating Assets" is defined in Section 2.4(a).
"Non-Competition Agreements" is defined in Section 7.9.
"Non-Real Estate Leases" is defined in Section 4.12.
"Other Documents" is defined in Section 4.1.
"Permits" shall mean with respect to the Company all licenses, permits
and other governmental authorization necessary to carry on the Business of the
Company.
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"Person" means any natural person, business trust, corporation,
partnership, limited liability company, joint stock company, proprietorship,
association, joint venture, unincorporated association or other legal entity of
whatever nature.
"Principals" is defined in the preamble to this Agreement.
"Purchase Price" is defined in Section 2.4.
"QDL" is defined in the preamble to this Agreement.
"Questron" is defined in the preamble to this Agreement.
"Questron Common Stock" is defined in Section 2.4(b).
"Questron Indemnified Claims" is defined in Section 9.1.
"Questron Indemnities" is defined in Section 9.1.
"Questron Losses" is defined in Section 9.1.
"Real Property" is all of the real property that has been or is
currently being used in the conduct of the Business, including, without
limitation, the Leased Real Property.
"Real Property Leases" is defined in Section 4.11(a).
"Reference Balance Sheet" is defined in Section 4.13.
"Reference Balance Sheet Date" is defined in Section 4.13.
"Reference Income Statement" is defined in Section 4.13.
"SEC" is defined in Section 5.4.
"SEC Documents" is defined in Section 5.4.
"Second Replacement Lease" shall mean that certain lease agreement in
the form attached hereto as Exhibit A-2.
"Securities" is defined in Section 4.30(i).
"Securities Act" is defined in Section 2.5(d).
"Shares" is defined in Section 2.4(a).
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"Stated Debt" is the aggregate amount of the outstanding liabilities of
the Company specifically identified and described in Schedule 1.2 as of the
Effective Date.
"Stated Net Debt" is defined in Section 2.4(a).
"Subsidiary" is defined in Section 4.3.
"Taxes" is defined in Section 4.15.
"Transferred Contracts" shall mean the Contracts other than the
Excluded Contracts.
"1998 Audit" is defined in Section 6.4.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
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2.1 Acquired Assets. Subject to the terms and conditions of this
Agreement, the Company shall sell, assign, transfer, convey and deliver to QDL,
and QDL shall purchase from the Company on the Closing Date, all right, title
and interest of the Company in and to all of the Acquired Assets, free and clear
of all Encumbrances.
The term "Acquired Assets" as used herein shall mean all of the assets,
properties and rights of every type and description, real and personal, tangible
and intangible, wherever located, owned by the Company on the Closing Date or in
which the Company has any interest whatsoever on the Closing Date relating to,
used or useful in the conduct of the Business, exclusive of the Excluded Assets,
but otherwise including, without limitation, all of the Company's right, title
and interest in and to the following:
(a) accounts and notes receivable, refunds, and, to the extent
transferable, deposits and prepaid expenses (including, without limitation, any
prepaid insurance premiums);
(b) cash and cash equivalents;
(c) all Contract Rights, including, without limitation, all of the
Company's rights and obligations under or in respect of (i) the Leases
(exclusive of the Existing Matter Lease but including the Replacement Lease),
(ii) the Insurance Policies, (iii) all restrictive covenants and obligations of
present and former officers and employees of each of the Company (or any
predecessor of the Company) and of other individuals and corporations in favor
of the Company (or any predecessor of the Company) and (iv) any collective
bargaining or other employee agreements described on Schedule 2.1(c) hereto;
(d) all Fixtures and Equipment;
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(e) all Inventory;
(f) all Books and Records;
(g) all Intellectual Property Rights;
(h) all Claims;
(i) all Permits;
(j) all manufacturers', vendors' and suppliers' warranties in
respect of any item of property falling within the scope of the Acquired Assets;
(k) to the extent transferable, all rights to indemnification,
including environmental indemnification rights related to the Business and/or
the Acquired Assets inuring to the benefit of the Company; and
(l) all other assets used or held for use in the Business by the
Company, whether tangible or intangible, not expressly mentioned herein which,
as of the Closing Date, are owned by the Company, or in which the Company has a
right, title or interest.
2.2 Excluded Assets. Notwithstanding any other provision of this
Agreement, Questron shall not acquire any interest in the Excluded Assets.
2.3 Assumption and Exclusion of Certain Liabilities. QDL agrees to
assume, as of the Closing Date, (i) solely to the extent related to any facts or
circumstances arising or occurring after the Effective Date (but not with
respect to facts or circumstances existing, arising or occurring prior to the
Effective Date), all Liabilities of the Company arising under the Transferred
Contracts, (ii) all Liabilities of the Company which have been incurred by the
Company in the ordinary course of business, including all Liabilities with
respect to trade accounts payable of the Company and accrued current liabilities
(including payroll and payroll taxes) existing as of the Closing Date, and (iii)
such other liabilities specifically listed on Schedule 2.3 hereto (the
Liabilities described in clauses (i) through (iii) are collectively referred to
as the "Assumed Liabilities"). Except for the Assumed Liabilities, Questron is
not assuming, and shall not be liable for or bound by, any obligations or
Liabilities of the Company of any kind or nature, known or unknown, express,
implied, contingent or otherwise (collectively, the "Excluded Liabilities").
2.4 Purchase Consideration and Payment for Acquired Assets. In
consideration of the sale, conveyance, transfer, assignment and delivery of the
Acquired Assets and Business by the Company to QDL on the Closing Date, and in
reliance upon the representations, warranties, covenants and agreements made
herein by the Company and the Principals, QDL shall pay to the Company a total
purchase price of Nine Million Dollars ($9,000,000) (the "Purchase Price")
subject to payment and adjustment as follows:
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(a) Initial Cash Consideration. At the Closing, the Company shall
be paid an amount equal to (w) Eight Million Dollars ($8,000,000), (x) less the
Stated Net Debt (as defined below), (y) plus or minus, the increase or decrease,
as the case may be, in Net Operating Assets (as defined below) of the Company
from that derived from the December 31, 1998 Audited Balance Sheet (as defined
in Section 6.13) to that derived from the March 31, 1999 Balance Sheet (as
defined in Section 6.13), (z) plus (i) interest on the foregoing in an amount
equal to 6% per annum calculated from the Effective Date through the earlier of
April 23, 1999 or the Closing Date, and (ii) interest on the foregoing
(including all accrued interest) in an amount equal to 8% per annum calculated
from April 23, 1999 through the Closing Date (such interest payable under
clauses (i) and (ii) collectively, the "Accrued Interest") (said amount being
herein referred to as the "Initial Cash Consideration"). The Initial Cash
Consideration shall be paid to the Company (or to third parties on behalf of the
Company) by wire transfers of immediately available funds (or certified checks)
from or on behalf of QDL to such account(s) as the Company may designate to QDL
in writing, no later than five (5) business days prior to the Closing Date. As
used herein, (a) "Net Operating Assets" means, at the applicable measurement
date, the net book value of the Acquired Assets (exclusive of cash and cash
equivalents), net of the net book value of the Assumed Liabilities (exclusive of
the Stated Debt), and (b) "Stated Net Debt" means the aggregate amount of the
Stated Debt net of cash and cash equivalents as of March 31, 1999.
(b) Questron Common Stock. At the Closing, the Company (or its
designees) shall be issued such aggregate number of shares of Questron's Common
Stock, par value $0.001 per share (the "Questron Common Stock"), having a value
equal to One Million Dollars ($1,000,000) (the "Closing Shares") calculated on
the basis of the average last reported sales price for the Questron Common Stock
for the five (5) trading days ending on the third trading day immediately prior
to the Closing Date. The Closing Shares shall be issued and registered in the
name of the Company or its designees and in such denominations as the Company
may designate to QDL in writing no later than five (5) business days prior to
the Closing Date.
(c) Post-Closing Payments. Subject to the terms and conditions set
forth in subsection (d) below, following the Closing, QDL shall pay to the
Company (or its designees) an amount (the "Deferred Purchase Price") equal to
the lesser of (A) an amount equal to (x) the amount, if any, by which the EBIT
for the Business for the twelve (12) month period beginning on the Effective
Date (the "EBIT Period") exceeds One Million Four Hundred Fifty Thousand Dollars
($1,450,000), multiplied by (y) 6, and (B) One Million Dollars ($1,000,000).
(d) Determination of Post-Closing Payment Amounts. The amount of
post- closing payments referred to subsection (c) above shall be finally
determined, and subject to payment, as follows:
(i) The amount of the Deferred Purchase Price shall be initially
computed by QDL, and a report thereon (the "EBIT Report") shall be delivered
to the Company within sixty (60) calendar days following the end of the EBIT
Period. The EBIT Report will be deemed to be accepted by the parties hereto
and shall be conclusive for purposes of determining the amount of the
Deferred Purchase Price, except to the extent, if any, that the Company
shall have delivered to QDL, within thirty (30) calendar days after
receiving such
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EBIT Report, a statement describing the Company's objections (if any)
thereto, specifying the amount in dispute and setting forth in reasonable
detail the basis for such dispute (it being understood any amounts not
disputed shall be paid promptly). The parties and their respective
independent accountants shall use reasonable efforts to resolve any such
objections in good faith, but if they do not obtain a final resolution
within thirty (30) calendar days after the Company has delivered the
statement of objections, then the resolution of the disputed items shall be
submitted to arbitration as provided in clause (ii) below.
(ii) Disputes in the final determination of the amount of the
Deferred Purchase Price shall, to the extent not otherwise resolved by the
parties as provided in clause (i) above, as applicable, shall be submitted
to an independent accounting firm mutually acceptable to the parties (the
"Arbitrating Accountants") for resolution. The parties shall bear the fees
and disbursements of the Arbitrating Accountants in the same proportion that
their respective positions are confirmed or rejected by the Arbitrating
Accountants. The determination of the Arbitrating Accountants will be
conclusive and binding on the parties.
(iii) Amounts payable in respect of the Deferred Purchase Price
shall be paid within five (5) calendar days following the date of final
determination, by wire transfer of immediately available funds to the
account specified by the party entitled to receive payment.
2.5 Transactions on the Closing Date.
(a) At the Closing, the Company will deliver, or cause to be
delivered, to QDL and/or Questron the following:
(i) each of the certificates and documents contemplated by Article
7; and
(ii) such other certificates, documents, instruments and
agreements as QDL and/or Questron shall deem necessary in its reasonable
discretion in order to effectuate the transactions contemplated herein, in
form and substance reasonably satisfactory to QDL and/or Questron.
(b) At the Closing, QDL and/or Questron will deliver to the
Company and/or the Principals the following:
(i) the Initial Cash Consideration;
(ii) the stock certificates representing the Closing Shares;
(iii) each of the certificates and documents contemplated by
Article 8; and
(iv) such other certificates, documents, instruments and
agreements as the Company shall deem necessary in its reasonable discretion
in order to effectuate the
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transactions contemplated herein, in form and substance reasonably
satisfactory to the Company.
(c) At the Closing, and on behalf of the Company, Questron shall
deliver, or cause to be delivered, by wire transfer such amounts as are
necessary to pay and discharge the outstanding balance of the indebtedness set
forth on Schedule 1.2 to the entities listed thereon, which amounts shall
represent all of such indebtedness outstanding as of the Closing Date.
(d) Restricted Securities. The shares representing the Closing
Shares issued to the Company or its designees shall be restricted securities
under the Securities Act of 1933, as amended (the "Securities Act"), will not
have been registered under the Act and may not be sold or transferred absent
such registration or unless an exception from registration is available. The
certificates evidencing such Shares shall bear a legend substantially in the
following form, in addition to any other legends required by applicable state
law:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION OF
COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO
THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE."
ARTICLE 3
CLOSING AND TERMINATION
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3.1 Closing. The closing of the transactions provided for in Article 2
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 April 20, 1999 (the "Closing Date"), or at such other place,
time and date as may be agreed upon by QDL, Questron, the Company and the
Principals. The effective date of the Closing shall be April 1, 1999 (the
"Effective Date").
3.2 Termination. Anything contained in this Agreement other than in
this Section 3.2 to the contrary notwithstanding, this Agreement may be
terminated in writing at any time on or prior to the Closing:
(a) without liability on the part of any party hereto, by mutual
written consent of QDL and Questron, on the one hand, and the Company and the
Principals, on the other;
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(b) without liability on the part of any party hereto (unless
occasioned by reason of a material breach by any party hereto of any of its
representations, warranties or obligations hereunder) by either QDL and
Questron, on the one hand, or the Company and the Principals, on the other, if
the Closing shall not have occurred on or before June 30, 1999 (or such later
date as may be agreed upon in writing by the parties hereto);
(c) by QDL and Questron, if the Company or the Principals shall
breach in any material respect any of their respective representations,
warranties or obligations hereunder and such breach shall not have been cured or
waived or the Company or the Principals shall not have provided reasonable
assurance that such breach can and will be cured on or before the Closing Date,
provided, however, that QDL and Questron have not breached in any material
respect any of their respective representations, warranties or obligations
hereunder; or
(d) by the Company and the Principals, if QDL or Questron shall
breach in any material respect any of their respective representations,
warranties or obligations hereunder and such breach shall not have been cured or
waived or QDL and Questron shall not have provided reasonable assurance that
such breach can and will be cured on or before the Closing Date, provided,
however, that the Company and the Principals have not breached in any material
respect any of their respective representations, warranties or obligations
hereunder.
3.3 Fee Upon Termination Under Section 3.2(b). In the event that
QDL or the Company terminates this Agreement pursuant to Section 3.2(b), QDL
shall pay to the Company Fifty Thousand Dollars ($50,000). Such payment shall be
made within fifteen (15) calendar days after the date of termination and shall
be paid by wire transfers of immediately available funds (or certified checks)
from or on behalf of QDL to such account(s) as the Company may designate to QDL
in writing.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
------------------------------------------------
AND THE COMPANY
---------------
Each Principal and the Company, jointly and severally, represents and
warrants to QDL and Questron that as of the date hereof and as of the Closing
Date (except as otherwise noted):
4.1 Authority; Due Execution. The Company has full corporate power and
authority to enter into this Agreement and all other agreements, documents,
certificates and instruments contemplated by this Agreement (the "Other
Documents") to which it is a party and to consummate the transactions
contemplated hereby and thereby. Each Principal has the power to enter into this
Agreement and each Other Document to which such Principal is a party and to
consummate the transactions contemplated hereby and thereby. This Agreement has
been, and each Other Document to which the Company and/or the Principals are
parties will be as of the Closing Date, duly executed
12
and delivered by the Company and/or the Principals, and (assuming due execution
and delivery by QDL and Questron) this Agreement and each Other Document to
which the Company and the Principals are parties will constitute valid and
binding obligations of the Company and the Principals, respectively, enforceable
in accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, moratorium,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.
4.2 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and has all
requisite corporate power and authority to carry on its Business as now being
conducted and to own the Acquired Assets and is duly licensed or qualified and
in good standing as a foreign corporation in each jurisdiction in which it is
required to be so licensed or so qualified, except where the failure to be so
licensed or so qualified would not have a Material Adverse Effect on the
Company.
4.3 Subsidiaries and Equity Investments. The Company has no
subsidiaries and does not own, directly or indirectly, any investments, capital
stock or other equity or ownership interests in any other corporations or
business enterprises and is not a partner in any partnership or a co-venturer in
any joint venture or other business enterprise. The term "subsidiary" means any
corporation or other entity of which the Company, directly or indirectly, owns
or controls capital stock or ownership interests representing either (i) more
than fifty percent (50%) of the general voting power under ordinary
circumstances of such corporation or entity, or (ii) if an entity other than a
corporation, more than fifty percent (50%) of the economic interest therein.
4.4 Capitalization. As of the date hereof, the authorized capital of
the Company consists of the number of shares of common stock set forth on
Schedule 4.4, no par value per share (the "Company Common Stock"), of which the
number of shaers set forth on Schedule 4.4 are issued and outstanding. The
authorized capital of the Company as of the Closing shall be set forth on a
schedule to be provided to QDL prior to Closing.
4.5 Ownership of Shares. As of the date hereof, each shareholder of the
Company is the lawful record and beneficial owner of that number of shares of
Company Common Stock set forth opposite such shareholders name on Schedule 1.1,
which shares represent all of the issued and outstanding shares of capital stock
of the Company. The ownership of the Company Common Stock as of the Closing
shall be set forth on a schedule to be provided to QDL prior to Closing.
4.6 Title to Acquired Assets. The Company has good and marketable title
to all of the Acquired Assets owned by it, and has a valid leasehold interest in
all of the assets and properties leased by it, in each instance free and clear
of any Encumbrances, other than such Encumbrances specifically identified on
Schedule 4.6(a). Schedule 4.6(b) lists all items of personal property (exclusive
of Inventory) owned by the Company as of the date of this Agreement having a
current book value of in excess of Five Thousand Dollars ($5,000). All of the
items of equipment used by the Company in the conduct of the Business are
suitable for the purposes for which such assets are currently used or are held
for use, in adequate working condition, subject to normal wear and tear, and are
free from any known defects. Upon consummation of the transactions contemplated
hereby,
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QDL will acquire good title to all of the Acquired Assets owned by the Company,
free and clear of all Encumbrances, except for Encumbrances specifically
identified on Schedule 4.6(c).
4.7 Acquired Assets Complete. The Acquired Assets constitute all of the
properties and assets used or held for use in connection with the Business and
the conduct of the Business as currently conducted (other than the Excluded
Assets), and include all properties, rights and assets necessary to permit QDL
to conduct the Business in all material respects as such Business is conducted
on, and has been conducted prior to, the date of this Agreement.
4.8 No Violation. Neither any Principal nor the Company is subject to
or bound by any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) (in the case of the Company) its articles of incorporation or
by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, proxy, bond, indenture, other instrument or agreement,
license, Permit, trust, custodianship or other restriction, or
(d) any consent, judgment, order, writ, award, injunction or
decree of any Governmental Authority or arbitrator,
that would conflict with, prevent or be violated by or that would result in the
creation of any Encumbrance as a result of, or under which there would be a
default or right of termination, amendment, acceleration, revocation,
cancellation or suspension as a result of, the execution, delivery and
performance by any Principal or the Company of this Agreement or any Other
Document and the consummation of the transactions contemplated hereby and
thereby. Except as set forth in Schedule 4.8, no consent, order, license,
permit, approval or authorization of or declaration, notice or filing with any
Person is required for the valid execution, delivery and performance by any
Principal or the Company of this Agreement or any Other Document to which it is
a party and the consummation of the transactions contemplated hereby and
thereby.
4.9 Litigation. Except as set forth on Schedule 4.9, there is no
charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, labor dispute, arbitral
action or, to the knowledge of the Company and the Principals, investigation
(collectively, "Actions") pending or, to the knowledge of the Company and the
Principals, threatened or anticipated against, relating to or affecting (i) the
Company, the Assumed Liabilities, the Acquired Assets or the Assigned
Liabilities, or the operation of the Business of the Company as currently
operated and as proposed to be operated, (ii) any Benefit Plan of the Company or
any trust or other funding instrument, fiduciary or administrator thereof or
(iii) the transactions contemplated by this Agreement. The Company is not in
default with respect to any judgment, order, writ, injunction or decree of any
Governmental Authority, and there are no unsatisfied judgments against the
Company. To the knowledge of the Company and the Principals, no event has
occurred or circumstances exist that could reasonably be expected to give rise
to or serve as a basis for the commencement of any
14
Action. The Company has delivered or made available to QDL or Questron copies of
all proceedings, correspondence and other documents relating to each Action
listed on Schedule 4.9. The Company and the Principals have no knowledge of any
Action so pending or threatened or that the Company and the Principals have a
reasonable basis to expect or anticipate (whether or not disclosed on Schedule
4.9) which would not, subject to applicable deductions, be fully covered by
insurance under the Insurance Policies.
4.10 Intentionally Omitted.
4.11 Real Property. (a) All of the Real Property used in the conduct of
the Business is either leased or subleased by the Company and the Company does
not otherwise own any real property. Schedule 4.11(a) sets forth, as of the date
of this Agreement, a complete and accurate list of (i) all of the real property
that the Company has currently leased or subleased (the "Leased Real Property")
and (ii) the applicable leases, including all amendments thereto and all
material agreements incidental thereto (the "Real Property Leases"). The Company
has a valid leasehold interest in the Leased Real Property as provided in the
applicable Real Property Lease, in each case, free and clear of all Encumbrances
and defects, except for taxes or assessments, special or otherwise, not due and
payable or being contested in good faith. There exists no default or event of
default or event, occurrence, condition or act (including the consummation of
the transactions contemplated hereby) on the part of the Company which, with the
giving of notice, the lapse of time, or the happening of any other event or
condition, would become a default or event of default under any Real Property
Lease.
(b) Each of the Real Property Leases is in full force and effect
and constitutes a valid leasehold interest in the respective Leased Real
Property and has not been assigned, modified, supplemented or amended except as
set forth on Schedule 4.11(a). The Company has not received a written notice of
any monetary default or other material default under any Real Property Lease or
has given or received any notice for purpose of terminating any Real Property
Lease; all rents due under the Real Property Leases have been paid.
(c) With respect to each of the Real Property Leases (other than
the Existing Master Lease) the Company has, to the knowledge of the Company and
the Principals, adequate rights of ingress and egress for the operation of the
Business of the Company in the ordinary course. With respect to the Real
Property leased under the Existing Master Lease and to be leased pursuant to the
Replacement Lease, the Company has adequate rights of ingress and egress for the
operation of the Business of the Company in the ordinary course. Except as set
forth in Schedule 4.11(c), to the knowledge of the Company and the Principals,
with respect to the Leased Real Property (other than the Leased Real Property
leased under the Existing Master Lease and to be leased under the Replacement
Lease) none of the buildings, structures or appurtenances (or any equipment
therein), nor the operation of maintenance thereof, violates any restrictive
covenant or any provision of any federal, state, provincial or local law,
ordinance, rule or regulation, or encroaches on any property owned by others,
except where such violation or encroachment does not materially adversely affect
the value or use of any such building, structure, appurtenance or equipment.
Except as set forth in Schedule 4.11(c), with respect to the Leased Real
Property leased under the Existing Master lease and to be leased under the
Replacement Lease, none of the buildings, structures or appurtenances
15
(or any equipment therein), nor the operation of maintenance thereof, violates
any restrictive covenant or any provision of any federal, state, provincial or
local law, ordinance, rule or regulation, or encroaches on any property owned by
others, except where such violation or encroachment does not materially
adversely affect the value or use of any such building, structure, appurtenance
or equipment.
(d) Except as set forth in Schedule 4.11(d), (i) no condemnation
proceeding is pending or, to the knowledge of the Company and the Principals,
threatened with respect to the Real Property or any buildings, structures or
appurtenances located thereon, and (ii) none of the buildings, structures or
appurtenances used by the Company in the conduct of the Business have been
damaged or destroyed, in whole or in part, as a result of any fire or other
casualty, which damage or destruction has not been fully repaired or restored.
(e) The Company has all necessary Permits to carry on the Business
in the ordinary course.
4.12 Non-Real Estate Leases. Schedule 4.12 lists all Acquired Assets
(other than Real Property) that are possessed by the Company under an existing
lease, including, without limitation, all vehicles, forklifts, machinery,
equipment, furniture, fixtures and computers, except for any lease under which
the aggregate annual payments (excluding Taxes) for the last twelve (12)
preceding months are less than Five Thousand Dollars ($5,000) (each, an
"Immaterial Lease"). Schedule 4.12 also lists the leases under which such
Acquired Assets are possessed. All of such leases (excluding Immaterial Leases)
are referred to herein as the "Non-Real Estate Leases." Each Non-Real Estate
Lease is in full force and effect and constitutes a valid leasehold interest in
such leased Acquired Assets, and has not been assigned, modified, supplemented
or amended except as set forth on Schedule 4.12.
4.13 Financial Statements. (a) The Principals and the Company have
heretofore furnished QDL and/or Questron with copies of the following financial
statements of the Company: (i) audited balance sheets as at December 31 for each
of 1995, 1996 and 1997, respectively; (ii) audited statements of operations for
each of the years ended on December 31, for 1995, 1996, 1997; (iii) an unaudited
balance sheet (the "Reference Balance Sheet") as at December 31, 1998 (the
"Reference Balance Sheet Date"); and (iv) an unaudited statement of operations
(the "Reference Income Statement") for the year ended December 31, 1998. Except
as noted on Schedule 4.13 or otherwise noted therein and except for normal
year-end adjustments, all such financial statements are complete and correct,
were prepared in accordance with GAAP consistently applied throughout the
periods indicated and have been prepared in accordance with the Books and
Records of the Company, and present fairly the financial position of the Company
at such dates and the results of its operations and cash flows for the periods
then ended, subject to such inaccuracies, if any, which are not material in
nature or amount.
(b) Except as set forth on Schedule 4.13(b), there are no
Liabilities, debts, obligations or claims against the Company of any nature
(accrued, absolute or contingent, unasserted, known or unknown, or otherwise),
except (i) as and to the extent reflected or reserved against on the Reference
Balance Sheet; (ii) specifically described and identified as an exception to
16
this paragraph in any of the Schedules delivered to QDL and Questron pursuant to
this Agreement; (iii) those that are individually, or in the aggregate, not in
excess of Twenty-Five Thousand Dollars ($25,000) and were incurred since the
Reference Balance Sheet Date in the ordinary course of business consistent with
prior practice; or (iv) Company payroll expenses, open purchase or sales orders
or agreements for delivery of goods and services in the ordinary course of
business consistent with prior practice. The Company shall provide QDL with an
updated Schedule 4.13(b) at the Closing.
(c) The Company has heretofore delivered true and complete copies
of all auditor letters to management or the board of directors of the Company
with respect to the audits of the Company for the preceding five fiscal years of
the Company.
4.14 Books and Records. (a) The Principals and the Company have made
and will make available for inspection by QDL and/or Questron all the Books and
Records relating to the Business of the Company. Such Books and Records of the
Company reflect all the material transactions and other material matters
required to be set forth under GAAP applied on a consistent basis.
(b) The minute books of the Company that have been made available
to QDL and/or Questron for their inspection contain true and complete records of
all meetings and consents in lieu of meetings of the Board of Directors (and any
committees thereof) of the Company and of its Shareholders and accurately
reflect all material transactions referred to in such minutes and consents in
lieu of meetings. The stock books that have been made available to QDL and/or
Questron for their inspection are true and complete in all material respects.
4.15 Tax Matters. (a) For purposes of this Agreement, "Tax" or "Taxes"
shall mean any federal, state, local, foreign or other taxes (including, without
limitation, income (net or gross), gross receipts, profits, alternative or
add-on minimum, franchise, license, capital, capital stock, intangible,
services, premium, mining, transfer, sales, use, ad valorem, payroll, wage,
severance, employment, occupation, property (real or personal), windfall
profits, import, excise, custom, stamp, withholding or estimated taxes), fees,
duties, assessments, withholdings or governmental charges of any kind whatsoever
(including interest, penalties, additions to tax or additional amounts with
respect to such items) relating to the income, operations or properties of the
Company.
(i) "Pre-Closing Periods" shall mean all Tax periods ending on or
before the Closing Date and, with respect to any Tax period that includes
but does not end on the Closing Date, the portion of such period that ends
on and includes the Closing Date;
(ii) "Returns" shall mean all returns, declarations, reports,
estimates, information returns and statements of any nature regarding Taxes
for any Pre-Closing Period required to be filed by any Person and relating
to the Company and its subsidiaries;
(iii) "Code" shall mean the Internal Revenue Code of 1986, as
amended; and
17
(iv) the term "Tax Deficiency" shall include a reduction in any
net operating losses.
(b) In respect of the Pre-Closing Periods only,
(i) all Returns have been (or will be prior to Closing) timely
filed when due in accordance with all applicable laws;
(ii) all Taxes shown on the Returns have been timely paid when
due;
(iii) the Returns completely, accurately, and correctly in all
material respects reflect the facts regarding the income, properties,
operations and status of any entity required to be shown thereon;
(iv) all Taxes which the Company is required by law to withhold or
collect have been in all material respects duly withheld or collected, and
have been timely paid over to the appropriate governmental authorities to
the extent due and payable;
(v) there is no action, suit, proceeding, investigation, audit or
claim currently pending, or to the Company's and the Principals' knowledge,
threatened, regarding any Taxes relating to the Company for any Pre-Closing
Period;
(vi) no Person has executed or entered into a closing agreement
pursuant to Code Section 7121 (or any comparable provision of state, local
or foreign law) that is currently in force and determines the Tax
liabilities of the Company;
(vii) there are no liens for any Tax on the assets of the Company
except liens which arise as a matter of law; and
(viii) there are no tax sharing agreements to which the Company is
now or, to Principals' knowledge, ever has been a party which will survive
the Closing.
4.16 Employee Matters. (a) Schedule 4.16(a) sets forth as of the date
hereof the name, date of hire, current annual compensation rate (including bonus
and commissions), title, current base salary rate and accrued bonus and vacation
of each present employee of the Company; and a list of any employment,
managerial, advisory, consulting, collective bargaining and severance agreements
or plans; employee confidentiality or other agreements protecting proprietary
processes, formulae or information; any employee handbook(s) and written
employment policies; any reports and/or plans prepared or adopted pursuant to
the Equal Employment Opportunity Act of 1972, as amended; any affirmative action
plans; and each employee benefit or compensation plan, agreement or arrangement
covering present or former employees, consultants or directors of the Company.
(b) Schedule 4.16(b) sets forth a list of all Benefit Plans that
are "employee benefit plans" within the meaning of Section 3(3) of ERISA ("ERISA
Plans") and all other Benefit Plans, whether sponsored, maintained or
contributed to by the Company.
18
(c) For each ERISA Plan, except as set forth on Schedule 4.16(c),
each of the following is true:
(i) if such Benefit Plan is an employee pension benefit plan (as
such term is defined in ERISA Section 3(2)) intended to qualify under the
Code, such plan is and since its inception has been so qualified and the
Plan has received a favorable determination letter as to its qualification
under the Code (or such a letter has been or will be applied for prior to
expiration of the applicable remedial amendment period), and nothing has
occurred, whether by action or failure to act, which could cause the loss of
such qualification or which would result in material costs to the Company
under the Internal Revenue Service's Closing Agreement Program, Voluntary
Compliance Resolution Program or Administrative Policy Regarding Sanctions;
(ii) none of the Principals, the Company, nor any other party has,
with respect to any such Benefit Plan, engaged in a prohibited transaction,
as such term is defined in Code Section 4975 or ERISA Section 406, which
could subject the Company or QDL to any Taxes, penalties or other material
liabilities resulting from prohibited transactions under Code Section 4975
or under ERISA Sections 409 or 502(i);
(iii) such Benefits Plans are in compliance in all material
respects with ERISA and the Code and all filings required to be made have
been made on a timely basis;
(iv) all contributions and insurance premiums required as of the
Closing Date have been paid;
(v) the execution and delivery of this Agreement by the Company,
and the consummation of the transactions contemplated hereunder, will not
(pursuant to any "change-of-control" provision or otherwise) result in any
additional (or otherwise modify or accelerate any existing or contingent)
obligation or liability (with respect to accrued benefits or otherwise) to
any such Benefit Plan, to any employee or former employee of the Company and
its subsidiaries;
(vi) the transactions contemplated by this Agreement will not
result in the payment or series of payments to any employee of the Company
or its subsidiaries which is a "parachute payment" within the meaning of
Section 280G of the Code; and
(vii) the Company has delivered to QDL and/or Questron current,
accurate and complete copies of such Benefit Plan (including the plan
document, trust agreement and other funding or insurance instruments
relating thereto) and, to the extent applicable, copies of the most recent
(A) determination letter and any outstanding request for a determination
letter; (B) summary plan description and other written communications by the
Company to its employees concerning the extent of the benefits provided
under any Benefit Plan; (C) Form 5500 with attached schedules, financial
statements and actuaries statement with respect to the plan years ending in
fiscal years 1995, 1996 and 1997; (D) collective bargaining agreements or
other such contracts; and (E) the general notification to employees of their
"COBRA" rights under Code Section 4980B and ERISA Sections 601-609 and the
form of letter(s) distributed upon the occurrence of a COBRA qualifying
19
event for each Benefit Plan that is a "group health plan" as defined in Code
Section 5000(b)(1) and ERISA Section 607(1).
(d) Neither the Company nor any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the Code
(an "ERISA Affiliate") sponsors or maintains (and has not sponsored or
maintained in the calendar years ending 1995, 1996, 1997 and 1998) an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) that is
subject to Title IV of ERISA or to the minimum funding requirements of Section
412 of the Code or Part 3 of Title I of ERISA.
(e) Neither the Company nor any ERISA Affiliate contributes or is
obligated to contribute (or in the past six years has been obligated to
contribute) to a "multiemployer plan" (within the meaning of Section 4001(a)(3)
of ERISA).
(f) The Company has no employee welfare benefit plans (within the
meaning of ERISA Section 3(1)) which provide benefits beyond termination of
employment except as required by applicable law.
(g) With respect to the Company, except as set forth on Schedule
4.16(g), each of the following is true in all material respects:
(i) the Company is in compliance with all applicable laws and
agreements respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and
health and is not engaged in any unfair labor practice within the meaning of
Section 8 of the National Labor Relations Act, and there is no action, suit
or legal, administrative, arbitration, grievance or other proceeding pending
or, to the Company's and the Principals' knowledge, threatened, or, to the
Company's and the Shareholders' knowledge, is any investigation pending or
threatened against the Company relating to any employment matter, and, to
the Company's and the Shareholders' knowledge, no basis exists for any such
action, suit or legal, administrative, arbitration, grievance or other
proceeding or governmental investigation;
(ii) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the Company's and the Principals' knowledge,
threatened against the Company;
(iii) none of the employees of the Company is a member of or
represented by any labor union and, to the knowledge of the Company and the
Principals, there are no attempts of whatever kind and nature being made to
organize any of such employees;
(iv) without limiting the generality of paragraph (iii) above, no
certification or decertification is pending or was filed within the past
twelve months respecting the employees of the Company and no certification
or decertification petition is being or was circulated among the employees
of the Company within the past twelve months;
20
(v) no agreement (including any collective bargaining agreement),
arbitration or court decision, decree or order which is binding on the
Company in any material way limits or restricts the Company from relocating
or closing any of its operations;
(vi) the Company has not experienced any organized work stoppage
in the last five years;
(vii) there are no administrative proceedings, lawsuits or
complaints of discrimination (including but not limited to discrimination
based upon sex, age, marital status, race, national origin, sexual
orientation, religion, disability or veteran status) pending or, to the
Company's and the Principals' knowledge, threatened, or to the Company's or
Principals' knowledge, is any investigation pending or threatened before the
Equal Employment Opportunity Commission or any federal, state or local
agency or court, or is any complaint or internal investigation pending with
regard to sexual or other harassment. There are no pending, or to the
knowledge of the Company or the Principals, threatened claims with respect
to the equal employment opportunity practices or affirmative action
practices of the Company and, to the Company's and the Principals'
knowledge, no reasonable basis for any claim regarding such practices
exists; and
(viii) there are no individual agreements, employment practices,
policies or procedures, or other representations, warranties written or
oral, which have been made by the Company to employees of the Company that
commit QDL to retain them as employees for any period of time subsequent to
the Closing, or to pay them severance if they are not retained, except as
otherwise provided by law or as set forth on Schedule 4.16(g).
4.17 Intellectual Property. Schedule 4.17(a) (i) contains a list
(including where applicable the federal registration number and the date of
registration or application for registration and the name in which registration
was applied for) of (x) all of the Company's registrations of trademarks and of
other marks, trade names, brand names, and all pending applications for any such
registrations and all of the Company's patents and copyrights and all pending
applications therefor, (y) all material computer software used by the Company in
the conduct of its Business and (z) all licenses and other trademarks and other
marks, trade names, material designs, plans, specifications, patents, patent
applications and other intellectual property rights of any kind of the Company,
whether or not registered, including, without limitation, all rights of the
Company to the use and ownership of the names "Olympic Fasteners & Electronic
Hardware," "Spacers and Standoffs" or "Olympic Threaded," and any and all other
names associated with, derived from or used in connection with the conduct of
the Business (and all trade names listed on Schedule 4.17(a)) (all of the items
referred to in this clause (i) being "Intellectual Property Rights"), and (ii)
identifies any Intellectual Property Rights that any third party owns and that
the Company uses or proposes to use in the Business of the Company, and
specifies whether such use is or will be pursuant to license, sublicense,
agreement or permission. The Company owns (or, as set forth on Schedule 4.17(a),
possesses enforceable licenses or other rights to use) all of such Intellectual
Property Rights. Except as set forth on Schedule 4.17(b), no Person has a right
to receive a royalty or similar payment in respect of any Intellectual Property
Rights pursuant to any contractual arrangements entered into by the Company or
otherwise. The Company has granted no licenses, relating in whole or in part to
any of the
21
Intellectual Property Rights. Except as set forth on Schedule 4.17(c), the
Company has not received notice of nor has any reason to believe that the
Company's use of the Intellectual Property Rights is interfering with,
infringing upon or otherwise violating the rights of any third party in or to
such Intellectual Property Rights, and no proceedings have been instituted
against or notices received by the Company alleging that the Company's use or
proposed use of any Intellectual Property Rights infringes upon or otherwise
violates any rights of a third party in or to such Intellectual Property Rights,
which infringement or violation could have a Material Adverse Effect on the
Company.
4.18 Accounts Receivable and Accounts Payable. (a) The accounts
receivable appearing on the Reference Balance Sheet and all accounts receivable
created since that date through the Closing Date (less any reserves for bad
debt, which reserves are determined in accordance with past practices) represent
in all material respects and will in all material respects represent valid
obligations owing to the Company, have arisen from bona fide transactions in the
ordinary course of business and are fully collectible by the Company in the
ordinary course of business, subject to the reserve for doubtful accounts
appearing on the Reference Balance Sheet. Except as set forth on Schedule
4.18(a), and as provided in the preceding sentence, all accounts receivable of
the Company as of the Closing Date (less any reserves for bad debt, which
reserves are determined in accordance with past practices) shall be subject to
no defenses, counterclaims or rights of set-off and shall be fully collectible
within ninety (90) days of the Closing Date without cost to QDL, except to the
extent of any reserve with respect thereto set forth in the March Balance Sheet.
The reserves or associated Liabilities reflected on the Reference Balance Sheet
relating to accounts receivable of the Company are reasonable in amount.
(b) Except as expressly and fully set forth on Schedule 4.18(b),
since the Reference Balance Sheet Date, the Company has paid all accounts
payable in the ordinary course of business in accordance with the terms thereof,
and has not delayed the payment thereof in contemplation of the transactions
provided in the Agreement or otherwise.
4.19 Inventory. Except as set forth on Schedule 4.19, the Inventories
of raw materials, in-process and finished products of the Company are in good
condition, conform in all material respects with the Company's applicable
specifications and warranties, are not obsolete, and are saleable as of the date
hereof at values not less than the book value amounts thereof. Adequate reserves
have been provided for inventory obsolescence and the values at which such
Inventories are carried are in accordance with the normal valuation of the
Company and with GAAP consistently applied. All Inventory disposed of by the
Company since the Reference Balance Sheet Date has been disposed of under terms
consistent with the Company's past practices.
4.20 Absence of Change or Event. Except as set forth on Schedule 4.20,
since the Reference Balance Sheet Date, the Company has conducted its business
only in the ordinary course consistent with past practice and has not:
(a) experienced a material adverse change in the Acquired Assets,
Liabilities (contingent or otherwise), property, Business, condition (financial
or otherwise), operations, results of operations or prospects of the Company;
22
(b) incurred any obligation or Liability other than as described
in Section 4.13(b);
(c) other than in the ordinary course of business, mortgaged,
pledged or subjected to lien, restriction or any other Encumbrance any of the
property, Business or assets, tangible or intangible, of the Company;
(d) sold, transferred, leased to others or otherwise disposed of
any of its assets (or committed to do any of the foregoing), except for
inventory sold to customers or returned to vendors;
(e) suffered any damage, destruction or loss (whether or not
covered by insurance) in an amount greater than Five Thousand Dollars ($5,000);
(f) made or committed to make any capital expenditures or capital
additions or betterments in excess of an aggregate of Twenty-Five Thousand
Dollars ($25,000);
(g) instituted or threatened any litigation, action or proceeding
before any Governmental Authority relating to it or its property;
(h) increased the compensation of any officer, director, employee
or agent of the Company, directly or indirectly, including by means of any
bonus, pension plan, profit sharing, deferred compensation, savings, insurance,
retirement, or any other employee benefit plan, except in the case of any
employee whose annual base compensation is less than Twenty Thousand Dollars
($20,000);
(i) materially changed any of its business or accounting accrual
practices, including, without limitation, the amount of promotional or
advertising expenditures, investments, marketing, pricing, purchasing,
production, personnel, sales, returns or budgets, accounts receivable or
inventory reserves, or otherwise changed its policies with respect thereto;
(j) made or changed any election concerning Taxes or Tax returns,
changed an annual accounting period, adopted or changed any accounting method,
filed any amended Tax Return, entered into any closing agreement with respect to
Taxes, settled any Tax claim or assessment or surrendered any right to claim a
refund of Taxes or obtained or entered into any Tax ruling, agreement, contract,
understanding, arrangement or plan;
(k) allowed any Permit relating to the Business of the Company to
lapse or terminate;
(l) materially amended or terminated or received any threat (not
subsequently withdrawn) to terminate, any Contract involving more than Five
Thousand Dollars ($5,000);
(m) cancelled, compromised, waived or released any rights or
claims (or series of related rights or claims) either (i) involving an affiliate
of the Company or the Principals,
23
(ii) involving more than Five Thousand Dollars ($5,000) or (iii)
outside the ordinary course of business consistent with past practice;
(n) delayed or failed to repay when due any material obligation of
the Company;
(o) failed to operate the Business of the Company in the ordinary
course consistent with past practice so as to use reasonable efforts to preserve
the Business intact, to keep available to QDL the services of its employees, and
to preserve for QDL the goodwill of the Company's suppliers, customers,
distributors and others having business relations with it;
(p) granted any license or sublicense of any rights under or with
respect to any Intellectual Property Rights of the Company;
(q) made any loan to any Company employee outside the ordinary
course of business consistent with past practice;
(r) amended its articles of incorporation or bylaws or merged with
or into or consolidated with any Person, subdivided, combined or in any way
reclassified any shares of its capital stock, or changed or agreed to change the
rights of its capital stock or the character thereof; or
(s) engaged in any other material transaction other than in the
ordinary course of business.
4.21 Compliance with Law. The operations and activities of the Company
have complied and are in compliance in all respects with all applicable federal,
state, local and foreign laws, statutes, rules, regulations, judicial and
administrative decisions and consents, judgments, orders, awards, writs and
decrees of any court, governmental or regulatory body, administrative agency or
arbitrator, including, without limitation, health and safety statutes and
regulations and all environmental laws, including, without limitation, all
restrictions, conditions, standards, limitations, prohibitions, requirements,
obligations, schedules and timetables contained in the environmental laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder, the
failure of which could have a Material Adverse Effect on the Company.
4.22 Contracts and Commitments. (a) Except for Contracts listed on
Schedule 4.22 or Schedule 4.11(a), the Company is not a party to, or bound by,
any Contract of any kind to be performed, in whole or in part, after the Closing
Date (i) pursuant to which it is obligated to expend more than Ten Thousand
Dollars ($10,000) in any twelve-month period or that is not subject to
cancellation on not more than Thirty (30) days' notice by the Company without
penalty or increased cost, or (ii) with any affiliate of the Company or the
Principals. There is not under any Contract: (A) any existing material default
by the Company or, to the Company's and the Principals' knowledge, by any other
party thereto, or (B) any event which, after notice or lapse of time or both,
would constitute a material default by the Company or, to the Company's and the
Principals'
24
knowledge, by any other party, or result in a right to accelerate, suspend or
terminate or result in a loss of rights of the Company. Schedule 4.22 lists the
following Contracts, agreements and other written arrangements to which the
Company is a party:
(i) except for purchase orders made in the ordinary course of
business, any written arrangement (or group of related written arrangements)
for the purchase or sale of raw materials, commodities, supplies, products
or other property or for the furnishing or receipt of services, including,
without limitation, any customer or vendor contracts involving more than
Five Thousand Dollars ($5,000);
(ii) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed or guaranteed
(or may create, incur, assume or guarantee) indebtedness (including
capitalized lease obligations) involving more than Ten Thousand Dollars
($10,000) in principal amount or under which it has imposed (or may impose)
a security interest or lien on any of its assets, tangible or intangible;
(iii) any written arrangement (or group of related written
arrangements) concerning confidentiality or non-competition arrangements;
(iv) any written arrangement with any of its directors, officers,
shareholders or employees or any member of any such Person's immediate
family (x) providing for the furnishing of material services by, (y)
providing for the rental of material real or personal property from, or (z)
otherwise requiring material payments to (other than for services as
officers, directors or employees of the Company), any such Person or any
corporation, partnership, trust or other entity in which any such Person has
a substantial interest as a shareholder, officer, director, trustee or
partner;
(v) any other written arrangement (or group of related written
arrangements) under which the consequences of a default or termination could
have a Material Adverse Effect on the Company;
(vi) any other written arrangement (or group of related written
arrangements) other than Leases, either involving aggregate annual payments
of more than Five Thousand Dollars ($5,000) or not entered into in the
ordinary course of business consistent with past practice; or
(vii) any proposal (oral or written) to enter into any contract,
agreement or other arrangement with respect to any of the matters referred
to in the foregoing clauses (i) through (vi).
(b) The Company has delivered to QDL and/or Questron a correct and
complete copy of each written arrangement listed in Schedule 4.22 and has
included as part of Schedule 4.22 a brief summary of any such oral contracts,
agreements or other arrangements and any proposals (oral or written) to enter
into any such contracts, agreements or other arrangements. Except as set forth
on Schedule 4.22, with respect to each written arrangement listed, (A) the
written arrangement
25
is legal, valid, binding, and enforceable obligation of the Company (except as
such enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law) and will be in full force and effect; (B) upon
consummation of the transactions contemplated hereby, the written arrangement
will continue to be legal, valid binding obligation and enforceable (except as
such enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law) and will be in full force and effect on
identical terms following the Closing Date; and (C) to the Company's and the
Principals' knowledge, no party has repudiated any term of the written
arrangement.
4.23 Insurance. (a) Schedule 4.23 sets forth (i) the Insurance Policies
presently in force and, without restricting the generality of the foregoing,
those covering the Company's product liability and its personnel, properties,
buildings, machinery, equipment, furniture, fixtures and operations and any
general comprehensive liability policies including excess liability policies
specifying with respect to each such policy the name of the insurer, type of
coverage, term of policy, limits of liability, the expiration date, the policy
number and annual premium; (ii) the Company's premiums, deductibles and losses
in excess of Twenty-Five Thousand Dollars ($25,000), by year, by type of
coverage, for the calendar years 1997 and 1998 based on information received
from the Company's insurance carrier(s); (iii) all outstanding insurance claims
in excess of Ten Thousand Dollars ($10,000) by the Company for damage to or loss
of property or income which have been referred to insurers or which the Company
believes to be covered by commercial insurance; and (iv) any agreements,
arrangements or commitments by or relating to the Company under which the
Company indemnifies any other Person or is required to carry insurance for the
benefit of any other Person. The Company has heretofore delivered to QDL and/or
Questron complete and correct copies of the Insurance Policies and agreements
set forth on Schedule 4.23.
(b) The Insurance Policies set forth on Schedule 4.23 are in full
force and effect, all premiums which are due with respect thereto covering all
periods up to and including the Closing Date have been paid, and no notice of
cancellation or termination has been received with respect to any such policy.
To the knowledge of the Company and the Principals, such policies are sufficient
for compliance with all requirements of Law and all agreements to which the
Company is a party. Such policies are valid, outstanding and enforceable
policies; will remain in full force and effect through the respective dates set
forth on Schedule 4.23; provided sufficient coverage, in the reasonable opinion
of the Company, for the risks insured against; and will not in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement. The Company and the Principals have not received any notice
of default under such policies and, to the knowledge of the Company and the
Principals, the Company is not in default under any of such policies or binders.
The Company has not failed to give any notice or to present any claim under any
such policy or binder in a due and timely fashion where such default or failure
to give notice or present a claim could have a Material Adverse Effect on the
Company. The Company has not been refused any insurance with respect to the
respective assets or operations of the Company, nor has any such coverage been
limited, by any insurance carrier to which the Company has applied for any such
insurance or with which the Company has carried insurance during the calendar
years 1997 and
26
1998. The Company has not received any notice from its insurance carriers that
any insurance premiums will be materially increased in the future or that any
insurance coverage listed on Schedule 4.23 will not be available in the future
on substantially the same terms as now in effect.
4.24 Intentionally Omitted.
4.25 Customers, Suppliers, Distributors, Etc. (a) Since December 31,
1997, with respect to transactions involving in excess of Twenty-Five Thousand
Dollars ($25,000), no supplier, customer, distributor or sales representative of
the Company has canceled or otherwise terminated, or made any written threat to
the Company or to any of its Affiliates to cancel or otherwise terminate, for
any reason, including the consummation of the transactions contemplated hereby,
its relationship with the Company or to reduce sales volumes below those
presently existing, or has at any time on or after the Reference Balance Sheet
Date decreased materially its services or supplies to the Company or its usage
of the services or products of the Company or made any written claim that any
item sold by the Company failed to meet any specification with respect thereto
or were otherwise defective other than in the ordinary course of business or
where such claim does not involve an amount in excess of Ten Thousand Dollars
($10,000). Except as set forth on Schedule 4.25(a), the Company and the
Principals have no knowledge that any such supplier or customer intends to
cancel or otherwise terminate its relationship with the Company or to decrease
materially its services or supplies to the Company or their usage of the
services or products of the Company, as the case may be. Except as set forth on
Schedule 4.25(a), the Company has not sold goods to be delivered after Closing
to any customer on a consignment basis, and the Company has not agreed with any
customer of the Company to sell goods to it to be delivered after Closing at
either a discounted price or at a price which includes any type of allowance for
the cost of the customer's advertising.
(b) Schedule 4.25(b) sets forth the customer sales history of all
customers of the Company since December 31, 1996. Such information is true and
complete.
(c) Schedule 4.25(c) sets forth a complete and accurate list of
suppliers of the Company from whom the Company has made purchases in excess of
Fifty Thousand Dollars ($50,000) during the calendar years ended December 31,
1997 and 1998, showing the approximate total purchase by the Company from each
such supplier during such calendar year.
4.26 Previous Sales; Warranties; Product Liability. (a) Since December
31, 1996 other than in the ordinary course of business, the Company has not
breached any express or implied warranties in connection with the sale or
distribution of goods or the performance of services.
(b) Schedule 4.26(b) sets forth all warranty claims for amounts in
excess of Twenty-Five Thousand Dollars ($25,000), individually, asserted against
the Company, together with the actual or estimated cost of repair or
replacement, (i) outstanding as of the date hereof, and (ii) for each of the
fiscal years ended December 31, 1998 and 1997.
(c) Schedule 4.26(c) contains a complete and correct list of (i)
product liability claims made against the Company since December 31, 1996 and
(ii) any amounts paid by the
27
Company or its insurance company with respect to such claims. Except as set
forth on Schedule 4.26(c), there is no action, suit, inquiry, proceeding or
investigation by or before any Governmental Authority pending or threatened
against or involving the Company relating to any product manufactured or sold by
the Company and alleged to have been defective, or improperly designed or
manufactured.
4.27 Environmental Matters. (a) For the purposes of this Section the
following terms shall have the following meanings: (i) the term "Hazardous
Material" shall mean any material or substance that, whether by its nature or
use, is now or hereafter defined, determined or identified as a hazardous
material, hazardous waste, hazardous substance, toxic substance, pollutant or
contaminant under any Environmental Law, or which is toxic, explosive,
corrosive, ignitable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous or is harmful to human health or the environment, or which
is or contains petroleum, gasoline, diesel fuel or another petroleum hydrocarbon
product; and (ii) "Environmental Laws" shall collectively mean all present and
future federal, state and local laws, statutes, ordinances, rules, regulations,
orders, codes, licenses, permits, decrees, judgments, directives, guidelines,
standards or the equivalent of or by any governmental authority and relating to
or addressing the protection of the environment or human health (including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
9601 et seq.), and the regulations adopted and publications promulgated pursuant
thereto).
(b) Except as set forth in Schedule 4.27, the Company and the
Principals warrant and represent that: (i) neither the Company nor, to the best
of the Company's and the Shareholders' knowledge, any prior owner or any user or
tenant or operator of the Real Property, has generated, stored, treated,
disposed of, used, caused to be used, or permitted the use of Hazardous
Materials in, on or about the Real Property in violation of Environmental Laws;
(ii) the Company and the Real Property are in compliance with all applicable
Environmental Laws; (iii) the Company has secured all material permits,
licenses, authorizations, registrations and approvals necessary for the storage,
use or handling of Hazardous Materials, such approvals are currently in effect,
and the Company is in compliance therewith; (iv) there are no pending or, to the
Company's and the Principals' knowledge, threatened claims by any Governmental
Authority or any other person in respect of Environmental Laws affecting the
Company or the Real Property and neither the Principals nor the Company has
received any notice of any violations of any Environmental Laws or has received
any warning notices, administrative complaints, judicial complaints or other
formal or informal notices from any person alleging that the Company or
conditions on the Real Property are, or may be, in violation of any
Environmental Laws; (v) to the best of the Company's and the Principals'
knowledge, there is not now, nor has there ever been, any disposal, discharge or
other type of release on property adjacent to or near the Real Property or to
the surface or ground water flowing to the Real Property which constitutes a
risk of contamination to the Real Property; and (vi) no releasing, emitting,
discharging, leaching, dumping or disposing of any Hazardous Material by the
Company or from the Real Property has occurred at, into, onto or under the Real
Property or any other property which may give rise to liability under any
Environmental Law.
28
4.28 Absence of Certain Payments. Except as set forth on Schedule 4.28,
neither the Company nor any director, officer, agent, employee or other Person
acting on behalf of the Company nor any Principal has used any corporate or
other funds for unlawful contributions, payments, gifts, or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or unrecorded
funds in violation of Section 30A of the Exchange Act. Neither the Company nor
any current director, officer, agent, employee or other Person acting on behalf
of the Company has accepted or received any unlawful contributions, payments,
gifts or expenditures.
4.29 Additional Information. Schedule 4.29 accurately lists the
following (Schedule 4.29 may be revised as of immediately prior to the Closing
to account for any changes):
(a) the names of all officers and directors of the Company;
(b) the names and addresses of every bank or other financial
institution in which the Company maintains an account (whether checking, savings
or otherwise), lock box or safe deposit box, and the account numbers and names
of Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur
or guarantee indebtedness on behalf of the Company;
(d) the names of any Persons holding powers of attorney from the
Company and a summary statement of the terms thereof; and
(e) all names under which the Company has conducted any part of
the Business or which it has otherwise used at any time during the past five
years.
4.30 Investment Intent. The Company:
(i) represents and warrants that the Closing Shares (the
"Securities") are being acquired as an investment and not with a view to the
distribution thereof;
(ii) understands that none of the Securities have been registered
under the Act, in reliance on an exemption therefrom, and that none of the
Securities have been approved or disapproved by the United States Securities
and Exchange Commission or by any other Federal or state agency;
(iii) understands that none of the Securities can be sold,
transferred or assigned unless registered by Questron (which the Company
does not have the right to compel) pursuant to the Act and any applicable
state securities laws, or unless an exemption therefrom is available, and,
accordingly, it may not be possible for the Company to liquidate its
investment in the Securities, and agrees not to sell, assign or otherwise
transfer or dispose of the Securities unless such Securities have been so
registered or an exemption from registration is available;
29
(iv) acknowledges that the following documents have been provided
to, and reviewed by, the Company:
(a) Questron's Annual Reports on Form 10-KSB for the fiscal years
ended December 31, 1995, 1996 and 1997;
(b) Questron's Quarterly Reports on Form 10-QSB for the quarterly
periods ending March 31, 1998, June 30, 1998 and September 30, 1998;
(c) Questron's Proxy Statement, dated May 5, 1998, relating to its
1998 Annual Meeting of Shareholders; and
(d) Questron's Form 8-K and 8-K/A dated October 8, 1998 and
December 8, 1998, respectively, have been made available to the Company and the
Company's attorney and/or accountant and/or representative. The Company has had
an opportunity to ask questions and receive answers from Questron concerning the
Business and assets of Questron and all such questions have been answered to the
full satisfaction of the Company;
(vi) the Company is an accredited investor, as that term is defined
in Regulation D under the Act; and
(vi) understands that any distribution of the Securities by the
Company to any of its shareholders must comply with all provisions of the
Securities Act.
4.31 Disclosure. No representations or warranties by the Principals and
the Company in this Agreement, including the Exhibits and the Schedules, and no
statement contained in any document (including, without limitation, the
financial statements, certificates and other writings furnished or to be
furnished by the Principals or the Company to QDL and/or Questron or any of
their respective representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby), contains or will contain
any untrue statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON
--------------------------------------------------
QDL and Questron represent and warrant to the Company and the
Principals that:
5.1 Organization. Each of QDL and Questron is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware. Each of QDL and Questron has all requisite corporate power and
authority to carry on its respective business as now being conducted and to own
its respective properties and is duly licensed or qualified and in good standing
as a foreign corporation in each jurisdiction in which it is required to be so
licensed or so qualified,
30
except where the failure to be so licensed or so qualified would not have a
Material Adverse Effect on such entity.
5.2 Corporate Authority; Due Execution. Each of QDL and Questron has
full corporate power and authority to enter into this Agreement and each Other
Document to which it is party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by each of QDL and
Questron of this Agreement and each Other Document to which it is party have
been duly authorized by all requisite corporate action. This Agreement has been,
and each of the other agreements contemplated by this Agreement to which it is
party will be as of the Closing Date, duly executed and delivered by each of QDL
and Questron, and (assuming due execution and delivery by Principals and the
Company) this Agreement constitutes, and each of such other agreements when
executed and delivered will constitute, a valid and binding obligation of each
of QDL and Questron, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization or similar laws affecting creditors' rights generally
or by general equitable principles.
5.3 No Violation. Neither QDL nor Questron is subject to or bound by
any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) any certificate of incorporation or by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, bond, indenture, other instrument or agreement,
license, permit, trust, custodianship or other restriction, or
(d) any judgment, order, writ, injunction or decree of any court,
governmental body, administrative agency or arbitrator,
that would prevent or be violated by, or under which there would be a default as
a result of, the execution, delivery and performance by QDL or Questron of this
Agreement, and each Other Document and the consummation of the transactions
contemplated hereby and thereby. No consent, approval or authorization of or
declaration or filing with any Person is required for the valid execution,
delivery and performance by QDL and Questron of this Agreement and the
consummation of the transactions contemplated hereby.
5.4 SEC Documents. Questron has furnished the Company and each
Principal with copies of the following reports (the "SEC Documents") filed by
Questron with the United States Securities and Exchange Commission (the "SEC"):
(a) Questron's Annual Reports on Form 10-KSB for the fiscal years
ended December 31, 1995, 1996 and 1997;
(b) Questron's Quarterly Reports on Form 10-QSB for the quarterly
periods ending March 31, 1998, June 30, 1998 and September 30, 1998;
31
(c) Questron's Proxy Statement, dated May 5, 1998, relating to its
1998 Annual Meeting of Shareholders; and
(d) Questron's Forms 8-K and 8-K/A dated October 8, 1998 and
December 8, 1998, respectively.
Each of the SEC Documents, as of its respective date of filing, conformed in all
material respects with the applicable requirements of the Exchange Act. Questron
is current in its obligations to file all periodic reports and proxy statements
with the SEC required to be filed under the Exchange Act and applicable rules
and regulations promulgated thereunder.
5.5 Questron Common Stock. All shares of Questron Common Stock
delivered to the Company or its designees pursuant to this Agreement, when
issued as contemplated hereby, will be duly authorized, validly issued, fully
paid and non-assessable.
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS OF
PRINCIPALS, THE COMPANY, QDL AND QUESTRON
-----------------------------------------
6.1 Conduct of Business Prior to the Closing Date. The Principals and
the Company agree with Questron and QDL that, between the date hereof and the
Closing Date:
(a) Except as disclosed on Schedule 6.1 or as otherwise
contemplated by this Agreement or permitted by written consent of QDL, the
Principals shall cause the Company to operate its Business only in the ordinary
course consistent with prior practice and not to:
(i) declare or pay any dividends, make any distributions to the
Principals or undertake any similar transactions affecting the capital of
the Company;
(ii) sell or dispose of any assets of the Company other than the
sale of inventory in the ordinary course of business;
(iii) take any action of the nature referred to in Section 4.20,
except as permitted therein;
(iv) change the Company's banking or safe deposit arrangements;
(v) incur indebtedness (which for purposes of this clause (v)
shall be deemed to exclude trade payables consisting of accounts payable,
deferred taxes and accrued expenses) of the Company to exceed Ten Thousand
Dollars ($10,000) in the aggregate; or
32
(vi) except as may be required by law, take any action to amend or
terminate any Benefit Plan or adopt any other plan, program, arrangement or
practice providing new benefits or compensation to its employees.
(b) The Principals and the Company shall use their best efforts to
conduct the Business of the Company in a manner consistent with past business
practices; to preserve the business organization of the Company intact; to keep
available to QDL the services of the present officers and employees of the
Company; to preserve for QDL the good will of the Company's suppliers,
customers, distributors, sales representatives and others having business
relations with the Company; and to inform QDL of, and consult with QDL on, any
key decisions involving any capital expenditure in excess of Fifty Thousand
Dollars ($50,000).
(c) The Company shall maintain in force the Insurance Policies
referred to on Schedule 4.23 or Insurance Policies providing the same or
substantially similar coverage; provided, however, that the Company will notify
QDL prior to the expiration of any of such Insurance Policies.
(d) Except as contemplated by this Agreement or permitted by
written consent of QDL, no Benefit Plan disclosed or required to be disclosed
has been or will be:
(i) terminated by the Company other than for expiration of its
terms;
(ii) except as required by law, amended in any manner which would
directly or indirectly increase the benefits accrued in a material amount,
by any participant thereunder; or
(iii) except as required by law, amended in any manner which would
materially increase the cost to QDL of maintaining such plan, fund or
arrangement.
(e) The Principals and the Company shall give QDL prompt notice of
any event, condition or circumstance occurring from the date hereof through the
Closing Date that would constitute a violation or breach of any representation
or warranty of the Principals or the Company of which the Principals or the
Company have knowledge, whether made as of the date hereof or as of the Closing
Date, or that would constitute a violation or breach of any covenant of the
Company or the Principals contained in this Agreement.
6.2 Tax Covenants; Bulk Sales Act.
(a) After the Closing Date, the Company and QDL shall provide each
other with such cooperation and information as any party reasonably may request
in (i) filing any Tax return, amended return or claim for refund, (ii)
determining any Tax liability or a right to refund of Taxes, (iii) conducting or
defending any audit or other proceeding in respect of Taxes or (iv) effectuating
the terms of this Agreement. The parties shall retain all returns, schedules and
workpapers, and all material records and other documents relating thereto until
the expiration of the statute of limitation (and, to the extent notified by any
party, any extensions thereof) of the taxable years to which such returns and
other documents relate and, unless such returns and other documents are offered
and
33
delivered to the Company, the Principals or QDL, as applicable, until the final
determination of any Tax in respect of such years. Any information obtained
under this Section 6.2 shall be kept confidential, except as may be otherwise
necessary in connection with filing any Tax return, amended return, or claim for
refund, determining any Tax liability or right to refund of Taxes, or in
conducting or defending any audit or other proceeding in respect of Taxes.
Notwithstanding the foregoing, none of the Company, QDL or the Principals, nor
any of their affiliates, shall be required unreasonably to prepare any document,
or determine any information not then in its possession, or the possession of
its agents, representatives or affiliates, in response to a request under this
Section 6.2.
(b) The Company and/or the Principals shall be responsible for any
documentary transfer or gains Taxes and any sales, use, real property, transfer
or gains or other Taxes imposed by reason of the transfer of the Acquired Assets
to QDL and the assumption of the Assumed Liabilities by QDL as provided
hereunder and any deficiency, interest or penalty asserted with respect thereto.
The Company and/or the Principals shall pay the fees and costs of obtaining,
recording or filing all applicable conveyancing instruments described in Section
7.7.
(c) At least thirty (30) days prior to the date that Internal
Revenue Service Form 8594 is required to be filed with respect to the
Acquisition, QDL shall prepare and submit to the Company, and the Company and
the Principals hereby agree to be bound by, an allocation of the Purchase Price
among the Acquired Assets and the Assumed Liabilities as set forth on Schedule
6.2(c). Each of QDL and the Company and/or the Principals agrees that (a) it
will prepare all required Tax returns and reports in a manner that is consistent
with such allocation, (b) it will file Internal Revenue Service Form 8594 in
such manner and (c) it will not voluntarily take any position inconsistent
therewith upon examination of any such Tax return, in any refund claim, in any
litigation or otherwise with respect to such income Tax returns.
(d) Within thirty (30) days after the Closing, the Company and the
Principals shall provide QDL with such clearance certificates or similar
documents that may be required by any state Tax Authority in order to relieve
QDL of any obligation to withhold any portion of the Purchase Price.
(e) The parties hereby waive compliance with the bulk sales act or
comparable statutory provisions of each applicable jurisdiction. Other than for
any bulk sales act liabilities relating to the Assumed Liabilities, the Company
and the Principals, jointly and severally, shall indemnify QDL and Questron and
their respective Affiliates and hold each of them harmless, from and against any
and all losses, deficiencies, liabilities, damages, assessments, judgments,
costs and expenses caused by, resulting from or arising out of the failure of
the Company and the Principals to comply with the terms of any such provisions
applicable to the transactions completed by this Agreement and the Other
Documents.
6.3 Expenses and Finder's Fees. QDL and Questron, on the one hand, and
the Company and the Principals, on the other, will bear their own expenses in
connection with this Agreement and its performance. The Company and the
Principals, on the one hand, and QDL and Questron, on the other, each represent
and warrant to the other that the negotiations relative to this Agreement and
the
34
transactions contemplated hereby have been carried on in such a manner as not to
give rise to any valid claims against the other party for a brokerage
commission, finder's fee or other like payment.
6.4 Access to Information and Confidentiality. The Principals and the
Company agree that until the Closing, QDL and Questron may conduct such
reasonable investigation with respect to the Business, business prospects,
Acquired Assets, Assumed Liabilities, Liabilities (contingent or otherwise),
results of operations, employees and financial condition of the Company as will
permit QDL and Questron to evaluate the transactions contemplated by this
Agreement. Until the Closing, the Company and the Principals shall afford QDL
and Questron reasonable access to the premises, Books and Records and business
affairs of the Company (and, to the extent directly relating thereto, of the
Principals) for purposes of (i) conducting such investigation and, promptly
after the end of each month (without demand or notice), shall furnish QDL and
Questron with copies of an unaudited balance sheet as of the end of such month
and unaudited statements of income and cash flows for such month, in each case
prepared consistent with the standards set forth in the second sentence of
Section 4.13(a) and (ii) review the audited financial statements (the "1998
Audit") of the Company's financial position as of and for the year ended
December 31, 1998 as audited by the Company's certified public accountants
(which audited financial statements the Company and Seller agree may be
disclosed by Questron for purposes of satisfying the financing condition set
forth in Section 7.10). The Company and the Principals agree to cooperate with
Questron and its representatives in the review of the 1998 Audit. Unless and
until the transactions contemplated herein have been consummated, each of QDL
and Questron, on the one hand, and the Company and the Principals, on the other,
shall maintain all confidential information received from the other parties in
connection with its evaluation of the transactions contemplated by this
Agreement, including the independent audit of the Company performed by QDL
and/or Questron (the "Confidential Information") in strict confidence, and shall
take all precautions necessary to prevent disclosure, access to, or transmission
of the Confidential Information, or any part thereof, to any third party. Each
of QDL, Questron, the Company and the Principals may make limited disclosure of
Confidential Information to its representatives and to such other persons as
need to know for the purpose of preparing for and negotiating this Agreement and
in connection with the consummation of the purchase and sale contemplated
hereby, including arranging QDL's financing in connection with the purchase,
provided such persons are informed of and bound by QDL's and Questron's
confidentiality obligations hereunder. In the event the Closing does not occur
for any reason, each of QDL, and Questron, on the one hand, and the Company and
the Principals, on the other hand, shall, promptly upon the other parties'
request, return all copies and recordings of the Confidential Information in its
possession or under its control and delete all records thereof in any data
storage system maintained by it. For the purposes of this Section 6.4,
Confidential Information shall not include information which (a) the holder can
reasonably demonstrate was already in the holder's possession, provided that
such information is not known by the holder to be subject to another
confidentiality agreement with, or other obligation of secrecy to another party,
(b) becomes generally available to the public other than as a result of a
disclosure by the holder or the holder's directors, officers, employees, agents
or advisors, or (c) becomes available to the holder on a non- confidential basis
from a source other than the Principals, the Company, or their advisors,
provided that such source is not known by the holder to be bound by a
confidentiality agreement with, or other obligation of secrecy to another party.
Nothing contained in this Section 6.4 or otherwise shall prohibit the holder
from making disclosure of Confidential Information to the extent required by
35
Law, rule or regulation, provided that the holder shall give the other prior
notice as to the nature of the required disclosure so as to provide the other
the opportunity to challenge the need for such disclosure.
(b) Upon execution of this Agreement, the Company shall supply QDL
with a correct and complete list of all Persons to whom Confidential Information
has been supplied over the past two (2) years. The Company agrees to use its
best efforts to retrieve, procure and deliver to QDL all Confidential
Information previously provided to any Person or prospective purchaser of any
assets, business or capital stock of the Company immediately upon execution of
this Agreement.
6.5 No Solicitation. The Principals and the Company shall not, and each
shall direct their respective affiliates, representatives and agents and the
Company's officers and employees, not to, directly or indirectly, encourage,
solicit, initiate, continue or engage in discussions or negotiations with, or
provide any non-public information to any Person concerning any merger, sales of
substantial assets, sales of shares of capital stock or similar transactions
involving the Company or enter into any agreement with respect thereto. The
Company and the Principals will promptly communicate to Questron the terms of
any proposal and the identity of the Person making such proposal which they may
receive in respect of all such transactions prohibited by the foregoing.
6.6 Employees. (a) During the period between the date hereof and the
Closing Date, the Company shall use its best efforts to keep available current
Company employees for employment by QDL. At the Closing, QDL shall offer
employment, effective immediately upon the Closing, to the Company employees
listed on Schedule 6.6(a) on the terms and conditions similar to those in effect
immediately prior to the Closing Date. The Company shall encourage each of the
employees listed on Schedule 6.6(a) to accept such offers of employment.
(b) There shall be during the period between the date hereof and
the Closing Date no amendment or announcement by or on behalf of the Company or
any ERISA Affiliate with respect to any Benefit Plan which could materially
increase the expense of maintaining such Benefit Plan with respect to the
Company employees above the level of expense incurred in respect thereof for the
fiscal year ended on the Reference Balance Sheet Date.
(c) QDL shall have no liability with respect to the Benefit Plans.
6.7 Press Releases. Except as required by law or stock exchange
regulation, any public announcements by the Company or the Principals, on the
one hand, and QDL and Questron, on the other, regarding the transactions
contemplated hereby shall be made only with the consent of the other party.
6.8 Transitional Assistance. The Company and the Principals shall
reasonably cooperate with and assist QDL in the orderly transfer of the Business
of the Company after the Closing Date. Such cooperation and assistance shall
include, but not be limited to, the physical transfer of any Books and Records
and computer software of the Company included in the Acquired Assets.
36
6.9 Conditions. The Company and the Principals shall use their best
efforts to fulfill or cause the fulfillment of the conditions set forth in
Article 7. QDL and Questron shall use their best efforts to fulfill or cause the
fulfillment of the conditions set forth in Article 8.
6.10 Rule 144. Following the Closing Date, Questron agrees to use
commercially reasonable efforts to cooperate with the Company or its designees
with respect to permitted sales of Questron Common Stock by the Company under
Rule 144 of the Exchange Act.
6.11 SEC Filings. Questron will provide the Company with copies of all
reports filed by Questron under the Securities Act and the Exchange Act
subsequent to the date hereof and prior to the Closing Date.
6.12 Name Change. At the Closing, the Company shall deliver to QDL such
documents as QDL may reasonably request in connection with the consent or
approval or filing requirements to effect the change of the name of the Company
in the states and jurisdiction in which the Company conducts business, including
"doing business as" designations to a name other than "METRO FORM CORPORATION"
or "OLYMPIC FASTENERS & ELECTRONIC HARDWARE" or any name similar to such name or
any variant or abbreviations of such name.
6.13 Balance Sheets. The Company, at its cost and expense, shall
prepare and deliver to Questron, for its review and approval, as soon as
practicable, but in no event later than April 11, 1999, (i) an unaudited balance
sheet of the Company as at March 31, 1999 (the "March 31, 1999 Balance Sheet"),
which shall be prepared on a basis consistent with the December 31, 1998 Audited
Balance Sheet, (ii) the Company's calculation, set forth in reasonable detail,
of Stated Net Debt and Net Operating Assets as at Xxxxx 00, 0000, (xxx) an
audited balance sheet of the Company as at December 31, 1998 (the "December 31,
1998 Audited Balance Sheet"), which shall be prepared on a basis consistent with
generally accepted accounting principles (subject to the accounting departures
from generally accepted accounting principles set forth in Schedule 4.13) and
(iv) the Company's calculation, set forth in reasonable detail, of Net Operating
Assets at December 31, 1998. Any disputes by Questron or QDL in regard to the
foregoing, shall be resolved pursuant to the procedures set forth in Section
2.4(d)(ii).
6.14 Replacement Leases. On or prior to April 1, 1999, the Company
shall execute and deliver the First Replacement Lease and on or prior to the
Closing Date, QDL shall execute and deliver the Second Replacement Lease.
6.15 Florida Dealers License. On or prior to the Closing Date, the
Company shall obtain a Florida dealers license from the State of Florida.
6.16 HSR Act and Other Filings. As promptly as practicable after the
execution of this Agreement, each party shall, in connection with the others,
make or cause to be made any filing or filings required to be made in connection
with the transactions contemplated by this Agreement under the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with the Federal
Trade Commission and the Antitrust Division of the Department of Justice (and
shall request the early termination of any applicable waiting periods in
connection therewith), and,
37
as promptly as practicable from time to time thereafter, each party shall make
or cause to be made all such further filings and submissions, and take or cause
to be taken such further action, as may reasonably be required in connection
therewith. Each party agrees promptly to provide the other party or parties with
copies of all final consent, approval, termination or confirmation letters
provided to such party pursuant to filings made under this section.
ARTICLE 7
CONDITIONS PRECEDENT OF QDL AND QUESTRON
----------------------------------------
Subject to the provisions of Section 3.3 hereof, QDL and Questron need
not consummate the transactions contemplated by this Agreement unless the
following conditions shall be fulfilled or waived by QDL or Questron in their
sole discretion:
7.1 Representations and Warranties. Except as otherwise contemplated or
permitted by this Agreement, (a) the representations and warranties of the
Company and the Principals contained in this Agreement and in any certificate or
document delivered to QDL and/or Questron pursuant hereto shall be deemed to
have been made again at and as of the Closing Date and shall then be true in all
material respects, except to the extent that any such representation or warranty
is made as of a specified date, in which case such representation or warranty
shall have been true in all material respects as of such date, and (b) the
Company and the Principals shall have performed and complied with all material
agreements and conditions required by this Agreement to be performed or complied
with by the Company and the Principals prior to or on the Closing Date, and QDL
and/or Questron shall have been furnished with certificates of the Company and
the Principals, dated the Closing Date, certifying to the effect of clauses (a)
and (b) of this Section 7.1.
7.2 Closing Certificates. QDL shall have received (A) a duly executed
certificate from an authorized officer of the Company with respect to (i) the
Company's articles of incorporation and bylaws, (ii) resolutions of the
Company's board of directors and shareholders with respect to the authorization
of this Agreement and the other agreements contemplated hereby, and (iii) the
incumbency of the executing officers of the Company, and (B) a copy of the
certificate of incorporation of the Company as certified by the Secretary of
State of the State of Ohio and a certificate of existence and good standing as
of a recent date from the Secretary of State of the State of Ohio and the
Secretary of State of the State of Florida.
7.3 Due Diligence. QDL and/or Questron shall have completed, to their
sole satisfaction, their due diligence investigation of the Company.
7.4 Opinion of Counsel. QDL and Questron shall have been furnished with
an opinion dated the Closing Date of Xxxxx & Xxxxxx LLP, counsel for the
Shareholders and the Company, substantially in the form attached hereto as
Exhibit B.
7.5 No Actions. No action, suit, or proceeding before any court or
Governmental Authority shall be pending, no investigation by any Governmental
Authority shall have been
38
commenced, and no action, suit or proceeding by any Governmental Authority shall
have been threatened, against QDL, Questron, the Principals, the Company or any
of the principals, officers or directors of any of them, seeking to restrain,
prevent or change the transactions contemplated hereby or questioning the
legality or validity of any such transactions or seeking damages in connection
with any such transactions.
7.6 Consents. Except as set forth on Schedule 7.6, all consents of
third parties, including, without limitation, any filing or filings required by
Section 6.16 Governmental Authorities and non-governmental self-regulatory
agencies, and all filings with and notifications of Governmental Authorities
(including any and all filings required by Section 6.16), regulatory agencies
(including non-governmental self-regulatory agencies) or other entities which
regulate the business of QDL, Questron, the Principals or the Company necessary
on the part of QDL, Questron, the Principals or the Company, to the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and to permit the continued operation of the respective
businesses of QDL, Questron and the Company in substantially the same manner
immediately after the Closing Date as theretofore conducted, other than routine
post-closing notifications or filings, shall have been obtained or effected or
any applicable waiting period shall have expired or terminated.
7.7 Instruments and Possession. To effect the transfers referred to in
Section 2.1, the Company and the Principals shall have executed and delivered to
QDL:
(i) a xxxx of sale, substantially in the form attached hereto as
Exhibit C, conveying in the aggregate all personal property included in the
Acquired Assets;
(ii) an Assignment and Assumption of Lease, with respect to each
of the Real Property Leases (other than the Existing Master Lease), which
shall be in a form reasonably satisfactory to QDL; and a duly executed
certificate from an authorized officer of the Company certifying that all
rents due from the Company under each Real Property Lease has been paid as
of the Closing Date and that no defaults exist under any of the Real
Property Leases as of the Closing Date;
(iii) an Assignment and Assumption of Lease, with respect to each
Non- Real Estate Lease in a form reasonably satisfactory to QDL;
(iv) assignments, in form and substance satisfactory to QDL, of
all Intellectual Property Rights, in recordable form to the extent necessary
to assign such rights;
(v) to the extent in written or other deliverable form and not
previously delivered, all copies of Intellectual Property or other secret,
proprietary or confidential information included in the Acquired Assets;
(vi) evidence of the name change of the Company required by
Section 6.12, which evidence shall be reasonably satisfactory to QDL;
(vii) all cash and cash equivalents of the Company;
39
(viii) other than the Excluded Assets, all Books and Records of
the Company (QDL shall be granted access to such Books and Records
immediately after Closing);
(ix) such keys, lock and safe combinations and other similar items
as QDL shall require to obtain full occupation, possession and control of
the Company's facilities and Business;
(x) such changes relating to the bank accounts and safe deposit
boxes of the Company as are being transferred to QDL and which QDL shall
have requested by notice to the Company at least five (5) business days
prior to the Closing Date;
(xi) such other instruments as shall be reasonably requested by
QDL to vest in QDL good and valid title in and to the Acquired Assets in
accordance with the provisions hereof; and
(xii) such other certificates, documents, instruments and
agreements as Questron shall deem necessary in its reasonable discretion in
order to effectuate the transactions contemplated herein, in form and
substance reasonably satisfactory to Questron.
7.8 Employment Agreement. QDL shall have received an Employment
Agreement substantially in the form attached hereto as Exhibit D (together with
any other exhibits attached thereto, the "Employment Agreement") duly executed
and delivered by Xxxxxxx X. Xxxxxx.
7.9 Non-Competition Agreements. QDL shall have received from each of
the Company and the Principals a Non-Competition Agreement, substantially in the
form attached hereto as Exhibit E (the "Non-Competition Agreements").
7.10 Financing. QDL shall have obtained financing on terms reasonably
satisfactory to it in an amount sufficient to pay the purchase consideration
contemplated by Section 2.4 and fees and expenses related to the transactions
contemplated by this Agreement.
7.11 Financial Statements. QDL and Questron shall have received the
financial statements referenced in Section 4.13.
7.12 Material Adverse Change. There shall have been no material adverse
change in the financial conditions, assets, liabilities (contingent or
otherwise), results of operations or business of the Company.
7.13 Environmental Report. QDL shall have received a recent phase one
environmental report on the office and warehouse space located in Middleburg
Heights, Ohio which is leased by the Company pursuant to the Existing Master
Lease.
40
7.14 Investor Representation Letter. QDL shall have received an
executed investor representation letter from each shareholder of the Company,
substantially in the form attached hereto as Exhibit F.
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE PRINCIPALS
------------------------------------------------------
The Company and the Principals need not consummate the transactions
contemplated hereby unless the following conditions shall be fulfilled on or
prior to the Closing:
8.1 Representations and Warranties. Except as otherwise contemplated or
permitted by this Agreement, (a) the representations and warranties of QDL and
Questron contained in this Agreement or in any certificate or document delivered
to the Company and the Principals pursuant hereto shall be deemed to have been
made again at and as of the Closing Date and shall then be true in all material
respects, and (b) QDL and Questron shall have each performed and complied with
all material agreements and conditions required by this Agreement to be
performed or complied with by it prior to or on the Closing Date, and the
Company shall have been furnished a certificate of an appropriate officer of QDL
and Questron, dated the Closing Date, certifying to the effect of clauses (a)
and (b) of this Section 8.1.
8.2 Closing Certificates. The Company and the Principals shall have
received (A) duly executed certificates from authorized officers of QDL and
Questron with respect to (i) such entity's certificate of incorporation and
bylaws, (ii) resolutions of the board of directors of such entity with respect
to the authorizations of this Agreement and the other agreements contemplated
hereby, and (iii) the incumbency of the executing officers of such entity, and
(B)(i) a copy of the certificate of incorporation of QDL as certified by the
Secretary of State of the State of Delaware and a certificate of existence and
good standing as of a recent date from the Secretary of State of the State of
Delaware, and (ii) a copy of the certificate of incorporation of Questron as
certified by the Secretary of State of the State of Delaware and a certificate
of existence and good standing as of a recent date from the Secretary of State
of the State of Delaware and Ohio.
8.3 No Actions. No action, suit, or proceeding before any court,
Governmental Authority, administrative agency or arbitrator shall be pending, no
investigation by any Governmental Authority shall have been commenced, and no
action, suit or proceeding by any Person shall have been threatened, against the
Company and the Principals seeking to restrain, prevent, or change the
transactions contemplated hereby or questioning the legality or validity of any
such transactions or seeking damages in connection with any such transactions.
8.4 Consents. All consents of third parties including, without
limitation, any filing or filing required by Section 6.16 Governmental
Authorities, and non-governmental self-regulatory agencies, and all filings with
and notifications of Governmental Authorities (including any and all filings
required by Section 6.16), regulatory agencies (including non-governmental
self-regulatory agencies) or other entities which regulate the Business of the
Company, necessary on the part of the
41
Company and the Principals, to the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, other than routine
post-closing notifications or filings, shall have been obtained or effected or
any applicable waiting period shall have expired or terminated.
8.5 Instruments of Assumption. The Company shall have received from QDL
such instruments of assumption with respect to the Assumed Liabilities as the
Company may reasonably request, duly executed by QDL.
8.6 Employment Agreement. QDL shall have executed and delivered the
Employment Agreement.
8.7 Opinion of Counsel. The Principals and the Company shall have been
furnished with an opinion, dated the Closing Date, of Battle Xxxxxx LLP, counsel
to QDL and Questron, substantially in the form attached hereto as Exhibit G.
8.8 No Material Adverse Change. There shall have been no material
adverse change in the financial condition, assets, liabilities (contingent or
otherwise), results of operations or business of Questron and its subsidiaries.
ARTICLE 9
INDEMNIFICATION
---------------
9.1 Indemnification by the Company and the Principals. Effective only
from and upon the occurrence of the Closing, and subject to Section 9.3 below,
the Company and each of the Principals hereby agrees to jointly and severally
defend, indemnify and hold harmless QDL, Questron and their successors, assigns
and affiliates (collectively, the "Questron Indemnitees") from and against any
and all losses, deficiencies, liabilities, damages, assessments, judgments,
costs and expenses, including reasonable attorneys' fees (both those incurred in
connection with the defense or prosecution of the indemnifiable claim and those
incurred in connection with the enforcement of this provision) including,
without limitation, Environmental Liabilities and Costs (collectively, "Questron
Losses"), caused by, resulting from or arising out of:
(a) (i) breaches of representation or warranty under this
Agreement on the part of the Company or any Principal; and (ii) failures by the
Company and any of the Principals to perform or otherwise fulfill any
undertaking or other agreement or obligation under this Agreement;
(b) all Excluded Liabilities;
(c) any recalls, warranty claims, or product liability with
respect to sales by the Company prior to the Closing Date or included in the
finished goods inventory transferred to QDL;
42
(d) except as otherwise provided in Section 2.3, any and all Taxes
imposed on the Company with respect to the period prior to the Effective Date;
(e) any liabilities arising out of the presence, release or
disposal of any Hazardous Substances, or arising out of Environmental Claims or
the violation of any Environmental Laws prior to the Closing Date;
(f) the failure to collect in full any accounts receivable (less
any reserves for bad debt, which reserves are determined in accordance with past
practice) which are included in the Acquired Assets within three (3) months
following the Closing;
(g) the maintenance, amendment or termination of any Benefit Plan
of the Company or out of any obligations under any such plan; and
(h) any and all actions, suits, proceedings, claims, demands,
incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Questron Indemnitee
proposes to demand indemnification ("Questron Indemnified Claims"), QDL,
Questron or such other Questron Indemnitee shall promptly notify the Company and
the Principals thereof, provided further, however, that the failure to so notify
the Company and the Principals shall not reduce or affect the Company's and the
Principals' obligations with respect thereto except to the extent that the
Company and the Principals are materially prejudiced thereby. Subject to rights
of or duties to any insurer or other third Person having liability therefor, the
Company and the Principals shall have the right promptly upon receipt of such
notice (after acknowledging responsibility for such Questron Indemnified Claim)
to assume the control of the defense, compromise or settlement of any such
Questron Indemnified Claims (provided that any compromise or settlement must be
reasonably approved by QDL and/or Questron), including, at its own expense,
employment of counsel reasonably satisfactory to QDL and/or Questron; provided,
however, that if the Company and the Principals shall have exercised their right
to assume such control, QDL and/or Questron may, in their sole discretion and at
their expense, employ counsel to represent them (in addition to counsel employed
by the Principals) in any such matter. So long as the Company and the Principals
are contesting any such Questron Indemnified Claim in good faith, QDL, Questron
and each other Questron Indemnitee shall not pay or settle any such Questron
Indemnified Claim. Notwithstanding the foregoing, QDL shall have the right to
offset any Questron Indemnified Claims and/or Questron Losses against the
Deferred Purchase Price.
To the extent the Company makes payments to QDL for any accounts receivable
pursuant to clause (f) above and this Section 9.1, QDL shall assign to the
Company any such uncollected accounts receivables.
9.2 Indemnification by QDL and Questron. Effective only from and upon
the occurrence of the Closing, and subject to Section 9.3 below, QDL and
Questron hereby agree to jointly and severally defend, indemnify and hold
harmless the Company, the Principals and their respective
43
successors, assigns and affiliates (collectively, "Company Indemnitees") from
and against any and all losses, deficiencies, liabilities, damages, assessments,
judgments, costs and expenses, including reasonable attorneys' fees (both those
incurred in connection with the defense or prosecution of the indemnifiable
claim and those incurred in connection with the enforcement of this provision)
(collectively, "Company Losses"), resulting from or arising out of:
(a) breaches of representation and warranty hereunder on the part
of QDL and Questron and failures by QDL and Questron to perform or otherwise
fulfill any undertaking or agreement or obligation hereunder;
(b) all Assumed Liabilities and excluding any Excluded
Liabilities;
(c) all Taxes incurred by the Company (including Taxes payable in
respect of any income of the Company) after the Effective Date;
(d) facts or circumstances occurring after the Closing Date and
relating to the operation of the Business after the Closing Date;
(e) actions taken by the Company after the Effective Date in the
ordinary course of business and taken in accordance with the provisions of this
Agreement, and
(f) any and all actions, suits, proceedings, claims and demands
incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Company Indemnitee
proposes to demand indemnification ("Company Indemnified Claims"), such Company
Indemnitee shall notify QDL and Questron thereof, provided further, however,
that the failure to so notify QDL and Questron shall not reduce or affect QDL's
and Questron's obligations with respect thereto except to the extent that QDL
and Questron are materially prejudiced thereby. Subject to rights of or duties
to any insurer or other third Person having liability therefor, QDL and Questron
shall have the right promptly upon receipt of such notice to assume the control
of the defense, compromise or settlement of any such Company Indemnified Claims
(provided that any compromise or settlement must be reasonably approved by the
Company) including, at their own expense, employment of counsel reasonably
satisfactory to the Company and the Principals; provided, however, that if QDL
and Questron shall have exercised their right to assume such control, the
Company and the Principals may, in their sole discretion and at their expense,
employ counsel to represent the Company Indemnitees (in addition to counsel
employed by QDL and Questron) in any such matter. So long as QDL and Questron
are contesting any such Company Indemnified Claim in good faith, the Company
Indemnitees shall not pay or settle any such Company Indemnified Claim.
9.3 Limitation on Liability. (a) Notwithstanding anything contained
herein to the contrary, the Company shall have no obligation to indemnify and
hold harmless any Questron Indemnitee with respect to any Questron Losses
pursuant to a claim for indemnity under Section 9.1(a)(i) unless the aggregate
amount of such Questron Losses exceeds Seventy-Five Thousand
44
Dollars ($75,000); provided, that, the foregoing limitation shall not apply to
(i) any claim for indemnity made by any Questron Indemnitee arising out of the
failure of Seller to discharge any Encumbrance required to be released as a
condition to this Agreement, (ii) the representations set forth in Section 4.27
and the liabilities described in Section 9.1(e), and (iii) the representations
and warranties set forth in Section 4.15.
(b) The aggregate liability of the Company under this Article 9
shall not exceed the aggregate amount of the consideration actually received by
the Company as the Purchase Price (including, without limitation, any Deferred
Purchase Price), provided, however, that such limitation shall not apply to the
representations set forth in Section 4.27.
(c) The aggregate liability of QDL and Questron under Section
9.2(a) (and 9.2(d), to the extent it relates to 9.2(a)) shall in no event exceed
One Million Dollars ($1,000,000).
(d) No party shall have any liability for any inaccuracy in or
breach of any representation or warranty by such party if the other party or any
of its officers, employees, counsel or other representatives had actual
knowledge on or before the Closing Date that such representation or warranty was
inaccurate or breached.
(e) Except for remedies that cannot be waived as a matter of law
and injunctive and provisional relief, if the Closing occurs, this Article 9
shall be the exclusive remedy for breaches of this Agreement or otherwise in
respect of the sale of the Acquired Assets contemplated hereby.
(f) Notwithstanding anything contained herein to the contrary, no
party shall have any liability hereunder for any lost profits or any
consequential or incidental damages, each of which is hereby excluded by
agreement of the parties regardless of whether or not any party has been advised
of the possibility of such damages.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------------------
(a) Representations, Warranties and Covenants. The covenants
contained in this Agreement shall survive the Closing Date without limitation.
The representations and warranties contained herein shall survive the Closing
Date for a period of three (3) years, except that any representation or warranty
of the Company and the Principals contained in Sections 4.1, 4.6, 4.13(b) and
4.27 shall survive the Closing Date without limitation, and any representation
or warranty of the Company and the Principals contained in Section 4.15 (Tax
Matters) shall survive until the expiration of one year after the expiration of
the applicable statute of limitations (provided that, if any Principal or the
Company and the United States Internal Revenue Service or other taxing authority
have agreed to extend the applicable statute of limitations beyond any such
period, then in such case such representations and warranties shall survive to
the date on which such agreement to extend expires).
45
ARTICLE 11
INTENTIONALLY OMITTED
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Cooperation. Each of the parties hereto shall use its reasonable
efforts to take or cause to be taken all actions, to cooperate with the other
party hereto with respect to all actions, and to do or cause to be done all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
12.2 Waiver. Any failure of the Company and the Principal to comply
with any of their respective obligations or agreements herein contained may be
waived only in writing by QDL. Any failure of QDL and Questron to comply with
any of its obligations or agreements herein contained may be waived only in
writing by the Company.
12.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given upon receipt of: hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
(i) If to Principals or the Company, to:
c/o Nova Machine Products Co.
00000 Xxxxxxx Xxxx
Xxxxxxxxxx Xxxxxxx, Xxxx 00000
Attn: Xxx Xxxx
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
(with a copy to)
Xxxxx & Xxxxxx LLP
000 Xxxxxx Xxxxxx
0000 Xxxxxxxxxx Xxxxxxxx
Xxxxxxxxx, Xxxx 00000-0000
Attn: Xxxxx Xxxxxxx, Esq.
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
46
(ii) If to QDL and Questron, to:
Questron Technology, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Telecopier: (000) 000-0000
Telephone: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx
(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.
12.4 Governing Law and Consent to Jurisdiction. (a) This Agreement
shall be governed by and construed in accordance with the internal substantive
laws, and not the choice of law rules, of the State of Delaware.
(b) Each of the Company, the Principals, QDL and Questron hereby
irrevocably and unconditionally consent to the exclusive jurisdiction of the
courts of the State of Delaware and the United States District Court for the
District of Delaware for any action, suit or proceeding arising out of or
relating to this Agreement, the Other Documents or the transactions contemplated
hereby and thereby, and agrees not to commence any action, suit or proceeding
related thereto except in such courts. Each of the Company, the Principals, QDL
and Questron further hereby irrevocably and unconditionally waive any objection
to the laying of venue of any lawsuit, claim or other proceeding arising out of
or relating to this Agreement in the courts of the State of Delaware or the
United States District Court for the District of Delaware, hereby further
irrevocably and unconditionally waive and agree not to plead or claim an
inconvenient forum, and further covenant and agree not to institute any action
or proceeding in any jurisdiction other than Delaware. Each of the Company, the
Principals, QDL and Questron further agree that service of any process, summons,
notice or document by U.S. registered mail to its address set forth above shall
be effective service of process for any action, suit or proceeding brought
against it in any such court.
47
12.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12.6 Headings; Schedules. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All references to "Schedules" shall
mean the disclosure schedules heretofore delivered by the Company and the
Principals to QDL and Questron.
12.7 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the documents referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
12.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of the parties hereto.
12.9 Binding Effect; Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns; nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto and their
respective successors and assigns (and, to the extent provided in Sections 9.1
and 9.2, the other Questron Indemnitees and Company Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
12.10 Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties provided
that QDL and Questron may assign its rights under the Agreement to any affiliate
of QDL and Questron.
12.11 Post-Closing Reimbursement. (a) QDL shall be responsible for all
costs incurred by the Company in maintaining its benefit plans after the Closing
Date for the Company employees hired by QDL after the Closing.
(b) QDL shall reimburse the Company for QDL's pro rata share of
any personal property taxes relating to the Acquired Assets paid by the Company
for the calendar year ended December 31, 1999.
48
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
QUESTRON DISTRIBUTION LOGISTICS, INC.
By /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Chairman and Chief Executive
Officer
METRO FORM CORPORATION d.b.a. Olympic
Fasteners & Electronic Hardware
By /s/ Xxxxxxx X. Xxxxxx
-----------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President
PRINCIPALS:
/s/ Xxxxx Xxxx
---------------------------------------------------
Xxxxx Xxxx
/s/ Xxxxxxx X. Xxxxxx
---------------------------------------------------
Xxxxxxx X. Xxxxxx
