Exhibit 10.19
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ASSET PURCHASE AGREEMENT
By and Between
QUESTRON TECHNOLOGY, INC.,
QUESTRON DISTRIBUTION LOGISTICS, INC.,
AFCOM, INC.
and
THE SHAREHOLDERS OF AFCOM, INC.
SIGNATORIES HERETO
Dated as of January 29, 1999
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TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS....................................................................1
1.1 Definitions....................................................................1
ARTICLE 2 PURCHASE AND SALE OF ASSETS....................................................6
2.1 Acquired Assets................................................................6
2.2 Excluded Assets................................................................7
2.3 Assumption and Exclusion of Certain Liabilities................................7
2.4 Purchase Consideration and Payment for Purchased Assets........................7
2.5 Transactions on the Closing Date...............................................9
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..................................................................12
4.3 Subsidiaries and Equity Investments...........................................12
4.4 Capitalization................................................................12
4.5 Ownership of Shares...........................................................12
4.6 Title to Acquired Assets......................................................12
4.7 Acquired Assets Complete......................................................12
4.8 No Violation..................................................................13
4.9 Litigation....................................................................13
4.10 Intentionally Omitted.........................................................14
4.11 Real Property.................................................................14
4.12 Non-Real Estate Leases........................................................15
4.13 Financial Statements..........................................................15
4.14 Books and Records.............................................................16
4.15 Tax Matters...................................................................16
4.16 Employee Matters..............................................................17
4.17 Intellectual Property.........................................................20
4.18 Accounts Receivable and Accounts Payable......................................21
4.19 Inventory.....................................................................21
4.20 Absence of Change or Event....................................................21
4.21 Compliance with Law...........................................................23
4.22 Contracts and Commitments.....................................................24
4.23 Insurance.....................................................................25
4.24 Intentionally Omitted.........................................................26
4.25 Customers, Suppliers, Distributors, Etc.......................................26
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4.26 Previous Sales; Warranties; Product Liability.................................27
4.27 Environmental Matters.........................................................27
4.28 Absence of Certain Payments...................................................28
4.29 Additional Information........................................................28
4.30 Investment Intent.............................................................29
4.31 Disclosure....................................................................30
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF QDL
AND QUESTRON..................................................................30
5.1 Organization..................................................................30
5.2 Corporate Authority; Due Execution............................................31
5.3 No Violation..................................................................31
5.4 SEC Documents.................................................................31
5.5 Questron Common Stock.........................................................32
ARTICLE 6 CERTAIN COVENANTS AND AGREEMENTS OF
SHAREHOLDERS, THE COMPANY, QDL AND QUESTRON...................................32
6.1 Conduct of Business Prior to the Closing Date.................................32
6.2 Tax Covenants.................................................................33
6.3 Expenses and Finder's Fees....................................................34
6.4 Access to Information and Confidentiality.....................................34
6.5 No Solicitation...............................................................35
6.7 Press Releases................................................................36
6.8 Transitional Assistance.......................................................36
6.9 Reserved......................................................................36
6.10 Conditions....................................................................36
6.11 Rule 144......................................................................37
6.12 SEC Filings...................................................................37
6.13 Name Change...................................................................37
ARTICLE 7 CONDITIONS PRECEDENT OF QDL AND QUESTRON......................................37
7.1 Representations and Warranties................................................37
7.2 Closing Certificates..........................................................37
7.3 Due Diligence.................................................................38
7.4 Opinion of Counsel............................................................38
7.5 No Actions....................................................................38
7.6 Consents......................................................................38
7.7 Instruments and Possession....................................................38
7.8 Employment Agreement..........................................................39
7.9 Non-Competition Agreements....................................................39
7.10 Evidence of Termination of the Schedule 2.5(c) Debt. ........................39
7.11 Financing.....................................................................39
7.12 Financial Statements..........................................................40
7.13 Material Adverse Change.......................................................40
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ARTICLE 8 CONDITIONS PRECEDENT OF THE COMPANY
AND THE SHAREHOLDERS...........................................................40
8.1 Representations and Warranties.................................................40
8.2 Closing Certificates...........................................................40
8.3 No Actions.....................................................................40
8.4 Consents.......................................................................40
8.5 Instruments of Assumption......................................................41
8.6 Employment Agreement...........................................................41
8.7 Opinion of Counsel.............................................................41
8.8 No Material Adverse Change.....................................................41
ARTICLE 9 INDEMNIFICATION................................................................41
9.1 Indemnification by the Company and the Shareholders............................41
9.2 Indemnification by QDL and Questron............................................42
9.3 Limitation on Liability........................................................43
ARTICLE 10 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS......................................................................43
10.1 Representations, Warranties and Covenants......................................43
ARTICLE 11 NON-COMPETITION BY SHAREHOLDERS AND THE COMPANY................................44
11.1 Non-Compete....................................................................44
11.2 Remedies.......................................................................44
ARTICLE 12 MISCELLANEOUS..................................................................44
12.1 Cooperation....................................................................44
12.2 Waiver.........................................................................44
12.3 Notices........................................................................44
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.....................................................46
12.9 Binding Effect; Benefits.......................................................46
12.10 Assignability..................................................................47
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ASSET PURCHASE AGREEMENT, dated as of January 29, 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 AFCOM, Inc.,
a Florida 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. The Shareholders are the beneficial and record holders
of 100% of the issued and outstanding shares of capital stock of the Company.
2. QDL is a wholly-owned subsidiary of Questron.
3. The Company and the Shareholders desire to sell and QDL
desires to purchase the Business and the Acquired Assets (each as hereinafter
defined) of the Company upon the terms and subject to the conditions contained
in this Agreement.
NOW, THEREFORE, in reliance upon the respective
representations and warranties made herein and in consideration of the mutual
agreements and covenants herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
ARTICLE 1
DEFINITIONS
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 2.4(b)(ii).
"Accrued Interest" is defined in Section 2.4(a).
"Acquired Assets" is defined in Section 2.1.
"Actions" is defined in Section 4.9.
"Additional Cash Payment" is defined in Section 2.4(a).
"Additional Shares" is defined in Section 2.4(a).
"Agreement" is defined in the preamble to this Agreement.
"Anniversary Date" is defined in Section 2.4(a).
"Anniversary Date Price" is defined in Section 2.4(a).
"Assumed Liabilities" is defined in Section 2.3.
"Benefit Plans" is defined in Section 4.16.
"Books and Records" shall mean with respect to the Company all books
and records pertaining to the Acquired Assets, the Business, the customers,
distributors and suppliers of the Company, including Tax returns and other
information relevant to such returns, but not including minutes of shareholder
and directors meetings.
"Business" is defined in Section 2.1.
"Claims" shall mean with respect to the Company all claims, causes of
action, choses in action, rights of recovery and rights of set-off of whatever
kind or description against any Person or arising out of or relating to the
Acquired Assets or the Business of the Company.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Closing Shares" is defined in Section 2.4(a).
"Company" is defined in the preamble to this Agreement.
"Company Indemnified Claims" is defined in Section 9.2.
"Company Indemnitees" is defined in Section 9.2.
"Company Losses" is defined in Section 9.2.
"Confidential Information" is defined in Section 6.4.
"Contract" shall mean with respect to the Company any of the
agreements, contracts, Leases, notes, loans, evidences of indebtedness, purchase
orders, letters of credit, distributor agreements, franchise agreements,
undertakings, covenants not to compete, employment agreements, licenses,
instruments, obligations, commitments, policies, purchase and sales orders,
quotations and other executory commitments, in each case, related to, used or
useful in the Business of the Company, to which the Company is a party or to
which any of its assets are subject, whether oral or written, express or
implied.
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"Contract Rights" shall mean with respect to the Company all of the
Company's rights and obligations under the Contracts.
"Deferred Purchase Price" is defined in Section 2.4(b).
"Dispute Notice" is defined in Section 2.4(b)(ii).
"EBIT" is defined in Section 2.4(b).
"Effective Date" is defined in Section 3.1.
"Employment Agreement" is defined in Section 7.8.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
easement, security interest, encumbrance or other right of third parties.
"Environmental Laws" is defined in Section 4.27.
"ERISA" is defined in Section 4.16.
"ERISA Affiliate" is defined in Section 4.16(c).
"Excluded Liabilities" is defined in Section 2.3.
"Final Period" is defined in Section 4.31.
"Fixtures and Equipment" shall mean with respect to the Company all
of the furniture, fixtures, furnishings, machinery and equipment, spare parts,
supplies, vehicles and other tangible personal property owned by the Company and
located in, at or upon the Real Property of the Company as of the Reference
Balance Sheet Date, plus all additions, replacements or deletions since the
Reference Balance Sheet Date in the ordinary course of the Company's Business.
"GAAP" shall mean generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board consistently applied.
"Governmental Authorities" means the Federal government, or any state
or other political subdivision thereof, or any agency, court or body of the
Federal government, any state or political subdivision thereof, exercising
executive, legislative, judicial, regulatory or administrative functions.
"Hazardous Materials" is defined in Section 4.27.
"Immaterial Lease" is defined in Section 4.12.
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"Initial Cash Consideration" is defined in Section 2.4(a).
"Insurance Policies" shall mean with respect to the Company the
insurance policies issued by unaffiliated, third-party carriers relating to the
Acquired Assets and Business of the Company listed under the Company's name on
Schedule 4.23.
"Inventory" shall mean with respect to the Company (a) all of the
Company's inventories whether (x) in transit and owned by the Company or (y)
within the facilities of the Company held for resale or lease in the ordinary
course of the Company's Business to its customers and distributors, (b) all
office supplies and similar materials of the Company located in the facilities
of the Company and (c) all of the raw materials, work in process, finished
products and similar items of the Company, in the facilities of the Company or
wherever otherwise located.
"Laws" shall mean any law, statute, rule, regulation, ordinance,
standard, code, order, judgment, decision, writ, injunction, decree, award or
other governmental restriction including, without limitation, any policy or
procedure issued or enforced by any Governmental Authority.
"Leases" shall mean with respect to the Company all of the leases of
the Company (whether relating to real property, improvements thereon, vehicles,
machinery or equipment or other assets) listed under the Company's name on
Schedules 4.11(b) and 4.12 and all other leases relating to the Acquired Assets
or Business which are not required to be scheduled pursuant to this Agreement,
including the Immaterial Leases.
"Leased Real Property" is defined in Section 4.11(a).
"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 inaccrued,
due or to become due, liquidated or unliquidated.
"Material Adverse Effect" shall mean with respect to (A) the Company,
a material adverse effect on (i) the Acquired Assets, the Business or the
condition (financial or otherwise), properties, Liabilities, reserves, working
capital, earnings, results of operations, or business prospects, or relations
with customers, suppliers, distributors or employees of the Company or (ii) the
right or ability of the Company to consummate the transactions contemplated
hereby, and (B) with respect to QDL and Questron, a material adverse effect on
(i) the business or the condition (financial or otherwise) properties,
liabilities, reserves, working capital, earnings, results of operations, or
business prospects, or relations with customers, suppliers, distributions or
employees of QDL and Questron or (ii) the right or ability of such entities to
consummate the transactions contemplated hereby.
"Net Debt" is defined in Section 2.4(a).
"Non-Competition Agreements" is defined in Section 7.9.
"Non-Real Estate Leases" is defined in Section 4.12.
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"Owned Real Property" is defined in Section 4.11(a).
"Permits" shall mean with respect to the Company all licenses,
permits and other governmental authorization necessary to carry on the Business
of the Company.
"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.
"Purchase Price" is defined in Section 2.4.
"QDL" is defined in the preamble to this Agreement.
"Questron" is defined in the preamble to this Agreement.
"Questron Common Stock" is defined in Section 2.4(a).
"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 defined in Section 4.11(a).
"Real Property Leases" is defined in Section 4.11(a).
"Reference Balance Sheet" is defined in Section 4.13.
"Reference Balance Sheet Date" is defined in Section 4.13.
"Reference Income Statement" is defined in Section 4.13.
"Schedule 2.5(c) Debt" is defined in Section 2.5(c).
"Schedule 2.5(c) Creditors" is defined in Section 2.5(c).
"SEC" is defined in Section 5.4.
"SEC Documents" is defined in Section 5.4.
"Shares" is define din Section 2.4(a).
"Shareholders" is defined in the preamble to this Agreement.
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"Taxes" is defined in Section 4.15.
ARTICLE 2
PURCHASE AND SALE OF ASSETS
2.1 Acquired Assets. Subject to the terms and conditions of this
Agreement, the Company shall sell, assign, transfer, convey and deliver to QDL,
and QDL shall purchase from the Company on the Closing Date, all right, title
and interest of the Company in and to all of the Acquired Assets, free and clear
of all Encumbrances.
The Acquired Assets shall mean all of the Company's right,
title and interest in and to the assets, properties and rights of every type and
description, real and personal, tangible and intangible, wherever located, owned
by the Company from and after the Effective Date and on the Closing Date or in
which the Company has any interest whatsoever on the Closing Date relating to,
used or useful in the conduct of the Company's business of distributing
fasteners, hardware and related components and providing inventory logistics
management services for such products (the "Business"), all of which assets are
hereinafter referred to collectively as the "Acquired Assets", including,
without limitation:
(a) accounts and notes receivable, and, to the extent
transferable, deposits and prepaid expenses (including, without limitation, any
prepaid insurance premiums);
(b) cash and cash equivalents;
(c) all Owned Real Property;
(d) all Contract Rights;
(e) all of the Company's rights and obligations as lessees
under the Leases (including, without limitation, under the Real Property Leases,
the Non-Real Estate Leases and the Immaterial Leases);
(f) all Fixtures and Equipment;
(g) all Inventory of the Company;
(h) all Books and Records;
(i) all Intellectual Property Rights;
(j) all Claims;
(k) the Insurance Policies;
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(l) all Permits;
(m) all manufacturers', vendors' and suppliers' warranties
in respect of any item of property falling within the scope of the Acquired
Assets;
(n) all restrictive covenants and obligations of present
and former officers and employees of each of the Company (or any predecessor of
the Company) and of other individuals and corporations in favor of the Company
(or any predecessor of the Company);
(o) all of the Company's rights under and interests in the
Benefit Plans, collective bargaining and other employee agreements described on
Schedule 2.1(o) hereto;
(p) to the extent transferable, all environmental and, to
the extent related to the Business and the Acquired Assets other indemnification
rights inuring to the benefit of the Company under agreements to which the
Company is a party or is entitled to assert such rights; and
(q) all other assets used or held for use in the Business
by the Company, whether tangible or intangible, not expressly mentioned herein
which, as of the Closing Date, are owned by the Company, or in which the Company
has a right, title or interest.
2.2 Excluded Assets. Notwithstanding any other provision of this
Agreement, Questron shall not acquire (i) the accounts receivable from certain
of the Shareholders listed on Schedule 2.2, and (ii) the other assets listed on
Schedule 2.2 hereto.
2.3 Assumption and Exclusion of Certain Liabilities. QDL agrees to
assume, as of the Closing Date, (i) the Liabilities specifically listed on
Schedule 2.3(i) hereto, and (ii) all Liabilities of the Company which have been
incurred by the Company in the ordinary course of business since November 30,
1998 and which relate solely to any state of facts or circumstances arising
after November 30, 1998 (the Liabilities described in clauses in Section 2.3(i)
and Section 2.3(ii) are collectively referred to as the "Assumed Liabilities").
Except as specifically set forth in the preceding sentence, Questron is not
assuming, and shall not be liable for or bound by, any obligations or
Liabilities of the Company of any kind or nature, known or unknown, express,
implied, contingent or otherwise, including, but not limited to, (x) any
Liabilities of the Company or Business which are not expressly Assumed
Liabilities relating or arising from any state of facts or circumstances
existing or occurring on or prior to November 30, 1998, and (y) the Liabilities
listed on Schedule 2.3(iii) hereto (collectively, the "Excluded Liabilities").
2.4 Purchase Consideration and Payment for Purchased Assets. In
consideration of the sale, conveyance, transfer, assignment and delivery of the
Acquired Assets and Business by the Company to QDL on the Closing Date, and in
reliance upon the representations, warranties, covenants and agreements made
herein by the Company and the Shareholders, QDL shall pay to the Company a total
purchase price up to Seven Million Three Hundred Thousand Dollars ($7,300,000)
plus the Accrued Interest, which will consist of the Initial Purchase Price and
the Deferred Purchase Price, in each case as defined below .
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(a) Initial Purchase Price. The "Initial Purchase Price"
shall be paid at Closing and shall equal Five Million Eight Hundred Thousand
Dollars ($5,800,000), plus the Accrued Interest (defined below) payable as
follows: (i) wire transfers (or certified checks) from or on behalf of QDL to
the Company or its designees as specified in a written notice to QDL in an
aggregate amount equal to Five Million Ninety-Seven Thousand Eight Hundred
Eighteen Dollars ($5,097,818) (which amount is equal to Five Million Eight
Hundred Thousand Dollars ($5,800,000) less the stated debt of the Company net of
cash and cash equivalents to the Company being transferred hereunder as of
November 30, 1998 as reflected on Schedule 2.4 (a)(i) in the aggregate amount of
Four Hundred Fifty-Two Thousand One Hundred Eighty Two Dollars ($452,182) ("Net
Debt") less the deemed value of the Closing Shares (as defined below in clause
(ii))), plus interest (the "Accrued Interest") on such amount at a rate of 6%
per annum calculated from the Effective Date to the Closing Date (the "Initial
Cash Consideration") and (ii) delivery of Fifty Thousand (50,000) shares of
Questron's Common Stock, par value $0.0001 per share (the "Questron Common
Stock"), issued by Questron to the Shareholders on behalf of the Company, which
shall be deemed to have a value of Two Hundred Fifty Thousand Dollars ($250,000)
(the "Closing Shares"). On behalf of and at the direction of, the Company, each
Shareholder shall be issued the number of Closing Shares specified on Schedule
2.4(a)(ii). On the eighteen-month anniversary of the Effective 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, as reported by the Wall Street Journal for the ten
trading days period ending on the third trading day immediately prior to the
Anniversary Date. If the Anniversary Date Price is less than Five Dollars
($5.00) per share of Questron Common Stock, 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 Two Hundred Fifty Thousand Dollars ($250,000) calculated on the basis
of the Anniversary Date Price, and (ii) the number of Closing Shares (50,000)
(the "Additional Shares" and, together with the Closing Shares, the "Shares"),
or (B) QDL shall pay to the Shareholders by wire transfers (or certified checks)
an amount in cash equal to Two Hundred Fifty Thousand Dollars ($250,000) less
the amount equal to the number of Closing Shares (50,000) 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 2.4(a), each Shareholder shall be
issued Additional Shares in the proportion set forth on Schedule 2.4(a)(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. Each of QDL, the Shareholders and the Company acknowledge and agree
that all payments of cash and deliveries of shares of Questron Common Stock to
the Shareholders under this Section 2.4(a) shall be treated as if made directly
to the Company and, to the extent made directly to the Shareholders, are being
made at the direction of the Company for convenience purposes only. QDL and
Questron shall in no event have any further liability or obligations to the
Company with respect to any payments of cash or deliveries of shares of Questron
Common Stock to the Shareholders in accordance with this Section 2.4(a) after
such cash payments have been made and such shares have been delivered to the
Shareholders in accordance with this Section 2.4(a).
(b) Deferred Purchase Price. (i) The "Deferred Purchase
Price" will be an amount, subject to the limitations set forth below, equal to
six (6) times the difference between EBIT
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(as defined below) for the Business for the twelve (12) month period ending
December 31, 1999 and Nine Hundred Fifty Thousand Dollars ($950,000), provided
that the maximum amount payable to the Company pursuant to this Section 2.4(b)
shall not exceed One Million Five Hundred Thousand Dollars ($1,500,000). QDL
shall pay the Company or its designees or assigns the Deferred Purchase Price by
wire transfers (or certified checks) within fifteen (15) days of the date
Questron files its Annual Report in Form 10-K for the fiscal year ended December
31, 1999 with the Securities and Exchange Commission. For purposes of this
Section 2.4(b), "EBIT" shall mean the aggregate earnings before interest, income
taxes, amortization of goodwill and Questron's and QDL's rights under the
Non-Competition Agreements, and the allocation of corporate expenses associated
with the Business, any extraordinary expenses and payments made to Affiliates of
QDL or Questron which are related to the Business and are made other than in the
ordinary course of business. With respect to the calculations of EBIT,
depreciation of the Acquired Assets shall be determined in accordance with GAAP.
For the avoidance of doubt, EBIT shall be calculated solely with respect to the
AFCOM division of QDL and shall not include any operations of QDL not associated
with the Business. EBIT shall be calculated in accordance with GAAP,
consistently applied. EBIT shall be determined by QDL and reviewed by the
Company's and QDL's respective independent accountants.
(ii) In the event that either Shareholder disputes QDL's
calculation of EBIT in accordance with Section 2.4(b)(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.
2.5 Transactions on the Closing Date.
(a) At the Closing, the Company will deliver, or cause to
be delivered, to QDL and/or Questron the following:
(i) each of the certificates and documents
contemplated by Article 7; and
(ii) such other certificates, documents,
instruments and agreements as Questron shall deem necessary in its
reasonable discretion in order to effectuate the transactions
contemplated herein, in form and substance reasonably satisfactory to
Questron.
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(b) At the Closing, QDL and/or Questron will deliver to the
Company and/or the Shareholders the following:
(i) the Initial Cash Consideration;
(ii) the stock certificates representing the
Closing Shares;
(iii) each of the certificates and documents
contemplated by Article 8; and
(iv) such other certificates, documents,
instruments and agreements as the Company shall deem necessary in its
reasonable discretion in order to effectuate the transactions
contemplated herein, in form and substance reasonably satisfactory to
the Company.
(c) At the Closing, wire transfers from or on behalf of QDL
will be made to the entities listed on Schedule 2.5 (c) (the "Schedule 2.5(c)
Creditors") in the aggregate amounts set forth on Schedule 2.5(c), which amount
shall represent all of the outstanding indebtedness of the Company owed to those
Schedule 2.5 Creditors as of the Closing Date (the "Schedule 2.5(c) Debt").
(d) Restricted Securities. The shares representing the
Closing Shares and any Additional Shares shall be restricted securities under
the Securities Act of 1933, as amended (the "Securities Act"), will not have
been registered under the Act and may not be sold or transferred absent such
registration or unless an exception from registration is available. The
certificates evidencing such Shares shall bear a legend substantially in the
following form, in addition to any other legends required by applicable state
law:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS
OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (I)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT
APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH
ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE."
ARTICLE 3
CLOSING AND TERMINATION
3.1 Closing. The closing of the transactions provided for in Article
2 above (the "Closing") will take place at the offices of Battle ▇▇▇▇▇▇ LLP,
Park Avenue Tower, ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇.▇. ▇▇▇▇▇, at 10:00 A.M.
(local time) on or about February 2, 1999 (the
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"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 December 1, 1998 (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 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 February 15, 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 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:
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
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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. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida and
has all requisite corporate power and authority to carry on its Business as now
being conducted and to own the Acquired Assets and is duly licensed or qualified
and in good standing as a foreign corporation in each jurisdiction in which it
is required to be so licensed or so qualified, except where the failure to be so
licensed or so qualified would not have a Material Adverse Effect on the
Company.
4.3 Subsidiaries and Equity Investments. The Company has no
subsidiaries and does not own, directly or indirectly, any investments, capital
stock or other equity or ownership interests in any other corporations or
business enterprises and is not a partner in any partnership or a co-venturer in
any joint venture or other business enterprise. The term "subsidiary" means any
corporation or other entity of which the Company, directly or indirectly, owns
or controls capital stock or ownership interests representing either (i) more
than fifty percent (50%) of the general voting power under ordinary
circumstances of such corporation or entity, or (ii) if an entity other than a
corporation, more than fifty percent (50%) of the economic interest therein.
4.4 Capitalization. The authorized capital of the Company consists of
100,000 shares of common stock, no par value per share (the "Company Common
Stock"), of which 100,000 shares are issued and outstanding.
4.5 Ownership of Shares. Each Shareholder is the lawful record and
beneficial owner of that number of shares of Company Common Stock set forth
opposite such Shareholder's name on Schedule 1.1, which shares represent all of
the issued and outstanding shares of capital stock of the Company.
4.6 Title to Acquired Assets. Schedule 4.6 categorizes and lists the
Acquired Asset owned or leased by the Company. The Acquired Assets constitute
and include all the property, assets and rights related to, used, or useful in
the conduct of the Business of the Company in the ordinary course, consistent
with past practice. Except as set forth on Schedule 4.6, the Company owns free
and clear of any Encumbrances or, as specifically set forth on Schedule 4.6,
leases or has rights to use, the Acquired Assets set forth on Schedule 4.6. The
Acquired Assets are suitable for the purposes for which such assets are
currently used or are held for use, and are in adequate working condition,
subject to normal wear and tear, and are free from any known defects. Upon
consummation of the transactions contemplated hereby, QDL will acquire good
title to all of the
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Acquired Assets owned by the Company, free and clear of all Encumbrances, except
for Encumbrances specifically identified on Schedule 4.6.
4.7 Acquired Assets Complete. The Acquired Assets constitute all of
the properties and assets used or held for use in connection with the Business
and the conduct of the Business as currently conducted, and include all
properties, rights and assets necessary for the performance of any of the
Contracts and to permit QDL to conduct the Business in all material respects as
such Business is conducted on, and has been conducted prior to, the date of this
Agreement.
4.8 No Violation. Neither any Shareholder nor the Company is subject
to or bound by any provision of:
(a) any law, statute, rule, regulation or judicial or
administrative decision,
(b) (in the case of the Company) its articles of
incorporation or by-laws,
(c) any contract, mortgage, deed of trust, lease, note,
shareholders' agreement, proxy, bond, indenture, other instrument or
agreement, license, Permit, trust, custodianship or other
restriction, or
(d) any consent, judgment, order, writ, award, injunction
or decree of any Governmental Authority or arbitrator,
that would conflict with, prevent or be violated by or that would result in the
creation of any Encumbrance as a result of, or under which there would be a
default or right of termination, amendment, acceleration, revocation,
cancellation or suspension as a result of, the execution, delivery and
performance by any Shareholder or the Company of this Agreement or any Other
Document and the consummation of the transactions contemplated hereby and
thereby. 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.
4.9 Litigation. Except as set forth on Schedule 4.9, there is no
charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding, labor dispute, arbitral
action or, to the knowledge of the Company and the 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, the Assumed Liabilities, the Acquired Assets, or the operation of
the Business of the Company as currently operated and as proposed to be
operated, (ii) any Benefit Plan of the Company or any trust or other funding
instrument, fiduciary or administrator thereof or (iii) the transactions
contemplated by this Agreement. The Company is not in default with respect to
any judgment, order, writ, injunction or decree of any Governmental Authority,
and there are no unsatisfied judgments against the Company. 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
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available to QDL or Questron copies of all proceedings, correspondence and other
documents relating to each Action listed on Schedule 4.9. Each Action pending
or, to the knowledge of the Company and the Shareholders, threatened or that the
Company and the Shareholders have a reasonable basis to expect or anticipate
(whether or not disclosed on Schedule 4.9) is fully covered by insurance of
reputable and solvent insurance companies and each such applicable insurance
policy is in full force and effect and the Company has not received any notice
or, to the knowledge of the Company and the Shareholders, threat of
cancellation, limitation or non-coverage of such insurance policies.
4.10 Intentionally Omitted.
4.11 Real Property. (a) Schedule 4.11(a) sets forth, as of the date
of this Agreement, a complete and accurate list, in all material respects, of
(i) all of the real property owned by the Company (the "Owned Real Property"),
(ii) all of the real property that the Company has leased or subleased (the
"Leased Real Property," and together with the Owned Real Property, the "Real
Property") and an identification of the applicable leases, including all
amendments thereto and all material agreements incidental thereto (the "Real
Property Leases"), and (iii) all indebtedness secured by a lien, mortgage or
deed of trust on the Real Property and the outstanding principal amount of each
such lien, mortgage and deed of trust as of the date hereof. As of the date of
this Agreement, the Company has good and marketable fee title to its interest in
the Owned Real Property or a valid leasehold interest in the Leased Real
Property as provided in the applicable Real Property Lease, in each case, free
and clear of all Encumbrances and defects, except for (A) liens, mortgage or
deed of trust securing the Indebtedness referred to in clause (iii) of the
preceding sentence, and (B) taxes or assessments, special or otherwise, not due
and payable or being contested in good faith. There exists no default or event
of default or event, occurrence, condition or act (including the consummation of
the transactions contemplated hereby) on the part of the Company which, with the
giving of notice, the lapse of time, or the happening of any other event or
condition, would become a default or event of default under any indebtedness
secured by a lien, mortgage or deed of trust on the Real Property.
(b) Schedule 4.11(b) lists all of the Real Property Leases.
Each of the Real Property Leases is in full force and effect and constitutes a
valid leasehold interest in the respective Leased Real Property and has not been
assigned, modified, supplemented or amended except as set forth on Schedule
4.11(b). The Company has not received a written notice of any monetary default
or other material default under any Real Property Lease or has given or received
any notice for purpose of terminating any Real Property Lease; all rents due
under the Real Property Leases have been paid.
(c) With respect to each of the Real Property Leases, the
Company has adequate rights of ingress and egress for the operation of the
Business of the Company in the ordinary course. Except as set forth in Schedule
4.11(c), 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
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encroachment does not materially adversely affect the value or use of any such
building, structure, appurtenance or equipment.
(d) Except as set forth in Schedule 4.11(d), (i) no
condemnation proceeding is pending or threatened with respect to the Real
Property or any buildings, structures or appurtenances located thereon, and (ii)
none of the buildings, structures or appurtenances have been damaged or
destroyed, in whole or in part, as a result of any fire or other casualty, which
damage or destruction has not been fully repaired or restored.
(e) Except as set forth in Schedule 4.11(e), no interest of
the Company in any Real Property is subject to any right of first offer, first
refusal or right or option to purchase.
(f) The Company has all necessary Permits to carry on the
Business in the ordinary course. Except as set forth in Schedule 4.11(g), since
December 31, 1993 there has been no material construction or modifications to
the leased Real Property or the owned Real Property.
4.12 Non-Real Estate Leases. Schedule 4.12 lists all Acquired Assets
(other than Real Property) that are possessed by the Company under an existing
lease, including, without limitation, all vehicles, forklifts, machinery,
equipment, furniture, fixtures and computers, except for any lease under which
the aggregate annual payments (excluding Taxes) for the last twelve (12)
preceding months are less than Five Thousand Dollars ($5,000) (each, an
"Immaterial Lease"). Schedule 4.12 also lists the leases under which such
Acquired Assets are possessed. All of such leases (excluding Immaterial Leases)
are referred to herein as the "Non-Real Estate Leases." Each Non-Real Estate
Lease is in full force and effect and constitutes a valid leasehold interest in
such Acquired Assets, and has not been assigned, modified, supplemented or
amended except as set forth on Schedule 4.12.
4.13 Financial Statements. (a) The Shareholders and the Company have
heretofore furnished QDL and/or Questron with copies of the following financial
statements of the Company: (i) unaudited balance sheets as at September 30 for
each of 1995, 1996 and 1997, respectively, and as at December 31, 1997; (ii)
unaudited statements of operations for each of the years ended on September 30,
for 1995, 1996, 1997 and for the three months ended December 31, 1997; (iii) an
unaudited balance sheet (the "Reference Balance Sheet") as at November 30, 1998
(the "Reference Balance Sheet Date"); and (iv) an unaudited statement of
operations (the "Reference Income Statement") for the eleven (11) month period
ended November 30, 1998. Except as noted therein and except for normal year-end
adjustments with respect to the partial year financial statements, all such
financial statements are complete and correct, were prepared, to the knowledge
of the Company, in accordance with GAAP consistently applied throughout the
periods indicated except as otherwise set forth on Schedule 4.13 have been
prepared in accordance with the Books and Records of the Company, and present
fairly the financial position of the Company at such dates and the results of
its operations and cash flows for the periods then ended, subject to such
inaccuracies, if any, which are not material in nature or amount.
(b) 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
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(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) The Company has heretofore delivered true and complete
copies of all auditor letters to management or the board of directors of the
Company with respect to the audits of the Company for the preceding five fiscal
years of the Company.
4.14 Books and Records. 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. Such Books and Records of the
Company reflect all the material transactions and other material matters
required, to the knowledge of the Company, to be set forth under GAAP applied on
a consistent basis except as set forth on Schedule 4.13.
4.15 Tax Matters. (a) For purposes of this Agreement, "Tax" or
"Taxes" shall mean any federal, state, local, foreign or other taxes (including,
without limitation, income (net or gross), gross receipts, profits, alternative
or add-on minimum, franchise, license, capital, capital stock, intangible,
services, premium, mining, transfer, sales, use, ad valorem, payroll, wage,
severance, employment, occupation, property (real or personal), windfall
profits, import, excise, custom, stamp, withholding or estimated taxes), fees,
duties, assessments, withholdings or governmental charges of any kind whatsoever
(including interest, penalties, additions to tax or additional amounts with
respect to such items) relating to the income, operations or properties of the
Company.
(i) "Pre-Closing Periods" shall mean all Tax
periods ending on or before the Closing Date and, with respect to any
Tax period that includes but does not end on the Closing Date, the
portion of such period that ends on and includes the Closing Date;
(ii) "Returns" shall mean all returns,
declarations, reports, estimates, information returns and statements
of any nature regarding Taxes for any Pre-Closing Period required to
be filed by any Person and relating to the Company and its
subsidiaries;
(iii) "Code" shall mean the Internal Revenue Code
of 1986, as amended; and
(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 timely filed
when due in accordance with all applicable laws;
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(ii) all Taxes shown on the Returns have been or
will be timely paid when due;
(iii) the Returns completely, accurately, and
correctly in all material respects reflect the facts regarding the
income, properties, operations and status of any entity required to
be shown thereon.;
(iv) all Taxes which the Company is required by
law to withhold or collect have been in all material respects duly
withheld or collected, and have been timely paid over to the
appropriate governmental authorities to the extent due and payable;
(v) there is no action, suit, proceeding,
investigation, audit or claim currently pending, or to the Company's
and the Shareholders' knowledge, threatened, regarding any Taxes
relating to the Company for any Pre-Closing Period;
(vi) no Person has executed or entered into a
closing agreement pursuant to Code Section 7121 (or any comparable
provision of state, local or foreign law) that is currently in force
and determines the Tax liabilities of the Company;
(vii) there are no liens for any Tax on the assets
of the Company except liens which arise as a matter of law; and
(viii) there are no tax sharing agreements to which
the Company is now or, to Shareholders' knowledge, ever has been a
party which will survive the Closing.
4.16 Employee Matters. (a) Schedule 4.16 sets forth as of the date
hereof the name, date of hire, current annual compensation rate (including bonus
and commissions), title, current base salary rate and accrued bonus and vacation
of each present employee of the Company; and a list of any employment,
managerial, advisory, consulting, collective bargaining and severance agreements
or plans; employee confidentiality or other agreements protecting proprietary
processes, formulae or information; any employee handbook(s) and written
employment policies; any reports and/or plans prepared or adopted pursuant to
the Equal Employment Opportunity Act of 1972, as amended; any affirmative action
plans; and each employee benefit or compensation plan, agreement or arrangement
covering present or former employees, consultants or directors of the Company,
including "employee benefit plans" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), stock purchase, stock
option, fringe benefit, change in control, bonus and incentive or deferred
compensation plans, agreements, policies or other arrangements or funding
arrangements (collectively, the "Benefit Plans"), whether sponsored, maintained
or contributed to by the Company.
(b) For each Benefit Plan, except as set forth on Schedule
4.16, each of the following is true:
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(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) the financial statements of the Company
reflect in all material respects all employee liabilities arising
under such Benefit Plan in a manner satisfying the applicable
requirements (if any) of Statement of Financial Accounting Standards
("SFAS") Nos. 87, 88, 106 and 112;
(iii) there are no actions, suits or claims
(other than routine claims for benefits in the ordinary course)
pending, or to the Company's and the Company's and the Shareholders'
knowledge, threatened, and to the Company's and the Shareholders'
knowledge, there are no facts which could give rise to any such
material actions, suits or claims (other than routine claims for
benefits in the ordinary course);
(iv) none of the Shareholders, the Company, nor
any other party has, with respect to any such Benefit Plan, engaged
in a prohibited transaction, as such term is defined in Code Section
4975 or ERISA Section 406, which could subject the Company or QDL to
any Taxes, penalties or other material liabilities resulting from
prohibited transactions under Code Section 4975 or under ERISA
Sections 409 or 502(i);
(v) all Benefits Plans are in compliance in all
material respects with ERISA and the Code and each Benefit Plan may
be amended or terminated without obligation or liability to QDL and
Questron (other than those for which specific assets have been set
aside in a trust or other funding vehicle);
(vi) all contributions and insurance premiums
required as of the Closing Date have been paid;
(vii) 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;
(viii) 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
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(ix) the Company has delivered to QDL and/or
Questron current, accurate and complete copies of such Benefit Plan
(including the plan document, trust agreement and other funding or
insurance instruments relating thereto) and, to the extent
applicable, copies of the most recent: (A) determination letter and
any outstanding request for a determination letter; (B) summary plan
description and other written communications by the Company to its
employees concerning the extent of the benefits provided under any
Benefit Plan; (C) Form 5500 with attached schedules, financial
statements and actuaries statement with respect to the plan years
ending in fiscal years 1995, 1996 and 1997; (D) collective bargaining
agreements or other such contracts; and (E) the general notification
to employees of their "COBRA" rights under Code Section 4980B and
ERISA Sections 601-609 and the form of letter(s) distributed upon the
occurrence of a COBRA qualifying event for each Benefit Plan that is
a "group health plan" as defined in Code Section 5000(b)(1) and ERISA
Section 607(1).
(c) Neither the Company nor any entity which is considered
one employer with the Company under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate") sponsors or maintains (and has not sponsored or
maintained in the calendar years ending 1995, 1996, 1997 and 1998) an "employee
pension benefit plan" (within the meaning of Section 3(2) of ERISA) that is
subject to Title IV of ERISA or to the minimum funding requirements of Section
412 of the Code or Part 3 of Title I of ERISA.
(d) Neither the Company nor any ERISA Affiliate contributes
or is obligated to contribute (or in the past six years has been obligated to
contribute) to a "multiemployer plan" (within the meaning of Section 4001(a)(3)
of ERISA).
(e) The Company has no employee welfare benefit plans
(within the meaning of ERISA Section 3(1)) which provide benefits beyond
termination of employment except as required by applicable law.
(f) With respect to the Company, except as set forth on
Schedule 4.16(f), each of the following is true in all material respects:
(i) the Company is in compliance with all
applicable laws and agreements respecting employment and employment
practices, terms and conditions of employment and wages and hours and
occupational safety and health and is not engaged in any unfair labor
practice within the meaning of Section 8 of the National Labor
Relations Act, and there is no action, suit or legal, administrative,
arbitration, grievance or other proceeding pending or, to the
Company's and the Shareholders' knowledge, threatened, or, to the
Company's and the Shareholders' knowledge, is any investigation
pending or threatened against the Company relating to any employment
matter, and, to the Company's and the Shareholders' knowledge, no
basis exists for any such action, suit or legal, administrative,
arbitration, grievance or other proceeding or governmental
investigation;
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(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;
(iii) none of the employees of the Company is a
member of or represented by any labor union and, there are no
attempts of whatever kind and nature being made to organize any of
such employees;
(iv) without limiting the generality of paragraph
(iii) above, no certification or decertification is pending or was
filed within the past twelve months respecting the employees of the
Company and no certification or decertification petition is being or
was circulated among the employees of the Company within the past
twelve months;
(v) no agreement (including any collective
bargaining agreement), arbitration or court decision, decree or order
or governmental order which is binding on the Company in any material
way limits or restricts the Company from relocating or closing any of
its operations;
(vi) the Company has not experienced any
organized work stoppage in the last five years;
(vii) there are no administrative proceedings,
lawsuits or complaints of discrimination (including but not limited
to discrimination based upon sex, age, marital status, race, national
origin, sexual orientation, religion, disability or veteran status)
pending or, to the Company's and the 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 have been no claims with
respect to the equal employment opportunity practices or affirmative
action practices of the Company 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 to employees of the Company that commit QDL to retain
them as employees for any period of time subsequent to the Closing,
or to pay them severance if they are not retained, except as
otherwise provided by Law or as set forth on Schedule 4.16.
4.17 Intellectual Property. Schedule 4.17 (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) concerning (x) all of the Company's registrations
of trademarks and of other marks, trade names, brand names or other trade
rights, and all pending applications for any such registrations and all of the
Company's patents and copyrights and all pending applications therefor, (y) all
material computer software used by the Company in the
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conduct of its Business and (z) all other trademarks and other marks, trade
names and other trade rights and all other material trade secrets, material
designs, plans, specifications, patents, patent applications and other
intellectual property rights of any kind of the Company, whether or not
registered, including, without limitation, all rights of the Company to use and
ownership of the names "AFCOM" or "AFCOM, Inc.," and to the knowledge of the
Shareholders and the Company, all rights of the Company to exclusive use and
ownership of the names "AFCOM" or "AFCOM, 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 4.17) (all of the items
referred to in this clause (i) being "Intellectual Property Rights") and (ii)
identifies any Intellectual Property Rights that any third party owns and that
the Company uses or proposes to use in the Business of the Company, and
specifies whether such use is or will be pursuant to license, sublicense,
agreement or permission. The Company owns (or, as set forth on Schedule 4.17,
possesses enforceable licenses or other rights to use) all Intellectual Property
Rights now used or proposed to be used in its Business and has taken all
reasonably necessary or appropriate action to protect the Intellectual Property
Rights of the Company. Except as set forth on Schedule 4.17, no Person has a
right to receive a royalty or similar payment in respect of any Intellectual
Property Rights pursuant to any contractual arrangements entered into by the
Company or otherwise. The Company has no licenses granted by or to it and no
other agreements to which it is a party, relating in whole or in part to any of
the Intellectual Property Rights except as set forth on Schedule 4.17. Except as
set forth on Schedule 4.17, the Company has not received notice of nor has any
reason to believe that the Company's use of the Intellectual Property Rights is
interfering with, infringing upon or otherwise violating the rights of any third
party in or to such Intellectual Property Rights, and no proceedings have been
instituted against or notices received by the Company alleging that the
Company's use or proposed use of any Intellectual Property Rights infringes upon
or otherwise violates any rights of a third party in or to such Intellectual
Property Rights, which infringement or violation could have a Material Adverse
Effect on the Company.
4.18 Accounts Receivable and Accounts Payable. (a) The accounts
receivable appearing on the Reference Balance Sheet and all accounts receivable
created since that date through the Closing Date represent in all material
respects and will in all material respects represent valid obligations owing to
the Company, have arisen from bona fide transactions in the ordinary course of
business and are fully collectible by the Company in the ordinary course of
business; provided, however, that any doubtful accounts receivable equal, in the
aggregate, to Ten Thousand Dollars ($10,000) shall not be deemed material for
the purposes of this Section 4.18. Except as set forth on Schedule 4.18(a), and
as provided in the preceding sentence, all accounts receivable of the Company as
of the Closing Date 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.
(b) Except as expressly and fully set forth on Schedule
4.18(b), since the Reference Balance Sheet Date, the Company has paid all
accounts payable in the ordinary course of business in accordance with the terms
thereof, and have not delayed the payment thereof in contemplation of the
transactions provided in the Agreement or otherwise.
4.19 Inventory. Except as set forth on Schedule 4.19, the Inventories
of raw materials, in-process and finished products of the Company are in good
condition, conform in all material
-21-
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, to the knowledge of the
Company, with GAAP consistently applied except as set forth on Schedule 4.13.
All Inventory disposed of by the Company since the Reference Balance Sheet Date
has been disposed of under terms consistent with the Company's past practices.
4.20 Absence of Change or Event. Except as set forth on Schedule
4.20, since the Reference Balance Sheet Date, the Company has conducted its
business only in the ordinary course consistent with past practice and has not:
(a) experienced a material adverse change in the Acquired
Assets, Liabilities (contingent or otherwise), property, Business,
condition (financial or otherwise), operations, results of operations
or prospects of the Company;
(b) incurred any obligation or Liability, absolute,
accrued, contingent or otherwise, whether due or to become due, in
excess of Five Thousand Dollars ($5,000) 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, Business or assets,
tangible or intangible, of the Company;
(d) sold, transferred, leased to others or otherwise
disposed of any of its assets (or committed to do any of the
foregoing), including the payment of any loans owed, or the making of
any loans, to any officer, director, shareholder or other affiliate
of the Company, except for inventory sold to customers or returned to
vendors and payments to any non-affiliates on account of accounts
payable or scheduled payments in respect of indebtedness for money
borrowed disclosed on the Reference Balance Sheet or in the
Schedules, or canceled, waived, released or otherwise compromised any
debt or claim other than in the ordinary course of business, or any
material right;
(e) suffered any damage, destruction or loss (whether or
not covered by insurance) in an amount greater than Five Thousand
Dollars ($5,000);
(f) made or committed to make any capital expenditures or
capital additions or betterments in excess of an aggregate of Five
Thousand Dollars ($5,000);
(g) instituted or threatened any litigation, action or
proceeding before any Governmental Authority relating to it or its
property;
(h) issued, authorized for issuance or sold any capital
stock, notes, bonds or other securities, or any option, warrant or
other right to acquire the same, of the Company, or declared or paid
any dividend or made any other payment or distribution in respect of
its
-22-
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;
(i) increased the compensation of any officer, director,
employee or agent of the Company, directly or indirectly, including
by means of any bonus, pension plan, profit sharing, deferred
compensation, savings, insurance, retirement, or any other employee
benefit plan, except in the case of any employee whose annual base
compensation is less than Twenty Thousand Dollars ($20,000);
(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 to lapse or terminate;
(m) materially amended or terminated or received any threat
(not subsequently withdrawn) to terminate, any Contract;
(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;
(p) failed to operate the Business of the Company in the
ordinary course consistent with past practice so as to use reasonable
efforts to preserve the Business intact, to keep available to QDL the
services of its employees, and to preserve for QDL the goodwill of
the Company's suppliers, customers, distributors and others having
business relations with it;
(q) granted any license or sublicense of any rights under
or with respect to any Intellectual Property Rights of the Company;
-23-
(r) lent to, or made other agreement with any Company
employee outside the ordinary course of business consistent with past
practice giving rise to any claim or right on its part against the
Person or on the part of the Person against it;
(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; or
(t) engaged in any other material transaction other than in
the ordinary course of business.
4.21 Compliance with Law. The operations and activities of the
Company have complied and are in compliance in all respects with all applicable
federal, state, local and foreign laws, statutes, rules, regulations, judicial
and administrative decisions and consents, judgments, orders, awards, writs and
decrees of any court, governmental or regulatory body, administrative agency or
arbitrator, including, without limitation, health and safety statutes and
regulations and all environmental laws, including, without limitation, all
restrictions, conditions, standards, limitations, prohibitions, requirements,
obligations, schedules and timetables contained in the environmental laws or
contained in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder, the
failure of which could have a Material Adverse Effect on the Company.
4.22 Contracts and Commitments. (a) Except for Contracts listed on
Schedule 4.22, the Company is not a party to, or bound by, any Contract of any
kind to be performed, in whole or in part, after the Closing Date (i) pursuant
to which it is obligated to expend more than Ten Thousand Dollars ($10,000) in
any twelve-month period or that is not subject to cancellation on not more than
Thirty (30) days' notice by the Company without penalty or increased cost, or
(ii) with any affiliate of the Company or the Shareholders. There is not under
any Contract: (A) any existing material default by the Company or, to the
Company's and the Shareholders' knowledge, by any other party thereto, or (B)
any event which, after notice or lapse of time or both, would constitute a
material default by the Company or, to the Company's and the Shareholders'
knowledge, by any other party, or result in a right to accelerate, suspend or
terminate or result in a loss of rights of the Company. Schedule 4.22 lists the
following Contracts, agreements and other written arrangements to which the
Company is a party:
(i) 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);
-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 Benefit Plan of the Company 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;
(vii) any written arrangement with any of its directors,
officers, shareholders or employees or any member of any such
Person's immediate family (x) providing for the furnishing of
material services by, (y) providing for the rental of material real
or personal property from, or (z) otherwise requiring material
payments to (other than for services as officers, directors or
employees of the Company), any such Person or any corporation,
partnership, trust or other entity in which any such Person has a
substantial interest as a shareholder, officer, director, trustee or
partner;
(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;
(ix) any other written arrangement (or group of related
written arrangements) either involving aggregate 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).
(b) The Company has delivered to QDL and/or Questron a
correct and complete copy of each written arrangement listed in Schedule 4.22
and has included as part of Schedule 4.22 a brief summary of any such oral
contracts, agreements or other arrangements and any proposals (oral or written)
to enter into any such contracts, agreements or other arrangements. Except as
set forth on Schedule 4.22, with respect to each written arrangement listed, (A)
the written arrangement is legal, valid, binding, and enforceable obligation of
the Company (except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar laws
-25-
affecting creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law) and is in
full force and effect; (B) the written arrangement will continue to be legal,
valid binding obligation if the Company and enforceable (except as such
enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditors' rights generally and
(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law) and is in full force and effect on identical
terms following the Closing Date; and (C) to the Company's and the Shareholders'
knowledge, no party has repudiated any term of the written arrangement.
4.23 Insurance. (a) Schedule 4.23 sets forth (i) the Insurance
Policies presently in force and, without restricting the generality of the
foregoing, those covering the Company's product liability and its personnel,
properties, buildings, machinery, equipment, furniture, fixtures and operations,
specifying with respect to each such policy the name of the insurer, type of
coverage, term of policy, limits of liability, the expiration date, the policy
number and annual premium; (ii) the Company's premiums, deductibles and losses
in excess of Twenty-Five Thousand Dollars ($25,000), by year, by type of
coverage, for the calendar years 1995, 1996 and 1997 based on information
received from the Company's insurance carrier(s); (iii) all outstanding
insurance claims in excess of Ten Thousand Dollars ($10,000) by the Company for
damage to or loss of property or income which have been referred to insurers or
which the Company believes to be covered by commercial insurance; (iv) general
comprehensive liability policies carried by the Company for the calendar years
1996, 1997 and 1998, including excess liability policies; and (v) any
agreements, arrangements or commitments by or relating to the Company under
which the Company indemnifies any other Person or is required to carry insurance
for the benefit of any other Person. The Company has heretofore delivered to QDL
and/or Questron complete and correct copies of the Insurance Policies and
agreements set forth on Schedule 4.23.
(b) The Insurance Policies set forth on Schedule 4.23 are
in full force and effect, all premiums which are due with respect thereto
covering all periods up to and including the Closing Date have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy. Such policies are consistent with industry practices and are sufficient
for compliance with all requirements of Law and all agreements to which the
Company is a party; are valid, outstanding and enforceable policies; will remain
in full force and effect through the respective dates set forth on Schedule
4.23; provided sufficient coverage, in the reasonable opinion of the Company,
for the risks insured against; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by this
Agreement. The Company is not in default under any of such policies or binders,
and the Company has not failed to give any notice or to present any claim under
any such policy or binder in a due and timely fashion where such default or
failure to give notice or present a claim could have a Material Adverse Effect
on the Company. The Company has not been refused any insurance with respect to
the respective assets or operations of the Company, nor has any such coverage
been limited, by any insurance carrier to which the Company has applied for any
such insurance or with which the Company has carried insurance during the
calendar years 1996, 1997 and 1998. The Company has not received any notice from
its insurance carriers that any insurance premiums will be materially increased
in the future or that any insurance coverage listed on Schedule 4.23 will not be
available in the future on substantially the same terms as now in effect.
-26-
4.24 Intentionally Omitted.
4.25 Customers, Suppliers, Distributors, Etc. (a) No supplier,
customer, distributor or sales representative of the Company has canceled or
otherwise terminated, or made any written threat to the Company or to any of its
Affiliates to cancel or otherwise terminate, for any reason, including the
consummation of the transactions contemplated hereby, its relationship with the
Company or to reduce sales volumes below those presently existing, or has at any
time on or after the Reference Balance Sheet Date decreased materially its
services or supplies to the Company or its usage of the services or products of
the Company or made any written claim that any item sold by the Company failed
to meet any specification with respect thereto or were otherwise defective other
than in the ordinary course of business or where such claim does not involve an
amount in excess of Five Thousand Dollars ($5,000). Except as set forth on
Schedule 4.25, 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 4.25, the Company has not sold goods to
be delivered after Closing to any customer on a consignment basis, and the
Company has not agreed with any customer of the Company to sell goods to it to
be delivered after Closing at either a discounted price or at a price which
includes any type of allowance for the cost of the customer's advertising.
(b) Schedule 4.25(b) sets forth the customer sales history
of the top twenty customers of the Company for the calendar years ended December
31, 1997 and 1998. Such information is true and complete.
(c) Schedule 4.25(c) sets forth a complete and accurate
list of suppliers of the Company from whom the Company has made aggregate
purchases in excess of Twenty Thousand Dollars ($20,000) during the calendar
year ended December 31, 1998, showing the approximate total purchase by the
Company from each such supplier during such calendar year.
4.26 Previous Sales; Warranties; Product Liability. (a) The Company
has not breached any express or implied warranties in connection with the sale
or distribution of goods or the performance of services.
(b) Schedule 4.26(b) sets forth all warranty claims for
amounts in excess of Fifteen Thousand Dollars ($15,000), individually, asserted
against the Company, together with the actual or estimated cost of repair or
replacement, (i) outstanding as of the date hereof, and (ii) for each of the
three fiscal years ended September 30, 1997, 1996 and 1995.
(c) Schedule 4.26(c) contains a complete and correct list
of (i) product liability claims made against the Company since September 30,
1995 and (ii) any amounts paid by the Company or its insurance company with
respect to such claims. Set forth on Schedule 4.26(c) is a list of all product
liability insurance policies currently in effect or providing coverage for
occurrences in prior periods. Except as set forth on Schedule 4.26(c), there is
no Action, suit, inquiry, proceeding or investigation by or before any
Governmental Authority pending or
-27-
threatened against or involving the Company relating to any product manufactured
or sold by the Company and alleged to have been defective, or improperly
designed or manufactured.
4.27 Environmental Matters. (a) For the purposes of this Section the
following terms shall have the following meanings: (i) the term "Hazardous
Material" shall mean any material or substance that, whether by its nature or
use, is now or hereafter defined, determined or identified as a hazardous
material, hazardous waste, hazardous substance, toxic substance, pollutant or
contaminant under any Environmental Law, or which is toxic, explosive,
corrosive, ignitable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous or is harmful to human health or the environment, or which
is or contains petroleum, gasoline, diesel fuel or another petroleum hydrocarbon
product; and (ii) "Environmental Laws" shall collectively mean all present and
future federal, state and local laws, statutes, ordinances, rules, regulations,
orders, codes, licenses, permits, decrees, judgments, directives, guidelines,
standards or the equivalent of or by any governmental authority and relating to
or addressing the protection of the environment or human health (including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Section
9601 et seq.), and the regulations adopted and publications promulgated pursuant
thereto).
(b) Except as set forth in Schedule 4.27, the Company and
the Shareholders warrant and represent that: (i) neither the Company nor, to the
best of the Company's and the Shareholders' knowledge, any prior owner or any
user or tenant or operator of the Real Property, has generated, stored, treated,
disposed of, used, caused to be used, or permitted the use of Hazardous
Materials in, on or about the Real Property in violation of Environmental Laws;
(ii) the Company and the Real Property are in compliance with all applicable
Environmental Laws; (iii) the Company has secured all permits, licenses,
authorizations, registrations and approvals necessary for the storage, use or
handling of Hazardous Materials, such approvals are currently in effect, and the
Company is in compliance therewith; (iv) there are no pending or, to the
Company's and the Shareholders' knowledge, threatened claims by any Governmental
Authority or any other person in respect of Environmental Laws affecting the
Company or the Real Property and neither the Shareholders nor the Company has
received any notice of any violations of any Environmental Laws or has received
any warning notices, administrative complaints, judicial complaints or other
formal or informal notices from any person alleging that the Company or
conditions on the Real Property are, or may be, in violation of any
Environmental Laws; (v) there is not now, nor, to the best of Shareholders'
knowledge, has there ever been, any disposal, discharge or other type of release
on property adjacent to or near the Real Property or to the surface or ground
water flowing to the Real Property which may constitute a risk of contamination
to the Real Property; and (vi) no releasing, emitting, discharging, leaching,
dumping or disposing of any Hazardous Material by the Company or from the Real
Property has occurred at, into, onto or under the Real Property or any other
property which may give rise to liability under any Environmental Law.
4.28 Absence of Certain Payments. Except as set forth on Schedule
4.28, neither the Company nor any director, officer, agent, employee or other
Person acting on behalf of the Company nor any Shareholder has used any
corporate or other funds for unlawful contributions, payments,
-28-
gifts, or entertainment, or made any unlawful expenditures relating to political
activity to government officials or others or established or maintained any
unlawful or unrecorded funds in violation of Section 30A of the Exchange Act.
Neither the Company nor any current director, officer, agent, employee or other
Person acting on behalf of the Company has accepted or received any unlawful
contributions, payments, gifts or expenditures.
4.29 Additional Information. Schedule 4.29 accurately lists the
following (Schedule 4.29 may be revised as of immediately prior to the Closing
to account for any changes):
(a) the names of all officers and directors of the Company;
(b) the names and addresses of every bank or other
financial institution in which the Company maintains an account (whether
checking, savings or otherwise), lock box or safe deposit box, and the account
numbers and names of Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or
incur or guarantee indebtedness on behalf of the Company;
(d) the names of any Persons holding powers of attorney
from the Company and a summary statement of the terms thereof; and
(e) all names under which the Company has conducted any
part of the Business or which it has otherwise used at any time during the past
five years.
4.30 Investment Intent. The Company and each of the Shareholders, on
their own behalf and in their individual capacities:
(i) represents and warrants that (a) the Closing
Shares, and (b) the Additional Shares, if any (the securities
describes in clauses (a), (b) and (c) being herein referred to
collectively as, the "Securities") are being acquired as an
investment and not with a view to the distribution thereof;
(ii) understands that none of the Securities have
been registered under the Act, in reliance on an exemption therefrom,
and that none of the Securities have been approved or disapproved by
the United States Securities and Exchange Commission or by any other
Federal or state agency;
(iii) understands that none of the Securities can
be sold, transferred or assigned unless registered by Questron (which
neither the Company nor any Shareholder has the right to compel)
pursuant to the Act and any applicable state securities laws, or
unless an exemption therefrom is available, and, accordingly, it may
not be possible for the Company or any Shareholder to liquidate its
investment in the Securities, and agrees not to sell, assign or
otherwise transfer or dispose of the Securities unless such
Securities have been so registered or an exemption from registration
is available;
-29-
(iv) acknowledges that all documents, records and
books pertaining to Questron and its business (including, but not
limited to, the following documents) have been provided to, and
reviewed by, the Company and each Shareholder:
(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
Shareholders and Shareholders' attorney and/or accountant and/or
representative. Each Shareholder has had an opportunity to ask
questions and receive answers from Questron concerning the Business
and assets of Questron and all such questions have been answered to
the full satisfaction of such Shareholders;
(v) the Company and each Shareholder is an
accredited investor, as that term is defined in Regulation D under
the Act; and
(vi) understands that any distribution of the
Securities by the Company to the Shareholders must comply with all
provisions of the Securities Act.
4.31 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. There is no
fact known to the Company and the Shareholders which has a Material Adverse
Effect on the Company which has not been set forth in this Agreement, including
any Exhibit or Schedule, the financial statements referred to in Section 4.13
(including the footnotes thereto), any schedule, exhibit, or certificate
delivered in accordance with the terms hereof or any document or statement in
writing which has been supplied by or on behalf of Shareholders or the Company
in connection with the transactions contemplated by this Agreement.
(b) The Company has furnished or caused to be furnished to
QDL and/or 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.
-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
-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 Company or its designees pursuant to this Agreement, when
issued and paid for as contemplated hereby, will be duly authorized, 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 contemplated by this Agreement or permitted
by written consent of QDL, the Shareholders shall cause the Company to operate
its Business only in the ordinary course consistent with prior practice and not
to:
(i) declare or pay any dividends, make any
distributions to the Shareholders or undertake any similar
transactions affecting the capital of the Company;
-32-
(ii) sell or dispose of any assets of the Company
other than the sale of inventory in the ordinary course of
business;
(iii) take any action of the nature referred to
in Section 4.20, except as permitted therein;
(iv) change the Company's banking or safe deposit
arrangements;
(v) cause or permit indebtedness (which for
purposes of this clause (v) shall be deemed to exclude
trade payables consisting of accounts payable, deferred
taxes and accrued expenses) of the Company to exceed 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 acknowledge and agree
that from the Effective Date until Closing the Shareholders and the Company
shall conduct the Business for the account of QDL and that all of the profits
and losses associated with the Business during such period shall accrue solely
to QDL. 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 intact; to keep available
to QDL the services of the present officers and employees of the Company; to
preserve for QDL the good will of the Company's suppliers, customers,
distributors, sales representatives and others having business relations with
the Company; and to inform QDL of, and consult with QDL on, any key decisions
involving any capital expenditure in excess of Fifty Thousand Dollars ($50,000).
(c) The Shareholders shall cause the Company to maintain in
force the Insurance Policies referred to on Schedule 4.23 or Insurance Policies
providing the same or substantially similar coverage; provided, however, that
the Company will notify QDL prior to the expiration of any of such Insurance
Policies.
(d) Except as contemplated by this Agreement or permitted
by written consent of QDL, no Benefit Plan disclosed or required to be disclosed
has been or will be:
(i) terminated by the Company other than for
expiration of its terms;
(ii) except as required by law, amended in any
manner which would directly or indirectly increase the
benefits accrued in a material amount, by any participant
thereunder; or
(iii) except as required by law, amended in any
manner which would materially increase the cost to QDL of
maintaining such plan, fund or arrangement.
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(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; Bulk Sales Act.
(a) After the Closing Date, the Company and QDL shall
provide each other with such cooperation and information as any party reasonably
may request in (i) filing any Tax return, amended return or claim for refund,
(ii) determining any Tax liability or a right to refund of Taxes, (iii)
conducting or defending any audit or other proceeding in respect of Taxes or
(iv) effectuating the terms of this Agreement. The parties shall retain all
returns, schedules and workpapers, and all material records and other documents
relating thereto until the expiration of the statute of limitation (and, to the
extent notified by any party, any extensions thereof) of the taxable years to
which such returns and other documents relate and, unless such returns and other
documents are offered and delivered to the Company, the Shareholders or QDL, as
applicable, until the final determination of any Tax in respect of such years.
Any information obtained under this Section 6.2 shall be kept confidential,
except as may be otherwise necessary in connection with filing any Tax return,
amended return, or claim for refund, determining any Tax liability or right to
refund of Taxes, or in conducting or defending any audit or other proceeding in
respect of Taxes. Notwithstanding the foregoing, none of the Company, QDL or the
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 Acquired Assets 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, including all costs and fees
relating to the assignment of Contracts and Leases to QDL and the obtaining of
consents with respect thereto.
(c) At least thirty (30) days prior to the date that
Internal Revenue Service Form 8594 is required to be filed with respect to the
Acquisition, QDL shall prepare and submit to the Company, and the Company and
the Shareholders hereby agree to be bound by, an allocation of the Purchase
Price among the Acquired Assets and the Assumed Liabilities as set forth on
Schedule 6.2(c). Each of QDL and the Company and/or the Shareholders agrees that
(a) it will prepare all required Tax returns and reports in a manner that is
consistent with such allocation, (b) it will file Internal Revenue Service Form
8594 in such manner and (c) it will not voluntarily take any position
inconsistent therewith upon examination of any such Tax return, in any refund
claim, in any litigation or otherwise with respect to such income Tax returns.
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(d) Within thirty (30) days after the Closing, the Company
and the Shareholders shall provide QDL with a clearance certificate or similar
documents that may be required by any state Tax Authority in order to relieve
QDL of any obligation to withhold any portion of the Purchase Price.
(e) The parties hereby waive compliance with the bulk sales
act or comparable statutory provisions of each applicable jurisdiction. The
Company and the Shareholders, jointly and severally, shall indemnify QDL and
Questron and their respective Affiliates and hold each of them harmless, from
and against any and all losses, deficiencies, liabilities, damages, assessments,
judgments, costs and expenses caused by, resulting from or arising out of the
failure of the Company and the Shareholders to comply with the terms of any such
provisions applicable to the transactions completed by this Agreement and the
Other Documents.
6.3 Expenses and Finder's Fees. QDL and Questron, on the one hand,
and the Company and the 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 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. (a) 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,
Acquired Assets, Assumed Liabilities, Liabilities (contingent or otherwise),
results of operations, employees and financial condition of the Company as will
permit QDL and Questron to evaluate the transactions contemplated by this
Agreement. Until the Closing, the Company and the Shareholders shall afford QDL
and Questron reasonable access to the premises, Books and Records and business
affairs of the Company (and, to the extent directly relating thereto, of the
Shareholders) for purposes of 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). 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 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
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of QDL and Questron, on the one hand, and the Company 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, or their advisors, provided that such source is not
known by the holder to be bound by a confidentiality agreement with, or other
obligation of secrecy to another party. Nothing contained in this Section 6.4 or
otherwise shall prohibit the holder from making disclosure of Confidential
Information to the extent required by Law, rule or regulation, provided that the
holder shall give the other prior notice as to the nature of the required
disclosure so as to provide the other the opportunity to challenge the need for
such disclosure.
(b) Upon execution of this Agreement, the Company shall
supply QDL with a correct and complete list of all Persons to whom Confidential
Information has been supplied over the past 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 and the Company shall not, and
each shall direct their respective affiliates, representatives and agents and
the Company's officers and employees, not to, directly or indirectly, encourage,
solicit, initiate, continue or engage in discussions or negotiations with, or
provide any non-public information to any Person concerning any merger, sales of
substantial assets, sales of shares of capital stock or similar transactions
involving the Company or enter into any agreement with respect thereto. The
Company and the 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 shall use its best efforts to keep available current
Company employees for employment by QDL. At the Closing, QDL shall offer
employment, effective immediately upon the Closing, to the Company employees
listed on Schedule 6.6(a) on the terms and conditions similar to those in effect
immediately prior to the Closing Date. The Company shall encourage each of the
employees listed on Schedule 6.6(a) to accept such offers of employment. The
Company further agrees to make the officers and the Company employees listed on
Schedule 6.6(a) and whom QDL deems reasonably necessary to the continued
operation of the Business available to QDL during the 90-day period following
the Closing Date for the purpose of working for QDL.
(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
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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
2.1(o), 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 or the Shareholders
regarding the transactions contemplated hereby shall be made only with the
consent of QDL.
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 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.
6.9 Reserved.
6.10 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.
6.11 Rule 144. Following the Closing Date, Questron agrees to use
commercially reasonable efforts to cooperate with the Company or the
Shareholders with respect to permitted sales of Questron Common Stock by the
Company under Rule 144 of the Exchange Act.
6.12 SEC Filings. Questron will provide the Company with copies of
all reports filed by Questron under the Securities Act and the Exchange Act
subsequent to the date hereof and prior to the Closing Date.
6.13 Name Change. At the Closing, the Company shall deliver to QDL
such documents as QDL may reasonably request in connection with the consent or
approval or filing requirements to effect the change of the name of the Company
in the states and jurisdiction in which the Company conducts business, including
"doing business as" designations to a name other than "AFCOM" or any name
similar to such name or any variant or abbreviations of such name.
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:
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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 Florida and a certificate of existence and good standing
as of a recent date from the Secretary of State of the State of Georgia and the
Secretary of State of the State of Florida.
7.3 Due Diligence. QDL and/or Questron shall have completed, to their
sole satisfaction, their due diligence investigation of the Company.
7.4 Opinion of Counsel. QDL and Questron shall have been furnished
with an opinion dated the Closing Date of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ P.A., counsel for the
Shareholders and the Company, substantially in the form attached hereto as
Exhibit A.
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 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. All consents of third parties, including, without
limitation, Governmental Authorities and non-governmental self-regulatory
agencies, and all filings with and notifications of Governmental Authorities,
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the business of 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
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conducted, other than routine post-closing notifications or filings, shall have
been obtained or effected.
7.7 Instruments and Possession. To effect the transfers referred to
in Section 2.1, the Company and the Shareholders shall have executed and
delivered to QDL:
(i) a ▇▇▇▇ of sale, substantially in the form
attached hereto as Exhibit B, conveying in the aggregate all personal
property included in the Acquired Assets;
(ii) an Assignment and Assumption of Lease, with
respect to each of the Real Property Leases; an estoppel certificate
from the landlord for each Real Property Lease, which shall be in a
form reasonably satisfactory to QDL; and a duly executed certificate
from an authorized officer of the Company certifying that all rents
due from the Company under each Real Property Lease has been paid as
of the Closing Date and that no defaults exist under any of the Real
Property Leases as of the Closing Date.
(iii) an Assignment and Assumption of Lease, with
respect to each Non-Real Estate Lease in a form reasonably
satisfactory to QDL;
(iv) deeds in favor of QDL for each parcel of
Owned Real Property, in forms reasonably satisfactory to QDL;
(v) assignments, in form and substance
satisfactory to QDL, of all Intellectual Property Rights, in
recordable form to the extent necessary to assign such rights;
(vi) to the extent in written or other
deliverable form and not previously delivered, all copies of
Intellectual Property or other secret, proprietary or confidential
information included in the Acquired Assets;
(vii) evidence of the name change of the Company
required by Section 6.13, which evidence shall be reasonably
satisfactory to QDL;
(viii) all cash and cash equivalents of the Company;
(ix) all Books and Records of the Company;
(x) such keys, lock and safe combinations and
other similar items as QDL shall require to obtain full occupation,
possession and control of the Company's facilities and Business;
(xi) such changes relating to the bank accounts
and safe deposit boxes of the Company as are being transferred to QDL
and which QDL shall have requested by notice to the Company at least
five (5) business days prior to the Closing Date;
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(xii) such other instruments as shall be
reasonably requested by QDL to vest in QDL good and valid title in
and to the Acquired Assets in accordance with the provisions hereof;
and
(xiii) 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 E (together with
the "Restrictive Letter" and any other exhibits attached thereto, the
"Employment Agreement") duly executed and delivered by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇.
7.9 Non-Competition Agreements. QDL shall have received from each of
the Company and the Shareholders a Non-Competition Agreement, substantially in
the form attached hereto as Exhibit F (the "Non-Competition Agreements").
7.10 Evidence of Termination of the Schedule 2.5(c) Debt. QDL shall
have received from the Company evidence satisfactory to it of the termination of
the Schedule 2.5(c) Debt upon the payment of the Schedule 2.5(c) Debt as
contemplated by Section 2.5(c) and evidence of the release of any Encumbrances
on the Acquired Assets associated with the Schedule 2.5(c) Debt, in each case,
in a form reasonably satisfactory to QDL.
7.11 Financing. QDL shall have obtained bank 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.
7.12 Financial Statements. QDL and Questron shall have received the
financial statements referenced in Section 4.13.
7.13 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.
ARTICLE 8
CONDITIONS PRECEDENT OF THE COMPANY AND THE SHAREHOLDERS
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
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pursuant hereto shall be deemed to have been made again at and as of the Closing
Date and shall then be true in all material respects, and (b) QDL and Questron
shall have each performed and complied with all material agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date, and the Company shall have been furnished a
certificate of an appropriate officer of QDL and Questron, dated the Closing
Date, certifying to the effect of clauses (a) and (b) of this Section 8.1.
8.2 Closing Certificates. The Company and the Shareholders shall have
received (A) 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, Governmental Authorities, and non-governmental self-regulatory
agencies, and all filings with and notifications of Governmental Authorities,
regulatory agencies (including non-governmental self-regulatory agencies) or
other entities which regulate the Business of 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.
8.5 Instruments of Assumption. The Company shall have received from
QDL such instruments of assumption with respect to the Assumed Liabilities as
the Company may reasonably request, duly executed by QDL.
8.6 Employment Agreement. QDL shall have executed and delivered the
Employment Agreement.
8.7 Opinion of Counsel. The Shareholder shall have been furnished
with an opinion, dated the Closing Date, of Battle ▇▇▇▇▇▇ LLP, counsel to QDL
and Questron, in form and substance reasonably satisfactory to the Company.
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8.8 No Material Adverse Change. There shall have been no material
adverse change in the financial condition, assets, liabilities (contingent or
otherwise), results of operations or business of Questron and its subsidiaries.
ARTICLE 9
INDEMNIFICATION
9.1 Indemnification by the Company and the Shareholders. Effective
only from and upon the occurrence of the Closing, and subject to Section 9.3
below, the Company and each of the Shareholders hereby agrees to jointly and
severally defend, indemnify and hold harmless QDL, Questron and their
successors, assigns and affiliates (collectively, the "Questron Indemnitees")
from and against any and all losses, deficiencies, liabilities, damages,
assessments, judgments, costs and expenses, including reasonable attorneys' fees
(both those incurred in connection with the defense or prosecution of the
indemnifiable claim and those incurred in connection with the enforcement of
this provision) including, without limitation, Environmental Liabilities and
Costs (collectively, "Questron Losses"), caused by, resulting from or arising
out of:
(a) (i) breaches of representation or warranty under this
Agreement on the part of the Company or any 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) all Excluded Liabilities;
(c) any recalls, warranty claims, returns or product
liability with respect to sales by the Company prior to the Closing
Date or included in the finished goods inventory transferred to QDL;
(d) any and all Taxes imposed on the Company;
(e) any liabilities arising out of the presence, release or
disposal of any Hazardous Substances, or arising out of Environmental
Claims or the violation of any Environmental Laws prior to the
Closing Date;
(f) the failure to collect in full any accounts receivable
which are included in the Acquired Assets within three (3) months
following the Closing;
(g) the maintenance, amendment or termination of any
Benefit Plan of the Company or out of any obligations under any such
plan; and
(h) any and all actions, suits, proceedings, claims,
demands, incident to any of the foregoing or such indemnification;
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provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a Questron Indemnitee
proposes to demand indemnification ("Questron Indemnified Claims"), QDL,
Questron or such other Questron Indemnitee shall promptly notify the Company and
the Shareholders thereof, provided further, however, that the failure to so
notify the Company and the Shareholders shall not reduce or affect the Company's
and the Shareholders' obligations with respect thereto except to the extent that
the Company and the Shareholders are materially prejudiced thereby. Subject to
rights of or duties to any insurer or other third Person having liability
therefor, the Company and the Shareholders shall have the right promptly upon
receipt of such notice (after acknowledging responsibility for such Questron
Indemnified Claim) to assume the control of the defense, compromise or
settlement of any such Questron Indemnified Claims (provided that any compromise
or settlement must be reasonably approved by QDL and/or Questron), including, at
its own expense, employment of counsel reasonably satisfactory to QDL and/or
Questron; provided, however, that if the Company and the 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. QDL and Questron hereby
agree to jointly and severally defend, indemnify and hold harmless the Company,
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;
(b) all Assumed Liabilities and excluding any Excluded
Liabilities;
(c) any and all actions, suits, proceedings, claims and
demands incident to any of the foregoing or such indemnification;
provided, however, that if any claim, liability, demand, assessment, action,
suit or proceeding shall be asserted in respect of which a 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
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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 Company and the Shareholders;
provided, however, that if QDL and Questron shall have exercised their right to
assume such control, the Company and 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.
9.3 Limitation on Liability. The aggregate liability of the Company
and Shareholders under this Article 9 shall not exceed the aggregate amount of
the cash consideration received by the Company as the Purchase Price (including,
without limitation, any Additional Shares or Additional Cash Payment) ,
provided, however, that such limitation shall not apply to the representation
set forth in Section 4.27.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
10.1 Representations, Warranties and Covenants. The covenants
contained in this Agreement shall survive the Closing Date without limitation.
The representations and warranties contained herein shall survive the Closing
Date for a period of three (3) years, except that any representation or warranty
of the Company and the Shareholders contained in Sections 4.1, 4.6, 4.7, 4.13
and 4.27 shall survive the Closing Date without limitation, and any
representation or warranty of the Company and the Shareholders contained in
Sections 4.15 (Tax Matters) shall survive until the expiration of one year after
the expiration of the applicable statute of limitations (provided, that if any
Shareholder or the Company and the United States Internal Revenue Service or
other taxing authority have agreed to extend the applicable statute of
limitations beyond any such period, then in such case such representations and
warranties shall survive to the date on which such agreement to extend expires).
ARTICLE 11
NON-COMPETITION BY SHAREHOLDERS AND THE COMPANY
11.1 Non-Compete. In consideration of the purchase by QDL of the
Acquired Assets and the assumption by QDL of the Assumed Liabilities under this
Agreement, the Company and each Shareholder will at the Closing execute and
deliver the Non-Competition Agreements.
11.2 Remedies. The Company and each Shareholder recognize that a
breach or threatened breach by such party of such party's obligations under this
Article 11 and the Non-Competition Agreements would cause irreparable injury to
QDL and Questron, and QDL and Questron shall be
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entitled to seek preliminary and permanent injunctions enjoining such party from
violating the Non-Compete Agreements, in addition to any other remedies which
may be available.
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 Shareholders to
comply with any of their respective obligations or agreements herein contained
may be waived only in writing by QDL. Any failure of QDL and Questron to comply
with any of its obligations or agreements herein contained may be waived only in
writing by the Company.
12.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given upon receipt of: hand
delivery; certified or registered mail, return receipt requested; or telecopy
transmission with confirmation of receipt:
(i) If to Shareholders or the Company, to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
and
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▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(with a copy to)
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, p.a.
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▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
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(ii) If to QDL and Questron, to:
Questron Technology, Inc.
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▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
(with a copy to)
Battle ▇▇▇▇▇▇ LLP
Park Avenue Tower
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, III, Esq.
Such names and addresses may be changed by written notice to each person listed
above.
12.4 Governing Law and Consent to Jurisdiction. (a) This Agreement
shall be governed by and construed in accordance with the internal substantive
laws, and not the choice of law rules, of the State of Delaware.
(b) Each of the Company, the 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. The prevailing party of any
action, suit or proceeding arising out of or relating to this Agreement shall be
entitled to receive its attorneys' fees and court costs from the other party
hereto.
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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.
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IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the date first above written.
QUESTRON TECHNOLOGY, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chairman, President and
Chief Executive Officer
QUESTRON DISTRIBUTION LOGISTICS, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executiv
Officer
AFCOM, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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