-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NYllSbpD9E+7bQc3jZvF2ZYfPSJYVj68Cljcr00yxW2+nRjxgxjsZ1vChk46PyJt v5hmfMOJNyXqLAga5nJ+Wg== /in/edgar/work/20000627/0000032312-00-000015/0000032312-00-000015.txt : 20000920 0000032312-00-000015.hdr.sgml : 20000920 ACCESSION NUMBER: 0000032312-00-000015 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMCEE BROADCAST PRODUCTS INC CENTRAL INDEX KEY: 0000032312 STANDARD INDUSTRIAL CLASSIFICATION: [3663 ] IRS NUMBER: 131926296 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 001-06299 FILM NUMBER: 661395 BUSINESS ADDRESS: STREET 1: P O BOX 68 STREET 2: SUSQUEHANNA STREET EXTENSION WEST CITY: WHITE HAVEN STATE: PA ZIP: 18661-0068 BUSINESS PHONE: 7174439575 MAIL ADDRESS: STREET 1: P O BOX 68 STREET 2: SUSQUEHANNA STREET EXTENSION CITY: WHITE HAVEN STATE: PA ZIP: 18661 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRONICS MISSILES & COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 10KSB 1 0001.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE X SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended March 31, 2000 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF __ THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from _________ _________________ to ___________________ Commission file number 1-6299 EMCEE BROADCAST PRODUCTS, INC. (Name of small business issuer in its charter) DELAWARE 13-1926296 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) SUSQUEHANNA STREET EXTENSION, PO BOX 68, WHITE HAVEN, PA 18661-0068 (Address of principal executive (Zip Code) offices) Issuer's telephone number: (570) 443-9575 //// Securities registered under Section 12(b) of the Exchange Act: Title of each class: Name of each exchange on which registered: Common NASDAQ National Market Securities registered under Section 12(g) of the Exchange Act: None (TITLE OF CLASS) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve (12) months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is met contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. __ State issuer's revenues for its most recent fiscal year, $4,738,493. The aggregate market value of the voting stock held by non-affiliates of the Registrant is $3,855,763 computed by reference to the closing bid price of the stock at June 23, 2000. This computation is based on the number of issued and outstanding shares held by persons other than directors and officers of the Registrant. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: CLASS OUTSTANDING AT JUNE 23, 2000 Common stock, par value $.01-2/3 4,041,709 per share DOCUMENTS INCORPORATED BY REFERENCE Items 9, 10, 11 and 12 in Part III of this report are incorporated by reference from the Proxy Statement expected to be filed within one hundred twenty (120) days of the close of the Registrant's fiscal year ended March 31, 2000. Transitional Small Business Disclosure Format (Check One) Yes ; No X . EMCEE BROADCAST PRODUCTS, INC. FORM 10-KSB FISCAL YEAR ENDED MARCH 31, 2000 TABLE OF CONTENTS PAGE NUMBER PART I. ITEM 1. DESCRIPTION OF BUSINESS 1 ITEM 2. DESCRIPTION OF PROPERTY 5 ITEM 3. LEGAL PROCEEDINGS 6 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6 PART II. ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 6 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 7 ITEM 7. FINANCIAL STATEMENTS 14 ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES 14 PART III. ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 14 ITEM 10. EXECUTIVE COMPENSATION 14 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 14 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 15 SIGNATURES 17 PART I ITEM 1. DESCRIPTION OF BUSINESS The Registrant (sometimes alternatively referred to in this report as the "Company" or "EMCEE") is a corporation, organized and existing under the laws of the State of Delaware. The Company was incorporated in 1960. The Company is engaged principally in the manufacture and sale of Multichannel Multipoint Distribution Service ("MMDS") microwave transmitters and related equipment for the wireless cable industry. The Company also manufactures and sells low power television ("LPTV") transmitters and related equipment for the television broadcast industry. In addition, the Company provides all services relative to the design, procurement and installation of television broadcast stations, with the exception of licensing submissions. With the April, 2000, asset acquisition of Kentucky based Advanced Broadcast Systems, Inc., the Company plans to compete in the business of manufacturing and selling medium and high powered television transmitters, which includes transmitters used for high definition television ("HDTV"). Through its subsidiary, R.F. Internet Systems, Inc., the Company is involved in two joint ventures, the purpose of which is to sell wireless high speed Internet access. Presently, only one of these businesses is operational with 42 subscribers. The Company believes that the success of these businesses will, in large measure, be dependent on Federal Communication Commission ("FCC") approval of 2-way high speed service (the ability to send information 10 to 100 times faster than traditional telco Internet access). The Company's operating joint venture currently works off of an FCC approved application for "experimental" 2-way high speed service. Although the Company will continue to manufacture and sell transmitters and related equipment to this industry, it has no plans to participate as an operator beyond the two joint ventures in which it is currently involved. The Company's products are sold and distributed primarily through the Company's sales staff and independent sales representatives. Most sales occur in the commercial, educational and private television system markets. For more than the past three years, most of the Company's sales volume has come from the wireless cable industry. While the Company plans to continue to market and sell products to the LPTV market and develop the medium and high power television business, it anticipates that MMDS sales will continue to dominate in both foreign and domestic markets, with foreign sales of all products to dominate total sales into the foreseeable future. At March 31, 2000, the Registrant employed 51 people on a full-time basis. The Company has a variety of raw material sources available to conduct its present business. However, substantial periods of lead time for delivery are sometimes experienced by the Company, making it necessary to inventory varied quantities of materials. Beginning in the fourth quarter of fiscal year 2000, the Company experienced unusual difficulty securing transistor and other parts for its digital MMDS products due to product shortages of certain vendors. The problem continues but should be resolved sometime in the second quarter of fiscal year 2001, which is when the Company believes production will catch up with demand and raw material shortages will end, and when the Company anticipates completing the re-design of amplifiers that utilize another vendor's transistors. Significant portions of the Registrant's revenues come from contracts with customers who generally do not place orders on a regular basis. In addition, the timing of these contracts relate to economic and regulatory developments over which the Registrant has little or no control. In fiscal year 2000, purchases by one overseas customer constituted $1.1 million or 24% of the Company's net sales. Although these purchases were significant in both amount and as a percentage of sales, the Company is not dependent on this customer for future sales. The Registrant's principal suppliers are Andrew Corporation, Fujitsu Corporation and Microwave Filter Company, Inc. Substantially all of the Registrant's domestic products must receive FCC approval prior to being marketed and sold. As of the date of this report, all of the Registrant's products requiring FCC approval have received it. While FCC regulations can have an effect on the demand for the Registrant's domestic products, the Registrant neither knows of nor anticipates any government regulation which would have a material effect on its business. The amount of money spent on the Registrant's research and development activities in fiscal years 1999 and 2000 was, respectively,$422,426 and $430,678. An additional $9,000 of research and development costs was funded by customers in fiscal year 1999. In the MMDS industry, the Registrant occupies a strong position among its competitors. However, the Company continues to experience significant pricing pressures in the MMDS industry, primarily as a result of a reduction in demand for MMDS products, both domestically and internationally. The primary methods of competition in the Registrant's industry are product pricing, the ready availability of quality products to accommodate demand, offering quality service of products after sale, and maintaining a reputation for having a high degree of technical knowledge. There has been no material effect on the Registrant as a result of compliance with federal, state or local environmental laws. The Registrant's principal corporate logos, "EMCEE" and "EMCEE Broadcast Products", are registered in the United States Patent and Trademark Office and are used by the Registrant pursuant to a license with its wholly owned subsidiary corporation, EMCEE Cellular Inc., which owns the marks. In the same manner, the Registrant also uses the trademark, "Site Lock", which is a mark associated with a product sold by the Registrant that enhances analog picture quality for MMDS systems in close proximity to systems operating on the same frequency, and utilizes a patent for a solid state S-band transmitter. ITEM 2. DESCRIPTION OF PROPERTY The Registrant conducts operations at its facility located on 25 acres, which the Registrant owns, in White Haven, Pennsylvania. The building was constructed specifically for the Registrant in 1968 and consists of approximately 27,000 square feet, with the majority of the area devoted to manufacturing. The front portion of the building, consisting of two floors, houses administrative, engineering and sales offices. The land, building and improvements are well maintained and in good condition. The Registrant's land, building and improvements are subject to encumbrances held by the Registrant's primary lending institution, First Union National Bank. These encumbrances secure the Registrant's working line of credit, mortgage loan and two term loans with the lender. As of the date of this report, the aggregate principal balance of these encumbrances is $684,234. The Registrant also leases a warehouse in White Haven, Pennsylvania, in which it stores equipment and archival documents. ITEM 3. LEGAL PROCEEDINGS There is no information relevant to the Registrant which must be disclosed under this Item 3. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of fiscal year 2000. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The NASDAQ National Market is the principal market on which the Registrant's common stock is traded. MARKET INFORMATION STOCK PRICE The table below presents the high and low bid prices of the Registrant's common equity for the two most recent fiscal years: FISCAL YEAR 2000 FISCAL YEAR 1999 QTR ENDED: JUNE 30 SEPT 30 DEC 31 MAR 31 JUNE 30 SEPT 30 DEC 31 MAR 31 (BID) HIGH $4.00 $6.50 $14.00 $13.00 $3.25 $3.125 $2.38 $4.75 (BID) LOW $1.719 $1.25 $ 1.75 $5.375 $2.50 $1.25 $1.125 $1.031 The above high/low bid information was obtained from the NASDAQ Stock Market, Inc. HOLDERS At March 31, 2000, the number of holders of the Registrant's common stock was 1,307. DIVIDENDS No dividends were declared during fiscal year 1999 or fiscal year 2000. The Registrant's loan documents with its primary lending institution contain certain financial covenants with which the Registrant must comply in order to declare and pay dividends on its common stock. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: Any statements contained in this report which are not historical facts are forward looking statements; and, therefore, many important factors could cause actual results to differ materially from those in the forward looking statements. Such factors include, but are not limited to, changes (legislative, regulatory and otherwise) in the Multichannel Multipoint Distribution Service (MMDS) or Low Power Television (LPTV) industries or medium to high definition television (HDTV) products, demand for the Company's products both domestically and internationally, the development of competitive products, competitive pricing, the timing of foreign shipments, market acceptance of new product introductions (including, but not limited to, the Company's digital and Internet products), technological changes, economic conditions(both foreign and domestic), litigation and other factors, risks and uncertainties identified in the Company's Securities and Exchange Commission filings. RESULTS OF OPERATIONS Net sales for fiscal year 2000 (ended March 31, 2000) totaled $4,738,000 compared to $5,896,000 for fiscal year 1999. This downward trend in sales began in fiscal year 1995 and is due to the lack of operators of MMDS television service in the domestic market and the currency and other economic problems in the foreign markets. Foreign shipments for fiscal year 2000 totaled $2,962,000, compared to $2,992,000 for fiscal year 1999. The downward trend in foreign sales appears to have abated, as foreign shipments for the fourth quarter of fiscal 2000 totaled $1,434,000 and orders for the first quarter of fiscal 2001 are strong. Foreign sales have been historically more than half of total sales and comprised 63%, 51% and 61% for fiscal years 2000, 1999 and 1998. The composition of these shipments to the following geographic regions is as follows:
Region 2000* 1999* 1998* - ------------------------------------------- Asia/Pacific Rim $1,516 $1,015 $2,118 Middle East $393 $372 $479 South America $698 $140 $893 North America $47 $368 $573 Central America $26 $102 $427 Caribbean $104 $423 $11 Europe $83 $365 $249 Africa -- $52 $206 Other $95 $155 $607 ----------------------- $2,962 $2,992 $5,563 ======================= *Based on customers having $10,000 or more of sales; amounts in thousands
Gross profit equaled $1,000,000 for fiscal 2000 compared to $1,352,000 for fiscal 1999. Export shipments, which historically carry higher margins than domestic sales, contributed $805,000 or 81% of gross profit compared to 57% for fiscal 1999 and 67% for fiscal 1998. The largest single customer for fiscal 2000 accounted for $1,122,000 (24% of net sales) of wireless television and high speed digital Internet systems in Korea. The orders, which totaled $2.3 million as of March 31, 2000, are expected to be completed by September 30, 2000. By comparison, the largest customers for fiscal 1999 consisted of several divisions of a federal government contract totaling $718,000 or 12% of net shipments. The Company has continued cost controls resulting in a decrease in total operating expenses from $2,572,000 for fiscal year ended March 31, 1999 to $2,402,000 for the fiscal year ended March 31, 2000; the exception being an increase in research and development expenses from $422,000 for fiscal 1999 to $431,000 for fiscal 2000. Selling expense totaled $900,000 for fiscal 2000, a decrease of 10% compared to fiscal 1999. Travel expense increased from $24,000 for fiscal 1999 to $42,000 as additional international travel was incurred including a trip to China in fiscal 2000. Substantially the same amount was offset by a decrease in shows and conventions expense for the same periods. The major reduction in fiscal 2000 compared to the previous year was the reduction of commissions due primarily to the decrease in sales volume. General and administrative expense totaled $1,072,000 for fiscal 2000, a decrease of $81,000 (7%) from fiscal 1999. While most categories within this department did not have significant changes, legal and related fees decreased from $171,000 for fiscal 1999 to $90,000. Included in the amount for fiscal 1999 was approximately $80,000 for expenditures to evaluate a merger initiated by a third party. A determination was made by management that the offer was inadequate. Bad debt provision increased from $31,000 for fiscal 1999 to $42,000 for fiscal 2000. The Registrant increased the reserve to $70,000 as of March 31, 2000 in recognition of additional exposure as extended payment terms are being offered to certain foreign customers. Research and development expense was $431,000 for the year ended March 31, 2000 or approximately $8,000 more than the prior year as the Company continues to develop and improve products for high definition television (HDTV) and MMDS (including high speed Internet) products. Due primarily to the decrease in sales for fiscal year 2000, a loss from operations of $1,403,000 was incurred compared to a loss from operations of $1,220,000 for fiscal year 1999. Interest expense decreased from $72,000 for fiscal 1999 to $58,000 as $66,000 (net of borrowings) of long term debt was retired. Interest income decreased from $227,000 for fiscal 1999 to $169,000 for fiscal 2000 as the reduction of cash and cash equivalents decreased the amount available for investment. Other income for fiscal 1999 totaled $48,000 and consisted primarily of fees for cancellation of orders and equipment rentals. In fiscal 2000, equipment rentals totaled $18,000 and cancellation fees were $6,000. Offsetting this was recognition of an operating loss of a Limited Liability Company(LLC), of which the Registrant has an investment totaling $34,000. The net result was net other income of $102,000 for fiscal 2000 compared to $204,000 for fiscal 1999. Net loss before income tax benefits totaled $1,301,000 and $1,015,000 for fiscal years 2000 and 1999, respectively. Income tax benefits reduced the net loss to $827,000 or $(.21) cents per common share outstanding for fiscal 2000 compared to a net loss of $583,000 or $(.15) cents per common share outstanding for fiscal 1999. There is no state tax liability for periods under review as all profitable companies in the consolidated reporting group are domiciled in jurisdictions that do not impose income taxes. Selected financial data by quarter for the year ended March 31, 2000 and 1999 is as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 2000 1999 2000 1999 2000 1999 2000 1999 -------------------------------------------------------- (Thousands of Dollars, except per share amounts) Net Sales $812 $2,199 $975 $2,166 $1,147 $807 $1,804 $724 Gross profit(loss) $107 $656 $182 $713 $213 $64 $498 ($81) Net income(loss) ($300) $16 ($288) $40 ($211)$377) ($28) ($262) Per Share: Basic $(.08) Nil $(.07) $.01 $(.05) $(.09)$(.01) $.07 Diluted $(.08) Nil $(.07) $.01 $(.05) $(.09)$(.01) Net Income (loss) ($300) $16 ($288) $40 ($211) ($377) ($28)($262)
Foreign currency valuations decreased foreign sales commencing in the third quarter of fiscal 1999 and continued until the fourth quarter of fiscal 2000. Low domestic sales volume will continue to affect sales for all quarters until demand increases for new applications for high speed Internet service and HDTV. IMPACT OF YEAR 2000 The Registrant commenced fiscal year 2000 as of April 1, 1999 and has fully implemented software applications with only minor changes need. Liquidity and Capital Resources Management believes that demand for its core product of MMDS television transmitters for the domestic market has been non-existent for the last year and for the future. There is however, a strong demand for these products in the international market coupled with high speed Internet service trend initiated in fiscal 1995. The domestic market is in a transition mode waiting for the direction that will be taken by large companies such as Sprint and WorldCom for communication equipment utilizing the MMDS spectrum. The Registrant has developed equipment that it believes will be an integral component of the developing systems for television, telephone and Internet service. On April 17, 2000, the Company acquired the assets of Advanced Broadcast Systems, Inc. for approximately $400,000 in cash, 37,112 shares of the Company's common stock valued at the acquisition date at $2.78 per share and the assumption of liabilities aggregating approximately $200,000 and other consideration. The acquired company manufactures commercial high and medium power analog and digital television transmitters for VHF broadcast markets. Management believes that the acquisition will enhance the Company's present product line of low power broadcast products and will enable the Company to expand in the new market for digital HDTV service. This service has been mandated by the Federal Communications Commission in which all television stations are required to provide digital HDTV transmission by 2003. The acquisition may also open additional foreign markets for the Company's product. The Registrant has also increased its investment in the domestic high speed Internet service market. Management believes that this service using digital MMDS equipment will have a positive return in fiscal 2001. The Company's cash requirements were satisfied in fiscal 2000 from cash on-hand and customer deposits. These funds were sufficient to meet the Company's working capital requirements and debt payments. The Registrant, at March 31, 2000, had mortgage and equipment loans from its primary lending institution of $684,000. In addition, there is an available line of credit of $2,000,000 from the same lending institution. The line of credit was not used in fiscal 2000; however, borrowings were utilized in the first quarter of 2001 and there is $1,100,000 outstanding as of the date of this report. The Registrant was in violation of two loan covenants with its primary lending institution as of March 31, 2000. One covenant requires the Registrant to maintain a cash flow to debt service coverage ratio of 3.00 to 1.00. The debt service coverage ratio as of March 31, 2000 was (5.5). In addition, the loan agreement requires the Company to obtain the institution's written consent prior to investing in or making payments to third parties other than in the normal course of business. During fiscal year 2000, the Registrant made advances to two affiliated third parties for a total of $350,000. The Registrant received notice of waiver of all loan covenant violations that occurred in fiscal 2000. Cash and cash equivalents decreased $1,311,000 as of March 31, 2000 compared to March 31, 1999, principally due to the loss for fiscal 2000 and funds invested in high speed Internet companies. Investment in Treasury Bills totaled $1,774,000 as of March 31, 2000, almost the same as the amount of $1,776,000 as of March 31, 1999. Accounts receivables increased from $603,000 as of March 31, 1999 to $1,452,000 as of March 31, 2000 primarily due to the result of increased sales in the last month of fiscal year 2000. These shipments include the sales for a Korean order and although export orders historically have been paid in advance and/or by letters of credit, the Company has, in fiscal 2000, extended terms on some orders to remain competitive. The Registrant has increased its allowance for doubtful accounts from $35,000 as of March 31, 2000 to $70,000 to reflect the additional exposure. Inventories were reduced from $3,523,000 as of March 31, 1999 to $3,080,000 as of March 31, 2000 as a result of controls on purchasing enacted in fiscal 1999. Prepaid expense which totaled $80,000 as of March 31, 2000 compared to $92,000 as of March 31, 1999. The latter amount included prepaid convention expense of $42,000, prepaid insurance of $21,000 and prepaid software maintenance of $6,000. The balances of these prepaids as of March 31, 1999 were $26,000, $20,000 and $26,000 Income taxes refundable decreased form $569,000 to $402,000 at march 31, 2000 due to estimated tax payments made in fiscal year 1999 that were not required in fiscal year 2000. Deferred income taxes totaled $220,000 as of March 31, 2000 versus $132,000 as of March 31, 1999. The difference is due to temporary timing differences. Property, plant and equipment net after accumulated depreciation equaled $540,000 as of March 31, 2000. Purchases of $52,000 was more than offset by depreciation for the year of $243,000 resulting in a net decrease of asset value of $191,000 compared to the year ended March 31, 1999. Other assets totaled $1,292,000 as of March 31, 2000 compared to $492,000 as of March 31, 1999. The Company increased its investment by $100,000 in a LLC formed to operate a high speed Internet system increasing ownership from 10% to 16.14%. The Company invested $250,000 (approximately 6% of the entity) in a venture capital company that will acquire spectrum, build and promote operations in high speed Internet systems. The Registrant maintains its original investment of $250,000 for a 50% interest of another LLC in which operations are not expected to begin until late calendar year 2000. The investment decreased approximately $21,000 due primarily to a loss for calendar 1999. Included in other asset balance for both periods under discussion is a note receivable of $100,000 plus interest due from a principal of one of the members in the LLC investments which was due June 12, 2000. As of June 12, 2000 this note, which is collateralized, has not been retired. This receivable is in the process of collection as of the time of this report. The remaining amount of other assets of $289,000 represents accounts receivable with due dates more than a year from March 31, 2000. Long term debt, including current portion equaled $702,000 as of March 31, 2000 compared to $768,000 as scheduled repayments of $86,000 were made while a new borrowing of $20,000 (vehicle) was initiated. Accounts payable increased from $288,000 as of March 31, 1999 to $369,000 as of March 31, 2000 as inventories were purchased in March 2000 in connection with a Korean order. Accrued payroll and related expenses increased from $183,000 as of March 31, 1999 to $214,000 as of March 31, 2000 as employees have been added due to the increase in orders, from 45 persons at March 31, 1999 to a total of 53 persons as of March 31, 2000. Other accrued expenses totaled $438,000 as of March 31, 2000 compared to $115,000 as of March 31, 1999. The majority of this increase is due to commissions to outside interests accrued but not paid as of March 31, 2000. Common stock value of $73,084 and additional paid in capital of $3,502,000 increased over fiscal year 1999 to $73,450 and $3,583,000, respectively, as 22,200 shares of registered common stock was issued upon exercise of options under the Company's stock option plans. Retained earnings decreased by $827,000 from March 31, 1999 to March 31, 2000 due to the net loss for fiscal 2000. Inflation has not had a significant impact on cost or price in the past two fiscal years under review; however, beginning in fiscal 2001 up to the time of this report, the Company has had a significant amount of shortages for a number of important parts that are part of certain final manufactured products. Although it appears that this is a temporary problem, it will have an impact on sales and earnings for the first quarter ending June 30, 2000. The backlog of unsold orders totaled $1,367,000 as of March 31, 2000 compared to $239,000 as of March 31, 1999. Over 90% of the backlog as of March 31, 2000 is for foreign orders. ITEM 7. FINANCIAL STATEMENTS See pages 19 to 35 of this report for the financial statements required by this Item. ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES There is no information relevant to the Registrant which must be disclosed under this Item 8. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required by this Item 9 is incorporated herein from the Proxy Statement expected to be filed within one hundred twenty (120) days of the close of the Registrant's fiscal year. ITEM 10. EXECUTIVE COMPENSATION The information required by this Item 10 is incorporated herein from the Proxy Statement expected to be filed within one hundred twenty (120) days of the close of the Registrant's fiscal year. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 11 is incorporated herein from the Proxy Statement expected to be filed within one hundred twenty (120) days of the close of the Registrant's fiscal year. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item 12 is incorporated herein from the Proxy Statement expected to be filed within one hundred twenty (120) days of the close of the Registrant's fiscal year. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The following is an Exhibit Index of the applicable Exhibits to this report: DESCRIPTION OF EXHIBIT EXHIBIT NUMBER PAGE NUMBER Articles of Incorporation and Bylaws Restated Certificate of Incorporation 3 i (1) Bylaws 3 ii (2) Material Contracts 1996 Stock Option Plan 10 (1) Officers Incentive Compensation Plan 10 (1) Agreement (Change in Control Agreements for certain Executive Officers) 10 (3) Non-Negotiable, Non-Transferable Stock Warrant 10 (3) Settlement and Release Agreement 10 (1) Asset Purchase Agreement between Advanced Broadcast Systems, Inc. (now known as Alpha Holding, Inc.) and EMCEE Holding Corp. (now known as Advanced Broadcast Systems, Inc.) 10 36 Winbeam Incorporated Subscribtion Agreement 10 80 Subsidiaries 21 81 Financial Data Schedule 27 (4) (1) Incorporated by reference from the Form 10-KSB filed by the Registrant with the U.S. Securities and Exchange Commission for fiscal year ended 1997. (2) Incorporated by reference from the Form 10-KSB filed with the U.S. Securities and Exchange Commission for fiscal year 1998. (3) Incorporated by reference from the Form 10-KSB filed with the U.S. Securities and Exchange Commission for fiscal year ended 1996. (4) This Exhibit was filed electronically, but is not included in the paper copy of this report. (b) Form 8-K filings: The Registrant filed one report on Form 8-K during the last quarter of the period covered by this report. That report announced that the Registrant entered into a letter of intent to acquire substantially all of the assets of Advanced Broadcast Systems, Inc. In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EMCEE BROADCAST PRODUCTS, INC. /s/ JAMES L. DESTEFANO James L. DeStefano, President/CEO Date: June 26, 2000 /s/ ALLAN J. HARDING Allan J. Harding, Vice President-Finance Date: June 26, 2000 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ JAMES L. DESTEFANO Date: June 26, 2000 James L. DeStefano, Director /s/ JOE B. HASSOUN Date: June 26, 2000 Joe B. Hassoun, Director /s/ MICHAEL J. LEIB Date: June 26, 2000 Michael J. Leib, Director /s/ RICHARD J. NARDONE Date: June 26, 2000 Richard J. Nardone, Director /s/ EVAGELIA ROGIOKOS Date: June 26, 2000 Evagelia Rogiokos, Director /s/ ROBERT HOSTETLER Date: June 26, 2000 Robert Hostetler, Director Independent Auditors' Report Board of Directors EMCEE Broadcast Products, Inc. White Haven, Pennsylvania We have audited the consolidated balance sheets of EMCEE Broadcast Products, Inc. and subsidiaries as of March 31, 2000 and 1999 and the related consolidated statements of loss, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EMCEE Broadcast Products, Inc. and subsidiaries as of March 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. Kronick, Kalada, Berdy & Company Kingston, Pennsylvania May 17, 2000
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - MARCH 31, 2000 AND 1999 ASSETS 2000 1999 ------------------------------------- Current assets: Cash and equivalents $ 261,304 $ 1,572,423 U.S. Treasury Bills 1,773,600 1,775,933 Accounts receivable, net of allowance for doubtful accounts (2000, $70,000; 1999, $35,000) 1,452,279 603,248 Inventories 3,080,313 3,522,579 Prepaid expenses 80,113 91,842 Income taxes refundable 402,000 569,000 Deferred income taxes 220,000 132,000 ------------------------------------ Total current assets 7,269,609 8,267,025 ------------------------------------ Property, plant and equipment: Land and land improvements 246,841 246,841 Building 617,475 617,670 Machinery 1,925,042 2,017,084 ----------------------------------- 2,789,358 2,881,595 Less accumulated depreciation 2,249,467 2,150,315 ----------------------------------- 539,891 731,280 ----------------------------------- Other assets 1,292,448 492,149 ------------------------------------ Note receivable, sale of license 525,000 510,000 Less deferred portion ( 525,000) ( 510,000) ------------------------------------- 0 0 ------------------------------------- Total assets $ 9,101,948 $ 9,490,454 ===================================== See notes to consolidated financial statement.
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 -------------------------- Current liabilities: Current portion of long-term debt $ 106,000 $ 119,000 Accounts payable 368,671 288,029 Accrued expenses: Payroll and related expenses 214,316 183,254 Other 437,836 114,500 Deposits from customers 64,247 76,745 --------------------------- Total current liabilities 1,191,070 781,528 --------------------------- Long-term debt, net of current portion 596,354 649,287 --------------------------- Shareholders' equity: Common stock, $.01 - 2/3 par; authorized 9,000,000 shares; issued 4,406,361 shares and 4,384,161 shares for 2000 and 1999, respectively 73,450 73,084 Additional paid-in capital 3,583,484 3,502,092 Retained earnings 5,518,241 6,345,114 --------------------------- 9,175,175 9,920,290 Less shares held in treasury, at cost (2000 and 1999, 401,764) 1,860,651 1,860,651 --------------------------- 7,314,524 8,059,639 --------------------------- Total liabilities and equity $ 9,101,948 $9,490,454 ============================
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF LOSS YEARS ENDED MARCH 31, 2000 AND 1999 2000 1999 ----------------------------- Net sales $ 4,738,493 $ 5,895,567 Costs of products sold 3,738,735 4,543,418 ---------------------------- Gross profit 999,758 1,352,149 --------------------------- Operating expenses: Selling 900,028 997,115 General and administrative 1,071,668 1,152,195 Research and development 430,678 422,426 ---------------------------- 2,402,374 2,571,736 ---------------------------- Loss from operations (1,402,616) (1,219,587) -------------------------- Other income (expense), net: Interest expense ( 57,724) ( 71,641) Interest income 168,772 227,337 Other ( 9,305) 48,418 --------------------------- 101,743 204,114 --------------------------- Loss before income taxes (1,300,873) (1,015,473) Income taxes benefit 474,000 432,600 --------------------------- Net loss $( 826,873) $( 582,873) =========================== Basic loss per share $(.21) $(.15) =========================== Diluted loss per share $(.21) $(.15) =========================== See notes to consolidated financial statements
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED MARCH 31, 2000 AND 1999 Common stock Additional paid-in Shares Amount capital ---------------------------------- Balance, March 31, 1998 4,384,161 $ 73,084 $ 3,502,092 Treasury stock purchased Net loss for the year ----------------------------------- Balance, March 31, 1999 4,384,161 73,084 3,502,092 Common stock issued 22,200 366 81,392 Net loss for the year ------------------------------------ Balance, March 31, 2000 4,406,361 $ 73,450 $ 3,583,484 ====================================== See notes to consolidated financial statements.
Treasury stock Retained earnings Shares Amount Total - --------------------------------------------------- $ 6,927,987 319,000 $(1,649,173) $ 8,853,990 82,764 ( 211,478) ( 211,478) ( 582,873) ( 582,873) - ------------------------------------------------------ 6,345,114 401,764 (1,860,651) 8,059,639 81,758 ( 826,873) ( 826,873) - ------------------------------------------------------- $ 5,518,241 401,764 $(1,860,651) $ 7,314,524 =======================================================
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2000 AND 1999 2000 1999 ---------------------- Cash flows from operating activities: Net loss $( 826,873)$( 582,873) Adjustments: Depreciation 243,577 274,359 Provision for doubtful accounts 42,000 31,000 Loss on equity investment 33,800 (Increase) decrease in: Accounts receivable ( 891,031) 580,403 Inventory 442,266 ( 169,450) Prepaid expenses 11,729 ( 10,407) Income taxes refundable 167,000 ( 535,143) Deferred income taxes ( 88,000) ( 52,000) Other assets ( 288,470) 724 Increase (decrease) in: Accounts payable 80,642 ( 23,395) Accrued expenses 354,398 ( 97,697) Deposits from customers ( 12,498)( 183,303) ------------------------- Net cash used in operating activities ( 731,460) ( 767,782) ------------------------- Cash flows from investing activities: Purchases of: Property, plant and equipment ( 52,188)( 94,503) U.S. Treasury Bills (3,197,667)(3,506,384) Proceeds from maturities of U.S. Treasury Bills 3,200,000 4,000,000 Other assets ( 545,629)( 281,423) ------------------------ Net cash provided by(used in) investing activities ( 595,484) 117,690 ------------------------ Cash flows from financing activities: Acquisition of treasury stock ( 211,478) Proceeds from issuance of: Long-term debt 20,141 Common stock 81,758 Repayment of long-term debt ( 86,074)( 95,601) -------------------------- Net cash provided by (used in) financing activities 15,825 ( 307,079) -------------------------- Net decrease in cash and equivalents (1,311,119)( 957,171) Cash and equivalents, beginning 1,572,423 2,529,594 --------------------------- Cash and equivalents, ending $ 261,304 1,572,423 =========================== Supplemental disclosures of cash flow information: Cash paid (refunded) during the year for: Interest $ 61,000 $ 72,000 Income taxes $( 530,000) $ 160,000 Non-cash items: Transfer of inventory to fixed assets $ 85,470 See notes to consolidated financial statements
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2000 AND 1999 1. Summary of significant accounting policies: Principles of consolidation: The consolidated financial statements include the accounts of EMCEE Broadcast Products, Inc. and its subsidiaries, all of which are wholly- owned (together, the Company). All significant inter-company accounts and transactions have been eliminated. Revenue recognition: Revenue from product sales of equipment is recognized at the time of delivery and after consideration of all the terms and conditions of the customers' contract (purchase order). None of the customers' contracts are considered long-term contracts. During 1992, a rural cellular license was sold for $3,100,000. The initial payment was $845,000, net of closing costs of $155,000. The $2,100,000 balance, which bore interest at 7% payable at maturity, was due in December 1996. None of the deferred payment and the related interest income was recognized prior to 1997 because of their extended collection period and because there was not a reasonable basis to evaluate the likelihood of collection. On April 3, 1997 the Company collected $2,500,000 and received an unsecured $500,000 note receivable as settlement of the original note. The $525,000 note receivable is due and payable upon the occurrence of any one or more of certain specified events involving the debtor including, but not limited to, acquisition, merger, bankruptcy, and insolvency. None of the specified events relate to the debtor's normal operations. The $525,000 includes accrued interest calculated at 3%. The note receivable is fully reserved because it has no definite collection period and because there is not a reasonable basis to evaluate the likelihood of collection. Cash, equivalents and U.S. Treasury Bills: The Company considers cash equivalents to be all highly liquid investments purchased with an original maturity of three months or less. U.S. Treasury Bills with an original maturity of more than three months are considered to be investments. All U.S. Treasury Bills are stated at cost which approximates market and are considered as available for sale. All U.S. Treasury Bills not included as cash equivalents had contracted maturities of at least six months. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2000 AND 1999 1. Summary of significant accounting policies (continued): Inventories: Inventories are stated at the lower of standard cost which approximates current actual cost (on a first-in, first-out basis) or market (net realizable value). Property, plant and equipment and depreciation: Property, plant and equipment are stated at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Investments: Investments are accounted for under the equity method if the Company has ownership of between 20% and 50%. Investments where the Company's ownership is less than 20% are accounted for under the cost method. Advertising: These expenses are recorded when incurred. They amounted to $21,000 and $52,000 for 2000 and 1999, respectively. Use of estimates: Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Reclassifications: Certain amounts reported in the 1999 financial statements have been reclassified to conform with the 2000 presentation. 2.Loss per share: Basic loss per share is computed by dividing loss applicable to common shareholders by the weighted average number of common shares outstanding. Diluted loss per share is similar to basic loss per share except that the weighted average of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. There were no dilutive potential common shares in 1999 because the assumed exercise of the options would be anti-dilutive. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2000 AND 1999 2.Loss per share (continued): The following table presents the basic and diluted EPS computations:
2000 ------------------------------------ Per share Net loss Shares amount ------------------------------------ Basic EPS Net loss which relates to common stockholders $(826,873) 3,983,147 $(.21) Effect of dilutive securities, stock options 10,613 ------------------------------------- Diluted EPS Net loss which relates to common stockholders $(826,873) 3,993,760 $(.21) ===================================== 1999 ------------------------------------- Per-share Net loss Shares amount Basic and diluted EPS Net loss which relates to common stockholders $(582,873) 4,007,305 $(.15)
3.Cash and equivalents: At March 31, 2000, cash held at a brokerage corporation in the amount of $146,000 is not insured. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2000 AND 1999 4.Industry, sales and accounts receivable concentration information: The Company's primary activity is in one segment which consists of the assembly and sale of equipment for the domestic and foreign television broadcasting industry. To determine segments to be reported, management has considered products and services. Management believes that the Company's business requires similar technology and marketing strategies. Major customers are those that individually account for more than 10% of the Company's consolidated revenues. For the years ended March 31, 2000 and 1999, one customer with total sales of $1,122,000 and a different customer, consisting of four divisions of a Federal government agency, with total sales of $718,000, respectively, qualified as major customers. At March 31, 2000, the major customer accounted for 72% of the Company's consolidated current accounts receivable. There were no significant receivable concentrations at March 31, 1999. The Company performs ongoing credit evaluations of its customers and, when deemed necessary, requires deposits and a letter of credit on foreign sales and deposits on domestic sales. Historically, the Company's uncollectible accounts receivable have been immaterial. Foreign sales amounted to $2,962,000 and $2,992,000 for 2000 and 1999, respectively. Sales by foreign geographic regions are as follows: 2000 1999 ============================ Asia/Pacific Rim $ 1,516,000 $ 1,015,000 South America 698,000 140,000 Caribbean 104,000 423,000 Middle East 393,000 372,000 North America 47,000 368,000 Europe 83,000 365,000 Central America 26,000 102,000 Africa 52,000 Other 95,000 155,000 ----------------------------- $ 2,962,000 $ 2,992,000 ============================= Revenues are attributed to regions based on location of customers. All long-lived assets and deferred tax assets are attributable to the United States. All foreign sales are contracted in United States currency; therefore there is no impact from foreign currency rates. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2000 AND 1999 5.Inventories:
2000 1999 ------------------------- Finished goods $ 440,000$ 266,000 Work-in-process 468,000 686,000 Raw materials 728,000 1,008,000 Manufactured components 1,444,313 1,562,579 ------------------------- $ 3,080,313 $ 3,522,579 ========================
6.Other assets:
2000 1999 ------------------------- Investments, equity method $ 233,265 $ 254,000 Investments, cost method 480,639 131,173 Note receivables 266,115 106,976 Accounts receivable 289,243 Other 23,186 ------------------------- $ 1,292,448 $ 492,149 ==========================
The investments are in companies who own and/or operate a business that provides rapid access to the Internet, wireless cable television, and any other type of telecommunication service. 7. Line of credit: The Company has a line of credit agreement with a bank aggregating $2,000,000 collateralized by inventories, accounts receivable and all property, plant and equipment. The line of credit agreement requires monthly interest payments at 2.00% above LIBOR which was 6.13% at March 31, 2000. There were no principal borrowings during the years ended March 31, 2000 and 1999. The loan agreement contains restrictive covenants when amounts are outstanding which, among other things, require the Company to maintain a maximum total liabilities to net worth ratio, a minimum current ratio and a debt coverage ratio. The Company did not meet the debt coverage ratio as of March 31, 2000. In addition, the loan agreement requires the Company to obtain the bank's written consent prior to investing in or making payments to third parties other than in the usual and ordinary course of business. The Company did not obtain the bank's written consent for its investments in three third parties. The bank waived both covenant violations. The Company is allowed to pay dividends on its common stock when amounts are borrowed if it is in compliance with the financial covenants and ratios. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2000 AND 1999 8.Long-term debt: 2000 1999 ------------------------ Term loan, bank $ 601,000 $ 637,000 Equipment loans, bank 101,354 131,287 ------------------------ 702,354 768,287 Less current portion 106,000 119,000 ------------------------ $ 596,354 $ 649,287 ======================== The term loan, bank at March 31, 2000 matures in 2002 and requires monthly principal payments of $4,083, plus interest. Interest is calculated at 2.25% above LIBOR which was 6.13% at March 31, 2000. The term and equipment loans are cross-collateralized with and have the same restrictive covenants as the line of credit (see Note 7). Principal payments on long-term debt, based on current interest rates, are as follows: 2001 $ 106,000 2002 592,000 2003 4,354 ----------- $ 702,354 =========== 9. Common stock: Non-qualified stock option plans provide for the grant of options to purchase up to 300,000 shares. Upon the termination or expiration of any stock options granted, the shares covered by such terminated or expired stock options will be available for further grant; 173,325 options were available for grant at March 31, 2000. The Board of Directors, at the date of grant of an option, determines the number of shares subject to the grant and the terms of such option. All outstanding options granted expire after 5 years and vest over two years. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2000 AND 1999 9.Common stock (continued): Changes in outstanding common stock options granted are summarized below:
2000 1999 ------------------------------------------- Number Average Number Average of exercise of exercise shares price shares price -------------------------------------------- Balance at beginning of year 151,875 $ 5.50 151,875 $ 5.50 Options exercised 22,200 3.68 Options forfeited 3,000 6.16 ------ ------- Balance at end of year 126,675 $ 5.81 151,875 $ 5.50 ======================================= Options exercisable at year-end 126,675 $ 5.81 151,875 $ 5.50
At March 31, 2000, 110,200 and 16,475 options had an exercise price of $6.16 and $3.44, respectively. Such options had remaining contractual lives of 1.67 years and .5 years, respectively. The Company in accordance with an election under generally accepted accounting principles for stock options has recorded no compensation cost for its stock options in the accompanying consolidated financial statements. Had compensation cost for stock options been determined based on the fair value at the grant dates for awards under the plans, the Company's net loss and per share amounts would have been changed to the proforma amounts disclosed below: 1999 -------- Net loss: As reported $(582,873) Proforma (615,735) Basic loss per share: As reported $( .15) Proforma ( .15) Diluted loss per share: As reported $( .15) Proforma ( .15) Proforma amounts are not reported for 2000 because all options vested in 1999 and all related proforma compensation expense was reported prior to 2000. EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2000 AND 1999 9.Common stock (continued): The fair values were determined using the Black-Scholes option pricing model with the following weighted average assumptions: 1999 ------------ Dividend yield .0 % Risk free interest rate 5.84% Expected life 5 Years Volatility 104.83% During 1997, warrants to purchase 200,000 shares of common stock at $9.76 a share were issued and remain outstanding at March 31, 2000. These warrants expire in May 2001. 10.Income taxes: The following table sets forth the current and deferred amounts of the provisions for income tax benefit for the years ended March 31, 2000 and 1999: 2000 1999 ----------------------------- Current $ 386,000 $ 380,600 Deferred 88,000 52,000 ---------------------------- $ 474,000 $ 432,600 ============================= The provisions for income taxes at the Company's effective rate differed from the provision for income taxes at the statutory Federal rate of 34% for the years ended March 31, 2000 and 1999 as follows: 2000 1999 ---------------------- Federal income tax benefit at the statutory rate $ 441,000 $ 345,000 Foreign sales corporation benefit 13,000 69,000 Federal income tax credit 18,000 16,000 Other 2,000 2,600 ---------------------- Benefit for income taxes $ 474,000 $ 432,600 ======================= EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2000 AND 1999 10. Income taxes (continued): The tax effects of temporary differences that give rise to deferred income taxes at March 31, 2000 and 1999 are presented in the table below:
2000 1999 -------------------------- Deferred tax assets: Inventory $ 121,000 $ 74,000 Employee benefits 47,000 46,000 Property and equipment 26,000 Other differences 26,000 14,000 ------------------------ Total gross deferred tax assets 220,000 134,000 Deferred tax liability, property and equipment ( 2,000) ------------------------ Net deferred tax asset $ 220,000 $ 132,000 ========================
11.Fair value of financial instruments: Many of the Company's financial instruments lack an available trading market as characterized by a willing buyer and a willing seller engaging in an exchange transaction. The Company's fair value estimates for those instruments are based upon subjective assumptions and involve significant uncertainties resulting in estimates that vary with changes in assumptions. Any changes in assumptions or estimation methodologies may have a material effect on the estimated fair values disclosed. A summary at March 31, 2000 and 1999 is as follows:
2000 1999 ------------------------------------------ Carrying Fair Carrying Fair value value value value ------------------------------------------ Short-term assets $3,889,183 $3,889,183 $4,520,604 $4,520,604 Notes receivables 266,115 266,115 106,976 106,976 Other long-term assets 1,026,333 1,413,065 385,173 750,448 Short-term liabilities 1,085,070 1,085,070 662,528 662,528 Long-term debt 702,354 702,354 768,287 768,287
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 2000 AND 1999 11. Fair value of financial instruments (continued): Short-term asset and liabilities (exclusive of bank debt): The fair values of cash and equivalents, U.S. Treasury Bills, accounts and tax refund receivables, accounts payable and other short-term financial liabilities approximate their carrying values due to the short-term nature of these financial instruments. Other long-term assets: The fair values of investments is based upon industry formulas that take into account the number of available subscribers and/or spectrum availability in the coverage area. Fair value of other long-term assets is estimated to approximate carrying value. Notes receivables: The carrying value of notes receivable included in other assets is estimated to approximate fair values. Although there are no quoted market prices available for these instruments, the fair value estimates were based on the change in interest rate and risk related interest rate spreads since the notes origination date. It was not practicable to estimate the fair value of the $525,000 note receivable, sale of license, because the Company was unable to estimate the timing and form of the ultimate settlement of the amount due to it. The Company has fully provided for any potential loss resulting from the non-payment of this receivable. Long-term debt: The fair value of long-term debt that is variable rate debt that reprices regularly approximates the carrying amounts. 12. Litigation: In the normal course of business, there are various outstanding legal proceedings. In the opinion of management, after consultation with legal counsel, the consolidated financial statements of the Company will not be materially affected by the outcome of such legal proceedings. 13.Subsequent event: On April 17, 2000, the Company completed its acquisition of Advanced Broadcast Systems (ABS) for approximately $400,000 in cash, 37,112 shares of the Company's common stock valued as of the acquisition date at $2.78 per share and the assumption of liabilities aggregating approximately $200,000. Additional amounts may be paid based on the initial year revenues and earnings of the acquired company. ABS is a manufacturer of commercial high and medium power analog and digital television transmitters for UHF broadcast markets. EX-10 2 0002.txt ASSET PURCHASE AGREEMENT This Asset Purchase Agreement is entered into this 17th day of April, 2000, by and between EMCEE Holding Corp., a Delaware corporation ("Purchaser"), and Advanced Broadcast Systems, Inc., a Kentucky corporation ("Seller"). RECITALS: This Agreement sets forth the terms and conditions upon which Purchaser is purchasing the assets (other than Excluded Assets, as hereinafter defined) owned and/or used by Seller in the conduct of its business, and Seller is selling to Purchaser such assets (other than Excluded Assets). In consideration of the mutual agreements, covenants, representations and warranties contained herein, and in reliance thereon, Purchaser and Seller hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS As used herein, the following terms shall have the following meanings: 1.1"Accounts Receivable" shall mean as of any date any trade accounts receivable, notes receivable, bid or performance deposits, employee advances and other miscellaneous receivables associated with the Business as of such date. 1.2"Accrued Expenses" shall mean as of any date accrued payroll and benefits and other accrued expenses as would appear on a balance sheet of the Business as of such date prepared in accordance with GAAP consistently applied. 1.3"Affiliate" shall mean any company or other entity which controls, is controlled by or is under common control with the designated Party. For the purposes of the foregoing, ownership, directly or indirectly, of twenty (20%) percent or more of the voting stock or other equity interest shall be deemed to constitute control. 1.4"Agreement" shall mean this Asset Purchase Agreement. 1.5"Ancillary Agreements" shall mean, collectively, the documents, instruments, statements, certificates and agreements described in Section 5.2. 1.6"Assumed Liabilities" shall have the meaning given to it in Section 4.2. 1.7"Balance Sheet" shall mean the balance sheet of the Business as of November 30, 1999, referred to in Section 6.4. 1.8"Balance Sheet Date" shall mean November 30, 1999. 1.9"Books and Records" shall have the meaning given to it in Section 6.15. 1.10"Business" shall mean the business and operations of Seller as presently conducted by Seller. 1.11"Closing" shall mean the taking of the actions described in Article V of this Agreement. 1.12"Closing Date" shall mean April 317, 2000, or such other date as the Parties shall mutually agree. 1.13"Closing Inventory" shall mean all Inventory relating to the Business on the Closing Date. 1.14"Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, and any successor thereto. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. 1.15"Confidential Information" shall have the meaning given to such term in Section 12.1. 1.16"EMCEE" shall have the meaning given to such term in Section 3.1.2. 1.17"Employee" shall mean any individual employed by Seller in the conduct of the Business as listed on Schedule 1.17 (such Schedule being subject to change between the date hereof and the Closing Date as a result of employee changes in the ordinary course of business consistent with past practices). 1.18"Employment Agreement" shall have the meaning given to such term in Section 4.3. 1.19"Encumbrance" shall mean any right to, or interest in, property, which subsists in a third-party and which constitutes a claim, lien, charge or liability attached to and binding upon the property, including, but not limited to, a mortgage, judgment lien, mechanic's lien, lease, security interest, easement and right-of-way. 1.20"Environmental Law" shall mean any federal (including but not limited to the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 et seq., the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq., the Clean Air Act, 42 U.S.C Sections 7401 et seq., the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq., and the Federal Insecticide Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et seq.), state or local statute, ordinance, rule or regulation, any judicial or administrative order or judgment (whether or not by consent), any common law doctrine and any provision or condition of any permit, license or other operating authorization relating to (i) the protection of the environment or the public welfare from actual or potential exposure (or the effects of exposure) to any actual or potential release, discharge, disposal or emission (whether past or present) of any Regulated Substance or (ii) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Regulated Substance. 1.21"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. l.22"ERISA Plans" shall mean defined benefit pension plans and defined contribution pension plans qualified under Section 401(a) of the Code. 1.23"Escrow Agreement" shall have the meaning given to such term in Section 3.2. 1.24"Excluded Assets" shall mean those assets that are not included in the sale contemplated hereby and as are further defined in Section 2.2. 1.25"GAAP" shall mean generally accepted accounting principles in the United States of America. 1.26"Indemnified Liabilities" shall mean, collectively, Seller's Indemnified Liabilities and Purchaser's Indemnified Liabilities. 1.27"Indemnified Party" shall mean either a Seller Indemnified Party or a Purchaser Indemnified Party, as the context so requires. 1.28"Inventory" shall mean the inventory of the Business, including raw materials, supplies, work-in-process and finished goods. 1.29"Lease Agreement" shall have the meaning given to such term in Section 4.2 (iv). 1.30"Losses" shall mean all losses, liabilities, costs, claims, fines, penalties, damages, diminution in value, and expenses, including interest and court costs, costs of investigation and reasonable fees and disbursements of counsel and consultants. 1.31"Memorandum of Understanding" shall have the meaning given to such term in Section 12.10.1(i). 1.32"Party" shall mean either Seller or Purchaser, individually, as the context so requires, and the term "Parties" shall mean Seller and Purchaser together. 1.33"Payables" as of any date shall mean any of the accounts payable associated with the Business as of such date in accordance with GAAP consistently applied. 1.34"Payroll Practice/Employee Arrangement" shall have the meaning given to such term in Section 6.18. 1.35"Permits" shall have the meaning given to such term in Section 6. 11. 1.36"Person" shall mean any individual, corporation, company, limited or general partnership, trust or estate, joint venture, association or other entity. 1.37"Prepaid Expenses" as of any date shall mean payments made by Seller with respect to the Business, which constitute prepaid expenses of the Business in accordance with GAAP consistently applied. 1.38"Proprietary Rights" shall have the meaning given to such term in Section 6.9.1. 1.39"Purchase Price" shall have the meaning given to such term in Section 3.1.1. 1.40"Purchased Assets" shall have the meaning given to such term in Section 2.1. 1.41"Purchaser" shall have the meaning given to such term in the preamble of this Agreement. 1.42"Purchaser Indemnified Party" shall have the meaning given to such term in Section 14.2. 1.43"Real Property" shall mean the Real Property Leased. 1.44"Real Property Leased" shall mean the real property leased by Seller in connection with the Business as more fully described in Schedule 1.44 hereto. 1.45"Regulated Substance" shall mean petroleum, petroleum hydrocarbons or petroleum products and any other chemical, material, substance or waste that is identified (by listing or characteristic) and regulated (or the clean-up of which can be required) by any federal, state or local statute, ordinance, rule or regulation intended to protect the environment or the public health or welfare, including but not limited to the statutes, ordinances, rules or regulations relating to clean air, clean water, hazardous and solid waste disposal, safe drinking water, endangered species, occupational safety and health, oil spill prevention, groundwater protection, and toxic substances control. 1.46"Restricted Stock" shall have the meaning given to such term in Section 3.1.2. Such Restricted Stock is stock which is not registered under the Securities Act of 1933 or any state securities laws and is subject to, among other applicable laws, rules and regulations, Rule 144 of the Securities and Exchange Commission. 1.47"Seller" shall have the meaning given to such term in the preamble of this Agreement. 1.48"Seller General Liabilities" shall have the meaning given to such term in Section 14.2. 1.49"Seller Indemnified Party" shall have the meaning given to such term in Section 14.3. 1.50"Seller's Note" shall have the meaning given to such term in Section 4.2 (iii). 1.51"Taxes" shall mean all taxes, dues, charges, fees, levies or other assessment imposed by any taxing authority, including, without limitation, income, gross receipts, value added, excise, withholding, personal property, real estate, sale, use, ad valorem, license, lease, service, severance, stamp, transfer, payroll, employment, customs, duties, alternative, add-on minimum, estimated and franchise taxes (including any interest, penalties or additions attributable to or imposed on or with respect to any such assessment). ARTICLE II TRANSFER OF ASSETS AND PROPERTIES 2.lPurchased Assets. Subject to the terms and conditions of this Agreement, Seller shall sell and convey to Purchaser, free and clear of all Encumbrances whatsoever, and Purchaser shall purchase from Seller, the Business as a going concern and all of Seller's right, title and interest in and to the assets, properties and rights of every kind and description, real, personal and mixed, tangible and intangible, wherever situated constituting or used in the Business (the "Purchased Assets") as the same shall exist on the Closing Date (other than the Excluded Assets), including, without limitation, the following: 2.1.1Real Property Leased. All of Seller's interest, as lessee, in the Real Property Leased and all of Seller's right, title, claim and interest in and to the Lease Agreement; 2.1.2Equipment, Machinery and Other Tangible Personal Property. All machinery, equipment, leasehold improvements, trucks, automobiles, supplies, office furniture and office equipment, computing and telecommunications equipment and other items of personal property that are owned by Seller in connection with the Business, including those described in Schedule 2.1.2 hereto; 2.1.3Inventory. All Closing Inventory; 2.1.4Cash and Cash Equivalents. All right, title and interest of Seller in and to all cash and cash equivalents on hand, in bank accounts or being held by any other Person (including, without limitation, the security deposit described in the Lease Agreement) on the Closing Date; 2.1.5Contracts Relating to the Business. All of the interest of Seller in all contracts, leases of machinery, equipment and other personal property, sale orders, purchase orders, guarantees, commitments, instruments and all other agreements relating to the acquisition or ownership by Seller of any of the Purchased Assets or the operation of the Business, including those listed in Schedule 2.1.5 hereto (except the Employment Contracts shown thereon which are Excluded Assets) and those not required to be listed on Schedule 2.1.5 by reason of the nature thereof and the amount of the commitment thereunder or value thereof; 2.1.6Customer Lists, Sales and Marketing Materials. All customer lists, sales data, catalogs, brochures, suppliers' names, mailing lists, art work, photographs and advertising material that relate in any way to the Business, whether in electronic form or otherwise; 2.1.7Permits, Licenses. All of Seller's interest in governmental permits, licenses, registrations, orders and approvals relating to the Business, including those listed in Schedule 2.1.7 hereto, to the extent such permits, licenses, registrations, orders and approvals are transferable to Purchaser; 2.1.8Trade Secrets. All trade secrets, secret processes and procedures, engineering, production, assembly, design, installation, other technical drawings and specifications, working notes and memos, market studies, consultants reports, technical and laboratory data, competitive samples, engineering prototypes, and all similar property of any nature, tangible or intangible, of Seller relating to the Business; 2.1.9Intellectual Property. All right, title and interest of Seller in the patents, trademarks, trademark registrations, trade names, service marks, copyrights and copyright registrations described in Schedule 2.1.9; 2.1.10 Property, Personnel and Accounting Records. All other records of Seller relating to the Business, including property records and copies of personnel records of Employees who become employees of Purchaser; 2.1.11 Goodwill. All right, title and interest of Seller in and to the goodwill incident to the Business; 2.1.12 Name; Telephone and Facsimile Numbers; E-Mail Addresses. All right, title and interest of Seller in and to Seller's name, telephone and facsimile numbers of the Business, and Seller's E-mail addresses for the Business; 2.1.13 Accounts Receivable. All Accounts Receivable existing at the Closing Date; 2.1.14 Prepaid Expenses. All Prepaid Expenses of, or for the benefit of, the Business at the Closing Date including those described in Schedule 2.1.14, to the extent the benefits thereof are transferable to Purchaser. 2.1.15 Computer Software. All computer applications software, owned or licensed, whether for general business usage (e.g., accounting, word processing, graphics, spreadsheet analysis, etc.) or specific, unique-to-the-business usage (e.g., order processing, process control, shipping, etc.) and all computer operating, security or programming software, owned or licensed by Seller; and 2.1.16 Other Intangible Assets. All other assets (including all causes of action, rights of action, contract rights and warranty and product liability claims against third parties) relating to the Purchased Assets or the Business. 2.2Excluded Assets. Notwithstanding Section 2.1, the following assets (collectively, the "Excluded Assets") shall be excluded from this Agreement, and shall not be assigned or transferred to Purchaser: 2.2.1Any insurance policies maintained by Seller with respect to the Business; 2.2.2The consideration paid to Seller pursuant to this Agreement; 2.2.3Assets constituting any pension or other funds for the benefit of Employees; 2.2.4Seller's corporate minute books and stock books; 2.2.5Any contracts, agreements, commitments or undertakings of the Seller with or for the benefit of any Employee or former employee of the Seller; 2.2.6The tangible personal property of certain stockholders and vendors of the Seller set forth and identified on Schedule 2.2.6; 2.2.7Any claims and rights against third parties (including, without limitation, insurance carriers), to the extent they relate to liabilities or obligations that are not assumed by Purchaser hereunder (except to the extent Purchaser shall have incurred costs and expenses with respect to such claims and rights); and 2.2.8Claims for refunds of Taxes and other governmental charges to the extent such refunds relate to periods ending on or prior to the Closing. ARTICLE III CONSIDERATION 3.1Consideration for Purchased Assets. 3.1.1The aggregate monetary consideration to be paid by Purchaser to Seller for the Purchased Assets (the "Purchase Price") shall be Six Hundred Thousand ($600,000.00), Four Hundred Thousand Dollars ($400,000.00) Dollars of which shall be in cash; and 3.1.2Two Hundred Thousand ($200,000.00) Dollars of which shall consist of thirty-seven thousand one hundred twelve (37,112) shares of fully paid and non-assessable restricted common stock (the "Restricted Stock") of Purchaser's Affiliate, EMCEE Broadcast Products, Inc. ("EMCEE"), based on the agreed upon per share value thereof of $5.389. 3.1.3As additional consideration, Purchaser also shall assume the Assumed Liabilities. 3.2Payment of Consideration. Subject to the terms and conditions of this Agreement, at the Closing, Purchaser shall deliver to Seller Four Hundred Thousand ($400,000.00) Dollars in immediately available funds. The Restricted Stock shall be delivered, free and clear of all Encumbrances, to the Seller on April 3, 2001; provided, however, that if the value of the Restricted Stock on April 3, 2001 is less than One Hundred Thousand ($100,000.00) Dollars, Seller shall have the right, exercisable only in writing to Purchaser, to accept the sum of One Hundred Thousand ($100,000.00) Dollars in lieu of the Restricted Stock. For purposes of the immediately preceding sentence, the value of the Restricted Stock on April 3, 2001 shall be determined by calculating the average of the median price of such stock at the close of each of the five (5) trading days immediately preceding April 3, 2001, as quoted on the NASDAQ National Market. The Restricted Stock and the One Hundred Thousand ($100,000.00) Dollars aforementioned, together with a Stock Power executed in blank by the Seller in favor of EMCEE in the event such One Hundred Thousand ($100,000.00) Dollars is accepted by the Seller in lieu of the Restricted Stock, shall be held and kept pursuant to the terms and conditions of the Escrow Agreement set forth on Exhibit 3.2 hereto (the "Escrow Agreement") or such other escrow agreement as shall be acceptable to the escrow agent named therein. 3.3Allocation of Purchase Price. The Parties agree that the Purchase Price shall be allocated among the Purchased Assets as set forth on Exhibit 3.3 hereto. Each Party agrees not to assert, in connection with any tax return, tax audit or similar proceeding, any allocation of the Purchase Price that differs from that set forth on Exhibit 3.3. 3.4Certain Taxes. Seller shall bear and be responsible for payment of, or reimbursement to Purchaser for, all Taxes that are or may be imposed by any government or political subdivision thereof and that are payable or arise as a result of this Agreement, or any transfer pursuant to this Agreement or any Ancillary Agreement, notwithstanding the Party upon which such Taxes are actually imposed. ARTICLE IV ASSUMPTION OF LIABILITIES; EMPLOYEE MATTERS 4.1General Limitation on Assumption of Liabilities. Except as otherwise provided in Sections 4.2 and 4.3 below, Seller shall transfer the Purchased Assets to Purchaser free and clear of all Encumbrances, and without any assumption of liabilities and obligations, and Purchaser shall not, by virtue of its purchase of the Purchased Assets, assume or become responsible for any liabilities or obligations of Seller or any other Person. For purposes of this Article IV the phrase "liabilities and obligations" shall include, without limitation, any direct or indirect indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known or unknown, asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured or unsecured. 4.2Assumed Liabilities and Obligations. On the Closing Date, Purchaser shall acquire the Purchased Assets subject only to, and shall undertake, assume, perform and otherwise pay, satisfy and discharge, and hold Seller harmless from the following liabilities and obligations, excluding any liabilities and obligations to Affiliates of Seller (collectively, the "Assumed Liabilities"): (i)all obligations of Seller accruing subsequent to the Closing Date under the contracts, leases, agreements, orders, guarantees and commitments contemplated by Section 2.1.5, including, without limitation, those set forth in Schedule 2.1.5, provided that the rights thereunder have been duly and effectively assigned to Purchaser; (ii)all obligations of Seller accruing after the Closing Date under the permits and licenses described in Section 2.1.7, provided that the rights thereunder have been duly and effectively assigned to Purchaser; (iii)the Payables and Accrued Expenses reflected on the books of seller at the Closing Date; provided, however, that in no event shall Purchaser assume Payables and Accrued Expenses exceeding, in the aggregate, Two Hundred Thousand ($200,000.00) Dollars, exclusive of the amounts then owing under a certain Promissory Note from Seller to Purchaser dated February 14, 2000 in the original principal sum not to exceed Two Hundred Thousand ($200,000.00) Dollars ("Seller's Note"); and (iv)All obligations of Seller accruing after the Closing Date under the Lease Agreement for the Real Property Leased, dated the first day of December, 1998, between the Seller, as tenant, and William Urban Hillenbrand and Connie S. Hillenbrand, as partners of Hillenbrand Bros. Farm (a general partnership), as landlords (the "Lease Agreement"). 4.3Offer of Employment. Purchaser shall offer employment on and as of the Closing Date, on an at-will basis, to all Employees actively at work in substantially similar jobs, at substantially the same base salaries or wages and benefits as were paid or provided by Seller immediately prior to the Closing Date. Notwithstanding the foregoing, as a condition precedent to such employment for Donald Adams, Wayne McMahon and Carl Jacobson, and as a condition precedent to the Purchaser's obligations to consummate the transactions contemplated hereby, each such individual must execute an Employment Agreement in form and content as set forth on Exhibit 4.3 hereto (the "Employment Agreement"). 4.4Vacation Liability. Purchaser shall assume liability for the vacation entitlement that each Employee who becomes an employee of Purchaser has accrued as of the Closing Date. Purchaser shall pay each such Employee's wages or salary during his or her vacation entitlement from Purchaser, when taken. 4.5Other Employee Benefits. Seller agrees that, with respect to claims for workers' compensation and all claims under Seller's employee benefit programs by persons working for the Business arising out of events occurring prior to the Closing, whether reported or unreported as of the Closing and whether insured or uninsured (including, but not limited to, workers' compensation, life insurance, medical and disability programs), Seller shall, at its own expense, honor or cause its insurance carriers to honor such claims in accordance with the terms and conditions of such programs or applicable workers' compensation statutes. Without limiting the scope of the preceding sentence, Seller shall be responsible for any and all claims and liabilities arising out of or relating to (i) its employment of the Employees, (ii) the termination by Seller of such the employment of any such Employee and (iii) the provision of any employee benefits to such Employees (and their beneficiaries and eligible dependents) attributable to their employment with, or their participation in any plans or programs maintained or contributed to by, Seller or any of its Affiliates. 4.6WARN Act. Not applicable. ARTICLE V CLOSING 5.1Time; Location. Subject to the conditions contained herein, the Closing shall be held on the Closing Date at 9:30 o'clock A.M., local time, at the offices of George G. Gardner, Esquire, 7415 Burlington Pike, Suite B, Florence, Kentucky 41042, or such other time or place as the Parties shall mutually agree in writing. 5.2Documents. At the Closing, Seller shall execute and deliver the following instruments of transfer and assignment: 5.2.1Duly executed Assignment of Lease Agreement substantially in the form of Exhibit 5.2.1 hereto, assigning and transferring the Lease Agreement and good and marketable leasehold title to the Real Property Leased, and a Memorandum of Lease, in recordable form and in form and content reasonably acceptable to the Purchaser, to provide constructive notice of Purchaser's rights under the Lease Agreement on and after the Closing Date; 5.2.2A Bill of Sale and an Assignment and Assumption Agreement, both substantially in the form of Exhibit 5.2.2 hereto, transferring to Purchaser good and indefeasible title to all of the tangible personal property included in the Purchased Assets, subject only to the Assumed Liabilities, and assigning to Purchaser all of Seller's right, title and interest in each of the contracts, licenses and other agreements included in the Purchased Assets, together with all consents of third parties that Seller must obtain in order to make each such assignment effective as to such third parties; 5.2.3An Assignment of Rights in Business Name and Business Telephone Number, Business Facsimile Numbers and E-Mail Address substantially in the form of Exhibit 5.2.3 hereto, transferring to Purchaser good and indefeasible title to Seller's name and the Business telephone and facsimile numbers and E-mail addresses; 5.2.4Certificates of title to all vehicles included in the Purchased Assets with assignments to Purchaser; and 5.2.5Such additional instruments of conveyance and transfer as Purchaser may reasonably require in order to more effectively vest in it, and put it in possession of, the Purchased Assets. 5.3Reasonable Steps. Prior to the Closing Date, Seller shall take such reasonable steps as may be necessary or appropriate so that on the Closing Date, Purchaser shall be placed in actual possession and control of all of the Purchased Assets. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Purchaser as follows: 6.1Organization, Good Standing and Power. Seller is a corporation duly organized, validly existing an in good standing under the laws of Kentucky, is duly authorized to conduct business in all foreign jurisdictions in which it currently conducts business, and has all requisite corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements, to consummate the transactions contemplated hereby and thereby and to perform all the terms and conditions hereof and thereof to be performed by it. 6.2Authorization of Agreement and Enforceability. Seller has taken all necessary corporate action to authorize the execution and delivery of this Agreement and the Ancillary Agreements, the performance by it of all terms and conditions hereof and thereof to be performed by it and the consummation of the transactions contemplated hereby and thereby. This Agreement constitutes, and the Ancillary Agreements to which Seller is a party, upon Seller's execution and delivery thereof, will constitute, the legal, valid and binding obligations of Seller, enforceable in accordance with their terms except to the extent that enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereafter in effect relating to or affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 6.3No Violation; Consents. The execution, delivery and performance by Seller of this Agreement and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby will not (with or without the giving of notice or the lapse of time, or both) (i) violate any provision of the Articles of Incorporation or bylaws of Seller, (ii) violate, or, except as required by the Permits referred to in Section 6.11 hereof (as disclosed on Schedule 2.1.7), require any consent, authorization or approval of, or exemption by, or filing under any provision of any law, statute, rule or regulation to which Seller, the Business or the Purchased Assets are subject, (iii) violate any judgment, order, writ or decree of any court applicable to Seller, the Business or the Purchased Assets, (iv) except for such consents or approvals as are required by the contracts referred to in Section 6.10 hereof, conflict with, result in a breach of, constitute a default under, or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under any agreement, contract, commitment, lease or other instrument, document or undertaking to which Seller is a party or any of the Purchased Assets is bound or (v) result in the creation or imposition of any Encumbrance upon the Purchased Assets. 6.4Financial Statements. Seller has delivered to Purchaser true and complete copies of the Seller prepared balance sheet of the Business at November 30, 1999, and true and complete copies of the balance sheets of the Business at December 31, 1998, 1997 and 1996 and the related statements of income and cash flows, reviewed by Morris & Dressler, independent public accountants. The foregoing financial statements have been prepared from the books and records of Seller in accordance with GAAP consistently applied throughout the periods involved except as may be noted therein. Such financial statements, including the related notes, are true and correct and fairly present the financial position of the Business at the dates indicated and the results of operations and cash flows of the Business for the periods then ended in accordance with GAAP. References in this Agreement to the "Balance Sheet" shall mean the balance sheet of the Business as of November 30, 1999 referred to above, and references in this Agreement to the "Balance Sheet Date" shall be deemed to refer to November 30, 1999. 6.5Accounts Receivable. All Accounts Receivable as set forth on the Balance Sheet (i) have or will have arisen only in the ordinary course of business consistent with past practice for goods actually sold and delivered or services actually performed and (ii) are or will be collectible in full at the recorded amounts thereof (subject to no defenses, set offs or counterclaims) in the ordinary course of business (without resort to litigation or assignment to a collection agency) no later than thirty (30) days after the Closing Date, net of any allowance for bad debts reflected on the Balance Sheet. 6.6Inventory. The Inventory as set forth on the Balance Sheet was, and the Closing Inventory will be, acquired and maintained in accordance with regular business practices of the Business, consists(and, as to the Closing Inventory, will consist) of new and unused items of a quality and quantity useable or saleable in the ordinary course of business consistent with past practice, and is (and, as to the Closing Inventory, will be) valued in accordance with GAAP consistently applied and with respect to Inventory intended for sale, was (and, as to the Closing Inventory, will be) saleable at prices at least equal to the value thereof on the books of Seller. 6.7Absence of Certain Changes or Events. Except as set forth in Schedule 6.7 hereto, since November 30, 1999, in connection with the Business, Seller has not: 6.7.1Amended in any respect or terminated the Lease Agreement or any contract or other document described in Section 2.1.5, other than in the ordinary course of business consistent with past practice; 6.7.2Suffered the occurrence of any events that, individually or in the aggregate, have had, or could reasonably be expected to have, a material adverse effect on the Purchased Assets or the financial position or results of operations of the Business; 6.7.3Incurred any damage or destruction having a material adverse effect on the Purchased Assets or the results of operations of the Business by fire, storm, or similar casualty, whether or not covered by insurance; 6.7.4Sold, transferred, replaced or leased any of the Purchased Assets or provided any Inventory or services at a discount, except for transactions in the ordinary course of business consistent with past practice; 6.7.5Waived or released any material rights with respect to the Purchased Assets or the Business; 6.7.6Transferred or granted any rights to any Proprietary Rights; 6.7.7Entered into any transaction or made any commitments (for capital expenditures or otherwise) other than in the ordinary course of business consistent with past practice; 6.7.8Changed its methods of accounting; 6.7.9Increased the compensation or benefits of Employees; or 6.7.10 Materially altered its conduct in its relations with suppliers or customers. 6.8Title to Properties; Absence of Liens and Encumbrances. Seller owns and will transfer to Purchaser at the Closing good, marketable and indefeasible title to all of the Purchased Assets, including without limitation the properties and assets reflected on the Balance Sheet (except as disclosed in Schedule 6.8 or except as sold or otherwise disposed of by Seller after the Balance Sheet Date in the ordinary course of business consistent with past practice), free and clear of all Encumbrances. The Lease Agreement covering the Real Property Leased is in full force and effect and constitutes the legal, valid and binding obligation of the lessor thereunder, enforceable in accordance with its terms, except to the extent that enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereinafter in effect relating to or affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). All buildings, structures, improvements and fixtures located on the Real Property are located wholly within the boundaries thereof and do not encroach upon the property of any other Person. 6.9Proprietary Rights. 6.9.1Schedule 2.1.9 hereto sets forth a correct and complete list of all patents, logos, trademarks, trade names, service marks, copyrights and applications or registrations therefor used in and material to the Business, and Schedule 6.9 sets forth a correct list of all inventions, intellectual property and trade secret assets used in and material to the Business (collectively, the "Proprietary Rights"). 6.9.2Except as disclosed in Schedule 6.9: (i) Seller owns or possesses adequate licenses or other valid right to use (without the making of any payment to others or the obligation or grant rights to others in exchange) all the Proprietary Rights; (ii) the Proprietary Rights included in the Purchased Assets constitute all such rights necessary to conduct the Business in accordance with past practice and are being conveyed to Purchaser together with the other Purchased Assets; (iii) the validity of the Proprietary Rights and the rights therein of Seller have not been questioned in any litigation to which Seller is a party, nor, to Seller's knowledge, is any such litigation threatened; and (iv) the conduct of the Business does not conflict with patent rights, licenses, trademark rights, trade name rights, copyrights or other intellectual property rights of others. 6.9.3Except as disclosed in Schedule 6.9 hereto, Seller does not have knowledge that any material use of any Proprietary Rights owned by Seller has heretofore been, or is now being, made by any Person other than Seller, and Seller has no knowledge of any infringement of any Proprietary Rights owned or licensed by Seller. No present or former director, officer, employee or consultant of Seller or any Affiliate of Seller has any interest in any of the Proprietary Rights. 6.10Contracts and Commitments. Except as listed and described on Schedule 2.1.5 hereto, Seller is not with respect to the Purchased Assets or the Business a party to any written or oral: (i)agreement, contract or commitment for the future purchase of, or payment for, supplies or products, or for the performance of services by another party, involving in any one case $2,500 or more; (ii)agreement, contract or commitment to sell or supply products or to perform services, involving in any one case $2,500 or more; (iii)agreement, contract or commitment continuing over a period of more than six months from the date hereof or exceeding $2,500 in value; (iv)representative, sales agency, dealer or distributor agreement, contract or commitment; (v)lease under which Seller is either lessor or lessee other than the Lease Agreement; (vi)note, debenture, bond, conditional sale agreement, equipment trust agreement, letter of credit agreement, loan agreement or other contract or commitment for the borrowing or lending of money (including without limitation loans to or from employees) or guarantee, pledge or undertaking of the indebtedness of any other Person; (vii)agreement, contract or commitment for any charitable or political contribution; (viii)agreement, contract or commitment providing or relating in any way to a product warranty (limited or full); (ix)agreement, contract or commitment limiting or restraining Seller or any successor or assign from engaging or competing in any lines of business with any Person; (x)license, franchise, distributorship or other agreement, including those that relate in whole or in part to any patent, trademark, trade name, service mark or copyright or to any ideas, technical assistance or other know-how of or used by the Business; or (xi)any other material agreement, contract or commitment not made in the ordinary course of business consistent with past practice. Except as may be disclosed on Schedule 2.1.5 hereto, (i) each of the agreements, contracts, commitments, leases and other instruments, documents and undertakings listed on Schedule 2.1.5 is valid and enforceable in accordance with its terms, the parties thereto are in compliance with the provisions thereof, no party is in default in the performance, observance or fulfillment of any material obligation, covenant or condition contained therein, and no event has occurred that with or without the giving of notice or lapse of time, or both, would constitute a default thereunder; (ii) no such agreement, contract, commitment, lease or other instrument, document or undertaking, in the reasonable opinion of Seller, contains any contractual requirement with which there is a reasonable likelihood Seller or any other party thereto will be unable to comply; (iii) no advance payments have been received by Seller by or on behalf of any party to any of the agreements, contracts, commitments, leases and other instruments listed on Schedule 2.1.5 for services to be rendered or products to be delivered to such party after the Closing Date; and (iv) no consent or approval of any party to any agreement, contract, commitment, lease or other instrument, document or undertaking listed on Schedule 2.1.5 is required for the execution of this Agreement or the consummation of the transactions contemplated hereby. 6.11Permits, Licenses. Seller has all permits, licenses, registrations, orders and approvals of federal, state or local government or regulatory bodies that are required to operate the Business (including without limitation those required under any Environmental Law) (collectively, the "Permits") and, except as described in Schedule 6.11, Seller is in compliance with the terms and conditions of the Permits. Schedule 2.1.7 hereto sets forth a correct and complete list of all Permits, each one of which is in full force and effect. To Seller's, knowledge, no suspension or cancellation of any of the Permits is threatened and no cause exists for such suspension or cancellation. Any Permits that cannot be transferred or require consent or approval for the transfer thereof are specifically identified on Schedule 2.1.7 hereto as nontransferable or requiring such consent or approval. 6.12Compliance with Laws. Except as described in Schedule 6.12 hereto, Seller has at all times conducted, and is presently conducting, the Business so as to comply with all laws, statutes, ordinances, rules and regulations applicable to the conduct or operation of the Business or the ownership or use of the Purchased Assets. 6.13Legal Proceedings. Except as described in Schedule 6.13 hereto, there is no claim, action, suit, proceeding, investigation or inquiry pending before any federal, state or other court or governmental or administrative agency or, to Seller's knowledge, threatened against Seller with respect to the Business or any of the Purchased Assets, or relating to the transactions contemplated by this Agreement, nor does Seller know of any basis for any such claim, action, suit, proceeding, investigation, or inquiry. Except as set forth on Schedule 6.13 hereto, none of the matters set forth thereon will have a material adverse effect on the Business. Except as set forth on Schedule 6.13 hereto, Seller is not a party to or subject to the provisions of any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental, regulatory or administrative official, body or authority that relates to the Purchased Assets or the Business or that might affect the transactions contemplated by this Agreement. 6.14Absence of Undisclosed Liabilities. Except as set forth in Schedule 6.14, Seller has no liabilities or obligations (as defined in Section 4.1) relating to the Business except (i) those liabilities and obligations set forth on the Balance Sheet and not heretofore paid or discharged; (ii) those liabilities and obligations arising in the ordinary course of business consistent with past practice under any agreement, contract or commitment specifically disclosed on Schedule 2.1.5 hereto or not required to be disclosed because of the term or amount involved; and (iii) those liabilities and obligations incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date. 6.15Books and Records. All books of account and other financial records of Seller directly relating to the Business (the "Books and Records") are complete and correct and have been made available to Purchaser. All of the Books and Records have been prepared and maintained in accordance with good business practices and, where applicable, in conformity with GAAP (except as otherwise stated therein) and in compliance in all material respects with applicable laws, regulations and other requirements. 6.16Employees. Schedule 1.17 sets forth a true and correct list of all individuals employed by Seller in the conduct of the Business and their present position and rate of compensation and service credited for purposes of vesting and eligibility under each Payroll Practice/Employee Arrangement. 6.17Labor Disputes. Except as described in Schedule 6.17 hereto, from the Seller's inception, there have been no discrimination complaints nor any other kind of employment or labor related disputes against Seller in connection with the Business pending before or, to Seller's knowledge, threatened before any federal, state or local court or agency, and, to Seller's knowledge, no material dispute respecting minimum wage or overtime claims or other conditions or terms of employment exists. The Business has not experienced any material labor disputes or any material work stoppage due to labor disagreements. With respect to the Business and except to the extent set forth in Schedule 6.17: there is no unfair labor practice charge or complaint against Seller pending or, to Seller's knowledge, threatened, before the National Labor Relations Board; (ii) there is no labor strike, slowdown or stoppage pending or, to Seller's knowledge, threatened against or affecting Seller; and (iii) no question concerning representation has been raised or, to Seller's knowledge, is threatened respecting the Employees. 6.18Payroll Practice/Employee Arrangements. 6.18.1 Schedule 6.18 contains a complete list of each employee benefit plan subject to ERISA, and/or holiday, vacation or other bonus practice or any other employee pay practice, arrangement, agreement or commitment (the "Payroll Practice/Employee Arrangement") and maintained by or with respect to which Seller has any liability or obligation, whether actual or contingent, with respect to Employees or their respective beneficiaries. 6.18.2 Seller has not taken any action that may result in Purchaser, or subsidiary, being a party to, or bound by, any ERISA Plan, and Purchaser shall have no liability under, or be subject to any liability on account of, any ERISA Plan or Payroll Practice/Employee Arrangement following the consummation of the transactions contemplated hereby. 6.18.3 No ERISA Plan or other employee arrangement has provided for the payment of retiree benefits by Purchaser. 6.19No Finder. Seller has not taken any action that would give to any Person a right to a finder's fee or any type of brokerage commission in relation to, or in connection with, the transactions contemplated by this Agreement. 6.20Interest in Business. Seller has not granted, and there is not outstanding, any option, right, agreement or other obligation pursuant to which any Person could claim a right to acquire in any way all or any part of, or interest in, the Business. 6.21Condition of Assets. All buildings, structures, improvements, equipment that are part of the Purchased Assets are structurally sound and, together with all other tangible personal property constituting the Purchased Assets, are in good operating condition and repair and are usable in the conduct of the Business consistent with past practice and conform to all applicable laws and regulations relating to their construction, use and operation. 6.22Affiliate Transactions. Schedule 6.22 hereto sets forth a summary of all purchases of goods or services by Affiliates of Seller for the three years ended December 31, 1999. Except as set forth in Schedule 6.22 hereto, Seller and its Affiliates provide no services or products to the Business. 6.23Environmental Matters. 6.23.1 Except as set forth in Schedule 6.23 hereto, Seller has not received any notice relating to the Business or the Real Property alleging any violation of any Environmental Law or any written request for information from any governmental agency or other Person pursuant to any Environmental Law, and Seller is, with respect to the Business and the Real Property, in compliance with all applicable Environmental Laws; 6.23.2 Except as set forth in Schedule 6.23 hereto, there are no Regulated Substances released by Seller or, to Seller's knowledge, any other Person on or beneath the Real Property in quantities or concentrations that could give rise to obligations, responsibilities or liabilities of Seller or Purchaser under any Environmental Law; 6.23.3 Except as set forth in Schedule 6.23 hereto, Seller has not received any notice or order from any governmental agency or private or public entity in connection with the Business advising it that Seller is responsible for or potentially responsible for remediation or paying for the cost of investigation or remediation of any Regulated Substance, and Seller has not entered into any agreements pertaining thereto; 6.23.4 Except as set forth in Schedule 6.23 hereto, to Seller's knowledge, the Real Property does not contain any: (i) underground storage tanks; (ii) underground injection wells; (iii) septic tanks in which process wastewater or any Regulated Substances have been disposed; (iv) asbestos; (v) equipment using PCBs; or (vi) drums buried in the ground; and 6.23.5 Schedule 6.23 hereto identifies all environmental studies, analyses or reports in the possession of Seller or its Affiliates relating to the Real Property, and true and complete copies thereof have been delivered to Purchaser. 6.24Insurance. Schedule 6.24 sets forth a complete list of all insurance policies maintained by Seller or its Affiliates with respect to the Business for the past five years. Schedule 6.24 also sets forth a true and correct summary of the loss experience for the past five years under each such policy. 6.25No Significant Items Excluded. Except for Excluded Assets, there are no assets or properties of Seller or agreements, contract or commitments to which Seller is a party not disclosed herein that relate to the Business or the operations thereof. 6.26Completeness and Accuracy. All information set forth on any Schedule hereto is, and all information furnished by Seller pursuant to Section 8.1.9 hereof will be, true, correct and complete. No representation or warranty of Seller contained in this Agreement contains or will contain any untrue statement of material fact, or omits or will omit to state any material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. All contracts, permits and other documents and instruments furnished or made available to Purchaser by Seller are or will be true, complete and accurate originals or copies of originals and include all amendments, supplements, waivers and modifications thereto. There is no fact, development or threatened development (excluding general economic factors affecting business in general) that Seller has not disclosed to Purchaser in this Agreement or the Schedules hereto that materially adversely affects or, so far as Seller can now foresee, may materially adversely affect, the Business, the Purchased Assets, or the prospects or condition (financial or otherwise) of the Business. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser hereby represents and warrants to Seller as follows: 7.1Organization, Good Standing, Power. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of Delaware, is duly authorized to conduct business in all foreign jurisdictions in which it currently conducts business, and has all requisite corporate power and authority to own and lease the Purchased Assets and to carry on the Business and to execute and deliver this Agreement and the Ancillary Agreements to which Purchaser is a party, to consummate the transactions contemplated hereby and thereby and to perform all the terms and conditions hereof and thereof to be performed by it. 7.2Authorization of Agreement and Enforceability. Purchaser has taken all necessary corporate action to authorize the execution and delivery of this Agreement and the Ancillary Agreements to which Purchaser is a party, the performance by it of all terms and conditions hereof and thereof to be performed by it and the consummation of the transactions contemplated hereby and thereby. This Agreement constitutes, and the Ancillary Agreements, upon Purchaser's execution and delivery thereof, will constitute, the legal, valid and binding obligations of Purchaser, enforceable in accordance with their terms except to the extent that enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws presently or hereafter in effect relating to affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). 7.3No Violations; Consents. The execution, delivery and performance by Purchaser of this Agreement and the Ancillary Agreements to which Purchaser is a party and the consummation of the transactions contemplated hereby and thereby will not (with or without the giving of notice or the lapse of time, or both) (i) violate any provision of the charter or bylaws of Purchaser, (ii) violate or require any consent, authorization or approval of, or exemption by, or filing under any provision of any law, statute, rule or regulation to which Purchaser is subject,(iii) violate any judgment, order, writ or decree of any court applicable to Purchaser, (iv) conflict with, result in a breach of, constitute a default under, or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under any agreement, contract, commitment, lease or other instrument, document or undertaking to which Purchaser is a party or any of its assets is bound or (v) result in the creation or imposition of any Encumbrance upon its assets. 7.4Legal Proceedings. There is no claim, action, suit, proceeding, investigation or inquiry pending before any federal, state or other court or governmental or administrative agency or, to Purchaser's knowledge, threatened against Purchaser or any of Purchaser's properties, assets, operations or businesses that might prevent or delay the consummation of the transactions contemplated hereby. 7.5No Finder. Purchaser has not taken any action which would give to any Person a right to a finder's fee or any type of brokerage commission in relation to, or in connection with, the transactions contemplated by this Agreement. ARTICLE VIII COVENANTS OF SELLER PRIOR TO CLOSING DATE 8.1Required Actions. Between the date of this Agreement and the Closing Date, Seller covenants that it will, in its conduct of the Business, except as otherwise agreed by Purchaser in writing. 8.1.1Access to Information. Give to Purchaser and its counsel, accountants, consultants and other representatives, at their sole expense and risk, reasonable access, during normal business hours, to such of the properties, books, accounts, contracts and records of Seller as are relevant to the Purchased Assets and the Business, and furnish or otherwise make available to Purchaser all such information concerning the Purchased Assets and the Business as Purchaser may reasonably request, provided that the confidentiality of any data or information so acquired shall be maintained as confidential by Purchaser and its representatives in accordance with Section 9.1.1; 8.1.2Conduct of Business. Operate the Business only in the usual, regular and ordinary manner as such Business was conducted prior to the date hereof and, to the extent consistent with such operation, use its best efforts until the Closing Date to (i) preserve and keep intact the Business, (ii) keep available the services of the Employees and (iii) preserve its relationships with customers, suppliers and others having business dealings with Seller in connection with the Business; 8.1.3Maintenance of Properties. Maintain the Purchased Assets, whether owned or leased, in good repair, order and condition in accordance with manufacturers' instructions and Seller's past practices, reasonable wear and tear excepted; 8.1.4Maintenance of Books and Records. Maintain the Books and Records in the usual, regular and ordinary manner, on a basis consistent with past practice; 8.1.5Compliance with Applicable Law. Comply with all laws applicable to the Purchased Assets and to the conduct of the Business; 8.1.6Performance of Obligations. Perform all the material obligations of Seller relating to the Purchased Assets and the Business in accordance with the past practices of Seller; 8.1.7Notice of Material Damage. Give to Purchaser prompt written notice of any material damage by fire or other casualty upon the Purchased Assets or the Business; 8.1.8Advise of Changes. Advise Purchaser promptly in writing of any fact that, if known at the Closing Date, would have been required to be set forth or disclosed in or pursuant to this Agreement, or which would result in the breach in any material respect by Seller of any of its representations, warranties, covenants or agreements hereunder; 8.1.9Update Schedules. Promptly disclose to Purchaser any information contained in the representations and warranties of Seller contained in Article VI or in the Schedules to this Agreement which is no longer complete or correct (including furnishing updated financial statements); provided that no such disclosure shall be deemed to modify, amend or supplement Seller's representations and warranties; 8.1.10 Pay Employees to Closing Date. Pay all wages, salaries and other sums due Employees through the close of business on the day prior to the Closing Date; 8.1.11 Termination. Terminate the employment of all Employees as of the Closing Date; and 8.1.12 Compliance with Agreement. Not undertake any course of action inconsistent with satisfaction of the conditions applicable to it set forth in this Agreement, and use all reasonable efforts to do all such acts and take all such measures as may be reasonably necessary to comply with the representations, agreements, conditions and other provisions of this Agreement. 8.2Prohibited Actions. Between the date of this Agreement and the Closing Date, in its conduct of the Business, Seller shall not, except as otherwise agreed by Purchaser in writing: 8.2.1Sale of Purchased Assets. Sell, transfer, assign, lease, encumber or otherwise dispose of any of the Purchased Assets other than in the ordinary course of business consistent with past practices; 8.2.2Business Changes. Change in any material respect the character of the Business; 8.2.3Incurrence of Material Obligations. Incur any material fixed or contingent obligation or enter into any material agreement, commitment or other transaction or arrangement that is not in the ordinary course of business consistent with past practices; 8.2.4Incurrence of Liens. Subject any of the Purchased Assets to any lien, security interest or other Encumbrance; 8.2.5Change in Employee Compensation and Benefits. Increase the rate of compensation paid, or pay any bonus, to anyone connected with the Business, except for those increase or bonuses planned, in the ordinary course of business consistent with past practices, or establish or adopt any new pension or profit-sharing plan, deferred compensation agreement or employee benefit arrangement of any kind whatsoever covering or affecting Employees; 8.2.6Publicity; Advertisement. Except as required by law, publicize, advertise or announce to any third party, except as required pursuant to this Agreement to obtain the consent of such third party, the entering into of this Agreement, the terms of this Agreement or the transactions contemplated hereby; 8.2.7No Release. Except in the ordinary course of business consistent with past practices, cancel, release or relinquish any material debts of or claims against others held by Seller with respect to the Business or waive any material rights relating to the Business; and 8.2.8No Termination or Modification. Terminate or materially modify any material lease, contract, governmental license, permit or other authorization or agreement affecting the Business or the Purchased Assets or the operation thereof. ARTICLE IX COVENANTS OF PURCHASER PRIOR TO CLOSING DATE 9.1Required Actions. Between the date of this Agreement and the Closing Date, Purchaser shall, except as otherwise agreed by Seller in writing: 9.1.1Confidentiality. Not publish or disclose and not authorize or permit any of its officers, employees, directors, agents or representatives or any third party to publish or disclose any trade secrets or other Confidential Information or any data or business or financial books, records or other information of or pertaining to Seller, which have been furnished to Purchaser by Seller or to which Purchaser, or any of its officers, employees, directors, agents, attorneys or accountants, or any financial institution have had access during any investigation made in connection with this Agreement and which is not otherwise available to Purchaser, except as required by law; 9.1.2Advise of Changes. Advise Seller promptly in writing of any fact that, if known at the Closing Date, would have been required to be set forth or disclosed in or pursuant to this Agreement, or which would result in the breach by Purchaser of any of its representations, warranties, covenants or agreements hereunder; 9.1.3Compliance with Agreement. Not undertake any course of action inconsistent with satisfaction of the conditions applicable to it set forth in this Agreement, and Purchaser shall use its best efforts to do all such acts and take all such measures as may be reasonably necessary to comply with the representations, agreements, conditions and other provisions of this Agreement; and 9.1.4Publicity; Advertisement. Except as required by law, including, but not limited to, the laws, rules and regulations of the Securities and Exchange Commission, not publicize, advertise or announce to any third party the entering into of this Agreement, the terms of this Agreement or the transactions contemplated hereby. 9.2Investigation. Prior to the Closing, Purchaser shall use reasonable efforts to conduct its investigation of the Business in such a manner as to prevent disruption of relations with the employees, customers and suppliers of Seller. ARTICLE X CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER The obligations of Purchaser hereunder are subject to the fulfillment at or prior to the Closing of each of the following conditions: 10.1Accuracy of Representations and Warranties. The representations and warranties of Seller contained in this Agreement shall have been true in all material respects on the date hereof and shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. 10.2Performance of Agreement. Seller shall have performed in all material respects all obligations and agreements and complied in all material respects with all covenants and conditions contained in this Agreement to be performed or complied with by it at or prior to the Closing Date. 10.3Seller's Certificate. Purchaser shall have received a certificate from Seller, dated as of the Closing Date, reasonably satisfactory in form and substance to Purchaser and its counsel, certifying as to the matters specified in Section 10.1 and Section 10.2 hereof. The matters set forth in such certificate shall constitute representations and warranties of Seller hereunder. 10.4Secretary's Certificate. Purchaser shall have received a certificate, dated the Closing Date, of the Secretary or any Assistant Secretary of Seller with respect to the incumbency and specimen signature of each officer or representative of Seller executing this Agreement, the certificate referred to in Section 10.3 and the Ancillary Agreements to which Seller is a party. 10.5Injunction. On the Closing Date, there shall be no injunction, writ, preliminary restraining order or any order of any nature in effect issued by a court of competent jurisdiction directing that the transactions provided for herein, or any of them, not be consummated as herein provided and no suit, action, investigation, inquiry or other legal or administrative proceeding by any governmental body or other Person shall have been instituted or threatened which the questions of validity or legality of the transactions contemplated hereby or which if successfully asserted might otherwise have a material adverse effect on the conduct of the Business or impose any additional material financial obligation on, or require the surrender of any material right by, Purchaser. 10.6Actions and Proceedings. All corporate actions, proceedings, instruments and documents required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall be reasonably satisfactory to counsel for Purchaser, and such counsel shall have been furnished with such certified copies of such corporate actions and proceedings and such other instruments and documents as it shall have reasonably requested. 10.7Consents. Any third-party and governmental consents, approvals or authorizations necessary for the conveyance of the Purchased Assets or valid consummation of the transactions contemplated hereby shall have been obtained. 10.8Arrangements with Employees. Substantially all of the Employees shall have accepted employment with Purchaser effective on the Closing Date. In addition, Purchaser shall have received evidence from Seller, which is acceptable in all respects to Purchaser's legal counsel, that all contracts, agreements, commitments and undertakings of the Seller with or for the benefit of any Employee or former employee of the Seller have expired or have otherwise been terminated without, in either case, any liability to the Purchaser. 10.9Opinion of Counsel. Purchaser shall have received the favorable opinion of George G. Gardner, Esquire, counsel for Seller, satisfactory to Purchaser and its counsel as to the matters set forth in Sections 6.1, 6.2 and 6.3 hereof and to such other matters reasonably required by the Purchaser, including, but not limited to, that Seller has complied with any and all laws relating to bulk transfers in connection with the transactions contemplated hereby (or that such bulk transfer laws are inapplicable to the transactions contemplated hereby) and that the Seller's use and the Purchaser's contemplated use of the Real Property is and shall be in compliance with all applicable zoning, subdivision and land use laws and ordinances. 10.10Title Insurance. Purchaser shall have received a title insurance policy issued by a reputable title insurance company selected by Purchaser at regular rates insuring its leasehold title to the Real Property as good and marketable and free of all Encumbrances. 10.11 Environmental Site Assessment. Purchaser shall have received the results of an environmental site assessment which confirms in all respects the Seller's representations and warranties herein with respect to environmental matters. 10.12Employment Agreements. Each of the Employees specified in Section 4.3 hereof shall have executed and delivered their respective Employment Agreement to the Purchaser. 10.13Escrow Agreement. The Escrow Agreement shall have been duly executed by all parties thereto and the money, certificates and other documents described therein shall have been duly deposited as required therein. 10.14Ancillary Documents. All of the Ancillary Documents shall have been duly executed and delivered by the parties thereto. 10.15Compliance with Bulk Transfer Laws. Evidence satisfactory to Purchaser's counsel that Seller has complied with any and all laws relating to bulk transfers in connection with the transactions contemplated hereby. 10.16Removal of Section 2.2.6 Excluded Assets. Seller shall have removed from the Real Property and returned all of the tangible personal property described in Section 2.2.6 to the owners thereof and evidence to Purchaser's legal counsel that Purchaser has no liability therefor. 10.17Name Change. Seller shall have changed its name to a name which, in the reasonable opinion of Purchaser, is not the same as or similar to Seller's present name, and Purchaser shall have determined that it is able to change its name to Seller's current name in Delaware and Kentucky. 10.18Susan Jacobson. Seller shall provide Purchaser's legal counsel with evidence satisfactory to such legal counsel in all respects that Seller has appropriately terminated Susan Jacobson from its medical benefits plan and that Purchaser has no liability therefor. ARTICLE XI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER The obligations of Seller are subject to the fulfillment at or prior to the Closing of each of the following conditions: 11.1Accuracy of Representations and Warranties. The representations and warranties of Purchaser contained in this agreement shall have been true in all material respects on the date hereof and shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. 11.2Performance of Agreement. Purchaser shall have performed in all material respects all obligations and agreements and complied in all material respects with all covenants and conditions contained in this Agreement to be performed or complied with by it at or prior to the Closing Date. 11.3Purchaser's Certificate. Seller shall have received a certificate from Purchaser, dated as of the Date, reasonably satisfactory in form and substance to Seller and its counsel, certifying as to the fulfillment of all matters specified in Section 11.1 and Section 11.2 hereof. The matters set forth in such certificate shall constitute representations and warranties of Purchaser hereunder. 11.4Secretary's Certificate. Seller shall have received a certificate, dated the Closing Date, of the Secretary or any Assistant Secretary of Purchaser with respect to the incumbency and specimen signature each officer or representative of Purchaser executing this Agreement, the certificate referred to in Section 11.3 and the Ancillary Agreements to which Purchaser is a party. 11.5Injunction. On the Closing Date, there shall be no injunction, writ, preliminary restraining order or any order of any nature in effect issued by a court of competent jurisdiction directing that the transactions provided for herein, or any of them, not be consummated as herein provided. 11.6Actions or Proceedings. All corporate actions, proceedings, instruments and documents required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall be reasonably satisfactory to counsel for Seller, and such counsel shall have been furnished with such certified copies of such corporate actions and proceedings and such other instruments and documents as it shall have reasonably requested. 11.7Consents. Any third-party and governmental consents, approvals or authorizations necessary for the conveyance of the Purchased Assets or the valid consummation of the transactions contemplated hereby shall have been obtained. 11.8Opinion of Counsel. Seller shall have received the favorable opinion of Laputka, Bayless, Ecker & Cohn, P.C., counsel for Purchaser, satisfactory to Seller and its counsel as to the matters set forth in Sections 7.1, 7.2 and 7.3 hereof and to such other matters reasonably required by Seller. 11.9Escrow Agreement. The Escrow Agreement shall have been duly executed by all parties thereto and the money, certificates and other documents described therein shall have been duly deposited as required therein. 11.10Ancillary Documents. All of the Ancillary Documents shall have been duly executed and delivered by the parties thereto. ARTICLE XII OBLIGATIONS AFTER THE CLOSING DATE 12.1Confidentiality. Seller hereby covenants and agrees that, except as may be required by law, rule or regulation or court order, unless this Agreement is terminated, it will not at any time reveal, divulge or make known to any Person (other than Purchaser or its agents or Affiliates) any information that relates to this Agreement, the transactions contemplated hereby or the Business (whether now possessed by Seller or furnished by Purchaser after the Closing Date), including, but not limited to, customer lists or other customer information, trade secrets or formulae, marketing plans or proposals, financial information or any data, written material, records or documents used by or relating to the Business that are of a confidential nature (collectively, the "Confidential Information"). 12.2Covenant Not to Interfere. Seller covenants and agrees that for a period of five years after the Closing Date, Seller will not solicit for employment by Seller or any Affiliate any Person tho is an employee of the Business as of the Closing Date. 12.3Noncompetition. For a period of three years following the Closing Date, Seller will not, directly or indirectly, unless acting in accordance with Purchaser's written consent, own, manage, operate, finance or participate in the ownership, management, operation or financing of or permit its name to be used by or in connection with any business or enterprise engaged in the providing or sale of the services and/or products provided or sold by the Seller in connection with the Business in the United States of America. Seller acknowledges that the provisions of this Section are reasonable and necessary to protect the interests of Purchaser, that any violation of this Section will result in an irreparable injury to Purchaser and that damages at law would not be reasonable or adequate compensation to Purchaser for violation of this Section and that in addition to any other available remedies, Purchaser shall be entitled to have the provisions of this Section specifically enforced by preliminary and permanent injunctive relief without the necessity of proving actual damages or posting a bond or other security and to an equitable accounting of all earnings, profits and other benefits arising out of any violation of this Section. In the event that the provisions of this Section shall ever be deemed to exceed the time, geographic, product or other limitations permitted by applicable law, then the provisions shall be deemed reformed to the maximum extent permitted by applicable law. 12.4Transition of Employees. From and after the Closing Date, Purchaser and Seller shall cooperate to ensure an orderly transition of the Employees who accept employment with Purchaser. 12.5Administrative Assistance by Seller. Except as otherwise agreed, without cost to Purchaser Seller shall provide such accounting, data processing and other support services to Purchaser as are reasonably required in connection with the transfer of the Business to Purchaser for a period of not more than sixty (60) days following the Closing Date and thereafter for an additional period of up to one hundred twenty (120) days at a reasonable cost to be negotiated. Seller shall cooperate with Purchaser's auditors in connection with the preparation of any report or filing required in connection with the transactions contemplated hereby, such cooperation to be provided by Seller at no cost to Purchaser. 12.6Further Assurances of Seller. From and after the Closing Date, Seller shall, at the request of Purchaser, execute, acknowledge and deliver to Purchaser, without further consideration, all such further assignments, conveyances, endorsements, deeds, special powers of attorney, consents and other documents,and take such other action, as Purchaser may reasonably request (i) to transfer to and vest in Purchaser, and protect is rights, title and interest in, all the Purchased Assets and (ii) otherwise to consummate the transactions contemplated by this Agreement. In addition, from and after the Closing Date, Seller shall afford Purchaser and its attorneys, accountants and other representatives access, during normal business hours, to any books and records relating to the Business that Seller may retain as may reasonably be required in connection with the preparation of financial information or tax returns of Purchaser. 12.7Further Assurances of Purchaser. For a period of seven (7) years from and after the Closing Date, Purchaser shall afford to Seller and its attorneys, accountants and other representatives access, during normal business hours, to such books and records relating to the Business as may reasonably be required in connection with the preparation of financial information for periods concluding on or prior to the Closing Date. Purchaser shall cooperate in all reasonable respects with Seller with respect to its former interest in the Business and in connection with financial account closing and reporting and claims and litigation asserted by or against third parties, including, but not limited to, making employees available at reasonable times to assist with, or provide information in connection with financial account closing and reporting and claims and litigation, provided, that Seller reimburses Purchaser for its reasonable out-of-pocket expenses (including costs of employees so assisting) in connection therewith. 12.8Retention of and Access to Records: Cooperation. For a period of not less than seven (7) years after the Closing Date, Purchaser shall preserve and retain the corporate, accounting, legal, auditing and other books and records of the Business (including but not limited to, any governmental or non-governmental actions, suits, proceedings or investigations arising out of the conduct of the business and operations of the Business prior to the Closing Date); provided, however, that such 7-year period shall be extended in the event that any action, suit, proceedings or investigation has been commenced or is pending or threatened at the termination of such 7-year period and such extension shall continue until any such action, suit, proceeding or investigation has been settled through judgement or otherwise or is no longer pending or threatened. Notwithstanding the foregoing, Purchaser may discard or destroy any of such books and records prior to the end of such 7-year period or period of extension, if applicable, if it has given Seller sixty (60) days' prior written notice of its intent to do so and Seller has not taken possession of such books and records, at its expense, within such 60-day period. Notwithstanding anything to the contrary in this Section 12.8, Seller shall retain all tax records of the Business prepared prior to the Closing Date. Purchaser shall provide reasonable access to Seller to review any records that Purchaser retains and to make copies thereof and shall cooperate fully with Seller (including, without limitation, making available employees to assist Seller at reasonable rates to be agreed by the Parties) in preparation and documentation of all necessary financial statements, tax returns and reports or the resolution of any tax audits, claims, litigation or disputes concerning Seller's tax liabilities or the Assumed Liabilities. 12.9Accounts Receivable Payment. In the event that either Party hereto at any time receives any funds from any third party that are properly payable to the other Party hereto, the Party receiving such funds shall promptly remit such funds to the Party entitled to such funds. 12.10Contingent Additional Consideration. 12.10.1 As contingent additional consideration for the Purchased Assets, for the Purchaser's fiscal year 2001 (April 1, 2000 through March 31, 2001), and during that time only, the Purchaser shall establish, and the Employees specifically named in Section 4.3 hereof (Donald Adams, Wayne McMahon and Carl Jacobson) shall have the right to participate in a sales and profit incentive plan in accordance with the following: (i)If, at the end of the Purchaser's fiscal year 2001, the Purchaser's gross sales, as determined in accordance with GAAP, equal Two Million ($2,000,000.00)Dollars, each such Employee will receive his proportionate share (Donald Adams: 40%, Wayne McMahon: 30%, Carl Jacobson: 30%) of the $100,000.00 sales incentive award described in the Memorandum of Understanding between the Parties first dated January 26, 2000 (the "MEMORANDUM OF UNDERSTANDING"), sixty (60%) percent of which shall be payable in cash and the remaining forty (40%) percent paid in EMCEE Restricted Stock, based on the fair market value thereof determined by calculating the average of the median price of such stock at the close of each of the five (5) trading days immediately preceding March 31, 2001. If the Purchaser's gross sales are less than Two Million ($2,000,000.00) Dollars but more than One Million ($1,000,000.00) Dollars during such time, the aforementioned sales incentive award shall be reduced prorata. Such Employees shall be entitled to no sales incentive award if the Purchaser's gross sales for fiscal year 2001 do not exceed One Million ($1,000,000.00) Dollars. If the Purchaser's gross sales in fy 2001 exceed Two Million ($2,000,000.00) Dollars, the aforementioned sales incentive award shall increase prorata (calculated based on a 50% increase in the sales incentive award per each $1,000,000.00 in gross sales which exceed the $2,000,000.00 fy 2001 target gross sales figure), provided that the Purchaser's pre-tax profit in fy 2001 (determined in accordance with (GAAP) equals or exceeds seven and one-half (7.5%) percent of gross sales. (ii)In addition to the foregoing, if, at the end of the Purchaser's fy 2001, the Purchaser's pre-tax profit, as determined in accordance with GAAP, equals or exceeds Two Hundred Thousand ($200,000.00) Dollars, each such Employee will receive his proportionate share (Donald Adams: 40%, Wayne McMahon: 30%, Carl Jacobson: 30%) of the $100,000.00 profit incentive award described in the Memorandum of Understanding, sixty (60%) percent of which shall be payable in cash and the remaining forty (40%) percent which shall be paid in EMCEE Restricted Stock, based on the fair market value thereof determined by calculating the average of the median price of such stock at the close of each of the five (5) trading days immediately preceding March 31, 2001. If the Purchaser's pre-tax profit in fy 2001 is less than Two Hundred Thousand ($200,000.00) Dollars but greater than Fifty Thousand ($50,000.00) Dollars, the aforementioned profit incentive award shall be reduced prorata. Such Employees shall be entitled to no profit incentive award if the Purchaser's pre-tax profit in fy 2001 is Fifty Thousand ($50,000.00) Dollars or less. 12.10.2 The Purchaser shall determine the amount, if any, of the sales incentive award and/or profit incentive award due the Employees named above in accordance with this Section 12.10. The Purchaser's determination of such amounts shall be deemed conclusive and correct for all purposes absent manifest error. 12.10.3 If an Employee's employment with the Purchaser shall end for any reason prior to March 31, 2001, he shall forfeit a portion of his proportionate share of any sales incentive or profit incentive award otherwise payable, which forfeited portion shall be determined by dividing the number of days of the Purchaser's fy 2001 during which the Employee was not employed by the Purchaser by 365, and then multiplying the quotient of that equation (expressed as a percentage) by the Employee's proportionate share of the award. Such forfeited portion shall be forfeited for all purposes and shall not be available or subject to distribution among any of the other Employees named above. 12.10.4 Sales and profit incentive plan award payments due hereunder, if any, will be made within one hundred twenty (120) days after the end of the Purchaser's fy 2001. ARTICLE XIII TERMINATION 13.1Termination of Agreement. This Agreement may be terminated: (i)by the mutual consent of Seller and Purchaser; (ii)by Seller or Purchaser if the Closing has not taken place on or before April 17, 2000; provided, however, that no Party then in breach of any of its obligations hereunder shall have the right to terminate; (iii)by Purchaser upon notice to Seller if any of the conditions set forth in Article X hereof have not been satisfied by on or before the Closing Date; and (iv)by Seller upon notice to Purchaser if any or the conditions set forth in Article XI hereof have not been satisfied by on or before the Closing Date. 13.2Return of Documents. If this Agreement is terminated for any reason pursuant to this Article XIII, each Party shall return to the other Party all documents and copies thereof which shall have been furnished to it by such other Party or, with the agreement of the other Party, shall destroy all such documents and copies thereof and certify in writing to the other Party any such destruction. The obligations of Purchaser under Section 9.1.1 hereof shall survive termination of this Agreement. 13.3Remedies. If this Agreement is terminated by Seller or Purchaser as permitted under Section 13.1 and not as a result of a breach of a representation or warranty or the failure of any Party to perform its obligations hereunder, such termination shall be without liability of any Party. If a Party terminates this Agreement as a result of a breach of a representation or warranty by the other Party or the failure of the other Party to perform its obligations hereunder, the non-breaching Party, in addition to any other legal remedies that may be available, shall be entitled to reimbursement from the breaching Party for all expenses incurred by the non-breaching Party in connection with this Agreement and the transactions contemplated hereby, including, without limitation, attorneys' fees and accountants' fees. ARTICLE XIV SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 14.1Survival of Representations and Warranties. All representations, warranties, covenants, agreements, undertakings, and indemnities set forth in this Agreement shall survive the Closing Date. Any Party's right to indemnification or other remedies based upon the representations and warranties, covenants, agreements and undertakings of the other Party will not be affected by any investigation, knowledge or waiver of any condition by such Party. Any investigation by such Party shall be for its own protection only and shall not affect or impair any right or remedy hereunder. 14.2Indemnification by Seller. "Seller General Liabilities" shall mean all Losses resulting from, arising out of, or incurred by Purchaser or any of its Affiliates, or any of their respective successors or assigns and their respective directors, officers and employees (each a "Purchaser Indemnified Party") after the Closing Date in connection with (i) any breach of any of the representations or warranties made by Seller in this Agreement, (ii) any default by Seller in respect of performance of any of the covenants or agreements of Seller in this Agreement or (iii) any attempt (whether or not successful) by any Person to cause or require Purchaser to pay any liability of, or claim against, Seller of any kind in respect of the operation of the Business prior to the Closing Date, to the extent not specifically assumed or subject to an indemnity by Purchaser under the terms of this Agreement. Subject to the further provisions of this Article XIV, Seller covenants and agrees with Purchaser that Seller shall pay and shall indemnify all Purchaser Indemnified Parties and hold them harmless from, against and in respect of, any and all Seller General Liabilities. 14.3Indemnification by Purchaser. "Purchaser General Liabilities" shall mean all Losses resulting from, arising out of, or incurred by any of Seller or its Affiliates, or any of their respective successors or assigns and their respective directors, officers and employees (each a "Seller Indemnified Party") after the Closing Date in connection with (i) any breach of any of the representations or warranties made by Purchaser in this Agreement, (ii) any default by Purchaser in respect of any of the covenants or agreements of Purchaser in this Agreement, (iii) any attempt (whether or not successful) by any Person to cause or require Seller to pay or discharge any Assumed Liability or any liability of, or claim against, Purchaser of any kind in respect of the operation of the Business on or after the Closing Date to the extent not specifically subject to an indemnity by Seller under the terms of this Agreement. Purchaser covenants and agrees with Seller that Purchaser shall pay and shall indemnify all Seller Indemnified Parties and hold them harmless from, against and in respect of, any and all Purchaser General Liabilities. 14.4Procedures for Indemnification. 14.4.1 Each Indemnified Party shall promptly give notice hereunder to the indemnifying Party after becoming aware of any claim as to which recovery may be sought against the indemnifying Party because of the indemnity in this Article XIV, and, if such indemnity shall arise from the claim of a third party, shall permit the indemnifying Party to assume the defense of any such claim and any litigation or other proceeding resulting from such claim; provided, that any Indemnified Party may, in any event, at its own expense, monitor and participate in, but not control, the defense of any such claim or litigation. Notwithstanding the foregoing, the right to indemnification hereunder shall not be affected by any failure of an Indemnified Party to give such notice (or by delay by an Indemnified Party in giving such notice) unless, and then only to the extent that, the rights and remedies of the indemnifying Party shall have been prejudiced as a result of the failure to give, or delay in giving, such notice. The notice required hereunder shall specify the basis for the claim for indemnification to the extent ascertainable at the time of the notice. Failure by an indemnifying Party to notify an Indemnified Party of its election to defend any such claim or action by a third party within thirty (30) days after notice thereof shall have been given to the indemnifying Party shall be deemed a waiver by the indemnifying Party of its right to defend such claim or action. Nothing herein shall be deemed to prevent an Indemnified Party from making a contingent claim for indemnification hereunder, provided the Indemnified Party has reasonable grounds to believe that the claim or demand for indemnification will be made and sets forth the estimated amount of such claim to the extent then ascertainable. 14.4.2 The indemnifying Party shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment (other than a judgment of dismissal on the merits without costs) or enter into any settlement, except with the written consent, which consent shall not be unreasonably withheld, of the Indemnified Party, which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnified Party a release from all liability in respect of such claim or litigation. 14.4.3 If the indemnifying Party shall not assume the defense of any such claim by a third party, or litigation resulting therefrom, after receipt of notice from the Indemnified Party, the Indemnified Party may defend against such claim or litigation in such manner as it deems appropriate. 14.4.4 If an indemnifying Party shall not, within thirty (30) days after its receipt of the notice required by Section 14.4.1 hereof, advise the Indemnified Party that the indemnifying Party denies the right of the Indemnified Party to indemnity in respect of the claim, then the amount of such claim shall be deemed to be finally determined between the Parties hereto. If the indemnifying Party shall notify the Indemnified Party that it disputes any claim made by the Indemnified Party, then the Parties hereto shall endeavor to settle and compromise such claim, and if unable to agree on any settlement or compromise, such claim for indemnification shall be settled by appropriate litigation, and any liability established by reason of such settlement, compromise or litigation shall be deemed to be finally determined. Any claim that is finally determined in the manner set forth above shall be paid promptly by the indemnifying Party in cash. 14.5Payment of Indemnification Obligations. Each Party shall pay promptly to any Indemnified Party the amount of all damages, losses, deficiencies, liabilities, costs, expenses, claims and other obligations to which the foregoing indemnity relates. 14.6Interest on Unpaid Obligations. If all or part of any indemnification obligation under this Agreement is not paid when due, the indemnifying Party shall pay the Indemnified Party interest on the unpaid amount of such obligation for each day from the date the amount became due until it is paid in full, payable on demand, at the rate equal to the lower of (i) the maximum rate permitted by law or (ii) five percent (5%) per annum plus the "Prime Rate" as announced from time to time by First Union Bank, N.A., (or in the absence of such announced "Prime Rate", the "Prime Rate" as published from time to time in The Wall Street Journal). 14.7Other Remedies. The indemnification rights of any Indemnified Party under this Article XIV are independent of and in addition to such rights and remedies as such Indemnified Party may have at law, in equity or otherwise for any misrepresentation, breach of warranty or failure to fulfill any covenant or agreement under or in connection with this Agreement on the part of any Party, none of which rights or remedies shall be affected or diminished hereby. ARTICLE XV GENERAL 15.1Expenses. Except as otherwise provided in this Agreement, and whether or not the transactions herein contemplated shall be consummated, Purchaser and Seller shall pay their own fees, expenses and disbursements, including the fees and expenses of their respective counsel, accountants and other experts, in connection with the subject matter of this Agreement and all other costs and expenses incurred in performing and complying with all conditions to be performed under this Agreement. 15.2Publicity. All notices to third parties and all other publicity concerning the transactions contemplated by this Agreement shall be jointly planned and coordinated by and between Purchaser and Seller, except any such notices which Purchaser is required to give under any of the rules or regulations of the Securities and Exchange Commission. Except as may be required by law, no Party shall act unilaterally in this regard without the prior written approval of the other Party, such approval not to be unreasonably withheld. 15.3Waivers. The waiver by either Party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 15.4Binding Effect; Benefits. This Agreement shall inure to the benefit of the Parties hereto, and shall be binding upon the Parties hereto and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the Parties hereto, or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 15.5Bulk Transfers Laws. Seller hereby covenants and agrees to comply with any and all laws relating to bulk transfers with respect to the transactions contemplated hereby, and Purchaser will, upon request, provide Seller with its reasonable cooperation in connection therewith. 15.6Notices. All notices, requests, demands, elections and other communications which either Party to this Agreement may desire or be required to give hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, by a reputable commercial courier service (such as FedEx or U.P.S.), by mailing the same by registered or certified first class mail, postage prepaid, return receipt requested, or by telecopying with receipt confirmation (followed by a first class mailing of the same) to the Party to whom the same is so given or made. Such notice, request, demand, waiver, election or other communication will be deemed to have been given as of the date so delivered or electronically transmitted or seven (7) days after mailing thereof. 15.6.1 If to Seller, to: Advanced Broadcast Systems, Inc. 5825 Bullitsville Road Burlington, KY 41005 With a copy to: George G. Gardner, Esquire 7415 Burlington Pike, Suite B Florence, KY 41042 15.6.2 If to Purchaser, to: EMCEE Holding Corp. c/o EMCEE Broadcast Products, Inc. P.O. Box 68 White Haven, PA 18661-0068 With a copy to: Robert S. Sensky, Esquire and Martin D. Cohn, Esquire LAPUTKA, BAYLESS, ECKER & COHN, P.C. 2 East Broad Street, 6th Floor Hazleton, PA 18201 or to such other address as such Party shall have specified by notice to the other Party hereto. 15.7Entire Agreement. This Agreement (including the Exhibits and Schedules hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding between the Parties hereto as to the matters set forth herein and supersede and revoke all prior agreements and understandings, oral and written, between the Parties hereto or otherwise with respect to the subject matter hereof. No change, amendment, termination or attempted waiver of any of the provisions hereof shall be binding upon any Party unless set forth in an instrument in writing signed by the Party to be bound or their respective successors in interest. 15.8Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument. 15.9Headings. The article, section and other headings contained in this Agreement are for reference purposes only and shall not be deemed to be a part of this Agreement or to affect the meaning or interpretation of this Agreement. 15.10Construction. Within this Agreement, the singular shall include the plural and the plural shall include the singular, and any gender shall include all other genders, all as the meaning and the context of this Agreement shall require. 15.11Governing Law and Choice of Forum. The validity and interpretation of this Agreement shall be construed in accordance with, and governed by the internal laws of the Commonwealth of Pennsylvania. All claims, disputes or causes of action relating to or arising out of this Agreement shall be brought, heard and resolved solely and exclusively by and in a federal or state court situated in Luzerne County, Pennsylvania. Each of the parties hereto agrees to submit to the jurisdiction of such courts and that such jurisdiction shall be proper for all purposes of this Agreement. 15.12Cooperation. The Parties hereto shall cooperate fully at their own expense, except as otherwise provided in this Agreement, with each other and their respective counsel and accountants in connection with all steps to be taken as part of their obligations under this Agreement. 15.13Severability. If any term, covenant, condition or provision of this Agreement or the application thereof to any circumstance shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this Agreement shall not be affected thereby and each remaining term, covenant, condition and provision of this Agreement shall be valid and shall be enforceable to the fullest extent permitted by law. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only as broad as is enforceable. 15.14Attorneys Fees. If a dispute arises among the Parties as a result of which an action is commenced to interpret or enforce any of the terms of this Agreement, the losing Party shall pay to the prevailing Party reasonable out-of-pocket attorneys' fees, costs and expenses incurred in connection with the prosecution or defense of such action. 15.15Successors and Assigns. The covenants, agreements and conditions contained herein or granted hereby shall be binding upon and shall inure to the benefit of Purchaser and Seller, and each of their respective successors and permitted assigns. Neither Seller nor Purchaser shall assign, or otherwise transfer any interest in this Agreement to any other Person except for a Person which is an Affiliate of Purchaser or a purchaser of the Purchased Assets from Purchaser. IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed in their respective names by an officer thereof duly authorized as of the date first above written. ATTEST: EMCEE HOLDING CORP. /s/ Robert S. Sensky BY: /s/ Allan J. Harding Corporate Secretary NAME: Allan J. Harding (SEAL) TITLE: President ATTEST: ADVANCED BROADCAST SYSTEMS, INC. /s/ Hilda A. Adams BY: /s/Donald Adams Corporate Secretary NAME: Donald Adams (SEAL) TITLE: President ENDORSEMENT THE UNDERSIGNED, for value received, and intending to be legally bound hereby, unconditionally and irrevocably guarantee and agree, jointly and severally, to act as surety for the performance by Advanced Broadcast Systems, Inc. ("ABS") of all of its covenants, agreements, undertakings, obligations to satisfy conditions, and indemnities set forth in an Asset Purchase Agreement of even date herewith (the "Asset Purchase Agreement") between ABS and EMCEE Holding Corp. ("EMCEE"). Any claim, suit, action, proceeding, right or remedy founded upon or made under or with respect to this instrument may be pursued against any or all of the undersigned without EMCEE having previously pursued or exhausted any or all of its claims, suits, actions, proceedings, rights or remedies against ABS or any other person, and any extension by EMCEE of the time for payment or performance of any obligation or liability of ABS hereby guaranteed by the undersigned shall not release the undersigned from his guaranty thereof, nor shall it impair any claim, suit, action, proceeding, right or remedy for the enforcement thereof by EMCEE, its successors and assigns. The monetary liability of the undersigned under this instrument is unlimited. This instrument shall remain in full force and effect for a period of five years from the date hereof. After such 5-year period, this instrument shall automatically expire; provided, however, that such expiration shall not release or discharge the undersigned from any liability or otherwise limit or alter the undersigned's liability with respect to any claim arising or made by EMCEE hereunder prior to such expiration. IN WITNESS WHEREOF, this instrument, which is intended by the undersigned to be a contract of suretyship and which shall continue in full force and effect until revoked by EMCEE in writing, has been duly executed and delivered on this 17th day of April, 2000. WITNESS: DONALD ADAMS _________________________ /s/ Donald Adams WITNESS: HILDA ADAMS _________________________ /s/ Hilda Adams WITNESS: WAYNE MCMAHON _________________________ /s/ Wayne McMahon WITNESS: CARL JACOBSON _________________________ /s Carl Jacobson EXHIBITS AND SCHEDULES NOT INCLUDED BUT AVAILABLE UPON REQUEST EX-10 3 0003.txt R.F. INTERNET SYSTEMS, INC. Susquehanna Street Extension White Haven, PA 18661 (570) 443-9575 Fax: (570) 443-9237 WINBEAM INCORPORATED SUBSCRIPTION AGREEMENT The undersigned, R.F. Internet Systems, Inc. an affiliate of EMCEE Broadcast Products, Inc. does hereby subscribe for and agree to take a total of Fifty Thousand (50,000) shares of the common stock of WinBeam Incorporated, a Pennsylvania corporation in consideration of Five Dollars ($5.00) per share, the total purchase price of such stock being $250,000, payment of which shall be made in good and certified funds. Dated as of March 24, 2000 /s/ Allan J. Harding Allan J. Harding Vice President The foregoing subscription is acceptance as ofthe 31st day of March , 2000, on behalf of WinBeam, Incorporated /s/ Terrance B. Michael Terrance B. Michael President EX-21 4 0004.txt EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES SUBSIDIARIES OF EMCEE BROADCAST PRODUCTS, INC. The following constitute all of the Registrant's subsidiary corporations: 1. EMCEE Cellular Inc., a Delaware corporation; 2. EMCEE Export Sales Company, Inc., a Delaware corporation (this corporation is a wholly owned subsidiary of EMCEE Cellular Inc.); 3.R.F. Systems, Inc., a Delaware corporation (this corporation is a wholly owned subsidiary of EMCEE Cellular Inc.); 4.R.F. Internet Systems, Inc., a Nevada corporation (this corporation is a wholly owned subsidiary of EMCEE Cellular Inc.); 5.Universal Rapid Access, LLC (this limited liability company is a partially owned subsidiary of R.F. Internet Systems, Inc., which owns 16.14% of the outstanding equity of the limited liability company); 6. EMCEE Broadcast Products (Chengdu) Company, Ltd. (the Registrant owns 25% of the issued and outstanding capital stock of this corporation); 7. Grand Forks Wireless, L.L.C. (this limited liability company is a partially owned subsidiary of R.F. Internet Systems, Inc., which owns 50% of the outstanding equity of the limited liability company); and 8. Advanced Broadcast Systems, Inc., a Delaware corporation (this corporation is a wholly owned subsidiary of EMCEE Cellular Inc.). EX-27 5 0005.txt
5 0000032312 EMCEE BROADCAST PRODUCTS, INC. 12-MOS MAR-31-2000 MAR-31-2000 261,304 1,773,600 1,522,279 70,000 3,080,313 7,269,609 2,789,358 2,249,467 9,101,948 1,191,070 0 73,450 0 0 7,241,074 9,101,948 4,738,493 4,738,493 3,738,735 6,141,109 (48,419) 41,901 57,724 (1,300,873) (474,000) (826,873) 0 0 0 (826,873) (.21) (.21)
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