Exhibit 2.6
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STOCK PURCHASE AGREEMENT
By and Between
QUESTRON TECHNOLOGY, INC.,
QUESTRON DISTRIBUTION LOGISTICS, INC.,
ACTION THREADED PRODUCTS, INC.
and
THE PERSONS
SIGNATORY HERETO
Dated as of May 7, 1999
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817104.6
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS............................................................5
1.1 Definitions...........................................5
ARTICLE 2
PURCHASE AND SALE OF SHARES............................................6
2.1 Sale of Shares........................................6
2.2 Purchase Consideration and Payment for the Shares.....6
2.3 Transactions on the Closing Date......................8
ARTICLE 3
CLOSING AND TERMINATION................................................10
3.1 Closing...............................................10
3.2 Termination...........................................10
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
AND THE COMPANY........................................................11
4.1 Authority; Due Execution..............................11
4.2 Organization; Certificate of Incorporation; Bylaws....11
4.3 Subsidiaries and Equity Investments...................11
4.4 Capitalization........................................12
4.5 Ownership of Shares...................................12
4.6 Personal Property.....................................12
4.7 No Violation..........................................13
4.8 Litigation............................................13
4.9 Real Property.........................................14
4.10 Non-Real Estate Leases................................15
4.11 Financial Statements..................................15
4.12 Books and Records.....................................16
4.13 Tax Matters...........................................16
4.14 Employee Matters......................................17
4.15 Intellectual Property.................................20
4.16 Accounts Receivable and Accounts Payable..............21
4.17 Inventory.............................................22
4.18 Absence of Change or Event............................22
4.19 Compliance with Law...................................24
4.20 Contracts and Commitments.............................24
4.21 Insurance.............................................26
817104.6
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4.22 Customers, Suppliers, Distributors, Etc...............27
4.23 Previous Sales; Warranties; Product Liability.........27
4.24 Environmental Matters.................................28
4.25 Absence of Certain Payments...........................29
4.26 Additional Information................................29
4.27 Investment Intent.....................................29
4.28 Disclosure............................................30
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON.....................31
5.1 Organization..........................................31
5.2 Corporate Authority; Due Execution....................31
5.3 No Violation..........................................31
5.4 SEC Documents.........................................32
5.5 Questron Common Stock.................................32
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS OF
SHAREHOLDERS, THE COMPANY, QDL AND QUESTRON............................32
6.1 Conduct of Business Prior to the Closing Date.........32
6.2 Tax Covenants.........................................34
6.3 Expenses and Finder's Fees............................34
6.4 Access to Information and Confidentiality.............35
6.5 No Solicitation.......................................36
6.6 Employees.............................................36
6.7 Press Releases........................................37
6.8 Transitional Assistance...............................37
6.9 Conditions............................................37
6.10 Rule 144..............................................37
6.11 SEC Filings...........................................37
6.12 Balance Sheets........................................37
6.13 HSR Act and Other Filings. ..........................37
6.14 Millennium Capability. ..............................37
ARTICLE 7
CONDITIONS PRECEDENT OF QDL AND QUESTRON...............................38
7.1 Representations and Warranties........................38
7.2 Closing Certificates..................................38
7.3 Due Diligence.........................................38
7.4 Opinion of Counsel....................................39
7.5 No Actions............................................39
7.6 Consents..............................................39
7.7 Instruments and Possession............................39
817104.6
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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
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE PRINCIPALS.................40
8.1 Representations and Warranties........................40
8.2 Closing Certificates..................................41
8.3 No Actions............................................41
8.4 Consents..............................................41
8.5 Opinion of Counsel....................................41
8.6 No Material Adverse Change............................41
ARTICLE 9
INDEMNIFICATION........................................................42
9.1 Indemnification by the Company and the Shareholders...42
9.2 Indemnification by QDL and Questron...................43
9.3 Limitation on Liability...............................44
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..................44
ARTICLE 11
INTENTIONALLY OMITTED..................................................44
ARTICLE 12
MISCELLANEOUS..........................................................45
12.1 Cooperation...........................................45
12.2 Waiver................................................45
12.3 Notices...............................................45
12.4 Governing Law and Consent to Jurisdiction.............46
12.5 Counterparts..........................................46
12.6 Headings; Schedules...................................46
12.7 Entire Agreement......................................46
12.8 Amendment and Modification............................47
12.9 Binding Effect; Benefits..............................47
12.10 Assignability.........................................47
817104.6
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STOCK PURCHASE AGREEMENT, dated as of May 7, 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 Action Threaded Products,
Inc., an Illinois corporation (the "Company"), and each of the persons listed on
Schedule 1.1 hereto and signatory hereto (each a "Shareholder," and
collectively, the "Shareholders").
PRELIMINARY STATEMENT
1. QDL is a wholly-owned subsidiary of Questron.
2. The Shareholders are the beneficial and record holders
of all of the issued and outstanding shares of capital stock of the Company (the
"Shares").
3. The Shareholders desire to sell, and QDL desires to
purchase, the Shares upon the terms and subject to the conditions contained in
this Agreement.
NOW, THEREFORE, in reliance upon the respective representations and
warranties made herein and in consideration of the mutual agreements and
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms have
the meanings specified or referred to in this Article 1.
"Accountant" is defined in Section 2.2(c)(ii).
"Actions" is defined in Section 4.8.
"Additional Cash Payment" is defined in Section 2.2(b).
"Additional Shares" is defined in Section 2.2(b).
"Agreement" is defined in the preamble to this Agreement.
"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
817104.6
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 and its
subsidiaries all books and records pertaining to the Shares, the Business, the
customers, distributors and suppliers of the Company and its subsidiaries,
including Tax returns and other information relevant to such returns, but not
including minutes of shareholder and directors meetings.
"Business" shall mean the business and operations of the Company and
its subsidiaries in respect of distributing fasteners, hardware and related
components.
"Claims" shall mean with respect to the Company and its subsidiaries
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 Shares or the Business.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Closing Notes" is defined in Section 2.2(b).
"Closing Price" is defined in Section 2.2(c).
"Closing Shares" is defined in Section 2.2(c).
"Code" is defined in Section 4.13.
"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 and its
subsidiaries 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 and its subsidiaries,
to which the Company and its subsidiaries are
817104.6
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a party or to which any of their respective assets are subject, whether oral or
written, express or implied.
"Deferred Cash Consideration" is defined in Section 2.2(d)(i).
"Deferred Purchase Price" is defined in Section 2.2(d)(i).
"Deferred Shares" is defined in Section 2.2(d)(i).
"Dispute Notice"is defined in Section 2.2(d)(ii).
"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 2.2(c)(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 4.24.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" is defined in Section 4.14(d).
"ERISA Plans" is defined in Section 4.14(b).
"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 4.24.
"HSR Act" is defined in Section 6.13.
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"Immaterial Lease" is defined in Section 4.10.
"Initial Cash Consideration" is defined in Section 2.2(a).
"Insurance Policies" shall mean with respect to the Company the
insurance policies issued by unaffiliated, third-party carriers relating to the
Business of the Company listed under the Company's name on Schedule 4.23.
"Intellectual Property Rights" is defined in Section 4.15.
"Inventory" shall mean with respect to the Company and its
subsidiaries (a) all of the Company's and its subsidiaries' inventories whether
(x) in transit and owned by the Company and its subsidiaries or (y) within the
facilities of the Company and its subsidiaries held for resale or lease in the
ordinary course of the Business to the customers and distributors of the Company
and its subsidiaries, (b) all office supplies and similar materials of the
Company and its subsidiaries located in the facilities of the Company and its
subsidiaries and (c) all of the raw materials, work in process, finished
products and similar items of the Company and its subsidiaries in the facilities
of the Company and its subsidiaries 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 and its subsidiaries
all of the leases of the Company and its subsidiaries (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 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.
"Majority Shareholders" shall mean Xxxxxx Xxxxx and Xxxxxxx Xxxxxx.
"March 31, 1999 Balance Sheet" is defined in Section 6.12.
"Material Adverse Effect" shall mean with respect to (A) the Company
and its subsidiaries, a material adverse effect on (i) the Shares, 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
and its subsidiaries 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,
817104.6
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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.
"Minority Shareholders" shall mean Xxxxxxx X. Xxxxxxx and Xxxxxx
Xxxxxx.
"Non-Competition Agreements" is defined in Section 7.9.
"Non-Real Estate Leases" is defined in Section 4.10.
"Other Documents" is defined in Section 4.1.
"Permits" shall mean with respect to the Company and its subsidiaries
all licenses, permits and other governmental authorization necessary to carry on
the Business of the Company and its subsidiaries.
"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.
"Post Closing Payment Notes" is defined in Section 2.2(d).
"Purchase Price" is defined in Section 2.2.
"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 2.2(c).
"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 4.9(a).
"Reference Balance Sheet" is defined in Section 4.11.
"Reference Balance Sheet Date" is defined in Section 4.11.
"Reference Income Statement" is defined in Section 4.11.
817104.6
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"SEC" is defined in Section 5.4.
"SEC Documents" is defined in Section 5.4.
"Second Closing Date" is defined in Section 2.2(d)(i).
"Securities" is defined in Section 4.27(i).
"Securities Act" is defined in Section 2.3(d).
"Shares" is defined in the Preliminary Statement to this Agreement.
"Shareholders" is defined in the preamble to this Agreement.
"Stated Debt" is the aggregate amount of the outstanding liabilities
of the Company and its subsidiaries specifically identified and described in
Schedule 2.2(a) as of the Effective Date.
"Stated Net Debt" is defined in Section 2.2(a).
"Subsidiary" is defined in Section 4.3.
"Taxes" is defined in Section 4.13.
"Technology" is defined in Section 6.14.
"Year 2000 Compliant" is defined in Section 6.14.
"1998 Audit" is defined in Section 6.4.
ARTICLE 2
PURCHASE AND SALE OF SHARES
2.1 Sale of Shares. At the Closing provided for in Section 3.1, the
Shareholders shall sell to QDL the Shares beneficially owned by the Shareholders
as set forth on Schedule 1.1, and QDL shall purchase such Shares for the
aggregate purchase consideration specified in Section 2.2.
2.2 Purchase Consideration and Payment for the Shares. In
consideration of the sale, conveyance, transfer, assignment and delivery of the
Shares by the Shareholders to QDL on the Closing Date, and in reliance upon the
representations, warranties, covenants and agreements made herein by the Company
and the Shareholders, QDL shall pay to the Shareholders a total purchase price
of Fifteen Million Six Hundred Thousand Dollars ($15,600,000) (the "Purchase
Price") subject to payment and adjustment as follows:
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(a) At the Closing, the Shareholders shall be paid an
amount equal to Ten Million Five Hundred Thousand Dollars ($10,500,000), (x)
less the Stated Net Debt (as defined below) of the Company, and (y) plus
interest on the sum of (A) the amount calculated in accordance with the
foregoing, and (B) One Million Five Hundred Thousand Dollars ($1,500,000), which
interest shall be in the amount equal to six percent (6%) per annum calculated
from the Effective Date to the Closing Date (said amount as set forth in this
Section 2.2(a) and as reflected on Schedule 2.2(a) being herein referred to as
the "Initial Cash Consideration"). The Initial Cash Consideration shall be paid
to the Shareholders by wire transfers of immediately available funds (or
certified checks) from or on behalf of QDL to such account(s) as the
Shareholders may designate to QDL in writing no later than five (5) business
days prior to the Closing Date. As used herein, "Stated Net Debt" means the
aggregate amount of Stated Debt net of cash and cash equivalents as of March 31,
1999.
(b) At the Closing, QDL shall deliver to each Shareholder a
promissory note, made by Questron Finance Corp., a wholly-owned subsidiary of
Questron, in favor of such Shareholder in the principal amount set forth
opposite such Shareholder's name on Schedule 2.2(b), substantially in the form
attached hereto as Exhibit A, as may be modified to reflect such changes to the
definition of "Available Amount" contained therein as may be requested by any
lender providing financing to Questron as contemplated by Section 7.10 (the
"Closing Notes"). The aggregate principal amount of the four Closing Notes shall
be One Million Five Hundred Thousand Dollars ($1,500,000).
(c) At the Closing, the Shareholders 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 Eight
Hundred Thousand Dollars ($1,800,000) (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 (3rd) trading day immediately
prior to the Closing Date (the "Closing Price"). Each Shareholder shall be
issued Closing Shares in the proportion set forth on Schedule 2.2(c)(i) to be
delivered to QDL. The Closing Shares shall be issued and registered in the name
of the Shareholders on or prior to the Closing Date. On the twenty-four-month
anniversary of the Closing Date (and if such date is not a Business Day, the
next Business Day) (the "Anniversary Date"), Questron shall calculate the value
(the "Anniversary Date Price") of the Questron Common Stock based on the average
last reported sales price for the Questron Common Stock for the five (5) trading
days period ending on the third (3rd) trading day immediately prior to the
Anniversary Date. If the Anniversary Date Price is less than the Closing Price,
either (A) Questron shall deliver to the Shareholders a number of shares of
Questron Common Stock equal to the difference between (i) the number of shares
of Questron Common Stock having a value of One Million Eight Hundred Thousand
Dollars ($1,800,000) calculated on the basis of the Anniversary Date Price, and
(ii) the number of Closing Shares (the "Additional Shares"), or (B) QDL shall
pay to the Shareholders by wire transfers (or certified checks) an amount in
cash equal to One Million Eight Hundred Thousand Dollars ($1,800,000) less the
amount equal to the number of Closing Shares multiplied by the Anniversary Date
Price (the "Additional Cash Payment"). On behalf of and at the direction of, the
Company, to the extent Additional Shares are to be issued to the Shareholders
pursuant to this Section 2.2(c), each Shareholder shall be issued Additional
Shares in the proportion set forth on Schedule 2.2(c)(ii). The election of
whether QDL shall pay the Additional Cash Payment or Questron shall issue the
Additional Shares shall be made by QDL and Questron in their sole discretion.
817104.6
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(d) (i) Following the Closing, QDL shall pay to the
Shareholders 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 six (6)
Company branches located in Atlanta, Minneapolis, Milwaukee, Grand Rapids,
Chicago and Columbus for the twelve (12) month period beginning on the Effective
Date (the "EBIT Period") exceeds Two Million One Hundred Fifty Thousand Dollars
($2,150,000), multiplied by (y) six (6), and (B) One Million Eight Hundred
Thousand Dollars ($1,800,000). The Deferred Purchase Price shall be paid by June
30, 2000 (the "Second Closing Date") payable as follows: (i) delivery to the
Shareholders by wire transfers (or certified checks) of an aggregate amount
equal to forty-three and five tenths percent (43.5%) of the Deferred Purchase
Price (the "Deferred Cash Consideration"); (ii) delivery of a promissory note,
made by Questron Finance Corp., in favor of each Shareholder, substantially in
the form attached hereto as Exhibit B (the "Post-Closing Payment Notes") in the
aggregate principal amount equal to forty-three and five tenths percent (43.5%)
of the Deferred Purchase Price; and (iii) delivery to the Shareholders of shares
of Questron Common Stock (the "Deferred Shares"), the value of which shall equal
to thirteen percent (13%) of the Deferred Purchase Price. The number of Deferred
Shares will be based on the average last reported sales price of the Questron
Common Stock for the five (5) trading days ending on the third (3rd) trading day
immediately prior to the Second Closing Date.
(ii) In the event that any Shareholder disputes QDL's
calculation of EBIT in accordance with Section 2.2(d)(i), such Shareholder shall
notify QDL in writing of the nature of his dispute within thirty (30) days of
its receipt of notice from QDL of its calculation of EBIT (a "Dispute Notice").
If the parties are unable to agree upon EBIT within twenty (20) days after
delivery of a Dispute Notice, then the parties shall attempt to mutually agree
on an independent public accounting firm ("Accountant") who shall determine
EBIT. If the parties are unable to agree upon a single Accountant within thirty
(30) days after delivery of the Dispute Notice, then each of QDL, on the one
hand, and the Shareholders, on the other, shall select an Accountant and within
ten (10) days of their appointment, the two Accountants shall select a third
Accountant. The determination of the single Accountant or the average of two of
the three EBITs determined by the three Accountants which are closest in amount,
if EBIT is determined by three Accountants, as the case may be, shall be
determined within thirty (30) days from the appointment of the Accountants and
shall be final and binding upon the parties. The expenses of the determination
of EBIT by the Accountants shall be shared equally by QDL, on the one hand, and
the disputing Shareholder(s), on the other.
2.3 Transactions on the Closing Date.
(a) At the Closing, the Company and the Shareholders will
deliver, or cause to be delivered, to QDL and/or Questron the following:
(i) stock certificate(s) representing all of the
Shares, in form suitable for transfer, registered in the name of each
Shareholder evidencing the number of Shares set forth opposite each
such Shareholder's name on Schedule 1.1, endorsed in blank or with an
executed blank stock transfer power attached, and, in each case, with
any necessary stock transfer tax stamps attached thereto;
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(ii) all stock books, stock transfer ledgers, minute
books and the corporate seals of the Company and all subsidiaries of
the Company;
(iii) resignations of all of the directors and
officers of the Company, effective as of the Closing;
(iv) duly executed signature cards for all bank
accounts of the Company and its subsidiaries which are necessary to
establish QDL's designees, and only QDL's designees, as the
authorized signatories for such accounts;
(v) each of the certificates and documents
contemplated by Article 7; and
(vi) 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
Shareholders the following:
(i) the Initial Cash Consideration;
(ii) the Closing Note;
(iii) the stock certificates representing the Closing
Shares;
(iv) each of the certificates and documents
contemplated by Article 8; and
(v) such other certificates, documents, instruments
and agreements as the Company shall deem necessary in its reasonable
discretion in order to effectuate the transactions contemplated
herein, in form and substance reasonably satisfactory to the Company.
(c) At the Closing, 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, the Additional Shares and Deferred Shares issued to the
Shareholders shall be restricted securities under the Securities Act of 1933, as
amended (the "Securities Act"), will not have been registered under the
Securities 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:
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"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE."
ARTICLE 3
CLOSING AND TERMINATION
3.1 Closing. The closing of the transactions provided for in Article
2 above (the "Closing") will take place at the offices of Battle Xxxxxx LLP,
Park Avenue Tower, 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, X.X. 00000, at 10:00 A.M.
(local time) on or about June 30, 1999 (the "Closing Date"), or at such other
place, time and date as may be agreed upon by QDL, Questron, the Company and the
Shareholders. The effective date of the Closing shall be 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 Shareholders, on the other;
(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
Shareholders, 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 Shareholders
shall breach in any material respect any of their respective
representations, warranties or obligations hereunder and such breach
shall not have been cured or waived or the Company or the
Shareholders shall not have provided reasonable assurance that such
breach can and will be cured on or before the Closing Date, provided,
however, that QDL and Questron have not breached in any material
respect any of their respective representations, warranties or
obligations hereunder; or
(d) by the Company and the Shareholders, if QDL or Questron
shall breach in any material respect any of their respective
representations, warranties or obligations hereunder and such breach
shall not have been cured or waived or QDL and Questron shall not
have
817104.6
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provided reasonable assurance that such breach can and will be cured
on or before the Closing Date, provided, however, that the Company
and the Shareholders have not breached in any material respect any of
their respective representations, warranties or obligations
hereunder.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
AND THE COMPANY
Each Shareholder and the Company, jointly and severally, represents
and warrants to QDL and Questron that 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 Shareholder has the power to enter into
this Agreement and each Other Document to which such Shareholder is a party and
to consummate the transactions contemplated hereby and thereby. This Agreement
has been, and each Other Document to which the Company and/or the Shareholders
are parties will be as of the Closing Date, duly executed and delivered by the
Company and/or the Shareholders, and (assuming due execution and delivery by QDL
and Questron) this Agreement and each Other Document to which the Company and
the Shareholders are parties will constitute valid and binding obligations of
the Company and the Shareholders, respectively, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization or
similar laws affecting creditors' rights generally or by general equitable
principles.
4.2 Organization; Certificate of Incorporation; Bylaws. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Illinois and has all requisite corporate power and
authority to carry on its Business as now being conducted and to own its
properties and is duly licensed or qualified and in good standing as a foreign
corporation in each jurisdiction in which it is required to be so licensed or so
qualified, except where the failure to be so licensed or so qualified would not
have a Material Adverse Effect on the Company. The Shareholders have heretofore
delivered to QDL complete and correct copies of the articles of incorporation
and bylaws of the Company as currently in effect.
4.3 Subsidiaries and Equity Investments. Except as set forth on
Schedule 4.3, 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.
817104.6
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4.4 Capitalization. The authorized capital of the Company consists of
5,000 shares of common stock, par value $10.00 per share (the "Common Stock"),
of which 2,530 shares are issued and outstanding. The authorized capital and the
issued and outstanding capital of each of the Company's subsidiaries is set
forth on Schedule 4.4(a). Except as set forth on Schedule 4.4(b), no other class
of capital stock or other ownership interests of the Company or its subsidiaries
is authorized, issued, reserved for issuance or outstanding. All such issued and
outstanding shares of Common Stock have been duly authorized and are validly
issued, fully paid and nonassessable. No shares of Common Stock (including,
without limitation, the Shares), and no common stock or other equity interests
in the Company's subsidiaries and no options, warrants or other rights,
agreements, commitments or arrangements of any kind to acquire shares of Common
Stock or the common stock or other equity interests of the Company's
subsidiaries, were issued in violation of (x) any preemptive or other rights, or
(y) any provision of any contract, agreement or arrangement of any kind. Except
as set forth on Schedule 4.4(c), there are no outstanding options, warrants,
subscriptions, unsatisfied preemptive rights, calls or other rights, agreements,
commitments or arrangements of any kind to acquire any of the outstanding,
authorized but unissued, unauthorized or treasury shares of the capital stock of
the Company or the common stock or other equity interests of the Company's
subsidiaries or any security of any kind convertible into or exchangeable for
any such capital stock. Except as set forth on Schedule 4.4(d), there are no
voting trusts, shareholder agreements, proxies or other agreements relating to
the voting, purchase or sale of capital stock of the Company or its subsidiaries
(i) between or among the Company and any of its shareholders, and (ii) between
or among any of the Company's shareholders. There is no outstanding bond,
debenture, note or other indebtedness of the Company having the right to vote
(or convertible into or exchangeable for securities having the right to vote) on
any matter on which shareholders of the Company or any subsidiary may vote.
4.5 Ownership of Shares. The Shareholders are the lawful record and
beneficial owner of that number of Shares set forth opposite each Shareholder's
name on Schedule 1.1 which Shares represent all of the issued and outstanding
shares of the Company's capital stock. Sellers own the Shares set forth opposite
each Shareholder's name on Schedule 1.1 free and clear of all pledges, liens,
charges, Encumbrances, easements, security interests, claims, options and
restrictions of every kind, except for those Encumbrances identified on Schedule
4.5 (which shall be satisfied and released on or prior to the Closing). Upon the
delivery of the Shares in the manner contemplated under Section 2.2, at Closing,
Shareholders will each transfer to QDL valid record and beneficial title to such
Shares, free and clear of all Encumbrances.
4.6 Personal Property. Schedule 4.6(a) sets forth (i) the tangible
physical assets of the Company and its subsidiaries as of the date of this
Agreement that do not constitute real property (including machinery, equipment,
tools, dies, furniture, furnishings, leasehold improvements, software, vehicles,
buildings and fixtures) and that have a book value or replacement value in
excess of Five Thousand Dollars ($5,000) per item or per category of items and
the location by address of such items; (ii) individual refundable deposits in
excess of Ten Thousand Dollars ($10,000) or Twenty-Five Thousand Dollars
($25,000) in the aggregate; and (iii) all outstanding loans or advances made by
the Company or any subsidiary to any Person in excess of Twenty Thousand Dollars
($20,000).
817104.6
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Except as set forth on Schedule 4.6(b), the Company and each of the
Company's subsidiaries has good and valid title to all of their respective
material properties and assets that do not constitute real property, free and
clear of all Encumbrances. Except as set forth on Schedule 4.6(c), the Company
and its subsidiaries own and have valid leasehold interests (pursuant to leases
disclosed in such Schedule) in or valid contractual rights pursuant to contracts
disclosed in such Schedule to use, all of the material assets, tangible and
intangible, currently used by, or necessary for the present conduct of the
business of, the Company and its subsidiaries.
Immediately prior to Closing, the items listed on Schedule 4.6(d)
shall be transferred to the Persons listed on Schedule 4.6(d).
4.7 No Violation. Neither any Shareholder, the Company nor any
Company subsidiary are subject to or bound by any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) (in the case of the Company) its articles of
incorporation or by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, proxy, bond, indenture, other instrument or
agreement, license, Permit, trust, custodianship or other
restriction, or
(d) any consent, judgment, order, writ, award, injunction
or decree of any Governmental Authority or arbitrator,
that would conflict with, prevent or be violated by or that would result in the
creation of any Encumbrance as a result of, or under which there would be a
default or right of termination, amendment, acceleration, revocation,
cancellation or suspension as a result of, the execution, delivery and
performance by any Shareholder, the Company or any Company subsidiary of this
Agreement or any Other Document and the consummation of the transactions
contemplated hereby and thereby. Except as set forth in Schedule 4.7, no
consent, order, license, permit, approval or authorization of or declaration,
notice or filing with any Person is required for the valid execution, delivery
and performance by any Shareholder or the Company of this Agreement or any Other
Document to which it is a party and the consummation of the transactions
contemplated hereby and thereby.
4.8 Litigation. Except as set forth on Schedule 4.8, there is no
charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, labor dispute, arbitral
action or, to the knowledge of the Company and the Shareholders, investigation
(collectively, "Actions") pending or, to the knowledge of the Company and the
Shareholders, threatened or anticipated against, relating to or affecting (i)
the Company, any Company subsidiary or the operation of the Business of the
Company and its subsidiaries 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. Neither the Company nor any Company subsidiary
is in default with respect to any
817104.6
13
judgment, order, writ, injunction or decree of any Governmental Authority, and
there are no unsatisfied judgments against the Company. No event has occurred or
circumstances exist that could reasonably be expected to give rise to or serve
as a basis for the commencement of any Action. The Company has delivered or made
available to QDL or Questron copies of all proceedings, correspondence and other
documents relating to each Action listed on Schedule 4.8. Each Action pending
or, to the knowledge of the Company and the Shareholders, threatened or that the
Company or the Shareholders have a reasonable basis to expect or anticipate
(whether or not disclosed on Schedule 4.8) is fully covered by insurance of
reputable and solvent insurance companies and each such applicable insurance
policy is in full force and effect and neither the Company nor any Company
subsidiary has received any notice or, to the knowledge of the Company and the
Shareholders, threat of cancellation, limitation or non-coverage of such
insurance policies.
4.9 Real Property. (a) Schedule 4.9(a) sets forth, as of the date of
this Agreement, a complete and accurate list, in all material respects, of (i)
all of the real property owned by the Company and its subsidiaries (the "Owned
Real Property"), (ii) all of the real property that the Company and its
subsidiaries have leased or subleased (the "Leased Real Property") (iii) the
applicable leases, including all amendments thereto and all material agreements
incidental thereto (the "Real Property Leases"), and (iv) all indebtedness
secured by a lien, mortgage or deed of trust on the Real Property and the
outstanding principal amount of each such lien, mortgage and deed of trust as of
the date hereof. As of the date of this Agreement, the Company and its
subsidiaries have good and marketable fee title to its interest in the Owned
Real Property or a valid leasehold interest in the Leased Real Property as
provided in the applicable Real Property Lease, in each case, free and clear of
all Encumbrances and defects, except for (A) liens, mortgage or deed of trust
securing the Indebtedness referred to in clause (i) of the preceding sentence,
and (B) taxes or assessments, special or otherwise, not due and payable or being
contested in good faith. There exists no default or event of default or event,
occurrence, condition or act (including the consummation of the transactions
contemplated hereby) on the part of the Company or any Company subsidiary 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 4.9(a). Neither the Company nor any Company subsidiary has
received a written notice of any monetary default or other material default
under any Real Property Lease or has given or received any notice for purpose of
terminating any Real Property Lease; all rents due under the Real Property
Leases have been paid.
(c) With respect to each of the Real Property Leases the
Company and its subsidiaries have adequate rights of ingress and egress for the
operation of the Business of the Company and its subsidiaries in the ordinary
course. Except as set forth in Schedule 4.9(c) with respect to the Leased Real
Property 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
817104.6
14
materially adversely affect the value or use of any such building, structure,
appurtenance or equipment.
(d) Except as set forth in Schedule 4.9(d), (i) no
condemnation proceeding is pending or threatened with respect to the Real
Property or any buildings, structures or appurtenances located thereon, and (ii)
none of the buildings, structures or appurtenances 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 and its subsidiaries have all necessary
Permits to carry on the Business in the ordinary course.
(f) Except as set forth in Schedule 4.9(f), no interest of
the Company and its subsidiaries in any Real Property is subject to any right of
first offer, first refusal or right or option to purchase.
4.10 Non-Real Estate Leases. Schedule 4.10 lists all of the Company's
and its subsidiaries' right, title and interest in and to the assets, properties
and rights of every type and description, tangible and intangible, wherever
located, owned by the Company and its subsidiaries from and after the Effective
Date and on the Closing Date or in which the Company and its subsidiaries have
any interest whatsoever on the Closing Date relating to, used or useful in the
conduct of the Company's business that are possessed by the Company and its
subsidiaries 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 4.10 also lists the leases
under which such 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 assets, and has not been assigned, modified, supplemented or
amended except as set forth on Schedule 4.10.
4.11 Financial Statements. (a) The Shareholders and the Company have
heretofore furnished QDL and/or Questron with copies of the following
consolidated financial statements of the Company and its subsidiaries: (i)
unaudited balance sheets as at March 31 for each of 1995, 1996 and 1997,
respectively; (ii) unaudited statements of operations for each of the years
ended on March 31, for 1995, 1996, and 1997; (iii) an audited balance sheet (the
"Reference Balance Sheet") as at December 31, 1998 (the "Reference Balance Sheet
Date"); and (iv) an audited statement of operations (the "Reference Income
Statement") for the year ended December 31, 1998. Except as noted on Schedule
4.11 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.
817104.6
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(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 this paragraph in any of the Schedules delivered
to QDL and Questron pursuant to this Agreement; (iii) those that are
individually, or in the aggregate, not material and were incurred since the
Reference Balance Sheet Date in the ordinary course of business consistent with
prior practice; or (iv) open purchase or sales orders or agreements for delivery
of goods and services in the ordinary course of business consistent with prior
practice.
(c) There are no 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.
4.12 Books and Records. (a) The Shareholders and the Company have
made and will make available for inspection by QDL and/or Questron all the Books
and Records relating to the Business of the Company and its subsidiaries. Except
as set forth on Schedule 4.11, such Books and Records of the Company and its
subsidiaries reflect all the material transactions and other material matters
required to be set forth under GAAP applied on a consistent basis.
(b) The minute books of the Company and its subsidiaries
that have been made available to 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 its subsidiaries and of its Shareholders and accurately reflect all material
transactions referred to in such minutes and consents in lieu of meetings. The
stock books of the Company and its subsidiaries that have been made available to
QDL and/or Questron for their inspection are true and complete in all material
respects.
4.13 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;
817104.6
16
(iii) "Code" shall mean the Internal Revenue Code of
1986, as amended; and
(iv) the term "Tax Deficiency" shall include a
reduction in any net operating losses.
(b) In respect of the Pre-Closing Periods only,
(i) all Returns have been (or will be 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 and its subsidiaries
are required by law to withhold or collect have been in all material
respects duly withheld or collected, and have been timely paid over
to the appropriate governmental authorities to the extent due and
payable;
(v) there is no action, suit, proceeding,
investigation, audit or claim currently pending, or to the Company's
and the Shareholders' knowledge, threatened, regarding any Taxes
relating to the Company and its subsidiaries for any Pre-Closing
Period;
(vi) no Person has executed or entered into a closing
agreement pursuant to Code Section 7121 (or any comparable provision
of state, local or foreign law) that is currently in force and
determines the Tax liabilities of the Company;
(vii) there are no liens for any Tax on the assets of
the Company except liens which arise as a matter of law; and
(viii) there are no tax sharing agreements to which
the Company is now or, to Shareholders' knowledge, ever has been a
party which will survive the Closing.
4.14 Employee Matters. (a) Schedule 4.14(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 its subsidiaries; 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
817104.6
17
compensation plan, agreement or arrangement covering present or former
employees, consultants or directors of the Company and its subsidiaries.
(b) Schedule 4.14(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.
(c) For each ERISA Plan, except as set forth on Schedule
4.14(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 Shareholders, the Company, the
Company's subsidiaries nor any other party has, with respect to any
such Benefit Plan, engaged in a prohibited transaction, as such term
is defined in Code Section 4975 or ERISA Section 406, which could
subject the Company or 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
817104.6
18
funding or insurance instruments relating thereto) and, to the extent
applicable, copies of the most recent (A) determination letter and
any outstanding request for a determination letter; (B) summary plan
description and other written communications by the Company to its
employees concerning the extent of the benefits provided under any
Benefit Plan; (C) Form 5500 with attached schedules, financial
statements and actuaries statement with respect to the plan years
ending in fiscal years 1995, 1996 and 1997; (D) collective bargaining
agreements or other such contracts; and (E) the general notification
to employees of their "COBRA" rights under Code Section 4980B and
ERISA Sections 601-609 and the form of letter(s) distributed upon the
occurrence of a COBRA qualifying event for each Benefit Plan that is
a "group health plan" as defined in Code Section 5000(b)(1) and ERISA
Section 607(1).
(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 4.14(g), each of the following is true in all material respects:
(i) the Company and its subsidiaries are in compliance
with all applicable laws and agreements respecting employment and
employment practices, terms and conditions of employment and wages
and hours and occupational safety and health and is not engaged in
any unfair labor practice within the meaning of Section 8 of the
National Labor Relations Act, and there is no action, suit or legal,
administrative, arbitration, grievance or other proceeding pending
or, to the Company's and the Shareholders' knowledge, threatened, or,
to the Company's and the Shareholders' knowledge, is any
investigation pending or threatened against the Company or any
subsidiary 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 Shareholders'
knowledge, threatened against the Company and its subsidiaries;
817104.6
19
(iii) none of the employees of the Company and its
subsidiaries is a member of or represented by any labor union and,
there are no attempts of whatever kind and nature being made to
organize any of such employees;
(iv) without limiting the generality of paragraph
(iii) above, no certification or decertification is pending or was
filed within the past twelve months respecting the employees of the
Company and its subsidiaries and no certification or decertification
petition is being or was circulated among the employees of the
Company and its subsidiaries within the past twelve months;
(v) no agreement (including any collective bargaining
agreement), arbitration or court decision, decree or order which is
binding on the Company or its subsidiaries in any material way limits
or restricts the Company or its subsidiaries from relocating or
closing any of its operations;
(vi) the Company and its subsidiaries have not
experienced any organized work stoppage in the last five years;
(vii) there are no administrative proceedings,
lawsuits or complaints of discrimination (including but not limited
to discrimination based upon sex, age, marital status, race, national
origin, sexual orientation, religion, disability or veteran status)
pending or, to the Company's and the Shareholders' knowledge,
threatened, or to the Company's or Shareholders' knowledge, is any
investigation pending or threatened before the Equal Employment
Opportunity Commission or any federal, state or local agency or
court, or is any complaint or internal investigation pending with
regard to sexual or other harassment. There are no pending or
threatened claims with respect to the equal employment opportunity
practices or affirmative action practices of the Company and its
subsidiaries and, to the Company's and the Shareholders' knowledge,
no reasonable basis for any claim regarding such practices exists;
and
(viii) there are no individual agreements, employment
practices, policies or procedures, or other representations,
warranties written or oral, which have been made by the Company and
its subsidiaries to employees of the Company and its subsidiaries
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 4.14(g).
4.15 Intellectual Property. Schedule 4.15(a) (i) contains detailed
information (including where applicable the federal registration number and the
date of registration or application for registration and the name in which
registration was applied for) of (x) all of the Company's and its subsidiaries'
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 and
its subsidiaries' patents and copyrights and all pending applications therefor,
(y) all material computer software used by the Company and its subsidiaries in
the conduct of the Business and (z) all licenses and other trademarks and other
marks, trade names, material designs, plans, specifications, patents, patent
applications and
817104.6
20
other intellectual property rights of any kind of the Company and its
subsidiaries, whether or not registered, including, without limitation, all
rights of the Company and its subsidiaries to the use and ownership of the names
"Action Threaded Products, Inc.," and any and all other names associated with,
derived from or used in connection with the conduct of the Business (and all
trade names listed on Schedule 4.15(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 or
its subsidiaries use or propose to use in the Business of the Company and its
subsidiaries, and specifies whether such use is or will be pursuant to license,
sublicense, agreement or permission. The Company and its subsidiaries own (or,
as set forth on Schedule 4.15(a), possess enforceable licenses or other rights
to use) all of such Intellectual Property Rights. Except as set forth on
Schedule 4.15(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 any subsidiary or otherwise. Neither
the Company nor any Company subsidiary has any licenses granted by or to it and
no other agreements to which it is a party, relating in whole or in part to any
of the Intellectual Property Rights. Except as set forth on Schedule 4.15(c),
neither the Company nor any Company subsidiary has received notice of or has any
reason to believe that the Company's or its subsidiaries' 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 or any subsidiary alleging that the Company's or its subsidiaries'
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 and its subsidiaries.
4.16 Accounts Receivable and Accounts Payable. (a) The accounts
receivable appearing on the Reference Balance Sheet and all accounts receivable
created since that date through the Closing Date represent in all material
respects and will in all material respects represent valid obligations owing to
the Company and its subsidiaries, have arisen from bona fide transactions in the
ordinary course of business and are fully collectible by the Company and its
subsidiaries 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 4.16(a), and as provided in the preceding sentence, all accounts
receivable of the Company and its subsidiaries 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 and its subsidiaries are reasonable in amount.
(b) Except as expressly and fully set forth on Schedule
4.16(b), since the Reference Balance Sheet Date, the Company and its
subsidiaries have 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.
817104.6
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4.17 Inventory. Except as set forth on Schedule 4.17, the Inventories
of raw materials, in-process and finished products of the Company and its
subsidiaries 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 its subsidiaries and with GAAP consistently
applied. All Inventory disposed of by the Company and its subsidiaries since the
Reference Balance Sheet Date has been disposed of under terms consistent with
the Company's past practices.
4.18 Absence of Change or Event. Except as set forth on Schedule
4.18, since the Reference Balance Sheet Date, the Company and its subsidiaries
have conducted the Business only in the ordinary course consistent with past
practice and have not:
(a) experienced a material adverse change in the assets,
liabilities (contingent or otherwise), property, Business, condition (financial
or otherwise), operations, results of operations or prospects of the Company and
its subsidiaries;
(b) incurred any obligation or Liability, absolute,
accrued, contingent or otherwise, whether due or to become due, in excess of
Twenty-Five Thousand Dollars ($25,000) in the aggregate, except liabilities or
obligations incurred in the ordinary course of business and consistent with
prior practice;
(c) mortgaged, pledged or subjected to lien, restriction or
any other Encumbrance any of the property, businesses or assets, tangible or
intangible, of the Company and its subsidiaries, except for purchase money
liens;
(d) sold, transferred, leased to others or otherwise
disposed of any of its assets (or committed to do any of the foregoing),
including the payment of any loans owed, or the making of any loans, to any
officer, director, shareholder or other affiliate of the Company and its
subsidiaries, except for inventory sold to customers or returned to vendors and
payments to any non-affiliates on account of accounts payable or scheduled
payments in respect of indebtedness for money borrowed disclosed on the
Reference Balance Sheet or in the Schedules, or canceled, waived, released or
otherwise compromised any debt or claim other than in the ordinary course of
business, or any material right;
(e) issued, authorized for issuance or sold any capital
stock, notes, bonds or other securities, or any option, warrant or other right
to acquire the same, of the Company and its subsidiaries, or declared or paid
any dividend or made any other payment or distribution in respect of its capital
stock, or directly or indirectly redeemed, purchased or otherwise acquired any
of its capital stock or any option, warrant or other right to acquire such
capital stock.
(f) suffered any damage, destruction or loss (whether or
not covered by insurance) in an amount greater than Five Thousand Dollars
($5,000);
817104.6
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(g) 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);
(h) instituted or threatened any litigation, action or
proceeding before any Governmental Authority relating to it or its property;
(i) increased the compensation of any officer, director,
employee or agent of the Company and its subsidiaries, directly or indirectly,
including by means of any bonus, pension plan, profit sharing, deferred
compensation, savings, insurance, retirement, or any other employee benefit
plan, except in the case of any employee whose annual base compensation is less
than Twenty Thousand Dollars ($20,000);
(j) materially changed any of its business or accounting
accrual practices, including, without limitation, the amount of promotional or
advertising expenditures, investments, marketing, pricing, purchasing,
production, personnel, sales, returns or budgets, accounts receivable or
inventory reserves, or otherwise changed its policies with respect thereto;
(k) made or changed any election concerning Taxes or Tax
returns, changed an annual accounting period, adopted or changed any accounting
method, filed any amended Tax Return, entered into any closing agreement with
respect to Taxes, settled any Tax claim or assessment or surrendered any right
to claim a refund of Taxes or obtained or entered into any Tax ruling,
agreement, contract, understanding, arrangement or plan;
(l) allowed any Permit relating to the Business of the
Company and its subsidiaries to lapse or terminate;
(m) materially amended or terminated or received any threat
(not subsequently withdrawn) to terminate, any Contract involving more than Five
Thousand Dollars ($5,000);
(n) cancelled, compromised, waived or released any rights
or claims (or series of related rights or claims) either (i) involving an
affiliate of the Company or the Shareholders, (ii) involving more than Five
Thousand Dollars ($5,000), or (iii) outside the ordinary course of business
consistent with past practice;
(o) delayed or failed to repay when due any material
obligation of the Company and its subsidiaries;
(p) failed to operate the Business of the Company and its
subsidiaries in the ordinary course consistent with past practice so as to use
reasonable efforts to preserve the Business intact, to keep available to QDL the
services of its employees, and to preserve for QDL the goodwill of the Company's
suppliers, customers, distributors and others having business relations with it;
(q) granted any license or sublicense of any rights under
or with respect to any Intellectual Property Rights of the Company and its
subsidiaries;
817104.6
23
(r) lent to, or made other agreement with any employee of
the Company and its subsidiaries outside the ordinary course of business
consistent with past practice giving rise to any claim or right on its part
against the Person or on the part of the Person against it;
(s) amended its articles of incorporation or bylaws or
merged with or into or consolidated with any Person, subdivided, combined or in
any way reclassified any shares of its capital stock, or changed or agreed to
change the rights of its capital stock or the character thereof;
(t) 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
(u) engaged in any other material transaction other than in
the ordinary course of business.
4.19 Compliance with Law. The operations and activities of the
Company and its subsidiaries have complied and are in compliance in all respects
with all applicable federal, state, local and foreign laws, statutes, rules,
regulations, judicial and administrative decisions and consents, judgments,
orders, 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 and its subsidiaries.
4.20 Contracts and Commitments. (a) Schedule 4.20 sets forth each
written contract or agreement involving a liability or obligation of the Company
equal to or in excess of Ten Thousand Dollars ($10,000) and outstanding as of
the date hereof to which the Company is a party, other than ordinary course of
business purchase orders and other than any items listed on Schedule 4.9 and
Schedule 4.10.
(b) Except as set forth on Schedule 4.20, neither the
Company nor any Company subsidiary is a party to:
(i) any written arrangements (or group of related
written arrangements) for the lease of personal property or real
property providing for lease payments in excess of Five Thousand
Dollars ($5,000) per annum;
(ii) any written arrangement (or group of related
written arrangements) for the purchase or sale of raw materials,
commodities, supplies, products or other property or for the
furnishing or receipt of services, including, without limitation, any
customer or vendor contracts involving more than Five Thousand
Dollars ($5,000);
817104.6
24
(iii) any written arrangement (or group of related
written arrangements) concerning a partnership or joint venture with
any other Person;
(iv) any written arrangement (or group of related
written arrangements) under which it has created, incurred, assumed
or guaranteed (or may create, incur, assume or guarantee)
indebtedness (including capitalized lease obligations) involving more
than Five Thousand Dollars ($5,000) in principal amount or under
which it has imposed (or may impose) a security interest or lien on
any of its assets, tangible or intangible;
(v) any written arrangement (or group of related
written arrangements) concerning confidentiality or non-competition
arrangements;
(vi) any 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 and its subsidiaries), 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;
(vii) any Benefit Plan of the Company and its
subsidiaries and any written arrangement with any of its directors,
officers, stockholders or employees in the nature of a collective
bargaining agreement, employment agreement or severance agreement;
(viii) any other written arrangement (or group of
related written arrangements) under which the consequences of a
default or termination could have a Material Adverse Effect on the
Company and its subsidiaries;
(ix) 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
(x) any oral contract, agreement, past or present
practice or policy, or other arrangement with respect to any of the
matters referred to in the foregoing clauses (i) through (ix) and any
proposal (oral or written) to enter into any contract, agreement or
other arrangement with respect to any of the matters referred to in
the foregoing clauses (i) through (ix).
(c) The Company has delivered to QDL and/or Questron a
correct and complete copy of each written arrangement listed in Schedule 4.20
and has included as part of Schedule 4.20 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 4.20, with respect to each written arrangement listed, (A)
the written arrangement is legal, valid, binding, and enforceable obligation of
the Company and its subsidiaries (except as
817104.6
25
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
Shareholders' knowledge, no party has repudiated any term of the written
arrangement.
4.21 Insurance. (a) Schedule 4.21 sets forth (i) the Insurance
Policies presently in force and, without restricting the generality of the
foregoing, those covering the Company's and its subsidiaries' product liability
and their respective 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 and its subsidiaries' 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 and its subsidiaries 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 and its subsidiaries
under which the Company or its subsidiaries indemnify any other Person or are
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 4.21.
(b) The Insurance Policies set forth on Schedule 4.21 are
in full force and effect, all premiums which are due with respect thereto
covering all periods up to and including the Closing Date have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy. Such policies are sufficient for compliance with all requirements of Law
and all agreements to which the Company and its subsidiaries are 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 4.21;
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. Neither the
Company nor any Company subsidiary is in default under any of such policies or
binders. Neither the Company nor any Company subsidiary has 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 or its subsidiaries. Neither
the Company nor any Company subsidiary has been refused any insurance with
respect to the respective assets or operations of the Company and its
subsidiaries, nor has any such coverage been limited, by any insurance carrier
to which the Company or its subsidiaries have applied for any such insurance or
with which the Company or its subsidiaries have carried insurance during the
calendar years 1997
817104.6
26
and 1998. Neither the Company nor any Company subsidiary has received any notice
from their respective insurance carriers that any insurance premiums will be
materially increased in the future or that any insurance coverage listed on
Schedule 4.21 will not be available in the future on substantially the same
terms as now in effect.
4.22 Customers, Suppliers, Distributors, Etc. (a) No supplier,
customer, distributor or sales representative of the Company and its
subsidiaries 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 and its
subsidiaries or its usage of the services or products of the Company and its
subsidiaries or made any written claim that any item sold by the Company and its
subsidiaries failed to meet any specification with respect thereto or were
otherwise defective other than in the ordinary course of business or where such
claim does not involve an amount in excess of Five Thousand Dollars ($5,000).
Except as set forth on Schedule 4.22(a), the Company and the Shareholders have
no knowledge that any such supplier or customer intends to cancel or otherwise
terminate its relationship with the Company or to decrease materially its
services or supplies to the Company or their usage of the services or products
of the Company, as the case may be. Except as set forth on Schedule 4.22(a), the
Company and its subsidiaries have not sold goods to be delivered after Closing
to any customer on a consignment basis, and neither the Company nor any Company
subsidiary has agreed with any customer of the Company and its subsidiaries 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 4.22(b) sets forth the customer sales history
of all customers of the Company that made aggregate purchases from the Company
of more than Ten Thousand Dollars ($10,000) since April 1, 1997. Such
information is true and complete.
(c) Schedule 4.22(c) sets forth a complete and accurate
list of suppliers of the Company from whom the Company and its Subsidiaries have
made aggregate purchases in excess of Ten Thousand Dollars ($10,000) during the
fiscal years ended March 31, 1999, showing the approximate total purchase by the
Company and its Subsidiaries from each such supplier during such fiscal year.
4.23 Previous Sales; Warranties; Product Liability. (a) The Company
and its subsidiaries have not breached any express or implied warranties in
connection with the sale or distribution of goods or the performance of
services.
(b) Schedule 4.23(b) sets forth all warranty claims for
amounts in excess of Fifteen Thousand Dollars ($15,000), individually, asserted
against the Company and its subsidiaries, 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 March 31, 1997 and 1998.
817104.6
27
(c) Schedule 4.23(c) contains a complete and correct list
of (i) product liability claims made against the Company and its subsidiaries
since December 31, 1995 and (ii) any amounts paid by the Company and its
subsidiaries or the Company's insurance company with respect to such claims.
Except as set forth on Schedule 4.23(c), there is no action, suit, inquiry,
proceeding or investigation by or before any Governmental Authority pending or
threatened against or involving the Company and its subsidiaries relating to any
product manufactured or sold by the Company and its subsidiaries and alleged to
have been defective, or improperly designed or manufactured.
4.24 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 4.24, the Company and
the Shareholders warrant and represent that: (i) neither the Company, its
subsidiaries 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, its subsidiaries and the Real Property are
in compliance with all applicable Environmental Laws; (iii) the Company and its
subsidiaries have secured all permits, licenses, authorizations, registrations
and approvals necessary for the storage, use or handling of Hazardous Materials,
such approvals are currently in effect, and the Company and its subsidiaries are
in compliance therewith; (iv) there are no pending or, to the Company's and the
Shareholders' knowledge, threatened claims by any Governmental Authority or any
other person in respect of Environmental Laws affecting the Company, its
subsidiaries or the Real Property and neither the Shareholders nor the Company
and its subsidiaries have 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, its subsidiaries or conditions on the Real
Property are, or may be, in violation of any Environmental Laws; (v) 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
817104.6
28
occurred at, into, onto or under the Real Property or any other property which
may give rise to liability under any Environmental Law.
4.25 Absence of Certain Payments. Except as set forth on Schedule
4.25, neither the Company, its subsidiaries nor any director, officer, agent,
employee or other Person acting on behalf of the Company, its subsidiaries nor
any Shareholder 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, its subsidiaries nor any
current director, officer, agent, employee or other Person acting on behalf of
the Company and its subsidiaries have accepted or received any unlawful
contributions, payments, gifts or expenditures.
4.26 Additional Information. Schedule 4.26 accurately lists the
following (Schedule 4.26 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
and its subsidiaries;
(b) the names and addresses of every bank or other
financial institution in which the Company and its subsidiaries maintain 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 and its subsidiaries;
(d) the names of any Persons holding powers of attorney
from the Company and its subsidiaries and a summary statement of the terms
thereof; and
(e) all names under which the Company and its subsidiaries
have conducted any part of the Business or which they have otherwise used at any
time during the past five years.
4.27 Investment Intent. Each of the Shareholders on their own behalf
and in their individual capacities:
(i) represents and warrants that the Closing Shares,
the Additional Shares and the Deferred 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 Securities 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;
817104.6
29
(iii) understands that none of the Securities can be
sold, transferred or assigned unless registered by Questron (which
the Shareholders do not have the right to compel) pursuant to the
Securities Act and any applicable state securities laws, or unless an
exemption therefrom is available, and, accordingly, it may not be
possible for the Shareholders to liquidate their investment in the
Securities, and agrees not to sell, assign or otherwise transfer or
dispose of the Securities unless such Securities have been so
registered or an exemption from registration is available;
(iv) acknowledges that the following documents have
been provided to, and reviewed by, the Shareholders:
(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
Shareholders and the Shareholders' attorney and/or accountant and/or
representative. The Shareholders have had an opportunity to ask
questions and receive answers from Questron concerning its business
and assets of Questron and all such questions have been answered to
the full satisfaction of the Shareholders; and
(v) each Shareholder is an accredited investor, as
that term is defined in Regulation D under the Act.
4.28 Disclosure. (a) No representations or warranties by the
Shareholders and the Company in this Agreement, including the Exhibits and the
Schedules, and no statement contained in any document (including, without
limitation, the financial statements, certificates and other writings furnished
or to be furnished by the Shareholders or the Company to QDL and/or Questron or
any of their respective representatives pursuant to the provisions hereof or in
connection with the transactions contemplated hereby), contains or will contain
any untrue statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading.
(b) The Shareholders have furnished or caused to be
furnished to QDL and Questron complete and correct copies of all agreements,
instruments and documents set forth in the Schedules. Each of the Schedules is
true, complete and correct.
817104.6
30
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF QDL AND QUESTRON
QDL and Questron represent and warrant to the Company and the
Shareholders that:
5.1 Organization. Each of QDL and Questron is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware. Each of QDL and Questron has all requisite corporate power and
authority to carry on its respective business as now being conducted and to own
its respective properties and is duly licensed or qualified and in good standing
as a foreign corporation in each jurisdiction in which it is required to be so
licensed or so qualified, except where the failure to be so licensed or so
qualified would not have a Material Adverse Effect on such entity.
5.2 Corporate Authority; Due Execution. Each of QDL and Questron has
full corporate power and authority to enter into this Agreement and each Other
Document to which it is party and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by each of QDL and
Questron of this Agreement and each Other Document to which it is party have
been duly authorized by all requisite corporate action. This Agreement has been,
and each of the other agreements contemplated by this Agreement to which it is
party will be as of the Closing Date, duly executed and delivered by each of QDL
and Questron, and (assuming due execution and delivery by Shareholders and the
Company) this Agreement constitutes, and each of such other agreements when
executed and delivered will constitute, a valid and binding obligation of each
of QDL and Questron, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization or similar laws affecting creditors' rights generally
or by general equitable principles.
5.3 No Violation. Neither QDL nor Questron is subject to or bound by
any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) any certificate of incorporation or by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, bond, indenture, other instrument or
agreement, license, permit, trust, custodianship or other
restriction, or
(d) any judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator,
that would prevent or be violated by, or under which there would be a default as
a result of, the execution, delivery and performance by QDL or Questron of this
Agreement, and each Other Document and the consummation of the transactions
contemplated hereby and thereby. No consent, approval or authorization of or
declaration or filing with any Person is required for the valid
817104.6
31
execution, delivery and performance by QDL and Questron of this Agreement and
the consummation of the transactions contemplated hereby.
5.4 SEC Documents. Questron has furnished the Company and each
Shareholder with copies of the following reports (the "SEC Documents") filed by
Questron with the United States Securities and Exchange Commission (the "SEC"):
(a) Questron's Annual Reports on Form 10-KSB for the fiscal
years ended December 31, 1995, 1996 and 1997;
(b) Questron's Quarterly Reports on Form 10-QSB for the
quarterly periods ending March 31, 1998, June 30, 1998 and September
30, 1998;
(c) Questron's Proxy Statement, dated May 5, 1998, relating
to its 1998 Annual Meeting of Shareholders; and
(d) Questron's Forms 8-K and 8-K/A dated October 8, 1998
and December 8, 1998, respectively.
Questron is current in its obligations to file all periodic reports and proxy
statements with the SEC required to be filed under the Exchange Act and
applicable rules and regulations promulgated thereunder.
5.5 Questron Common Stock. All shares of Questron Common Stock
delivered to the Shareholders 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
SHAREHOLDERS, THE COMPANY, QDL AND QUESTRON
6.1 Conduct of Business Prior to the Closing Date. The Shareholders
and the Company agree with Questron and QDL that, between the date hereof and
the Closing Date:
(a) Except as otherwise contemplated by this Agreement or
permitted by written consent of QDL, the Shareholders shall cause the Company
and its subsidiaries to operate the Business only in the ordinary course
consistent with prior practice and not to:
(i) declare or pay any dividends, make any
distributions to the Shareholders or undertake any similar
transactions affecting the capital of the Company and its
subsidiaries;
817104.6
32
(ii) sell or dispose of any assets of the Company and
its subsidiaries other than the sale of inventory in the ordinary
course of business;
(iii) take any action of the nature referred to in
Section 4.18, except as permitted therein;
(iv) change the Company's and its subsidiaries'
banking or safe deposit arrangements;
(v) cause or permit indebtedness (which for purposes
of this clause (v) shall be deemed to exclude trade payables
consisting of accounts payable, deferred taxes and accrued expenses)
of the Company and its subsidiaries to exceed Ten Thousand Dollars
($10,000) in the aggregate; or
(vi) except as may be required by law, take any action
to amend or terminate any Benefit Plan or adopt any other plan,
program, arrangement or practice providing new benefits or
compensation to its employees.
(b) The Shareholders and the Company 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 and its
subsidiaries intact; to keep available to QDL the services of the present
officers and employees of the Company and its subsidiaries; to preserve for QDL
the good will of the Company's and its subsidiaries' suppliers, customers,
distributors, sales representatives and others having business relations with
the Company and its subsidiaries; and to inform QDL of, and consult with QDL on,
any key decisions involving any capital expenditure in excess of Fifty Thousand
Dollars ($50,000).
(c) The Shareholders shall cause the Company to maintain in
force the Insurance Policies referred to on Schedule 4.21 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.
817104.6
33
(e) The Shareholders and the Company shall give QDL prompt
notice of any event, condition or circumstance occurring from the date hereof
through the Closing Date that would constitute a violation or breach of any
representation or warranty of the Shareholders or the Company of which the
Shareholders or the Company have knowledge, whether made as of the date hereof
or as of the Closing Date, or that would constitute a violation or breach of any
covenant of the Company or the Shareholders contained in this Agreement.
6.2 Tax Covenants.
(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. With respect to any Taxes
relating to Tax returns for pre-Effective Date periods that are payable
subsequent to the Closing Date, to the extent that such Taxes exceed the amount
of tax liabilities identified on Schedule 2.2(a), the Shareholders shall timely
pay, or cause to be paid, on behalf of the Company, such Taxes when due or the
Shareholders shall pay, or cause to be paid on behalf of the Company in advance
of such due dates all amounts owned relating to such Tax returns in order to
allow the Company to pay such Taxes in a timely manner. The parties shall retain
all returns, schedules and workpapers, and all material records and other
documents relating thereto until the expiration of the statute of limitation
(and, to the extent notified by any party, any extensions thereof) of the
taxable years to which such returns and other documents relate and, unless such
returns and other documents are offered and delivered to the Company, the
Shareholders or QDL, as applicable, until the final determination of any Tax in
respect of such years. The Shareholders shall be entitled to retain any tax
refunds relating to the fiscal year ended March 31, 1999 or any prior year. Any
information obtained under this Section 6.2 shall be kept confidential, except
as may be otherwise necessary in connection with filing any Tax return, amended
return, or claim for refund, determining any Tax liability or right to refund of
Taxes, or in conducting or defending any audit or other proceeding in respect of
Taxes. Notwithstanding the foregoing, none of the Company, QDL or the
Shareholders, nor any of their affiliates, shall be required unreasonably to
prepare any document, or determine any information not then in its possession,
or the possession of its agents, representatives or affiliates, in response to a
request under this Section 6.2.
(b) The Company and/or the Shareholders shall be
responsible for any documentary transfer or gains Taxes and any sales, use, real
property, transfer or gains or other Taxes imposed by reason of the transfer of
the Shares to QDL, as provided hereunder and any deficiency, interest or penalty
asserted with respect thereto. The Company and/or the Shareholders shall pay the
fees and costs of obtaining, recording or filing all applicable conveyancing
instruments described in Section 7.7.
6.3 Expenses and Finder's Fees. QDL and Questron, on the one hand,
and the Company and the Shareholders, on the other, will bear their own expenses
in connection with this Agreement and its performance. The Company and the
Shareholders, on the one hand, and QDL and Questron, on the other, each
represent and warrant to the other that the negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on in such
a manner as not to give rise
817104.6
34
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 Shareholders and
the Company agree that until the Closing, QDL and Questron may conduct such
reasonable investigation with respect to the Business, business prospects, the
Shares, Liabilities (contingent or otherwise), properties, assets, results of
operations, employees and financial condition of the Company and its
subsidiaries as will permit QDL and Questron to evaluate the transactions
contemplated by this Agreement. Until the Closing, the Company and the
Shareholders shall afford QDL and Questron reasonable access to the premises,
Books and Records and business affairs of the Company and its subsidiaries (and,
to the extent directly relating thereto, of the Shareholders) 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 nine months ended December 31, 1998 as audited by
Questron'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
Shareholders 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 Shareholders, on the other, shall maintain all confidential
information received from the other parties in connection with its evaluation of
the transactions contemplated by this Agreement, including the independent audit
of the Company performed by QDL and/or Questron (the "Confidential Information")
in strict confidence, and shall take all precautions necessary to prevent
disclosure, access to, or transmission of the Confidential Information, or any
part thereof, to any third party. Each of QDL, Questron, the Company, its
subsidiaries and the Shareholders may make limited disclosure of Confidential
Information to its representatives and to such other persons as need to know for
the purpose of preparing for and negotiating this Agreement and in connection
with the consummation of the purchase and sale contemplated hereby, including
arranging QDL's financing in connection with the purchase, provided such persons
are informed of and bound by QDL's and Questron's confidentiality obligations
hereunder. In the event the Closing does not occur for any reason, each of QDL,
and Questron, on the one hand, and the Company, its subsidiaries and the
Shareholders, on the other hand, shall, promptly upon the other parties'
request, return all copies and recordings of the Confidential Information in its
possession or under its control and delete all records thereof in any data
storage system maintained by it. For the purposes of this Section 6.4,
Confidential Information shall not include information which (a) the holder can
reasonably demonstrate was already in the holder's possession, provided that
such information is not known by the holder to be subject to another
confidentiality agreement with, or other obligation of secrecy to another party,
(b) becomes generally available to the public other than as a result of a
disclosure by the holder or the holder's directors, officers, employees, agents
or advisors, or (c) becomes available to the holder on a non-confidential basis
from a source other than the Shareholders, the Company, its subsidiaries, 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
817104.6
35
6.4 or otherwise shall prohibit the holder from making disclosure of
Confidential Information to the extent required by Law, rule or regulation,
provided that the holder shall give the other prior notice as to the nature of
the required disclosure so as to provide the other the opportunity to challenge
the need for such disclosure.
(b) Upon execution of this Agreement, the Company shall
supply QDL with a correct and complete list of all Persons to whom, to the
knowledge of the Company and the Shareholders, Confidential Information has been
supplied over the past five (5) years. The Company agrees to use its best
efforts to retrieve, procure and deliver to QDL all Confidential Information
previously provided to any Person or prospective purchaser of any assets,
business or capital stock of the Company immediately upon execution of this
Agreement.
6.5 No Solicitation. The Shareholders, the Company and its
subsidiaries shall not, and each shall direct their respective affiliates,
representatives and agents and the Company's and its subsidiaries' 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 and its subsidiaries or enter into any agreement with respect thereto.
The Company, its subsidiaries and the Shareholders will promptly communicate to
Questron the terms of any proposal and the identity of the Person making such
proposal which they may receive in respect of all such transactions prohibited
by the foregoing.
6.6 Employees. (a) During the period between the date hereof and the
Closing Date, the Company and its subsidiaries shall use their best efforts to
keep available current employees of the Company and its subsidiaries for
employment by QDL. At the Closing, QDL shall offer employment, effective
immediately upon the Closing, to the employees of the Company and its
subsidiaries 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) With respect to the Benefit Plans listed on Schedule
4.14(b), the Company and QDL shall at the Closing take such reasonable action
and execute such reasonable documents as shall be necessary and proper to
transfer the sponsorship of such Benefit Plans, together with the trusts assets
relating thereto, from the Company or an ERISA Affiliate to QDL.
6.7 Press Releases. Except as required by law or stock exchange
regulation, any public announcements by the Company, its subsidiaries or the
Shareholders, 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.
817104.6
36
6.8 Transitional Assistance. The Company and the Shareholders shall
reasonably cooperate with and assist QDL in the orderly transfer of the Business
of the Company and its subsidiaries 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 and its subsidiaries.
6.9 Conditions. The Company and the Shareholders shall use their best
efforts to fulfill or cause the fulfillment of the conditions set forth in
Article 7. QDL and Questron shall use their best efforts to fulfill or cause the
fulfillment of the conditions set forth in Article 8.
6.10 Rule 144. Following the Closing Date, Questron agrees to use
commercially reasonable efforts to cooperate with the Shareholders with respect
to permitted sales of Questron Common Stock by the Shareholders under Rule 144
of the Exchange Act.
6.11 SEC Filings. Questron will provide the Shareholders 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 Balance Sheets. The Company, at Questron's cost and expense,
prepared and delivered to Questron, for its review and approval on April 23,
1999, (i) an unaudited balance sheet of the Company as at March 31, 1999 (the
"March 31, 1999 Balance Sheet"), which was prepared on a basis consistent with
the Reference Balance Sheet, and (ii) the Company's calculation, set forth in
reasonable detail of Stated Net Debt as at March 31, 1999.
6.13 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, 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.
6.14 Millennium Capability. Except as set forth on Schedule 6.14, to
the knowledge of the Company and the Shareholders, all of the Company's
Technology (as defined below) is Year 2000 Compliant (as defined below). For
purposes of this Section 6.14, "Technology" includes, without limitation, all
computer hardware, software and network components; all communications systems
and equipment; and all machinery, equipment and devices containing
microprocessors. For purposes of this Agreement, "Year 2000 Compliant" means
that the Technology must correctly process date data within and between the 20th
and 21st centuries, so that (a) no value for a calendar date (including 9/9/99)
will cause interruptions in normal operation; (b) all manipulations of calendar-
related data (dates, durations, days of week, etc.) will produce desired results
for all valid
817104.6
37
date values; (c) date elements in interfaces and data storage permit specifying
century to eliminate date ambiguity; (d) for any date element represented
without century, the correct is unambiguous for all manipulations involving that
element; and (e) the Year 2000 must be recognized as a leap year without
interruption to normal operations or generation of erroneous results.
ARTICLE 7
CONDITIONS PRECEDENT OF QDL AND QUESTRON
QDL and Questron need not consummate the transactions contemplated by
this Agreement unless the following conditions shall be fulfilled or waived by
QDL or Questron in their sole discretion:
7.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of the
Company and the Shareholders contained in this Agreement and in any certificate
or document delivered to QDL and/or Questron pursuant hereto shall be deemed to
have been made again at and as of the Closing Date and shall then be true in all
material respects, except to the extent that any such representation or warranty
is made as of a specified date, in which case such representation or warranty
shall have been true in all material respects as of such date, and (b) the
Company and the Shareholders shall have performed and complied with all material
agreements and conditions required by this Agreement to be performed or complied
with by the Company and the Shareholders prior to or on the Closing Date, and
QDL and/or Questron shall have been furnished with certificates of the Company
and the Shareholders, dated the Closing Date, certifying to the effect of
clauses (a) and (b) of this Section 7.1.
7.2 Closing Certificates. QDL shall have received (A) a duly executed
certificate from an authorized officer of the Company with respect to (i) the
Company's articles of incorporation and bylaws, (ii) resolutions of the
Company's board of directors and shareholders with respect to the authorization
of this Agreement and the other agreements contemplated hereby, and (iii) the
incumbency of the executing officers of the Company, and (B) a copy of the
certificate of incorporation of the Company as certified by the Secretary of
State of the State of Illinois and a certificate of existence and good standing
as of a recent date from the Secretary of State of the State of Illinois.
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 Xxxxxxx & Xxxxxxxxxx, counsel for the
Shareholders and the Company, substantially in the form attached hereto as
Exhibit C.
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
817104.6
38
commenced, and no action, suit or proceeding by any Governmental Authority shall
have been threatened, against QDL, Questron, the Shareholders, the Company or
any of the principals, officers or directors of any of them, seeking to
restrain, prevent or change the transactions contemplated hereby or questioning
the legality or validity of any such transactions or seeking damages in
connection with any such transactions.
7.6 Consents. Except as set forth on Schedule 7.6, all consents of
third parties, including, without limitation, any filing or filings required by
Section 6.13, 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 6.13), regulatory agencies
(including non-governmental self-regulatory agencies) or other entities which
regulate the business of QDL, Questron, the Shareholders or the Company
necessary on the part of QDL, Questron, the Shareholders or the Company, to the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and to permit the continued operation of the
respective businesses of QDL, Questron and the Company in substantially the same
manner immediately after the Closing Date as theretofore 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 Shareholders shall have obtained and/or
executed, as applicable, and delivered to QDL:
(i) any required consents from landlords under the
Real Property Leases;
(ii) an Assignment and Assumption of Lease, with
respect to each of the Real Property Leases, 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) to the extent in written or other deliverable
form and not previously delivered, all copies of Intellectual
Property or other secret, proprietary or confidential;
(v) all cash and cash equivalents of the Company and
any subsidiary;
(vi) all Books and Records of the Company and any
subsidiary (QDL shall be granted access to such Books and Records
immediately after Closing);
(vii) 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 and any subsidiary's
facilities and Business;
817104.6
39
(viii) such changes relating to the bank accounts and
safe deposit boxes of the Company and any Subsidiary 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; and
(ix) such other certificates, documents, instruments
and agreements as Questron shall deem necessary in its reasonable
discretion in order to effectuate the transactions contemplated
herein, in form and substance reasonably satisfactory to Questron.
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 Xxxx Xxxxxx.
7.9 Non-Competition Agreements. QDL shall have received from each of
the Majority Shareholders 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 and its
subsidiaries.
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE PRINCIPALS
The Company and the Shareholders need not consummate the transactions
contemplated hereby unless the following conditions shall be fulfilled on or
prior to the Closing:
8.1 Representations and Warranties. Except as otherwise contemplated
or permitted by this Agreement, (a) the representations and warranties of QDL
and Questron contained in this Agreement or in any certificate or document
delivered to the Company and the Shareholders 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.
817104.6
40
8.2 Closing Certificates. The Company and the Shareholders 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.
8.3 No Actions. No action, suit, or proceeding before any court,
Governmental Authority, administrative agency or arbitrator shall be pending, no
investigation by any Governmental Authority shall have been commenced, and no
action, suit or proceeding by any Person shall have been threatened, against the
Company and the Shareholders seeking to restrain, prevent, or change the
transactions contemplated hereby or questioning the legality or validity of any
such transactions or seeking damages in connection with any such transactions.
8.4 Consents. All consents of third parties including, without
limitation, any filing or filing required by Section 6.12, 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 6.12), regulatory agencies (including non-governmental
self-regulatory agencies) or other entities which regulate the Business of the
Company, necessary on the part of the Company and the Shareholders, to the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, other than routine post-closing notifications
or filings, shall have been obtained or effected or any applicable waiting
period shall have expired or terminated.
8.5 Opinion of Counsel. The Shareholders 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 F.
8.6 No Material Adverse Change. There shall have been no material
adverse change in the financial condition, assets, liabilities (contingent or
otherwise), results of operations or business of Questron and its subsidiaries.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by the Company and the Shareholders. Effective
only from and upon the occurrence of the Closing, and subject to Section 9.3
below, the Company and each of the Majority Shareholders hereby agrees to
jointly and severally and the Minority Shareholders agree to severally defend,
indemnify and hold harmless QDL, Questron and their successors, assigns and
817104.6
41
affiliates (collectively, the "Questron Indemnitees") from and against any and
all losses, deficiencies, liabilities, damages, assessments, judgments, costs
and expenses, including reasonable attorneys' fees (both those incurred in
connection with the defense or prosecution of the indemnifiable claim and those
incurred in connection with the enforcement of this provision) including,
without limitation, Environmental Liabilities and Costs (collectively, "Questron
Losses"), caused by, resulting from or arising out of:
(a) (i) breaches of representation or warranty under this
Agreement on the part of the Company or any Shareholder; and (ii)
failures by the Company and any of the Shareholders to perform or
otherwise fulfill any undertaking or other agreement or obligation
under this Agreement;
(b) any recalls, warranty claims, returns, or product
liability with respect to sales by the Company and its subsidiaries
prior to the Closing Date or included in the finished goods inventory
as of the Closing Date which exceed the amount of recalls, warranty
claims, returns and product liability the Company and its
subsidiaries historically incurred as reflected in the Company's
financial statements delivered to QDL pursuant to Section 4.11;
(c) any and all Taxes imposed on the Company and its
subsidiaries with respect to the period prior to the Effective Date
to the extent that such income Taxes exceed the amount of Tax
liabilities identified on Schedule 2.2(a) and the amount of all other
Taxes reflected on the March 31, 1999 Balance Sheet;
(d) 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;
(e) the failure to collect in full any accounts receivable
of the Company and its subsidiaries within four (4) months following
the Closing in excess of any reserves reflected in the Company's
financial statements delivered to QDL pursuant to Section 4.11;
(f) the maintenance, amendment or termination of any
Benefit Plan of the Company and its subsidiaries or out of any
obligations under any such plan; and
(g) 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
Shareholders thereof, provided further, however, that the failure to so notify
the Shareholders shall not reduce or affect the Shareholders' obligations with
respect thereto except to the extent that the Shareholders are materially
prejudiced thereby. Subject to rights of or duties to any insurer or other third
Person having liability therefor, the Shareholders shall have the right promptly
upon receipt of such notice (after acknowledging responsibility for such
Questron
817104.6
42
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 Shareholders shall have exercised their
right to assume such control, QDL and/or Questron may, in their sole discretion
and at their expense, employ counsel to represent them (in addition to counsel
employed by the Shareholders) in any such matter. So long as the Company and the
Shareholders are contesting any such Questron Indemnified Claim in good faith,
QDL, Questron and each other Questron Indemnitee shall not pay or settle any
such Questron Indemnified Claim. Notwithstanding the foregoing, QDL shall have
the right to offset any Questron Indemnified Claims and/or Questron Losses
against the Deferred Purchase Price.
9.2 Indemnification by QDL and Questron. 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 Shareholders and their respective successors, assigns and
affiliates (collectively, "Company Indemnitees") from and against any and all
losses, deficiencies, liabilities, damages, assessments, judgments, costs and
expenses, including reasonable attorneys' fees (both those incurred in
connection with the defense or prosecution of the indemnifiable claim and those
incurred in connection with the enforcement of this provision) (collectively,
"Company Losses"), resulting from or arising out of:
(a) breaches of representation and warranty hereunder on
the part of QDL and Questron and failures by QDL and Questron to
perform or otherwise fulfill any undertaking or agreement or
obligation hereunder; and
(b) 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 Shareholders; provided, however, that if QDL
and Questron shall have exercised their right to assume such control, the
Shareholders may, in their sole discretion and at their expense, employ counsel
to represent the Company Indemnitees (in addition to counsel employed by QDL and
Questron) in any such matter. So long as QDL and Questron are contesting any
such Company Indemnified Claim in good faith, the Company Indemnitees shall not
pay or settle any such Company Indemnified Claim.
817104.6
43
9.3 Limitation on Liability. (a) The aggregate liability of the
Shareholders under this Article 9 shall not exceed the aggregate amount of the
consideration actually received by the Shareholders 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
4.24,
(b) The aggregate liability of QDL and Questron under
Sections 9.2(a) and 9.2(b) shall in no event exceed One Million Eight Hundred
Thousand Dollars ($1,800,000).
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 Shareholders contained in Sections 4.4, 4.5,
4.7, 4.11 and 4.24 shall survive the Closing Date without limitation, and any
representation or warranty of the Company and the Shareholders contained in
Section 4.13 (Tax Matters) shall survive until the expiration of one year after
the expiration of the applicable statute of limitations (provided that, if any
Shareholder or the United States Internal Revenue Service or other taxing
authority have agreed to extend the applicable statute of limitations beyond any
such period, then in such case such representations and warranties shall survive
to the date on which such agreement to extend expires).
ARTICLE 11
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 Shareholder 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.
817104.6
44
12.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given upon receipt of: hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
(i) If to Shareholders or the Company, to the
addresses listed on Schedule 1.1:
(with a copy to)
Xxxxxxx & Xxxxxxxxxx
Suite 300
000 Xxxxx XxXxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxx X. Xxxxx III, Esq.
Telecopier: 000-000-0000
Telephone: 000-000-0000
(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.
817104.6
45
(b) Each of the Company, the Shareholders, QDL and Questron
hereby irrevocably and unconditionally consent to the exclusive jurisdiction of
the courts of the State of Delaware and the United States District Court for the
District of Delaware for any action, suit or proceeding arising out of or
relating to this Agreement, the Other Documents or the transactions contemplated
hereby and thereby, and agrees not to commence any action, suit or proceeding
related thereto except in such courts. Each of the Company, the Shareholders,
QDL and Questron further hereby irrevocably and unconditionally waive any
objection to the laying of venue of any lawsuit, claim or other proceeding
arising out of or relating to this Agreement in the courts of the State of
Delaware or the United States District Court for the District of Delaware,
hereby further irrevocably and unconditionally waive and agree not to plead or
claim an inconvenient forum, and further covenant and agree not to institute any
action or proceeding in any jurisdiction other than Delaware. Each of the
Company, the Shareholders, QDL and Questron further agree that service of any
process, summons, notice or document by U.S. registered mail to its address set
forth above shall be effective service of process for any action, suit or
proceeding brought against it in any such court.
12.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12.6 Headings; Schedules. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. All references to "Schedules" shall
mean the disclosure schedules heretofore delivered by the Company and the
Shareholders to QDL and Questron.
12.7 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto and the documents referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
12.8 Amendment and Modification. This Agreement may be amended or
modified only by written agreement of the parties hereto.
12.9 Binding Effect; Benefits. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns; nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto and their
respective successors and assigns (and, to the extent provided in Sections 9.1
and 9.2, the other Questron Indemnitees and Company Indemnitees) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
12.10 Assignability. This Agreement shall not be assignable by any
party hereto without the prior written consent of the other parties provided
that QDL and Questron may assign its rights under the Agreement to any affiliate
of QDL and Questron.
46
817104.6
[signature page follows]
817104.6
47
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
ACTION THREADED PRODUCTS, INC.
By /s/ Xxxxxx X. Xxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Chairman
SHAREHOLDERS:
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------
Xxxxxxx X. Xxxxxxx
/s/ Xxxxxx X. Xxxxxx
---------------------------------
Xxxxxx X. Xxxxxx
/s/ Xxxxxx X. Xxxxx
---------------------------------
Xxxxxx X. Xxxxx
/s/ Xxxxxxx X. Xxxxxx
---------------------------------
Xxxxxxx X. Xxxxxx
817104.6
