STOCK PURCHASE AGREEMENT

 

TABLE OF CONTENTS

 

		Page
Article I	Definitions	1
1.1	Definitions	1
1.2	Other Defined Terms	6
Article II	PURCHASE AND SALE OF THE SHARES	9
2.1	Purchase and Sale of the Shares	9
2.2	Closing	9
Article III	REPRESENTATIONS AND WARRANTIES OF SELLERS	10
3.1	Organization and Good Standing	10
3.2	Capitalization	10
3.3	Authority and Enforceability	11
3.4	No Conflicts; Authorizations	11
3.5	Financial Statements	12
3.6	No Undisclosed Liabilities	13
3.7	Inventory	13
3.8	Accounts Receivable	13
3.9	Taxes	14
3.10	Compliance with Law	16
3.11	Authorizations	16
3.12	Title to Personal Properties	17
3.13	Condition of Tangible Assets	18
3.14	Real Property	18
3.15	Intellectual Property	19
3.16	Absence of Certain Changes or Events	23
3.17	Contracts	24
3.18	Litigation	26
3.19	Employee Benefits	27
3.20	Labor and Employment Matters	30
3.21	Environmental	31
3.22	Insurance	34
3.23	Product Warranty	35

 

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		Page
3.24	Books and Records	35
3.25	Suppliers and Customers	35
3.26	Indebtedness	36
3.27	Brokers or Finders	36
3.28	Bank Accounts	36
3.29	Powers of Attorney	36
3.30	Support Services	36
3.31	Other Services	36
3.32	Completeness of Disclosure	36
Article IV	REPRESENTATIONS AND WARRANTIES OF BUYER	37
4.1	Organization and Good Standing	37
4.2	Authority and Enforceability	37
4.3	No Conflicts; Authorizations	37
4.4	Purchase for Investment	38
4.5	Brokers or Finders	38
Article V	COVENANTS OF SELLERS	38
5.1	Confidentiality	38
5.2	Restrictive Covenants	39
5.3	Insurance	41
5.4	Intellectual Property	41
5.5	Trade Show	41
Article VI	COVENANTS OF BUYER AND SELLERS	42
6.1	Regulatory Approvals	42
6.2	Public Announcements	42
6.3	Tax Matters	42
6.4	Employee Matters	47
6.5	Intellectual Property Matters	49
6.6	Name Change	49
6.7	Cooperation and Access	50
6.8	Post-Closing Consents	50

 

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		Page
6.9	Further Assurances	50
Article VII	CLOSING DELIVERIES	50
7.1	Sellers’ Deliveries	50
7.2	Buyer’s Deliveries	52
Article VIII	INDEMNIFICATION	52
8.1	Survival	52
8.2	Indemnification by Sellers	53
8.3	Indemnification by Buyer	54
8.4	Limitations on Indemnification	54
8.5	Indemnification Procedures for Third Party Claims	55
8.6	Indemnification Procedures for Non-Third Party Claims	57
8.7	Contingent Claims	57
8.8	Effect of Investigation; Waiver	58
8.9	Tax Indemnification	58
8.10	Procedures Relating to Indemnification of Tax Claims	59
8.11	Tax Treatment of Indemnification Payments	60
8.12	Other Rights and Remedies Not Affected	60
Article IX	MISCELLANEOUS	60
9.1	Notices	60
9.2	Amendments and Waivers	61
9.3	Expenses	62
9.4	Successors and Assigns	62
9.5	Governing Law	62
9.6	Consent to Jurisdiction	62
9.7	Counterparts	62
9.8	Third Party Beneficiaries	62
9.9	Entire Agreement	63
9.10	Captions	63
9.11	Severability	63
9.12	Specific Performance	63

 

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		Page
9.13	Interpretation	63

 

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SCHEDULES:

 

Schedule 5.2(a)(i)

 

Schedule 6.8(a)

 

Schedule 6.8(b)

 

Schedule 8.1(b)(iii)(A)

 

Schedule 8.4(c)(i)

 

Schedule 8.4(c)(ii)

 

Sellers Disclosure Schedule

 

Buyer Disclosure Schedule

 

 

STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT (this “ Agreement ”) is entered into as of July 25, 2008, by and among SIGNAL GROUP, INC., a Delaware corporation (“ Buyer ”), QUIXOTE CORPORATION, a Delaware corporation (“ Quixote Corp. ”), and QUIXOTE TRANSPORTATION SAFETY, INC., a Delaware corporation (“Quixote Transportation ,” together with Quixote Corp, “ Sellers ”).

 

RECITALS

 

Quixote Corp. is the record and beneficial owner of all of the issued and outstanding shares of capital stock (the “ Quixote Traffic Shares ”) of Quixote Traffic Corporation, a Delaware corporation (“ Quixote Traffic ”), and Quixote Transportation is the record and beneficial owner of all of the issued and outstanding shares of capital stock (the “ U.S. Traffic Shares ”) of U.S. Traffic Corporation, a Delaware corporation (“ U.S. Traffic ”), and all of the issued and outstanding shares of capital stock (the “ Peek Traffic Shares ,” together with the Quixote Traffic Shares and the U.S. Traffic Shares, the “ Shares ”) of Peek Traffic Corporation, a Delaware corporation (“ Peek Traffic ,” together with Quixote Traffic and U.S. Traffic, the “ Acquired Companies ”); and

 

Each Seller desires to sell the Shares owned by it to Buyer, and Buyer desires to purchase the Shares from Sellers, upon the terms and subject to the conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing premises and the respective representations, warranties, covenants and agreements contained in this Agreement, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1           Definitions .  When used in this Agreement, the following terms shall have the meanings assigned to them in this Section 1.1, or in the applicable Section of this Agreement to which reference is made in Section 1.2.

 

“ Affiliate ” means, with respect to any specified Person, any other Person directly or indirectly controlling, controlled by or under common control with such specified Person.  For the purpose of this definition, “control” means the possession, directly or indirectly, of the power to decide, affirmatively (by direction) or negatively (by veto), the management and policies of such specified Person, whether through the ownership of voting securities, by contract or otherwise.

 

“ Authorization ” means any authorization, approval, consent, certificate, license, permit or franchise of or from any Governmental Entity or pursuant to any Law.

 

“ Benefit Plan ” means any “employee benefit plan” (as defined in ERISA Section 3(3)), including (a) any (i) nonqualified deferred compensation or retirement plan or

 

 

arrangement, (ii) qualified defined contribution retirement plan or arrangement or (iii) qualified defined benefit retirement plan or arrangement, which is an “employee pension benefit plan” (as defined in ERISA Section 3(2)), including any “multiemployer plan” (as defined in ERISA Section 3(37)), (b) any “employee welfare benefit plan” (as defined in ERISA Section 3(1)) or material fringe benefit plan or program or (c) any stock purchase, stock option, severance pay, employment, change-in-control, vacation pay, company awards, salary continuation, sick leave, excess benefit, bonus or other incentive compensation, life insurance, or other employee benefit plan, contract, program, policy or other arrangement, whether or not subject to ERISA.

 

“ Business Day ” means a day other than a Saturday, Sunday or other day on which banks located in the State of Illinois are authorized or required by Law to close.

 

“ Capital Stock ” means (a) in the case of a corporation, its shares of capital stock, (b) in the case of a partnership or limited liability company, its partnership or membership interests or units (whether general or limited), and (c) any other interest that confers on a Person the right to receive a share of the profits and losses, or distribution of assets, of the issuing entity.

 

“ Charter Documents ” means, with respect to any entity, the certificate of incorporation, the articles of incorporation, by-laws, articles of organization, limited liability company agreement, partnership agreement, formation agreement, joint venture agreement or other similar organizational documents of such entity (in each case, as amended).

 

“ Code ” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

 

“ Contract ” means any agreement, contract, license, lease, commitment, arrangement or understanding, written or oral.

 

“ Equity Securities ” means (a) shares of Capital Stock, and (b) options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other Contracts that, directly or indirectly, could require the issuer thereof to issue, sell or otherwise cause to become outstanding shares of Capital Stock.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

 

“ ERISA Affiliate ” means any entity which is a member of a “controlled group of corporations” with, under “common control” with or a member of an “affiliated services group” with, any of the Acquired Companies (as defined in Section 414(b), (c), (m) or (o) of the Code).

 

“ Final Determination ” means (a) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all allowable appeals by either party to the action have been exhausted or the time for filing such appeals has expired and is not subject to further review or modification, (b) a closing agreement entered into under Section 7121 of the Code or any

 

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other settlement or other agreement entered into in connection with an administrative or judicial proceeding, (c) execution of an Internal Revenue Service Form 870-AD or (d) the expiration of the time for instituting suit with respect to a claimed deficiency.

 

“ GAAP ” means United States generally accepted accounting principles and practices in effect from time to time.

 

“ Governmental Entity ” means any entity or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to United States federal, state, local, or municipal government, foreign, international, multinational or other government, including any department, commission, board, agency, bureau, subdivision, instrumentality, official or other regulatory, administrative or judicial authority thereof, and any non-governmental regulatory body to the extent that the rules and regulations or orders of such body have the force of Law.

 

“ Grossed-Up Basis ” means, when used to describe the basis on which the payment of a specified sum is to be made, a basis such that the amount of such payment, after being reduced by the amount of all Taxes imposed on the recipient of such payment as a result of the receipt or accrual of such payment, will equal the specified sum.

 

“ Indebtedness ” means any of the following: (a) any indebtedness for borrowed money, including any Inter-Company Debt, (b) any obligations evidenced by bonds, debentures, notes or other similar instruments, (c) any obligations to pay the deferred purchase price of property or services, except trade accounts payable and other current Liabilities arising in the ordinary course of business, (d) any obligations as lessee under capitalized leases, (e) any indebtedness created or arising under any conditional sale or other title retention agreement with respect to acquired property, (f) any obligations, contingent or otherwise, under acceptance credit, letters of credit or similar facilities and (g) any guaranty of any of the foregoing.

 

“ Indemnitee ” means any Person that is seeking indemnification from an Indemnitor pursuant to the provisions of this Agreement.

 

“ Indemnitor ” means any party hereto from which any Indemnitee is seeking indemnification pursuant to the provisions of this Agreement.

 

“ Inter-Company Debt ” means any inter-company debt between Quixote Corp. (or any of its Affiliates) and any of the Acquired Companies.

 

“ Intersection Control Business ” means developing, manufacturing, marketing or selling intersection traffic controllers, cabinets and accessories, intersection loop detectors and monitors, video detectors, battery and/or other power back-up systems, traffic signals (vehicle and pedestrian), any advanced system controllers that comply with NEMA, TS2 and NTCIP standards and that are compatible with 170, NEMA or ITS cabinets, advanced traffic management systems (ATMS) that can provide a centralized integrated platform for traffic signal system control, any software used to solve traffic algorithms or central traffic control, video vehicle detection systems for controlling

 

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intersections, and any product, regardless of its use, that is installed in an intersection and that provides peripheral information for a traffic intersection controller or system.

 

“ Key Officers ” means Timothy O’Leary, Elizabeth Bush, Michael Hobbs, Ray Deer and Donald D’Alfonso.

 

“ Knowledge ” of Sellers or any similar phrase means, with respect to any fact or matter, the actual knowledge of the directors and executive officers of Sellers and the Key Officers, together with such knowledge that such directors, executive officers or Key Officers could be expected to discover after due investigation concerning the existence of the fact or matter in question.

 

“ Law ” means any statute, law (including common law), constitution, treaty, ordinance, code, order, decree, judgment, rule, regulation, norm and any other binding requirement or determination of any Governmental Entity.

 

“ Lien ” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, adverse claim or other encumbrance in respect of such property or asset.

 

“ Mexican Subsidiary ” means Quixote Transportation Safety Mexico, S. de R.L. de C.V.

 

“ New York Contract ” means the City of New York Capital Purchase Order No. 7750193 by and between U.S. Traffic and the City of New York, dated as of December 1, 2006 (including the contract change Order dated as of April 7, 2008), relating to the purchase and sale of ASTC controllers, together with the New York City Bid Book for Bid No. 600843 submitted by U.S. Traffic dated August 9, 2006 and Bid Book Attachment Supplemental Information dated August 16, 2006.

 

“ Order ” means any award, injunction, judgment, decree, order, ruling, subpoena or verdict or other decision issued, promulgated or entered by or with any Governmental Entity of competent jurisdiction.

 

“ Permitted Liens ” means (a) Liens for current real or personal property Taxes not yet due and payable and with respect to which the Acquired Companies maintain adequate reserves, (b) workers’, carriers’ and mechanics’ or other like Liens incurred in the ordinary course of business with respect to which payment is not due and that do not impair the conduct of the businesses of any of the Acquired Companies or the present or proposed use of the affected property and (c) Liens that are immaterial in character, amount, and extent and which do not detract from the value or interfere with the present or proposed use of the properties they affect.

 

“ Person ” means an individual, a corporation, a partnership, a limited liability company, a trust, an unincorporated association, a Governmental Entity or any agency, instrumentality or political subdivision of a Governmental Entity, or any other entity or body.

 

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“ Pre-Closing Environmental Liabilities ” means Liabilities based upon or arising out of (a) the ownership or operation of the businesses of the Acquired Companies at any time on or prior to the Closing Date, or (b) the ownership, operation or condition of the Leased Real Property or any other real property currently or formerly owned, operated or leased by any of the Acquired Companies at any time on or prior to the Closing Date, in each case to the extent based upon or arising out of (i) any Environmental Law, (ii) a failure to obtain, maintain or comply with any Environmental Permit, (iii) the presence or Release of any Hazardous Substance at, on or under any Leased Real Property or any other real property currently or formerly owned, operated or leased by any of the Acquired Companies at any time on or prior to the Closing Date or (iv) the use, generation, storage, transportation, treatment, sale or other off-site disposal of Hazardous Substances generated by or otherwise used in the businesses of the Acquired Companies.

 

“ Relevant Group ” means any affiliated, combined, consolidated, unitary or similar group of which any Seller Company is or was a member.

 

“ Seller Company ” means Quixote Corp. and each of Quixote Corp.’s domestic and foreign Subsidiaries, including, prior to the Closing, the Acquired Companies, and “Seller Companies” means, collectively, Quixote Corp. and all such Subsidiaries.

 

“ Subsidiary ” or “ Subsidiaries ” means, with respect to any specified Person, any other Person of which (a) such specified Person or any subsidiary of such specified Person is a general partner (excluding partnerships, the general partnership interests of which held by such specified Person or any subsidiary of such specified Person do not have a majority of the voting interest in such partnership), or (b) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such Person is directly or indirectly owned or controlled by such and/or by any one or more of its subsidiaries.

 

“ Tax ” or “ Taxes ” means any and all federal, state, local, or foreign net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, bank shares, withholding, payroll, employment, excise, property, deed, stamp, alternative or add-on minimum, environmental, profits, windfall profits, transaction, license, lease, service, service use, occupation, severance, energy, unemployment, social security, workers’ compensation, capital, premium, and other taxes, assessments, customs, duties, fees, levies or other governmental charges of any nature whatever, whether disputed or not, together with any interest, penalties, additions to tax, or additional amounts with respect thereto.

 

“ Tax Claim ” means any written claim with respect to Taxes made by any Taxing Authority or other Person that, if pursued successfully, could serve as the basis for a claim for indemnification of a Tax Indemnitee or Sellers under this Agreement.

 

“ Tax Indemnitee ” means Buyer and its Affiliates (including, following the Closing, the Acquired Companies).

 

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“ Tax Returns ” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto and any amendment thereof.

 

“ Taxing Authority ” means any Governmental Entity having jurisdiction with respect to any Tax.

 

“ Trade Names ” means “ Quixote ,” any name, logo, domain name or trademark that includes “Quixote” and any variations and derivatives thereof used exclusively in the business of the Acquired Companies as currently conducted and not owned by any of the Acquired Companies.

 

“ Trade Names License Agreement ” means the trademark, copyright and domain name license agreement between Quixote Corp. and one or more of the Acquired Companies, (i) providing for a royalty-free license from Quixote Corp. or one of its Affiliates (other than the Acquired Companies) to one or more of the Acquired Companies for a period of at least 12 months following the Closing Date of the Trade Names and (ii) in form and substance reasonably satisfactory to both Buyer and Quixote Corp.

 

“ Transfer Taxes ” means sales, use, transfer, real property transfer, recording, documentary, stamp, registration and stock transfer taxes and fees.

 

“ WARN Act ” means the Worker Adjustment and Retraining Notification Act of 1988.

 

“ $ ” means United States dollars.

 

1.2                                  Other Defined Terms .  The following terms have the meanings assigned to such terms in the Sections of the Agreement set forth below:

 

Acquired Companies		Recitals
Acquired Companies’ 2005-2007 Financial Statements		3.5
Acquired Companies’ Interim Financial Statements		3.5
Acquired Company Benefit Plans		3.19(b)
Acquired Company Intellectual Property		3.15(e)
Acquired Company Owned Intellectual Property		3.15(b)
Acquired Company Registered Items		3.15(f)
Acquisition		2.1
Action		3.18(a)

 

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ADSP		6.3(d)(iii)
Affected Employee		6.4(a)
Agreement		Preamble
Applicable Survival Period		8.1(d)
Audited Consolidated Financial Statements		3.5
Balance Sheet		3.5
Balance Sheet Date		3.5
Buyer		Preamble
Buyer 401(k) Plan		6.4(c)(i)
Buyer Disclosure Schedule		Preamble to Article IV
Buyer Indemnitees		8.2
CERCLA		3.22(iv)
Closing		2.2
Closing Date		2.2
COBRA		6.4(f)
Consents		3.4(a)
Copyrights		3.15(a)
Current Products		3.7
Election Allocations		6.3(d)(iii)
Election Corporation		6.3(d)(iii)
Election Notice		8.10(b)
Environment		3.21(a)(i)
Environmental Action		3.21(a)(ii)
Environmental Clean-up Site		3.21(a)(iii)
Environmental Laws		3.21(a)(iv)
Environmental Permits		3.21(a)(v)
Financial Statements		3.5
Hazardous Substances		3.21(a)(vi)
HIPAA		6.4(f)
In-Bound Licenses		3.15(c)
Inform Group		5.2(a)(i)
Intellectual Property		3.15(a)

 

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Intellectual Property Rights		3.15(a)
Interim Balance Sheet		3.5
Interim Balance Sheet Date		3.5
Lease		3.14(b)
Leased Personal Property		3.12(c)
Leased Real Property		3.14(a)
Liabilities		3.6
Losses		8.2
Marks		3.15(a)
Material Contracts		3.17(b)
Names		6.7
Noncompetition Period		5.2(a)
Nondisclosure Agreement		3.15(i)
Notice of Claim		8.5(a)
Out-Bound Licenses		3.15(d)
Patents		3.15(a)
PCBs		3.21(i)
Peek Traffic		Recitals
Peek Traffic Shares		Recitals
Pension Plan		3.19(c)
Policies		3.22(a)
Post-Closing Period		6.3(c)(ii)
Pre-Closing Period		6.3(c)(ii)
Products		3.23(a)
Proprietary Information		3.15(a)
Purchase Price		2.1
Quixote Corp.		Preamble
Quixote Traffic		Recitals
Quixote Traffic Shares		Recitals
Release		3.21(a)(vii)
Reorganization		3.9(l)
Required Authorizations		3.11(a)

 

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Restricted Business		5.2(a)
Santa Fe Springs Property		8.1(b)
Section 388(h)(10) Election		6.3(d)(i)
Section 388 Forms		6.3(d)(ii)
Seller 401(k) Plan		6.4(c)(i)
Seller Benefit Plans		3.19(a)
Sellers Disclosure Schedule		Preamble to Article III
Seller Group Benefit Plans		3.19(b)
Seller Indemnitees		8.3
Seller Party		6.3(e)(ii)
Shares		Recitals
Software		3.15(a)
Third Party Claim		8.5(a)
Third Party Defense		8.5(b)
Trade Show		5.5
Transferee		3.9(l)
Transition Services Agreement		7.1(i)
U.S. Traffic		Recitals
U.S. Traffic Shares		Recitals
Work Product Agreements		3.15(j)
Workers’ Compensation Event		6.4(f)

 

ARTICLE II

PURCHASE AND SALE OF THE SHARES

 

2.1                                  Purchase and Sale of the Shares .  Upon the terms and subject to the conditions of this Agreement, at the Closing, each Seller will sell to Buyer the Shares owned by it, and Buyer will purchase from Sellers the Shares, free and clear of all Liens.  The aggregate purchase price for the Shares is $20,000,000 in cash (the “ Purchase Price ”).  The purchase and sale of the Shares is referred to in this Agreement as the “ Acquisition .”

 

2.2                                  Closing .  The closing of the Acquisition (the “ Closing ”) shall take place at Morgan, Lewis & Bockius LLP, Houston, Texas, to be effective as of the close of business on the date hereof, unless another time, date and/or place is agreed to in writing

 

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by the parties.  The date upon which the Closing occurs is referred to in this Agreement as the “Closing Date.”

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Each Seller represents and warrants to Buyer as of the date hereof that the statements contained in this Article III are true and correct, except as set forth in the disclosure schedule dated and delivered as of the date hereof by Sellers to Buyer (the “ Sellers Disclosure Schedule ”), which is attached to this Agreement and is designated therein as being the Sellers Disclosure Schedule.  The Sellers Disclosure Schedule shall be arranged in sections corresponding to each Section of this Article III.

 

3.1                                  Organization and Good Standing .

 

(a)                                   Each of Sellers and the Acquired Companies is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware, has all requisite power to own, lease and operate its properties and to carry on its business as currently conducted and as proposed to be conducted by Buyer, and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which it owns or leases property or conducts any business so as to require such qualification.  The Sellers Disclosure Schedule contains a true and complete list of each jurisdiction in which each of the Acquired Companies is qualified to do business.

 

(b)                                  Sellers have previously delivered to Buyer true and complete copies of the Charter Documents of Sellers and each of the Acquired Companies as presently in effect.  None of Sellers or the Acquired Companies is in default under, or in violation of, any provision of its Charter Documents.

 

3.2                                  Capitalization .

 

(a)                                   The Sellers Disclosure Schedule sets forth the authorized Capital Stock of each of the Acquired Companies.  All of the Shares are duly authorized, validly issued, fully paid and nonassessable and are owned of record and beneficially by the Sellers holding such Shares free and clear of all Liens.  Upon transfer of the Shares to Buyer in accordance with the terms of Article II, Buyer will receive valid title to the Shares, free and clear of all Liens.

 

(b)                                  All of the Shares were issued in compliance with applicable Laws.  None of the Shares was issued in violation of any Contract to which any Seller or any of the Acquired Companies is a party or is subject or in violation of any preemptive or similar rights of any Person.

 

(c)                                   Other than the Shares, none of the Acquired Companies has outstanding any Equity Securities or any other securities.  None of the Acquired Companies is a party or subject to any Contract obligating such Acquired Company to issue any Equity Securities or any other securities and there is no circumstance or

 

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condition that may give rise to a claim by any Person that such Person is entitled to acquire any Equity Securities or any other securities of such Acquired Company.  None of the Acquired Companies has outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable or exchangeable for securities having the right to vote) on any matter with respect to such Acquired Company.

 

(d)                                  None of the Acquired Companies has outstanding or authorized any stock appreciation, phantom stock, profit participation or similar rights.

 

(e)                                   None of Sellers or any of the Acquired Companies is a party or subject to any stockholder agreement, voting agreement, voting trust or any other similar arrangement which has the effect of restricting or limiting the transfer, voting or other rights associated with the Shares.

 

(f)                                     There are no obligations, contingent or otherwise, of any of the Acquired Companies to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any Person.

 

(g)                                  The Acquired Companies do not own or control, directly or indirectly, any Equity Securities of any Equity Securities of any other Person.

 

3.3                                  Authority and Enforceability .  Each Seller has the requisite power and authority to enter into this Agreement and to consummate the Acquisition.  The execution and delivery by each Seller of this Agreement and the consummation by such Seller of the Acquisition have been duly authorized by all necessary corporate action on the part of such Seller, and the Person executing this Agreement on behalf of such Seller has proper authority to do so.  This Agreement has been duly executed and delivered by each Seller and, assuming due authorization, execution and delivery by Buyer, constitutes the valid and binding obligation of such Seller, enforceable against it in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting or relating to creditors’ rights generally, and (b) the availability of injunctive relief and other equitable remedies.

 

3.4                                  No Conflicts; Authorizations .

 

(a)                                   The execution and delivery of this Agreement by each Seller do not, and the performance by such Seller of its obligations hereunder and the consummation by each Seller of the Acquisition (in each case, with or without the giving of notice or lapse of time, or both) will not, directly or indirectly, (i) violate the provisions of any of the Charter Documents of such Seller or any of the Acquired Companies, (ii) violate or constitute a default, an event of default or an event creating rights of acceleration, termination, cancellation, imposition of additional obligations or loss of rights, or require a consent to assignment or change of control, under any Contract (A) to which such Seller, any of the Acquired Companies or any of such Seller’s Affiliates is a party, including, without limitation, the New York Contract, (B) of which such Seller, any of the Acquired Companies or any of such Seller’s Affiliates is a

 

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beneficiary or (C) by which such Seller, the Acquired Companies or any of such Seller’s Affiliates or any of their respective assets is bound, (iii) violate or conflict with any Law, Authorization or Order applicable to such Seller, any of the Acquired Companies or any of such Seller’s Affiliates or any of their respective assets, or give any Governmental Entity or other Person the right to challenge any of the transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under or revoke, cancel, terminate or otherwise modify any rights held under, any such Law, Authorization or Order, or (iv) result in the creation of any Liens upon the Shares or any of the assets owned or used by such Seller, any of the Acquired Companies or any of such Seller’s Affiliates.  The Sellers Disclosure Schedule sets forth all notices, consents, waivers, assignments and other approvals and actions that are necessary in connection with the execution and delivery by such Seller of this Agreement and the consummation by Seller of the Acquisition, under any Contract to which such Seller, any of the Acquired Companies or any of such Seller’s Affiliates is a party (collectively, “ Consents ”) in order to preserve all rights of, and benefits to, the Acquired Companies thereunder.

 

(b)                                  No Authorization or Order of, registration, declaration or filing with, or notice to, any Governmental Entity or other Person is required by or with respect to any Seller, any of the Acquired Companies or any Seller’s Affiliates in connection with the execution and delivery by Sellers of this Agreement or the consummation by Sellers of the Acquisition.

 

3.5                                  Financial Statements .  The Sellers Disclosure Schedule includes true and complete copies of (a) Quixote Corp.’s audited consolidated financial statements consisting of the consolidated balance sheet at June 30 in each of the years 2005 through 2007 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended (the “ Audited Consolidated Financial Statements ”), (b) the Acquired Companies’ unaudited financial statements consisting of the balance sheet at June 30 in each of the years 2005 through 2007 and the related statements of income for the years then ended (the “ Acquired Companies’ 2005-2007 Financial Statements ”), and (c) the Acquired Companies’ unaudited financial statements consisting of the balance sheet at June 30, 2008 and the related statements of income for the year then ended (the “ Acquired Companies’ Interim Financial Statements ,” together with the Audited Consolidated Financial Statements and the Acquired Companies’ 2005-2007 Financial Statements, the “ Financial Statements ”).  The Financial Statements are true and complete and have been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved, subject, in the case of the Acquired Companies’ Interim Financial Statements, to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that, if presented, would not differ materially from those presented in the Audited Consolidated Financial Statements).  The Acquired Companies’ 2005-2007 Financial Statements and the Acquired Companies’ Interim Financial Statements are based upon, and are consistent with, the information contained in the Audited Consolidated Financial Statements.  The Financial Statements are based on the books and records of Quixote Corp. and the Acquired Companies and fairly present the financial condition of the Acquired Companies as of the respective dates they were prepared and the results of the operations of Acquired Companies for the periods indicated therein.  The balance sheet

 

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contained in the Acquired Companies’ 2005-2007 Financial Statements at June 30, 2007 is referred to herein as the “ Balance Sheet ” and the date thereof as the “ Balance Sheet Date ” and the balance sheet contained in the Acquired Companies’ Interim Financial Statements is referred to herein as the “ Interim Balance Sheet ” and the date thereof as the “ Interim Balance Sheet Date .”  The Acquired Companies maintain a standard system of accounting established and administered in accordance with GAAP.

 

3.6                                  No Undisclosed Liabilities .  The Acquired Companies have no material liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise (“ Liabilities ”), except (a) those which are adequately reflected or reserved against in the Interim Balance Sheet, and (b) those which have been incurred in the ordinary course of business consistent with past practice since the Interim Balance Sheet Date and do not individually exceed $400,000.

 

3.7                                  Inventory .  All inventory of the Acquired Companies (including materials, supplies, parts, work-in-process and finished goods) is of a quality, quantity and condition useable or saleable in the ordinary course of business, except as reserved in accordance with GAAP consistent with past practices.  None of such inventory is obsolete and no write-down of such inventory has been made or should have been made in the period since the Interim Balance Sheet Date.  The quantities of inventory are not excessive and are reasonable in the present circumstances of the Acquired Companies.  All work-in-process and finished goods inventory is free of any defect or other deficiency.  All of such inventory is located at the facilities of the Acquired Companies and no inventory is held on a consignment basis.  Each Acquired Company owns its inventory free and clear of all Liens other than Permitted Liens.  The Sellers Disclosure Schedule sets forth a list of all products and equipment being developed, manufactured, marketed or sold by the Acquired Companies as of the Closing Date (collectively, the “ Current Products ”).

 

3.8                                  Accounts Receivable .  The accounts receivable of the Acquired Companies as set forth on the Interim Balance Sheet or arising since the date thereof are, to the extent not paid in full by the account debtor prior to the date hereof, (a) valid and genuine and have arisen solely out of bona fide sales and deliveries of goods, performance of services and other business transactions in the ordinary course of business consistent with past practice, (b) not subject to valid defenses, set-offs or counterclaims, and (c) collectible after billing at the full recorded amount thereof less, in the case of accounts receivable reflected on the Interim Balance Sheet, the recorded allowance for collection losses on the Interim Balance Sheet or, in the case of Accounts Receivable arising since the Interim Balance Sheet Date, the recorded allowance for collection losses shown on the accounting records of the Acquired Companies.  The allowance for collection losses on the Interim Balance Sheet and, with respect to Accounts Receivable arising since the Interim Balance Sheet Date, the allowance for collection losses shown on the accounting records of the Acquired Companies, have been determined in accordance with GAAP consistent with past practice.  All accounts receivable of the Acquired Companies reflected on the Interim Balance Sheet or arising since the Interim

 

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Balance Sheet Date are owned by such Acquired Company free and clear of all Liens other than Permitted Liens.

 

3.9                                  Taxes .

 

(a)                                   All Tax Returns required to have been filed by or with respect to each Seller Company or a Relevant Group have been duly and timely filed, and each such Tax Return correctly and completely reflects liability for Taxes and all other information required to be reported thereon.  All Taxes owed by each Seller Company or any member of a Relevant Group (whether or not shown on any Tax Return) have been timely paid.  Each Seller Company has adequately provided for, in its books of account and related records, liability for all unpaid Taxes, including, but not limited to, current Taxes not yet due and payable.

 

(b)                                  There is no Action, audit, dispute or claim currently proposed, threatened or pending against, or with respect to, any Seller Companies in respect of any Taxes.  No issue has been raised in any Tax examination with respect to any Seller Company which could result in liability for Taxes for any other Seller Company for any period.  No Seller Company is the beneficiary of any extension of time within which to file any Tax Return, nor has any Seller Company made (or caused to be made on its behalf) any requests for such extensions.  No claim has ever been made by an authority in a jurisdiction where a Seller Company does not file Tax Returns that such Seller Company is or may be subject to taxation by such jurisdiction or that such Seller Company must file Tax Returns.  There are no Liens encumbering any of the assets of any Seller Company with respect to Taxes (except where such Lien arises as a matter of Law prior to the due date for paying the related Taxes).

 

(c)                                   Each Seller Company has withheld and timely paid all Taxes required to have been withheld and paid and has complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto.

 

(d)                                  Sellers have delivered to Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by any Seller Company since year 2003.  No Seller Company has waived (or is subject to a waiver of) any statute of limitations in respect of Taxes or has agreed to (or is subject to) any extension of time with respect to a Tax assessment or deficiency.

 

(e)                                   No Seller Company has ever been a “United States real property holding corporation” (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.  Neither Seller is a “foreign person” (as defined in Section 1445 of the Code).  No Seller Company is a party to any agreement, contract, arrangement or plan that has resulted or could result, individually or in the aggregate, in the payment of (i) any “excess parachute payment (as defined in Section 280G of the Code or any corresponding provision of state, local or foreign Tax Law), (ii) any amount that will not be fully deductible as a result of Section 162(m) of the

 

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Code (or any corresponding provision of state, local or foreign Tax Law) and (iii) any amount which may subject the recipient of such payment to excise Tax pursuant to Section 4999 of the Code (or any corresponding provision of state, local or foreign Tax Law).  No Seller Company has participated in or cooperated with an “international boycott” (as defined in Section 999 of the Code).

 

(f)                                     No Seller Company has received (or is subject to) any ruling from any Taxing Authority or has entered into (or is subject to) any agreement with a Taxing Authority.  Each Seller Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code.

 

(g)                                  No Seller Company is a party to any Tax allocation or sharing agreement.  No Seller Company has any liability for the Taxes of any Person, other than under Section 1.1502-6 of the Treasury regulations (or any similar provision of state, local, or foreign Law) with respect to any Relevant Group of which such Seller Company currently is a member, (i) as a transferee or successor, (ii) by contract, (iii) under Section 1.1502-6 of the Treasury regulations (or any similar provision of state, local or foreign Law), or (iv) otherwise.  No Seller Company is a party to any joint venture, partnership or other arrangement that is treated as a partnership for federal income tax purposes.

 

(h)                                  No Seller Company will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) intercompany transactions or excess loss accounts described in Treasury regulations under Section 1502 of the Code (or any similar provision of state, local, or foreign Tax Law), (ii) installment sale or open transaction disposition made on or prior to the Closing Date, (iii) prepaid amount received on or prior to the Closing Date or (iv) change in the method of accounting for a taxable period ending on or prior to the Closing Date.

 

(i)                                      The Sellers Disclosure Schedule sets forth the following information with respect to each of the Acquired Companies as of the Closing Date: (i) the basis of the Acquired Company in its assets; (ii) the current and accumulated earnings and profits of the Acquired Company; (iii) the basis of the stock of the Acquired Company (or the amount of any excess loss account); (iv) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax credit, or excess charitable contribution allocable to the Acquired Company; (v) the amount of any deferred gain or loss allocable to the Acquired Company arising out of any intercompany transaction as described in the Treasury regulations under Section 1502 of the Code; and (vi) tax elections affecting the Acquired Company.  None of the Acquired Companies has net operating losses or other tax attributes presently subject to limitation under Sections 279, 382, 383, or 384 of the Code, or the federal consolidated return regulations.

 

(j)                                      None of the Acquired Companies is or at any time has been subject to (i) the dual consolidated loss provisions of Section 1503(d) of the Code, (ii) the overall foreign loss provisions of Section 904(f) of the Code or (iii) the recharacterization

 

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provisions of Section 952(c)(2) of the Code.  None of the Acquired Companies has any “non-recaptured net Section 1231 losses” (as defined in Section 1231(c)(2) of the Code).

 

(k)                                   None of the Acquired Companies has been a member of an affiliated group filing a consolidated federal income Tax Return other than a group the common parent of which is Quixote Corp.  Each Seller has filed a consolidated federal income Tax Return with the Acquired Companies for the taxable year immediately preceding the current taxable year and is eligible to join with Buyer in making the Section 338(h)(10) Elections with respect to the acquisition by Buyer of the Shares.

 

(l)                                      Sellers have caused U.S. Traffic to transfer, assign and deliver to a Seller or one of its Affiliates (other than Quixote Traffic or Peek Traffic) (such Person, the “ Transferee ”), and have caused the Transferee to accept such transfer, assignment and delivery of all of U.S. Traffic’s right, title and interest in, to and under the Equity Securities of the Mexican Subsidiary owned by U.S. Traffic (such transfer, assignment and delivery, the “ Reorganization ”).  Sellers have completed, formalized and certificated the Reorganization in compliance with applicable Law (including the provisions of the Mexican Ley del Impuesto sobre la Renta and Ley General de Sociedades Mercantiles).

 

(m)                                Sellers and their Affiliates, as applicable, have made a capital contribution to the Acquired Companies in the amount of all Inter-Company Debt in compliance with Section 108(e)(6) of the Code.  As of the moment of such capitalization, each Seller (or the Affiliate) holding such Inter-Company Debt had a full basis in the Inter-Company Debt and did not take any action intended to reduce such basis or that would otherwise have the effect of realizing a taxable income for any of the Acquired Companies as a result of such capitalization.

 

3.10                            Compliance with Law .

 

(a)                                   Each of the Acquired Companies has complied with and is not in violation of any applicable Law to which such Acquired Company or its respective business, operations, assets or properties is or has been subject.

 

(b)                                  No event has occurred and no circumstances exist that (with or without the passage of time or the giving of notice) may result in a violation of, conflict with or failure on the part of any of the Acquired Companies to comply with, any applicable Law.  None of the Acquired Companies has received notice regarding any violation of, conflict with or failure to comply with, any applicable Law.

 

3.11                            Authorizations .

 

(a)                                   Each of the Acquired Companies owns, holds or lawfully uses in the operation of its business all Authorizations (other than Authorizations of or from any Governmental Entity relating solely to such Governmental Entity’s capacity as a customer of the Acquired Companies) which are necessary for it to conduct its business as currently conducted or as proposed to be conducted by Buyer or for the ownership and use of the assets owned or used by such Acquired Company in the conduct of its business

 

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free and clear of all Liens other than Permitted Liens (such Authorizations, the “ Required Authorizations ”).  All Required Authorizations are valid and in full force and effect and none of the Required Authorizations will be terminated or impaired or become terminable as a result of the Acquisition.  All Required Authorizations are listed in the Sellers Disclosure Schedule.

 

(b)                                  No event has occurred and no circumstances exist that (with or without the passage of time or the giving of notice) may result in a violation of, conflict with, failure on the part of any of the Acquired Companies to comply with the terms of, or the revocation, withdrawal, termination, cancellation, suspension or modification of, any Required Authorization.  None of Sellers or the Acquired Companies has received notice regarding any violation of, conflict with, failure to comply with the terms of, or any revocation, withdrawal, termination, cancellation, suspension or modification of, any Authorization.  None of the Acquired Companies is in default, nor has any Seller or any of the Acquired Companies received notice of any claim of default, with respect to any Authorization.

 

(c)                                   No Person other than one of the Acquired Companies owns or has any proprietary, financial or other interest (direct or indirect) in any Authorization which any of the Acquired Companies owns or uses in the operation of its business as currently conducted or as proposed to be conducted by Buyer.

 

3.12                            Title to Personal Properties .

 

(a)                                   The Sellers Disclosure Schedule sets forth a true and complete list of all the personal properties and assets owned, leased or used by any of the Acquired Companies as of the date of this Agreement with a current book value in excess of $15,000, specifying whether and by whom each such asset is owned or leased and, in the case of leased assets, indicating the parties to, execution dates of and annual payments under, such lease.

 

(b)                                  With respect to personal properties and assets that are owned including all properties and assets reflected as owned on the Interim Balance Sheet (other than inventory sold in the ordinary course of business since the date thereof), the Acquired Companies have good and valid title to all of such properties and assets, free and clear of all Liens other than Permitted Liens.

 

(c)                                   With respect to personal properties and assets that are leased by any of the Acquired Companies (“ Leased Personal Property ”), such Acquired Company has a valid leasehold interest in such Leased Personal Property and all such leases are in full force and effect and constitute valid and binding obligations of the parties thereto, except as may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting or relating to creditors’ rights generally, and (ii) the availability of injunctive relief and other equitable remedies.  None of the Acquired Companies or any other party thereto is in breach of any of the terms of any such lease.

 

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(d)                                  Other than the Acquired Companies, holders of Permitted Liens (solely to the extent of such Permitted Liens) and lessors of Leased Personal Property (solely to the extent of their interest in such Leased Personal Property), no Person has any interest in any equipment or other tangible assets or properties used in the businesses of the Acquired Companies.  Without limiting the foregoing, no Seller nor any of their respective Affiliates (other than the Acquired Companies) has any interest in any equipment or other tangible assets or properties used in the businesses of the Acquired Companies.

 

3.13                            Condition of Tangible Assets .  All buildings, plants, leasehold improvements, structures, facilities, equipment and other items of tangible property and assets which are owned, leased or used by the Acquired Companies are in good operating condition and repair (subject to normal wear and tear given the use and age of such assets), are usable in the ordinary course of business and conform to all Laws and Authorizations relating to their construction, use and operation.

 

3.14                            Real Property .

 

(a)                                   The Sellers Disclosure Schedule contains a list of all real property and interests in real property currently leased by any of the Acquired Companies (the “ Leased Real Property ”).  The Leased Real Property listed on the Sellers Disclosure Schedule includes all interests in real property used in or necessary for the conduct of the businesses and operations of the Acquired Companies as currently conducted and as proposed to be conducted by Buyer.

 

(b)                                  With respect to Leased Real Property, Sellers have delivered to Buyer true and complete copies of all leases and subleases pursuant to which any of the Acquired Companies is a party or by which it is bound (each, a “ Lease ”).  The Acquired Companies have peaceful, undisturbed and exclusive possession of the Leased Real Property.  There are no outstanding claims under any expired leases or subleases and Sellers and the Acquired Companies have obtained appropriate releases in accordance with their termination, vacancy and delivery of the applicable premises.

 

(c)                                   The uses for which the buildings, facilities and other improvements located on the Leased Real Property are zoned do not restrict or impair the use of the Leased Real Property for purposes of the businesses of the Acquired Companies.

 

(d)                                  No Governmental Entity having the power of eminent domain over the Leased Real Property has commenced or intends to exercise the power of eminent domain or a similar power with respect to all or any part of the Leased Real Property.  There are no pending or threatened condemnation, fire, health, safety, building, zoning or other land use regulatory proceedings, lawsuits or administrative actions relating to any portion of the Leased Real Property or any other matters which do or may adversely affect the current use, occupancy or value thereof.  None of the Acquired Companies has received notice of any pending or threatened special assessment proceedings affecting any portion of the Leased Real Property.

 

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(e)                                   The Leased Real Property and all present uses and operations of the Leased Real Property comply with all Laws, covenants, conditions, restrictions, easements, disposition agreements and similar matters affecting the Leased Real Property.  The Leased Real Property held by it and its continued use, occupancy and operation as used, occupied and operated in the conduct of the businesses of the Acquired Companies does not constitute a nonconforming use and is not the subject of a special use permit under any Law.

 

(f)                                     The Leased Real Property is in suitable condition for the Acquired Companies’ businesses as currently conducted and as proposed to be conducted by Buyer.  Each of the Acquired Companies has good and valid rights of ingress and egress to and from all Leased Real Property held by it from and to the public street systems for all usual street, road and utility purposes.

 

(g)                                  No Person other than the Acquired Companies is in possession of any of the Leased Real Property or any portion thereof, and there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any Person other than the Acquired Companies the right of use or occupancy of the Leased Real Property or any portion thereof.  No easement, utility transmission line or water main located on the Leased Real Property adversely affects the use of the Leased Real Property or any improvement on the Leased Real Property.

 

(h)                                  All water, sewer, gas, electric, telephone and drainage facilities, and all other utilities required by any Law or by the use and operation of the Leased Real Property in the conduct of the businesses of the Acquired Companies are installed to the property lines of the Leased Real Property, are connected pursuant to valid permits to municipal or public utility services or proper drainage facilities, are fully operable and are adequate to service the Leased Real Property in the operation of the businesses of the Acquired Companies and to permit compliance with the requirements of all Laws in the operation thereof.  No fact or condition exists which could result in the termination or material reduction of the current access from the Leased Real Property to existing roads or to sewer or other utility services presently serving the Leased Real Property.

 

(i)                                      All uses and operations of all real property leased in the past by any Seller or any of the Acquired Companies under already expired lease agreements complied with all Laws, covenants, conditions, restrictions, easements, disposition agreements and similar matters affecting them.

 

3.15                            Intellectual Property .

 

(a)                                   As used in this Agreement, “ Intellectual Property ” means (i) inventions (whether or not patentable), trade secrets, technical data, databases, customer lists, designs, tools, methods, processes, technology, ideas, know-how, source code, product road maps and other proprietary information and materials (“ Proprietary Information ”), (ii) trademarks and service marks (whether or not registered), trade names, logos, trade dress and other proprietary indicia and all goodwill associated therewith, (iii) documentation, advertising copy, marketing materials, web-sites,

 

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specifications, mask works, drawings, graphics, databases, recordings and other works of authorship, whether or not protected by Copyright, (iv) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, design documents, flow-charts, user manuals and training materials relating thereto and any translations thereof (collectively, “ Software ”), and (v) all forms of legal rights and protections that may be obtained for, or may pertain to, the Intellectual Property set forth in clauses (i) through (iv) in any country of the world (“ Intellectual Property Rights ”), including all letters patent, patent applications, provisional patents, design patents, PCT filings, invention disclosures and other rights to inventions or designs (“ Patents ”), all registered and unregistered copyrights in both published and unpublished works (“ Copyrights ”), all trademarks, service marks and other proprietary indicia (whether or not registered) (“ Marks ”), trade secret rights, mask works, moral rights or other literary property or authors rights, and all applications, registrations, issuances, divisions, continuations, renewals, reissuances and extensions of the foregoing.

 

(b)                                  Except for the Trade Names, the Sellers Disclosure Schedule lists (by name, owner and, where applicable, registration number and jurisdiction of registration, application, certification or filing) all Intellectual Property that is used in or necessary for the businesses of the Acquired Companies as they are currently conducted or proposed to be conducted by Buyer (“ Acquired Company Owned Intellectual Property ”), and the Acquired Companies own the entire right, title and interest in and to all Acquired Company Owned Intellectual Property free and clear of all Liens other than Permitted Liens.

 

(c)                                   The Sellers Disclosure Schedule lists all licenses, sublicenses and other agreements (“ In-Bound Licenses ”) pursuant to which a third party authorizes the Acquired Companies to use, practice any rights under, or grant sublicenses with respect to, any Intellectual Property owned by such third party, including the incorporation of any such Intellectual Property into the products of the Acquired Companies and, with respect to each In-Bound License, whether the In-Bound License is exclusive or non-exclusive and its term.

 

(d)                                  The Sellers Disclosure Schedule lists all licenses, sublicenses and other agreements (“ Out-Bound Licenses ”) pursuant to which the Acquired Companies authorize a third party to use, practice any rights under, or grant sublicenses with respect to, any Acquired Company Owned Intellectual Property or pursuant to which any of the Acquired Companies grants rights to use or practice any rights under any Intellectual Property owned by a third party and, with respect to each Out-Bound License, whether the Out-Bound License is exclusive or non-exclusive and its term.

 

(e)                                   The Acquired Company Owned Intellectual Property, together with the Acquired Companies’ rights under the In-Bound Licenses listed in the Sellers Disclosure Schedule (collectively, the “ Acquired Company Intellectual Property ”), constitutes all the Intellectual Property used in or necessary for the operation of the business of the Acquired Companies as they are currently conducted and as proposed to

 

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be conducted by Buyer, and will remain, if and as applicable, owned by the Acquired Companies or in full force and effect upon the consummation of the Acquisition.

 

(f)                                     All registration, maintenance and renewal fees related to Patents, Marks, Copyrights and any other certifications, filings or registrations that are included in the Acquired Company Intellectual Property (“ Acquired Company Registered Items ”) that are currently due have been paid and all documents and certificates related to such Acquired Company Registered Items have been filed with the relevant Governmental Entity or other authorities in the United States or foreign jurisdictions, as applicable, for the purposes of maintaining such Acquired Company Registered Items.  All Acquired Company Registered Items are, and will continue to be after the Closing Date, valid, in good standing, held in compliance with all applicable legal requirements and enforceable by the Acquired Companies or their Affiliates, as applicable.

 

(g)                                  There are no challenges (or any basis therefor) with respect to the validity or enforceability of any Acquired Company Intellectual Property.  The Sellers Disclosure Schedule lists the status of any Actions before the United States Patent and Trademark Office or any other Governmental Entity anywhere in the world related to any of the Acquired Company Intellectual Property, including the due date for any outstanding response by any of the Acquired Companies in such Actions.  None of Sellers or the Acquired Companies has taken any action or failed to take any action that could reasonably be expected to result in the abandonment, cancellation, forfeiture, relinquishment, invalidation, waiver or unenforceability of any Acquired Company Intellectual Property.

 

(h)                                  None of the products or services currently or formerly developed, manufactured, sold, distributed, provided, shipped or licensed by any of the Acquired Companies, or which are currently under development, has infringed or infringes upon, or otherwise unlawfully used or uses, the Intellectual Property Rights of any third party.  None of the Acquired Companies, by conducting its business as currently conducted or as proposed to be conducted by Buyer, has infringed or infringes upon, or otherwise unlawfully used or uses, any Intellectual Property Rights of a third party.  None of Sellers or the Acquired Companies has received any communication alleging that the Acquired Companies or any of their respective products, services, activities or operations infringe upon or otherwise unlawfully use any Intellectual Property Rights of a third party nor is there any basis therefor.  No Action has been instituted or threatened relating to any Intellectual Property formerly or currently used by the Acquired Company and none of the Acquired Company Intellectual Property is subject to any outstanding Order.  No Person has infringed or is infringing any Intellectual Property Rights of the Acquired Company or has otherwise misappropriated or is otherwise misappropriating any Acquired Company Intellectual Property.

 

(i)                                      With respect to the Acquired Companies’ Proprietary Information, the documentation relating thereto is current, accurate and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the special knowledge or memory of others.  The Acquired Companies have taken commercially reasonable steps to protect and preserve the confidentiality of all

 

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Proprietary Information owned by the Acquired Companies that is not covered by an issued Patent.  Without limiting the generality of the foregoing, the Proprietary Information of the Acquired Companies (other than Proprietary Information that is covered by an issued Patent) is not part of the public knowledge and has not been used or divulged for the benefit of any Person other than the Acquired Companies.  Any receipt or use by, or disclosure to, a third party of Proprietary Information owned by or pertaining to the Acquired Companies has been pursuant to the terms of a binding written confidentiality agreement (each, a “ Nondisclosure Agreement ”).  True and complete copies of all Nondisclosure Agreements and any amendments thereto have been made available to Buyer.  The Acquired Companies are, and, to Sellers’ Knowledge, all other parties thereto are, in compliance with the provisions of the Nondisclosure Agreements.  The Acquired Companies are in compliance with the terms of all Contracts pursuant to which a third party has disclosed to, or authorized the Acquired Companies to use, Proprietary Information owned by such third party.

 

(j)                                      All current and former employees, consultants and contractors of the Acquired Companies have executed and delivered, and to Sellers’ Knowledge are in compliance with, enforceable agreements regarding the protection of Proprietary Information and providing valid written assignments of all Intellectual Property conceived or developed by such employees, consultants or contractors in connection with their services for the Acquired Companies (“ Work Product Agreements ”).  True and complete copies of all Work Product Agreements have been made available to Buyer. No current or former employee, consultant or contractor or any other Person has any right, claim or interest in or to any of the Acquired Company Intellectual Property.

 

(k)                                   No employee, consultant or contractor of the Acquired Companies has been, is or will be, by performing services for any of the Acquired Companies, in violation of any term of any employment, invention disclosure or assignment, confidentiality, noncompetition agreement or other restrictive covenant or any Order as a result of such employee’s, consultant’s or independent contractor’s employment by any of the Acquired Companies or any services rendered by such employee, consultant or independent contractor.

 

(l)                                      All Intellectual Property that has been distributed, sold or licensed to a third party by the Acquired Companies that is covered by a warranty conformed to or conforms to, and performed or performs in accordance with, the representations and warranties provided with respect to such Intellectual Property by or on behalf of any of the Acquired Companies for the time period during which such representations and warranties apply.  True and complete copies of all Contracts pursuant to which any one of the Acquired Companies has agreed to indemnify a third party in connection with any Intellectual Property that has been distributed, sold or licensed by any one of the Acquired Companies have been made available to Buyer.

 

(m)                                The execution and delivery by Sellers of this Agreement do not, and the consummation by Sellers of the Acquisition (in each case, with or without the giving of notice or lapse of time, or both), will not, directly or indirectly, result in the loss or impairment of any Acquired Company Intellectual Property, or give rise to any right of

 

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any third party to terminate or reprice or otherwise renegotiate any of the Acquired Companies’ rights to own any of its Intellectual Property or their respective rights under any Out-Bound License or In-Bound License, nor require the consent of any Governmental Entity or other third party in respect of any such Intellectual Property.

 

3.16                            Absence of Certain Changes or Events .  Except as otherwise set forth on the Sellers Disclosure Schedule or reflected on the Interim Balance Sheet, since the Interim Balance Sheet Date:

 

(a)                                   there has not been any material adverse change in the condition (financial or otherwise), operations, prospects or results of operations of the Acquired Companies taken as a whole;

 

(b)                                  none of the Acquired Companies has amended or changed its Charter Documents;

 

(c)                                   none of the Acquired Companies has declared, set aside or paid any dividend or other distribution (whether in cash, stock or property) with respect to any Equity Security or any other security;

 

(d)                                  other than the Reorganization, none of the Acquired Companies has split, combined or reclassified any Equity Security or other security, or issued, or authorized for issuance, any Equity Security or other security;

 

(e)                                   none of the Acquired Companies has altered any term of any outstanding Equity Security or other security;

 

(f)                                     Except for the Key Officers, none of the Acquired Companies has (i) increased or modified the compensation or benefits payable or to become payable by the Acquired Companies to any of its current or former directors, employees, contractors or consultants, (ii) increased or modified any Benefit Plan, payment or arrangement made to, for or with any current or former directors, employees, contractors or consultants of the Acquired Companies, or (iii) entered into any employment, severance or termination agreement;

 

(g)                                  other than the sale of inventory in the ordinary course of business, none of the Acquired Companies has sold, leased, transferred or assigned any property or assets of the Acquired Companies;

 

(h)                                  none of the Acquired Companies has incurred, assumed or guaranteed any Indebtedness;

 

(i)                                      none of the Acquired Companies has created or assumed any Lien on any asset, except for Liens arising under lease financing arrangements existing as of the Balance Sheet Date, Liens for Taxes not yet due and payable with respect to which the Acquired Companies maintain adequate reserves and Permitted Liens;

 

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(j)                                      none of the Acquired Companies has made any loan, advance or capital contribution to, or investment in, any Person;

 

(k)                                   none of the Acquired Companies has entered into any Material Contract other than in the ordinary course of business;

 

(l)                                      other than in the ordinary course of business, (i) no Material Contract has been modified, (ii) no rights under any Material Contract have been waived or accelerated and (iii) no Material Contract that would be required to be listed as a Material Contract pursuant to Section 3.17 hereof if such Contract were in effect on the date hereof has been terminated or cancelled;

 

(m)                                none of the Acquired Companies has sold, transferred, pledged or assigned, and there has been no material reduction in the value of, any Acquired Company Intellectual Property;

 

(n)                                  there has not been any labor dispute, other than individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Acquired Companies;

 

(o)                                  there has not been any violation of or conflict with any Law to which the business, operations, assets or properties of any of the Acquired Companies are subject;

 

(p)                                  none of Sellers or the Acquired Companies has agreed or entered into any arrangement to take any action which, if taken prior to the date hereof, would have made any representation or warranty set forth in this Article III untrue or incorrect;

 

(q)                                  there has not been any material damage, destruction or loss with respect to the property and assets of the Acquired Companies, whether or not covered by insurance;

 

(r)                                     none of Sellers or the Acquired Companies has made any change in accounting policies or practices;

 

(s)                                   none of Sellers or the Acquired Companies has made any Tax election, changed its method of Tax accounting or settled any claim for Taxes; or

 

(t)                                     none of Sellers or the Acquired Companies has agreed, whether in writing or otherwise, to do any of the foregoing.

 

3.17                            Contracts.

 

(a)                                   The Sellers Disclosure Schedule contains a true and complete list of each Contract or series of related Contracts to which any of the Acquired Companies is a party or is subject, or by which any of their respective assets are bound including, without limitation, any contract:

 

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(i)                                      for the purchase by any of the Acquired Companies of materials, supplies, goods, services, equipment or other assets and that involves or would reasonably be expected to involve (A) annual payments by any of the Acquired Companies of $100,000 or more or (B) aggregate payments by the Acquired Companies of $500,000 or more;

 

(ii)                                   (A) for the sale by any of the Acquired Companies of materials, supplies, goods, services, equipment or other assets and that involves a specified annual minimum dollar sales amount by any of the Acquired Companies of $100,000 or more or (B) pursuant to which any of the Acquired Companies received payments of more than $100,000 in the year ended December 31, 2007 or expects to receive payments of more than $100,000 in the year ending December 31, 2008;

 

(iii)                                that requires the Acquired Companies to purchase its total requirements of any product or service from a third party or that contains “take or pay” provisions;

 

(iv)                               that (A) continues over a period of more than six months from the date hereof or (B) involves payments to or by any of the Acquired Companies exceeding $100,000, other than arrangements disclosed pursuant to the preceding subsections (i) and (ii);

 

(v)                                  that is an employment, consulting, termination or severance Contract, other than any such Contract that is terminable at-will by any of the Acquired Companies without liability to such Acquired Company;

 

(vi)                               that is a partnership, joint venture or similar Contract;

 

(vii)                            that is a distribution, dealer, representative or sales agency Contract;

 

(viii)                         that is a (A) Lease or (B) Contract for the lease of personal property, in either case which provides for payments to or by any of the Acquired Companies in any one case of $100,000 or more annually or $250,000 or more over the term of the lease;

 

(ix)                                 that provides for the indemnification by any of the Acquired Companies of any Person, the undertaking by any of the Acquired Companies to be responsible for consequential damages or the assumption by any of the Acquired Companies of any Tax, environmental or other Liability;

 

(x)                                    with any Governmental Entity;

 

(xi)                                 that is a note, debenture, bond, equipment trust, letter of credit, loan or other Contract for Indebtedness or lending of money (other than to employees for travel expenses in the ordinary course of business) or Contract for a line of credit or guarantee, pledge or undertaking of the Indebtedness of any other Person;

 

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(xii)                              for any capital expenditure or leasehold improvement in any one case in excess of $50,000 or in the aggregate greater than $100,000;

 

(xiii)                           that restricts or purports to restrict the right of any of the Acquired Companies to engage in any line of business, acquire any property, develop or distribute any product or provide any service (including geographic restrictions), to compete with any Person or granting any distribution rights, in any market, field or territory;

 

(xiv)                          that relates to the acquisition or disposition of any material business (whether by merger, sale of stock, sale of assets or otherwise);

 

(xv)                             that is a collective bargaining Contract or other Contract with any labor organization, union or association; and

 

(xvi)                          that is otherwise material to any of the Acquired Companies as a whole and not previously disclosed pursuant to this Section 3.17.

 

(b)                                  Each Contract required to be listed in the Sellers Disclosure Schedule (collectively, the “ Material Contracts ”) is in full force and effect and valid and enforceable in accordance with its terms.

 

(c)                                   None of the Acquired Companies is in default in the performance, observance or fulfillment of any obligation, covenant, condition or other term contained in any Material Contract, and none of the Acquired Companies has given or received notice to or from any Person relating to any such alleged or potential default that has not been cured.  No event has occurred which (with or without the giving of notice or lapse of time, or both) may conflict with or result in a violation or breach of, or give any Person the right to exercise any remedy under or accelerate the maturity or performance of, or cancel, terminate or modify, any Material Contract.

 

(d)                                  Except as set forth in the Sellers Disclosure Schedule, none of Sellers or the Acquired Companies is required to obtain any Consent under any of the Material Contracts in connection with the execution and delivery by Sellers of this Agreement or the consummation of the Acquisition.

 

(e)                                   Sellers have delivered true and complete copies of each Material Contract to Buyer.

 

3.18                            Litigation .

 

(a)                                   Except as set forth in the Sellers Disclosure Schedule, there is no action, suit or proceeding, actual or potential claim, arbitration, litigation or investigation (each, an “ Action ”) (i) pending or threatened against or affecting any of the Acquired Companies, (ii) that challenges or seeks to prevent, enjoin or otherwise delay the Acquisition, (iii) that could result in a material limitation on the right of Buyer to own the Shares and to control the Acquired Companies, (iv) that could have the effect of restraining or prohibiting Buyer’s ownership or operation (or that of its Subsidiaries or

 

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Affiliates) of all or any mat