<PAGE>
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-------------------------------------------------------
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
for the transition period from
----------- To ------------
----------------------------------------
Commission file number 0-7903
I.R.S. Employer Identification Number 36-2675371
QUIXOTE CORPORATION
(a Delaware Corporation)
One East Wacker Drive
Chicago, Illinois 60601
Telephone: (312) 467-6755
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES XX NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 7,851,841 shares of the
Company's Common Stock ($.01-2/3 par value) were outstanding as of March 31,
1998.
<PAGE>
PART I
FINANCIAL INFORMATION
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales .................................. $ 37,273,000 $ 30,559,000
Cost of sales .............................. 21,135,000 15,857,000
------------ ------------
Gross profit ............................... 16,138,000 14,702,000
Operating expenses:
Selling & administrative ................. 10,959,000 11,236,000
Research & development ................... 1,119,000 1,816,000
------------ ------------
12,078,000 13,052,000
Operating profit ........................... 4,060,000 1,650,000
------------ ------------
Other income (expense):
Interest income .......................... 484,000 1,000
Interest expense ......................... (203,000) (494,000)
Other .................................... 16,000 (385,000)
------------ ------------
297,000 (878,000)
------------ ------------
Earnings from continuing operations before
income taxes ............................. 4,357,000 772,000
Provisions for income taxes ................ 1,307,000 193,000
------------ ------------
Earnings from continuing operations ........ 3,050,000 579,000
------------ ------------
Discontinued operations (net of income taxes):
Loss from operations ..................... (1,980,000) (2,231,000)
Loss on disposition ...................... (4,507,000)
------------ ------------
Loss from discontinued operations ........ (1,980,000) (6,738,000)
------------ ------------
Net earnings (loss) ........................ $ 1,070,000 $ (6,159,000)
============ ============
Per share data - basic:
Earnings from continuing operations ...... $ .38 $ .07
Loss from discontinued operations ........ (.25) (.84)
------------ ------------
Net earnings (loss)....................... $ .13 $ (.77)
============ ============
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations-Continued
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Per share data - diluted:
Earnings from continuing operations ........... $ .38 $ .07
Loss from discontinued operations ............. (.25) (.84)
---------- ----------
Net earnings (loss) ........................... $ .13 $ (.77)
========== ==========
Shares used to compute net earnings (loss):
Basic ........................................ 7,971,514 7,972,175
========== ==========
Diluted ...................................... 8,065,789 8,024,729
========== ==========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales .................................. $12,821,000 $10,268,000
Cost of sales .............................. 7,436,000 5,471,000
------------ -----------
Gross profit ............................... 5,385,000 4,797,000
Operating expenses:
Selling & administrative ................. 3,824,000 3,505,000
Research & development ................... 389,000 768,000
------------ -----------
4,213,000 4,273,000
------------ -----------
Operating profit ........................... 1,172,000 524,000
------------ -----------
Other income (expense):
Interest income .......................... 84,000
Interest expense ......................... (100,000) (176,000)
Other .................................... 15,000 (133,000)
------------ -----------
(1,000) (309,000)
------------ -----------
Earnings from continuing operations
before income taxes ..................... 1,171,000 215,000
Provision for income taxes ................ 351,000 26,000
------------ -----------
Earnings from continuing operations ....... 820,000 189,000
------------ -----------
Discontinued operations (net of income taxes):
Loss from operations .................... (3,676,000)
Loss on disposition ..................... (4,507,000)
------------ -----------
Loss from discontinued operations ....... (8,183,000)
------------ -----------
Net earnings (loss) ..................... $ 820,000 $(7,994,000)
============ ===========
Per share data - basic:
Earnings from continuing operations $ .10 $ .02
Loss from discontinued operations........ (1.02)
------------ -----------
Net earnings (loss) ...................... $ .10 $ (1.00)
============ ===========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations-Continued
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
Per share data - diluted:
Earnings from continuing operations .......... $ .10 $ .02
Loss from discontinued operations ............ (1.02)
----------- ------------
Net earnings (loss) .......................... $ .10 $ (1.00)
=========== ============
Shares used to compute net earnings (loss):
Basic ........................................ 7,904,556 7,974,612
=========== ============
Diluted ...................................... 7,998,831 8,027,166
=========== ============
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
----------------------------
1998 1997
Assets
- --------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 4,661,000 $ 18,463,000
Accounts receivable, net of allowances for
doubtful accounts of $169,000 at
March 31 and $165,000 at June 30 ............. 8,769,000 8,494,000
Refundable income taxes ........................ 1,329,000
Inventories:
Raw materials ................................ 2,495,000 2,414,000
Work in process .............................. 1,034,000 978,000
Finished goods ............................... 1,391,000 832,000
---------- ----------
4,920,000 4,224,000
---------- ----------
Deferred income tax assets .................... 887,000 887,000
Other current assets .......................... 644,000 241,000
---------- ----------
Total current assets ............................ 19,881,000 33,638,000
---------- ----------
Property, plant and equipment, at cost .......... 22,699,000 21,355,000
Less accumulated depreciation ................... (9,542,000) (8,452,000)
---------- ----------
13,157,000 12,903,000
---------- ----------
Intangible assets .............................. 12,980,000 2,765,000
Assets of discontinued operations .............. 5,712,000 5,914,000
---------- ----------
$51,730,000 $55,220,000
========== ==========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- ----------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of notes payable ................. $ 602,000
Accounts payable ................................. 1,492,000 $ 1,743,000
Dividends payable ................................ 1,039,000
Income taxes payable ............................. 196,000
Accrued expenses ................................. 3,370,000 4,168,000
Liabilities of discontinued operations ........... 453,000 6,049,000
---------- ----------
Total current liabilities .......................... 6,113,000 12,999,000
---------- ----------
Deferred income tax liabilities .................... 566,000 566,000
Notes payable ...................................... 4,305,000
Shareholders' equity:
Common stock ..................................... 148,000 146,000
Capital in excess of par value of stock .......... 31,174,000 30,269,000
Retained earnings ................................ 17,407,000 17,368,000
Treasury stock, at cost .......................... (7,983,000) (6,128,000)
---------- ----------
Total shareholders' equity ......................... 40,746,000 41,655,000
---------- ----------
$51,730,000 $55,220,000
========== ==========
<FN>
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Net earnings (loss)............................... $ 1,070,000 $(6,159,000)
Adjustments to reconcile net earnings (loss) to
net cash (used in) provided by operating activities:
Depreciation and amortization ................ 1,735,000 1,445,000
Provision (benefit) for losses on accounts
receivable ................................. 4,000 (2,000)
Changes in operating assets and liabilities:
Accounts receivable ............................ (279,000) 2,261,000
Refundable income taxes ........................ 1,329,000 3,016,000
Inventories .................................... (511,000) (866,000)
Other current assets ........................... (403,000) (161,000)
Accounts payable and accrued expenses .......... (1,409,000) 1,744,000
Income taxes payable ........................... 196,000 931,000
Discontinued operations-noncash charges and
working capital changes ...................... (4,732,000) 19,000
---------- ----------
Net cash (used in) provided by operating activities (3,000,000) 2,228,000
---------- ----------
Investing activities:
Purchase of property, plant and equipment ...... (1,114,000) (1,107,000)
Proceeds from sale of discontinued operations .. 80,283,000
Cash paid for acquired business ................ (4,822,000)
Other .......................................... (457,000) (488,000)
---------- ----------
Net cash (used in) provided by investing
activities ..................................... (6,393,000) 78,688,000
---------- ----------
Financing activities:
Cash payments on notes payable ................. (729,000)
Payments under revolving credit agreement ...... (58,000,000)
Payment of semi-annual cash dividend ........... (2,070,000) (1,903,000)
Proceeds from exercise of common stock options . 245,000 61,000
Repurchase of common stock for treasury ........ (1,855,000)
---------- ----------
Net cash used in financing activities ............ (4,409,000) (59,842,000)
---------- ----------
Net change in cash and cash equivalents .......... (13,802,000) 21,074,000
Cash and cash equivalents at beginning of period.. 18,463,000 1,337,000
---------- ----------
Cash and cash equivalents at end of period ....... $ 4,661,000 $22,411,000
========== ==========
<FN>
Note: During the nine months ended March 31, 1998, the Company had net cash refunds of
$217,000 for income taxes and paid $203,000 for interest. During the same period last
year the Company had net cash refunds of $3,762,000 for income taxes and paid
$2,962,000 for interest. In connection with the purchase of Roadway Safety Service,
the Company incurred debt of $5,436,000.
See Notes to Consolidated Condensed Financial Statements.
</TABLE>
<PAGE>
QUIXOTE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. The accompanying unaudited consolidated condensed financial statements
present information in accordance with generally accepted accounting
principles for interim financial information and applicable rules of
Regulation S-X. Accordingly, they do not include all information or footnotes
required by generally accepted accounting principles for complete financial
statements. Management believes the financial statements include all normal
recurring adjustments necessary for a fair presentation. Operating results
for the three month and nine month periods ended March 31, 1998 do not
necessarily reflect the results that may be expected for the full year. For
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended June 30, 1997.
Certain amounts in the June 30, 1997 financial statements have been
reclassified to conform to the March 31, 1998 financial statement
presentation.
2. During the second quarter, the Company recorded an additional loss from
discontinued operations of $1,980,000 or $0.25 per share which was net of
income tax benefits of $1,320,000. The loss was recorded to provide for
current and anticipated costs associated with the Company=s legal
contingencies, principally for certain DMI patent and antitrust lawsuits with
Pioneer Electronic Corporation and several of its affiliates. For further
information, refer to the Company's Form 10-K Report for the fiscal year ended
June 30, 1997, Item 3, and the Company's Form 10-Q Report for the quarter
ended December 31, 1997, Item 1.
In March 1997, the Company sold substantially all of the assets and
transferred significant operating liabilities of Disc Manufacturing, Inc.
(DMI) to Cinram Ltd. for $80,283,000 in cash. The transaction excluded DMI's
Huntsville, Alabama land and building as well as certain DMI litigation. The
results of operations of DMI are presented as discontinued operations in the
accompanying consolidated condensed statements of operations for the quarter
and nine months ended March 31, 1997. For the quarter ended March 31, 1997
DMI had a net loss of $8,183,000, which was net of income taxes of $4,580,000.
For the nine months ended March 31, 1997 DMI had a net loss of $6,738,000,
which was net of income taxes of $3,961,000.
3. On October 10, 1997, the Company and its wholly-owned subsidiary, TranSafe
Corporation, acquired certain assets and assumed certain contracts from
Roadway Safety Service, Inc. This transaction was accounted for as a purchase
and was effective as of October 1, 1997. The purchase price was $10,258,000,
of which $4,822,000 was paid in cash at closing and other payments, the
present value of which is $5,436,000, will be paid over the next 10 years
using a discount rate of 8.5%. Goodwill of approximately $10,000,000 will be
amortized over a 20 year life.
4. On April 14, 1998, the Company and its wholly-owned subsidiary, TranSafe
Corporation, acquired the assets and assumed certain liabilities of Highway
Information Systems, a division of Digital Recorders, Inc. for $2,800,000.
The acquisition was accounted for as a purchase and was effective as of April
1, 1998. Goodwill of approximately $1,500,000 will be amortized over a 20
year life.
5. During the second quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". SFAS No. 128
requires the presentation of basic earnings per share ("EPS") and, for
companies with potential dilutive securities, such as stock options and
warrants, diluted EPS. SFAS No. 128 is effective for annual and interim
periods ending after December 15, 1997 and requires restatement of EPS for
prior periods. The computation of basic and diluted earnings per share, as
prescribed by FASB 128, is as follows:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) per share of
common stock:
Basic ...................... $ .10 $(1.00) $.13 $(.77)
Diluted .................... $ .10 $(1.00) $.13 $(.77)
Numerator:
- ----------
Net earnings (loss) available to
common shareholders-basic
and diluted: ................. $ 820,000 $(7,994,000) $1,070,000 $(6,159,000)
========= ========== ========= =========
Denominator:
- ------------
Weighted average shares
outstanding-basic: ........... 7,904,556 7,974,612 7,971,514 7,972,175
Effect of dilutive securities
Options* ..................... 94,275 52,554 94,275 52,554
---------- --------- --------- ---------
Weighted average of shares
outstanding-diluted .......... 7,998,831 8,027,166 8,065,789 8,024,729
========== ========= ========= =========
* There were outstanding options to purchase common stock at prices that exceeded
the average market price for the income statement period as disclosed below. These
options have been excluded from the computation of diluted earnings per share.
Average market price per share . $ 8.83 $ 9.07 $ 8.60 $ 8.22
Number of shares ............... 472,000 415,669 472,000 552,669
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CURRENT YEAR-TO-DATE VERSUS PRIOR YEAR-TO-DATE
- ----------------------------------------------
The Company's sales for the first nine months of fiscal 1998 increased 22% to
$37,273,000 from $30,559,000 for the first nine months of fiscal 1997. This
was due to both internal sales growth as well as from the acquisition of
Roadway Safety Service, which was completed in October 1997. Roadway Safety
Service, a former competitor of Energy Absorption Systems, sells crash
attenuators through its own independent group of highway distributors. Sales
of Energy Absorption's permanent crash cushion line of products increased due
to strong unit sales of the newer QuadGuard-Registered Trademark- family of
crash cushions which the Company began selling in the second half of last
fiscal year. The QuadGuard-registered trademark- family of products replaced
the Company's GREAT-Registered Trademark- and GREAT CZ-Registered Trademark-
crash cushion products. Sales dollars of the QuadGuard-Registered Trademark-
increased at a lesser rate due to the lower selling price of this product
compared to the GREAT-Registered Trademark-. The Company also experienced
sales increases in its truck-mounted attenuator(TMA)product line, including
the newer Alpha 100k TMA. Triton Barrier-Registered Tradematrk- sales also
increased during the period. Roadway Safety Service contributed sales of
$2,600,000 for the current nine month period. Sales of Safe-Hit's highway
delineators and Spin-Cast's custom molded products also increased during the
period. Sales of the Energite-Registered Trademark- product line declined
during the nine month period.
The gross profit margin in the first nine months of the current year decreased
to 43.3% from 48.1% in the same period last year. This was due principally to
a change in sales mix from the GREAT-Registered Trademark- crash cushion to
the lower margin newer QuadGuard-Registered Trademark- crash cushion product
line. The QuadGuard-Registered Trademark- family of products is priced lower
than the GREAT-Registered Trademark- crash cushions. Roadway Safety Service
also contributed to the decline in gross margin as its gross margins are
lower than Energy Absorption's historical gross margins. In addition, the
gross margin at Safe-Hit, the Company's highway delineation company,
experienced a slight decline from last year.
Selling and administrative expenses in the first nine months of the current
year decreased 2% to $10,959,000 from $11,236,000 in the same period last
year due mainly to a decrease in corporate level administrative expenses.
Corporate level expenses decreased $781,000 in the current period from the
same period last year as a result of a decrease in personnel, consulting and
insurance expense. Selling and administrative expenses at Energy Absorption
and its subsidiaries remained at a level consistent with the same period last
year. Roadway Safety Service incurred $575,000 in selling and administrative
costs during the period.
Research and development expenses in the first nine months of the current year
decreased 38% to $1,119,000 compared to $1,816,000 in the same period last
year. This was due to a reduction in the number of tests performed in the
current period related to the upgrade of the Company's product line to a
higher set of safety guidelines known as NCHRP 350. These guidelines increase
safety standards to accommodate heavier and higher center of gravity vehicles
such as sport utility vehicles and pick-up trucks. During the current period,
the Company continued with its testing of a wider version of Roadway Safety
Service's REACT 350 crash cushion as well as a snowplowable road marker and
other developmental products.
Interest income in the first nine months of the current year was $484,000
compared to $1,000 in the same period last year. Interest income in the
current period relates to amounts earned on the Company's invested cash of
$4,661,000 as of March 31, 1998. Interest expense in the current nine month
period was $203,000 compared to $494,000 in the same period last year. Current
period interest expense relates principally to notes payable in connection
with the acquisition of Roadway Safety Service. The decrease in interest
expense is due to the reduction of the Company's long-term debt in the third
fiscal quarter last year upon receipt of the proceeds from the sale of DMI,
the Company's former compact disc manufacturer. Other income was $16,000 in
the current nine month period compared to other expenses of $385,000 in the
same period last year.
The Company's effective tax rate for the current period was 30% due to the
anticipated realization of certain tax benefits during the current year along
with the settlement of certain tax contingencies.
During the second quarter of the current nine month period, the Company
recorded an additional net loss from its discontinued operations of $1,980,000
or $0.25 per share which was net of tax benefits of $1,320,000. The loss was
recorded to provide for current and anticipated costs associated with the
Company's legal contingencies, principally for its patent and antitrust
lawsuits with Pioneer Electronics Corporation and several of its affiliates.
For further information, refer to the Company's Form 10-K Report for the
fiscal year ended June 30, 1997, Item 3, and the Company=s Form 10-Q Report
for the quarter ended December 31, 1997, Item 1.
In the nine month period last year, the Company recorded a loss of $6,738,000
for the operations and loss on sale of DMI, sold in March 1997.
On October 10, 1997, the Company and its wholly-owned subsidiary, TranSafe
Corporation, acquired certain assets and assumed certain contracts from
Roadway Safety Service, Inc. The purchase price was $10,258,000 of which
$4,822,000 was paid in cash at closing and other payments, the present value
of which is $5,436,000, will be paid over 10 years using a discount rate of
8.5%.
On April 15, 1998, the Company and its wholly-owned subsidiary, TranSafe
Corporation, acquired certain assets and assumed certain liabilities of
Highway Information Systems, a division of Digital Recorders, Inc. for
$2,800,000 in cash. The acquisition was accounted for as a purchase and was
effective as of April 1, 1998. Goodwill of approximately $1,500,000 will be
amortized over a twenty year life.
CURRENT YEAR QUARTER VERSUS PRIOR YEAR QUARTER
- ----------------------------------------------
The Company's sales for the third quarter of fiscal 1998 increased 25% to
$12,821,000 from $10,268,000 for the third quarter of fiscal 1997 due to
internal sales growth at Energy Absorption as well as from the acquisition of
Roadway Safety Service. Sales of the Company's TMA product line including the
newer Alpha 100k TMA increased during the quarter. In addition, the Company
had sales increases in its Triton water-filled barrier and in parts sales.
Sales of Energy Absorption's permanent crash cushion line of products as well
as Energite sales decreased. Sales of Safe-Hit's highway delineators and Spin-
Cast's custom molded products also increased during the quarter. In addition,
Roadway Safety Service contributed $1,261,000 in sales for the quarter.
The gross profit margin in the third quarter of the current year decreased to
42.0% from 46.7% in the third quarter last year. This was due to a change in
product sales mix from the GREAT crash cushion to the lower margin new
QuadGuard crash cushion product line. In addition, the gross margin also
declined due to the acquisition of Roadway Safety Service as its gross margins
are lower than those of Energy Absorption.
Selling and administrative expenses in the third quarter of the current year
increased 9% to $3,824,000 from $3,505,000 in the third quarter last year due
mainly to Roadway Safety Service which incurred selling and administrative
expenses of $348,000 during the quarter. In addition, corporate level expenses
increased slightly. Offsetting this somewhat, selling and administrative
expenses at Energy Absorption decreased slightly during the quarter.
Research and development expenses in the third quarter of the current year
decreased 49% to $389,000 compared to $768,000 in the third quarter last year.
This was due to a reduction in the number of tests performed in the current
quarter related to the upgrade of the Company's product line to a higher set
of safety guidelines known as NCHRP 350.
Interest income in the third quarter of the current year was $84,000 compared
to $0 in the same quarter last year. Interest income in the current quarter
relates to interest earned on the Company's invested cash of $4,661,000 as of
March 31, 1998. Interest expense in the current quarter was $100,000 compared
to $176,000 in the same quarter last year. Current period interest expense
relates principally to the Company's notes payable in connection with the
acquisition of Roadway Safety Service. The decrease in interest expense from
the third quarter last year is due to the reduction of the Company's long term
debt in the third fiscal quarter last year upon receipt of the proceeds from
the sale of DMI, the Company's former compact disc manufacturer. Other income
was $15,000 in the current quarter compared to expense of $133,000 in the same
quarter last year.
During the third quarter, the Company had no income or expense related to its
discontinued operations. In the third quarter last year, the Company recorded
a loss of $8,183,000 due to the operations and sale of DMI.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash and cash equivalents of $4,661,000 and access to
additional funds of $40,000,000 under its bank arrangements as of March 31,
1998. Continuing operating activities were a source of cash for the Company
during the nine month period providing $3,712,000. Discontinued operations,
however, used cash of $6,712,000 primarily for legal fees related to the
Company=s ongoing litigation, and for other expenses including lease
commitments. This resulted in a net cash use from operating activities of
$3,000,000.
Cash of $6,393,000 was used for investing activities during the nine month
period of which $4,822,000 in cash was used for the purchase of the assets of
Roadway Safety Service, acquired in October 1997. In addition, the Company
purchased equipment during the nine month period totaling $1,114,000.
Financing activities used cash of $4,409,000 during the current nine month
period principally to pay the Company's semi-annual cash dividends of
$2,070,000. Cash of $1,855,000 was used to purchase 224,985 shares of the
Company's own stock for the treasury. Additional shares may be purchased from
time to time. Cash of $245,000 was received from the exercise of common stock
options.
For the remainder of fiscal 1998, the Company anticipates needing less than
$500,000 in cash for capital expenditures. The Company may also need
additional cash as it considers acquiring businesses that complement its
existing operations. Also, the Company will require additional investments in
working capital to maintain growth. In addition, the Company may also need
funds to repurchase its own stock from time to time. These expenditures will
be financed either through the Company's invested cash, cash generated from
its operations, or from borrowings available under the Company's revolving
credit facility. The Company believes its existing cash, cash generated from
operations and funds available under its existing credit facility are
sufficient for all planned operating and capital requirements.
FACTORS AFFECTING FUTURE PERFORMANCE
- ------------------------------------
The Company is currently in the process of evaluating the potential impact of
the Year 2000 issue on its business and the related expenses that would
foreseeably be incurred in attempting to remedy such impact. Management's
current estimate is that the costs associated with the Year 2000 issue should
not have a material adverse effect on the results of operations or financial
position of the Company. However, even if the internal systems of the Company
are not materially affected by the Year 2000 issue, the Company could be
affected as a result of any disruption in the operation of the various third-
party enterprises with which the Company interacts.
The Intermodal Surface Transportation and Efficiency Act (ISTEA) which
provides authorization for federal funding of highways, and was the primary
source of funds for highway projects, expired on September 30, 1997. An
extension of ISTEA was signed into law in December 1997 which provides for
continued federal highway funding until May 1, 1998. Any delay in the passage
of a new highway bill to replace the ISTEA extension or in the passage of
another extension of ISTEA will result in a lack of funding for Energy
Absorption's products and could cause a material decline in revenues.
FORWARD LOOKING STATEMENTS
- --------------------------
Various statements made within the Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Quarterly
Report on Form 10-Q constitute "forward looking statements" for purposes of
the Securities and Exchange Commission's "safe harbor" provisions under the
Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the
Securities Exchange Act of 1934, as amended. Investors are cautioned that all
forward looking statements involve risks and uncertainties, including those
detailed in the Company's filings with the Securities and Exchange Commission.
There can be no assurance that actual results will not differ from the
Company's expectations. Factors which could cause materially different
results include, among others, uncertainties related to the introduction of
the Company's products and services; uncertainties regarding the Company's
litigation and claims resulting from its discontinued operations and the
settlements thereof; the successful completion and integration of
acquisitions; continued funding through the passage of new federal highway
legislation; and competitive and general economic conditions.
II
OTHER INFORMATION
ITEM 1. Legal Proceedings
- --------------------------
1. DISC MANUFACTURING, INC. ET AL. V. MASSEY ET AL., CV 90-1214L (MADISON
COUNTY CIRCUIT COURT, ALABAMA). A mediation between the parties was held on
March 26 and April 11, 1998 and settlement discussions are progressing. See
the Company's Form 10-K Report for the fiscal year ended June 30, 1997, Item
3, for additional information.
2. ESTATE OF THIEL V. ENERGY ABSORPTION SYSTEMS, INC., SUPERIOR COURT OF NEW
JERSEY, DOCKET NO. MRS-L-1431-94. This case was settled in April 1998 on
terms mutually satisfactory to the Company and the plaintiffs. See the
Company=s Form 10-K Report for the fiscal year ended June 30, 1997, Item 3,
for additional information.
3. REPETITIVE STRESS LITIGATION. An additional two cases have been dismissed
with prejudice and one case, previously dismissed without prejudice, has been
refiled by the plaintiff. Of the 32 cases filed to date against Quixote Steno
Corporation, only seven cases remain active; another eight cases have been
dismissed, but without prejudice to refile the complaints. See the Company's
Form 10-K Report for the fiscal year ended June 30, 1997, Item 3, for
additional information.
ITEM 2. Changes in Securities
- ------------------------------
None.
ITEM 3. Default upon Senior Securities
- ---------------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
ITEM 5. Other Information
- --------------------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Reports on Form 8-K
None.
(b) Exhibits
* Management contract or compensatory plan or agreement
10(a) * Retirement Award Agreement dated as of February 19, 1998 between
Quixote Corporation and Leslie J. Jezuit.
10(b) Asset Purchase Agreement dated as of April 14, 1998 by and between
TranSafe Corporation and Digital Recorders, Inc.
SIGNATURE
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 to be signed on its behalf by the undersigned thereunto
duly authorized.
QUIXOTE CORPORATION
DATED: May 8, 1998 /s/ Daniel P. Gorey
----------------- -------------------
DANIEL P. GOREY
Chief Financial Officer,
Vice President and Treasurer
(Chief Financial & Accounting
Officer)
Exhibit 10 (a)
RETIREMENT AWARD AGREEMENT
This Retirement Award Agreement ("Agreement") is entered into as of this
19th day of February, 1998 between QUIXOTE CORPORATION ("the Company"), a
Delaware corporation whose principal place of business is Chicago,
Illinois, and LESLIE J. JEZUIT of Mundelein, Illinois ("Employee").
RECITALS
WHEREAS, the Board of Directors of the Company adopted the Quixote
Corporation 1993 Long-Term Stock Ownership Incentive Plan (the "Long-Term
Plan") by amending and restating the Quixote Corporation 1991 Incentive
Stock Option Plan, which is subject to approval by the stockholders of the
Company; and
WHEREAS, the Long-Term Plan authorizes the Audit/Compensation Committee of
the Board of Directors (the "Committee") to select certain employees of the
Company or any of its subsidiaries who are key executives to receive
Retirement Awards; and
WHEREAS, the Long-Term Plan provides that Retirement Awards may be in the
form of Retirement Stock Awards and Retirement Cash Awards as those terms
are defined in the Long-Term Plan; and
WHEREAS, the Committee has selected the Employee as a grantee of a
Retirement Award subject to the terms and conditions set forth in this
Agreement; and
WHEREAS, the Long-Term Plan requires that any Retirement Awards be
documented by a written agreement with such terms and conditions as the
Committee may determine.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties agree as follows:
1. GRANT OF RETIREMENT AWARD.
(a) Subject to the other terms and conditions of this Agreement and the
Long-Term Plan, the Company hereby grants to Employee an aggregate
Retirement Stock Award of 63,384 shares of the Company common stock, $.01
2/3 par value (the "Stock"), to be issued and delivered to Employee as
fully paid and non-assessable Stock on the following Issuance Dates in the
following amounts:
Number of
Issuance Date Shares
- ------------- -------------
June 30, 1998 5,762 shares
June 30, 1999 5,762 shares
June 30, 2000 5,762 shares
June 30, 2001 5,762 shares
June 30, 2002 5,762 shares
June 30, 2003 5,762 shares
June 30, 2004 5,762 shares
June 30, 2005 5,762 shares
June 30, 2006 5,762 shares
June 30, 2007 5,762 shares
June 30, 2008 5,764 shares
(b) The Company shall issue and deliver the shares set forth in paragraph
(a) above to the Employee on each Issuance Date only if on such date the
Employee is employed by the Company or its subsidiaries. Notwithstanding
the immediately preceding sentence, the Company shall issue and deliver the
shares set forth above on an Issuance Date to the Employee even if the
Employee is not employed by the Company or its subsidiaries on such
Issuance Date solely because the Employee's employment was terminated
during the fiscal year ending on that Issuance Date by reason of the
Employee's death, disability or other involuntary termination of employment
(excluding termination for cause). The Company will deliver to the
Employee a Certificate with respect to that number of shares issued and
delivered as of the Issuance Date.
2. GRANT OF RETIREMENT CASH AWARD.
(a) Subject to the other terms and conditions of this Agreement and the
Long-Term Plan, the Company hereby grants to the Employee a Retirement Cash
Award for the sole purpose of paying federal and state income taxes arising
from the issuance and delivery of Retirement Awards to the Employee
pursuant to this Agreement, calculated as follows: As of each Issuance
Date, the Employee will receive a Retirement Cash Award equal to the
quotient of (x) the Current Market Price of the Retirement Stock Award
issued and delivered on that Issuance Date divided by (y) the percentage
which is equal to 1 minus the maximum marginal federal and state income tax
rate, less the Current Market Price of the Retirement Stock Award (the
"Retirement Cash Award Formula").
A Retirement Cash Award shall only be paid in connection with the issuance
and delivery of Retirement Stock under this Agreement. The Retirement Cash
Award Formula may be changed by the Committee in its discretion.
(b) A Retirement Cash Award shall not be paid directly to the Employee,
but shall be paid to the appropriate federal and state tax officials by the
Company on behalf of Employee. The Company will give the Employee written
evidence of such payment.
(c) For purposes of this Agreement, the parties agree that, given both the
level of activity in the public trading of the Company's Stock and the
price volatility of the Stock, the fair market value of the Stock shall
mean the Current Market Price. The term "Current Market Price" of the
Stock means the average of the daily closing prices for the thirty
consecutive business days commencing no more than forty five business days
before the day in question. The closing price for each day shall be the
last reported sale price determined in the regular way or, in case no such
reported sales takes place on such day, the average of the last reported
bid and asked prices determined the regular way, in either case in the
principal national securities exchange in which the Stock is admitted to
trading a listed, or if not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices as
reported by NASDAQ or other similar organization if NASDAQ is no longer
reporting such information, or if not so available, the fair market price
is determined by the Board.
3. RESTRICTIONS ON THE RIGHT TO SELL OR TRANSFER RETIREMENT STOCK.
(a) As a condition of this Award, the Employee agrees that he will not
sell, transfer, pledge, hypothecate, or otherwise transfer any Retirement
Stock he receives pursuant to this Agreement during the period he is
employed by the Company or its subsidiaries; provided, however, following
the earlier of (i) the termination of the employment of the Employee with
the Company or its subsidiaries, or (ii) the Employee's attaining age 65
(whether or not the Employee actually retires from employment), these
restrictions shall terminate. The Employee agrees that the Company shall
instruct its transfer agent to place a legend on each share certificate
representing the Retirement Stock with respect to such restrictions in
substantially the following form, and the Company shall cause such
certificates to be issued without a legend when the applicable restrictions
have terminated as provided herein:
The sale, transfer, pledge, hypothecation or other transfer of the shares
represented by this Certificate are subject to the terms and conditions of
a Retirement Award Agreement dated as of February 19, 1998 by and between
Quixote Corporation and Leslie J. Jezuit. The Retirement Award Agreement
provides that the restrictions shall automatically expire upon the earlier
of (i) the termination of Mr. Jezuit's employment by Quixote Corporation or
its subsidiaries, or (ii) Mr. Jezuit's attaining 65 years of age.
(b) Unless on an Issuance Date, there is in the opinion of Company's
counsel a valid and effective registration statement under the Securities
Act of 1933, as amended, and an appropriate qualification and registration
under applicable state securities law with respect to the Retirement Stock
to be issued and delivered, the Employee agrees, prior to the issuance and
delivery of the Retirement Stock, to provide the Company a representation
that he is acquiring the Stock for his own account for investment and not
with a view to, or for sale in connection with, the resale or distribution
of any such Stock and shall provide such other representations and
covenants to the Company as may, in the opinion of its counsel, be
required. In the event that any Retirement Stock issued is not so
registered, then the Employee agrees that the certificates representing the
Retirement Stock shall bear a restrictive legend, and that stop transfer
instructions shall be issued to Company's transfer agents until such time
as the Retirement Stock is registered.
(c) If at any time the Committee determines, in its discretion, that the
listing, registration or qualification of the Retirement Stock upon any
securities exchange or under any state or federal law, or that the consent
or approval of any governmental regulatory body is necessary or desirable
as a condition of, or in connection with, the granting of the Award or in
connection with the issuance of Retirement Stock thereunder, the Award may
not be granted in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Committee.
4. STOCKHOLDER RIGHTS AND ADJUSTMENTS TO STOCK.
(a) The Employee shall not by reason of any Retirement Stock Award or by
reason of this Agreement have any right as a stockholder of the Company
with respect to the shares of Stock to which the Company has agreed to
issue and deliver to the Employee in the future until such time as the
Retirement Stock has been actually issued and delivered to the Employee.
Except as provided in the Long-Term Plan, no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is
prior to an Issuance Date for such Retirement Stock, and all adjustments to
the Retirement Stock by reason of a stock dividend, merger, consolidation
or otherwise shall be made in accordance with the terms of the Long-Term
Plan.
(b) This Agreement shall not affect in any way the right or power of the
Company to make adjustments, reclassification, reorganizations or changes
of its capital or business structure or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any part of its business or assets.
5. NO EMPLOYMENT RIGHTS.
Neither the establishment of the Long-Term Plan nor the granting of this
Award nor the execution of this Agreement shall be construed to give the
Employee the right to remain employed by the Company or any of its
subsidiaries, or to any benefits not specifically provided by the Long-Term
Plan or by this Agreement, or in any manner modify the right of the Company
or any of its subsidiaries to modify, amend or terminate any of its
employee benefit plans or other arrangements available to Employee. The
Company and or any of its subsidiaries may at any time dismiss the Employee
from employment free from any liability or any claim under the Long-Term
Plan.
6. SUCCESSORS AND ASSIGNS.
The Award shall be binding in accordance with its terms upon any successors
of the Company and upon the heirs, executors, administrators and successors
of Employee.
7. GOVERNING LAW.
This Agreement and the Retirement Award shall be governed by and construed
in accordance with the laws of the State of Illinois relating to contracts
made and to be performed in that State.
8. TERMINATION.
(a) This Agreement shall terminate upon the earlier of (i) July 1, 2003 or
(ii) the date of termination of the Employee's employment with the Company
or subsidiaries, unless extended pursuant to Section 8(b) below.
(b) Unless on or before March 1 of each year commencing March 1, 1999, the
Company notifies the Employee in writing that the Company does not intend
to extend the term of this Agreement, the term of this Agreement shall
automatically be extended for an additional period of one year; provided,
however, under no circumstances shall the term of this Agreement extend
beyond July 1, 2008.
9. NOTICES.
All notices, certificates or other communication shall be sufficiently
given when given in writing and mailed by first class mail, postage
prepaid, with proper address as indicated below. Any of such parties may
by written notice given to the other party designate any address or
addresses to which notices, certificates or other communications to them
shall be sent when required as contemplated by this Agreement. Until
otherwise provided by the respective parties, all notices, certificates and
communications to each of the parties shall be addressed as follows:
To the Company: Quixote Corporation
One East Wacker Drive
Suite 3000
Chicago, IL 60601
Attn: Philip E. Rollhaus, Jr.
With a copy to:Joan R. Riley, Esq.
Quixote Corporation
One East Wacker Drive
Suite 3000
Chicago, IL 60601
To the Employee: Leslie J. Jezuit
26576 Countryside Lake Drive
Mundelein, IL 60060
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the day and year first above written.
QUIXOTE CORPORATION
By: /s/ Philip E. Rollhaus, Jr.
---------------------------------------
Its: Chairman and Chief Executive Officer
ATTEST:
/s/ Joan R. Riley
- -----------------------
/s/ Leslie J. Jezuit
---------------------------
Leslie J. Jezuit
Exhibit 10 (b)
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement entered into as of March 31, 1998, by and
between TranSafe Corporation, a Delaware corporation (the "Buyer"), and
Digital Recorders, Inc., a North Carolina corporation (the "Seller"). The
Buyer and the Seller are referred to collectively herein as the "Parties".
The Seller wishes to sell or otherwise dispose of the Business, and the
Buyer wishes to acquire the Business.
This Agreement contemplates a transaction in which the Buyer will purchase
certain of the assets and assume certain of the liabilities of the Seller in
return for cash.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions
"Acquired Assets" means all right, title, and interest in and to all of the
assets of the Seller that are utilized in the Business, and are identified
on the Effective Date Balance Sheet including but not limited to:
(a) Tangible Assets,
(b) Inventory,
(c) Intellectual Property,
(d) Contracts,
(e) Software,
(f) all receivables of the Business,
(g) deposits, prepayments, and refunds,
(h) approvals, permits, licenses, FCC license, orders, registrations,
certificates, variances, and similar rights obtained from government and
governmental agencies directly related to the Business,
(i) books, records, ledgers, files, documents, correspondence, lists,
prints, plans, drawings, and specifications, creative materials, advertising
and promotional materials, studies, reports, and other printed or written
materials directly related to the Business, and
(j) all of the outstanding shares of Travelers Information Service, Inc., a
wholly-owned Subsidiary of the Seller;
provided, however, that the Acquired Assets shall not include (i) any of the
rights of the Seller under this Agreement (or under any side agreement
between the Seller on the one hand and the Buyer on the other hand entered
into on or after the date of this Agreement) and (ii) any inventory acquired
for the National Weather Service contract.
"Adjusted Purchase Price" has the meaning set forth in section 2(f) below.
"Adjustment" has the meaning set forth in section 2(f) below.
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorney's fees and court costs.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" has the meaning set forth in Code Sec. 1504(a).
"Applicable Rate" means the announced prime rate in effect from time to time
at the Northern Trust Company of Chicago, Illinois.
"Assumed Liabilities" means:
(a) all Liabilities of the Business set forth on the Effective Date Balance
Sheet,
(b) all accrued vacation, bonuses, commissions and sick pay of the
Transferred Employees,
(c) all Liabilities of the Business which have arisen after the Effective
Date in the Ordinary Course of Business,
(d) all obligations of the Seller related to the Business under the
Contracts, licenses, sublicenses, purchase orders, and other arrangements
referred to in the definition of Acquired Assets either (i) to furnish
goods, services, and other non-Cash benefits to another party after the
Closing or (ii) to pay for goods, services, and other non-Cash benefits that
another party will furnish to it after the Closing,
provided, however, that the Assumed Liabilities shall not include (i) any
Liability of the Seller for income, transfer, sales, use, and other Taxes
arising in connection with the consummation of the transactions contemplated
hereby, (ii) any Liability of the Seller for costs and expenses incurred in
connection with this Agreement or the consummation of the transactions
contemplated hereby, (iii) any Liability or obligation of the Seller under
this Agreement (or under any side agreement between the Seller on the one
hand and the Buyer on the other hand entered into on or after the date of
this Agreement), (iv) any warranty obligations of the Business for product
manufactured, sold, or shipped prior to the Effective Date, (v) any claim
against the Seller by employees or third parties arising from any event,
incident, situation or circumstance occurring or existing prior to the
Effective Date that is not expressly defined as an Assumed Liability, (vi)
any claim of Mary Stephens against the Business and the Seller, and (vii)
the GSA contract with respect to the U.S. National Weather Service which
expired March 31, 1998.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Business" means the business of the Seller's highway advisory radio
division.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in section 2(d) below.
"Closing Date" has the meaning set forth in section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the Business
that the Seller has treated as confidential and proprietary.
"Contracts" means all the contracts, agreements, leases, other similar
arrangements, and rights of the Business and identified on Schedule 1.
"Disclosure Schedule" has the meaning set forth in section 3 below.
"Effective Date" has the meaning set forth in section 2(d) below.
"Effective Date Balance Sheet" has the meanings set forth in section 2(f)
below.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan,
(b) qualified defined contribution retirement plan or arrangement which is
an Employee Pension Benefit Plan, (c) qualified defined benefit retirement
plan or arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Plans" has the meaning set forth in section 8(i) below.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Final Purchase Price" has the meaning set forth in section 2(f) below.
"GAAP" means generally accepted accounting principles used in the United
States.
"Initial Purchase Price" has the meaning set forth in section 2(c) below.
"Intellectual Property" means with respect to the Business all (a) patents,
patent applications, patent disclosures, and improvements thereto, (b)
trademarks, service marks, trade dress, logos, trade names, and corporate
names and registration and applications for registration thereof, (c)
copyrights and registrations and applications for registration thereof, (d)
mask works and registrations and applications for registration thereof, (e)
computer software, data, and documentation, (f) Trade Secrets and
confidential business information (including ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs,
plans, proposals, technical data, copyrightable works, financial, marketing,
and business data, pricing and cost information, business and marketing
plans, and customer and supplier lists and information), (g) other
proprietary rights, and (h) copies and tangible embodiments thereof (in
whatever form or medium).
"Inventory" means all inventory of raw materials, stock-in-trade, work-in-
process, finished goods, repair and replacement parts used or related to the
Business, including goods in transit, consigned inventory, inventory sold on
approval and rental inventory.
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated, and whether due or to
become due), including any liability for Taxes.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Party" has the meaning set forth in the preface above.
"Pro Forma Balance Sheet" means the pro forma balance sheet for the Business
as of December 31, 1997 attached hereto at Schedule 2.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec 4975.
"Questionable Receivables Discount" means $220,000 of receivables of the
Business outstanding on the Effective Date.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and
payable, (c) liens arising under worker's compensation, unemployment
insurance, social security, retirement, and similar legislation, (d) liens
arising in connection with sale of foreign receivables, (e) liens on goods
in transit incurred pursuant to documentary letter of credit, (f) purchase
money liens and liens securing rental payments under capital lease
arrangements, and (g) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller's Payments" has the meaning set forth in section 2(f) below.
"Software" means all computer software (including documentation and related
object and source codes) used in or related to the Business, and the
goodwill associated therewith. The "Software" is identified on Schedule 3.
"Statement" has the meaning set forth in section 2(i) below.
"Subsidiary" means any corporation with respect to which another specified
corporation has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
"Tangible Assets" means tangible personal property of the Business including
but not limited to machinery, tooling, equipment, computers, leasehold
improvements at the 4900 Prospectus Drive, Research Triangle Park, North
Carolina, 1725 Carpenter Fletcher Road, Durham, North Carolina, and 5121
Holly Ridge Drive, Raleigh, North Carolina facilities, fixtures,
accessories, furniture, furnishings, automobiles, trucks, tools, jigs, and
dies used in the Business and identified on Schedule 4.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A),
customs duties, capital stock, franchise, profits, withholdings, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including
any interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Trade Secrets" means confidential ideas and information, trade secrets,
know-how concepts, methods, processes formula, reports, data, customer
lists, mailing lists business plans or other proprietary information or
materials.
"Transferred Employee" means an employee of Seller who receives and accepts
an employment offer of the Buyer in connection with the sale of the
Business.
2. Basic Transaction.
(a). Purchase and Sale of Assets. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller,
and the Seller agrees to sell, transfer, convey, and deliver to the Buyer,
the Acquired Assets for the consideration specified below in this section 2.
(b). Assumption of Liabilities. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to assume and become responsible for the
Assumed Liabilities. The Buyer will not assume or have any responsibility,
however, with respect to any other obligation or Liability of the Seller not
included in the definition of Assumed Liabilities.
(c). Purchase Price. Based on the Pro Forma Balance Sheet, the Buyer
agreed to pay the Seller $3.411 million (the "Initial Purchase Price")
subject to the adjustments provided in this section 2.
(d). The Closing Date and the Effective Date. The closing of the
transactions contemplated by this Agreement (the "Closing") shall take place
at the offices of McBride Baker & Coles in Chicago, Illinois, on the date
hereof (the "Closing Date"). Notwithstanding the Closing Date, the
transactions contemplated herein shall be effective at the beginning of
business April 1, 1998 (the "Effective Date"). Between the Effective Date
and the Closing Date, with respect to the Business, all assets acquired,
Liabilities incurred, receivables created, cash received (except as provided
in section 2(f) below), Liabilities paid and orders shipped shall be for the
account of the Buyer.
(e). Deliveries at the Closing. At the Closing, (i) the Seller will
deliver to the Buyer the various certificates, instruments, and documents
referred to in section 6(a) below; (ii) the Buyer will deliver to the Seller
the various certificates, instruments, and documents referred to in section
6(b) below; (iii) the Seller will execute, acknowledge (if appropriate),
and deliver to the Buyer (A) assignments (including Intellectual Property
transfer documents) substantially in the form attached hereto as and (B)
such other instruments of sale, transfer, conveyance, and assignment as the
Buyer and its counsel reasonably may request; (iv) the Buyer will execute,
acknowledge (if appropriate), and deliver to the Seller (A) an assumption
agreement substantially in the form attached hereto as and (B) such other
instruments of assumption as the Seller and its counsel reasonably may
request; and (v) the Buyer will deliver cash in the amount of the Final
Purchase Price less the Questionable Receivables Discount to the Seller.
(f). Adjustment to Initial Purchase Price. An adjustment to the Initial
Purchase Price will be calculated in accordance with the following
provisions:
(i)Between the Effective Date and the Closing Date, the Parties shall
prepare a balance sheet of the Business as of the Effective Date (the
"Effective Date Balance Sheet"). The Effective Date Balance Sheet will
include the same line items and be prepared in accordance with the same
policies and practices as the Pro Forma Balance Sheet; provided however, the
Parties agree that: (x) To the extent a receivable includes an unperformed
obligation of the Seller, which shall be performed by the Buyer, that
portion of the receivable attributable to the unperformed obligation plus a
pro rata share of the profit of such receivable, shall be deducted from the
receivables on a dollar for dollar basis on the Effective Date Balance
Sheet, whether such unperformed obligation is reflected in Deferred Revenue
or otherwise; (y) all inventory related to the National Weather Service
contract shall be deducted from the Inventory on a dollar for dollar basis;
and (z) any trade payable outstanding on the Effective Date that relates to
products shipped on or before the Effective Date shall be deducted from the
payables on a dollar for dollar basis.
(ii)The difference between the Equity/Payable to Parent line item on the
Effective Date Closing Balance Sheet and the Equity/Payable to Parent on the
Pro Forma Balance Sheet (the "Adjustment") shall be an adjustment to the
Initial Purchase Price. When the Parties have agreed on the "Adjustment",
the Parties will proceed to calculate the Adjusted Purchase Price as
follows: If the Adjustment is greater than 1, the Adjustment shall increase
the Initial Purchase Price on a dollar for dollar basis and if the
Adjustment is less than 1, it shall reduce the Initial Purchase Price on a
dollar for dollar basis, resulting in the "Adjusted Purchase Price".
(iii)After the determination of the Adjusted Purchase Price, the Parties
agree that the sum of the line items Accrued Vacation Payable, Accrued
Bonuses and Accrued Commissions but only to the extent they relate to
Transferred Employees on the Effective Date Balance Sheet (together,
"Seller's Payments") shall be deducted from the Adjusted Purchase Price on a
dollar for dollar basis, because the Buyer will pay those obligations on
behalf of the Seller to the third parties. The result of the Adjusted
Purchase Price less the Seller's Payments shall be the "Final Purchase
Price".
(iv)Between the Effective Date and the Closing Date, the Buyer and the
Seller will review the Effective Date receivables to determine which of the
receivables, if any, can not be readily collected by the Buyer and the
appropriate discount for such receivables ("Questionable Receivables
Discount").
(v)At the Closing, the Buyer will pay the Seller the Final Purchase Price
less the Questionable Receivables Discount in cash, and the Parties agree
that thereafter neither Party shall have any further obligation to the other
Party with respect to the receivables except as provided in section 9.
(g). Seller's Payments. The Buyer will pay the Seller's Payments to the
Transferred Employees, at such times as the Seller would have been obligated
to make such payments.
(h). Purchase Price Allocation. The Purchase Price will be allocated in
accordance with the following provisions:
(i)Within thirty (30) days of the Closing Date, the Buyer and the Seller
will execute a Purchase Price Allocation Statement (the "Statement") with
the Parties' allocation of the Purchase Price (together with the Assumed
Liabilities). The Parties will endeavor in good faith to resolve any
differences with respect to the Purchase Price Allocation Statement.
(ii)The Purchase Price (together with the Assumed Liabilities) will be
allocated in accordance with the Purchase Price Allocation Statement and
subject to the requirements of applicable tax law or election, all Tax
Returns and reports including Internal Revenue Service Form 8594, filed by
the Parties will be prepared consistently with such allocation. The Parties
shall, subject to the requirements of any applicable tax law or election,
file all Tax Returns and reports consistent with the allocation provided in
the Purchase Price Allocation Statement.
(i). Nonassignable Contracts. To the extent that the assignment by the
Seller of any sales order, purchase order, lease, license or other Contract
included in the Assumed Liabilities or Acquired Assets is not permitted
without (i) the consent of the other party to the contract, (ii) the
approval of the Buyer as a source of the products or services called for by
such contract or (iii) the approval of the Buyer as a lessee, then this
Agreement shall not be deemed to constitute an assignment or an attempted
assignment of the same, if such assignment or attempted assignment would
constitute a breach thereof. If such consent is not obtained, or if an
attempted assignment would be ineffective or would impair the Buyer's rights
thereunder so that the Buyer would not, in fact, receive all such rights,
the Buyer shall act as the agent of the Seller in order to obtain for the
Buyer the benefits thereunder. In the event the third party will not permit
the Buyer to so act as the agent of the Seller, or the Buyer is prohibited
by law from doing so, the Seller shall, at the Buyer's option, assume all of
the remaining burdens and obligations under the relevant instrument, and the
Buyer shall thereafter reimburse and indemnify the Seller for its
performance thereof to the extent the Buyer obtains the benefits thereunder.
3. Representations and Warranties of the Seller. The Seller represents and
warrants to the Buyer that the statements contained in this section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
section 3), except as set forth in the disclosure schedule accompanying this
Agreement and initialed by the Parties (the "Disclosure Schedule").
(a). Organization of the Seller. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
(b). Authorization of Transaction. The Seller has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Seller,
enforceable in accordance with its terms and conditions.
(c). Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in section 2 above),
will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or any
provision of the charter or bylaws of the Seller or (ii) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, require any notice under any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or other
arrangements to which the Seller is a party or by which it is bound or to
which any of its assets is subject, except with respect to the required
third party consents identified on Exhibit C. Seller does not need to give
any notice to, make any filing with, or obtain any authorization, consent,
or approval of any governmental or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement
(including the assignments and assumptions referred to in section 2 above).
(d). Subsidiaries. The only Subsidiary of the Seller which is related to
the Business is identified on section 3(d) of the Disclosure Schedule; the
Subsidiary is organized and is currently in good standing in the State of
North Carolina, and has only 100 shares of common stock, $1.00 par value,
currently issued and outstanding. The Subsidiary is not now, and never has
been, engaged in any activities or conducted any business; the Subsidiary
does not currently have, and has never had, any assets (except the F.C.C.
license used in the Business) or any Liabilities.
(e). Financial Statements; Books and Records. Attached hereto as Exhibit
D are the following financial statements (collectively the "Financial
Statements"): (i) audited consolidated and unaudited consolidating balance
sheets and statements of income, changes in stockholders' equity, and cash
flow as of and for the fiscal years ended December 31, 1995 and December 31,
1996 (the "Most Recent Fiscal Year End") for the Seller, and (ii) unaudited
consolidated and consolidating balance sheets and statements of income, and
cash flow (the "Most Recent Financial Statements") as of and for the one
month ended January 31, 1998 (the "Most Recent Fiscal Month End") for the
Seller. The Financial Statements have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, are
correct and complete, and are consistent with the books and records of the
Seller (which books and records are correct and complete); provided,
however, that the interim Financial Statements are subject to normal year-
end adjustments (which will not be material) and lack footnotes and other
presentation items.
None of the records, systems, data or information of the Seller is recorded,
stored, maintained, operated or otherwise, wholly or partly, dependent on or
held or accessible by any means (including, but not limited to, an
electronic, mechanical or photographic process, computerized or not) which
are not under the exclusive ownership and direct control of the Seller.
The books of account, minute books and other material business records of
the Seller are complete and correct and have been maintained in accordance
with sound business practices. The Seller has: (i) made and kept its
books, records and accounts, which, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of its assets, and (ii)
devised and maintained a system of internal accounting control sufficient to
provide reasonable assurances that: (w) transactions are executed in
accordance with management's general or specific authorization; (x)
transactions are recorded as necessary (A) to permit preparation of
financial statements in conformity with GAAP or any other criteria
applicable to such statements, and (B) to maintain accountability for
assets; (y) access to assets is permitted only in accordance with
management's general or specific authorization; and (z) the recorded
accountability for assets as compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(f). Events Subsequent to Most Recent Fiscal year End. Since the Most
Recent Fiscal Year End, there has not been any adverse change in the assets,
Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Business. Without limiting the
generality of the foregoing, since that date:
(i)the Seller has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, used in the Business other than for a fair
consideration in the Ordinary Course of Business;
(ii)with respect to the Business, the Seller has not entered into any
contract lease, sublease, license, or sublicense (or series of related
contracts, leases, subleases, licenses, and sublicenses) either involving
more than $10,000 or outside the Ordinary Course of Business;
(iii)with respect to the Business, no party (including the Seller) has
accelerated, terminated, modified, or canceled any contract, lease,
sublease, license, or sublicense (or series of related contracts, leases,
subleases, licenses, and sublicenses) involving more than $10,000 to which
the Seller is a party or by which it is bound;
(iv)the Seller has not imposed any Security Interest upon any of its assets,
tangible or intangible;
(v)with respect to the Business, the Seller has not made any capital
expenditure (or series of related capital expenditures) either involving
more than $10,000 or outside the Ordinary Course of Business;
(vi)with respect to the Business, the Seller has not made any capital
investment in, any loan to, or any acquisition of the securities or assets
of any other person (or series of related capital investments, loans, and
acquisitions) either involving more than $10,000 or outside the Ordinary
Course of Business;
(vii)with respect to the Business, the Seller has not created, incurred,
assumed, or guaranteed any indebtedness (including capitalized lease
obligations) either involving more than $5,000 singly or $10,000 in the
aggregate or outside the Ordinary Course of Business;
(viii)with respect to the Business, the Seller has not delayed or postponed
(beyond its normal practice) the payment of accounts payable and other
Liabilities;
(ix)with respect to the Business, the Seller has not canceled, compromised,
waived, or released any right or claim (or series or related rights and
claims) either involving more than $5,000 or outside the Ordinary Course of
Business;
(x)with respect to the Business, the Seller has not granted any license or
sublicense of any rights under or with respect to any Intellectual Property;
(xi)there has been no change made or authorized in the charter or bylaws of
any of the Seller;
(xii)with respect to the Business, the Seller has not experienced any
damage, destruction, or loss (whether or not covered by insurance) to its
property;
(xiii)with respect to the Business, the Seller has not made any loan to, or
entered into any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business giving rise to any claim
or right on its part against the person or on the part of the person against
it;
(xiv)with respect to the Business, the Seller has not entered into any
employment contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xv)with respect to the Business, the Seller has not granted any increase
outside the Ordinary Course of Business in the base compensation of any of
its directors, officers, and employees;
(xvi)with respect to the Business, the Seller has not adopted any (A) bonus,
(B) profit-sharing, (C) incentive compensation, (d) pension, (E) retirement,
(F) medical, hospitalization, life, or other insurance, (G) severance, or
(H) other plan, contract, or commitment for any of its directors, officers,
and employees, or modified or terminated any existing such plan, contract,
or commitment;
(xvii)with respect to the Business, the Seller has not made or pledged to
make any charitable or other capital contribution outside the Ordinary
Course of Business;
(xviii)with respect to the Business, the Seller has not delayed payment of
any amount to any third party with respect to any Liability or obligation
(including any costs and expenses the Seller has incurred or may incur in
connection with this Agreement or any of the transitions contemplated
hereby) which would constitute an Assumed Liability if in existence as of
the Effective Date; and
(xix)with respect to the Business, there has not been any other occurrence,
event, incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Seller.
(g). Undisclosed Liabilities. With respect to the Business, the Seller has
no Liability (and there is no Basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim or demand
against any of them giving rise to any Liability), except for (i)
Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Month End in the Ordinary Course of Business (none of
which relates to any breach of contract, breach of warranty, tort,
infringement, or violation of law or arose out any charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand).
(h) Tax Matters.
(i)The Seller has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all respects. All Taxes owed
by the Seller (whether or not shown on any Tax Return) have been paid. The
Seller currently is not the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction where the Seller does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of any of the Seller that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii)The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party.
(iii)No officer (or employee responsible for Tax matters) of the Seller
expects any authority to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or claim concerning
any Tax Liability of the Seller either (A) claimed or raised by any
authority in writing or (B) as to which any of officers (and employees
responsible for Tax matters) of the Seller has Knowledge based upon personal
contact with any agent of such authority.
(iv)The Seller has provided the Buyer with complete and accurate information
with respect to the basis of the Seller in those assets that constitute the
Acquired Assets.
(i). Tangible Assets; Inventory. Schedule 4 is a complete and accurate
list of all tangible assets owned or leased by, or in the possession of, the
Seller and used in the Business except the Inventory. The Seller has good
and marketable title to the Tangible Assets (or has an enforceable right to
use the Tangible Assets in the case of Tangible Assets held under lease or
contract), and to the Inventory. The Tangible Assets and the Inventory are
not subject to any Security Interest, are in possession of the Seller, and
are located at Suite 250, 4900 Prospectus Drive, Research Triangle Park,
North Carolina, 1725 Carpenter Fletcher Road, Durham, North Carolina and
partially at 5121 Holly Ridge Drive, Raleigh, North Carolina. The Tangible
Assets are all the tangible assets necessary for the conduct of the Business
as presently conducted and as presently proposed to be conducted. Each such
Tangible Asset is free from defects, has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject
to normal wear and tear), and is suitable for the purposes for which it
presently is used.
The Inventory of the Business consists of raw materials and supplies,
manufactured and purchased parts, goods in process, and finished goods, all
of which is merchantable and fit for the purpose for which it was procured
or manufactured, and none of which is slow-moving, obsolete, damaged, or
defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet as adjusted for the passage of
time in accordance with the past custom and practice of the Seller.
(j). Owned Real Property. section 3(j) of the Disclosure Schedule lists all
real property that the Seller owns.
(k). Intellectual Property.
(i)The Seller owns or has the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property necessary for the
operation of the Business as presently conducted and as presently proposed
to be conducted. Each item of Intellectual Property owned or used by the
Seller in the Business immediately prior to the Closing hereunder will be
owned or available for use by the Buyer on identical terms and conditions
immediately subsequent to the Closing hereunder. The Seller has taken all
necessary or desirable action to protect each item of Intellectual Property
that it owns or uses in the Business.
(ii)The Seller has not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties with respect to the Business, and none of the officers (and
employees with responsibility for Intellectual Property matters) of the
Seller has ever received any charge, complaint, claim, or notice alleging
any such interference, infringement, misappropriation, or violation. To the
Knowledge of the officers (and employees with responsibility for
Intellectual Property matters) of the Seller, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with
any Intellectual Property rights of any of the Seller with respect to the
Business.
(iii)section 3(k) of the Disclosure Schedule identifies each patent or
registration which has been issued to or is owned by the Seller with respect
to its Intellectual Property used in the Business, identifies each pending
patent application or application for registration which the Seller had made
with respect to any of its Intellectual Property used in the Business, and
identifies each license, agreement, or other permission which the Seller has
granted to any third party with respect to any of its Intellectual Property
used in the Business (together with any exceptions). The Seller has
delivered to the Buyer correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as
amended to date) and has made available to the Buyer correct and complete
copies of all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. With respect to each such
item of Intellectual Property used in the Business:
(A)the identified owner possesses all right, title, and interest in and to
the item;
(B)the item is not subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge;
(C)no charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand is pending or threatened which challenges the legality,
validity, enforceability, use, or ownership of the items; and
(D)the Seller has not ever agreed to indemnify any person or entity for or
against any interference, infringement, misappropriation, or other conflict
with respect to the item.
(iv)section 3(k) of the Disclosure Schedule also identifies each item of
Intellectual Property that any third party owns and that the Seller uses
pursuant to license, sublicense, agreement, or permission in the Business.
The Seller has supplied the Buyer with correct and complete copies of all
such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each such item of Intellectual Property used in the
Business:
(A)the license, sublicense, agreement, or permission covering the item is
legal, valid, binding, enforceable, and in full force and effect;
(B)the license, sublicense, agreement, or permission will continue to be
legal, valid, binding, enforceable, and in full force and effect;
(C)no party to the license, sublicense, agreement, or permission is in
breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D)no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof;
(E)with respect to each sublicense, the representations and warranties set
forth in subsections (A) through (D) above are true and correct with respect
to the underlying license;
(F)the underlying item of Intellectual Property is not subject to any
outstanding judgment, order, decree, stipulation, injunction, or charge;
(G)no charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand is pending, or threatened which challenges the legality,
validity, or enforceability of the underlying item of Intellectual Property;
and
(H)the Seller has not granted any sublicense or similar right with respect
to the license, sublicense, agreement, or permission.
(v)None of the officers (and employees with responsibility for Intellectual
Property matters) of the Seller has any Knowledge of any new products,
inventions, procedures, or methods of manufacturing or processing that any
competitors or other third parties have developed which reasonably could be
expected to supersede or make obsolete any product or process of any of the
Business.
(l). Software and Information Systems. Schedule 3 sets forth an accurate
and complete list and summary description of all the Software used in and
related to the Business. The Software identified on Schedule 3 is all the
software necessary for the operation of the Business as it is presently
conducted and as presently proposed to be conducted. section 3(l) of the
Disclosure Schedule identifies or describes (y) Software which is owned by
the Seller and (z) Software which is licensed to the Seller by third
parties. Except as provided at section3(l) of the Disclosure Schedule, with
respect to the Software that is owned by the Seller:
(i)All Software documentation for the end user is reasonably current,
accurate and sufficient in detail and content to identify, explain the
nature and permit the intended use thereof.
(ii)All source codes, object codes and source code comments included in the
Software are sufficient to the extent reasonably necessary to enable Buyer
to maintain and modify the Software using persons skilled in the programming
language, operating systems, and hardware involved.
(iii)Except for Incorporated Products (as hereinafter defined), the Seller
has good, sole, and marketable right, title, and interest in and to the
Software (including the exclusive right to make, copy, sell, exploit, and
provide to others the use of the Software and all derivative works thereof)
free and clear of any Security Interests and adverse rights of every kind,
nature, and description. The Seller is in actual and sole possession of
(and will transfer to Buyer at Closing) all copies of the source code,
source code comments and object code (except for copies of object code held
by licensees) and other proprietary rights included in the Software.
section 3(l) of the Disclosure Schedule lists all current and former
employees of the Seller who were authors of the Software and, to the
Knowledge of the Seller, any other person or entity who materially
participated in the development of the Software or any portion thereof or
performed any work related to the Software (such authors and other persons
or entities are collectively referred to as the "Software Authors"). Each
Software Author identified as "internal" made his contribution to the
Software within the scope of employment with the Seller as "work made for
hire." Except for the Incorporated Products, the Software and every portion
thereof is an original creation of the Software Authors (or other persons
not having any rights thereto) and does not contain any source code or
portions of source code (including any "canned program") created by any
parties other than the Software Authors (or other persons not having any
rights thereto). The Seller has not, by any acts or omissions, or by acts
or omissions of Affiliates, directors, officers, employees, agents, or
representatives caused any of its proprietary rights in the Software,
including copyrights, trademarks, and trade secrets to be transferred,
diminished, or adversely affected to any material extent.
(iv)Except as set forth in section 3(l) of the Disclosure Schedule, there
are no defects or errors in the Software, which defects or errors could
materially and adversely affect Buyer's or any licensee's use of the
Software or the functioning of the Software in accordance with the
specifications for the Software published by the Seller or provided to
customers; the Software has all the features described in the user manuals
or advertisements and materials made available to the Seller's customers;
and the Software does not contain any "back door," "time bomb," "worm,"
"virus" (as these terms are commonly used in the computer software
industry), or other software routines or hardware components designed to
permit unauthorized access, to disable or erase software, hardware, or data
in a manner unauthorized by, and contrary to the intentions of, the user, or
to perform any other similar unauthorized destructive type of functions.
(v)No person or entity other than the Seller has any interest of any kind or
nature in or with respect to the Software, including the right to use, make,
copy, sell, exploit and provide to others the use of, the Software and all
derivative works thereof, and no government funding or university or college
facilities were used in the development of the Software, and the Software
was not developed pursuant to an agreement giving any person or entity
rights to the Software, and no situation, matter, or agreement exists that
would preclude Buyer from making any change to the Software or combining it
with other software in any lawful manner.
(vi)All copies of copyrighted Software contain copyright legends; the Seller
has no Knowledge that any third party is violating or has violated any of
the Seller proprietary rights in the Software; other than license fees for
Incorporated Products, no third party has any interest in, or right to
compensation from the Seller by reason of, the use, exploitation, or sale of
the Software; there are no restrictions on the ability of the Seller (or any
successor or assignee of the Seller, including Buyer) to use or otherwise
exploit the Software, and such use or exploitation does not and will not
obligate the Seller (or any successor or assignee of the Seller, including
Buyer) to pay any royalty, fee, or other compensation to any person or
entity other than license fees for Incorporated Products; and the Seller has
not received any notice and do not have any knowledge of any complaint,
assertion, threat, or allegation inconsistent with the preceding statements
in this paragraph.
(vii)The Software has been licensed for use by third parties only pursuant
to the terms of the standard license agreement in form attached to section
3(l) of the Disclosure Schedule which has been in effect since January, 1997
and no license contains any term or provision other than those set forth in
the applicable standard form, except for such minor deviations therefrom as
do not materially and adversely effect the licensor's rights or obligations
thereunder.
(viii)The Seller has delivered or will deliver at Closing all of its
Software fixes (including fixes currently in progress), problem lists,
maintenance of the Software, and customer complaints, and all warranty
claims (including any pending claims) related to the Software all of which
are described at section 3(l) of the Disclosure Schedule. Except as set
forth in the Disclosure Schedule, there are no representations and
warranties that have been made with respect to the Software.
(ix)The Disclosure Schedule contains a complete list of all third party
software and patent rights which are a component of or incorporated in or
specifically required to develop or support any of the Software
("Incorporated Products"), and a list of all restrictions on the Seller's
unrestricted right to use, incorporate or distribute the Incorporated
Products. The Seller is not in violation of any license, sublicense or
agreement with respect to an Incorporated Product.
(x)No person or entity is entitled to receive the source code for any
Software for any reason, and the Seller has not disclosed the source code
for any Software to any third party except as set forth at section 3(l) of
the Disclosure Schedule.
(m). Real Property Leases. With respect to the Business, section 3(m) of
the Disclosure Schedule lists and describes briefly all real property leased
or subleased to any of the Seller. The Seller has delivered to the Buyer
correct and complete copies of the leases and subleases listed in section
3(m) of the Disclosure Schedule. With respect to each lease and sublease
listed in section 3(m) of the Disclosure Schedule:
(i)the lease or sublease is legal, valid, binding, enforceable, and in full
force and effect;
(ii)the lease or sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
Closing.
(iii)no party to the lease or sublease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute a breach
or default or permit termination, modification, or acceleration thereunder;
(iv)no party to the lease or sublease has repudiated any provision thereof;
(v)there are no disputes, oral agreements, or forbearance programs in effect
as to the lease or sublease;
(vi)with respect to each sublease, the representations and warranties set
forth in subsections (i) through (v) above are true and correct with respect
to the underlying lease;
(vii)the Seller has not assigned, transferred, conveyed, mortgaged, deeded
in trust, or encumbered any interest in the leasehold or subleasehold;
(viii)all facilities leased or subleased thereunder have received all
approvals of governmental authorities (including licenses and permits)
required in connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations; and
(ix)all facilities leased or subleased thereunder have received all
approvals of governmental authorities (including licenses and permits)
required in connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations.
(n). Contracts; Backlog. With respect to the Business, section 3(n) of the
Disclosure Schedule lists the following contracts, agreements, and other
written arrangements to which the Seller is a party:
(i)any written arrangement (or group of related written arrangements) for
the lease of personal property from or to third parties providing for lease
payments;
(ii)any written arrangement (or group of related written arrangements) for
the purchase or sale of raw materials, commodities, supplies, products, or
other personal property or for the furnishing or receipt of services;
(iii)any written arrangement concerning a partnership or joint venture;
(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) or under which it has imposed (or may impose) a Security
Interest on any of its assets, tangible or intangible;
(v)any written arrangement concerning confidentiality or competition;
(vi)any written arrangement involving any of the Seller's stockholders and
its Affiliates;
(vii)any written arrangement with any of its directors, officers, and
employees in the nature of a collective bargaining agreement, employment
agreement, or severance agreement;
(viii)to the Seller's Knowledge, any written arrangement under which the
consequences of a default or termination could have an adverse effect on the
assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Business; or
(ix)any other written arrangement (or group of related written arrangements)
either involving more than $5,000 or not entered into in the Ordinary Course
of Business.
The Seller has delivered to the Buyer a correct and complete copy of each
written arrangement listed in section 3(n) of the Disclosure Schedule. With
respect to each Contract: (A) the written arrangement is legal, valid,
binding, enforceable, and in full force and effect; (B) the written
arrangement will continue to be legal, valid, binding, and enforceable and
in full force and effect on identical terms following the Closing; (C) no
party is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default or permit termination,
modification, or acceleration, under the written arrangement; and (D) no
party has repudiated any provision of the written arrangement. The Seller
is not a party to any verbal contract, agreement, or other arrangement,
which, if reduced to written form, would be required to be listed in section
3(n) of the Disclosure Schedule under terms of this section 3(n) or Schedule
1. The contracts and arrangements on Schedule 1 constitute all of the
agreements, contracts, arrangements and rights necessary to conduct the
Business as it is presently conducted and presently proposed to be
conducted.
No filled customer order or commitment of the Business obligating the Seller
to process, manufacture, or deliver products or perform services will result
in a loss to the Seller upon completion of performance. No purchase order
or commitment of the Seller with respect to the Business is in excess of
normal requirements, nor are prices provided therein in excess of current
market prices for the products or services to be provided thereunder. No
supplier of the Seller has indicated within the past year that, with respect
to the Business, it will stop, or decrease the rate of, supplying materials,
products, or services to them and no customer of the Seller has indicated
within the past year that it will stop, or decrease the rate of, buying
materials, products, or services from it.
The Business currently has, and at the Effective Date, will have, backlog,
calculated in the manner consistent with past practices of at least
$900,000.
(o). Accounts Receivable. All accounts receivable of the Seller with
respect to the Business are reflected properly on its books and records, are
valid receivables subject to no setoffs or counterclaims, are presently
current and collectible, and will be collected in accordance with their
terms at their recorded amounts, subject only to the reserve for bad debts
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) as adjusted for the passage of time in accordance with the
past custom and practice of the Seller.
(p). Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Seller with respect to the Business, the Acquired
Assets and the Assumed Liabilities.
(q). Insurance. The Seller has provided accurate and complete information
with respect to each insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond
and surety arrangements) to which the Seller has been a party and is related
to the Business.
(r). Litigation. section 3(r) of the Disclosure Schedule sets forth each
instance in which the Seller (i) is subject to any unsatisfied judgment,
order, decree, stipulation, injunction, or charge or (ii) is a party to the
Knowledge of any officers (and employees with responsibility for litigation
matters) of the Seller or is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator. None of the
charges, complaints, actions, suits, proceedings, hearings, and
investigations set forth in section 3(r) of the Disclosure Schedule could
result in any adverse change in the assets, Liabilities, business, financial
condition, operations, results of operations, or future prospects of the
Business. None of the officers (and employees with responsibility for
litigation matters) of the Seller has any reason to believe that any such
charge, complaint, action, suit, proceeding, hearing, or investigation may
be brought or threatened against the Seller.
(s). Product Warranty. With respect to the Business, each product
manufactured, sold, leased, or delivered by the Seller has been in
conformity with all applicable contractual commitments and all express and
implied warranties, and, with respect to the Business, the Seller has no
Liability (and there is no Basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against any of them giving rise to any Liability) for replacement or
repair thereof or other damages in connection therewith, subject only to the
reserve for product warranty claims set forth on the face of the Most Recent
Balance Sheet as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of the Seller. With respect
to the Business, no product manufactured, sold, leased, or delivered by the
Seller is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. With respect to
the Business, section 3(s) of the Disclosure Schedule includes copies of the
standard terms and conditions of sale or lease for the Seller (containing
applicable guaranty, warranty, and indemnity provisions).
(t). Product Liability; Product Safety. With respect to the Business, the
Seller has no Liability (and there is no Basis for any present of future
charge, complaint, action, suit, proceeding, hearing, investigation, claim,
or demand against any of them giving rise to any Liability) arising out of
any injury to persons or property as a result of the ownership, possession,
or use of any product manufactured, sold, leased, or delivered by the
Seller.
The Seller has not been required to file any notification or other report
with or to provide information to any product safety agency, commission,
board or other governmental authority of any jurisdiction concerning actual
or potential hazards with respect to any product manufactured or sold by the
Business. Each product manufactured, distributed or sold by the Business
complies in all material respects of all product safety standards or each
applicable product safety agency, commission, board or other governmental
authority. The Seller has not made any misrepresentation or furnished any
information containing any material omission to any products safety testing
laboratory or a similar organization. The Seller has not failed to obtain
approval of any product, component or process which is used, manufactured or
licensed by the Seller in the conduct of the Business which is legally
required to be approved by any independent or government-sponsored testing
laboratory, industry, trade association or similar body agency or
association.
(u). Employees. To the Knowledge of any of the officers (and employees with
responsibility for employment matters) of the Seller, with respect to the
Business, no key employee or group of employees has any plans to terminate
employment with the Seller. The Seller is not a party to or bound by any
collective bargaining agreement, and has not experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Seller has not committed any unfair labor practice. None of
the officers (and employees with responsibility for employment matters) of
the Seller has any Knowledge of any organizational effort presently being
made or threatened by or on behalf of any labor union with respect to
employees of the Business.
(v). Employee Benefits. section 3(v) of the Disclosure Schedule lists all
Employee Benefit Plans that the Seller maintains or to which the Seller
contributes for the benefit of any current or former employee of the Seller.
(i)Each Employee Benefit Plan (and each related trust or insurance contract)
complies in form and in operation in all respects with the applicable
requirements of ERISA and the Code.
(ii)All required reports and descriptions (including Form 5500 Annual
Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions)
have been filed or distributed appropriately with respect to each Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA
and of Code Sec. 162(k) have been met with respect to each Employee Welfare
Benefit Plan.
(iii)All contributions (including all employer contributions and employee
salary reduction contributions) which are due have been paid to each
Employee Pension Benefit Plan and all contributions for any period ending on
or before the Effective Date which are not yet due have been paid to each
Employee Pension Benefit Plan or accrued in accordance with the past custom
and practice of the Seller. All premiums or other payments for all periods
ending on or before the Effective Date have been paid with respect to each
Employee Welfare Benefit Plan.
(iv)Each Employee Pension Benefit Plan meets the requirements of a
"qualified plan" under the Code Sec. 401(a) and has received, within the
last two years, a favorable determination letter from the Internal Revenue
Service.
(v)The market value of assets under each Employee Pension Benefit Plan
(other than any Multiemployer Plan) equals or exceeds the present value of
Liabilities thereunder (determined on a plan termination basis). No
Employee Pension Benefit Plan (other than any Multiemployer Plan) has been
completely or partially terminated or been the subject of a Reportable Event
as to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any Employee Pension Benefit Plan (other
than any Multiemployer Plan) has been instituted or, to the Knowledge of the
officers (and employees with responsibility for employee benefits matters)
of the Seller, threatened.
(vi)There have been no Prohibited Transactions with respect to any Employee
Benefit Plan. No Fiduciary has any Liability for breach of fiduciary duty
or any other failure to act or comply in connection with the administration
or investment of the assets of any Employee Benefit Plans. No charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand with respect to the administration or the investment of the assets of
any Employee Benefit Plan (other than routine claims for benefits) is
pending or to the Knowledge of the officers (and employees with
responsibility for employee benefits matters) of the Seller threatened.
None of the officers (and employees with responsibility for employee
benefits matters) of the Seller has any Knowledge of any Basis for any such
charge, complaint, action, suit, proceeding, hearing, investigation, claim,
or demand.
(vii)The Seller has delivered to the Buyer correct and complete copies of
(A) the plan documents and summary plan descriptions, (B) the most recent
determination letter received from the Internal Revenue Service, (C) the
most recent Form 5500 Annual Report, and (D) all related trust agreements,
insurance contracts, and other funding agreements which implement each
Employee Benefit Plan.
The Seller does not contribute to, never has contributed to, nor ever has
been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan. The Seller
has not incurred, and none of the officers (and employees with
responsibility for employee benefits matters) of the Seller has any reason
to expect that the Seller will incur, any Liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV or ERISA (including any
withdrawal Liability) or under the Code with respect to any Employee Pension
Benefit Plan that the Seller maintains or ever has maintained or to which it
contributes, ever has contributed, or ever has been required to contribute.
The Seller does not maintain nor ever has maintained, nor contributes, ever
has contributed, or ever has been required to contribute to any Employee
Welfare Benefit Plan providing health, accident, or life insurance benefits
to former employees, their spouses, or their dependents (other than in
accordance with Code Sec. 162(k):
(w). Guaranties. With respect to the Business, the Seller is not a
guarantor or otherwise is liable for any Liability or obligation (including
indebtedness) of any other person.
(x). Environment, Health, and Safety.
(i)With respect to the Business, the Seller and its respective predecessors
and Affiliates has complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning the environment, public health and safety, and
employee health and safety, and no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has been filed
or commenced against any of them alleging any failure to comply with any
such law or regulation.
(ii)With respect to the Business, the Seller has no Liability (and there is
no Basis related to the past or present operations, properties, or
facilities of the Seller and its predecessors and Affiliates for any present
or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against any of the Seller and its
Subsidiaries giving rise to any Liability) under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Federal Water Pollution Control
Act of 1972, the Clean Air Act of 1970, the Safe Drinking Water Act of 1974,
the Toxic Substances Control Act of 1976, the Refuse Act of 1899, or the
Emergency Planning and Community Right-to-Know Act of 1986 (each as
amended), or any other law (or rule or regulation thereunder) of any
federal, state, local, or foreign government (or agency thereof), concerning
release or threatened release of hazardous substances, public health and
safety, or pollution or protection of the environment.
(iii)With respect to the Business, the Seller has no Liability (and the
Seller and its predecessors and Affiliates have not handled or disposed of
any substance, arranged for the disposal of any substance, or owned or
operated any property or facility in any manner that could form the Basis
for any present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand (under the common law or pursuant
to any statute) against the Seller giving rise to any Liability) for damage
to any site, location, or body of water (surface or subsurface) or for
illness or personal injury.
(iv)With respect to the Business, the Seller has no Liability (and there is
no Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand against the Seller
giving rise to any Liability) under the Occupational Safety and Health Act,
as amended, or any other law (or rule or regulation thereunder) of any
federal, state, local, or foreign government (or agency thereof) concerning
employee health and safety.
(v)With respect to the Business, the Seller has no Liability (and the Seller
has not exposed any employee to any substance or condition that could form
the Basis for any present or future charge, complaint, action, suit,
proceeding, hearing, investigation, claim or demand (under the common law or
pursuant to statute) against the Seller giving rise to any Liability) for
any illness of or personal injury to any employee.
(vi)With respect to the Business, the Seller has obtained and been in
compliance with all of the terms and conditions of all permits, licenses,
and other authorizations which are required under, and has complied with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained in,
all federal, state, local, and foreign laws (including rules, regulations,
codes, plans, judgments, orders, decrees, stipulations, injunctions, and
charges thereunder) relating to public health and safety, worker health and
safety, and pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water, ground water, or lands
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling or pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes.
(vii)With respect to the Business, all properties and equipment used in the
Business of the Seller have been free of asbestos, PCBs, methylene
chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(viii)With respect to the Business, all product labeling of the Seller has
been in conformity with applicable laws (including rules and regulations
thereunder).
(ix)With respect to the Business, to Knowledge of the Seller, no pollutant,
contaminant, or chemical, industrial, hazardous, or toxic material or waste
ever has been buried, stored, spilled, leaked, discharged, emitted, or
released on any real property that the Seller owns or ever has owned or that
the Seller leases or ever has leased.
(y). Legal Compliance.
(i)To the Knowledge of the Seller, and with respect to the Business, the
Seller has complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments (and all
agencies thereof), and no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed or commenced
against the Seller alleging any failure to comply with any such law or
regulation.
(ii)With respect to the Business, the Seller has complied with all
applicable laws (including rules and regulations thereunder) relating to the
employment of labor, employee civil rights, and equal employment
opportunities.
(iii)With respect to the Business, the Seller has not violated in any
respect or received a notice or charge asserting any violation of the
Sherman Act, the Clayton Act, The Robinson-Patman Act, or the Federal Trade
Commission Act, each as amended.
(iv)With respect to the Business, the Seller has not:
(A)made or agreed to make any contribution, payment, or gift of funds or
property to any governmental official, employee, or agent where either the
contribution, payment, or gift or the purpose thereof was illegal under the
laws of any federal, state, local, or foreign jurisdiction;
(B)established or maintained any unrecorded fund or asset for any purpose,
or made any false entries on any books or records for any reason; or
(C)made or agreed to make any contribution, or reimbursed any political gift
or contribution made by any other person, to any candidate for federal,
state, local, or foreign public office.
(v)With respect to the Business, the Seller has filed in a timely manner all
reports, documents, and other materials it was required to file (and the
information contained therein was correct and complete in all respects)
under all applicable laws (including rules and regulations thereunder).
(vi)With respect to the Business, the Seller has possession of all records
and documents it was required to retain under all applicable laws (including
rules and regulations thereunder).
(z). Broker's Fees. The Seller has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
(aa). Disclosure. None of the representations or warranties of Seller
contained herein, none of the information contained in the Disclosure
Schedule referred to in this section 3 and none of the other information or
documents furnished to the Buyer pursuant to the terms of this Agreement is
or will be false or misleading in any material respect, or omits or will
omit to state a fact herein or therein necessary to make the statements
herein or therein not misleading in any material respect. There is no fact
which adversely affects or in the future is likely to affect adversely the
Acquired Assets or the Business in any material respect which has not been
set forth or referred to in this Agreement or the Schedules hereto.
4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller that the statements contained in this section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
section 4), except as set forth in the Disclosure Schedule.
(a). Organization of the Buyer. The Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation.
(b). Authorization of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions.
(c). Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in section 2 above),
will (i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision
of its charter or bylaws or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyer is
a party or by which it is bound or to which any of its assets is subject.
The Buyer does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement (including the assignments and assumptions referred to in section
2 above).
(d). Brokers's Fees. The Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transaction contemplated by this Agreement for which the Seller could become
liable or obligated.
5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a). General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable to
consummate and make effective the transactions contemplated by this
Agreement (including satisfying the Closing conditions set forth in section
6 below).
(b). Notices and Consents. The Seller will give any notices to third
parties, and the Parties will use their reasonable best efforts to obtain
any third-party consents identified on Exhibit C.
(c). Operation of Business. The Seller will not engage in any practice,
take any action, embark on any course of inaction, or enter into any
transaction outside the Ordinary Course of Business, and the Seller will
keep the Business substantially intact, including its present operations,
physical facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
(d). Notice of Developments. The Parties will give each other prompt
written notice of any material development affecting the assets,
Liabilities, Business, financial condition, operations, results of
operations, or future prospects of the Business. Each Party will give
prompt written notice to the other of any material development affecting the
ability of the Parties to consummate the transactions contemplated by this
Agreement.
(e). Exclusivity. Until April 30, 1998, the Seller will not (i) solicit,
initiate, or encourage the submission of any proposal or offer from any
person relating to any (A) liquidation, dissolution, or recapitalization,
(B) merger or consolidation, (C) acquisition or purchase of securities or
assets, or (D) similar transaction or business combination involving the
Business, or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any person to do or
seek any of the foregoing.
(f). Full Access. The Seller will permit representatives of the Buyer to
have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Business to all
premises, properties, books, records, contracts, Tax records, and documents
of or pertaining to the Business.
6. Conditions to Obligation to Close.
(a). Conditions to Obligation to the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i)the representations and warranties set forth in section 3 above shall be
true and correct in all material respects at and as of the Closing Date;
(ii)the Seller shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii)all of the third party consents identified on Exhibit C have been
procured;
(iv)no action, suit, or proceeding shall be pending or threatened before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction wherein an unfavorable judgment, order,
decree, stipulation, injunction, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect adversely the right of the Buyer to own,
operate, or control the Acquired Assets (and no such judgment, order,
decree, stipulation, injunction, or charge shall be in effect);
(v)the Seller shall have delivered to the Buyer a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect
that each of the conditions specified above in section 6(a)(i)-(iv) is
satisfied in all respects;
(vi)the Buyer shall have received from counsel to the Seller an opinion with
respect to the matters set forth in Exhibit E attached hereto, addressed to
the Buyer and dated as of the Closing Date;
(vii)The Seller shall have received acceptable employment agreements or
commitments, executed by the employees identified on Schedule 5;
(viii)the Buyer shall have received the approval of this transaction from
the Board of Directors of its parent company; and
(ix)all actions to be taken by the Seller in connection with consummation of
the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
the Buyer.
The Buyer may waive any condition specified in this section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b). Conditions to Obligations of the Seller. The obligation of the Seller
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i)the representations and warranties set forth in section 4 above shall be
true and correct in all material respects at and as of the Closing Date;
(ii)the Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii)all of the third party consents identified on Exhibit C have been
procured;
(iv)no action, suit, or proceeding shall be pending or threatened before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction wherein an unfavorable judgment, order,
decree, stipulation, injunction, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement or (B) cause any of
the transactions contemplated by this Agreement to be rescinded following
consummation (and no such judgment, order, decree, stipulation, injunction,
or charge shall be in effect);
(v)the Buyer shall have delivered to the Seller a certificate (without
qualification as to knowledge or materiality or otherwise) to the effect
that each of the conditions specified above in section 6(b)(i)-(iv) is
satisfied in all respects;
(vi)the Seller shall have received from counsel to the Buyer an opinion with
respect to the matters set forth in Exhibit F attached hereto, addressed to
the Seller and dated as of the Closing Date;
(vii)the Seller shall have obtained the approval of this transaction from
its Board of Directors;
(viii)all actions to be taken by the Buyer in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to
the Seller.
The Seller may waive any condition specified in this section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Intentionally Left Blank.
8. Post-Closing Agreements.
(a). General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of the Asset Purchase
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any
other Party reasonably may request, at the sole cost and expense of the
requesting Party.
(b). Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand in connection
with (i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Effective Date involving the Seller, each of the other Parties
will cooperate with the contesting or defending Party and its counsel in the
contest or defense, make available his or its personnel, and provide such
testimony and access to his or it books and records as shall be necessary in
connection with the contest or defense, all at the sole cost and expense of
the contesting or defending Party.
(c). Transition. The Seller will not take any action that primarily is
designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Seller
from maintaining the same business relationships with the Buyer after the
Closing as it maintained with the Seller prior to the Closing. The Seller
will refer all customer inquiries relating to the Business to the Buyer from
and after the Closing.
(d). Confidentiality. The Seller will treat and hold as such all of the
Confidential Information and Trade Secrets, refrain from using any of the
Confidential Information and Trade Secrets except in connection with this
Agreement, and deliver promptly to the Buyer or destroy, at the request and
option of the Buyer, all tangible embodiments (and all copies) of the
Confidential Information and Trade Secrets which are in its possession. In
the event that the Seller is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information and Trade Secrets, that Seller will notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with these provisions. If,
in the absence of a protective order or the receipt of a waiver hereunder,
the Seller is, on the advice of counsel, compelled to disclose any
Confidential Information and Trade Secrets to any tribunal or else stand
liable for contempt, that Seller may disclose the Confidential Information
and Trade Secrets to the tribunal; provided, however, that the Seller shall
use its reasonable best efforts to obtain, at the reasonable request of the
Buyer, an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information and Trade Secrets
required to be disclosed as the Buyer shall designate. The foregoing
provisions shall not apply to any Confidential Information and Trade Secrets
which is generally available to the public immediately prior to the time of
disclosure.
(e). Covenant Not to Compete. The Seller agrees that for a period of five
(5) years after the Closing Date, the Seller will not, whether alone or in
conjunction with any other Person, directly or indirectly:
(i)own, manage, operate, provide financing to, or join, control or
participate in the ownership, management, operation or control of or
provision of financing to, any business wherever located (whether in
corporate, proprietorship or partnership from or otherwise), if such
business is competitive with the Business as presently conducted;
(ii)seek to procure orders from, or do business with, any Person who or
which has been a customer of the Business (except the National Weather
Service with regards to the Inventory excluded at the Closing) at any time
during the period of 12 months prior to the date of this Agreement, with
respect to products and services similar to those presently offered by the
Business;
(iii)in connection with any business competing with the Business as operated
at the date of this Agreement, engage, employ, solicit or contact with a
view to the engagement or employment, of any Transferred Employee, or any
other employee, officer or manager of the Buyer, in any case where the
Transferred Employee, employee, officer or manager either was, as a part of
his duties, privy to confidential information or know-how or would be in a
position to exploit the Confidential Information and Trade Secrets of the
Business;
(iv)do or say anything which is harmful to the reputation of the Business or
which may lead any Person to cease to deal with the Buyer on substantially
equivalent terms to those previously offered to the Seller, or at all; or
(v)seek to contract with or engage (in such a way as to adversely affect the
Business as operated on the date of this Agreement) any Person who or which
is a party to an agreement with or has otherwise been engaged to
manufacture, assemble, supply or deliver products, goods, materials or
services to the Business at any time during the period 12 months prior to
the date of this Agreement.
(f). Production and Engineering Arrangements. For a period not to exceed
twelve months after the Effective Date, the Seller will provide production
and engineering services to the Buyer in accordance with Schedule 6. The
Seller will permit Dr. James E. Paul to complete the antenna and the
transmitter research and development projects under the supervision of
Andrew L. Turner III. In connection with any work performed by Dr. James E.
Paul for the Buyer and the Business, the Seller waives any and all rights it
may have to prevent Dr. Paul from such activities pursuant to non-
competitive and non-disclosure covenants and agreements, and the Seller
expressly authorizes the Buyer and Dr. Paul to contract directly for such
services.
(g). Post-Closing Services. The Seller will provide the Buyer with
administrative and accounting services for the Business for a period not to
exceed ninety (90) days as set forth in .
(h). Warranty Service. The Seller and the Buyer acknowledge that it may be
necessary for the Buyer to perform certain warranty repairs relating to
products manufactured or sold by the Seller prior to the Effective Date.
Upon reasonable request from the Seller, the Buyer agrees, without assuming
any liability for such warranty obligations of Seller (which warranty
obligations do not constitute Assumed Liabilities), to perform in accordance
with reasonable and customary standards of care and diligence all work
necessary for the Seller to satisfy its warranty obligations with respect to
such equipment. The Seller promptly shall pay or reimburse the Buyer for
its material, labor, overhead, travel expenses, freight costs and any other
reasonable costs and expenses in connection with such actions, as invoiced
by the Buyer from time to time, for any such amount in excess of $30,000.00
in the aggregate.
(i). Employees. (i) The Buyer shall offer employment to all employees of
Seller actively at work in the Business on the Closing Date, to be effective
as of the Effective Date. The terms and conditions of employment of any
persons hired by the Buyer shall be at the Buyer's discretion. The Seller
shall be responsible for all compensation due to the Seller's employees or
former employees with respect to their employment with the Seller prior to
the Effective Date, whether or not hired by the Buyer. This Agreement shall
not obligate the Buyer to be a successor employer or to assume any
collective bargaining agreement between the Seller and any union
representative in effect prior to or as of the Closing.
(ii)The Seller shall be responsible for paying or causing to be paid
directly to Seller's employees on their behalf all wages, salaries, and
benefits to which they are entitled under the Employee Plans (as defined
below) for employment prior to the Effective Date, and the Buyer shall
assume no liability therefor, except as set forth in paragraph (iii) below.
No portion of the assets of any plan, fund, program or arrangement, written
or unwritten, heretofore sponsored or maintained by the Seller (and no
amount attributable to any such plan, fund, program or arrangement) shall be
transferred to the Buyer, except as set forth in paragraph (iii) below. The
Buyer shall not be liable for any claim for insurance, reimbursement or
other benefits payable under the Employee Plans. The Seller shall be
responsible for compliance with the requirements of Section 4980B of the
Code and Title I Subtitle B Subpart of ERISA. The Buyer agrees to credit
the Transferred Employees with all unused vacation and sick pay earned or
accrued with the Seller for service with the Seller before the Effective
Date to the extent such unused vacation and sick pay is an Assumed
Liability. For this purpose, "Employee Plans" shall mean any and all plans,
programs, arrangements, practices or contracts the Seller provides (directly
or indirectly), benefits or compensation to or on behalf of employees or
former employees of Seller, of any nature, whether formal or informal, oral
or written.
(iii)The Parties agree that any Transferred Employee may elect to transfer
the assets held in his or her account in the Seller's 401(k) Plan to the
Quixote Corporation Incentive Savings Plan ("Quixote 401(k) Plan") at any
time until December 1, 1998 or upon termination of the Transferred
Employee's interest in the Seller's 401(k) Plan and distribution of the
assets therefrom, and to the extent that the Transferred Employee(s)
elect(s), the Parties agree to the following procedures. The Buyer shall
provide to the Seller no later than Closing a copy of the Quixote 401(k)
Plan, and all information and documents necessary to effect such transfer of
assets. Contingent upon the Buyer providing the required documents and
information on or prior to Closing, and contingent upon the Buyer providing
evidence that the Quixote 401(k) plan is qualified under section 401(a) of the
Internal Revenue Code, the Seller will transfer or cause to be transferred
to the Quixote 401(k) Plan, the assets held in the Seller Plan for the
Transferred Employees on the first day of the quarter following Closing with
such assets valued as of the day prior to the transfer. The Seller will not
charge the Buyer or the plan participant's accounts a fee in connection with
such transfer. The Seller and the Buyer agree to execute such documents as
are necessary to effect the transfer, including, but not limited to, filing
Forms 5310A with the Internal Revenue Service. After the transfer, the
Seller, and the Trustee of the Seller Plan, shall have no further liability
to the Buyer, or to the Transferred Employees, except as provided by law.
In the event the Buyer fails to do any act required in this section, the
Seller may, at its election, distribute all assets held in the Seller Plan
for the Transferred Employees, directly to the Transferred Employees, in a
lump sum distribution.
9. Remedies for Breaches of this Agreement.
(a). Survival.
All of the representations and warranties of the Seller contained in section
3 hereof (other than the representations and warranties of the Seller
contained in section 3(a), section 3(b), section 3(c), section 3(h), section
3(v), and section 3(y) hereof) shall survive the Closing (even if the Buyer
knew or had reason to know of any misrepresentation or breach of warranty at
the time of Closing) and continue in full force and effect for a period of
three (3) years thereafter. All of the other representations, warranties,
and covenants of the Buyer and the Seller contained in this Agreement
(including the representations and warranties of the Seller contained in
section 3(a), section 3(b), section 3(c), section 3(h), section 3(v), and
section 3(y) hereof) shall survive the Closing (even if the damaged Party
knew or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of Closing) and continue in full force and effect
forever thereafter.
(b). Indemnification Provisions for Benefit of the Buyer.
In the event the Seller breaches any of its representations, warranties,
and covenants contained in this Agreement, and provided that the particular
representation, warranty, or covenant survives the Closing and that the
Buyer makes a written claim for indemnification against the Seller pursuant
to section 10(h) below within the applicable survival period, then the
Seller agrees to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Buyer may
suffer after the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach;
provided, however, the Seller shall not be obligated to indemnify the Buyer
for any single claim of less than $5,000, unless the Buyer has accumulated a
group of claims, each of which is less than $5,000, which aggregates at
least $25,000; provided, further, no claim for breach of section 3(o)
(receivables) shall be made until the Adverse Consequences exceeds the
Questionable Receivables Discount, and no claim for breach of section 3(s)
(product warranty) shall be made until the Adverse Consequences exceeds
$30,000.00.
The Seller agrees to indemnify the Buyer from and against the entirety of
any Adverse Consequences the Buyer may suffer resulting from, arising out
of, relating to, in the nature of, or caused by any Liability of the Seller
which is not an Assumed Liability or any Liability of the Buyer arising by
operation of law (including under any bulk transfer law of any jurisdiction
or under any common law doctrine of de facto merger or successor liability)
which is not an Assumed Liability.
(c). Indemnification Provisions for Benefit of the Seller.
In the event the Buyer breaches any of its representations, warranties, and
covenants contained in this Agreement, and provided that the particular
representation, warranty, or covenant survives the Closing and that the
Seller makes a written claim for indemnification against Buyer pursuant to
section 10(h) below within the applicable survival period, then the Buyer
agrees to indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Seller may
suffer after the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach;
provided, however, the Buyer shall not be obligated to indemnify for any
single claim of less than $5,000, unless the Seller has accumulated a group
of claims, each of which is less than $5,000, which aggregates at least
$25,000.
The Buyer agrees to indemnify the Seller from and against the entirety of
any Adverse Consequences the Seller may suffer resulting from, arising out
of, relating to, in the nature of, or caused by any Assumed Liability.
(d). Matters Involving Third Parties. If any third party shall notify any
Party (the "Indemnified Party") with respect to any matter which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this section 9, then the Indemnified Party shall
notify each Indemnifying Party thereof promptly; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any liability or obligation
hereunder unless (and then solely to the extent) the Indemnifying Party
thereby is damaged. In the event any Indemnifying Party notifies the
Indemnified Party within 15 days after the Indemnified Party has given
notice of the matter that the Indemnifying Party is assuming the defense
thereof, (A) the Indemnifying Party will defend the Indemnified Party
against the matter with counsel of its choice reasonably satisfactory to the
Indemnified Party, (B) the Indemnified Party may retain separate co-counsel
at its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel to the
extent the Indemnified Party concludes reasonably that the counsel the
Indemnifying Party has selected has a conflict of interest), (C) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the matter without the written consent
of the Indemnifying Party (not to be withheld unreasonably), and (D) the
Indemnifying Party will not consent to the entry of any judgment with
respect to the matter, or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the
written consent of the Indemnified Party (not to be withheld unreasonably).
In the event no Indemnifying Party notifies the Indemnified Party with 15
days after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, however, the Indemnified
Party may defend against, or enter into any settlement with respect to, the
matter in any manner it reasonably may deem appropriate.
(e). Determination of Loss. The parties shall make appropriate adjustments
for tax benefits and insurance proceeds (reasonably certain of receipt and
utility in each case) and for the time cost of money (using the Applicable
Rate as the discount rate) in determining the amount of loss for purposes of
this section 9. All indemnification payments under this section 9 shall be
deemed adjustments to the Purchase Price.
(f). Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory or
common law remedy any Party may have for breach of representation, warranty,
or covenant.
10. Miscellaneous.
(a). Survival. All of the representations, warranties, and covenants of
the Parties contained in this Agreement shall survive the Closing hereunder.
(b). Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement
prior to the Closing without the prior written approval of the other Party;
provided, however, that any Party may make any public disclosure it believes
in good faith is required by law or regulation (in which case the disclosing
Party will advise the other Party prior to making the disclosure).
(c). No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(d). Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, that may have related in any way to the subject
matter hereof.
(e). Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
or any of its rights, interest, or obligations hereunder without prior
written approval of the other Party.
(f). Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g). Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h). Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Seller:
Digital Recorders, Inc.
2300 Englert Drive, Suite B
Post Office Box 14068
Research Triangle Park, North Carolina 27709
Attn: J. Phillips L. Johnston
Fax: 919-361-0200
Copy to:
Gray, Layton, Kersh, Solomon, Sigmon
Furr & Smith, P.A.
516 S. New Hope Road
P. O. Box 2636
Gastonia, North Carolina 28053
Attn: David M. Furr
Fax: 704-866-8010
If to the Buyer:
TranSafe Corporation
One East Wacker Drive, 30th Floor
Chicago, Illinois 60601
Attn: Leslie J. Jezuit
Fax: 312-467-1356
Copy to:
McBride Baker & Coles
40th Floor
500 W. Madison Street
Chicago, Illinois 60661
Attn: Anne Hamblin Schiave
Fax: 312-993-9350
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party
may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i). Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the
State of Illinois.
(j). Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(k). Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any
other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term
or provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified
after the expiration of the time within which the judgment may be appealed.
(l). Expenses. Each of the Buyer and the Seller will bear its own costs
and expenses (including legal fees and expenses) incurred in connection with
this Agreement and the transactions contemplated hereby.
(m). Construction. The language used in this Agreement will be deemed to
be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context required otherwise. Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein unless the Disclosure Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail.
(n). Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o). Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Northern District of
Illinois in any action or proceeding arising out of or relating to this
Agreement, agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court, and agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any
other court. Each of the Parties waives any defense of inconvenient forum
to the maintenance of any action or proceeding so brought and waives any
bond, surety, or other security that might be required of any other Party
with respect thereto by suit on the judgment or in any other manner provided
by law.
(p). Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in
any action instituted in any court of the United States or any state thereof
having jurisdiction over the Parties and the matter (subject to the
provisions set forth in section 10(o) above), in addition to any other remedy
to which they may be entitled, at law or in equity.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
TRANSAFE CORPORATION
By: /s/ Leslie J. Jezuit
------------------------------------
Title: President and COO
---------------------------------
DIGITAL RECORDERS, INC.
By: /s/ J. Phillips L. Johnston
-----------------------------------
Title: Chairman
---------------------------------
INDEX
Exhibit A Assignment and Bill of Sale
Exhibit B Assumption Agreement
Exhibit C Required Third Party Consents
Exhibit D Seller Financial Statements
Exhibit E Opinion of Seller's Counsel
Exhibit F Opinion of Buyer's Counsel
Disclosure Schedule
Schedule 1 Contracts
Schedule 2 Pro Forma Balance Sheet
Schedule 3 Software
Schedule 4 Tangible Assets
Schedule 5 Transferred Employees with Employment
Agreements
Schedule 6 Terms of Buyer/Seller Production and
Service Arrangements
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,661,000
<SECURITIES> 0
<RECEIVABLES> 8,938,000
<ALLOWANCES> 169,000
<INVENTORY> 4,920,000
<CURRENT-ASSETS> 19,881,000
<PP&E> 22,699,000
<DEPRECIATION> 9,542,000
<TOTAL-ASSETS> 51,730,000
<CURRENT-LIABILITIES> 6,113,000
<BONDS> 4,305,000
0
0
<COMMON> 148,000
<OTHER-SE> 40,598,000
<TOTAL-LIABILITY-AND-EQUITY> 51,730,000
<SALES> 37,273,000
<TOTAL-REVENUES> 37,273,000
<CGS> 21,135,000
<TOTAL-COSTS> 21,135,000
<OTHER-EXPENSES> 12,078,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,000
<INCOME-PRETAX> 4,357,000
<INCOME-TAX> 1,307,000
<INCOME-CONTINUING> 3,050,000
<DISCONTINUED> (1,980,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,070,000
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
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