ASSET PURCHASE AGREEMENT
AMONG
HOOK & ASSOCIATES ENGINEERING, INC.,
THE IDENTIFIED SHAREHOLDERS,
HEA ACQUISITION, INC.
AND
THE KEITH COMPANIES, INC.
January 31, 2001
TABLE OF CONTENTS
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Page
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ARTICLE 1 PURCHASE AND SALE OF ASSETS 1
1.1 Assets to be Transferred......................................................................................... 1
1.2 Excluded Assets.................................................................................................. 2
ARTICLE 2 LIABILITIES...................................................................................................... 3
2.1 Excluded Liabilities............................................................................................. 3
2.2 Assumed Liabilities.............................................................................................. 5
2.3 No Assignment Causing Breach..................................................................................... 6
ARTICLE 3 PURCHASE PRICE................................................................................................... 6
3.1 Purchase Price................................................................................................... 6
3.2 Stock Payment; Adjusted Payment.................................................................................. 7
3.3 Promissory Note; Adjusted Payment................................................................................ 8
3.4 Book Value Adjustment............................................................................................ 8
3.5 Purchase Price Adjustment........................................................................................ 9
3.6 Payment of Purchase Price........................................................................................ 9
3.7 Allocation of Purchase Price..................................................................................... 10
3.8 Cash Balance Adjustment.......................................................................................... 10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS.................................................... 11
4.1 Corporate........................................................................................................ 11
4.2 Authorization; Validity.......................................................................................... 12
4.3 No Violation..................................................................................................... 12
4.4 Financial Statements............................................................................................. 13
4.5 Tax Matters...................................................................................................... 13
4.6 Accounts Receivable and Costs in Excess of Billings.............................................................. 13
4.7 Work-in-Process.................................................................................................. 14
4.8 Absence of Certain Changes....................................................................................... 15
4.9 Absence of Undisclosed Liabilities............................................................................... 16
4.10 No Litigation.................................................................................................... 16
4.11 Compliance With Laws............................................................................................. 16
4.12 Title to and Condition of Properties............................................................................. 17
4.13 Insurance........................................................................................................ 18
4.14 Contracts and Commitments........................................................................................ 19
4.15 Labor Matters.................................................................................................... 21
4.16 Employee Benefit Plans........................................................................................... 21
4.17 Employment Compensation.......................................................................................... 25
4.18 Trade Rights..................................................................................................... 25
4.19 Major Customers and Suppliers.................................................................................... 25
4.20 Warranty and Product Liability................................................................................... 26
4.21 Bank Accounts.................................................................................................... 26
4.22 Affiliates, Relationships to Seller.............................................................................. 26
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4.23 No Brokers or Finders............................................................................................. 26
4.24 Disclosure........................................................................................................ 27
4.25 Investment Representation......................................................................................... 27
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER....................................................................... 27
5.1 Corporate......................................................................................................... 27
5.2 Authority......................................................................................................... 27
5.3 Consents, Approvals and Authorizations............................................................................ 27
5.4 No Brokers or Finders............................................................................................. 27
5.5 No Violation...................................................................................................... 27
ARTICLE 6 COVENANTS OF SELLER AND THE SHAREHOLDERS.......................................................................... 28
6.1 Access to Information and Records................................................................................. 28
6.2 Conduct of Business Pending the Closing........................................................................... 28
6.3 No Negotiations................................................................................................... 30
6.4 Consents.......................................................................................................... 30
6.5 Other Action...................................................................................................... 31
6.6 Disclosure Schedule............................................................................................... 31
6.7 Confidentiality................................................................................................... 31
6.8 Insurance......................................................................................................... 32
6.9 Use of Seller's Names............................................................................................. 33
6.10 Sales Tax......................................................................................................... 33
6.11 Employee Matters.................................................................................................. 33
6.12 Unemployment Compensation......................................................................................... 34
6.13 Expenses.......................................................................................................... 34
6.14 Noncompetition Agreements......................................................................................... 34
ARTICLE 7 COVENANTS OF PURCHASER............................................................................................ 34
7.1 Conditions........................................................................................................ 34
7.2 Employees......................................................................................................... 34
7.3 Reservation of Stock Options...................................................................................... 34
ARTICLE 8 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS................................................................... 34
8.1 Representations and Warranties True as of the Closing Date........................................................ 35
8.2 Compliance With Agreement......................................................................................... 35
8.3 Absence of Suit................................................................................................... 35
8.4 Consents and Approvals............................................................................................ 35
8.5 Lease............................................................................................................. 35
8.6 Insurance......................................................................................................... 35
8.7 Satisfactory Due Diligence and Disclosure......................................................................... 35
8.8 Satisfactory Evidence of Authority to Execute..................................................................... 35
8.9 Insurance......................................................................................................... 35
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE SHAREHOLDERS................................................ 36
9.1 Representations and Warranties True on the Closing Date........................................................... 36
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9.2 Compliance With Agreement........................................................................................ 36
9.3 Absence of Suit.................................................................................................. 36
9.4 Leases........................................................................................................... 36
9.5 TKC Guaranty. Purchaser, TKC and Seller shall have agreed upon the
form of the TKC Guaranty in the form of Exhibit 12.3(a)-2 attached hereto........................................ 36
ARTICLE 10 EFFECT OF DELIVERABLES........................................................................................... 36
10.1 Integration...................................................................................................... 36
ARTICLE 11 INDEMNIFICATION.................................................................................................. 36
11.1 By Seller and the Shareholders................................................................................... 36
11.2 By Purchaser..................................................................................................... 37
11.3 Indemnification of Third-Party Claims............................................................................ 37
11.4 Payment.......................................................................................................... 38
11.5 Limitations on Indemnification................................................................................... 38
11.6 No Waiver........................................................................................................ 39
ARTICLE 12 CLOSING.......................................................................................................... 39
12.1 Closing.......................................................................................................... 39
12.2 Documents to be Delivered by Seller.............................................................................. 39
12.3 Cash and Documents to be Delivered by Purchaser.................................................................. 40
ARTICLE 13 TERMINATION...................................................................................................... 41
13.1 Termination...................................................................................................... 41
13.2 Effect of Termination............................................................................................ 41
ARTICLE 14 MISCELLANEOUS.................................................................................................... 42
14.1 Further Assurance................................................................................................ 42
14.2 Parties in Interest.............................................................................................. 42
14.3 Law Governing Agreement; Venue; Arbitration...................................................................... 42
14.4 Notice........................................................................................................... 42
14.5 Amendment and Modification....................................................................................... 43
14.6 Disclosures and Announcements.................................................................................... 43
14.7 Expenses......................................................................................................... 44
14.8 Entire Agreement................................................................................................. 44
14.9 Counterparts..................................................................................................... 44
14.10 Headings......................................................................................................... 44
14.11 Further Documents................................................................................................ 44
14.12 Severability..................................................................................................... 44
14.13 No Third Party Beneficiaries..................................................................................... 45
14.14 Cumulative Effect of Representations............................................................................. 45
14.15 Risk of Loss..................................................................................................... 45
14.16 Private Offering................................................................................................. 45
14.17 Form 8-K and Securities Law Filings.............................................................................. 45
14.19 Legend........................................................................................................... 45
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
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This ASSET PURCHASE AGREEMENT ("Agreement") dated as of January 31,
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2001, by and among HEA ACQUISITION, INC., a California corporation ("Purchaser")
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and a wholly owned subsidiary of THE KEITH COMPANIES, INC., a California
corporation ("TKC"), TKC and HOOK & ASSOCIATES ENGINEERING, INC. an Arizona
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corporation ("Seller"), and the shareholders identified on the signature page
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below (collectively, the "Shareholders").
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Seller is in the business of providing engineering, surveying, mapping
and consulting services (the "Business") from its facilities located at 3221 N.
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24/th/ Street, Phoenix, Arizona 85016, 14406 E. Evans Avenue, Aurora, Colorado
80014, and 5801 Osage Avenue, Cheyenne, Wyoming 82009 (collectively, the
"Facilities").
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Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, the Business and substantially all the assets of Seller upon the
terms and subject to the conditions set forth herein. Shareholders own a
significant equity interest in Seller. Accordingly, Seller, Shareholders, TKC
and Purchaser hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
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1.1 Assets to be Transferred. Except as hereinafter provided, on the
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Closing Date (as hereinafter defined), Seller will sell, transfer and deliver to
Purchaser, and Purchaser will purchase and accept from Seller, all the Seller's
right, title and interest in and to the properties, assets and rights of every
kind and description whatsoever, whether personal, tangible, intangible or
mixed, whether accrued, contingent or otherwise useful for or otherwise used in
connection with the Business (other than the Excluded Assets (as defined
below)), including all assets and rights that may have been acquired by Seller
for use in the Business between the date hereof and the Closing Date, and
including those assets useful for or otherwise used by the Business that are
owned or in the possession of some person other than Seller (collectively, the
"Purchased Assets"). The Purchased Assets include, without limitation, all of
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those items in the following categories useful in the Business, but shall not
include the Excluded Assets:
(a) all equity interests and investments relating solely to
those in subsidiary companies, inventories, accounts and notes
receivable, costs in excess of billings, deferred charges (excluding
prepaid income taxes, if any), deposits, advance payments and prepaid
items, including without limitation, those listed on Exhibit 1.1(a)
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attached hereto;
(b) all tangible property, real and personal, equipment and
leasehold improvements owned or leased by Seller, which are used or
intended for use in connection with the Business, including that
listed on Exhibit 1.1(b) attached hereto;
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(c) all contracts, including purchase orders and sales
contracts, and all backlog and work in progress, leases and agreements
listed on Exhibit 1.1(c) attached hereto;
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(d) all licenses, easements, rights of entry and similar rights
of Seller, including those listed on Exhibit 1.1(d) attached hereto;
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(e) all patents, trademarks, trade names, inventions,
copyrights, trade secrets and other proprietary rights and items of
intellectual property of Seller relating to the Business or operations
and all pending applications therefor, including those listed Exhibit
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1.1(e) attached hereto;
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(f) all United States, state and foreign trademark rights,
trademark registrations and applications, trade names, service marks
and brand names, including all claims for infringement, and all
registrations therefor and all goodwill associated with the foregoing
accruing from the dates of first use thereof, of Seller; all United
States and foreign copyrights, copyright registrations and copyright
applications, including all claims for infringement, and all other
rights associated with the foregoing and the underlying works of
authorship, of Seller; all United States and foreign patents and
patent applications, including all claims for infringement and all
international proprietary rights associated therewith, of Seller; all
contracts or agreements granting Seller any right, title, license or
privilege under the intellectual property rights or any third party;
all inventions, mask work and mark work registrations, know-how and
related show-how discoveries, improvements, blueprints,
specifications, drawings, designs, trade secrets, shop and royalty
rights, processes, employee covenants and agreements respecting
intellectual property and noncompetition and all other types of
intellectual property of Seller; all rights and interest of Seller in
the names "Hook," "Hook Associates," "Hook & Associates Engineering,"
"Hook Engineering" and such other names as used in connection with the
Business, and any names and logos associated with any such names;
(g) all known and unknown, liquidated or unliquidated,
contingent or fixed, claims, rights or causes of action which Seller
has or may have against any third party and all such rights which
Seller has or may have in or to any asset or property other than such
claims, rights or causes of action to the extent that they arise out
of or directly relate to any asset not purchased by, or any liability,
obligation or claim specifically not assumed by Purchaser pursuant to
this Agreement;
(h) all governmental and business permits, licenses,
authorizations and manufacturing association certifications owned or
held by Seller, including those set forth in Exhibit 1.1(h) attached
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hereto; and
(i) Originals or copies of all books and records (other than
personnel records and other than those referred to in Section 1.2(b))
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and all files, including without limitation, documents, papers,
agreements, drawings, designs, plans, methods, engineering and
manufacturing specifications, formulas, procedures, computer programs
and customer lists which are useful in the Business, but excluding
those related exclusively to the Excluded Assets.
1.2 Excluded Assets. The following shall be retained by Seller and
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excluded from the Purchased Assets (the "Excluded Assets"):
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(a) Consideration and Cash. The consideration delivered by
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Purchaser to Seller pursuant to this Agreement and all cash, cash
deposits, bank balances, certificates of deposit and U.S. Government
and marketable securities (except any securities representing
ownership of Seller's subsidiaries);
(b) Corporate Franchise. Seller's franchise to be a corporation
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(except its continued use of the names described in Section 1.1(f)
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above), its articles of incorporation, corporate seal, stock books,
minutes books and other corporate records having exclusively to do
with the corporate organization and capitalization of Seller;
(c) Tax Matters. All claims or rights of Seller to receive funds
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or credits with respect to federal, state, local and foreign franchise
taxes and taxes based on income for the current or prior years which
were or were not treated as assets on the balance sheet included in
the Recent GAAP Financial Statements and any prepaid taxes and/or
deferred income tax assets;
(d) Agreement. Rights and/or claims of Seller arising out of
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this Agreement and any other agreement with Purchaser;
(e) Other Rights. All contracts, leases, prepaid insurance and
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agreements listed on Exhibit 1.2(e) attached hereto; and
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(f) Vehicles. All vehicles, aircraft and watercraft used
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substantially for personal use by any of Seller's employees or any
Shareholder.
(g) Legal Action. All rights and recovery concerning that
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certain sublease by and between Seller and NRT Colorado, Inc, a
Colorado corporation, as sublessor, dated October 15, 1999, concerning
the premises located at 7730 East Belleview Avenue, Building A, Suite
A-100, Englewood, Colorado 80111.
ARTICLE 2
LIABILITIES
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2.1 Excluded Liabilities. Except as set forth in Section 2.2,
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Purchaser does not assume, agree to perform or discharge or otherwise have any
liability or obligation with respect to any liability, debt, contract or
obligation of Seller or any liability, debt, contract or obligation which is or
was directly or indirectly associated with or related to the Business, the
Purchased Assets or otherwise. Seller shall remain solely responsible for
satisfying, discharging or performing all of its liabilities, debts, contracts
and obligations on a timely basis in accordance with their respective terms (the
liabilities, debts, contracts and obligations of Seller other than those
described in Section 2.2 are hereinafter referred to as the "Excluded
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Liabilities"). Without limitation, the Excluded Liabilities include liabilities
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and obligations of Seller, described as follows:
(a) Any liabilities, debts, contracts or obligations the
existence of which constitutes a breach of its representations,
warranties or covenants contained in this Agreement;
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(b) Personal injury, property damage or workers' compensation
claims, and labor disputes or labor-related claims of any description
whatsoever including, but not limited to claims based upon allegations
of discrimination or sexual harassment;
(c) Liability or obligations for claims made for injury to
person or damage to property, whether made in product liability, tort,
breach of warranty or otherwise, arising out of or in any way relating
to or resulting from any services provided by it prior to the Closing
Date;
(d) Any taxes (including without limitation current and deferred
income, franchise, sales, use, real property, personal property,
stamp, lease, excise, transfer, fuel, occupation, unemployment,
withholding, payroll and social security), charges, levies or other
assessments (including any interest or penalties with respect thereto)
imposed by any federal, foreign, state or local authority whatsoever
("Taxes"), except to the extent provided in Section 2.2(a) and (b);
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(e) Liabilities or obligations to its employees, former
employees, former directors, or former shareholders (i) arising out of
or with respect to the discharge or termination of any employee or
former employee prior to or by reason of the transactions contemplated
hereby; (ii) arising under any collective bargaining or other labor or
union agreements or contracts; (iii) accrued vacation and sick
leave/credit and other benefits under Employee Benefit Plans (as
defined in Section 4.16); (iv) under any consulting contracts,
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employment contracts or other contracts for personal services; (v) for
salaries, wages or other compensation payable with respect to services
rendered prior to the Closing; or (vi) for benefits or the
continuation of benefits of any kind whatsoever in any capacity
whatsoever;
(f) Any sales, use, income or franchise taxes applicable to,
imposed upon or arising out of the transfer of the Purchased Assets to
Purchaser contemplated by this Agreement;
(g) Liability arising out of any violation of any applicable
United States, foreign, state, county, local or other governmental
laws, decrees, ordinances or regulations, including without limitation
any Environmental Laws (as defined in Section 4.11) and any such laws
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concerning political contributions;
(h) Liability, whether fixed or contingent, known or unknown,
relating to (i) the generation, storage, disposal or release of any
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substance or material or petroleum or petroleum-based substance or
material, whether or not from operations through the Closing Date, and
whether or not such release or disposal was to the atmosphere, was to
water or occurred on land and whether or not such generation, storage,
disposal or release was on or off its owned or leased property; (ii)
the migration of any such generated, storage, disposed of or released
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or materials or wastes or any petroleum or petroleum-based
substances or materials which were generated, storage, disposed of or
released prior to the Closing
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Date, whether such migration is through air, water, groundwater or
soil; and (iii) any federal, state or local common law nuisance
condition on its owned or leased property;
(i) Liability or obligation with respect to any pending suits,
actions, claims or proceedings, whether or not described in the
Disclosure Schedule;
(j) Liability to a third party under the third party's
intellectual property or other proprietary rights, including without
limitation claims arising out of the use of software in violation of
applicable licenses (or the absence of any such license that may be
required for the use of such software), the manufacture, use or sale
of goods or apparatus, the performance of services, or the copying,
modifying, distributing, performing or displaying of any work or mask
work, except pursuant to Section 2.2(b);
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(k) Liabilities or obligations for any breach or failure to
perform any of its covenants, obligations and agreements contained in,
or made pursuant to, (i) this Agreement or (ii) where such contract is
not assumed hereunder, any breach of such contract at any time, or
(iii) where the breach has occurred on or prior to the Closing Date,
any other contract, whether or not assumed hereunder;
(l) Liabilities and obligations under any guarantee of any other
person's payment or performance obligations to any person or under any
indemnity or similar agreement;
(m) Liabilities and obligations for the payment of retroactive
rate or premium adjustments, loss sharing arrangements or other actual
or contingent liability under insurance policies, funds or indemnity
pools of which Seller is the owner, insured or beneficiary, or
covering any of the property of Seller and any premium obligations
with respect to any insurance policies of Seller;
(n) Except as provided in Section 2.2(b) below, liabilities or
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indebtedness to banks or other lenders; and
(o) Liabilities concerning (i) the acquisition of Seller from
John Hook in 1996, previous and subsequent agreements related thereto,
(ii) any other liabilities concerning any other previous acquisitions
by Seller of assets or equity, unless specifically identified on
Schedule 2.1(o) attached hereto, and (iii) that certain sublease by
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and between Seller and NRT Colorado, Inc, a Colorado corporation, as
sublessor, dated October 15, 1999, concerning the premises located at
7730 East Belleview Avenue, Building A, Suite A-100, Englewood,
Colorado 80111.
2.2 Assumed Liabilities. At the Closing, and without limiting
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Purchaser's right to indemnity under Article 11, Purchaser shall assume only the
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following specific liabilities and obligations of Seller to the extent they are
unpaid, undelivered or unperformed on the Closing Date (collectively, the
"Assumed Liabilities"):
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(a) The following liabilities of Seller of the nature reflected
or reserved against on the Recent GAAP Financial Statements (as
defined in Section 4.4), but not in excess of (i) the amount of such
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liabilities set forth on the Recent GAAP Financial
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Statements, (ii) as reduced by liabilities paid or discharged after
the date of the Recent Balance Sheet (as defined in Section 4.4), and
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(iii) as increased by liabilities incurred after the date of the
Recent Balance Sheet in the ordinary course of business and in
compliance with the representations, warranties and covenants
contained in this Agreement: (A) trade accounts payable; and (B)
accrued expenses, real estate taxes, personal property taxes, sales
(except sales or use taxes concerning the sale of the Purchased Assets
to the Purchaser) and excise taxes, and other appropriate expenses. Up
to Ten Thousand Dollars ($10,000) of prepayment fees concerning
Seller's termination of its 401(k) annuity as reserved against on the
Closing Balance Sheet (as defined in Section 3.4(a)).
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(b) Seller's obligations to perform after the Closing under the
following contracts, contractual rights, purchase orders, sales
orders, leases and promissory notes payable ("Contracts"): (i) every
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Contract of Seller specifically disclosed or specifically described in
Exhibit 1.1(c) or the Disclosure Schedule pursuant to Section 4.14(a)-
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(e) and (h); (ii) every Contract entered into by Seller after the date
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hereof with the prior written consent of Purchaser specifically naming
such Contract; and (iii) every other Contract to which Seller is a
party that (A) was entered into in the ordinary course of business,
(B) is specifically excepted from disclosure in the Disclosure
Schedule by this Agreement because its dollar amount and duration do
not meet stated thresholds for disclosure, and (C) does not violate
any other representation or warranty herein. Contracts described in
subsections (i), (ii) and (iii) above are hereinafter collectively
described as the "Assumed Contracts."
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2.3 No Assignment Causing Breach. The consummation of the
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transactions contemplated by this Agreement shall not constitute an assignment
of any lease, contract, agreement or license or any claim or right or any
benefit arising thereunder or resulting therefrom if an attempted assignment
thereof without the consent of any party thereto (other than Seller or the
Shareholders) would constitute a breach thereof or in any way adversely affect
the rights to be assigned. Until such consent is obtained, or if an attempted
assignment thereof would be ineffective or would affect the rights of Seller, as
the case may be, thereunder, so that Purchaser would not in fact receive all
such rights, Seller and Purchaser will cooperate with each other to provide for
Purchaser the benefits of, and (so long as Purchaser receives such benefits) to
permit Purchaser to assume all liabilities under, any such claim, contract,
license, lease, commitment, sales order or purchase order, including enforcement
at the request of Purchaser, and for the benefit of Purchaser, of any and all
rights of Seller, against a third party thereto arising out of the breach or
cancellation thereof by such third party or otherwise; and, any transfer or
assignment to Purchaser by Seller, of any property or property rights or any
lease, license, contract or agreement which shall require the consent or
approval of any third party shall be subject to such consent or approval being
obtained.
ARTICLE 3
PURCHASE PRICE
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3.1 Purchase Price. The aggregate purchase price for the Purchased
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Assets of Seller (the "Purchase Price") shall be the sum of the following:
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(a) One Million Five Hundred Thirty Thousand Dollars
($1,530,000) (the "Seller Cash Amount"),
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(b) One Million Two Hundred Thousand Dollars ($1,200,000) Stock
Payment contingent up on the circumstances and subject to the
adjustments provided in Section 3.2 hereof,
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(c) a Subordinated Promissory Note in the original principal
amount of One Million Three Hundred Thousand Dollars ($1,300,000), the
payment of which is contingent upon, and subject to adjustment, as
provided in Section 3.3 below (the "Purchase Note"), and
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(d) the assumption of the Assumed Liabilities of Seller.
In addition to the Purchase Price adjustments set forth in this
Agreement, the Purchase Price shall be adjusted by (i) the Book Value
Adjustment (defined below) as described in Section 3.4 below, (ii) the
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purchase price adjustment payment described in Section 3.5, and (iii)
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the Cash Balance Adjustment described in Section 3.8.
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3.2 Stock Payment; Adjusted Payment. As specified below, TKC shall
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transfer to Seller that number of shares (rounded to the nearest whole share) of
TKC's unregistered common stock (the "Stock Payment") equal to $1,200,000. The
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Stock Payment shall be paid in two installments: one of $500,000 of TKC Common
Stock ("Installment A") and the other of $700,000 of TKC Common Stock
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("Installment B"). Should the Stock Payment amount be subject to modification
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due to (i) uncollected Closing Receivables in accordance with Section 4.6,
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and/or (ii) uncollected "Costs In Excess of Billings" in accordance with Section
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4.6 (collectively, (i) and (ii), a "Reduction") such Reduction shall be
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allocated to Installment B ("Adjusted Installment B"). The number of shares of
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TKC Common Stock issued pursuant to Installment A shall be equal to the amount
of Installment A divided by the average closing ask price of TKC's Common Stock
on the NASDAQ National Market during the 10 consecutive trading days ending on
the 5/th/ trading day after the Closing Date. Within fifteen (15) business days
after the Closing Date, TKC shall issue a letter to its transfer agent
instructing them to issue the appropriate number of shares to shareholders
pursuant to Installment A. For the purposes of issuing shares of TKC Common
Stock pursuant to Installment B, the number of shares of TKC Common Stock shall
be equal to the amount of Installment B or, if applicable, Adjusted Installment
B, divided by the average closing ask price of TKC's Common Stock on the NASDAQ
National Market during the 10 consecutive trading days ending on and including
March 8, 2002 ("Average Installment B Price"). Within ten (10) business days of
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the date TKC's Form 10-K for the year ending December 31, 2001 is due to be
filed with the United States Securities & Exchange Commission, TKC shall issue a
letter to its transfer agent instructing them to issue the appropriate number of
shares to shareholders pursuant to Installment B or, if applicable, Adjusted
Installment B. The TKC Common Stock issued pursuant to Installment B will have
a $10 per share value. If, the Average Installment B Price is less than $10 per
share, TKC shall issue to Seller such number of shares of TKC Common Stock such
that the aggregate value of all shares of TKC Common Stock issued to Seller
pursuant to Installment B is equal to Installment B or, if applicable, Adjusted
Installment B, and if the TKC Common Stock has a value of greater than $10 per
share, TKC shall issue to Seller such number
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of shares of TKC Common Stock such that the aggregate value of all shares of TKC
Common Stock issued to Seller pursuant to Installment B is equal to Installment
B or, if applicable, Adjusted Installment B.
3.3 Promissory Note; Adjusted Payment. The Purchase Note shall be
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guaranteed by TKC under the terms of the TKC Guarantee attached hereto as
Exhibit 12.3(a)-2. The Purchase Note shall bear interest at the rate of eight
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percent (8%) per annum, simple interest commencing as of January 1, 2001,
payable quarterly on April 1, July 1, October 1, and January 1, and shall be
subject to adjustment as provided below. All accrued but unpaid interest and
all principal (as adjusted hereby) shall be paid within 10 business days of the
date TKC's Form 10-K for the year ended December 31, 2002 is due to be filed
with the United States Securities and Exchange Commission. The principal amount
of the Purchase Note may be increased or decreased because of the Book Value
Adjustment in accordance with Section 3.4. In addition, (i) if, as a result of
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all the Reductions to Installment B as set forth in Section 3.2, such Reductions
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exceed the amount of Installment B or Adjusted Installment B, as the case may
be, any such excess shall cause a reduction in the principal balance of the
Purchase Note, and (ii) the Purchase Note may be further adjusted by the written
agreement of the parties hereto and making reference to this Section 3.3. If
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the principal amount of the Purchase Note is decreased, the interest otherwise
payable on the Purchase Note shall be reduced as though such principal amount
were reduced as of January 1, 2001 and all interest paid in excess of what would
have otherwise been required shall reduce the amount of principal payable at the
maturity of the Purchase Note. If the principal amount of the Purchase Note is
increased, the interest otherwise payable on the Purchase Note shall be
increased as though such principal amount were increased as of January 1, 2001.
The Purchase Note shall also be subject to a right of set off equal to any
amount owing by Seller or Shareholders on the one hand, to either Purchaser or
TKC on the other, as a result of this Agreement and the transactions
contemplated hereby, including without limitation, amounts under Section 11.
----------
If, as a result of all of the negative adjustments to the principal amount of
the Purchase Note set forth in this Section 3.3, such negative adjustments
-----------
exceed the principal amount of the Purchase Note, Purchaser shall be entitled to
recover from Seller and/or Shareholders the amount of the Purchase Price paid by
Purchaser or set off against such other amounts which may be owing to the Seller
and/or Shareholders under this Agreement.
3.4 Book Value Adjustment. The Purchase Price shall be adjusted by
---------------------
adding or subtracting the "Book Value Adjustment" (defined below). The "Book
--------------------- ----
Value Adjustment" shall mean an adjustment reducing or increasing the Purchase
- ----------------
Price in an amount equal to $1.00 multiplied by Section 3.4(a) minus Section
-------------- -------
3.4(b) below:
- ------
(a) on the one hand, the amount obtained by taking (x) the total
Purchased Assets of the Seller, excluding intangible assets minus (y)
the total assumed liabilities of the Seller on the balance sheet of
the Seller dated December 31, 2000 (the "Closing Balance Sheet"), all
---------------------
as calculated in accordance with GAAP (as defined below), particularly
----
with regard to revenue recognition; and
(b) on the other hand, $2,000,000.
(c) If the calculation of the value of Section 3.4(a) minus
--------------
Section 3.4(b) as described above results in a negative amount, the
--------------
Book Value Adjustment shall cause a
-8-
reduction in the principal amount of the Purchase Note (as described
in Section 3.3). If the difference is a positive amount, the Book
-----------
Value Adjustment shall cause an increase in the principal amount of
the Purchase Note up to a maximum of $200,000 as the maximum
additional Purchase Price paid by Purchaser, regardless of the amount
of such positive difference in excess of $200,000, provided, however,
(i) accounts receivable, and (ii) costs and estimated earnings in
excess of billings and billings in excess of costs and estimated
earnings, adjustments beyond those to the December 31, 2000 financial
statements shall not be subject to such $200,000 limitation. In the
event that Purchaser and Shareholders are unable to agree upon the
Closing Balance Sheet within 30 days of receipt of the Closing Balance
Sheet, then Purchaser's independent accounting firm shall select a
firm of regionally recognized certified public accountants to resolve
any disputed items on the Closing Balance Sheet which resolution shall
be conclusive upon all parties. Said firm shall be required to apply
"GAAP" as defined below. Purchaser and Shareholders shall each pay one
----
half of the expense of such firm of regionally recognized certified
public accountants. The calculation of the Book Value Adjustment and
delivery of the Closing Balance Sheet shall be completed by Purchaser
within one hundred eighty (180) days after the Closing Date. In
addition to the Book Value Adjustment, the Purchase Price shall be
subject to a right of set-off to the Purchase Note by Purchaser as
described in Section 3.3 and 11. For purposes of this Agreement,
------------------
"GAAP" shall mean United States Generally Accepted Accounting
----
Principles
3.5 Purchase Price Adjustment. Purchaser shall pay to Seller an
-------------------------
amount equal to the difference between an estimate of the net proceeds after
income tax to the Seller and the Shareholders resulting from the transactions
contemplated hereby and an estimate of the net proceeds after income tax to the
Sellers and the Shareholders if Purchaser had instead purchased all of the
outstanding common stock of Seller. Such difference shall be calculated without
regard to any income tax liability attributable to Internal Revenue Code Section
1374 (built in gains), and shall otherwise be calculated pursuant to the formula
attached as Exhibit 3.5, which formula shall be applied (i) regardless of the
-----------
actual income tax liability of Seller and the Shareholders as a result of the
transactions contemplated hereby, (ii) without giving effect to any of the
adjustments, if any, to the Purchase Price as provided for in this Agreement,
and (iii) based solely upon the Closing Balance Sheet. This Purchase Price
Adjustment shall be payable by Purchaser pursuant to Section 3.6(c).
--------------
3.6 Payment of Purchase Price. Purchaser will pay Seller the Purchase
-------------------------
Price as follows:
(a) At the Closing, Purchaser shall deliver to Seller such
documents and instruments as are reasonably required to evidence the
assumption of the Assumed Liabilities of Seller;
(b) At the closing, Purchaser shall deliver the Seller Cash
Amount to Seller by certified or bank cashier's check payable to
Seller, or, at Purchaser's option, a wire transfer of immediately
available funds to an account designated by Seller not less than 48
hours prior to Closing.
-9-
(c) Within ten business days of the date upon which the Closing
Balance Sheet is final, Purchaser shall deliver to Seller the amount
specified in Section 3.5 by certified or bank cashier's check payable
-----------
to Seller, or, at Purchaser's option, a wire transfer of immediately
available funds to an account designated by Seller not less than 48
hours prior to the time for payment thereof;
(d) At the Closing, the Purchase Note; and
(e) At the time indicated in Section 3.2, the Stock Payment.
-----------
(f) The Cash Balance Adjustment as specified in Section 3.8
-----------
shall be paid by certified or bank cashier's check within ten (10)
business days of the date upon which the cash balance per the Seller's
general ledger is finalized.
3.7 Allocation of Purchase Price. The Purchase Price and Assumed
----------------------------
Liabilities shall be allocated:
(a) To the Purchased Assets at the amount at which such assets
are recorded on the Closing Balance Sheet; and
(b) To goodwill, the remainder of the Purchase Price and Assumed
Liabilities.
Seller will follow and use such allocation in all income, sales,
registration and other tax returns, filings or other related reports made by
them to any governmental agencies. To the extent that disclosures of this
allocation are required to be made by the parties to the Internal Revenue
Service ("IRS") under the provisions of Section 1060 of the Internal Revenue
---
Code of 1986, as amended (the "Code"), or any regulations thereunder, Seller and
----
Purchaser shall disclose such reports to the other prior to filing with the IRS.
3.8 Cash Balance Adjustment. The Purchase Price shall be adjusted by
-----------------------
adding or subtracting the "Cash Balance Adjustment" (defined below). The "Cash
Balance Adjustment" shall mean an adjustment reducing or increasing the
Purchase Price in an amount equal to $1.00 multiplied by Section 3.8(a) minus
--------------
Section 3.8(b) below:
- --------------
(a) on the one hand, the cash balance per the Closing Balance
Sheet.
(b) on the other hand, the cash balance per the Seller's general
ledger on the Closing Date.
(c) If the calculation of the value of Section 3.8(a) minus
--------------
Section 3.8(b) as described above results in a positive amount, the
--------------
Cash Balance Adjustment shall cause an increase in the Purchase Price.
If the difference is a negative amount, the Cash Balance Adjustment
shall cause an decrease in the Purchase Price. For purposes of this
calculation, the increase or decrease in cash must be solely related
to the normal operating results of the business and as an example, not
related to any personal uses by Shareholders. This Purchase Price
Adjustment shall be payable by Purchaser pursuant to Section 3.6(f).
--------------
-10-
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SELLER AND THE SHAREHOLDERS
------------------------------
Seller and the Shareholders, jointly and severally, make the following
representations and warranties to Purchaser and TKC, each of which is true and
correct on the date hereof and shall be unaffected by any investigation
heretofore or hereafter made by Purchaser or any knowledge of Purchaser other
than as set forth in the Disclosure Schedule referred to below. The
representations and warranties of Seller and Shareholders are subject to, and
qualified by, any fact or facts disclosed in the relevant section of the
attached Disclosure Schedule prepared and executed by Seller and Shareholders
and delivered to Purchaser on the date of this Agreement (the "Disclosure
----------
Schedule"), provided that each representation and warranty is subject to and
- --------
qualified by only such matters as are (i) set forth in that section of the
Disclosure Schedule that corresponds to the representation and warranty or (ii)
otherwise set forth in the Disclosure Schedule in a manner such that their
relationship to any representation or warranty is readily apparent. An item
contained in the Disclosure Schedule, or any part thereof, shall be specifically
referenced to the section or sections of this Article to which such item
relates. The Disclosure Schedule shall not vary, change or alter the language
of the representations and warranties contained in this Agreement. References
herein to any "Schedule" shall mean that portion of the Disclosure Schedule to
--------
which such reference relates, and are not intended to be independent of the
Disclosure Schedule.
4.1 Corporate.
---------
(a) Organization. Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Arizona.
(b) Corporate Power. Seller has all requisite corporate power and
---------------
authority to own, operate and lease its properties and to carry on its
business as and where such is now being conducted.
(c) Qualification. Seller is duly licensed or qualified to do
-------------
business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by it,
or the nature of its business, makes such licensing or qualification
necessary. The states in which Seller is licensed or qualified to do
business are listed in Schedule 4.1(c).
---------------
(d) Subsidiaries. Seller does not own any interest in any
------------
corporation, partnership or other entity.
(e) Corporate Documents, etc. The copies of the Articles of
------------------------
Incorporation and Bylaws of the Seller, including any amendments thereto,
which have been delivered by Shareholders to Purchaser are true, correct
and complete copies of such instruments as presently in effect. The
corporate minute book and stock records of the Seller which have been
furnished to Purchaser for inspection are true, correct and complete and
accurately reflect all material corporate action taken by the Seller. The
directors and officers of the Seller are listed in Schedule 4.1(e).
---------------
-11-
(f) Capitalization of the Seller. The authorized capital stock of
----------------------------
the Seller consists entirely of 300,000 shares of common stock, without par
value. No shares of such capital stock are issued or outstanding except
for shares of common stock of the Seller which are owned of record and
beneficially by Shareholders in the respective numbers set forth on
Schedule 4.1(f). All such shares of capital stock of the Seller are validly
---------------
issued, fully paid and nonassessable. Except as set forth on Schedule
--------
4.1(f), there are no (a) securities convertible into or exchangeable for
------
any of the Seller's capital stock or other securities, (b) options,
warrants or other rights to purchase or subscribe to capital stock or other
securities of the Seller or securities which are convertible into or
exchangeable for capital stock or other securities of the Seller, or (c)
contracts, commitments, agreements, understandings or arrangements of any
kind relating to the issuance, sale or transfer of any capital stock or
other equity securities of the Seller, any such convertible or exchangeable
securities or any such options, warrants or other rights.
4.2 Authorization; Validity.
-----------------------
(a) The execution and delivery of this Agreement and the other
agreements, documents and instruments to be executed and delivered by
Seller and the Shareholders pursuant hereto (the "Ancillary Instruments")
---------------------
and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the board of directors of Seller, and by every
shareholder of Seller. No other or further corporate act or proceeding on
the part of Seller is necessary to authorize this Agreement or the
Ancillary Instruments to be executed and delivered by Seller or the
Shareholders pursuant hereto or the consummation of the transactions
contemplated hereby and thereby.
(b) Each of Seller and all of the Shareholders has full power, legal
right and authority to enter into, execute and deliver this Agreement and
the Ancillary Instruments contemplated hereby and to carry out the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Seller and all of the Shareholders and
is, and when executed and delivered each of the Ancillary Instruments to be
executed and delivered by any or all of them pursuant hereto will be, the
legal, valid and binding obligation of each of them enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general
application affecting the enforcement of creditors rights and to the
availability of equitable remedies.
4.3 No Violation. Except as set forth on Schedule 4.3, neither the
------------ ------------
execution and delivery of this Agreement or the Ancillary Instruments nor the
consummation by Seller and Shareholders of the transactions contemplated hereby
and thereby (a) will violate any statute or law or any rule, regulation, order,
writ, injunction or decree of any court or governmental authority, (b) will
require any authorization, consent, approval, exemption or other action by or
notice to any court, administrative or governmental agency, instrumentality,
commission, authority, board or body (including, without limitation, under any
"plant-closing" or similar law), or (c) subject to obtaining the consents
referred to in Schedule 4.3, will violate or conflict with, or constitute a
------------
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination of, or accelerate
the performance required by, or result in the creation of any Lien (as defined
in Section 4.12) upon any of the assets of Seller
------------
-12-
under any term or provision of the Articles of Incorporation or Bylaws of Seller
or of any contract, commitment, understanding, arrangement, agreement or
restriction of any kind or character to which Seller or any Shareholder is a
party or by which Seller or any Shareholder or any of its or their assets or
properties may be bound or affected.
4.4 Financial Statements. Included as Schedule 4.4 are true and complete
-------------------- ------------
copies of (i) the financial statements of Seller identified on Schedule 4.4,
------------
(ii) a balance sheet of Seller as of October 31, 2000 ("Recent Balance Sheet"),
--------------------
and the related statements of income for the ten (10) months then ended
(including the notes and schedules contained therein or annexed thereto, if
applicable) (the "Recent GAAP Financial Statements"). The Closing financial
--------------------------------
statements of Seller shall consist of a Closing Balance Sheet and related
statements of income for the year then ended (including the notes contained
therein or annexed thereto, if applicable) (collectively, the "GAAP Financial
--------------
Statements"). The Recent GAAP Financial Statements have been prepared (or
- ----------
restated) in conformity with GAAP (except for notes and schedules that might
ordinarily be required by GAAP and as may be further agreed to by the written
agreement of the parties hereto making specific reference to this Section 4.4).
-----------
Except as set forth on Schedule 4.4, the Recent GAAP Financial Statements have
------------
been and the GAAP Financial Statements will be prepared in accordance with the
books and records of Seller, and fairly present, the assets, liabilities and
financial position, the results of operations and cash flows of the Seller in
accordance with GAAP as of the date indicated and for the periods indicated.
All of such financial statements (including all notes and schedules contained
therein or annexed thereto, if applicable) are true, complete and accurate. The
Recent GAAP Financial Statements and the GAAP Financial Statements shall be
prepared on an accrual basis and shall incorporate SOP 81-1 (Accounting for
Performance of Construction Type and Certain Production - Type Contracts) and
all other appropriate accounting pronouncements and standards (all such GAAP
Financial Statements shall have been or will be produced at Seller's expense).
4.5 Tax Matters. Seller does not have liability, fixed or contingent, for
-----------
any unpaid federal, state or local taxes or other governmental or regulatory
charges whatsoever (including without limitation, withholding and payroll
taxes), other than for taxes not yet due and payable, which could result in a
lien on the Purchased Assets or the Business after conveyance thereof to
Purchaser or in any other form of transferee liability to Purchaser.
4.6 Accounts Receivable and Costs in Excess of Billings. Except as
---------------------------------------------------
disclosed in Schedule 4.6-1, all accounts receivable of Seller reflected on the
--------------
Recent Balance Sheet ("Closing Receivables"), represent arm's length sales
-------------------
actually made in the ordinary course of business; are collectible (net of the
reserve shown on the Recent Balance Sheet for doubtful accounts ("Closing
-------
Reserve")) in the ordinary course of business without the necessity of
- -------
commencing legal proceedings; are subject to no counterclaim or set-off; and are
not in dispute. Schedule 4.6-1 contains an aged schedule of accounts receivable
--------------
included in the Recent Balance Sheet. The entire amount shown on the Recent
Balance Sheet as "Costs in Excess of Billings" as set forth on Schedule 4.6-2
--------------
represents costs incurred by the Seller which is, or will become billable, and
when billed, will be collectible in the ordinary course of business without the
necessity of commencing legal proceedings; is subject to no counterclaim or set-
off; and is not in dispute. The Closing Receivables and Costs in Excess of
Billings (as set forth on the Recent Balance Sheet) shall be updated and set
forth on the Closing Balance Sheet, and the representations and warranties of
this Section 4.6 shall apply to the Closing Receivables and Costs in Excess of
-----------
-13-
Billings as set forth on the Closing Balance Sheet. The Purchase Price shall be
reduced by ninety percent (90%) of the amount of any Costs in Excess of Billings
on the Closing Balance Sheet which remain uncollected as of the first
anniversary of the Closing. The amount of Closing Receivables as reflected on
the Closing Balance Sheet which exceed the Closing Reserve as reflected on the
Closing Balance Sheet, as of the first anniversary of the Closing Date, shall be
conclusively deemed to be uncollectible and shall provide Purchaser a right of
set-off in such amount against the Purchase Price. The amount of Closing
Reserve as reflected on the Closing Balance Sheet which exceeds the Closing
Receivables ("Excess Receivables Reserve") as reflected on the Closing Balance
--------------------------
Sheet as of the first anniversary of the Closing Date, shall be paid to the
Seller in cash within thirty (30) days after the first anniversary of the
Closing Date. The Excess Receivables Reserve amount shall bear interest at the
rate of eight percent (8%) per annum, simple interest, commencing as of January
1, 2001.
4.7 Work-in-Process. Except as disclosed in Schedule 4.7 or as set forth
--------------- ------------
in this Section 4.7, (i) all work-in-process and contracts underway ("Work-In-
----------- -------
Process") constitute work being performed pursuant to fully executed written
- -------
contracts or sales orders taken in the ordinary course of business, from regular
customers of Seller with no recent history of credit problems with respect to
Seller; (ii) neither Seller, nor to Seller's knowledge, any such customer, is in
material breach of the terms of any obligation to the other, and no valid
grounds exist for any set-off of amounts billable to such customers on the
completion of orders to which Work-In-Process relates; (iii) all Work-In-Process
is of a quality ordinarily produced in accordance with the requirements of the
orders to which such Work-In-Process is identified, and will require no rework
with respect to services performed prior to Closing; (iv) all Work-In-Process is
being conducted pursuant to fully executed written contracts, orders and change
orders issued within the terms of the relationship pursuant to which such Work-
In-Process is being conducted; and (v) all Work-In-Process set forth on Schedule
--------
4.7 (which as of the date hereof reflects Work-In-Process as of the date of the
- ---
Recent GAAP Financials and shall be updated to include the schedules supporting
the Closing Balance Sheet) could be completed in compliance with the contracts
to which each such Work-In-Process relates if managed consistently with the past
practices of the Seller (and in compliance with industry standards and good
practices) without adversely effecting, in the aggregate when complete, the
profitability of the Seller. With respect to any oral agreements identified on
Schedule 4.7 ("Oral Agreements"): (i) all Work-In-Process pursuant to such Oral
- ------------ ---------------
Agreements constitute work being performed pursuant thereto or oral sales orders
taken in the ordinary course of business, from regular customers of Seller with
no recent history of credit problems with respect to Seller; (ii) neither
Seller, nor to Seller's knowledge, any such customer, is in material breach of
the terms of any obligation to the other, and no valid grounds exist for any
set-off of amounts billable to such customers on the completion of orders to
which Work-In-Process relates; (iii) all Work-In-Process is of a quality
ordinarily produced in accordance with the requirements of the orders to which
such Work-In-Process is identified, and will require no rework with respect to
services performed prior to Closing; (iv) all Work-In-Process is being conducted
fully in accordance with and pursuant to such Oral Agreements, oral or written
orders and oral or written change orders issued within the terms of the
relationship pursuant to which such Work-In-Process is being conducted; and (v)
all Work-In-Process pursuant to Oral Agreements set forth on Schedule 4.7 (which
------------
as of the date hereof reflects Work-In-Process as of the date of the Recent GAAP
Financials and shall be updated to include the schedules supporting the Closing
Balance Sheet) could be completed in compliance with the Oral Agreements to
which each such Work-In-Process relates if managed consistently with the
-14-
past practices of the Seller (and in compliance with industry standards and good
practices) without adversely effecting, in the aggregate when complete, the
profitability of the Seller.
4.8 Absence of Certain Changes. Except as and to the extent set forth in
--------------------------
Schedule 4.8, since the date of the Recent GAAP Financial Statements there has
- ------------
not been:
(a) No Adverse Change. Any adverse change in the financial
-----------------
condition, assets, liabilities, business, prospects or operations of
Seller;
(b) No Damage. Any loss, damage or destruction, whether covered by
---------
insurance or not, affecting Seller's business or properties;
(c) No Increase in Compensation. Any increase in the compensation,
---------------------------
salaries or wages payable or to become payable to any employee or agent of
Seller (including, without limitation, any increase or change pursuant to
any bonus, pension, profit sharing, retirement or other plan or
commitment), or any bonus or other employee benefit granted, made or
accrued;
(d) No Labor Disputes or Loss of Key Employees. Any labor dispute,
------------------------------------------
disturbance or organizing activity, other than routine individual
grievances which are not material to the business, financial condition or
results of operations of Seller or any loss of any employee deemed "key" or
"material" to the operation of the Seller;
(e) No Commitments. Any commitment or transaction by Seller
--------------
(including, without limitation, any borrowing or capital expenditure) other
than in the ordinary course of business consistent with past practice;
(f) No Dividends. Any declaration, setting aside, or payment of any
------------
dividend or any other distribution in respect of Seller's capital stock;
any redemption, purchase or other acquisition by Seller of any capital
stock of Seller, or any security relating thereto; or any other payment to
any shareholder of Seller as such a shareholder;
(g) No Disposition of Property. Any sale, lease or other transfer or
--------------------------
disposition of any properties or assets of Seller, except for the sale of
inventory items in the ordinary course of business;
(h) No Indebtedness. Any indebtedness for borrowed money incurred,
---------------
assumed or guaranteed by Seller;
(i) No Liens. Any mortgage, pledge, Lien or encumbrance made on any
--------
of the properties or assets of Seller;
(j) No Amendment of Contracts. Any entering into, amendment or
-------------------------
termination by Seller of any contract, or any waiver of material rights
thereunder, other than in the ordinary course of business;
(k) Loans and Advances. Any loan or advance (other than advances to
------------------
employees in the ordinary course of business for travel and entertainment
in accordance
-15-
with past practice) to or from any person including, but not limited to,
any Affiliate (for purposes of this Agreement, the term "Affiliate" shall
---------
mean and include all Shareholders, directors and officers of Seller; the
spouse of any such person; any person who would be the heir or descendant
of any such person if he or she were not living; and any entity in which
any of the foregoing has a direct or indirect interest, except through
ownership of less than 5% of the outstanding shares of any entity whose
securities are listed on a national securities exchange or traded in the
NASDAQ National Market);
(l) Credit. Any grant of credit to any customer or distributor on
------
terms or in amounts more favorable than those which have been extended to
such customer or distributor in the past, any other change in the terms of
any credit heretofore extended, or any other change of Seller's policies or
practices with respect to the granting of credit; or
(m) No Unusual Events. Any other event or condition not in the
-----------------
ordinary course of business of Seller.
4.9 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
specifically disclosed in the Recent GAAP Financial Statements or in Schedule
--------
4.9, the Shareholders have no actual knowledge that the Seller has any
- ---
liabilities, commitments or obligations (secured or unsecured, and whether
accrued, absolute, contingent, direct, indirect or otherwise), other than
commercial liabilities and obligations incurred since the date of the Recent
GAAP Financial Statements in the ordinary course of business and consistent with
past practice and none of which has or will have a material adverse effect on
the business, financial condition or results of operations of Seller. Except as
and to the extent described in the Recent GAAP Financial Statements or in
Schedule 4.9, neither Seller nor any Shareholder has actual knowledge of any
- ------------
basis for the assertion against Seller of any liability or of any circumstances,
conditions, happenings, events or arrangements, contractual or otherwise, which
may give rise to liabilities, except commercial liabilities and obligations
incurred in the ordinary course of Seller's business and consistent with past
practice.
4.10 No Litigation. Except as set forth in Schedule 4.10 there is no
------------- -------------
action, suit, arbitration proceeding, investigation or inquiry pending or
threatened against Seller, its directors (in such capacity), the Business or any
of its assets, nor does Seller or any Shareholder know, or have grounds to know,
of any basis for any such proceedings, investigations or inquiries. Schedule
--------
4.10 also identifies all such actions, suits, proceedings, investigations and
- ----
inquiries to which company or any of its directors have been parties within the
last three (3) years. Except as set forth in Schedule 4.10, neither Seller nor
-------------
its business or assets is subject to any judgment, order, writ or injunction of
any court, arbitrator or federal, state, foreign, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
4.11 Compliance With Laws.
--------------------
(a) Compliance. Except as set forth in Schedule 4.11(a), the
---------- ----------------
Shareholders have no actual knowledge that the Seller (including each and
all of its operations, practices, properties and assets) is not in
compliance with all applicable federal, state, local and foreign laws,
ordinances, orders, rules and regulations (collectively, "Laws"), including
----
without limitation, those applicable to discrimination in employment,
sexual
-16-
harassment, occupational safety and health, trade practices, competition
and pricing, product warranties, zoning, building and sanitation,
employment, retirement and labor relations, product advertising and laws
relating to pollution or protection of the environment, including Laws
relating to emissions, discharges, generation, storage, releases or
threatened releases of pollutants, contaminants, chemicals or industrial,
toxic, hazardous or petroleum or petroleum-based substances or wastes into
the environment ("Environmental Laws"). Except as set forth in Schedule
------------------ --------
4.11(a), Seller has not received notice of any violation or alleged
-------
violation of, and is subject to no liability (whether accrued, absolute,
contingent, direct or indirect) for past or continuing violation of, any
Laws. The Shareholders have no knowledge of any reports and returns (i)
required to be filed by Seller with any governmental authority not having
been filed, and (ii) being other than accurate and complete when filed.
(b) Licenses and Permits. Seller has all licenses, permits,
--------------------
approvals, authorizations and consents of all governmental and regulatory
authorities and all certification organizations required for the conduct of
the business (as presently conducted and as proposed to be conducted) and
operation of the Facilities. All such licenses, permits, approvals,
authorizations and consents are described in Schedule 4.11(b), are in full
----------------
force and effect, and will not be affected or made subject to loss,
limitation or any obligation to reapply as a result of the transactions
contemplated hereby. Except as set forth in Schedule 4.11(b), Seller
----------------
(including its operations, properties and assets) is and has been in
compliance with all such permits and licenses, approvals, authorizations
and consents.
4.12 Title to and Condition of Properties.
------------------------------------
(a) Marketable Title. Seller has good and marketable title to all of
----------------
the assets, business and properties necessary or useful in conducting the
Business, including, without limitation, the Purchased Assets, all such
properties (tangible and intangible) reflected in the Recent GAAP Financial
Statements and all assets which are fully depreciated or used under
license, including but not limited to, software, databases, reference
materials and other intellectual property, in all cases free and clear of
all mortgages, liens, (statutory or otherwise) security interests, claims,
pledges, licenses, equities, options, conditional sales contracts,
assessments, levies, easements, covenants, reservations, restrictions,
rights-of-way, exceptions, limitations, charges or encumbrances of any
nature whatsoever (collectively, "Liens") except those described in
-----
Schedule 4.12(a). None of the assets, business or properties necessary or
----------------
useful in conducting the Business are subject to any restrictions with
respect to the transferability thereof; and the Seller's title thereto will
not be affected in any way by the transactions contemplated hereby.
(b) Condition. All property and assets owned or utilized by Seller
---------
in conducting the Business are in good operating condition and repair, free
from any defects (except such minor defects as do not interfere with the
use thereof in the conduct of the normal operations of Seller), have been
maintained consistent with the standards generally followed in the industry
and are sufficient to carry on the business of Seller as conducted during
the preceding twelve (12) months.
-17-
(c) Real Property. Schedule 4.12(c) sets forth all real property
------------- ----------------
owned, used or occupied by Seller (the "Real Property"), including a
-------------
description of all land, and all encumbrances, easements or rights of way
of record (or, if not of record, of which Seller has notice or knowledge)
granted on or appurtenant to or otherwise affecting such Real Property, the
zoning classification thereof, and all plants, buildings or other
structures located thereon. Schedule 4.12(c) also sets forth, with respect
----------------
to each parcel of Real Property which is leased, the material terms of such
lease. All buildings, plants and other structures owned or otherwise
utilized by Seller are in good condition and repair and have no structural
defects or defects affecting the plumbing, electrical, sewerage, or
heating, ventilating or air conditioning systems. There are now in full
force and effect duly issued certificates of occupancy permitting the Real
Property and improvements located thereon to be legally used and occupied
as the same are now constituted. Shareholders have no actual knowledge of
any fact or condition exists which would prohibit or adversely affect the
ordinary rights of use by the Seller of the Real Property. Neither Seller
nor any Shareholder has notice or knowledge of any (i) planned or proposed
increase in assessed valuations of any Real Property, (ii) governmental
agency or court order requiring repair, alteration, or correction of any
existing condition affecting any Real Property or the systems or
improvements thereat, (iii) condition or defect which could give rise to an
order of the sort referred to in "(ii)" above, (iv) underground storage
tanks, or any structural, mechanical, or other defects of material
significance affecting any Real Property or the systems or improvements
thereat (including, but not limited to, inadequacy for normal use of
mechanical systems or disposal or water systems at or serving the Real
Property), or (v) work that has been done or labor or materials that has or
have been furnished to any Real Property during the period of six (6)
months immediately preceding the date of this Agreement for which liens
could be filed against any of the Real Property.
(d) No Condemnation or Expropriation. Neither the whole nor any
--------------------------------
portion of the property or any other assets of Seller is subject to any
governmental decree or order to be sold or is being condemned, expropriated
or otherwise taken by any public authority with or without payment of
compensation therefor, nor to the best of Seller's and Shareholders'
knowledge has any such condemnation, expropriation or taking been proposed.
4.13 Insurance. Set forth in Schedule 4.13 is a complete and accurate
--------- -------------
list and description of all policies of fire, liability, errors and omissions,
workers compensation, health and other forms of insurance presently in effect
with respect to the business and properties of Seller, true and correct copies
of which have heretofore been delivered to Purchaser. Schedule 4.13 includes,
-------------
without limitation, the carrier, the description of coverage, the limits of
coverage, retention or deductible amounts, amount of annual premiums, date of
expiration and the date through which premiums have been paid with respect to
each such policy, and any claims made within the last five (5) years. All such
policies are valid, outstanding and enforceable policies and provide insurance
coverage for the properties, assets and operations of Seller, of the kinds, in
the amounts and against the risks customarily maintained by organizations
similarly situated; and no such policy (nor any previous policy) provides for or
is subject to any currently enforceable retroactive rate or premium adjustment,
loss sharing arrangement or other actual or contingent liability arising wholly
or partially out of events arising prior to the date hereof. Schedule 4.13
-------------
-18-
indicates each policy as to which (a) the coverage limit has been reached or (b)
the total incurred losses to date equal 50% or more of the coverage limit. No
notice of cancellation or termination has been received with respect to any such
policy, and neither Seller nor any Shareholder has knowledge of any act or
omission of Seller which could result in cancellation of any such policy prior
to its scheduled expiration date. Seller has not been refused any insurance
with respect to any aspect of the operations of the Business nor has its
coverage been limited by any insurance carrier (other than the initial policy
limit) to which it has applied for insurance or with which it has carried
insurance during the last three (3) years. Seller has duly and timely made all
claims it has been entitled to make under each policy of insurance. At all
times during the last three (3) years; (a) all errors and omissions policies
maintained by or for the benefit of Seller have been "claims made" policies and
not "occurrence" policies and (b) all general liability policies maintained by
or for the benefit of Seller have been "occurrence" policies and not "claims
made" policies. There is no claim by Seller pending under any such policies as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies, and neither Seller nor any of the Shareholders knows of any basis
for denial of any claim under any such policy. Seller has not received any
written notice from or on behalf of any insurance carrier issuing any such
policy that insurance rates therefor will hereafter be substantially increased
(except to the extent that insurance rates may be increased for all similarly
situated risks) or that there will hereafter be a cancellation or an increase in
a deductible (or an increase in premiums in order to maintain an existing
deductible) or nonrenewal of any such policy. Such policies are sufficient in
all material respects for compliance by Seller with all requirements of law and
with the requirements of all material contracts to which Seller is a party.
4.14 Contracts and Commitments.
-------------------------
(a) Real Property Leases. Except as set forth in Schedule 4.12(c),
-------------------- ----------------
Seller has no leases of real property.
(b) Personal Property Leases. Except as set forth in Schedule
------------------------ --------
4.14(b), Seller has no leases of personal property.
-------
(c) Purchase Commitments. Seller has no purchase commitments for
--------------------
inventory items or supplies that, together with amounts on hand, constitute
in excess of two (2) months normal usage. Seller has no purchase
commitments for any personal property.
(d) Sales Commitments. Except as set forth on Schedule 4.14(d),
----------------- ----------------
Seller has no sales contracts or commitments to customers or distributors
which aggregate in excess of $25,000 to any one customer or distributor (or
group of affiliated customers or distributors). Seller has no sales
contracts or commitments except those made in the ordinary course of
business, at arm's length, and no such contracts or commitments are for a
sales price which would reduce Seller's profit margin.
(e) Contracts With Affiliates and Certain Others. Seller has no
--------------------------------------------
agreement, understanding, contract or commitment (written or oral) with any
Affiliate or any employee, agent, consultant, distributor, dealer or
franchisee that is not cancelable by
-19-
Seller on notice of not longer than thirty (30) days without liability,
penalty or premium of any nature or kind whatsoever.
(f) Powers of Attorney. Except as set forth on Schedule 4.14(f), the
------------------ ----------------
Seller has not given a power of attorney, which is currently in effect, to
any person, firm or corporation for any purpose whatsoever.
(g) Collective Bargaining Agreements. Except as provided in Schedule
-------------------------------- --------
4.14(g), Seller is not a party to or in negotiations concerning any
-------
collective bargaining agreements with any unions, guilds, shop committees
or other collective bargaining groups.
(h) Loan Agreements. Except as set forth in Schedule 4.14(h),
--------------- ----------------
Seller is not obligated under any loan agreement, promissory note, letter
of credit, or other evidence of indebtedness as a signatory, guarantor or
otherwise.
(i) Guarantees. Except as disclosed on Schedule 4.14(i), Seller has
---------- ----------------
not guaranteed the payment or performance of any person, firm or
corporation, agreed to indemnify any person or act as a surety, or
otherwise agreed to be contingently or secondarily liable for the
obligations of any person.
(j) Contracts Subject to Renegotiation. Seller is not a party to any
----------------------------------
contract with any governmental body which is subject to renegotiation.
(k) Burdensome or Restrictive Agreements. Seller is not a party to
------------------------------------
nor is it bound by any agreement, deed, lease or other instrument which is
so burdensome as to materially affect or impair the operation of the
Business. Without limiting the generality of the foregoing, Seller is not a
party to nor is it bound by any agreement requiring Seller to assign any
interest in any trade secret or proprietary information, or prohibiting or
restricting Seller from competing in any business or geographical area or
soliciting customers or otherwise restricting it from carrying on its
business anywhere in the world.
(l) Other Material Contracts. Seller has no lease, contract or
------------------------
commitment of any nature involving consideration or other expenditure in
excess of $5,000 for the life of the contract, or involving performance
over a period of more than twelve (12) months, or which is otherwise
individually material to the Business, except as explicitly described in
Schedule 4.14(1) or in any other Schedule or Exhibit.
----------------
(m) No Default. Seller is not in default under any lease, contract
----------
or commitment, nor has any event or omission occurred which through the
passage of time or the giving of notice, or both, would constitute a
default thereunder or cause the acceleration of any of Seller's obligations
or result in the creation of any Lien on any of the assets owned, used or
occupied by Seller. No third party is in default under any lease, contract
or commitment to which Seller is a party, nor has any event or omission
occurred which, through the passage of time or the giving of notice, or
both, would constitute a default thereunder or give rise to an automatic
termination, or the right of discretionary termination, thereof.
-20-
4.15 Labor Matters. Except as set forth in Schedule 4.15, within the last
------------- -------------
five (5) years Seller has not experienced any labor disputes, union organization
attempts or any work stoppage due to labor disagreements in connection with its
business. Except to the extent set forth in Schedule 4.15, (a) Seller is in
-------------
compliance with all applicable laws respecting employment and employment
practices, sexual harassment, terms and conditions of employment and wages and
hours, and is not engaged in any unfair labor practice; (b) there is no unfair
labor practice charge or complaint against Seller pending or threatened; (c)
there is no labor strike, dispute, request for representation, slowdown or
stoppage actually pending or threatened against or affecting Seller nor any
secondary boycott with respect to products of Seller; (d) no question concerning
representation has been raised or is threatened respecting the employees of
Seller; (e) no grievance which might have a material adverse effect on Seller,
nor any arbitration proceeding arising out of or under collective bargaining
agreements, is pending and no such claim therefor exists; and (f) there are no
administrative charges or court complaints against Seller concerning alleged
employment discrimination or other employment related matters pending or
threatened before the U.S. Equal Employment Opportunity commission or any state
or federal court or agency.
4.16 Employee Benefit Plans.
----------------------
(a) Disclosure. Schedule 4.16(a) sets forth all pension, thrift,
---------- ----------------
savings, profit sharing, retirement, incentive bonus or other bonus,
medical, dental, life, accident insurance, benefit, employee welfare,
disability, group insurance, stock purchase, stock option, stock
appreciation, stock bonus, executive or deferred compensation,
hospitalization and other similar fringe or employee benefit plans,
programs and arrangements, and any employment or consulting contracts,
"golden parachutes," collective bargaining agreements, severance agreements
or plans, vacation and sick leave plans, programs, arrangements and
policies, including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), all employee manuals, and all written or
-----
binding oral statements of policies, practices or understandings relating
to employment, which are provided to, for the benefit of, or relate to, any
persons ("Seller Employees") employed by Seller. The items described in
----------------
the foregoing sentence are hereinafter sometimes referred to collectively
as "Employee Plans/Agreements," and each individually as an "Employee
------------------------- --------
Plan/Agreement." True and correct copies of all the Employee
--------------
Plans/Agreements, including all amendments thereto, have heretofore been
provided to Purchaser. Each of the Employee Plans/Agreements is identified
on Schedule 4.16(a), to the extent applicable, as one or more of the
----------------
following: an "employee pension benefit plan" (as defined in Section 3(2)
of ERISA), a "defined benefit plan" (as defined in Section 414 of the
Code), an "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and/or as a plan intended to be qualified under Section 401 of the
Code. No Employee Plan/Agreement is a "multiemployer plan" (as defined in
Section 4001 of ERISA), and Seller has never contributed nor been obligated
to contribute to any such multiemployer plan.
(b) Terminations, Proceedings, Penalties, etc. With respect to each
-----------------------------------------
employee benefit plan (including, without limitation, the Employee
Plans/Agreements) that is subject to the provisions of Title IV of ERISA
and with respect to which the Seller
-21-
or any of its assets may, directly or indirectly, be subject to any
liability, contingent or otherwise, or the imposition of any lien (whether
by reason of the complete or partial termination of any such plan, the
funded status of any such plan, any "complete withdrawal" (as defined in
Section 4203 of ERISA) or "partial withdrawal" (as defined in Section 4205
of ERISA) by any person from any such plan, or otherwise):
(i) no such plan has been terminated so as to subject, directly
or indirectly, any assets of Seller to any liability, contingent or
otherwise, or the imposition of any lien under Title IV of ERISA;
(ii) no proceeding has been initiated or threatened by any
person (including the Pension Benefit Guaranty Corporation ("PBGC")
----
to terminate any such plan;
(iii) no condition or event currently exists or currently is
expected to occur that could subject, directly or indirectly, any
assets of Seller to any liability, contingent or otherwise, or the
imposition of any lien under Title IV of ERISA, whether to the PBGC
or to any other person or otherwise on account of the termination of
any such plan;
(iv) if any such plan were to be terminated as of or prior to
the Closing Date, no assets of Seller would be subject, directly or
indirectly, to any liability, contingent or otherwise, or the
imposition of any lien under Title IV of ERISA;
(v) no "reportable event" (as defined in Section 4043 of ERISA)
has occurred with respect to any such plan;
(vi) no such plan which is subject to Section 302 of ERISA or
Section 412 of the Code has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of
the Code, respectively), whether or not waived; and
(vii) no such plan is a multiemployer plan or a plan described in
Section 4064 of ERISA.
(c) Prohibited Transactions, etc. There have been no "prohibited
----------------------------
transactions" within the meaning of Section 406 or 407 of ERISA or Section
4975 of the Code for which a statutory or administrative exemption does not
exist with respect to any Employee Plan/Agreement, and no event or omission
has occurred in connection with which the Seller or any of its assets or
any Employee Plan/Agreement, directly or indirectly, could be subject to
any liability under ERISA, the Code or any other law, regulation or
governmental order applicable to any Employee Plan/Agreement, or under any
agreement, instrument, statute, rule of law or regulation pursuant to or
under which Seller has agreed to indemnify or is required to indemnify any
person against liability incurred under, or for a violation or failure to
satisfy the requirements of, any such statute, regulation or order.
-22-
(d) Full Funding. The funds available under each Employee
------------
Plan/Agreement which is intended to be a funded plan exceed the amounts
required to be paid, or which would be required to be paid if such Employee
Plan/Agreement were terminated, on account of rights vested or accrued as
of the Closing Date (using the actuarial methods and assumptions then used
by Seller's actuaries in connection with the funding of such Employee
Plan/Agreement).
(e) Controlled Group; Affiliated Service Group; Leased Employees.
------------------------------------------------------------
Seller is not and never has been a member of a controlled group of
corporations as defined in Section 414(b) of the Code or in common control
with any unincorporated trade or business as determined under Section
414(c) of the Code. Seller is not and never has been a member of an
"affiliated service group" within the meaning of Section 414(m) of the
Code. There are not and never have been any leased employees within the
meaning of Section 414(n) of the Code who perform services for Seller, and
no individuals are expected to become leased employees with the passage of
time.
(f) Payments and Compliance. With respect to each Employee
-----------------------
Plan/Agreement, (i) all payments due from Seller to date have been made and
all amounts properly accrued to date as liabilities of Seller which have
not been paid have been properly recorded on the books of Seller and are
reflected in the Recent GAAP Financial Statements; (ii) Seller has complied
with, and each such Employee Plan/Agreement conforms in form and operation
to, all applicable laws and regulations, including but not limited to ERISA
and the Code, in all respects and all reports and information relating to
such Employee Plan/Agreement required to be filed with any governmental
entity have been timely filed; (iii) all reports and information relating
to each such Employee Plan/Agreement required to be disclosed or provided
to participants or their beneficiaries have been timely disclosed or
provided; (iv) each such Employee Plan/Agreement which is intended to
qualify under Section 401 of the Code has received a favorable
determination letter from the Internal Revenue Service with respect to such
qualification, its related trust has been determined to be exempt from
taxation under Section 501(a) of the Code, and nothing has occurred since
the date of such letter that has or is likely to adversely affect such
qualification or exemption; (v) there are no actions, suits or claims
pending (other than routine claims for benefits) or threatened with respect
to such Employee Plan/Agreement or against the assets of such Employee
Plan/Agreement; and (vi) no Employee Plan/Agreement is a plan which is
established and maintained outside the United States primarily for the
benefit of individuals substantially all of whom are nonresident aliens.
(g) Post-Retirement Benefits. No Employee Plan/Agreement provides
------------------------
benefits, including, without limitation, death or medical benefits (whether
or not insured) with respect to current or former Seller employees beyond
their retirement or other termination of service other than (i) coverage
mandated by applicable law, (ii) death or retirement benefits under any
Employee Plan/Agreement that is an employee pension benefit plan, (iii)
deferred compensation benefits accrued as liabilities on the books of
Seller (including the Recent GAAP Financial Statements), (iv) disability
benefits under any Employee Plan/ Agreement that is an employee welfare
benefit plan and which have
-23-
been fully provided for by insurance or otherwise or (v) benefits in the
nature of severance pay.
(h) No Triggering of Obligations. The consummation of the
----------------------------
transactions contemplated by this Agreement will not (i) entitle any
current or former employee of Seller to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, (ii) accelerate the time of payment or vesting (except for the
contemplated termination of Seller's 401(k) plan), or increase the amount
of compensation due to any such employee or former employee or (iii) result
in any prohibited transaction described in Section 406 of ERISA or Section
4975 of the Code for which an exemption is not available.
(i) Delivery of Documents. There has been delivered to Purchaser,
---------------------
with respect to each Employee Plan/Agreement:
(i) a copy of the annual report, if required under ERISA, with
respect to each such Employee Plan/Agreement for the last two (2)
years;
(ii) a copy of the summary plan description, together with each
summary of material modifications, required under ERISA with respect
to such Employee Plan/Agreement, all material employee communications
relating to such Employee Plan/Agreement, and, unless the Employee
Plan/Agreement is embodied entirely in an insurance policy to which
Seller is a party, a true and complete copy of such Employee
Plan/Agreement;
(iii) if the Employee Plan/Agreement is funded through a trust or
any third party funding vehicle (other than an insurance policy), a
copy of the trust or other funding agreement and the latest financial
statements thereof; and
(iv) the most recent determination letter received from the
Internal Revenue Service with respect to each Employee Plan/Agreement
that is intended to be a "qualified plan" under Section 401 of the
Code.
With respect to each Employee Plan/Agreement for which an annual report has
been filed and delivered to Purchaser pursuant to clause (i) of this
Section 4.16(i), no material adverse change has occurred with respect to
---------------
the matters covered by the latest such annual report since the date
thereof.
(j) Future Commitments. Seller has no announced plan or legally
------------------
binding commitment to create any additional Employee Plans/Agreements or to
amend or modify any existing Employee Plan/Agreement.
(k) No Assumption of Liability. Seller acknowledges that Purchaser
--------------------------
assumes no liability or responsibility, fiduciary or otherwise, with
respect to any of Seller's Employee Plans/Agreements and that Seller will
remain as the plan sponsor, plan administrator and named fiduciary of all
such Employee Plans/Agreements with full responsibility with respect to the
maintenance, investment and administration of such Employee
Plans/Agreements following the effective date of this Agreement.
-24-
4.17 Employment Compensation. Schedule 4.17 contains a true and correct
----------------------- -------------
list of all employees to whom Seller is paying compensation and the compensation
paid thereto during the twelve month period ending as of the date of the Recent
GAAP Financial Statements, including bonuses and incentives (such as auto
allowance, company supplied automobiles, life insurance, and other benefits),
and listing the current annual rate of compensation for each employee.
4.18 Trade Rights. Schedule 4.18 lists all Trade Rights (as defined
------------ -------------
below) in which Seller now has any interest, specifying whether such Trade
Rights are owned, controlled, used or held (under license or otherwise) by
Seller, and also indicating which of such Trade Rights are registered. All Trade
Rights shown as registered on Schedule 4.18 have been properly registered, all
-------------
pending registrations and applications have been properly made and filed and all
maintenance, renewal and other fees relating to registrations or applications
are current. In order to conduct the Business, as such is currently being
conducted or proposed to be conducted, Seller does not require any Trade Rights
that it does not already have. Seller is not infringing and has not infringed
any Trade Rights of another in the operation of the business of Seller, nor is
any other person infringing the Trade Rights of Seller. Seller has not granted
any license or made any assignment of any Trade Right listed on Schedule 4.18,
-------------
nor does Seller pay any royalties or other consideration for the right to use
any Trade Rights of others. There are no inquiries, investigations or claims or
litigation challenging or threatening to challenge Seller's right, title and
interest with respect to its continued use and right to preclude others from
using any Trade Rights of Seller. All Trade Rights of Seller are valid,
enforceable and in good standing, and there are no equitable defenses to
enforcement based on any act or omission of Seller. The consummation of the
transactions contemplated hereby will not alter or impair any Trade Rights owned
or used by Seller. As used herein, the term "Trade Rights" shall mean and
------------
include: (i) all trademark rights, business identifiers, trade dress, service
marks, trade names and brand names, all registrations thereof and applications
therefor and all goodwill associated with the foregoing; (ii) all copyrights,
copyright registrations and copyright applications, and all other rights
associated with the foregoing and the underlying works of authorship; (iii) all
patents and patent applications, and all international proprietary rights
associated therewith; (iv) all contracts or agreements granting any right,
title, license or privilege under the intellectual property rights of any third
party; (v) all inventions, mask works and mask work registrations, know-how,
discoveries, improvements, designs, trade secrets, shop and royalty rights,
employee covenants and agreements respecting intellectual property and non-
competition and all other types of intellectual property; and (vi) all claims
for infringement or breach of any of the foregoing.
4.19 Major Customers and Suppliers.
-----------------------------
(a) Major Customers. Schedule 4.19(a) contains a list of the 10
--------------- ----------------
largest customers of Seller for each of the two (2) most recent fiscal
years (determined on the basis of the total dollar amount of net sales)
showing the total dollar amount of net sales to each such customer during
each such year. Neither Seller nor any Shareholder has any knowledge or
information of any facts indicating, nor any other reason to believe, (i)
that the Seller's relationship with any of the customers listed on Schedule
--------
4.19(a) is other than that which is likely to give rise to a positive
-------
recommendation by such customer of the Seller to others, or (ii) that to
the extent any Customer listed on Schedule 4.19(a) would have recurring
----------------
projects, that such Customer would be other than likely to retain the
Seller to perform such project.
-25-
(b) Major Suppliers. Schedule 4.19(b) contains a list of the ten
--------------- ----------------
(10) largest suppliers of services and goods (including major
subcontractors) to Seller for each of the two (2) most recent fiscal years
(determined on the basis of the total dollar amount of purchases) showing
the total dollar amount of purchases from each such supplier during each
such year. Neither Seller nor any Shareholder has any knowledge or
information of any facts indicating, nor any other reason to believe, that
any of the suppliers listed on Schedule 4.19(b) will not continue to be
----------------
suppliers to the business of Seller after the Closing and will not continue
to supply the business with substantially the same quantity and quality of
goods at competitive prices. There are no agreements between the Seller and
any subcontractor or supplier requiring Seller to use the services or goods
of such subcontractor or supplier with respect to any further Seller
business.
4.20 Warranty and Product Liability. Schedule 4.20 contains a true,
------------------------------ -------------
correct and complete copy of Seller's standard warranty or warranties and,
except as stated therein, there are no warranties, commitments or obligations
with respect to the Seller's services. Schedule 4.20 sets forth the estimated
-------------
aggregate annual cost to Seller of performing warranty obligations for customers
for each of the five (5) preceding fiscal years and the current fiscal year to
the date of the Recent GAAP Financial Statements. Schedule 4.20 contains a
-------------
description of all product liability claims and/or errors and omission claims
and similar claims, actions, litigation and other proceedings relating to
services rendered, which are presently pending or which to Seller's or any
Shareholder's knowledge are threatened, or which have been asserted or commenced
against Seller within the last five (5) years, in which a party thereto either
requests injunctive relief or alleges damages (whether or not covered by
insurance).
4.21 Bank Accounts. Schedule 4.21 sets forth the names and locations of
------------- -------------
all banks, trust companies, savings and loan associations and other financial
institutions at which the company maintains a safe deposit box, lock box or
checking, savings, custodial or other account of any nature, the type and number
of each such account and the signatories therefore, a description of any
compensating balance arrangements, and the names of all persons authorized to
draw thereon, make withdrawals therefrom or have access thereto.
4.22 Affiliates, Relationships to Seller.
-----------------------------------
(a) Contracts With Affiliates. All leases, contracts, agreements or
-------------------------
other arrangements between Seller and any Affiliate are described on
Schedule 4.22(a).
----------------
(b) No Adverse Interests. No Affiliate has any direct or indirect
--------------------
interest in (i) any entity which does business with Seller or is
competitive with Seller's business, or (ii) any property, asset or right
which is used by Seller in the conduct of its business.
(c) Obligations. All obligations of any Affiliate to Seller, and all
-----------
obligations of Seller to any Affiliate, are listed on Schedule 4.22(c).
----------------
4.23 No Brokers or Finders. Except as set forth in Schedule 4.23, neither
--------------------- -------------
Seller nor any of its directors, officers, employees, Shareholders or agents
have retained, employed or used any broker or finder in connection with the
transaction provided for herein or in connection with the negotiation thereof.
-26-
4.24 Disclosure. No representation or warranty by the Shareholders in
----------
this Agreement, nor any statement, certificate, schedule, document or exhibit
hereto furnished or to be furnished by or on behalf of Seller or any of the
Shareholders pursuant to this Agreement or in connection with transactions
contemplated hereby, contains or shall contain any untrue statement of material
fact or omits or shall omit a material fact necessary to make the statements
contained therein not misleading.
4.25 Investment Representation. The representations and warranties
-------------------------
contained in the Investment Representation Certificate (the "Investor
--------
Certificate"), in the form attached hereto as Exhibit 4.25, are true and correct
- ----------- ------------
and shall be true and correct on the Closing Date.
ARTICLE 5
---------
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser and TKC jointly and severally make the following representations
and warranties to Seller and the Shareholders, each of which is true and correct
on the date hereof and shall be unaffected by any investigation heretofore or
hereafter made by Seller or the Shareholders or any notice to any of them.
5.1 Corporate. Purchaser is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of California.
Purchaser has all requisite corporate power to enter into this Agreement and the
other documents and instruments to be executed and delivered by Purchaser and to
carry out the transactions contemplated hereby and thereby.
5.2 Authority. The execution and delivery of this Agreement and the
---------
other documents and instruments to be executed and delivered by Purchaser
pursuant hereto and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of Purchaser. No
other corporate act or proceeding on the part of Purchaser or its shareholders
is necessary to authorize this Agreement or the other documents and instruments
to be executed and delivered by Purchaser pursuant hereto or the consummation of
the transactions contemplated hereby and thereby. This Agreement constitutes,
and when executed and delivered, the other documents and instruments to be
executed and delivered by Purchaser pursuant hereto will constitute, valid and
binding agreements of Purchaser, enforceable in accordance with their respective
terms, subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application affecting the enforcement
of creditors' rights, and to the availability of equitable remedies.
5.3 Consents, Approvals and Authorizations. No consent, approval or
--------------------------------------
authorization of, or filing or registration with, any governmental authority or
other person is required by Purchaser in connection with Purchaser's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby.
5.4 No Brokers or Finders. Neither Purchaser nor any of its directors,
---------------------
officers, employees or agents have retained, employed or used any broker or
finder in connection with the transaction provided for herein or in connection
with the negotiation thereof.
5.5 No Violation. Except as set forth on Schedule 5.5, neither the
------------ ------------
execution and delivery of this Agreement nor the consummation by Purchaser of
the transactions contemplated
-27-
hereby (a) will cause Purchaser to violate any statute or law or any rule,
regulation, order, writ, injunction or decree of any court or governmental
authority, (b) will require Purchaser to obtain any authorization, consent,
approval, exemption or other action by or notice to any court, administrative or
governmental agency, instrumentality, commission, authority, board or body, or
(c) will violate or conflict with, or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, or
will result in the termination of, or accelerate the performance required by, or
result in the creation of any Lien (as defined in Section 4.12) upon any of the
------------
assets of Purchaser under any term or provision of the Articles of Incorporation
or Bylaws of Purchaser or of any contract, commitment, understanding,
arrangement, agreement or restriction of any kind or character to which
Purchaser is a party or by which Purchaser or any of its assets or properties
may be bound or affected.
ARTICLE 6
---------
COVENANTS OF SELLER AND THE SHAREHOLDERS
----------------------------------------
Seller and all of the Shareholders covenant and agree as follows:
6.1 Access to Information and Records. During the period prior to the
---------------------------------
Closing, Seller shall give Purchaser, its counsel, accountants and other
representatives access during normal business hours to all of the properties,
books, records, contracts and documents of Seller and available work papers of
Seller's independent accountants ("Seller's Accountants") and representatives of
--------------------
Seller's Accountants, which access is necessary to review the Recent GAAP
Financial Statements and the GAAP Financial Statements, and Seller shall furnish
or cause to be furnished to Purchaser and its representatives all information
with respect to the business and affairs of Seller as Purchaser may request.
During the period prior to the Closing, Seller shall give Purchaser, its
counsel, accountants and other representatives access to employees, agents and
representatives for the purposes of such meetings and communications as
Purchaser reasonably desires, and with the prior consent of Seller in each
instance (which consent shall not be unreasonably withheld), access to customers
and suppliers of Seller. Following the Closing, Seller shall (i) maintain the
books, records, contracts and documents of Seller, as the case may be, among the
Excluded Assets for not less than five years (and longer if required by law) and
(ii) give Purchaser, its counsel, accountants and other representatives access
during normal business hours to all such books, records, contracts and documents
of Seller among the Excluded Assets as Purchaser shall reasonably request. The
Seller, at its own expense, shall cause its books and records to conform to GAAP
for the engineering/construction industry prior to the review by Purchaser as
described in this Section 6.1.
-----------
6.2 Conduct of Business Pending the Closing. From the date hereof until
---------------------------------------
the Closing, except as otherwise approved in writing by Purchaser (which
approval shall not be unreasonably or arbitrarily withheld or delayed), Seller
will each comply with the following:
(a) No Changes. Seller will carry on its business diligently and in
----------
the same manner as heretofore and will not make or institute any changes in
its methods of purchase, sale, management, accounting or operation.
(b) Maintain Organization. Seller will take such action as may be
---------------------
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and
-28-
franchises of the Seller and will use its best efforts to preserve the
business organization of the Seller intact, to keep available to Purchaser
the present officers and employees of the Seller, and to preserve for
Purchaser its present relationships with suppliers and customers and others
having business relationships with the Seller.
(c) No Breach. The Seller will not do or omit any act, or permit any
---------
omission to act, which may cause a breach of any material contract,
commitment or obligation, or any breach of any representation, warranty,
covenant or agreement made by Seller or any of the Shareholders.
(d) No Material Contracts. Without the prior written consent of
---------------------
Purchaser, no contract or commitment will be entered into, and no purchase
of supplies, equipment and no sale of goods or services (real, personal, or
mixed, tangible or intangible) will be made, by or on behalf of Seller,
except contracts, commitments, purchases or sales which are in the ordinary
course of business and consistent with past practice, are not material to
the Seller (individually or in the aggregate) and would not have been
required to be disclosed in the Disclosure Schedule had they been in
existence on the date of this Agreement.
(e) Material Transactions. Except as otherwise expressly provided in
---------------------
this Agreement, the Seller will not:
(i) Enter into any employment or consulting contract or
arrangement with any person which is not terminable at will, without
penalty or continuing obligation;
(ii) Sell, transfer, lease or otherwise dispose of any asset,
except in the ordinary course of business and consistent with past
practice;
(iii) Incur, create, or assume any mortgage, pledge, lien,
restriction, encumbrance, tenancy, license, encroachment, covenant,
condition, right-of-way, easement, claim, security interest, charge or
other matter affecting title on any of its assets or other property;
(iv) Fail to pay all taxes, assessments, governmental charges
or levies imposed upon it or its income, profits or assets or
otherwise required to be paid by it, or fail to pay when due any
liability or charge, except for taxes the Seller is protesting in good
faith if the Seller promptly gives notice to Purchaser of any such
protest;
(v) Increase or otherwise change the compensation payable or
to become payable to any officer, employee or agent, except normal
merit increases made in the ordinary course of business and consistent
with past practice;
(vi) Make or authorize the making of any capital expenditure
other than capital expenditures in the ordinary course of business and
not exceeding $5,000 individually or $25,000 in the aggregate;
-29-
(vii) Incur any debt or other obligation for money borrowed
except open account trade payables incurred in the ordinary course of
business;
(viii) Incur any other obligation or liability, absolute or
contingent, except in the ordinary course of business and consistent
with past practice;
(ix) Waive or permit the loss of any substantial right; or
(x) Deliver any cash or property to any of (A) the
Shareholders, (B) any other shareholders of Seller or (C) any
Affiliate of the Seller or of any such other person, whether as
compensation for goods or services or payments under existing
commitments or obligations (other than payments of wages and other
compensation in amounts not greater than that of the Recent GAAP
Financial Statement to the Shareholders), or incur any obligation to
do so, except that, if applicable, Seller may make any lease payments
it is obligated to make under the lease pursuant to which it occupies
the Facilities.
(f) No Corporate Changes. The Seller shall not amend its articles of
--------------------
incorporation or bylaws or make any changes in authorized or issued capital
stock.
(g) Maintenance of Insurance. The Seller shall maintain all of the
------------------------
insurance in effect as of the date hereof and shall procure such additional
insurance as shall be reasonably requested by Purchaser at Purchaser's
expense.
(h) Maintenance of Property. The Seller shall use, operate, maintain
-----------------------
and repair all property used in its business in a normal business manner.
(i) Interim Financials. The Seller will provide Purchaser with
------------------
interim monthly financial statements in accordance with GAAP and other
management reports on a timely basis.
6.3 No Negotiations. From the date hereof until the Closing, neither
---------------
Seller nor either of the Shareholders will directly or indirectly (through a
representative, Affiliate or otherwise) solicit or furnish any information to
any prospective buyer, commence, or conduct presently ongoing, negotiations with
any other party or enter into any agreement with any other party concerning the
sale of Seller or the assets or the Business or any part thereof of Seller (an
"acquisition proposal"), and Seller shall immediately advise Purchaser in
- ---------------------
writing of the receipt of any acquisition proposal.
6.4 Consents.
--------
(a) Prior to Closing, Seller will take all steps necessary to obtain,
and will obtain, all consents necessary for the consummation of the
transactions contemplated hereby. Seller shall have delivered to Purchaser
on or prior to the Closing Date, consents from landlords under each lease
of Real Property to the transactions contemplated by this Agreement.
Purchaser shall have obtained all approvals, consents and waivers from its
banks and other third parties from whom such consents, approvals or waivers
are required.
-30-
(b) Seller will use its best efforts prior to Closing to obtain all
other consents necessary for the consummation of the transactions
contemplated hereby including without limitation under government
contracts, and contracts expressly assumed pursuant to Section 2.2(b).
--------------
(c) All such consents shall be in writing and executed counterparts
thereof shall be delivered to Purchaser promptly after Seller's receipt
thereof but in no event later than immediately prior to the Closing.
6.5 Other Action. Seller and the Shareholders shall use their best efforts
------------
to cause the fulfillment at the earliest practicable date of all of the
conditions to the obligations of Seller and the Shareholders.
6.6 Disclosure Schedule. Seller shall have a continuing obligation to
-------------------
promptly notify Purchaser in writing with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in the Disclosure
Schedule; provided, however, that no such disclosure shall cure any breach of
any representation or warranty which was inaccurate on the date of this
Agreement, and that the acceptance of any one or more of such amendments by
Purchaser shall not affect the condition to the obligation of Purchaser to
consummate the transactions contemplated hereby contained in Section 9.1; any
-----------
and all adverse changes contained in any such amendments shall be considered in
the determination of whether the condition under Section 9.1 has been satisfied.
-----------
6.7 Confidentiality.
---------------
(a) Covenant. Without limiting the extent of any other provisions of
--------
this Agreement and except as may be necessary to prepare reports and
returns to governmental agencies for financial record keeping purposes or
for other proper business reasons, neither Seller nor any of the
Shareholders shall subsequent to the Closing (i) retain copies of any
customer lists, any information regarding customers which is not available
to the public or any trade secrets or other books, records, contracts and
documents of Seller among the Purchased Assets, except that Seller may
retain the information included in this Agreement or in the Disclosure
Schedule; or (ii) disclose any of the foregoing to any person. Subsequent
to the Closing, Purchaser shall afford Seller reasonable access to, and
allow Seller to make copies for a reasonable purpose of, the foregoing
information for the purposes specified in the preceding sentence during
normal business hours and upon reasonable notice to Purchaser.
(b) Employees. For a period of two years from the Closing Date,
--------
neither Seller, none of the Shareholders, nor any Affiliate of either shall
offer employment to any employee of Seller on the Closing Date or
subsequent thereto without the prior written consent of Purchaser, except
that the foregoing restriction shall not apply to any such employee who is
not hired, or is hired but subsequently terminated, by Purchaser following
the Closing.
(c) Equitable Relief for Violations. Seller agrees that the provisions
-------------------------------
and restrictions contained in this Section 6.7 are necessary to protect the
-----------
legitimate continuing
-31-
interests of Purchaser in acquiring the Business through the purchase of
the Purchased Assets, and that any violation or breach of these provisions
will result in irreparable injury to Purchaser for which a remedy at law
would be inadequate and that, in addition to any relief at law which may be
available to Purchaser for such violation or breach, Purchaser shall be
entitled to injunctive and other equitable relief as a court may grant
after considering the intent of this Section 6.7.
-----------
(d) Permitted Disclosure. Notwithstanding the provisions of this
--------------------
Section 6.7, disclosure shall be permitted (i) where ordered by a court of
-----------
competent jurisdiction or by subpoena, (ii) if required to disclose to an
employee of Seller in the course of performing work related to that which
is customarily performed by Seller (provided that such employee enter into
a written agreement assuring the confidentiality of such information), and
(iii) where such information is already in the public domain other than
through a breach by Seller or the Shareholders of this Agreement.
6.8 Insurance.
---------
(a) As soon as practicable after the date hereof and prior to the
Closing, Seller and the Shareholders shall use their best efforts to cause
the following to occur prior to the Closing with respect to all policies of
fire, liability, product liability, workers compensation, health and other
forms of insurance of which Seller is the owner, insured or beneficiary, or
covering any of the Purchased Assets:
(i) upon the reasonable request of Purchaser, cause each
insurer under any such policy to consent to the transfer of such
insurance to Purchaser at the Closing as contemplated by this
Agreement;
(ii) deliver to Purchaser evidence reasonably satisfactory to
Purchaser that Purchaser will not be liable to any insurer under any
policy that provides for or is subject to any retroactive rate or
premium adjustment, loss sharing arrangement or other actual or
contingent liability arising wholly or partially out of events arising
prior to the Closing for any such rate or premium adjustment, loss
sharing arrangement or other actual or contingent liability; and
(iii) at the reasonable request of Purchaser, cause Purchaser to
be named as an additional insured under each of its occurrence-type
policies of insurance insuring against general liability claims,
claims for personal injury and property damage arising out of or
resulting from any products sold by Seller prior to the Closing Date
and workers compensation claims, to the extent an insurer does not
allow the transfer to Purchaser of any such policies provided,
however, that in the event the Closing does not occur through no fault
of Seller, Purchaser shall assume the expense of Purchaser being named
as an additional insured, until the date Purchaser requests to be
removed from such policies.
(b) Following the Closing, Seller will, to the extent that coverage
under its insurance policies extends to include Purchaser in accordance
with the foregoing, (i) take no action to eliminate or reduce such
coverage, other than normal elimination or
-32-
reduction of coverage as they occur by virtue of the filing of claims in
the ordinary course under such insurance policies, (ii) pay when due any
premiums under such policies for periods through the Closing, including
retroactive premium adjustments, and (iii) use its best efforts to assist
in filing and processing claims under, and otherwise cooperate with
Purchaser to allow it, in its own name, or on behalf of Seller, as the case
may be, to obtain all coverage benefits under such insurance policies,
including without limitation the execution of assignments or powers of
attorney for the benefit of Purchaser. Any proceeds of insurance paid by an
insurer to Seller for claims of Purchaser made in accordance with this
Section shall be promptly paid to Purchaser.
(c) At the Closing, Seller shall deliver to Purchaser one or more
certificates of insurance evidencing that the insurance retained or
obtained by it pursuant to this Section 6.8 is in effect and providing for
-----------
notification to Purchaser at least ten (10) days prior to the effective
date of any termination or cancellation of such insurance.
6.9 Use of Seller's Names. Concurrently with the Closing, Seller shall
---------------------
change its corporate name to a new name bearing no resemblance to its present
name so as to permit the use of its present name by Purchaser. Following the
Closing, neither Seller, nor any Shareholder nor any Affiliate of either shall,
without the prior written consent of Purchaser, make any use, in a commercial
context, of the name "Hook," "Hook & Associates," "Hook & Associates
Engineering," or "Hook Engineering" or any other name confusingly similar
thereto, except as may be necessary for Seller to pay its liabilities, prepare
tax returns and other reports, and to otherwise wind up and conclude its
business.
6.10 Sales Tax. Seller will not take any action that would or may
---------
reasonably be expected to jeopardize any exemption from sales tax that would
otherwise be available to Purchaser, and Seller will take all actions to allow
Purchaser to avail itself of such exemptions.
6.11 Employee Matters.
----------------
(a) "Affected Employees" shall mean employees of Seller who are
------------------
employed by Purchaser immediately after the Closing.
(b) Responsibilities. Seller will satisfy, or cause its insurance
----------------
carriers to satisfy, all claims for benefits, whether insured or otherwise
(including, but not limited to, workers' compensation, life insurance,
medical and disability programs), under the Employee Benefit Plans of
Seller brought by, or in respect of, Affected Employees and other employees
and former employees of Seller, which claims arise out of events occurring
on or prior to the Closing Date, in accordance with the terms and
conditions of such programs or the applicable workers' compensation statute
without interruption as a result of the employment by Purchaser of any such
employees after the Closing Date.
(c) Termination Benefits. If any action on the part of Seller prior
--------------------
to the Closing, or if the sale to Purchaser of the Business pursuant to
this Agreement or the transactions contemplated hereby, shall result in any
liability or claim of liability for severance payments or termination
benefits, or any liability, forfeiture, fine or other obligation by virtue
of any state, federal or local "plant-closing" or similar law, such
-33-
liability or claim of liability shall be the sole responsibility of Seller
and each of the Shareholders, and Seller and each of the Shareholders shall
indemnify and hold harmless Purchaser for any losses resulting directly or
indirectly from such liability or claim.
(d) No Third-Party Rights. Nothing in this Agreement, express or
---------------------
implied, is intended to confer upon any of Seller's employees, former
employees, collective bargaining representatives, job applicants, any
association or group of such persons or any Affected Employees any rights
or remedies of any nature or kind whatsoever under or by reason of this
Agreement, including, without limitation, any rights of employment.
6.12 Unemployment Compensation. To the extent allowable under applicable
-------------------------
law, Seller will, at the request of Purchaser, use its best efforts to assign to
Purchaser unemployment compensation contribution rates and account balances of
Seller.
6.13 Expenses. Except as otherwise expressly provided herein, Seller shall
--------
bear Seller's expenses, the expenses of its counsel and other agents and any
other out-of-pocket expenses in connection with the transactions contemplated
hereby (including without limitation the costs to comply with Section 6.4),
-----------
and/or Seller shall ensure that such expenses are paid out of the cash
consideration to be delivered to Seller at the Closing.
6.14 Noncompetition Agreements. At the Closing, each of the Shareholders
-------------------------
and David Hook shall execute and deliver to Purchaser a Noncompetition Agreement
in the form attached hereto as Exhibit 6.14.
------------
ARTICLE 7
COVENANTS OF PURCHASER
----------------------
7.1 Conditions. Purchaser shall use its best efforts to cause the
----------
fulfillment at the earliest practicable date of all of the conditions to
Purchaser's obligations to consummate the transactions contemplated by this
Agreement that are within the control of Purchaser.
7.2 Employees. Immediately following the Closing, Purchaser shall offer
---------
employment, as of the Closing Date, to all of the then current employees of
Seller identified on Schedule 4.17 on substantially the same terms and
-------------
conditions as immediately before the Closing; provided, however, that Purchaser
assumes no obligation to continue such employment or the terms and conditions
therefor for any particular time after the Closing Date.
7.3 Reservation of Stock Options. TKC shall reserve up to fifty thousand
----------------------------
(50,000) options to purchase TKC's Common Stock under TKC's existing stock
option plans for grants, as determined by Shareholders, subject to TKC's
approval, to employees of Seller (except Michael Hook) who are employed by
Purchaser or who may be hired by Purchaser in the future.
ARTICLE 8
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
-----------------------------------------------
Each and every obligation of Purchaser to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
-34-
8.1 Representations and Warranties True as of the Closing Date. Each of
----------------------------------------------------------
the representations and warranties made by Seller and the Shareholders in this
Agreement, and the statements contained in the Disclosure Schedule or in any
instrument, list, certificate or writing delivered by Seller pursuant to this
Agreement, shall be true and correct in all respects when made and shall be true
and correct in all material respects (except that such qualification as to
materiality shall not apply to any representation or warranty that expressly
includes a qualification as to materiality) at and as of the Closing Date as
though such representations and warranties were made or given on and as of the
Closing Date, except for any changes permitted by the terms of this Agreement or
consented to in writing by Purchaser.
8.2 Compliance With Agreement. Seller shall have performed and complied
-------------------------
in all material respects with each of their respective agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 12.2.
------------
8.3 Absence of Suit. No demand, action, suit or proceeding have been
---------------
made, commenced or threatened, and no investigation by any governmental or
regulating authority shall have been commenced, against Seller, the
Shareholders, Purchaser or any of the Affiliates, officers or directors of any
of them, seeking to restrain, prevent or change the transactions contemplated
hereby, or questioning the validity or legality of any such transactions, or
seeking damages in connection with, or imposing any condition on, any such
transactions.
8.4 Consents and Approvals. All approvals, consents and waivers
----------------------
(including without limitation novations relating to government contracts and the
approval of Purchaser's and TKC's banking and financial institutions) that are
required to effect the transactions contemplated hereby shall have been
received, and executed counterparts thereof shall have been delivered to
Purchaser.
8.5 Lease. Purchaser and Seller shall have agreed upon a form of lease or
-----
assignment of lease, as applicable, with respect to each of the Facilities.
8.6 Insurance. Seller shall have taken the actions contemplated by
---------
Section 6.8 to be taken prior to the Closing and the results of such actions
- -----------
shall be reasonably satisfactory to Purchaser.
8.7 Satisfactory Due Diligence and Disclosure. Purchaser shall have been
-----------------------------------------
provided with all reasonably requested due diligence materials and the schedules
attached hereto and shall have completed, to its satisfaction, a "due diligence"
review of the assets, liabilities, operations, financial condition, and
proprietary rights of the Seller.
8.8 Satisfactory Evidence of Authority to Execute. Shareholders shall
---------------------------------------------
have provided such documents or instruments as are necessary, in the reasonable
judgment of Purchaser's counsel, to establish the authority of the person or
persons executing this Agreement on behalf of the Shareholders.
8.9 Insurance. Seller shall have purchased a policy of multi-year "run-
---------
off" insurance in form and content satisfactory to Purchaser, naming Purchaser
and TKC as additional insured,
-35-
a description of which is contained in a copy of the insurance binder attached
hereto as Exhibit 8.10.
------------
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS
-----------------------------------
OF SELLER AND THE SHAREHOLDERS
------------------------------
Each and every obligation of Seller and the Shareholders to be performed on
the Closing Date shall be subject to the satisfaction prior to or at the Closing
of the following conditions:
9.1 Representations and Warranties True on the Closing Date. Each of the
-------------------------------------------------------
representations and warranties made by Purchaser and TKC in this Agreement shall
be true and correct in all respects when made and shall be true and correct in
all material respects at and as of the Closing Date as though such
representations and warranties were made or given on and as of the Closing Date.
9.2 Compliance With Agreement. Purchaser shall have in all material
-------------------------
respects performed and complied with each of Purchaser's agreements and
obligations under this Agreement which are to be performed or complied with by
Purchaser prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 12.3.
------------
9.3 Absence of Suit. No demand, action, suit or proceeding have been
---------------
made, commenced or threatened, and no investigation by any governmental or
regulating authority shall have been commenced, against Seller, the Shareholders
Purchaser or any of the Affiliates, officers or directors of any of them,
seeking to restrain, prevent or change the transactions contemplated hereby, or
questioning the validity or legality of any such transactions, or seeking
damages in connection with, or imposing any condition on, any such transactions.
9.4 Leases. Purchaser and Seller shall have agreed upon a form of lease
------
or assignment of lease, as applicable, with respect to each of the Facilities.
9.5 TKC Guaranty. Purchaser, TKC and Seller shall have agreed upon the
------------
form of the TKC Guaranty in the form of Exhibit 12.3(a)-2 attached hereto.
-----------------
ARTICLE 10
EFFECT OF DELIVERABLES
----------------------
10.1 Integration. All statements and information contained in any
-----------
certificate, schedule, instrument or document delivered by or on behalf of the
parties pursuant to this Agreement and the transactions contemplated hereby
shall be deemed representations and warranties by the parties making such
delivery.
ARTICLE 11
INDEMNIFICATION
---------------
11.1 By Seller and the Shareholders. Subject to the terms and
------------------------------
conditions of this Section 11, Seller and each Shareholder, jointly and
----------
severally, hereby agrees to indemnify, defend and hold harmless Purchaser, TKC
and each of their respective directors, officers,
-36-
employees and controlled and controlling persons (hereinafter "Purchaser's
-----------
Affiliates") from and against all Claims asserted against, resulting to, imposed
- ----------
upon, or incurred by Purchaser, or Purchaser's Affiliates, directly or
indirectly, by reason of, arising out of, resulting from or not otherwise
disclosed as a result of (a) the inaccuracy or breach of any representation or
warranty of Seller or any Shareholder contained in or made pursuant to this
Agreement, or (b) the breach of any covenant of Seller or any Shareholder
contained in this Agreement. As used in this Section 11, the term "Claim" shall
---------- -----
include (i) all debts, liabilities and obligations; (ii) all losses, damages
(including, without limitation, consequential damages), judgments, awards,
settlements, costs and expenses (including, without limitation, interest
(including prejudgment interest in any litigated matter), penalties, court costs
and attorneys fees and expenses); and (iii) all demands, claims, suits, actions,
costs of investigation, causes of action, proceedings and assessments, whether
or not ultimately determined to be valid. Purchaser may, at its sole and
absolute discretion, elect to set-off the amount or value or any such Claim
against any payments otherwise due to Seller or Shareholders hereunder, whether
in cash, Stock Payment, Purchase Note or otherwise as described in Section 11.4
------------
provided, however, that should a court or arbitration (in accordance with the
terms of this Agreement) make a final determination that Purchaser and/or TKC
(as the case may be) has improperly set off the value of such Claim, then such
amount improperly set-off may be recovered by Seller.
11.2 By Purchaser. Subject to the terms and conditions of this Section 11,
------------ ----------
Purchaser hereby agrees to indemnify, defend and hold harmless Seller and each
Shareholder from and against all Claims asserted against, resulting to, imposed
upon or incurred by any such person, directly or indirectly, by reason of or
resulting from (a) the inaccuracy or breach of any representation or warranty of
Purchaser contained in or made pursuant to this Agreement, or (b) the breach of
any covenant of Purchaser contained in this Agreement, including any claim
accruing after the Closing Date and for which the Seller or the Shareholders are
not otherwise liable hereunder.
11.3 Indemnification of Third-Party Claims. The obligations and
-------------------------------------
liabilities of any party to indemnify any other under this Section 11 with
----------
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
(a) Notice and Defense. The party or parties to be indemnified
------------------
(whether one or more, the "Indemnified Party") will give the party from
-----------------
whom indemnification is sought (the "Indemnifying Party") prompt written
------------------
notice of any such Claim, and the Indemnifying Party will undertake the
defense thereof by representatives chosen by it. Failure to give such
notice shall not affect the Indemnifying Party's duty or obligations under
this Section 11, except to the extent the Indemnifying Party is prejudiced
----------
thereby. So long as the Indemnifying Party is defending any such Claim
actively and in good faith, the Indemnified Party shall not settle such
Claim. The Indemnified Party shall make available to the Indemnifying Party
or its representatives all records and other materials required by them and
in the possession or under the control of the Indemnified Party, for the
use of the Indemnifying Party and its representatives in defending any such
Claim, and shall in other respects give reasonable cooperation in such
defense.
(b) Failure to Defend. If the Indemnifying Party, within a reasonable
-----------------
time after notice of any such Claim, fails to defend such Claim actively
and in good faith, the
-37-
Indemnified Party (upon further notice) has the right to undertake the
defense, compromise or settlement of such Claim or consent to the entry of
a judgment with respect to such Claim, on behalf of and for the account and
risk of the Indemnifying Party, and the Indemnifying Party shall thereafter
have no right to challenge the Indemnified Party's defense, compromise,
settlement or consent to judgment therein.
(c) Indemnified Party's Rights. Anything in this Section 11.3 to the
-------------------------- ------------
contrary notwithstanding, (i) if there is a reasonable probability that a
Claim may materially and adversely affect the Indemnified Party other than
as a result of money damages or other money payments, the Indemnified Party
shall have the right to defend, compromise or settle such Claim, and (ii)
the Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise any Claim or consent to the entry
of any judgment which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party of a
release from all liability in respect of such Claim.
11.4 Payment. The Indemnifying Party shall promptly pay the Indemnified
-------
Party any amount due under this Section 11, which payment may be accomplished in
----------
whole or in part, at the option of the Indemnified Party, by the Indemnified
Party setting off any amount owed to the Indemnifying Party by the Indemnified
Party. To the extent set-off is made by an Indemnified Party in satisfaction or
partial satisfaction of an indemnity obligation under this Section 11 that is
----------
disputed by the Indemnifying Party, upon a subsequent determination by final
judgment not subject to appeal that all or a portion of such indemnity
obligation was not owed to the Indemnified Party, the Indemnified Party shall
pay the Indemnifying Party the amount which was set off and not owed together
with interest from the date of set-off until the date of such payment at an
annual rate equal to the annual rate set forth in the Purchase Note. Upon
judgment, determination, settlement or compromise of any third party Claim, the
Indemnifying Party shall pay promptly on behalf of the Indemnified Party, and/or
to the Indemnified Party in reimbursement of any amount theretofore required to
be paid by it, the amount so determined by judgment, determination, settlement
or compromise and all other Claims of the Indemnified Party with respect
thereto, unless in the case of a judgment an appeal is made from the judgment.
If the Indemnifying Party desires to appeal from an adverse judgment, then the
Indemnifying Party shall post and pay the cost of the security or bond to stay
execution of the judgment pending appeal. Upon the payment in full by the
Indemnifying Party of such amounts, the Indemnifying Party shall succeed to the
rights of such Indemnified Party, to the extent not waived in settlement,
against the third party who made such third party Claim.
11.5 Limitations on Indemnification. Except for any willful or knowing
------------------------------
breach or misrepresentation, as to which claims may be brought without
limitation as to time or amount:
(a) Time Limitation. Except as provided below, no claim or action
---------------
shall be brought under this Section 11 for breach of a representation or
----------
warranty after the lapse of five (5) years following the Closing:
(i) There shall be no time limitation on claims on actions
brought for breach of any representation or warranty made by the
Seller or the Shareholders
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in or pursuant to Sections 4.1 and 4.2, and the Seller and the
--------------------
Shareholders hereby waive all applicable statutory limitation periods
with respect thereto.
(ii) Any claim or action brought for breach of any
representation or warranty made by the Seller or the Shareholders in
or pursuant to Section 4.5 may be brought at any time until the
-----------
underlying tax obligation is barred by the applicable period of
limitation under federal and state laws relating thereto (as such
period may be extended by waiver).
(iii) Any claim or action brought for breach of any
representation or warranty made by the Seller or the Shareholders in
or pursuant to Section 4.11 may be brought at any time until the
------------
underlying claim is barred by the applicable period of limitation
under federal and state laws relating thereto (as such period may be
extended by waiver).
(iv) Any claim made by a party hereunder by filing a suit or
action in a court of competent jurisdiction or a court reasonably
believed to be of competent jurisdiction for breach of a
representation or warranty prior to the termination of the survival
period for such claim shall be preserved despite the subsequent
termination of such survival period.
(v) If any act, omission, disclosure or failure to disclosure
shall form the basis for a claim for breach of more than one
representation or warranty, and such claims have different periods of
survival hereunder, the termination of the survival period of one
claim shall not affect a party's right to make a claim based on the
breach of representation or warranty still surviving.
11.6 No Waiver. The Closing of the transactions contemplated by this
---------
Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing.
ARTICLE 12
CLOSING
-------
12.1 Closing. The closing of the transactions contemplated hereby (the
-------
"Closing") shall take place at the offices of Rutan & Tucker, LLP, 611 Anton
-------
Boulevard, 14th Floor, Costa Mesa, California 92626, at 10:00 a.m. on January
31, 2001. Such date is referred to in this Agreement as the "Closing Date."
------------
12.2 Documents to be Delivered by Seller. Seller or each of the
-----------------------------------
Shareholders, as the case may be, shall execute and deliver to counsel for
Purchaser the following documents, in each case duly executed or otherwise in
proper form:
(a) Bills of Sale. Bills of sale and such other instruments of
-------------
assignment, transfer, conveyance and endorsement as will be sufficient in
the opinion of Purchaser and its counsel to transfer, assign, convey and
deliver to Purchaser the Purchased Assets.
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(b) Compliance Certificates. A certificate signed by the chief
-----------------------
executive officer of Seller and each of the Shareholders that each of the
representations and warranties made by Seller and each of the Shareholders
in this Agreement is true and correct in all respects on and as of the
Closing Date with the same effect as though such representations and
warranties had been made or given on and as of the Closing Date (except for
any changes permitted by the terms of this Agreement or consented to in
writing by Purchaser), and that Seller and each of the Shareholders have
performed and complied with each of their respective obligations under this
Agreement which are to be performed or complied with on or prior to the
Closing Date.
(c) Certified Resolutions. Certified copies of the resolutions of the
---------------------
Board of Directors of Seller and the shareholders of Seller authorizing and
approving this Agreement and the consummation of the transactions
contemplated by this Agreement.
(d) Lien Releases. Evidence of the release of all security and
-------------
mortgage interests and any other Lien on or in the Purchased Assets.
(e) Shareholder Releases. Releases executed by each of the direct
--------------------
shareholders of Seller in the form of Exhibit 12.2(e) hereto.
---------------
(f) Investor Certificate. An Investor Certificate, as defined in
--------------------
Section 4.25, shall be duly executed by Seller and each of Seller's
------------
shareholders.
(g) Noncompete Agreements. Duly executed Noncompetition Agreements as
---------------------
required by Section 6.14.
------------
(h) Other Documents. All other documents, instruments or writings
---------------
required to be delivered to Purchaser at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Purchaser may reasonably request.
12.3 Cash and Documents to be Delivered by Purchaser. Purchaser shall
-----------------------------------------------
deliver the cash portion of the Purchase Price required by Section 3.1(a) and
--------------
shall execute and deliver to Seller and its counsel the following documents, in
each case duly executed or otherwise in proper form:
(a) Purchase Note and TKC Guaranty. The Purchase Note, substantially
------------------------------
in the form of Exhibit 12.3(a)-1 hereto and the TKC Guaranty, substantially
-----------------
in the form of Exhibit 12.3(a)-2 hereto.
-----------------
(b) Assumption of Liabilities. Such undertakings and instruments of
-------------------------
assumption as will be reasonably sufficient in the opinion of Seller and
Seller's counsel to evidence the assumption of the Assumed Liabilities as
provided for in Article 2.
---------
(c) Compliance Certificate. A certificate signed by the chief
----------------------
executive officer or chief financial officer of Purchaser that the
representations and warranties made by Purchaser in this Agreement are true
and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made or given on and as of the
Closing Date (except for any changes permitted by the terms of this
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Agreement or consented to in writing by Seller), and that the Purchaser has
performed and complied with all of Purchaser's obligations under this
Agreement which are to be performed or complied with on or prior to the
Closing Date.
(d) Certified Resolutions. A certified copy of the resolutions of the
----------------------
board of directors of Purchaser authorizing and approving this Agreement
and the consummation of the transactions contemplated by this Agreement.
(e) Other Documents. All other documents, instruments or writings
---------------
required to be delivered to Seller at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as
Seller may reasonably request.
ARTICLE 13
TERMINATION
-----------
13.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Closing:
(a) by mutual agreement of Seller and each of the Shareholders, on
the one hand, and Purchaser and TKC, on the other hand;
(b) by Purchaser and TKC, if there has been a material violation or
breach by Seller or any of the Shareholders of any of the agreements,
representations or warranties of Seller or any of the Shareholders
contained in this Agreement which has not been waived in writing or if
there has been a failure of satisfaction of a condition to the obligations
of Purchaser or TKC which has not been waived in writing, or if as a result
of its due diligence investigation, TKC's board of directors determines
that the acquisition of the Purchased Assets will not be in the best
interests of TKC and its shareholders; then Purchaser and TKC may, by
written notice to Seller and Shareholders at any time prior to the Closing,
that such violation, breach, or failure is continuing, terminate this
Agreement with the effect set forth in Section 13.2 hereof.
------------
(c) by Seller and Shareholders, if there has been a material
violation or breach by Purchaser or TKC of any of the agreements,
representations or warranties of Purchaser or TKC contained in this
Agreement which has not been waived in writing or if there has been a
material failure of satisfaction of a condition to the obligations of
Seller or Shareholders hereunder which has not been waived in writing then
Seller or Shareholders may, by written notice to Purchaser and TKC at any
time prior to the Closing, that such violation, breach, or failure is
continuing, terminate this Agreement with the effect set forth in Section
-------
13.2 hereof.
----
13.2 Effect of Termination. Termination of this Agreement pursuant to this
---------------------
Section 13 (a) shall permit the terminating party to so terminate without any
- -----------
further liability or obligation on the part of the terminating party to the
other parties hereto and (b) not in any way terminate, limit or restrict the
rights and remedies of any party hereto against any other party which has
violated, breached or failed to satisfy any of the representations, warranties,
covenants, agreements, conditions or other provisions of this Agreement prior to
termination hereof. In addition to the right of any party under common law to
redress for any such breach or
-41-
violation, each party whose breach or violation has occurred prior to
termination shall jointly and severally indemnify each other party for whose
benefit such representation, warranty, covenant, agreement or other provision
was made ("indemnified party") from and against all losses, damages (including,
-----------------
without limitation, consequential damages), costs and expenses (including,
without limitation, interest (including prejudgment interest in any litigated
matter), penalties, court costs, and attorneys fees and expenses) asserted
against, resulting to, imposed upon, or incurred by the indemnified party,
directly or indirectly, by reason of, arising out of or resulting from such
breach or violation. Subject to the foregoing, the parties' obligations under
Section 14.7 of this Agreement shall survive termination.
- ------------
ARTICLE 14
MISCELLANEOUS
-------------
14.1 Further Assurance. From time to time, at Purchaser's request and
-----------------
without further consideration, Seller will execute and deliver to Purchaser such
documents and take such other action as Purchaser may reasonably request in
order to consummate more effectively the transactions contemplated hereby and to
vest in Purchaser good, valid and marketable title to the Purchased Assets being
transferred hereunder.
14.2 Parties in Interest. This Agreement shall not be assigned by a
-------------------
party hereto without the prior written consent of the other parties hereto,
except that Purchaser may freely assign, in whole or in part, its rights and
obligations under this Agreement to one or more Acquisition Subsidiaries (as
hereinafter defined) or to any other corporation or entity affiliated with
Purchaser. Subject to the foregoing, this Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successors and assigns
of the parties hereto.
14.3 Law Governing Agreement; Venue; Arbitration. This Agreement may not
-------------------------------------------
be modified or terminated orally, and shall be construed and interpreted
according to the internal laws of the State of California, excluding any choice
of law rules that may direct the application of the laws of another
jurisdiction. All claims, disputes and other matters in controversy
(collectively, "Dispute") arising, directly or indirectly out of or related to
-------
this Agreement, or the breach thereof, whether contractual or noncontractual,
and whether during the term or after the termination of this Agreement, shall be
resolved exclusively according to the procedures set forth in this Section 14.3.
------------
Any Dispute shall be resolved by arbitration before a single arbitrator
appointed by the American Arbitration Association or its successor in Orange
County, California. The determination of the arbitrator shall be final and
absolute. The arbitrator shall be governed by the duly promulgated rules and
regulations of the American Arbitration Association or its successor then in
effect, and the pertinent provisions of the laws of the State of California
relating to arbitration. The decision of the arbitrator may be entered as a
final judgment in any court of the State of California or elsewhere. The
prevailing party in any such arbitration shall also be entitled to recover
reasonable attorneys', accountants' and experts' fees and costs of suit in
addition to any other relief awarded such prevailing party.
14.4 Notice. All notices, requests, demands and other communications
------
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written documents if followed by certified mail; or (c) sent to the
parties at their respective addresses indicated herein by registered or
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certified U.S. mail, return receipt requested and postage prepaid, or by private
overnight mail courier service. The respective addresses to be used for all such
notices, demands or requests are as follows:
(a) If to Purchaser, to:
The Keith Companies, Inc.
2955 Redhill Avenue
Costa Mesa, CA 92626
Attention: Gary Campanaro, Chief Financial Officer
Facsimile: (714) 668-7026
or to such other person or address as Purchaser shall furnish to Seller and each
of the Shareholders in writing.
(b) If to Seller or any of the Shareholders, to:
Michael Hook
Hook & Associates Engineering, Inc.
3221 N. 24th Street
Phoenix, AZ 85016
or to such other person or address as the Seller shall designate in accordance
with this Agreement.
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after
transmission; if sent by overnight courier pursuant to this paragraph, such
communication shall be deemed delivered upon receipt; and if sent by U.S. mail
pursuant to this paragraph, such communication shall be deemed delivered as of
the date of delivery indicated on the receipt issued by the relevant postal
service, or, if the addressee fails or refuses to accept delivery, as of the
date of such failure or refusal. Delivery to either Shareholder shall
constitute delivery to all Shareholders. Any party to this Agreement may change
its address for the purposes of this Agreement by giving notice thereof in
accordance with this section.
14.5 Amendment and Modification. The parties hereto may amend, modify and
--------------------------
supplement this Agreement in such manner as may be agreed upon in writing
between them in writing.
14.6 Disclosures and Announcements. Announcements concerning the
-----------------------------
transactions provided for in this Agreement by Purchaser, TKC, Seller or
Shareholders shall be subject to the approval of the other parties in all
essential respects, except that approval of the Shareholders or Seller shall not
be required as to any statements and other information which Purchaser may
submit to the Securities and Exchange Commission or Purchaser's stockholders or
be required to make pursuant to any rule or regulation of the Securities and
Exchange commission, the National Association of Securities Dealers, Inc. or the
Nasdaq Stock Market, Inc. or otherwise required by law.
-43-
14.7 Expenses.
--------
(a) Brokerage. Seller and Purchaser each represent and warrant to
---------
each other that, there is no broker involved or in any way connected with
the transfer provided for herein and each agrees to hold the other harmless
from and against all other claims for brokerage commissions or finder's
fees in connection with the execution of this Agreement or the transactions
provided for herein.
(b) Transfer Taxes. Any sales, use, excise, transfer or other
--------------
similar tax imposed with respect to the transactions provided for in this
Agreement, and interest or penalties related thereto, shall be borne by
Seller.
(c) Expenses. Except as otherwise provided herein, each of the
--------
parties shall bear its own expenses and the expenses of its counsel and
other agents in connection with the transactions contemplated hereby.
(d) Costs of Litigation. The parties agree that the prevailing
-------------------
party in any action brought with respect to or to enforce any right or
remedy under this Agreement shall be entitled to recover from the other
party or parties all reasonable costs and expenses of any nature whatsoever
incurred by the prevailing party in connection with such action, including
without limitation attorneys' fees.
14.8 Entire Agreement. Except for the Ancillary Instruments, this
----------------
instrument embodies the entire agreement between the parties hereto with respect
to the transactions contemplated herein, and there have been and are no
agreements, representations or warranties between the parties other than those
set forth or provided for herein.
14.9 Counterparts. This Agreement may be executed simultaneously in one or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.10 Headings. The headings in this Agreement are inserted for convenience
--------
only and shall not constitute a part hereof.
14.11 Further Documents. Purchaser, Seller and each of the Shareholders
-----------------
agree to execute all other documents and to take such other action or corporate
proceedings as may be necessary or desirable to carry out the terms hereof.
14.12 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
-44-
14.13 No Third Party Beneficiaries. This Agreement is not intended to
----------------------------
confer upon any person other than the parties hereto any rights or remedies
hereunder.
14.14 Cumulative Effect of Representations. The representations and
------------------------------------
warranties set forth in Articles 4 and 5 are considered to be cumulative, and
----------------
any limitation or qualification set forth in any representation and warranty
therein shall not limit or qualify any other representation and warranty therein
unless otherwise explicitly provided therein.
14.15 Risk of Loss. Until completion of the Closing, all Purchased Assets
------------
shall remain at the risk of Seller and the Assumed Liabilities shall remain the
sole responsibility of Seller. Upon the completion of the Closing, the risk of
loss of the Purchased Assets shall be transferred to the Purchaser. If prior to
completion of the Closing any Purchased Asset is damaged, destroyed or lost,
Purchaser, at its option, may (i) complete the purchase without reduction of the
appropriate Purchase Price and take an assignment of all insurance proceeds and
other payments to Seller as a result of such damage, destruction or loss or (ii)
if the Purchased Assets are damaged, destroyed or lost to the extent that
Purchaser is of the opinion that immediately after the Closing it will be unable
to conduct the Business or operate the Facilities on substantially a full-time
basis and deliver services in a manner consistent with the practices of the
Seller immediately prior to such loss, in each case without material expense to
Purchaser, Purchaser may terminate this Agreement without liability to it by
delivering written notice of termination to Seller.
14.16 Private Offering. The Shares of TKC Common Stock to be issued in
----------------
connection with this Agreement have not, and as of the Closing will not, be
registered under the Securities Act of 1933, as amended (the "Securities Act").
--------------
Such TKC Common Stock will be issued pursuant to an exemption from registration
under the Securities Act in reliance on, among other things, the Seller's and
Shareholders' responses in their respective Investor Certificates. Consequently,
the TKC Common Stock issued in connection with this Agreement may not be sold or
otherwise transferred unless a registration statement under the Securities Act
is in effect with respect to such securities, or in the alternative, an
exemption from registration under the Securities Act is found to be available to
the reasonable satisfaction of Purchaser.
14.17 Form 8-K and Securities Law Filings. The Seller and Shareholders
-----------------------------------
shall cooperate with and assist the Purchaser to the extent reasonably requested
by Purchaser, in providing information for the preparation of the Report on Form
8-K which may be filed by TKC in connection with this transaction.
14.18 Knowledge Defined: As used herein, the term "knowledge" means the
-----------------
knowledge of a party after reasonable inquiry, and in the case of a corporation
or other entity, the reasonable level of knowledge that would be possessed by
the management of such an entity after due inquiry and in the proper exercise of
their management duties.
14.19 Legend. The TKC Common Stock issued in connection with this
------
Agreement shall bear substantially the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY
-45-
NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT, OR UNLESS THE
CORPORATION HAS RECEIVED AN OPINION OF COUNSEL, SATISFACTORY TO THE
CORPORATION, THAT SUCH REGISTRATION IS NOT REQUIRED."
(next page is signature page)
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
PURCHASER: HEA ACQUISITION, INC.,
a California corporation
By: /s/ Aram H. Keith
--------------------------------------
Its: President
----------------------------------
TKC THE KEITH COMPANIES, INC.
a California corporation
By: /s/ Aram H. Keith
--------------------------------------
Its: CEO
----------------------------------
SELLER: HOOK & ASSOCIATES ENGINEERING, INC.
an Arizona corporation
By: /s/ Mike Hook
--------------------------------------
Its: President
----------------------------------
SHAREHOLDERS: /s/ Mike Hook
-----------------------------------------
MICHAEL HOOK
/s/ Susan Hook
-----------------------------------------
SUSAN HOOK
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