<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
------------
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
April 14, 1998
------------
DIGITAL RECORDERS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 1-13408 56-1362926
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
2300 Englert Drive, Suite B
Durham, North Carolina 27713
(Address of principal executive offices)
(919) 361-2155
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. Acquisition or Disposition of Assets
On April 14, 1998, Digital Recorders, Inc. (the "Company") sold its
Highway Information Systems ("HIS") business group to Quixote Corporation for
$2.8 million in cash plus other non-cash consideration of approximately
$200,000. Operating revenues from the HIS business group comprised approximately
23% and 19% of the Company's revenues for the three months ended March 31, 1998
and twelve months ended December 31, 1997, respectively. Net proceeds to the
Company will be used primarily to reduce bank borrowings under the Company's
credit facility. The Company will continue to own and operate its four other
business groups.
ITEM 7. Financial Statements and Exhibits.
The following financial information and exhibits are filed as part of this
report:
(a) Not required
(b) Pro Forma Financial Information:
Unaudited Condensed Consolidated Pro Forma Financial
Information of Digital Recorders, Inc.
Unaudited Condensed Consolidated Pro Forma Balance Sheet as of
March 31, 1998
Unaudited Condensed Consolidated Pro Forma Statements of
Operations for the three months ended March 31, 1998 and the year
ended December 31, 1997.
(c) Exhibits:
The exhibits which are filed with this Form 8-K are set forth in
the Exhibit Index, which immediately precedes the exhibits to this
report.
2
<PAGE> 3
DIGITAL RECORDERS, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
The following unaudited condensed consolidated pro forma balance sheet as of
March 31, 1998, and the unaudited condensed consolidated pro forma statements of
operations for the three month period ended March 31, 1998 and the year ended
December 31, 1997 have been prepared to give effect to the sale of the Company's
Highway Information Systems business group. The adjustments to the unaudited
condensed consolidated pro forma balance sheet have been prepared as if the
transaction was consummated on March 31, 1998 while the adjustments to the
unaudited condensed consolidated pro forma statements of operations have been
prepared as if the transaction was consummated at the beginning of the
respective periods presented. The unaudited condensed consolidated pro forma
financial information has been adjusted to reflect the effect of the pro forma
adjustments described in the accompanying notes and is not necessarily
indicative of the consolidated financial position or results of operations as
they may be in the future or as they might have been had the sale transaction
been effected as of the assumed dates. The unaudited condensed consolidated pro
forma financial information should be read in conjunction with the Company's
separate historical financial statements and notes thereto.
3
<PAGE> 4
DIGITAL RECORDERS, INC.
Unaudited Condensed Consolidated Pro Forma Balance Sheet
March 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Assets Historical Adjustments Pro Forma
------------- ---------------- --------------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 717,987 2,800,000 (b) 1,064,987
(2,453,000)(c)
Trade accounts receivable 3,033,018 (1,044,232)(a) 1,988,786
Other receivables 38,213 26,384 (a) 64,597
Inventories 3,915,815 (326,713)(a) 3,589,102
Prepaids and other current assets 122,988 (65,694)(a) 57,294
------------- ------------- -------------
Total current assets 7,828,021 (1,063,256) 6,764,765
------------- ------------- -------------
Property and equipment, net 512,255 (192,705)(a) 319,550
Goodwill, net 1,476,900 - 1,476,900
Intangible assets, net 378,830 (10,538)(a) 368,293
Other assets 118,958 - 118,958
------------- ------------- -------------
$ 10,314,964 (1,266,498) 9,048,466
============= ============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Short-term bank borrowings $ 2,453,000 (2,453,000)(c) -
Accounts payable 1,560,953 - 1,560,953
Accrued expenses 169,591 (15,511)(a) 259,080
105,000 (d)
Accrued commissions 203,164 - 203,164
Accrued warranty reserve 271,914 - 271,914
Dividends payable 39,825 - 39,825
Deferred revenue - - -
------------- ------------- -------------
Total current liabilities 4,698,447 (2,363,511) 2,334,936
------------- ------------- -------------
Total liabilities 4,698,447 (2,363,511) 2,334,936
------------- ------------- -------------
Series AAA Redeemable, Convertible, Nonvoting Preferred Stock, $.10 par value,
Liquidation Preference of $5,000 per share, 20,000 shares authorized; 354
shares issued and outstanding at March 31, 1998 and December 31, 1997,
respectively 1,770,000 - 1,770,000
Stockholders' Equity:
Common stock, $.10 par value, 10,000,000 shares authorized;
2,674,075 shares issued and outstanding at March 31,
1998 and December 31, 1997, respectively 267,407 - 267,407
Additional paid-in capital 10,654,618 - 10,654,618
Translation adjustment (229,615) - (229,615)
Accumulated deficit (6,845,893) 1,097,012 (e) (5,748,881)
------------- ------------- -------------
Total stockholders' equity 3,846,517 1,097,012 4,943,529
------------- ------------- -------------
$ 10,314,964 (1,266,498) 9,048,466
============= ============= =============
</TABLE>
4
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DIGITAL RECORDERS, INC.
Notes to Unaudited Condensed Consolidated Pro Forma Balance Sheet
March 31, 1998
Details of Pro Forma Adjustments
(a) To record the disposition of the assets and liabilities of the business
group sold.
(b) To record the net cash proceeds from the sale of the business group.
(c) To reflect the application of $2.453 million of net cash proceeds from
the sale to reduce outstanding amounts on the Company's secured line of
credit facility.
(d) To record various estimated transaction-related expenses.
(e) To record the estimated retained earnings impact of the sale of the
business group.
5
<PAGE> 6
DIGITAL RECORDERS, INC.
Unaudited Condensed Consolidated Pro Forma Statement of Operations
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
-------------- -------------- -------------
<S> <C> <C> <C>
Net sales $ 2,894,305 (685,930)(a) 2,208,375
Cost of sales 1,681,846 (369,830)(a) 1,312,016
-------------- -------------- -------------
Gross profit 1,212,459 (316,100) 896,359
Selling, general and administrative expenses 1,370,418 (113,008)(a) 1,242,410
(15,000)(b)
Research and development expenses 278,917 (65,669)(a) 213,248
-------------- -------------- -------------
Operating loss (436,876) (122,422) (559,298)
Other income (expense):
Interest income 1,962 6,000 (c) 7,962
Interest expense (45,063) 45,063 (c) -
-------------- -------------- -------------
Total other income (expense) (43,101) 51,063 7,962
Loss before income taxes (479,977) (71,359) (551,336)
Income tax expense - - -
-------------- -------------- -------------
Net loss (479,977) (71,359) (551,336)
Preferred dividend requirements (39,825) - (39,825)
-------------- -------------- -------------
Net loss applicable to common stockholders $ (519,802) (71,359) (591,161)
============== ============== =============
Basic net loss per common share $ (0.19) (0.03) (0.22)
============== ============== =============
Diluted net loss per common share $ (0.19) (0.03) (0.22)
============== ============== =============
Weighted average number of common shares outstanding
for basic and diluted calculations 2,674,075 2,674,075 2,674,075
============== ============== =============
</TABLE>
6
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DIGITAL RECORDERS, INC.
Unaudited Condensed Consolidated Pro Forma Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- -------------- ---------------
<S> <C> <C> <C>
Net sales $ 11,672,773 (2,266,743)(a) 9,406,030
Cost of sales 6,878,372 (1,047,743)(a) 5,830,629
--------------- -------------- ---------------
Gross profit 4,794,401 (1,219,000) 3,575,401
Selling, general and administrative expenses 5,388,923 (522,809)(a) 4,806,114
(60,000)(b)
Research and development expenses 1,157,997 (305,900)(a) 852,097
--------------- -------------- ---------------
Operating loss (1,752,519) (330,291) (2,082,810)
Other income (expense):
Interest income 58,485 60,000 (c) 118,485
Interest expense (62,405) 62,405 (c) -
Other income, net (9,200) - (9,200)
--------------- -------------- ---------------
Total other income (expense) (13,120) 122,405 109,285
Loss before income taxes (1,765,639) (207,886) (1,973,525)
Income tax expense - - -
--------------- -------------- ---------------
Net loss (1,765,639) (207,886) (1,973,525)
Preferred dividend requirements (159,300) - (159,300)
--------------- -------------- ---------------
Net loss applicable to common stockholders $ (1,924,939) (207,886) (2,132,825)
=============== ============== ===============
Basic net loss per common share $ (0.72) (0.08) (0.80)
=============== ============== ===============
Diluted net loss per common share $ (0.72) (0.08) (0.80)
=============== ============== ===============
Weighted average number of common shares outstanding
for basic and diluted calculations 2,674,075 2,674,075 2,674,075
=============== ============== ===============
</TABLE>
7
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DIGITAL RECORDERS, INC.
Notes to Unaudited Condensed Consolidated Pro Forma Statements of Operations
March 31, 1998 and December 31, 1997
Details of Pro Forma Adjustments
(a) To eliminate the direct operations of the business group disposed of in
the sale transaction.
(b) To allocate estimated selling, general and administrative expenses
incurred at the corporate office that were directly related to the
business group sold.
(c) To reduce interest expense and increase interest income based on
elimination of debt outstanding assuming the sale transaction was
consummated at the beginning of each period presented.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DIGITAL RECORDERS, INC.
Date: June 12, 1998 By: /s/ David L. Turney
-------------------------------------
David L. Turney, Chief Executive
Officer
By: /s/ Lawrence A. Taylor
------------------------------------
Lawrence A. Taylor, Chief Financial
Officer
9
<PAGE> 10
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
2.3 Asset Purchase Agreement between Quixote Corporation and the
Company
<PAGE> 1
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
<PAGE> 2
(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
2(f) below.
"Adjustment" has the meaning set forth in 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
<PAGE> 3
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 2(d) below.
"Closing Date" has the meaning set forth in 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 3
below.
"Effective Date" has the meaning set forth in 2(d)
below.
"Effective Date Balance Sheet" has the meanings set forth
in 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
<PAGE> 4
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 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 2(f)
below.
"GAAP" means generally accepted accounting principles
used in the United States.
"Initial Purchase Price" has the meaning set forth in
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
<PAGE> 5
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.
<PAGE> 6
"Seller" has the meaning set forth in the preface above.
"Seller's Payments" has the meaning set forth in 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 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
<PAGE> 7
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
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 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 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 6(a) below; (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in 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 Exhibit A 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 Exhibit B 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
<PAGE> 8
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 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.
<PAGE> 9
(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 ss.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 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.
<PAGE> 10
(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 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 2 above).
(d) Subsidiaries. The only Subsidiary of the Seller which is
related to the Business is identified on 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
<PAGE> 11
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
<PAGE> 12
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;
<PAGE> 13
(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
<PAGE> 14
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. 3(j) of the Disclosure
Schedule lists all real property that the Seller owns.
(k) Intellectual Property.
<PAGE> 15
(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
<PAGE> 16
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.
<PAGE> 17
(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. 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 3(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.
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.
<PAGE> 18
(iv) Except as set forth in 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 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
<PAGE> 19
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 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 3(l) of the Disclosure Schedule.
(m) Real Property Leases. With respect to the Business,
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
3(m) of the Disclosure Schedule. With respect to each lease and sublease
listed in 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;
<PAGE> 20
(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, 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
<PAGE> 21
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 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 3(n) of the Disclosure Schedule under
terms of this 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
<PAGE> 22
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. 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 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, 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
<PAGE> 23
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
<PAGE> 24
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
<PAGE> 25
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
<PAGE> 26
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
<PAGE> 27
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
<PAGE> 28
under all applicable laws (including rules and regulations thereunder).
(z) Brokers' 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 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 ss.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 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 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
<PAGE> 29
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 2 above).
(d) Brokers' 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 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.
<PAGE> 30
(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
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 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
<PAGE> 31
(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 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation 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
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 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.
<PAGE> 32
The Seller may waive any condition specified in this 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
<PAGE> 33
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
<PAGE> 34
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 Schedule 6.
(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
<PAGE> 35
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 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
participants' 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 3
hereof (other than the representations and warranties of the Seller contained in
3(a), 3(b), 3(c), 3(h),
<PAGE> 36
3(v), and 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 3(a), 3(b), 3(c), 3(h), 3(v), and 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 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 3(o) (receivables) shall be made until the Adverse Consequences
exceeds the Questionable Receivables Discount, and no claim for breach of 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 10(h) below
within the applicable survival period, then the Buyer agrees to indemnify the
<PAGE> 37
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 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
<PAGE> 38
the time cost of money (using the Applicable Rate as the discount rate) in
determining the amount of loss for purposes of this 9. All
indemnification payments under this 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
<PAGE> 39
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, NC 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
<PAGE> 40
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.
<PAGE> 41
(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 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: _______________________________
Title: ____________________________
DIGITAL RECORDERS, INC.
By: _______________________________
Title: ____________________________
<PAGE> 42
ASSIGNMENT AND BILL OF SALE
Pursuant to the Asset Purchase Agreement entered into as of March 31,
1998 (the Agreement) by and between TranSafe Corporation, a Delaware corporation
(the Buyer), and Digital Recorders, Inc., a North Carolina corporation (the
Seller), for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, effective as of April 1, 1998 the Seller DOES
HEREBY ASSIGN, SELL, TRANSFER, CONVEY AND DELIVER unto the Buyer, its successors
and assigns all right, title and interest in and to the Acquired Assets
(capitalized terms are defined as set forth in the Agreement); provided,
however, that as to any contract, sales order, purchase order, license,
sublicense, lease, sublease, bond or other agreement included in the Acquired
Assets which cannot be assigned, transferred or conveyed without the consent of
a third-party, which consent has not been obtained, this Assignment and Bill of
Sale shall be of no force or effect until such consent has been obtained.
This Assignment and Bill of Sale shall be binding upon the successors
and assigns of the Seller and shall inure to the benefit of the successors and
assigns of the Buyer.
IN WITNESS WHEREOF, the Seller has caused this Assignment and Bill of
Sale to be duly executed and delivered this 14th day of April, 1998.
DIGITAL RECORDERS, INC.,
a North Carolina corporation
By: _________________________________
Name: _______________________________
Title: ______________________________
